Tourism and Economic Development in Maldives

of 11

Introduction

Maldives is a chain of 1190 coral islands, spread over an area of roughly 90,000

square miles in the Indian Ocean, off the south western coast of India. Tourism was first

introduced to the Maldives in a very small scale in 1972. What initiated as a small business

venture with only one resort and tourism concentrated near the capital city, tourism industry

has now expanded throughout the country. With more than 100 resorts so far, the industry has

transformed into a multi-million dollar industry contributing to the majority of the total Gross

Domestic Product (GDP) of the country.

This report highlights the impact of tourism in the economic development of the

Maldives and critically analyse the role of tourism in the globalization process.

of 11

Overview of the Maldives Economy

As any other economy, Maldives economy also comprises of Primary Sector,

Secondary Sector and Tertiary Sector. Under the Primary Sector is the Fisheries Industry,

under Secondary Sector is the Manufacturing and Construction Industry and under Tertiary

Sector is the Transport and Tourism Industry.

From these five industries, the Maldivian economy is heavily dependent on fisheries

and tourism, which are the major sources of foreign exchange earnings and government

revenue. According to the Maldives Monetary Authority (MMA) these two industries

together directly account for about 40 percent of gross domestic product, while indirectly

accounting for a much larger proportion of GDP.

The countys economic development process had been supported by the government,

the private sector, non-government organizations and foreign aids. The governments main

focus was on providing basic socio-economic services, while the private sector played a key

role in the development of tourism, distribution, trade, transport and fisheries among other

activities. Foreign aid has been an important component of this development process.

According to Maldives Monetary Authoritys (MMA) official website, about 70 percent of

total development expenditure was financed by external resources with the grant component

being significantly high. In addition to official bilateral and multilateral aid flows, a number

of foreign NGOs have also provided substantial assistance to the Maldives. It is also

important to point out that Maldives has an open economy, with a narrow export base but

high dependence on imports for most of its economic activities.

Maldives has experienced rapid economic growth and development in recent years

and most of this economic growth was supported by a dynamic tourism sector.

of 11

Impact of Tourism in the Economic Development

Travel and tourism is an important economic activity in most countries around the

world and Maldives is also no exception. The economic growth of the Maldives has been

powered mainly by the tourism industry. According to a published report by the Ministry of

Tourism, Arts and Culture of the Maldives (MoTAC), the tourism industry contributes to

more than 30 percent of the total Gross Domestic Product (GDP) of the country.

This is also evident from the World Travel and Tourism Councils (WTTC) 2012

Travel and Tourism Economic Impact Research of Maldives. According to this research, the

direct contribution of Travel & Tourism to GDP was MVR6,991.3mn (31.3% of total GDP)

in 2011, however it is forecasted to fall by 5.1% in 2012, and to rise by 4.8% pa, from 2012-

2022, to MVR10,612.8mn in 2022 (in constant 2011 prices).

Source: WTCC Travel and Tourism Economic Impact 2012 Maldives

The Direct Contribution of Travel and Tourism to GDP primarily reflects the

economic activity generated by industries such as hotels, travel agents, airlines and other

passenger transportation services (excluding commuter services) in Maldives. But it also

includes the activities of the restaurant and leisure industries directly supported by tourists.

of 11

Maldives also saw a huge increase in tourism revenue in 2011, mainly due the

changes brought to the tourism lease rent formula and introduction of Tourism Goods and

Services Tax (T-GST). According to the Tourism Year Book 2013, published by the Ministry

of Tourism, Arts and Culture of Maldives the resort lease rent formula was revised in 2011

from a bed capacity based rent to a land based rent where US$ 8 is charged per square meter

of the island, the T-GST rate was increased from 3.5% in 2011 to 6% starting from January

2012.

With the mentioned changes in effect, the government revenue in 2011 was 9,172.10

Million Rufiyaa, from which 36% was revenue generated from tourism. And in 2012, the

total Government Revenue stood at 9,366.50 Million Rufiyaa, out of which 3,574.02 was

tourism contribution. The table below shows the percentage share of tourism revenue in total

government revenue.

Tourism Revenue and Tax, 2008-2012 (Million Rufiyaa)

Year Total

Government

Revenue

Tourism Revenue % Share of Tourism

Revenue in Total

Government

Revenue Land

Rent

Tourist

Bed-

Night Tax

Tourism

Goods &

Services Tax

(T-GST)

Lease Period

Extension

Fee

Total

Tourism

Revenue

2008 6,939.30 - 566.50 - - 1,969.70 28.4

2009 5,313.30 - 531.41 - - 1,429.81 26.9

2010 6,392.40 - 594.36 - - 1,713.86 26.8

2011 9,172.10 1,202.50 750.74 836.52 511.26 3,301.01 36.0

2012 9,366.50 1,034.24 804.72 1,566.35 168.71 3,574.02 38.2 Source: Tourism Year Book 2013

In addition to T-GST, Tourism Revenue also includes earnings received from Tourist

Bed-night Tax, Tourism Land Rent and Lease Period Extension Fee.

of 11

When analysing the impact of tourism in the economic development of a country it is

also important to look at the Tourism Receipts and the Government Expenditure on Tourism.

According to Tourism Year Book 2013, Tourism Receipts, which is the expenditure

made by tourist during their stay in the Maldives, have been gradually increasing over the last

five years.

In 2010, tourism receipts recorded a strong growth of 16.3% in comparison to the

negative growth of 2009. While in 2011, growth rate was moderate at 9%, Maldives received

a total of 1,867.89 Million US Dollars as tourism receipts. At the end of 2012, with 1,873.36

Million US Dollars, receipts recorded an increase of 0.29%. The table below shows the

tourism receipts for the last five years.

Tourism Receipts, 2008-2012 (Million US Dollars)

Year Tourism Receipts Growth Rate (%) Exports,

FOB Imports, CIF

2008 1,558.50 2.90 125.87 1,382.11

2009 1,472.70 -5.51 76.37 962.53

2010 1,712.89 16.31 73.91 1,090.86

2011 1,867.89 9.05 114.81 1,328.55

2012 1,873.36 0.29 161.03 1,548.94 Source: Tourism Year Book 2013

Tourism expenditure refers to the expenditure made on tourism from the central

government budget. According to the Tourism Year Book 2013, published by the Ministry of

Tourism, Arts and Culture of Maldives, the tourism expenditure had been declining over the

years when compared to the tourism revenue. The table taken from this same publication

shows the tourism expenditure in relation to total government expenditure from 2008 to 2012.

As seen from the table, although the total government expenditure has been increasing

steadily, the expenditure made on tourism has declined considerably. In 2012, the total

of 11

government expenditure was recorded to be 14.2 billion Rufiyaa, out of which only 47.3

million was spent on tourism.

Government Expenditure on Tourism, 2008-2012 (Million Rufiyaa)

Year Government

Expenditure

Tourism

Expenditure

% Share of

Tourism

Expenditure

2008 10,342.40 93.3 0.9

2009 11,104.30 78.5 0.7

2010 10,996.40 46.90 0.4

2011 12,663.70 33.70 0.3

2012 14,215.90 47.3 0.3

Source: Tourism Year Book 2013

The table below shows a comparison of the Tourism Revenue and Expenditure of

Maldives from 2008 to 2012. From the table it is clearly seen that the expenditure by the

government on the tourism industry is lower than the tourism revenue.

Tourism Revenue & Expenditure, 2008-2012

Source: Tourism Year Book 2013

of 11

In the Maldives tourism industry, there are currently four types of accommodations

available to guests; namely tourist resorts, tourist hotels, tourist guest houses, and live a board

safari vessels. With the rapid growth in the industry, the bed capacity of these facilities have

also been increasing, especially in the area of tourist guest houses and live a board safari

vessels.

According to an article by the Ministry of Tourism, Arts and Culture (MoTAC) of the

Maldives, at the end of 2012, there were 105 resort islands with a total bed capacity of 22,889

registered in MoTAC. There were 1101 beds in 75 guest houses registered at the MoTAC at

the end of 2012. Although, guest houses contribute only a few percent to the total bed

capacity, this form of accommodation has been rapidly increasing within the Industry. At the

end of 2012, there were 154 safari vessels registered at MoTAC, to accommodate tourists in

the Maldives.

In terms of employment, tourism sector accounts for most of the total employment in

the Maldives. According to a survey conducted by MoTAC on 25 November 2006 to find the

baseline data of tourist resorts and to study the current human resource situation in the

tourism sector of Maldives, there were a total of 15,716 staff in 74 resorts (15,324 beds). The

table below shows the number of staff employed in the tourism sector according to this study.

No of Staff

In this survey, it was also found that 54 percentage of those employed in the tourism

sector was local and foreign employees represented 46 percentage. However, according to the

Source: Ministry of Tourism and Civil Aviation

of 11

survey foreign female employees were 2 percent more than the local females in the tourism

sector of the Maldives.

Role of Tourism in the Globalization Process

United Nations World Tourism Organization (UNWTO) defines tourism as a social,

cultural and economic phenomenon which entails the movement of people to countries or

places outside their usual environment for personal or business and/or professional purposes.

As such, tourism has implications on the economy, on the natural and built environment, on

the local population at the destination and on the tourists themselves.

By looking at this definition, it is clear that tourism is a driving force to globalization.

It is safe to say that tourism industry helps a nation in the globalization process by

overcoming border barriers and establishing relationships with providers and tourists as well

as with travel agencies and tour-operators.

One of the major aspects of globalization is the development of the transportation

industry and as such, in Maldives, the tourism industry has played a significant role in

improving the transportation industry. As such Maldives now have three international airports

and according to Tourism Year Book 2013 by Ministry of Tourism, Arts and Culture, thirty

international scheduled carriers fly to Maldives as of the year 2012. Moreover, there are more

than thirty international chartered carriers flying to Maldives. Based on the findings

published in the Tourism Year Book 2013, the charter sector registered a huge increase of

20.8% in their movements to the Maldives during 2012. Connecting all the passengers from

these international airlines to almost all parts of Maldives are the seaplanes operated by two

major seaplane operators; Trans Maldives and Maldives Airtaxi and also by two domestic

airlines; Maldivian and Flyme operating to six domestic airports. In addition to this, a major

emphasis was given by the government to link all the islands with a ferry system.

The tourism industry have also brought considerable technological advancement to

the industry, further enhancing the globalization process of the country. This is evident from

of 11

the fact that all the international and domestic airlines, including seaplane operators in

Maldives, operates online booking websites. Even though there has been no research done, it

is safe to say that most of the tour operators and travel agents in Maldives uses the Global

Distribution System (GDS). Global Distribution Systems (GDSs) are computerized,

centralized services that provide travel-related transactions. They cover everything from

airline tickets to car rentals to hotel rooms and more.

International hotel brands operating in the Maldives is also a strong indication of the

role of tourism in the globalization process of the country. Some of the international brands

include Hotel Pioneers such as Hilton, Sheraton, Park-Hyatt, Shangri-La, Viceroy, Jumeirah,

Four Seasons and Taj Hotel Resorts and Places.

Maldives also have a healthy market share in the Europe, as well as Asia and the

Pacific. According to the Tourism Performance of Maldives in the Year 2012, published by

MoTAC, European Market being the largest market, contributed about 54% of the total

visitors to the Maldives in the year of 2012, while Asia and the Pacific makes 40.1% of total

visitors.

Moreover, the Ministry of Tourism, Arts and Culture (MoTAC) of Maldives reported

that on 24th

November 2013 Maldives has attained its goal of attracting one million tourist.

The Tourism Ministry announced that 1,000,203 tourist had visited the country as of Sunday

(November 24).

of 11

Conclusion

Maldives has experienced rapid economic growth and development in recent years,

supported by a dynamic tourism sector. It has moved from an under developed country to a

developing country in 2011 due to increased productivity, seized from the immense benefits

from tourism.

According to the World Tourism Organization (WTO), even though Europe and

America remains as the worlds best tourist destination, South Asia is forecasted as a

promising region for tourism. For this reason, all stakeholders in the Maldivian tourism

industry are aware of the importance of tourism industry to the Maldives economy and has a

vision for creating and operating a sustainable environment friendly tourism industry.

of 11

References

Definition of TOURISM. Available from http://media.unwto.org/en/content/understanding-

tourism-basic-glossary [Accessed 4 December 2013]

Ljiljana Radulovic, THE ROLE AND POTENTIAL OF GLOBAL DISTRIBUTION

SYSTEM AMADEUS FOR TOURISM DEVELOPMENT AT THE GLOBAL LEVEL,

Singidunum Journal of Applied Sciences, Singidunum University. Available from

http://journal.singidunum.ac.rs/files/2013-10-1/the-role-and-potential-of-global-distribution-

system-amadeus-for-tourism-development-at-the-global-level.pdf [Accessed 30 November

2013]

Ministry of Tourism, Arts and Culture Republic of Maldives. TOURISM PERFORMANCE

OF MALDIVES IN THE YEAR 2012. Available from

http://dtxtq4w60xqpw.cloudfront.net/sites/all/files/pdf/maldives_country_report_2012.pdf

[Accessed 27 November 2013]

Maldives Monetary Authority. OVERVIEW OF THE MALDIVIAN ECONOMY. Available

from http://www.mma.gov.mv/stat.php [Accessed 1 December 2013]

Ministry of Tourism, Arts and Culture Republic of Maldives. TOURISM YEAR BOOK

2013. Available from http://www.tourism.gov.mv/pubs/Yearbook_2013.pdf [Accesses 5

December 2013]

Maldives Monetary Authority, MONTHLY ECONOMIC REVIEW NOVEMBER 2013.

Aaviable from http://www.mma.gov.mv/mmr/nov13.pdf [Accessed 3 December 2013]

Statistics & Research Section Ministry of Tourism & Civil Aviation. HUMAN RESOURCE

SITUATION IN THE TOURISM SECTOR OF MALDIVES. Available form

http://www.tourism.gov.mv/downloads/reports/survey_report_final_2008.pdf [Accessed 6

December 2013]

Suresh Kumar Kundur. [2012]. DEVELOPMENT OF TOURISM IN THE MALDIVES,

International Journal of Scientific and Research Publications, Volume 2, Issue 4. Available

from http://www.ijsrp.org/research_paper_apr2012/ijsrp-apr-2012-73.pdf [Accessed 5

December 2013]

TRAVEL & TOURISM ECONOMIC IMPACT 2013 MALDIVES. Available from

http://www.wttc.org/site_media/uploads/downloads/maldives2013_2.pdf [Accessed 25

November 2013]

Documents

Tourism and Economic Development in Maldives