Hundreds of islands are suitable for resort development, but the government is cautious.

Photo by Yassin Hameed. Courtesy Portrait Gallery, Maldives

Resort islands are required to adhere to strict environmental standards.

Photo by Yassin Hameed. Courtesy Portrait Gallery, Maldives

In tourism, the Maldives has found its métier. Its resorts seem to have achieved the perfect balance between remote, pristine environmental conditions and modern facilities, and it has frequently been described as a model for sustainable, environment-friendly tourism development. Foreign visitors every year outnumber the local population and prop up the national economy; the industry is booming but has somehow left the environment and local culture virtually intact.

Over the last 30 years tourism has become the mainstay of the Maldives’ economy, contributing over 32.6 percent to the gross domestic product (GDP). It accounts for 70 percent of foreign currency earned, and constitutes 40 percent of the government’s budgetary resources.

Planned development is the secret behind Maldives's success in the industry. Minister of Tourism Hassan Sobir says that the Maldivian government has never allowed tourism to develop haphazardly. “We are aware that our basic tourism product is totally dependent on the environment,” Sobir acknowledges. “We have hundreds of uninhabited islands suitable for resort development, but expansion is being considered carefully.”

Until 1978 there was no policy, law or regulations governing the expansion and development of the industry. Resorts were basic and often run by foreign investors out for a quick dollar. On gaining office President Gayoom was determined to transform the industry into something viable and worthwhile. So in 1979 a bed tax of six dollars per night was introduced, ensuring an immediate boon to the treasury.

The law redefined Maldivian tourism. All resorts are now confined to uninhabited islands and required to conform to strict environmental and quality standards: no resort island is allowed to develop more than 20 percent of its total surface area, all bungalows must be facing the sea and buildings must not exceed two stories, and all resort developments must be self-managing in terms of water and waste.

Leasing an island
To date, 87 of the nation’s nearly 1,200 islands have been turned into self-contained resorts. Owned by the government, they are leased to local and foreign operators for development and management. Lease lengths changed with the new tourism law of 1999, which stipulates a maximum of 25 years – a limit that can be extended to 35 when the investment is over $10 million. In special cases it can also be extended to 50, if the investors sell 50 percent of their share of the resort to the public.

Through a competitive tendering process, islands are leased with rent prices ranging from 2,000 to 8,000 dollars per bed per year – to be renegotiated every 10 years. It has been a profitable way for the government to develop tourism in the Maldives, but private resort companies say it does not always work in their favor. Many complain that the stipulation that they pay rent according to capacity, not actual occupancy, is less fair than direct taxes on profits, in the form of corporate or income tax, would be.

Operators also claim that the bid of any company offering a high rent is considered favorably. Therefore companies commit to high rents which increase the overall cost of the operation. “Rents are so high, that unless you have high rates you cannot make the product viable,” says Ali Shyham Abdulla, Director of AAA Hotels and Resorts – a locally run company that operates four resorts.

Resort owners urge that lease conditions should apply equally to all operators, and that compensation when the lease is over has to be in line with market value. “There are a lot of drawbacks to the lease agreements,” says Director of Crown Resorts, Ahmed Saleem, comparing the experience of losing a resort at the end of a lease to being thrown out of a house one has built, in one’s old age.

Advocating controlled expansion
The national tourism master plan for 1996 to 2005, prepared by experts engaged by the European Union, advises the Maldives to position, and price, itself as a “premium eco-destination.” The plan also targets the expansion of the 17,000 beds currently in the country to a total of 25,000 by 2005.

Minister Sobir says the government is looking at further development away from the centrally situated Male’ atoll. The initial idea, he says, is to “expand the industry to the furthest corners of the country, especially atolls near regional airports.”

Nevertheless, many reject the idea of expansion. The Maldives Association of the Tourism Industry (MATI) has recently requested the government as a “matter of urgency and national importance” that there should not be any increase in the number of tourist resorts in the country until the sector recovers from the after-effects of September 11.

“We have to look at the current situation and plan accordingly,” says Shabeer Ahmed, Managing Director of the Sunland Group of Companies, which owns two resorts. “We already have more beds than people to fill them. Besides, rates are going down and therefore the yield and profitability of the industry is decreasing.”

Local operator Ali Shyham agrees, warning that the industry’s trials are making it easier for foreign companies to enter the market, subleasing resorts or taking up management of those formerly owned and operated by Maldivians who can no longer keep them afloat. “Cash flow requirements are so high that we are also forced to offer our rooms at lower prices,” he says.

Shabeer stresses that support facilities are needed most. “We should concentrate on marketing and getting more international flights, especially scheduled regular flights,” he says.

He also warns that the interests of the industry are not being considered sufficiently. “The government thinks we are making money, but we are not,” he says. He explains that the government makes revenue from its six dollar bed tax, so that as long as arrivals increase, their coffers keep growing. “They [the government] don’t really feel the pain,” he says, “the industry does, we are the ones hurting. Rates have gone down and tour operators are pushing hoteliers to go even further.”

MATI members agree that the Maldives has changed from a seller’s into a buyer’s market. They cite an inadequate transport infrastructure and the non-availability of adequate long term finance as major constraints to survival. “We get short-term financing at very high rates, so that we get very little back from the investment we make,” Saleem says. Human resources are also an issue, he adds, explaining that the industry is experiencing a dearth of trained and skilled workers, particularly at management level.

Saleem also cites as a major argument against expansion the fact that bed capacity is higher than the number of airline seats. He notes that it is becoming harder for visitors to get to the Maldives, and that the industry’s dependency on tour operators has given them the upper hand. “They are in charge,” he says, “we depend on their charter flights because of the lack of regular scheduled flights coming into the country.”

Uniquely to the Maldives, collaboration between domestic resort operators and overseas tour operators has been key to developing the sector. Due to the lack of access to finance, tour operators have also invested heavily in the resorts, either directly or through loans. Most travel to the Maldives today is done by charter, and reliance on tour operators – who are also responsible for most of the country’s marketing – is still high. “Although we should eventually break away from tour operators, they will continue to play an essential part. They are the backbone of the industry,” Saleem says.

The ancient amid the modern
The Maldives has also managed to reduce the negative impact tourism can have on cultural traditions. Only a few visitors, although the proportion is increasing, spend more than half a day on the capital island of Male’.Island-hopping across the archipelago is minimal, although visits by tourists to the resorts’ neighboring local islands are allowed.

Maldivians, on their side, can have little contact with foreigners in resorts since few locals can afford to visit them. Religiously observant people with strong family ties, the older generations still view the resorts as strange, un-Islamic places. According to Islamic practice, although liquor is available in resorts, locals are prohibited from buying it or even serving it – a restriction that necessitates the hiring of Sri Lankans and other expatriates to work in the bars.

Tourism operators agree that freewheeling tourism in the Maldives could upset the harmony of life in the country. However they insist that the industry must be recognized as integral to the country's survival. “We need to create awareness of what tourism is about, fight the stigma the local people have about the industry. It is shortsighted thinking,” Shabeer says.

If the industry can overcome these barriers of tradition and wariness, its provision of jobs to Maldivians will become a formidable weapon in the nation’s battle to develop on its own terms. The sector is perhaps the islands’ greatest hope for the future: it offers the opportunity to develop what is best about the country and to profit from it, while offering employment and growth opportunities to people across the nation.