Eco-tourism Development in Mozambique: Defining TechnoServe’s Role and Approach

CONFIDENTIAL Eco-tourism Development in Mozambique: Defining TechnoServe’s Role and Approach Discussion Document 5 June 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.

TODAY’S TOPICS Reviewing the key points raised in our last meeting • Eco-tourism Development in Mozambique: Defining TechnoServe’s role and approach Going Forward

OUR PREVIOUS DISCUSSION • Resulting questions to address Key items discussed • Key points raised • ‘Institutional’ issues, such as environmental enforcement, land usage controls, governmental planning, etc. are key to operator success • Replication of business models is not easy in Mozambique: different areas face different institutional situations and are at different levels of development • Many parts of Mozambique are attractive areas for eco-tourism development and are being targeted by donors and others • Mozambican tourist industry is small and underdeveloped but has substantial potential • To successfully develop the eco-tourism industry, many elements (building blocks) need to be addressed • What role can TechnoServe play in the eco-tourism industry? How will it balance the need for institutional action and enterprise action? • Where should TechnoServe be active geographically? • How should TechnoServe tackle its chosen role in eco-tourism given that it might involve activities it has not been involved in before?

TECHNOSERVE: ECO-TOURISM IN MOZAMBIQUE • There are many examples of organizations and entrepreneurs pursuing eco-tourism development in Mozambique. • For the Mozambican eco-tourism industry to develop, several issues need to be addressed. Many of these issues are institutional – affecting infrastructure and regulatory conditions – and so affect multiple operators. • Institutional shortcomings have been effectively addressed at a regional or ‘cluster’-level (rather than national level) using collective action by partnerships of operators, donors and government. • Although TechnoServe is new to eco-tourism, it should aspire to play a role in Mozambican eco-tourism development: • TechnoServe’s agri-business model can be applied to eco-tourism as well • In several areas eco-tourism will be the main route for development. For TechnoServe to help the rural poor in these areas, it should play a role in eco-tourism • Enterprise-level eco-tourism developments can have significant community impact • TechnoServe can assist individual operators, but will also have to address institutional shortcomings. This involves a ‘cluster’-specific approach to understand the institutional shortcomings faced by operators in a region. TechnoServe will need to decide on a balance between owning and operating institutions and enterprise-level support. • Regardless of what approach is taken in each cluster, TechnoServe will need to adopt a new model for eco-tourism. ‘Cluster’-level and institutional support activities, including building partnerships, will have to be undertaken.

Elephant Coast Development Agency (ECDA) • Promote tourism along Elephant Coast (Catembe to Ponto D’Ouro) • Ministry of Tourism, World Bank, GEF • Transfrontier Conservation Areas Program • Create best-in-class transfrontier parks • USAID, World Bank, GEF, DAI, Ministries of Agriculture & Tourism, Provincial Government (Inhambane/Gaza and Maputo), MICOA • Bazaruto Environmental Initiative • Protect marine eco-system • Fundacao Natureza em Perigo, University (UEM) • Coastal Marine Biodiversity Management Project • Protect marine / cultural resources • World Bank, GEF, AAIM • Land Demarcation for Eco-Tourism • Empower communities to benefit from natural resources (land) • ORAM • Community-based Resource Management (Tete) • Empower communities to benefit from natural resources (land, wildlife, water) • Ford Foundation, Provincial Government (Tete) • Inhambane Tourist Association • Promote tourism in Inhambane • Business operators (e.g. Barra Lodge), and Provincial Government (e.g. Inhambane) CURRENT ECOTOURISM PROJECTS IN MOZAMBIQUE • Initiatives • Goal • Organizations Involved Source: Industry sources, interviews

DEVELOPMENTAL BUILDING BLOCKS OF ECO-TOURISM INDUSTRY • Enhance the number of people seeking to establish new eco-tourism ventures by accepting commercial risk for appropriate return • Identify the right offering to deliver to end customers • Identify the value chain steps needed for delivering this offering • Value Proposition • Entre-preneurship • Identify improved techniques, products, and offerings to ensure sustainability and growth of ventures • Innovation • Identify new venture opportunities and potential for community impact • Identify opportunities • Sound execution • Business environment • 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 • Apply management and technical skills, appropriate equipment and processes to operate the business effectively and efficiently • Effective actions under each building block can create a self-reinforcing cycle • Weak building blocks will slow down eco-tourism development Source: Team analysis

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 • Entre-preneurship • 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 • 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 • Identify oppor-tunities • Sound execution • Business environment • 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 • 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 Source: Interviews; industry sources; team analysis

INSTITUTIONAL COMPONENTS OF THESE BUILDING BLOCK GAPS • Marketing gaps • Weak marketing or booking systems • Skills gaps • Limited understanding of high value customer segments • Areas generally not addressed by or for individual operators • Skills gaps • Lack of training/ education in eco-tourism / conservation • Few “home-grown” eco-tourism entrepreneurs • Value Proposition • Entre-preneurship • 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 • 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 • Identify oppor-tunities • Sound execution • Business environment • 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 • 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 Source: Interviews; industry sources; team analysis

PRINCIPLES LEARNT THROUGH ATTEMPTS TO OVERCOME INSTITUTIONAL OBSTACLES TO ECO-TOURISM DEVELOPMENT • Institutional Obstacles • Examples of attempts to overcome these obstacles: • Regulatory gaps: environmental enforcement, land usage, ... • Infrastructural gaps: water, electricity, sanitation, provision, ... • Marketing gaps: access to international booking systems, ... • Elephant Coast Development Agency (ECDA): • Actions: Land zoning for communities and providing linkages with other operators • Partners: Ministry of Tourism, World Bank, GEF • Transfrontier Conservation Areas Program: • Actions: Restocking wildlife and developing processes for protection and assessing opportunities for road linkages between RSA and Mozambique • Partners: USAID, World Bank, GEF, DAI, Ministries of Agriculture & Tourism, Provincial Government, MICOA • Bazaruto Environmental Initiative: • Actions: Performs environmental inventories • Partners: Fundacao Natureza em Perigo, University (UEM) • Coastal Marine Biodiversity Management Project: • Actions: Performs environmental inventories, puts processes in place to prevent erosion and protect marine life and addresses sanitation issues • Partners: World Bank, GEF, AAIM • Principles used in overcoming institutional obstacles: • Collective Action: creation of institutions with several operators, donors, government bodies etc. in a ‘cluster’ of operations facing similar issues • Local Focus: Deal with issues of a specific area and with local government involvement • Leverage: Involve heavy-hitting organisations – large-scale donors, envirionmental bodies, etc. • Flexibility: allow institutions to deal with broad range of institutional issues affecting operators Source: Team analysis

Management and Technical Support • Skills Gaps • Infrastructure Gaps • Marketing Gaps • Regulatory Gaps • Institutional Support • Capital/Financing POTENTIAL TECHNOSERVE ACTIONS IN THE ECO-TOURISM INDUSTRY Areas TechnoServe’s traditional business model could address • Eco-tourism Businesses • Create ‘National Tourism Board’ to co-ordinate promotion of • Mozambique image • Increase links to individual operators, booking agencies able to serve Mozambique • Access to international booking systems • 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 Source: Team analysis

Eco-tourism complements agri-business • Geographical Reach ECO-TOURISM’S REACH • Resort and tourists provide new (potentially lucrative) markets for agricultural goods (produce, fisheries, timber) • Eco-tourism provides further skills and training to existing agricultural knowledge Mozambique: Selected Protected Areas Niassa Game Reserve Gorongosa National Park • Several regions in Mozambique are environmentally protected or sensitive and are not suitable for agriculture development (e.g Niassa Game Reserve, Elephant Coast) • These areas are, however, candidates for eco-tourism development Limpopo National Park Vilanculos – Bazaruto Archipelago Maputo Elephant Reserve Source: Team analysis

BASED ON EXISTING BUSINESS PLAN COMMUNITY BENEFITS FROM ECO-TOURISM OPERATIONS • Economic benefits to community • 000 US$ • Non-economic benefits to community Description of Operator • Private 12-bed luxury lodge that offers a range of eco-tourism activities (e.g. guided bush walks, snorkeling, canoeing) • Situated in a community owned wilderness reserve, involving 14 local communities • Employs 50 nationals and purchases local produce • Estimates of non-economic benefits based on assumptions of annual number of guests and their expenditures (based on Government National Strategy numbers) • Development projects (selected by communities) • Water wells • Schools • Agricultural diversification • Construction of maize mill • Volunteer program with international experts providing training (e.g. languages, teaching, cooking, carpentry, basic economics) • National employees of lodge recruited from local village (250 family members supported by 50 local staff members) • Expanded market for local shops • Income to informal sellers • Income to local craft sellers • Purchasing from locals • Conservation area fees • Direct benefits • Indirect benefits • Salaries Source: Team analysis

Enterprise • ‘Cluster’ ENTERPRISE AND ‘CLUSTER’ DECISIONS FOR TECHNOSERVE • Example asset and gap questions • TechnoServe action questions • How many local entrepreneurs already exist? • What types of operations do they run? • What is capacity of these operations and their potential for growth and expansion? • To what level is the local community involved and benefiting from existing operations? • Which entrepreneurs should TechnoServe assist? • What resources are required to get potential operations off the ground? • How can the community benefit from the potential operations? • What is the status of the physical infrastructure? • What potential partners (e.g. NGOs, donors) are already active in the region? • What institutions are in place to protect the core product and environment? • What institutions are in place to address private and public relations and concerns? • What role should TechnoServe play in building institutions in the ‘cluster’? • What partnerships could be formed in the region? Source: Team analysis

TECHNOSERVE’S APPROACH TO ECO-TOURISM DEVELOPMENT Assessment of ‘cluster’ building blocks On-going activities ‘Cluster’ partnership identification and role determination Identification of individual opportunities • Assess status of eco-tourism development building blocks for the region and the businesses operating (or attempting to operate) there • Identify enterprise opportunities for further eco-tourism development in the ‘cluster’ • Identify partners available to TechnoServe in the ‘cluster’ • Define role for TechnoServe to play • Define roles for others to play in that ‘cluster’ • Pursuit of overall TechnoServe ‘cluster plan’: • Enterprise-level activities: Operational and Technical assistance, linkage creation, etc. for individual entrepreneurs to get off the ground • ‘Cluster’-level: continuous involvement in the institutions that are addressing regulatory, infrastructural and marketing issues • Industry-level activities: lobbying and participation in national organisations (eg. Protasc) and policy guidance with partners (eg. CTA) Source: Team analysis

‘CLUSTER’ ASSESSMENT • What core product (e.g. wildlife, marine, cultural experience) does this region offer? • What is the long-term sustainability of this product? • How many local entrepreneurs could we find to pursue opportunities here? • What types of operations do they run (e.g. activities, location)? • Value Proposition • Entre-preneurship • What are the current and potential visitor numbers to the ‘cluster’? • Is there room for further expansion? • In the number of operators? • In the capacity of current operators? • In the activities offered? • In the level of community involvement? • What markets are being targeted and which new markets could be targeted? • Is there room for further development of the ‘cluster’ value proposition over time? • Innovation • Identify oppor-tunities • Sound execution • Business environment • What specialist skills are required by operators in this region? • What is the level of management and technical skill available in the ‘cluster’ region? • To what extent is local sourcing available (e.g. of foodstuffs, guide expertise, crafts, transport)? • If not, what needs to be put in place to implement local sourcing? • What requirements are necessary to transport client to operator? • How would the value proposition be communicated (e.g. marketing)? • What institutional framework exists to protect the core product? • - What is the status of land-use (e.g. land-tenure, community)? • - What is the level of environmental regulation enforcement? • What institutions are in place to address operator-level issues? • What is the status of the physical infrastructure (e.g. roads, water) in the ‘cluster’ region? • What NGOs, donors, etc have initiatives in the ‘cluster’? Source: Team analysis

‘CLUSTER’ ASSESSMENT EXAMPLE: ‘CLUSTER’ IN TETE PROVINCE • Assets • Wildlife (e.g. hunting, viewing) • Cahora Bassa Lake (e.g. fishing, birding, boating) • Hot Springs/Thermal Waters • Cultural Offerings • Gaps • Unknown stock quantities • Insufficient wildlife management program (weak implementation) • Unclear potential for traditional wildlife viewing • Assets • 6 Hunting Safaris • 1Fishing Camps • 18 Commercial Fisheries • 1 Crocodile farm • Gaps • Widely spread geographically • Lack of skills/knowledge to expand into new activities • Lack of management skills/experience • Value Proposition • Entre-preneurship • Assets • Currently niche, high end clients • Potential expansion (e.g. birding, wildlife viewing, boating, thermal water excursion, cultural excursions) • Possible spin off businesses/local employment (e.g. Tchuma Tchato) • Room to expand general visitor market • Gaps • Unknown number of visitors • Restriction on number of boats allowed on lake • Questionable wildlife/fish sustainability (unknown stock level) • Unclear potential for traditional wildlife viewing • Potential spin off business affected by visitor numbers • Current market limited to small, niche group • Assets • Possible ‘Add On’ activities • Spin Off business potential • Donor interest • Commercial fishery expansion into eco-tourism • Linkages with tour operators outside and within Mozambique • Gaps • Government unresponsive on proper infrastructure requirements • Question of sustainability • Weak marketing for general activities • Innovation • Identify oppor-tunities • Sound execution • Business environment • Assets • Employment of local community (e.g. hunting guides, lodge staff) • Expertise in core activities • Local food and supplies sourced • Gaps • Lack of general eco-tourism marketing • Lack of organisation within/among community for supply and demand (due to irregularity of tourist visitors) • Weak relationship between community and hunting operators • Low employment of locals • Lack of structured training to produce highly skilled workers (faster and ‘cheaper’ to hire elsewhere) • Lack of transparency from district re: use of money from hunting licenses • Assets • National hunting quotas • Government has defined use for land • Donor interest (Ford Foundation, Danita) • Basic infrastructure for hunting safaris (footpaths, no fences) • Established contracts/agreement between community managed concessions and hunting operators • Good network of roads • Gaps • Weak method of establishing hunting quotas • Ineffective government fishing regulations/enforcement • Weak wildlife enforcement (poaching) • Weak relationship between community and hunting/fishing operators • Lack of provincial associations to address private sector issues/concerns • Lack of understanding of tourism industry among government civil servants Source: Interviews; industry sources; team analysis

‘Add-on’ Initiatives • Supporting Services • Full Operations TECHNOSERVE’S IDENTIFICATION OF INDIVIDUAL ENTERPRISE OPPORTUNITIES • Questions to identify initial enterprise opportunities • Potential client types • TechnoServe enterprise-level activities • What additional excursions, offerings that could be offered as part of this ‘cluster’? • 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 • How much of support service (catering supplies, etc.) is currently provided from local sources? • Providing services (e.g. transport, catering) and products (e.g. local produce, crafts) to existing operations • Are there operators who could expand their existing operations? • Is there space for more operations? • What assistance – managerial, operational, technical assistance, .. Would most benefit local operators? • Full facility (e.g. lodges, camping sites) Source: Team analysis

Key Gaps: • Weak wildlife protection/enforcement • Limited market ( high end niche) • Limited community involvement • Key Assets: • Product (wildlife, lake) • Significant opportunity (for expansion of activities and market) • Donor interest in Zambezi Valley IDENTIFICATION OF PARTNERS AND PARTNERSHIP ROLES IN TETE • Actions needed to exploit assets and address gaps • Partners and partnership roles • Build stronger public/private links to protect natural environment • Help operators expand current activities to attract new customer segments • Empower local communities to profit from natural resources • Assist operators in setting up community-based spinoff businesses • Perform current wildlife inventory and recommend actions for sustainability • Educate community on sustainabliity of natural resources • Assist community to find alternative income source (simultaneously with educating the community) • Provide education/training program for community in eco-tourism • Create more awareness within public sector of eco-tourism to gain a better understanding of the imprtance of protecting the environment • Build linkages, stronger marketing between operators/travel agencies • UNAC, ACDI/VOCA – for community mobilization • GPZ, CTA – for better business /government dialogue • Aid to Artisans – to set up community crafts • GAPI – to provide financing for business initatives • Fundo de Fomento de Pesca de Pequena Escala – to assist fisheries in supplying tourism market • Research Institutes (e.g. Biodiversity Foundation for Africa) – to assess wildlife stocks • AMODER – to provide micro-financing for community based projects • World Vision International – to build product extension work • ADIPSA – to provide financing and capacity building Source: Interviews, industry sources, team analysis

Enterprise Level Potential Cluster Roles Institutional Level • In Tete, TechnoServe is likely to play these roles DIFFERENT CLUSTER ROLES FOR TECHNOSERVE Potential roles for TechnoServe • Role description • Example of activities • Address more immediate gaps at the entrepreneur level, using existing TechnoServe activities and skills • Business plan assistance • Technical assistance • Linkage creation • Finance procurement • Coordinate activities of potential partners (e.g. donors, NGOs) to address both operator and regional issues • Raise operator concerns to public sector • Network with potential partners • Host workshops for operators and partners • Build and operate a specific organization that manages private and public sector relations and concerns in a given regions • Create Development Agency Source: Team analysis

Eco-tourism Businesses • ‘Cluster’ level activities • Management and Technical Support • Institutional Support • Capital/Financing • Enterprise level activities • Industry level activities SUMMARY OF TECHNOSERVE ECO-TOURISM ACTIVITIES • Business planning assistance • Operational assistance • Technical assistance • Create business linkages • Create awareness of operator concerns/issues • Finance procurement • Assistance with grant/loan application • New elements for TechnoServe: • Partnerships are vital • ‘Cluster’-level and institutional components need to be in place for success • Create replicable business models • Create business linkages • Technical/operational assistance to associations • Maintain partnerships with other players in industry (e.g. donors, NGOs) • Contribute to institution building steps that affect the regulation, infrastructure and marketing of the region • Create donor awareness/interest in funding opportunities for associations • Participating in national initiatives addressing gaps in eco-tourism development • Encouraging policy change through examples of successful business innovations Source: Team analysis

IMMEDIATE NEXT STEPS FOR TECHNOSERVE • Finalize list of potential Mozlink eco-tourism mentors and initiate discussions • Begin discussion with potential partners and local stakeholders in Tete Province (contingent upon funding) • Launch publicity campaign for Rural Enterprise Innovation Grant (REIG) to eco-tourism operators • Approach potential donors for financing of TechnoServe eco-tourism activities • Perform cluster assessment for other potential regions (e.g. Niassa)

Longer Term ROAD MAP • Activities • Resources Available • Develop at least 1 successful eco-tourism business that can be replicated • MozLink mentorship program to create marketing linkages • Dedicated Business Advisor in 1-2 regions (e.g Tete, Niassa)* • Perform ‘cluster’ analysis for target areas • Potential funding for innovative businesses • Partnerships with strategic players to build/influence ‘cluster’ development • Potential funding via Mozfund • 50-100% of Business Advisor • 1-2 days a month of ‘best-in-class’ mentor • Potential grants of up to US$ 50,000 from Rural Enterprise Innovation Grant (REIG) • MozFund equity fund • Goal • Pilot • (up to 2 years) • Replicate eco-tourism success in new regions • Influence the development of new clusters • Expanded technical assistance to new regions • Expanded partnerships with strategic players to build/influence more ‘cluster’ developments • Continued Mozfund support • 2 or more Business Advisors based in key regions • MozFund equity fund * Contingent upon funding Source: TechnoServe

Eco-tourism Development in Mozambique: Defining TechnoServe’s Role and Approach