Eco-tourism Development in Mozambique

1. 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.

2. 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

3. TODAY’S TOPICS • Introduction to TechnoServe and to this project • TechnoServe and the eco-tourism industry • Next steps for this project

4. 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 Source: TechnoServe

5. Management& Technical Assistance • Industry Analysis • Mozlink • MozFund • Influencing Government TECHNOSERVE ACTIVITIES AND APPROACH TO INDUSTRY DEVELOPMENT TechnoServe’s approach to its role in industry development TechnoServe activities • Assistance with business planning • Operational assistance • Technical assistance – including • introduction of new technology • Finance procurement (including • grant/loan application) • Initial Work • Define industry vision and TechnoServe’s role • Short-term • Pilot project with single entrepreneur to build capabilities • Longer-term • Replicate model with other entrepreneurs to develop industry • Research and economic analysis • Formulation of ‘industry vision’ • Business linkages • Providing ‘mentors’ to Mozambique • entrepreneurs • Provide equity funding to innovative • agribusinesses • Encouraging policy change through • examples of successful business • innovations Source: TechnoServe

6. CASE EXAMPLE: TECHNOSERVE IN THE CASHEW INDUSTRY • TechnoServe’s Role: • 1998-2002 • The Starting Position: Mozambican Cashew Industry in the mid-1990s • Results Achieved • 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.) • 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 • 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 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) Source: TechnoServe

7. 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 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 • 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

8. Definition of Eco-tourism TECHNOSERVE’S BRIEF AND THE ‘WORKING’ DEFINITION OF ECO-TOURISM ADOPTED FOR THIS PROJECT • Promotion of private enterprise growth • TechnoServe’s Brief • Building sustainable economic development • Meeting the needs of rural poor communities • 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 Source: Team analysis

9. TODAY’S TOPICS • Introduction to TechnoServe and to this project • TechnoServe and the eco-tourism industry • Next steps for this project

10. 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.

11. 5,908 MOZAMBICAN TOURISM INDUSTRY RELATIVE TO ITS COUNTERPARTS • Contribution of Travel and Tourism Industry to GDP • US$ per capita • 1 210 • 762 • 376 • 274 • 305 • 252 • 56 • 52 • 32 • 29 • 10 • 2 South Africa Botswana Costa Rica Vietnam Namibia Tanzania Mauritius Gambia India Malawi Mozambique • Tourism Arrivals • ‘000, 2001 • 2,641 • 501 • 1,106* • 670 • 995* • 266 • 660 • 400 • 96* • 2,140 * Data from 2000 Source: World Bank Development Indicators (2001), World Tourism Organization (2001), Ministry of Tourism

12. MOZAMBIQUE’S ECO-TOURISM OFFERINGS • Victoria Falls (adventure) • Chobe • (wildlife viewing) • Lake Niassa • (marine viewing, wildlife viewing) • Okhavango Delta (wildlife viewing, birding) • Pemba • (diving, fishing) • Etosha National Park (wildlife viewing) • Tete • (game hunting) • Gorongosa National Park • (wildlife viewing) • Mozambique is well positioned to exploit its position within a regional eco-tourism offering • Bazaruto Archipelago • (diving, birding) • Kruger National Park • (wildlife viewing) • Maputo Elephant Reserve • (wildlife viewing) • Ponte D’Ouro • (marine viewing) • Mkhaya Game Reserve • (wildlife viewing) • Fish River Canyon (adventure) • Sodwana Bay • (diving) • Lesotho Highlands (adventure) • Garden Route • (adventure, marine viewing) Source: Lonely Planet Guide

13. GOVERNMENT PRIORITY AREAS FOR DEVELOPMENT • Zone • Name • Priority • 1 • Elephant Coast Tourism Zone • 2 • Greater Maputo Zone • 3 • Xai Xai Coastal Zone • 4 • Limpopo Massingir Zone • Short term: up to 5 years from 2003 • 6 • Inhambane Coastal Zone • 7 • Bazaruto Vilankulos Zone • Currently, the Government strategy is still at a high level but broad ideas on key products and customer segments have been established • 13 • Ilha de Mocambique-Nacala Zone • 14 • Pemba-Quirimbas Zone • 5 • Limpopo-Mapai Zone • Medium term: between 5 and 10 years from 2003 • 9 • Manica Tourism Zone • 10 • Cahora Bassa Tourism Zone • 8 • Sofala Tourism Zone • 11 • Gila-Reserve-Pebane Tourism Zone • 12 • Gurue Tourism Zone • Long term: between 10+ and 15+ years from 2003 • 15 • Northern Cabo Delgado Tourism Zone • 16 • Lake Niassa Tourism Zone • 17 • Niassa Reserve Zone Source: Draft Strategic Plan for the Development of Tourism (Ministry of Tourism, Mozambique)

14. GOVERNMENT’S NEW TOURISM POLICY (APRIL 2003) • 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 • 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 Source:Ministry of Tourism, Mozambique

15. 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 TechnoServecan 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 Source: Team analysis

16. 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

17. 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

18. Skills Gaps • Infrastructure Gaps • Regulatory Gaps • Marketing Gaps EXISTING INITIATIVES TO ADDRESS INDUSTRY GAPS • Example • Building blocks affected • Current initiatives to address gaps • Weak booking systems with limited linkages • to international systems • Negative image of the country (e.g. • bureaucracy, corruption, malaria, • landmines) • Value Propositon • Identify Opportunities • Business Environment • Sound Execution • 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 • 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 • Identify Opportunities • Business Environment • 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 • Weak and poorly maintained utilities (e.g. • roads, water, electricity, waste • management) • Financing: high costs and short-duration of • loans, limited incentives to invest • Business Environment • Sound Execution • Innovation • 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 Source: Team analysis, interviews

19. Marketing Gaps • Regulatory Gaps • Infrastructure Gaps • Skills Gaps CASE EXAMPLES: ADDRESSING INDUSTRY 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). • 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

20. Marketing Gaps • Regulatory Gaps • Infrastructure Gaps • Skills Gaps POTENTIAL FURTHER ACTIONS IN ECO-TOURISM INDUSTRY Possible TechnoServe activity areas • 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 • 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 • 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

21. ‘Add-on’ Initiatives • Supporting Services • Full Operations TECHNOSERVE ACTIVITIES APPLY TO DIFFERENT INDUSTRY PARTICIPANTS • Possible TechnoServe activities... • …Can apply to a variety of industry participants • 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 • Providing services (e.g. transport, catering) and products (e.g. local produce, crafts) to existing operations • Full facility (e.g. lodges, camping sites) Source: Team analysis

22. Innovation • Economic Benefit • Environmental Impact • Community Impact • Matching Technoserve’s Brief • Replicability • Risk • Ease of Implementation • ‘Bang for Buck’ • Sustainable economic effect on portions of value chain • Preservation of natural base • Environmental sustainability • Community benefit • Minimal disruption to communities • Minimal time required to implement • Infrastructure required • Limited downside – economic/non-economic impact controlled • Matching Definition of Eco-tourism • Ensuring model can be transferred to multiple cases • Opportunity for learning and testing • Addressing a need not currently addressed • Creating new business models CRITERIA MATCHING TECHNOSERVE’S BRIEF AND WORKING DEFINITION OF ECO-TOURISM • Criteria for choices of opportunities • 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 Source: Web searches, team analysis

23. POTENTIAL PIPELINE OF OPPORTUNITIES • Priority • Location • Operator (Type) • Industry Participant • TechnoServe Assistance • ? • ? • ? • ? • ? • Tete • Tete • Niassa • Manica • Manica • Mulambe Safaris & • Turismo (Existing hunting • safari operator) • Industria Pesqueira • Bronic (Existing kapenta • fishery) • Mchenga Nkwichi Lodge • (Existing lakeside eco- • tourism lodge) • Mario Silva (New • entrepreneur) • Casa Msika (Existing • lodge) • Add-on • Supporting service • Add-on • Full operation • Add-on • Full operation • Add-on • Supporting service • 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 Source: Team analysis

24. TODAY’S TOPICS • Introduction to TechnoServe and to this project • TechnoServe and the eco-tourism industry • Next steps for this project

25. 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

26. 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