Ecotourism: What does IFC Look For?Sam Keller,
International Finance Corporation Projects Officer Remarks at Ecotourism Symposium Rosslyn, Virginia February 21, 2003What is the International Finance Corporation?
- Private sector arm of World Bank Group -- owned by 175 governments
- Provides equity, loans and advisory services (e.g. development of tourism concessions).
- Committed loan and equity portfolio of $15.1. billion
- In FY02, IFC approved $4.0 billion of financing for 223 new investments with a total project cost of $15.5. billion
- As GEF Executing Agency, IFC is able to provide concessional funding for projects that help to conserve biodiversity.
- IFC’s mission is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people’s lives.
What is IFC’s involvement in the tourism sector?
- Since 1967, IFC has approved over $1.5 billion of investments in more than 180 tourism projects in over 70 countries.
- As of June 2002, IFC held $461 million in the tourism sector, with the highest number of investments in Africa.
What is IFC’s involvement in the ecotourism sector?
IFC has supported two types of ecotourism projects:
1. Ecotourism companies that directly support conservation efforts
- Examples: Asian Conservation Foundation (Philippines): Eg-Uur Watershed (Mongolia); Boundary Hill (Tanzania); Save Valley (Zimbabwe); Pico Bonito (Honduras); El Boqueron Ecolodge (Guatemala)
2. Ecotourism projects that help manage and fund protected areas via private concessions
- Komodo National Park (Indonesia); Inka Terra (Peru); Vilanculos Wildlife Sanctuary (Mozambique)
IFC Supports ecotourism projects with loans, equity and grants, as appropriate
What does IFC look for in ecotourism projects?
Ecotourism projects must meet triple bottom line:
- Environmental sustainability
-- Mitigate environmental impacts + conserve biodiversity
- Social sustainability
-- Mitigate social impacts + provide sustainable livelihoods
- Commercial sustainability
-- Ideally, projects should be commercially viable as measured by financial return At minimum, projects must be self-financing to cover recurring costs
What is needed for ecotourism projects to be commercially sustainable?
- Sufficient market demand
- Good management
- Controlled costs
Sufficient Market Demand
- Demand forecasts should be conservative. Must take into account:
- Seasonality?
- Transportation access?
- Political and economic stability?
- Competition- Barriers to entry? Risk of oversupply?
- Match between market and facility/site and operator?
- Willingness to pay?
- Is government support required? (If so, that’s a risk)
- How will you get people to come?
- Don’t assume that “if we build it, people will come.”
- Good projects have strong marketing linkages (i.e., relationships with travel agents, tour operators, etc.)
Good Management
- IFC avoids ecotourism projects managed by environmentalists who don’t understand business
- IFC looks for sponsors with a good track record of successfully managing tourism operations
-- Inexperienced players may want to consider forming a joint venture with an experienced partner
- Ecotourism projects are most likely to succeed when the company owns multiple facilities in different locations – and can therefore diversify frontier market risk
Controlled Costs
- Don’t build a facility and then figure out how much you’ll need to charge to recoup your investment.
- Instead, work backwards: How much can you realistically expect to earn? That’ll dictate how much you should spend on construction and operations.
- Need to stress- test your financial projections using conservative occupancy rates, room rates and costs overruns
- Good managers pay close attention to operating costs during implementation.
Operating costs are affected by capital structure:
- It’s important to have adequate equity (D/E ratio of at least 50/50 is the norm)
- Debt should have longer grace periods and payback terms
Take-away Points:
- Good ecotourism projects are based on rigorous analysis, not hopeful assumptions
- A good business plan is necessary which contains:
- Realistic market assessment;
- Viable marketing plan;
- Realistic revenue forecasts considering full range of risks;
- Realistic, manageable construction and operating costs
- Capable managers; and
- Appropriate capital structure.
IFC is looking for viable ecotourism projects!
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