US embassy cable - 04COLOMBO1217

UNCLAS SECTION 01 OF 02 COLOMBO 001217 
 
SIPDIS 
 
DEPARTMENT FOR SA/INS, COMMERCE FOR ARI BENAISSA 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, MV, Maldives, ECONOMICS 
SUBJECT: MALDIVES TO DEVELOP ADDITIONAL RESORT ISLANDS 
 
REF: NONE 
 
1.  Summary:  The Government of the Republic of Maldives 
(GORM) has received a good response to its proposal to 
develop 11 new resort islands.  The plan will extend the 
resort network to all 20 atolls in Maldives, and increase 
the total number of resorts to 98.  The successful 
development of the resorts will be a challenge due to the 
very high lease rates bid by developers.  These rates could 
drive prices sharply upward out of the range of popular 
package tours.  In addition, setting up the necessary 
infrastructure -) especially transport facilities -- will 
be a daunting task.  End Summary 
 
High Demand! High Prices? 
------------------------- 
 
2.  When bidding closed on July 4, the GORM had received 
about 200 bids to develop 11 (100 or 200 room) resort 
islands, a new initiative that was announced by President 
Gayoom in a national speech on February 26, 2004.  Maldives 
Association of Tourism Industry (MATI) estimates that it 
will cost approximately $153 million to develop all the 
resorts.  According to GORM sources, most of the bids came 
from locals who are eventually expected to collaborate with 
international hotel or tour operators to arrange financing 
or operate high-end resorts.  The new resorts will have a 
total of 1,600 rooms and will be leased to the successful 
bidders for 25 years.  Longer lease periods are available 
for larger investments or for companies that intend to take 
their properties public.  The bids had to contain lease 
proposals for an initial period of 10 years, site plans, 
human resource plans, environment impact assessments and 
economic feasibility studies.  The results of the tender 
will be announced in September 2004 and the resorts are 
expected to be ready within 18 months. 
 
3.  Despite the enthusiastic response, it will be a 
challenge to make the new islands work as currently 
envisioned.  The bids at the higher end work out to annual 
lease rates equivalent to $12,000 to $21,000 per bed, up 
from the current $2,500 to $7,000.  While higher lease 
rates will be good news for the government (tourism 
contributes 30% of revenue), Maldivian tourism sources fear 
that the higher bids will result in Maldives being out- 
priced.  According to them, Maldives would be best served 
by catering to the middle-income segment, as 80% of 
tourists still arrive on package tours.  The highest bids 
would make rooms too expensive for this segment and may not 
be sustainable.  These sources do not advocate high 
dependence on upscale tourism, as this segment tends to be 
fragile and vulnerable to changes in the tourism climate. 
Bidders included companies currently operating resorts in 
Maldives, however, so presumably they are aware of demand 
constraints and what rates the market can bear. 
 
Expansion to regions 
-------------------- 
 
4.  The new resorts will be located in northernmost and 
southernmost atolls of Maldives.  Until now, tourism has 
been concentrated in the central region of the country, 
close to North Male Atoll, where the capital, Male, is 
located.  The government hopes that new resorts in outer 
atolls will contribute substantially to regional 
development. Construction, cottage industries, and trading 
are all expected to benefit from the expansion in tourism. 
In addition, both direct and indirect employment 
opportunities in the regions are expected to increase. 
GORM will not get involved in resort development.  There 
are also no plans to get involved in infrastructure 
development. 
 
5.  Consequently, developers are expected to invest heavily 
in infrastructure.  They will need to set up power plants, 
desalination plants, incinerators, compactors and water 
purification plants.  In addition, developers will need to 
establish transport networks using speedboats and 
seaplanes.  Although the GORM has preliminary plans to 
launch a regional airport development plan with private 
sector investment, tourism sources say regional airports 
will be difficult due to the small number of beds that 
could be served by them. 
 
Tourism outlook 
--------------- 
 
6.  The Maldives enjoyed a remarkable 16% growth in tourist 
arrivals in 2003, with 563,593 tourists arriving in the 
country for the first time.  The resorts recorded an 80% 
occupancy rate.  These trends have continued into 2004, 
resulting in a 15% increase in arrivals and an 86% 
occupancy rate in the first half of 2004.  Therefore, 
increased capacity is seen as necessary. 
 
7.  During 2000-2001, Maldives started aggressively 
promoting the country abroad.  Maldives now attracts 
visitors from Italy, UK, Germany, Japan, France, Russia and 
Switzerland.  (Note: American visitors represent about one 
percent of the tourist trade in Maldives. End note.)  China 
is the newest entrant to the market following extension of 
"approved tourism state" status by the Chinese government. 
Meanwhile, a top Western travel agency, Kuoni, rated 
Maldives as the number one long haul holiday destination in 
2003.  Some existing resorts are moving up-market, offering 
world-class facilities.  Hilton (2 resorts), Four seasons 
(2), Banyan Tree, One and Only Resorts (2), Six Senses 
resorts/Soneva (2), and the Indian group, Taj (2) are all 
present in Maldives.  Some of them have recently acquired 
second resorts and are extensively upgrading these 
facilities.  Maldives' is famous for diving, beach, 
honeymoon, surfing and cruising holidays.  In addition, 
they are now selling spa and fitness holidays. 
LUNSTEAD