Issue #10 79619 IFC’s quarterly journal on public-private partnerships cultural heritage: The economics of uniqueness In this issue natural heritage: “Whole park� PPPs investment: Financing future heritage sites transport: Low-cost carriers first person: UNWTO’s Secretary-General; Haiti’s Minister of Tourism TOURISM ppps IN PARTNERSHIP WITH Australia • Austria • Brazil • Canada • Catalonia (Spain) • Flanders (Belgium) • France • Ireland • Italy • Japan • Kuwait • Netherlands • Norway • Sweden • Switzerland • United Kingdom • United States • Public-Private Infrastructure Advisory Facility (PPIAF) • Global Partnership for Output-Based Aid (GPOBA) • Private Infrastructure Development Group (PIDG) • African Development Bank • Asian Development Bank • Brazilian Development Bank (BNDES) • Caribbean Development Bank • Central American Bank for Economic Integration • European Investment Bank • European Bank for Reconstruction and Development • Inter-American Development Bank • Infrastructure Consortium for Africa • Islamic Development Bank Issue #10 – July 2013 IFC Advisory Services in Public-Private Partnerships 2121 Pennsylvania Avenue, NW • Washington, D.C. 20433, USA +1 (202) 458 5326/7 • ifc.org/ppp • handshake@ifc.org Editorial Tanya Scobie Oliveira • Alison Buckholtz Art & Design Victoria Adams-Kotsch Outreach Jeanine Delay Disclaimer This journal was commissioned by IFC, a member of the World Bank Group, through its Advisory Services in Public-Private Partnerships department, which helps governments improve access to basic public services through public-private partnerships in infrastructure, health and education. The conclusions and judgments contained in this report should not be attributed to, and do not necessarily represent the views of, IFC or its Board of Directors or the World Bank or its Executive Directors, or the countries they represent. IFC and the World Bank do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequences of their use. Cover photo © amybh1/flickr, a fountain at Schönbrunn Castle Letter from IFC Francesco Bandarin, UNESCO’s Assistant Director-General for Culture and the former Director of UNESCO’s World Heritage Centre, admits that he’s visited more than his share of breathtaking destinations. But the most moving, he says, aren’t necessarily the most elaborate, the biggest, or the oldest; the sites that evoke emotion are those that combine cultural heritage and national feeling. This desire to share a country’s sources of pride with the rest of the globe—and provide people of that region with economic benefits and modernized services—is most effectively achieved, according to Bandarin, by public-private partnerships (PPPs). This issue of Handshake, focused on PPPs in the tourism sector, offers fresh ideas for alliances between government and the private sector and new models that are reshaping travel industry practices. By examining partnerships that have revitalized natural heritage sites (like state parks) and cultural heritage sites (like ruined castles), along with the investment climate necessities that position these destinations for long- term success, experts sketch a model that can be followed by established locations as well as those in an earlier stage of development. Developing nations with tourist offerings can learn more about the importance of transport and access, especially the transformative role of low-cost carriers and reformed visa policies. Those working in the field, appropriately, get the last word. We asked a diverse group of travel industry luminaries to advise Handshake readers on how development institutions can impact the tourism sector in the places that need it most. Their practical, insightful answers chart a new course for greater inclusion in the coming generations. Laurence Carter, Director Tanya Scobie Oliveira, Editor IFC Advisory Services in Public-Private Partnerships Photo © luciti/flickr IFC | 1 Features Cultural Heritage The economics of uniqueness | 12 Living history | 18 Heritage PPPs: A how-to guide | 20 All aboard | 24 A new direction | 30 Natural Heritage “Whole park� PPPs | 32 Seeking sustainability | 44 48 12 Investment Climate Forecast: Bright | 48 Fighting poverty with passports | 58 Low-cost Carriers Flying high as fares fall | 62 Ambassadors of the air | 66 In this issue 2 | IFC.ORG/HANDSHAKE Columns First Person Tourism & democracy | 16 PERSPECTIVE Insights & opinions Advising the advisors | 68 Have PPP: Will travel | 06 26 MONEY TALKS Surveying the PPP landscape Around the world with tourism PPPs | 10 LEGALEASE Law & legislation, decoded “To dream & plan� | 40 IJ INSIGHT Commentary on current events Tourist trap | 56 Interviews Francesco Bandarin: Heritage’s helper | 26 Warren Meyer: A passion for parks | 38 Don Hawkins: The accidental tourist | 52 IFC | 3 Contributors 69 16 70 Geoffrey Kent Enrique Peñalosa Stéphanie Balmir Villedrouin Caroline Cheong Harris Kenny is Director of Research at Heritage Strategies is a Business Analyst at Panorama Government International and is currently a Ph.D candidate Solutions and former Policy Analyst at Reason at the University of Pennsylvania. Foundation. Jeff Delmon Geoffrey Kent is a Senior Infrastructure Specialist in the Financial is the Founder, Chairman, and Chief Executive Solutions Unit of the Finance, Economics and Urban Officer of Abercrombie & Kent, and President of Department and a member of the Global Expert The Prince of Wales Foundation in the U.S. Team on PPPs at the World Bank. John Kjorstad Peter Debrine is the Editor of Infrastructure Journal, a global online is a Programme Specialist at the UNESCO World news and data resource providing information and Heritage Centre, where he is leading the development analysis across key sectors within project and infra- of a new World Heritage and Sustainable Tourism structure finance. Programme. Gerald Lawless Ilan Dunsky is President and Group Chief Executive Officer of is a Partner at Heenan Blaikie LLP and a member Jumeirah Group, a premier luxury hotel brand. of its Infrastructure and Public-Private Partnerships Francesca Romana Medda practice group. is a Professor in Applied Economics and Finance Leonard Gilroy and Director of the QASER Lab at University is Director of Government Reform at Reason Founda- College London. tion, a Los Angeles-based public policy think tank. Anita Mendiratta Mahmoud Janmohamed is Founder and Managing Director of is the Managing Director of Serena Hotels Africa CACHET Consulting. and Head of the Tourism Department for the Aga Hannah Messerli Khan Fund for Economic Development. is Senior Private Sector Development Specialist, Africa Region, for the World Bank. 4 | IFC.ORG/HANDSHAKE Jonathan Mitchell Research Centre, part of the School of Hospitality leads Europe’s Economic Growth practice at Coffey and Tourism in the Faculty of Business Economics International Development. and Law at the University of Surrey. Julian Morris Stéphanie Balmir Villedrouin is Vice President of Research at Reason Foundation, is Haiti’s Minister of Tourism. a Los Angeles-based public policy think tank. Scott Wayne Enrique Peñalosa is a Senior Tourism Advisor for IFC and the World is the former mayor of Bogotá, Colombia. He is Bank and President of SW Associates, a Washing- currently a consultant on urban vision and strategy, ton, D.C.-based international sustainable tourism President of the Institute for Transportation and consultancy. Development Policy, and a member of the expert’s Chris Weaver team at the London School of Economics. is Managing Director of the World Wildlife Fund in John Perrotett Namibia, where he has worked for the past twenty is Senior Industry Specialist in the Investment years to assist Namibian stakeholders in creating the Climate team leading the Global Tourism internationally acclaimed communal conservancy Program at the World Bank Group. program. Taleb Rifai Nora Weisskopf is Secretary-General of the World Tourism Organiza- is a Junior Professional Associate at the World tion, a specialized agency of the United Nations. Bank, focusing on Air Transport. Donovan Rypkema Juan José Zaballa is President of Heritage Strategies International is the General Manager, Paradores de Turismo and author of The Economics of Historic de España, a chain of hotels in Spain located in Preservation: A Community Leader’s Guide. historic buildings. Charles Schlumberger is Lead Air Transport Specialist in the Transport, INTERVIEWEES Water and Information and Communication Technologies Department of the World Bank. Francesco Bandarin Lampros Stougiannos is UNESCO’s Assistant Director-General for is an Associate at Heenan Blaikie LLP and a member Culture and the former Director of UNESCO’s of its Infrastructure and Public-Private Partnerships World Heritage Centre. practice group. Don Hawkins Brett Tollman is Eisenhower Professor of Tourism Policy at the is Chief Executive Officer and President of The George Washington University School of Business. Travel Corporation. Warren Meyer John Tribe is President of Recreation Resource Management, is Professor of Tourism at the Surrey Tourism a private operator of over 150 public parks and campgrounds. IFC | 5 have PPP Photo © Jeff Smallwood 6 | IFC.ORG/HANDSHAKE PERSPECTIVE Operators of successful tourist destinations recognize that tour- ism and travel is by nature a partnership between the public and private sectors. And while the public sector is often in the driver’s seat in these partnerships, it is especially important that projects in the tourism and travel sector be based on sound commercial principles as well as community values. It is only by taking a commercial approach to unlocking the value of public assets that projects can generate real income and provide adequate and sustainable returns on those assets. Through this process of com- mercialization, tourism businesses develop and grow. TRANSITIONAL ECONOMIES ON TOP Well-constructed public-private partnerships (PPPs) are already having an impact on many of the newest travel destinations, once off-limits due to conflict or lack of development. In fact, the The tourism biggest growth areas for tourism PPPs were once the most unlikely places for tourists—transitional economies. Since 1980, the share industry’s of international tourism receipts spent in the developing world has doubled to almost 40 percent. not-so-secret Strong economic growth in the emerging economies has been weapon matched by strong growth in tourism and travel within many of those countries as well—especially in developing or newly indus- trialized nations such as Brazil, China, India, Russia, and South Africa. China is already the second biggest tourism and travel economy after the U.S. in terms of contribution to GDP, and by 2023 it will rank first. With faster connections and a rapidly increasing array of options— and a trend in tourists taking frequent, shorter breaks—arrival numbers will continue to grow. In Asia alone, there will be 2 billion newly-middle class people searching for travel destinations. Globally, the number of people in the middle class is predicted to By John Perrottet almost double by 2020, introducing an extra 1.5 billion people to the travel experience. IFC | 7 The challenge for all economies—advanced and options on predetermined travel circuits. This emerging—will be how to use PPPs to capture approach strengthens the overall product. a share of this growth and how to manage it to The degree to which public and private partners drive prosperity. capitalize on cultural offerings can be called “the economics of uniqueness.� Professor Francesca FROM PARKS TO PALACES Medda shares the successes as well as missteps of governments that have explored this—with Because the tourism industry is inherently global, the furor that erupted in Italy when a shoe opportunities for PPPs span continents as well manufacturer offered to help restore the Roman as sectors, including natural heritage sites like Colosseum. She closely examines the evolution national parks, as well as iconic cultural heritage cycle of a tourism area, using this concept as the landmarks such as castles. Many of these projects basis for describing three different PPP models have successfully overcome initial opposition at work today. based on fears that the commercial interests of private operators would dilute the site’s appeal. This has been an especially relevant issue for PASSPORT OUT OF POVERTY America’s national parks, several of which are The economic argument for tourism as a devel- experimenting with the PPP model. Tellingly, opment tool is built on the idea that bringing some parks in the hands of private operators visitors into a community is a public good— have stayed open despite federal budget cuts that good for the residents, good for local commerce, have shuttered others. “We aren’t trying to pave and good for services like water and sanitation, the wilderness; we aren’t trying to build condos which may otherwise be ignored. But as the in front of Old Faithful,� argues Warren Meyer, Overseas Development Institute’s Jonathan one of the leaders in the movement to priva- Mitchell points out, “Developing countries are tize national parks, in a Handshake interview. littered with well-intentioned community-based “Privatizing parks takes them off the government tourism and eco-tourism projects which, with budget, and makes them immune from being notable exceptions, are delivering limited ben- pawns in government budget battles.� efits to few people.� Just as these national parks draw tourists away So what’s the evidence backing up the economic from urban hubs, other tourism PPPs provide argument? Mitchell describes the crucial ele- a way for governments to promote rural travel ments of and results from projects that work, among a region’s less-explored routes. Spain’s including models like the partnership between Paradores, or “castle-hotels,� also featured in the private sector and NGOs in The Gambia this issue, have transformed ruined palaces into through its International Centre for Responsible luxury hotels offering quality accommodation Tourism. This initiative linked low-income com- 8 | IFC.ORG/HANDSHAKE munities with tourism, and improved the impact ment of the quality and maintenance of road, of tourism in one of Africa’s smallest, poorest, air, and water transportation infrastructure, as destinations. Professor Don Hawkins points out. Handshake editors also polled government offi- cials and industry experts on how development SUSTAINABLE SOLUTIONS institutions can best contribute to the economic There’s no better proof that creative PPPs can be stability of communities in tourist areas. Their tailored to unique situations in previously inac- diverse, surprising answers hint at emerging cessible locations than the success of UNESCO’s trends in unexpected locations. World Heritage Sites. The number of these sites has doubled in the past ten years, and in his ACCESS IS ALL interview with Handshake, Francisco Bandarin, Accessibility is one of the key issues all govern- UNESCO’s Assistant Director-General for Cul- ments face in building the tourism economy— ture explains why: “When you have an expan- whether it’s airline access to a country or sion of your core business the first question you shepherding tourists to an out-of-the-way site. ask yourself is, ‘How do I keep delivering the Investment in low-cost airlines is one strategy same quality of services?’… We want to deal that can eliminate travel barriers. The impact on with tourism in a way that’s constructive. PPPs travel of low-cost carriers in Samoa proves this can help us do that.� point; a successful PPP has improved access to Indeed, when governments and the private the destination while strengthening the national sector work together to deliver a competitive flag carrier. The extraordinary growth in low-cost offer tailored to a site’s specific needs, the carrier routes in South East Asia over the last tourism industry reaches its full potential— decade also shows the level of untapped demand. delivering services and jobs to the resident Accessibility has been dramatically improved by community while offering an unforgettable the adoption of open skies policies and improve- experience to visitors. ! In December, the travel and tourism industry celebrated a major milestone: the global level of international arrivals reached 1 billion for the first time, a nearly fourfold increase in just over three decades. The World Travel & Tourism Council forecasts that by 2023 tourism and travel’s total economic contribution will account for 10 percent of GDP and one in 10 jobs, increas- ing its share of the global economy and becoming an even more important engine of growth into the future. IFC | 9 around the world with tourism PPPs By Jeff Delmon There is some debate whether tourism is the MANAGING SCARCE RESOURCES right fit for the public-private partnership (PPP) model. After all, where is the public good? When managing areas of natural beauty or with Where is the public service? In this column we particular resources, governments need to restrict will put down our strawberry margarita with the development and access to avoid degradation. little umbrella and ludicrously large pieces of PPP models provide competitive and transparent fruit sticking out, brush the sand off our key- mechanisms to help identify the most capable, board, and discuss. most experienced, and best value investors for a given site. Tourism is a huge industry that provides growth and jobs for developed, as well as developing, BENEFITTING THE LOCALS countries. As the middle class grows, so does tourism expenditure. This is already reflected in Many countries offering great tourist destina- numbers: international tourist arrivals increased tions struggle with low economic development by 4 percent in 2012, reaching 1.035 billion. In and poor governance. In such countries, tour- 2011, international tourism generated $1.2 tril- ism tends to develop chaotically, based on who lion in export earnings. Even in a tough global has the best contacts and the most money. For economy, the UN’s World Tourism Organization example, water and power may be obtained forecasts growth in international tourist arriv- on a per-resort basis; liquid and solid waste are als of between 3 to 4 percent in 2013. Tourism managed just enough to get them away from PPPs can fulfill a variety of needs for the fast- the resort. This is inefficient and often creates a growing sector, including: particular burden on the local community. Yet if managed on a coordinated basis, communi- 10 | IFC.ORG/HANDSHAKE MONEY TALKS ties can benefit substantially from such services, number and variety of approvals that must be and the resorts can access less expensive services. obtained from government bodies, much like PPPs can help governments think about the infrastructure projects. Just as this risk can be larger context, and make it easier to scale up managed through PPPs for infrastructure, so infrastructure to benefit tourism and the local tourism can benefit from the same models. community. PRESERVING CULTURE COORDINATING NATIONALLY There are some assets in the tourism sector that Sri Lanka is using PPPs to ensure that tour- are clearly public goods. Museums, opera houses, ism developments are coordinated and fit with auditoriums, and convention centers are the first national planning. By using the competitive PPP that come to mind. These may be better devel- structure (rather than the less competitive and oped and managed under PPPs, allowing the coordinated licensing process), this approach private innovation and commercial dynamism leverages innovation from the private sector on needed to ensure funding to preserve and protect planning, facilities, local community develop- these assets, while maintaining the essential ment, and resource management. public role. We’ve seen positive results with the convention center in Dublin and the arts palace LINKING TO LOCAL COMMERCE in Saint Petersburg, along with many others that have been developed through the partnership In 2000, the World Tourism organization’s Busi- model. ness Council published a survey of the tourism industry, which found that out of 234 respon- Even museums have turned to private involve- dents from 90 different countries, 81 percent ment to leverage revenues. Picture the gift shops rated PPPs as “very effective� and 98 percent as of London’s Science Museum or its Natural “effective� or “very effective,� pointing in par- History Museum, which boast some of the more ticular to the importance of linkages with local interesting and creative shopping in the world. commerce. In Italy, which already has 30 years To recap, tourism PPPs can: improve foreign of experience with partnerships that develop investment; help ensure responsible, sustainable, small hotels and their links to local communities, and community oriented investment; and this is yesterday’s news. This coordination can be provide infrastructure and other improvements critical to the success of tourism development. for local communities. STREAMLINING PERMITS But these aren’t the only benefits. At the end of negotiation sessions, suntan lotion is de India is trying to use PPPs to support a single rigeur. Now, where did I put that strawberry window for granting permits and government margarita? approvals for tourism development. Large tourism developments are often plagued by the IFC | 11 CULTURAL HERITAGE THE ECONOMICS OF UNIQUENESS 12 | IFC.ORG/HANDSHAKE The tourism industry has two faces: one offers public goods such as historical artifacts, natural parks, and museums; the other presents private goods and services such as hotels, entertainment events, and theme parks. But public-private partner- ships unite these two sides for the greater good, as the private sector’s role comple- ments the public sector’s goals for development, growth, and effectiveness . By Francesca Romana Medda The importance of the tourism industry within THE PPP FRAMEWORK national economies has long been evident, but a paradox lies at its core: although tourism This is an age of widespread interest in various contributes significantly to a country’s earnings, forms of private involvement in the develop- it has traditionally been structured and run ment of the tourism industry. This interest is exclusively by the public sector. In 1992, the motivated by the fact that many countries are Organisation for Economic Co-operation and contending with two divergent policies: first, Development (OECD) examined this question the necessity to curb public expenditures and closely, publishing a detailed analysis of the contain public budgets; and second, the drive to industry that concluded that the public sector improve competitiveness and efficiency in the was less responsive and entrepreneurial than it service and operation of the tourism industry. It should have been in the development of tourism. is important to remember that public adminis- trations worldwide are characterized by diverse At this point the stage was set for change. cultures and capabilities, as well as distinct legal During the next two decades, a push towards and planning traditions. But despite these dif- decentralization (leading to local authorities ferences, a framework for what are now referred assuming greater autonomy in the management to as PPPs has emerged within the tourism and financial allocation of tourism assets), along- industry. side an increased effort to foster private sector involvement, paved the way for public-private If we consider the evolution cycle of a tourism partnerships (PPPs). area, we can use this concept as the basis for Photo © Boris Mitendorfer Photography, the city of Maribor, Slovenia IFC | 13 Phases of the tourism cycle Time Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Phase 6 Phase 7 Discovery & Involvement Development Consolidation Stabilization Rejuvenation Decline Exploration Agreement Joint Venture Models Concession Models Models Author elaboration. Source: Butler (1980). our description of three different PPP models at on economies of coastal communities, but they work today. also support the conservation of coastal and marine biodiversity and help to inculcate conservation values in the islands’ populations. MODELS VARY The joint venture model is more common in As shown in the illustration above, in Phases 1 Phases 2 and 3, where the public and private and 6, the public sector has a catalytic role and sector agree to work together. Sometimes when agreement models are often the main tools of a large amount of capital is required to develop partnerships. In these cases the public sector infrastructure and facilities, the public sector (particularly local authorities) is uniquely situ- may take a share higher than 50 percent to ated as initiator and convenor of tourism growth leverage private finance and decrease financial as well as facilitator of economic development risks. In Slovenia, for example, the Funicular in the community. Local authorities often create Railway on the mountain of Pohorje, which is financial solutions and incentives in order to ease used to reach the natural park and ski resort, was agreements with the private sector, and agree- constructed and is now operated by the private ments can vary from sponsorships of specific sector under a 40-year contract. Given the events to co-financing various activities within importance of the infrastructure for the develop- large projects. ment of the city of Maribor (European City of One interesting example is illustrated by the Culture 2012) and the greater Stajerska region, Phoenix Islands Protected Area (PIPA) in Kiri- significant financial support is being provided by bati, where the agreement between the public the government. and private sector is driven by the development In Phases 4 and 5, partnerships are more often of eco-tourism to promote regional economies. constructed under concessionary models. The There is particular interest in the impact of these private sector is usually granted the right to oper- 14 | IFC.ORG/HANDSHAKE ate and manage a tourism asset and the owner- A SPIRIT OF COOPERATION ship of the asset remains in public hands. The public authorities often receive a fixed financial The unique character of the partnership between contribution per annum under a contract lasting the public and private sector in tourism is on average over 15 years. One example of the clearly outlined by the context, objectives, and concessionary model is the Schönbrunn Palace constraints of the different actors. The lack of in Vienna, which is visited by over 3 million a culture of cooperation and experience, plus tourists per year and is operated by a private insufficient institutional support, can hamper company. The concessionaire is responsible for the creation of these partnerships. But by shar- investing, renovating, and financing the castle; ing clear strategic plans and contracts based on it retains all the operating revenue and does results and targets, the private and public sector not receive any subsidies from the Austrian can together design imaginative ways to welcome government. tourists as patrons of economic growth. Shoehorning a solution The PPP approach to tourism varies from country to country because the structure of tourism administration and management at the national level is highly influenced by each nation’s historical, political, and cultural circumstances. In Italy, for example, the evolving dialogue between public and private takes the form of a passionate debate fueled by the private intervention of a major Italian producer of shoes. The founder of the Tod’s luxury shoe brand contributed €25 million toward the restoration of the Roman Colosseum, one of the most famous symbols of Italian cultural heritage. In return for its investment, Tod’s was entitled to cover any restoration works with the Tod’s logo and given the right to use the monument’s image on shoes, bags, and other products for up to 15 years. It may also put its brand on entry tickets bought by 6 million tourists per year. In the face of concern that the ancient Roman area would be converted into a vast advertising space, Tod’s Diego Della Valle promised “I won’t put shoes on the Colosseum.� IFC | 15 tourism democracy & A two-way street Cities that want to attract tourists construct wide sidewalks, pedestrianize streets, and build spaces where people can meet and talk. These open areas, which provide access and ease of movement for resi- dents as well as visitors, pave the way for democracy. By Enrique Peñalosa Photo © Alejandro Bustamante Campillo, a street in Bogotá, Colombia 16 | IFC.ORG/HANDSHAKE FIRST PERSON Tourism has been criticized for the damage it a cotton plant, or see a cow, because fields are inflicts on the dignity and culture of less eco- walled from view. nomically developed societies, which may be But tourists will not be able to experience the made to feel inferior by wealthier tourists. But scenery either if it is blocked by fences. If such tourism may have an ultimately positive impact obstacles are removed in order to attract tour- on developing country societies—particularly ists, benefits will reach the local population as on these nations’ ideas of equality. well. The same principle applies to waterfront privatization, which is frequent and profoundly WALKING OFF OLD IDEAS undemocratic. If tourism leads to it, it is a disastrous consequence. An unobstructed and Tourism is a pedestrian activity: tourists want accessible waterfront strengthens democracy to walk. Therefore, cities vying for tourists make and improves the quality of life for the local better sidewalks and pedestrianize streets. Even population. in Disneyworld, visitors spend only 3 percent of their time in games and attractions. They The Scandinavian concept of Allemansrätten basically pay to be in a pedestrian city, walk, proves the power of such unhindered access. see people, buy hot dogs—and go to a few Allemansrätten dictates that anybody has a right attractions. to enter private lands, walk through them, and even camp without the owner’s permission. The Building better pedestrian spaces constructs and economic success of ecological tourism, a trend benefits democratic ideals, as it shows respect for with great future potential, will require such and protects the most vulnerable local citizens: measures. children, the elderly, the handicapped, and the poor. Particularly in developing countries, where most homes do not have cars, quality pedestrian SEEDING DEMOCRACY spaces show respect for the carless majority, Finally, the vast number of tourists typically visit literally placing everyone on the same level. from more egalitarian societies. They see through Quality pedestrian spaces are spaces for local classist hierarchies, like India’s caste system. democracy. No revolution has started in a All developing countries have local hierarchies shopping mall. Tourism requires quality side- and aristocracies that the outside visitor sees as walks and plazas: so does political activism. they are: ludicrous. When visitors share this view with their local hosts, it encourages equality. ENCOURAGING ACCESS Ultimately, these travelers bring more democratic ideas and attitudes to extremely Often, walls and hedgerows line roads, making unequal developing countries. Tourists’ views it impossible for people to see crops and cattle. may seed democratic change, leading to a more A poor child in a developing country city will just society—because long after bags are packed not know the difference between a potato and and photos are developed, ideas remain. IFC | 17 Living istory By Juan José Zaballa SPAIN’S “CASTLE-HOTELS� OFFER LODGING AND LEARNING 18 | IFC.ORG/HANDSHAKE CULTURAL HERITAGE Many parts of the world rich in royal history and regal architecture are giving visitors a first-hand experience of the good life, trans- forming empty castles and chateaus into modern luxury hotels. In Spain, where the government has focused on developing rural tourism, this approach to travel is expanding to include private investment. Spain’s “Paradores� (loosely translated as “castle-hotel�) include restored and modernized ancient castles, convents, monaster- ies, hospitals, and parklands, which promote rural tourism while underscoring the unique significance of each location. There are currently 93 Paradores operating in Spain under the auspices of Paradores de PARADORES Turismo de España. Each year, Paradores offers NACIONALES over two million beds and serves well over two DE ESPAÑA million meals to visitors, earning a turnaround of €230 million. The agency employs more than 3,500 professionals. Because of its consistent growth, Paradores recently concluded a feasibility study for its expansion, both nationally and internationally, under a franchise contract system. This will allow for the inclusion of private management under the Paradores brand. The company may be marketing its first franchise within the year, offering a taste of the good life to even more history buffs around the world. Photos © Jr G Montero, Parador de Santo Estevo IFC | 19 Heritage Mosaic of Neptune and Amphitrite, Herculaneum A how-to guide By Donovan Rypkema & Caroline Cheong Not even the richest of countries has suf- ficient public sector financial resources In some ways, heritage PPPs are the same as the to own, rehabilitate, and maintain all the most common large-scale infrastructure projects: heritage buildings worthy of preservation. given their complexity and long-term nature, While in many countries the NGO sector has all partners need to be transparent about their developed expertise in education and advo- goals, needs, and outcomes throughout the cacy, rarely do these organizations possess entire process. Needs may change within what the capital or the development expertise can be a 10-year or longer project cycle, due to a to undertake the rehabilitation of heritage change in governments or an economic down- buildings. By process of elimination, then, turn. However, transparent communication can it will fall to the private sector to play the help alleviate potential roadblocks—and this is primary role in redevelopment and ongoing stewardship of historic buildings if they are especially important in heritage PPPs, in which to be kept in active use. At the same time, the goals and measures of success of the public it is essential to provide protections so that and private partners may be very different. the defining characteristics of the buildings There have been enough heritage-building are conserved and can be understood and PPPs to begin to draw conclusions about their enjoyed by future generations. New ap- characteristics and common denominators. proaches to financing, developing, operat- ing, and maintaining historic buildings are While not every success story in heritage-build- needed, and public-private partnerships ing PPPs has all of the characteristics described (PPPs) are one promising approach. below, the majority include most of them. 20 | IFC.ORG/HANDSHAKE CULTURAL HERITAGE CHARACTERISTICS Value is what the marketplace is willing to pay for that property (to buy or to rent) after For many (but not all) heritage PPPs, the public completion. When value exceeds costs, the partner is local government. There are notable private sector will usually act on its own without exceptions, however. In the U.S., for example, requiring incentives or a public sector partner. national government agencies including the However, it is common with heritage buildings, Department of the Army, the General Services particularly of the white elephant variety, that Administration, and the National Park Service cost exceeds value. This difference is known as have been public partners in PPPs. Multiple lev- the gap. To recap: the existence of a substan- els of government might provide incentives, but tial gap is often the catalyst for considering a usually only one would be the “public partner.� heritage PPP. Many heritage PPPs are actually public-private- nonprofit or NGO partnerships, with the third sector playing a pivotal role in success. Often, SIGNS OF SUCCESS several NGOs may be involved, but most only The majority of successful heritage-building passively in a limited or advisory role. PPPs share a predictable set of common denomi- nators. Chief among these is the recognition Most heritage PPPs are “white elephant� of the heritage building as a community asset buildings—those difficult to reuse properties (regardless of who actually holds the property for which the private sector, by itself, rarely title), involvement of various levels of the public takes the lead. In fully developed economies, sector, and multiple sources of financing from PPPs most commonly address white elephant traditional and nontraditional private and public buildings. Heritage PPPs usually involve finding sector institutions. Other important denomina- creative new uses for an existing structure; this tors of success are: is known as “adaptive reuse.� • The presence of a core group that initiates action. This core group often comes from MIND THE GAP the NGO sector. There is also broad-based Often the reason the private sector won’t take support for the project within the local com- the lead in heritage redevelopment is the gap munity that horizontally spans sector and between cost and value. The major purpose of political interests. heritage PPPs is often to close the gap. • There is an imaginative catalyst to move the Unfortunately, the terms “cost� and “value� are redevelopment idea forward. This may come often used as synonyms. They are not. Cost is from the business community, local govern- the sum of the dollars that will be expended ment, an NGO, or elsewhere, but rarely between the idea and the completed project. IFC | 21 comes from the current owner of the property ASK THE RIGHT QUESTIONS (even if that owner is a part of government). The cornerstone of a successful heritage PPP • There is a commitment by all parties to be lies in asking, “What is the unmet or under- as flexible as possible in use, financing, tim- met demand in this market?� and “Could this ing, and particulars of the transaction until a building be developed to meet that demand mutually acceptable and feasible alternative or demands?� It is critical to remember that a scenario is developed. This requires compro- heritage-building PPP project is rarely developed mise and patience from all partners. Even the for a single use. Nearly always, heritage PPPs most successful heritage PPPs tend to experi- focus on a mix of uses for the building, thereby ence significant public skepticism during the meeting market demands and mitigating the planning process. volatility of any particular use. Hotel Monaco, Washington, DC The Old General Post Office sat vacant for 15 years in the 1980s and 1990s, before a public-private partner- ship between the U.S. government, via the General Ser- vices Administration (GSA), and The Kimpton Hotel and Restaurant Group transformed the once-derelict building into the now-thriving Hotel Monaco. GSA ran a competition for development of the build- ing that was won by the Kimpton Hotel and Restau- rant Group in 1999. The building was converted to a boutique hotel, operating under Kimpton Hotels management for the duration of a 60-year lease. GSA invested $5 million for exterior restoration while Kimp- ton invested $40 million for the entire renovation and received $8 million in federal historic rehabilitation tax credits. GSA payment is based on hotel revenues, but is estimated to be $50 million over the life of the lease. The building was rehabilitated according to national preservation standards. In 2002, the Hotel Monaco opened its doors and has since been considered an exemplary adaptive reuse project, receiving numerous Photo © Cliff1066/flickr, Hotel Monaco awards and becoming a neighborhood landmark. 22 | IFC.ORG/HANDSHAKE RECONSTRUCTION OF THE WESTERN GATE, ALBA CAROLINA CITADEL, ALBA IULIA Citadel Alba Carolina, Alba Iulia, Romania Within the walled citadel of Alba Iulia, also called Citadel Alba Carolina, construction converted the ancient Manu- tanta building—a former storage house—into a five-star hotel. The local government is providing the land and building to the Grup Corint SA, which is rehabilitating the building and will oversee its manage- ment and operations through a 49-year lease. Grup Corint will pay the local govern- ment 10 percent of its annual revenues. Plans call for the creation of 42 guest rooms. The hotel development is part of a larger arrangement involving the local municipality, various national ministries, and the United National Development Programme to rehabilitate the entire Alba Iulia Citadel. Photo © Horia Varlan, Citadel Alba Carolina IFC | 23 ALL AB ARD Union Station’s triumphant comeback By The National Council for Public-Private Partnerships 24 | IFC.ORG/HANDSHAKE CULTURAL HERITAGE The successful collaboration of the public and private sectors made Washington, D.C.’s Union Station restoration a triumph that benefits both the partners and visitors to the unique historic site. The public-private partnership succeeded due to a political commitment and public sector involvement throughout the project. Moreover, the project followed a well-conceived, carefully executed plan that included a dedicated income stream, open communication and dispute resolution channels, and the right private partner. At the time of its opening on October 27, 1907, and the potential commercial economic benefits, Union Station was the largest train station in the a public-private partnership was identified as the world and a monumental example of Beaux-Arts best tool to accomplish the restoration. architecture. By the late 1970s, the building had The transformation process involved the efforts deteriorated so severely that it was uninhabitable of USDOT, the District of Columbia, Amtrak, and in danger of demolition. and private developers. The $160 million project Citizen groups and politicians began searching took almost five years to complete, including the for an effective rehabilitation approach, one that three-year renovation. The project goals included could overcome the District and Congress’ fund- the authentic restoration of the original architec- ing troubles. Finally, the U.S. Congress enacted ture, the reintroduction of train and urban mass the Redevelopment Act of 1981. Under the transit services, and the addition of a wide range Redevelopment Act, Union Station’s lease was of retail, dining, and entertainment options. As transferred from the Department of the Interior a result of the public-private partnership, Union to the Department of Transportation (USDOT), Station has been restored to its original grandeur which began the process to transform the station and utility and is now the most frequented site into a thriving transportation terminal and in the District, with over 25 million visitors commercial center. Because of restoration costs each year. Photo © Dave Raley, Union Station IFC | 25 HERITAGE’S helper Photo © UNESCO Francesco Bandarin, former Director of UNESCO’s World Heritage Centre, was appointed UNESCO’s Assistant Director-General for Culture in 2010. As a specialist in architecture and urban planning, Mr. Bandarin previously worked in both public and private institu- tions in the fields of built heritage, cultural heritage conservation, environmental heritage, and cultural events, as well as architectural and urban design in developing countries. In 2002, under his leadership, the 30th anniversary of the World Heritage Convention was dedicated to exploring public-private partnerships for World Heritage cities. 26 | IFC.ORG/HANDSHAKE CULTURAL HERITAGE Interview by Alison Buckholtz that have problems due to conflict, disaster, or As director of UNESCO’s World anything that can happen [to harm the site]. Heritage Centre, you were a vocal and active proponent of What partnerships help your orga- public-private partnerships (PPPs) nization achieve recognition for for World Heritage Sites. Why are World Heritage Sites? PPPs a good solution? We work with the online tourism operator Trip Over the past 10 years we’ve had an increased Advisor, and National Geographic is also a part- level of attention to World Heritage Sites, and ner. Our campaign with them is called “People there’s been a subsequent expansion in the Protecting Places�—another PPP. But these aren’t number of sites as a result. When you have an traditional partnerships; our traditional partners expansion of your core business the first question are governments and foundations that contribute you ask yourself is, “How do I keep deliver- to the World Heritage foundation because of ing the same quality of services?� For us, this their mission. includes monitoring services, support to member states, tracking and responding to trends, and trying to use tourism as a resource instead of World Heritage Sites are focused just a force of destruction. We want to deal with on conservation rather than tour- tourism in a way that’s constructive. PPPs can help us do that. ism per se, but the operation of these sites aims to help local com- munities. How do these elements How are cultural heritage PPPs mix? different from other industry PPPs? The idea was to try to have a World Heritage Our partnerships are more strategic than legal or Sites benefitting local communities through financial in nature, and targeted to certain sites tourism operations. We had a number of pilot IFC | 27 sites including Sian Kan in Mexico’s Yucatan and an impact on conservation because it forces the in Baja California, trying to give more emphasis government to invest in the site, to protect it, to the role of local people. Too often you have to maintain a high level of standards. This has tourism projects where no local people see the nothing to do with tourism, and everything to benefits. Our sites raise the visibility to local, do with conservation. But often, sites that are state, and federal governments, and we try to unknown become known, and even famous, help the communities benefitting from World after the listing; so we are aware there is a Heritage Sites. Last year, our 40th anniversary potential impact. We encourage sites to have a theme was “Benefitting Local Communities.� clear management plan, to orient themselves In these 10 years we went from partnership- toward the future and manage tourism as well oriented outlook to a community-focused as conservation. Having a management plan is approach. You can see the trajectory. not a panacea, but at least it creates an awareness of what should be done. The negative cases are where the site’s operators lose control, and this We want to deal with often depends on local and international inves- tors. Sometimes a site becomes very big and they tourism in a way that’s don’t have the capacity to manage this impact. constructive. PPPs can help us do that. Are you working with any coun- tries that would have surprised you just a few decades ago? Now we work closely with the emerging market How do you work with individual of China—there are a number of new agree- World Heritage Sites after they ments supporting many programs in China. are named, to assure that they are It’s fortunate we have that because traditional European and American donors are in crisis at managing the tourism flow? the moment. We also have partnerships with What we do is conservation. We think that individual Chinese cities. It’s a new market— listing a site [on the World Heritage list] has too new to draw lessons from yet. 28 | IFC.ORG/HANDSHAKE What’s the most compelling trend There is a gap between affecting tourism at World what we can do and Heritage Sites? what the markets want. We have a phenomenon today unknown 10 years ago: massive cruises. Nothing in the world is growing like the cruise business right now. Of course, there were always cruises, but not this Visitors are not contributing to the local model, essentially floating cities. They condition community; their presence does not bring the way harbors are built so there’s a big impact development—hotels, services, or restaurants. on infrastructure and the environment. Then But cruise operators have found enormous they have day excursions and the sites are com- success and there is no limit there; the ships pletely invaded. A good example is Chichen Itza, just get bigger and bigger. In Venice, where the most important Mayan site in the Yucatan. the city is so fragile, the ships are bigger than You go today and you can’t even walk because of the city. So you have a visual and physical all the people coming from the cruises. It’s like impact. But we can’t do much about this except being in the Tokyo subway station mid-day. The try to manage the flows. There is a gap between quality of the visit is severely hampered. Ephesus what we can do and what the markets want and in Turkey faces the same situation, and of course we need to seriously discuss the way forward Venice is the epicenter of this. We need to work with the key operators. more with the industry to ensure that this new phenomenon turns into a positive force for the conservation of the sites. Why have cruises become a problem for these cities? It’s not the kind of tourism that one wants because it brings very little to the local economy. IFC | 29 CULTURAL HERITAGE By Peter Debrine A NEW DIRECTION Tourism goes sustainable 30 | IFC.ORG/HANDSHAKE UNESCO’s World Heritage Sites create jobs, promote local activity through arts and crafts, foster tourism, and generate revenues. The new World Heritage and Sustain- able Tourism Programme was founded on the principle that it is important not only to promote heritage conservation, but also to advance socio-economic development in the communities surrounding these sites. We all know the impact of ill-planned and This can be achieved through: mismanaged tourism. There is an Asian • A focus on early intervention and the proverb that sums it up best: “Tourism is like overall nomination process to ensure fire. You can use it to cook your soup, but it tourism management is included. can also burn down your house.� It’s especially important to heed those words of caution • Strengthening the enabling environment now, given the dramatic projected growth of for effective policies and governance. travel to World Heritage Sites. International • Co-operating and partnering with the tourist arrivals grew by 4 percent in 2012, tourism sector as it is the industry that reaching 1.035 billion, according to the latest creates the products. UNWTO World Tourism Barometer. • Taking a destination approach to tourism Sustainability is key to planning and manag- management as most tourism occurs out- ing this growth. Sustainable tourism relies on side a World Heritage property boundary. the development and delivery of quality visi- • Promoting capacity development for site tor experiences that do not degrade or damage management and local communities to any of the property’s natural or cultural values more effectively manage the properties. and visitor attraction. It requires effective, cooperative commitment and coordination In the end, World Heritage Sites do truly among site management, the nearby com- involve the global community. All of us munities, and all relevant public agencies and working together can ensure that our soup is private enterprises. cooked and that our houses are left standing. Illustration © UNESCO, toolkit design by Creative Concern IFC | 31 Photo © Pepe Barbe, Clearwater State Park, California “Whole Park� PPPs Rethinking the private sector’s role in state parks By Leonard Gilroy, Harris Kenny, & Julian Morris Although most state park operations Like much of America’s infrastructure, the state and management are run on a top- park system that once seemed inviolable des- down, public sector delivery model, the perately needs a new management approach to private sector has long played a role in ensure its fiscal sustainability. Among the most compelling proposals is the use of whole park the operation of public recreation areas concessions: long-term public-private partner- and parks. A “whole park� PPP promises ships (PPPs) used for holistic park operations tremendous benefits for the hundreds and implemented via performance-based of millions of visitors to U.S. state parks contracts between the government agencies every year. responsible for overseeing parks and recreation management companies. 32 | IFC.ORG/HANDSHAKE NATURAL HERITAGE THE WHOLE PARK PROMISE Whole park concessions differ from the more Private, for-profit recreation manage- traditional food/retail-style concessions in place ment companies currently operate in many parks today in various ways. Broadly over half of the U.S. Forest Service’s speaking, public and private roles and responsi- (USFS) thousands of developed recre- bilities are as follows. ation areas nationwide under whole park concession agreements. For Public: example, Colorado, California, Ore- • Public ownership of the parks. gon, and Washington each have over 100 USFS recreation areas and camp- • Public oversight of strategy, planning, grounds operated by private conces- character, and facilities for each park. sionaires. This USFS program has been • Public control over policy decisions, user fees, in place for over 25 years, prompted and facility and capital investment planning. originally by fiscal pressures on the agency in the 1980s. Private: • Concessionaire is responsible for day-to-day park operations and maintenance functions, such as visitor services, routine maintenance BENEFITS OF PARK PPPs and repairs, landscaping, waste services, and utility payments. The U.S. Forest Service (USFS) realized more than 25 years ago that while ecology and land • Concessionaire operates (typically) a 5–10 preservation were core competencies for park year commercial lease contract with a possible agencies, running recreation and commercial role for private financing for capital invest- enterprises was not. USFS then began rapidly ment, which would lengthen the contract to expanding its use of whole park concessions, 15-20 years. and the agency estimates that over half of its • Concessionaire collects gate fees to fund its thousands of developed recreation areas (such as operations and maintenance costs, including campgrounds and day use areas) nationally are labor. now run under park operation PPPs. • Concessionaire pays state a competitively bid In 2012, California became the first state to percentage of the gate revenues to the public embrace park operation PPPs in an effort to pre- agency as an annual lease payment, allowing vent the closure of several parks during a fiscal the minimization or elimination of public crisis. Analysis of these experiences allows us to subsidies. make the following inferences about the benefits of park operation PPPs. IFC | 33 • land ownership • strategy, planning, park • mitigation/compliance character, facilities in environmental protection • science & rule-making in environmental protection • operations, staffing, & • education in customer service for • oversight & fee approval recreation environmental for recreation protection • routine maintenance • maintenance planning • capital investment pu b lic role ole p ri v a te r le shared ro Source: Adapted from Warren Meyer, Recreation Resource Management, Presentation to Arizona State University Symposium on the Private Management of Public Parks in Arizona, November 9, 2010. Financial Self-Sufficiency in Park Operations maintaining the title, and contract management, which still may require state budget allocations. Unlike traditional park concessions, park opera- tion PPPs don’t just add a few more dollars in Optimizing Staffing and Operations concession fees to the state coffers. They change the entire cost structure of operating the park by Financial self-sufficiency is a major draw—made transferring the operating costs to the conces- more compelling by the opportunity to optimize sionaire and therefore reducing or eliminating operations through whole park operation PPPs. the need for public subsidy. This is achieved by The key lies in the ability for concessionaires to requiring the concessionaire to pay a set percent- dramatically lower operating costs, primarily age of the annual park revenues back to the through a more efficient staffing model. The tra- public agency as rent for the land. ditional public operational model relies on high cost, inflexible labor that is ill suited to meet the This transfer of operating costs has the important needs of parks. benefit of significantly mitigating the appropria- tion risk facing many parks authorities across For example, state park agencies typically hire the country, where parks and other non-vital full-time employees for year-round jobs, and infrastructure must yield to other core fund- these employees often have credentials that ing priorities in the state budget process. States overqualify them for the job at hand. These still face costs not directly related to the opera- employees also require costly public pensions tion of parks, such as the costs of owning land, and other post-employment benefits, like 34 | IFC.ORG/HANDSHAKE healthcare. However, this top-heavy staffing transfer major (and often hidden) financial and model is inconsistent with the seasonal nature of operational risks from the public sector—and parks visitation, which requires seasonal labor to thus, taxpayers—to the private sector. With conduct straightforward tasks such as cleaning regard to state park systems, PPPs offer an bathrooms and maintaining campsites. opportunity to better handle the full spectrum Collective bargaining and state procurement of associated risks, including revenue/demand, rules exacerbate these challenges, and often drive operational, legal/liability, and project delivery. up the costs of public park operation relative to those seen in the private sector. Tapping Private Capital for Park Improvements Quality Guarantees PPPs can also mobilize private financing to upgrade or modernize facilities at a time when The government can set quality and maintenance public funding is constrained by state fiscal standards at its own discretion and hold the challenges. For example, in recent years Califor- private company accountable to meet them nia’s state parks lacked the funds to complete a through a performance-based PPP contract. redevelopment project in one of its parks—it ran Well-written PPP concession contracts enable out of funding in the middle of the project. The (or in fact require) the private sector to provide parks agency modified an existing “traditional� unprecedented quality in park service delivery, concession in this park to extend the term of while maintaining (and often expanding) public the contract out to 20 years, and expand the sector oversight. scope to include completion of the project. This allowed the concessionaire to get financing to Accountability develop the new loop, purchase and install the PPPs improve accountability over the status quo. cabins, and deliver a project that otherwise State-run parks typically suffer from a conflict of would not have been completed by the state interest because the state is responsible for both on its own. service delivery and oversight. By separating With the right partners, a whole park conces- these functions, the private sector can specialize sion accomplishes exactly what its name implies: on innovating service delivery improvements, maintaining America’s state parks as intact, while the public sector can provide more effec- natural resources, accessible and useful for tive regulation through structuring and oversee- generations to come. ing compliance with the PPP contract. This piece was derived from a larger study written for the Enhanced Risk Management Conservation Leadership Council (January 2013). One of the most powerful and least recognized benefits of PPPs lies in the ability to use them to IFC | 35 A Tale of Two Arizona Parks In 2011, parks concessionaire Recreation are also very similar in revenue and number of Resource Management (RRM) prepared a case visitors. In 2009, revenues totaled $281,000 at study of two publicly owned parks near Sedona, Red Rock and $304,854 at Crescent Moon. Arizona that illustrates the dramatic differences The dramatic difference comes in the parks’ between traditional agency park operation and financial picture, which illustrates the transfor- the PPP concession model. The case study com- mative power of park operation PPPs. In 2009, pared Red Rock State Park, operated by Arizona Red Rock had direct costs of $370,943, plus an State Parks (a public agency), and Crescent estimated $24,062 share of regional agency oper- Moon/Red Rock Crossing Recreation area, a ations office costs and an additional $120,000 U.S. Forest Service (USFS) property operated in operations support costs at the state park under a concession by RRM. headquarters level (e.g., IT, human resources, Aside from the fact that one park is run by a etc.). Hence, Red Rock cost the state $515,005 public agency and the other run by a private to operate but generated only $281,000 in concessionaire, these two parks are very similar revenue, a loss of $234,000 for Arizona taxpayers in many respects. Both have public bathrooms, that year. picnic and group shelters, parking facilities, By contrast, the USFS generated revenue at and trails. They are adjacent to each other, with Crescent Moon that year under a park operation similarly sized visitor areas and staffed gatehouses PPP. The concessionaire paid all park operat- to collect fees and provide visitor information. ing expenses from the fees it collected, taking Both charge similar entry fees ($10 per vehicle at those off the USFS balance sheet. USFS received Red Rock, $9 per vehicle at the privately oper- $54,873 in revenue from the concessionaire ated Crescent Moon). More important, the parks 36 | IFC.ORG/HANDSHAKE (18 percent of gate revenue) and only paid for contract oversight (an estimated $10,000), yield- ing USFS a $44,873 operating profit. The USFS often reapplies net revenue generated under concessions back to improvements and new park facilities, keeping them properly maintained and preventing the chronic deferred maintenance seen in struggling public sector park systems. While the two parks are otherwise very similar, the park operated under PPP-generated revenue stream, while the publicly operated park lost taxpayer money. This simple example illustrates how parks can be financially sustainable under a PPP but financially unsustainable under public operation. Highlighting this point, Red Rock was ultimately included on the list of proposed state park closures in 2010 amid severe state budget pressures in Arizona. Source: “A Tale of Two Parks: Keeping Public Parks Open Using Private Operations Management,� Recreation Resource Management. Photo © Jim Staley, Red Rock State Park, Arizona IFC | 37 NATURAL HERITAGE a passion for Interview by Alison Buckholtz Warren Meyer is president of Recreation Resource Management, President of the National Forest Recre- ation Association, and a board member of the California State Parks Hospitality Association. He is the author of the website ParkPPP.com and conducted the first national conference on using public-private recreation partnerships to keep public parks open. cash for the government in the form of rent pay- How does privatization work? ments while still serving the public. Perhaps most important, privatizing parks takes Generally, private operators are more efficient them off the government budget, and makes than the government in the park operations. them immune from being pawns in government In part, this is because these companies have budget battles. In the 1990s, when a disagree- focused their whole business model on park ment between President Clinton and the Repub- operations, so they have developed proven lican Congress shut down the government, the processes for park management. A private work only federal parks open were those operated by force tends to be less expensive and more flexible private concessionaires. than civil servants. Perhaps more importantly, civil servants typically are paid all year long, even when the park is not very busy or is closed. In contrast, concessionaires have identified a large What impact has the U.S. govern- pool of workers who are flexible and actually are ment sequester had? looking for seasonal work. Using these efficien- The sequester has not had a big effect, as yet, on cies, private operators take on public parks that the concession model in National Parks—but are typically losing money for the government it should. For those of us who love parks, it is and convert them to a financial asset, generating 38 | IFC.ORG/HANDSHAKE exasperating to see that they are constantly used Diluting these attractions in any way is just as a political football in budget debates. One business suicide for operators. advantage of concession operation of parks, 3. It doesn’t happen. We operate over 100 beyond the expense reductions, is that the park parks in this manner across the country and budgets become untouchable in these political you would not be able to tell the difference food fights. between the facilities we manage and any other public park. How does the private company We aren’t trying to take ownership of the land. get paid? We are willing to accept whatever recreation mission or preservation mission the public With a few exceptions, most recreation conces- owner of the park sets and manage the park sionaires are paid entirely by user fees—for to that mission. example, by the fees at the gate, for camping, and from certain retail sales within the park. The concessionaire is not paid by the govern- Will private companies increase ment, and receives no subsidy. In our company, the entrance fees? 100 percent of the revenues we receive are from visitors. Generally not. First, operators cannot raise fees without their government landlord’s approval. Second, public recreation is generally attractive Won’t private companies just to visitors because it is low-cost and offers real build a McDonald’s in front of value—raising prices and reducing value would only drive customers away. Here is a real-world Old Faithful? example to underscore this point: California This is one of my favorite questions, because it State Parks charges $30 a night for a campsite is absolutely predictable that it will get asked with no utilities. Our private company operates whenever I discuss park privatization with a hundreds of public campsites for other govern- group of government officials. Typically I give ment agencies in California, and not one of three answers: those has a nightly rate greater than $20. 1. It simply is not possible. Under the terms of Photo © bcdixit/flickr, Badlands National Park, South Dakota a typical operating contract, a concessionaire cannot change fees, facilities, operating HUFFPOST LIVE: hours, or even cut down a tree without writ- MONEY DOES GROW ON TREES ten approval from the parks organization. 2. Generally, the parks we take over are popular for their natural or historical attractions. IFC | 39 LEGALEASE “ to dream plan � & By Ilan Dunsky & Lampros Stougiannos Heenan Blaikie LLP Since the 1872 dedication of Yellowstone However, public-private partnership (PPP) National Park—the world’s first national models for public parks based on structures park—governments have continuously sought developed for more traditional projects can be to set aside and protect lands deemed important an attractive option and should be considered enough to maintain in their natural state. In by authorities seeking to develop parks’ tour- doing so, governments typically seek to support ism potential. This article focuses on three expenditures by promoting park tourism. Histor- areas which deserve particular attention in any ically, as was the case with many infrastructure planned whole park PPP concession, where the projects, government authorities have sought bulk of the day-to-day development, manage- to maintain full control over the development, ment, and maintenance of the park is allocated management, and revenue of public parks and to an operator. wildlife. 40 | IFC.ORG/HANDSHAKE GOVERNING LEGISLATION Even where such concessions are not permitted, a PPP model may often be structured to take A key issue for the authority to consider—even such restrictions into account. before it begins to structure a PPP in the parks sector—is whether applicable legislation permits it to concession the park’s continued develop- DEMAND RISK AND STRUCTUR- ment, operation, and maintenance to a private ING THE PAYMENT MECHANISM operator. The relevant legislation may prohibit Assuming that the governing law permits an the authority from granting concessions over operator to manage a park on a long-term basis, some or all of the park’s operations. In addition, the authority can consider a broad concession to in some jurisdictions—particularly those that the operator to maintain and operate a variety follow the civil law tradition—authorities may of park services in exchange for a performance- be constitutionally forbidden from allowing any based availability payment. non-state entity to manage assets considered to be part of the public domain. Payments to the operator pursuant to a PPP structure are generally spread out throughout the In most jurisdictions, however, legislation will term of the PPP agreement. Although this risk likely allow some form of private participation is easy to manage from an operator’s perspective in public parks, although the specific operational where a project allocates a simple managerial features of the park that can be concessioned to a function to the operator, if the project instead private party will vary from jurisdiction to juris- requires upfront or ongoing capital investments diction and, in some cases, from park to park. the operator may be required to obtain third- party financing. This would typically be repaid during the term of the PPP from the availability payment. The PPP agreement’s payment mecha- nism therefore needs to be structured so as to Creative payment mechanism ensure the financeability of the project. models can be considered… The payment mechanism is also structured to Payments and deductions incentivize desired outcomes. For example, authorities could tie the operator’s payment to tied to specific ecological or the level of visitors to the public park, in order sustainability benchmarks to incentivize the operator to perform any promotion-related obligations. The demand risk may be attractive. associated with a visitor-based payment mecha- nism may need to be mitigated, however, if the IFC | 41 project is financed, since lenders are unlikely to A TAILORED APPROACH finance a project if repayments are subjected to the ups and downs of the tourism sector. The PPP agreement will include a number of performance and output specifications that In such circumstances, shadow tolling arrange- address the operator’s obligations with respect to ments similar to those used in the transportation its management of the park. Traditional services, sector should be considered. Under a shadow toll such as security, hospitality, food, and sanitary structure, the authority would pay the operator services, can be combined with more capital- a performance-based availability payment that intensive requirements such as the building could be adjusted based on visitor numbers. of additional hotels or the establishment of Entrance fees would be allocated to the author- an in-park network of roads and trails. ity directly, with a defined portion thereof being paid over to the operator. The PPP agreement Authorities should be creative about imposing could control the fees that can be charged—or requirements specifically tailored to the natural not. Fees generated by services offered at the parks and tourism sectors. For example, the public park, such as hotels and restaurants, authority could require the operator to offer could also be shared in this manner. guided tours of the park, market the park in appropriate outlets, or ensure easier accessibility This structure permits the operator a level of for visitors. Creativity is key so that legal struc- stable income (subject to appropriate perfor- tures and guidelines can continue to encourage mance of its obligations). This makes most proj- the original purpose behind national parks. ects financeable while at the same time ensuring that the operator is motivated to maximize the As American naturalist Enos Mills said, “Within number of visitors to the park. National Parks is room—glorious room—room in which to find ourselves, in which to think and More creative payment mechanism models hope, to dream and plan, to rest and resolve.� can also be considered. Payments and deduc- The dedication of Yellowstone National Park set tions tied to specific ecological or sustainability this mission in motion and it is as important benchmarks may be attractive to authorities— today as it was in 1872. To ensure the mission for example, allowing for additional payments continues, we need to make a little room for or deductions calculated on the basis of increases PPPs as well. or decreases in the forest cover, vegetation, or of a particular animal species. Structuring any such mechanisms would likely require great care, given the number of variables involved. 42 | IFC.ORG/HANDSHAKE park privatization in practice A concession contract for a National Park should be thought of as a commercial lease. The concessionaire will sign a contract allow- ing it to run the park for profit, and then pay the public entity a rent in the form of a percentage of fee revenues. With a few exceptions, the private company pays all the expenses associated with operating and maintaining the park and is allowed to keep the customer fees paid at the gate as revenue. Public authorities retain an immense amount of control over the appearance and service level at a privatized facility, and generally have procedures in place for terminating contracts where private companies under- perform the standards. In crafting the lease agreement, one of the key issues that varies case by case is the division of labor for major capital maintenance. In shorter term contracts of 1-5 years, the public authority gener- ally retains responsibility for major maintenance, as it is nearly impossible for a private entity to get a return from large capital expenditures in such a short period of time. Longer terms of 10-30 years allow the private entity to take on more of the major maintenance and capital improvements (most ski areas are a good example). However, even when private companies invest in facili- ties, these facilities become the property of the public at the end of the contract. —Warren Meyer Photo © World Wide Gifts, Yosemite NationalPark, California IFC | 43 Photo © multilisks/istockphoto Public-private partner- ships (PPPs) can be the key to ensuring the sustainability of national parks and protected areas in emerging markets like Rwanda and Mozambique, especially when businesses Seeking and investors can have con- cessions to operate within the parks. Without private sector involvement, visitor services run by government agencies are often operating beyond their usual capacity. sustainability AFRICAN By Scott Wayne PARK PPPs 44 | IFC.ORG/HANDSHAKE NATURAL HERITAGE As the sky lightens in Nyungwe National Park in tunities for local communities. Links in the southern Rwanda, land cruisers and park rangers value chain of Nyungwe’s tourism experiences bring sleepy visitors to a dirt road at the edge are strengthening, but Kigali-based and interna- of the forest. After the cool, tropical air awak- tional tour operators are not yet convinced. ens the senses, and the piercing screams of the The new concessions policy could make all chimps awaken everything else, the Nyungwe the difference. As it goes into effect, eco-lodge chimp tracking experience begins. This heart- development sites near the source of the Nile pounding experience is novel for most visitors are expected, as well as other ventures, such as because Nyungwe was founded in 2004, and is restaurants, cafes, and additional tourism service one of Africa’s newest national parks. With over providers. In time, this will expand options for 1,000 square kilometers, it is also Africa’s largest tour operators, visitors, and local communities. protected mountain rainforest. Tourism is gradually taking hold in the park, The new concessions policy seeks to achieve the thanks to the efforts of the Rwanda Develop- following: ment Board, with the support of USAID. Now, • Raise investment in protected areas via PPPs; with a recently approved national concessions • Streamline proper management and conserva- policy, their efforts are expected to help attract tion of protected areas through concessions; more visitors and increase spending, which in turn increases employment and income opportu- • Provide quality visitor/tourist infrastructure, nities for local communities and leads to higher facilities, and services within the protected standards of living. In the long run, this should areas; provide the park with more resources to ensure • Generate revenues to the government that that it is protected. can be channeled for management and conservation of these protected areas; and PROGRESS VIA PPP • Promote sustainable tourism that generates For the past three years, the USAID-sponsored employment and reduces poverty. Nyungwe Nziza Project has been successfully The policy is also expected to provide a transpar- working with the Rwanda Development Board ent and objective framework for awarding and and local communities to help the park realize its managing concessions and to facilitate obtaining potential. But more visitors are needed to make support from other government offices, minis- it a fully self-sustaining park, generating oppor- tries, and agencies. IFC | 45 A MODEL IN MOZAMBIQUE OVERCOMING ROADBLOCKS Two thousand kilometers south-south-east, in southern Mozambique’s Maputo Elephant Challenge: Lack of clarity on the role Reserve, private investment for an eco-lodge of special licenses in awarding tourism development is the goal of another ambitious concessions in conservation areas. African project. To support its six-phase “Invest- ment Generation Approach� (IGA), an IFC Solution: The program designed a team began working with the government, local concessions structure whereby local community, and investors in 2007 to generate an communities could be the concession- “anchor,� or strategic investment, which could aires and then partner with the private serve as a catalyst for additional investment. sector for implementation and manage- ment. Related to this was the piloting Though the process was interrupted by 2009’s of an approach that required investors economic recession, investor interest returned by to commit to community development 2011. With a more structured investment and activities. concessions program in place, officials signed an agreement for a 35 room eco-lodge in the Reserve. Now that the framework is in place, Challenge: No framework for awarding additional investments are being explored. commercial concessions in conservation areas. But as with most large-scale investments, the path to the Maputo Elephant Reserve was paved Solution: The program developed with challenges. Some of Mozambique’s biggest guidelines and recommended that hurdles were solved in ways that could apply to regulations be put in place for the other parks. awarding and management of conces- sion agreements. Just like fingerprints, no two parks are exactly alike, and these two African parks demonstrate the variety of ways that concessions can serve the Challenge: No model to generate goal of sustainability. It’s not as heart-pounding income from tourism investments in a journey as tracking screaming chimpanzees in conservation areas. the early morning light, but the end result— Solution: The program helped estab- protection of pristine parkland—has just as lish an approach requiring investors to much heart. pay market-based fees for commercial concessions and then recommended that most of the fee revenue be reinvested in the Reserve. 46 | IFC.ORG/HANDSHAKE As Africa’s concession policies take hold, examples from other park systems around the world can offer some best practices and lessons learned for developing concessions and PPPs. One of the world’s benchmark examples is the “Commercial Services Program� of the U.S. National Park Service (NPS). The program administers 575 concessions contracts in more than 100 national parks and protected areas, grosses more $1 billion annually, and during peak seasons employs more than 25,000 people. The services provided by private sector concessionaires cover 26 categories including auto and gas service stations, campgrounds, food service, lodging, motor coach tours, rafting tours, and vending machines. This has its roots in the 1998 Concessions Management Improvement Act, which sets policy and a process for ensuring that concessions “are consistent to the highest practicable degree with the preservation and conservation of the resources and values of the unit.� The process includes a competitive proposal and contracting process, Manage- ment and Advisory Boards, close environment management, and franchise fees paid to NPS. Photo © James Brooks IFC | 47 bright TOURISM’S Forecast: INVESTMENT CLIMATE The travel and tourism industry is growing, and all indications suggest that it will continue to do so. Key factors include increasing wealth, the aging of the population, liberalization of air transport, and rapid advancements in technology that affect transport systems, passenger handling, sales and distribution, reservations, and inventory manage- ment. Global travel last year grew faster than the global economy—and it is growing fastest in the transitional economies. Much of the future growth is going to come from and will happen in these economies. By John Perrottet 48 | IFC.ORG/HANDSHAKE INVESTMENT CLIMATE The developing world is well-positioned to take advan- tage of the fast-growing travel and tourism industries. Many emerging nations have attractive tourism assets with an increasingly high level of recognition and expo- sure among consumers. The challenge for governments in the developing world is clear: how can they capture a share of this growth and manage it so that it can drive prosperity? Government officials know that the right answer to that question is key to transforming their economy. But they also know that competition is fierce. For developing countries to flourish in this environment there must be good underlying tourism assets, both natural and man- made, on which to build an attractive offer. Then the public and private sectors must work together to convert those assets into productive income earning businesses which generate jobs. A CLEAR DIRECTION To succeed in this competitive climate, governments must set clear direction for their tourism and travel industry. Unfortunately, too many governments treat Photo © Lisa MSE Moore, Mussenden Temple, Ireland the industry as a short term cash generator, levying taxes and applying regulations which result in high transac- tion costs and which discourage participation and limit growth. They make poor decisions based on inadequate sector analysis and short term political gains. Others fail to see investment as the driver of growth. They don’t manage their own assets to deliver a satisfactory return on IFC | 49 investment—or there is an absence of a commer- A TARGETED APPROACH cial framework to facilitate private sector invest- ment. Others turn visitors away by hanging on A targeted approach to competition recognizes to outdated visa regimes. that reforms need to be bundled into a more integrated program, with a clear focus on gener- In addition to attractive assets and sound poli- ating investment. There are three components: cies, there must be a capacity to mobilize the private sector and facilitate the investment that Defining Market Position and will commercialize the underlying assets. This Growth Opportunities process translates assets into attractive tourism This helps countries understand their products, supported by efficient infrastructure competitive position and develop rapid and an effective environment for doing business. responses to foster growth. While longer- It is now well recognized that the overall invest- term thinking is essential, and policy ment climate is key. If a destination does not settings need to be right, all governments offer an attractive investment environment, it want results quickly. This approach will not attract foreign investment. Nor will it helps them by providing a targeted and mobilize local investment. Both are required for commercially realistic analysis of their tourism to transform an economy. destination and a rapid assessment of the steps needed to effectively organize for While it is true that many needed reforms can short, medium, and long-term investment take a long time to implement, it is also true that results. countries don’t need to wait until every busi- ness indicator has improved in order to generate Fostering Market Development investment. Many government tourism officials This unlocks investment opportunities ask, “We have implemented a lot of reforms but and converts them into completed we still don’t attract the level and type of invest- transactions that will generate incomes ment to enable us to compete effectively—what and jobs. Governments must mobilize else can we do?� capital for tourism business with high In short, they have discovered that reforms alone don’t generate investment—at least not at a speed that allows them to stay in the race. 50 | IFC.ORG/HANDSHAKE potential. This can involve commercializ- REMEMBER RELATIONSHIPS ing key assets, accessing new and emerging sectors such as health, sports, or religious By taking a more commercial approach, tourism, and strengthening core tourism governments can focus on building a pipeline products in more mature markets where of transactions that generate jobs while better reinvestment or rejuvenation is warranted. understanding the drivers of growth and the impacts of negative policies, procedures, and Building Market Improvement business conditions. Removing regulatory constraints to visitor This market-driven orientation also helps access and economic growth is the first governments connect more effectively with step toward success. The most urgent work private sector partners, allowing them to dem- toward this goal typically involves build- onstrate leadership and build the confidence ing investor access and smart incentives, necessary to attract the investment commu- visa reform and opening visitor access nity. Investors stress time and again that these to destinations and key sites, and sector relationships are critical to building a positive licensing and inspections that support climate for tourism investment. brand standards and encourage inclusion. It is also important to look at reforms, which impact access to labor, and other key inputs which build competitiveness. Environmental and economic sustainabil- ity are also key areas to focus on. IFC | 51 Photo © swifant/flickr, Borobudor, Indonesia the accidental TOURIST Interview by Alison Buckholtz Photo © Imran Hunzai Researching tourism trends worldwide 52 | IFC.ORG/HANDSHAKE INVESTMENT CLIMATE Don Hawkins was appointed as the Dwight D. Eisenhower Professor of Tourism Policy in 1994 and is a Professor of Management in the George Washington University School of Business. He has been Special Advisor to the UN World Tourism Organization (UNWTO) Secretary General for the UNWTO Knowledge Network since 2012. He has recently been engaged in sustainable tourism consulting activities, including policy analysis, workforce development, higher education reform, strategic planning, value chain analysis, and technical assistance. For tourist spots, the most visible, How have investments in tourism tangible benefits of a successful tour- changed over the last 20 years? Are ist trade typically include the number there any notable trends surfacing? of jobs created. What are some of Tourism as a development strategy for develop- the more subtle, less visible ways that ing economies has waxed and waned over the an area benefits from tourism? years. Tourism today is being analyzed as value chains relevant not only to tourism, but also It’s important to focus on the impacts of tourism potentially applicable to other production and at the local destination level. Jobs are important, service sectors. As tourism increasingly appears but they are created by business (mainly SME) on the economic growth agenda for developing start-ups or expansion activities. Local people countries, a more robust analytical lens is needed who live in the destination directly benefit to help resolve overarching issues such as poverty from infrastructure created to serve the needs alleviation, land, labor, and finance. of visitors—solid waste disposal, road, airports, telecommunication, and energy, among others. There have been significant advances in accessing knowledge about how tourism can contribute IFC | 53 to sustainable development. After five years of Have you seen examples of places USAID funding of the Global Sustainable Tour- with significant barriers to investment ism Alliance, I coordinated an effort to compile turn themselves around? How have best practices, cases studies, and tool kits result- ing from this effort. they done this? Often destinations with great potential flourish What are the most formidable barri- by being connected through trip circuits and tour routes. For example, the Go Blue Central ers to tourism investment? America Geotourism Program has organized It is important to stimulate travel between coun- 164 active businesses from Roatán and Bocas tries through the easing of entry requirements del Toro in Central America through a National and expansion of visa waiver programs. Of the Geographic Society web site. I have also seen 656 million international tourists who visited remarkable progress for place-focused tour G20 countries in 2011, 110 million needed a routes. These include the Silk Route in Asia; visa, while millions more were deterred from wine routes in Kakheti region in the Republic of traveling by the cost, waiting time, and difficulty Georgia and the Douro Valley in Portugal; and of obtaining a visa. According to the UNWTO, the Mundo Maya Route lining archaeological facilitating visas for these tourists, many from sites in Belize, Guatemala, Honduras, El Salva- some of the world’s fastest growing source dor, and Mexico. markets, could create over five million additional jobs in the G20 economies by 2015 and gener- What role do public-private partner- ate an additional $206 billion in international tourism receipts. ships play in tourism investment? Accessibility can also be increased through the PPPs are essential to develop tourism. Let me adoption of open skies policies and improvement focus on Jordan, a country with a wide array of the quality and maintenance of road, air, and of PPPs. In 2007, the government of Jordan water transportation infrastructure. The overall awarded a 25-year concession for the Queen investment environment for tourism can be Alia International Airport in Amman following improved by eliminating corruption and estab- a competitive bidding process assisted by IFC. lishing “one stop� windows to reduce the time it The project included rehabilitating existing takes to execute an investment project. Inves- facilities, constructing a new terminal with a tors often lack reliable, comparable, and timely capacity of 12 million passengers per year, and tourism data and other information necessary operating the airport. In 2001, the Aqaba Special to adequately forecast and plan for develop- Economic Zone Authority was established as the ment. The inability to gauge potential demand statutory institution empowered with regulatory, increases project risk. administrative, fiscal, and economic responsibili- 54 | IFC.ORG/HANDSHAKE ties for both the Aqaba Regional Authority and the Aqaba Municipality. The Royal Society for the Conservation of Nature (RSCN) is another outstanding example of a PPP—in this case, THE BIGGEST BARRIERS devoted to the preservation of Jordan’s natural resources. TO INVESTMENT Some major investment barriers that need to be addressed include: What do you look for when consider- ing whether or not to recommend • The lack of political stability and respect investing in a tourist location? for rule of law are major constraints and drive visitors away, as the “Arab Spring� An effective tourism policy and regulatory frame- has demonstrated. work at the national and local levels is essential. • Environmental sustainability is a growing It’s also important to coordinate tourism and concern for competitive tourism destina- investment promotion strategies at all levels. tions; particularly the need to address Tourism needs to be considered an export, with issues such as coastal zone management, an understanding that the customer travels to the water pollution, and waste management. destination as contrasted with product outbound distribution systems. • Inadequate licensing and concession poli- cies inhibit private sector investment and I also use indexes for benchmark comparisons— operation of tourism facilities in parks and for example, the World Economic Forum Travel protected areas. and Tourism Competitiveness Index published every two years compares tourism-related perfor- • Commercial banks, venture capital firms, mance of 140 economies. and institutional and individual inves- tors often lack the expertise to work Lastly, I try to determine how a tourism with small- and medium-sized tourism destination deals with planning paradoxes. enterprises. For example, the tension between globaliza- tion and localization or the need to cooperate • Tourism as a service-oriented, labor-inten- to build market share while maintaining rivalry sive industry requires semi-skilled and and competitiveness. It’s important that tourism skilled workers and well-trained manag- destinations do not consider these alternatives ers to deliver the service quality required as “either-or� but rather as realities that need to by international tourism companies and be understood and addressed to create a viable visitors. tourism sector. —Don Hawkins IFC | 55 Photo © phvolmer/flickr, Chicago Skyway tourist TRAPINVESTING IN TOURISM INFRASTRUCTURE By John Kjorstad What is infrastructure? It’s a fairly simple ques- about delivering an affordable public service to tion with no distinctive right or wrong answer. promote social and economic development that A text book, or in this case Investopedia, might facilitates local prosperity. define infrastructure as “the basic physical sys- tems of a business or nation�—such as transpor- Tourism’s place at the table tation, communication, sewage, and water and So where does tourism factor into this discus- electricity networks for a start. One’s definition sion? Tourism is clearly a driver for some infra- of this asset class is often dependent on their structure, but it also represents a significant risk appetite and understanding of risk. A toll bridge for its potential lack of certainty. After all, why under a public-private partnership (PPP) with people use infrastructure is key to its attractive- an availability-based payment structure will ness. If one observes that people need to com- require a high cost of initial investment, but mute to earn a living—and that few outside the returns steady yield with relatively low mainte- “one percent� would consider doing this by wing nance costs and a semi-sovereign risk profile. A and jet engine—then a tolled suburban road crematorium by contrast might be less expensive network should perform better in an economic to build, but carries significant operation and downturn than a tolled airport expressway. maintenance costs—and although death and For hard evidence on this casual observation, taxes are two of life’s great certainties, natural gas compare the recent experience of the Airport- prices and predictable consumers are not. linkM7 in Brisbane, Australia with that of For many investing in infrastructure, low Chicago Skyway in the United States—two road volatility and predictable cash flows are the main concessions managed in part by the Australian attraction. For those procuring infrastructure, it’s firm Macquarie. 56 | IFC.ORG/HANDSHAKE IJ INSIGHT BrisConnections, the SPV for AirportlinkM7, indicates further expansion, yet tourism projects entered into voluntary administration following really do need to be closely examined on an a failed restructuring process earlier this year. The individual basis. 6.7 km, multi-lane, free-flow toll road crashed A quick search of Infrastructure Journal’s trans- because its financiers accepted traffic risk and action database using the simple keyword predicted that 135,000 vehicles would use the “tourism� returns the following assets attracting tunnel each day when it opened in 2012—ramp- private investment—only half of which have ing up to 160,000 within 18 months. The actual reached financial close (indicated by *): number turned out to be 53,000 vehicles per day, and in fact only 85,000 used the tunnel • Geelhoutbos Tourism Development PPP when the connection was briefly offered for free. (South Africa) Meanwhile, the privatization and financing of • Autopista de Nordeste Toll Road Long-Term Chicago’s existing Skyway Bridge has been far Funding* (Dominican Republic) more successful—largely living up to its expec- • Brisbane Southbank TAFE PPP* (Australia) tations. The 7.8-mile toll road was originally • Hong Kong Ocean Park* (China) built in 1958, with a long history of perfor- mance. Moreover, the traffic on the Skyway has • Tamoios Highway Expansion (Brazil) remained consistent throughout the financial • Mamallapuram Museum PPP (India) crisis because it relies on a steady stream of com- • Naoussa Ski Resort PPP (Greece) muters who live in Indiana but work in Chicago. Commuting is an essential activity, and therefore • Mundaring Water Treatment PPP* (Australia) offers more certainty to investors. • Saudi Landbridge PPP (Saudi Arabia) • Punta Cana Airport Expansion* Measuring risk (Dominican Republic) The cloud of uncertainty is an obstacle to • Dubrovnik Passenger Port* (Croatia) investment in tourism infrastructure, but global statistics suggest it doesn’t have to completely • Aqaba New Port (Jordan) fog it out. Data from the UN World Tourism • King Shaka International Airport* Organization (UNWTO) says international (South Africa) tourism receipts hit a new record in 2012, reach- ing an estimated $1,075 billion worldwide, up At some level, each of these projects is seen as a 4 percent in real terms from $1,042 billion in direct investment supporting tourism as well as 2011. the local communities. In several cases, PPPs are being used as an effective tool to facilitate that The industry seems resilient despite several development. Yet each of these projects is clearly high-profile economic crises and natural disaster individual. Like the definition of infrastructure challenges in recent years. The long-term trend itself, there is no right or wrong answer. IFC | 57 INVESTMENT CLIMATE Photo © Dietmut Teijgeman-Hansen Fighting poverty with PASSPORTS By Jonathan Mitchell Developing country tourism is not the preserve of middle-income countries. Some of the lowest income countries, such as Ethiopia, The Gambia, and Tanzania, have small tourist flows by international standards, yet depend on international tourism for a quarter to a third of their exports. Mount- ing empirical evidence shows that such “pro-poor tourism� can transfer significant benefits to local economies and communities around tourist destinations. In these and other low-income countries, tourism can be a considered a mechanism for poverty reduction. 58 | IFC.ORG/HANDSHAKE Around the time of the Millennium Develop- more likely to be effective if the private sector is ment Summit, a small group of researchers involved in identifying problems and articulating coined the term “pro-poor tourism� (PPT). solutions. PPT was based on three assertions: From a tourist company perspective, PPT can • Tourism can be pro-poor; result in rapidly improved profitability. Expand- • Tourism can be made more pro-poor; and ing the tourist sector while spreading the benefits of tourist spending throughout the destination • Any type of tourism can be pro-poor. economy is also the most effective mechanism These simple assertions were a revelation a for increasing the scale of benefit flows to the decade ago. At the time, the development sector resource poor. This results in a confluence of tended to see tourism as a private sector activ- interest between the tourist industry and the ity that had little relationship with poverty population living around the destination. reduction, while the commercial tourist sector saw poverty reduction at destinations as the responsibility of others. Ultimately, PPT aimed at putting tourism on the development agenda Developing countries are and development on the tourism agenda. Has littered with well-intentioned this worked? community-based tourism and Behind “alternative� tourism eco-tourism projects which, with Analysis by the Overseas Development Institute notable exceptions, are delivering (ODI) suggests that it is very important for limited benefits to few people. mainstream tourism to develop and maintain tourism/poverty linkages. But from a develop- ment perspective, the quest for an “alternative� tourism that benefits local communities by excluding mainstream tourist operators has The results are in largely failed. Small-scale tourist interventions Where this confluence of interests is recognized, are unable to reduce poverty at the scale required PPT has been successful. An assessment would by the Millennium Development Goals. Large- include its impact on the donor community. scale poverty reduction implies working with Several multilateral donors (notably the World large-scale tourist activity. Improvements made Bank, IFC, Asian Development Bank, and UN), by development agencies and governments some bilateral ones, and a number of NGOs to the enabling environment for tourism are have provided significant support for PPT proj- IFC | 59 ects over recent years. One of the more success- Seeking consensus ful examples has been the partnership between the private sector and NGOs in The Gambia However, there is still a great deal to do before through its International Centre for Responsible there is consensus among the development, Tourism. This initiative linked low-income commercial, public, and research domains communities with tourism, and improved the concerning PPT. In the development sector, pro-poor impact of tourism in one of Africa’s some agencies remain skeptical about includ- smallest, and poorest, destinations. ing tourism projects in their portfolios for a variety of reasons. Among the enthusiastic supporters of tourism projects, like NGOs and external donors, many are still seeking their own Some researchers still believe— alternative to mainstream tourism. Develop- ing countries are littered with well-intentioned despite the mounting evidence— community-based tourism and eco-tourism proj- that the destination impacts of ects which, with notable exceptions, are deliver- ing limited benefits to few people. Developed international tourism are almost in isolation from private sector and commercial always negative. distribution channels, they lack the client vol- umes needed for commercial sustainability, and generally fail soon after the supply of concession- ary funding dries up, as research has shown. Some key mainstream commercial tourist operators have recognized their responsibility for The view that mainstream tourism should have a destination impacts and are seeking to enhance prominent place in poverty reduction programs those impacts. The emergence of sustainability for low-income countries with a competitive initiatives at the major European tourism fairs is tourist sector is probably not even held by the evidence of this. For example, the Federation of majority in the development sector—let alone a Tour Operators—the umbrella organization for consensus view. the largest tour operators in the U.K.—encour- Mainstream tourism has been timid in adopt- ages suppliers to respect minimum wage legisla- ing PPT principles, and its embrace of social tion, to create corporate social responsibility and and environmental sustainability has been late sustainable development structures in main- and piecemeal. With the majority of European stream corporations, and to establish sustainabil- mainstream customers being unwilling to ity accreditation and award systems for suppliers. pay for more pro-poor holidays, according to industry evidence, mainstream operators have understandably taken destination impacts into account. 60 | IFC.ORG/HANDSHAKE Glimpsing the future industry, and the general public. This is another change that is anticipated. An important driver for change has been the flurry of recent mergers and acquisitions that has Following this reasoning, ODI concludes that resulted in some organizations becoming listed the tourism sector in its current incarnation is on Western stock exchanges. Several outbound failing to capitalize on the good news story that tour operators and hotel chains have a market tourism may already be benefiting destinations. capitalization of $2.6 billion to $5.2 billion, Where tourism is not yet pro-poor, improv- subjecting them to onerous review and reporting ing performance can only be achieved with an responsibilities. Corporate management is aware awareness of the problems and solutions. In the of the impact of negative stories emerging from medium term, PPT can improve monitoring of developing country destinations. In this context, business impacts on development, reduce reputa- PPT initiatives can play a strategic role in reduc- tional risk, and increase social licenses to operate ing reputational risk. As tourist companies work in developing countries. in complex environments, they appreciate that In the longer-term, when most mainstream tour- positive socio-economic benefits can increase ists start to demand enhanced socio-economic their “social license� to operate. performance in developing country destinations, In the research community too, PPT does not the companies that have anticipated this change yet play the role it may eventually assume. in demand will reap significant early mover com- While there have been many academic articles mercial advantages. and several special editions of tourism journals focusing on PPT, researchers concerned with Adapted from “An unconventional but essential marriage: the destination impacts of tourism operate in pro-poor tourism and the mainstream industry,� Private Sector & Development, Issue 7, September 2010. contested territories. In addition to PPT, many use alternative terms—such as “responsible,� “inclusive,� and “sustainable� tourism. There is no harm in this trend continuing—in fact, it can be helpful, as researchers with similar principles and goals operate under different labels. Some researchers still believe—despite the mounting evidence—that the destination impacts of international tourism are almost always negative. However, tourism research- ers generally have not yet fully encompassed mainstream development economics, the tourist IFC | 61 Flying as fares Low-cost carriers revitalize tourism By Charles Schlumberger & Nora Weisskopf 62 | IFC.ORG/HANDSHAKE Photo © Matt Hintsa LOW-COST CARRIERS Numerous studies have indicated that the REGIONAL RESULTS entrance of low-cost carriers (LCCs) has a sig- nificant impact on lowering airfares, not only in Empirical evidence suggests that when a low-cost their own network, but across the whole aviation carrier enters a market, prices fall by an average market. This has in turn stimulated traffic, with of 20 percent over the first four years, resulting routes often experiencing a many-fold growth in traffic increasing by about 50 percent over in passenger numbers. However, the effects the same period. In the European market, for of reduced fares from LCCs reach far beyond example, the entrance of LCCs has had a signifi- increased passenger traffic: there is a well-docu- cant impact on tourism demand for the major mented correlation between LCCs’ entrance into six Comunidades Autonomas (autonomous the market and a positive impact on the tourism communities) in Spain. One study forecasts that sector as a whole. a 10 percent rise in the number of visitors using LCCs would increase tourist per capita figures from similar EU countries by 0.2 percent. Since ABUNDANT BENEFITS LCCs’ share of passenger traffic has risen from The European Low Fare Airlines Association 10 percent in 2000 to 53 percent in 2009, that groups LCCs’ benefits to tourism into four projected impact is substantial. categories: Similar findings exist in other EU countries. One • Reduces fares. study that estimated the impact of Ryanair on the rural area around Frankfurt Hahn (known • Increases the number of tourist destinations as the Hunrueck region) found an increase from due to usage of secondary airports. (For 2.17 million of total number of overnight stays example, the London-Strasbourg route, previ- in 1998 to 2.34 million in 2002. ously used primarily for business, has proven to become a popular tourist destination with the entrance of Ryanair.) LESS ISOLATED ISLANDS • Distributes traffic more evenly throughout Island tourism has been particularly affected by the year, reducing “seasonality effects� (pas- the entrance of LCCs, especially in the areas of sengers limiting their travel to traditional employment and accommodation revenues. The peak periods). government of Malta’s decision to “incentiv- • Lowers off-peak fares, which have enabled ize� the entry of LCCs in 2006 is seen as a key mid-week holiday travel. This development driver for the country’s increased tourism figures distributes traffic more evenly across the week in 2007. Tourism had experienced very little and reduces congestion at airports. growth prior to 2006. IFC | 63 A separate study, which looked at the Korean economy. (“New demand� refers to passengers island of Jeju, attributes the growth in number who have, due to a variety of reasons, never of tourist and accommodation revenue between flown before.) Research confirms that the traffic 2005 and 2008 almost entirely to the entrance of generated by LCCs is a result of demand stimu- Jeju Air, a low-cost Korean carrier. This research lation rather than cannibalization of existing shows that LCCs accounted for 35 percent of carriers’ traffic. total passengers in 2009 on the Seoul-Jeju Island These first-time flyers are also taking advantage route, corresponding to an average growth rate of the host region’s service economy—hotels, of 161.7 percent between 2005 and 2009. This restaurants, museums, and attractions. As this stands in contrast to a -0.3 percent growth rate demonstrates, the emergence of affordable air for full-service carriers. services can have a crucial impact not just on the aviation market, but on the entire economy ECONOMY-WIDE EFFECT of a country. The stimulation of new demand from reduced fares is especially important to the tourist Productivity in LCCs PASSENGERS PER EMPLOYEE: Easyjet: 6,772 British Airways: 735 Ryanair: 9,679 Air France/KLM: 715 INTERNATIONAL ARRIVALS Arrivals to emerg- ing economies are expected to Advanced economy surpass those to destinations advanced econo- Emerging economy mies by 2015. 1980 2030 destinations Sources: European Low Fares Airline Association & Global Report on Aviation, AM Reports: Volume 5, UNWTO, 2012. 64 | IFC.ORG/HANDSHAKE QUANTIFYING “The Southwest Effect� In 1993 the U.S. Department of Trans- portation (DoT) conducted a study on the impact of low-cost carriers’ (LCCs) entrance on the U.S. airline market. Terming this phenomenon the “Southwest Effect,� the researchers focused on three different aspects of how Southwest airlines impacted the avia- tion market, specifically: Direct competitive effect in terms of passenger growth and fare reduction on a given route that Southwest had entered; The lowering of fares at surrounding airports through Southwest’s entry; and The role model effect, exhibiting the impact Southwest has on the business models of new entries in other markets. The study presented evidence that Southwest’s entry had a significant impact on all three aspects of the market. In Europe, the entrance of LCCs has also led to similar substan- tial market stimulation, with 50 percent of additional flights between 1995 and 2004 having been provided by low-cost airlines. Photo © Beth Jusino IFC | 65 Ambassadors of the AIR SAMOA’S LOW-COST CARRIER TAKES OFF Photo © Virgin Australia As a small, isolated country in the Pacific, neighboring destinations such as Fiji, Tahiti, and Samoa is heavily dependent on tourism for jobs Cook Islands. Recognizing the seriousness of and economic development. The government’s the situation, the government approached IFC objectives for the aviation industry included to find an alternative to liquidating Polynesian providing safe, modern, efficient, and affordable Airlines. international air transport to Samoa to support After recommending that the government imple- expansion of the tourism industry. Operat- ment a public-private partnership (PPP) with ing Polynesian Airlines in a commercially and an international aviation investor, IFC served as financially sustainable manner was also a high lead advisor to the project. government priority. But prior to 2005, neither objective was being met. Polynesian Airlines’ inappropriate route and A SIGNIFICANT IMPACT fleet structure, expensive aircraft leases, overstaff- The PPP that has paved the way for Virgin ing, and uneven demand levels contributed to Samoa (the rebranded airline which took over a $7.5 million loss (70 percent of the govern- the jet operations of Polynesian Airlines) has had ment’s total budget deficit) in 2004. Tourism a significant and lasting impact on the nation’s was growing only 4 percent a year, far below tourism business. Specifically: 66 | IFC.ORG/HANDSHAKE LOW-COST CARRIERS • Increases in direct flights and frequency of flights between Samoa, Auckland, New Zealand, and Bris- bane/Sydney, Australia have resulted in increased FINANCIAL RESULTS travel choices for travelers: the re-branded Virgin (AS OF 2010) Samoa currently runs 14 flights per week to Apia from • The realized level of private sector Auckland, three flights from Sydney and one flight investment for the evaluation from Brisbane. Air New Zealand has daily flights period is $10 million (2009), between Auckland and Apia, and Air Pacific operates compared to the expected level of less frequent flights to Fiji’s Nadi Airport and Hawaii. private sector investment of $5 • Increased seat capacity on international flights has million. resulted in increased competition among airlines • Since 2005, indirect taxes col- and in lower cost of travel for consumers. lected from additional tourist • Increased tourist arrivals from 101,807 in 2005 to arrivals is estimated at $1.86 172,713 in 2012 has led to increased investment in million per annum. tourism infrastructure and related services. • From 2005-2009, 243,000 people The transaction model was designed to take advantage of have been positively impacted by the international partner’s cost structure, leverage market- the improvement in airline ser- ing and distribution strengths, and maximize profitability. vices and improved services to the Significantly, the structure allowed a low-cost carrier to Samoan economy, compared to an participate, a first in airline privatization. original estimate of 80,000 people benefitting from the partnership. The restructured Polynesian Airlines, which retained the turbo prop operations focusing on servicing the • Indirect benefits of the additional domestic and international flights to American Samoa, tourist facilities resulted in new has also achieved profitability. It is now being prepared employment for 671 people and by the government for privatization. contribution to national salaries and wages of $1.4 million (2009). Kolone Vaai, the co-Managing Director of KVA Consult, LTD, a Samoan consulting firm, was involved in the • Consumer savings from the gen- team assembled for the PPP transaction. He shared the eral reduction in regional airfares same positive assessment of the benefits realized by the since the joint venture over the restructuring of the airline to date. However, he pointed 2005-2009 period is estimated out that the key challenge now facing the local tourist at $57.7 million. About 243,000 industry is mapping out how Virgin Samoa and Polyne- people have benefitted by the sian Airlines can diversify the international airline routes reduction in airfares over the same to develop effective and sustainable air links to the grow- period. ing and developed markets in the northern hemisphere and Asia. IFC | 67 FIRST PERSON Advising the advisors Travel industry experts offer solutions for more effective development approaches “Traveling light� applies to theories of development just as it does to pack- ing a suitcase for a mission. For tourism officials and experts in the travel industry, development institutions that arrive with bags overflowing with outdated ideas can be the most unwelcome visitors of all. To help develop- ment personnel plan projects, Handshake editors approached a diverse group of industry leaders with the same question: “ On what aspects of the tourism industry in developing countries can development institutions have the most impact? Where specifically should these institutions focus their attention and resources? � Their focused, constructive responses point to emerging trends and important lessons for development agendas worldwide. 68 | IFC.ORG/HANDSHAKE “ � Geoffrey Kent Travel can change lives and attitudes, and most impor- tantly, build bridges between people. Sustainable tourism Founder and offers the best hope of protecting endangered places Executive Chairman of because it provides a compelling incentive to protect wildlife, habitat, and culture. It’s encouraging that a new Abercrombie & Kent form of community development assistance is evolv- ing from informal partnerships forged by the owners of forward-looking travel businesses who connect civic- minded travelers with local non-governmental organiza- tions committed to making a difference in conservation, health, education, and community development. International development institutions can foster such partnerships by providing financing for innovative camps and lodges committed to sustainable practices and sourcing food, products, and workers locally. IFC | 69 Stéphanie Balmir Villedrouin Minister of Tourism, Haiti It is not possible to conceive of a tourism indus- infrastructure is one of the major challenges that try without dynamic private sector participation. some developing countries currently face, and The state is there to provide regulation and hand therefore infrastructure development projects holding—in other words, to create a structural would have the greatest impact in these societies. and regulatory framework allowing operators to However, these projects should follow sustain- implement their tourism development projects able tourism and development practices so that without constraints. That is why Haiti’s gov- the country and its people can benefit from ernment established the Advisory Council on the investment. These institutions should also Tourism last December, to respond to the need invest in management training to ensure quality for harmonization and synchronization between services for the benefit of the sector clients. the public and private sectors. Specifically, development institutions should Above all, and regardless of location, the tour- focus their attention and resources on consid- ism industry requires an attractive environment ering which tourism investments will generate endowed with natural, cultural, or heritage direct and indirect employment. Development sites that will support its full development. institutions should also stimulate investment Access to these areas requires the establishment by setting up guarantee funds to benefit of infrastructure that will encourage visits or investors. stimulate interest in these destinations. Lack of 70 | IFC.ORG/HANDSHAKE IFC | 71 John Tribe Professor of Tourism, Surrey Tourism Research Centre, University of Surrey When I travel I am still amazed by how much spending gets vacuumed up by formal, established, foreign busi- nesses and yet what a huge potential there is for tourism to create opportunities for informal, new, and local trade. Development institutions have made inroads here, but there is still much to do. Effort needs to be concen- trated on the key areas of confidence, means, ability, support, access, and trust. Confidence is that start. Could I do it? Who are the local role models? How are these inspiring others and through what mechanisms? Means means money. User-friendly micro-finance schemes can penetrate deep into local economies and provide a significant social and economic return to investments. Ability is developed through skills training. Not complex, not expensive but flexible and very tailored to immediate needs. Support means access to networks and specific, local, accessible problem-solving advice. Finally, access and trust. Local businesses need help to connect with tourists perhaps on a co-operative basis but certainly deploying new technologies. Tourists need to be able to trust local services. This is a serious challenge to be worked on. 72 | IFC.ORG/HANDSHAKE Hannah Messerli Senior Private Sector Development Specialist for the Africa Region, World Bank Tourism is a cross-sector, multi-impact activity that can be an important economic generator for developed and developing economies—but tourism is not a panacea. Just as there are many benefits, there are also negative impacts that can be difficult to manage over time. However, tourism can be a powerful tool to engage communi- ties, build the private sector, and encourage national pride. Development institu- tions can support tourism value chain development that raises awareness and capacity about tourism trade-offs while also having positive economic, environ- mental, and social impact. Development institutions have a critical role to play given their ability to support the sector over time. It’s important that they remain realistic about what tourism can and cannot do and support public and private sector collaboration to manage impacts. From the immediate through the long term, development institutions must make it possible for diverse public and private sector stakeholders to come together as partners. IFC | 73 74 | IFC.ORG/HANDSHAKE Chris Weaver Managing Director of the World Wildlife Fund, Namibia In many developing countries, the develop- above, very few developing countries put in place ment potential of the tourism industry is weakly strategic mechanisms (such as tax deferrals, tax harnessed. As a result, tourism is frequently seen breaks, or co-funding) that provide incentives for as an exploitive industry that: 1) exploits rural the private sector to partner with communities in poor; 2) poses a threat to sensitive ecological tourism operations. systems; and 3) uses tax loopholes or offshore Namibia is an exception in promoting respon- accounts to sidestep tax payments, creating the sible tourism. Communal conservancies impression of an industry that also exploits (legally-recognized community natural resource governments. These perceptions are further organizations) have been given rights to com- re-enforced by tourism operators who rationalize mercial tourism and tourism-derived benefits they are creating jobs that wouldn’t otherwise are being linked to the responsible management exist, but at the same time provide meager wages of wildlife, wildlife habitats, and other tour- and benefits to staff. Then there are tourism ism assets. Tourism companies are required to operations that are constructed and operated in contract with conservancies for tourism activi- some of the most pristine and attractive venues, ties, with such contracts ensuring that most staff which also frequently are unique and highly are employed from the resident community, that sensitive biodiversity hotspots. staff receive professional training, and that a fair These consequences are a result of weak tour- portion of the income is returned to the conser- ism policies and legislation that do not create a vancy to pay natural resource management costs development-oriented framework for respon- and to support rural development. This approach sible tourism. For example, few countries have has empowered rural communities while also devolved tourism concession rights to organized promoting better natural resource management community bodies, and surprisingly few coun- and provided participating communities with tries have linked nature-based tourism with revenues. This framework has resulted in the performance-based natural resource manage- creation of 35 operational joint venture lodges, ment initiatives. Furthermore, most developing with another 10 under development. countries do not have environmental legislation Namibia’s successes demonstrate that much that ensures construction and operation of can be achieved in developing countries by tourism activities in a manner that minimizes focusing on the policies that harness respon- the tourism footprint and impact on sensitive sible tourism to support development. biodiversity assets. Finally, in addition to the IFC | 75 Anita Mendiratta Founder & Managing Director, CACHET Consulting The travel and tourism sector has become a recognized, respected driver of invaluable economic, social, cultural, environmental, and competitive advancement of nations across the globe. Many developing countries are now able to attract interest and investment that would have been unthink- able just a decade ago. This is where the role of development institutions is critical. These agencies see both sides of a sustainable supply and demand equation, they access and leverage experience and best practices from across the globe, and they act as a neutral, full-circle facilitator for public and private sector partner- ship development. Therefore, development entities can become the key enablers when it comes to turning possibilities into valuable, equitable propositions. Development institutions can act as a bridge between vision and execution. 76 | IFC.ORG/HANDSHAKE Mahmud Janmohamed Managing Director, Serena Hotels, Africa Although developing countries still hold a marginal position in international tourist flows, reports indicate that their performances are improving at a faster rate and are expected to become the main engines of growth in the sector. For these countries where economic activity is often based on a handful of sectors of activity, responsible tourism development provides real potential for diversification. It provides valu- able foreign currency exchange, government revenues, creates jobs, deepens the local supply chain through inter-industry linkages and infra- structure development, and catalyses economic development and social progress through positive pressure to help improve the investment climate and best practices. Development institutions must ensure that prior to supporting new tourism develop- ments, the project includes elements that bring about economic growth and develop local human resources as well as cultural and natural heritage. This needs to be done while reducing the ecological footprint of establish- ments to a minimum. The promoter must rely on an ethical framework, in-depth risk analysis, and a policy of constant innovation. IFC | 77 Taleb Rifai Secretary-General, UN World Tourism Organization In recent decades, international tourism grew to understand the process of tourism develop- most notably in emerging markets and develop- ment and which factors boost competitiveness. ing economies. In 2012, international tourists According to the World Economic Forum’s spent $386 billion in these countries—up from Travel and Tourism Competitiveness Index, $104 billion in 1995. Tourism is today one of the 49 LDCs rank the lowest in factors such as the main wealth creators for many developing tourism infrastructure, health and hygiene, air and least developed countries and often the most transport infrastructure, ICT infrastructure, economically viable and sustainable development policy and regulations, statistics, and human option. The sector represents 56 percent of the resources; these should be some of the priorities service exports of Least Developed Countries in aid development in tourism. (LDCs) and was central to the graduation of two Furthermore, any project should be fully of the three countries that graduated from the adjusted to the state of tourism in the country. LDC status: The Maldives and Cape Verde. Countries where tourism is still at a nascent It is thus ever more obvious that with careful stage may benefit more from support in mas- planning and management, tourism’s vast poten- ter planning, product development, human tial can be harnessed for stimulating growth and resources, regulation, and investment promo- development. To achieve this objective, tourism tion. Countries that have already managed should be placed higher on the development to build a thriving tourism sector can benefit agenda and, most importantly, the level of more from support in the field of marketing assistance in tourism should match the potential and promotion, SME development, supply of the sector to contribute to the development chain interventions to reduce leakages, and objectives. Today, the tourism sector represents strengthening mechanisms for governance a mere 0.13 percent of all Official Development and management of the sector. Assistance (ODA) and 0.5 percent of Aid for Trade, as compared to a 6 percent share of all To guide development institutions and benefiting countries, exports in the LDCs. UNWTO has just published, with the support of the European Union Directorate General for Development and Cooperation, To understand where the impact of aid devel- a “Sustainable Tourism for Development Guidebook.� opment can be more effective, it is important 78 | IFC.ORG/HANDSHAKE IFC | 79 Brett Tollman Chief Executive Officer and President, The Travel Corporation Effective, efficient tourism develop- ment for the long term is a vital part of the advancement of any tourism business, as well as any tourism industry in an economically vibrant country. For travel specialists, hoteliers, or any other business with links in the travel experience chain, having confidence in a destination occurs when there is a vision for long-term viability—economically, environmentally, and otherwise. This is critical to private sector entities within the tourism industry. From our perspective, development agencies act as a form of conceptual reassurance. The presence of, and partnership with, development agencies in nations provides a clear signal that exploration of investment opportunities in developing nations is wise. The active, visionary, and visible leadership by development agencies acts as a compass, providing valuable insight into what is required to turn opportunity into real results. 80 | IFC.ORG/HANDSHAKE Gerald Lawless President and Group Chief Executive Officer, Jumeirah Hotel Group Travel and tourism services are not only a direct export. These services provide a financial injection into local economies, and on a larger level, they are a social virtue. Governments are beginning to recognize the role of travel and tourism in creating essential employment opportunities, and that it actually can be the conduit to provide much needed entry-level jobs for young people. Therefore, strategic investments should be made into vocational institutions that provide specific education in travel and tourism. Over the next decade, total industry employment is forecast to increase by more than 70 million jobs, with close to 70 percent of those additional jobs in Asia. Working closely with governments, development institutions can play a crucial role in creating tourism infra- structure that would result in further engagement of local communities into economic cycles, providing access to education and healthcare. IFC | 81 FAST FACTS Tourism after is the 4 th fuels chemicals largest industry in the global economy food 82% 1/3 of developing of the world’s countries name poorest countries $ tourism as a key foreign exchange earner. pinpoint tourism as the leading export earner. 3.3% The expected increase per year of the number of inter- national tourist arrivals worldwide from 2010 to 2030. Travel & tourism’s total economic contribution in 2012 9% of GDP global 1 in 11 jobs 5 % of global investment 5 % of world exports Sources: United States Institute of Peace, World Tourism Organization, and World Travel & Tourism Council. 82 | IFC.ORG/HANDSHAKE “ Travel makes one modest. You see what a tiny place you occupy in the world. � —Gustave Flaubert IFC | 83 Subscribe: ifc.org/handshake Connect with us: facebook.com/ifcinfrastructure twitter.com/ifc_advisory scribd.com/ifcppp handshake@ifc.org July 2013