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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 economic base; heavy dependence on tourism services and fisheries makes the economy and trade vulnerable to exogenous shocks. Although the economy is relatively open with trade in goods and services accounting 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 thus result in an inefficient allocation of resources. To be more resilient' the economy would need to diversify' this could be achieved through greater private)sector involvement. At present' private)sector involvement remains weak *except tourism+' presumably due to crowding out by the state)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 is characteri0ed by very little product diversification and low value)added products. 1xport receipts would 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 grow fruits 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 on imported inputs. 2. Tourism and related activities' such as transport and communications' dominate services' contributing to as much as 4 ! of "#$. There is very little direct state involvement in tourism' where it appears that productivity is much higher than in other sectors of the economy. 5y contrast' government involvement in telecommunications' financial services and transport is considerable. (owever' the "overnment continues to further liberali0e these sectors in order to make them more efficient and thus competitive' thereby reducing the cost of doing business in the long)run *as these services are important business inputs+. (2 #IS$ERIES A!D A%RIC"LT"RE (i #is&e'ies

1. #espite its declining share of "#$ *from over 4! in % % to 5! in % &+' the fisheries sector continues to be of ma6or importance to the Maldives economy *Table -7.1+; it accounted for nearly all *&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 *11:+. 5etween % % 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 the rest. 2. The main export market for Maldivian fish is Thailand' which takes over 2 ! of exports for use in its canning industry. Almost all dried and salted fish is exported to <ri =anka. ,ish products canned in the Maldives are exported mainly to 1urope' where they benefit from tariff and 3uota preferences under the 1.>s ?everything but arms? initiative for =#.s. <ince % 2' all export shipments re3uire a health certificate for 3uality control purposes. ,ish exporters have to pay a value)based export charge *tax+ called a ?royalty?' which varies according to the species and totalled @f 54.8 million in % 9.

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Ta-le IV.1 #is&i.g i.di)a/('s0 2112213 2112 .ontribution to "#$c *!+ "rowth of fishing "#$ *!+ Total fish catch *> Total fish exports *> Dumber of fishermen *> tonnes+ tonnes+ + ) of whichA skip6ack tuna *!+ ) value *B<C million+ Dumber of mechani0ed fishing vessels .. a b c Dot available. 1stimates. $ro6ections. 5ased on constant 1&&5 prices.
c

2113 ;.; .4 155.9 ;&.4 ;&.8 ;&.1 19.& 1'15

211, ;.1 1.8 158.; ;&.% 45.9 89.9 19.8 1'15&

2114 4.5 14.; 185.& 41. 8%.1 &;.; 12.8 1' 58

2115 ;.2 )1. 189.% 45.% 111.9 1%8.8 19.% &;4

2116 9.; )%1.8 199.1 ;4.5 ;5.8 1 %.5 .. &2;

2117a 9.% )%.; 122.1 ;;. ;2.1 1% .4 .. & 4

21135. 15.9 .. .. .. .. .. ..

4.1 %%.& 1;2.9 4 .; 99.; 9&.% 19.9 1'1;1

SourceA Maldives Monetary Authority *%

&+' Monthly Statistics' April' 7ol.1 Do. 9' and Annual Report *various years+.

*a+

<tructure

9. .ommercial fishing in the Maldives is differentiated by distance. Dear)coast fishing * )45 nautical miles *DM++ is carried out using traditional wooden hulled masdhonis and is concentrated on skip6ack tuna. Masdhoni owners are re3uired to be Maldivian citi0ens; additionally' the vessels must be registered and the owners must have a licence to fish. The licence stipulates the permissible fishing methods' which includeA pole and line' long line' trolling and hand line; gill netting is only allowed in areas designated for bait fishing. -n order to maintain the registration' the vessel needs to make a minimum of 1% fishing trips a year. As of % 8' there were &4& fishing vessels registered in the Maldives' of which 8;4 were mechani0ed masdhonis and 9 mechani0ed vadhudhonis *trolling vessels+. 5. (igh)seas fishing takes place between 45DM and % DM *the 11: limit+; the main species caught is yellow fin tuna. =icences for high)seas fishing are granted by the M1# to Maldivian)registered companies operating foreign vessels. At present' 92 licensed companies are operating in the 45DM)% DM 11:. (igh)seas fishing is regulated through 3uotas; only long line and pole and line methods are permitted. Additionally' trading in yellow fin tuna is restricted by a 3uota of 1' tonnes; however' it would appear that the 3uotas are not enforced. ;. Applied M,D tariffs on fish imports averaged 1;!' which is low compared with the overall average applied M,D tariff *%1.9!+. (owever' most tariff lines relating to fish and fish products are not bound' which gives the "overnment considerable leeway to raise tariffs on these products if the need arises. *b+ @egulation

4. The Maldives has no comprehensive fisheries management policy. The Ministry of ,isheries' Agriculture and Marine @esources *M,AM@+ is responsible for regulating the sector as well as formulating policy. ,isheries is regulated under =aw 5E84 and the @egulation for -ssuing the =icense to ,ish in the 1xclusive 1conomic :one of the @epublic of the Maldives' which differentiate between near)coast and high)seas fisheries and the permissible methods of fishing. The regulatory instruments are applied through licensing systems.

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8. A fairly comprehensive draft ,isheries 5ill was circulated in % 9' but has been withdrawn; a revised ,isheries 5ill 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 and enforcing fisheries laws. The bill also addresses a3uaculture. -f implemented' the bill will enable a modern and market)oriented system of fisheries management' with the "overnment as the regulator rather than being involved in business of fisheries. The ob6ective of the new bill is to maximi0e the resource rent and sustainability from the sector. As the tuna stock in the -ndian /cean is highly migratory' any statistical data' such as stock levels and catches *which is essential for policy formulation and the associated regulatory framework+' will need international cooperation from all concerned 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 <tewardship .ouncil' which provides for eco)labeling of fish and other marine products. This could enable the Maldives to receive a premium for its marine products. *c+ M-,./ and fish processing

&. $urchase and processing of skip6ack tuna is divided into four 0ones. Bnder the existing rules private enterprises apply for licences to process and export tuna. The application is evaluated on the basis of procurer capacity needs in the designated 0one. .urrently M-,./' a state)owned company' holds exclusive rights to buy and process tuna in two *0ones two and four+ of the four 0ones and as such has monopsony power; furthermore' M-,./ is permitted to procure fish in the other two 0ones' but it does not have the exclusive right to do so. -n each of the other two 0ones' two private companies have also been given licences. 1 . M-,./ procures the tuna through a 3uota)like system. M-,./ operates collector ships' which buy the tuna catch from the participating fisherman. -f a 3uota held by a fishing vessel has been exhausted' the remaining catch belongs to the vessel owner to sell if possible; the fishermen can sell their catch in any of the 0ones. (owever' this practice leads to wastage' estimated at between %5 )9 ! of the catch.1 M-,./ pays a fixed' but high' price for the catch' thereby ensuring that the fisherman get a fair price. 11. There are 4% tuna)processing facilities' of which ;8 produce traditional products *salted' smoked and dried fish+. These are destined mainly for <ri =anka. There is also one cannery and three loiningEfilleting plants' all of these have 1. export authori0ation numbers. The cannery is situated in the north and owned by M-,./; its location leads to inefficiency as most of the fish is caught in the south and has to be transported north for canning. The authorities are of the view that' with foreign assistance' the cannery could be dismantled and relocated to the southern attols' which would improve the potential for value)added marine exports from the Maldives. ,urthermore' it is envisaged that new plants' which are under construction or planned' will provide facilities for the production of yellow fin loins' steaks' and other value)added products' including the use of offal for fishmeal production. (ii Ag'i)8l/8'e

1. The share of agriculture in "#$ has declined to %! *Table -.%+' and employment in the sector has also fallen. (owever' agriculture continues to be important with respect to food security and employment opportunities' with 9 ! of the rural population employed in some manner in the sector. %. Arable land in the Maldives is estimated at less than 2 s3uare miles; this has resulted in high dependency on food imports' which meet approximately & ! of the country>s food demand. The
1

-ntegrated ,ramework *%

;+.

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T'ade P(li)* Revie+

Maldives is self)sufficient only in fish; as a result' food security is one of the principal ob6ectives of agricultural policy. 2. There are 2% uninhabited islands that have been leased out for %1)year periods for commercial farming 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. <taple foods' such as sugar' rice' and wheat' are imported mainly through the <tate Trading /rgani0ation and are sold at government)controlled prices *.hapter ---+. 9. Bnder the <eventh Dational #evelopment $lan *% ;)% 1 +' government policy is to be focused not 6ust on food security' but also onA ensuring sustainability of the sector; improving human resource capacity in the sector; increasing the capacity for technology generation and dissemination; improving the agricultural trade and marketing infrastructure; and ensuring a suitable nutrition intake of the population. (3 MA!"#ACT"RI!% 1. The share of manufacturing in "#$ has declined from nearly &! in % 2 to 4! in % & *Table -.%+. Main industries include fish processing' boat building' handicrafts' furniture' food and beverage products' $7. pipes' and soap. ,ish processing' which is the main industry' is geared towards exports and is dominated by small and medium)si0ed enterprises. There also appears to be considerable state involvement in the sector. %. #evelopment of the manufacturing sector is limited due to the low level of domestic demand and limited skilled labour. As a result manufacturing in the Maldives is dependent on imported materials and skilled and unskilled labour. The average weighted tariff on consumption goods is considerably lower than the duty on primary and intermediate goods. Thus' domestic enterprises import intermediate goods at a high rate of duty' while competing with final consumption goods on which the applicable duty is much lower. This harms the existing domestic industry and discourages the emergence of new ones. 2. ,ollowing the expiry of the Multi),ibre Arrangement *M,A+' which had set 3uotas on developing country garment exports to developed countries' five garment factories closed in % 5. (owever' the loss of these factories did not have a particularly acute effect' as most of the profits were repatriated and most of the labour was expatriate. 9. Administrative reforms are under way to further promote industrial investment through the revision of the ,oreign -nvestment Act and the proposed establishment of free trade 0ones and special economic 0ones in designated regions of the Maldives. (, E!ER%Y 1. The Maldives is almost entirely dependant on imported fuel for its energy needs. 1lectricity generation accounts for almost 8 ! of the imported fuel. Bntil recently' the <tate 1lectricity .ompany =imited *<T1=./+ provided electricity to %8 islands' including Male. ,ollowing the creation of seven new provinces' provincial utility companies were formed' and these now control the generation facilities in their respective areas. ,or the remaining inhabited islands' electricity provision is either through community or privately)owned electricity generators. %. <T1=./ had an installed capacity of 5% MF and over 4 ! of the electricity it generated was consumed in Male. ,urthermore' almost ; ! of all electricity *<T1=./ and private generation+ is

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consumed by the resorts. 1lectricity 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' <T1=./ intends to operate an inter)connected grid in the capital region *Male' (ulhumale' and 7illingili islands+. 2. <T1=./ has been a loss)making entity; it accumulated losses of @f 15 million between % 5 and % 8. The losses are mainly due to subsidi0ed provision of electricity *electricity charges have not changed since % %+ and some management inefficiency. The "overnment wants to privati0e the company and has sought expressions of interest for the sale of its stake in the enterprise. % The authorities state that they are looking for strategic partners with renewable energy expertise and 11 such partners have shown interest. The authorities also state that the "overnment will continue to subsidi0e electricity consumption' but not <T1=./. -n this respect' direct subsidies will be given to consumers; however' it is not clear how this will be done. (4 SERVICES 1. <ervices account for around 8 ! of "#$ and ;8! of total exports *goods and services+. Tourism is the most important services subsector' followed by transport and communications. %. The Maldives has not scheduled any sector under the Bruguay @ound; however' it maintains a relatively liberal regime in most service sectors' such as tourism' telecommunications' financial services' and transport *although the latter is sub6ect to some cabotage restrictions+. (i T(8'is9

2. The tourism sector is of immense importance to the Maldives economy; it accounts for over %9! of "#$ and % ! of total employment *Table -7.%+. (owever' these statistics understate the sector>s contributionA it is estimated that as much as 4 ! of economic activity in the Maldives is linked to tourism.2 Tourism is well integrated into the Maldives economy and is responsible for a significant proportion of construction' transport' telecommunications' distribution' and financial activity. Although there is no corporate tax on tourism earnings' the sector accounted for %4.&! of total government revenue in % 8. .urrent taxation is based on long)term land leases negotiated on a per) bed basis for each individual resort island' a tax of B<C8 per person per bed night' and a one time airport user charge of B<C1 per person. -n addition' it is estimated that approximately 2 ! of the revenue from import duties is from tourism sales. 9 *a+ <tructure

9. 5etween % % and % 8' the number of facilities offering accommodation increased from % 8 to %25' and the number of beds increased from 1;'121 to 1&' 81. The industry is predominantly locally owned' and government involvement is limited to a single hotel. Tourist resortsEmarinas account for nearly 84! of capacity. -n % 8' there were &9 resorts' of which 49 were leased to locals' 8 had foreign leaseholders and 1% were leased to 6oint)venture companies. (owever' in terms of management and operation' 99 resorts were managed by locals' 22 had foreign management' and 14 were managed by 6oint)venture firms. -n tandem with capacity growth' tourist arrivals also showed robust growth' rising from 989';8 in % %' to ;82' 1% in % 8; occupancy also increased from an average of ;&! to 48!. 1urope *mainly -taly' the BG' "ermany' and ,rance+ accounted for

% 2

The low regulated electricity price is a problem and an obstacle to privati0ation. Forld 5ank *% ;+. 9 Forld 5ank *% ;+.

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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 T(8'is9 i.di)a/('s0 2112213 2112 .ontribution to "#$c *!+ "rowth of tourism "#$c *!+ .ontribution to tax revenue *!+ #irect employment *incl. expatriates' number+ Tourist arrivals *> + $ercentage change Average length of stay *number of days+ Tourism receipts *B<C million+ $er bed night *B<C+ 5ed occupancy rate *!+ 5ed capacity' resortsEhotels *number of beds+ $ercentage change .. a b c Dot available. 1stimates. $ro6ections. 5ased on constant 1&&5 prices. 2 .& 2.2 %8. .. 989.4 5.1 8.9 224.1 8%.& ;&. 1;'121 )%.1 2113 2%.4 19.8 %8.9 .. 5;2.; 1;.2 8.9 9 1.; 85.9 44.% 1;';&% 2.5 211, 2%.9 8.2 %9.& .. ;1;.4 &.9 8.2 94 .& &%.1 82.& 1;';%1 ) .9 2114 %%.4 )22.1 % . .. 2&5.2 )25.& 8.2 %8;.; 8;.& ;9.5 12'&9; )1;.1 2115 %4.9 9%.2 % .& .. ; 1.& 5%.2 8. 51%.9 1 ;.2 81.4 1;'145 1;. 2116 %4.& &.9 1&.% .. ;45.& 1%.2 4.& ; %.9 112.8 8%.& 14'511 8.2 2117a %4.% 2. 14.& .. ;82. 1.1 8. ;99.4 118.2 48. 1&' 81 &. 2113%9.; )1 .5 1;.& .. .. .. .. .. .. .. .. ..

SourceA Maldives Monetary Authority *%

&+' Monthly Statistics' April' 7ol. 1 Do.9' and Annual Report *various issues+.

*b+

=easing and regulation

5. The Maldives Tourism Act is the main legislation regulating the leasing of islands for tourism purposes. The Act also stipulates the terms and conditions of the lease agreements and is administered by the Ministry of Tourism' Arts and .ulture. ;. Bnder the Act' islands and land must be leased to the best)3ualified bidder through a public tender. The bids are evaluated by independent persons with no vested interest in the process. The only exemption to the process is if the "overnment of Maldives wishes to invest either on its own or through a 6oint venture.5 Bnder the current legislation' land leases vary from %5 to 5 years depending on ownership' si0e of investment' and listing on the Maldives <tock 1xchange. 4. The "overnment' represented by the Ministry' is the lessor of the resorts and is the owner of all islands developed as tourist resorts. The Act makes a clear distinction between the ownership of the property on an island and the ownership of the island itself. The Ministry' as the owner of the island' is in fact in partnership with the developerEoperator of the tourist resort. The Ministry has two distinct relationships with the leaseholdersA as the contractual landlord and leaseholder; and as the regulatory authority. 8. The general lease period is %5 years; in the case of investments exceeding B<C1 million' the Act allows the "overnment discretionary powers to extend the lease period to 25 years. The Tourism Act also allows for 5 )year leases for public companies' provided that they are' inter alia, registered in the Maldives' owned by Maldivian nationals' and at least 5 ! of the shares of the company are publicly listed and traded. At present no firms have 5 )year leases.
The conditions would be waived to enable the "overnment to attract potentially large investors in the tourism or other sectors of the economy. ,or example' if a foreign airline decided to invest in an airline in the Maldives' the island and land could be offered as part of the deal for infrastructure and tourism purposes.
5

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&. Bpon expiry or early termination of the lease agreement' the ensuing bidding process must be the same 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 the island. The Auditor "eneral determines the amount of compensation' taking depreciation into account.; The compensation to the old leaseholder must be made within two years of the signing of the new lease. 1 . Fith a view to making the bidding process more transparent and easier' changes were made to the bidding 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 by drawing lots. <ome of the financial and management criteria have also been relaxed. -n the event the successful bidder is unable to pay' it is obliged to enter into an agreement with a third party that has the re3uired finances. 11. <ince % 9' ;8 islands or lands have been leased out for development. 4 Among these' 5 resorts are operational' while 1& are expected to become operational in % 1 . To encourage faster development' the "overnment has provided incentives such as relief with regard to building completion times' deferment of rent' and deferment of performance bonds. 8 These incentives are applicable to all islands and lands leased since % 5. 1%. The "overnment established the Maldivian Tourism #evelopment .orporation *MT#.+' in % ;' to provide a means for Maldivians to invest in the tourism sector and to address the issues of social imbalances. The "overnment has a 95! stake in the MT#.' and the remaining shares are to be divided among the population; the "overnment aims to have 2 ' shareholders. The MT#. has been allocated 15 islands for development as tourist resorts. 12. -n /ctober % 4' the "overnment released its Third Tourism Master $lan *% 4)% 11+. /b6ectives under the plan are toA develop the Maldives further as a conventions and exhibitions market' especially from source markets such as the Middle)1ast and Asia; ensure environmental sustainability in the development and operation of all tourism products; develop the Maldives as a family' health' seniors' and special)interest destination; and increase the public share of economic benefits from tourism. -n addition' the "overnment is promoting heritage tourism in the inner atolls' whereby construction of city hotels and guesthouses would be permitted' so as to accommodate heritage tourists. There are also plans to impose corporate tax on the sector' and a bill in this regard is before $arliament. *c+ Tourism and the environment

19. Dew pro6ects must have an environmental impact assessment and mitigation plan' and certain standards *such as maximum ground coverage ratios and height limitations+ are stipulated. #evelopers are allowed to pierce the coral protecting the island' if necessary' to build a small harbour as well as to combat the effects of sand erosion. 15. The Maldives strives to promote environmentally sustainable tourism. -n this respect' regulations in the Maldives limit built)up areas to % ! on resort islands and re3uire the height of buildings to be kept below the tree line; these conditions ensure that the natural environment of the resort islands is
There has been only one instance when the Auditor "eneral had to award compensation. /f these' 9& are leased to private parties' & are leased to the Maldives Tourism #evelopment .orporation and 1 islands have been allocated to the Airports -nvestments Maldives. 8 A performance bond is a surety bond issued by an insurance company or bank to guarantee satisfactory completion of a pro6ect by a contractor.
4 ;

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retained. 5uildings are allowed on the lagoon' under product diversification' but for every room built on 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 of degradation 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 and marine habitats have been established as protected areas since 1&&5. Dew measures under way include protection of shark species throughout the Maldives archipelago and designating habitats of whale sharks and other larger marine species as reserves and marine parks. All new tourism development 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 #i.a.)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+ <tructure and performance

%. .ommercial banks continue to dominate the sector. As of April % &' there were six commercial banks operating in the Maldives' five are branches of foreign banks *(abib 5ank =imited' <tate 5ank of -ndia' 5ank of .eylon' (ong Gong <hanghai 5anking .orporation' and Mauratius .ommercial 5ank&+' while the 5ank of Maldives is a ma6ority *51!+ state)owned domestic bank. 1 =oans to the private sector increased from @f %.%2 billion in % 2 to @f 1;.%; billion in % 8. (owever' growth in deposits did not keep pace' rising from @f 9.% billion to @f 1%.18 billion over the same period. .onse3uently' the loan growth has been financed mainly by foreign)owned banks borrowing from their head offices and lending in the Maldives. The surge in loans came about in % 9' when the "overnment started leasing out new islands. $resently' over ; ! of the banks> loan portfolio is concentrated in the tourism sector. The recovery of the tourism sector after the tsunami' coupled with improved banking supervision also resulted in a decline in non)performing loans as a percentage total loans' from a high of ;.;! in #ecember % 5 to 1.4! in March % 8; however' D$=s rose to over 8.5! in the last 3uarter of % 8. As a conse3uence of the global economic crisis' banks in the Maldives faced li3uidity constraints *both domestic and B.<. dollar+ as foreign banks reduced their exposure in the Maldives. -n addition' the 5ank of Maldives has a development banking section through which atoll development funds *A#,+ are managed. A#, funds are financed by the "overnment' BD#$ and local communities and are used to provide credit to private small and medium)si0e enterprises. -t is reported that there is currently a &5! recovery rate on A#, loans. 5anks are sub6ect to a %5! business profits tax. 2. The non)bank financial sector consists of the (ousing #evelopment ,inance .orporation *(#,.+ and the Maldives ,inance =easing .ompany *M,=.+. The (#,. was established in March % 9 and provides financing for the development of residential and commercial real estate; at the end of % 4' it had an outstanding loan portfolio of @f 14;.5 million. The M,=. provides medium)term finance' and had outstanding loans of @f 212 million at the end of % 4; ma6or recipients were the transportation and fisheries sectors. The insurance sector comprises the Allied -nsurance .ompany
Mauratius .ommercial 5ank commenced operations in % 8. The <tate 5ank of -ndia has a 91! market share; the 5ank of Maldives' 92!; 5ank of .eylon' 2.5!; (ong Gong <hanghai 5anking .orporation' &!; the Mauratius .ommercial 5ank accounts for 1.5! of the market; and (abib 5ank =imited has a %! share.
1 &

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*owned by the <tate Trading /rganisation+' and a branch of <ri =anka -nsurance .orporation; there are also several insurance brokers and agents. $remium income has shown robust growth' and was @f 1;4 million in % 4. The insurance policies are concentrated in the marine hull insurance' which accounts for 25! of premiums' and fire insurance' which accounts for %&!. *b+ @egulation

9. 5anks in the Maldives are regulated by the Maldives Monetary Authority *MMA+ and are sub6ect to the @egulations for 5anks and ,inancial -nstitutions. -n addition' in May % & ten new prudential regulations were promulgated. Bnder the new regulations' all banks *both foreign and domestic+ re3uire a licence from the MMA. All commercial banks must have at least @f 15 million as paid)up capital and maintain a minimum capital ade3uacy ratio of 1%! of risk)weighted assets. As minimum reserve re3uirement' banks are re3uired to maintain %5! of their deposits at the MMA. -n addition' the MMA can order an examination of an institution' if the institution is found to be financially unsound or acting unlawfully; the MMA prescribes steps to rectify the situation or to suspend the institution>s licence for six months. The regulations also stipulate that a bank may not advance credit to any single entity *person or related persons+ in excess of 15! of the bank>s capital base' and in the case 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 by the MMA. Bnder the regulations' the MMA is the licensing authority. The MMA may also issue additional regulations with respect to' inter aliaA the calculation of underwriting reserves; minimum level of capital to be maintained by an insurance company; asset valuation; calculation of underwriting liabilities; and the establishment and imposition of maximum and minimum tariff rates and 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 @f 25 ' for life insurers. (iii Tele)(998.i)a/i(.s

1. The Telecommunications sector was responsible for approximately 8.8! of "#$ in % ;. The sector 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+ <tructure

%. -n March % &' the Maldives had over 5 ' fixed telephone lines and over 95 ' mobile phone subscribers' resulting in fixed)line teledensity of 1;.%8!' and an overall teledensity of over 1; !' up from 1;! in % 1. 2. ,ixed)line *including national and international long)distance+ services are provided by ma6ority state)owned #hiraagu11' whose monopoly for the provision of these services expired at the end of % 8; however' no new provider has entered the fixed)line market. The mobile sector has two providers' #hiraagu and Fataniya' which entered the market in % 5. #hiraagu is the dominant provider. ,ocus and #hiraagu operate as the two internet service providers. -n % ;' approximately 8! of the households had internet access. #espite a significant decline in telephone and internet charges' telecommunications rates remain relatively high in the Maldives' presumably due to the lack of competition in the sector1%; the state)owned #hiraagu is the dominant player in the market.
#hiraagu is a 6oint)venture between the "overnment *55!+ and .able and Fireless *95!+. @egulations on pricing and market dominance apply to #hiraagu in sectors where it is the dominant player in the market.
1% 11

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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 <ri =anka. *b+ @egulation and policy

9. -n <eptember % 2' the "overnment issued the Maldives Telecommunications @egulation' which established the industry regulator' the Telecommunications Authority of the Maldives *TAM+. At the end of % 8' TAM>s mandate was widened to include the regulation of postal services and information technology. As a result' the name of the organi0ation was amended to the .ommunications Authority of Maldives *.AM+. The Telecommunications @egulation mandates .AM to promote and develop a fair and competitive telecommunications industry in the Maldives and regulate anti)competitive practices. -n this regard' all new service changes and any price changes are sub6ect to approval by .AM. .AM is also responsible for issuing and administering telecommunications licences' and all operators are re3uired to pay a fixed licence fee of 5! of gross revenue on a monthly basis. ,urthermore' .AM is responsible for the resolution of interconnection disputes and for annual monitoring of the licensees> performance with respect to consumer satisfaction' consumer benefits' and the 3uality of service. .AM is re3uired to review the Telecommunications @egulations every three years. -n the case of disputes' parties may approach .AM for arbitration. -f any party is not satisfied 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 of the 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 @egulatory Authority 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 service one 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 5ill was to be drafted and submitted to $arliament during % 4' but this has not happened yet. The 5ill 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. -n addition' the "overnment was to consider creating a telecommunications ombudsman' to address consumer 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 the Telecommunications Act. (iv T'a.s:('/

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 most widely used mode of transport' followed by air transport services.

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 M5 of internet access at a minimum speed of 5; 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 policy and 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 Maldives Transport 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 various si0es. 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 portsA Male .ommercial (arbour *M.(+' and two regional harbours' Ghulhudhuffushi *Dorth+' and (ithdhoo *<outh+. The two regional ports were commissioned in % 5 as international ports. The ports are regulated 6ointly by the Maldives $ort Authority *M$A+ and the Ministry of Transport and .ommunications. (owever' plans are under way to establish a regional port authority' which would own and operate the regional ports. -t is not clear when this would happen. ,urthermore' changes in the role and structure of the M$A have been initiated so as to separate its conflicting roles of port authority and port operator. 5. <pace limitations have resulted in M.( being very congested' causing average harbour times of 4 days for front)loading vessels and 14 days for side)loading vessels. .onse3uently' costs at M.( are relatively high. The absence of container)handling cranes and a yard management system has also added to costs. *b+ Air transport

;. The air transport sector is regulated under the .ivil Aviation Act % 1' which is administered by the .ivil Aviation #epartment *.A#+ in the Ministry of Tourism' Arts and .ulture. The Act specifies conditions for' inter aliaA air operators licences; crew and pilot registration; air worthiness; registration of aerodromes; and safety inspections and procedures. The Act stipulates that all relevant rules and regulations must be at least at the level stated in the Annexes to the .onvention on -nternational .ivil Aviation. -n this regard' it would appear that the Maldives is in line with 1; of the 18 annexes.1; -n August % 5' rules for granting an air operator>s certificate were amended to include a pre)appraisal of financial feasibility. The rules allow the .A# to conduct financial surveillance of existing carriers if there are signs of service deterioration. 4. The Maldives was audited under the -.A/ universal <ecurity Audit $rogramme in % ; and became a signatory to the Montreal .onvention on Bnification of .ertain @ules for -nternational .arriage by Air in % 5. ,urthermore' the "overnment is expected to submit bills to $arliament on passenger protection and the creation of an autonomous civil aviation authority in % & and these are expected to be considered by $arliament in % 1 . 8. The Maldives has one registered international airline' with limited overseas services 14; foreign airlines operate scheduled services to Male. ,re3uency of services is curtailed by the single runway
19

All vessels in the Maldives need to be registered' and all persons who operate vessels must have

licences. MT.. is a ma6ority state)owned enterprise. Ministry of $lanning and Dational #evelopment *% 4+. 14 -sland Aviation <ervices' a wholly government)owned entity' provides services to .olombo and Trivandrum.
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and limited apron space. The capacity of Male airport is five aircraft at any given time. =anding and take 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 <ervices *a state)owned enterprise+' Tran Maldivian Airways *a private firm+' and Maldivian Air Taxi *foreign owned+ provide domestic air services between the islands. There are no restrictions on foreign investment or entry into the market; however' there are cabotage restrictions. 1 . The Maldives has five airports; two *MalI and "an+ are international and three *(animaadhoo' Gaadedhdhoo' Gadhdhoo+ are domestic. Airports in the Maldives come under the 6urisdiction of Maldives Airports .orporation *MA.+' which is a state)owned entity. MA. operates the Male -nternational Airport. @egional airports are managed by the Transport' (ousing and 1nvironment Ministry; however' MA. provides fuel and air)traffic control services at these regional airports. The "overnment has sought expressions of interest from strategic partners for a 9&! stake with management control in MA.. ,urthermore' the "overnment plans to lease out the regional airports to private partners for a 2 )year period on a ?build' operate' and transfer? basis.