November 2008 ˇ Number 138 53823 A regular series of notes highlighting recent lessons emerging from the operational and analytical program of the World Bank`s Latin America and Caribbean Region. Local Economic Development and Tourism Tatsuji Hayakawaa, Monica Riverob and Tova Maria Soloc Introduction Inspired by the session "Tourism and Local Economic Development: Success and Challenges" within the As discussed in Hawkins and Mann (2007), the World Learning Event "Sustainable, Responsible Tourism in Bank dropped its engagement in the tourism sector dur- Latin America and the Caribbean" held in the Bank on ing the 1980s after twenty years of financing Bank's April 14, 2008, this En Breve explores four approaches Tourism Projects which included infrastructure for resort to tourism as a driver of local economic development. sites, lines of credit for hotels, training, and some invest- ment in hotels and other tourism related projects. At the time, World Bank lending for tourism in LAC was just above US$350 million. After the tourism department closed in the late 70s, some projects supporting tourism continued, but total lending fell to US$150 million by the mid-80s. It had reached a low of US$50 million by the mid-90s. However, in the mid-90s the trend started reversing it- self and by 2007 lending for tourism grew to US$175 million, and is expected to pass the $350 million dollar mark during 2008-09. The World Bank's renewed inter- est in tourism derives from its direct and indirect roles in reducing poverty and achieving the United Nations Millennium Development Goals. Tourism is currently estimated to contribute around 10% of global GDP now- Stand Alone Community Projects adays (Brida et al, 2007) and to be the largest contribu- Community Based Tourism projects have a mixed repu- tor to employment worldwide. Thus tourism can impact tation. Stand alone projects can be successful, as indicat- positively on local economic development (LED) and, in ed by the remarkable experiences of Chalalan Ecolodge turn, can lead to poverty reduction in destination commu- (see Box 1) and Salar de Uyuni in Bolivia (See Box 5), nities and countries. but their impact appears to be limited. Despite gener- ous support from the Inter-American Development Bank With its new focus on LED-based tourism, the World in both cases, and additional help from GTZ (German Bank has shifted its project objectives from support- Agency for Technical Cooperation) and Conservation ing beach (sun, sand and surf) development projects to International in the first case, and from Fundación PRO- poverty reduction through agro-eco-tourism, community- DEM in the second, neither project has been able to ex- based tourism, cultural and adventure tourism and, in pand operations or to generate companion enterprises to general, the development of special niches where tourism absorb the growing community labor force or to produce can claim both environmental sustainability and social desired multiplier effects. Nor is it evident that either responsibility (Ba and Mann, 2006). project could ever recover the original investments made by donors, despite their high profitability. Still, as stand alone projects, Chalalan and Salar de Uyu- Box 1 - Chalalán Ecolodge in Madidi National Park, Bolivia ni have proved sustainable and profitable and have un- ---How to turn an initial funding by donors into a sustainable deniably generated local economic development in two tourism operation--- of the poorest regions of Bolivia. Moreover, the projects Located within the Madidi National Park created in 1995, have empowered their respective communities and bol- San José de Uchupiamonas is a remote indigenous com- stered ethnic pride. Indeed, their success could stem in munity, relying on traditional farming, hunting, fishing, and part from the characteristics of the indigenous cultures, collecting forest fruits. The initiative of constructing rustic which maintain traditional values, staying close to the cabins as Chalalán Ecolodge in the community started in land and within the community, over financial growth. 1992 and benefited from the significant donation received from the Multilateral Investment Fund of the Inter-Ameri- Investments in Destination Cities or Regions can Stimulate can Development Bank (US$1,250,000) and Conservation Sustainable Tourism International (US$200,000), in December 1994. The site Recent World Bank projects have focused on enhanc- was chosen because of its strong ecotourism potential and ing tourist destinations ­ improving the quality of life the project designed in for residents while stimulating the expectation of posi- increased visitor growth. In Santa tive impacts on the local Rosa de Copan in Honduras (See community. Box 2) site of one of the great Mayan temple cities with the best The Chalalán Ecolodge preserved paintings in Central began operations in America, the World Bank has 1998, when it received financed upgrading and works 400 visitors. Thanks to in the host city and at the ruins, the continuous efforts by as well as training and financial the members of Chalalán support through a grant facility Ecolodge, the number of for small businesses linked to visitors doubled from 700 in 1999 to 1,406 in 2007. Cited the destination. At this writing, following its successful as "Highly Commended" in the category of "Best in a Park completion, the Copan Valley project is being extended or Protected Area" among the Virgin Holidays Responsible to expand the tourist circuits, and to bring the benefits Tourism Awards 2007, Chalalán Ecolodge has achieved of tourism to the larger area of influence of Santa Rosa annual revenues of US$280,000 for the past 5 years. de Copan and the archeological site. Bank projects Malky Harb and Saavedra (2007) attribute the success underway in Vilcanota Vally, Peru and Copacabana on of Chalalán Ecolodge, to the timely financial contributions Lake Titicaca, Bolivia follow similar approaches, build- from donors, to the existing social capital (characteristic of ing tourism markets and income by a combination of an indigenous group), and to its stunning location. Chala- actions to improve local infrastructure, to make cultural lán Ecolodge took advantage of its luck, but the model has heritage more accessible and to provide small grants for not been replicated yet in other areas of Bolivia. enterprise development. Vilcanota Valley counts also on the "geotourism map guide" developed by National Geo- While very appealing, the Community Based Tourism graphic Society (see Box 3) to further stimulate educated model has been questioned by Overseas Development tourism. Institute tourism expert, Caroline Ashley4 as having consumed "vast amounts of community time and donor In Puerto Limon in Costa Rica (see Box 4) the World resources producing projects that are commercially not Bank has begun its first "port-city" project, financing the viable." Ashley goes on to point out that when "enter- improvement of sites of cultural and architectural inter- prises that are, literally, run by a collective community est to create a circuit for visitors and to stimulate local group" they have "all the problems of collectives operat- investment in tourism development. Projects under prep- ing in a fairly sophisticated consumer market ." aration in Sao Luis, and Santos, Brazil, and Colon, Pan- ama, are following the same model. Impact evaluations 2 ˇ November 2008 ˇ Number 138 Box 2 - Regional Development in the Copan Valley Project, Honduras Since 2003, the World Bank has been financing a regional cultural tourism development project in the Copan Valley, Honduras. The project, a $12 million credit from the International Development Association, has developed tourism circuits, signage, a Regional Investigation Center for Archeology and a visitor center at the Copan ruins as well as developed a circuit to other four nearby archeological and ecological sites. It has also financed infrastructure improvements in the host city of Copan Ruinas, and provided support to the preparation of management plans of all five sites, including Los Naranjos Eco-archeological Park. The project also includes capacity development activities through a grant and technical assistance program called Fondo Properi- dad (Prosperity Fund). This fund financed 68 local tourism en- trepreneurs, mostly women, benefiting more than 1,650 people directly and an estimated 25,000 people indirectly. Thanks to this project, the management capacity of the municipality of Copan Ruinas has been strengthened through the establish- ment of an Urban Planning Bureau and a Municipal Tourism Unit. These bodies have helped to refine and enforce critical urban development and management norms, as well as regulations for construction licensing, heritage protection, traffic control, street commercialization, environmental conservation, cadastre, street naming, and color and signage standards. As a result, and also as a consequence of the expansion of local economic activities, municipal revenues rose. In five years, this project has helped give Copan Ruinas a brand new image while expand- ing income generation opportunities to its poor inhabitants and increasing their sense of local heritage and distinctiveness. This model is now being shared with other municipalities in the Valley. will be tracking indicators of jobs created in the tourism sec- tor, as well as increased income and number of visitors. Box 3 - Geotourism Maps and Geotourism Circuits A concept wider than ecotourism, "geotourism" promoted Micro Credits and Training: Investing in the Market to by National Geographic Society refers to tourism that Stimulate Local Economic Development sustains or enhances the geographic character of a place, As micro-credits can offer timely capital to initiate or such as its environment, culture, aesthetics, heritage, expand business they also create jobs, generate income and the well-being of its residents. In its Vilcanota Valley and build local capacity in a variety of sectors thus con- Project, the Bank collaborated with National Geographic tributing to local economic development. Several of the Society and Peruvian authorities on a geotourism map World Bank's micro-credit programs have reported high guide for Peru. In Guatemala, some small coffee growers demand and excellent returns from tourism enterprises. are opening up their farms to "geotourists" so that they Conversely, the governments of Bolivia and can taste coffee, Guatemala, to name two, have expressly see the coffee pro- requested Bank assistance to promote mi- duction process, cro-credit programs for small tourism busi- and learn about nesses. However, the World Bank policy the local Mayan recommends that micro-credit programs fol- culture. The Bank low qualified demand, rather than predeter- is supporting this mining it. That said, other institutions have initiative through supported micro-credit programs targeted to the Guatemala tourism, as described for example in Box 5 Competitiveness on Fundación PRODEM in Bolivia. DFID and the Finn- Project (US$18.8 million loan) with PRONACOM (National ish government's international Cooperation Agency have Competitiveness Program), in collaboration with Anacafé announced plans to finance a large scale micro-credit pro- (Guatemalan National Coffee Association) which will pro- gram in Nicaragua, with a special line of credit for small duce another "geotourism map guide." scale and community based tourism businesses. November 2008 ˇ Number 138 ˇ 3 Box 4 - Puerto Limon, Costa Rica The World Bank's recently approved City-Port of Limon Project, on the Caribbean coast supports tourism development to capture benefits of the port modernization and expansion project for the city. By financing the rehabilitation of the historic city center, it has created walks and inviting spaces for both citizens and trans- formed the city from a mere transfer point for tourists from cruise ships into a "must-do" stop-over. In doing so it stimulates a new generation of tourism businesses and sales of local products, provid- ing employment and income generation opportunities which have been falling since the modernized port has become automated and reduced its labor needs. Evidently, the project is meeting the country and city's needs. The government of Costa Rica has requested similar collaboration for its other City-Port on the Pacific side ­ Puntarenas. Both stand alone and micro credit projects in tourism mously from technical assistance in language, in cultural emphasize the importance of human capital and generally understanding (for international clients in particular), in include technical assistance components, as illustrated by marketing and web-management. the cases of Chalalan Ecolodge, Santa Rosa de Copan and Fundación PRODEM. Experience has shown that financing While tourism cannot be developed everywhere, in "des- alone cannot generate local economic development through tinations" with potential, tourism can lead to robust local tourism. Like any business, micro-enterprises require some economic development, as these positive experiences dem- basic finance and, tourism enterprises can benefit enor- onstrate. Whether they support a stand alone community- based project, development of a specific destina- Box 5 - Fundación PRODEM, Bolivia - tion, or a micro-credit program, tourism projects can bolster local economic development. --Promoting small and micro tourism enterprises- References Since its creation in 1986 as a non-profit micro-finance institution Fundación PRODEM has contributed to shaping Bolivia's banking sec- 1. Hawkins, Donald E. and Shaun Mann, "The World Bank's Role in Tourism Development," Annals of Tour- tor toward the poor. In 1992 Fundación PRODEM created BancoSol, a ism Research, Vol. 34, No.2, pp. 348-363, 2007. commercial bank to offer a full range of financial services to microbusi- 2. Ba, Demba and Shaun Mann, "Tourism: An Oppor- nesses in urban areas, followed seven years later by a private financial tunity to Unleash Shared Growth in Africa," Note Num- fund (PFF) focusing on rural clients. Recently, in response to the ber 16, Africa Private Sector Development, The World Bank, July 2006. Bolivia's burgeoning tourism 3. Brida, Juan Gabriel, Juan Sebastián Pereyra and María market, Fundación PRODEM Jesús Such Devesa, "Evaluating the contribution of tour- invested directly in develop- ism on economic growth," Working Paper Series, Social ing the tourist destination Science Research Network, December 21, 2007. "Salar de Uyuni" in a park 4 Malky Harb, Alfonso and Cándido Pastor Saavedra, "El Efecto Chalalán: Un Ejercicio de Valoración Económica of dramatic landscapes, by para una Empresa Comunitaria," Conservación Estratégica, the world's largest salt lake. Numero 2, Octubre 2007. The Inter-American Develop- http://www.redesma.org/boletin/bol_2007/bol_9_24/histo- ment Bank has also supported the first stage, a community tourism rias_de_exito.pdf endeavor, of a long term development project. The recently built eco- 5 Carolyn Ashley, comments on a proposed tourism devel- opment project for Jamaica, email, September 18, 2008 lodge owned and managed by the local indigenous community (a 32% equity share holder), with assistance from PRODEM, is already financ- About the Authors ing micro-enterprises aimed at contributing to the tourist experience and (a) Tatsuji Hayakawa is a Consultant with the Urban to the ecolodge operations: tour guides, handicrafts, laundries, signage, and Water cluster (b) Monica Rivero is a Consultant environmental management etc. Within fifteen years PRODEM plans to with the Finance and Private sector cluster (c) Tova Solo is a Senior Urban Specialist with the Sustainable sell out its shares to the community and to leave the operations in the Development Department all with the Latin America hands of the community and micro-enterprises. and the Caribbean Region of the World Bank "en breve" is produced by the Knowledge and Learning Team of the Operations Services Department of the Latin America and the Caribbean Region of the World Bank - http://www.worldbank.org/lac ˇ November 2008 ˇ Number 138