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Tourism Value Chain Analysis

Tourism Value Chain Analysis. Dr. Frederic Thomas thomas-frederic@voila.fr A framework for tourism stakeholders to assess and maximize the development impact of public/private investments in the tourism sector, especially the pro poor impact.

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Tourism Value Chain Analysis

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  1. Tourism Value Chain Analysis Dr. Frederic Thomas thomas-frederic@voila.fr A framework for tourism stakeholders to assess and maximize the development impact of public/private investments in the tourism sector, especially the pro poor impact The data in this presentation come from a research’s project co-funded by the IFC/MPDF and the Prosperity initiative in Cambodia and Lao PDR

  2. Objectives A major objective of the IFC/PI project was to develop a framework for tourism stakeholders to assess and maximize the development impact of public/private investments in the tourism sector, especially the pro poor impact The objectives of a value chain analysis are first and foremost to better understand: How a specific economic sector impacts on a local economy (range of activities, phases of production, number of hired people (direct, indirect, induced))? Which opportunities exist for increasing the linkages and benefits between this economic sector and the local economy? What is the feasibility or plausibility of each potential interventions for having an economic, local or pro-poor impact? Finally, what would be the best strategies to increase either the global economic impact, Local Expenditures Impact or the Pro-poor Impact*? (*This implies to take into account the return on investment!)

  3. Introduction to Cambodian and Lao Tourism

  4. Introduction to Cambodian and Lao Tourism

  5. The IFC/PI Approach Cambodia and Lao PDR The data collected (demand and supply side surveys) allow the following expenditure measures of yield to be estimated: Total trip expenditure, nationally and in destinations Average expenditure per night (total tourism) nationally and by destination Expenditure per night by market (by origin, demographic, travel motive) nationally and by destination Expenditure in each tourism supply chain (accommodation, F+B, shopping, transportation) , nationally, by destination and by type of tourist Employment in tourism, nationally and by destination, by type of tourist and by tourism sub-sector/supply chain

  6. Review of different methodological issues observed in Cambodia and Lao PDR • Expenditures per person vs. per interviewee • FIT vs. GIT • Definition of poverty: Unskilled workers (ODI/SNV) vs. poor background’s workers • Expenditures per day and expenditures for the last 24h • Are products bought at the local market obviously locals?

  7. Step one(Larry Dwyer: Tourism Yield definition) Total in-country expenditures Converting Expenditure Measures of Yield into local expenditure yield measures (Local Expenditure Impact) Estimating pro-poor employee income (PPEDI) yield measures Estimating tourism supplier pro-poor impact: Pro-poor Indirect employment income (PPEII) Estimating direct seller pro-poor impact Estimating Employment Measures of Yield (direct, indirect)

  8. Tourism Yield Analysis - Approach Due to a lack of maturity of the market (difficulties in getting sensitive data), the approach did not include profitability measures and particularly the analysis of the yield as rate on return of capital.

  9. There is no consistent definition of Tourism Yield. We have essentially looked at 4 dimensions: Economic Local Economic Impact Pro-poor Impact Pro-poor employee direct incomes Tourism Yield Analysis - Approach $ LEI PPI PPEDI

  10. Tourism Yield Analysis - Approach • Economic impact of tourism Total in country trip expenditure = (ALOS * ADE * Number of tourists) ALOS = Average Length of Stay ADE = Average Daily expenditures per person (and not per interviewee)

  11. Tourism Yield Analysis - Approach Expenditure - IVA / trip Cambodia

  12. Tourism Yield Analysis - Approach Expenditure - IVA / trip LAO PDR Opportunities for increasing the number of GIT and the amount of GIT itself are limited (low average number of rooms per hotel). Therefore the analysis focused mainly on FIT.

  13. Tourism Yield Analysis - Approach • Local Economic Impact (defined as Local Expenditures Impact) * Our LEI approach doesn’t take into account the leakages from the starting costs (Around 90% for a high-end hotel).

  14. Tourism Yield Analysis - LEI The total contribution by nationality is extremely influenced by the number of visitors in Lao PDR. The breakdown of expenditures and the LEI in each category varies from one nationality to another and also between the two categories of visitors (FIT/GIT). The tourism industry public and private sectors should not particularly target an increase in tourism arrivals on the top of the trend but more the High yield markets.

  15. Tourism Yield Analysis - Approach • Pro Poor Impact Pro-Poor Employee Direct Income (looking at employee from poor background) + Pro-Poor Employee Indirect income (Indirect salary to suppliers from poor background) + Remittances of Tourism workers from a poor background

  16. Tourism Yield Analysis - PPI The total contribution by nationality is extremely influenced by the number of visitors in Lao PDR. In Cambodia, the level or importance of the Pro poor impact for each nationality is relatively different than their LEI

  17. Summary for Cambodia

  18. Summary for Lao PDR In Cambodia and Lao PDR, we observe that the level of PPI is higher in the capital than in the main tourist destination. An explanation could be the high number and variety of potential jobs in all sectors in Phnom Penh and Vientiane which finally attract more people from a poor background. In both countries, the difficulty of access to training for poorer persons doesn’t help them to become a strong workforce in the hospitality service industry.

  19. Major interventions to increase the % of LEI and /or PPI Major interventions on changing the % of PPI should be based on Main leakages by supply chain and feasibility to fill the gap/increase linkages and particularly with projects having a high LEI/PPI Main sectors able to highly contribute to the global LEI/PPI Main markets able to highly contribute to the global LEI/PPI Making jobs more accessible for the poor Main areas usually targeted to help the poor Importation (F&B, handicrafts, miscellaneous products…) Main opportunities become: Substitution to importation strategies are often considered as the only area where an increase of LEI/PPI is feasible. Now, these strategies should be Able to differentiate between absolute value and percentage of LEI/PPI; Able to compete with existing products in terms of costs, quality and just-in-time production/distribution all the year long (With a ROI concern) and not only job creation and/or increase of incomes; Marketing strategies to attract high-yield market, to increase ALOS, to increase # of high yield visitors in low season

  20. Marketing strategies • Target high yield markets • Increase ALOS • Increase number / change the mix • Reduce seasonality • Increase average daily expenditures

  21. Substitution to importations • Looking at opportunities/feasibilities/plausibility • Compare % and economic value of LEI • Determine feasible increase of LEI by sector and opportunities • Look at competitiveness for interesting sector • Look at domestic demand as an additional factor (ex: can organic products be bought by locals in developing countries..)

  22. Step two – Study the feasibility/plausibility of interventions Breaking down the value chain Looking at supply chain’s specificities (competitiveness, opportunities, linkages and leakages) Studying the feasibility of interventions based on understanding of context Breaking down the supply chain for any plausible intervention Studying the Return on investment for each plausible intervention

  23. Feasibility / potential to change the LEI/PPI by supply chain: The example of the accommodation sector (1)

  24. Feasibility / potential to change the LEI by sector

  25. Example: encourage the production of fruits by local farmers Changing the % of LEI Opportunities exist but they remains limited in terms of yields.

  26. Feasibility / potential to change the PPI by sector

  27. Changing the % of PPI

  28. Conclusion As an example, out of one US dollar spent in a restaurant, $0.0042 have a pro-poor impact on the local vegetables sector $0.0037 have a pro-poor impact on the local fruits sector Opportunities exist to substitute imported fruits and vegetables Up to$2.4m for the vegetables sector Up to $2.1m for the fruits sector $ 2.4m Veggies $2.1m Fruits Not all Fruits and vegetables grown in Cambodia $1m potential $1m potential How easy? Cost of production (competitiveness)? Supply the market all year long? $1m Assumption of realistic opportunities • Lack of skills • Cost of training • How easy? • ROI $100k Share to the poor?

  29. Summary Can’t assume, details matters Evidence based conclusion (potential) With good understanding of context to maximize ROI and development

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