Case of SMEs in the tourism sector of Fogo, Cape Verde Amdework Dilnessaw State University of Bergamo 1
Table of Content Back ground Objective of the research Scope & Limitation Data & Methodology Value Chain Analysis Constraints and Opportunities Financing Gaps Conclusion and Recommendation 2
Background Tourism in Cape Verde The fastest growing market among high tourism based economies (IMF,2008) Tourism represents 20% of GDP Tourism highly concentrated to few islands (>70% in Sal) Promoting rural eco tourism in other islands (e.g. Fogo and S.Antao) Encouraging domestic investment (e.g. limiting all inclusive tourism to few islands) 3
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Objectives of the research Identify segments of the tourism value chain in Fogo that have the potential for profitability and growth. Explore opportunities to improve participation of the poor in these segments of the value chain. Assess existing financing gaps that constrain investment Propose financing options and institutional arrangements 5
Scope and limitations The value chain analysis is based on tourism activities in the island of Fogo. Only inland benefit flows are considered. Analysis is based on gross benefits ( the WB definition? ) Poor is defined based on the poverty context of Cape Verde and local perceptions (direct comparison is not appropriate ) 6
Methodology Review of literature on VC and tourism industry in Cape Verde Selection of sub sector (VC and cluster approach) Qualitative research (Semi structured interviews and FGDs), Data from the INE (statistics department of CV ) and Surveys 7
Back ground of Fogo The island of Volcano 2 nd in terms of poverty incidence Pop. of about 38,000 Major tourist attractions are the volcanic mountains for hiking and trekking The local wine Manecon Cha Chaldeiras and S. Filipe get the bulk of the tourism 8
Value Chain Analysis Map of the tourism value chain in Fogo Construction Agricultural supplies Handi craft Promotion and contract Transpor tation to site Accommodation Excursion & Visit Transportatio n off site Tour operators Airlines Hotels Restauran ts Parco di Fogo Airlines Tour guide Cha tour Bus/yus Taxi Boat Guest houses Pension Residencia s Bars Wine cooperative Guides Bus/ Yus Taxi Boat Chain Supporters Ministry of Tourism Lux Development Ministry of construction Italian cooperation (COSPE) Ministry of agriculture Parco di Fogo GTZ / Kfw European Union ADEI PRNF 9
Value Chain Analysis Benefit flows in the tourism VC of Fogo Roughly 33% of total tourist expenditure on accommodation Estimated shares of total tourist expenditure 23 % of estimated tourist expenditure on Food and beverages Highly insignificant level of benefit flows to Handi craft Tour guides in Fogo represent 11 % of total tourist expenditure A benefit flow of about 7% to Wine cooperative 5% 7% 15% 11% 6% 0% 23% 33% Accomodation Food and Beverage Tour Guides Transportation services (in land) International tour operators Local our operators The wine cooperative Others 10
Value Chain Analysis Leakages and Linkages High level of leakage from Food & Beverage segment of the value chain to imported items A pro poor income flow 11 % from the accommodation sector through direct jobs Similarly, high level of pro poor income flow to tour guides in Fogo Handicraft is dominated by artifacts from neighboring countries, local stone art works not popular. Very low level of out of pocket spending on shopping and excursions Wine cooperative able to establish strong linkages to the tourism sector 11
Linkage model of the wine cooperative in Cha Chaldeiras,Fogo Organized by Italian cooperation (COSPE) in 1998 102 small holder farmers (30% women) Supplier of bottled wine to the hotel establishments in Fogo Offers exposure visits/ wine tasting and induction sessions Provides bed and breakfast accommodation Fetches 6% of total estimated tourist expenditure in Fogo. Critical Success Factors for a strong linkage 12
Constraints Poor supply of water and electricity Policy limiting foreign investment (not complemented by build up of local capital) No direct flight from major tourist destination islands (e.g Sal) High seasonality of tourism Lack of inter-sectoral linkage (e.g b/n agriculture and tourism) Poor quality and reliability of supply of agricultural products, and health concerns Poor quality of local crafts and convenience Lack of skilled man power, poor professionalism Poor cooperative culture (luck of trust) 13
Opportunities Increasing flow of tourists (more climbing routes ) Alpinism (hiking and trekking becoming more popular) 40% increase in hotel establishments from 2008 More value with relatively low level of investment on accommodation facilities Growing cooperative culture, example of the Wine Cooperative Potential for diversification (production of fruits and goat cheese) Relatively good presence of donor community for technical assistance and financial support 14
Areas of financial intervention Strengthening linkages - Help Small holder farmers become suppliers of food and beverage products - Potential to diversify to fruit jam and juice and goat cheese products - Supporting the production of better crafts and creation of sales points - Assist the informal sector, local tour guides Expand the tourist carrying capacity - Encouraging domestic investment on accommodation facilities - Low level of investment required for more value (wide price variations) - Facilitate local capital formation Smoothing high seasonal variations in income flows to the actors in the tourism value chain of Fogo 15
Financing Gaps Cooperatives and small holder farmers as suppliers of value added products - Cooperatives : Start up capital to produce fruit jams and juice (apple, peaches and Fig) and goat cheese - Need for micro credit and saving services for working capital at the farmers level Local Tour guides - Formation of an association for local tour guides - Exposed to risk of accidents on the job, needs for insurance services - Highly volatile income patterns, need for quick and easily accessible saving services (Apuca alta and the low season) 16
Financing Gaps Accommodation Facilities Bank loans available for investment, (collateral plus guarantor requirements unattractive) Low local capital formation for investment on accommodation facilities, (low level of savings) - Only 10 % of respondents in Fogo have a savings book, (ADA survey,2010) - High level of in-kind saving indicates it s not an issue of culture but of access (case of remittances) - The two MFIs in Fogo (Soldi Fogo and OMCV) do not offer voluntary saving services (Regulatory issues) - The banks have limited presence in the interior rural areas 17
Conclusions Community based enterprises (cooperative and associations) offer more opportunities for small producers to participate in the tourism value chain. There is a need to look at critical success factors for a strong linkage in designing interventions. Highly seasonal income flows for the enterprises in the tourism value chain indicate a need for saving and credit services The findings showed gaps in terms of demand for financial services and supply Major infrastructural problems that constrain the growth of the tourism value chain Inter island linkage is critical for success, a 1-2 % of tourist flow from Sal could has major implications for Fogo. 18
Recommendations The direct and indirect impacts of the tourism in Fogo needs to be understood Small holder farmers need help to benefit from tourism (set up of coops.) Focus on micro credit needs to change, small producers in Fogo, also need saving services Strategic commitment needs to be backed by practical solutions Protectionist policy needs to be complemented by local capital formation Donor intervention/private sector investment in hotel and tourism training 19
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