Faculty of Management and Computing

Maldivian Business
Environment
Individual Assignment

Assess the reasons for the delay in opening the newly awarded islands for tourism development
since 2004.

3/30/2009
Fathimath Suha
Student ID: 000012108
Diploma in Business – Semester 4
Executive summary
Maldives is a small country which is famous for its beautiful sea, white beaches and the

unpolluted environment. Tourism in Maldives was introduced in1972, with inadequate facilities.

The government of the Maldives with regard to the Maldives Tourism Ministry has developed a

sustainable growth of the sector over the past few years; 5 phase development was started on

1972. Sequentially, to develop the tourism industry the government created an institute under the

name of Maldives Tourism Promotion Board (MTPB) which was on 1998. Over the years, with

the effort of the government the tourism sector of the Maldives has been expanded and made one

of the leading tourist destinations among the world. It is recorded that within the end of 2007,

total of 8,382,928 tourists visited Maldives. The foremost downturn in the tourism sector of

Maldives was on due to the 2004 tsunami. However there were projects to develop new resorts in

order to overcome the downturn and to expand the sector even further. But due to some of the

constraints and mostly due to some of the bidding procedure, there were the delay of opening

theses new resorts. In order to run these new developments the government needs to improve

some of the deviations which were made in the bidding procedures.

Fathimath Suha, Student ID: 000012108 2

Introduction to Maldives Tourism

The Maldives is famous for its rare underwater beauty; it‟s all about sun, sand and the sea. The

incredible marine life and the sunny beaches together with white sand are admired by the whole

world. Consequently, Maldives has become one of the leading tourist destinations whereby a lot

of people want to come and experience our natural beauty in the highly facilitated modern

resorts.

Tourism in Maldives began in 1972, opening its first resort; Vihamanaafushi (Kurumba village)

which was chosen since it was located near the air port and Male`. The second resort developed

was the Bandos Island Resort on 10th December 1972 with 220 beds. At the present this resort is

among one of the best resort run by Maldivian entrepreneurs which now have 225 rooms,

according to the Bandos island resort website.

To develop the tourism industry the government formed an organization under the name of

Maldives Tourism Promotion Board (MTPB) in 1998. MTPB‟s role is to promote the tourism

industry of the Maldives and carry out promotional activities across the world. MTPB

suspiciously monitors and supports the sector and they sustained steady expansion of this

industry. Over the years tourism expanded on the rest and grows to be the largest amount of

income earner for this small country.

Fathimath Suha, Student ID: 000012108 3

Tourism expansion and new developments

Maldives, with more than 1200 islands only about 200 islands are listed as inhabited islands,

whereby the rest of the islands although a few has been developed as tourist resorts. The

Maldives tourism which was started with only 2 resorts through inadequate facilities now has

expanded widely, reaching to the international markets. It is recorded that within the end of

2007, total of 8,382,928 tourists visited Maldives. At the beginning of tourism industry in the

country; 1970s, Maldives was unknown to most parts of the world. Therefore, the government

determined to develop the sector further and promote the Maldives tourism product.

Regard to this government established five phases; the first was phase was 1972 to 1978. within

this period of time 17 resorts with 1,300 beds were developed and opened nearby Male`

International Airport since transportation was difficult at that time. During the second phase on

1979 to 1988, the government planned to spread tourist resorts to other atolls to make it more

decentralized. Under this phase further 41 resorts were opened. Moreover, throughout this plan

more activities for protecting the environment were introduced and many programs were

organized in order to sustain the sector. With 4,920 beds 16 resorts were opened during the third

phase, on 1989 to 1997, however at the end there were totally 74 resorts with 11,985 beds. In this

phase; which was in the early 1990‟s due to more advancement in technology, more facilities

were introduced and transportation mode was improved. As more resorts were being developed,

more job opportunities were at this field and the government started more training programs by

opening a training institution, Faculty of Hospitality and Tourism. The fourth phase was form

1998 to 2001 14 resorts were established with 8,255 beds. Throughout this phase, the

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government planned to introduce more resorts in atolls and also introduced world famous brand

resorts. Furthermore, the airport was more advanced by initiating sea plans to ease transportation.

During the fifth phase demand for Maldives tourism product increased leading to an

insufficiency in bed capacity. Consequently on 10th of March 2004, the government which is

represented by Ministry of Tourism announced that 11 new islands would be opened for bid to

the general public. These islands were leased for 25 years whereby, the bidders need to propose

the environment import assessments, human resource plan, business plan, rent propose, concept

drawing and the financial feasibilities. (35 years of tourism, 2008, Ministry of tourism).

The 2004, tsunami caused a huge downturn for the tourism sector of Maldives. However, with

efforts of the government and tourism sector itself, there was a rapid recovery from the economic

damages caused. They marketed the tourism industry all over the world gaining attention

worldwide. With regard to this marketing strategy, within the beginning of 2005, there was huge

improvement where most of the resorts over booked. As stated in, Two Years After the Tsunami

Report, tourism „The overall number of tourist arrivals in 2006 is projected to be very close to

the record number that arrived in 2004‟.

There was an expansion of this sector by an extensive 42 % at the year 2006 where there was

33% in the previous year. This is due to the rapid enhancement in the amount of tourist arrivals

and the damaged resorts from tsunami being re-opened, the tourism associated incomes

enhanced. There were 18 resorts re-opened out of 21 which were closed due to damage.

Furthermore, additional new resorts were opened, increasing the total number of resorts to 88 at

the end of 2006.

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In order to overcome the downturn due to the tsunami, in late 2005, the government announced

35 new islands for resorts development out of which 10 were targeted as opened rent while the

other 10 as controlled rent. And 15 resorts with 3000 beds were allocated to the Maldives

Tourism Development Corporation (MTDC) which was opened in 2006 which is a public

company with 45% government and 55% public. „The additional 35 islands proposed for tourism

is expected to add the much needed 5000 to 7000 beds over the next two to five year period,

which will facilitate sustainable expansion of the Maldivian tourism industry.‟ (35 new islands to

be developed to provide the needed 5000 to 7000 beds over the next two to five year period,

2005). The bidding amount for opened rent was approximately raised to $ 40,000 per bed.

Concurrently, the islands which were leased for controlled rents were given for $7,000, where

they were conditioned to pay 15% of an advance which is for 10 years that need to be paid

within 21 days time period. (Resort thah bodu kuhyah dhinumuge sababaky koba, Ahmed

Saeedh, 2009).

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Problems in the recent bidding procedures

The ministry of tourism/ MTDC has planned lot of new expansions within the past few years.

However there are lots of concerns raised, particularly on the recent bidding procedures.

In 2004 before the tsunami, the bidders of the 11 islands were supposed to propose measures

such as the business plan, fanatical feasibility environmental import assessment and etc, whereby

it would involve lot of finance. However, the proposed rents were very high, rent offering to

$45,000 per bed. “In the 2004-5 bidding process, 11 were islands approved (out of more than

200 applications); very high land rents were proposed, with land rent weighted at 50 percent.”

(The Maldives Sustaining Growth & Improving the Investment Climate, 2006). As a result due

to the deficiency of the budgets and the downturn of the economy, the investors found it difficult

to raise finance for the lease rent. Another problem is due the rents offered at a high price; the

bidders need to pay more attention to the lease payments than that of the business plan. The main

dispute in the bidding procedure was that the bidders needed to propose specific details which

cost them extra finance.

Out of the 35 new islands, the 10 resorts which were leased for opened rent; according to its

procedure the islands would be given to the bidder who comes with the highest rent, as a result

there was . high competition between the bidders resulting high rent proposals. Bidding amount

was approximately risen to $ 40,000 per bed. However, most of the islands offered to an amount

between $15,000 and $28,000. it doesn‟t make any sense... idn‟t knw hw to change this for the

open rent, the rents which the bidders offered has inflated from the average rent rate ($3000).

Thus, due to the high rents offered, for the investors it was difficult to raise finance which they

required. The submission of high rents would lead to less profitability, since offering high rents

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leads to lower profitability as a result their expanses would be high. At the same time, the islands

which were offered for the controlled lease rent was given for $7,000 by conditioning to pay

15% of advance for 10 years within 21 days, which is a very huge amount where they need to

pay within a limited period. Hence to raise the finance they require to borrow loans from banks,

however the banks such as BML, HSBC, SBI and many other banks, would be unwilling to

provide assistance, as the project costs a lot of finance and considering their feasibility with the

current worlds economic recession which all the countries are facing.

Recently, on December 2008 the ministry of tourism increased the leased period to 50 years due

to the shortage of the budget that we are facing right now. Speaking at the Majlis, Minister of

Tourism and Culture Dr. Ahmed Ali Sawad said that, “The government proposal to extend the

lease of tourist resorts to maximum 50 years period is a stimulus package provided to the tourism

industry in the wake of the present global economic crisis” (Resort lease extension, a stimulus

package to industry: Sawad. 2008). The addition of the lease period is another reason for delay in

developing the new resorts.

Fathimath Suha, Student ID: 000012108 8

Conclusion and Recommendation

During the bid, there was more competition between the bidders which resulted in high leased

rent amounts, as the highest bidder is being offered the island. The main constrain faced in

developing these new expansion is mostly due to the high rents which was proposed by the

bidders, as high rents would result in less profitability for the investors leading to lot of

disturbance on the project. Consequently, to rise finance the investors need to borrow loans from

the banks, whereby they are unwilling to provide considering to the high cost project and the

recession in the world economy.

The government would have been more successful in developing this new expansion to the

Maldivian tourism industry if newly developed islands bid was opened for the current average

rent rate of the country which is $3000. (Resort thah bodu kuhyah dhinumege sababaky koba,

Saeedh, 2009). Furthermore, since for the investors it is difficult to get the help which they

require in order to raise the finance for the project, in my view the government can give support

to them by helping the investors in getting the assistance from the international banks.

Fathimath Suha, Student ID: 000012108 9

List of Reference

35 new islands to be developed to provide the needed 5000 to 7000 beds over the next two to

five year period, (2005) retrieved on 23th March 2009 from

http://www.tourism.gov.mv/news.php?nid=21)

35 years of tourism, 2008 Ministry of tourism, retrieved march 13, 2009 from

http://tourism.gov.mv/pubs/35_years_of_tourism_final.pdf

Resort lease extension, a stimulus package to industry: Sawad. (2008), retrieved on 25th March

2009 from http://www.maldiveschronicle.com/resort-lease-extension-stimulus-package/.

Resort thah bodu kuhyah dhinumuge sababaky koba?, Ahmed Saeedh, (2009), retrieved on 19th

March 2009 from

(http://www.haveeru.com.mv/index.php?page=details&id=80789&category=irWfwyiv

The Maldives Sustaining Growth & Improving the Investment Climate, (2006), retrieved on 19 th

March 2009 from

http://siteresources.worldbank.org/MALDIVESEXTN/Resources/306312-

1184268388401/ICA_MaldivesREPORT.pdf

Two Years after the Tsunami Report, tourism, retrieved on 21st March 2009 from

(http://www.unicef.org/maldives/Two_Years_After_the_Tsunami_Report(1).pdf)

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