New financial restrictions on tourism development exclude small and medium-scale investors: developer

An island owner involved in the country’s burgeoning mid-market holiday sector has slammed new regulations imposing financial restrictions on tourism joint venture projects with the government, claiming the legislation outright excludes small and medium-scale investors.

Speaking on condition of anonymity, the island owner alleged that the recently implemented amendments to the Tourism Act served to “shut the door” on small and medium-sized investors.

The Ministry of Tourism, Arts and Culture told Minivan News that the regulations were required in order to ensure future developments in the country were financially viable and that investors could guarantee a project’s completion.

However, the regulation is expected to favour much larger-scale investment projects such as resorts, to the detriment of mid-market tourism, claimed the island owner.

“The real issue here would be that only those with very high net worth can be venture partners with government. Very, very few tycoons are in that wealth bracket,” the source said.

“[Former President] Nasheed’s government tried to be inclusive in offering business opportunities. This regulation is exclusive and shuts the door for medium to small-size investors to partner with the government.”

Joint venture regulation

Published in the Government Gazette Volume 42, number 17 – dated January 28, 2013 – the regulation requires any joint venture partner working with the state on a tourism projects to have a minimum financial worth of US$300 million  and make a minimum initial capital investment of at least US$100 million.

The regulation, entitled the “Procedure to Follow Where the Government Undertakes Joint Venture Investment in Islands or Land”, allows a company with at least a 10 percent share held by the state to develop a resort from land set aside for tourism use, such as a picnic island.

Land used for water sports or diving would also be included once the lease for the area is acquired by a joint venture company.

“Notwithstanding that section five of the Maldives Tourism Act states that islands and land for development as tourist resorts shall be leased to the party that submits the best-qualified bid in respect of such islands or land in accordance with pre-established procedures in a public tender held by the Ministry of Tourism; the same section states that those Islands or land in which the Government makes an investment wholly or in joint venture shall be exempted from the Procedure provided therein,” the regulation reads.

“Therefore the object of this procedure is to determine the procedure to follow in that prescribed exemption status. Uninhabited islands or land may be leased to a company created under a joint venture with the Government for tourist resorts, tourist hotels and marinas development pursuant to this Procedure.”

An unofficial English translation of the regulation can be read here.

Development safeguards

Minister of Tourism, Arts and Culture Ahmed Adheeb told Minivan News this week that the regulation was needed to safeguard future resort development, claiming opportunities would continue to exist for small and medium investors in the tourism sector through sectors such as guest-houses and safari boats.

With what he called a “limited” number of islands presently available in the country to be developed as resort properties – a major earner for the Maldives government both in terms of lease payments and Tourism Goods and Services Tax (T-GST) – Adheeb said the regulation was already bringing in large-scale investment.

“We already have a Qatar-based group interested in the resort business here and they have signed a memorandum of understanding (MOU) on this,” he said. “We are now looking to find a suitable location for them.”

Adheeb claimed the legislation was particularly important considering the  number of pending tourism development projects approved under the former government that failed to be completed – resulting in an overall loss to the country’s economy as a result. He said that the regulation approved back in January would ensure a more “strategic” solution to finding investment partners to ensure financial returns on tourism projects.

Adheeb said that the regulations applied to land such picnic islands that were effectively being used “almost as a resort”, such as areas licensed to serve alcohol to tourists, something not allowed on islands designated as “inhabited”.

“The only difference [to these islands] is that tourists cannot sleep there for the night,” he said. “Now they can stay there the night, but [operators] have to pay land rent. It is to stop the concept from being abused.”

The tourism minister said that picnic islands open to the Maldivian public would not be affected by the regulation and would continue to be accessed and used by local people.

“Picnic island”

Speaking to Minivan News, former Tourism Minister Dr Mariyam Zulfa said the concept of a “picnic island” dated back to the 30-year rule of former President Maumoon Abdul Gayoom.

She said the Gayoom administration had opted to lease islands either for tourism – such as through the development of exclusive resort properties – or tourism-related purposes.

While islands leased for tourism went through a bidding process, land provided for tourism related purposes was said to have been provided on an “ad hoc” basis at the tourism ministry’s discretion, according to Dr Zulfa.

“These were often leased for the purposes of day picnics for tourists, safe harbours and other ancillary facilities of resorts,” she stated. “These islands were only for the use of those persons allowed by the leaseholder (and not available for public use). These islands came to be known as ‘picnic islands’, leased by the Ministry of Tourism.”

Dr Zulfa claimed that the method of providing land for tourism related purposes during the Gayoom-era meant that there had been a lack of regulation for how much an individual party paid to lease such islands.

“Originally these were leased at rates that were not based on a uniform formula and it was very difficult to justify as to why one party had an island for, say US$2,000  a month and others for double that or sometimes more,” she added.

“What has happened traditionally is that some of the leaseholders started building rooms on some of these islands for tourists and very soon some islands became, for all intents and purposes, a tourist resort but without being registered as one and of course without being registered for the taxes that were attached to tourist resorts.”

Under the Nasheed government, Zulfa claimed the former administration attempted to introduce “a fair and just” formula allowing “picnic islands” to be converted legally into tourist resorts at the leaseholder’s request in partnership with the government.

“Thus the uniform formula of US $600,000 per square hectare and all the other conditions were stipulated in our regulations and picnic island lease holders were invited to become legal – if they so required, and without involving the bidding process. These islands are very different to islands leased by other ministries as tourism legislation – and tourism tax, I might add – applies only to islands leased by the Tourism Ministry.”

She added that land leased for public purposes such as picnics by other ministries would not be affected by the Tourism Act.