Time to ride on BML !

I know riding on stocks is the furthest thing that comes to your mind when it comes to investment. With few shares to invest and much chaos on the process of buying, you would rather leave your earnings under the pillow; the perfect safe invented by our great grand fathers. You wouldn’t care about the invisible man that steals your money everyday. The evil and the powerful man………… yes …inflation!!!

Yet what we have been doing is opposing with the rational economic behaviour of self-centered man. What I feel is that we have little information on our investment opportunities. So why not consider some of the alternatives we have? For a head start, I attempted to do a little bit of analysis on the new offering of BML which constitute 490000 ordinary shares of $50 at a rate of $143 offered to the general public. The opportunity is hanging there till 19th August 07. We still have time to decide on its viability.

Looking at the Earnings Per Share and dividend pay-out in figure 1, one would say the company has been performing well. Especially within the last couple of years. Share performance in figure 2 shows the same robustness. But don’t get carried away. What you see may sometimes trick your eyes. So some serious math would be required before getting into conclusion.

First, let’s see if the company’s net assets really worth the premium we are paying.
At the year end of 2006, BML had Total Net Assets worth MRf 644,758,794. This is Mrf 147.14 per share after the share split and bonus issue. Quite a satisfactory figure I must say. I would actually pay the premium even if the NA (net assets) per share falls below Mrf 143. The reason is the option characteristics embedded with the shares. Little beyond this article. However you can find the same rationality when investors pay for common stock of companies with higher liability than asset.

Now let’s attach a mathematical figure for the dividend growth and capital growth. I used arithmetic model rather than the logarithmic model and derived an average dividend growth of 16.68% from the last 5 year figures. Note pointing, however, the figure is pushed up much from the last year dividend which had a 50% increase. The crucial question is whether we consider this as an abnormal dividend and leave out of our model, something I thought as not so wise. Why? Well the fundamental of the market suggest that the company can pursue paying such higher dividends every now and then. As a matter of fact, banking sector is experiencing high growth. BML has been doing some serious investment. As a result the earnings are rising fast and the future looks bright. The share of its non-interest component has been increasing. We can expect a boom anytime in the future. Let it be from the credit cards or mobile banking. There is everything to gain from the tech savvy youngsters.

Using the earliest available share prices up until the share split and bonus issue and using the same arithmetic model, I derived an average capital growth of 32.43% per annum. Again, a figure quite good enough for investment.

So altogether, from above two components, we can make a rough prediction on how our investment in BML shares can grow. This is illustrated in figure 2. The bottom line is that we can get all our investment money back through dividends in 4 years time and we can then sell the share at a profit of nearly Mrf 460; a near return of 82% per annum. A hell of a good investment it seems.

May be I’m little optimistic compared to you on this. But I’m not kidding. BML new offering is really worth looking at!!!! See if you can derive the same conclusions as mine. Don’t rush. But if you do, remember the following points.

• The analysis above is no way enough and does not provide a substitute for financial advice.
• No comparison has been done with other investment opportunities out there.
• People’s risk preferences are different, you may need to find yours first.
• Variance is not included in above analysis.
• Diversification is always good.
• The article does not consider any ethical issues.

What is Causing Inflation in Maldives?

The most recent inflation figure published by authorities in the Maldives is the inflation of March 2007 and it stood at 3.93% (moving average). The overall trend is that the prices have been increasing since the beginning of the year. The highest weight is given to “other food” item (food other than fish and beverages) in the CPI calculation. It accounts for one fourth of an average Maldivian’s consumption. The CPI index for ‘other food has been increasing significantly since June 2006, although its’ price growth has decelerated in the first quarter of 2007. Housing and utilities represents 5% of the CPI weights and is increasing at a steady (around 5%) rate every month. Household equipments has an accelerating trend in the prices every month August 2006. Health prices were increasing at high levels last year but since December the prices are increasing at a speed above 10%. Communication prices are on a declining trend since June 2006. Prices of hotels and restaurants are increasing sharply although it accounts for just 1% of the CPI weights. Tobacco and narcotics accounts for 2.8% of the weights and it is also increasing at a high rate.

In general, the Maldivians are feeling the current inflation due to the increase in prices of food, housing and utilities and health prices. The inflation felt in the economy could be higher than what numbers suggest as depicted by media and comments from public regarding continuous increase in price of some of the daily and basic commodities in the Maldivian market.

What could be causing inflation in the Maldivian economy? Rest of this article would try to get an explanation for this question.

Deficit budget?
Milton Friedman stated that inflation is a monetary phenomenon and economic theorists who have opposing theories also agree with Friedman. It means that inflation can only be triggered by money creation or by increasing money supply. Therefore a budget deficit by itself does not create inflation and inflation driven by a budget deficit depends on how the deficit is financed. A budget deficit can be financed by borrowing domestically, borrowing from abroad or by printing money. Domestic borrowing will not trigger inflation as money supply would not be affected. However, increasing foreign debt or printing money would cause inflation as it would increase money supply.

The Maldivian budget is forecasted to be at a deficit of MRf3.7 billion in 2007 to be mainly financed by foreign debts. However the deficit for the first quarter of 2007 stood at MRf438.8 million and is mainly financed domestically through issuing T-bills (according to MMA’s Quarterly Economic bulletin March 2007).

If this claim is right, then budget deficit would not have caused inflation or at least the budget would not be the primary cause of cause of inflation.

Revenue increasing proposals such increasing import duty or implementing a tax system can also cause inflation through higher costs. The budget has revenue proposal such as increasing import duty on certain items and increasing work permit fee. This would indeed increase the costs of various business sectors. However it is not clear that these policies have been implemented yet. When they are not implemented there would not be any cost push inflation caused by the budget.

A Surge in aggregate demand?
A budget deficit (including the fiscal deficits of recent past) may cause inflation indirectly through increasing income of the people. A budget deficit would cause national income to increase. The Maldives has also recorded a huge 19% increase in real GDP. These factors would increase the demand for commodities from people and if the supply is not sufficient enough, it may result in relative increases prices of certain commodities and hence in turn (if those commodities are weighted high in CPI) inflation.

A shortage in supply of some commodities?
Of course a shortage in supply of goods would cause to drive the prices. But this would only cause the relative prices of those commodities to rise, not the general price level. This is claimed to be the case by some reports in media as there has been only increase prices of some food items. But on the other hand prices of such goods may increase due to the inelastic nature of demand for such goods. It could still be caused by a factor that is causing inflation and necessities are being affected more than other types of goods.

Import data shows that there has been an increase in imports of food items in the first quarter of the year compared to the first quarter of last year. But has such imports has decreased compared to the previous quarter (last quarter of 2006) slightly. Therefore it implies that demand for goods has grown considerably in recent months the import supply of such goods is not sufficient to offset the increase in demand.

Public expectations
Inflation can be fueled by public expectations of inflation. The deficit budget has increased speculation among various businessmen in the Maldives that sooner or later some revenue boosting policies in the budget are going to raise their costs of business activities. This might have caused them to increase the prices of goods as soon as possible as it has to be done in a near future when those policies are implemented. The budget received huge criticism but it was credible. Most people believed that activities in the budget would be done. This might have caused an expectation regarding an increase in costs during the year which made businessmen be proactive and hence increase the prices.

This might also be coupled with speculations about future commodity supply in the world market as there has been a shortage of supply of good as some traders say.

Money growth?
Monetary data indicated that there has been increase in money supply. Monetary base and M1 increased at a decelerating rate but M2 has grown by 18% during the first quarter of 2007. MMA states that this rise is accounted by increase in foreign currency deposits from tourism. A steady money growth would keep inflation stable but excessive increase in money supply would cause price instability – meaning undesirably high rate of inflation. An 18% growth in M2 after a 12% increase in the previous quarter could increase income but it is unlikely that it is the most important factor that is causing current surge in general price level.

World market influences?
The Maldives is an economy highly dependent on imports and foreign trade. Therefore trends in world market are translated into the Maldivian economy. Increase in world prices of commodities would cause the prices in Maldives to increase too. This would again be supported by fixed exchange rate system. As the local currency would not fluctuate, an increase in foreign price would directly be seen in the Maldives. Commodity prices in the importing countries might have increased to cause the Maldivian prices to surge and this has been cited by some traders as well. Higher oil prices would also increase the costs of many Maldivian businesses and hence various other commodities. Therefore factors that are in the world market could cause inflation to rise.

Conclusion
In conclusion, inflation in the Maldives is caused by a variety of factors. These include increase in demand for goods excessively, world market trends and public expectations. The budget of 2007 might not have directly contributed to inflation although expectations resulting from it may fuel inflation.

A Glance to the Liberalization of Fisheries Sector

The fishery industry is an industry subject rapid and huge fluctuation in fish caught depending on the season, weather and many other fringe factors. These erratic fish collection affects a few other companies whose business depends on the fish collection. There is always an uncertainty about the amount of fish being caught in a given season. Local fishermen are working hard increasing the fish collection in general, but State owned MIFCO are not always able to meet hard work of fishermen. It’s normal in the Maldives to throw away the fish in peak seasons and it’s normal to see grief of fishermen on such occasions. So in order to make things right for local fishermen, to increase the growth of the industry and to increase the contribution of fisheries sector to the national economy, the fisheries sector was liberalized. Licensed private companies started operating on specific zones to achieve those goals. Have these companies made an impact to the industry? Have liberalization made any positive effect?

There is a relatively wide market for local fishermen. Around 70 percent of the fish catch are exported in fresh, chilled, frozen, canned, dried and carious other forms. Remainder of the fish is used for local consumption. Local consumption is assumed to remain same or grow very slowly in short term because it basically depends on the population of the country. If that is case, then fishermen would only be better off if the exporters are demanding more fish (also noting that a large weight of the fish caught is sold to the exporters).

Export of fish would very much depend on the international market performance, especially of those countries where the Maldivians export fish. Major export partners are Sri Lanka, Thailand, Japan, and UK. There are many other European countries to which Maldivian fish exports are directed.

The global fish prices are, like any other commodity, subject to changes in demand and world supply. Price and global fish catch observations in Japanese sashimi market and European fresh and canned tuna market shows generally the price changes normally occur due to fluctuations in world supply rather than demand. But during times of higher prices, exporters would tend to export more fish. In both Europe and Japan, there are huge fluctuations in tuna prices during the 2000’s. In Europe the prices fell during 2003 but have been on a rising trend since then. In Japan the prices were on a falling trend from early 1990s but started picking up on 2003. So the last couple of years are some good years for exporters as prices have an upward momentum although they are subject to sharp short term fluctuations.

The unit value of the Maldivian tuna exports (both skipjack and yellow fin) followed a similar trend. Unit value or average price received for the exporters fell during late 90s but has been on a rising except for 2003. Maldivian exporters could be assumed to have a good time in global tuna market since 2003 as it has prices were strong overall since 2003. The year also coincides with the first time newly licensed companies have exported a shipment even though some companies were given the license in 2000.

In early 2000s the amount of tuna exported has increased sharply but since the intervention of the private companies this growth has slowed down. Ideally one would assume them to fly high but data suggests that there are barriers in their way. These barriers could be the small capital or small fishing fleet of the companies compared to state owned fisheries giant, MIFCO.

Liberalization or privatization of the sector would indeed increase the competitiveness of the industry. But this competitiveness is not very clearly seen and also the companies failed to take the maximum advantage of good global market conditions.

However, as private companies started to export the falling unit value of Maldivian tuna started to pick up again. It is worth noting that average price receive for all Maldivian tuna is much lower than that of the prices in Japanese, US or European markets. This may be due to lower prices received from two largest export partners, Sri Lanka and Thailand. Therefore increase in unit value suggests that private companies are more oriented towards European and Japanese markets where they can obtain good value. This could perhaps be a good road to move on as it will increase the profitability and revenue of the companies and will eventually benefit the industry.

During recent years when fisheries market was growing and doing well in terms of price, the Maldivian fishermen has to throw away fish they caught. The thrown away fish otherwise would have been maximizing profit for the companies. But storage difficulties have not them enabled to do so. Then the question is why the companies and investors are not keen to expand storage facilities and exploit the benefits of some good years in the industry? The answer may lie in the huge seasonal fluctuations witnessed in fisheries. Local fishery companies have supposedly expanded their storage capacity but the supply of fish currently is not sufficient to cover the cost of this expansion.

To conclude, the secondary fisheries sector has not gained much so far from liberalization. The speed of the growth in fish processing and exporting sector has declined but unit value received for the companies and other exporters has increased. So the industry is on a good track, trying to expand and exploit benefits, but not fast enough. Local fishermen have gained a little as private companies are (supposedly) offering higher prices for fish than MIFCO. MIFCO has also increased their prices recently because of the competition in a low supply season. So this kind of competition would better off fishermen and competition between companies will increase as fisheries sector was more liberalized. Fluctuations would occur in the fisheries sector and the companies need to cope with this. Local companies need to have a strategic plan rather than being short sighted. Some of their investment activities might not be economical in short run but it could be a money making machine in longer term given the current global long term market trends.

MTDC: Where is it heading???

Is it the real savior of the poor?

Creation of Maldivian Tourism Development Corporation (MDTC) is supposed to be the ‘Great Leap’ of our economy. With government been so generous with its offers and public been so eager for the industry shares, even the sky should be no limit in this tourist heaven. However, it seems that the giant has already lost its direction and is way away from its right track. The ‘savior of the poor’, as politicians sounded like, seems to follow a contradictory approach. There are many questions that are looming around and the top executives have so far failed to provide reasonable explanations.

If MTDC’s formation has anything to do with providing investment opportunities for the poor, I believe, this has been crooked right from the beginning. I will take few points to justify my view:

1. The first and far most objective of the corporation as stated in its website is to “meet the need for a profitable company in which the general public could invest and share in the rewards of the fastest growing sector of the economy.”
This statement seems to emphasize the company’s goal as to provide investment opportunity for the poor. However let’s see what the company’s Memorandum of Association says about the objectives of the corporation (Extract- 1).

Surprisingly, there is no mention of the interest of the poor or the general public anywhere within the objectives in the Memorandum of Association. Not even once.

So what’s that all fuss in the media; in the state TV, radio and all controlled newspapers? Where in the company are the promises of the government ministers? Isn’t it too lame not to find a single ingredient for the taste of poor in this broth? As per me, I get it. That’s how they cook their books. MTDC’s legal documents are designed not to be in conflict with the elite. This is the starting point of the political stunt. Common people would hardly understand the far reaching consequences of the corporation’s objectives set in its memorandum. They lack the required knowledge. They would rather believe in the figments of top government authorities. On the other hand, rich individuals who are fully equipped with the knowledge and experience in the area can figure out these consequences and play the moves in their heads beforehand. This is exactly the application of game theory as James D. Miller calls it. In our case, the result is astonishing. Government authorities and people behind the project achieve full support from both parties. Common people are manipulated in the open while the rich are reached underneath with secret notations. Resistance is fully eliminated.

2. The reinforcement for the above point is very clear when MTDC do not have a clause restricting the maximum number of shares a single person can hold in the company. Ibra’s attempt in the parliament to draw such a clause has been kicked out.
Neverthless, the pressure built up due to the cunning deals of some individuals to acquire large amounts of share capital. They tried to circumvent the share offer which put maximum amount of shares an individual can purchase (Only a restriction in the share offer; not a restriction to hold any number of shares). The people behind these schemes nearly got away with their shares. It was the pelting criticism from the public that the executives could not withstand. At last, they gave away.

But it should be born in our minds that the company’s Articles of Association does not still restrict the amount of shares a single person can hold. It’s a temporary lock open to manipulation. (Look at the extract of the Articles of Association in Extract- 2).What will happen when the secondary markets are open is really hard to predict.

3. MTDC has taken little interest to market its shares to the general public. In a place where equity market is in its infant stage and private saving is so low, people would understandably need more time and information. In the first round, there was hardly any time given for the lower income earners. Second round, I would say, gave sometime. Still the whole process was made quite tough for the people living in the islands and students studying overseas. A much simpler procedure would have resulted in a higher degree of response.

When the managing director was questioned whether the poor sales is a result of poor marketing, he gave (reported in Haveeru) the most bemusing answer. Nobody would expect such an answer from a top corporate executive with so much experience in the area. He held the view that marketing is not the best way to promote the shares in given circumstance and that everybody has to buy shares with full willingness. What does he mean? Is marketing forceful sales? I never knew that.

What I know is, if MTDC take less effort in marketing and spread fewer information of the benefit of its shares, poor common people’s purchase would be most affected. As discussed earlier, rich are equipped with the knowledge and would require little awareness.

4. MTDC seems to have a unique feature that is exclusive to the company. In all other companies, everywhere in the world, shareholders are the real owners of the company. The course of the company is always compatible with the interest of the shareholders and no third party can have the right to turmoil this, by electing Members of the Board. But MTDC is beyond this. It has been ten months since the company is incorporated and awarded the authority to commence trading. 1146137 shares have been sold to the general public, each carrying one vote right. However these rights are merely written down to fool the public. The shareholders are not yet given a chance to use their voting rights. Not to elect the Board, not in any other matter. So far so much strategic decisions are taken: a loan has been taken from BML, invitations sent and applications received to form joint ventures, etc. Plenty of these decisions are irreversible.

The core idea is not to give the general public shareholders the chance to steer the organization. The helm should always be with the few elites. So postpone the general meeting as far as possible, make the strategic decisions while the control lies. This is the strategy. (I’m glad that MTDC is hearing some warnings from CMD, though these warnings are a jumble of formal and informal.)

5. The hostile approach adopted by some executives towards a shareholder, who brought a legal case to stop the company going for the 51- 49 model, clearly illustrates how feeble is the vested interest to protect the shareholders. (Unfortunately, though the intention f the case was to stop the company going for 51 - 49 model, it was poorly constructed). Nazeeha brought a case clearly in the best interest of shareholders. Even a student with a slight knowledge of corporations would understand her motives. A decision, on which much of the future profits of the company depend, should never be left to third party not elected by shareholders. Article 73 (a) of the Maldivian Company Law states clearly that “A member of the company or members of the company may apply for a court order if a right of a member or members in adversely affected or if there is a prejudice to the harmony of the members or the affairs of the company is managed in a manner detrimental to right of a member or members or part of the members.”

Nevertheless, she was accused of trying to ruin the company which would bring prosperity to the general public. She was attacked and degraded in the public media by some executives (pardon me, but I have watched ‘insider’ very recently), before her case was rejected. I do not discuss the validity of the decision by the court but I ask why the executives showed so much rivalry towards the shareholder. If the decision to form the 51 - 49 model company is in the best interest of the shareholders, they should convince the shareholders through proper dialogue. Humiliating the shareholder who brought the case is something I cannot digest, unless of course MTDC has a higher stakeholder than its shareholders.

All the above reasons prevent me in believing that MTDC is a savior of the poor. I rather believe the corporation seeds disparity between the rich and the poor. They created a vehicle for the rich and elite. Top government authorities, of course, cracked a big political joke as they always do.

However I could be proved wrong!
______________________

References:

Memorandum of Association, MTDC, p-1
Articles of Association, MTDC, section 37 (a) p-10
Maldives Companies Act, Ministry of Economic Development and Trade, section 73 (a): http://www.trademin.gov.mv/
Haveeru Online

AN ADVENTURE STORY: A VISIT TO A BANK BRANCH IN MALDIVES

Another busy day ahead of me, though aware of the everyday hectic schedule had a rather late last night much as every night, owed to the social behaviour rehearsed by everyone. The time is 8.00 a.m. I enter the office in a rather weary state of mind and go through my task-in folder to determine how my energy for the day needs to be allocated.

On a normal day I contribute nothing fruitful till my breakfast cum coffee fix at ten thirty, however my work agenda for today seems that it needs some amendment. For I have the hectic task of transferring some funds for a project that I am responsible for, and that would mean getting involved into something productive before my mind switches on the ‘work’ button. As if I have am to even think of saving some energy and get along doing the rest of my work for the day I better start off going to the bank right away.

Stop right there! Hold your mockery! Despite how simple the task may be given that you have not carried out the certain task in Male’, the environment I live in requires any sort of dealing even the simplest withdrawal and deposit with a bank only possible for those in possession of the highest patience, guts of a primitive trader and free time of a kindergartner. I for one person sadly not encompassing any of the above mentioned characteristics, hence put me in such a situation to label this otherwise would be simple task on my top hectic list.

If you are thinking that you are reading the most blasphemous ideology given of a bank well, I do not blame you but let me define what a visit to the bank is like in the Maldives, so as you can have an understanding. First of all the bank starts to operate at 8.00 a.m. well nothing wrong with that, but then again similar to myself most employees who work there had a late last night and hence their mindset is not in the perfect state to operate. A more sever issue is that it stops operating at 1.30 p.m. and when I say it stops it fails to provide any service after that time frame. Meaning that the bank is only open comparatively for a short period given that government sector operates departments work from 8.00 a.m. till 2.30 p.m., around 5.00 p.m. for private sector firms and even up to 11.00 p.m. for some.

However the real issue being that, during this short time frame, despite some steps that bank branches had taken to get more organised in dealing with customers in recent years (automated allocation of queue positions) hardly would any one refer to the service as efficient. At any given time slot after 9.00 a.m. if you are to enter any given branch of any given bank, you would come across endless queues of customers waiting to be serviced and a waiting area filled with people trying to get hold of the attention of the bank teller. Sometimes you come to wonder if you are in a bank or at a primitive local fish market for all the pulling pushing and shouting that you might experience.

If you are wondering how come the allocation of queue positioning fails to address the issue, well the reason being is that there is such a demand for the services by customers that a typical waiting time for your turn if lucky could be between half an hour to an hour. If unlucky, which consists the most your number could be nothing anywhere close to a realistic position that would be serviced for the day. If by chance you had the free time of a kindergartner you could easily becomes a millionaire by obtaining appointment numbers from the system and selling them to the highest bidding customer, only if it was legal I am more than glad to shift career paths. A realistic and well practiced shot at getting your task done within a short time span at a bank branch would be to find someone who knows a teller or an employee at a bank branch who could carry out the task required ‘under the table’.

Snapping back to reality, well I see myself already running short of time to make my journey to the bank before everything starts going all berserk. Upon arrival I come to realise that I had been indeed arrived later than I projected for there seems to have gathered a considerable amount fellow myself who had come early to the bank. I take a respective queue number. Having had the rare opportunity to find an empty seat to sit in till my number comes up I shift to wonder, what can be done to change this hectic procedure, for myself being in the youth find this taking a toll on me everyday I practice this expedition.

Indeed thinking from a simple perspective the blame goes to the banks. For it is putting its customers on otherwise would be risky position, failing to provide their service anywhere close to an efficient level. Policies such as charging on conventional services such as using the ATM and introduction of new services well practiced around the world such as telephone and internet banking would bring some relief to this issue. I for one person would even for a nominal fee would opt for a more convenient option that what is open right now.

Leaving the world of fantasising about solutions to the many issues that need to be addressed I enter reality upon seeing my number on the screen, I approach the counter to be received by a jadedly smiling teller. After a simple procedure I am done transferring the required funds. Fifteen minutes had passed in the bank. Luckily managed to start off my day rather well having had achieved my task of the day. Time to head off for breakfast with friends and then head to work at 11.30 a.m. to contribute something productive to my company.

Expatriate workforce in the maldives

The expatriate work force in the Maldives keeps on growing day by day. According to employment ministry’s website, by the end of November 2006, the total has reached 53329(1). This means that around a sixth of the population are foreigners. The question is whether this is a problem or not.

It can be said that the expatriate work force is essential for the country’s economy given the scarcity. The economy woudn’t definitely be growing in its current pace if this labour force is not available. We cannot keep on complaining that the number of foreign workers are increasing. It is obvious these workers fuel the growth of our economy. Inaddition the income received by the government in terms of work permit fee, provides a substantial part of the government spending. If the government starts to charge the amount it proposed in 2007 the work permit fee will contribute more than 2% of the government budget.

Labour can be seen a scarce resource in the Maldives even though the ‘unemployed’ are increasing. But this unemployed group can rather be seen as voluntarily unemployed.

One can argue that these people volunteer to be unemployed because of the availability of cheap labour from neighbour countries. Well, it’s true that many young school leavers refuse to work as unskilled labour at low pay. This is particularly true in the capital. The youngsters in Male’ refuse to work in blue-collar jobs which most of them consider gross. The picture in the islands is different. There are few job opportunities available in offices and administrative area, but many school leavers set off for fishing right after leaving the school. The problem of unemployment is less for male-school leavers in the island.

Apart from this, the employers tend to employee foreigners too for some reasons. One can be that the labour turn over is low when foreigners are employed. Maldivians in the private sector tend to change their jobs quickly some times as soon as two weeks. When a better opportunity is infront the custom is to leave the job to go for the better job. That’s fair enough. Everyone wants to go for the better one. Since the private sector does not offer much if not any benefits for the workers. So the main motivation for the people who changes jobs is money.

So what can be done to change the trend. Even though the foreign labour force helps in the economic growth, they withdraw a substantial amount from it. There need to be more ways of motivating the voluntarily unemployed group to get employed. The private sector needs to introduce a system which provides work benefits for its work force.

1. http://http://www.employment.gov.mv/Resources/Statistics/2006/Occupation/november%202006.pdf

Creating Incentives and Opportunities for Productive People

The medieval China was bright lit by new inventions and ideas. During the Sung period (AD 960 -1270), the Chinese invented paper, waterwheels, water clock, gunpowder and (possibly) compass. These inventions would have made the economy of the country to boom rapidly, but surprisingly the country’s economy stagnated. It was Europeans who made use of these inventions and grew faster. Why was medieval China stagnated? A research done by an economist (William Baumol) in 1990 states that China was stagnated because of the low social status accorded to the individuals engaged in entrepreneurship, commerce and industry. So medieval china did not develop an entrepreneurial class and their technological advances were not translated into economic growth.

There are these kinds of signs in the Maldivian economy as well. Some of the most important industries are considered to be of industries for lower social class. Yet people in these industries could be individuals with high potential to innovate. Normally these kinds of ‘social classification’ have come culturally but even now we can see that social division is being fed and grown. Resultantly it acts as a moral disincentive to the productive people.

For example, fisheries sector is considered to be a sector for people from lower social class. Consequently, the industry was handicapped with only a few advances by our own fishermen. Most of the innovations to the industry were adopted from a foreign country. The point I want to highlight is that this is not a problem with fishermen. Fishermen work very hard but they lacked incentives to develop. These disincentives are mainly driven by their lower social class.

An opposite interesting case is the social status associated with women. This is a case that virtually applied to the whole world. As social status given to women are improved, the productivity and hence the economic growth increased in many countries. Women participation in the economy increased significantly.

It can be said that there are few opportunities and incentives for creative and innovative people in the Maldives. Vulnerability and Poverty Assessment survey done by Ministry of Planning and National Development in both 1997 and 2004 shows that self-employment and employers in the country has fallen significantly. Number of employers have halved while the self-employment fell by 19% in 7 years. These numbers suggest something. In my opinion, it is stating that the Maldivians are facing hardships in starting businesses and continuing them. There are huge barriers in front of people who are trying to make a career themselves. There are powerful forces pushing new entrants down. It could be the bureaucracy and laws or anti-competitive practices by leading business people or low incentives to individuals who want to create something on their own. It is a combination of these and several other factors.

We need to change our way if thinking and avoid harmful social classifications to make our people more productive. We need to provide incentives (both moral and economic) to make them think, research and find new ideas and technology. We need to encourage and appreciate our people’s ideas to make it fruitful.

References
Bernanke, B.S, Olekalns. N, Frank, R.H. (2005), Principles of Macroeconomics, Australia
Ministry of Planning and National Development (2004), Vulnerability and Poverty Assessment II – Preliminary Findings.