V. MEASURES TO FACILITATE FINANCING THE DEVELOPMENT OF NATURE AND HERITAGE TOURISM

Governments
Financial/Banking Community
Private Entrepreneurs
All Borrowers
Intergovernmental and International Assistance Agencies
Joint Efforts

Our research shows that although there are varied and adequate sources of funding for nature and heritage tourism in the Caribbean, these sources are not equally available. In some cases, there is a mistaken notion that private-sector financing is not available at all. The fact that both the domestic development banking sector and commercial lending agencies indicated that requests for funding such tourism ventures have been few is to some extent indicative of the low level of awareness of ecotourism possibilities and the lack of viable projects. It is therefore imperative that governments create an environment conducive to such projects. Moreover, financial institutions need to become more familiar with nature and heritage investment in order to better appraise funding requests. Finally, entrepreneurs need to formulate their projects so as to substantiate their financial viability.

As was mentioned earlier, the 1993 St. Kitts and Nevis Tourism Master Plan developed by the OAS includes several recommendations for a tourism-oriented economy in the Caribbean:

· Natural areas should be managed under financial schemes that will enable them to operate as independently as possible of government, with visitor fees and expenditures reinvested in each area.

· If the private sector is going to benefit from the natural attractions of the country, it should contribute to the protection of these attractions. Barbados has established a cooperative for tourism funding called the Tourism Development Corporation, which allows private- sector participants to voluntarily contribute a fixed percentage of before-tax profits.

· A bed tax has worked well in St. Croix and St. John, providing additional promotional dollars tied directly to growth in productivity.

· Governments can mobilize funding and define objectives via a national trust, which could pursue funding from international and non-governmental organizations. The trust could fund feasibility studies, and project management and design.

· Businesses ancillary to the travel industry (such as real estate and insurance companies, contractors, banking entities) should be solicited aggressively for funding.

Resources within the business community must be thoroughly assessed and harnessed against the background of excitement and credibility created by local media coverage.

In addition to the conditions stated earlier in the discussion of regional and national development banks, he proposed several guidelines. They include the following:

· Emphasize the environmental aspects of a project. Many agencies may be prepared to provide concessionary funding for the environmental components of the project.

· Identify the likely environmental benefits of the proposed project, even when such benefits are not quantifiable.

· Ensure that the project recovers its costs by charging user fees that are appropriate to the attraction.

· Incorporate community participation in the design, implementation, and operation of the project. This will not only improve community support, but ensure that the project design is appropriate to the social and cultural environment.

More recently, the OECS countries have indicated their desire to impose an environmental tax on all cruise passengers visiting the respective countries. The rationale for such a tax is that user fees cannot be charged for the individual sites and attractions they visit, but that these attractions must be maintained and enhanced if the quality of the environment is to be sustained. If the tax can be successfully implemented, the funds it raises will make a significant contribution to the conservation and improvement of nature and heritage tourism sites and attractions in the OECS.

While grant funding from international assistance agencies is likely to diminish, the increasing awareness that nature and heritage tourism can contribute to a local and national economy will make governments more inclined to provide incentives for private-sector investment. Moreover, taking into account that the services sector has become the main source of economic activity for the region, national and international development banking institutions should be encouraged to make available more facilities for both governmental and private sector investment in nature and heritage tourism.

The following reforms are necessary to facilitate financing for nature and heritage tourism projects in the Caribbean:

Governments

· Governments should establish the general objectives for the development of nature and heritage tourism in their national development plans and programs. These should include the provision of the legal and administrative frameworks under which a flexible and rational use of resources can be achieved.

· Governments need to enhance the atmosphere for private investment in nature and heritage tourism, partly by improving investment incentives. In addition to the usual tax holidays and import duty waivers, governments could improve access to credit and funding sources. Investment procedures should also be streamlined (in many countries, investors must navigate through a cumbersome permit process).

· Governments should be ready to negotiate the transfer of limited control over natural and historic areas in return for entrepreneurship and capital.

· Governments should abandon the notion that proprietary rights incorporate the exclusive responsibility for renovation, preservation, and conservation of natural and heritage tourism. NGOs and other parties could be assigned specific environmental responsibilities and be overseen by a governmental office, which could be paid for by user fees. Private museums should be encouraged. Licenses could be awarded for the reproduction of artifacts.

· Should the OECS governments adopt an environmental tax, the proceeds should be placed in a trust fund or nature and heritage tourism development fund to be used specifically for the development of nature-based tourism projects. These funds should be made available to viable projects at modest interest rates with the greatest emphasis placed on their potential for high economic return. The governments should channel the monies directly to the maintenance and enhancement of nature and heritage attractions. These funds could also be used to operate the government oversight office mentioned above.

· Campaigns are needed to help communities near nature and heritage attractions learn enough about them to be able to share them intelligently with visitors.

Local residents should also be taught the benefits of tourism for their economy. From the schoolchild to the farmer, each must realize the importance of tourism, and welcome visitors rather than treat them only as sources of money.

When community members offer their hospitality to tourists and share their knowledge, the visitor feels safe and has a more relaxed, comfortable, and pleasant stay. This may require public education campaigns and government policy as well, such as regulating taxi drivers at the airport.

· Public support and awareness need to be raised for conservation and restoration work undertaken by para-statal agencies and NGOs. This might include publicity through public information offices or ministries and boards of tourism.

· User fee structures need to be evaluated periodically to ensure that they are at market level, and, for public-sector attractions, to ensure full recovery of costs. These projects should aim to be financially self-supporting.

· Statistics on the flow of visitors to nature and heritage attractions need to be compiled in each Caribbean nation. Tourists should be polled to find out whether ecotourism is the main goal of their travel, or a component activity to be explored while in the chosen destination.

Such statistics are crucial in calculating project occupancy rates and/or visitation potential. They can be the basis for sound market studies and demand assessments that potential lenders may consider as evidence of the potential success of proposed projects.

· National and local governments should expand training programs in order to increase the availability of human resources for the expansion of nature and heritage tourism services.

Coordination between education and environment ministries should be reinforced in this process. Community participation should also be facilitated.

· National governments should increase their efforts to promote their destinations as nature and heritage tourism attractions, both locally and internationally. Special budget allocations should be made to increase promotions through the mass media, travel agencies, international tour operators, and special promotion campaigns.

Financial/Banking Community

· Workshops could be held in target countries, bringing in specialized interregional ecotourism teams to counsel local financial institutions and entrepreneurs.

Local banking institutions are a vital link in the nature and heritage tourism finance chain, so it is important that they be knowledgeable about prospects.

· Grace and repayment periods need to be extended to allow for more suitable cash-flow management. This would enable developers to spread costs over a longer time frame so that projects could overcome the problem of low initial returns and long implementation periods.

Lodging developments require substantial amounts of capital; recovery is slow while new investments must be made in furnishings, payroll, and marketing.

· Corporations and asset-holding organizations such as insurance firms, trade unions, and credit unions should be encouraged to invest in projects that enhance the benefits of nature and heritage tourism.

Private Entrepreneurs

· Project proposals must be realistically viable in their financial planning. Potential sources of funding will be reluctant to consider over-leveraged financial plans. In addition to a detailed marketing plan and reliable occupancy projections, entrepreneurs must contribute enough equity up front to assure potential lenders of their commitment to the project and their ability to repay the loan. Only when nature and heritage tourism is well established, with a proven track record of success, will lenders be more willing to accept the inherent risks in this type of project.

· Projects need to be well-structured, documented, and supported with detailed cost estimates and implementation schedules, market research, and management and human resource requirements. Allowances for depreciation and maintenance should be adequate to cover ongoing maintenance and modernization. (See Case Study in Annex 1.)

All Borrowers

· Small-scale development projects seeking subsidized financing from international development finance institutions can benefit by being clustered to bring the total dollar value requested up to the minimum required by such institutions for economy of scale.

This can be done by, for example, linking small ecotourism facilities with larger hotel accommodations or geographically clustered projects can join in a financing request, as can projects that can offer a variety of ecotourism experiences, such as three sites offered in a package, so that, for example, a tourist can visit a tropical rainforest, a desert site, and a Caribbean fishing village.

This, of course, requires that borrowers share financial responsibility and so depend on each other for legal guarantees and repayment of the loan.

· Nature and heritage project operators could create a much-needed collateral guarantee fund by increasing entrance fees. Such a fund would reduce the risk associated with this type of project.

· More attention and effort should be given to the marketing of nature and heritage tourism attractions, particularly the cruise market.

An alliance with a tour operator for inclusion in a package is vital to ecotourism projects that are not large enough to serve as attractions in and of themselves.

Intergovernmental and International Assistance Agencies

· Although some countries are no longer classified as developing countries, exceptions should be made for nature and heritage tourism projects, because funding is difficult to obtain and many projects meet international environmental goals.

· Nature and heritage tourism investments have the potential to generate high economic rates of return (ERR) through the development of marginal lands, employment generation for rural communities and small historic towns, and the enhancement of a destination’s tourism product. In this regard, emphasis also should be placed on the ERR instead of looking only at the internal rate of return (IRR) or debt-service parameters.

· Universally acceptable guidelines need to be prepared for nature and heritage feasibility studies. The studies should include infrastructure needs, cost projections, environmental impact assessments, qualifications of proposed management, and a detailed market assessment. This should include potential market projections, an implementation schedule, expected cash flow, a marketing study, and a detailed business plan that includes operating costs, funds to be set aside for the future, and expected depreciation.

· Technical assistance and training should be made available for the preparation and presentation of feasibility studies and supporting documentation. Potential borrowers often do not know what to present or where to seek help.

Along the same lines, a list of tourism planning professionals, engineers, designers, economists, environmental specialists, and marketing specialists whom they can consult on their own should be compiled, including the experts’ language abilities and international experience.

· International development financing agencies should increase access to soft financing for nature and heritage tourism. An effort should be made to align funding requests with the priorities of agencies such as the GEF.

A fixed-term fund could be established to provide grant funds to sponsors willing to prepare feasibility studies and proposals for the development of projects.

Seed funds could also be considered as a mechanism to help potential sponsors develop nature and heritage tourism ventures.

Joint Efforts

· A system to combine the contributions of the various parties is needed. International development financing agencies, assistance organizations, and NGOs have played the role of catalyst in certain projects thus far. A permanent, perhaps regional, commission could improve and help replicate collaboration in financing nature and heritage tourism development. The commission should be made up of representatives of governments, NGOs, intergovernmental associations, and entrepreneurs. This group could recommend policy reforms to accommodate ecotourism.

· The development of a region’s tourism sector must be focused on innovation. This requires maintaining the uniqueness of each destination and preserving its natural and historical qualities.