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Maldives Aiming for Mid-Market Diversification

March 26, 2015 Headline News, Hotel News No Comments Email Email

logoIt is misleading to think of the Maldives as Asia’s smallest country – which it certainly is, at 300 km2 and less than half the size of Singapore – because you could also argue that it’s far, far bigger than that. In truth, its 26 atolls comprising 1,192 islands stretch over 800 km from north to south, while the archipelago is around 130 km wide.

That’s roughly the equivalent of a longer, thinner Portugal, so transportation becomes a key issue facing investors.

The vast majority of the 1.2 million annual visitors to the Maldives fly into the capital, Malé, which sits almost exactly at the geographical center. A second international airport is located at Gan near the southernmost tip of the country. Halfway between the two lies Laamu Atoll, which is the focus of the latest Maldives government initiative.

A girl on a beach

To date, investment in the Maldives has primarily been at the luxury end of the market, as an ADR of USD $827 and RevPAR of USD $588 will attest. The ‘one island – one resort’ approach has been the typical model with 112 such resorts presently in operation. However, new developments, of which the government encourages around four or five annually, might find themselves increasingly far-flung as far as access from Malé is concerned. “An interesting avenue to gain entry is to build an airport – and then there’s the advantage in having an airport near you,” pointed out Shahdy Anwar, a local legal specialist from Suood & Anwar LLP.

While remote atolls are accessible by seaplane, the cost is high, whereas fixed-wheel air links represent a much cheaper option. This factor may be critical in the government’s idea for the Laamu Integrated Resort Development Project on Baresdhoo Island, which will rely on the local airport of Kahdhoo, 40 minutes’ flying time from Malé.

This project fulfills a perceived need to diversify the Maldives’ tourism product to the mid-market segment, welcoming the growing numbers of relatively affluent Chinese whose wealthier compatriots already account for 30% of visitor arrivals. “The line is being blurred between five and four star,” observed Adam Saleem, the Managing Director of Crown Company Ltd. “I think there’s a need for four star developments catering towards the middle class. These people are financially aware and don’t want to spend that much money.

The project offers a number of advantages to investors, with small and medium-sized enterprises seen as the most likely interested parties. Most significantly, the basic infrastructure including jetties, water, electricity, sewage and waste management will all be provided, thereby reducing the required level of capital investment. The island offers a number of sites earmarked for various hospitality projects, and further encouragement is available in the form of zero import duty for construction or renovation work carried out within the next three years.

These incentives may turn out to be influential, because one reason for the current lack of four star developments has been the difficulty of securing funding. Where well-funded developers have shown interest, the government has been very supportive in granting access to islands. However, local banks have been less willing to offer attractive terms and a number of projects remain unfinished. As Shahdy Anwar made clear, “Developers should not come to the Maldives expecting funding from the Maldives.”

Success for the Laamu project may represent an important step towards meeting the Tourism Ministry’s goal of increasing overall visitor numbers and making the Maldives accessible to a wider pool of potential customers, especially from Asian source markets. The last word, however, must go to Adam Saleem: “The Maldives needs to be on your bucket list. Twice, or three times!

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