CONFIDENTIAL

Eco-tourism Development in Mozambique

Discussion Document 22 May 2003 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.

THE AIMS OF TODAY’S DISCUSSION

• To introduce TechnoServe and its approach to business development • To confirm the goals of this project • To agree on the overview of the industry • To discuss and identify the role TechnoServe can play in this development • To agree on some next steps for this project

1

TODAY’S TOPICS

•

Introduction to TechnoServe and to this project

• TechnoServe and the eco-tourism industry • Next steps for this project

2

TECHNOSERVE PROFILE Brief History:

•Founded in 1968 to provide the hardworking rural poor with technologies needed to improve productivity

TechnoServe Today:

•

Mission:

To help entrepreneurial men and women in poor rural areas of the developing world to build businesses that create income, opportunity and economic growth for their families, their communities and their countries •

Reach:

Ten operational offices worldwide with entrepreneurs being assisted in Ghana, Uganda, Kenya, Tanzania, Mozambique, El Salvador, Honduras, Nicaragua and Peru

TechnoServe Mozambique:

•Established in 1997 with US$2.4m grant to assist agribusinesses increase rural employment •To date, assisted clients in cashew, fruit, oilseeds, horticulture (cut flowers) & pulses •Currently exploring new industries, including eco-tourism, timber, garments 3 Source: TechnoServe

TECHNOSERVE ACTIVITIES AND APPROACH TO INDUSTRY DEVELOPMENT

TechnoServe activities TechnoServe’s approach to its role in industry development Management & Technical Assistance Industry Analysis

• Assistance with business planning • Operational assistance • Technical assistance – including introduction of new technology • Finance procurement (including grant/loan application) • Research and economic analysis • Formulation of ‘industry vision’

Initial Work

• Define industry vision and TechnoServe’s role

Mozlink

• Business linkages • Providing ‘mentors’ to Mozambique entrepreneurs

Short-term

 Pilot project with single entrepreneur to build capabilities • Provide equity funding to innovative agribusinesses

Longer-term

• Replicate model with other entrepreneurs to develop industry

MozFund Influencing Government

Source: TechnoServe • Encouraging policy change through examples of successful business innovations 4

CASE EXAMPLE: TECHNOSERVE IN THE CASHEW INDUSTRY

The Starting Position: Mozambican Cashew Industry in the mid-1990s

• Concentrated in rural North (60% in Nampula area) • Shadow of its former self (200,000 tons of raw cashew nut produced in 1972 versus less than 50,000 tons in mid 1990s • Halting recovery efforts (new investment, but in inefficient large plants with improper technology

TechnoServe’s Role: 1998-2002

With single entrepreneur as a pilot: • Advocated focusing on smaller scale processing plants with appropriate technology (manual versus impact shelling) • Assisted in improved purchasing practices from smallholder producers • Assisted in managing work force effectively (better training, etc.)

Results Achieved

• Successful pilot to export 120 tons of kernal (US$420k) to EU in 2003 • First followers up and running: IPCCM & Africaju • Three “satellites” due to start operations this year to sell via Mr A. Miranda

TechnoServe’s Next Steps

• Innovation: Explore new technology for greater efficiency (steam roasting) and new products from cashew fruit (CNSL) • Technical assistance to both satellite plants to increase capacity/learning (as well as improve financial managment) and start-ups (capacity for 4 per year) 5 Source: TechnoServe

THE AIM OF THIS PROJECT

Key question to answer :

What set of actions should Technoserve take to aid the development of the eco-tourism industry in Mozambique and to achieve its aim of benefiting the rural poor?

This project aims to....

• Define a road-map of action steps for TechnoServe to follow in eco-tourism Create a definition of ‘eco-tourism’ that is in line with TechnoServe’s vision and goals - Identify barriers (gaps) to the development of eco-tourism in Mozambique - Develop criteria that TechnoServe can use to weigh opportunities and potential activities in eco-tourism - Identify ways to get eco-tourism entrepreneurs off the ground

This project does not aim to....

• Dictate overall countrywide policy for government or other players – in tourism or environmental planning • Focus on specific geographic locations or customer segments to the exclusion of others • Solve the question of environmental sustainability on a national scale • Define the ‘value-chains’ for all aspects of the industry 6

TECHNOSERVE’S BRIEF AND THE ‘WORKING’ DEFINITION OF ECO TOURISM ADOPTED FOR THIS PROJECT

TechnoServe’s Brief

• Promotion of private enterprise growth • Building sustainable economic development • Meeting the needs of rural poor communities

Definition of Eco-tourism

• Nature Based: Tourist activities should be based on the natural environment • Environmental Sustainability: Commercial operations should be environmentally sustainable although TechnoServe will not actively engage in conservation programmes • Community Involvement: Economic and non-economic benefits for the community, increased awareness of the value of biodiversity and conservation 7 Source: Team analysis

TODAY’S TOPICS

• Introduction to TechnoServe and to this project •

TechnoServe and the eco-tourism industry

• Next steps for this project

8

TECHNOSERVE: ECO-TOURISM DEVELOPMENT IN MOZAMBIQUE

• The Mozambican eco-tourism industry has substantial potential: – When comparing Mozambique to its counterparts, the tourism industry (with eco-tourism as a part of this) remains small – Mozambique is located in a region where several countries have established tourist industries and infrastructures and has several features that could form part of a larger regional eco-tourist offering – The proposed government strategy for developing tourism emphasizes development of several regions of the country, particularly parts of the coast, and goes some way to express a broad strategy for the tourism industry • However, many of the building blocks needed to develop eco-tourism are not in place. Marketing, regulatory, infrastructure and skills gaps should be addressed if the industry is to develop successfully • Although TechnoServe cannot address all these gaps in the building blocks needed for industry development, it can play a role at an enterprise-level in addressing needs of specific entrepeneurs and creating workable models for eco-tourism businesses in Mozambique. In pursuing this aim TechnoServe will assess actions it can take and their success against a set of criteria that emphasize both the nature of eco-tourism and the business and rural development brief of TechnoServe.

9

MOZAMBICAN TOURISM INDUSTRY RELATIVE TO ITS COUNTERPARTS

Contribution of Travel and Tourism Industry to GDP

US$ per capita 1 210 762 56 52 29 252 274 376 10 32 2

305 Tourism Arrivals

‘000, 2001 1,106* 96* 2,140 2,641 5,908 670 995* 266 501 660 400 * Data from 2000 Source:World Bank Development Indicators (2001), World Tourism Organization (2001), Ministry of Tourism 10

MOZAMBIQUE’S ECO-TOURISM OFFERINGS

Chobe (wildlife viewing) Victoria Falls (adventure) Okhavango Delta (wildlife viewing, birding) Etosha National Park (wildlife viewing) Fish River Canyon (adventure)

Lake Niassa (marine viewing, wildlife viewing) Pemba (diving, fishing)

Garden Route (adventure, marine viewing)

Tete (game hunting) Gorongosa National Park (wildlife viewing) Bazaruto Archipelago (diving, birding)

Kruger National Park (wildlife viewing)

Ponte D’Ouro (marine viewing) Maputo Elephant Reserve (wildlife viewing)

Mkhaya Game Reserve (wildlife viewing) Sodwana Bay (diving) Lesotho Highlands (adventure) Source: Lonely Planet Guide 11

Mozambique is well positioned to exploit its position within a regional eco tourism offering

GOVERNMENT PRIORITY AREAS FOR DEVELOPMENT

Zone

1 2 3 4 6 7 13 14 5 9 10 8 11 12 15 16 17

Name

Elephant Coast Tourism Zone Greater Maputo Zone Xai Xai Coastal Zone Limpopo Massingir Zone Inhambane Coastal Zone Bazaruto Vilankulos Zone Ilha de Mocambique-Nacala Zone Pemba-Quirimbas Zone Limpopo-Mapai Zone Manica Tourism Zone Cahora Bassa Tourism Zone Sofala Tourism Zone Gila-Reserve-Pebane Tourism Zone Gurue Tourism Zone Northern Cabo Delgado Tourism Zone Lake Niassa Tourism Zone Niassa Reserve Zone

Priority Short term:

up to 5 years from 2003

Medium term:

between 5 and 10 years from 2003

Long term

: between 10+ and 15+ years from 2003

Currently, the Government strategy is still at a high level but broad ideas on key products and customer segments have been established

12 Source: Draft Strategic Plan for the Development of Tourism (Ministry of Tourism, Mozambique)

GOVERNMENT’S NEW TOURISM POLICY (APRIL 2003)

Motivation for policy

Tourism can deliver growth and employment that can make a difference in Mozambique, some of the direct benefits are: • Income • Employment • Conservation • Investment • Infrastructure • Prestige • Creation of small businesses

Key Policy Items

• The 4 major items identified in the policy are: – Principles and objectives to aid in tourism development – Government Priority Areas of Intervention i.e. decentralized planning procedures, priority zones (PATI), infrastructure, etc – Key players and organizational structure of tourism (including the private and public sectors) – Key Strategic Direction for tourism Source: Ministry of Tourism, Mozambique 13

THE WORK OF THIS PROJECT

Define building blocks for industry development Identify gaps in these building blocks Define criteria which TechnoServe can use to assess opportunities Define ‘road map’ for TechnoServe activities Identify opportunities for TechnoServe to pursue • Define framework for assessing development of eco-tourism • Use framework to assess gaps in industry development • Cite existing initiatives that address gaps • Define potential further actions to address gaps and TechnoServe’s role in these • Identify types of activities in which TechnoServe can be involved • Define method for TechnoServe to make action choices going forward • Define phases of TechnoServe’s developing role in Mozambican eco tourism • Assess specific ideas and actions against criteria set out previously • Identify TechnoServe needs and pursue specific opportunities Current phase of our work Next phase and on-going 14 Source: Team analysis

DEVELOPMENTAL BUILDING BLOCKS OF ECO-TOURISM INDUSTRY

• Identify the right offering to deliver to end customers • Identify the value chain steps needed for delivering this offering

Value Proposition Entre preneurship

• Enhance the number of people seeking to establish new eco-tourism ventures by accepting commercial risk for appropriate return • Identify improved techniques, products, and offerings to ensure sustainability and growth of ventures

Innovation Identify opportunities

• Identify new venture opportunities and potential for community impact Source: Team analysis • Apply management and technical skills, appropriate equipment and processes to operate the business effectively and efficiently

Sound execution Business environment

• Effective actions under each building block can create a self-reinforcing cycle • Weak building blocks will slow down eco tourism development • Create regulatory and physical environment to enable ventures to be established and to operate, compete and grow • Establish infrastructure (e.g. wildlife management) and systems (e.g. booking, market linkages) to support successful eco-tourism operators 15

CURRENT INDUSTRY BUILDING BLOCK GAPS

Marketing gaps

• Weak marketing or booking systems

Skills gaps

• Limited understanding of high value customer segments

Skills gaps

• Lack of training/ education in eco-tourism / conservation • Few “home-grown” eco-tourism entrepreneurs

Value Proposition Infrastructure gaps

• Limited incentives (other than once-off donors) for community initiatives

Skills gaps

• Limited market research • Limited support • Few ‘add-on’ business successes

Innovation Sound execution Marketing gaps

• Limited linkages with international operators • Difficulty in overcoming negative image of the country (e.g. landmines, malaria, bureaucracy)

Infrastructure gaps

• Long lead time to build up network of service providers

Skills gaps

• Limited knowledge, skills in nature-based activities and hospitality • Limited knowledge of target client segments and international markets Source: Interviews; industry sources; team analysis

Entre preneurship Identify oppor tunities Marketing gaps

• Poor image for country as a whole limits opportunities

Regulatory gaps

• ‘Land-grabbing’ complicates opportunity to set up remote, nature-based business • Bureaucratic land-tenure process and insecure land ownership complicates land acquisition

Skills gaps

• Limited access to market/technical information • Limited understanding of high-value customer segments

Business environment Marketing gaps

• Inadequate links to int’l booking systems

Regulatory gaps

• Difficulty exchanging land • High cost and risk of importing • Poor contract enforcement, limited recourse • High licensing and transaction costs • High incidence of corruption, fines and theft • Low labour market flexibility • Limited public sector capacity to respond to private sector needs • Ill-defined community rights/ participation in eco-tourism operations • Weak environmental protection legislation and implementation • Restriction on export of foreign exchange

Infrastructure gaps

• Limited access to and high costs of finance • Inadequate or poorly maintained infrastructure (roads, electricity, water, communications, waste management) • Under-developed network of service providers 16

EXISTING INITIATIVES TO ADDRESS INDUSTRY GAPS

Marketing Gaps Regulatory Gaps Infrastructure Gaps Skills Gaps Example

• Weak booking systems with limited linkages to international systems • Negative image of the country (e.g. bureaucracy, corruption, malaria, landmines) • Land: complicated land-tenure process, insecure land ownership • lll-defined community rights • ‘Bureaucratic Risk Factors’: corruption, ‘land grabbing’ • Poor contract enforcement • High licensing, importation, foreign exchange and other transaction costs • Weak environmental protection • Weak and poorly maintained utilities (e.g. roads, water, electricity, waste management) • Financing: high costs and short-duration of loans, limited incentives to invest

Building blocks affected

• Value Propositon • Identify Opportunities • Business Environment • Sound Execution • Identify Opportunities • Business Environment • Business Environment • Sound Execution • Innovation

Current initiatives to address gaps

• Government produced brochures • Creation of associations for hoteliers/ operators (e.g. Inhambane, Southern Mozambique) • Independent (mostly SA-based) promotion of Mozambique locations • Independent Mozambique operators increasing representation in SA • Government policy aims to promote industry development in specific regions • CPI offering greater incentives for tourism than for other industries • Provinces are setting out wildlife management plans • ProTask and other organisations/ forums launched to highlight private sector tourism related concerns • Building new airport • ‘Corridor’ and trans-frontier park developments • FUTUR: providing loans / grants to operators • Donors funding specific (usually geographically focused) initiatives • Lack of training, skills in hospitality, conservation, and entrepeneurship • Limited knowledge of customer segments and target market needs • Few ‘add-on’ business successes • Value Propositon • Identify Opportunities • Sound Execution • Innovation • New tourism programmes at two universities • PODE programme for business skills • Various skill-building initiatives by individual operators for staff / community 17 Source: Team analysis, interviews

CASE EXAMPLES: ADDRESSING INDUSTRY GAPS

Marketing Gaps Regulatory Gaps Infrastructure Gaps Example

•

Mchenga Nkwichi Lodge, Mozambique:

This Lake Niassa lodge offers a variety of activities and expeditions in the area: trekking, canoeing, wildlife viewing, snorkeling, and birding. Promoted through a glossy, high quality brochure as well as through the Niassa Tourism website and brochures.

•

St Helena Cloud Reserve, Costa Rica

: Conversion of sensitive natural area threatened by agricultural expansion into a rainforest reserve. Protection of natural environment and promotion of tourism to region. High revenue generated allowed cattle-farmers to switch to eco-tourism activities for their livelihoods.

•

Sabi Sabi Private Game Reserve, South Africa:

adjacent to Kruger National Park. R100,000 towards renovation, electrification, and stocking of local center with computers and recreational equipment. Provided equipment for pre-school. Wet waste (food) collected by local pig farmers (used as fodder).

Skills Gaps

•

The Gambia:

project to increase access of informal sector (e.g. fruit sellers, juice makers) to market opportunities in tourism along the beaches. Codes of Conduct drawn up to deal with relationships between the informal and formal sector and tourists. Badging and licensing used to increase confidence in the products and services sold •

Coral Divers, South Africa:

privately owned scuba diving enterprise in Sodwana Bay. Works with local craftswomen to promote new products that could be used at Coral, such as woven lampshades. Preferentially employ services of local taxi drivers.

Source: Web searches, team analysis 18

POTENTIAL FURTHER ACTIONS IN ECO-TOURISM INDUSTRY

Possible TechnoServe activity areas

Marketing Gaps Regulatory Gaps Infrastructure Gaps Skills Gaps Potential further action

• Create ‘National Tourism Board’ to co-ordinate promotion of Mozambique image • Access to international booking systems • Increase links to individual operators, booking agencies able to serve Mozambique • Create regulatory ‘one-stop shop’ for operator set-up: e.g. land-use, business registration, operating license • Improve environmental legislation and enforcement agencies • Improve execution on wildlife plans – possibly nationally co-ordinated environmental and wildlife planning • Create access to new sources of financing – application to and creation of donor funds, etc • Build networks, linkages between operators and support-service providers • Expand road-building, water, communications development • Improve incentives for operators to build physical infrastructure • Direct operational, skill-building assistance for potential entrepeneurs – including ‘add-on’ and support service entrepeneurs • Assist existing, new operators with business-planning: build market knowledge, segment knowledge • Link with successful entrepeneurs for technical and operational assistance

Selected actions can be addressed by established TechnoServe activities:

• Operational and technical assistance • Planning and finance procurement for individual operators • Providing ‘mentors’ and business linkages to entrepreneurs 19 Source: Team analysis

TECHNOSERVE ACTIVITIES APPLY TO DIFFERENT INDUSTRY PARTICIPANTS

Possible TechnoServe activities...

…Can apply to a variety of industry participants ‘Add-on’ Initiatives

• Additional excursions (e.g. bird trails, boating) and offerings (e.g. cultural events, craft markets) in areas with existing infrastructure and tourist presence (e.g. beaches, hunting areas) • Operational and technical assistance • Planning and finance procurement for individual operators • Providing ‘mentors’ and business linkages to entrepreneurs

Supporting Services

• Providing services (e.g. transport, catering) and products (e.g. local produce, crafts) to existing operations

Full Operations

• Full facility (e.g. lodges, camping sites) 20 Source: Team analysis

CRITERIA MATCHING TECHNOSERVE’S BRIEF AND WORKING DEFINITION OF ECO-TOURISM

Matching Technoserve’s Brief Matching Definition of Eco tourism

• Promote private enterprise growth • Build sustainable economic development • Meet the needs of rural poor communities • Importance of community involvement • Activities to be based on the natural environment • Environmental sustainability of project essential

Criteria for choices of opportunities Economic Benefit Environmental Impact

• ‘Bang for Buck’ • Sustainable economic effect on portions of value chain • Preservation of natural base • Environmental sustainability

Community Impact

• Community benefit • Minimal disruption to communities

Ease of Implementation

• Minimal time required to implement • Infrastructure required

Risk Replicability Innovation

• Limited downside – economic/non-economic impact controlled • Ensuring model can be transferred to multiple cases • Opportunity for learning and testing • Addressing a need not currently addressed • Creating new business models 21 Source: Web searches, team analysis

POTENTIAL PIPELINE OF OPPORTUNITIES

Priority

?

?

?

?

Location

• Tete • Tete • Niassa • Manica

Operator (Type)

• Mulambe Safaris & Turismo (Existing hunting safari operator)

Industry Participant

• Add-on • Supporting service • Add-on • Industria Pesqueira Bronic (Existing kapenta fishery) • Mchenga Nkwichi Lodge (Existing lakeside eco tourism lodge) • Mario Silva (New entrepreneur) • Full operation • Add-on • Full operation ?

• Manica • Casa Msika (Existing lodge) • Add-on • Supporting service

TechnoServe Assistance

• Technical assistance for new products (wildlife breeding) and eco-friendly add-ons to benefit the local communities • Product development and marketing to existing fishery to open lake-based eco tourism • Market linkages with international operators via MozLink to increase market reach • Potential financing procurement to set up lodge and operation assistance for boat tours to cultural village • Potential technical assistance to set up supporting services benefiting the community and links with beach-based operators 22 Source: Team analysis

TODAY’S TOPICS

• Introduction to TechnoServe and to this project • TechnoServe and the eco-tourism industry •

Next steps for this project

23

NEXT STEPS FOR THIS PROJECT Next Project Steps

• Begin applying defined criteria to real-life examples • Refine criteria and find rigorous ways to measure them • Use this to determine eco-tourism priorities for TechnoServe to pursue

Ultimate Project Goal

• Identify set of opportunities for TechnoServe to pursue • Create ‘roadmap’ of TechnoServe activities in eco-tourism

The Steering Committee can assist by:

• Supplying pipeline of potential business plans • Verifying data and assumptions as this becomes necessary 24

REVISITING OUR AIMS FOR TODAY

• To introduce TechnoServe and its approach to business development • To confirm the goals of this project • To agree on the overview of the industry • To discuss and identify the role TechnoServe can play in this development • To agree on some next steps for this project 25