Thoughts on raising resort lease period

The decision of the government to raise the lease period of existing resort leases to 50 years followed concerns and disagreements in some corners of the public and political sphere. One can find reasonable grounds for their concerns too. However this is not to say that increasing the maximum lease period of the resorts is not a good decision.

Of course, we need to increase the maximum lease period. If investors can get land elsewhere on 50 or 100 year leases, we will soon fall behind in attracting investors or large hotel chains into our country. Even if one believes it’s not important to have large hotel chains operating in our country, raising the lease limit is important for our local investors too. They need to have the same competitive edges enjoyed by their foreign counterparts. Otherwise it will be difficult to maintain the same level service quality and profitability as enjoyed by the investors in our neighboring countries or in rival markets.

So one can see the importance of raising the maximum lease period. In fact my concern is not about raising the period, but my concern is “how” they are going to do it.

The government is going to simply extend the lease period for the existing resort owners in return for a “stamp revenue”. As indicated by the treasurer government will receive a stamp revenue of more than Rf1 billion for extending the period of existing leases. What we have to remember here is that the so called “stamp revenue” is going to be a one off revenue for the government. The government budget is desperately in the need of more sustainable sources of income. So would it not be more appropriate for the government to increase the lease periods in a way that will guarantee a regular source of increased revenue in the form of higher bed rents and other taxes imposed on tourism sector?

My other question is that, wouldn’t it be unfair for the potential investors, if the government extends the lease periods for the existing owners without any bidding process? There might be investors who didn’t try to get those islands simply because the lease period was too short when the islands were initially leased. So these investors may now be interested in getting those islands for a 50 year period. Moreover bidding and bid evaluation process was not so transparent in the past. There are reasons to claim that most of those islands were not awarded to the existing resort owners through an independent bid evaluation process. So in my opinion, it’s very unfair to simply extend the resort lease periods for the existing resort owners.

Based on these factors, the only sensible solution for this is to open the islands for bids again, once the existing leases are expired. The islands can be re-leased for an extended period of time through a proper bidding process. The process should be independent and transparent. I’m sure that the new bidders will bid much higher rates of rent for the government than the existing lease holders. In this way the government can ensure a stable and a regular source of income instead of a one-off stamp revenue. This will also be a much fair option if not the most fair option for the potential investors and the general public too.