The first resort: how FDI can help the Maldives to preserve its paradise
The Maldives is renowned all over the world as an idyllic beach destination, a reputation it has worked hard to cultivate. However, as Natasha Turak discovers, investment opportunities abound on the island chain, as it looks to diversify its economy and safeguard its future.
The Maldives as a destination needs little introduction. The name alone conjures images of sun-swept palm trees, white sand beaches and pristine blue lagoons teeming with aquatic life. One of the most geographically dispersed countries in the world, its 26 atolls are comprised of nearly 1200 coral islands spread over 90,000 square kilometres in the Indian Ocean, south-west of the southern tip of India. Approximately 190 of those islands are inhabited, and just over a further 105 are occupied by luxury resorts.
Tourism and fisheries provide the bulk of the country’s employment. With a GDP per capita of $6722 for a population of almost 400,000, the Maldives is south Asia’s smallest and most prosperous country.
The perfect host
“We are a sun, sand and sea country. That is our petroleum,” says Mohamed Saeed, the Maldives minister of economic development. “For the past 800 years we have been a country with a very hospitable outlook to international visitors.”
The Maldives’ tourism industry is recognised as accounting for 30% of the country's GDP directly, but more than 80% indirectly. It was badly hit during the 2008 financial crisis, which saw the country go from 5.8% economic growth that year to a 1.3% contraction in 2009. However, it rebounded quickly with 3.4% growth in 2010 thanks to resumption of tourist arrivals and export activity. “Statistics over the past several years show that despite crises around the world, the attraction of the Maldives hasn’t diminished. In fact, it is so unique it’s in demand,” says David Feinberg, CEO of Crown & Champa Resorts, a resort group owned and operated by various Maldivian and foreign partners.
Last year saw 1.25 million tourist arrivals, representing roughly 5% growth from 2015, despite a dip in Chinese tourism, which currently represents approximately one-third of the Maldives’ tourist market. The country plans to increase arrivals from 1.3 million a year to seven million within 10 years, an ambition aided by the current expansion of Malé International Airport, an $800m investment that will increase its capacity five-fold.
“Big companies such as Thailand’s Singha Group, Pontiac Group in Singapore and Damac in the United Arab Emirates are not just developing a resort which costs $20m to $30m,” says minister of tourism Moosa Zameer. “They are developing multiple resorts at once, investing half-a-billion dollars or more. They see how we are developing the country, increasing the capacity of Malé Airport, and they see there is potential for growth in the Maldives.”
The Maldives was part of the Commonwealth of Nations until late 2016, when it left after rejecting international criticism over human rights and corruption allegations. Rocky political transitions of the past few years have not seemed to slow the country's economic growth, however, as GDP continues to rise by about 7% annually and infrastructure projects push ahead at an unprecedented speed.
Pledges of the government of president Abdulla Yameen, elected in 2013, involve significant infrastructure developments to upgrade transport, utilities and living conditions. Its projects are laying the foundations for increased air arrivals as well as new urban centres to attract international investors into areas such as financial centres, exports processing and renewable energy.
Bridging the gaps
Set for completion in 2018 is the China-Maldives Friendship Bridge, a $210m project funded by the Export-Import Bank of China, one of many joint Chinese-Maldives projects resulting from the latter's role in China’s maritime silk route. It will connect the crowded capital Malé, on which 30% of the country’s population lives, to Hulhumale, a reclaimed island being developed as a new 'Youth City' which it is hoped will eventually house 70% of the population upon completion within the next 10 years. “Connecting the two islands creates more opportunities for jobs and housing, making it a link of both social and economic development,” says minister of housing Mohamed Muizzu.
“The biggest challenge in our developmental process has always been the smallness and the difficulty in achieving economies of scale,” said the president during the project’s inauguration, remarking that the bridge, along with the expansion of the international airport, will “change the Maldives’ landscape”.
“We have advanced the laws and regulations to give investors the certainty they have been seeking for many years,” says Mr Saeed. “Since the president took office in 2013, nearly $2.5bn has been invested here in tourism alone.” Indeed, the government offers attractive business benefits including what it claims is the simplest tax code in the world, the right to 100% foreign ownership, long-term leases and no restrictions on foreign exchange or capital repatriation. But with a global market frequently rocked by market fluctuations and terrorism, the Maldives is putting a particular focus on diversification away from the shock-sensitive tourism sector.
“One of the government’s main goals is to diversify our sources of GDP,” says the country's finance minister, Ahmed Munawar. In 2014 Mr Yameen passed the Special Economic Zone Act, allowing relaxed regulations on non-tourism projects costing at least $150m. Indeed, notable investment opportunities exist in the construction and infrastructure sector, which has grown rapidly – at about 20% for the past three years – on the back of rapid urbanisation and development.
The government’s Scaling-Up Renewable Energy Programme to increase renewable energy investment offers opportunities to build power generation facilities for whole islands – particularly important to the low-lying country whose livelihood depends on the health of its ecosystem. “Indeed,” the World Bank writes, “it is so critical to the prosperity of the country that the new constitution mandates the protection of the environment as a key human right.”
Further opportunities lie in the financial sector, where the Maldives’ young and educated population, its high-quality ICT infrastructure and the capacity for Islamic finance have the potential to make it an offshore financial centre. “If you look at some of our most highly educated youth, they are women,” says Mr Munawar. “This is a very important sector for fulfilling the president’s pledges – empowering our women and youth.”
“The Maldives has managed to reinvent itself over time, becoming more and more competitive,” says Crown & Champa’s Mr Feinberg. “It enjoys a reputation for being on the forefront of design and facilities in many ways.” Indeed, the Maldives boasts innovations such as the world’s first undersea restaurant, the first exclusively solar-powered resort on the five-star Gasfinolhu Island, and the world’s largest fleet of seaplanes. And the country is now embarking on a mission toward integrated tourism, introducing guest houses on locally populated islands where locals can host travellers as a source of revenue.
“The shift in policy to encourage guest houses has enabled the island community to become part of our tourism revenue,” says Mr Zameer. “This creates more economy of scale and opportunity for other businesses to grow.”
Trans Maldivian Airways (TMA), the country’s private seaplane company, operates a fleet of 48 aircraft, which has allowed tourism and development to reach the country’s more remote islands. “One of the biggest enablers of the fleet expansion has been the topography of the Maldives,” says TMA chief executive AUM Fawzy. “The ‘one island one resort’ concept that is ubiquitous in the Maldives provided us the opportunity to innovate our business model.
“The government has been very supportive and this has helped businesses thrive in the Maldives. We believe developmental activities such as the new airport expansion will drive tourism growth and provide a big boost to the overall social and economic development of the Maldives.”
“The Maldives’ resilience to global fluctuations over the years goes to show the support for the destination around the world,” adds Mr Feinberg. “So when you look to the future, you can only think positive.”
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