Ecotourism Investment and Development Models: Donors, NGOs and Private Entrepreneurs

Susan Heher smh53@cornell.edu Johnson Graduate School of Management School of Hotel Administration Cornell University December 2003

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1. 1.

INTRODUCTION OVERVIEW OF SUSTAINABLE TOURISM AND ECOTOURISM

3 7 7 8 12 15 17 17 20 22 26 27 29 31 32 33 34 36 37 39 39 42 46 55 58 61 64 70 75 77 79 81

SUSTAINABLE TOURISM AND ECOTOURISM COMMUNITY BASED ECOTOURISM THE SCALE OF ECOTOURISM MARKET DEMAND 2. DEVELOPMENT ASSISTANCE FROM DONORS AND AID AGENCIES

THE RISE OF DEVELOPMENT ASSISTANCE FOR SUSTAINABLE TOURISM PROJECTS OVERVIEW OF TYPES OF DEVELOPMENT INSTITUTIONS AND ASSISTANCE GOALS AND OBJECTIVES OF DEVELOPMENT AGENCIES AND NGOS THE ROLE OF CONSULTANTS THE PROJECT PROCESS: ANALYSIS AND EVALUATION CONCLUSIONS 3. PRIVATE SECTOR ENTREPRENEURS AND DEVELOPERS

PROFILE OF ECOTOURISM ENTREPRENEURS SOURCES OF FINANCING AND CAPITAL STRUCTURE GROWTH, PROFITABILITY AND SUSTAINABILITY: THE ABILITY TO HAVE AN IMPACT CONCLUSIONS 4. 5. HYBRID: NGO VENTURE CAPITAL CASE STUDIES

A. INTER-AMERICAN DEVELOPMENT BANK, IADB B. US AGENCY FOR INTERNATIONAL DEVELOPMENT, USAID C. WORLD BANK: LESOTHO D. THE EUROPEAN UNION: SWAZILAND E. WORLD BANK IN SWAZILAND F. THE NATURE CONSERVANCY, TNC G. CONSERVATION INTERNATIONAL, CI H. CONSERVATION CORPORATION AFRICA, CC AFRICA I. TURTLE ISLAND J. MAHO BAY K. KRUGER NATIONAL PARK, MALULEKE COMMUNITY AND MATSWANI SAFARIS 6. CONCLUSION

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1. Introduction The focus of this paper is on the different roles played by the donor and NGO community on the one had, and private sector entrepreneurs on the other hand, in financing and developing ecotourism. Much has been written about the role of the international development community (which comprises both the bi- and multilateral aid agencies and international NGOs), and there is a tendency amongst many papers to present the agencies as the natural leaders of ecotourism development, with little critical reflection on the implications of this role on that development. Far less has been written on role of private sector entrepreneurs in growing ecotourism, although the mantra of private sector led development is touted by nearly all the major players in some form. The genesis for this paper was a conversation with Neel Inamdar of the Ecotourism Society, who posited the question as to whether or not ecotourism is more about development or if it is really a business model. Ecotourism as a term encompasses both conservation and social development, as well as a niche business model within the larger tourism industry. However its use as a development model seems to have been favored over its place as a business model, with the result that ecotourism enterprises have been characterized by a high rate of failure and ecotourism as a development model has not achieved its envisaged environmental and social benefits. The second major impetus for the paper was the realization that while much has been written about the environmental, social and developmental aspects of ecotourism, very little has been written about its financing or investment models in ecotourism. Financing is generally reported to be the overwhelming constraint to the development of the industry, and this spurred me to want to take a look at the different sources and models of investment in ecotourism. Given the fragmentary nature of the industry, and the lack of quantitative information that has been published about the financial performance and investment models of ecotourism enterprises, this paper is necessarily exploratory and discursive. While I have tried to read widely and talk to a wide range of practioners, from academics to development officials to NGO staffers to private entrepreneurs, any flaws in research and insight are my own. Although my original hypothesis was that private entrepreneurs might prove to be more successful in establishing ecotourism as a viable alternative to mainstream tourism, I have come to conclude that there are fundamental

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flaws in both models of ecotourism development which need to be addressed if it is going to achieve its much vaunted potential.

Fig. 1 Importance of Stakeholders as Drivers of Sustainable Tourism
Private Sector Experts Dev. Agency Officers 80 100 Government 71 65 Dev. Agency 44 27 Investors 58 72 Local Population 58 83 NGOs 21 28 Tourists 53 53

Source: CI, 2003: 34

A recent survey conducted by UNEP asked tourism experts and development officers from aid agencies about the relative importance of key decision makers: both think that the private sector is the most important (Figure 1). In contrast to this, the same survey found that experts believe that the donor community should be the main source of funding for sustainable tourism development (Figure 2). There is thus an unresolved tension in the development of ecotourism: while all agree that the private sector should play a lead role, it is equally accepted that the development and donor agencies should take the lead in financing this development. Development aid is never intended to go directly to private sector enterprises, rather it is generally intended to create the right incentives and supporting environment to enable private sector investment. However in reality, and as explored in this paper, development aid often creates more hurdles to private sector investment than it does opportunities. Fig. 1 Projected Funding Sources for Sustainable Tourism Development

Bilateral/Multilateral Aid

Government Contracts

Business Client/Investor

Other Organization

Hotel Developers

0%
Source: CI, 2003:35

10%

20%

30%

40%

50%

60%

70%

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Figure 1 also indicates that there is a lack of awareness by the development agencies of the role they are seen and are expected to play: experts think that development agencies are much more important in the development of sustainable tourism than the agencies do themselves. This finding prompted Conservation International, one of the leading international NGOs involved with sustainable and eco- tourism to comment that “Development agencies do not seem to fully recognize the importance of tourism as a sustainable development tool…[they are perhaps] concerned about criticism resulting from the poor environmental and social track record of tourism projects in the 1970s and 1980s…[they] do not view themselves as important in setting the stage for sustainable tourism development” (CI, 2003: 34). This further highlights the need for a more critical assessment of the role of donor agencies in financing the development of ecotourism These issues are reflected in the ownership structure of ecolodges, one of the main enterprises within ecotourism (Figure 3). While the dominant form of ownership is either private, for-profit corporations or family owned businesses, non-profits own some 9% of lodges in the developing world. This reflects the higher level of involvement of donors, aid agencies and international NGOs in developing countries.

Fig. 2 Ownership Structure of Ecolodges

Ownership Form Sole proprietorship Family Owned For-profit corporation Non-profits Total Lodges reporting Source: Sanders, 2000: 28

Developed Developing 17% 17% 33% 33% 47% 41% 3% 9% 100% 100% 30 89

Total 17% 33% 43% 7% 100% 119

In the words of one the participants in anonline conference on financing sustainable tourism, hosted by Planeta.com, the “road to sustainable tourism is paved with many failed good intentions”. I would argue that for ecotourism to achieve its potential, it is not enough to have

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good intentions, and to want to “do the right thing” – one has to make the right things happen. Part of that is making ecotourism enterprises financially profitable and sustainable. I have found that there is almost a naïve belief among many dedicated to the “cause” of ecotourism that doing good is more important than being profitable, and that most of the activist and NGO community do not see that the two can coexist harmoniously and “profitably”. There seems to be a lingering sense in this community that profitability is bad and corrupts the ethic of sustainability. On the other hand, the private sector has jumped on the ecotourism bandwagon and there has, and continues to be, a large amount of greenwashing by the private sector. The private sector also tends to ignore, or is intolerant of, the very real political constraints that donors face in funding ecotourism projects. Ecotourism as an economic activity is starting to mature, but it is still typically a grass-roots movement, with a lot of passion, but little financial sophistication and business savvy. As it is competing with many other economic activities for financing, ecotourism as an industry needs to start analyzing its financial performance and returns to investors in addition to its social and environmental returns to communities if it is to maintain a position at the funding trough and become a credible force for change in the tourism industry.

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1. Overview of sustainable tourism and ecotourism
Sustainable Tourism and Ecotourism

The word “ecotourism” is generally attributed to Hector Ceballos-Lascurain, a Mexican architect, environmentalist and international ecotourism consultant, who coined the word in the July 1983. Ecotourism as an accepted and defined concept, however, with a set of principles and practices, really only started to emerge in the early 1990s, through a series of workshops and meetings, primarily driven by academics and NGOs. The private sector was mostly absent at those first workshops on ecotourism, and has been notably absent at many since. There is no one definition of ecotourism, but rather a generally agreed upon framework of principles. The United Nations designated 2002 as the International Year of Ecotourism (IYE) and the main document produced from that period, the Quebec Declaration on Ecotourism, lists the primary elements of ecotourism as follows:
• • • •

Ecotourism contributes actively to the conservation of natural and cultural heritage; includes local and indigenous communities in its planning, development and operation and contributes to their well-being; interprets the natural and cultural heritage of the destination for visitors and lends itself better to independent travelers and organized tours of small groups

Ecotourism as the term is applied and understood today is a development concept, a social movement, a philosophy and an industry or business. In general the more social and developmental aspects of ecotourism have been emphasized over its function as a business enterprise, which is arguably one reason for the high rate of financial failure of ecotourism enterprises, and the erosion of ecotourism’s ability to meet its social and environmental objectives. Sustainable tourism is a much broader concept, and is part of the global sustainability movement that gained ground after the 1992 Rio Earth Summit on sustainable development. At one end of the spectrum, sustainable tourism seeks to make the mass tourism industry more sustainable, while at the other, it is essentially ecotourism. As the purpose of this paper is not to repeat the debate about sustainable tourism versus ecotourism, and as much of the work that donor agencies

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and NGOs undertake under the banner of “sustainable tourism” lies closer to ecotourism than the sustainable development of mass tourism, I will use the terms interchangeably in this paper.
Community Based Ecotourism

An emerging new trend within ecotourism is that of “community based ecotourism”. It is the new buzzword that peppers the reports of donor agencies and NGOs and pervades the current research being undertaken in ecotourism. It is also a highly visible, and often contentious, aspect to international meetings. Community based ecotourism is a “form of ecotourism where the local community has substantial control over, and involvement in, its development and management, and a major proportion of the benefits remain with the community” (WWW, 2001: 2). At the International Year of Ecotourism preparatory meetings, it was stated that community based ecotourism must improve community economic status, include participatory decision making, provide an alternate economy to more destructive practices, build knowledge, awareness and understanding of people outside communities and result in exchange of knowledge between tourists and the community (Lash, 2003: 6). This focus naturally lends itself to the agendas of the development agencies, although it is not being ignored by the private sector, and Lash (2003: 21,22) identifies two models for community based ecotourism development with donor funds. a) Conservation/NGO Model: Project money from an international biodiversity funder, e.g. GEF, is transferred either a) to an international conservation NGO who then contracts a national conservation NGO, or b) directly to a national conservation NGO. The national NGO has expertise in local conservation issues but may not have experience with community development or community-based ecotourism, so it hires consultants or partners with a national community development NGO to implement the project.

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Fig. 3 Conservation/NGO Model

Source: Lash, 2003: 21

b) Government Agency/Industry Association Model: Project money, typically in the form of the loan, originates from an international development funder e.g. the World Bank, who then partners with a national tourism organization (NTO). The NTO then hires temporary local or foreign community development consultants, who in turn partner with communities to implement projects
Fig. 4 Government Agency/Industry Association Model

Source: Lash, 2003: 22

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The community based approach to ecotourism leads to questions about whether or not community ownership necessarily leads to greater wealth for the community than private sector ownership, where the local community may be employees of an ecotourism business, or has some other tangible economic stake in the project. There are emergent models of tripartite partnerships between a community, the public sector and private businesses (see for instance the case study L: Kruger National Park, the Maluleke Community and Matswani Safaris), but by and large community based ecotourism projects being funded by the development agencies and international NGOs do not include a private sector partner. This has severe implications for the success of the project as the targeted communities in developing countries typically lack the resources and the skills to set-up and operate a business by themselves. Community based ecotourism projects are therefore typically characterized by outside consultants developing feasibility and market studies, weak linkages to the market, and extensive workshops and training programs. This is expensive and time-consuming and typically leads to disappointment at best and failure at worst. Compounding this is the observation that “small community facilities are less adept at providing consistent quality of service” (Lash, 2003: 29) and that, as Halpenny (pers.comm.) observes: donors, NGOs and the private sector alike have tendency to think of “the community” as homogenous, whereas in reality there are often very different, and competing, agendas within any one community. Les Carlisle of CC Africa, one of Southern Africa’s largest and most successful ecotourism operations, states that CC Africa has very often found that existing community structures do not actually represent the community. The existing structures may be patriarchal, traditional and conservative, and the ecotourism developer must be prepared to set up new, more inclusive and representative structures. It is, he argues, critically important to success of the venture that the right beneficiaries in the community are identified – if not, community politics can cause the failure of an otherwise sound investment. Developing these structures and the support of the community takes time, it is a “process” rather than an “event”: consultants cannot be brought in to conduct workshops with the community, then leave and be expected to have created any meaningful change or provided any realistic advice. In a telling indictment of all that can go wrong with community based ecotourism development, Megan Epler Wood (Epler Wood, 2003: 1) cites the case the Ju/’hoansi people of Namibia, as documented in Kalahari Family, a film series about the community and their interaction with

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international aid donors seeking to establish a reserve and ecotourism enterprise. The film is a “…shocking indictment of the international development workers who seek to develop a nature reserve on [their, the Ju/’hoansi’s] land without truly listening to [their] needs and wants…after the five year project is over, and dozens of consultants have come and gone, [the filmmaker] John Marshal returns to find empty buildings and the Ju/’hoansi worse off then before the project arrived”. Conservation of ecosystems and biodiversity, Epler Wood argues, were valued over the Ju/’hoansi’s desires for how they wanted to live on their lands: they wanted development, and did not want to remain as hunter-gatherers, but they were ignored by the international development community who “knew better”. In cases like this, the resulting resentment from local communities at their lack of power, inability to influence decisions and lack of access to capital, can lead them to undermine the very projects that purportedly seek to improve their welfare. Agi Kiss from the World Bank (pers.comm.) underscores this problem, stating that too often donors and NGOs have sought to impose a western minded view of what land use is appropriate on a community. She argues that if a local community wants to use the land for some use other than conservation, then no matter what payments and legal systems you have in place in order to prevent that, they will. She argues that donors and NGOs must give the community a rational interest to conserve the land: i.e. they must either match what a community earns from its current land usage, or let them use it. And in this instance, direct incentives - payments or transfers to a community - work better than indirect incentives like ecotourism (see Figure 6). Ironically, direct incentives are used more in developed countries and indirect incentives are used more in developing countries (Ferraro, 2002), whereas it should perhaps be the other way round. And while this may lead to communities threatening to degrade or destroy land that has biodiversity value unless they are paid not to, Kiss (somewhat uncharacteristically for a development agency official) states that “ a community is entitled to destroy its land, if that’s what they want to do; it is their land”. The assumption by the countries of the North that communities in the South will sacrifice their land and environment for economic development and therefore need intervention and financial assistance to prevent this from happening is not reflective of the attitudes of many communities, however. Research has shown that that local communities who live off the land are sensitive to issues of conservation and sustainability and are resentful at the implication that they are not, and that they should therefore be kept in a state of under-development in order to salve the consciences of the North for its pattern of development.

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Fig. 5 Direct and Indirect Models of Investments in Biodiversity Conservation

Source: Ferraro, 2002

The Scale of Ecotourism

Much of the initial enthusiasm and optimism for ecotourism as the tourism of the future, bringing great social, environmental and economics benefits, has been tempered by the relatively lackluster achievements to date. Post 2001, “ecotourism development seems a risky bet for struggling communities” (Lash, 2003: 6), and there is a sense that a more diversified development strategy and more effective methodologies need to be developed. “The benefits of ecotourism for conservation and development are still very limited globally. The main challenge is to scale it up while keeping its objectives close to heart” (Oliver Hiller of UNEP in Buckley, 2003: xiv). But what exactly the appropriate scale of ecotourism is, is far from clear. NGOs and donors have come to favor smaller scale projects - in the case of ecolodges this would be less than 20 rooms,

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while the private sector typically favors larger scale projects - for ecolodges, either multiple small ecolodges in an area or larger ecolodges (although both are still small by mass tourism standards). Neither model is more correct than the either and the general belief that smaller facilities lead to fewer negative environmental impact is open to debate. Eugenio Yunis of the World Tourism Organization states that “Ecotourism companies and operations...should continue to be [small] if benefits are to remain with local communities and revert to conservation purposes. Indeed, the sustainable growth of ecotourism should be based on the replication of good practices in more and more territories rather than on aggregating existing businesses or expanding their size” (WTO in Buckley, 2003: xi) Yet, it is precisely the small, fragmented and dispersed nature of ecotourism that is, to many, one of its major hurdles to becoming a true force in the market. I would also argue that this is a short sighted approach that does not square with the fact that ecotourism is also a business, not just a philosophy or a vehicle for conservation. As described by Tony Heher (AfED, 1999), the scale of ecotourism development and investment faces a conundrum. The “lumpy” nature of infrastructure investment, together with the environmental and marketing concerns, leads to two minima that apply to the returns and two maxima to the investments which can be made in ecotourism – as illustrated in Figure 7. Ecotourism must achieve a certain minimum return in order for it to have a meaningful social impact (and so reduce environmental impacts) and to justify the infrastructure cost. But its returns are capped by the level of market demand, perceived risk and the environmental and social carrying capacity of the area. This leads to the situation where ecotourism needs to be big enough to achieve the necessary returns on investment, and small enough not to become unsustainable, either environmentally or socially. It also leads to incompatible approaches by the private sector and the donor community: the private sector’s approach that “maximum use needs to be made of available resources that is consistent with sustainability and market demand …[is] in stark contrast with the traditional [development agency] approach to tourism in conservation areas where the approach is more likely to be the minimum use that can be made short of total exclusion” (AfED, 2000: 23).

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Fig. 6 The Ecotourism Investment and Return Conundrum
Investment - Economic Return Profile

Return

Minim um return to justify infrastructure

Minim um “social” return

Sustainability limit
Market limit

“Trail level”

Infrastructure “lump”

Private sector investm ent

Source: AfED, 1999: 3

This problem is aggravated by differing perceptions between donors and the private sector as to what the actual environmental benefits and impacts of ecotourism development are. That ecotourism leads to conservation is still open to debate, and indeed the IFC/GEF Small and Medium Enterprise Program has just commissioned a study to assess the conservation and biodiversity footprints of ecolodges. In general, NGOs and donors favor low density development, rather than resort style facilities. Again, AfED argues that: “The more up-market the operation is, the more jobs it will generate, and contrary to widely held misconceptions, the less the environmental impact for a given level of revenue. The reason for this is that environmental impact is largely determined by the number of visitors and the type of activities. For a given revenue, fewer visitors are needed in a more up-market resort. There is also a tendency for the more up-market operation to provide more activities on site compared with camping sites and hutted camps. In the latter, the primary activities will be hiking, walking, fishing, etc, which creates more impact than on-site sporting and recreational activities. The overall aim of any tourism framework which is focussed on providing economic upliftment, must therefore be to attract the highest level of operation that the market can sustain.” (AfED, 2000:29).

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Market Demand

One final aspect of ecotourism that must be considered when evaluating the work of the donors and the private sector in developing ecotourism is how well project proposals research and assess the market demand for the product. Almost everyone I spoke to stated that this is perhaps the most critical aspect to the success or failure of any ecotourism project, yet “no statistically valid studies have ever looked at what motivates ecotourists, and if social responsibility or environment values are an important criteria when selecting a destination” (Lash, 2003: 29). Ecotourism market research is very much still in its infancy and little research has been done regarding the size of market, market characteristics, demands, segmentation etc. In the early days of the emergence of ecotourism it was generally believed that the potential market for ecotourism products was large and growing rapidly. Time has proved that the “green marketplace” market is small, and that the ecotourism market is smaller still and more fragmented and demanding than many at first believed (see Figure 8). The result of this gap between expectation and reality and the absence of market research about the size and characteristics of the market, has been a high rate failure of ecotourism projects – whether supported by donors or developed privately. “The management of green commerce has proven to be unwieldy for the NGO community. They want the green market to respond to projects of their design, and they do a good job of convincing donors that the market is there. In the case of ecotourism, many enterprises, including some with major foundation and donor investment, failed because the green market did not respond as expected” (Epler Wood, 2003: 7). We are going through the same process with community-based ecotourism. It is being driven by the NGO and donor community, but there is little or no data about the size and characteristics of demand for this type of product.

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Fig. 7 The “Green” Market in the United States

Active Greens, 12%

Browns, 45%

Greenback Greens, 6%

Low Cost Greens, 37%

Active Greens

Avoid buying products from companies perceive as not environmentally responsible, support environmental groups and organizations, willing to pay on average only a 7% premium

Greenback Greens

Willing to pay 20% more for environmentally sound products but are less actively involved in environmental causes and have less interest in making any adjustments in their lifestyle

Low Cost Greens

Want environmental performance at minimal personal effort and low cost

Browns

Have little or no interest in environmental issues or purchases

Source: Epler Wood, 2003: 8, as adapted from "The Environment, Pubic Attitudes and Individual Behavior" by the Roper Organization, 1999.

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2. Development assistance from donors and aid agencies

The rise of development assistance for sustainable tourism projects

The phenomenon of donor funding of development in third world countries is closely associated with the end of colonialism. As colonial powers withdrew from their territories in the 1950s and 1960s, so they “for both altruistic and selfish reasons [began] sending investment and expertise to developed countries to encourage economic growth, community development and conservation of both cultural and natural heritage” (Halpenny, 1999: 45). During the 1960s and1970s, there was considerable donor investment in the traditional, mass tourism sector, but most of these projects failed. By 1980, when the World Bank closed its tourism department, “the multilateral institutions had to write-off approximately $10-$12 billion in poor tourism investments. Many of the investments were in luxury hotels and did not fit well with the institutions’ mission of poverty alleviation” (Halpenny, 1999:46). Throughout the rest of the 1980s and the early 1990s, the negative image of donors’ engagement with mass tourism, combined with the poor financial returns the projects had achieved, resulted in very few tourism projects being funded. With the rise of the sustainability movement in the 1990s, and the emergence of sustainable tourism models as legitimate development strategies, donors became more active in the sector again. In sustainable tourism and ecotourism, donors have a development model that is more politically correct, socially responsible and environmentally sensitive. While the Inter-American Development Bank (IADB) and some EU countries funded tourism projects throughout the 1990s, it was only towards the end of the 1990s that large donors like the World Bank started funding tourism projects again. Worldwide, donor funding peaked in 1998 and 1999, when a considerable amount of funding was chasing a very limited pool of fundable projects. Since 2001, donor financing has declined considerably. While the results of sustainable and ecotourism have continued to be disappointing, donors and NGOs still see it as one the better options for development. Tourism in general is seen as a low cost, non-extractive industry that creates jobs, increases a governments taxes revenues and has positive economic multipliers. The rapid rise of donor support for sustainable tourism has not been without its problems. Firstly, the majority of donor organizations “lack a comprehensive and at the same time specific and

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implementation-oriented concept for the promotion of sustainable tourism” (GTZ, 1999: 11). Projects are typically handled on a case-by-case basis or divided up over several areas of expertise, “hampering a coherent, learning oriented approach” (GTZ, 1999:11). That this is so is primarily because of the failure of most donors to categorize tourism as a separate development area. The German development organization, Deutsche Gesellschaft für Technische Zusammenarbeit or GTZ, for instance, had almost entirely withdrawn from all activity in tourism during the 1980s. When it realized during the 1990s that, as tourism touched on so many of the sectors in which it was engaged (e.g. agriculture, protected area management, forestry, land-use planning, natural resource management etc.), it must start to deal with tourism again, this engagement was “fragmentary, uncoordinated and unprofessional” and lead to “marginal” activities that rarely yielded significant benefits (GTZ, 1999:7). Secondly, there is a lack of information about the nature of donor involvement in the sector. Part of the problem is that donors are still reluctant specifically to identify projects as being related to tourism development as they are typically smaller components of larger projects dealing with biodiversity conservation, rural development, employment generation etc. Figure 9 identifies some of the various ways donors categorize their involvement with sustainable tourism. Seeking to rectify this, George Washington University’s International Institute of Tourism Studies has initiated a database of donor projects in the tourism sector in order to try and bring greater order and clarity to work of the development agencies. Dubbed DANTE, the Development Assistance Network for Tourism Enhancement, the head of project writes that “There is a paucity of information concerning appropriate engagement levels and policy guidance for development assistance in efforts to enhance tourism revenues for developing economies. There are difficulties in balancing the public sector role while maintaining a competitive private sector environment; also in balancing community needs and dealing with social issues. Development assistance for tourism only really has a history of 20-30 years, and in most countries, sustainable tourism is an ongoing social, economic and environmental process of trail and error.” (Hawkins, 2003: 1) So far the database has recorded 370 ongoing projects from over 20 donors, with a total value of $9.44 billion for the period 2001-2010. Donor engagement is therefore substantial, and is indeed the single most important source of funding for the sector as whole.

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Fig. 8 Tourism in Development Projects

Alternative Local Incom e Comm unity Participation Expansion of Protected Areas Em ploym ent G eneration Biodiversity Conservation N atural Resource M anagem ent Coastal Zone M anagem ent H eritage/Cultual Preservation Forest M anagem ent Poverty Alleviation D ecentralization Strengthening Legal and Policy Fram ew ork Privatization Revenue G eneration W ildlife M anagem ent/Preservation O ther

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Source: CI, 2003: 32

Donor and NGO engagement is currently undergoing another shift, from site and infrastructure specific interventions and investments towards projects that are more supportive and focused on developing policies and capacities. This shift is a function of both the resource intense nature and the negative history of specific interventions. As discussed in the Lesotho case study, however, it is often the provision of infrastructure that is most needed in order to get the private sector to make the investment in operational facilities that is envisaged by projects. The size of assistance packages is also becoming in smaller. This is more in keeping with the principles of supporting sustainable tourism and promoting the development of small and medium enterprises, but is primarily a result of financial pressures on donors.

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Overview of types of development institutions and assistance

There are five main sources of development funding for ecotourism projects: bilateral donors, multilateral donors and development banks, corporate philanthropy, big international NGOs (BINGOs) and international foundations (see Figure 10).

Fig. 9 Ecotourism Role Players

Governments

BINGOS

Universities

Consumers CORPORATE PHILANTHROPY

BILATERAL DONORS

Ecotourism

Media

DEVELOPMENT BANKS Private Sector Local NGOs

Consulting Companies INTERNATIONAL FOUNDATIONS

Sources of funds Source: Hawkins, 2003: 3

Stakeholders

Bilateral assistance is the transfer of funds and technical assistance from one country or organization to another. Donors are typically the development arms of westerns countries’ State Departments, e.g. the US Agency for International Development (USAID). Recipients can be either other international organizations operating in the recipient country (e.g. UNDP,

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Conservation International), the country’s government or governmental institutions, or national non-governmental organizations (NGOs). Multilateral assistance is the transfer of funds and technical assistance from international bodies like the World Bank and InterAmerican Development Bank to developing countries. The recipients are either governments or partner international or national NGOs. Multilateral donors are focused largely on loans, while some bilateral donors still offer grants (Halpenny, 1999: 48). Private foundations and “big international NGOs” have also become supporters of eco- and sustainable tourism. Foundations include the Ford Foundation, MacArthur Foundation, Rockefeller Foundation and some of Getty family trusts. Active international NGOs are, inter alia, The Nature Conservancy and Conservation International.

The most active player in sustainable tourism currently, with the largest commitment of funds to the sector, is the World Bank Group, including both the International Bank for Reconstruction and Development and the International Finance Corporation (IFC), through its Global Environment Facility (GEF) small and medium enterprise program. The United Nations Development Program (UNDP), the Inter-American Development Bank (IADB) and USAID are the next most active donors.

Fig. 10 Donor Agency Participation in Sustainable Tourism

25% 20% 15% 10% 5% 0%
EF ID us B D A D N EU TZ C D ID FI U R IF D SA IA G io G U D V N O th EB IB A P/ ar C D er R D B

Source: Hawkins, 2003: 9

U

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Goals and Objectives of Development Agencies and NGOs

In 2002, a UNDP survey of 55 development agencies found that while private investments are driven by economic incentives, donor interventions in tourism are motivated by longer-term development objectives, including alternative local income, natural resource management, community participation, employment generation and coastal zone management (CI, 2003; see also Figure 9). Most development agencies link ecotourism with biodiversity conservation and poverty reduction but there were few strict criteria and evaluation procedures. Investment decisions are therefore based primarily on developmental and environmental objectives. Financial returns are a secondary consideration, if they are even considered at all. While a more detailed discussion of the objectives, policies and projects of some donors is presented in the case studies, the range of policy and objectives are represented by the Canadian, Dutch, British and German agencies. CIDA, the Canadian International Development Agency, does not undertake tourism projects. The senior management of the agency belongs to “the traditional school of economic development” (Halpenny, pers.comm.) and is wary of tourism as a development option. In comparison DFID, the British Department for International Development, has published an enthusiastic paper about the possibilities of tourism to aid economic development. It has taken an active position on tourism in development policy, and has arranged conferences and meetings in order to try bring a sharper focus to its work in the sector, which is embedded within DFID's main goal, as laid out in the 1997 White Paper 'Eliminating World Poverty: A Challenge for the 21st Century', to reduce world poverty by half by 2015. Changing the Nature of Tourism (DFID, 1999) was written and published at the height of donor activity in

the sector, and is a highly optimistic assessment of the benefits of sustainable tourism, with little or no assessment of the costs and how these need to be assessed and mitigated. The Dutch and Germans have taken more of a middle ground. The Dutch have a strong emphasis on social mobilization and local governance and tend to focus on the rural poor – they are working in the tourism sector primarily because recipient countries ask for these kinds of projects, rather than because there is a firm belief within Dutch development agencies that tourism is a better or more appropriate vehicle with which to pursue economic development. The Dutch Ministry of Foreign Affairs does not have a particular policy on tourism and the development agencies (Netherlands Organization for International Development Cooperation,

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NOVIB and the Netherlands Development Organization, SNV) generally view ecotourism as being part and parcel of their natural resource and conservation work. The current Dutch focus is on capacity building and strengthening organizations involved in tourism. Tourism per se is not a focus area of the German development organization, Deutsche Gesellschaft für Technische Zusammenarbeit or GTZ, but the GTZ does see it as an important element in implementing its conservation and development objectives in rural areas. The GTZ has published one of the better handbooks (Steck et al, 1999) on how to assess and evaluate tourism projects, which lays out a comprehensive framework for assessing project proposals and advocates a model where donors support the development of infrastructure, leaving the private sector to develop actual tourism operations. Many of the bigger multilateral agencies also have specific programs targeted at small, medium and micro enterprises (SME), with the aim of developing entrepreneurship and businesses at a very grassroots level. In this case, somewhat more financial analysis is undertaken, but the emphasis is typically still on conservation and poverty reduction. For instance the UNDP/GEF Small Grants Program channels funds to NGOs and community based organizations (CBOs) in developing countries who are engaged with grassroots initiatives to conserve and restore the environment and increase standards of living and income levels. Similarly, the IFC/GEF Small and Medium Enterprise Program’s objective is to develop a significant number of commercially viable small and medium scale enterprises producing global environmental benefits. The IFC itself is not active in the ecotourism end of tourism spectrum, as the loan amounts for these operations are too small for the IFC to cover its costs. The bank only makes a profit on loans greater than $10 million and most ecotourism projects are smaller than that (Milton, 2003). The IFC’s Environmental Projects Unit and the GEF fund, however, disregard processing costs and are able to make much smaller loans. The IFC/GEF SME program is now fully committed and the IFC is in the process of setting up a new fund, the “Environmental Business Finance Program” which will “aim to address the market failures that cause SMEs to have limited or no access to finance…by proactively developing both demand and supply sides of the market…through the introduction of innovative financing mechanism, capacity building and replication of proven business models, technologies and approaches” (IFC website). Details of this new program are not yet publicly available, so it is not possible to assess it in this paper.

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In comparison to the development agencies, the international NGO community is far more focused on conservation than development. Many of them are extremely well funded and are key players in international conservation policy and activities. Using private donations, the NGOs are less accountable to a public audience than government development agencies, which use taxpayers money, and their involvement in conservation and ecotourism has been strongly criticized. “International NGO conservation community is taking increasingly pre-emptive approaches to the conservation of natural resources…[these organizations] have chosen to use their vast capital resources of northern economies to buy or lease southern ecosystems…While vast new sums of foreign capital are already flowing into regions where undeveloped wilderness exists, are comparable resources available to support the local management and decision making processes that it will take to conserve these places over time? Would local governments, traditional people, and local communities agree to these land leases and purchases, if they had equal access to capital? Or is the North, through well funded NGOs, simply buying solutions, where consensus cannot be reached?...Are NGOs together with their donors entering into a ‘devil’s bargain’ by trying to take charge of the fate of the world’s ecosystems?...Clearly the donors and NGOs have the power. They can get investments from billionaire donors, the World Bank and the global bilateral aid community….Conservationists are taking their own preemptive strikes…they are losing patience with human dialogue, partnerships, diplomacy and the work of making local institutions respond to local needs. They are choosing to design a world where rich billionaire donors pay the bills” (Epler Wood, 2003: 2-3, 8). This is perhaps an overstatement of the situation and glosses over the very real positive impacts NGOs have been able to achieve using ecotourism. But it does capture the deep sense of ire and frustration that it would be wrong to ignore, and which has profound implications for the viability and sustainability of NGOs backing and funding ecotourism development. It is also an oversimplification to assume that there is “vast amount of money” available to ecotourism – there is not. Reading through conference proceedings on ecotourism financing like that of Planeta (a web-based ecotourism resource center), there are many reports from participants about how difficult it is to get money for viable projects.

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Both donors and NGOs typically have substantial community development objectives in their projects. For the donors, this is partly as a result of the political pressure which the NGOs have brought to bear on them, and partly because donor money cannot be mixed with commercial business enterprises as it is hard to justify this kind of assistance to taxpayers. However, this involvement has lead to very real and emotive concerns about the nature of the relationship between international donor agencies, NGOs and local communities in developing countries. There is an uneasy tension between, on the one hand, responding to unreasonable demands and expectations that donors and NGOs should provide development assistance and should be in the business of ecotourism development, and on the other hand with concerns about donors and NGOs “buying-off” communities, forcing a western conservation agenda on them and denying them the ability to develop their economies like the developed countries did. One of the early initiatives to involve local communities in tourism development was in 1986 by the Annapurna Conservation Area in Nepal (Lash, 2003: 5). “Hundreds of such projects have received support from environmental NGO’s, [but] the impacts of this global effort have been mixed and the overall result is still being debated” (Lash, 2003: 11). This has led the World Wildlife Fund International to publish guidelines for community based ecotourism, saying that “many small-scale community based initiatives have been set up which have failed owing to a lack of market assessment, organization, quality and promotion”. (World Wildlife Fund International, 2001). These failed project have resulted in some angry and disappointed communities. A recent example was evident at the World Parks Congress which took place in Durban, South Africa in September 2003. “It should be noted that a small group of delegates, mostly indigenous peoples, objected to the recommendation [Recommendation 12 of the World Parks Congress 2003: Tourism as a Vehicle for Conservation and Support of Protected Areas, which Eagles notes had been available for review and comment on the Congress website in draft form for three months] on the basis that they were not consulted properly before the meeting. It is worthy of note that most of these delegates did not participate in any recommendation meetings or discussions, but objected at the final plenary when approval for recommendations was sought” (Eagles, 2003: 2-3). This is an example of Epler Wood’s observation of how the “the angry representatives of the disenfranchised increasingly disengage and make grandiloquent statements” (Epler Wood, 2003:

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2-3) which only makes a solution to the problems of community based ecotourism that much harder to find.
The role of consultants

A key characteristic of donor and NGO involvement in ecotourism projects is the use of “expert consultants”. Most bilateral donor agencies require that these consultants are citizens of the funding country, while the multilateral agencies and NGOs are typically more open to sourcing consultants from within the country receiving assistance or another developing country which might have consultants with more relevant backgrounds and experience. The World Bank, for instance, does not tend to bring in as many foreign consultants to do field and/or ground work as the EU, as it states that it wants to build local capacity. In contrast, the EU prefers to retain greater control of the project and so sources consultants from EU member states. Many in the industry feel strongly that this sort of thinking only perpetuates dependency on donor money, as there is little real transfer of skills and once the consultant leaves, the project collapses. The development industry is something of a consultant’s bandwagon. There is a small number of highly reputable, sought after consultants, followed by legions of others who present themselves as experts but who have very little real relevant experience and training in order to do the work. They typically have biology and environmental degrees, and very few have any hospitality, business or financial experience. These consultants have their “blueprint, formulaic solution” (Halpenny, pers.comm.) for ecotourism development which they then apply to every country to which they are assigned. The implications of this for successful ecotourism development is aggravated by the process of winning contracts, which is primarily a political process rather than a function of consultants’ knowledge of the business issues. Some (Inamdar, Meade, Heher and others) describe the process as one of massaging the egos of the development officials. Certainly if consultants want to win a particular contract they need to know about the presence of the project in the proposal pipeline long before the request for proposals is issued by the funding agency. The result of this process is that much of the work done by the “experts” is sub-standard and does not take into account local constraints and realities. At best the consultants raise unrealistic expectations and at worst they leave behind failed projects, frustration and resentment, worsening the environmental and economic situation that caused the project in the first place and making

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any subsequent work even harder to implement successfully. In response to this problem it was suggested at the 2003 Parks Congress that some existing agency or authority be used to “certify” consultants. However the idea was a political hot potato that no-one wanted to pick up, as this would compromise the ability of the donor agencies to maintain their own procurement policies, which some have described as “subsidized employment”.
The project process: analysis and evaluation

Many of the private sector oriented ecotourism businessmen I spoke to commented that the quality and rigor of analysis undertaken by donors and NGOs for a particular project proposal is poor to abysmal. While there are notable exceptions, on average there is little, if any financial analysis and what little analysis there is, is - from their perspective – based on wildly unrealistic assumptions. The financial analysis tends to use payback, rather than the cost of capital as a measure of risk and value. No market analysis is performed. The ability of a region or community to absorb the proposed funding and to afford the substantial carrying costs that the funding implies for the recipients in terms of the staffing, time and skills is a critical component of the viability of the project, but this assessment is typically not performed at all, or is glossed over. There is little real incentive for the donors and NGOs to undertake systematic, detailed, ex-post project evaluations and performance assessments. Donors are caught within a system that does not facilitate the critical evaluation and performance assessment of projects. As they are evaluated on their level of disbursement, they are primarily focused on the approval process, and so performance metrics are weak, vague and generalized. That they have “no solid mechanisms for understanding the impacts of funding” (Halpenny, pers.comm.) is increasingly recognized as problematic by both donors and NGOs. However, there are substantial difficulties in undertaking these assessments: there is frequently a long lag between activity and results (ranging from months to years), it is time consuming and expensive to gather the data needed to assess outcomes, particularly of softer objectives like “increased conservation awareness” and in most cases, no baseline has been taken against which to measure the results. As a result, donors and NGOs typically land up measuring efficiency rather than effectiveness - what was done rather than what was achieved or what changed or improved.

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But even these assessments are typically unavailable to the public. Indeed, there is no documentary source of information about failed projects and information is primarily hearsay, with whispers and rumors doing the rounds of the ecotourism community.

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Conclusions

Inamdar, Halpenny, Sanders, Heher, Epler Wood and others all agree that there are systematic problems with the model of donor engagement with ecotourism development. The process is overly political, private sector players are rarely consulted, the donors and NGOs place constraints on private sector engagement and investment that are unrealistic and they are naïve and lack any real appreciation for what the private sector needs from the donors if they are to invest in ecotourism. Furthermore, while the close relationship between donors and NGOs is in many ways positive, some have described this as leading to a culture of “yes-men” and “egosystem management”, with no input from the private sector to provide a dose of reality. Donors and NGOs, for their part, become frustrated with the seeming imperviousness of the private sector to the political reality of international development. The private sector make demands that are not within the power of donors to meet, like immediate responses and decisions, tight timelines and substantial flexibility in execution. The fundamental problems associated with the involvement of donors and NGOs in ecotourism development are summarized by Les Carlisle of CC Africa (pers.comm.). “The NGOs and donors have excellent intentions, but what happens is that they raise expectations that they cannot then deliver. They all seem to think that they have operations capacity – and when their projects fail or don’t succeed, it is at tremendous cost to the community. Development and investment models that that give the community an equity stake, bring experienced operators to the table and generate ‘bankable cash flows’ are the ones that work well. The others collapse in a heap as soon as the donor pulls out”. Most of these problems and challenges are not new (see for instance Figure 12), but there still appears to be little incentive on the part of the donor community to change the development model.

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Fig. 11 Twelve critical issues for ecotourism success
More and better ecotourism market data: This issue is such a priority that it should be better understood before any more investment occurs. Ecotourism market data needs to be collected on a regional basis. This is happening in some areas (e.g. Australian Domestic Ecotourism Market) and plans are in the works to do larger regional studies with donor funds (e.g. European and North American based ecotourism markets for the Brazilian Amazon). 2. Technical assistance: Training needs associated with ecotourism are greater than mainstream tourism as local communities have less market experience, fewer hospitality and business skills, and ecotourism requires high information content. Training needs to be long term, not the three year cycles that donor institutions currently work on, 5 to 10 years should be the goal. Technical assistance is mostly a role for bilateral aid. This is the current trend as more grants are available from specific country donors than from the development banks. 3. Appropriate investment: This issue requires a detailed analysis of what the community can supply (sense of ownership already fostered) to the tourism enterprise before investments are made. Smallscale infrastructure may be more appropriate (e.g. short wave radios versus an entire ecolodge facility). Soft loans and other forms of long term credit are needed by communities to help establish their own tourism programs 4. More infrastructure, particularly ecolodges: One of the main complaints of United States-based wholesale tour operators is a lack of quality ecolodges. 5. Investment packages tailored to ecotourism: Ecotourism is different from mainstream tourism. It has a mission beyond profitability and must be judged accordingly. Expectations on return on investment and interest rates should be lower than mainstream tourism 6. Increased communications between donor agencies: Communications need to be improved donor to donor and between departments within donor agencies. National governments need to develop greater skills at communicating with development agencies. Donors are seeking good projects to invest in and national governments in developing countries should be the chief conduit for this aid. The creation of a Consultative Group on Ecotourism Development was called for during the Ecotourism Development Policy Forum. The Group would connect funders with fundable projects and help develop the capacity of both to do their jobs better. 7. Increased involvement of private sector: Involvement of private sector is needed from the beginning of projects, especially when donors are trying to support the development of a new ecotourism destination (whole sale or outbound operators are especially important in the development of a new destination). 8. Community involvement at all stages: By-in by the community is essential for project’s success, their participation at all phases of development is crucial to ensure acceptance. Involvement as coowners and suppliers, not just workers is important.. 9. Connection of quality ecotourism products directly to the market place: One idea that can be used to foster the development of more sustainable products is tying standards or accreditation to marketing schemes, especially on the Internet. Examples of this exist in Australia and Costa Rica and are being developed in the Caribbean and East Africa. 10. More feasibility assessments and business plans prior to development assistance being granted: Development agencies and entrepreneurs must analyze competition, market, capital costs, personnel skills, product match to market, marketing costs and tools, potential partners, etc. prior to and during development and operations. 11. Greater project assessment in the post investment stage: This has been done very poorly by development agencies in the past. Criteria specific to ecotourism principles need to be incorporated into the assessment tools used. Internal funding within development agencies need to be set aside for this task. 12. More and better financial data on the ecotourism industry: Much more work needs to be done in this area to show that ecotourism is a viable business.
1.

Source: Halpenny, 1999: 49-50. Based on September 1999 TIES/IADB meeting to discuss ecotourism development policy

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3. Private sector entrepreneurs and developers

In talking to private sector entrepreneurs and operators, many reflected that they feel that the NGO and donor community ignores the role they have to play in making ecotourism a viable concept. They feel that the donors and NGOs seem to have an a priori negative view of the private sector, that as businessmen they are, by definition, overly focused on generating financial returns. At the same time, donors and NGOs continue to recite the mantra that tourism development must be lead by the private sector. So while being made to feel like second-class partners in the development industry, they are still expected to step up to the plate and invest, because it is the “right thing to do”. Some donors do seem to understand this fundamental ambivalence towards the private sector. Agi Kiss of the World Bank (pers.comm.) states that the donor community tends to ignore the huge transaction costs of three-way tourism projects that involve the public sector, local community and private entrepreneurs. Donors expect the private sector to ignore these costs, which are substantial. They do not step back from their development perspective and see their project from the perspective of the private sector, and assess whether or not it is an attractive investment. There is a common belief among private sector entrepreneurs that they offer, by definition, a better model for ecotourism as they are focused on being financially stable and successful in order to meet conservation and social development agendas, rather than the other way around. But in talking to people, it became apparent that the rate of failure of private sector enterprises is probably just as high as donor and NGO funded projects. Where the latter are being subsidized by donors or NGOs, the former are being supported by savings, retirement annuities or consulting on the side. To put this in perspective, the IFC, which invests in private companies, expects to lose money on four deals out of five it makes in conventional hotel investment (Milton, 2003). Ecotourism projects are generally considered to be even riskier. The IFC/GEF Small and Medium Enterprise program has just commissioned a study to look at the business case for ecolodges and the results, which are expected in January 2004, are being keenly anticipated.

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Profile of Ecotourism Entrepreneurs

While it would be ungenerous to tar all entrepreneurs with the same brush, it does appear that a substantial portion of ecotourism entrepreneurs are expatriate men, who have had successful business careers in the financial services or high-tech industries and are seeking to make a change in their lifestyle. Their investment in an ecotourism operation is not so much made with the purpose of creating more wealth or even to make a difference environmentally and socially, but rather to fund a particular lifestyle. Their strategy is therefore typically more of a “buy and hold”. A second category of entrepreneurs are those with little business experience or training, who are passionate about conservation and social responsibility. It is these “mom and pop” operations with characterize the ecotourism business, and there are very few corporations who operate in the sector. Corporations are also keenly aware that their activities attract more attention from the NGO community, and they prefer to avoid the political pressure that the NGO community can bring to bear on them. NGOs focus their attention less of the individual entrepreneurs and are, in general, more sympathetic towards them. On the flip side, the lone entrepreneurs are typically less politically savvy, and thus struggle with getting approvals and permits and in dealing with any conflicts that arise with the local community. What characterizes both the retired businessmen and committed idealists is a lack of training, experience and understanding of both the operational aspects of ecotourism, as well as the ecotourism market. Both seem to approach ecotourism operations with a belief that anyone can do it, and that if they build it, people will come. The result is operations that are poorly managed and poorly connected to the market. Isolated and fiercely independent, they are wary of the established travel trade and believe that they are better “going it alone” and marketing their operations themselves (McKercher, 1998). This outlook on what it takes to get an ecotourism operation established is reflected in the quality of the analysis and business plans. In reading some at random what is striking is the superficiality of the analysis. There is typically no thorough market assessment, or if it is undertaken, it is so descriptive and lacking in real analysis as to be virtually worthless. There is usually no quantitative analysis or financial assessment of the performance of other operations. To be fair, there is very little data available on which to base projections, nor is there typically much correlation between financial projections and performance in reality. But a good business plan

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does achieve two things: first, it focuses the mind of the entrepreneur on the key variables of the business, and increases his understanding of how the various parts of the operation flow together; and secondly, banks and investors are more willing to talk to entrepreneurs who have written a thorough business plan. As it is typically the quality of the entrepreneur as a manager and operator that is the key determinant of success, a good business plan indicates the seriousness and commitment of the entrepreneur.
Sources of Financing and Capital Structure

From the Sanders and Halpenny study (Sanders, 2000) and from anecdotal evidence, it is clear that the overwhelming majority of ecotourism operations are supported by the owner/operator’s own equity (see Figure 13). This is typically derived from savings, retirement funds and other sources of income like consulting or continuing business operations in another industry, and is probably the biggest constraint on the size of operations, rather than concerns about environmental and social carrying capacity. The limited use of government financing for ecotourism enterprises would seem to indicate that, despite all the aid money that is purportedly available for ecotourism development, there are still substantial opportunities to explore publicprivate partnerships.

Fig. 12 Sources of Financing for Ecolodges
Finacing Source Owner's Own Funds Friends and Family Other Equity Investors Commercial Bank Loans Government Loans Private Loans Other Sources Total Lodges Reporting Developed Country 57% 1% 10% 21% 3% 4% 4% 100% 25 Developing Country 58% 8% 9% 11% 2% 4% 8% 100% 74 Combined 58% 6% 9% 14% 2% 4% 7% 100% 99

Source: Sanders, 2000: 56

Ecotourism enterprises carry very little debt, as they are difficult assets to appraise and value for purposes of collateral. Ecolodges, for instance, are “special purpose entities”: they do not have

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much value or use except as ecolodges. Furthermore, they are typically located in remote places on large tracts of land which, while of great scenic and natural beauty, are areas where land values are depressed. In these locations, ecotourism may well be the “highest and best use” of a piece of land, but it still reduces their value as collateral should the enterprise fail. When enterprises are able to secure debt financing, it is typically on the basis of 120% of the value of the loan being secured by collateral. Most ecotourism enterprises typically face a funding gap. In the case of ecolodges, the initial investment required is typically around $1 to $2 million, which is beyond the means of most entrepreneurs. However commercial banks are reluctant to provide loans for the reasons mentioned above, and equity investors are not interested in making investments of less then about $5 million, because the costs of valuing the deal and monitoring the project mean that the investors will not recover a sufficient return on investments smaller than this. The emergence of specialized venture capital funds, also known as “adventure funds” are starting to close this gap, but there are still problems with this source of funding, as discussed in section 5. From the Sanders and Halpenny study (Sanders 2000), it appears that the majority form of ownership is a for-profit corporation (Figure 3). While on the one hand this supports the perspective of donors and NGOs that ecotourism development must be lead by the private sector, it gives one pause, as the voices of these owners and operators is rarely heard in ecotourism forums. It is the NGOs, donors and academic community who seem to the dominate the terms of discourse, with little input from the private sector.
Growth, profitability and sustainability: the ability to have an impact

In general, ecotourism enterprises are only marginally profitable. They are highly risky operations that yield low financial returns. Sanders and Halpenny (Sanders, 2000) found that about a third of ecolodges are losing money. From anecdotal evidence, it is presumed that the overall rate of failure of ecotourism enterprises is probably considerably higher: one contact reported that he had heard of 22 bankruptcies in five weeks. Halpenny comments (pers.comm.) that there are only a few professionally run ecotourism operations which typically do operate at a profit, but these are usually part of a portfolio of properties, where corporations are able to leverage economies of scale and can afford to establish a strong marketing campaign.

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For the average ecolodge, the elusiveness of profitability does not seem to be the product of any one factor like size, occupancy, average rate, age, or management rather it seems to be the inherent nature of the industry. In general, Sanders and Halpenny (Sanders, 2000) found that, contrary to the opinion of some donors and NGOs, ecolodges cost much the same to develop as conventional facilities. However a relatively higher proportion of these costs are fixed costs, due to the larger amounts of land these operations need in comparison with conventional facilities, the more expensive site preparation (as they seek to minimize the environmental footprint of the facilities), and the larger amount of recreational facilities and equipment that ecolodges need. In addition to this, ecolodges typically bear additional costs like funding local foundations or trusts, conserving and protecting land, investing in the local community and guiding and interpretation services that conventional operations do not bear. Adding in the fact that ecolodges have a much smaller room count from which to generate the revenue to support these costs, and are typically stand-alone operations, without the economies of scale of larger conventional operations, and the reasons why these operations struggle to become profitable becomes more apparent. To a certain extent emerging environmental technologies can help to lower operating and fixed costs, but these technologies are increasing being adopted by conventional tourism operations as well.

Fig. 13 Obstacles to Increasing Profitability
Single Most Important Obstable Lack of financing to expand Lacking financing for marketing Difficulty in attracting tourists Too much local competition Difficulty in recruiting staff Relatively high operating costs Cost of servicing existing debt Extreme seasonality Lack of knowledge Other Total Lodges Reporting Source: Sanders, 2000: 47 Developed Country 25% ---18% 11% 21% 21% -4% 100% 28 Developing Country 22% 20% 14% 6% 6% 9% 2% 7% 2% 12% 100% 78 Combined 23% 15% 10% 4% 9% 10% 7% 10% 2% 10% 100% 106

Operators and owners are keenly aware that it is their relatively small size that constrains them from achieving profitability. But they are caught in the double-bind of not being able to access the needed financing to expand (see Figure 14), and the failure of the operation to generate sufficient cash flow to fund growth internally. Successful ecotourism ventures have

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characteristically been developed incrementally, with small initial investments of capital rather than a large upfront investment to build the facility all at once.
Conclusions

Perhaps much to the chagrin of the purists, especially those within the NGO conservation community, it would seem that the best model for private sector investment is not that of small, independent operations. The greater ability of chains, or multiple ecotourism properties in a single portfolio, to harness economies of scale and establish a distinctive identity in the market leads them to be more financially sustainable, and thus to deliver the needed environmental and social returns and benefits. The lack of business acumen, poor marketing and substandard service quality that characterize “Mom and Pop” operations all serve to hurt ecotourism as a viable business model that can deliver environmental and social benefits. The private sector investment model then, is no panacea for the problems with the donor and NGO driven model. The lack of sophisticated analysis and experienced operators and investors is preventing privately developed operations from achieving their envisaged potential. Ed Sanders, co-owner and investor in “Belize Lodge and Excursions” believes that ecotourism alone cannot support the costs of conserving large areas of land. His solution in Belize was to develop a hybrid and innovative model, combining profit (ecotourism) and not-for-profit components, supported by a complex mix of commercial financing, grant funding and public-private partnerships. Increasingly, this model, combining as it does both the donor and NGO community with private sector investors, looks like the most viable.

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4. Hybrid: NGO Venture Capital The 1990s have seen the emergence of “green” venture capital funds. While similar in structure and design to commercial venture capital funds, these funds introduce conservation and social responsibility into their decision making process, following an investment model commonly known as “socially responsible investing” or “the triple bottom line” – i.e. the financial, social and environmental “bottom line” of a business. Funds which are primarily focused on conservation and sustainable development in developing counties have been dubbed “Adventure capital”. These funds “seek to harness the power of capitalism to preserve biodiversity and generate public benefits in some of the poorest and most remote regions in the world… Adventure capitalists believe that the world's biodiversity is too important to be left solely to governments” (Vorhies, 2003). By implication, these investors also believe that biodiversity conservation is also too important to be left to local communities, although they will seek to engage the local community in whatever project they are investing in. Typically backed by NGOs or other philanthropic foundations and investors, these funds usually require that projects advance one of the core conservation goals of the parent NGO. Thereafter, the decision making process is strictly commercial. Adventure capital funds may have somewhat lower required rates of return, but their holding period ( five to seven years) and exit criteria (public offering, selling to strategic or financial buyer) are very similar to that of the mainstream VC funds. These criteria are, within the context of ecotourism, demanding and serve to limit the pool of potential projects substantially. The funds will typically work closely with entrepreneurs to refine their business plan, but applicants still have “as many hoops to jump” (Sanders, pers.comm.) as if they were seeking financing from traditional commercial sources, and the process does impose significant burdens on the enterprise in terms of time and paperwork. Aside from being one of the few sources providing financing to ecotourism entrepreneurs, being able to access financing from these funds confers a significant stamp of credibility on the enterprise, as well as giving the enterprise marketing access to the membership base of the parent NGO that is very valuable. Adventure funds supposedly fill the gap between development and commercial banks and microcredit facilities. In reality, these funds prefer to provide funding at the upper end of the small and medium enterprise funding spectrum, as it is at this level that investments (whether loans or

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equity) are able to generate sufficient returns to cover the carrying and processing costs of the investment and provide a return on capital. Typically, the funds prefer to provide loan rather than equity financing. Typically a fund achieves a return on its investment by the company offering shares, or being sold to a financial or strategic buyer. None of these three exit strategies are typically available for ecotourism projects: too small and specialized to offer shares, their returns are too low to attract a financial buyer and there are few strategic buyers. Loan financing is, on the other hand, less risky. An unresolved problem with funds, is how large their capital base should be. A new fund, the Kijani Capital Fund, which has been established by the IUCN (the World Conservation Union) in collaboration with the IFC and GEF, for biodiversity business projects in Africa, is to be capitalized in excess of $20 million. However previous funds have failed because they could not identify enough good projects in which to invest. Other existing funds include Conservation International’s Verde Ventures, the Nature Conservancy’s EcoEnterprises, Terra Capital Fund, an IFC/GEF initiative, EcoLogic Enterprise Ventures and the Environmental Enterprises Assistance Fund, also one of the older funds that has found it hard to find fundable projects.

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5. Case Studies A. Inter-American Development Bank, IADB The Inter-American Development Bank supports economic and social development and regional integration in Latin America and the Caribbean. It does so mainly through lending to public institutions, but it also funds some private projects, typically in infrastructure and capital markets development. Its objectives in its tourism projects are job creation, poverty alleviation, and the protection of biodiversity. In the past, projects were developed on the basis of a top-down approach based on negotiations between the bank and the recipient country, but the bank is trying to shift towards a more inclusive approach, consulting with local NGOs and the private sector, in order to yield projects and developments that are more appropriate to the human and natural capacity of a given area. The Bank’s focus in its tourism projects is to build infrastructural, administrative and fiscal capacity to manage tourism flows, and to support the public sector in creating the necessary conditions for private sector investment in the tourism facilities. The Bank may also finance training programs and give technical assistance to the private sector to establish convention and visitor’s bureaus and marketing programs. Tourism projects must prove that they will positively effect low income groups. The Bank’s work is this supply-side focused – it does not perform any demand side market research in assessing the feasibility of projects. The Bank has two sources of capital: ordinary capital, which is loaned at commercial rates (currently around 6%) and discounted, subsidized capital. The bank uses a 12% economic rate of return on infrastructure as a rule of thumb, but states that there is no specific reason for this number over any other. The 12% return benchmark does not vary from country to country, allowing the Bank to say that it is using an “objective” or “unbiased” metric. Rare among other donors, the Bank explicitly states that its overhead carrying cost for loans is about 2.5% of total project funding. In north-east Brazil, the IADB is funding $240 million of an $800 million project. The objective of the project is to improve the quality of life of the permanent population around designated tourism nodes, as measured by increases in employment, local government revenues and

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environmental quality. The Bank is seeking to strengthen municipal and state capacity to absorb an increase in tourism and is providing financing for the necessary infrastructure development. $20.3 million is allocated for the promotion of private investment: this will take the form of training seminars for entrepreneurs and NGOs and consulting services for the preparation of marketing plans and campaigns. The Bank’s previous tourism work in Brazil (phase one) did not achieve the scale of results anticipated as projects undertaken were isolated individual investments. In the current phase, phase two, the Bank is trying to adopt a more integrated, holistic approach.. They are seeking to balance investment in infrastructure with investment in strengthening the capacity of municipalities, so that they can actually capture the benefits that result from increased tourism flows, rather than having them leak out of the economy. In previous projects, performance metrics focused on disbursement. The IADB states that it is trying to shift more towards evaluating the effectiveness of programs. For the current project it is financing the compilation of a baseline, against which it will assess changes in local employment (as measured by number of direct jobs in hotels and restaurants), the growth rate of municipal revenues, the number of visitors, their length of stay and spending and the quality of services ( as measured by the number and classification of hotels and restaurants, the bath quality index of beaches, and levels of public satisfaction). Assessing the results of the previous phase of the project, the Bank estimates that the project “attracted $4 billion in private investment and will attract a further $2 billion over the next three years as the private sector builds in areas where there is improved infrastructure. While it is estimated that the investment has generated one million jobs, precise data is not available to attribute this increase to [phase 1]. Available evidence indicates that most new employees for the higher skilled work came from out of the region with the local populations finding opportunities in the less skilled more seasonal work” (IADB, 2002: 3). Reading the IADB project definition, in comparison with the EU document on tourism in Swaziland is revealing. In comparison with the EU, the IADB documents is far more technical and detailed. It does not engage in the any of the hyperbole and rhetoric about tourisms benefits, and conducts a more rigorous assessment of both the opportunities and threats the project poses to the environment. This is a partly born out of the Bank’s experience in financing Cancun’s development, for which it has been severely criticized for the damage Cancun’s explosive

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development caused to the environment and the forced displacement of the Mayan community. Now, because of NGO pressure, Bank is much more focused on community and environmental issues. The Bank’s proposed $150 million Mundo Maya Sustainable Development Tourism Program, is, on the surface, to be a model example of sustainable tourism development. While the local indigenous Maya community has already been engaged, the private sector has not, leading to concerns that the Bank and its partners in the project, Conservation International, the National Geographic Society and Counterpart International (an international human development organization based in Washington, D.C.) may have unrealistic expectations about the level of engagement of the private sector in the project, and in seeking to protect the environment and transfer benefits to the community, may place too many hurdles in front of private sector investment.

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B. US Agency for International Development, USAID Within tourism, USAID is more focused on policy development and capacity building than developing infrastructure or tourism facilities. The Agency has four main objectives with its tourism related projects:
• • • •

macro-level economic growth; environmental management for mainstream, traditional facilities and operations; land conservation through the creation of parks and protected areas, and creating or growing revenue streams to manage the parks, and rural and community enterprise and development.

The community development aspect is still a very small part of USAID’s tourism work, which is primarily focused on making mainstream, conventional tourism facilities more environmentally sustainable. Projects run in five year cycles and are the outcome of strategic objectives and a “results framework” that are developed by Agency officials on a country by country basis. Projects are proposed, funded, and executed over one to three years. There are very few “greenfield projects” as projects are almost always the result of other, previous work in the area. Getting projects funded is an intensely political and subjective process: there must be a project champion inside USAID who wants to make the project happen and who is able to promote it and defend it internally. This requires courting senior executives and those who have decision making power over discretionary funding to get them “excited” about the project. Officials prefer projects that are highly visible and will earn USAID good local publicity. A project’s champion should have a “high enough profile in USAID to get the project through, but low enough so as not to draw too much critical attention to the project” (Meade, pers.comm.). A key feature of USAID is its use of American consultants, who must be pre-approved to work on Agency projects. There is thus a small group of consultants who know about projects in the pipeline, and a long list of consultants who try to get selected as a subcontractor by an existing contractor in order to get a foot in the door. For each project, the selection of a particular contractor is a function of previous work with USAID, the solution proposed and cost. The Agency frequently uses short response times to request for proposals (RFP) as a way to limit competition or to select its preferred contractor. It is thus vitally important for contractors to have an “inside track” - to know what projects are in the pipeline. According to contractors, there is

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usually a clear favorite to win the contract. If the RFP is the second phase of an existing project, then the favorite is the incumbent contractor. If a project is new, then the favorite may be the contractor who drafts the RFP for USAID. “Qualified honest competition”, rather than open and fair competition thus best describes the selection of contractors. It is more like a closed market or club, with greatest competition taking place outside amongst those trying to get in. The nature of contracts forces contractors to head-hunt leading independent specialist consultants. In eco and sustainable tourism this is small, well known pool of experts, and there is often intense competition between contractors to get a consultant to agree to work with them exclusively. USAID never takes an equity position: it only provides grants or loans. Its financing vehicle is the Development Credit Authority (DCA), which provides loan guarantees for up to 50% of the principle and interest of a loan in case of borrower default. USAID must hold 20% of amount guaranteed in an escrow account. Meade (pers.comm.) reported that there are five failures for every one success for these loans, even after having gone through a workout process with the borrower. This is typically because the approval of a DCA guarantee is not driven by financial analysis, but rather by the presence of a willing originator of the loan, a willing borrower and a willing USAID country mission. (Mead, pers.comm.). USAID only guarantees the repayment of principle of interest - it does not have any control over end borrowers and places no additional conditions on the borrower. While the Agency’s criteria to grant a DCA guarantee is nominally that it the money will be used to improve productivity, a competing objective is to improve developing countries’ access to capital. Projects generally include a performance monitoring plan, which may be quite specific and quantitative. But, as mentioned elsewhere in this paper, the data, like the number of training workshops conducted, the number of certified enterprises, etc. typically captures information that relates to efficiency of implementation and disbursement rather than the effectiveness of the project. Projects are evaluated annually, in mid-cycle and after completion on a five point scale across five indicators including client satisfaction, timelines, budget and quality of the consultant and the work done. The results end to be “very subjective” (Meade, pers.comm.) and a bad evaluation does not necessarily mean that the contractor will not be able to win future contracts with USAID. Meade (pers.comm.) reports that there are really no sanctions attached to a bad evaluation as, if the project is not working well, it reflects negatively on USAID and not just the

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contractor. In some case, USAID may contract a third party to perform a more thorough evaluation at the end of the project. There is a current tendency in the Agency to move towards performance-based contracts, rather than cost-plus or fixed fee contracts, but it is not clear how this will impact the project evaluation process. Some of the Agency’s current tourism projects include work in the Caribbean, Jamaica and Egypt. In comparison to the World Bank tomes, USAID project documents, called task orders, are short and concise. Intended for an internal, technical audience, there is little of the political rhetoric and development jargon that is so common in other project documents. However, notably absent from any of the above three projects is a strong community component. Indeed one gets little sense from any of the documents of the needs and goals of the recipient country or community and the documents read as if the projects as being entirely driven by USAID, with no input from the recipient. The $850,000 Caribbean project covers seven countries and is focused on increasing economic growth, reducing poverty and enhancing sustainable development by (USAID, 2001c :3) by
• • •

improving the access of Caribbean small tourism enterprises to information about and technical assistance for implementing proven best management practices defining and reinforcing sustainable tourism policies and strengthening organizational capacity to finance environmental programs

The contractor is specifically tasked to
•

assist small, indigenously owned visitor accommodations to improve their environmental management and their competitiveness in market place. (It is interesting that USAID pairs these concepts, as it is not obvious that enhanced environmental management at a property is in any way related to increased competitiveness in terms of attracting demand.)

• •

develop greater awareness of the benefits of environmental management among Caribbean small hoteliers upgrade the technical skills of management and staff who are expected to design and implement environmental management systems

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•

develop and market environmental certification programs for small hotels (There is no mention made in the RFP of the substantial work already being done in this field by a host of other organizations, indicating that this component of the project is may lead to duplication and redundancy) and

•

build the capacity of the Caribbean Alliance for Sustainable Tourism, CAST, to support small hotel environmental management improvements.

Meade (pers.comm.) sums up these objectives as performing an environmental “walk-through” of some 200 hotels, with the aim of eventually getting 20 properties all the way through to Green Globe certification (one of the many benchmarking and certification program for the tourism industry). While some very specific outputs and metrics are listed in conjunction with these objectives, the overall objectives of the projects are still very “soft” and qualitative. In Jamaica, USAID is funding an $500,000 project entitled the “Environmental Audit for Sustainable Tourism”. The objectives are very similar to those of the seven country Caribbean project, with the aim of getting a number of hotel properties Green Globe certified. This project is making use of the DCA in order to develop a pipeline of possible businesses. USAID’s engagement with Egypt is a result of the Camp David accords, where the US is committed to allocating billions of development aid to Egypt over an extended period of time. While the biggest of the three projects surveyed for this paper, it is the least well specified or defined. The “standards of production are lower” says Meade (pers.comm.) as both parties know that USAID has to give a certain amount of money each year and there is thus “less incentive to allocate funds wisely and to really needed or worthwhile projects”. The current and third phase of the project is focused more on ecotourism than the previous two phases. It encompasses standards, promotion, conferences, financing for ecotourism, and getting hotels Green Globe certified. In comparison to the other project documents, the specific outcomes and objectives of the Egyptian project are considerably more vague and, unlike the two other task orders, the objectives are not broken out into specific tasks that the contractor must undertake. The project also calls for a long term expatriate program manager, an expatriate regional planner and a variety of other positions filled locally. This is more top heavy management team than would usually be put in place, but it is probably the easiest way to “burn” the required allocation of funds.

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C. World Bank: Lesotho Between 1998 and 2003, the World Bank has committed some $3.2 billion of its own money and $1 billion of Global Environment Facility (GEF) money towards biodiversity and conservation. Within Africa is has implemented some 55 projects, of which 32 include some tourism component. Loans from the World Bank for ecotourism projects are typically a blend of World Bank funding (at competitive international lending rates, which covers its costs rather than makes a profit for the Bank) and a GEF grant. The Bank is has moved away from a model of direct investment in tourism, which failed so badly in the 1980s, towards providing the infrastructure for investment in tourism. The official policy of the Bank is that it supports tourism development as one of the most cost effective ways to conserve land and defray the costs of improving the management of parks and protected areas. However there is an strong line of thinking from some Bank officials that this indirect investment model in conserving biodiversity is less effective than direct payment models. Projects are supposed to emerge from the Bank’s country assistance strategy. In the case of tourism and ecotourism, the Bank will typically accept what the recipient country has to say about demand, but will draw on its tourism work in other countries in the region as a “reality check”. The Bank partners with NGOs and public institutions to implement its projects; it does not have the mandate to work with the private sector. The Bank does not as yet have a defined policy on how it wants to work with community based ecotourism, as it views these projects as somewhat more problematic: it is harder to get community base ecotourism projects to yield positive results and it is hard to determine when a project is not going to become self-sustaining, resulting in a tendency to keep funding a project beyond a sensible cut-off point (Kiss, pers.comm.). In assessing projects, the analysis is more qualitative than quantitative. In principle, projects should become financially sustainable after some reasonable time, but it is very difficult to get credible numbers for an economic benefit analysis. Thee is also “not a lot of objective evaluation of a country’s carrying capacity, of its ability to absorb and manage the flow of funds: (Kiss, pers.comm.). The Bank does undertake some remedial capacity building, but this is not its main focus. How much the Bank is willing to loan for any particular project is less of function of how much is needed or what the country asks for than it is function of the relative priority of the region, country and project within the Bank’s overall portfolio. This begs the question that if the

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Bank provides less funding than is needed to make project viable, with the shortfall hopefully being made up by the country or another donor (which does not always happen) is the Bank no contributing towards the eventual failure of the project? The Bank’s objectives are “soft” rather than “hard”. According to Kiss (pers.comm.), conflicts arise from the Bank trying to optimize on too many different things at the same time: community empowerment, poverty alleviation, biodiversity conservation etc. The result is that the Bank optimizes nothing. “Projects are always too ambitious because the need is great and expectations so high…there is the danger that we want everything and achieve nothing”.
Lesotho: Maloti-Drakensberg Transfrontier Project

The Maloti-Drakensberg Transfrontier Project is a multi-phase joint project between South Africa and Lesotho to protect the biodiversity of the Drakensberg and Maloti mountains through conservation, sustainable resource use and land-use and development planning over a 13,000 km2 area. “The goal is to develop economic activities that provide community development at the same time as assisting with the conservation of biodiversity. It is anticipated that much of the economic activity will be centered upon nature-based tourism” (World Bank terms of reference). The primary focus of the project is to conserve biodiversity, community development through income generation from nature based tourism is secondary. In the first phase, which started in 1997, the Bank allocated some $1 million to conduct the preparatory work. Over thirty scientists and economists in eleven task teams were contracted to develop the framework for the project. I have had access to some of the results from Task Team 5, which was responsible for the economic assessment and development planning component of the project. Other teams looked at, amongst other areas, roads, biodiversity, socio-cultural issues and the legal framework. At this stage, the total project was envisaged as $15 million grant. By 2001, just over half that was committed and an additional $20 million soft loan from the Industrial Development Bank of South Africa was withdrawn when the elements proposed for financing did not prove to be viable. The terms of reference for phase two have recently been issued. This phase of the project totals $8.42 million and is being funded through GEF. $2 million of this amount is allocated for naturebased tourism planning and development. In conjunction with this project, the United National

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Development Program is funding a $2.5 million biodiversity conservation project and the African Development Bank a $8.4 million program for rural income enhancement. Indeed, over the last twenty years there has been a lot of donor involvement in Lesotho. As one of the poorest countries in the world, with spectacular natural assets that are rapidly being degraded due to overgrazing, Lesotho has been a natural target for aid. In 1994, EU funded a comprehensive Tourism Development Plan - little of it has been implemented. The African Development Bank, UNDP, Lesotho Highlands Development Authority (associated with a major water project funded by South Africa), DFID and others have also all funded projects. The result of all these projects has been a lot of activity on the part of the consultants and very little implementation or real change on the ground. “Duplication of work has been all too common amongst the disparate projects. There have been instances of two or more projects undertaking very similar work in the same area at the same times. This is not only a waste of scarce resources, but it also confusing and irritating to local communities whose ‘needs’ can be identified over and over, with a lamentable lack of delivery from their perspective” (AfED, 2000: 11). The net effect on Lesotho of these failed projects has probably been negative. This is because grants and loans from donors imply carrying costs – the payment of interest and principle, administration and accounting costs etc. “Unless significant tourism development does occur, the net economic benefit to Lesotho of the various development initiatives could be negative – i.e. constitute a net drain on the economy” (AfED, 2000: 1) and it may well be better for Lesotho not to accept aid if it does not believe it will realistically lead to a real increase in economic activity. This is illustrated in Figure 15 below. Fig. 14 Net Economic Effect on Lesotho, per percentage of tourism potential realized
In R millions 1 2 0% 21% ($77) $1 (11.86) (11.86) (1.21) (1.21) (1.32) (0.69) (1.44) 0.14 (1.56) 0.96 (9.51) (5.73) (2.51) 2.21 (2.51) 3.79 (2.51) 5.36 (9.40) 0.05 (9.33) ---1.69 ---(0.84) ---(8.71) 2.31

Scenario

Infrastructure Investment Hurdle 3 4 34% 60% ($0) $95 $243 $427 (11.86) (11.86) (11.86) (11.86) (1.21) (1.21) (1.21) (1.21) 12.26 13.04 14.24 15.74 13.24 15.19 18.19 21.94 5.64 8.76 13.56 19.56 (13.19) (8.51) (1.31) 7.69 (4.57) 1.28 10.28 21.53 (1.93) 5.87 17.87 32.87 0.70 10.45 25.45 44.20 (3.55) 8.15 26.15 48.65 9.14

12.81 ---- 22.79 33.81 ---- 43.79 60.06 ---- 70.04

5 100% 6 150%

Source: AfED, 2000:34

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Phase One

In Phase One, Task Team Five sought to identify the cause of the failure of the many donor projects to lead to any real economic development in Lesotho, and to seek solutions for how to overcome this problem. The task team’s key findings are summarized in Figure 16.

Fig. 15 Phase One: Summary of Key Findings A nature based tourism industry can be developed in the MalotiDrakensberg region that can provide significant economic upliftment and biodiversity protection. • A small “ecotourism only” style of development (hiking and pony trekking only) will not meet social or economic needs. • One or more development nodes are required to support more distributed community based tourism enterprises. • Significant road infrastructure is required to support larger scale development. • Assistance with development site infrastructure is required to overcome the development logjam (i.e. market constraints) and permit investors to achieve an acceptable level of return. • The infrastructure that is required can be economically justified provided the necessary support is available to develop the tourism potential. • The nature based tourism facilities do not require additional protected areas per se, but the developments can help “pay” for the additional protected areas that are desired for biodiversity reasons. Source: AfED (1999: 2)
•

As shown in Figure 15, AfED developed a model that shows that unless Lesotho is able to realize a sufficient amount of its tourism potential (measured in number of visitors), accepting loans to develop its infrastructure may lead to a net loss to Lesotho and the country would be better offer not to accept any aid. But in order to realize a significant amount its tourism potential (in excess of 20%), Lesotho needs major infrastructure investment. Again, in order for that investment to deliver a positive, rather than negative, net benefit to Lesotho, a certain threshold of tourism potential must be realized (in this model in excess of 34%) and in order to be cash positive in most years, an even higher threshold must be reached (here, in excess of 60%). One of key reasons for this is the presence of a narrow set of environmental, economic and market constraints (as graphed in Figure 17) which make the realization of the Maloti’s tourism

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potential extremely difficult. In effect this creates a logjam or an “investment gap” that numerous projects have not been able to bridge.

Fig. 16 The Ecotourism Investment and Return Conundrum

Investment - Economic Return Profile

Return

Minim um return to justify infrastructure

Minim um “social” return

Sustainability limit
Market limit

“Trail level”

Infrastructure “lump”

Private sector investm ent

Source: AfED, 1999: 3

Initially, the task team thought that in Lesotho the market limit for tourism would be greater than the sustainable limit. Research proved the opposite and even more problematically, that the market limit may be below the infrastructure limit. “This leads to the situation where the perceived initial market limit is below the level that is necessary to obtain an adequate return to justify the infrastructure cost. This results in a development logjam that is typical of the constraint that has prevented development of tourism in the Lesotho Highlands, despite the many reports that have identified the potential of the region” (AfED, 1999: 4). AfED argued that with sufficient donor investment, government support and incentives, this logjam could be overcome, as this investment support would decrease the risk for investors and boost the rate of return, making the investments more attractive. Quantitatively, AfED modeled that funding $20 million in road infrastructure and $2.5 millions in supporting site infrastructure increased potential investor returns from a 12-16% IRR, which istoo low to attract serious interest, to about 25%-30%, which is attractive (see Figure 18).

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Fig. 17 The effect of donor funding on infrastructure on rates of return for private investors
Development Beds Capital 300 R55m 600 R85m 900 R112m Source: AfEd, 2000: 37 Internal Rate of Return (IRR) Market “Assisted” 28% 16% 23% 31% 27% 33%

AfED’s other main conclusion was that donors have been stuck on the model of smaller, community owned and operated enterprises, to the detriment of Lesotho’s economic development. Given how degraded the environment already is, it will take investment and development of sufficient scale in order to generate enough revenues to support the rehabilitation of the environment. “To justify the protection of biodiversity within the Maloti-Drakensberg region, significant economic development is required. Tourism has been identified as an important element in generating economic growth in both South Africa and Lesotho. But to make any significant contribution to economic growth, numbers of tourists and expenditure per tourist need to increase substantially. This requires the development of significant new tourism products and facilities in Lesotho and a substantial increase in visitor numbers in South Africa. Concern has been expressed that this level of development will have a negative impact on the environment, especially as much of the development will take place in the Alpine areas. On the other hand, the degradation of the environment that has been noted to be occurring can only be arrested by appropriate economic development.” (AfED, 1999: 2) AfED added that the commercial realities of this donor-preferred, small, “greenfield” type development is that they are “are almost impossible to develop, manage and market in a highly competitive and sophisticated tourism market” (AfED, 2000: 19). AfED argued that a more appropriate development model “is to focus on a few key large anchor projects (‘honeypots’ as they sometimes called) around which the smaller community projects can draw on for resources, marketing, training, finance and management skills” (AfED, 2000: 19).

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Consistent with the practice and experience of other successful ecotourism projects, AfED recommended that Lesotho’s tourism be developed incrementally over time (see Figure 19). While in the case of Lesotho, it might, with sufficient donor support, be able to “front load investment”, given the uncertain levels of market demand and sustainability, and low levels of management skill and experience, this was not advisable. This issue was also linked to the investment log-jam: Lesotho cannot afford to carry out the necessary monitoring and evaluation to assess market and sustainable limits until development takes place, but as investment will not take place until these limits are bounded, donor and/or public support is needed to facilitate the initial development and minimize the risks. (AfED, 1999 and AfED, 2000).

Fig. 18 Incremental Development Model

Sustainable use level
Uncertainty in sustainable level

Market

Unrealized potential

Facilities

Excess market demand

2 years
Source: AfED, 2000: 24

5 years

10 years

“The most serious gap that needs to be addressed urgently, is the lack of a credible economic benefit model for tourism within Lesotho. Although many reports over the past 20 years have extolled the potential for tourism development in Lesotho, none have adequately quantified these benefits or attempted to justify the infrastructure development that is needed to realise this potential.” (AfED, 1999: 14). AfED’s conclusions were the result of a rigorous analysis that seem

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to be the exception rather than the rule in consulting reports. Assumptions were tested, scenarios modeled, break-even points and impacts quantified , and the use of I/O and SAM was even proposed, despite that fact that most consultants seem to shy away from the difficult task of trying to develop these models for developing countries. The collection of reports illustrates that just because one is working with development issues in poor, undeveloped countries, does not imply that one should be any less rigorous with the analysis. Sadly, it is the opposite that seems to be the general case, to the detriment of developing countries and the successful development of ecotourism as a vehicle for economic development.
Phase Two

Reading the World Bank’s project documents for phase two of the project, it seems that some of the above conclusions have been accepted and incorporated, while others have not. The tourism component of phase two focuses on support for planning, environmental assessments, marketing and training. As was originally envisaged in phase one, actual investment in tourism facilities is left to the private sector. But lacking from the project documents is an evaluation of whether or not what is being undertaken in phase two will, indeed, be sufficient to attract the interest of the private sector. The project document blithely state that “private sector developers will also be encouraged to partner [with] communities and conservation agencies to build the necessary capacity”, but nowhere does the Bank seem to assess how this will be done, or what incentives will need to be in place to encourage for private sector to “partner with communities” and “develop the necessary capacity”. It seems that once again, this project with raise the expectations of communities, with little chance that actual investment and jobs will be realized. Even more glaring is the Bank’s failure to address the issues regarding the ability of Lesotho’s public institutions to absorb the proposed funding. Lesotho’s national tourism body is small and poorly financed, tourism policy and implementation is fragmented, the private sector is weak, facilities and services are poor and overall tourism numbers are low and mostly drawn from South Africa. “The entire legal structure surrounding business development, property law, insurance regulation, conflict resolution, loan guarantees and tourism regulations must be upgraded if the private sector is to be enticed to fully contribute to tourism in Lesotho “ (World Bank, 2001: 5). While this addresses one aspect of the problem, the Bank does not address its own role.

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Using rules of thumb of 3% to 5% of annual maintenance cost for every dollar of investment (in the case of the project these includes roads, Sehlabathebe National Park, cars and equipment) this implies a fiscal burden of $125,000 per year on Lesotho. To put this figure into perspective, one needs to consider that the entire Lesotho budget for conservation was, as of 2001, about $220,000 per year. The Bank does not perform the fairly simple calculation of working backwards from that number to determine if the projected incremental increase in gross revenues is likely to generate that much in taxes for the government. (e.g. if one assumes that government income is 15% of GDP, then the contribution to GDP from the project should be at least $850,000 to avoid it being a net cash drain on the economy). Instead, the Bank proposes four remedies:
• •

Increase revenue-generating activities, chiefly in Sehlabathebe, by raising visitor fees and increasing the number of visitors Mobilize new domestic resources, thinking specifically of the Lesotho Highlands Water Project (a huge water transfer protocol from Lesotho to South Africa) that generates $40 million a year in royalty revenues for the Lesotho government

• •

Mobilize new external (donor) funding, Dismantle some of the investments: to the extent that increased revenue would not suffice, some of the investment would have to be shed. “After 3-5 years, the vehicles would still have a second-hand value, as would some of the office equipment. In the Lesotho case, it may not be realistic to think that all (emphasis in original) staff and their equipment could be maintained after the project's closing, but the investment in planning and compensation for past neglect would still be worthwhile. The staff maintained during the investment phase will have left behind trained counterparts at the national and local level that will be able to carry on the work at lower cost” (World Bank, 2003: 26).

This elicited a response from AfED that “The proposals are inherently unsustainable – unemployment, Aids, famine & starvation - let them eat biodiversity” (2002: 9). Solving these complex issues will take time and commitment. It will not be achieved by consultants working for two to three project cycles. The issues are systematic and the projectbased approach to development is unlikely to solve them.

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D. The European Union: Swaziland The EU’s tourism development work in Swaziland is taking place under the auspices of its funding for private sector promotion in Swaziland and the project I surveyed for this paper is part of a four year program that started in mid-1998. The EU contracted a German consultancy, Caribbean Futures, to develop a) a tourism strategy for Swaziland and a program of actions in order to achieve that strategy and b) a tourism development program that the EU would consider funding The resulting strategy states that the tourism sector in Swaziland should, as “national priority”, be developed “in a sustainable and acceptable manner, taking full advantage of regional and international trends and developments so that it will significantly contribute to the continued improvement of quality of life in the Kingdom of Swaziland.” (EU, 2003: 4). In order to achieve this vision, the document then lists a number of guiding principles which include the following:
• • • • •

Tourism will be private sector-driven Tourism development must be economically and environmentally sustainable Tourism development must take place within a framework that is acceptable to Swazi culture while developing and promoting Swazi culture Tourism development must involve local Swazis as entrepreneurs and as suppliers of goods, services and labor The benefits from tourism must be spread to the widest cross-section of the Swazi society by focusing on those resources and skills which are community-owned

This is a seemingly impossible laundry list of expectations and requirements. In short, the “strategy” is an example of the belief in tourism’s near mythical ability to generate economic development and reads like a hopelessly grand vision, little tied to reality of Swaziland’s current level of economic development. The document is long on rhetoric and grand statements and short on practicality. In parts one gets the sense that the writers feel that if only the “bad” private sector would cooperate, this vision would be achieved. The strategy glosses over the very real problems of trying to do any economic development in Swaziland, let alone stimulating the private sector. It urges greater independence from South Africa, which surrounds Swaziland to the north, west, and south, without exploring the very real constraints this presents for tourism development in Swaziland. It does not delineate a clear competitive tourism product for Swaziland: while

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espousing “sustainability” and community involvement, the documents then lists of whole range of tourism products, from spa and incentive tourism to youth and retirees tourism, without critical assessment about how they would interact with each other and lead to a coherent tourism marketing position for Swaziland. The document is full of internal contradictions. On the one hand it states that the private sector must lead tourism development, but on the other hand is places so many requirements and conditions on the private sector as to make that task impossible. The strategy is to maximize the full economic potential of tourism to generate revenues and create jobs, but at the same time Swazi society should be kept pristine and untouched by the cultural changes this sort of economic development must engender. There is thus an unresolved and very real paradox in the strategy between the envisaged scale of economic benefits and the insistence that tourism development must small and local. A particular gem of a contradiction concerns the recommendation that the existing airport be developed as regional hub - yet only some two paragraphs one reads that less than 1% of all visitors to Swaziland arrive by air (EU, 2003: 16). The documents suggests that “total quality management” techniques be introduced, without pausing to reflect for one moment about the applicability of such a management system in the context of Swaziland’s current level of development and skills. TQM is a highly complex, management intensive system more suitable to highly developed service products. The issuance of the documents prompted some sharp criticism from consultants and other development officials. The World Bank, for instance, (Kiss, pers.comm.), stated that approval of the project was rushed through and was driven by ridiculous objectives. Kiss added that the community based tourism program was included in the project because the true objective is rural development, not private sector development. The EU then tries to call the project a private sector support program and expects to be able to have 30 businesses operating in three years which is, in her words, “completely absurd”. “If a project like this is truly going to be private sector driven, one cannot force partners on the private sector and compel companies to work with rural communities. Rather, one needs to incentivize the private sector to work with communities. No private sector investor would touch this project unless there is major public investment in the infrastructure – in which case you are really hiring private sector as development agents”. Another consultant added that the document “puts so many barriers in the way of investment that the strategy is impossible. I was asked to bid on this two months ago, but declined on the basis

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that it was so poorly specified that it was undoable. The tender collapsed and is to be re-issued as a result, but until fundamental attitudes change, there little chance of success – [and this will only lead to] increasing environmental degradation and poverty growth” (Heher, pers.comm.).

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E. World Bank in Swaziland In contrast to the EU’s program in Swaziland, the World Bank seems to follow a far more pragmatic approach based on more reasonable expectations and detailing more specific actions. The World Bank’s tourism work in Swaziland is part of a $11.9 million program, of which $5.5 million is financed by the Bank and GEF, and $1million by Swaziland. This leaves a $5.40 million financing gap and the document does specify how this will be closed. Of the total project, $1.74 million is allocated for “Sustainable Tourism and Private Sector Development” and $1.33 for a project implementation unit which will also be tasked with developing performance indicators that are “relevant, realistic and measurable”, establishing baselines and tracking measurable progress against them. The sustainable tourism component includes:
• • • •

strengthening tourism sector policy and the associated regulatory framework; delineating and developing management plans for tourism zones; stimulating responsible (commercial and community) tourism investment, and developing a strategic tourism infrastructure

The “global objective” of the project is to “preserve globally significant biodiversity and a continuous altitudinal and vegetational gradient by creating a sustainable, linked network of formally and informally protected areas” and its “development objective” is “to promote environmentally, economically and socially sustainable development and enhance incomes in the rural areas of Swaziland, based on conservation and sustainable use of its rich biodiversity resources and local participations in tourism development” (2003: 4). In plain language, the main thrust of the project is to develop an integrated series of biodiversity and tourism corridors across the country. Within the corridors, there will be small, community oriented developments like nature reserves, accommodations, craft shops, and restaurants which, as part of a larger whole, will represent “an attractive and accessible routing linking major regional tourism centers and destinations”. This concept is part of larger, ongoing initiatives to establish large, integrated tourism routes across south eastern Africa, “which aim to make the entire region a major world class tourism destination” (World Bank, 2003: 4). Somewhat to my amusement, the Bank makes specific mention of the abortive EU project in Swaziland. “The EU component aims to provide small grants to assist communities to start up tourism related enterprises (often in collaboration with or with the assistance of, local NGOs or private sector operators). Because of the needs for a great deal of awareness raising and capacity

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building, it is unlikely that many such enterprises will be launched by the close of the current EU project”. At which point, the Bank, will of course, step in to clean up the mess and carry on the effort, noting that “unlike the EU project, … the proposed enterprises would not be ad hoc and isolated initiatives but would be identified, evaluated and supported in the context of the tourism zone plan and the broader integrated corridor management plan” (World Bank, 2003: 18). To be fair, the Bank does seem to be doing a better job than the EU. The document does situate the project within the reality of high levels of poverty in Swaziland, and the pressures this places on the land for agricultural development, Swaziland’s weak tourism planning and marketing capacity, the weak integration of tourism into overall economic planning, the lack of incentives for private sector investment and the risk that Swaziland will continue to be bypassed by investors and travelers alike. However it does slip into political hyperbole from time to time: “Swaziland holds a strategic geographic position within the [Southern African tourism] circuits…[and] can define its own unique niche…on the basis of its rich cultural heritage and beautiful landscapes” ( World Bank, 2003: 3). It could just as easily be argued that Swaziland is a poor, undeveloped backwater, easily bypassed by most tourists and in terms of its “rich cultural heritage and landscape” offering only what can be found in different forms in many other surrounding countries. Indeed, it is precisely because Swaziland is such a small and relatively insignificant country that is has, until recently, been largely ignored by the Bank. The World Bank situates its development plans within the context of the emergent bottom-up, community participation and multi-sectoral approach to development, acknowledging that in the past the traditional development approach has followed a top-down, sector-by-sector approach. Indeed, in some ways the documents read like a model for the new and better approach to tourism development. It does also seem to have absorbed some of the lessons from Lesotho: “Small scale enterprises and initiatives are much more likely to succeed and be sustainable if they are part of a larger product development which will bring in the critical mass of tourists needed” (World Bank, 2003: 18). But I find that I still have a number of concerns. Firstly, the tone and feel of the documents is very similar to that of the Lesotho project appraisal documents, which leaves me to wonder how much the strategy of the Bank for the two countries is really differentiated and responsive to local conditions. Secondly, the Bank is still following a supply-driven approach. There is no mention of a market assessment, with the implied market rationale for the project being that if and when

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tourists learn about Swaziland, they will want to travel to the country, without any indication of just how travelers are to be brought to this point of awareness of Swaziland or if indeed they do not already know about the country and just do not care to take the time from the safari circuit to visit it. Thirdly, while stating that the premise of developing a successful sustainable nature-based tourism industry in Swaziland is to the development of an integrated regional tourism market which will provide the critical mass of tourists and investment opportunities necessary to attract and sustain substantial private sector investment (World Bank, 2003: 30), there is no assessment of the probability of this regional market emerging. Certainly, the idea has been floating in the corridors of regional governments for many years, with little sign of ever becoming a reality. Counter to normal investment practice, the Bank is advocating that large sums of money be committed before ascertaining whether or not the conditions for private sector investment are likely to be realized. Finally, the Bank seems to have a somewhat cavalier approach to the carrying costs the creation of new projected areas implies for the Swazi government, which has difficulty meeting even the current carrying costs of existing protected areas. The document airily assumes that the proposed investments will yield the necessary additional returns that will sustain both the existing and new protected areas. But one has no sense of the likelihood that these revenues will indeed materialize or what will happen if they do not. Would these protected areas be subsidized long term or would they be closed down?

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F. The Nature Conservancy, TNC Established in 1951, The Nature Conservancy is generally regarded as one of the best-resourced conservation NGOs in the USA. In comparison to Conservation International, it is more conservative and thorough in its analysis while Conservation International is more entrepreneurial and experimental (Halpenny, pers.comm.). Mostly focused on conservation in the US, TNC has a growing international program and is becoming increasingly involved with ecotourism. It is generally thought of as one of the leaders in the “direct investment model” of conservation as, with an annual budget of more than $700 million, it operates almost exclusively through purchasing land and easements to secure land for conservation purposes. It is a model that has worked extremely well in the United States, but is, in TNC’s view, not as exportable to developing countries. TNC explains that as internationally there is typically a far greater overlap between areas of biodiversity importance that are under threat and national parks than there is in the US, it sees more value in strengthening the existing networks of protected areas in developing countries than in creating additional protected areas. However, TNC will work with partner organizations in developing countries to purchase land where it sees opportunities to create corridors between established protected areas or to ensure the protection of certain species that are not currently protected by the existing national park system. According to Andy Drumm of TNC, its international ecotourism and tourism activities have focused principally on building capacity to reduce tourism-related threats to biodiversity and in developing tourism-based income generating mechanisms as a source of sustainable finance for protected areas. Support for some NGO-run ecotourism businesses in Latin America and the Caribbean has been largely in the form of technical assistance in planning and marketing. According to some experts outside of TNC, the legal inviolability of its agreements is now coming under scrutiny. Inamdar, Kiss and others expressed their belief that TNC is worried by a large number of looming battles with local users over access to lands TNC has secured for conservation. TNC confirms that it is concerned by “land invaders” or “resource exploiters” in some areas (Soles, pers.comm), but that to call this a “looming battle” is to overstate the problem. TNC avers that the local communities are typically supportive of lands secured for conservation.

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Within the US, and according to Soles (pers.comm.), TNC has not been particularly strategic with its tourism ventures and investment. Rather, these have been more opportunistic, based on when an opportunity presents itself as a way to generate income. At the moment TNC is in a state of transition in conceptualizing its domestic work in tourism. Previously, tourism projects were conceived as fundraising vehicles rather than as conservation and development strategies or business opportunities. The argument was that the rate of donor giving increases after donors have been able to see and enjoy the lands that their money is protecting. In assessing the financial viability of building visitor facilities, its was hard to know whether to assess the project solely on its operating performance or whether to factor in the increased donations from donors as a result of staying at the facilities. TNC is now reevaluating this approach of “subsidized visitation” for donors, and is trying to look at projects more objectively. Soles states that TNC has come to realize that if a project is not financially viable in its own right, it can constitute a net loss to TNC and the local community. TNC is not willing to compromise its principles of conservation and protection for financial returns, but Soles states that when a tourism project is projected to provide only small to moderate conservation benefits, rather than “dramatic” benefits, TNC will examine the financial performance of the project more closely. Projects are financed internally by TNC’s own funds, whether debt or equity. It has a very low cost of capital of around 4% and its focus is on “enriching the conservation values of the property” rather than on making an economic profit through its ecotourism investments. TNC’s expressed hope is that these projects will provide some income, either through donations or operating revenues, so as not to be a financial drain on the organization, but that given the number of rooms, the levels of staffing required and the prices the market will bear, making a profit is not a reasonable expectation. At a minimum it hopes to earn the goodwill of partner organizations, government agencies, and other visitors that these facilities host. TNC is also in the process of shifting towards seeking more independent professional managers for its tourism facilities, rather than using internal hires, and is also considering issuing management contracts for its properties. Whether management contracts should be awarded on an asset by asset basis or for a portfolio of assets is however, still being debated internally. Much of these issues were brought to a head by TNC’s Virginia Shores project in its Virginia Coast Reserve (VCR) conservation area. At the urging of the head of the VCR, TNC bought the

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Cobb Island Station, a former Coast Guard facility on Virginia’s Eastern Shore and moved it six miles to Oyster, Virginia. The station was to be converted into a 12-room inn as the anchor for developing high-end tourism. Conceived as a tool for fundraising, TNC significantly over paid for asset and then, naïve about the process of getting the structure moved and obtaining the necessary permits for a lodging facility, proceeded to incur significant cost overruns. The total cost of the renovation was $3 million, while the property’s market value is closer to half that amount. The head of VCR had argued that the operating loss of the inn would be more than covered by increased donations. However, as the main for-profit venture set up by the VCR failed, and the project’s sponsor left the VCR, things started to unravel and TNC had to step in to resolve problems. VCR was reintegrated with the wider Virginia Chapter of TNC and TNC headquarters assumed $18 million of the chapter’s debt, largely related to its core activity of land purchases, and the debt associated with the Cobb Island Station building (not the land). This eased the pressure to make a quick decision about the future of the station, giving TNC the time to weigh its options, which include operating it, selling it (at a loss), or converting it to vacation housing. While $18 million was a relatively small amount of debt for TNC to absorb, given its overall portfolio of more than $50 million in assets and its $700 million plus operating budget, the shakeout in the VCR and Virginia Chapter lead to a number of negative news reports in the Washington Post and other local newspapers. TNC defends the Chapter, saying that it has been able to protect the only stretch of barrier islands and coastline in a natural state from Maine to Mexico, but admits that it has learned that it still has much to learn about trying to set-up and run for-profit ventures.

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G. Conservation International, CI In contrast to the Nature Conservancy, Conservation International follows more an indirect investment model for biodiversity conservation. A relatively young, but very well-funded conservation NGO, CI has become on the most active NGO players in ecotourism. It argues that as poverty and socio-economic issues often underlie threats to biodiversity, ecotourism is a good tool for conservation as it seeks to achieve both socio-economic and environmental benefits. CI sees ecotourism as providing communities with the economic justification for creating conservation areas, as it creates strong linkages between economic activity and the need to maintain the environment. CI is also undergoing a shift in its policy approach towards ecotourism. Previously it engaged in projects at the site level, working directly with communities, operators and managers. CI has found this to be overly resource intense process, and it has not achieved the results CI wanted quickly enough. As a result, it is shifting its policy towards positioning CI more as an advocate and mentor. The thinking is that by working more at the macro-economic level and making sure that CI has a seat at the upper level decision making tables of development banks and other development agencies, it will be able to help create the right kind of policy environment for conservation more rapidly. The ecotourism group within CI functions as a technical support and assistance group to its country and field programs. The group advises and comments, develops strategies and designs ecotourism projects on the basis of ideas it receives from NGOs and communities. According to Gutierrez (pers.comm.), CI does not initiate ecotourism projects on its own account. In assessing whether to become involved with an ecotourism project, the project must, first and foremost, be able to provide a significant conservation outcome. This means that it should be in one of the key biodiversity area CI’s has identified, which it calls “hotspots”, address an environmental threat and involves local institutions and communities. CI provides primarily grant financing for ecotourism projects. In its analysis the ecotourism group looks at the significance and appeal of the attraction or destination, visitor flows into the area, other competition, accessibility of the destination, local capacity to undertake the project, and the environmental impact of project. It does not have the resources to undertake focus groups and surveys, and it gets it information primarily through

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fieldwork and consulting with the proposed host communities. The financial performance of the project is the last factor to be considered, and it is only addressed after environmental and social analysis has been done. CI looks for a return on investment of greater than 10% and that the project is able to become financially sustainable in two to three years. CI does not assess what income a community is currently earning from the land and what it would be likely to earn under ecotourism. The assumption is that ecotourism provides greater returns to a community per hectare of land, but this is not specifically ascertained. Sustainability of management is, for CI, in some ways an even more important factor than the financial assessment, as CI has found it to be a primary factor in the overall sustainability of the project. CI therefore focuses providing on training and technical support, and will bring in outside professionals as necessary to supplement its work. Gutierrez states that CI has funded 19 ecotourism projects, all but one of which has been successful.

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Gudigwa Camp and the Bukakhwe Cultural Conservation Trust

CI has assisted the Bukakhwe Cultural Conservation Trust, a community based NGO in the Okavango Delta of northern Botswana, with the establishment of a “Bushman Traditional Village” called Gudigwa Camp. Funded by a combination of funds from CI and funds raised by the Trust, the total project investment and start-up cost was $430,000 (including the construction of airstrip). Opened in 2003, the camp has a capacity for ten visitors at a time and is designed to be an all-inclusive one to two night cultural experience for high-end tourists. Located in a remote area of Okavango Delta, guests are flown in from the nearest town, Maun. Guests participate in a fully scheduled set of activities that include traditional dances, story telling, bush walks and cultural demonstrations. Accommodations are grass huts made from local materials and which are modeled after traditional bushman shelters. The camp uses solar-powered lighting, has private open air toilets and hot bucket showers on demand, and flies its non-biodegradable waste to Maun for disposal. The camp is located 5km away from the village of Gudigwa, so as to minimize the impact on the village. However, all the employees apart from the camp manager are drawn from the village. The goal of the project is “To achieve a long term and sustainable means of generating income for the Gudigwa community through the offering of authentic and educational activities and services in a controlled, low impact, and high quality manner to international tourists, so that traditional culture and nature is conserved, local people are educated and trained, and their standard of living is raised.” (CI, 2000: 1) Interestingly enough, the conservation component of the project is hardly stressed at all in any of the documents given to me by CI. Indeed, the projects reads as an economic and community development project rather than as a conservation project. The community was settled in area by the Botswana government in 1987. Lack of good water and poor soil limited the development of agriculture. In 1994 the Okavango Community Trust was established, a joint venture with five other communities in area, but the Gudigwa did not received the anticipated benefits due to its small size and remoteness. This lead the community to want to develop their own tourism product, and they approached CI for help. CI conducted a Participatory Rural Appraisal in July 1999 (CI, 1999a), a Feasibility Study (CI, 1999b) and drafted the business plan (2000).

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The original feasibility study for the project was actually negative and it is testimony to commitment of the community and CI that they worked to resolve the very real problems identified by the study – including the construction of an airstrip, how to position and market the camp successfully, finding an innovative mix of local construction and western amenities to solve the problem of providing high quality facilities without incurring high costs, and training the community to be able to operate and, in due course, manage, the facility. The resulting business model is complex, involving as it does the logistical issues of being in a remote locations (tourists and some supplies must be flown in), operational issues like enacting Bushmen rituals for group after group and land issues. One of the most successful aspects to the project is its partnership with Okavango Wilderness Safaris (OWS), a highly successful and reputed regional tour operator, as way to access professional reservations and marketing services. “Marketing is a difficult obstacle for all community-based projects in the region. Most of this is due to lack of experience, and inaccessibility to technology and communication outlets. In most community-based projects in Botswana, product marketing is being conducted by the NGO facilitating the project. The NGO is also operating as the booking office for the projects.” (CI, 1999b:18). The relationship with OWS has proved crucial to the initial success of project: The camp is well marketed and presented on a number of ecotourism websites, with sophisticated content and design to appeal to western audience. My only concern with this marketing is that it tends to rather romanticize the community: from various websites one reads that a stay at the camp is “a rare occasion to explore the traditional lifestyle of the Bukakhwe and highlights the intimate connection between the Bukakhwe’s cultural heritage and the surrounding natural environment”, that is allows guests “a rare insight into this ancient African tribe”. The Gudigwa Experience “allows you to get as close to traditional African living as possible, without losing the comforts you require on your holiday” potential visitors are told, while allowing the community to retain “their sacred connection to the land they have inhabited for thousands of years”. The other initial results from the project are also encouraging. According to the CI’s website “Fifty or so jobs were created, the Bukakhwe culture is experiencing a revival and younger generations are now taking an interest in learning more about their ancestry as well as their environment.” http://investigate.conservation.org). But the major assumption behind the project,

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that tourists will come, has yet to be proved. The camp opened with flying colors, but the true test will be time. The feasibility report stated the significant hurdle the camp faces (CI, 1999b: 21): “Gudigwa is the smallest of a five communities…[and is] located outside of the area being tendered for tourism. This means that tourists are not coming to the area where they live. Therefore, Gudigwa needs more support from the private sector to supply clients, as people are not coming through the region for other reasons”. The business plan was one of the better ones I read for the paper, but is, by business standards, still limited. Financial pro-formas were developed, but there was no testing of assumptions and the sensitivity of financial projections to changes in these assumptions. The market research and competitive analysis was rudimentary although the marketing strategy (pricing and distribution) was more thoroughly worked up. In comparison to many other projects, however, CI is considerably in the lead in the understanding the needs of the primary market segment the camp would need to target, and how it should develop the product to meet these traveler’s needs. The competitive analysis focused on the Okavango area, thus implicitly assuming that the decision to travel to the area had already made and that the camp’s primary competitive challenge would be to capture a portion of this existing demand. It could be argued, however, that ecotourists are not just weighing different destinations in Botswana, but rather whether to go to Botswana or, for instance, Costa Rica. What still remains unclear to me is how CI believes the project will impact the community. Getting behind the optimistic statements that the community will be revitalized, I have a lingering concern that there has been little thorough analysis of what the long-term impact of the community’s interaction with high-end western guests on the Gudigwa culture might be. There is ample evidence that “staging” or “performing” cultural rituals for tourists eventually leads to these rituals becoming degraded and devoid of all meaning for a community. In seeking to preserve its culture, the community may land up stripping its most important rituals of meaning. “On the negative side, tourism in San communities can cause a disruption of their cultural values created by the perceived benefits of tourism-related activities” (CI, 199b:20) and it is not clear to me what is being to prepare the community for these possible changes. It is also not clear who from the community is driving the project and who is benefiting from it. There is much talk of community involvement and participation, but it is not clear from the business plan how these questions, raised in the feasibility study, are being addressed: “No

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workshops addressing the benefits and possible problems of tourism development have been conducted with the community. If after presenting the findings of this feasibility study, the community wants to continue with the development of a cultural tourism project, then an awareness workshop will be held with the community” (CI, 1999b:14). There is no statement about what financial benefits will flow to the community and how these benefits will be allocated. The feasibility report (CI, 1999b:21) questioned if the project would make up for the small amount of income the community received from the Okavango Community Trust, and this is not addressed further in the business plan.

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H. Conservation Corporation Africa, CC Africa CC Africa (formerly Conservation Corporation) was founded in 1990 by Dave Varty and is generally considered the premier ecotourism operator in Africa and a world-wide standard setter. Its operating charter is founded on the principles of: “care of the land, care of the wildlife, care of the people”. A private South African company, it has expanded rapidly and its portfolio of properties now covers six countries (South Africa, Botswana, Namibia, Kenya, Tanzania and Zimbabwe), 31 camps at 15 lodge destinations, and an employee base in excess of 3,000. As of 2002, it operated 662 beds, with an average occupancy of 62.7%. It acquired Afro Ventures (safari tour operator) and Into Africa (incentive travel and destination management) in February 2000 in order to develop a better distribution infrastructure. These subsidiaries host about 85,000 clients per year. CC Africa’s business model is to “attract high net worth, discerning global travelers whose leisure expenditure will fuel the development of conservation, land restoration and local community upliftment” (CC Africa, 2002). The company follows an integrated conservation development strategy, investing money in reclaiming degraded land and restocking large wilderness areas and former hunting grounds so that it becomes a world-class safari destination. It has instituted an innovative predator re-introduction program. Through its foundation, The Africa Foundation, CC Africa has invested in the local communities surrounding its game reserves. It funds education, health, business development and other programs through infrastructure development, micro-loans and educational opportunities. 85% of all CC Africa’s lodge staff is employed from the local communities surrounding the properties. Company guides, rangers and trackers are trained at one of the company’s two schools. Figures 20 and 21 provide greater details on CC Africa’s ecotourism model and conservation principles. Initially funded by Masterbond, a failed South African venture capital firm, CC Africa was able to avoid being liquidated as it had been set up as separately tracked debentures. With some difficulty, it was sourced new investment from Hambros Bank and three Getty Family Trusts. At that time, in the early 1990s and before South Africa had achieved its peaceful democratic transition, CC Africa’s pitch that buying its stock was an investment in “sustainable conservation

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development” was highly contentious, even derided. (White) investors were incredulous that it was practically possible and political feasibility to work with (black) local communities. Furthermore , sanctions were still in place, making any investment into South Africa a political minefield for foreign investors. CC Africa found that it was caught in a “Catch-22” situation: South African investors wanted the security and comfort of seeing big international investors involved before they would invest, but the big international investors wanted to see local investment participation before they would take the political risk of investing in South Africa. After Hambros and the Getty Family Trust invested, other investors quickly followed, including South Africa’s then largest company, Anglo American. CC Africa’s shareholder base is now 60% South African investors, of which Capricorn Ventures, a South African VC is the largest, and 40% international investors, of which the Getty Family is the largest. There are some 176 other smaller investors. Its current invested capital base is $100 million and it carries virtually no debt. Initial investors into CC Africa invested on the basis of a prospectus that promised no return for the first ten years and envisaged establishing ten lodges in those ten years. It was one of the very early companies in Africa to champion the “triple bottom line”, but it is only after a drastic management overhaul and refocusing the energies of the company on running it as the operating company it is, rather as a philanthropic conservation fund, that it finally turned a profit in 2002, of R20 million (about $2.5 million), from a R60 million ($8.5 million) loss in 2001. The company now believes that the financial model has proved itself, but it has taken a fairly ruthless focus on the financial aspect of the triple bottom line to do so. This emphasis is evident in its three step decision making process on new investments: firstly, it assesses whether an operation is commercially viable, then if it is socially responsible and finally if it make a difference to conservation. This is a complete inversion of the process followed by the NGO venture capital funds, where investments must first pass the conservation test and only then is the financial performance of the project considered. According to Carlisle (pers.comm.), each of the three factors is weighted differently depending on the life cycle of the company and how much cash it has available. CC Africa is prepared to support an investment for five to eight years before it turns a profit if the conservation and social benefits are sufficiently large to justify this. CC Africa believes that its product life cycle has peaked: it considers itself a mature company in a maturing sector, which is stark contrast to the general belief that ecotourism is still an emerging model.

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After a period of such rapid growth that the company nearly outstripped its capacity to operate, the company is now in a position to turn down requests from new investors. The growth phase was funded by the shareholders, rather than the internal generation of cash, who do not now want to have their shares diluted by new investors. Carlisle (pers.comm.) commented that as the company grew and started to achieve economies of scale, so it became easier to raise money for expansion than it was to fill the lodges with visitors. He emphasized that the crux of successful ecotourism development is to run a good operation, which is far more easily said than done.

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Fig. 19 Phinda as an Ecotourism Model - Les Carlisle
Conservation Corporation Africa (CC Africa) was established in 1990 to develop ecotourism destinations in Southern and East Africa for discerning travellers. At present, the company operates 31 lodges in six countries, as well as guided mobile expeditions. In all localities CC Africa engages with local communities, parks authorities and other parties to provide the highest quality wildlife experience while supporting local economies and minimising its impact on the environment. In the absence of a recognised ecotourism accreditation programme over most of the continent, CC Africa has instituted its own environmental audit which is based on globally recognised criteria. An innovative aspect of CC Africa’s strategy is the formation of a ‘Green Team’ at each property which is tasked with monitoring and taking appropriate action on issues such as community participation, waste management and alien plant control . Employment opportunities at lodges for local people include high quality training and up-skilling leading to career advancement. Community projects are undertaken in tandem with the independent, non-profit, Africa Foundation, originally founded by CC Africa. A cornerstone of CC Africa’s operation is the provision of the highest quality interpretative experience for guests which entails advanced training and mentoring of guides. The company also provides publications such as lodge specific EcoGuides and the unique ‘Ecological Journal’ which documents unusual wildlife observations and field projects undertaken by the guides themselves. CC Africa has been heralded as "a global model for what tourism can achieve for conservation and communities" by Ralph Buckley of the International Centre for Ecotourism Research at Griffith University, Australia . In ‘Case Studies in Ecotourism’ (Cabi, 2003). Buckley concludes that CC Africa stands out among other ecotourism operators in all areas of operation, including social and environmental contributions. He says "Such approaches are now part of the routine rhetoric of community ecotourism world-wide, and have indeed been followed by other tourism operators in Africa and elsewhere, but CC Africa deserves credit for innovation and early adoption". Phinda Private Game Reserve – overall winner of the 2002 Imvelo Award for Responsible Tourism – formed the foundation for the CC Africa model. Begun in 1991, the project initially involved the consolidation of 7 500 hectares of farmland between the Mkuzi Game Reserve and Sodwana State Forest Reserve, just north of Lake St. Lucia in the ecologically rich area of Maputaland. A a further 6 000 hectares with frontage on the Mzinene River was acquired in 1992. Today, the reserve extends over 1500 hectares and forms part of the Munyawana conservancy. Phinda incorporates seven distinct habitats, from palmveld and acacia savanna, to sand-forest and seasonal wetlands. One of the major attributes of the reserve is 800 hectares of sand-forest, representing a significant portion of this rare vegetation type on private land in South Africa. At the time of acquiring the property, much of Phinda had been scarred by decades of inappropriate farming of livestock, pineapple, cotton and sisal. To transform Phinda into a desirable wildlife watching destination a bold ecological rehabilitation programme was implemented. Buildings, decaying farm equipment, internal fences and power lines were removed and bush-encroached habitats cleared. A massive game restocking programme was undertaken, after careful analysis of the historical record. Over 1000 large mammals, including White Rhinoceros, Elephant, Cheetah, Lion and Giraffe were set free in the largest wildlife reintroduction on private land at the time. In 1998 Phinda released a herd of 22 TBfree Buffalo to occupy the ‘bulk grazing’ niche and the population now stands at over 70. Of particular significance, is Phinda’s experience with large carnivore reintroduction which, in the early 1990s, had met with little success elsewhere. Acceptance and co-operation from neighbours was secured by radio-tracking of released cats, and a negotiated insurance policy for possible stock predation. Under the guidance of Dr Luke Hunter (I.U.C.N Cat Specialist Group) monitoring and management of Cheetah and Lion (the numbers of which are maintained at set levels and ‘surplus’ individuals relocated to other wildlife areas) is ongoing. Other studies overseen by Phinda habitat manager Kevin Pretorius include that of population density of Leopard (also under direction of Hunter), vegetational impacts of Elephant, and the control of invasive Triffid Weed (Chromolaena odorata). Four exceptional lodges - combined with a superlative wildlife experience - attract visitors to Phinda from around the world. To tackle rural poverty in surrounding areas, the reserve has actively involved the community in all aspects and regards social and economic development projects as integral to its operation. Phinda’s community participation is based on the following premises: • Acknowledgement that people are a cornerstone of the region’s natural environment and are entitled to sustained benefits from its natural resources. • “Island reserves” that do not take cognisance of the socio-economic aspirations of surrounding communities foster resentment and antagonism that eventually leads to interference in the wildlife areas. • The private enterprise initiative embodied by Phinda has a role to play in facilitating integrated rural development strategies for the region. Through the implementation of these principles Phinda has become a vehicle for socio-economic advancement and enhanced sustainable resource utilisation, rather than a source of tension (as has traditionally been the case with African wildlife sanctuaries). Community Development Committees at Mnqobokazi, Mduku, and Nibela comprise representatives from the traditional tribal authorities, the school authorities, and members of the Phinda team including General Manager Jason King. The committees are responsible for project identification and initiation, refining development needs, overseeing construction of facilities, and identifying areas of concern. Of the 22 500 people who reside within a 15km radius of the reserve, 250 are employed at Phinda, between the four lodges and the reserve. Taking into account that one employed person supports 8-10 dependants in this region, the reserve provides direct benefits to 10% of its neighbouring population. In partnership with the Africa Foundation (established in 1991 by CC Africa, and now an independent, non-profit organisation) Phinda’s approach to project outputs is entirely community centred. The initiative has succeeded in empowering individuals and reducing poverty by broadening access to education. With Africa Foundation funding (procured from Phinda guests), 44 classrooms and 18 pre-primary schools have been constructed, staffed and provided with resources. Over 100 bursaries for academic and applied studies have been funded, and students are required to return to their community for up to two years after training, as a means of passing on skills. A recently completed skills training centre at Mduku enables matriculated students who can’t find work to acquire practical skills such as carpentry or sewing. The Africa Foundation and Phinda have helped to restore human dignity and security by providing access to adequate health care in the form of a clinic that caters for a community of more than 11 000 people, 24-hours a day. Phinda also runs extensive HIV-Aids awareness programmes - vital in a province where some 32% of the population is living with the disease. The ongoing achievements at Phinda have been the inspiration behind all the CC Africa properties in South Africa, Tanzania, Kenya, Zimbabwe, Botswana and Namibia. By attracting global ecotourists to locations as far apart as Klein’s Camp in the remote north-eastern corner of the Serengeti, to Sossusvlei Mountain Lodge in the private Namib-Rand concession of Namibia, CC Africa continues to change people’s lives and their perceptions towards the value of wild places.

Source: http://www.wildwatch.com

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Fig. 20 CC Africa’s six-point conservation strategy
1. ENVIRONMENTAL IMPACT & SENSITIVITY: We strive for integration with nature and constantly explore ways to reduce environmental impact of our lodges, camps and activities • Stringent but practical parameters and guidelines have been developed for all lodges where it is crucial that we do not impair or detract from the natural environment. Our Conservation Team will provide lodge managers with workable and cost-effective solutions on a priority basis. • An annual award is given to the lodge which makes the greatest strides in terms of reducing impacts. • 'Green Teams' composed of volunteer staff members have been formed at each lodge or camp, to investigate problems and implement solutions. The wise use of energy and water, the disposal of waste including litter, and control of alien plants are among the key aspects. • Habitat management - including the siting of roads and dams, bush clearing, burning and animal relocations - is carried out according to ecological considerations. Procedures to be monitored and accurately documented. • Sensitivity towards wildlife and landscapes is paramount in all that we do, and game drives and walks never compromise animals or their habitats. 2. SUSTAINABLE COMMUNITY DEVELOPMENT: We develop trusting relationships with our neighbours to co-operatively undertake projects which will create local economies and improve the lives of people • Project ideas initiated by individuals or groups will be evaluated to ensure that they meet criteria acceptable to both the broader community and CC Africa lodges. By and large, projects will mostly be loan-funded, rather than donor-driven. • We will work closely with the Africa Foundation and others who have expertise to facilitate the process of rural development. • Consistent monitoring and evaluation will be undertaken to enable all involved to review progress. • CC Africa staff (particularly those dealing with guests) need to have an understanding of the initiatives and processes involved in local development. • We relate to, and work with, our neighbours in a manner which is in no way patronising, paternalistic or expedient. 3. ENVIRONMENTAL INTERPRETATION AND AWARENESS: We provide exciting encounters and accurate information on wildlife, local culture and ecosystems to guests at lodges, and to the world through our innovative publications • We will continue to grow and develop skills among all guides and trackers through advanced training, continual knowledge acquisition, grading and specialisation. • In addition to providing enthralling encounters with wildlife, guides will strive to ensure that guests absorb an appreciation of the ecological processes in which different animals and plants are inter-dependent. • We will continue to produce high quality and informative publications (Ecological Journal, Wildwatch.com and others) to which all staff can contribute, and which demonstrate our long-term commitment to Africa's wild places. • Our wildlife experience is to be diversified by introducing specialist 'EcoStudy Encounters' linked to field projects. Secluded observation hides, interpretive centres and libraries will be established at lodges. • Our quarterly newsletter The Bateleur will promote the CC Africa philosophy and our endeavours to staff, guests, the industry, and the outside world. 4. PERSONAL COMMITMENT: Our staff make an individual and collective contribution to environmental conservation by adopting an eco-friendly lifestyle and promoting the ethics of the company • "Care of the Wildlife, Care of the Land, Care of the People" is not just a catch-phrase. It is a creed that we should all adopt and live by. • Ideas on environmentally sensitive behaviour and activities for eco-living are distributed to all CC Africa staff. Voluntary Green Teams have been established at city offices and lodges to promote the recycling of waste, planting of indigenous trees, taking under-privileged children on nature outings, and much more. • Awards will be presented to those individuals who demonstrate outstanding commitment towards environmental conservation. ` 5. SUPPORT OF CONSERVATION ORGANISATIONS: To make a greater contribution to the conservation movement, CC Africa provides financial support and interacts with numerous recognised bodies in the countries in which we operate • Annual contributions will be made to respected agencies such as Endangered Wildlife Trust, East African Wildlife Society and BirdLife South Africa, with whom we also undertake collaborative projects. We will foster and maintain positive relations with government agencies such as KwaZulu-Natal Parks, TANAPA and SA National Parks. 6. BIODIVERSITY PROTECTION: To explore ways of using profits generated in our savanna-based safari operations to help secure threatened ecosystems elsewhere • The majority of CC Africa lodges are situated within Africa's Savanna biome (vegetation zone) since it is here that large mammals are most common and easily viewed. However, most of the plant and animal species in the savanna are effectily conserved in large reserves and so are not threatened (Wild Dog, Black Rhino and Saddle-billed Stork are exceptions). Areas rich in biodiversity will be identified and partnerships forged with relevant role players. Among the areas which we hope to become involved with in due course are the grasslands of the South African highveld, the Kakamega forest in Kenya, and the Usambara forests in Tanzania. Expertise and training will eventually be provided to communities in, or adjacent to, areas rich in biodiversity to facilitate the development of small-scale ecotourism enterprises. Source: Butchart (2003)

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I. Turtle Island Richard Evanson, who describes himself as, at 36, a “burned out businessman” bought the uninhabited island of Nanuya Levu in the Fiji archipelago in the early 1970s and renamed it Turtle Island. The island’s vegetation had been considerably damaged by feral goats and there was significant soil erosion. Evanson developed a luxury resort, with a maximum occupancy of 14 couples, and rehabilitated the island’s ecosystem. The resort has won numerous responsible and sustainable travel awards, including the British Airways Tourism for Tomorrow Awards (1999) and the Green Globe Achievement Award (2000). With a minimum stay of six nights, and at $1,500 per night per couple, Turtle Island caters to a small and exclusive client base. Evanson has used this lucrative business to revegetate much of the island: the resort had planted over 300,000 trees as of 1991, at a rate of 20,000 trees per annum. The majority of the resort’s employees, except for a few senior managers, come from the surrounding islands, and Evanson has contributed to the local communities through several mechanisms:
•

Annual Medical Week: The resort closes for a week every year as it becomes home to volunteer doctors from around the world who come to the island to run eye clinics, dental clinics and other health services.

•

Yasawas Community Foundation: This was established in 1992 to channel guest donations to community projects. The foundation has supported community projects in healthcare, education and employment.

•

The construction of a school on the island: There are no secondary schools in the group of islands in which the resort is located, and many families cannot afford to send their children to school on the mainland. The construction of the school allows children from the seven surrounding local villages to stay with their families and commute to school by boat everyday. It is envisaged that the school will eventually accommodate 100 children.

•

The provision of interest-free loans to surrounding villages to build budget and backpacker accommodations to combat high levels of unemployment.

The most distinctive feature of Turtle Island’s operations is its strong emphasis on family. “The intentional facilitation of a collective and shared experience” (BEST, 2003) comes at some cost to the staff. During the first of a recently instituted system of five yearly cultural and environmental audits, the stress that this highly structured and regulated social environment causes for the

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employees became apparent. According the resort’s website, these audits are made available to guests to read, but they are not available on line on the resort’s website and I have not been able to find any information about what has been done about some of the recommendations made in the cultural report.

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J. Maho Bay Like CC Africa, Maho Bay is one of the most widely praised ecotourism operations in the world. Originally opened in 1976 on St John’s, in the US Virgin Islands, Stanley Selengut has expanded the original 18 units of Maho Bay Camps to three other resorts on the island: Harmony Studios, Estate Concordia Studios and the Concordia Eco-tents. At the other end of the spectrum to Turtle Island, average rates are about $110 per couple in peak season. While Maho Bay has been highly profitably for it owner and operator, Stanley Selengut, his focus has been on driving volume, rather than rate, although he sees luxury ecotourism tourism as a natural response to the economics of the industry. Maho Bay has been a pioneer in the field of ecotourism. The facilities are constructed of recycled materials and are completely “off the grid”, sourcing their power from wind and solar energy. Selengut has placed battery meters and laptops which track guests’ energy use in each unit. As guests become aware of their energy use it becomes a source of pride among guests to be able to say they have used the least amount of energy. Selengut has also involved guests in programs that turn the resorts’ waste into usable objects e.g., blowing waste glass and creating ceramics from other wastes. Maho Bay also initiated a work-service program in the off-peak season to attract skilled workers to perform services on the properties that that the business could otherwise never support. Selengut has proved that it is possible to build a highly profitable and successful ecotourism operation on the basis of savvy marketing, good business and operational fundamentals and a thorough understanding of one’s customer. He makes prodigious use of customer surveys, sending out mailings regularly and surveying guests when they are on the property. Selengut maintains that ecotourism is a business just like any other, its only difference being that is has other benefits in addition to financial returns. Environmental stewardship is, in this sense, just good business sense, as it is the natural environment that attracts customers to the resort or in the first place. In many ways Selengut epitomizes the ecotourism entrepreneur: the business started off as a hobby for him; he never wrote a business plan or did any risk assessment, he approached the venture with the perspective that while he didn’t intend to make a loss, any loss would be tax deductible. This freed him to focus on, and enjoy, getting the business established. As an absentee

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landowner he explains that he “never considered being so tied to the business, and investing so much money in it, that I couldn’t just walk away”. He contrasts his approach with that of entrepreneurs who are financed by the donor or NGO community: “they spend so much energy sourcing and maintaining funding that they cannot focus on business operations”, and their businesses are more likely to fail. Unlike other entrepreneurs, however, Selengut did not start the business as an alternative to a previous career, but rather as an addition to his existing career. The expansion of the company has been financed organically, from the cash generated by the existing facilities. Selengut explained that once one is able to scale the operations sufficiently, then the business is able to develop a marketing program, adopt better financial and accounting practices, and recruit more specialized employees. In the early years of operation, employees have to be multi-skilled, but once the business is big enough to support separate function roles, it can start to develop more sophisticated and innovative programs as the operation grows. In talking to Selengut about the role of donors and the NGO community, he expressed a quiet certainty that the NGOs will come to realize the importance of management skills and marketing when they are tired of subsidizing failing projects and are looking to make them self-sufficient. He feels that the mentality of the NGOs is not entrepreneurial, but far more academic. “Reality will force them to change their approach”, he maintains. Currently, he believes that most of the NGOs’ ecotourism guidelines are punitive, imposing considerable costs on businesses, and that they will, by force of circumstance, need to shift towards a more service base approach.

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K. Kruger National Park, Maluleke Community and Matswani Safaris It is hard to consider the new 24-bed ultra-luxury resort, the Outpost, in a remote area of the Kruger National Park in South Africa, on land owned by the Makuleke community, as true ecotourism, given its highly modern, minimalist design in aluminium and glass. However, I am including a newspaper article (see Figure 22) about the development as a sign of possible things to come in ecotourism. A tripartite initiative between a local community, the South African government and the private sector, it has proven that despite the considerable hurdles facing such initiatives, especially in attracting the interest of the private sector, they are possible.

Fig. 21: A turning point for national parks? In a little village in the far northeastern corner of SA, an unheralded deal was signed last month that could be a turning point in the way the country's national parks operate. The agreement between the Makuleke community and Matswani Safaris allows the latter to build a lodge in the remote and beautiful Pafuri area of the Kruger Park. It is SA's first tourism project that is a genuine joint effort by a rural community, government and the private sector to drive economic growth and alleviate local poverty. Early next year, The Outpost, a small, ultra-luxurious lodge perched on a koppie above the Luvuvhu River, with expansive views all the way to Mozambique, will open for business. The capital outlay will be between R6m and R8m. From day one the Makuleke people will benefit. They will supply the 30 staff, acquire skills training and collect a monthly lease fee, as well as a monthly levy for a community development fund. In time, they will take over the lodge wholly - a classic build-operate-transfer model. In 1969, 3 000 members of the Makuleke clan were forcibly removed from their land, 24 000ha of which was included in the Kruger Park. In the mid-'90s the community lodged a claim to regain the land. SA National Parks - concerned the case might presage a fracturing of its prized reserves - entered into negotiations with the Makuleke. The agreement the two reached established the area as a "contract park", meaning it remained under conservation within the overall Kruger system; but the Makuleke were granted full commercial rights within it. These rights have to be exercised within the parameters of conservation objectives. Lamson Makuleke, operating officer of the Makuleke communal property association, says the clan's decision not to move back onto the land was made after extensive workshopping. "There were a few people, the older ones, who still identified strongly with the land on which our people had lived since the 1800s," he says. "But eventually they came to understand that it would have been very costly for us to go back; we would have all had to build new houses, for one thing." The first time the Makuleke exercised their rights on their ancestral land, they ran into a storm of controversy. They conducted two elephant and buffalo hunts to raise quick revenue for community development projects - sparking outrage among animal rights activists. The development of lodges was seen as a way to ensure alternate revenue and phase out the hunts, which brought in about R500 000 apiece. Surveys showed that up to six lodges could be sustained in Pafuri (to be renamed Makuleke), and a tender process was started for the first of these. Matswani Safaris, which will build the 24-bed lodge, is a relatively small firm whose other hospitality operations are the upmarket boutique hotel Ten Bompas in Johannesburg and

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Honeyguide tented safari camp in the Manyaleti reserve in Northern Province. Holding company Kimony Holdings' principal activity is magnetite mining in the Richard's Bay area - which senior partner Christoff van Staden says "pays the rent". The partnership with the Makuleke has been "an eye opener", says Van Staden. "They are an extremely well--organised community. It is easy to underestimate a rural group like this, and I must say we went into it with a little trepidation. But between us we have come up with a very interesting business recipe." Matswani will build and operate The Outpost for 15 years, with a possible option of a further 15 years. The lodge then becomes the sole property of the Makuleke. The company has already started training community members to take up positions at all levels of management in the lodge project. The envisaged price of a night at The Outpost is a cool R2 500 per person, which should ensure a tidy return in tourist dollars. A lot has been said about conservation agencies drawing rural communities into their work by letting them benefit from revenue opportunities in game reserves. Yet scepticism has built up as few meaningful partnerships of this nature have come to fruition. Projects have been limited to allowing the collection of thatching and firewood, and promoting the sale of locallycrafted curios. There is hope the Makuleke deal could be a turning point. SA National Parks recently adopted a "buffer-zone" policy that will give other rural communities on the Kruger borders commercial rights to lodge development zones in the park.

Source: Business Day, Jun 21 2001

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6. Conclusion

There would appear to be systematic problems with both the private and the donor/NGO models of investment in ecotourism which are hampering its development as a viable business model and force for change within the tourism industry. Donors and NGOs have emphasized ecotourism as a development tool and have, in the name of community building and sustainability, often placed substantial barriers in the way of private sector investment, even while they say that investment should be private sector lead. In general, private entrepreneurs are characterized by low levels of experience in ecotourism, high rates of failure and lack of sophistication. It would seem that ecotourism is in something of a “Catch 22”. In order for ecotourism to become a viable and successful model, that delivers its envisaged returns, it needs to access new sources of capital, as current investment models and capital structures do not easily lend themselves to ecotourism’s version of the “triple bottom line” focused business model, where returns are lower and holding periods longer. But the business case for ecotourism needs to be proved before more capital will become available. There are substantial funds available from the donor and NGO community for conservation and biodiversity, but they are constrained from investing directly in what are seen to be commercial ventures. Mainstream commercial investors and lenders are deterred by the unproven and risky nature of ecotourism as a business. And while the “adventure funds” seek to bridge the gap, they are constrained both by their investor base, who wants shorter holder periods and higher returns than ecotourism can typically deliver, and by the nature of the business, where exit strategies are difficult and value hard to ascertain. Further, while a typical venture capital fund expects that a high percentage of its investments will fail, but that that those that succeed will more than compensate for these losses, the lower returns from ecotourism mean that “adventure capital” funds need to invest in projects that have a higher probability of success. And so the financial viability of ecotourism businesses remains tenuous. Given the political pressure on donors from NGOs to become responsible in their development activities, the presence of large, well funded NGOs, and the relative lack of financing for private entrepreneurs, it would seem that ecotourism as a development tool has the potential to become over-used. Until the demand size is proven, the risks reduced and a better business case made for ecotourism, it is unlikely that more sophisticated and experienced entrepreneurs will enter the industry. This creates enormous opportunities for those, like CC Africa and Maho Bay, who are able to operate ecotourism enterprises successfully, as they have relatively little competition

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within the sector. And they are likely to retain their rather unique position in the market for as long as political and development objectives are paramount. Decisions about ecotourism development need to be driven by more quantitative analysis, including more sophisticated financial analysis, market research and scenario modeling. The donor agencies are beginning to share more information and to become more transparent in their funding. But until ecotourism is able to start collecting and analyzing data on where the limits of sustainability lie in relation to the limits of market demand, donors and NGOs are likely to continue provide support only for small scale enterprises. The private sector is well behind the donors and NGOs on information sharing. The shift of the donor and NGO community towards providing funding for more “soft objectives” like capacity building and community empowerments is also constraining the development of ecotourism. With its poor risk-return trade off, ecotourism most needs public investment in hard infrastructure so as to reduce the risks and create a more acceptable risk-return trade-off. Here, the emergent tripartite partnerships between communities, the public sector and private sector, while still very new, seem to offer hope for the future. The presence of the public sector and its provision of infrastructure and investment incentives helps to lower the risk to the private operator; the presence of the private sector helps to make the operation profitable; and the presence of the community achieves the necessary political support. This model does not assume that the flow of benefits to communities can only be achieved by community ownership, but rather that by following a “build-operate-transfer” model between a private sector operator and community, more substantial benefits community can be realized over time. By allowing an operation to reinvest in itself, rather than diverting most cash flows towards a community trust, it can become more sustainable, and thus provide greater social and environmental benefits over time. The livelihoods of some of the most impoverished communities and the conservation of some of the most important areas of the world are stake: I would argue that it is vitally important that we do not continue to approach ecotourism with an overly naïve perspective. Ecotourism must produce “bankable cash flows” if we want to realize its promise for social and environmental returns. Financial sustainability is a function of the engagement and participation of the private sector, and the separation between the development agencies and NGOs and business is harming the industry.

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Personal Conversations: Meetings, interviews and e-mail correspondence October – November 2003 Bailey, Margaret Cain, Carolyn Carlisle, Lesley Edwards, Scott Epler Wood, Megan Gutierrez, Eileen Halpenny, Elizabeth Hardigg, Nick Hawkins, Donald PricewaterhouseCoopers LLP Senior Tourism Specialist, IFC Group Environmental Manager, Conservation Corporation Africa Associate Director, Center for Park Management, National Parks Conservation Association Head, EplerWood International Manager, Africa Region, Ecotourism Department, International Nature Tourism Solutions, University of Waterloo Conservation

Chief, Division of Concessions Management, Grand Canyon National Park, National Park Service Eisenhower Professor of Tourism Policy, Department of Tourism and Hospitality Management, School of Business and Public Management. George Washington University. Director, Associates for Economic Development CFO, The Ecotourism Society Lead Ecologist, Sub-Saharan Africa, World Bank Biodiversity Community of Practice. Environment and Natural Resources, Inter-America Development Bank Consultant, PA Consulting Senior Investment Officer, East and Southern Africa Division, SubSaharan Africa Department. International Finance Corporation. Director and Fund Manager, Verde Ventures Program Manager, Concession Program Division, National Parks Service Head, EcoTourism International; Owner, Belize Lodge and Excursions Owner, Maho Bay Senior Business Consultant, The Nature Conservancy

Heher, Tony Inamdar, Neel. Kiss, Agi, Luna-Kelser, Juan Meade, Bill Milton, Thomas Morris, Jennifer Orlando, Cynthia Sanders, Ed Selengut, Stanley Soles, Andrew

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