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Cablegate: Maldives to Develop Additional Resort Islands

This record is a partial extract of the original cable. The full text of the original cable is not available.

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 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

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