RESILIENT TOURISM AND BLUE ECONOMY DEVELOPMENT IN CABO VERDE PROJECT Increasing Supply Chain Links in Cabo Verde’s Tourism Sector Challenges, Opportunities, and Recommendations for Improving Food Supply Quantity, Quality, and Reliability ECONOMIC GROWTH PARTNERSHIP (EGP) CONSTRAINTS n Cabo Verde’s large tourism sector is poorly The tourism sector is dominated by all-inclusive hotels linked to other sectors of the economy. in Boa Vista and Sal. Tourism represents about 25 percent of Cabo Verde’s gross domestic product. Over 75 percent of n There are strong incentives for tourism buyers bed capacity is concentrated in Boa Vista and Sal, and over to source certain products locally when 90 percent of rooms are held by a handful of large, all-inclusive hotels located there as well. This overwhelming concentration they can find the right quantity, quality, and of tourists and associated food supply requirements affects reliability. local linkages, particularly in quantity, quality, and reliability. n Traditional local markets are not organized to Limited local production and logistical challenges drive serve larger buyers. Boa Vista and Sal imports. Tourism demand amounts to 5–10 percent of national consumption in key food categories. n Alongside a few larger industrial players, small Boa Vista and Sal have never developed significant agricultural and medium enterprises are emerging that activity and are historically less populated. Agricultural seek to modernize supply chains. products available in other islands tend to be imported from abroad into Boa Vista and Sal. Unreliable maritime freight n This trend must be encouraged to create local remains a binding constraint on perishable products supply supply that matches the needs of tourism chains. Considering modern production technologies, some of the imported products could be produced locally, despite sector buyers. scarce land and water resources. n A tourism linkages matching grant window Domestic production is constrained, but where available, could catalyze joint buyer-supplier initiatives local products are favored. With its small size, small market, and benefit overall economic growth. and limited natural resources, Cabo Verde largely depends on imports across most product categories. Locally available For more information, visit Resilient Tourism and Blue products tend to be competitively priced on the domestic Economy Development in Cabo Verde Project (P176981) market, often protected by high tariffs. The bulk of the at projects.worldbank.org demand for fresh agricultural products in larger urban centers is served by domestic production. The bulk of consumption March 2023 With their larger scale and commercial approach, modern suppliers are better suited to overcome constraints on traditional supply chain actors, such as logistics and access to water, energy, and finance. COMMERCIAL PRODUCERS “MODERN” BUYERS Market-oriented primary AGGREGATORS/ Urban middle class production (commercial farms, PROCESSORS SUPERMARKETS consumers, institutional semi-industrial fishing) Aggregators and buyers (schools, hospitals, Modern retailers: large volumes, military, hotels and processors of local reliability, food safety products and other restaurants, canteens)— local manufacturing require quantity, quality, TRADITIONAL PRODUCERS and reliability using imported inputs IMPORTERS/WHOLESALERS Small-scale producers engaged in contract farming for Bulk purchase and storage: large aggregators/processors volumes, reliability, food safety at the national level, whether by households or institutional marketing approaches as primary producers, commercial buyers, remains based on traditional domestic supply chains. farms, aggregators, and processors. These emerging suppliers To complement what is available in these traditional markets, are driving the transformation of local supply chains for the wholesalers and modern retail outlets bring industrial products benefit of institutional buyers, in tourism and other sectors. and fresh products that are not in sufficient supply locally. They provide a sense of the wide range of potential supply The large, all-inclusive hotels have fewer incentives to source chain partnerships vertically and across sectors, in agriculture, locally: they are highly sensitive to price and less to quality, fisheries, manufacturing, and services. and their average customers have less local preference and footprint concerns. On the side of the tourism players and other institutional buyers, initiative and knowledge of supply chain partners Local product availability depends on traditional production can also be leveraged. Many hotels, restaurants, and tourism and supply dynamics, which does not match “modern” and agencies are looking for reliable local supply chain partners and bulk demand, leading to growing imports. Challenges include tend to be aware of the better or most promising products and fragmented, subsistence-driven production; lack of product suppliers. Tourism sector buyers often engage with their more aggregation and processing; weak logistics and storage; and trusted supply-chain partners to improve the quality of their high informality, resulting in insufficient quantity, inconsistent products or the reliability of their delivery. Several tourism quality, and unreliable supply. The changing consumption players have expressed interest in partnering with programs patterns of the urban middle class and institutional buyers that can help build more robust local supply chains and/or requires a planned, reliable supply of products adhering to support local entrepreneurship. For example, TUI Group, the strict food safety and premium quality. Larger scale, better largest all-inclusive operator, signed an agreement with the predictability, and higher commercial value of local supply will Cabo Verde government that provides a strategic framework in turn drive shared market infrastructure and services (for to develop local links and support economic development. example, post-harvest centers and maritime freight) and thus improve commercial production, aggregation, and processing. LESSONS OPPORTUNITIES Past local and international experiences in tourism supplier development indicate three main lessons to consider in the Private companies have begun to fill the supply gap, design of linkages interventions. adopting modern production and marketing. Industrial- scale and small and medium enterprise (SME) suppliers (1) Demand-driven approaches and private sector leadership are now well established in some non-perishable or frozen are key. products. Their capital- and knowledge-intensive approach • Private-sector, buyer-led initiatives have the best success matches modern buyers’ needs. To fill market gaps, a handful, rates and sustainability, maximizing linkage opportuni- yet growing number of SMEs bring modern production and ties to bring business benefits. 2 Increasing Supply Chain Links in Cabo Verde’s Tourism Sector • Cost-sharing or commitment by lead firms to provide management time and training are among the strategies The tourism linkages matching grants window to achieve higher commitments under projects led by the targets private sector supply chain groups public sector. (2) Sufficient attention to both demand- and supply-side ANCHOR FIRM issues is critical. Key intermediary representing • A common source of failure is that initiatives to improve anchor firm (tourism buyer) Anchor firms can local sourcing focus either on supply, by working with guide product and Improved Guidance producers, or on demand, by working with buyers, but supply and offtake supplier targeting not on both. and development • Reviews of international examples suggest that failures SME SUPPLIER(S) activities, while providing the secure are common and paying sufficient attention to both SME market opportunities demand- and supply-side issues is crucial to success. aggregators/ necessary to Commercial processors drive productivity (3) Opportunities serving broader markets beyond tourism SME investments by producers need more attention. Raw material supplier SMEs. • Although tourism demand is a key driver, suppliers producers looking to expand and upgrade need a wider market to scale up investments and diversify risks. • For more resilience, large tourism buyers also prefer their suppliers to have a broader, more robust customer base. Traditional producers (farmers, fisherfolks) RECOMMENDATIONS A tourism linkages matching grants window could improve SME productivity and quality, thereby contributing and submitted by any member of a supply chain group on to the modernization of supply chains for the benefit behalf of the group. Projects are selected following a two-step of institutional buyers. The window aims to promote process overseen by the window manager, with implementation economic development through inclusive growth in and reporting carried out by the private sector. Supply chain high-potential tourism supply chains. The window will group applications may include one or several SME suppliers. target supply chain groups comprised of an anchor firm Eligible costs will include production and technology; design (tourism buyer) and a SME supplier (commercial producer, and quality; marketing, distribution, and finance; and training processor, or aggregator). It will support the upgrading and internal management. of SME capabilities to help match the requirements of anchor firms: increased quantity, consistent quality, and REFERENCES reliable supply. Activities will include technical assistance to originate projects (market mobilization) and financial Cabo Verde National Customs. 2018. support for SMEs (matching grants). This approach is inspired Interviews with suppliers, tourism operators, Cabo Verde by the Jamaica Business Fund, a World Bank-funded matching government, and partners. grant mechanism. Public sector agency ProEmpresa is well- Jamaica Foundations for Competitiveness and Growth Project. positioned to manage the grants window, with its ability to Karwacki, J. 2019. Cabo Verde: The Potential of Local blend existing SME support mechanisms. ProEmpresa is in Experiences and Online Marketplaces to Diversify Tourism. charge of promoting the development of micro, small, and Washington, DC: World Bank Group. medium size Cape Verdean companies, by facilitating access National Statistics Institute. 2020. to technical assistance, financing, and innovation. Torres, R. 2003. Linkages Between Tourism and Agriculture in Mexico. Annals of Tourism Research 30: 546–66. Eligible supply chains for the grants window include World Bank Group. 2019. Local Sourcing in the Cabo Verde productive sectors that can generate high job multipliers, Tourism Food Supply Chain. Washington, DC. such as agribusiness, fisheries, light manufacturing and World Bank Group. 2018. Partnership for Growth: Linking services. Applications for window support may be prepared Large Firms and Agro-Processing SMEs. Washington, DC. Increasing Supply Chain Links in Cabo Verde’s Tourism Sector 3