The US State Department thinks Maldives has both historically and by present standards one of the most stable political climates in the world. That the nation has not seen much blood shed in the pursuit of political agendas is true, despite recent departure from this relative prosperity. However, the nation's politics has never been its Achilles' heal. Its undoing will be the teetering economy which is presently at the brink of toppling over under the burden of burgeoning misadministration.
As I mentioned in a previous post the increase in the financial needs of the Government of Maldives from 2002 through 2006 has been nearly geometric, constituting an annual increment of about 100%. The approximate budgetary needs for these years were (in millions of USD):
- Year 2002 - 60
- Year 2003 - 110
- Year 2004 - 150
- Year 2005 - 300
- Year 2006 - 620
What are these figures, you might ask. The annual budget acquired by the Government of Maldives is needed to cover all financial overheads incurred in any given year's business of governance. These overheads include the payroll, cost of procurement, transportation, utilities, rents, consultancy, sundries, and so on.
What financial model does the government of a country simulate best? Governance can be regarded as a service 'industry', and hence its business model best simulates that of a resort. The payroll of a resort generally constitutes about 30% of the total overheads. The Government of Maldives has an approximate total payroll for the year 2006 valued at about 85 million USD (assuming there are 30,000 souls working in the government with an average monthly salary of USD 230.00). Extrapolating on the model of a resort, thrice the amount of the payroll gives us a total budgetary requirement of about 250 million USD, which I (no one else has to buy into my rantings, of course) presume is enough to govern the Maldives.
I have mentioned previously that there has been very little enhancement in the business processes of the governance despite the consecutive near-doubling of the annual budgets over the past five years. This is not to say that we are not seeing visible changes in the various assets of the Maldives, such as Hulhumale', Velaanaage, the President's Office, etc. However, the process of innovation of the methods of governance remains slackened: methods such as the process of integrating populaces, developing education programs, and most importantly (but by no means the end of the list) developing industries.
Tourism is touted as Maldives' primary industry, which purpotedly brings in the biggest revenue. The resorts of the Maldives constitute a total capacity of approximately 17,000 beds with an industry-average occupancy of 80%. Given that the overall industry's average room rate is USD 150.00 per night, the industry's total income from room sales is just over 350 million USD. Along with extras, the total industrial revenue accrued from all 88 (or so) resorts should be approximately 600 million USD. From this figure, the government enjoys a revenue of about 40 million USD (average bed rent per bed per annum is USD 2,500.00), which is about 7% of the total revenue. Even if this percentage taxation were to increase to 20%, the government will only earn 120 million USD.
Another revenue source for the government from the tourism industry is import tax. Extrapolating from the annual procurement budget for a 5-star resort, I have estimated that for each room a total of USD 40,000.00 is spent on procurement through the period of a year. This means the total annual procurements of the tourism industry of Maldives amount to roughly 700 million USD. Assuming the average import tax is 20%, the revenue the government accrues from this is about 140 million USD. The final source of revenue from the tourism industry is through bed taxes which totals roughly 40 million USD. Now let us take a look at the cash inflow for the Government of Maldives from tourism (in millions of USD):
- Bed rent: 40
- Import duty: 140
- Bed tax: 40
- Total revenue: 220
220 million dollars is approximately 35% of the total budgetary requirements of the Maldives for year 2006, and is about 3.5 times that of the total budget of 2002. What has changed in tourism from 2001 till 2004? Almost nothing - the 11 resorts that followed the invitation for bids for Villivaru and Biyadhoo happened only in 2004. What has changed in the business processes of the Government of Maldives? Again, barely anything. For years 2002, 2003 and 2004, my questions are:
- Where did the net profit of 160 million USD go in 2002?
- Where did the net profit of 110 million USD go in 2003?
- Where did the net profit of 70 million USD go in 2004?
- How come the Maldives had a debt of 316 million USD in 2004?
Dear reader, I have only taken into consideration the revenue accrued from the tourism industry. I have not touched upon fisheries or the rest of imports other than that procured within the cornucopia of tourism. Let us assume that the average consumer's expenses would amount to USD 1,500 a year, and that 70% of this constitutes imported goods. Further assumptions that all imported goods are sold with a 100% margin and that the general import tax is 15% for consumer goods, then the total revenue from taxation on consumer goods amounts to just over 20 million USD. This is just (a marginally pessimistic estimation of) the revenue from consumer goods. What about taxation on raw material imported for productions in various industries, such as construction? Furthermore, there is the revenue from Dhiraagu, Stelco, Airports Authority, and so on.
Yet, we still show a deficit? Consider this for now: 85 million USD (the total payroll of the government) is only one-third of 220 million USD (the revenue accrued from the tourism industry alone).