Maldives Economic Diversification strategy

Maldives Economic Diversification strategy ministry of economic development republic of maldives Maldives Economic Diversification strategy minist...
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Maldives Economic Diversification strategy

ministry of economic development republic of maldives

Maldives Economic Diversification strategy

ministry of economic development republic of maldives

© Ministry of Economic Development

August 2013

Published by Ministry of Economic Development Boduthakurufaanu Magu, Male’ 20125, Republic of Maldives Phone: +960 3323668, Fax: +960 3323840 Email: [email protected]

Layout & Design: Mohamed Shinaz Saeed

foreword Our vision for the Maldives is to become a high income, resilient, inclusive economy by 2025. Rapid sustainable economic growth is the key to create more jobs and increase the income of people. A strong economy is the avenue through which we can provide people freedom, fairness and prosperity. After having enjoyed rapid economic progress over three decades, our economic conditions changed dramatically following the Indian Ocean tsunami. Since 2005, economic policy making in the Maldives has focused on crisis management. What is needed in the Maldives now is to move away from crisis related adhoc decision making to a clear vision, coherent strategies and coordinated policies. There are key lessons to be learned from highly successful countries that have steadily climbed up the economic growth ladder and secured their spot among the top performers. One of the important lessons from the Asian miracle economies — Singapore, Hong Kong and South Korea, is they have pursued economic policies focused on a strategic long-term vision. The main objective of the Maldives Economic Diversification Strategy (MEDS) is to outline a roadmap that will enable Maldives to sustainably secure its place amongst high income countries by 2025 through a diversified economy.

With the new world economic order shifting to Asia, our location opens up several opportunities. Our unsurpassed natural beauty provides us with a distinct image that attracts visitors to our shores. The momentum gained from past rapid pace of economic growth and small population will work in our favour in our pursuit of prosperity. The challenging task is to work co-operatively without complacency in the new political landscape. I am thankful to businesses, industry experts, government officials, civil society representatives and all the stakeholders who shared their wisdom and provided inputs to the MEDS. You have made valuable contributions in charting the course for our common economic future. We believe MEDS will help transform our economy, enhance quality of life in Maldives, and enable us to work together to embrace new opportunities emerging around us. There is an urgent need for change and to act together. There has never been a better time. It is now.

Ahmed Mohamed Minister of Economic Development

Acknowledgements The Maldives Economic Diversification Strategy (MEDS) has been formulated after extensive consultations and discussions held with public and private stakeholders. Ten ad-hoc thematic groups composing of sector and industry specialists, that were established for this exercise provided direction and guidance to the formulation of MEDS. A national level workshop held in January 2013 validated the findings and recommendations. Ministry of Economic Development is grateful for the valuable contributions and strategic directions provided by all who participated in this important planning process.

Thaufeeg, Ms. Lubna Moosa, Ms. Nashiya Saeed, Mr. Mohamed Ushau and Mr. Shinaz Saeed for their professional contributions, research and coordination of the MEDS process. Ministry of Economic Development recognise and appreciate the hard work of its staff who contributed to the MEDS exercise at all stages. In particular, a special thanks is extended to the inhouse team, Minister Ahmed Mohamed, Mr. Yusuf Riza, Mr. Ahmed Ifthikar, Ms. Nuha Mohamed Riza and Ms. Saeeda Umar for reviewing the report. Work of Ms. Umar in coordinating and over-seeing the work on behalf of the Ministry is also recognised.

The MEDS has been completed with financial assistance from the Enhanced Integrated Framework (EIF), a global facility that supports Least Developed Countries (LDCs) and recently graduated LDCs to mainstream trade into their national development plans and to facilitate meaningful integration into the global economy. The Government of Maldives (GoM) thanks EIF for the generous financial support provided to enable this important endeavour. CDE Consulting provided professional expertise, undertook consultations and compiled the MEDS. Ministry of Economic Development thanks CDE team that included Dr. Simad Saeed, Dr. Ahmed Shaig, Ms. Raniya Sobir, Ms. Zimna

V

Contents Foreword

III

Abbreviations

IX

Acknowledgements

V

Introduction

1

Where we stand

3

Upper Middle Income Small Island Economy

4

Fast Paced Economic Growth

8

High Expenditure on Human Development

12

Vulnerable to External Shocks

15

Narrow Economic Base

17

Excessive Reliance on Imports

21

Extreme Dependency on Imported Fuel

25

High Fiscal Deficits

28

High Level of Youth Unemployment

32

High Dependency on Foreign Labour

35

Poverty is Declining But Disparity is Increasing

37

Way Forward

40

The future we want Our Vision

46

Our Goals and Targets

48

45

Strategic framework 59 Our Main Advantages

60

Our Key Challenges

69

Right Conditions

71

Advantage Sectors and Clusters

73

Sectors & strategies 77 Transport

78

Education

84

Trade

88

Tourism

94

Health

98

Fisheries

102

Energy

106

Financial Services

110

Information and Communication Technology

114

Agriculture

118

References

124

Photo credits

126

Abbreviations BML

Bank of Maldives

MEDS Maldives Economic Diversification Strategy

BPT

Business Profit Tax

MMA Maldives Monetary Authority

CIF Cost, Insurance and Freight

MQA Maldives Qualification Authority

CMDA Capital Market Development Authority

MNU Maldives National University

DNP Department of National Planning

MOE

Ministry of Education

EIA Environment Impact Assessment

MPE

Ministry of Planning and Environment

EIF Enhanced Integrated Framework

MPND Ministry of Planning and National Development

GCC Gulf Cooperation Council

MSE

GDP Gross Domestic Product

MSME Micro, Small and Medium Enterprises

GNI Gross National Income

MTCC Maldives Transport and Contracting Company

GoM

MTDC Maldives Tourism Development Corporation

Government of the Maldives

Maldives Stock Exchange

GST Goods and Services Tax

MVR Maldivian Rufiya

HDFC Housing Development Finance Corporation

NCIT National Centre for Information Technology

ICT Information Communication Technology

ODA Overseas Development Assistance

IELTS International English Language Testing System

OECD Organisation for Economic Co-operation and Development

IMR Infant Mortality Rate

OFC Offshore Financial Centre

INIA Ibrahim Nasir International Airport

PPP

JCI

RE Renewable Energy

Join Commission International

Purchasing Power Parity

LDC Least Developed Countries

SIDS Small Island Developing States

MCH Maldives Commercial Harbour

SREP Scaling Up Renewable Energy Program

MDG Millennium Development Goals

STO State Trading Organization

MED

TGST Tourism Goods and Services Tax

Ministry of Economic Development

IX Maldives Economic Diversification Strategy

X Maldives EconomicDiversification Strategy

introduction On behalf of Government of the Maldives, Ministry of Economic Development, has developed the Maldives Economic Diversification Strategy (MEDS) to present the future strategic economic direction for the country. The direction and pace of development proposed in the MEDS, when successfully executed, will dramatically change the future trajectory of the economy, enabling the realization of a diversified economy, with greater resilience to both, internal and external shocks. The MEDS has been developed collaboratively, through a series of consultations and discussions. Ten thematic groups were established whose members were drawn from government, private sector, non-governmental organizations and academia. The Ministry of Economic Development has benefitted from diverse views and suggestions from the thematic groups, participants of the national workshop, and feedback received to the draft sector strategies. As a forward looking nation we need a clear, common vision and a collaborative strategy that will help bring about a major economic transformation. MEDS presents an economic vision, and a ten-year strategy with defined performance targets. This will take the country from its current narrow economic base to a more diversified economy, with several export oriented sectors.

The Maldives has built strengths in the past that augur well for the next ten years. Now the Maldives needs to move forward quickly, embrace new opportunities, and enhance resilience. There is a need to develop new export sectors, do things differently and build new capabilities to address inherent challenges. To stay relevant in the global economy and gain competitiveness, the Maldives needs to bridge swiftly the gaps that are emerging from the short-term political aims and the long-term economic goals. Strategic direction is needed on macro economic management, employment, and investment. Meeting the economic diversification goals require coordination and collaboration amongst key stakeholders, both public and private. The MEDS recognizes that the role of private sector should be central to economic growth of the Maldives. The strategy therefore reflects a partnership with private sector and government. The MEDS is intended to be forward looking and setting future direction, as to where we should, as a country, concentrate our energies in view of moving away from current narrowly based economy, to a diversified economy, with greater resilience to external shocks.

1 Maldives Economic Diversification Strategy

2 Maldives EconomicDiversification Strategy

Where we stand

3 Maldives Economic Diversification Strategy

Where we stand upper middle income small island economy The Maldives is now a US$2.2 billion small island economy with a population of 350,759. In 1980, the Maldives was one of the 20 poorest countries in the world with a per capita Gross Domestic Product (GDP) of US$2751. Back then the country had a population of 155,1002 and a GDP of US$42 million1. Over the last three decades, the Maldives has achieved strong economic growth. By 2012, annual GDP increased to US$2.2 billion1, while the total registered population was estimated at 350,7593.

Figure 1. The Maldives GDP in US$ current prices.

2500

1500

1000

Source: Adapted from World Bank 20131

GDP (US$ millions)

2000

500

0 1980

1985

1990

The Maldives has advanced from a low income country to an upper middle income country. In 2012, the Maldives reached a per capita GDP of US$6,567, up from US$275 in 19801. This reflects more than a 23 fold increase in per capita income over three decades. The World Bank classifies economies according to Gross National Income (GNI) per capita, calculated

1995

2000

2005

2010

using the World Bank Atlas method. The 2012 groups are: low income, US$1,035 or less; lower middle income, US$1,036 - US$4,085; upper middle income, US$4,086 - US$12,615; and high income US$12,616 or more. The 2012 GNI per capita (current US$) of the Maldives calculated using the Atlas method was US$ 5,7501.

5 Maldives Economic Diversification Strategy

Figure 2. Growth in Maldives GDP per capita 1980 to 2010

UPPER MIDDLE INCOME

$12615

10000

7500

5000 LOWER MIDDLE INCOME

$4085

2500 LOW INCOME

0

1980

1990

Economic growth in the Maldives between 1980 and 2010 was achieved while enjoying Least Developed Country (LDC) specific benefits. These benefits included preferential treatment in trade; concessionary financing with low interest rates and longer repayment periods; and grant aid through Overseas Development Assistance (ODA). The Maldives also received technical assistance granted to LDCs by the United Nations (UN) agencies and other multilateral bodies. 6 Maldives EconomicDiversification Strategy

2000

$1035

2010

The Maldives is no longer eligible for preferential treatment enjoyed by LDCs. The Maldives is among three countries to have graduated from LDC status by 20124. The graduation was based on three criteria: per capita gross national income (GNI); human assets; and economic vulnerability to external shocks. Though the Maldives did not meet the latter criterion, the Committee for Policy Development of the United Nations graduated the Maldives in December 2004.

Source: Adapted from World Bank 20131

12500

World Bank country classification

GDP per capita (current US$)

HIGH INCOME

The graduation of the Maldives from LDC status to middle income has led to a new playing field with a different set of challenges. The decision to graduate the Maldives came into force by end of 2010. This transition resulted in the removal of trade benefits and a gradual decline in ODA flows and technical assistance for the country. As a result, the Maldives has lost concessions to major markets for tuna, the only commodity export of the country, and is now at a competitive disadvantage. The graduation of the Maldives from LDC status has been made even more challenging for the economy due to coming into force of new legislation, particularly those relating to employment and taxation, increasing fuel prices and additional fiscal burden arising from the new democratic transition requirements.Though the Maldives has achieved rapid progress in the past, we have to gear ourselves and be prepared to face the new economic realities as an upper middle income country.

We must reduce vulnerabilities, build on our strengths, and embrace new opportunities to ensure our progress continues in the new economic realm.

7 Maldives Economic Diversification Strategy

FAST PACED ECONOMIC GROWTH Real GDP growth averaged more than seven percent annually in the 20 years from 1990 to 201011. Although the Maldives lacks natural resources and scale of economies enjoyed by other South Asian countries, the Maldives GDP per capita has grown faster than its neighbours. The Maldives achieved a 23 fold growth while other South Asian countries have recorded growth ranging from two fold in Afghanistan, Nepal (3 fold), Bangladesh (4 fold), Pakistan (5 fold), India (5 fold), Bhutan (7 fold) and 10 fold in Sri Lanka.

8 Maldives EconomicDiversification Strategy

The Maldives has surpassed all South Asian countries to achieve the highest income per capita in the region. The Maldives now has a per capita GDP of US$6,567 while Sri Lanka’s US$2,9231 is the second highest per capita GDP in a South Asian country. However, compared to other countries in South Asia, the economy of the Maldives is still very small. The US$2.2 billion GDP of the Maldives in 2012 is only 3.7 percent of Sri Lanka’s US$59.4 billion GDP1, while the population of the Maldives is 1.5 percent of Sri Lanka’s population (20.33 million).

Figure 3. The Maldives per capita GDP growth compared to South Asian countries 1980 - 2010.

7000

Maldives Sri Lanka

5000 Bhutan 4000 India 3000 Pakistan

2000

Bangladesh

1000

Though incomparable in size of the economy, the economic growth rate in the Maldives has been significant from an East Asian context too. For instance, the US$2.2 billion GDP of Maldives is less than one percent of the US$275 billion economy of Singapore1, the forerunner among East Asian miracle economies. The population of Maldives is six percent of the

2010

2005

2000

1995

1990

1985

Nepal 1980

0

Singapore population (5,183,700). Yet, the 23 fold Maldivian per capita growth over the last three decades exceeded the East Asian miracle economies: Malaysia (6 fold), Thailand (7 fold), and Singapore (9 fold).

9 Maldives Economic Diversification Strategy

Source: Adapted from World Bank 20131

GDP per capita (US$)

6000

Figure 4. The Maldives per capita GDP growth compared to East Asian countries 1980-2010

10000

8000 Maldives 6000

China Thailand

4000

Indonesia 2000

Several small island economies with similar population to the Maldives have already achieved high-income status. Countries such as Barbados (US$13,453/capita - population 283,221); Malta (US$21,209/capita - population 418,366); and Bahamas (US$22,431/capita population 371,960) have achieved high-income status over the last thirty years1. However, all small island economies with similar population

10 Maldives EconomicDiversification Strategy

2010

2005

2000

1995

1990

1985

0

1980

Phillipines

size that had a larger economic base than the Maldives in 1980 have grown at a much lower pace: the per capita GDP of Fiji has grown two fold, Seychelles (5 fold), Mauritius (7 fold), while the Maldives has grown 23 fold.

Source: Adapted from World Bank 20131

GDP per capita (US$)

Malaysia

Figure 5.

30000

Bahamas

25000

Seychelles Barbados

20000

Malta

15000

Mauritius 10000 Maldives 5000

2010

2005

2000

1995

1990

1985

0

1980

Jamaica Fiji

We must make a comprehensive and committed national effort to become a high-income country.

11 Maldives Economic Diversification Strategy

Source: Adapted from World Bank 20131

GDP per capita (US$)

Maldives per capita GDP growth compared to East Asian countries 1980-2010.

HIGH EXPENDITURE ON HUMAN DEVELOPMENT The Maldives has achieved siginificant progress in human development. Longevity has gained 10 years over the last two decades. In 1990, life expectancy at birth was 63.5 years. In 2010, a boy at birth is expected to live 72.6 years while a girl is expected to live for 74.4 years5. Though 120 babies in every thousand died before reaching the age of one in 1977, the comparative Infant Mortality Rate (IMR) has declined to 11

12 Maldives EconomicDiversification Strategy

per 1000 live births in 20105. In 1990, the child mortality rate stood at 48 per 1000 live births. Child mortality has declined to 13 per 1000 live births by 20105. These achievements are a result of spending on average 10 percent of annual government budget on health.

Over the last three decades, the Government of the Maldives has invested heavily on education. In 2004, the Maldives achieved the goal of providing universal primary education. Until 1992, ten years of schooling was available only in Male’. Lower secondary education is now offered in 188 schools across the Maldives. As a result, net enrolment rate of students attending secondary schools has increased from 42.5 percent in 2001 to 81.2 percent in 2012. Net enrolment rate of higher secondary education was 20 percent in 2012 and higher secondary education is offered in 52 schools6. The 86,500 students in the Maldives live across 193 inhabited islands. Consequently the Maldives has to run 408 schools6. This amounts to one school for every 280 children. Education is provided free of charge in all government schools. The Government also provides free books and stationary to all the students and pays the fees for international examinations. As a result, public expenditure on education as a percentage of GDP is on average 8.1 percent in the Maldives. In comparison, average expenditure on education in OECD countries is 5.2 percent of GDP. Across the Asia Pacific region, the Maldives spends the highest on education7. Although the Maldives expenditure on education is very high, quality of education is low. Only 41 percent of students who have completed ten years of schooling passed five or more subjects in the external examinations held in 20128. Hence, there is an urgent and compelling need to invest to improve quality of education.

A wide range of social protection programmes have been introduced in the Maldives recently. These include health insurance, old age basic pension, electricity benefit, retirement pension, civil service pension, single parent benefit, foster parent benefit, disability benefit, mental health patients assistance, allowance for blind, food allowance, water bill assistance, housing benefit, emergency assistance, absolute poverty benefit, textbook and stationary assistance for students in grades 1 to 10, fees for external examination after grade 10 and grade 12 completion. The expenditure on social protection has escalated since 2005. Of the social protection programmes, health insurance accounts for the highest expenditure. The Madhana Health 13 Maldives Economic Diversification Strategy

Insurance scheme launched in August 2008 was converted to a government paid universal health insurance scheme on 1st January 2012. All Maldivian citizens now have free health insurance coverage through the Aasandha health scheme. Other countries that provide similar insurance include Norway, Japan, United Kingdom, Kuwait, Sweden, Bahrain, Brunei, Canada, UAE, Finland, Slovenia, Italy, Portugal, Cyprus, Spain and Iceland. The expenditure on social protection was 8 percent of GDP in 20129. Although the Maldives is an upper middle-income country with a per capita GDP of US$6,567, the social sector expenditure is on par with the richest nations of the world such as Norway (US$98,102 per capita), Qatar (US$92,501 per capita), Australia (US$60,642 per capita) and Denmark (US$59,684 per capita)10.

To meet the new high aspirations of our population and enhance the quality of life, we must increase our income several folds.

14 Maldives EconomicDiversification Strategy

VULNERABLE TO EXTERNAL SHOCKS In the decade 2000 to 2010, the Maldives economy faced external shocks from natural disasters, global terrorism, health pandemics and hikes in fuel prices. After having recorded annual growth rate of 8.4 percent per annum in real terms over the decade 1990 to 2000, real GDP grew at the rate of 7.4 percent in the decade 2001 to 201011. The high level of global integration adversely impacted the economy from exogenous shocks such as the terrorist attack on the World Trade Center in

2001, the outbreak of SARS in East Asia in 2003, and the international fuel prices escalation that began in 2004. The combined impact of these international incidents temporarily hindered the upward economic trends enjoyed by the country. For the first time ever, the Maldives had a negative economic growth rate in 2005. Since GDP calculations began in the Maldives in 1978, the Maldives economic growth had the

Figure 6. Real GDP growth at 1995 constant prices 1985-2010. 20 15

Source: Adapted from MPND 200511

10 5

2010

2004

1995

2000

-5

1990

1985

0

15 Maldives Economic Diversification Strategy

first major setback in 2005. The Indian Ocean tsunami of December 2004 caused the Maldives damage equivalent to 62 percent of GDP and the economy contracted by 4.6 percent5. In 2009, the economy experienced a negative growth for the second time. Having partially recovered from the economic, social and environmental effects of the tsunami disaster, the country had to face yet another set of challenges from the 2008/2009 international food, fuel and financial crises. Tourist arrivals declined and access to credit crippled. As a result, the Maldives economy contracted by 3.1 percent in 20095.

Going forward, we must lay the foundations for a more resilient economy that can withstand external shocks.

16 Maldives EconomicDiversification Strategy

NARROW ECONOMIC BASE In 1980, fisheries and agriculture were the dominant economic sectors. Primary production including fisheries (18 percent) and agriculture (17 percent) then contributed together 35 percent of GDP, while secondary sectors contributed 15 percent. The tertiary or services sector contributed 50 percent to GDP in 1980 with tourism (13 percent) and social sector (12 percent)2.

Figure 7. Change in percentage share of GDP by key sectors 1980-2010.

70 60 50

Manufacturing

40

Tourism Source: Adapted from MPND 200511

Agriculture

30

Fisheries 20 10 0

1980

1990

2000

2010

17 Maldives Economic Diversification Strategy

There has been a tendency to grow one sector at a time. In the 1970s and 1980s investments in the fisheries sector were the main drivers of economy in the Maldives. As a result, until mid 1980s, economic progress was largely dependent on fish harvest. The next wave of growth came from tourism, with large investments in tourist resort development, and tourism related construction, transport and communications. Tourism overtook fisheries as lead sector of the economy in 1985. By 1990, contribution of primary sector declined to a quarter of GDP (26 percent) with fisheries sector at 15 percent and agriculture at 9 percent. The secondary sector maintained 14 percent contribution to GDP, while services sector contribution to GDP in18 Maldives EconomicDiversification Strategy

creased to 60 percent18. In 1990, tourism sector contributed 18 percent to GDP while government services contributed 8 percent11. Tourism continued to grow in dominance in the 1990s. After a temporary moratorium on new resort construction, following development of Ari Atoll tourism zone in late 1980s, the Government in 1998 offered new 14 islands for the development of tourist resorts. Out of the 14 islands, 13 were developed and were put in operation by 2000. Consequently, the bed capacity of the hotels and resorts increased significantly to reach over 16,000 beds in 200011. This increase in supply coupled with more than 8 percent annual growth in tourist arrivals, tourism sector contributions increased

Figure 8. Percentage shares of GDP by sectors 2012 (at 2003 constant prices)

1% Social Services 27% Tourism

1% Business Services 2% Agriculture 2% Fisheries

11% Government

Administration

3% Financial Services 3% Health 3% Electricity & Water 4% Education 4% Wholesale & Retail

Trade 9% Transport

9% Construction

to 33 percent of GDP by 200011. The tourism spin-offs also caused growth in transport and communication sector from 9.7 percent in 1990 to 14.5 percent by 2000. The new resorts caused growth in construction sector and consequently, the secondary sector contributions grew to 16 percent of GDP by 2000. In contrast, fisheries sector contributions declined to 6 percent of GDP, while agriculture declined to 2.8 percent.

5% Manufacturing 8% Real Estate

The economy is now over-dependent on tourism. Tourism and tourism related sectors now contribute to more than two third of the Maldives GDP. The contribution of tourism sector to the economy was highest in 2004 when contribution to GDP reached a peak of 32.8 percent3. Tourism contributed 27.7 percent to GDP in 2012. The dependency on tourism related sectors such as transport (9.3 percent); 19 Maldives Economic Diversification Strategy

Source: Adapted from DNP 20123

9% Communication

communication (9.3 percent); and construction (9.3 percent) has also increased. The contribution of the primary sector has declined to 3.4 percent by 2012 with fisheries sector at 1.7 percent and agriculture 1.7 percent3. With a narrow economic base and minimal vertical and horizontal diversification, the economy is highly vulnerable to world travel trends. A decline in the tourism industry could have a serious impact on the cost and standard of living, development activities, provision of public services, level of domestic economic activity and employment in the Maldives. The 2004 tsunami and 2008 international financial crisis exposed the scale of our vulnerability due to high dependence on tourism. Countries such as Mauritius and Singapore who have shown resilience to the global economic crises have four or more sectors with double-digit share in GDP.

We must steer away from an economy dominated by a single sector to a diversified broad based economy.

20 Maldives EconomicDiversification Strategy

EXCESSIVE RELIANCE ON IMPORTS The Maldives has a very open economy and an extreme reliance on imports to meet almost all of its consumption. The country’s balance of payments is normally characterized by deficits on the trade account and surpluses on the service account. From a rare surplus of US$10 million in 199011, the current account deficit has worsened to US$600 million (27

percent of GDP) in year 20129. The current account deficit in 2012 was mainly felt as a result of an increase in imports as well as a decline in exports. The decline in exports mainly related to a reduction in re-exports. However, fish export earnings were favourable during the year. The overall balance of payments recorded a deficit of US$37.4 million (2% of GDP) in 20129.

Figure 9.

100 0

1986

1990

1995

2005

2010

2012

-100 Source: Adapted from MPND 200511 and MMA 20139

Current account balance (millions of US$)

Current account balance 1986-2012.

-200 -300 -400 -500 -600 -700 -800

21 Maldives Economic Diversification Strategy

The merchandise exports comprise mainly of fish and re-export of jet fuel. The merchandise exports increased from US$78 million12 in 1990 to US$314 million9 in 2012. Domestic exports as a share of total exports rose to 43 percent in 2012 due to favourable receipts in fish exports, while the share of re-exports fell to 57 percent9 in 2012. The Domestic exports, which almost entirely comprise of fish exports (97 percent),

reached US$161.6 million in 2012. The earnings for fish exports reached a record US$156.1 million in 2012, reflecting the higher unit prices received in the international market as well as improved volume of exports (up by 6 percent in 2012 from 2011 due to improvements in fish landings). The re-exports earned US$152.8 million in 2012. Of the total re-exports, 85 percent comprised jetfuel sold to air carriers9.

Figure 10. Trends in Maldives exports 2000-2012.

300

250

200

150

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

22 Maldives EconomicDiversification Strategy

2011

2012

Source: Adapted from MMA 20139

Exports (millions of US$)

350

The import dependency continues to grow. The CIF value of merchandise imports has increased from US$120 million in 1990 to US$1.5 billion in 20129, bringing the share of imports as a percentage of GDP up to 68 percent in 2012. The heavy reliance on petroleum products and food items account for over 50 percent of our imports. Of total imports, 31 percent is petroleum products while 21 percent is food items. Wood, metal, cement and aggregates accounted for 9 percent of total imports in 20129.

Figure 11. Trends in Maldives imports 2000-2012.

1500 1200 900 Source: Adapted from MMA 20139

Imports (millions of US$)

1800

600 300 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2011

2012

23 Maldives Economic Diversification Strategy

Maldives is extremely dependent on food imports. Over 90 percent of foods are imported. In 2012, of total imports, 21 percent were food items and the food bill reached US$318.9 million demonstrating huge implications for food security as well as inflation. Of the food items, beverages and confectionaries accounts for US$64 million; meat, fish and seafood (US$60.1 million); vegetables, root crops and spices (US$49.3 million); dairy and eggs (US$44.7 million); fruits, nuts and seeds (US$37.2 million).

The high reliance on imports affects the Maldives international reserves. During 2012, the overall balance of payments recorded a deficit of US$37.4 million, leading to a drawdown of reserves by the same amount. Gross international reserves, which stood at US$334.9 million at the end of 2011, declined to US$304.6 million at the end of 2012. In terms of months of imports, gross reserves were equivalent to 2.4 months of imports at the end of 2012, compared to 2.7 months at the end of 20119.

We must shift away from import dependency and excessive consumption towards saving, investment and net exports.

24 Maldives EconomicDiversification Strategy

EXTREME DEPENDENCY ON IMPORTED FUEL The Maldives is one of the most oil vulnerable countries in the world. There are no known oil, natural gas or coal reserves in the Maldives and is therefore an energy importer. The 2012 fuel imports bill of US$488 million amounted to 22 percent of annual GDP9. Expenditure on fuel rose by 33 percent in 2012 compared to 20119.

The dependency on imported fuels worsened over the last 20 years. In 1990, petroleum products accounted for 15.8 percent of total imports and were the third largest category of imports36. In 2012, petrol products accounted for 31 percent of total imports and represented the largest category of imports9. In 2012, the

Figure 12.

Petroleum Imports (CIF millions of US$)

Petroleum product imports 2000-2012.

500

400

300

200

100

0

2000

2001

2002 2003 2004 2005 2006 2007 2008 2009

2010

2011

2012

25 Maldives Economic Diversification Strategy

Maldives imported 337,531 MT of diesel, 93,865 MT of jet fuel, 38,008 MT of petrol, and 10,919 MT of LPG37. The electricity generation sector is the largest consumer of fuel. In 1990, there were only six islands that had regular 24 hour access to electricity38. By 2008, the Maldives achieved the milestone of providing households in all inhabited islands with access to 24 hour electricity39. The total installed power generation

capacity of diesel generators in the country in 2012 was about 245MW. Of the total generation capacity 43 percent (105 MW) is installed in the tourist resorts, while 29 percent is installed in the inhabited islands of the atolls. Male’ accounts for 20 percent (48 MW) of total installed capacity of the country while 8 percent (20 MW) is installed in industrial islands40.

Figure 13. Quantity of fuel imports by type - 2012

70% Diesel 337,531 MT

2% Propane 10,019 MT

8% Petrol 38,008 MT

20% Jet Fuel 93,865 MT

26 Maldives EconomicDiversification Strategy

Transport sector is the second largest sector in terms of energy use. As the country consists of small islands of which 194 are inhabited and 105 are developed as tourist resorts, the transport sector is dominated by maritime transport and diesel (86,582 toe in 2009) accounts for the majority of the marine transport sector’s energy needs. Passengers and goods transport is predominant and consumed 49,588 toe of diesel in 2009, followed by fishing (25,223 toe), and tourist transfer (11,388 toe). Tourist transfers consumed 10,435 toe of petrol in 2009. In road transport, 16,275 toe of petrol and 3,172 toe of diesel was consumed in 200941. The energy sources used for cooking by households have totally changed. In 1990, more than 90% of households in the atolls and 20% of households in Male’ used firewood for cooking17. However, in 2006, more than 86% of households in Male’ and 73% of households in atolls used gas as the main energy source in cooking16. The high dependency on fuel imports makes the Maldives extremely vulnerable to escalating global fuel prices. From the US$ 20 per barrel level of 2001, global oil prices entered a long upward swing in 2004, and the trend

accelerated sharply in 200742. Though oil prices dipped to US$ 40 per barrel at the depths of the financial crisis, prices have more than doubled since 200842, and oil prices averaged over $100 a barrel in 201143. Due to rising fuel prices the Government spent US$ 25 million in 2011 to subsidize operational cost of electricity generation. The dependency on imported fuel will increase in the future under a business as usual scenario. The annual electricity production in inhabited islands has reached over 428GWh in 201140. Electricity demand in the Maldives is expected to continue to grow at more than 8.5 percent a year while electricity demand in Male’ is increasing at an average rate of 11 percent annually40. This will make the Maldives more energy insecure, inefficient, and vulnerable to external shocks. Apart from energy security implications, the dependency on fuel is also linked to water security, as the Maldives has to depend on diesel to desalinate seawater for consumption and other uses.

We must transform to renewable energy to ensure a secure, low-carbon, sustainable energy future. 27 Maldives Economic Diversification Strategy

HIGH FISCAL DEFICITS Until 2000, the Government followed a prudent fiscal policy. Since 2001, a more expansionary fiscal policy regime was followed and Government spending outpaced GDP growth since 2000. Total government spending increased from 32 percent of GDP in 2000 to 45 percent in 200121. In 2012, it stood at 42 percent of GDP9. Revenue has also grown, but at a slower pace. From 2000 to 2004 overall deficit ranged between 4 and 5 percent of GDP.

28 Maldives EconomicDiversification Strategy

In the aftermath of the 2004 Indian Ocean Tsunami, fiscal deficit reached a new high. The deficit reached 11 percent of GDP in 2005, due to the post tsunmai reconstruction efforts. This was followed by a short period of stabilisation until 2008 when fiscal deficits again escalated. After the fiscal deficits having reduced to 2 percent of GDP in 2007, it increased to 11 percent of GDP in 2008. The global financial crisis induced shortfalls in revenue, coupled with declining

Figure 14.

15000

25

12000

20

9000

15

6000

10

3000

5

Percentage of GDP

In Million Rufiyaa

Public finance, revenue and expenditure 1994-2012.

Expenditure & Net Lending

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

0

Revenue & Grants

Deficit as % of GDP

international financing, led to a record deficit of 21 percent of GDP in 2009. The fiscal deficit of 2012 stood at 13 percent of GDP. Coupled with high fiscal deficit, the total public debt of the

government reached 72 percent of GDP (US$ 1.6 billion) by the end of 2012, of which 39 percent is domestic debt9.

29 Maldives Economic Diversification Strategy

Important new revenue streams have been introduced recently. Government’s effort towards fiscal consolidation has strengthened the taxation base. The introduction of the Business Profit Tax (BPT) and Goods and Services Tax (GST) in 2009, increased the government’s reliance on tax revenue, while lessening the reliance on non-tax revenue. A number of new revenue measures were also implemented during 2012, including an increase in the rates of GST and T-GST9.

30 Maldives EconomicDiversification Strategy

The current expenditure of the Government has spiraled upwards. Government expenditure has increased to 42 percent9 of GDP (US$ 922 million) in 2012. Current expenditure of the government contributes to over 70 percent of total expenditure. The high current expenditure is due to the large size of the public sector in the economy, with close to 84 percent of current expenditure spent on administrative and operational expenses. Total government wage bill (salaries, wages and allowances) constituted 40 percent of current expenditure, amounting to US$ 274 million in 20129. Although salaries and wages constitute a large portion of current expenditure, spending declined slightly in 2012.

Social welfare spending has emerged as a major current expenditure. The growth in current expenditure in 2012 was led by the increased spending on social welfare contributions, which more than doubled, from US$ 84 million in 2011 to US$ 179 million and accounted for 26 percent of current expenditure in 20129. This primarily reflects the government contributions to the Aasandha health scheme, which was introduced in January 2012. The external debt of the Maldives has increased significantly. At the end of 2012, the official external debt stood at US$ 846.2 million9 (38 percent of GDP) as compared to US$ 959.1 million at the end of 2011 (43 percent of GDP).

We must ensure a smaller government and prudent public sector debt levels to achieve macro-economic stability.

31 Maldives Economic Diversification Strategy

HIGH LEVEL OF YOUTH UNEMPLOYMENT The growth in youth population has resulted in relatively larger number of young people entering the labour market. The working age population increased from 112,561 (53 percent of the total population) in 1990 to 205,931 (63 percent) in 200616. Between 2006 and 2010, the labour force increased by more than 19,00015.

Figure 15.

Figure 16.

Trends in youth population 1977 -2006.

Trends in working age population 1985-2010.

Youth Population (15-24yrs in ’000)

Source: Adapted from Census data14, 17, 23, 24, 25

80 70 60 50 40 30 20 1977

1985

1990

1995 2000 2006

32 Maldives EconomicDiversification Strategy

250

200

150

100

50 1985

1990

1995 2000 2006 2010

Source: Adapted from Census data14, 17, 23, 24, 25 and DNP 201215

Working Age Population (15-65yrs in ’000)

The present youth population in the Maldives is the largest youth cohort the country has ever seen. The number of young people (15-24 years) increased from 27,924 in 197713 to 74,713 by 200614. Youth in the 15-24 years age group now comprise of 25 percent of the total population of the Maldives.

The economy was unable to create attractive jobs for the large number of youth who entered the working age. Unemployment remained below 2 percent from 1990 to 2000. According to new definition of unemployment adopted for Census 2006, unemployment was estimated at 14 percent in 2006, and reached 28 percent by 201015. The number of unemployed increased to 38,493 in 2010 from 18,493 in 200615. Unemployment in 2010 was higher among females (39 percent) than males (19 percent). Of the unemployed in 2010, more than 51 percent males and 40 percent females stated they were unable to find suitable employment.

Figure 17. Trends in unemployment 1985-2010.

30

Source: Adapted from Census data14, 17, 23, 24, 25 and DNP 201215

Unemployment Rate

25 20 15 10 5 0

1985

1990

1995

2000

2006

2010

33 Maldives Economic Diversification Strategy

Youth unemployment has reached an alarming scale. In 2010, more than 65 percent of young males between 15 to 19 years and 32 percent of 20 to 24 year old males were unemployed3. Among females, 53 percent of 15 to 19 year age group were unemployed while 37 percent of 20 to 24 year old females were unemployed. Furthermore, 42 percent of 25 to 34 year age females were unemployed in 201015. Increasing economically inactive population is a serious challenge for economic and social development. The economically inactive population has increased from 57,080 in 199017, to 63,387 by 200614 and reached 75,157 (35 percent of the population) in 201015. In 2010, 45 percent of females were not economically

active compared to 24 percent of males. Of the not economically active females 33 percent reported household chores as the reason while 50 percent of males are currently studying15. Most of the jobs are not in sectors that match the interest of young people. Employment by sector shows that in 2006, the highest number of persons were employed in manufacturing (19,259), followed by public administration and defence (15,949) and hotels and restaurants (12,090)16. The changes in the labour force by sector show that the number of persons active in fishing fell from 11,498 in 199017 to 8,388 in 200616. On the other hand, number of persons active in agriculture increased from 2,619 in 199017 to 4,236 in 200616.

We must create new job opportunities that match the aspirations, skills and interests of Maldivian youth.

34 Maldives EconomicDiversification Strategy

HIGH DEPENDENCY ON FOREIGN LABOUR The economic growth in Maldives since 1990 was achieved through a significant expansion of foreign workforce. The Maldives continues to follow a liberal labour policy unlike the rest of South Asia. As a result, number of expatriates increased from an estimated 5,000 in 199018 to 111,579 by December 201219. In 2012,

more than 18,050 new expatriates joined the labour force at an average of 49 new expatriates per day19. Furthermore the high number ofillegal unregistered workers exacerbates the foreign labour situation of the Maldives.

Figure 18. Expatriate labour force growth 1985 to 2012.

100

Source: Adapted from Census data14, 17, 23, 24, 25 and haveeru news19

Expatriate Labour Force (’000)

120

80 60 40 20 0

1985

1990

1995

2000

2006

2012

35 Maldives Economic Diversification Strategy

Half of the total workforce in Maldives is foreign and they are largely unskilled. The bulk of expatriates continue to be employed in jobs the locals find unsuitable, mostly in elementary occupations in the construction sector (43 percent) followed by tourism (15 percent)3. Although the rapid increase in foreign unskilled workers has enabled us to seize opportunities in the construction sector and the tourism sector, we have become over-dependent on foreign workers who now make up half of the total workforce.

We have to manage the dependence on an unskilled foreign workforce and not let it increase indefinitely.

36 Maldives EconomicDiversification Strategy

POVERTY IS DECLINING BUT DISPARITY IS INCREASING The Maldives has already achieved the Millennium Development Goal (MDG) to reduce income poverty. The MDG target 1 is to reduce by half the proportion of population below US$1 Purchasing Power Parity (PPP) per day. In 1997, the proportion of population whose income was less than US$1 PPP (MVR 4.34) a day was 3 percent20. By 2004, the proportion of population below this poverty line was reduced to 1 percent of the population22.

The majority of households now share the higher national income. The average monthly household income has increased from MVR9,603 in 2003 to MVR16,736 in 2010. The average household income has grown at a rate of 8.26 percent per annum. Median monthly household income has doubled from MVR5,235 in 2003 to MVR10,679 by 2010. The median is about MVR6,000 less than the average income15.

Figure 19.

Figure 20.

Headcount ratio for international poverty line 1997 and 2004

National household income per person 1998, 2004 and 2010

3.5

Malé

3.0 2.5

Republic

2.0 1.5

Atolls

1.0 0.5 0.0

Source: Adapted from MPND 200422 and DNP 201215

100 National household income (MVR per person)

Head count ratio (PPP $1)

Source: Adapted from MPND 200422

4.0

80 60 40 20 0

1997

2004

1998

2004

2010

37 Maldives Economic Diversification Strategy

There are significant differences in household income levels between Male’ and Atolls. In 2010, the average household monthly income for Male’ was MVR28,909 compared to MVR11,200 in Atolls. The median household income of MVR18,000 for Male’ is much higher compared to MVR8,466 in the Atolls15. Major disparities also exist between Male’ and the atolls in access to higher education, employment, health, and recreation.

Figure 21. Household income disparity between Male’ and atolls

Male' 120

90

60

Atolls

30

0 1998

38 Maldives EconomicDiversification Strategy

2004

2010

Source: Adapted from VPA and HIES data

Household income per person per day ( MVR)

150

Urban poverty in the capital Male’ is worsening. While headcount ratio for MVR22 declined from 21 percent in 2003 to 15 percent by 2010 at the national level, the headcount ratio in Male’ increased from 4 percent in 2003 to 12 percent in 201015. The indicators of depth of poverty also shows that the poor in Male’ have become poorer now. In Male’, the poverty gap ratio relative to the poverty line of MVR22 increased from 1 percent in 2003 to 3 percent in 2010. Not only did the conditions of the poor get worse, there is rising inequality in Male’. The Gini Coefficient for Male’ increased from 0.35 in 2003 to 0.38 in 201015.

One of the main contributing factors for urban poverty in Male’ is migration of high number of young people from the atolls in search of education and jobs. High levels of migration have led to extreme congestion in Male’ and escalating housing rents. Male’ now has the highest population density in the world with 525 persons per hectare. For comparison, the three largest cities ranked by population density are Mumbai with 296 persons per hectare followed by, Kolkata (239/ha) and Karachi (189/ha). While the Maldives median monthly disposable income (after Tax) is US$650; the median rent per one bedroom apartment is US$650 and a three bedroom apartment is US$1,230. Home ownership is almost prohibitive with price per square meter to buy apartment in Male’ exceeding US$4,100.

We must ensure that the economy delivers prosperity and opportunity for all Maldivians.

39 Maldives Economic Diversification Strategy

way forward The Maldives economy is at a crossroad. In recognition of the strong economic and social development in the past, the Maldives has graduated from a Least Developed Country to a Middle Income Country. The Maldives is no longer eligible for special preferences and differential treatment enjoyed by LDCs.

We must reduce vulnerabilities, build on our strengths, and embrace new opportunities to ensure our progress continues in the new economic realm.

The Maldives per capita GDP growth over the last three decades has been outstanding. If the average annual growth rate of the past is sustained the Maldives will achieve high-income status in less than 15 years. However, maintaining this rate is challenging in the present uncertain and volatile global economic conditions.

We must make a comprehensive and committed national effort to become a highincome country.

Over the last three decades, the Government of Maldives has invested heavily on education, health and social protection. This has resulted in high human development and aspirations for higher quality of life.

To meet the new high aspirations of our population and enhance the quality of life, we must increase our income several folds.

40 Maldives EconomicDiversification Strategy

In the last decade, the vulnerability of the economy to external shocks such as terrorism, pandemics and hikes in fuel prices was exposed. The Maldives experienced negative economic growth in 2005 and 2009.

Tourism and related sectors now contribute to more than two thirds of the GDP. The Maldives is now extremely susceptible to global travel market conditions and trends over which the Maldives has no control.

The Maldives have an extreme reliance on imports to meet almost all consumption needs, including all food products, fuel, raw material, and intermediate goods. The imports exceed two third of the GDP.

Going forward, we must lay the foundations for a more resilient economy that can withstand external shocks.

We must steer away from an economy dominated by a single sector to a diversified broad based economy.

We must shift away from import dependency and excessive consumption towards saving, investment and net exports.

41 Maldives Economic Diversification Strategy

The Maldives is one of the most oil vulnerable countries in the world with more than one fifth of national income spent on fuel imports. The Maldives has an extreme dependency on diesel to generate electricity, marine transport and desalinate seawater.

We must transform to renewable energy to ensure a secure, low-carbon, sustainable energy future.

The total public debt has increased steadily since the 2004 tsunami and has reached more than 70 percent of GDP. Current fiscal policies require extremely large domestic and external financing that cannot realistically be met.

We must ensure a smaller government and prudent public sector debt levels to achieve macro-economic stability.

The present youth population in the Maldives is the largest youth cohort the country has seen. Although a high number of young people presents a window of economic opportunity, the labour market has been unable to generate and foster jobs that match interest and education and skill set of youth.

We must create new job opportunities that match the aspirations, skills and interests of Maldivian youth.

42 Maldives EconomicDiversification Strategy

Half of the total workforce in the Maldives is foreign and they are largely unskilled. Although foreign unskilled workers enabled the Maldives to seize opportunities in the construction sector and the tourism sector, the country has become over-dependent on foreign workers.

We must manage the dependence on an unskilled foreign workforce and not let it increase indefinitely.

Households income levels in Male’ are significantly higher than in the Atolls. On the other hand, urban poverty in the capital Male’ is worsening. In Male’, the number of poor is increasing, the condition of the poor is getting worse, and there is rising inequality in Male’.

We must ensure that the economy delivers prosperity and equal opportunity for all Maldivians.

43 Maldives Economic Diversification Strategy

44 Maldives EconomicDiversification Strategy

The future we want

45 Maldives Economic Diversification Strategy

OUR VISION

To be a high-income, resilient, inclusive economy by 2025

46 Maldives EconomicDiversification Strategy

High Income ++ We want to increase our annual per capita GDP to more than US$12,500 by 2025.

Resilient ++ We want a broad based export driven economy. ++ We want an economy powered by renewable sources of energy.

Inclusive ++ We want an economy our young people participate fully, and feel proud to work and earn. ++ We want a dynamic economy where individual entrepreneurs and small and medium enterprises have the opportunity to innovate and grow. ++ We want an economy that delivers prosperity and opportunity for all.

47 Maldives Economic Diversification Strategy

our goals and targets The following three goals and nine targets will help guide the necessary transformations required to achieve the national vision to become a high-income resilient, inclusive economy.

Goal  1

ACHIEVE HIGH INCOME STATUS

Target 1.1: Increase per capita income to more than US$12,500 by 2025

12500 UPPER MIDDLE INCOME

10000

$12475

7500

5000 LOWER MIDDLE INCOME

$4035

World Bank country classification

GDP per capita (current US$)

HIGH INCOME

2500 LOW INCOME

0

1980

1985

1990

1995

2000

By 2025, our population is projected to reach 395,000. To become a high income country 48 Maldives EconomicDiversification Strategy

2005

2010

2015

2020

$1025

2025

with a per capita GDP of US$ 12,500 our GDP has to reach US$ 5 billion by 2025.

Target 1.2: Increase annual GDP to more than US$ 5 billion by 2025

6000

GDP (US$ millions)

5000

4000

3000 2000

1000

0 1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

We must grow our GDP by no less than 7 percent every year to reach US$ 5 billion by 2025.

49 Maldives Economic Diversification Strategy

Target 1.3: Achieve and maintain an average annual economic growth rate of not          less than 7 percent from 2013 to 2025.

20 15 10 5

50 Maldives EconomicDiversification Strategy

2025

2020

2015

2010

2004

-5

2000

1995

1990

1985

0

Goal  2

BUILD RESILIENCE

Target 2.1: Increase the number of export sectors that have double-digit share in GDP to more than 5 by 2025.

5000 5

Business Services

5

Agriculture

5

4000

5

Manufacturing

5

Real Estate

5

Construction

5

3000

Financial Services 10

10

Health Electricity & Water Fisheries

2000 10 10

Communication (ICT) Education Wholesale & Retail Trade

1000

Transport 20 Tourism 0

2012

2025

51 Maldives Economic Diversification Strategy

Target 2.2: Increase the total number of export sectors to at least eight by 2025

2012

TOURISM FISHERIES

TRANSPORT

TOURISM FISHERIES

2025

TRANSPORT TRADE EDUCATION ICT FINANCIAL SERVICES HEALTH

Percentage share of GDP

52 Maldives EconomicDiversification Strategy

Target 2.3: Increase share of renewable energy in total energy generation to more          than 50 percent by 2025

2013

2025 TARGET

Diesel

Renewable Sources

Renewable Sources

99.2%

0.8%

50%

250MW

2MW

53 Maldives Economic Diversification Strategy

Goal  3

INCREASE INCLUSIVENESS AND EQUALITY

Target 3.1: Reduce unemployment rate from 28 percent to less than 10 percent by 2025

30

Unemployment rate (percent)

25

20

15

NOW

10

5

TARGET

0 2010

54 Maldives EconomicDiversification Strategy

2025

Target 3.2: Achieve a top 40 ranking on the World Bank Ease of Doing Business           Index by 2025 to foster investments and MSME development

2013 1

30

1 2

Singapore Hong Kong

29

Austria

2025

40 60

90

59

Botswana

74

Seychelles

91

China MALDIVES

120

119

MALDIVES

95

Nicaragua

55 Maldives Economic Diversification Strategy

Target 3.3: Reduce the Gini-Coefficient Index of the Maldives from 37 in 2010 to less          than 30 by 2025

80 70 60

GINI Coefficient

50 40 30 20 10

56 Maldives EconomicDiversification Strategy

Denmark

Sweden

Norway

Maldives

Bhutan

Thailand

Sri Lanka

Fiji

Malaysia

Singapore

Seychelles

0

57 Maldives Economic Diversification Strategy

58 Maldives EconomicDiversification Strategy

Strategic framework

59 Maldives Economic Diversification Strategy

our main advantages The economic goals and targets we have set for the Maldives are ambitious and requires transformation in the economy. Over the past three decades, the Maldives has maintained average annual economic growth rate of more than seven percent, despite severe shocks to economy. However, seven percent annual economic growth rate exceeds projected growth rates of the Maldives and the current rates of our neighbours and the advanced economies. Thus, seven percent annual growth over the next decade will be an ambitious and challenging target in the uncertain global economic setting.

60 Maldives EconomicDiversification Strategy

The goals and targets require the structure of the Maldives economy to shift to export driven sectors. It will also need significant growth in new sectors. Significant improvement will also be required in labour force participation, skills development and access to capital. The Maldives has distinct advantages that provide significant economic opportunities. The results will take time to materialize, but there is no better time than now to maximize the economic advantages presented by location, beauty, infrastructure and human capital.

geographic location

Doha

Dubai

Dhaka

Mumbai

Chennai

Bangkok

Colombo Maldives

Kuala Lumpur Singapore

Jakarta

International Shipping Routes International Airline Routes

The geographic location of the Maldives in centre of the Indian Ocean offers tremendous opportunity for future economic growth. The Maldives is well located to gain from the emerging new world economic order. The international financial, fuel and food crisis has demonstrated the shift of markets to Asia. The unprecedented economic growth in China, India and ASEAN countries will play to the strength of the location of the Maldives.

We have a unique opportunity to link up to Asia’s economic powerhouses over the next ten years. Asia has seven out of the world’s top 20 most populated countries. The dynamic growth and expanding middle class of Asia is the world’s new growth driver. Asia’s private consumption, on a purchasing power parity basis (US$ 10,276 billion) matches that of the United States (US$ 10,729 billion). We must establish our presence now so that we can begin early, and build upon to add value over the longer term. Trade, transport, tourism, higher education, and ICT

61 Maldives Economic Diversification Strategy

are key sectors that can benefit from access to bigger markets, more choice, increased revenue, and cheaper inputs. The location of Maldives offers significant advantage to tap the world maritime shipping industry. The Maldives is situated on the 1600km long Laccadives-Chagos submarine ridge in the central Indian Ocean astride major maritime trade routes in the Indian Ocean. Main shipping lanes from Strait of Hormuz and Bab el-Mandab to Strait of Malacca and Cape of Good Hope to South Asia cross the Maldives. The transIndian Ocean traffic support the most important commercial shipping flows servicing major markets to and from Asia. The Europe-Asia trade route via Suez and Malacca is one of the largest shipping lanes that link the exports from China, Japan and South Korea to the consumers in Europe and Middle East.

We must open up to the new world economic order, change mind sets and embrace the economic opportunities provided by the geographic location of the Maldives close to the Asian economic powerhouses.

62 Maldives EconomicDiversification Strategy

natural beauty

The exceptional beauty of the Maldives presents competitive advantage. Our beautiful white sandy beaches, rich coral reefs, abundant marine life, and pristine environment are unsurpassed assets. The unique natural small island beauty of the Maldives is now well established as a recognized premium brand in the world for tourism. Furthermore, the Government of the Maldives has decided to make the entire Maldives a marine reserve.

The Maldives could leverage the image and brand of the Maldives to attract more visitors. We are well positioned to gain from the growing tourist outbound markets such as China, Russia, India and the Middle East. We will also continue to benefit from the increased premium Europeans are placing on democratic and environment friendly countries to attract more high-end visitors from Europe. The serenity, peacefulness and beauty of the Maldives present opportunities to attract visitors seeking wellness and health.

63 Maldives Economic Diversification Strategy

The natural beauty and brand Maldives is a strong opportunity to attract young people to study in the Maldives. The area in where we have advantage include hospitality and tourism, fisheries, marine biology, information technology and pilot training.

the rich tradition and culture of eco-friendly pole and line tuna fishery. We must ensure we get optimum value for our yellow fin and skipjack tuna by offering premium products. There is also high potential for mariculture development in reef and oceanic fisheries.

The rich marine biodiversity of the Maldives is an advantage for sustainable fisheries. The Maldives being an archipelagic state has a vast Exclusive Economic Zone of 850,000 square kilometres in the Indian Ocean that provides rich fishing grounds. Maldivians continue to utilize marine resources for both local consumption and exports. The demand for Maldivian fish products is growing and there is room for further diversification of the fishing industry. Policies for economic growth should focus on leveraging

Our tropical climate with ample sunshine presents advantage to transform the economy to renewable solar energy. The atolls in the north of the Maldives do get the required wind speed and intensity to invest in wind energy.

We want Maldives to pursue green growth that preserves our natural beauty, conserves natural resources and harnesses renewable resources for energy.

64 Maldives EconomicDiversification Strategy

dynamic youthful workforce

The Maldives has a growing stock of human capital embodied in the knowledge, skills, competencies and health of the population. The present youth population in the Maldives is the largest youth cohort the country has ever seen. The high proportion of young people in the population provides the potential for a productive labour force. Youth mainly prefer to work in service and emerging new sectors. A large percentage of youth aspire to be selfemployed and start up own businesses.

65 Maldives Economic Diversification Strategy

Young population offers creativity, vitality, and adaptability needed for the new transformation in the economy. The Maldives has a very young population. The median age of the population is 22 years and young people below 30 years of age account for 65 percent of the population. Nine out of ten young people have more than 10 years of schooling. Young people use the Internet regularly, and are well connected over social media. All young people are bilingual and communicate well in English bringing an economic and social advantage in a globalised economy.

We must maximise the advantage presented by the dynamic, creative youth of Maldives in reshaping the future economy.

66 Maldives EconomicDiversification Strategy

INFRASTRUCTURe

The Maldives has physical infrastructure that presents advantages for future economic diversification. Maldives has more than 120 worldclass tourist resorts and hotels, over 9000 fishing vessels and 4 state of the art fish processing plants. Access to reliable 24 hour electricity is available in all the islands. Electricity supply in the Maldives is free of interruptions and shortages enabling businesses to work uninterrupted.

The Maldives has broadband coverage across all the islands. Over 3 Gigabits of Internet data via two submarine fiber optic cables serves the population of 350,759. In 2011, the mobile subscription per 100 people was 163.1. Information and its use underpins the world’s economy. It also creates opportunities for communities separated by geographical boundaries to connect with the world for employment and business.

67 Maldives Economic Diversification Strategy

The Maldives has a developing marine transport system and an extensive air transport network. There are 4 international airports, 6 regional airports, 2 currently under construction, and 5 planned; 3 international seaports, and 4 fishing ports. The Maldives has the largest floatplane operations in the world. The transport network has tremendous potential to connect to Indian Ocean maritime transport routes and capitalise on the growing transshipment traffic, making the Maldives the point where east meets west.

We must radically enhance and improve the reliability and speed of multi-modal transport and broadband connectivity to fully reap the benefits of our existing infrastructure.

68 Maldives EconomicDiversification Strategy

our key challenges Access to Credit Difficulty in getting access to credit is a major challenge for economic diversification. The Investment Climate Assessment (ICA) highlights access to finance and cost of finance, as being the biggest obstacles to investment (World Bank 2006). The World Bank’s Doing Business surveys find that the Maldives is a difficult place to get credit and export goods. The finance sector is narrow and dominated by the banking sector. The banks in the Maldives follow a very conservative approach unlike modern and competitive banking elsewhere. Local sources of finance are limited and most lending is from parent banks of international commercial banks. Furthermore, most foreign currency loans are made to foreign currencyearning tourist enterprises. In 2012, the total value of private sector credit was recorded at MVR 14.5 billion. The distribution of loans to the private sector shows that tourism continues to hold the largest share of total outstanding loans at 58 percent with a total value of MVR 8.4 billion, crowding out investments in other potential sectors.

The 2009 international financial crisis hit the banking system of the Maldives sharply and private sector credit shrank in 2009. The financial crisis changed the global finance landscape and reduced cross-border financing. In order to address the present gaps in funding for businesses in the Maldives there is an urgent need to develop and expand the Maldives financial services market.

WEAK LEGAL FRAMEWORK Lack of a modern and efficient legal framework is a key challenge. Limitations in legal and administrative framework including lack of trained judges to adjudicate modern commercial cases, slow legal processes and weak enforcement of laws are obstacles for economic diversification. The Maldivian judicial system is based on a combination of Islamic Shari’ah law and common law in the commercial sector. The 2008 Constitution has established a three tier legal structure for the Maldives. The structure comprises of Supreme Court as the highest judicial authority; High Court serving as court of appeal; a Civil Court, Criminal Court; Family Court; and Juvenile Court in Male’; and one magistrate court in each inhabited island. However, to make the structure effective we need trained and qualified judges and streamlined administrative procedures. 69 Maldives Economic Diversification Strategy

The majority of the laws governing the business sector are relatively old and are in need of revision. New laws are needed to reflect and accommodate the evolving modern business realities. Furthermore, there are gaps in the enforcement capacity to administer existing laws and urgent action is required to strengthen the capacity for effective law enforcement

HIGH FiSCAL DEFICITS AND DEBT High fiscal deficits and public debt remain a key challenge for diversification. The global financial crisis induced shortfalls in revenue, coupled with declining international financing led to a record deficit of 21 percent of GDP in 2009. The fiscal deficit of 2012 stood at 13 percent of GDP. Public debt of the government reached 72 percent of GDP by the end of 2012, of which 39 percent is domestic debt. The Government has recently introduced new revenue streams and strengthened the tax base. However, fiscal consolidation remains as a challenge, for the government due to persistent high expenditure, particularly current expenditure. The total government wage bill constituted 40 percent of current expenditure and social welfare spending accounted for 26 percent of current expenditure in 2012. External debt levels have surged and reached historic highs. The external debt of the Maldives stood at US$846.2 million (38 percent of GDP)

70 Maldives EconomicDiversification Strategy

in 2012 as compared to US$959.1 million at the end of 2011 (43 percent of GDP).

SIZE OF WORKFORCE The size of workforce will be a major challenge for economic diversification in the Maldives. Although, employment opportunities and general labour market conditions in the Maldives are favourable when compared to the region, participation of locals in the labour market remains low. A relatively high unemployment rate combined with low female and youth participation rate exacerbate this situation. Furthermore, the economic growth since the 1990s was achieved through a significant expansion of the foreign workforce, particularly in the unskilled category. There is high scope for boosting production through increased supply of local labour, particularly through engagement of youth population. The low supply of skilled workers is also a challenge for diversification. Educated and skilled professionals living in the Maldives are insufficient for the diversification goals set in this strategy. The education system is presently not in a position to provide the mix of skills needed for industries such as ICT, health, finance, and higher education. It is critical to conduct an assessment of the composition of the labour pool, undertake a skills needs assessment, and invest accordingly to support the diversification goals.

right conditions human capital Since human capital is a limiting factor for the Maldives, we must deepen our human capital. We must make focused investments in the skills and talents of our people and devise strategies to harness the return on human capital investments. We need to work smarter. We also need to improve our language capabilities, particularly in English, Chinese and other widely used business languages. We must also attract highly capable and entrepreneurial people from around the world to work in the Maldives and bridge the gaps in skilled human resources. They are needed to start up higher education, health services, and financial services. Keeping our economy open to talented professionals is needed to embrace the new opportunities. Our employment and immigration policies need to incorporate this thinking.

STRONG LEGAL FRAMEWORK A high quality legal framework and effective enforcement is key to attract new investments. To ensure reliability of the Maldives economy we must develop strong legal and administrative framework within which individuals, firms, and government can interact to generate wealth in a high trust environment.

Government attitudes toward businesses and the efficiency of its operations are also very important. Customer driven public service, high integrity, transparency in decisions, contract enforcement, trustworthiness, and political independence of judicial system are essential for successful economic diversification. We must aim for the highest level of public sector integrity. We must follow the standards of transparency and responsibility in countries such as New Zealand, Denmark, Finland, Sweden and Singapore. Private institutions are also an important element in the process of creating wealth. We have to give priority to set accounting and reporting standards and transparency for ensuring private sector integrity, efficiency and excellence in corporate governance, to maintain investor and consumer confidence.

MACRO-ECONOMIC STABILITY We have to provide macroeconomic stability to ensure sustainable economic growth. We want the Maldives to be competitive and credible in the global market. We want a more efficient smaller government with lower public sector debt. When the government gets over burdened with high interest rate payments on its past debts, government investment in productive sectors may be compromised. 71 Maldives Economic Diversification Strategy

We recognize the tight public finance situation and deficit reduction is critical for increased stability. Overall, government expenditures will grow but expenditures must remain fiscally sustainable so that the overall burden of taxation on individuals and enterprises remain low. Our taxes and wages must remain internationally competitive. We must keep inflation rates under control. An efficient financial market is a necessary pre-requisite. In order to create a stable macro economic environment for engaging the private sector and facilitate investment growth, financial services needs to be urgently developed. An attractive savings environment with easily tradable savings instruments will facilitate smooth flow of funds to the financial market for productive investments. Monetary policy and interest rate setting should reflect the national economic outlook and should be designed to optimize productive investments in the economy and to attract inflow of foreign capital. Our success ultimately depends on the abilities and drive of our people and businesses. The Government cannot substitute for the dynamism created by the skills, talent and ingenuity of our workforce, or by entrepreneurs imagining new products and finding new market niches.

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ATTRACTIVENESS Our future depends on making the Maldives a country, people want to live in. We benefit from the advantage provided by the natural beauty, tropical climate and peacefulness. To harness the advantage, it is urgent to improve the quality and affordability of housing; public safety; quality of education for children; the shopping experience; access to quality health care; and facilities for national and international events.

CONNECTIVITY Physical infrastructure often determines the location of investments and the kind of sectors that can be developed in any given time. Extensive and efficient physical infrastructure is critical for the successful execution of the diversification strategy. We must equip all islands in the Maldives with latest information technology and ensure our communication and information costs are competitive. We must also establish a reliable and efficient transport system to link the islands of the Maldives and ensure global connectivity via international air and maritime hubs.

advantage sectors and clusters In order to diversify the economy to a broadbased, balanced economy that can withstand shocks, we need to increase the number of sectors with double-digit share in GDP to more than five by 2025.

In the classification of advantage sectors multiple attributes related to the sectors could be considered.

Attribute 1. Sectors with the largest contribution to GDP in 2012.

1% Social Services 27% Tourism

1% Business Services 2% Agriculture 2% Fisheries

11% Government

Administration

3% Financial Services 3% Health 3% Electricity & Water

9% Communication

4% Education 4% Wholesale & Retail

Trade 9% Transport

9% Construction

5% Manufacturing 8% Real Estate

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At present tourism (27 percent), Government Administration (11 percent), Communication (9 percent), Transport (9 percent), Construction (9 percent) and Real Estate (8 percent) are the sectors with the largest contribution to GDP. Construction and Real Estate sectors do not have the potential to establish as export driven sectors and only caters to the growing domestic demand.

At present, tourism alone contributes to a double-digit share to our economy. Transport (9 percent) and communications (9 percent) sectors have close to double-digit shares in GDP. Hence, these sectors along with trade have potential for diversification and increasing productivity to increase its share in GDP.

Attribute 2. Change in share of GDP in sectors from 2000 to 2012

Agriculture

2000

Fisheries

2012

Manufacturing Electricity and water supply Construction Trade Tourism Transport and Communication Financial services Education, Health and Social Services 0

5

10

15

20

Percentage Share

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25

30

35

Furthermore, financial services including banking and non-banking financial intermediaries need to be strengthened and expanded domestically as a lubricating sector to drive diversification. Transport & Communication and Construction are the only two sectors that have demonstrated high and positive growth. At present the flourishing of Transport and Communication

Attribute 3. Export Sectors: Change in exports 2000 to 2012

2000

and Construction sectors are largely associated with the Tourism Sector. Hence Transport and Communication and Construction sector are susceptible and responsive to any changes in the tourism sector. At present Tourism, Transport and Fisheries are the three export driven economic sectors of the Maldives. We are looking at structural change to increase high growth, export driven, internationally competitive sectors. Tourism, transport, trade, and higher education, have potential to achieve high rates of export growth. High growth in industries that serve the local market including information technology, energy, health, and financial services is necessary to provide a strong and efficient foundation for the national economy.

1500

1000

500

Tourism

Transport

Fisheries

0

To achieve the GDP growth and diversification goal set by this strategy, significant growth across all of the GDP sectors is required. It is important for all sectors to improve their productivity and export performance, but the greatest gains will be from first, embracing the opportunities in sectors that demonstrate international advantage. Second, we need to address challenges and remove vulnerabilities in domestic demand sectors which are energy, health and agriculture.

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Sectors & strategies

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transport Establish transport as an export sector

TARGET

[

Increase the contribution of transport sector to GDP from US$ 153 million in 2012 to US$ 500 million by 2025.

[

The transport sector has grown consistently over the last 15 years and is the fifth largest contributor to GDP at 6.9 percent (US$ 153 million at current prices in 2012)3. The sector employed 7,098 locals in 200614. There are a number of strengths that can be used to diversify and develop the transport sector to make it a dominant, export driven sector of the economy. Notable strengths include the network of seaport infrastructure, airports, the largest floatplane operations in the world, and a growing aviation industry. For maritime transport, the Male’ Commercial Harbour (MCH) is the main international gateway while the two regional ports in Kulhudhuffushi and Hithadhoo serve as regional hubs. There are privately managed wharfs at Thilafushi for bulk cargo and specialized port facilities in Felivaru, Maandhoo and Kooddoo, used primarily for collection and export of fish. Significant investments have also been made to develop harbours in over 150 islands. Existing airport infrastructure assets include the main international gateway Ibrahim Nasir International Airport, Gan International Airport, Hanimaadhoo International Airport, Maamigili International Airport, six domestic airports, and over 65 sea plane landing platforms. Two new airports are in the construction stage, while five additional airports are in design stage. The constraints in Male’ Commercial Harbour is a major obstacle for economic diversification. Other key challenges in the transport sector

include the inadequate interchange capacity in Ibrahim Nasir International Airport (INIA) and the lack of an efficient domestic maritime transport network. Limited competition in air services, particularly seaplane services also needs urgent attention. In order to tap the economic opportunities provided by strategic location of the Maldives in close proximity to the Asian economic powerhouses there is a need to expand and improve radically international, regional and national transport infrastructure of the Maldives. To embrace the advantage presented by South Asia, the fifth largest consumer market in the world we need to move at a more rapid pace to improve connectivity to cities in the region to and from the Maldives. With its speed, reliability and reach air transport will be the preferred transport mode for many of the customers. To maximise the gain from the location of the Maldives on a major maritime trade route there is a need to establish transhipment facilities revive shipping, and provide fuel bunkering. The exceptional natural beauty of the small island environment, spectacular coral reefs and rich marine biodiversity present opportunity to attract luxury yachts and cruise ships to the Maldives. The growing tourism and trade sectors also require substantial investments in national transport infrastructure to enable foreign direct investment, business clusters development, specialization and other spill over impacts on the economy’s productive capacity, particularly given the archipelagic geography of the country.

79 Maldives Economic Diversification Strategy

The diversification strategies for transport sector are:

Strategy 1 . Expand Ibrahim Nasir International Airport. Increase the capacity of the main international gateway by developing a modern integrated passenger terminal building, a new runway and taxiway, and extend apron area.

Strategy 3 . Redevelop Hanimaadhoo as a multimodal international transport hub. Extend the runway and build new terminal facilities, to link north of the Maldives to major cities in the region.

Strategy 2 . Upgrade Gan International Airport. Extend and resurface airport runway, expand apron, build new taxiway, establish a seaplane base, and promote as a boutique airport for private jets.

Strategy 4 . Invest in the national flag carrier. Increase international air connectivity to and from the Maldives, increase visitors for holiday, education, business, health and ensure efficient delivery of goods.

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Strategy 5 . Develop a new port in Thilafushi as a premier international shipping gateway. Invest in modern port facilities with efficient services to handle international containerized and noncontainerized cargo.

Strategy 7 . Invest in fuel bunkering services. Increase the national fuel storage capacity, initiate fuel bunkering services, and develop ship chandler, and crew services in North and South of the Maldives.

Strategy 6 . Develop a transhipment port. Develop an international container terminal to capitalize on the strategic location advantage of the main East-West shipping routes in the Indian Ocean.

Strategy 8 . Revive shipping. Invest in shipping and freight services to to ensure reliable supply of imports, reduce freight rates to and from the Maldives and tap the advantage presented by the strategic location of the Maldives.

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Strategy 9 . Develop a Cruise Terminal. Establish boutique shopping and tourist related facilities in close proximity to cruise terminal to capture the growth in global cruise industry.

Strategy 10 . Develop marinas for luxury yachts. Establish luxury yacht marinas in the north, center and south of the Maldives to maximise advantage as a premium tourist destination.

82 Maldives EconomicDiversification Strategy

83 Maldives Economic Diversification Strategy

education Develop higher education as a priority export sector

TARGET

[

Achieve annual enrollment of more than 15,000 international students to the Maldives by 2025

[

The education sector contributed 4.5 percent (US$ 100 million) to GDP in 2012 and employed 9,872 locals in 200614. Education sector has tremendous potential to become a viable export industry for the Maldives. Globally, higher education is a growing industry. Internationally the mobile student numbers increased from 2 million in 2000 to more than 3.6 million by 201026. The top three destination countries for higher education are United States (19 percent), United Kingdom (11 percent) and Australia (8 percent). In Australia, education is third largest export industry and education exports contributed A$18.3 billion to the economy in 201026. The Maldives can take advantage of the high demand for international higher education in the Asia region, particularly from Muslim and African students. The top 3 sources of international mobile students are from Asia: China (16 percent), India (6 percent) and Republic of Korea (4 percent). The Arab States has also seen a steady rise in outbound students over the past ten years, accounting for 7% of the global total while students from sub-Saharan Africa are among the most mobile in the world26. The recent success of countries in exporting higher education using mix mode service delivery methods has positive implications for the Maldives to enter the higher education market. Malaysia and Singapore attracted quality foreign education providers and have established themselves as the main regional hubs for international mobile students (57,824 and

48,623 respectively)26. Grenada, a small island state with population less than the Maldives has a reputed international higher education sector with 4,235 international students in 2010. The main sources of international students for Grenada in 2010 were United States (2,854) and Canada (538)26. The existing strengths for providing higher education in the Maldives include the Maldives National University (MNU), the Maldives Polytechnic, and seven private higher education institutions. In 2010, the enrolment at MNU was 6,256 tertiary students; while the total private sector enrolment reached around 6000. In addition to MNU, degree courses are offered by the Villa College; Mandhu College; Clique College; and the Cyryx College27. The Asian Academy of Aeronautics (AAA) in Gan offers training for private pilot license and commercial pilot license. Almost all tourist resorts have Dive Schools that offer internationally recognized certification. The emerging success of private sector institutions needs to be fostered by the state and further developed through better business incentives to this industry. The experience and expertise gained by the country in successful industries such as tourism, fisheries, boat building, float plane operations, and coastal protection, present significant opportunities for higher education and research. There is also untapped potential to cater to the needs of prospective migrants (twinning programmes, IELTS, and intensive English courses) out of South Asian countries to countries like Australia and New Zealand. 85 Maldives Economic Diversification Strategy

The diversification strategies for education sector are:

Strategy 1 . Attract a world top ten hotel school to the Maldives. Leverage comparative advantage presented by the globally recognised tourism excellence of the Maldives to transform education as an export sector.

Strategy 3 . Build the reputation of the Maldives National University. Ensure MNU qualifications are relevant and are of the highest international standing which meets competetive international labour market requirements.

Strategy 2 . Attract a world recognized IT campus to the Maldives. Capitalize on the existing IT talent pool of the Maldives and growing demand for IT degrees in the Maldives and the region.

Strategy 4 . Establish Maldives as an attractive offshore transnational education destination. Attract world top ranking universities to establish their offshore campuses in the Maldives.

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Strategy 5 . Introduce twinning programmes with reputed international institutions. Provide twinning programmes that offer high quality qualifications at lower price and with time flexibility.

Strategy 7 . Ensure attractive international student experience. Ensure smooth student visas, safe and affordable housing, health insurance, and offer scholarships to attract international students.

Strategy 6 . Promote pilot training and initiate flight engineering. Expand the European standard pilot training at Gan, and introduce courses for flight mechanics, line maintenance and flight engineering.

Strategy 8 . Improve the Maldives National Qualification Framework. Enhance the quality framework to assure Maldivian qualifications are high quality and relevant to education export needs.

87 Maldives Economic Diversification Strategy

trade Position trade among top five export sectors

TARGET

[

Increase the contribution of trade sector to GDP from US$ 96 million in 2012 to US$ 500 million by 2025.

[

The wholesale and retail trade sector contributed US$ 96 million (4.3 percent) to GDP in 20123. This sector is the fourth largest employer in the Maldives with approximately 12,000 jobs in 200614. The international trade sector is to be given priority as an export sector in the diversification strategy. Modern international trade as proposed will also have significant multiplier effect on other sectors such as financial services; tourism; information and communication technology; aviation; and port and logistics. The geographic location of Maldives positions us well to tap one of the top five retail markets in the world. The retail market in close proximity to the Maldives is estimated to be more than US$ 450 billion annually and is one of the fastest growing retail markets in the world. In absolute numbers the regional retail market of South Asia is bigger than the entire United States population. The organized retail trade in the region is estimated to be growing at a pace of 45 to 50 percent per annum28. The high demand retail items in the region include designer clothing and footwear; computers and electronic appliances; jewellery and watches; perfumes and personal care; food and beverages; sports goods; entertainment and books. Global multi-brand retailers such as Wal-Mart, Carrefour and Tesco are establishing themselves in the region while single brand retailers such as IKEA, Nike and Apple are also entering the region.

The main avenue for Maldives to tap the retail export sector is the on going customer revolution. There is a fundamental shift in consumer’s purchasing behaviour towards virtual shops rather than physical shops. The key drivers of the new customer behaviour are the rapid adoption of smart mobile phones, tablets and digital media equipped with shopping applications. The Maldives has a distinct advantage to tap the virtual shopping revolution. Maldives has a very high tele-density with mobile subscriptions per 100 people at 163.13. Young Maldivians are highly technology savvy, smart phone responsive and Internet friendly. More than two out of five Maldivians have profiles on the world’s largest social network Facebook and are socializing on a regular basis29. Young Maldivians are actively engaged in e-shopping and exploring opportunities to establish small businesses. The two submarine fibre optic cables in Maldives with bandwidth for 3 Gigabits of Internet data together with our international air connectivity presents a major lead to tap the regional retail market. The Maldives also has advantage provided by South Asian Free Trade Area (SAFTA) and the Generalized System of Preferences (GSP). There is scope for increasing manufacturing and value addition. Duty free zones have potential to attract foreign direct investment to manufacturing and export processing activities.

89 Maldives Economic Diversification Strategy

The diversification strategies for trade sector are:

Strategy 1 . Expand airport duty free shopping. Establish duty free shopping in all international airports throughout the country as the first step to establish the Maldives as a shopping paradise.

Strategy 3 . Develop mall shopping. Enable development of modern shopping malls that offer global single brand outlets and multiple brand outlets to enhance shopping experience.

Strategy 2 . Establish boutique street shopping. Re-design and develop “Marine Drive” in the Male’ Commercial Harbour area to offer highend branded luxury boutique shopping to visitors to Male’ and residents.

Strategy 4 . Launch an electronics mega store. Encourage the development of a multi-brand electronics mega store that offers global brands such as Apple, Samsung, Sony, Nokia, Acer, Nikon, Canon and HP.

90 Maldives EconomicDiversification Strategy

Strategy 5 . Develop free zones. Designate free zones in close proximity to aproximity to international airports and seaports that offers land, warehousing, office space, digital connectivity and facilities for export processing.

Strategy 7 . Development of certified Halal market industry. Tap the large and growing demand of Halal Products in the multi-cultural South and Southeast Asia.

Strategy 6 . Introduce and encourage “one island - one product”. Provide MSMEs with opportunities to access and integrate into local, national and global markets and encourage specialisation and branding of products.

Strategy 8 . Establish a single window system for international trade facilitation. Ensure efficient trading by adopting innovative technology, fast information sharing, integrated service delivery and modern payment methods.

91 Maldives Economic Diversification Strategy

Strategy 9 . Introduce packaging and processing. Import high consumption consumer goods as single source generic bulk products, package and brand them for local market as well as reexports.

Strategy 10 . Scale up e-shopping. Invest early and scale up radically virtual or ‘click’ shopping to tap the regional consumer market.

92 Maldives EconomicDiversification Strategy

93 Maldives Economic Diversification Strategy

tourism Invest in horizontal diversification and growth in new markets

TARGET

[

Increase the contribution of tourism to GDP from US$ 555 million in 2012 to US$ 1.2 billion by 2025.

[

Tourism contributed 25.1 percent to the GDP (US$ 555 million in current price) in 20123. The tourism sector employed 12,090 locals in 200614. Tourism also has strong linkages to other sectors of the economy such as construction, transport, trade, communication, and financial services.

in 2012, followed by Asia and Pacific with 40 percent of arrivals. China accounted for 24 percent of tourists in 2012, followed by Germany (10 percent), United Kingdom (10 percent), Russia (7 percent), Italy (7 percent), and France (6 percent)30.

By the end of 2012, total bed capacity in operation in the Maldives reached 28,12030. The 105 tourist resorts in operation supplied 81 percent of total bed capacity with 22,889 beds. In addition to tourist resorts, 19 hotels, 74 guesthouses and 154 live aboard safari vessels, provided accommodation facilities in 2012. The safari vessels supplied 9 percent of beds, hotels 6 percent and guesthouses (4 percent)30. There is an additional 10,432 beds upcoming in new resorts and hotels. There are currently 72 island or land leases for tourist accommodation that remain undeveloped31. Undeveloped islands are unrealized revenue for the Government and pose a serious challenge for the industry.

Only China and Russia have emerged as new markets for the Maldives over the last ten years. Considering the rate of growth of the new markets, it is necessary to redesign the tourism product to meet the needs and expectations of the new Chinese and Russian markets. In addition, the potential of the Japanese, Korean and Indian outbound markets needs to be fully realised. The Maldives also needs to obtain its share of the growth from the flourishing Middle East outbound travel market, with family beach holidays in favour.

World tourism is growing rapidly and in 2012 reached 1 billion visitors32. In 2012, the Maldives was ranked 91 with 958,027 tourist arrivals, which made up only 0.09 percent of international outbound tourist arrivals. This shows the tremendous untapped potential for tourist arrivals to the Maldives. The total bed nights reached 6.4 million in 2012, while average occupancy rate of tourist accommodation facilities was 70.6 percent and the average duration of stay was 6.7 nights30. Europe is the largest tourist market of the Maldives with 54 percent of tourist arrivals

With the outstanding beauty of the beaches and rich biodiversity of coral reefs the Maldives will maintain its position as a destination for relaxation, honeymoons and diving. The Maldives is also blessed with features that will be used to attract surfers and water sports enthusiasts who seek thrill. The Maldives has natural advantages to tap the global cruise industry, which is expanding at the rate of 10% a year, now amounting to 20 million a year33. The Maldives also has unique appealing Maldives style concepts to attract international events and conferences. There is an urgent need to enhance the shopping experience of the Maldives for global brands as well as local handicrafts and souvenirs.

95 Maldives Economic Diversification Strategy

The diversification strategies for tourism sector are:

Strategy 1 . Establish as a conference and events destination. Attract conferences, entertainment events, shopping festivals, and creative industry retreats that match the image of the Maldives.

Strategy 3 . Promote as a location for the rich to rest and relax. Target high-income and famous individuals by offering home away from home, retirement villas, and golf resorts.

Strategy 2 . Promote as a destination for sea sports tourism. Develop facilities for international tournaments, attract international event companies and establish annual calendar of Maldives sea sports.

Strategy 4 . Expand wellness tourism. Expand the current wellness and spa services provided by the resorts, to cater for clients specifically seeking wellness care, such as yoga, fitness, and rehabilitation.

96 Maldives EconomicDiversification Strategy

Strategy 5 . Develop yacht and cruise tourism infrastructure. Develop marinas to attract luxury yachts and develop a cruise terminal to enable cruise lines to call the Maldives.

Strategy 7 . Establish a world class tourism research center. Produce high quality research to build on the Maldives tourism knowledge base, and disseminate findings to promote sustainable tourism.

Strategy 6 . Position Maldives as a family destination. Enhance existing attractions, organize island exploration, introduce thrilling experiences and increase events that cater to families and young people.

Strategy 8 . Harness untapped markets. Undertake source destination studies, and develop marketing strategies for high potential markets such as China, Middle East, India, US, Scandinavia, and Australasia.

97 Maldives Economic Diversification Strategy

health Establish as a destination for international healthcare services

TARGET

[

Increase the contribution of health sector to GDP from US$ 78 million in 2012 to US$ 250 million by 2025.

[

The health sector contributed US$ 78 million in current prices to GDP (3.5 percent)3 in 2012. The sector employed 4,182 locals in 2006. The population per practicing doctor in the Maldives is 609 while the population per practicing staff nurse is 1713. Currently organized into a four-tier referral system, there is one public tertiary hospital in Male’, six regional hospitals and thirteen atoll hospitals. The only private tertiary hospital, ADK Hospital, is in Male’, and there are over 60 clinics, about three-quarters of them located in Male’. The immediate priority in health sector is to provide high quality services for the domestic market. Health sector is presently a high leakage sector, with a quarter of national health expenditure being directly spent on seeking services abroad. With 80 percent of doctors and 50 percent of nurses being expatriate workers, and all drugs, medical consumables and devices imported, a high proportion of national health expenditure flows out of the country. Investments are needed in the health services sector to fuel economic growth through increased youth employment and reduction of health imports. When high levels of productivity and efficiency are gained in the domestic health services sector, health tourism presents opportunity to establish health as an export services sector. The size of international health tourism is estimated to be over US$ 100 billion in 2012, with an estimated 5 million travellers worldwide. Globally, the industry is growing at a rate of 20 to 30 percent annually and is predicted to continue to grow.

The traditional trend of affluent patients from developing countries seeking care in developed countries has largely reversed, with less-affluent patients in developed countries seeking low cost care in developing countries. Top destinations in Asia include India, Thailand, Singapore, and Malaysia. Singapore has targeted to attract 1 million international patients per year by 2012. Key specialties in demand include cardiovascular, cosmetic surgery, dentistry, orthopaedics, reproductive/IVF, weight loss surgery and health screenings. Patients are driven by value and or privacy and demand well-trained doctors, technologically advanced facilities, and to communicate easily with service providers. Health tourism is already established in South Asia and the Maldives has potential to tap on natural beauty, pristine environment, and serenity to establish as a future destination for wellness and health tourism. Health screening, wellness, cosmetic surgery and anti-ageing are areas of high demand that the Maldives can target. The way forward is to raise the standard and quality of the healthcare services, and build a reputation for clinical and medical excellence by investing in human resource development and 21st century diagnostic and medical treatment facilities. A concerted commitment from all the sectors will be needed to build the reputation of the Maldives as a quality healthcare service provider.

99 Maldives Economic Diversification Strategy

The diversification strategies for health sector are:

Strategy 1 . Invest in human resources development. Execute a 10 year human resource development plan to prepare the future cadre of health professionals with internationally recognized certification and experience.

Strategy 3 . Increase range of critical care services in Malé. Develop cardiology cath lab, renal services, oncology center, trauma services and fertility clinic and ensure sustainable service delivery.

Strategy 2 . Align compensation structure of healthcare professionals to match regional trends. Reform healthcare professional pay structure to to ensure retention and attraction of health professionals and adequate and affordable access to health care.

Strategy 4 . Improve referral system. Build two new public hospitals with Joint Commission International (JCI) accreditation and upgrade regional hospitals to functional tertiary hospitals.

100 Maldives EconomicDiversification Strategy

Strategy 5 . Establish a medical college and teaching hospital. Develop a teaching hospital to educate and train health professionals and provide internship opportunity for local and overseas MBBS graduates.

Strategy 7 . Expand wellness tourism. Encourage expansion of current resort spa services, to cater for clients seeking wellness care, such as health screening, fitness, and sports rehabilitation.

Strategy 6 . Target fly-in-fly-out doctor services for school holiday period in Male’, and atoll capitals to reduce the health sector leakages during school holiday periods.

101 Maldives Economic Diversification Strategy

Fisheries Maximise export value from sustainable fisheries

TARGET

[

Double the value of fish exports from US$ 156 million in 2012 to US$ 300 million in 2025

[

Although fisheries contributed 20 percent of GDP in 19802, the share of the sector has fallen to less than 2 percent of GDP in 20123 (US$ 39 million in current prices). The number of locals employed by the fisheries sector also has declined from 12,434 in 1985 to 8,388 by 20063. Local employment in fisheries sector peaked in 1995 with 12,555 persons25. However, fisheries sector provided employment to 19 percent of employed males in the atolls and was second only to tourism in 200614. Although sector contribution to GDP and employment has fallen over the last 3 decades, fish catch and exports from the sector has increased. From 35,942 metric tonnes in 197011, the total fish catch increased to a record high of 186,000 metric tonnes (of which 132,000 metric tonnes were skipjack tuna) in 200535. The record highest landing of yellow fin tuna (35,575 MT) was in 20113. In 1990, the volume of total fish exports was 58,600 metric tonnes and value was US$ 31 million dollars11. The highest performance of the fisheries sector in fish export earnings was during 2012 with total export value of US$ 156.1 million3. In 2012, of the total fish catch 53 percent was consumed locally while 47 percent was exported35. The commercialization of the Maldives fisheries industry particularly focused on skipjack industry in 2001, resulted in huge infrastructure related investments. The government issued licenses for five companies that gave them the exclusive right to purchasing, processing and canning of

skipjack. After the 2004 Tsunami, a remarkable improvement of fishing was observed in the years 2005 and 2006. This led to investments in more sophisticated and larger fishing vessels. The main export market for Maldivian fish is Europe (47 percent). Fresh yellow-fin tuna and fish products canned in the Maldives are exported mainly to Europe36. Second largest export market is Thailand (28 percent). Frozen skipjack tuna is exported to Thailand for use in its canning industry36. Third largest export market is Sri Lanka (11 percent). Almost all dried and salted fish is exported to Sri Lanka36. Since, the bulk of skipjack tuna landings are exported as frozen fish, the full value of exports is not realized to the national economy. Availability of bait-fish is a significant concern for sustainable skipjack fishery. While there are more than 40 species of bait, only a few species are used extensively. Lack of inbuilt cooling facility on vessels is also a constraint faced by fishermen. Long fishing trips require cooling systems in fishing vessels to maintain the quality of the fish. While fishing is one of the leading economic activities of Maldives, it is noteworthy that dedicated fisheries ports equipped with essential services such as fuelling, water kiosks and ice plant do not exist yet. Similarly urgent investments are needed to develop mariculture as an important economic industry.

103 Maldives Economic Diversification Strategy

The diversification strategies for fisheries sector are:

Strategy 1 . Ensure ecological sustainability of tuna fishery. Ensure the Maldives “pole and line” tuna fishery practices are continued and receives premium price for the dolphin friendly one by one tuna catch.

Strategy 3 . Invest in targeted mariculture. Encourage cultivation of specific high value marine species such as groupers and sea cucumbers utilising ecologically sustainable practices and technology.

Strategy 2 . Increase value-added tuna exports. Increase the volume of eco-certified, valueadded yellow fin and skip jack tuna exports, and reduce the share of frozen whole tuna exports.

Strategy 4 . Ensure highest product quality. Establish national standards for traditional fish products, and assure all fish and fishery exports comply with the relevant international standards.

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Strategy 5 . Support strong marketing and branding. Promote Maldives fishing industry in international markets, establish brand recognition, and organize fisheries trade fairs in the Maldives.

Strategy 7 . Enable greater utilization of the Exclusive Economic Zone. Review policy stance of the government on utilization of fishery potential of the EEZ, with a view to capitalize the untapped potential.

Strategy 6 . Incentivise fisheries business development. Provide support in terms of enhanced access to concessionary finance, knowledge and technology to fisheries related businesses.

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energy Invest in RE to ensure energy security and competitiveness

TARGET

[

Ensure 50 percent of power generation in 2025 is by renewable sources.

[

The electricity and water supply sector contributed US$ 30 million in current prices (1.4 percent) to GDP in 20123. The sector employed 1,129 (1,074 males, 155 females) persons in 200614. The Maldives has an extreme dependency on imported petroleum based fuels to provide for generation of electricity, maritime transportation; aviation; road transport, cooking (LPG), water production (diesel) and other uses (kerosene). The dependence on imported fossil fuel in 2012 represents around 22 percent of GDP9. The total CIF value of imported petroleum products stood at US$ 486 million in 2012. This dependency will increase in the future under a business as usual scenario. This will make the Maldives more energy insecure, economically vulnerable and burden the society. The electricity generation sector is the largest consumers of fuel. The total installed power generation capacity in the country is approximately 245MW of diesel generators37. Of the total generation capacity 43 percent (105 MW) is installed in the 105 resorts of the Maldives. The average diesel consumption in resorts is estimated to be 4,460 kg of diesel/ bed/year. The 48 MW installed in the capital Male’ accounts for 20 percent of total installed capacity in the country37. Greater Male’ Region and Addu City account for half of the installed electricity generation capacity in inhabited islands. In 2011, 231 million kWh of electricity was produced in Male’ while 12 million kWh and 8 million kWh were produced in Hulhumale and Villingili respectively. In the

second urban area, Addu City, more than 21 million kWh of electricity was produced37. In 2011, Male’ utilized 212 million KWh of electricity of which 103,656 (49 percent) was utilized by residential meters, followed by manufacturing and commercial 77,814 (37 percent); government buildings 26,612 (13 percent); and public places and schools 3,807 (2 percent)37. In Male’, more than 80 percent of the peak utility demand is contributed by the non-residential sector; much of this is attributed to the air conditioning loads37. Renewable energy has now become an integral part of global power sector with investments in renewable energy exceeding US$ 257 billion in 2011. The National Energy Policy and the National Energy Action Plan provide the principles for development of the renewable energy sector in the Maldives. To date, 2 MW of solar power has been installed in the country as pilot initiatives. Necessary policies to encourage private sector and individuals to invest in renewable energy have also been introduced. These include zero import duty for renewable energy related merchandize imports and the feed in tariff regulations. In 2012, the Maldives formulated a SREP Investment Plan to scale up renewable energy investments. Objectives of the plan are: transformation of electricity sector; large-scale renewable energy (RE) development; increase national energy security; create a strong RE industry; attract foreign RE investors; and emerge as a model for other SIDS. 107 Maldives Economic Diversification Strategy

The diversification strategies for energy sector are:

Strategy 1 . Scale up investment in renewable power generation. Invest in solar power generation in urban areas, and encourage private sector investments particularly in the tourism sector.

Strategy 3 . Ensure cross-sector strategic integration of renewable energy. Integrate energy efficiency and switching to renewable energy in all new public sector investments.

Strategy 2 . Transform to total renewable by community power. Facilitate development of renewable energy co-operatives in small communities to switch to 100 percent renewable energy.

Strategy 4 . Support the households to install renewable energy. Provide rebates and subsidies to eligible households with the cost of installing a solar photovoltaic (PV) system in their homes.

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Strategy 5 . Enhance feed-in tariff scheme. Enable eligible households, small businesses, and public buildings to receive payment for any electricity fed in to the grid using renewable sources.

Strategy 7 . Establish fuel storage in strategic locations. Develop fuel storage and bunkering facilities in strategic locations of the country.

Strategy 6 . Introduce demand management measures. Reduce inefficient demand by changing patterns of electricity consumption through changing values, attitude and behavior.

Strategy 8: Undertake research on alternative energy sources including hydrocarbon exploration.

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financial services Launch financial services to become a future export sector

TARGET

[

Increase the contribution of financial services to GDP from US$ 123 million in 2012 to US$ 250 million by 2025.

[

The financial services sector contributed US$ 123 million in current prices (5.6 percent) to GDP in 20123. The financial sector is dominated by the banking sector that comprises of five foreign banks, one national bank, and one Islamic Bank. In the non-banking financial sector, the insurance industry comprise of two insurance companies; two agencies of which one provides Takaful insurance; one housing finance corporation; one finance leasing company, and several money transfer businesses. The finance leasing company deals in medium to long-term equipment financing and the Housing Development Finance Corporation (HDFC) provides finance for the residential and commercial housing projects. In the capital market, there are few options available for investors. Limited numbers of shares in five companies are available for trading in the Maldives Stock Exchange (MSE). The only debt securities are bonds issued by the HDFC and T bills issued by the central bank, Maldives Monetary Authority (MMA) to finance public sector deficits. In the banking sector, assets are highly concentrated in the tourism sector. This challenge is particularly pronounced in the only public bank, Bank of Maldives (BML). Because of the high concentration on tourism and construction sectors, the commercial banking sector is unable to cater to the development financing needs of other infant sectors. Global financial services industry has experienced rapid growth over the past few decades,

opening up opportunities such as offshore banking for developing countries. In 2007, Offshore Financial Centers (OFCs) worldwide held around US$7 trillion, an estimated 6 to 8 percent of world wealth under management. At present small island states account for majority of countries with OFCs. The contribution from the offshore finance services contributes to high per capita income and OFC countries have experienced average per capita growth at a rate twice that of the world. Another significant opportunity lies in Islamic Finance services. Islamic Finance services industry is relatively young. The first development came during the 1970s, and since then Islamic finance services and institutions have grown steadily. Not only is the value of sector and number of institutions increasing, but the types of financial instruments are also developing rapidly. There are over 600 Islamic financial institutes in over 75 countries. At present, Islamic finance is experiencing annual growth rates of over 20 percent. Although middle-eastern countries still dominate in the Islamic Finance market, major players in the conventional banking sector have also started to offer Islamic finance and Shariah compliant assets to both Muslim and non-Muslim clients. The Maldives has the opportunity to establish itself as an Islamic OFC that can efficiently channel savings from Gulf Cooperation Council (GCC) countries and the Muslim population in South Asia. Proximity to the regional market is an advantage, and a possible differentiating factor for the Maldives. 111 Maldives Economic Diversification Strategy

The diversification strategies for financial services sector are:

Strategy 1 . Develop a modern legal regime for financial services. Formulate necessary laws and establish competent authorities to keep pace with developments in international financial services.

Strategy 3 . Develop local pool of trained finance professionals. Ensure the availability of critical mass of local talent within the country to sustain financial services without relying exclusively on foreign talent.

Strategy 2 . Build reputation of the Maldives financial services. Ensure coherent and timely enforcement of laws, high competency of judiciary, transparency in financial institutions and good corporate governance.

Strategy 4 . Attract international banks. Invest in the necessary digital infrastructure, create an attractive level playing field and allow equal opportunities for both foreign and local banks.

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Strategy 5 . Initiate OFC, particularly Islamic OFC. Lay the foundations for the Maldives to become an Offshore Finance Center to take advantage of the growth opportunities in South Asian financial services industry.

Strategy 7 . Establish an MSME Bank to provide working capital and meet business expansion and small-scale investment needs of small and medium enterprises.

Strategy 6 . Expand capital market and insurance services. Introduce mandatory insurance for maritime transport, fisheries, real estate and health sector and develop Sukuks, debentures, and long term securities markets.

Strategy 8 . Enable fund management services. Manage the Maldives Pensions Fund and enable development of public trusts, portfolio investments services, government funds and investment consultancy services.

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INFORMATION AND COMMUNICATION TECHNOLOGY Develop ICT to enhance productivity and increase exports

TARGET

[

Increase the contribution of communication sector to GDP from US$ 159 million in 2012 to US$ 500 million by 2025.

[

The share of communication sector in the economy is gradually increasing. The communications sector share of GDP was 7.2 percent in 2012 and the sector contributed US$ 159 million to GDP at current price3. The tele-density of the population shows rapid increase in mobile subscriptions while internet coverage still remains low. In 2011, the mobile subscriptions per 100 people were 163.1 while internet subscriptions per 100 people were 23.73.

programmers/software developers. The main scope for ICT related work and business lies with the tourism sector which involves integrated resort management, reservation systems, point of sale systems, resort in-room entertainment systems, website development, online advertising, and 3D applications for resort development and design. There are about ten institutes that provide ICT education in the country.

The information and communication technology sector comprises of various services including business management and re-Engineering (BPR); developing hardware; developing applications (software); telecommunications services; ICT infrastructure services such as help desks support, mainframe support, network operations and data support. The sector also includes ICT based creative industries such as music, animation, performance and games.

Some of the challenges include high labour costs (compared to the region), cyber security and regulatory challenges; that can deter investors.

ICT sector has potential in the Maldives due to the availability of trainable, tech savvy pool of youth and due to the availability of good infrastructure (internet, mobile penetration). The sector can be founded on concepts that use the natural setting and the Maldives premium brand destination. There are also significant advantages to be gained by links that can be made with neighbouring countries on ICT related economic cooperation. The Maldives currently has a small-scale ICT industry comprised of telecommunication providers, ICT support desks of public and private sector, software/ICT vendors, freelance

Different countries exploit different advantages to develop the ICT sector. For India, the main advantage is the readily available technical work force. Mauritius developed the infrastructure, mainly an IT Park, and established a travel agreement to attract Indian software companies to set up offices. In Singapore, the Infocomm Development Authority does aggressive promotion based on ambitious plans such as the national broadband network, ensuring availability of skilled workforce, security and a strong legal system to attract the world’s top ICT companies. The main prerequisites for attracting investors and developing an ICT industry are; role of government in making both physical and technical infrastructure available, ensuring concessions and other incentives for investors, ensuring ICT security and regulation and aggressive promotion of technology and innovation by the government.

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The diversification strategies for ICT sector are:

Strategy 1 . Develop an IT Park for software and application development. Establish a building with high speed Internet and other facilities as a central point for innovation, creativity, and networking.

Strategy 3 . Develop and promote IT Tourism. Develop a resort to attract innovation retreats, research sabbaticals, conferences, and networking events for IT and creative professionals.

Strategy 2 . Invest in state of the art ICT connectivity. Provide super fast, reliable broadband connectivity to all the islands of Maldives to realize the full potential of digital economy.

Strategy 4 . Promote IT retail, including product launch & re-launch. Take advantage of the liberal trade environment to attract product launch, promotion and point of sales for IT products and gadgets.

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Strategy 5 . Enable access to finance. Establish IT fund to foster innovation and assist hi-tech, potentially high-growth businesses; and develop regulations for crowd-sourced equity funding.

Strategy 7 . Establish Maldives ICT Network. Link up and network the businesses and ICT professionals to align ICT supply with business demand.

Strategy 6 . Launch Mobile national cloud computing. to public via smart phone promote cloud computing storage and processing.

Strategy 8 . Enable trusted online identities and communication. Provide smart digital identity cards, single password authentication for a range of services, and enable trusted third party credentials.

Government and Provide services applications; and for trusted data

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agriculture Commercialise and scale up production of organic food

TARGET

[

Increase agriculture production to reach US$ 150 million by 2025.

[

The agriculture sector contributed 2.3 percent (US$ 50 million at current prices) to GDP in 20123. The agriculture sector employed 4,236 locals in 2006 of whom 64 percent were women14. The agriculture sector has shown positive growth trends in the past few years. The local agriculture products traded in the capital Male’ increased from US$ 8.3 million in 2005 to US$ 15 million in 20105. The highest earning crops are banana, chilli, betel leaf, watermelon, and pumpkin. The GDP share of agriculture, (2.3 percent in 2012) has taken over fisheries (1.7 percent in 2012) and many fishing communities are seeking conversion to agriculture as an alternative livelihoods source. In terms of production, the highest share is borne by Alif Alif (Thoddu) Atoll (36 percent) followed by Kaafu Atoll (Kaashidhoo), Laamu Atoll, Seenu Atoll, Shaviyani Atoll, and Fuvahmulah5. Laamu Atoll has the largest cultivable land in the country. The annual national budget allocation for Ministry of Fisheries and Agriculture for agriculture sector related work is MVR 10 million while MVR 50 million is allocated for farmer subsidies. The Maldives is extremely dependent on imports for food and 90 percent of food requirement is imported. In 2012, of total imports 21 percent were food items demonstrating huge implications for food security as well as inflation. The Maldives needs a strong, safe and stable food production system and high levels of food security.

The commercial agriculture sector has potential in the Maldives due to the needs of tourism sector. It is estimated that a resort with 300 beds would require on average 1000kg of watermelon, 500kg of papaya, 500kg of banana, 200kg of cabbage, 200kg of carrot, 100kg of brinjal, and 50kg of lettuce per week. A 300 bed resort also would require per day 75kg of potatoes, 50 kg of onions and 1,000 eggs. To harvest the opportunities of the future we need to focus on production of organic fruits and vegetables that are in high demand in the Maldives. Past investments in the sector by the government including the introduction of new technologies, Hanimadhoo/Mendhoo demonstration centres, and poultry projects have yielded positive results and these initiatives can be scaled up to successful commercial ventures. The Maldives need to build on the strengths and capitalise on the advantages, to substantially increase local production of food. Availability of technology and private sector development projects of Ministry of Fisheries and Agriculture and Ministry of Economic Development offers opportunities to redirect agriculture in to a profitable industry. To achieve this, the policy direction and the role of government needs to be clear and reforms should be made to open up resort markets, ensure land security for farmers and foster collective agri-business development.

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The diversification strategies for agriculture are:

Strategy 1 . Scale up the production of organic vegetables and tropical fruits. Direct substantial investments to targeted production of tropical fruits and vegetables in high demand for the tourist market.

Strategy 3 . Invest in commercial scale egg production. Set up a poultry feed mill to ensure cheap inputs, increase the knowledge and capacity of farmers, and support the development of the supply chains.

Strategy 2. Expand the access to existing tourist market. Establish national standards, promote competition and fair-trading, support farmerbusiness links, and enable supply contracts with resorts.

Strategy 4 . Build the reputation of local crops as reliable and as of high quality. Use targeted marketing, promotion and branding for ‘100% organic’ fruits and vegetables with ‘less carbon footprint’.

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Strategy 5 . Invest in support infrastructure. Invest in water supply, power, transport, cold storage, and logistic centres to facilitate reliable and steady supply of fresh local produce of high quality.

Strategy 7 . Provide training, demonstration and support for farmers. Disseminate market information, demonstrate new technologies, and conduct training on cultivation of crops in high demand.

Strategy 6 . Enhance access to finance. Establish a fund for organic agriculture, continue concessional loans to farmers, introduce tax incentives, and provide free and impartial financial advice to farmers.

Strategy 8 . Increase the area of land allocated for agriculture. Identify arable islands, establish the necessary infrastructure, and lease plots for multiple farmers from each island.

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122 Maldives EconomicDiversification Strategy

122 Maldives EconomicDiversification Strategy

References 1.

World Bank 2013. Data. The World Bank Group.

2. Ministry of Planning and Development 1985. National Development Plan 1985-1987. In: SECTION, P. (ed.). Male’: Ministry of Planning and Development. 3. Department of National Planning 2012. Statistical Yearbook of Maldives 2012. Statistical Yearbook of Maldives. Male’. 4. UN Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States 2013. Least Developed Countries: Criteria for Identification and Graduation of LDCs [Online]. UN-OHRLLS. Available: http://www.unohrlls.org/en/ldc/164/ [Accessed 15 July 2013]. 5. Department of National Planning 2011. Statistical Yearbook of Maldives 2011. Statistical Yearbook of Maldives. Male’.

16. Ministry of Planning and National Development 2008. Population and Housing Census 2006 - analytical report. Population and Housing Census. Male’. 17. Ministry of Planning And Environment 1990. Population and Housing Census of Maldives 1990. Population and Housing Census. Male’. 18. Ministry of Planning And Environment 1994. National Development Plan 1994-1996. Male’: Ministry of Planning and Environment. 19. Nafiz, A. 2013. Philippines Government vigilant over Philipino workers in Maldives. Haveeru Online, 6 July 2013. 20. Ministry of Planning and National Development 2007. Millenium Development Goals - Maldives country report 2007. Male’. 21. Maldives Monetary Authority 2003. Annual Report 2003. Male’.

6. Ministry of Education 2012. School Statistics 2012. School Statistics. Male’. 7. OECD 2011. Society at a Glance: Asia/Pacific 2011. 8. MoE 2013 - Presentation made by Ministry of Education at the End of Exam Awards 9. Maldives Monetary Authority 2013. Annual Economic Review 2012. Annual Economic Review. Male’.

22. Ministry of Planning and National Development 2004. Vulenrability and Poverty Assessment II. Vulenrability and Poverty Assessment. Male’. 23. Ministry of Planning and Development 1985. Population and Housing Census of Maldives 1985 - general tables Part B; population atoll level. Population and Housing Census. Male’.

10. World Bank 2013. GDP (current US$). The World Bank Group.

24. Ministry of Planning and National Development 2001. Population and Housing Census of Maldives 2000. Population and Housing Census. Male’.

11. Ministry of Planning and National Development 2005. 25 years of statistics Maldives. Male’.

25. Ministry of Planning Human Resources and Environment 1995. Population and Housing Census of Maldives 1995. Male’.

12. Maldives Monetary Authority 2003. Summary of Balance of Payments 1986-2003. Male’: Maldives Monetary Authority.

26. UNESCO 2012. Global flow of tertiary level students. 26 October 2012 ed.: UNESCO.

13. UNESCO 1984. Maldives - national youth policy. Paris.

27. The World Bank 2011. Human capital for a knowledge society - Higher education in the Maldives - An evolving seascape. Washington DC.

14. Ministry of Planning and National Development 2007. Population and Housing Census 2006. Population and Housing Census. Male’. 15. Department of National Planning 2012. Household Income and Expenditure Survey 2009-2010. Male’.

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28. MUSTAFI, S. M. 2013. India’s Middle Class: Growth Engine or Loose Wheel? The New York Times.

29. SOCIALBAKERS. 2013. Maldives Facebook Statistics [Online]. Available: http://www.socialbakers.com/facebook-statistics/ maldives [Accessed 11 August 2013].

40. Ministry of Environment and Energy. 2012 Maldives SREP Investment Plan 2013-2017, Ministry of Environment and Energy, Male’.

30. Ministry of Tourism, Arts and Culture. 2013. Tourism Yearbook 2013. Tourism Yearbook. Male’.

41. MHTE (2010) Report on Energy Supply and Demand 20082009, Ministry of Housing, Transport and Environment, Male’.

31. Ministry of Tourism Arts and Culture 2012. Fourth Tourism Master Plan Draft - Male’.

42. WEF (2012) Energy for Economic Growth – Energy Vision Update 2012, World Economic Forum, Geneva.

32. THE WORLD BANK 2013. International tourism. The World Bank.

43. WEF (2012) Energy Advisory Board Background Paper, World Economic Forum Annual Meeting 2012, Geneva.

33. TRAVELWEEKLY 2012. Global cruise passengers top 20 million. travelweekly. Travel Weekly Group Pvt Ltd. 34. Herrick, D.M. 2007. Medical Tourism: Global Competition in Health Care, National Center for Policy Analysis, Dallas. 35. Department of National Planning 2010. Statistical Yearbook of Maldives 2010. Statistical Yearbook of Maldives. Male’. 36. MPE (1994) State of the Environment Maldives, Ministry of Planning and Environment, Male’. 37. Maldives Customs Services. 2012. Total Exports 2012 [Online]. Male’: Maldives Customs Services. Available: http://www. customs.gov.mv/en/Statistics/ [Accessed 11 Aug 2013]. 38. MPE (1991) Third National Development Plan 1991-1993, Volume 1, Ministry of Planning and Environment, Male’. 39. MEE (2012) UNCSD Rio 2012 - National Report of the Maldives, Rio +20 United Nations Conference on Sustainable Development, Ministry of Environment and Energy, Male’.

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Photo credits Ahmed Zahid   

Maldive Mosaique

P 8, P 44, P 104 (Strategy 1)

P 97 (Strategy 7)

Amoo / atoll-images.com   

Shutterstock

P 81 (Strategy 5)

P 81 (Strategy 6, 7, 8), P 82 (Strategy 10), P 84, P 86 (Strategy 1, 2, 3, 4), P 87 (Strategy 7, 8) P 88, P 90 (Strategy 1, 2, 3), P 91 (Strategy 5, 8),

Beach House Iruveli   

P 92 (Strategy 10, 11), P 96 (Strategy 2), P 97 (Strategy 5, 6, 8), P 98,

P 19

P 100 (Strategy 1, 2, 3, 4), P 101 (Strategy 5, 6, 7), P 104 (Strategy 2, 3, 4), P 105 (Strategy 5), P 106, P 108 (Strategy 1), P 109 (Strategy 7, 8), P 110,

Island Hideaway at Dhonakulhi Maldives, Spa Resort & Marina

P 112 (Strategy 2, 3), P 113 (Strategy 5, 6, 7, 8), P 114, P 116 (Strategy 1, 2, 3, 4),

P 59, P 63

P 117 (Strategy 5, 6, 7, 8), P 120 (Strategy 1, 2, 3, 4), P 121 (Strategy 5, 6)

Kuramathi Island Resort

Shangri-La’s Villingili Resort & Spa

P 94

P 96 (Strategy 3, 4)

Maldivian

Simad Saeed

P 65, P 78, P 80 (Strategy 4)

P 108 (Strategy 4)

Mohamed Ushau P 112 (Strategy 1)

Mohamed Shinaz Saeed P 3, P 4, P 12, P 13, P 18, P 28, P 30, P 67, P 80 (Strategy 2), P 87 (Strategy 6), P 91 (Strategy 6), P 92 (Strategy 9), P 96 (Strategy 1), P 105 (Strategy 6, 7), P 108 (Strategy 2 and 3), P 109 (Strategy 5, 6), P 121 (Strategy 7, 8)

126 Maldives EconomicDiversification Strategy

www.trade.gov.mv