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Financing tourism concessions - Financing for the private sector working in Mozambique • Business Planning • Capital Investment • Revenue Generation • Lessons learned

Business planning Initial Financing • Private initiatives covering start-up costs.

• Nkwichi’s case: Private individuals with a

passion for tourism and development funded the initial stages.

Further Financing Bank loans • Mozambique banks: high interest rates. • UK banks: require high guarantees for loans Other loans • IFC : Encouraging development of SME, especially in tourism

sector. Loans available with part of the loan agreement for technical assistance. Case of Nkwichi: Bad timing of the loan due to financial crisis:

approval put on hold. IFC passed loan onto Business Partners International (BPI). Technical assistance partly difficult due to distance.

• Smaller donor agencies

In Lichinga, an organisation called AMODER, normally funding agricultural projects. Started process with Nkwichi but rates of interest were similar to banks

Government funding • Centre for Promotion of Investment (CPI). Provides fiscal incentives for

eligible projects to promote investment.

- First 5 years of tax benefits to new businesses - Exemptions to import duties

Nkwichi did not utilise these incentives. A complicated process with

lots of paperwork - time spent did not seem to justify it. Also, tourism establishments can take time to make profit so tax

incentives don’t make a big difference.

• PACDE (Unidade de Implementação do Projecto de Apoio a Competitividade): Support the growth of smaller businesses in Mozambique – designed to expand access to IFC’s Business Edge and SME Toolkit, an online, interactive program to help smaller businesses.

Started in 2010 : seems well-suited to tourism establishments.

Probability/availability for foreign investors?

• Arco Norte Tourism Development Company (ANTDC).

Mozambique Government adopted the Integrated Resort System (IRS) in 2009 - framework for attracting tourism investment in integrated destination development. - To provide a clear structure, which will allow the market to identify

development opportunities as they arise, and for attracting investments.

- Some funding provided for tourism schemes i.e. regeneration of Ibo Island.

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Business partnerships & Private funding

• Fundacao Malonda, body that facilitates investment in Niassa

Province.

Nkwichi: Malonda previously provided direct investment. Nkwichi negotiated with them over 4 years but in the end a solution couldn’t be reached to satisfy both sides. Still give technical assistance however.

• Individual Investors: found through business/social networks.

At Nkwichi, other investors were actively sought through individual networks – all shared the original investors passion for the project.

Related Finance • Community shares, as at Covane and those in Maputo Special

Reserve. World Bank and ASL funded. • Community Development funding can be easier to obtain, as part of

any tourism project which has working for the benefit of the communities as one of its primary goals.

Nkwichi: Manda Wilderness received funding from Irish Aid, Ford

Foundation and Swedish Cooperative Centre for development projects.

USAID/SPEED logo Technoserve logo

Foreign Exchange and Investments

Legislation Execution of shareholders and third party loans agreements between

resident companies and foreign entities is subject to the prior authorization from Central Bank: the contract and parties will be given a reference and each time a transfer is received, such import must also be registered; repayments will only be authorised if, amongst other formal requirements, import registrations and tax clearance certificates are presented.

Any payments for the provision of services by non resident entities, is subject to a registration procedure with commercial banks (that shall follow up directly with Central Bank); a contract stipulating several payments will have to be subject to the opinion of the tax department (for calculating withholding tax due) over and above the procedure regarding the tax clearance certificate.

Central Bank requires specific forms to be used for each request.

The only feature of the foreign recipients of the payments that is relevant in terms of foreign exchange controls is the possible application of a double taxation agreement.

Capital Investment • Transport/Communications. In many proposed areas, a large part of

investment can go into infrastructure – cars, boats, grading roads, airstrips, V-Sat systems, etc. Nkwichi: As an eco-lodge, only local materials used so capital

investment is lower. Depreciation can be higher however although this also means sustaining and supporting local markets in building materials.

Difficulty in getting ‘eco’ solutions to the lodge i.e. solar energy systems for running operations.

• Importing. Materials difficult to find in Mozambique: consideration

of technology when investing capital. - Government help with import duties?

Revenue Generation Internal • Accommodation. Brings in the largest portion of revenue (80%). • Activities, Food & Beverage, Curios. All bring in supplementary

income. The latter also brings extra income to the local area, if sourced locally.

• Transfers. Again, bring complementary income but also cover depreciation costs of necessary access – costs associated with operating in remote areas

External • Guiding and Transfers outsourced to local businesses.

• Business linkages. Building packages and itineraries with other

properties enhances tourism options, improving the standing of the destination, bringing more guests in and more revenue,

Challenges • Infrastructure. Many tourism sites, especially in the north, are

extremely remote and so transport and communication infrastructure needs built up – meaning large investment amounts. Nkwichi has no roads and no cell phone reception. Opening of airstrip in Cobue not an easy process.

• Bureaucracy/Lack of administrative knowledge. In many cases, especially in financial matters, red tape act as a barrier to investment. Labour Law is complicated and little understood – it’s easy to

be penalised.

• Government Coordination. Lack of communication between different agencies and departments in Government. In 2010 tourist visa prices raised to cover new costs of the bio-

metric system – Little notice given.

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Lessons • Agencies who can help with investment process.

Technoserve. Have provided a lot of support and technical assistance over the years – from helping with business plans and proposals, introducing new investors and facilitating negotiations with communities and government.

• Combining with other tourism properties in Mozambique. An obvious

way to share logistical and financial experience, this also opens up marketing opportunities to increase guest numbers. Nkwichi is part of the Mozambique Collection, a group of five,

like-minded properties.

• Taking a holistic approach to tourism that ties in with conservation and community development. Projects that build up the infrastructure of the area help all sides. Funding was obtained to improve one of the main roads in the

area when the project first started, improving access for both lodge and community.