Maldives rebuilding with forethought by UCLA Luskin School of Public Affairs

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UCLA School of Public Affairs Applied Policy Project Winter 2005

Quic kT i me™ and a T IFF (LZW) dec om pres s or are needed t o s ee thi s pi c ture.

QuickT i me™ and a T IFF (LZW) decom pressor are needed t o see thi s pi cture.

Maldives: Rebuilding with Forethought

Quic kT i me™ and a T IFF (LZW) dec om pres s or are needed t o s ee thi s pi c ture.

Recommendations to Encourage Economic Growth in the Republic of Maldives following the 2004 Tsunami

QuickTi me™ and a T IFF (LZW ) decompressor are needed to see t his pict ure.

QuickT i me™ and a T IFF (LZW) decom pressor are needed t o see thi s pi cture.

Inge Detlefsen Catherine Sapiro Claire Schwartz March 24, 2005 Disclaimer: This report was prepared in partial fulfillment of the requirements for the Master in Public Policy at the University of California, Los Angeles. It was prepared at the direction of the Department and of Dean Thompson, Economic Counselor, Embassy of the United States of America, Sri Lanka. The views expressed herein are those of the authors and not necessarily those of the Department, the UCLA School of Public Affairs, UCLA as a whole, or the client.

Source: http://www.mymaldiveshotels.com/images/map5.jpg

â&#x20AC;&#x153;The massive wave hit us suddenly, and flowed across the island to the other side, sweeping everything in its wake, leaving behind our whole lives in a huge trail of rubble.â&#x20AC;? - an island resident-

ACKNOWLEDGEMENTS First, we would like to acknowledge the people of the Republic of Maldives, who have suffered tremendous losses and are working hard to rebuild their country. Although this report is intended to help the Government of Maldives in directing its reconstruction efforts, much more support is needed. The international community has shown great generosity in its assistance to nations affected by the tsunami on December 26, 2004. Maldives, however, is in danger of falling under the international radar due to its relatively small death toll (compare 108 deaths in Maldives to 166,320 in Indonesia and 212,611 overall) and the government‟s emphasis on upgrading, rather than simply replacing, its infrastructure. Contributions from a wide variety of national and international organizations are anticipated to bring total aid to Maldives to about $100 million this year. Even this relative abundance of aid, however, is far less than the $304 million estimated reconstruction costs over the next three years, and $90 million less than the minimum requirement quoted by the IMF for 2005. The World Bank is spearheading a donor conference in late March to encourage additional contributions to Maldives, and we hope that the generosity of the international community will continue. Second, we would like to thank our client, Dean Thompson, Economic Section Chief at the U.S. Embassy in Sri Lanka, for his support of this project. The mission of the U.S. State Department is to “create a more secure, democratic, and prosperous world for the benefit of the American people and the international community.”1 Furthermore, the State Department is well aware that “globalization is compressing distances and creating new opportunities for economic growth.” We hope that this project will help put into practice that commitment to encouraging economic growth and embracing new opportunities in developing countries. Third, we would like to thank Ahmed Naseem, Director, General Investments, Foreign Investment Services Bureau, Ministry of Trade and Industry, for his insider‟s look on the Maldivian government. Last, but certainly not least, our heartfelt thanks to Arleen Leibowitz, for her support and constant availability, for helping to reinvigorate our project (and our spirits) in the aftermath of the tsunami, and, overall, for making this a better project and experience.

U.S. State Department Website, State Department Mission, www.state.gov/m/rm/rls/dosstrat/2004/23503.htm.

iii

TABLE OF CONTENTS Executive Summary……………………………………………………………………...1 Introduction………………………………………………………………………………3 The Tsunami……………………………………………………………………………..3 Before the Tsunami: Rapid Development……………………………………………4 After the Tsunami: Looking toward the Future…………………………………………...5 III. Background.……………………………………………………………………………...6 Poverty…………………………………………………………………………………….6 Vulnerability.……………………………………………………………………………...9 Challenges to Growth.…………………………………………………………………...12 IV. Major Sectors…………………………………………………………………………...15 Tourism…………………………………………………………………………………..15 Fisheries………………………………………………………………………………….18 V. Selection Criteria……………………………………………………………………….21 VI. Recommendations……………………………………………………………………....23 Aquaculture……………………………….……………………………………………...23 Orchids…………………………………………………………………………………...29 Adventure Tourism………………………………………………………………………34 Handicrafts.………………………………………………………………………………37 Measuring Recommendations Against Criteria...………………………………………..40 Measuring Recommendations Against Goals……………………………………………41 VII. Funding Options.……………………………………………………………………….42 Microcredit……………………………………………………………………………….42 Development Loans…………………………………………………………………….44 Trust Fund.……………………………………………………………………………….45 Foreign Direct Investment……………………………………………………………..46 Measuring Recommendations Against Funding Options………………………………..47 VIII. Conclusion………………………………………………………………………………48 IX. Appendices…………………………………………………………………………….A-1 Appendix 1: Tsunami Damage…………………………………………………………A-1 Appendix 2: LDC Criteria and Benefits………………………………………………..A-3 Appendix 3: Regional Disparities between Malé and the Outer Atolls………………..A-6 Appendix 4: Government Goals and Initiatives………………………………………..A-7 Appendix 5: Narrow Government Revenue Base……………………………………...A-9 Appendix 6: Implementation Strategies for Funding Options………………………...A-10 Appendix 7: Data Tables for Graphs………………………………………………….A-12 Appendix 8: Bibliography…………………………………………………………….A-14 I. II.

Graphs Graph 1: Maldives‟ GDP by Activity Type, 2003………………………………………...9 Graph 2: Hotel Occupancy Rate, 1998 to 2003………………………………………….15 Graph 3: Contribution of Tourism to GDP, 1998 to 2003……………………………….16 Graph 4: Tourist Arrivals in Maldives, 1998 to 2003……………………………………17 Graph 5: Fishery Exports, Export and Prices, 1999 to 2003…………………………….19 Graph 6: Contribution of Aquaculture to Total World Fish Landings, 1970-2000……...24 Graph 7: Wholesale Value of Potted Orchids in the United States, 1996-2004………...29 Graph 8: Orchid Prices in the United States, 1996-2004………………………………..30

Executive Summary

EXECUTIVE SUMMARY The tsunami that hit the Republic of Maldives on December 26, 2004 caused widespread destruction, including significant damage to Maldives‟ two primary industries – tourism and fisheries. Since that time, international organizations and the Government of Maldives (GoM) have been working overtime to channel aid into reconstruction efforts. While the speed and dedication with which stakeholders have reacted to this catastrophe are commendable, the urgency of the situation has left little time to evaluate the long-term needs of Maldives before projects are begun. This paper argues that it is necessary to ask whether simply rebuilding what has been lost is in the best interests of future economic growth and stability in Maldives. It concludes that the answer is “no.” The fisheries sector, especially, has limited potential for sustainable growth. From this point, the question becomes “what industries would best promote economic development and stability?” To identify better investments, we initially evaluate the preexisting problems with the Maldivian economy, which are twofold. First, significant income and standard of living disparities exist between the capital, Malé, and the outer atolls. Second, the country is extremely vulnerable to exogenous shocks, both to the economy and the environment. In addition, new investments have to contend with serious barriers to growth. Specifically, Maldives‟ geographical remoteness and dispersion, resource poverty, and shortage of skilled labor limit the potential of many industries. To address Maldives‟ weaknesses, we lay out twelve goals. These goals, as follow, provide a framework for our appraisal of successful industries in other small island and South Asian countries for their suitability in Maldives. A “good” investment should tackle as many of these goals as possible. 1. To increase the availability of income generating activities on the outer atolls, thereby reducing income disparities between Malé and the islands and decreasing the incentive for overcrowding in Malé. 2. To expand Maldives‟ economic base within the bounds of its comparative advantages and natural resources. 3. To limit environmental degradation. 4. To encourage economic activities that make use of Maldives‟ isolation and its access to resort populations; and to encourage small-scale activities that do not rely on economies of scale. 5. To encourage activities with foreign exchange earning potential to finance imports. 6. To match the skills of native Maldivians to available employment opportunities. 7. To reduce vulnerability to external shocks by diversifying tourist arrivals. 8. To use tourism to create incentives against environmentally damaging activities. 9. To create linkages between the tourism sector and local labor. 10. To diversify fish exports toward high-price fish. 11. To provide alternatives to overexploitation. 12. To reduce dependence on the E.U. market.

Executive Summary

From our analysis of the problems confronting Maldives, we come to the overall conclusion that past development strategies have overemphasized economic diversification. Maldives should diversify within its strongest sectors, rather than promoting completely new industries. Successful development strategies will build on Maldivesâ&#x20AC;&#x; natural endowments and emphasize marginal changes to the sectors that have flourished in the past, including tourism, fisheries and agriculture. We suggest four industries that fit this criterion and meet many of the goals listed above: 1. Aquaculture, which will allow Maldives to utilize local resources, make use of preexisting knowledge and infrastructure, diversify into higher value fish than those naturally available in Maldives, operate on variable scales and create outer atoll employment; 2. Orchid production, which benefits Maldives because orchids can be grown in variable scales, can be produced on the outer atolls, and utilizes the existing infrastructure; 3. Adventure tourism, which can create links with the local population and build on the local infrastructure; and 4. Handicrafts, which will channel tourist dollars directly to natives, operate on variable scales, create female employment, and utilize local resources. Since our recommendations all require financing, this paper concludes with options to increase the availability of funds to both GoM and individual entrepreneurs. To encourage new industries, Maldives should: 1. Modify microcredit programs to more effectively target the poor and women; 2. Acquire loans from international lending organizations; 3. Maximize access fees for foreign fishing companies and commit new revenue to a dedicated trust fund; and 4. Attract more foreign direct investment.

Introduction

THE TSUNAMI Maldives first received warning of the coming disaster at 6:25 am on December 26, 2004 when an underwater earthquake off the coast of Sumatra, Indonesia sent tremors racing across the ocean floor. A tsunami, traveling at over 700 kilometers per hour, hit Maldives about three hours later. Tidal waves from 4 to 14 feet were reported on all of the 199 inhabited islands. At an average elevation of only 1.5 meters, no part of the country was left untouched. Nearly a third of Maldives‟ 300,000 people were severely affected, with more than 13,000 suffering injuries and 108 dead.2 Fifty five islands were significantly damaged, and fourteen were completely destroyed3 – displacing nearly 12,000 people from their islands and causing another 8,500 to be relocated on their own islands.4 In one day, 7% of the population was displaced.5 The tsunami was a truly national disaster. International organizations estimate total losses to be $470 million (not including the as yet unquantified costs of environmental damage), or 62% of Gross Domestic Product (GDP).6 Maldives‟ economic and social infrastructure were wiped out by the waves. Houses, tourist resorts, boats and other fishing equipment, schools, health facilities, transport and communication, water and sanitation, and electricity infrastructure all suffered severe damage.7 The most important economic losses resulted from the impact of the tsunami on Maldives‟ two leading sectors – tourism and fisheries. The economy depends heavily on these sectors, and in coming years, decreases in from them income will cause GDP growth, employment and government revenues to contract. A joint World Bank (WB), Asian Development Bank (ADB) and United Nations (UN) study predicts that 2005 will see a severe economic slowdown, with GDP growth of about 1% (as compared to pre-tsunami forecast of 7.5%), a doubling of the current account deficit from 12% to 25% and a widening of the fiscal deficit to about 11% of GDP.8 Employment will also suffer as a result of the destruction of many productive assets, such as fishing vessels and agricultural crops. (See Appendix 1 for more specific information on the effects of the tsunami.)

While the tsunami resulted in relatively few deaths in comparison to other South Asian countries (for example, 166,320 people were killed in Indonesia), proportionally, the death toll was very high. (“Tsunami deaths soar past 212,000,” CNN.com, January 19, 2005, http://www.cnn.com/2005/WORLD/asiapcf/01/19/asia.tsunami.) 3 United Nations, Office of the Resident Coordinator Maldives, “Maldives: Tsunami Disaster and Beyond,” Slide presentation, January 20, 2005, http://www.mv.undp.org/drtf/presentation.pdf. 4 World Bank, ADB and UN System, Tsunami: Impact and Recovery, Joint Needs Assessment, February 8, 2005 5 Tsunami: Impact and Recovery, 2005. 6 Maldivian President Gayoom has estimated the damage at $1.3 billion, and has asked the international community for $239 million in urgent relief and $1.5 billion in long-term aid (Benjamin Joffe-Walt, “MALDIVES: Islands get preview of future with unfriendly sea,” The San Francisco Chronicle, A10, January 2, 2005). 7 Tsunami: Impact and Recovery, 2005. 8 Even these drastic predictions are based on Maldives receiving aid contributions totaling $190 million, the amount the IMF estimates is necessary to rebuild over the next year. Thus far, contributions have only totaled $100 million.

Introduction

BEFORE THE TSUNAMI: RAPID DEVELOPMENT Prior to 9:20 a.m. on December 26, Maldives, an archipelago of 1,200 islands set off the southwestern coast of India, had been enjoying 25 years of rapid growth. An impressive average growth rate of 8% per year since the 1980s was based largely on its growing reputation as a firstclass tourist destination, and to a lesser extent on the development of its fishing industry and service sector. Per capita income had tripled since 1980, reaching $2,400 in 2003, the highest in the South Asia region.9 By 2004, then, the Government of Maldives (GoM) had made significant strides toward its goal of becoming an upper middle income country. In 2003, GDP growth continued strong at 8.5% and the tourism industry expanded by 15%, with bed occupancy at its highest rate in six years.10 While Maldives still faced significant development challenges, which will be addressed in detail below, it was, according to the 2003 UN Human Development Report, the most desirable South Asian country in which to live.11 Perhaps the best evidence of Maldivesâ&#x20AC;&#x; relative prosperity occurred just six days before the tsunami struck. On December 20, Maldives graduated from Least Developed Country (LDC) status.12 LDC status is intended to recognize and draw attention to those countries in the international community that are most vulnerable. It is also intended to facilitate socio-economic development by granting special concessionary loans and duty-free arrangements. Maldives had been eligible to graduate since 2000, but, based on arguments that small island nations are inherently economically and socially vulnerable, the graduation decision was delayed until 2004. At that time, Maldives exceeded the per capita income threshold by a large margin and was slightly above the human assets threshold, although it still showed some economic vulnerability (see Appendix 2).

Tsunami: Impact and Recovery, 2005, pg. 7. World Bank, Maldives Country Economic Update: Sustaining Robust Development, Report No. 30965-MV, December 15, 2004. pg. 8. 11 World Bank, Maldives Country Economic Update: Sustaining Robust Development, 2004. 12 LDC status, as defined by the Economic and Social (ECOSOC) Committee of the United Nations (UN), is granted to countries with a population of less than 75 million, a per capita GDP of less than 900 dollars, and human resource weakness criterion and economic vulnerability criterion below a certain threshold. 10

Introduction

AFTER THE TSUNAMI: LOOKING TOWARD THE FUTURE The tsunami has put many of Maldives‟ recent gains in jeopardy. There is an understandable rush on the part of GoM and international agencies to restore the country to its pre-tsunami condition and to replace what has been lost or damaged. The main goal of the reconstruction effort is to “rebuild the livelihoods of the people by providing: shelter and housing, infrastructure, and economic recovery.”13 The urgency of the situation leaves little time for decision makers on the ground to evaluate Maldives‟ long term needs as they decide how to invest aid monies. This long-term perspective is critical, however, because the projects they fund today will have a significant impact on Maldives‟ future growth prospects. We suggest that this is a good moment to take a broader look at the options for Maldives and ask whether simply replacing what has been destroyed is in its best long-term interest. This paper seeks to identify new directions Maldives should pursue to mitigate its vulnerability to exogenous shocks and encourage future economic growth. It focuses on measures that the government can implement in the medium-term, and that have been overlooked or insufficiently supported in the past. The challenge for government is to provide leadership while actively collaborating with the private sector. This paper does not address the immediate reconstruction needs of Maldives, primarily because many of the resources involved in the reconstruction effort have already been committed and will not benefit from our assessment. Likewise, development plans that are already receiving strong support from the government and/or international organizations, such as transshipment port construction and resort island development, while important to future economic growth, fall outside the purview of our study. In general, this paper concludes that past development strategies for Maldives have overemphasized economic diversification. While Maldives faces serious and continued challenges, including economic and ecological vulnerability, high unemployment, and large transport costs, it has found a very effective instrument of growth in the tourism industry. To turn away from tourism and, to a lesser extent, fisheries, would be to fail to utilize Maldives‟ most precious resources, and those that have proved most valuable in the past. The development strategies laid out below seek to build on the natural endowments of Maldives, and, therefore, emphasize marginal changes to Maldives‟ successful sectors. These changes are intended both to mitigate some of the vulnerability inherent in Maldives‟ economic and geographic situation and to broaden the income generating activities available to the least advantaged populations, specifically those in the outer atolls, thus enabling them to benefit from the nation‟s growth. We obtained the information contained in this paper by conducting interviews with Maldivian government officials, representatives of the World Bank, ADB and UN, and members of the 13

The Official Website of the National Disaster Management Centre, “The Maldives Tsunami Disaster,” Slide presentation, January 19, 2005, www.tsunamimaldives.mv/idocs/present/recovery%20and%20rewconstruction_files/frame.htm.

Introduction business and academic community in fields such as marine biology, botany, tourism, agricultural economics and international development. We also conducted an extensive review of policy and program reports from the major international aid organizations, statistics and policy statements from GoM, and press reports on the tsunami damage. The policy options we consider are derived from the above sources, as well as a survey of the primary economic activities in a wide range of small economies, especially small island economies, and South Asian countries. The paper is organized as follows. We will: 1. Provide a brief overview of poverty, vulnerabilities and the challenges to growth in Maldives. 2. Assess the specific challenges facing Maldivesâ&#x20AC;&#x; major sectors â&#x20AC;&#x201C; tourism and fishing . 3. Establish criteria by which to evaluate any possible alternative industries, based on analysis of the needs and weaknesses of the economy. 4. Outline recommended industries and weigh their advantages and disadvantages. 5. Suggest funding sources to help finance our recommended industries. To narrow down industries with the potential to encourage both future development and stability in Maldives, we first provide an overview of problems in Maldives that pre-date the tsunami. The reasons underlying preexisting poverty and the failure of most sectors, other than tourism, to grow establish the barriers that new industries must overcome to be successful. From our analysis of these problems, we develop twelve goals, enumerated through the course of the paper, which provide a framework for our appraisal of industries for their suitability in Maldives.

Background

BACKGROUND: POVERTY Maldives has achieved commendable economic development and social progress over the past decades. Despite Maldives‟ high per capita income at the aggregate level, however, income poverty still exists. Poverty in Maldives does not mean destitution; in fact, a smaller proportion of the population of Maldives is destitute than anywhere else in South Asia.14 Instead, poverty entails regional disparities between Malé (the capital) and the atolls, home to almost threequarters of the population.15 The average income earned in Malé is one and a half times greater than that in the outer atolls.16 Of the people living on the outer atolls, 42% live on less than $1.17/day and 22% make do with less than $0.83/day.17 For Maldives as a whole, 43% of the population has incomes below the poverty line of $1.30/day.18 (Please see Appendix 3 for more information on regional disparities.) GOAL: To increase the availability of income generating activities on the outer atolls, thereby reducing income disparities between Malé and the islands and decreasing the incentive for overcrowding in Malé. Poverty: Focus Islands GoM has already taken the first steps toward reducing disparities between the capital and the outer atolls. The focus islands program, established under the auspices of Vision 2020 and the Sixth National Development Plan (see Appendix 4 for more information on these initiatives), aims to encourage the consolidation of the population onto Growth Centre Islands in each of five designated geographic regions. The goal behind the focus islands is to both reduce the marginal cost and improve the quality of public service provision by concentrating services and population on a smaller number of islands. To that effect, GoM plans to improve and build roads, install rainwater collection and storage facilities, improve solid waste disposal, establish schools and health clinics, and set up Regional Development Offices to assist private enterprise on each island. In addition, environmental monitoring stations will monitor the fresh water lens and marine ecology. Communities that relocate from more remote islands will benefit from increased access to the physical and social infrastructure geographic dispersion makes so costly.19 14

ADB, Poverty Reduction in the Maldives: Issues, Findings and Approaches, January 2002, pg. 1 According to a 2002 ADB report, “Poverty problems in the country are primarily related to the remoteness of the islands and lack of services in the atolls. In addition to income, the concept of poverty includes other socioeconomic aspects such as access to electricity, transport, communications, education, health, potable drinking water, recreation facilities and selected consumer goods, the quality of housing and the natural environment, and the incidence of food security and malnutrition.” (Poverty Reduction in the Maldives: Issues, Findings and Approaches, 2002.) 16 Ministry of Planning and Development, Urban Poverty Study 2002, http://www.planning.gov.mv/publications/UrbanPovertyStudy2002/UrbanPovertyStudy2002.pdf (accessed January 15, 2005) 17 Ministry of Atolls Development, Old, Existing, and Potential Income Generating Activities in the Maldives, supported by UNDP and UNESCAP, 2004. 18 ADB, Poverty Reduction Partnership Agreement, 2002, www.adb.org/Documents/Poverty/pa_mld.pdf (accessed December 19, 2004). 19 The GoM has explicitly rejected forced relocation to the focus islands. Prior to the tsunami, fourteen communities were prepared to relocate; many more are eager to move following the tsunami‟s destruction. While the voluntary 15

Background Focus islands not only reduce the costs of service provision, but also provide some protection against natural disasters, such as the recent tsunami. Focus islands were chosen for their size and harbor facilities, as well as their relatively high elevation above sea level. By concentrating the population on fewer islands, the focus island project helps to reduce the cost of defending Maldives against rising sea levels by building physical barriers such as breakwaters and seawalls.

migration requirement does not appear to present as obstacle to the focus island program, money does. GoM is not currently in a position to fund mass relocations without significant international support, and an opportunity to advance the focus islands program may therefore be lost.

Background

BACKGROUND: VULNERABILITY Both economic and environmental vulnerability are main features of Maldives‟ economy, and one of the principal reasons it retained LDC status for so long despite surpassing the maximum income threshold. Economic vulnerability results from Maldives‟ narrow economic base of virtually two sectors, tourism and fisheries, which are significantly influenced by external factors. Environmental vulnerability derives from the increasing danger that diminishing fish stocks and global warming exert on Maldivian livelihoods and, indeed, Maldives‟ very existence. Both types of vulnerability interact to make the continued growth and prosperity of Maldives more precarious. Vulnerability: Narrow Economic Base Maldives‟ impressive growth rate of 8% over the last fifteen years is due, almost entirely, to growth in its two largest sectors: tourism and fisheries. Together, these two sectors accounted for 39.3% of GDP in 2003, as shown in Graph 1, and provide the major sources of employment, foreign exchange earnings and government revenue. Tourism alone accounts for 70% of total foreign exchange earnings.20 When tourism-driven sectors, such as construction and transportation, are included in the equation, GDP growth is even more highly correlated with these two sectors.21 Graph 1: Maldives' GDP by Activity Type, 2003 2.6% 6.6% 8.3%

Agriculture Fisheries Manufacturing

49.8%

Tourism 32.7%

Other

For data, please see Appendix 7.

Other than tourism, fishing and tourism-related sectors, Maldives has very few other significant industries. Agriculture, while practiced on a very small scale, is limited due to the lack of arable land. Home gardens make up 50% of agriculture. There is some coral and sand mining, but, due to negative environmental effects, the government has increasingly curtailed coral mining. Other

Ministry of Planning and National Development and UNDP, Maldives Human Development Report 2000 – Challenges and Responses, 2000, hdrc.undp.org.in/APRI/NHDR_Rgn/Maldives/default.htm, (accessed December 15 2004). 21 Construction and transportation grew 20 and 8.1 percent, respectively, in 2003.

Background income generating activities include small manufacturing, such as boatbuilding, rope making and handicrafts. Maldives does have one other large sector – garments – which accounted for 32% of exports in 2002 and grew by 4.2% in 2003. The sector, however, is expected to decline precipitously following the expiration of the Multi-Fiber Agreement (MFA) in January 2005; the same is anticipated of garment industries in most South Asian countries that benefited from the MFA‟s quota system.22 Therefore, many countries are searching for ways to hold onto their local garment production. The 2004 South Asia Development and Cooperation Report suggests that the region can improve the competitiveness of its garment industries by “increasing vertical integration, capturing economies of scale, horizontal specialization, incorporating innovative designs and taking a stake in global marketing networks.”23 Maldives, however, has little to no economies of scale to capture, and high transport and communication costs means that it will be very difficult for Maldives to compete with larger countries. Already, garment manufacturers are closing their Maldivian factories. While the demise of the garment sector will harm government revenue, almost all garment workers in Maldives are expatriates, so local workers will remain relatively unaffected.24 Although tourism and fisheries have been, and will continue to be, vital to GDP growth and government revenue, Maldives‟ almost exclusive dependence on them raises issues of sustainability. Both sectors are highly vulnerable to exogenous shocks and ecological damage, as illustrated most recently by the tsunami. Longer-term environmental problems, like reef damage, also threaten to impact both sectors simultaneously. These concerns will be discussed in more detail below. GOAL: To expand Maldives’ economic base within the bounds of its comparative advantages and natural resources. Vulnerability: Ecological Fragility The main long-term environmental problem facing Maldives is a rise in sea level due to global warming. The Panel on Climate Change estimates that sea levels will rise around 50cm in this century. Since the highest point in Maldives is only 6m above sea level, and 80% of the islands are just one meter above sea level, a small rise in sea levels can lead to increased flooding and coastal erosion.25 Already 90% of the inhabited islands experience beach erosion, and extremely high tides caused extensive damage to Malé and surrounding islands in 1987.26 A second major problem is the vulnerability of the coral reefs to climate change and pollution. Maldives depends on its reefs for both protection and tourists; therefore, damage to the coral has 22

World Bank, “Maldives at a glance,” Sept. 30, 2004, http://www.worldbank.org/cgibin/sendoff.cgi?page=%2Fdata%2Fcountrydata%2Faag%2Fmdv_aag.pdf (accessed December 18, 2004). 23 South Asia Development and Cooperation Research and Information System for the Non-Aligned and Other Developing Countries (RIS), South Asia Development and Cooperation Report 2004 New Delhi, India, 2004, 2. 24 Maldivians refer to migrants as expatriates. We will do the same throughout this paper. 25 UNDP, Maldives Human Development Report, 2000. 26 UNDP, Maldives Human Development Report, 2000.

Background serious implications for the economy and the safety of islanders. Thus far, pollution has not been a major problem due to the small population and a 1995 government regulation forcing all tourist resorts to treat their sewage. Rising ocean temperatures, however, led to the bleaching and eventual death of 90% of the live coral cover during the 1998 El Nino event.27 Flooding during high tides, which erodes the coastline and deposits sediments on top of the corals, can also endanger reef health. GOAL: To limit environmental degradation.

Rajasuriya, A. , Venkataraman, K., Muley, E.V., Zahir, H., and Cattermoul, B. â&#x20AC;&#x153;Status of Coral Reefs in South Asia: Bangladesh, India, Maldives, Sri Lanka,â&#x20AC;? Status of Coral Reefs of the World 2002. Ed. Clive Wilkinson, Australian Institute of Marine Science, 2002, www.aims.gov.au/pages/research/coral-bleaching/scr2002/scr-00.html,

Background

BACKGROUND: CHALLENGES TO GROWTH

Our interviews and review of published materials identified three broad categories of challenges to growth, which are discussed below. 1. Geography 2. Resource poverty 3. Shortage of skilled labor

Challenges to Growth: Geography Maldives faces two significant geographical constraints: its remote location and its dispersion over many atolls and small islands. Located in the Indian Ocean 480km southwest of Cape Comorin on the southern tip of India and 650km southwest of Sri Lanka, Maldives is far from its closest neighbors. This leads to very high transport costs into and out of the country, which the large proportion of goods that must be imported or exported exacerbates. Geographic dispersion within Maldives also contributes to high transport costs. Maldives consists of 26 atolls, which form 1190 coral islands. The atolls stretch 764 km from north to south and up to 128 km east to west. Of the islands, 199 are inhabited and 87 are exclusive resort islands. According to 2000 census, of the inhabited islands, 76 have fewer than 500 inhabitants, 142 have less than 1000 inhabitants, and some have as few as 150 residents.28 As noted above, the dispersal of the population over so many small islands increases the cost of government service provision. It also means that supplies need to be transported large distances to reach the island populations. Since boat service to many islands is irregular and expensive, high transport costs can pose significant burdens on potential businesses. Additionally, the numerous low-population islands and a total population of about 300,000 mean that Maldives has difficulty achieving economies of scale in production or service delivery. On islands other than MalĂŠ, only small-scale production has been possible in the past. GOAL: To encourage economic activities that make use of Maldivesâ&#x20AC;&#x2122; isolation and its access to resort populations; and to encourage small-scale activities that do not rely on economies of scale. Challenges to Growth: Resource Scarcity Maldivesâ&#x20AC;&#x; natural resources, primarily its beaches, coral reefs, and fish, are valuable but limited. Due to a lack of fresh water (there are no streams or lakes), few energy resources and poor soil, Maldives must import almost all of its staples, including food, petroleum and diesel fuel and 28

World Bank, Maldives Country Economic Update: Sustaining Robust Development, 2004.

Background even basic building materials, such as wood and stone. The country is self-sufficient only in fish production, and even then tourist resorts often import fish to ensure menu consistency. The enormous quantity of imports (68% of GPD in 2003) is financed by foreign exchange earnings, primarily from the tourism and fisheries sectors.29 GOAL: To encourage activities with foreign exchange earning potential to finance imports. Challenges to Growth: Shortage of Skilled Labor Maldives faces two interrelated labor issues: an overabundance of unskilled labor and skills mismatch. Although the literacy rate (97%) and the primary school enrollment rate (99%) are both very high, the numbers are deceptive. The literacy rate refers only to the ability to recite basic Dhivehi text30; functional literacy (implying full understanding of the text) is lower.31 Part of the problem is the lack of qualified teachers; primary school teachers generally only have one to two years of training beyond the seven-year primary education, and 11% are untrained.32 Another part is the paucity of secondary schools, especially among the outer atolls – only 31% of Maldivians were enrolled in secondary education during the 2000 school year. 33 Lastly, higher education in Maldives is extremely limited. Since 2000, Maldives College of Higher Education offers bachelor‟s degrees; however, its focus is limited to nursing, hospitality, welding, engine repair, and administration. Even now, all Master‟s candidates must receive their degrees abroad. Advanced training is therefore not only cost-prohibitive for most Maldivians, but also complicated by the inadequate preparation most students receive in the national school system. Between 1990 and 2000, only 149 students completed a master‟s degree overseas.34 To complicate the situation, while Maldivian labor supply is largely unskilled, labor demand is for skilled workers. Maldives‟ largest employment opportunities are in the tertiary sector, with, for example, increasing opportunities in transport, real estate, and business and financial services. Despite relatively high levels of local unemployment (some estimates run as high as 10%), foreign workers are migrating in increasing numbers to fill the skills gap. 35 In 1990, there were 9,000 expatriate workers in Maldives, while in 2003 the number had risen to 34,000. 36 The

ADB, “Key Indicators: Maldives,” 2004, http://www.adb.org/Documents/Books/Key_Indicators/2004/pdf/MLD.pdf. (accessed December 14, 2004). 30 Dhivehi is the native language of Maldivians. In the 1960s, English began being taught at schools and is now widely spoken, especially in the capital. 31 U.S. State Department, Republic of Maldives Country Commercial Guide, August, 2004, available at http://usembassy.state.gov/srilanka/wwwhcommercial_maldives_country_commercial_guides.html. 32 UNDP, Maldives Human Development Report, 2000. 33 UNDP, Human Development Report 2003: Millennium Development Goals: A compact among nations to end human poverty, 2003, http://hdr.undp.org/reports/global/2003. 34 UNDP, Maldives Human Development Report, 2000. 35 The government reports an increase in formal unemployment from 0.8% in 1990 to 2.0% in 2000, other estimates suggest the true number is closer to 10%. (Government estimate from Ministry of Planning and National Development, Analytical Report, Population and Housing Census of Maldives, Male: Ministry of Planning and National Development, 2000. Other sources as reported in World Bank, World Bank, Maldives Country Economic Update: Sustaining Robust Development, 2004). 36 Ministry of Planning and National Development, “Key Indicators 2004,” Statistical Yearbook of Maldives 2004 (SYM), www.planning.gov.mv/yrb2004/intro.htm.

Background major problem with the education system is that it is not training Maldivians for the jobs that are available intra-nationally. GOAL: To match the skills of native Maldivians to available employment opportunities.

Major Sectors

MAJOR SECTORS As noted above, the Maldivian economy depends heavily on two industries: tourism and fishing. Because the health of these sectors substantially influences GDP, government revenue and employment, it is crucial to identify their strengths and weaknesses before suggesting changes to them. The following is an analysis of tourism and fisheries in Maldives, with particular emphasis on their vulnerabilities. Major Sectors: Tourism Although tourism is a relatively new industry in Maldives, it has grown steadily since its introduction in the 1970s and now accounts for 33% of GDP.37 Tourism has been the single largest contributor to growth in Maldives – in 2003 alone, the sector expanded by 14.8%, and preliminary estimates of the first half of 2004 show a 20% increase compared to the same period in 2003. Average hotel occupancy, after declining for five years, rebounded to 77.2% in 2003 (see Graph 2).38

Percent

Graph 2: Hotel Occupancy Rate, 1998 to 2003 80 78 76 74 72 70 68 66 64 62 60 58

Hotel Occupancy Rate

1998 1999 2000 2001 2002 2003 Year

For data, please see Appendix 7.

Maldives generally appeals to high-end tourists, who pay significant sums for secluded beaches and warm weather. Resorts are built on a one resort-one island theme, which has proven remarkably successful. Resort owners provide all the services on their islands, including water desalination, electricity generation and waste disposal. The tourism sector is the most important, and, by all predictions, will remain the most important, source of economic growth in Maldives. Nonetheless, the sector can be improved. We have identified three weaknesses in the current structure of the tourism sector that a development strategy should address:

As of early 2004, there were 87 resorts in operation, with a capacity of about 17,000 beds (SYM, 2004, Table 10.6, p. 220). Fourteen new resorts have opened since 1998, and 11 new resort leases were made available in 2004 and were expected to be completed by late 2005. In addition, a 2003 land survey identified 324 islands suitable for resort development (World Bank, Maldives Country Economic Update, 2004). 38 Ministry of Planning and National Development, “Key Indicators 2004,” SYM, Table 10.6 and p. 20

Major Sectors Exogenous Shocks to Tourist Arrivals Environmental Degradation Disconnect with Maldivian Labor Exogenous Shocks to Tourist Arrivals The origin of Maldivian tourists is heavily concentrated, which contributes to the potential for external shocks to tourism. The majority of tourists, about 80%, come from Western Europe, mostly from the United Kingdom, Germany, Italy, Switzerland and France. Asian markets, especially the Japanese, are beginning to grow, and the number of Chinese visitors has increased rapidly since the Chinese government designated Maldives as an â&#x20AC;&#x153;approved tourism state.â&#x20AC;? Nonetheless, the significance of tourists from just a few European countries means that shocks to Europe can easily become shocks to Maldives. Terrorist threats, international health scares and similar events have the potential to sharply limit tourist arrivals in Maldives. We have already seen the impact of the tsunami on tourism, but other external shocks, such as the September 11, 2001 attack on the United States or the SARS epidemic in Asia, also have significant effects on world tourism. As shown in graphs 3 and 4, tourist arrivals and the contribution of tourism to GDP both fell in the wake of the September 11th attacks as worldwide travel slowed precipitously. The subsequent SARS epidemic, although it did not infect Maldives, helped slow recovery until 2003. Demand for tourism is highly elastic, and changes in the perceived cost of travel in terms of health dangers have significant effects. GOAL: To reduce vulnerability to external shocks by diversifying tourist arrivals. Graph 3: Contribution of Tourism to GDP, 1998 to 2003 33.5

Percent of GDP

33 32.5 Contribution of Tourism to GDP (%)

32 31.5 31 30.5 30 1998 1999 2000 2001 2002 2003 Year

For data, please see Appendix 7.

Major Sectors

)Number of Arrivals (in 1000

Graph 4: Tourist Arrivals in Maldives, 1998 to 2003 600 500 400 Tourist arrivals (1000)

300 200 100 0 1998

1999

2000

2001

2002

2003

Year

For data, please see Appendix 7.

Environmental Degradation The condition of the environment is vital to the sustainability of the Maldivian tourist trade. Maldives‟ main selling points are its location, weather, flora and fauna. Degradation of the environment, especially of the coral reefs surrounding most of the islands, poses serious threats to the tourist trade. GoM has long recognized the importance of preserving its environmental advantage. It has enacted numerous policies to guarantee resort compliance with environmental standards, which have resulted in better environmental conditions on resorts than on inhabited islands.39 Continued vigilance is necessary, however, to safeguard the Maldivian “paradise.” GOAL: To use tourism to create incentives against environmentally damaging activities. Disconnect with Maldivian Labor Although a substantial contributor to national growth, tourism is not well integrated in the life of native Maldivians. Resorts are designed as “enclaves,” limited to uninhabited islands. This is consistent with GoM‟s desire to protect the social, cultural and religious values of Maldives from the onslaught of Western tourists; it does not, however, work well to develop economic links between residents of the inhabited islands and the tourist industry. Fully 46% of resort workers come from abroad, mainly from other Asian countries.40 This is despite the fact that employing expatriates is more expensive. Although GoM has recently attempted to reverse this situation, many young Maldivians are resistant to change and view resort work as degrading. 41 More resorts thus do not necessarily correlate to reduced local unemployment. When Maldivians do work at the resorts, employment is limited to men; 96% of the Maldivian resort work force is male.42 Hotel work is considered unsuitable for women both because of their traditional roles raising children and caring for the household and because resort work entails close contact with some of the indecencies of the non-Muslim life.43

World Bank, Maldives Country Economic Update: Sustaining Robust Development, 2004. Ministry of Planning and National Development, “Key Indicators 2004.” SYM. 41 Ministry of Atolls Development, Old, Existing, and Potential Income Generating Activities in the Maldives, 2004 42 Ministry of Planning and National Development, “Key Indicators 2004,” SYM. 43 UNDP, Maldives Human Development Report, 2000. 40

Major Sectors GOAL: To create linkages between the tourism sector and local labor. Major Sectors: Fisheries Although the relative importance of the fisheries sector in terms of GDP has declined as tourism has flourished, fishing is still the largest traditional industry in Maldives, and has a critical role in employment. Fisheries employs almost the same proportion of the local labor force as tourism; in 2000, 10.8% and 11.3% respectively.44 In addition, fishing is one of the only employment opportunities in many of the outer atolls and islands, and probably the most important source of income for the rural poor.45 As with tourism, we have identified three primary weaknesses in the current structure of the fisheries sector (see box below). Whereas tourism exhibits great potential for future growth despite its weaknesses, however, our analysis of the problems confronting fisheries leads us to conclude that the status quo is unsustainable. Although fishing, in some form, will continue, in the near term, to contribute substantially to income and employment in Maldives; in the long term, the environmental and political obstacles confronting the industry will prove insurmountable. Specifically, low quality tuna, high European Union (E.U.) tariffs and the inevitable long-term depletion of fish stocks mean that the fisheries sector in Maldives will need to undergo significant changes to remain competitive in the world market. This conclusion represents the starting point for our recommendation (see aquaculture below), which suggests the first steps to making the necessary changes to fisheries. Exogenous Shocks to Fish Prices Environmental Degradation LDC Graduation Exogenous Shocks to Fish Prices Maldives has two main marine exports: skipjack tuna (70% of total catch) and yellow fin tuna (15% of total catch). Total export earnings, therefore, are highly sensitive to fluctuations in international tuna prices, which, as in any competitive market, can vary greatly from year to year (see Graph 5). The dependence on a very few varieties of fish increases the potential that changes in fish prices will have significant effects on Maldivesâ&#x20AC;&#x; GDP. In addition, skipjack tuna is a low quality fish. As income rises internationally, it is likely that demand for skipjack will decrease, causing reductions in tuna prices and export revenue received in Maldives. Without the potential to harvest different fish species, Maldives is very vulnerable both to yearly fluctuations and unfavorable long-term trends in skipjack tuna prices. GOAL: To diversify fish exports toward high-price fish.

The importance of fisheries in terms of employment has been decreasing; in the 1990s, fisheries accounted for 20% of employment. [Analytical Report, Population and Housing Census 2000 of the Maldives, http://www.planning.gov.mv/analytical_report/html/Source/ChapterVIII.pdf (December 18 2004)]. 45 The outer atolls account for more than 91% of total fish landings (World Bank, Maldives Country Economic Update: Sustaining Robust Development, 2004).

Major Sectors

Graph 5: Fishery Exports, Earnings and Prices, 1999 to 2003 80 70 60 50 40 30 20 10 0

700 600 500 400

Exports in '000 metric tons (left axis) Exports in US$ millions (left axis)

300 200 100

Frozen tuna prices (US$ per ton, right axis)

0 1999 2000 2001 2002 2003

For source of data, please see Appendix 7. Graph from Maldives Country Economic Update: Sustaining Robust Development, 2004.

Environmental Degradation Skipjack and yellow fin tuna are both highly migratory. It follows that Maldivian fishermen are harvesting from large stocks of tuna spread widely across the Indian Ocean.46 Therefore, despite the environmentally-friendly pole and line fishing practiced in Maldives, the stock of fish can be depleted by less sustainable methods of fishing, such as net fishing, practiced in other countries with Indian Ocean fishing rights.47 Although the size of the Indian Ocean skipjack tuna stocks is believed to be large, recent declines in the catch rates and the average size of fish are signs of potential over-fishing. Yellow fin tuna are under particular pressure as they take longer to mature to full size and reproduce. Like yellow fin tuna fishery, multi-species reef fishery (for sea cucumber, grouper, and others) and fishery for aquarium fish (exported live) in Maldives exploit high-value, slow-maturing fish that are in great danger of over-fishing. Extensive reef fishery leads to imbalances in the normal sex ratio because many reef fish species switch sexes as they mature; most of the older, larger individuals in the population are male. Reef fishery is currently fully exploited in Maldives and is not believed to have significant growth potential. Already, giant clam fishing is banned due to

Relatively little is known about the migratory patterns of tuna, but the tuna caught in Maldivian waters probably migrate throughout the Indian Ocean. 47 Harvesting is performed by local fishermen in small and medium sized motorized fishing vessels (known as dhonis) using traditional Maldivian fishing methods--primarily small scale reef fishing and pole and line tuna fishing--which are not environmentally detrimental. Net fishing is illegal in the Maldives, and long-line fishing is permitted only in the Exclusive Economic Zone (EEZ), which extends for 200 miles around the islands (for a total of 859,000 km2),where the government awards licenses for foreign companies to fish.

Major Sectors overexploitation;48 sea cucumbers and groupers are showing signs of depletion; and aquarium fish are subject to a quota system and export qualifications.49 GOAL: To provide alternatives to overexploitation. LDC Graduation The fisheries sector will be the most immediately affected by Maldives‟ graduation from LDC status. Among the benefits granted by LDC status was duty-free and quota-free export of marine products to the E.U. Following the implementation of graduation, duties on Maldivian fish exports to the E.U. will increase to 24.3%. Since the E.U. is, by far, the largest market for Maldivian marine products, loss of duty-free status could have serious detrimental effects. GOAL: To reduce dependence on the E.U. market.

Abdulla Naseer , “Profile and Status of Coral Reefs in Maldives and Approaches to its Management,” Presented at the Regional Workshop on the Conservation and Management of Coral Reefs 1997, Obtained from: http://www.fao.org/docrep/X5627E/x5627e00.htm#Contents. 49 The Ministry of Fisheries is studying the causes of a decline in grouper fishing reported in 2003 [UNEP, Maldives: State of the Environment, 2002, http://www.rrcap.unep.org/reports/soe/maldivessoe.cfm].

Selection Criteria

SELECTION CRITERIA Given the goals outlined in the previous sections, we isolated the following six criteria with which to evaluate the suitability of a range of alternative industries for Maldives. Poverty Reducing Employment Maximizing Culturally Acceptable Environmentally Sound Long Term Fiscally Feasible

Poverty Reducing Increasing income and standard of living measures, especially in the outer atolls, and situating Maldives on track for future development will be high priorities. To this effect, we will look for high-yield industries, with an emphasis on utilizing tourist resorts as markets. Employment Maximizing In seeking to maximize employment, we will pay particular attention to three priorities: (1) creating employment opportunities for Maldivians, rather than expatriates; (2) ensuring that required job skills match those available in Maldives or include recommendations for increasing skills; and (3) increasing the number of employment opportunities open to women.50 Culturally Acceptable Recommended alternatives will take into account three cultural and political norms, violation of which would significantly reduce the likelihood of implementation and the effectiveness, if implemented, of any proposed change: (1) family and gender roles; (2) religious norms; and (3) political feasibility. 1. Maldivian communities are tight knit, with extended family networks. Although women are not secluded from public view, men and women have different roles; traditionally, men are employed outside the home (i.e., in fishing), while women stay close to home, run the household, and care for children. 2. The 1997 Constitution designates Sunni Islam as the official religion of Maldives. GoM interprets that to mean that all citizens must be Muslims and imposes strict

Fish exports have shifted from traditionally prepared salted and dried fish to canned and frozen fish. This has reduced income earning opportunities for women who were traditionally preparing the fish caught by men. As a result, womenâ&#x20AC;&#x;s labor force participation rate has declined dramatically from 50% during the time salted fish was the main export, down to 19% in 1998, when frozen and canned fish dominated exports.

Selection Criteria provisions by which citizens must abide to ensure that Islam is the countryâ&#x20AC;&#x;s only religion. 3. A 1968 constitutional referendum made Maldives into a republic with executive, legislative, and judicial branches. However, President Gayoom, in office since 1978 and currently serving his sixth term, is Head of State, Head of the Government, Commander-in-Chief of the Armed Forces and the Police, Head of the Judiciary, and has the supreme authority to propagate the tenets of Islam. Since Gayoom provides the country with its direction, our recommendations must conform to his policies. Environmentally Sound Maldives is aware of its fragile marine and terrestrial environment, and seeks to protect its environment through declarations and regulations as it develops. Potential development should not cause beach or soil erosion, harm mangroves or coral reefs, pollute coastal waters or endanger any protected species. Long Term Solutions must be sustainable in the long run and not over exploit the natural resources that are essential to Maldivesâ&#x20AC;&#x; survival and vital industries. Remedies to the tsunami devastation that fail to contribute to long-term growth do not address the greater interests of the country. Our recommendations, therefore, will be evaluated in accordance with their potential contributions to long-term development. Fiscally Feasible Maldives has consistently run fiscal deficits since 1999, and public debt has been growing.51 Debt service has been facilitated by concessionary loans; however, LDC graduation may decrease the availability of loans. Increased fiscal expenditure, therefore, could endanger macroeconomic stability in Maldives. Our recommendations will take into account the effect of program funding on the budget, and will suggest, where possible, alternate means for funding high-cost programs. The solutions should help Maldives diversify its economy without burdening the country with debt.

Deficits have generally been between 4 and 5% of GDP, and have been used to finance increased service provision to the outer atolls and develop Hulhumale, a man-made island being constructed near MalĂŠ (see Appendix 3 for more information on Hulhumale). Public debt reached 46.5% of GDP in 2003 (up from 40.9% in 2000).

Recommendations

RECOMMENDATIONS The recommendations that follow were chosen based on our survey of the most successful economic sectors in a wide range of small island states and South Asian countries. The following represent those industries we think most likely to accomplish the goals listed above. Each section includes: 1. A short background on the industry in Maldives and worldwide (if applicable) 2. Consideration of the advantages and disadvantages of the industry 3. Implementation Strategies for GoM Recommendations: Aquaculture What is aquaculture? Aquaculture (or mariculture52) refers to the farming of aquatic organisms. Aquaculture projects can range from low-cost, low-technology to high-cost, high-technology, and can be used to raise a wide variety of fish and other marine life. Aquaculture has multiple stages (seed stock production, hatchery, nursery, and grow out), and projects can be undertaken at any one of these stages. The most intensive form is closed cycle aquaculture, which incorporates all stages of fish growth from eggs to marketable fish, and can be used to rehabilitate over-fished species. A less intensive form of aquaculture is “grow out” farming, where small fish (fingerlings) are allowed to mature in cages into fully grown fish; since grow out only requires cages, it is both relatively low-skill and inexpensive. What is the status of aquaculture internationally? Aquaculture is a big and growing business: Asian aquaculture production in 2002 alone was valued at over $44 billion, and world aquaculture production has been rising dramatically.53 Aquaculture is predicted to overtake capture fisheries in fish production by 2020, and, until then, an increasing proportion of fish production will come from aquaculture.54

Marine water culture is often referred to as mariculture. In 1950, aquaculture contributed only 3% to world fish production, while in 2001, aquaculture‟s share had risen to 34%. A large part of the growth in aquaculture is due to the increased production of low value food fish farmed in ponds for developing country consumers. These low value fish are not exported but produced for local consumption to increase food security. However, higher valued fish products for export such as salmon and shrimp have gained prominence recently. [Josupeit, H. and Franz, N., Aquaculture –Trade, Trends, Standards and Outlooks, FAO Fisheries Department, http://www.globefish.org/index.php?id=2061, (accessed February 3, 2005). Asian aquaculture statistics from “World Aquaculture Outlook 2002.” Aquaculture Magazine 2002 Buyer’s Guide. aquaculturemag.com/siteenglish/printed/buyers/web-worldoutlook.pdf (accessed February 12, 2005).] 54 “World Aquaculture Outlook 2002.” Aquaculture Magazine 2002 Buyer’s Guide 53

Recommendations

120 100 80 Capture Fisheries

Aquaculture

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

Million metric tons

Graph 6: Contribution of Aquaculture to Total World Fish Landings, 1970 to 2000

Year

Source: Table 1 in FAO, The State of World Fisheries and Aquaculture (2004).

Developing countries, led by Asian nations, with 87% of global production, account for most aquaculture. Developing countries are also expected to fuel increased demand for fishery products over the next twenty years.55 This, in turn, is predicted to raise fish prices by 15% between 1997 and 2020.56 In addition, rising incomes, especially of Southeast Asian countries, are likely to increase the demand for high-value fish relative to inexpensive fish species. What are the advantages of aquaculture? Utilizes local resources. Maldives‟ natural environment is well suited to aquaculture. Fish farming requires both clean water and a current or tide to bring nutrients to caged fish and remove wastes. Maldives‟ extensive lagoons, all in relatively pristine condition, and tides fulfill these needs well.57 In addition, the geographical dispersion of the population may be an advantage; minimizing the crowding of farms will reduce the environmental damage from effluents. Makes use of preexisting experience and infrastructure. Maldivian fishermen are already well acquainted with regional ocean conditions, species, and the handling of fish and other marine organisms, and thus are relatively well prepared to diversify into aquaculture. Moreover, marketing channels are already established, and Maldivians have experience exporting fresh, frozen, and live fish. Monitoring the marine environment, which is important to find suitable sites for aquaculture and ensure good water quality, is also already in progress. The Marine Research Center is currently collecting biophysical

S. Sugiyama, D. Staples and S. Funge-Smith, “Status and potential of fisheries and aquaculture in Asia and the Pacific.” Asia Pacific Fishery Commission. FAO Regional Office for Asia and the Pacific. RAP Publication 2004/25, 2004, http://www.apfic.org/apfic_downloads/pubs_RAP/2004-25.PDF 56 Sugiyama et al., “Status and potential of fisheries and aquaculture in Asia and the Pacific,” 2004. 57 The reef and lagoon area of the Maldives is 21,300km2. The islands‟ tidal ranges of 0.3 to 1.0 meter are sufficient to transport nutrients and effluent for mariculture projects [UNEP, State of the Environment Maldives, 2002].

Recommendations information on coral reef ecosystems to monitor the Marine Protected Area System Project and thus has expertise in ocean monitoring.58 Allows for diversification into higher-value fish than those naturally available in Maldives. There are three important components to the diversification of fish. First, aquaculture makes seafood production independent of fish stocks thereby relieving the pressure on wild-caught fish.59 Increased farming could help replenish over fished species, and therefore represents a potential long-term solution to declining fish stocks for traditional fishermen, as well as an income earning opportunity for practitioners of aquaculture. Second, aquaculture would allow Maldivians to choose which species of fish they produce. Consequently, they can move toward higher-value fish, such as grouper and aquarium fish, as well as other live reef fish and ornamentals.60 The great variety of species that can be farmed allows for production aimed at specific markets. It also means Maldives can diversify its export of marine products away from Europe by producing fish whose primary markets are elsewhere.61 Diversification is especially important in light of LDC graduation and the upcoming increase in tariffs for exports to the E.U. Third, aquaculture allows for stable fish production. Maldivian resorts must currently import fish because the quantity and variety of the daily fish catch is unreliable. By reducing the variability in available fish, aquaculture will allow Maldivians to take greater advantage of the resort island demand. Operates on variable scales. Aquaculture can take the form of anything from small family enterprises to large commercial farms, and can be profitable on all scales.62 Movement between scales is also possible; small scale grow out operations can be vertically integrated into full cycle aquaculture. Simple grow out is neither capital nor skill intensive, and can thus be used as a source of supplementary income for practicing fishermen in the start-up phase.63 Creates outer atoll employment, especially female employment. Aquaculture, like fishing, can be practiced far from Malé, benefiting the poorer island communities. In addition, while women are not employed in traditional fisheries activities, they often take a large part in aquaculture. Aquaculture does not require extended time away from home, making it compatible with childrearing and housework. An UNDP-sponsored pearl 58

Global Coral Reef Monitoring Network South Asia Partner Review Exercise 2003. http://ioc.unesco.org/gcrmn/GCRMN%20SA%20Partner%20Review%20Exercise%202003.pdf. (accessed December 17, 2004). 59 Pomeroy et al., “Farming the Reef: is aquaculture a solution for reducing fishing pressure on coral reefs?” Marine Policy, 2004. Article in press, available from Inge Detlefsen. 60 Aquarium fish have been exported from the Maldives for the last twenty years. There is concern about over exploitation of this valuable resource and a quota system –which suffers from lack of enforcement- for exports has been put in place. This points to the valuable role farming aquarium fish culture could play not only in generating export earnings but also in relieving pressure on wild stocks. Currently, 98% of aquarium fish are produced by capture, and there is a significant potential for increasing aquaculture production, especially in conjunction with trends to certify production as “undertaken responsibly.” The financial viability of live reef fish production in the Indo-Pacific region has been verified. The potential for high profits may attract FDI once suitable areas for mariculture have been established by zoning surveys. [See M.S.Adam, “The Aquarium Fishery of the Maldives,” Marine Research Section, Ministry of Fishing and Agriculture, Male, Maldives, 2002; S, Sugiyama et al. (2004/5) and Pomeroy et al. (2004)]. 61 For instance, grouper‟s major market is in Hong Kong, and sea cucumbers are especially popular in Asia. 62 See: Pomeroy et al.(2004) and Agbayani et al., “Aquaculture Economics in Asia and the Pacific,” FAO Fisheries Circular No 932, FIRI C/932, 2004. 63 During this phase, a central farm may produce seed stock and hatch fish to sell to small scale farmers to grow out.

Recommendations culture project in Maldives employed primarily women, and women in other Asian countries participate in all stages and scales of aquaculture.64 Embraced by GoM and international organizations. In its 2004 revision to the fisheries law, GoM added provisions for aquaculture, demonstrating its interest in fostering fish farming.65 International organizations have also recommended aquaculture as a suitable industry for small island economies.66 In addition, there have been several aquaculture projects in Maldives.67 Discourages pollution. Aquaculture requires clean water, providing an incentive to protect the ocean from pollution. Fish farmers could become a valuable lobby for keeping the marine environment clean. What are the disadvantages of aquaculture?: Encroaches on traditional fishermen. Aquaculture may lead to user conflicts between fishermen and fish farmers. Areas that are especially suited for aquaculture may be traditional fishing grounds for some islanders, and the trash fish required to feed farmed fish may limit the baitfish available for fishermen for catching tuna. Farmed fish can also be fed pellets; however, while pellets alleviate one problem, they also make farmers dependent on imports and vulnerable to changes in feed prices. Requires new skills and capital. Full cycle culture, in particular, requires advanced skills and capital. Many islanders may not have the capital and credit required to start full cycle fish farming, although growing out fingerlings requires fewer skills and resources, making it more accessible.68 Several studies have cited the lack of access to capital as a deterrent to aquaculture.69 64

E. Baluyut, “Women in Aquaculture Production in Asian Countries,” FAO. ADCP/REP/87/28, 1987, http://www.fao.org/docrep/S4863E/s4863e06.htm 65 The law prescribes the need for an aquaculture license prior to obtaining a lease from the Ministry of Fisheries and Marine Resources (MFAMR). The law also authorizes MFAMR to ask for environmental impact studies and gives the ministry the authority to regulate the introduction of exotic species, genetically modified organisms, and disease outbreaks. The MFAMR is also authorized to introduce regulations for data collection from the aquaculture and fisheries industries. [A. van Houte, “Assistance in Fisheries and Marine Resources Management Policy and Legislation,” FAO LIBRARY AN: 415469, TCP/MDV/2801, 2003] 66 The FAO notes that small islands, whose main resource is fish and who often suffer problems related to over fishing, could benefit from aquaculture: “The current lack of aquaculture and inland fisheries development in small island States constrains the overall contribution of the fisheries sector to food security and national economic development. Most SIDS have yet to realize their full potential for the development of aquaculture and inland fisheries. In particular, measures to promote sustainable aquaculture and reef enhancement are required, while ensuring that inland capture fisheries are harvested rationally.” Committee on Fisheries, “Fisheries and Aquaculture in Small Island Developing States,” FAO. COFI/99/7, 1998. 67 GoM conducted a seaweed culture project; FAO financed a sea cucumber project; and the UNDP took on a pearl culture project. The pearl culture project was particularly successful and progressed from a pilot project into a commercial operation in 2003. The project was carried out by the Maldives‟ Marine Research Centre, providing valuable experience to the body that would most likely be involved in finding suitable sites for aquaculture and in monitoring water quality. (“Pearl culture offers bright potential for the Maldives,” UNDP Maldives, August 25, 2003, http://www.un.org/specialrep/ohrlls/News_flash2003/Pearl%20culture%20offers%20bright%20potential%20for%20the%20Maldives.htm) 68 Growing out fingerlings, unless they come from a central farm, carries its own problems. Catching juveniles in the wild increases the survival rate of fish, so that more fish reach adulthood; however, taking juveniles from the wild

Recommendations Takes time. It may take several years, depending on species, until aquaculture is profitable.70 Increases risks. Aquaculture introduces three environmental risks that capture fishing avoids. First, disease outbreaks can quickly spread through farms and may have negative effects on both farm profitability and wild fish. Specialists must, therefore, be on hand to control outbreaks. However, the antibiotics used to combat disease may have negative effects on ocean life. Second, using wild seed stock, non-native species, or genetically modified species in aquaculture can compromise the ecosystem. This negative impact can be mitigated by appropriate species selection and breed stock operations. Third, wastes from farms can pollute the ocean and require monitoring. 71 Species also differ in the amount of pollution they produce, with oysters on the low end and shrimp on the high end.72 Careful species selection can thus significantly reduce the risk of pollution. The monitoring of water quality is also valuable for the tourism and fisheries sector and may lead to increased awareness of polluting. Implementation Strategies Conduct baseline survey. A baseline survey is necessary to identify both appropriate areas for aquaculture farms and preexisting pollution levels against which to measure the pollution effects of farming. We suggest that the Ministry of Fisheries, Agriculture and Marine Resources (MFAMR) collaborate with the Marine Research Center to conduct such a survey. Attention should be paid to the cumulative effect of aquaculture farms when setting standards and monitoring.73 Island or atoll level monitoring may be most appropriate in this respect. Develop a comprehensive coastal management plan. After identifying suitable locations, a system for aquaculture requires careful planning to incorporate farming with the needs of capture fisheries, tourism, and the environment.74 MFAMR75 should take the lead in runs the same risk of over harvesting as capture fisheries. Collecting the fish eggs runs a smaller risk of inducing over harvesting, because eggs in the wild have a lower survival rate than juveniles. Only by keeping some grown fish as seed stock and producing eggs can independence from wild stocks be reached. 69 See: Pomeroy et al., 2004; FAO Fisheries Department and Network of Aquaculture Centres in Asia-Pacific, “Survey and Analysis of Aquaculture Development Research Priorities and Capacities in Asia,” FAO Fisheries Circular No. 930 FIRI/C930, Rome, November 1997, http://www.fao.org/documents/show_cdr.asp?url_file=/docrep/W6937E/W6937E00.htm; U. Tietze, and L. Villareal, “Microfinance in Fisheries and Aquaculture,” FAO Fisheries Technical Paper 440, Rome 2003, http://www.fao.org/documents/show_cdr.asp?url_file=/DOCREP/006/Y5043E/Y5043E00.HTM 70 Species differ in the time needed to reach maturity: pearls take one to two years to grow if mature oysters are already available; otherwise they take two to three years to grow. Grouper from fingerlings take less than a year to grow. 71 T.C. Telfer, and M.C.M. Beveridge, “Monitoring environmental effects of marine fish aquaculture,” Institute of Aquaculture, University of Sterling, UK, 2000 72 Email exchange with Dr.Benetti from the aquaculture program of the University of Miami. 73 Studies suggest that farm level environmental impact studies may be insufficient because impact is cumulative, so that monitoring and coastal management have to address the overall impact of aquaculture on the ecosystem. GESAMP (IFO/FAO/UNESCO-IOC/WMO/WHO/IAEA/UN/UNEP Joint Group of Experts), “Planning and management for sustainable coastal aquaculture development,” 2001 74 The idea of integrated management comes from Shehadeh and Pedini, Issues and Challenges. Review of the State of World Aquaculture, FAO Fisheries Circular No 886. FIRI C/886, 2002. See also Subasinghe, “South Asia” in the same volume for the importance of integrated management.

Recommendations developing a comprehensive coastal management plan with the active involvement of all stakeholders, including local communities, tourism representatives, and the Tourism Ministry in the planning process.76 Plans should begin on a local level with atoll communities deciding on aquaculture zoning issues, criteria for licensing and lease agreements, and monitoring and enforcement mechanisms.77 Continual feedback from the atolls will provide evidence from local projects toward the development of a nationwide system, which would regulate via GIS. Develop criteria. Criteria are necessary to set standards for the levels of pollution and species allowed in aquaculture projects. These criteria, again developed by MFAMR, should encourage farming over fished species and developing a labeling system for aquaculture products (if well designed, this labeling system could also be employed as a marketing tool, i.e. labeling such as “sustainably produced reef fish,” etc.). Disseminate information. Local populations are largely unaware of both the possibilities and problems surrounding aquaculture. To encourage the development of sustainable, ecologically-friendly farms, locals must be made aware of aquaculture regulations and laws (including sanctions), technology, species, feeds, disease prevention, labeling, marketing, market developments and demand, and credit. The Fisheries Development and Extension Service and the focus island economic development offices are in an ideal position to disseminate this information, which should be available in print on all focus islands. In addition, MFAMR could establish a central information database. Conduct pilot projects. Pilot projects, conducted on the focus islands, will accomplish the dual task of demonstrating the feasibility of aquaculture and disseminating information, technology, and skills. Projects could also take over the more technologically complex and capital intensive stages of aquaculture while gradually outsourcing the simple and relatively cheap grow out operations to fish farmers.78 Provide technical guidance. Ongoing, government-sponsored technical assistance on disease prevention, feed development, and other issues to farmers at the focus island level will help avoid the pitfalls of aquaculture development. The Fisheries Extension Service should help set up small producer associations and assist them in acquiring feeds and finding marketing channels for their products. In addition, an aquaculture curriculum at the Maldives College of Higher Education will create native technical experts. Increase access to financing. Small-scale fish farmers will need access to credit to cover the costs of cages, feeds and other operational expenses. Concessionary, governmentguaranteed loans would be more appropriate for large-scale start-up ventures.

While MFAMR is the most appropriate choice the lead the process of developing a coastal management plan, training of MFAMR personnel in participatory planning, aquaculture zoning, licensing, environmental impact studies and monitoring, and technologies will be necessary. 76 Efforts should be made to include women in the planning process. Lack of stakeholder consultation on new fishery legislation is mentioned by M.H. Maniku, “Existing legal systems and institutional structures in the Maldives: Opportunities and Challenges for IRRM Coordination,” Marine Research Section, Ministry of Fisheries and Agriculture, Male, Maldives, 1997. 77 There is precedence for community based resource management in the Maldives: prior to 1968, when the Maldives were a sultanate, each atoll managed its immediate resources as communal atoll property. Management decisions were made by the atoll chief in consultation with the elders. See M.H. Maniku, 1997. 78 In other words, these pilot projects could use closed-cycle aquaculture and become a central breed stock and hatchery that provides fingerlings for small scale farmers for grow out.

Recommendations

Recommendations: Orchids What are Maldivian orchids? Maldives is home to one native orchid species, Dendrobium macrostachyum, in addition to many non-native hybrids, imported as landscaping for the resort islands. The stable, temperate climate and low elevation of the islands are ideally suited for many orchid species. Despite the fact that many plants have been introduced, Maldives is proud of its orchids, going so far as to name a region of Malé “Orchid Magu.” Many resorts also advertise their orchid gardens to international audiences. What is the status of the orchid industry internationally? The international orchid industry has been booming in recent years. Although there is no organization that collects statistics on the world orchid market, the status of the industry can be inferred from a survey of important producers and buyers. The United States is the largest importer of orchids by far.79 In the U.S., potted orchids have enjoyed increasing popularity (they are now second in sales to America‟s most popular potted plant - poinsettias).80 Orchid sales are up amid an overall decline in potted flowering plant sales over the past decade (see Graph 7).81

150,000 100,000

Wholesale value of potted orchids

50,000

20 04

20 02

20 00

19 98

0 19 96

)Price (in 1000 dollar

Graph 7: Wholesale value of potted orchids within the United States, 1996 to 2004

Year

For data, please see Appendix 7.

Orchid prices, however, have been dropping since 2000, reflecting vastly increased supply (see Graph 8).82 Imports into the U.S. from Taiwan, Thailand, the Netherlands, South Korea, and 79

Its imports exceed that of Europe (the next largest importer) by a factor of three [N. Laws, “Orchid commerce around the world,” Floriculture International, http://www.floracultureintl.com/archive/articles/293.asp. (March 10,2005)]. 80 Potted orchid sales reached $121 million in 2003; poinsettias had $257 million in sales [USDA, ERS-FLO-2004s “Floriculture & Nursery Crops YEARBOOK – SUMMARY,” June 2004, http://www.ers.usda.gov/publications/flo/jun04/flo2004s.txt. (March10, 2005)]. 81 A 1-percent drop in sales is projected for potted flowering and foliage plants in 2004 following a 2-percent decline in 2003. Orchid sales, however, increased from 13.3 million in 2002 to 15.6 million in 2003 (USDA, Floriculture and Nursery Crops Outlook, Economic Research Service, September 23, 2004, pg. 8). 82 Prices dropped from $8.40 to $7.80 per pot in 2003 (USDA, Floriculture and Nursery Crops Outlook, 2004, pg. 8).

Recommendations Canada are on the rise. Imported orchid plants have grown 70% in volume since 2000, and will, by all indications, continue to grow.83 Taiwan, already a significant orchid exporter, recently invested $150 million in a large-scale orchid production facility with the goal of dominating the world orchid market.84 This reflects a trend toward increasingly large commercial orchid farms aimed at the export market, which have cropped up in Thailand, Malaysia, Costa Rica and Panama, as well. The bottom line in the orchid industry is that supply is increasing, prices are falling, and orchids are becoming more common, especially in the U.S., Europe and Japan. This means that, with its high transportation costs and non-existent economies of scale, Maldives will have difficulty entering the increasingly competitive international orchid market (please see disadvantages below). It does not, however, preclude Maldivian competitiveness when selling to local resorts.

120 100 80 60 40 20 0 20 04

20 02

20 00

Orchid Price Index

19 98

19 96

Price Index

Graph 8: Orchid Price Index, 1996 to 2004

Year

For data, please see Appendix 7.

What are the advantages of orchids? Utilizes resorts as markets. Locally produced products have a comparative advantage when supplying the Maldivian tourist resorts; they have much lower transport and tariff costs. Since the vast majority of resorts are landscaped, at least in part, with orchids, they provide a built-in market for locally produced orchids. Due to the lack of local production, however, most of the demand for orchids is filled through imports; in 2000, resorts imported live plants, mostly orchids, valued around $26,000.85 The potential of local orchid production has led some resorts and one local company to grow orchids on a small scale. However, the supply is insufficient to meet resorts‟ demand, and imports continue to dominate. Increased local orchid production could fill this demand. Orchids 83

USDA, Floriculture and Nursery Crops Outlook, 2004, pg, 8 The project, a biotech park designed to integrate orchid production and research and development, is open to lease by private parties and includes a research facility, and export, marketing and distribution center. According to Tainan County Magistrate Su Huan-chih, "The orchid biotech park will serve as a pioneer in the globalization of Taiwan's agricultural industry. By effectively integrating research, production and marketing, we hope to become the world leader in the orchid industry," The park will also include a certification system for orchids. [Owen Chu, “Taiwan floriculturalists vie for top spot in orchid market,” http://publish.gio.gov.tw/FCJ/past/04102981.html, (March 12, 2005)]. 85 F. Hameed, “First National Report to the Conference of the Parties to the Convention on Biological Diversity,” Ministry of Home Affairs Housing and Environment, 2002, pg.18. 84

Recommendations could also be sold directly to tourists. Hawaii is a successful model for selling orchid buds in tourist shops. Well suited for Maldivian environment. As noted above, Maldives‟ climate is well matched with orchid production. More importantly, orchids of the epiphyte variety can be grown on trees or rocks and do not require soil.86 This is critical because the combined effects of the tsunami (which washed away most of the top soil and salted that which remains) and Maldives‟ preexisting dearth of arable land mean that growing plants that require topsoil is nearly impossible.87 Orchids take advantage of Maldives‟ strengths without requiring the importation of commodities, such as topsoil, which would increase costs and have potentially detrimental effects on the environment. In addition, orchid production can complement, rather than supplement, more traditional agriculture once the soil salinity is reduced. Operates on variable scales. Like aquaculture, orchid production can take forms ranging from small-scale to large-scale farms. Basic orchid production requires little more than water, fertilizer, light and air, and can be successfully practiced by relatively unskilled workers.88 Large-scale production can include greenhouses or shade tents, flask propagation, composting and repotting seedlings, and hybrid development. One largescale national floriculture center could supply seedlings to individual farmers to create full-cycle orchid production. Creates outer atoll employment, especially female employment. Orchid production piggybacks well on the home gardens that already dominate rural agriculture in the outer atolls, and can be relatively easily incorporated into preexisting agriculture activities. Surveys show that, despite the lack of arable land, Maldivians have a “continuing strong desire” for occupations in the agricultural sector.89 In addition, agriculture is likely to be a good outlet for the disadvantaged, particularly women because it is amenable to homebased activities and allows farmers to remain close to home while working. Protects an indigenous species. GoM is working to ensure that indigenous plant genetic resources are preserved through an economically efficient and sustainable system.90 Dendrobium macrostachyum is a threatened orchid species, and local orchid production will reduce threat of their extinction. Utilizes preexisting infrastructure. Most of the products that are currently marketed off island are agricultural products.91 Transportation and marketing skills that can be utilized in selling orchids between islands are already developed. What are the disadvantages of orchids? Takes time. Many orchid species take ten years or more to mature. 86

Orchids have no developed root system; they absorb water and nutrition through their flowers and leaves. Land is scarce in the Maldives and only around 10% of the land is suitable for agriculture. Soils are generally young and thin, being no more than 20 cm deep, and contain substantial quantities of parent material, coral rock and sand. Soils are highly alkaline with generally poor fertility and deficient in nitrogen, potash, manganese and aluminum. (Hameed, 2002). 88 The Orchid Ezine contends that orchids thrive on “benign neglect.” http://www.clanorchids.com/faq/faqpg1.html 89 Study Report on Old, Existing and Potential Income Generation Activities in the Maldives, 2004, pg. 43. 90 Jameel, et. al., National Biodiversity Strategy and Action Plan of the Maldives, Ministry of Home Affairs Housing and Environment, 2002, pg.38 91 Study Report on Old, Existing and Potential Income Generation Activities in the Maldives, 2004, 87

Recommendations Requires capital. Although small-scale gardens require little to no capital, establishing a large-scale facility that incorporates production, research and marketing is capitalintensive. To compete on the world market, centralized large-scale germination would be necessary. Faces stiff competition internationally. While local producers should be able to supply the resort islands at competitive prices, lack of economies of scale and high transport costs will make it difficult to compete against other low-wage Asian countries, like Taiwan and Thailand, that currently have sophisticated orchid production facilities. Transportation is a particular constraint for tropical orchids, since they must be kept within a specific temperature range. Cut flowers are especially vulnerable to long flights, and there is little possibility Maldives could develop the transportation infrastructure to compete in cut orchids. Confronts endangered species regulations. Potted plants are less sensitive than cut flowers; however, exporting live plants requires certification by CITES (Convention on International Trade in Endangered Species of Wild Flora and Fauna). If certification is granted, Maldives may be able to find a niche market if it supplies a rare native species not found elsewhere. Implementation Strategies Focus on supplying resorts. As discussed above, orchid production is most likely to be profitable as a substitute for imports. Conduct survey of native orchids. To protect and potentially exploit native species, it is first necessary that they be identified. There is very little information currently available on Maldivian flora. We recommend that MFAMR conduct a survey and use it to build a comprehensive database of traditional ornamental and medicinal plants. This implies, as will the suggestions below, that MFAMR should pay increased attention to agriculture, which, until now, has received relatively little support. Provide technical assistance. By establishing a central orchid research and development facility, GoM can train experts in orchid germination who can assist small-scale farmers in introducing new hybrids and capitalizing on native plants. The facility can also provide a locus for marketing plants to the resorts. Standardize conservation policies. Responsibility for conservation and managing the use of land resources is divided among multiple agencies: MFAMR is responsible for uninhabited islands; the Ministry of Atolls Administration for inhabited islands; the MalĂŠ Municipality for MalĂŠ; and the Ministry of Tourism for tourist resorts. This has led to multiple and sometimes confusing policies and guidelines. A single, cohesive policy for conservation and the use of terrestrial plants and trees is required, although implementation may continue to be devolved to individual agencies.92 Establish public gardens. Developing public gardens that include orchids will accomplish two goals. First, the gardens will cultivate some expertise among curators, which can supplement the technical assistance program. Second, they will promote awareness of native plants, and potentially encourage island residents to work to preserve

Hameed, 2002, pg.40.

Recommendations Maldivesâ&#x20AC;&#x; biodiversity, which may, in the future, provide even more avenues for growth industries (i.e. in medicinal plants). Introduce robust quarantine regulations. Increasing imports of plant materials have introduced new pests and species in Maldives, which, without proper quarantine procedures, have led to plant diseases that local knowledge cannot treat. For the health of Maldivian biodiversity in general, and native orchids in particular, comprehensive quarantine regulations and facilities should be developed. All new species imported with the intent to be propagated in Maldives should go through an appropriate quarantine.93

Hameed, 2002, pg.40.

Recommendations

Recommendations: Adventure Tourism What is Adventure tourism? Adventure tourism emphasizes ecologically, commercially, culturally and socially sustainable activities and non-consumptive products. Maldives‟ most popular and well-advertised “adventure tourism” offerings are diving and snorkeling.94 Diving is so popular that all resorts offer professional dive schools with multi-lingual dive instructors and courses for all experience levels.95 Nature-based tourism has led to a beneficial shift in the use of natural resources from primarily exploitative use to non-exploitative uses. This is especially true in the regions surrounding Malé, where tourism is well established.96 Maldives has the opportunity to expand is appeal to adventure tourists. Already, it has begun itself as a surfing destination; in 2003, Maldives hosted the O‟Neil Deep Blue Contest. There is still room to expand its reputation as a surfing spot since Maldives‟ best surf breaks are not yet fully utilized. In addition, sport fishing and whale watching are relatively untapped commercial ventures. The rich marine life makes these activities potential moneymakers. By capitalizing on the diversity and health of the ocean, these kinds of tourism will further encourage conservation and environmental awareness. Sport fishing, as a tourism adjunct, is a recent addition in Maldives and currently only a limited number of companies offer excursions. Some of these companies advertise fishing in traditional Maldivian boats, and many hype Maldives‟ relatively abundant marine life. Despite good fishing conditions year-round, however, sport fishing tourism remains an underutilized market.97 Whale watching is even less developed than sport fishing; only expatriates offer whale watching trips and very few at that. Since Maldives is home to approximately 21 recorded species of whale and dolphin, including the rare blue whale, these trips could potentially draw new tourists to the islands.98 What are the advantages of adventure tourism? Creates linkages to the tourist population. Traditionally, Maldivians have interacted relatively infrequently with tourists. Adventure tourism, especially sport fishing and whale watching, provides Maldivians with the opportunity to utilize their preexisting skills and knowledge (of fishing, traditional boats, and navigating the atolls in search of marine life, in general) to profit from tourists. Cultural tourists may also appreciate the opportunity to interact with locals and take in a different perspective of Maldives. Although locals and tourists tend to be abnormally environmentally conscious (Maldivians study environmentalism in primary school, and tourists sometimes go as far 94

Dive tourism is growing in popularity; the Maldives Association for Tourism Industry (MATI) estimates that 40% of tourists are pleasure divers (Maldives CCG, August 2004). 95 http://www.visitmaldives.com.mv/Things_to_do/index.php 96 Hameed, 2002, pg. 26. 97 http://www.wavehunters.com/maldives/maldives_fish.asp 98 Hameed, 2002, pg. 16.

Recommendations as to bring trash bags with them to ensure that they leave the environment unharmed 99), both may benefit from the increased incentives provided by ecotourism to respect the environment. Utilizes preexisting infrastructure. Sport fishing, if conducted in traditional boats, makes use of resources and expertise that are already abundant in Maldives. This also means start-up time will be relatively quick. Creates employment. Adventure tourism provides another opportunity for Maldivians to benefit from the tourist resorts in their figurative backyard. Both sport fishing and whale watching can provide supplemental income to fishermen in their start-up stages, and may eventually provide full-time employment to lapsed fishermen. Studies have shown that more money can be made from non-consumptive exploitation of marine life than from traditional fishing.100 Diversifies tourist arrivals. New forms of adventure tourism will draw a different clientele from the traditional high-end beach tourist. These tourists may react differently to shocks to worldwide tourism, and may be drawn from a different range of countries of origin. This should help mitigate, to some degree, the vulnerability of the tourism sector to external shocks. What are the disadvantages of adventure tourism? Historically poor employment record for native Maldivians. As noted above, Maldives imports a large expatriate workforce to staff the resorts. Most tourism activities currently offered also employ expatriates. However, the benefits listed above do not hold true unless Maldivians actively participate in adventure tourism. The stigmas that kept Maldivians from seeking employment in resorts in the past may also dissuade them from sport fishing and whale watching excursions. Requires significant start-up capital. While many Maldivians have access to traditional boats for sport fishing, fishing gear is expensive, so financing would most likely be necessary. Whale-watching boats are even more costly, and individual Maldivians would be unable to afford the start-up costs. Favors male employment. Sport fishing and whale watching encounter the encumbrances to female participation present in both fishing and working with tourists. Thus, adventure tourism is unlikely to contribute to increased employment for women. Implementation Strategies Increase foreign investment. GoM advertises Maldivesâ&#x20AC;&#x; strengths as its vast untapped potential in natural marine resources and the young, energetic and trainable workforce. In addition, GoM is looking to attract foreign direct investment (FDI) to Maldives that is environmentally friendly and has welcoming foreign investment laws (as will be 99

Hameed, 2002, pg. 26; and Interview with Maldives United Nations Ambassador Dr. Mohamed Latheef, February 18, 2005. 100 See â&#x20AC;&#x153;The Benefits of Marine Protected Areas,â&#x20AC;? Discussion paper prepared for the Vth IUCN World Parks Congress, Durban, South Africa, September 2003, http://www.deh.gov.au/coasts/mpa/wpc/benefits/benefittourism.html.

Recommendations discussed in more detail below). Since adventure tourism is well suited to both the strengths and conditions for FDI, GoM should include sport fishing and whale watching in the next edition of its Foreign Investment Guide. Develop marketing campaign. In the past, GoM has heavily advertised certain employment activities, such as fishing, with great success. While campaigns to increase the number of Maldivians working at resorts have been less successful, GoM should promote sport fishing and whale watching enterprises, making sure to emphasize their coherence with traditional values. In addition, GoM could offer incentives to internationally owned companies to hire locals.

Recommendations

Recommendations: Handicrafts What are Maldivian handicrafts? Maldivians have a long tradition of creating handicrafts, such as mat weavings, woodcrafts, jewelry and lacquer ware, mainly from local resources. Many of the traditional skills are regionalized. For example, the island of Gadhdhoo in Gaafu Dhaalu Atoll is well known for its hand-woven mats made of dried rushes; the finest lacquer work can be found on Thulaadhoo in Baa Atoll; Ribudhoo and Hulhudeli in Dhaalu Atoll are famous for their goldsmiths and silversmiths, respectively.101 Lacquer ware and reed mats are Maldives‟ most distinctive handicrafts. Using the local Alexandrian laurel, Maldivians create lacquer ware, like small pillboxes, vases of various sizes and round and oval plates with lids, that are lacquered in strands of red, black and yellow resin and delicately carved with flowing, flowery patterns.102 Women throughout Maldives weave reed mats, ranging in size from that of a place mat to a single mattress. The mats have are made with reeds that are dyed with natural dyes and are woven in intricate, abstract designs on a handloom. What is the status of Maldivian handicrafts? The traditional handicrafts skills have largely been neglected following the growth in the fisheries and tourism sectors.103 Only the older generation continues to create crafts, and handwoven mats are among the only locally-produced souvenirs available. Most of the craft items for sale in Maldives are imported from Indonesia, Thailand, and Malaysia.104 Woodcarving, shell craft, ceramics, clothes and towels, most with “Maldives” imprinting on them, are sold on the tourist resorts.105 What are the advantages of handicrafts? Creates linkages to the tourist population. As noted above, although the tourism sector is the largest growth industry in Maldives, it is poorly integrated in the livelihoods of most Maldivian workers. Handicrafts take advantage of the captive tourist market eager to purchase mementos, and, in doing so, channels tourist dollars directly to natives. Moreover, it does so without necessitating interaction between locals and tourists, and thus preserves the cultural integrity of Maldives. Capitalizes on low transportation costs. Selling locally made handicrafts on the resort islands minimizes the high transport costs that often make Maldivian production uncompetitive. Handicrafts allow Maldives to utilize its comparative advantage in marketing to the resorts. 101

http://www.sun-vacations.com/handicrafts.html http://www.sunwaymaldives.com/art_craft.htm 103 Study Report on Old, Existing and Potential Income Generation Activities in the Maldives, 2004, pg. 67. 104 Study Report on Old, Existing and Potential Income Generation Activities in the Maldives, 2004, pg. 67. 105 Study Report on Old, Existing and Potential Income Generation Activities in the Maldives, 2004, pg. 67. 102

Recommendations Operates on variable scales. Handicrafts can be produced on many scales, and production can be organized to incorporate as many or few people as desired. This variability makes production flexible to differences between island populations, and between the outer atolls and focus islands. In addition, this flexibility means that handicrafts can begin as a secondary income-earning activity and grow into a family‟s main source of revenue. As expertise and marketing abilities grow nationwide, handicrafts enterprises can be expanded into larger commercial ventures with the capacity to export beyond the resort islands. Creates female employment. Handicrafts production, especially of woven mats, jewelry and lacquer ware, is traditionally done by women. Production does not require women to leave their homes or islands, and is thus consistent with women‟s cultural obligation to care for children. Utilizes local resources. Traditional handicrafts, almost by definition, draw on locallyavailable resources. This has three positive outcomes: it keeps revenue in Maldives; it reduces dependence on imports; and it encourages appreciation, and potentially conservation, of Maldives‟ natural resources. Preserves Maldivian culture. Preserving the skills necessary to create traditional Maldivian crafts has the unquantifiable advantage of passing a unique practice to the next generation. What are the disadvantages of handicrafts? Requires increased training. The traditional crafts have not been passed from the older to the younger generation in Maldives.106 To tap into the handicraft market, Maldives must increase the skill set of its youth. It may also be necessary to import skills from other countries to improve competitiveness and increase the range of handicrafts offered.107 Start-up costs may be prohibitive. With little capital to purchase the tools and supplies necessary to produce handicrafts, Maldivians need help financing their projects. The current microcredit and other lending institutions are insufficient to meet this need. Relies on tourists’ preference for native products. Despite its comparative advantage in supplying the resorts, Maldivian handicrafts may still be more expensive than those mass-produced in other Asian countries. The success of handicrafts production therefore depends on tourists‟ willingness to pay higher prices for locally-made goods. Since Maldives caters to high-end tourists, it may be the case that the price difference between products will not be the deciding factor in purchasing decisions. In fact, it has been estimated that locally-produced items could compete with these imports due to the large mark-up on souvenirs.108 Implementation Strategies Improve vocational training. The creation and expansion of programs to pass skills to Maldives‟ working-age population will be required. GoM has already instituted several 106

Interview with Maldives United Nations Ambassador Dr. Mohamed Latheef, February 18, 2005. Interview with Maldives United Nations Ambassador Dr. Mohamed Latheef, February 18, 2005. 108 Study Report on Old, Existing and Potential Income Generation Activities in the Maldives, 2004, pg. 67. 107

Recommendations programs, including the Creative Arts and Crafts Training Centers, which offer limited skills-training courses, and the Regional Vocational Training Centers of the Maldives College of Higher Education, which plan to begin courses “aimed at skilling or re-skilling school leavers and others at artisan level, and longer courses at sub-degree level to offer more theoretical aspects of technical training.”109 These programs must be made more widely available outside of Malé. Specifically, training centers should be located in the three regional campuses of the College, in addition to the main Malé campus. Increase access to financial services. Maldivians will need access to financial services in order to purchase the tools, machinery, and supplies necessary to make handicrafts. Access can be improved by expanding microcredit programs (please see below for more information). Some of the impact of high initial costs can also be alleviated through joint ownership of the tools and other supplies necessary to start up handicrafts production. GoM can both encourage collective activities and institute a rent-to-own program to provide tools to individuals or groups interested in handicrafts. Integrate aquaculture and handicrafts projects. Pearl culture and handicrafts projects can be designed to exist symbiotically through jewelry production. Pearl manufacturers benefit from a built-in market for their product; the handicraft sector benefits from the lower cost of native pearls. The locally-produced pearl jewelry can then be marketed to the tourist population. Pearl expert Richard Fassler, of the Sea Grant Program, suggests designing jewelry with a specific Maldivian theme, such as endangered native sea turtles, to create a unique product, distinguishable from other island jewelry, that can fetch higher prices.110 Hawaii, where „pick a pearl oyster and have it set into jewelry‟ is a hit with tourists, demonstrates similar successful ventures. Focus on design and quality. Tourists pay higher prices for well-designed, high-quality items. The need to re-educate Maldivian youth in the traditional crafts provides the opportunity to concentrate on designs oriented to the tastes of the primary tourist populations. The benefits of tourist-oriented products have already been recognized to an extent; “sea jewelry,” made of coral, mother of pearl and seashell, is a new “tradition,” especially marketed to tourists.111 Increase tariffs on imported souvenirs. Temporarily increasing tariffs on imported souvenirs will afford the fledgling handicraft sector some protection against cheap imports. Tariffs are not a recommended long-term strategy; however, they can provide helpful, short-term assistance to “infant” industries.

109

Maldives College of Higher Education, Strategic Plan 2001-2005, 2002, http://www.mche.edu.mv/rect/strategic_plan/2001-2005.htm. (accessed February 28, 2005) 110 Email exchange with Dr.Richard Fassler, January 28th, 2005. 111 Maldivians no longer produce jewelry made from black coral and turtle shells because they are endangered. http://www.sun-vacations.com/handicrafts.html

Recommendations

Measuring Recommendations Against Criteria CRITERIA

Aquaculture

Orchids

Adventure Tourism

Handicrafts

Poverty Reducing Employment Maximizing Culturally Acceptable Environmentally Sound Long Term Fiscally Feasible How to read this Chart: The large chart above is a visual portrayal of how each recommendation fits each of the six criteria. The number of tuna within each grid shows how the recommendation meets that criterion. Two tuna represent the best fit with the criterion. One tuna means the recommendation fits the criterion. One-half tuna signifies that the recommendation contingently meets the criterion. No tuna means that the recommendation does not meet the criterion. Interpretation: The chart illustrates the potential of the various recommendations to fulfill the criteria if Maldives were to implement them. Overall, the handicraft sector has the best match with four criteria having two tuna and with an overall total of ten tuna. Aquaculture and orchid production are also good matches since each has three criteria having two tuna and a total of nine tuna. Adventure tourism is the least compliant not meeting two criteria, and having a total of only five and a half tuna.

Recommendations

Measuring Recommendations Against Goals GOALS

Aquaculture

Orchids

Adventure Tourism

Handicrafts

Goal 1: Increase the availability of IGAs on the outer atolls Goal 2: Expand economic base within the bounds of its comparative advantages and natural resources Goal 3: Limit environmental degradation Goal 4: Encourage economic activities that make use of Maldivesâ&#x20AC;&#x; isolation and its access to resort populations Goal 5: Encourage activities with foreign exchange earning potential to finance imports Goal 6: Match the skills of native Maldivians to available employment opportunities Goal 7: Reduce vulnerability to external shocks by diversifying tourist arrivals Goal 8: Use tourism to create incentives against environmentallydamaging activities Goal 9: Create linkages between the tourism sector and local labor Goal 10: Diversify fish exports toward high-price fish Goal 11: Provide alternatives to overexploitation Goal 12: Reduce dependence on the E.U. market How to read this Chart: The large chart above is a visual portrayal of how each recommendation meets each of the twelve goals of this paper. One tuna means the recommendation meets the goal. No tuna means that the recommendation does not meet the goal. Interpretation: The chart illustrates the potential of the various recommendations to fulfill the goals of this paper if Maldives were to implement them. Overall, the orchid production is the best match of our recommendations with nine tuna total. Aquaculture also closely matches the goals with sight tuna. Adventure tourism and handicrafts each have seven tuna, showing that they are less compliant with the goals of this paper.

Funding Options

FUNDING OPTIONS Implementation of the above recommendations will require increased government expenditure and investment, either by Maldivian or foreign entrepreneurs. The availability of the required funds, however, is by no means assured. GoM runs consistent deficits and will be hard-pressed to cover the costs of tsunami reconstruction, let alone finance new projects. (See Appendix 5 for more information on the status of government revenue.) Individuals, particularly those in the outer atolls, lost most of their meager resources during the tsunami. In addition, despite government encouragement to foreign investors, FDI into enterprises other than resorts has been rare in Maldives. To complement our recommendations, the following section suggests four ways to increase the availability of start up capital to the poor, government revenue, and foreign direct investment. Funding Options: Microcredit PROPOSAL: Modify microcredit programs to more effectively target the poor and women. Microcredit, or the provision of small loans to entrepreneurs too poor to qualify for traditional loans, is specifically designed to enable the start up of small-scale businesses such as those that have been described for aquaculture, orchids, and handicrafts.112 In addition, prior experience has shown that the Maldivian repayment rate on loans is very high (96%), suggesting that the country is a good candidate for microcredit programs.113 Microcredit, therefore, would appear to be an ideal solution to some of the financing problems listed above. Previous programs, however, have suffered from a significant problem: they have largely failed to reach those who need loans the most: the poor and women on the outer atolls. Lenders are reluctant to lend to the poor, whom they view as relatively high-risk. In addition, despite evidence from other countries that women are more likely to repay their loans,114 Maldivian women receive only 30% of microcredit.115 This is especially true for the outer atolls. High transportation and infrastructure costs have tended to dissuade lending institutions from seeking clients on distant islands, and residents of the outer atolls are, in turn, less aware of microcredit opportunities. For example, a program launched in March 2000 by the Ministry of Women‟s Affairs and Social Security intended to allocated half of its Rf. 1 million to disadvantaged women outside Malé; by late 2001, however, no loans had been granted because “few loan applications… met satisfactory standards.”116 112

E. Littlefield and R. Rosenberg, “Microfinance and the Poor” Finance & Development, June 2004, pg. 38). Maldives has had three major microcredit projects: The Atolls Credit and Development Banking Project, The Southern Atolls Development Project, and The Atoll Development Project for Sustainable Livelihoods. 114 Grameen Bank, one of the best known microcredit institutions, offers 90% of their loans to women because of women‟s repayment history. 115 Study Report on Old, Existing and Potential Income Generation Activities in the Maldives, 2004, pg. 31. 116 The full allocation (half of the Rf. 1 million) had been apportioned to women in Malé by that time. [ , H and I. Zulaikha, “An Overview of Micro credit and SME activities financing in Maldives” Country Paper for SAARC Finance seminar on Microcredit operations, 21-23 December 2002, Shaka, Bangladesh, 21December 2002, http://www.bangladesh-bank.org/seminar/cpmaldive.html (accessed February 24, 2005)]. 113

Funding Options Without an adequate supply of loans to women, many of the small-scale projects suggested in this paper will fail to come to fruition. It is therefore important to overcome microcredit institutionsâ&#x20AC;&#x; reluctance to loan to poor and women in the outer atolls by increasing their incentives to extend services to areas outside MalĂŠ. We suggest that instituting group loans and allowing for varying interests rates will increase incentives to advance microcredit to these groups. (See Appendix 6 for more information on implementation strategies.)

Funding Options

Funding Options: Development Loans PROPOSAL: Get loans from international lending organizations. Lending and grants from international development banks, such as ADB and WB, have constituted an important component of government spending in the past; net foreign lending contributed over 13% to government expenditures in 2003.117 Maldives has qualified for concessional loans due to its relatively low per capita income and LDC status. Graduation from LDC status may have serious, negative implications for grant and loan assistance. Graduation is not scheduled to take effect until 2007, and Maldives is presently in negotiations to delay implementation on the basis of the tsunami damage.118 However, when graduation does occur, Maldives will no longer be guaranteed concessional loans through the UN and project finance will be phased out. The effect of LDC graduation on other lending institutions is unclear. Maldives receives aid from many other sources besides the UN, including international development and bilateral organizations.119 While these lenders may use LDC status as a benchmark for lending, the basis for their loan decisions is their own,120 Maldives faces the prospect of losing access to most concessionary loans. While reducing income levels to retain loans is clearly not a viable solution, there are several things GoM can encourage to improve its chances of receiving low-interest loans. First, it can petition to increase development agencies‟ representatives on the ground. Second, it can work to correct inefficiencies in project-specific aid. (See Appendix 6 for more information on implementation strategies.)

117

Ministry of Planning and National Development, “Key Indicators 2004,” (SYM). A decision on deferral awaits evaluation by the UNDP in the Maldives and will be made in the coming months. From Statement by the Maldivian Representative to the United Nations, Mohamed Latheef, on Jan. 18th, 2005. http://www.un.int/maldives/UNGA59-Tsunami-debate.htm. (March 10, 2005), and email exchange with Anatoly Smyshlyaev, Committee for Development Policy, UN. 119 The nation‟s main bilateral aid partners include Japan, Canada, China, Norway and Denmark. The islands also receive assistance from AusAid, EuropeAid, and UsAid. AusAid continues to fund human resource development with the Australian Development Scholarships with $1,2 million and EuropeAid is funding rural development and trade capacity development with a commitment of € 2 million. The Maldives have also received considerable assistance from funds such as the Kuwait Fund and the Saudi Fund in the past. 120 Maldives will have continued access to concessionary loans from the International Development Agency, which grants funds to Small Island Developing States independent of LDC status, the Asian Development Fund (ADF) and the Islamic Development Bank. The ADF, the concessionary lending arm of the ADB, bases preferred loans on income and debt repayment capacity. Since Maldives is already above the income threshold, it is uncertain how long funds from the ADF will be available. Maldives is also a member of the Islamic Development Bank and is therefore eligible for interest free 30-year loans for a small service fee. 118

Funding Options

Funding Options: Trust Fund121 PROPOSAL: Maximize access fees for foreign fishing companies and commit new revenue to a dedicated trust fund. Maldives licenses foreign companies to fish in its Exclusive Economic Zone (EEZ) – charging each company approximately $50 dollars per ton, based on the net tonnage of each vessel engaged in fishing and specifying the total allowable catch. According to studies on optimal fishing rents, Maldives‟ access fees are low.122 These studies suggest that fisheries‟ rents could be raised without a significant loss in licenses sold, in part because many of the world‟s fisheries are fished to capacity.123 By raising its access fees, Maldives can capitalize on one of its greatest assets – territorial control of a large marine area, as granted by the United Nations Convention on the Law of the Sea (UNCLOS III).124 Pretes and Peterson (2004) suggest that the extra revenue generated is best utilized by establishing a trust fund dedicated to specific projects (such as aquaculture). Trust funds are becoming increasing popular in developing countries125 and have already been proven viable in other small island states.126 In addition, GoM has demonstrated its willingness to support a trust fund with the appropriate built-in checks and balances to guard against misappropriation of funds. For example, it has proposed a trust fund dedicated to biodiversity conservation, the so-called Environment Conservation Fund (ECF), which would be managed by a Board of Trustees representing “relevant government offices, the private sector, NGOs and donor agencies.”127 Three critical steps to implementing an increase in access fees to fund specific projects are: establishing a multilateral institution to coordinate regional fisheries policy; reviewing regional access fees and creating the trust fund to collect access fee revenue. (See Appendix 6 for more information on implementation strategies.)

121

Most information in this section drawn from Michael Pretes and Elizabeth Peterson, “Rethinking Fisheries Policy in the Pacific,” Marine Policy, Vol. 28., 2004, Pg 297-309. 122 Pretes and Peterson (2004) review some of the literature of fishery rent: “ Bertingnac et. al. argue that the fishery rent (gross revenue minus costs) for the fishing industry as a whole is around 13% of gross revenue at 1996 levels of effort, and if effort level and the fleet structure of the fishery were optimized it could be close to 40%. Iheduru notes with exasperation that the European Union is only paying African countries access fees between 18% and 45% of the value of the catch… The Australian Fisheries Management Authority charges Australian bluefin tuna fisheries a management fee that is based on cost recovery alone of approximately 11% of gross revenue.” (pg. 299) 123 Pretes and Peterson, 2004, pg. 298. 124 Signed in 1982, although it was not ratified until 1995 (Pretes and Peterson, 2004, pg. 299). 125 This increasing popularity can be attributed to four main reasons. First, trust funds are typically invested on the international capital market, and therefore serve to diversify internal risks. Second, trust funds are an equitable way to distribute natural resource entitlements between generations. Third, if set up correctly, trust funds increase transparency. Pretes and Peterson suggest an oversight system which includes “a nation-based board of trustees setting general policy, offshore investment advisors making independent decisions, and a monitor or custodian reporting on the performance of investment” will include enough checks and balances to protect against misappropriation. Finally, trust funds provide a guaranteed stream of revenue for priority projects. 126 Kiribati‟s Revenue Equalization Reserve Fund has been operating for nearly 50 years, has performed very well and has been prudently managed. This is evidenced by the fact that it continues to grow, even though revenues stopped flowing into it over 20 years ago (Pretes and Peterson, 2004). 127 Hameed, 2002, pg. 73.

Funding Options

Funding Options: Foreign Direct Investment PROPOSAL: Encourage foreign direct investment into projects that benefit the local population. For Maldives to expand into new industries, GoM must decrease its direct participation and increase private sector participation in the economy. Foreign direct investment (FDI) is “widely accepted as a vital tool for creating jobs, reducing poverty, increasing a government‟s tax base, and infusing new technologies and workforce skills.”128 Because of its growing infrastructure and socio-economic needs and the decrease in grant assistance by development partners, Maldives needs to increase its private financing.129 With research showing that for every 1% of FDI in South Asia, there is a spillover of 5% of domestic investment, Maldives should increase its FDI to expand its economy. GoM encourages foreign direct investment and offers many incentives to foreign direct investors that would benefit investors in areas outside of tourism. For example, it offers: No income, corporate or property taxes. Exemption of import duty on raw material Right to 100% foreign ownership Legally backed investment guarantee Overseas arbitration of disputes Freedom to repatriate profits and capital proceeds Long term lease of land for large scale projects Freedom to use foreign managerial, technical and unskilled workers. No exchange restrictions.130 Nevertheless, Maldives has been able to “attract significantly less FDI than other threshold countries.”131 To increase the amount of FDI into Maldives, we suggest that the GoM improve Maldives foreign investment guides, which are significantly out of date, and emphasize investment in areas other than traditional fisheries and tourism. (See Appendix 6 for more information on implementation strategies.)

128

S. Miller “Entry Approvals and Registration: The removal of administrative constraints,” South Asia FDI Roundtable, Maldives, 9-10 April 2003 http://www.fias.net/Conferences/030403%20Miller.pdf. (accessed March 14, 2005). 129 ADB, Country Economic Review: Maldives. CER: MLD 2004-13, September 2004, pg. 17. 130 Foreign Investment Services Bureau. Invest Maldives. http://www.investmaldives.org/, 2002, (accessed January 25, 2005). 131 ADB, Country Economic Review: Maldives. CER: MLD 2004-13, September 2004, pg. 18.

Funding Options

Measuring Recommendations Against Funding Options FUNDING OPTION Microcredit

Aquaculture

Orchids

Adventure Tourism

Handicrafts

Development Loans Trust Fund Foreign Direct Investment How to read this Chart: The large chart above is a visual portrayal the recommendations for which funding options are best suited. The number of tuna within each grid shows how well the funding option fits the requirements of the recommendation. Two tuna represent the best funding potential. One tuna means the option could fund the recommendation. No tuna means that the funding option cannot finance the recommendation. Interpretation: The chart illustrates potential of funding sources to finance the various recommendations, if Maldives were to implement them. Overall, aquaculture is the recommendation best served by the funding options, all four options receiving two tuna. Orchid production has three potential funding sources; microcredit and FDI are the best fit, although development loans may also be directed toward orchids. Adventure tourism has two strong funding sources in development loans and FDI. The handicraft sector has the three potential sources of funding; microcredit is the best match, but development loans and FDI may also provide a source of financing.

Conclusion

CONCLUSION The tsunami that stuck Maldives on December 26, 2004 was a disaster of incredible proportion. Never before had Maldives, an island chain just struggling into the realm of middle income nations, confronted the degree of infrastructure devastation and human loss it saw on December 26th. This paper argues, however, that the devastation may have at least one positive side effect: it affords Maldives the opportunity to reflect on how best to rebuild the country and make future development investments. Our recommendations focus on the sustainable utilization of Maldives‟ unique natural resources to promote economic growth and to help insulate the economy from exogenous shocks. We conclude that GoM must take on a substantial role in encouraging appropriate private investment into areas in which Maldives‟ has a comparative advantage. Specifically, Maldives must take advantage of its access to tourist populations as a built-in, high-end market for locally produced goods and services. In addition to addressing issues critical to the future economic well-being of the Maldivian people, we believe that this paper will be of value to other South Asian countries affected by the tsunami and to small islands nations like Maldives. Other small island nations may benefit from our analysis since many island economies are very similar to Maldives‟ and all small islands face significant danger from natural disasters such as tsunamis, hurricanes and the like. In addition, while Maldives is unique in that the industries hit hardest by the tsunami – tourism and fisheries – make up nearly half the GDP of Maldives, all the South Asian countries in the path of the tsunami have seen significant damage to the same coastal industries. Our recommendations may therefore be of use to other countries in planning for the future sustainability of their coastal communities.

Appendices

Appendix 1: Tsunami Damage Tsunami Damage: Economic Infrastructure Damage

The tourism sector sustained the largest direct and indirect damages. Direct damages are estimated at $100 million (of which half is insured).132 Not only were 19 of the 87 resorts destroyed, but news of the devastation has contributed to high cancellation rates. Occupancy rates are currently at about 40%, compared to a norm of 100% in the winter season. As of the end of January 2005, 7600 tourists are in Maldives, as compared to 17,000 tourists at the same time in 2004. The fisheries industry was also severely damaged. About one-fourth of the fishing fleet was destroyed, and over 50 islands lost their fishing boats.133 The impact of the tsunami on the fish stock is currently unknown; however, damage to the coral reefs could have adverse effects on the quantity of fish. The agricultural sector, while making up only a small part of GDP, was hard hit by the tsunami. The waves that washed over the islands took topsoil with them and left behind salinated soil and groundwater resources incapable of supporting growth. The small home gardens and banana and mango groves that provided crucial nutrition to Maldivians on the outer atolls have been destroyed and will be difficult to resurrect without significant technological assistance. The tsunami damaged field crops in 2,103 farms; destroyed backyard crops and agricultural tools in 11,678 homesteads; and damaged more than 700,000 fruit trees and 840,000 timber trees in inhabited islands. The damage to land and groundwater resources is severe in 35 agricultural islands, and saline water intrusion has affected 112 inhabited islands.134 Tsunami Damage: Social Infrastructure Damage The tsunami devastated Maldives‟ social infrastructure. The housing sector sustained the second highest direct losses after tourism, estimated at $65 million. Ten percent of the housing stock was destroyed.135 The day after the tsunami, 29,000 people were displaced and 13,000 remained displaced in early February.136 In addition, the harbors, jetties and other coastal structures that rendered inhabited islands accessible were significantly affected, making inter-island communication and aid deliverance difficult, if not impossible, in the aftermath of the tsunami.137 For 11 hours after the tsunami struck, the government had no contact with 188 islands. The tsunami also contaminated the drinking water as floodwater got into the aquifers. It is estimated that the quality of groundwater supplies in 36 islands may have been compromised due to saline and sewage contamination.138 The islands now have drinking water from temporary desalination 132

Joint World Bank, ADB and UN System, Tsunami: Impact and Recovery, pg. 10. The Official Website of the National Disaster Management Centre, “The Maldives Tsunami Disaster.” 134 Joint World Bank, ADB and UN System, Tsunami: Impact and Recovery, pg. 19. 135 The Official Website of the National Disaster Management Centre, “The Maldives Tsunami Disaster.” 136 Joint World Bank, ADB and UN System, Tsunami: Impact and Recovery, pg. 17. 137 Joint World Bank, ADB and UN System, Tsunami: Impact and Recovery, pg. 4. 138 Joint World Bank, ADB and UN System, Tsunami: Impact and Recovery, pg. 19. 133

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Appendices plants, but the long-term water supply was greatly affected. Electricity has been temporarily restored to all islands after 26 islands had no electricity after the tsunami. Schools, clinics, and pharmacies were destroyed on over 50 islands.139 Thirty seven percent of schools require various degrees of repair to be functional, and six were completely destroyed. 140 Although all schools managed to reopen, school equipment, including textbooks, blackboards, library books, computers and printers, are all either unavailable or unusable. Tsunami Damage: Environmental Damage The environment is one of Maldives‟ most precious resources, and the tsunami highlighted the fragility a country and economy based on coral reef islands. Thirty five percent of the inhabited islands were subject to high or very high impact from the tsunami, resulting in major destruction to buildings, infrastructure, crops and natural vegetation.141 Extensive deposition of coral sand, vegetation and municipal waste from dump sites, healthcare waste, human excreta from damaged septic tanks, hazardous substances, and demolition waste (concrete, coral fragments, timber, etc) from destroyed buildings further harmed the natural environment.142 The tsunami exacerbated the country‟s preexisting environmental problems. Maldives depends on its beaches and coral reefs to attract tourists. Eighty-eight islands already faced perennial beach erosion. Hundreds more now suffer from extensive beach erosion and damage to coastal protection measures.143 In addition, the coral reefs, which were already endangered by global warming, have now been partially broken and upturned due to the waves. Sedimentation and debris from shore have also settled on the reefs.144

139

The Official Website of the National Disaster Management Centre, “The Maldives Tsunami Disaster.” Joint World Bank, ADB and UN System, Tsunami: Impact and Recovery, pg. 16. 141 Joint World Bank, ADB and UN System, Tsunami: Impact and Recovery, pg. 14. 142 Joint World Bank, ADB and UN System, Tsunami: Impact and Recovery, pg. 14. 143 The Official Website of the National Disaster Management Centre, “The Maldives Tsunami Disaster.” 144 The Official Website of the National Disaster Management Centre, “The Maldives Tsunami Disaster.” 140

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Appendices

Appendix 2: LDC Criteria and Benefits The General Assembly of the UN approved the first list of LDCs in 1971. The Committee for Development Policy (CDP) is responsible for drawing up the criteria for LDC classification. The committee also makes recommendations for LDC graduation, which are then referred to the Economic and Social Council (ECOSOC) for a vote. When ECOSOC votes to graduate a country from LDC status, the decision in turn is referred to the General Assembly for a vote. The current criteria for eligibility of LDC status comprise three measures: Gross national income per capita (GNI), Human Assets Index (HAI), and the Economic Vulnerability Index (EVI).145 The cutoff for per capita income is $900. The HAI includes measures of nutrition, health and education. The EVI comprises 5 measures, see box below. A country must meet all three criteria to become designated as a LDC, but can be graduated when it rises above the threshold for two criteria.146 The benefits of LDC status are trade preferences, special treatment by the World Trade Organization Economic Vulnerability Index (EVI) (WTO), concessionary loans and aid, and technical assistance.147 Under the (a) index of merchandise export concentration Everything But Arms (EBA) initiative (b) index of instability of export earnings by the European Union (EU), for (c) index of instability of agricultural production example, LDCs receive quota and (d) share of manufacturing and modern services tariff free access to European markets in GDP for most products. The WTO allows (e) population size LDCs more time to comply with its Information Source: Maldives Country Economic Update 2004 regulations such as phytosanitary measures, intellectual property rights, and export subsidies.148 LDC benefits in the area of aid monies are less clear, because many multilateral development banks tie their assistance to GDP and measures of creditworthiness rather than LDC status. ADB, for example, ties eligibility to its fund resources to the GDP cutoff of the International Development Agency (IDA) and a debt repayment capacity measure.149 Access to the IDA‟s interest free loans and grants requires a per capita income of $865 or less.150 In the area of technical assistance LDCs benefit from the United Nations Development Program (UNDP) technical cooperation programs and monies. LDCs also benefit from trade related technical assistance through the Integrated Framework, a cooperation of several UN agencies, the WTO, and the International Monetary Fund.

145

World Bank, Maldives Country Economic Update: Sustaining Robust Development, 2004. World Bank, Maldives Country Economic Update: Sustaining Robust Development, 2004. 147 ECOSOC, “Formulating a smooth transition strategy for countries graduating from least developed country status,” Report of the Secretary-General. Document : 0442767. (E/2004/94), July 2004 148 ECOSOC, “Formulating a smooth transition,” July 2004. 149 ADB, Operations Manual Bank Policies, OM Section A1/BP. http://www.adb.org/Documents/Manuals/Operations/OMA01_29oct03.pdf. (accessed January 27, 2005). 150 IDA – Background, http://web.worldbank.org/WEBSITE/EXTERNAL/EXTABOUTUS/IDA/0,,print:Y~isCU, (accessed December 21, 2004). 146

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Appendices

Maldives, with a per capita income of $2261 in 2003, lies well above the threshold for the income criterion for LDC graduation.151 However, as can be seen in the figures below, Maldives lie barely above the graduation threshold for the human assets index and are just below the graduation threshold for the economic vulnerability index. As the breakdown of the economic vulnerability index in figure 9 shows, the small population is the greatest contributor to economic vulnerability in Maldives, followed by a lack of economic diversification and high export concentration. Figure 7: Maldives: Human Capital Weakness Criterion (APQLI until 2000, HAI in 2003)

Figure 8: Maldives: Economic Vulnerability Criterion (Economic Diversification Index before 2000, Economic Vulnerability Index from 2000)

(Source: UNCTAD)

151

Ministry of Planning and National Development, â&#x20AC;&#x153;Key Indicators 2004,â&#x20AC;? (SYM).

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Appendices Figure 9: Determinants of Scores Under the Economic Vulnerability Index

(Source: UNCTAD)

Note: A larger number for this index means increased vulnerability. Source for all three graphs: Maldives Country Economic Update

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Appendices

Appendix 3: Regional Disparities between Malé and the Outer Atolls There is also a marked discrepancy between Malé and the outer atolls in the availability of physical and social infrastructure such as electricity, transport, health clinics, water supply, markets and schools. For example, in Malé secondary education up to grade 12 is available, while in many of the outer atolls, only intermediate grades (5 to 7) are offered. 152 In addition, while Malé has 100% access to doctors and nurses, about 58% and 70% of the atoll population is without reasonable access to doctors and nurses, respectively.153 Around 4% of the atoll population does not even have access to trained health personnel. Reflecting these regional differences in health care, adult life expectancy in the outer atolls is nine years below that for Malé.154 Potable water is available to about 60% of the population in Malé through a piped supply system, while rainwater collection is still the primary source of drinking water for the atolls. Although most of the atolls have access to some form of electricity, the supply is generally inadequate and heavily taxed. Thirty five percent of the atolls have access to electricity for only 5 to 12 hours per day, and electricity quality is poor due to obsolete systems, insufficient generating capacities, lack of backup generators and improper distribution systems.155 Finally, inter-island transport is limited and expensive, with the only regular ferries running between Malé and Villingili and Malé and Hulhumale. Private sector activities, which could spur growth in the outer islands, are limited due to this lack of infrastructure and the high costs of transportation and communication. All of these disparities have been exacerbated by the tsunami, which affected the less-protected outer islands most severely and where lack of transportation infrastructure has slowed relief and rebuilding efforts. Regional disparities in service provision and economic opportunities have encouraged migration to Malé, exacerbated in recent years by large-scale importation of foreign labor. This has led to overcrowding in Malé, where the population density in 2002 was estimated at 334.3 persons per hectare, while the average for the entire country is only 26.1 persons per hectare.156 Overcrowding has contributed to deteriorating and increasingly squalid living conditions. Around 14% of Malé residents live in condition where there are 5 or more persons per room, and cases of 10 people sharing rooms measuring 3 meters square are not infrequently reported.157 Hulhumale, a 7sq km area man-made island, is currently being constructed near Malé and will provide more space for city residents to reduce overcrowding in Malé. Approximately 50,000 people are expected to reside on Hulhumale by 2020, and the island should accommodate over 150,000 when complete. Only a small percentage of the project has been completed to date, and about 1000 people are currently living on the island. The government has also turned the former resort island of Villingili, near Malé, into a residential island, providing housing and facilities, including a commercial harbor, to support resettlement efforts of about 15,000 persons from Malé.

152

ADB, Poverty Reduction in the Maldives: Issues, Findings and Approaches, January 2002, pg. 6. ADB, Poverty Reduction in the Maldives: Issues, Findings and Approaches, January 2002, pg. 6. 154 Maldives Human Development Report, 2000. 155 ADB, Poverty Reduction in the Maldives: Issues, Findings and Approaches, January 2002, pg. 7. 156 ADB, Poverty Reduction in the Maldives: Issues, Findings and Approaches, January 2002, pg. 7. 157 ADB, Poverty Reduction in the Maldives: Issues, Findings and Approaches, January 2002, pg. 7. 153

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Appendices

Appendix 4: Government Goals and Initiatives GoM is by no means unaware of the obstacles the country must overcome to achieve continued and substantial economic growth; nor is the government oblivious to the disparities in income and services that exist between the capital and the outer atolls. Vision 2020, prepared in 2000, lays out long-term development goals in order to achieve the governmentâ&#x20AC;&#x;s ultimate aim that: â&#x20AC;&#x153;By the grace of the Almighty Allah, by the year 2020, the Maldives will be one of the topranking nations amongst middle-income developing countries.â&#x20AC;?158 The specific goals include (1) achieving gender equality, (2) establishing a minimum of 10 years of formal schooling and quality tertiary education, (3) ensuring access to quality medical care and health insurance, (4) protecting the environment from global ecological degradation (5) promoting the conditions for rapid economic growth, with Maldives serving as a hub of regional free trade and (6) increasing and equitable employment opportunities for youth and others. To achieve these broad goals, GoM developed the Sixth National Development Plan (SNDP) for the period 2001-2005. The SNDP stresses two key objectives: (1) promoting greater private participation in economic development, and (2) focusing on regional development. The broad objectives and key development opportunities and challenges outlined in the SNDP are presented in the box below.

158

Ministry of Planning and National Development. Vision 2020, Male, Republic of Maldives, 2000, pg. 1.

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Appendices

The Sixth National Development Plan (2001-2005) Broad National Objectives on which the Plan is based: 1. Diversify and expand the economy by further developing existing industries and by exploring new economic activities, while ensuring the sustainability of physical and natural resources. 2. Increase the role of the private sector in the development process, particularly in expanding the economic base of the country. 3. Improve the quality and relevance of education, health and social services, while ensuring that the benefits of development are shared equitably among the population. 4. Increase human resource capacity and productivity by providing relevant training and employment opportunities. 5. Pursue legislative, regulatory, governance and administrative reforms to facilitate rapid economic and social development. 6. Develop a sustainable and cost-effective transportation and telecommunication infrastructure to facilitate economic, social and regional development. 7. Ensure socio-political stability and the democratic participation of all in the development process, while upholding national unity and social cohesiveness based on shared social, cultural and religious values. Strengths as identified in the Plan: 1. Socio-political stability: small and homogeneous population, all of whom are Sunni Muslims sharing a common history, culture and language. 2. Natural Endowment: tropical island environment, marine biological diversity and relative freedom from natural disasters. 3. Macroeconomic Stability: moderate inflation, during a period of steady GDP growth. 4. Human Development: Human Development Index (HDI) well above other LDCs. 5. Advantages of a Small Population: makes human development and poverty eradication more manageable. Development Challenges: 1. Diversifying the economic base. 2. Ensure the Protection of the Environment and the Sustainability of Development. 3. Reducing Geographical Challenges. 4. Minimizing Diseconomies of Scale in the Provision of Services. 5. Increasing labor force participation. 6. Human resources development. 7. Strengthening the entrepreneurial base. 8. Minimizing the Negative Impact of Graduation from LDC Status. Source: Ministry of Planning and National Development, 2001. Sixth National Development Plan, 2001-2005, MalĂŠ, Republic of Maldives, pp 1-5.

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Appendices

Appendix 5: Narrow Government Revenue Base Government revenue is closely tied to tourism receipts, which means that revenue is highly vulnerable to external forces that affect the tourism sector. Maldives has no income or sales tax, and the only direct tax is on the net profits of commercial banks. The government is largely dependent on tourism taxes, import taxes and the earnings of state-owned enterprises, which together accounted for 77% of domestic revenue in 2003.159 Tourism taxes take the form of both a “bed tax” of $8 per night (raised for the first time since 1988 in November 2004 from $6 per bed night) and lease rentals on resorts, which are determined in the initial bidding process to lease resort islands. Together, tourism taxes accounted for approximately 31% of total revenues, or about $70 million, in 2003.160 Government revenue as a proportion of tourism receipts has stayed relatively constant at about 18% since 1998 (see graph). Import taxes, which supply 17% of government revenue, are also partially dependent upon the tourism industry, which requires direct import of foodstuffs, linens and other supplies, and indirectly spurs imports of construction materials. Years 1998 Tourism Receipts ( US $ Millions) 303 Tourism revenue ( US $ Millions) 48

1999 314 53.6

2000 321 58.9

2001 327 55.9

2002 377 69

2003 388 70.2

Tourism taxes will become ever more important in the near term as import tax revenues are predicted to decline as a result of the demise of the Maldivian garment industry and the signing of the South Asian Free Trade Agreement (SAFTA). SAFTA limits duties on imports from (SAARC) countries, which account for about 20% of total imports into Maldives.161

159

Ministry of Planning and National Development, “Key Indicators 2004,” SYM, Table 13.3, Government Revenue, 2002-2004, p 272, using total revenue as base. 160 World Bank, Maldives Country Economic Update: Sustaining Robust Development, 2004. 161 SAARC countries account for about 20% of total imports (World Bank, Maldives Country Economic Update: Sustaining Robust Development. 2004). Import duties overall accounted for 26.7% of total government revenue in 2003 (Ministry of Planning and National Development, “Key Indicators 2004,” SYM, Table 13.3, Government Revenue, 2002-2004, p 272).

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Appendices

Appendix 6: Implementation Strategies for Funding Options Implementation Strategies: Microcredit Institute group loans. Microcredit institutions can reduce the risk of lending to the poor, who generally have no collateral, by offering groups loans, in which a borrower‟s neighbors cosign loans, giving neighbors incentives to monitor each other, exclude risky borrowers from lending and enforce repayment.162 Group lending has had very good success in other countries because it alleviates some of the asymmetric information lending institutions face. Allow varying interest rates. Maldives can also allow microcredit institutions to vary interest rates according to the distance from Male. Instead of forcing institutions to cover the higher costs of transportation and infrastructure in the outer atolls at a loss, GoM can allow them to pass costs on to their customers. Borrowers have shown that they are willing to pay these high interest rate because their alternatives are “borrowing at even higher rates, perhaps from an informal money lender, or no borrowing at all.”163 Varied rates will increase the incentives to offer loans to other island residents.164 Implementation Strategies: Development Loans Increase development agencies’ representatives on the ground. Due to its small size, development agencies typically do not have representatives “on the ground” in Maldives; most organization serve Maldives from offices in neighboring states. Before the tsunami, only the UNDP was set up on Malé, and, although the WB is in the process of establishing a provisional office, following reconstruction, there may well be no official agency presence in the country. This means that aid agencies have a more difficult time identifying the problems and needs of the country, and often overlook Maldives for larger nations. Therefore, it is important for Maldives to maintain a continuous dialogue with donors. Correct inefficiencies in project-specific aid. Project-specific aid comes with many strings attached in the form of procurement and documentation responsibilities GoM must fulfill to qualify for continued aid. Development banks monitor these “strings” to help them make decisions about what countries should receive loans.165 Maldives has received relatively low marks in this respect. While Maldives‟ overall IDA rating ranks in the middle, its project 162

Jonathan Morduch, “The Microfinance Promise,” Journal of Economic Literature, vol. 37, no. 4, Dec. 1999, p. 1570. 163 Daniel C. Hardy, Paul Holden, and Vassili Prokopenko, “Microfinance Institutions and Public Policy,” Policy Reform, Vol. 6(3), September 2003, p. 150. 164 In 1998, Agribank in Vietnam initiated a mobile banking program that enabled loan officers to reach remote areas and offer various financial services to the poor. The program has been a success, providing financial services to 315,000 poor households, partly because Vietnam has allowed Agribank to charge a rate that would recover costs whereby the recovery rate includes a “premium to cover the cost of running vehicles and managing small accounts and the higher level of risk in rural areas.” Consequently, Agribank offers interest rates of 12% to rural customers while offering rates of 8% to urban customers. (G. Hung and Tien Nguyen, “Bank on Wheels: A recent experiment has brought banking services to Vietnam‟s poorest,” Finance and Development, June 2004, pg. 42.) 165 This is part of a strategy of “managing for results.” See: IDA, “Measuring Results: Improving National Statistics in IDA countries,” November 2004.

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Appendices performance rating is low;166 ADB has also pointed to weak institutional capacity in implementing agencies as a barrier to smooth project preparation and implementation.167 This points to a need to strengthen project management in order to fully realize the benefits of aid and attract future assistance. Especially in light of the possible decrease in official assistance due to LDC graduation, GoM must pay attention to its institutional and repayment capacity in order to gain access to commercial loans. Implementation Strategies: Trust Fund Establish a multilateral institution to coordinate regional fisheries policy. This will allow Maldives and other licensing countries to collectively increase fees and thus ameliorate the potential comparative disadvantage of unilaterally raising fees. Communicating with other fishing countries may also produce other positive externalities, such as increased collaboration on issues of overexploitation and environmentally damaging practices. Review regional access fees. Conduct a thorough review of standard regional access fees to identify an appropriate rent level for fisheries use. Along with the previous strategy, this will help guarantee that Maldives increases its revenues as it increases its fees. Create a trust fund for receipt of access fee revenue. Setting up the trust fund should include all stakeholders â&#x20AC;&#x201C; native fishermen, foreign companies, independent investors and monitors (to reduce the risk of mishandling). In addition, stakeholders should agree when, how and for what purpose the fund balance will be drawn down. Dedicating the fund to specific fisheries-related projects will make the purpose of the fund more transparent and should help avoid potential future conflicts. Implementation Strategies: Foreign Direct Investment Improve foreign investment guides. The only way for potential investors to receive current information about how to invest in Maldives is from its website www.investmaldives.org. However, there are two other sources available that have outdated information. The first is the printed version of the Foreign Investment Guide, last updated in 1997, but still distributed by the Maldivian Ambassador to the UN and the Foreign Investment Services Bureau (FISB). The second is FISBâ&#x20AC;&#x;s old website, www.investmaldives.com, which is both confusingly similar to the current web address and still accessible online, despite the fact that the domain name is now for sale. Maldives should take down the outdated links and update its printed guide to clarify what its rules and regulations are. Promote investment in areas other than tourism and fisheries. Foreigners generally invest in tourist resorts and related tourism sectors.168 To diversify its economy, GoM must encourage FDI in its new industries.

166

IDA Performance Ratings 2003, http://siteresources.worldbank.org/IDA/Resources/QuintilesCPIA2003.pdf ADB, Country Strategy and Program Update 2005-2007, http://www.adb.org/Documents/CSPs/MLD/2004/default.asp 168 WB, Maldives Country Economic Update: Sustaining Robust Development, 2004, pg. 22 167

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Appendices

Appendix 7: Data Tables for Graphs Graph 1 – Maldives’ 2003 GDP By Activity Type Activity Type Agriculture Fisheries Manufacturing Tourism Other

%GDP 2.6 6.6 8.3 32.7 49.8

Complete Percentage Shares of GDP Activity Type Agriculture Fisheries Coral and Sand Mining Manufacturing Electricity and Water Supply Wholesale and Retail Trade Tourism Transportation and communication Financial Services Real Estate Business Services Government Administration Education, Health and Social Services

%GDP 2.6 6.6 0.6 8.3 3.6 4.1 32.7 14.2 3.4 7.5 2.5 12 1.9

Source: Ministry of Planning and National Development

Graph 2 – Maldives’ Hotel Occupancy Rate, 1998 to 2003

Hotel Occupancy Rate

1998

1999

2000

2001

2002

2003

76.2

69.7

68.2

65.6

77.2

Source: World Bank, Maldives Country Economic Update: Sustaining Robust Development, 2004.

Graph 3 – Contribution of Tourism to GDP, 1998 to 2003 1998 1999 2000 2001 2002 2003 Contribution of Tourism to GDP (%) 32.8 32.7 33 31.9 31.1 33 Source: World Bank, Maldives Country Economic Update: Sustaining Robust Development, 2004.

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Appendices Graph 4 – Tourist Arrivals in Maldives, 1998 to 2003

Tourist arrivals (1000)

1998 1999 395.7 429.6

2000 467.1

2001 460.9

2002 484.6

2003 550

Source: World Bank, Maldives Country Economic Update: Sustaining Robust Development, 2004.

Graph 5 – Fish Exports, Export and Prices, 1999 to 2003

Export in (000 metric tons) Export (US$ 000) Frozen Tuna over 2KG export prices

1999 38 34 634

2000 28 34 514

2001 30 36 626

2002 45 49 605

2003 70 69 646

Source: World Bank, Maldives Country Economic Update: Sustaining Robust Development, 2004.

Graph 7 – Wholesale value of potted orchids within the United States, 1996 to 2004 1996 1997 1998 1999 2000 2001 2002 2003 2004 Wholesale 46,993 69,856 64,885 79,398 89,018 102,049 111,735 120,878 119,564 value of potted orchids within the United States (1,000 dollars)

Source: Floriculture and Nursery Crops Outlook/FLO-03/September 23, 2004 Economic Research Service, USDA

Graph 8 – Orchid Price Index, 1996 to 2004

Orchid Price Index

1996 59.6

1997 79.4

1998 82.1

1999 82.3

2000 100

2001 91.1

2002 91.7

2003 84.3

Source: Floriculture and Nursery Crops Outlook/FLO-03/September 23, 2004 Economic Research Service, USDA

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2004 85

Appendices

Appendix 8: Bibliography

Literature __________. “The Benefits of Marine Protected Areas,” Discussion paper prepared for the Vth IUCN World Parks Congress, Durban, South Africa, September 2003, http://www.deh.gov.au/coasts/mpa/wpc/benefits/benefit-tourism.html (accessed March 3, 2005. __________. “Tsunami deaths soar past 212,000.” CNN.com. January 19, 2005. http://www.cnn.com/2005/WORLD/asiapcf/01/19/asia.tsunami. __________. “World Aquaculture Outlook 2002.” Aquaculture Magazine 2002 Buyer’s Guide. aquaculturemag.com/siteenglish/printed/buyers/web-worldoutlook.pdf (accessed February 12, 2005). Abdullah, Hassan and Zulaikha, Ismail. “An Overview of Micro credit and SME activities financing in Maldives” Country Paper for SAARC Finance seminar on Microcredit operations. 21-23 December 2002. Shaka, Bangladesh. 21 December 2002. http://www.bangladesh-bank.org/seminar/cpmaldive.html (accessed February 24, 2005). Adam, M.S. “The Aquarium Fishery of the Maldives.” Marine Research Section, Ministry of Fishing and Agriculture. Male, Maldives. 2002. Agbayani et al. “Aquaculture Economics in Asia and the Pacific.” FAO Fisheries Circular No 932. FIRI C/932. 2004. Asian Development Bank. Country Economic Review: Maldives. CER: MLD 2004-13. September 2004. Asian Development Bank. Country Strategy and Program Update 2005-2007. http://www.adb.org/Documents/CSPs/MLD/2004/default.asp. Asian Development Bank. “Key Indicators: Maldives.” 2004. http://www.adb.org/Documents/Books/Key_Indicators/2004/pdf/MLD.pdf (accessed December 14, 2004). Asian Development Bank. Operations Manual Bank Policies. OM Section A1/BP. http://www.adb.org/Documents/Manuals/Operations/OMA01_29oct03.pdf (accessed January 27, 2005). Asian Development Bank. Poverty Reduction in the Maldives: Issues, Findings and Approaches. January 2002.

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Appendices Asian Development Bank. Poverty Reduction Partnership Agreement. 2002. www.adb.org/Documents/Poverty/pa_mld.pdf (accessed December 19, 2004). Baluyut, Elvira. “Women in Aquaculture Production in Asian Countries,” FAO. ADCP/REP/87/28, 1987, http://www.fao.org/docrep/S4863E/s4863e06.htm Committee on Fisheries, “Fisheries and Aquaculture in Small Island Developing States,” FAO. COFI/99/7, 1998. ECOSOC. “Formulating a smooth transition strategy for countries graduating from least developed country status.” Report of the Secretary-General. Document: 0442767. (E/2004/94). July 2004. ERS-FLO-2004s Floriculture & Nursery Crops YEARBOOK – SUMMARY June 2004. http://www.ers.usda.gov/publications/flo/jun04/flo2004s.txt (accessed March10, 2005). FAO. The State of World Fisheries and Aquaculture. 2004. http://www.fao.org/documents/show_cdr.asp?url_file=/docrep/007/y5600e/y5600e00.ht m. FAO Fisheries Department and Network of Aquaculture Centres in Asia-Pacific. “Survey and Analysis of Aquaculture Development Research Priorities and Capacities in Asia.” FAO Fisheries Circular No. 930 FIRI/C930. Rome. November 1997 http://www.fao.org/documents/show_cdr.asp?url_file=/docrep/W6937E/W6937E00.htm. GESAMP (IFO/FAO/UNESCO-IOC/WMO/WHO/IAEA/UN/UNEP Joint Group of Experts). “Planning and management for sustainable coastal aquaculture development,” 2001. Hameed, Faathin. “First National Report to the Conference of the Parties to the Convention on Biological Diversity,” Ministry of Home Affairs Housing and Environment, 2002. Hardy, Daniel C. Holden, Paul, and Prokopenko, Vassili. “Microfinance Institutions and Public Policy” in Policy Reform. September 2003. Vol. 6(3). pg. 147-158. Hung, G. Nguyen Tien. “Bank on Wheels: A recent experiment has brought banking services to Vietnam‟s poorest” in Finance and Development. June 2004. pg. 41-43. International Development Agency. “Background.” http://web.worldbank.org/WEBSITE/EXTERNAL/EXTABOUTUS/IDA/0,,print:Y~isC U (accessed December 21, 2004). International Development Agency. Performance Ratings 2003. http://siteresources.worldbank.org/IDA/Resources/QuintilesCPIA2003.pdf. International Development Agency. “Measuring Results: Improving National Statistics in IDA countries.” November 2004.

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Appendices Jameel, Abdullah, et. al. National Biodiversity Strategy and Action Plan of the Maldives. Ministry of Home Affairs Housing and Environment. 2002. Joffe-Walt, Benjamin. “MALDIVES: Islands get preview of future with unfriendly sea” The San Francisco Chronicle. January 2, 2005. A10. Josupeit, H. and Franz, N., Aquaculture –Trade, Trends, Standards and Outlooks. FAO Fisheries Department. January 2004. http://www.globefish.org/index.php?id=2061 (accessed February 3, 2005). Laws, Nancy. “Orchid commerce around the world.” Floriculture International. http://www.floracultureintl.com/archive/articles/293.asp (accessed March 10, 2005). Littlefield, Elizabeth and Rosenberg, Richard. “Microfinance and the Poor” Finance & Development, June 2004, pg. 38-40. Maniku, M.H. “Existing legal systems and institutional structures in the Maldives: Opportunities and Challenges for IRRM Coordination.” Marine Research Section, Ministry of Fisheries and Agriculture. Male, Maldives. 1997. Maldives College of Higher Education. Strategic Plan 2001-2005. 2002. http://www.mche.edu.mv/rect/strategic_plan/2001-2005.htm (accessed February 28, 2005). Miller, Sutherland. “Entry Approvals and Registration: The removal of administrative constraints.” South Asia FDI Roundtable. Maldives. 9-10 April 2003. http://www.fias.net/Conferences/030403%20Miller.pdf (accessed March 14, 2005). Ministry of Atolls Development. Old, Existing, and Potential Income Generating Activities in the Maldives. Supported by UNDP and UNESCAP. 2004. Ministry of Planning and National Development, Analytical Report, Population and Housing Census of Maldives, Male: Ministry of Planning and National Development, 2000, http://www.planning.gov.mv/analytical_report/html/Source/ChapterVIII.pdf (accessed December 18 2004). Ministry of Planning and National Development. “Key Indicators 2004.” Statistical Yearbook of Maldives 2004 (SYM). www.planning.gov.mv/yrb2004/intro.htm. Ministry of Planning and National Development. National Recovery and Reconstruction Plan: Programmes and Projects. Second Print. Republic of Maldives. March 2005. http://www.tsunamimaldives.mv/idocs/Publications/NRRP.pdf. (accessed March 23, 2005) Ministry of Planning and National Development. Urban Poverty Study 2002. http://www.planning.gov.mv/publications/UrbanPovertyStudy2002/UrbanPovertyStudy2 002.pdf (accessed January 15, 2005). A- 16

Appendices Ministry of Planning and National Development. Vision 2020. Male, Republic of Maldives. 2000. Ministry of Planning and National Development and UNDP. Maldives Human Development Report 2000 – Challenges and Responses. 2000. hdrc.undp.org.in/APRI/NHDR_Rgn/Maldives/default.htm (accessed December 15 2004) Morduch, Jonathan. “The Microfinance Promise” in Journal of Economic Literature. vol. 37, no. 4 (Dec. 1999). pg. 1569-1614 Naseer, Abdulla. “Profile and Status of Coral Reefs in Maldives and Approaches to its Management.” Presented at the Regional Workshop on the Conservation and Management of Coral Reefs. 1997. http://www.fao.org/docrep/X5627E/x5627e00.htm#Contents. The Official Website of the National Disaster Management Centre. “The Maldives Tsunami Disaster.” Slide presentation. January 19, 2005. www.tsunamimaldives.mv/idocs/present/recovery%20and%20rewconstruction_files/fram e.htm. Pomeroy et al. “Farming the Reef: is aquaculture a solution for reducing fishing pressure on coral reefs?” Marine Policy, 2004. Article in press, available from Inge Detlefsen. Pretes, Michael and Peterson, Elizabeth. “Rethinking Fisheries Policy in the Pacific.” Marine Policy 28 (2004). pg 297-309. Rajasuriya, A., Venkataraman, K., Muley, E.V., Zahir, H. and Cattermoul, B. “Status of Coral Reefs in South Asia: Bangladesh, India, Maldives, Sri Lanka.” Status of Coral Reefs of the World 2002. ed. Clive Wilkinson, Australian Institute of Marine Science. 2002. www.aims.gov.au/pages/research/coral-bleaching/scr2002/scr-00.html. Shehadeh and Pedini. Issues and Challenges. Review of the State of World Aquaculture. FAO Fisheries Circular No 886. FIRI C/886. 2002. South Asia Development and Cooperation Research and Information System for the NonAligned and Other Developing Countries (RIS). South Asia Development and Cooperation Report 2004. New Delhi, India. 2004. Srinivas, Hari. “So, What is „microcredit‟?” Virtual Library on Microcredit. http://www.gdrc.org/icm/what-is-ms.html (accessed February 28, 2005). Subasinghe. “South Asia.” FAO Fisheries Circular No 886. FIRI C/886. Sugiyama, S., Staples, D., and Funge-Smith, S. “Status and potential of fisheries and aquaculture in Asia and the Pacific.” Asia Pacific Fishery Commission. FAO Regional Office for Asia and the Pacific. RAP Publication 2004/25, 2004. http://www.apfic.org/apfic_downloads/pubs_RAP/2004-25.PDF. A- 17

Appendices Telfer, T.C. and Beveridge, M.C.M. “Monitoring environmental effects of marine fish aquaculture.” Institute of Aquaculture, University of Sterling, UK. 2000. Tietze, U. and Villareal, L. “Microfinance in Fisheries and Aquaculture.” FAO Fisheries Technical Paper 440. Rome. 2003. http://www.fao.org/documents/show_cdr.asp?url_file=/DOCREP/006/Y5043E/Y5043E0 0.HTM. UNDP. Human Development Report 2003: Millennium Development Goals: A compact among nations to end human poverty. 2003. http://hdr.undp.org/reports/global/2003. UNDP. “Pearl culture offers bright potential for the Maldives.” UNDP Maldives. August 25th, 2003. http://www.un.org/specialrep/ohrlls/News_flash2003/Pearl%20culture%20offers%20bright%20potential%20for%2 0the%20Maldives.htm. UNEP. Maldives: State of the Environment. 2002. http://www.rrcap.unep.org/reports/soe/maldivessoe.cfm. UNESCO. Global Coral Reef Monitoring Network South Asia Partner Review Exercise 2003. http://ioc.unesco.org/gcrmn/GCRMN%20SA%20Partner%20Review%20Exercise%2020 03.pdf (accessed December 17, 2004). United Nations, Office of the Resident Coordinator Maldives. “Maldives: Tsunami Disaster and Beyond.” Slide presentation. January 20, 2005. http://www.mv.undp.org/drtf/presentation.pdf. United States Department of Agriculture. Floriculture and Nursery Crops Outlook/FLO03/September 23, 2004. Economic Research Service. United States Department of State, Republic of Maldives Country Commercial Guide, August, 2004, available at http://usembassy.state.gov/srilanka/wwwhcommercial_maldives_country_commercial_g uides.html Van Houte, Annick. “Assistance in Fisheries and Marine Resources Management Policy and Legislation.” FAO LIBRARY AN: 415469. TCP/MDV/2801, 2003 World Bank, ADB and UN System. Tsunami: Impact and Recovery. Joint Needs Assessment. February 8, 2005. World Bank. “Maldives at a glance.” Sept. 30, 2004. http://www.worldbank.org/cgibin/sendoff.cgi?page=%2Fdata%2Fcountrydata%2Faag%2Fmdv_aag.pdf (accessed December 18, 2004). World Bank. Maldives Country Economic Update: Sustaining Robust Development. Report No. 30965-MV. December 15, 2004. A- 18

Appendices http://www.clanorchids.com/faq/faqpg1.html (accessed March 10, 2005). http://www.lonelyplanet.com/mapimages/indian_subcontinent/maldives/maldives.gif (accessed March 23, 2005) http://www.mymaldiveshotels.com/images/map5.jpg (accessed March 23, 2005) http://www.sun-vacations.com/handicrafts.html (accessed March 10, 2005). http://www.sunwaymaldives.com/art_craft.htm (accessed March 10, 2005). http://www.un.int/maldives/UNGA59-Tsunami-debate.htm (accessed March 10, 2005). http://www.visitmaldives.com.mv/Things_to_do/index.php (accessed February 22, 2005). http://www.wavehunters.com/maldives/maldives_fish.asp (accessed February 22, 2005). Email Correspondence Email exchange with Dr.Benetti from the aquaculture program of the University of Miami. Email exchange with Dr.Richard Fassler, January 28th, 2005. Email exchange with Anatoly Smyshlyaev, Committee for Development Policy, UN. Interviews Shafeenaz Abdul-Sattar, Manager, Economic Research and Statistics Division, Maldives Monetary Authority, July 2004 Adnan Ali, Managing Director, Horizon Fisheries, July 2004. Karen Coltes, Office of Insular Affairs, US Coral Reefs Task Force, March 4, 2005. Christian Eigen-Zucchi, Economist South Asia Region, Poverty Reduction and Economic Management, World Bank, March 3, 2005. Manny Ezcurra, Tuna Expert, Monterey Bay Aquarium, January 15, 2005. Mohamed Faiz, Director, Ministry of Policy and Planning July 2004. Ahmed Latheef, Director General, Ministry of Foreign Affairs, July 2004. Dr. Mohamed Latheef, Maldives United Nations Ambassador, February 18, 2005. Mohamed Latheef, Deputy Director, Ministry of Transport and Civil Aviation, July 2004.

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Appendices Easa Adam Jaufar, Chairman and CEO of Jausa Holdings, July 2004. Hassan Maniku, HMS Maldives, July 2004. Omar Maniku, Managing Director, Island Enterprises, July 2004. Ahmed Mohamed, Director, Development Planning, Project Director and Regional Development Project â&#x20AC;&#x201C; Phase 1, July 2004. Sim I Mohamed, Maldives Association of Tourism Industry (MATI), July 2004. Ahmed Naseem, Assistant Executive Director, Investments, Foreign Investment Services Bureau, July 2004. Hussain Niyaaz, Assistant Director General, Ministry of Planning and National Development, July 2004. Harry Phillips, Orchid Expert, Andyâ&#x20AC;&#x;s Orchids, March 10, 2005. Mahmood Razee, Director General of Civil Aviation, Ministry of Transport and Civil Aviation, July 2004. Ibrahim Athif Shakoor, Maldives Industrial Fisheries Company (MIFCO), July 2004. Riluwan Shareef, Executive Director, Ministry of Finance and Treasury, July 2004. Mahmood Shujau, General Manager, Paradise Island, July 2004. Sarath Weerakoon, Branch Manager, HSBC, July 2004.

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