Symposium on Decoding Maldives’ Foreign Investment and Arbitration Law Regime: Assessing the Environmental Impact of Investment

Globalization has opened the gateways for foreign direct investments around the world. The idea of integration of the world economy has proven to be a windfall for developing nations. Globalization as a movement has channelized into privatization. The idea of privatization has incited the foreign investor to invest in the developing nations and make profits by exploiting the cheaper human resource and abundant natural resource. The developing nations facilitate     foreign investors by bending them as a boost to foreign investment providing substantial contributions to the economy. Foreign investors are also lured to the developing country not only for the resources but also because most developing countries have a lenient legal system towards the foreign investor; specially relating to environment and human rights.

Maldives is an island nation having close commercial, cultural and political ties to India and Sri Lanka. Foreign Investment is allowed in most sectors in Maldives with a few exceptions like: Sand Mining, Forestry, quarrying etc. Maldives has had a steady growth rate for more than a decade. One of the biggest challenges that Maldives is currently facing is that of beach erosion. According to the Ministry of Environment one of the most pressing reasons for beach erosion is construction projects. These construction projects are majorly funded by the foreign investors partnered with the locals. 

In this blog, the I assess the complexities of foreign investment and environmental law regime under international law. I argue that being a least contributor to global carbon emission, Maldives is at the forefront of becoming the victim of environmental catastrophe. Therefore, mere arguments that Maldives should simply protect its natural environment against infrastructural development would not suffice.

Traditionally, foreign investors benefit from the protection of their investment under international and domestic law. But the same investment law regime contains no corresponding duties in the field of environmental protection. Madalena argues that when a State takes action to protect the environment, such State is responsible for damages to foreign investors. In case of Maldives, Article 22 of the Maldivian Constitution provides:     

The State has a fundamental duty to protect and preserve the natural environment, biodiversity, resources and beauty of the country for the benefit of present and future generations. The State shall undertake and promote desirable economic and social goals through ecologically balanced sustainable development and shall take measures necessary to foster conservation, prevent pollution, the extinction of any species and ecological degradation from any such goals”.      

Though the Environment Protection and Preservation Act (Law No: 4/93) reaffirms the constitutional protections, it does not lay down procedural protection for environmental damages. The Ministry of Planning, Human Resources and Environment is responsible for the formulation of policies relating to environmental issues (Arts. 2-5). The Law on Foreign Investments (Act No: 25/79) does not provide any guarantee for the protection of the environment. In the absence of environment protection under these substantive laws, the onus lies on the government to include environment protection clauses in the investment agreements. Currently, the only way to prevent damages to the environment due to infrastructural development is the Environment Impact Assessment (EIA). However, there is a lack of coherence between the Maldives investment law regime and the EIA Regulation. Even for infrastructure projects, the parties are not bound to get EIA done before they sign the investment agreements which binds parties to the agreement.

The environmental concerns of the Maldives are complex. While there are reports of sea level rise, soil erosion and destruction of natural ecology due to infrastructural development, the Maldives must ensure that there remains enough land to call itself a State even at the cost of damage to some natural environment. Article 1 of Montevideo Conventionmakes “territory” an essential element for an entity to be declared as a State under international law. Thus, Maldives has adopted the method of ‘land reclamation’, which also causes substantial damage to the natural environment. In the midst of all, Maldives is dependent on foreign investment and foreign aid for the development and to pay foreign debts.

In 2022 Maldivian Government signed off a multi-million deal with an infrastructure development company to build four stars and five stars properties. The EIA report of the Addu Project claims that the project can significantly harm the coral reefs and lagoons. Addu Atoll is a significant spot as UNESCO has declared it a Biosphere reserve in 2020. Ecosystem in this place is the home to seagrass and mangrove that function as carbon sinks and combat climate change.

Another recent issue in which the Maldivian government was torn between economic development and ecological degradation was the Gulhifalhu Project. The Gulhifalhu Project has raised eyebrows among the concerned citizens and responsible government authorities. This project is causing harm to the reef and this was brought into the attention of the Maldivian Civil Court by a citizen. The Complainant states that while sanctioning the project the authorities did not take in account the Environmental Impact Assessment report. The term ‘Gulhifalhu ecocide’ has been used by the groups who have raised their voice against the Gulhifalhu project. The first phase of the project has been completed and the completion in its entirety can create visible impacts on the environment.

Maldivian government fails to prioritize the environment, an existential issue for Maldives, over economic and infrastructural development. It is the steady foreign Investment which has increased the country’s GDP manifolds in the last decade. Taking rational decisions by pitting the environment first may proportionally turning away foreign investment in the infrastructure sector.

The United Nation Development Program (UNDP) plays an active role in monitoring the environmental causes in Maldives. The goal for the year 2022 of UNDP in Maldives is to mark the nations progress in achieving the Sustainable Development goals. The aim is to achieve sustainable development that means making economic progress by financing environment friendly green projects. It can be said that the Maldivian government is in hot waters because of the man versus nature debate but it should not be swayed by the economic perspective alone. Former President of Maldives, Mohammad Nasheed has recently advocated for restructuring the foreign debt of the island nation by swapping the environment. Essentially, Nasheed talks about realising commercial benefits from the flora and fauna, reefs etc. than mere ecological balance, perhaps another avenue for economy dependence.

Avantika Banerjee is Assistant Professor, DME Law School, Noida.