Page last updated at 00:26 GMT, Thursday, 9 April 2009 01:26 UK

Seychelles sets out its priorities

By James Melik
Business reporter, BBC World Service

Anse Interdance beach in Seychelles
The Seychelles archipelago consists of 115 islands off the east coast of Africa

People planning to spend their dream holiday lounging on the idyllic palm-lined beaches of the Seychelles might have to look elsewhere after the government decided to make food security a priority over the lucrative tourist sector.

It has cancelled a new hotel development after objections about arable land being sold to foreign investors.

The archipelago is dependent on imported food and although the critics have achieved their aims, the move is a blow to the tourist sector which employs about 30% of the labour force and provides more than 70% of hard currency.

National Development Minister Jacquelin Dugasse says the government has halted negotiations because of objections from local residents.

"The proposed project will not go ahead and the land will remain state property," he says.

"The feeling was that we should not stop agricultural development when food security is an issue," he adds.

He also vowed to consult locals on any future projects.

The ownership of arable land has been a heated issue in Africa since the global food shortage and resultant rise in prices since 2007.

In March, the new Madagascar leader cancelled a controversial deal for a South Korean firm to lease a vast tract of land to grow crops.

Tourism magnet

Seychelles is a comparatively young nation which remained in French hands until the defeat of Napoleon at Waterloo when it was ceded to Britain under the Treaty of Paris in November 1815.

The 115 granite and coral islands located just south of the equator offer an idyllic destination for tourists drawn to its enviable climate and palm-fringed beaches and turquoise seas.

We can't give tourists imported apples for breakfast
Alain St Ange

Director of Tourism

Alain St Ange, the director of tourism, is not perturbed about the loss of a potentially lucrative luxury resort.

He believes the land, currently home to the national Agricultural Research Centre, should be developed into tropical fruit farms.

"We can't give tourists imported apples for breakfast," he says, "When they come here it is nice to give them something local."

Until the current economic downturn, new 5-star properties and the devaluation of the currency by nearly 33% by the Seychelles Government, was having a positive influence on the tourism sector.

Vulnerable sector

The vulnerability of the tourist sector was illustrated during the Gulf War and following the September 11 attacks on the United States.

Holidaymakers are a major source of hard currency for the nation, but visitor numbers have fallen 15% since the start of the year compared with the same period in 2008.

The government has moved to reduce the dependence on tourism by promoting the development of small-scale manufacturing, fishing and farming and more recently, the offshore sector.

We have to pay back the loans we took out to buy the tankers
Captain Guy Adam, SEPEC

New detailed studies and exploration show that the Seychelles potentially has large off-shore petroleum reservoirs which are yet to be discovered.

"Amoco and Enterprise did some drilling in the past," says Captain Guy Adam of the Seychelles Petroleum Company (SEPEC).

"But new evaluations are being made where the sea bed is not volcanic."

The Seychelles President, James Michel, claims that this has opened the door to a new industry for his country.

Although no oil reserves have been discovered as yet, that has not stopped SEPEC from taking possession of five tankers built in a German shipyard.

They are hired out to transport commodities such as palm oil and chemicals.

"We have to work hard, we have to pay back the loans we took out to buy the tankers," says Captain Adam.

Other issues facing the government are the curbing of the budget deficit, including the containment of social welfare costs and further privatisation of public enterprises.

Record debt

Since independence from Britain in 1976, economic growth has been led by tourism and tuna fishing.

In recent years the government has encouraged foreign investment in order to upgrade hotels and other services.

Tropical fish
Conservation projects have protected the coral reefs and wildlife

But tight controls on exchange rates and the scarcity of foreign exchange have impaired short-term economic prospects.

Seychelles remains the richest territory in Africa in terms of GDP per capita and yet, according to the World Bank, with a total public debt around 123% of GDP it is one of the most highly indebted countries in the world.

The country is in arrears to most of its international creditors and has had to resort to pledged commercial debt to continue to be able to borrow - seeking emergency funding from the International Monetary Fund (IMF).

To cut costs, the government asked 2,000 of its civil servants to voluntarily resign after the IMF agreed to a £26m (£18m) rescue package in return for economic reforms and last November.

In essence, the country is living beyond its means, and financing its lifestyle by borrowing domestically and internationally.

Seychelles is the smallest nation in the world to issue its own currency, which is not pegged nor shared with any other country.

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Country profile: Seychelles
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