Looking beyond the 48-hour week

A number of commentators, including Nasheed, Dr Shareef, and Himeyn Inqilaab, have written about the new Employment Act and its possible impact on tourism workers.

We must recognize that MATI is an industry organization, an association of investors in tourism, an employers' association. Naturally then its primary objective would be to promote their interests. It should therefore be no surprise to anyone when MATI expresses concerns it may have over amending the Employment Act.

We must also recognize that in a largely free enterprise economy, it is up to employees' associations to serve the interests of employees. The responsibility of the government of the time would be to endeavour to strike a balance between the conflicting interests of the two sides. While one must admit that therefore a perfect balance may not be always possible, labour law must be allowed to evolve to address any issues that may arise in the future.

Any disadvantages that the tourism industry may experience as a consequence of extending the 48-hour week to tourism workers may be short-term. If nothing else changes, any disadvantages are likely to be confined at micro-level, reflected in minor shrinks in the bottom line. An advantage, from a long-term perspective, would be that tourism employers would want to find ways to make up for the increase in their wage bill.

But this increase could not come at a worse time. In the present circumstances, tourism proceeds may begin to decline in the near future as a potential recession looms over the western hemisphere. Some economists predict that this may be the worst economic downturn in recent decades. The most optimistic of them hope that it would last three years.

Add to this, the imminent recession in Europe and the unprecedented over-investment in the tourism industry is likely to have both short and long term impacts at macroeconomic level. In the short to medium term, the pressure on foreign exchange reserves may induce a devaluation of the Rufiyaa exacerbating the already run-away inflation. In the long run, average profits may begin a downward trend as tourism operators struggle to fill up the excess capacity at present prices.

Some are suggesting reducing prices and attracting more mid-market to budget travellers. This may be another mistake since Maldives cannot compete with other low-cost destinations offering like products, though not necessarily similar products. For the Maldives, a better strategy may be to increase the focus on mid to upper market which may be less likely to be affected by the vagaries of the economic cycle.