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Maldives WT/TPR/S/221

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IV. TRADE POLICIES BY SECTOR

(1 I!TROD"CTIO!

1. The Maldives is a small economy with limited natural resources and thus a narrow economicbase; heavy dependence on tourism services and fisheries makes the economy and trade vulnerable toexogenous shocks. Although the economy is relatively open with trade in goods and servicesaccounting for over 15! of "#$ in %&' tariffs remain relatively high and state involvement is

prevalent in many sectors. (igh tariffs and state involvement tend to impede competition and thusresult in an inefficient allocation of resources. To be more resilient' the economy would need todiversify' this could be achieved through greater private)sector involvement. At present'

private)sector involvement remains weak *except tourism+' presumably due to crowding out by thestate)owned enterprises and the relatively high cost of doing business in the Maldives.

%. ,isheries account for almost all merchandise exports and the state)owned Maldives -ndustrial,isheries ompany *M-,/+ remains dominant in the sector. ,ishing and fish processing ischaracteri0ed by very little product diversification and low value)added products. xport receiptswould be significantly greater if higher value)added processes' such as canning' were to become more

prevalent. The agriculture sector is limited to 2 s3uare miles of arable land' which is used to growfruits and vegetables for personal consumption. The manufacturing sector remains weak; it is

protected by high tariffs' but receives government support in the form of tariff concessions onimported inputs.

2. Tourism and related activities' such as transport and communications' dominate services'contributing to as much as 4! of "#$. There is very little direct state involvement in tourism'where it appears that productivity is much higher than in other sectors of the economy. y contrast'government involvement in telecommunications' financial services and transport is considerable.(owever' the "overnment continues to further liberali0e these sectors in order to make them moreefficient and thus competitive' thereby reducing the cost of doing business in the long)run *as theseservices are important business inputs+.

(2 #IS$ERIESA!DA%RIC"LT"RE

(i #is&e'ies

1. #espite its declining share of "#$ *from over 4! in %% to 5! in %&+' the fisheries sectorcontinues to be of ma6or importance to the Maldives economy *Table -7.1+; it accounted for nearlyall *&8.9!+ merchandise exports and employed 11! of the total workforce in %&.

%. #ue to its geographical nature' the Maldives has considerable marine resources within its% mile exclusive economic 0one *:+. etween %% and %4' total fish catches were volatile'varying between 122' tonnes and 18' tonnes. Tuna *skip6ack' yellow fin' and big eye+account for nearly &! of the total catch' with snapper' grouper' and other varieties making up therest.

2. The main export market for Maldivian fish is Thailand' which takes over 2! of exports for usein its canning industry. Almost all dried and salted fish is exported to

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WT/TPR/S/221 T'ade Pli)* Revie+

Page 3,

Ta-le IV.1

#is&ig idi)a's0 22

22 23 2, 24 25 26 27a

2-

ontribution to "#$c*!+ 4.1 . .1 4.5 .2 9. 9.% 5.

"rowth of fishing "#$c*!+ %%.& .4 1.8 14. )1. )%1.8 )%. 15.9

Total fish catch *> tonnes+ 12.9 155.9 158. 185.& 189.% 199.1 122.1 ..

) of which skip6ack tuna *!+ 4. &.4 &.% 41. 45.% 4.5 . ..

Total fish exports *> tonnes+ 99. &.8 45.9 8%.1 111.9 5.8 2.1 ..

) value *B+ 19.9 19.& 19.8 12.8 19.% .. .. ..

Dumber of mechani0ed fishing vessels 1'11 1'15 1'15& 1'58 &4 &2 &4 ..

.. Dot available.

a stimates.b $ro6ections.c ased on constant 1&&5 prices.

Source Maldives Monetary Authority *%&+'Monthly Statistics' April' 7ol.1 Do. 9' andAnnual Report *various years+.

*a+

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8. A fairly comprehensive draft ,isheries ill was circulated in %9' but has been withdrawn; arevised ,isheries ill is to be presented to $arliament and is expected to enter into force in %1. The

bill covers recent international agreements and practices as well as standards for monitoring andenforcing fisheries laws. The bill also addresses a3uaculture. -f implemented' the bill will enable amodern and market)oriented system of fisheries management' with the "overnment as the regulatorrather than being involved in business of fisheries. The ob6ective of the new bill is to maximi0e theresource rent and sustainability from the sector. As the tuna stock in the -ndian /cean is highlymigratory' any statistical data' such as stock levels and catches *which is essential for policyformulation and the associated regulatory framework+' will need international cooperation from allconcerned countries in the region. -n this regard' the Maldives has become an observer to the -ndian/cean Tuna ommission. -n addition' the Maldives is a member of the Marine

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Maldives is self)sufficient only in fish; as a result' food security is one of the principal ob6ectives ofagricultural policy.

2. There are 2% uninhabited islands that have been leased out for %1)year periods for commercialfarming purposes; these may be leased only to Maldivian companies and individuals.Approximately' 45! of the inhabited islands also have some agricultural production. The main

products cultivated are water melon' papaya' coconut' and other fruits and vegetables.

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consumed by the resorts. lectricity is charged at domestic' commercial' and government rates;transmission losses are low at 4!' and theft is negligible. #ue to its geographic nature' there is no

national grid in the Maldives. (owever'

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52! of the tourists in the Maldives' and Asia *mainly Hapan' hina' and -ndia+ was responsible for%!.

Ta-le IV.2

T8'is9 idi)a's0 22

22 23 2, 24 25 26 27a

2-

ontribution to "#$c*!+ 2.& 2%.4 2%.9 %%.4 %4.9 %4.& %4.% %9.

"rowth of tourism "#$c*!+ 2.2 19.8 8.2 )22.1 9%.2 &.9 2. )1.5

ontribution to tax revenue *!+ %8. %8.9 %9.& %. %.& 1&.% 14.& 1.&

#irect employment *incl. expatriates' number+ .. .. .. .. .. .. .. ..

Tourist arrivals *>+ 989.4 52. 1.4 2&5.2 1.& 45.& 82. ..

$ercentage change 5.1 1.2 &.9 )25.& 5%.2 1%.2 1.1 ..

Average length of stay *number of days+ 8.9 8.9 8.2 8.2 8. 4.& 8. ..

Tourism receipts *B

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Page 3

&. Bpon expiry or early termination of the lease agreement' the ensuing bidding process must be thesame as that for a new island. -f the lease is awarded to a party other than the previous leaseholder'

the new party must reimburse the previous leaseholder' via the "overnment' for property on theisland. The Auditor "eneral determines the amount of compensation' taking depreciation intoaccount. The compensation to the old leaseholder must be made within two years of the signing ofthe new lease.

1. Fith a view to making the bidding process more transparent and easier' changes were made to thebidding documents in %5. The evaluation process was replaced by an automatic evaluation system'whereby almost all participants become the best 3ualified bidder and the winner is determined bydrawing lots.

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Page ,

retained. uildings are allowed on the lagoon' under product diversification' but for every room builton the lagoon an e3ual amount of open space must be left free on the island. All guest rooms that face

the beach re3uire a minimum of five metres of beach length for every room. The harsher forms ofdegradation on account of coral and sand mining' dragnet fishing' and poisoning and dynamiting fish'have all been outlawed in the Maldives' while coral and sand mining are restricted to certain areas and

protection measures are in place for the resort islands. A number of important tourist dive sites andmarine habitats have been established as protected areas since 1&&5. Dew measures under wayinclude protection of shark species throughout the Maldives archipelago and designating habitats ofwhale sharks and other larger marine species as reserves and marine parks. All new tourismdevelopment pro6ects must have an environmental impact assessment and mitigation plan.,urthermore' to foster an environmentally friendly image' a number of resorts have ?green?endorsements.

(ii #ia)ial se)'

1. The financial sector in the Maldives comprises commercial banks' non)bank financial institutions'and insurance companies. -n %&' the sector>s contribution to "#$ was %.&!' down from 2.2! in%2.

*a+ loan portfolio isconcentrated in the tourism sector. The recovery of the tourism sector after the tsunami' coupled withimproved banking supervision also resulted in a decline in non)performing loans as a percentage totalloans' from a high of .! in #ecember %5 to 1.4! in March %8; however' D$=s rose to over8.5! in the last 3uarter of %8. As a conse3uence of the global economic crisis' banks in theMaldives faced li3uidity constraints *both domestic and B.

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*owned by the s licence for six months. The regulations also stipulate that a bank may not advance creditto any single entity *person or related persons+ in excess of 15! of the bank>s capital base' and in thecase of a corporate group the exposure is not to exceed 9! of the bank>s capital base.

5. -nsurance companies are sub6ect to the -nsurance -ndustry @egulations' which are administered bythe MMA. Bnder the regulations' the MMA is the licensing authority. The MMA may also issueadditional regulations with respect to' inter alia the calculation of underwriting reserves; minimumlevel of capital to be maintained by an insurance company; asset valuation; calculation ofunderwriting liabilities; and the establishment and imposition of maximum and minimum tariff ratesand premiums. Authori0ed insurers are re3uired to submit detailed 3uarterly accounts to the MMA.Bnder the regulations' the minimum paid)up share capital is @f %5' for non)life insurers and @f25' for life insurers.

(iii Tele)998i)ais

1. The Telecommunications sector was responsible for approximately 8.8! of "#$ in %. Thesector is important as it plays a key role in linking the different island and resort communities. At

present' all inhabited and some uninhabited islands have access to telephone services.

*a+

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According to the authorities' mobile rates are slightly higher than in other regional countries like-ndia; however' international call rates are lower than in -ndia and performance with respect to consumer satisfaction' consumer benefits'and the 3uality of service. AM is re3uired to review the Telecommunications @egulations everythree years. -n the case of disputes' parties may approach AM for arbitration. -f any party is notsatisfied with AM>s decision' they have recourse to the Minister of Telecommunications and the$resident; the latter>s decision is final and binding.

5. The new Telecommunications $olicy *%)%1+ was issued in August %. The ob6ectives ofthe policy are to' inter alia: ensure that telecommunications charges are non)discriminatory'affordable and cost oriented; improve the telecommunications infrastructure to provide basic'enhanced' and broadband services throughout the country; ensure autonomy of the @egulatoryAuthority by law with clearly defined powers and resources to effectively carry out its duties to

protect consumer and operator interests; and increase competition. -n this regard the ?the one serviceone tariff? regime whereby calls between any two points in the Maldives would cost the same was to

be implemented by the second half of %8.12 This is not yet the case.

. A Telecommunications ill was to be drafted and submitted to $arliament during %4' but thishas not happened yet. The ill was to make the role of the regulator more effective and transparent'

provide it with the necessary legal powers' and make it independent and financially autonomous. -naddition' the "overnment was to consider creating a telecommunications ombudsman' to addressconsumer grievances and make decisions independently and 3uickly. -nstead' two different bills are

being drafted; one will create an independent communications authority' and the other is theTelecommunications Act.

(iv T'as:'

1. The transport and communications sector contributed over 1&! to "#$ in %&' up from 19.%!in %2. #ue to the nature of the Maldives> geography' maritime transport services are the mostwidely used mode of transport' followed by air transport services.

12

A basic telecommunication package was to be available to all inhabited islands by the end of %8.The package includes & minutes of national voice calls and %5 M of internet access at a minimum speed of5 Gbps' to be available on re3uest at no more than @f % per month.

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*a+ Maritime transport

%. The maritime transport sector is regulated by the Ministry of Transport and ommunications.The Ministry is responsible for' inter alia,vessel registration and licensing as well as maritime policyand safety regulations.19

2. -nter)island services are deregulated and prices are determined by prevailing market conditions.Although a number of ferries are operated by island communities' private parties and the MaldivesTransport and ontracting ompany *MT+15'the scheduled ferry services network is very limited.Most of the inter)island cargo and passenger traffic is carried by traditional boats * dhonis)of varioussi0es. Transportation of heavy and large items is carried out by the MT using barges and tugs.Tourism resorts operate their own services using a variety of boats to transport guests.

9. The Maldives has three international sea ports Male ommercial (arbour *M(+' and

two regional harbours' Ghulhudhuffushi *Dorth+' and (ithdhoo *s certificate were amended to includea pre)appraisal of financial feasibility. The rules allow the A# to conduct financial surveillance ofexisting carriers if there are signs of service deterioration.

4. The Maldives was audited under the -A/ universal

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and limited apron space. The capacity of Male airport is five aircraft at any given time. =anding andtake off slots are assigned according to -ATA rules' based on past fre3uency and allocation.

urrently' the Maldives has %8 air service agreements and 15 interim air service agreements.

&. -sland Aviation

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