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Country Commercial Guides for FY 2000: Maldives Report prepared by U.S. Embassy Colombo, Sri Lanka, released July 1999   Note*

CHAPTER I

ECONOMIC TRENDS AND OUTLOOK

The economic mainstay of the Republic of Maldives historically has been fishing, and to a lesser extent agriculture, but since the 1970s a flourishing tourism industry has developed. Tourism in the Maldives is centered on beaches, scuba diving, snorkeling, and more recently, ecotourism. The continued expansion of tourism has also generated growth in other sectors, including "distribution" (wholesale and retail trade), construction, real estate, and transportation and other services, so that tourism and related activities now dominate the economy of the Maldives. The government is also a major employer and a key contributor to the country's gross domestic product (GDP).

Government revenues are generated mainly by direct taxation (there is no income tax in Maldives) and by the earnings of state-owned entities. Taxes on the tourism industry (in particular, a flat "bed tax" levied on the number of bed nights sold, which is built into resorts' room rates) accounted for 27 percent of government tax revenue in 1997 and are expected to contribute 29 percent to tax revenues in 1998. Import duties in 1997 made up 63 percent of government tax revenue. Non-tax revenue consists mainly of lease rent from government-owned property and profits of public enterprises, and in 1997 contributed 46 percent of total government revenue. (This report is based on 1997 economic data, the most recent year for which data is currently available)

GDP growth rates averaged about 10 percent in the 1980s, and peaked at over 16 percent in 1990, but fell as low as 4 percent in 1993, thereafter rising to the 6-7 percent range. In 1997, real GDP growth was 6.2 percent; GDP totaled $342 million. Per capita GDP (at 1985 prices) was $837.4. Tourism in 1997 accounted for 19.3 percent of Maldivian GDP, while fisheries contributed 10 percent (down from 16 percent in 1984) and agriculture 7.0 percent. The distribution and construction sectors accounted for 19.7 percent and 11.2 percent of GDP in 1997, respectively, while government administration constituted 7.9 percent of GDP. Transportation contributed 7.2 percent to 1997 GDP, followed closely by other services (including banking) at 6.3 percent and manufacturing and electricity at 5.9 percent.

The Maldives runs a continuous deficit in merchandise trade. To support the tourism sector, the country imports a range of consumer goods, petroleum products and intermediate and capital goods. Exports consist primarily of fish and fish products, but have in recent years diversified to include apparel and clothing accessories (this industry relies on imported inputs). According to the Ministry of Trade, Industries and Commerce, the country's largest trading partners in 1997 were as follows: United Kingdom (21%), United States (18%), Sri Lanka (16%), Japan (14%), Hong Kong (5%) and Germany (4%).

Infrastructure in the Maldives is improving apace with development. As tourism and trade have expanded, so too have transportation options among the islands. In addition to water taxis and scheduled sea vessel transportation services, light aircraft and helicopters are available for hire in the tourist sector.

International sea cargo is handled at the port in Male'. The harbor can handle only light vessels with up to a 3-meter draught. The port's annual handling capacity is approximately 200,000 tons. Regular cargo services are available to/from Europe and much of Asia.

The government provides power through its Maldives Electricity Bureau and the State Electricity Company (STELCO), and 194 of the 199 inhabited islands have electricity. Island tourist resorts are required to have independent captive power supplies, consisting primarily of oil-fueled generators.

Telecommunications facilities are well-developed in Male' and at the tourist resorts--international direct-dial phone calls and fax services are generally available. The Government plans to have telecommunications facilities extended to all populated islands by 2000. The telecommunications service provider, a joint venture between the Government and Cable and Wireless, also provides Internet service.

Of the Maldives' 1,190 islands (grouped into 19 atolls), only 199 are inhabited. The country's population is scattered throughout the country's atolls, but over 25 percent of Maldivians are concentrated in the capital of Male', which faces limitations on potable water and arable land. The government has turned the former resort island of Villingili near Male' into a residential island, with the goal of providing housing and facilities, including a commercial harbor, to support resettlement of about 15,000 persons from Male'. The government also hopes to create and provide infrastructure and facilities to regional centers, to attract resettlement from Male' and more isolated islands. The country's population of approximately 258,678 (1997 estimate) is growing at a rapid rate of about 3 percent, one of the highest rates in the world. Close to one-half of the population is under 15 years of age, and over the next five years, about 20,000 young adults will enter the workforce.

Efforts to develop human resources are continuing, and expanding. The country has a high literacy rate (over 90 percent), and the Government makes a large investment in public education at the primary and secondary levels. The Government is currently expanding the modern English-medium school system and upgrading traditional schools which provide basic numeracy and literacy skills in addition to religious instruction. There are only two high schools in the country, one in Male' and the other in the southernmost Addu Atoll. All tertiary studies are done at overseas institutions and universities. According to a recent United Nations Development Program report, there are only about 250 Maldivians with university degrees, with about 40 holding post-graduate degrees. UNDP and other donors are therefore offering assistance in human resource development, particularly involving higher levels of education. Shortages of skilled labor in a number of sectors/occupations are handled with expatriate labor.

Principal sectors of the economy

Since the first tourist resort opened in 1972, the tourism sector has grown rapidly. The Maldives Association of Tourism Industry (MATI) estimates that tourism investment in the Maldives amounted to $220 million by the end of 1996. As of May 1999, there are 81 resorts and hotels in operation, offering a capacity of over 14,400 beds. A group of 14 additional islands were targeted for resort development in 1997. Of this group, nine new resorts have already been opened and four more are under construction, while one has not yet been awarded for development. The total investment in the 13 new resorts developed to date is estimated at over $75 million. The Ministry of Tourism in 1999 also announced plans for a five-star hotel to be built in the capital, Male'. In 1997, tourist arrivals exceeded the 350,000 mark for the first time, reaching 365,563, reflecting an increase of almost 8 percent over 1996. The average resort occupancy rate was 76.2 percent for 1998, and the average duration of stay was 8.8 days. The Ministry of Tourism is also exploring the possibility of introducing cruise tourism in the future.

The fisheries sector employs about 20 percent of the workforce of the Maldives. The use of nets is illegal, so all fishing is done by line and pole, the method traditionally used for centuries. The fishing fleet consists of a number of small, flatbottomed boats; since these boats have shifted from using sails and oars to outboard motors, the annual tuna catch per fisherman has increased several times over. Also, the expanded use of Fish Aggregating Devices has increased fish catch and has lowered fuel use by reducing search time. Although tuna (mostly skipjack, and some yellowfin) has been the predominant catch and remains the country's top export, reef fishing has been growing, due in part to government efforts to diversify fisheries and encourage greater private sector participation, as well as very strong East Asian demand for reef fish such as grouper and snapper. In 1997, fresh/frozen tuna exports accounted for almost half of all marine product exports. Canned tuna and dried fish accounted for 36 percent of marine exports in 1997.

Poor soil and scarce arable land have historically limited agriculture to a few subsistence crops such as coconut, banana, breadfruit, papayas, mangoes, taro, betel, chilies, sweet potatoes and onions.

The industrial sector plays a relatively modest role in the Maldivian economy. Traditional industry consists of boat building and handicrafts, while modern industry is limited to tuna canneries and other fish processing, several garment factories (some of which have U.S. equity participation), a bottling plant, and small scale manufacturing enterprises which produce PVC pipe, soap, furniture, and food products.