Document of The WorldBank FOROFFICIAL USEONLY ReportNo: 47613-ET PROJECTAPPRAISAL DOCUMENT ON A PROPOSEDCREDIT INTHEAMOUNT OFSDR23.6MILLION (US$35.00 MILLION EQUIVALENT) TO THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA FOR A N ETHIOPIA SUSTAINABLE TOURISM DEVELOPMENT PROJECT JUNE 5,2009 FinanceandPrivate Sector Development Africa Region This document has arestricteddistribution and may be usedby recipients only inthe performanceo ftheir official duties. Its contents may not otherwisebe disclosedwithout World Bankauthorization. CURRENCY EQUIVALENTS (Exchange Rate EffectiveApril 30,2009) CurrencyUnit =EthiopianBirr (ETB) 11.24 ETB = US$ 1 US$1.488 = SDR 1 GOVERNMENT FISCAL YEAR July 8 - July7 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Lending ASC Audit ServicesCorporation CAS Country Assistance Strategy CHP CulturalHeritage Project cso Civil Society Organization DPL Development Policy Lending ESMF Environmental and Social Management Framework ESTDP Ethiopian SustainableTourism Development Project FM Financial Management FMR Financial ManagementReport FMS Financial Management Specialist GoE Government of Ethiopia GTZ GermanTechnical Cooperation IDA International Development Association IFC International Finance Corporation IFR InterimFinancial Report LIL Learning and Innovation Loan M&E Monitoring and Evaluation MGS Matching Grant Scheme MoCT Ministry of Culture and Tourism MoFED MinistryofFinanceandEconomic Development MPO Marketplace Operator MSME Micro, Small and MediumEnterprise OD1 OverseasDevelopment Institute OFAG Office of the FederalAuditor General PASDEP Plan for Accelerated and SustainedDevelopment to EndPoverty PBS Protection o f Basic Services PCU Project Coordination Unit PFM Public Financial Management PIM Project Implementation Manual PIP Project Implementation Plan PPF Project PreparationFacility PSC Project SteeringCommittee FOR OFFICIAL USEONLY PSNP Productive Safety Net Project RPF Resettlement Policy Framework RAP Resettlement Action Plan SME Small andMediumEnterprise SNV Netherlands Development Organization S I L Sector Investment Loan SMU Site ManagementUnit SNNPR SouthernNations andNationalities People's Region SOE Statement of Expenditures STEP SustainableTourism for Eliminating Poverty TOR Terms of Reference TSA Tourism Satellite Account UNDP UnitedNations Development Program UNESCO UnitedNations Educational, Scientific and Cultural Organization UNWTO UnitedNations World Tourism Organization USAID UnitedStates Agency for International Development VCA Value Chain Analysis WTTC World Travel and Tourism Council Vice President: Obiageli K.Ezekwesili Country Director: Kenichi Ohashi Sector Manager: Gerard0 M.Corrochano Task Team Leader: Francois Nankobogo This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. ETHIOPIA EthiopiaSustainableTourismDevelopmentProject CONTENTS Page I STRATEGICCONTEXTANDRATIONALE................................................................ -9 A. Country and sector issues .................................................................................................... 9 B. Rationale for Bank involvement........................................................................................ 13 C . Higher level objectives to which the project contributes .................................................. 15 I1 . PROJECT DESCRIPTION............................................................................................... 15 A. Lending instrument. financing arrangements and other approaches ................................. 15 B Project development objective andkey indicators............................................................ 15 C .. Project components ............................................................................................................ 16 D. Lessons learned and reflected inthe project design............................................ 19 E . Alternatives considered and reasons for rejection., ............................................ 21 I11. IMPLEMENTATION ........................................................................................................ 21 A 21 B .. Partnership arrangements / Harmonization ...................................................................... Institutional and implementation arrangements ................................................................ 22 C. Monitoring and evaluation of outcomeshesults ................................................................ 23 D Sustainability . ..................................................................................................................... 24 E . Critical risks and possible controversial aspects ............................................................... 24 F. Credit conditions and covenants ........................................................................................ 27 IV. APPRAISAL SUMMARY .................................................................................................. 28 A . Economic and financial analyses ....................................................................................... 28 B. Technical ........................................................................................................................... 28 C . Fiduciary............................................................................................................................ 29 D. Social ................................................................................................................................. 31 E. Environment ...................................................................................................................... 32 Safeguard policies.............................................................................................................. . . F . 33 G. Policy exceptions andreadiness ........................................................................................ 34 Annex 1:Country and Sector or ProgramBackground .......................................................... 35 Annex 2: Major RelatedProjectsFinancedby the Bankand/or other Agencies ..................43 Annex 3: Results Framework. .......................................................................... 45 Annex 4: DetailedProjectDescription ..................................................................................... 50 Annex 5: ProjectCosts ............................................................................................................... 63 Annex 6: ImplementationArrangements ................................................................................. 64 Annex 7: FinancialManagementandDisbursementArrangements .................................... 67 Annex 8: ProcurementArrangements ...................................................................................... 81 Annex 9: Economicand FinancialAnalysis ............................................................................. 91 Annex 10: SafeguardPolicyIssues ............................................................................................. 97 Annex 11: ProjectPreparationand Supervision .................................................................... 100 Annex 12: Documentsinthe ProjectFile ................................................................................ 101 Annex 13:Statementof Loansand Credits ............................................................................. 102 Annex 14: Countryat a Glance ................................................................................................ 104 Annex 15:Map ........................................................................................................................... 106 ETHIOPIA ETHIOPIA - TOURISM DEVELOPMENT PROJECT PROJECT APPRAISAL DOCUMENT AFRICA AFTFP - Date: June 4,2009 TeamLeader: FrancoisNankobogo Country Director: Kenichi Ohashi Sectors: Other domestic and international Sector ManagerDirector: Gerard0M. trade (100%) Corrochano/Marilou J. Uy Themes: Other trade and integration (P);Export development and competitiveness (S);Other financial and private sector development (S) Project ID: PO98132 Environmental screening category: Partial Assessment Lending Instrument: Specific Investment Loan ProjectFinancingData [ 3 Loan [XI Credit [ ] Grant [ ]Guarantee [ ]Other: For Loans/Credits/Others: Total Bank financing (US$m.): 35.00 Borrower: MinistryofFinanceandEconomic Development P.O. Box 1905 Addis Ababa, Ethiopia Tel: 251-11-522-6698/ Fax: 251-11-555-1355 ResponsibleAgency: Ministry of Culture and Tourism P.O.Box 1907 Addis Ababa, Ethiopia Tel: 251-11-551-7020/ 553-7361 Fax: 251-11-551-2889 tour.corn@,teIecom.net.et Estimateddisbursements(BankFY/US$ US$m) 'Y I 10 I 11 i 12 I 13 I 14 1 15 I 4nnual 3.00 6.00 7.00 8.00 7.00 4.00 kmulative 3.00 9.00 16.00 24.00 31.00 35.00 The project development objective is to contribute to enhancement o f the quality and variety of tourism products and services in targeted destinations so as to increase the volume o f tourism, foreign exchange earnings, andjobs. Itis expected that the implementationo fthe project will yield the following key outcomes inkey destinations: (i) an increase o f annual international visitors; (ii) increased average spending by visitors translating into higher foreign exchange earnings; and (iii) increased number o f direct an and indirect tourism-relatedjobs. Project description Ref: PAD 11,TechnicalAnnex 4 The project will have four components: (i) destination development, focused on the tourism product which entails two aspects (the quality of the cultural experience, both tangible and intangible, and, the quality and variety o f the supporting supply-side service providers); (ii) market development, (iii)institutional development and capacity building, and (iv) implementationsupport andresults monitoring. The project focuses on three major destinations, Lalibela, Axum and Addis Ababa while addressing some areas o f development for other destinations. Its main objective is to demonstrate what a well developed destination can bring to the tourism sector not only through the increased income andjobs it can create, but also the learning effect for other destinations. It i s hoped that both the public and private sectors will gain useful lessons and replicate the development experience inother destinations. Which safeguard policies are triggered, ifany? Ref: PAD I KF., TechnicalAnnex 10 The Droiect has triggered OP 4.01 Environmental Assessment: OP 4.11Physical Cultural Resources; and OP 4.12 Involuntary Resettlement due to civil works that are requiredto enhance selected sites. Significant, non-standard conditions, if any, for: Boardpresentation: None. Loadcredit effectiveness: establishment of Project implementing entities with functions, composition and resources satisfactory to the Association: (i)Project Coordination Unit, comprised o f key staff recruited on a competitive basis including a Project coordinator, a financial management officer, a procurement officer and an assistant procurement officer, a monitoring and evaluation specialist, a civil engineer, a resettlement specialist, and an administrative assistant; (ii)Site Management Units, for each of the three targeted Project sites (Lalibela, Axum and Addis Ababa), which shall include an implementation officer and an accountant; and (iii)Project Steering Committee; 0 adoption o f a Project Implementation Manual, including a project implementation plan, matching grants manual, administrative, procurement, financial and accounting, monitoring and evaluation procedures, and a procurement manual, in form and substance satisfactory to the Association; and 0 submission to the Association of a Letter of Tourism Policy. Covenants applicable to project implementation: 0 maintenance o f a satisfactory financial management system, submission of quarterly interim financial reports to IDA forty five days after the end o f each quarter period, and submission o f the audited project accounts to IDA six months after the end of each fiscal year ending on July 7, and conduct of a project mid-term review by M a y 31,2012. I. STRATEGICCONTEXTANDRATIONALE A. Country and sector issues 1. Ethiopia's wealth in cultural and natural tourism assets contrasts with its struggle with bothpoverty -per capita income is estimatedto be only $210- and image ininternational markets. With a population of over 75 million people---the second-most populous country in Africa after Nigeria---Ethiopia has had in recent years one of the fastest growth rates in Africa. Yet, it i s faced with an urgent need to accelerate sustainable growth and create jobs. In order to lower unemployment and reduce poverty, economic diversification outside o f agriculture i s crucial. Current priority sectors, as designated by the government and aided through various policy initiatives and funding mechanisms, include textiles, leather, and horticulture. These sectors are producing a valuable demonstration effect and show clear, upward trends in employment, exports and income generation---all contributing to the economics of improved living standards. The same success can now be achieved in Ethiopia's services arena, in particular through strategic and focused interventions inthe country's tourism sector. Globally, tourism is an under- recognized export activity with the ability to generate foreign exchangeandjobs within a country while encouraging private sector growth. Specifically in the case of Ethiopia, tourism sector support will serve to jump-start the country's economic diversification, while contributing to export earnings and newjob creation. 2. Ethiopia has strong potential as a tourism destination offering a rich array of cultural, historic and natural sites that set it apart from its neighbors. Its natural and cultural assets are unique and potentially very productive. The UnitedNations Educational, Scientific and Cultural Organization (UNESCO) recognizes eight world heritage sites (as many as that of South Africa, Morocco and Tunisia in Africa). Ethiopia's recognized sites include Axum's stelae; the monolithic churches of Lalibela; Gondar's castles; the Omo Valley; Hadar (where the skeleton of Lucy was discovered); Tiya's carved standing stones; SemienNational Park; and the walled city of Harar. Two additional sites, Konso and Bale National Park, are currently under consideration' by the World Heritage Committee for inclusion on the World Heritage Sites list most likely by 2011. 3. However, a number of challenges face Ethiopia in attempting to capture a larger share of the tourism market inthe region and transform cultural and natural assets into economic value. The world heritage sites, as well as many others of equal though unrecognized significance and beauty, have been neglected and there has been little public investment in their maintenance, interpretation for visitors and access infrastructure. Investments in infrastructure (e.g. airports, roads, telecommunications, water supply, and sanitation), hotels and human resources remain insufficientto meet a growing sector's needs. Inthe segment of tourism that is based on world heritage sites, visitors generally expect high quality services and well preserved, well presented sites. Yet,' Ethiopia's tourism industry currently lacks the capacity to meet that demand. This fundamental mismatch is the core challenge. Both inthe administration and inthe private sector, there i s a growing recognition of this problem and broad commitment to addressing it. The project attempts to assist Ethiopia inovercoming the key obstacles to tourism development. The formal nomination for Konso has been submitted,whereas the BaleNationalPark is inthe voluntary submission phase of the registration phase. 9 4. Private investment in the tourism sector is faced with constraints pertaining to the availability and quality o f infrastructure, land, term finance, as well as weak institutions and capacity: 0 Infastructure-related constraints are particularly experienced in the areas o f roads, water and sanitation, telecommunications, and air transport. The bad quality o f roads in tourism destinations limits the possibility o f visiting cultural and natural assets in various destinations and increases the cost o f travel. Insufficient water supply and poor sanitation in key destinations put a strain on communities' living conditions and discourage private investments in hotels. The poor quality o f telecommunications services in Ethiopia limits sector professionals and tourists' ability to leverage technology in accessing information, marketing the destination, and maintaining the necessary communication during a trip. With all o f these infrastructure limitations, the tourist experience in some destinations still tends to be more o f an adventure than a leisure travel experience. Moreover, the absence o f modern payment systems which hinges on poor quality o f information communication technology (ICT) hinders spending by tourists. Ethiopia has flight links to the major destinations particularly in the Northern Route which includes Lalibela and Axum. However, the reliability and quality o f service needs improvement. The introduction o f competition in the domestic air transport sector is necessary to ensure more efficient service provision. In the medium term, the upgrading of existing airports to international levels would enhance the attractiveness o fthe destinations. While principles o f land allocation have been well articulated, the cost and time o f access have been severe constraints. The provision o f landi s the primary responsibility o f regional administrations, and the lack o f clear city zoning policies often results in lodging developers having limited success in securing prime locations for their businesses. Moreover, while auctioning plots creates transparency, the limited number o f available sites usually results ininflated prices. Lack of term financing is a binding constraint, and it i s compounded by the fact that banks prefer to finance short term transactions to minimize risk. Collaterals, which are routinely required to access bank loans, cannot always be mobilized by some tourism businesses because o f the risk associated with their assets (e.g. lodges are not accepted as collaterals because o f their construction material). The limited bank financing translates into very low debt to equity ratios and hampers the development o f new and innovative products as well as the reinvestment in existing assets. Moreover, lack o f or limitation to the use of modernpayment systems constrains the sector growth. 0 Tourism institutions, both in the public and the private sectors, are recent and have limited capacity. Moreover, industry-specific skills remain quite scarce; and this leads to a mismatch between the wealth o f cultural assets that appeals to knowledgeable tourists andthe sub-standard quality o f services that they receive along the value chain. 5. In addition to the above limitations to private sector-led tourism development in Ethiopia, community involvement needs to be strengthened to ensure pro-poor and sustainable growth inthe sector. This community involvement would entail, inthe first instance, the creation o f new economic opportunities in the form o f employment in tourism businesses, supply o f goods and services to tourism enterprises or direct sales, and establishment o f community-based 10 businesses in areas including crafts and souvenir retail outlets, guiding, entertainment, transport, catering and lodging. It would also involve participation in the design and implementation o f sector activities, thus genuinely materializing the community's collective stake in the growth o f tourism. 6. With respect to Ethiopia's position in the global tourism industry, the country has to overcome its firmly rooted negative image. In spite o f some efforts to reverse it, the country's image for many potential tourists remains one o f dire poverty and conflict spread through international media. 7. To overcome the above challenges, the Government o f Ethiopia (GoE), under the leadership o f the Prime Minister, articulated a new paradigm for tourism development in 2005 to set in motion and rapidly build the sector as a pivotal component o f the country's economic development. The new paradigm also recognized the development o f tourism as an important pillar for poverty reduction contributing to Ethiopia's achievement o f its Millennium Development Goals. 8. The above shift in priorities triggered GoE increased investment demonstrating its recognition that tourism development can be a driver o f growth; and a new Ministry o f Culture and Tourism, with State Ministers for Culture and Tourism respectively, was created in 2006. Subsequently, Ethiopia's Plan for Accelerated and Sustained Development to End Poverty (PASDEP, 2005-10) affirmed the GoE's commitment to the development of the tourism sector emphasizing that historic and cultural sites need to become productive sources o fjobs, incomes and economic growth for Ethiopians. It is in support o f this PASDEP objective that the World Bank produced a tourism sector study ``In Makeda 's Footsteps: Towards a Strategyfor Pro-poor Tourism Development" (2006). Since then, the GoE has taken the following initiatives: (i) drafting a tourism policy, (ii) initiation o f a public-private forum known as the National Tourism Council, chaired by State Minister o f Tourism and replicated at the regional level with responsibility for advocacy, coordination and publidprivate communication; (iii) commitment o f resources for the rehabilitation o f the Catering and Tourism Training Institute in Addis Ababa; (iv) investment in upgrading airports on the Northern Historic Route (e.g., Axum and Lalibela); and (v) demonstration o f a commitment to develop the sector through the implementation o f a series o f investmentsininfrastructure such as roads and water supply. 9. The above steps taken by the public sector demonstrate the recognition o f the need to step up investments inkey destinations inorder to increase their attractiveness to the tourists and to encourage the private sector to take more risks. In the latter instance, there has been a sharp increase in private sector investments over the last few years, particularly in hotels and high-end lodges, reflecting some initial response to signals fiom the government. Furthermore, the opening of key areas such as star-designated hotels and tour operations to foreign direct investment i s showing a promising trend. Yet, the sector has so far earned limited incentives from the government in terms o f tax regime and importation o f duty-free vehicles, relative to priority sectors2. Per industrial development strategy adoptedin2003, priority sectors are horticulture, agro-processing,textile and garments,leather and leatherproducts.These export-oriented sectors benefit from governmentfacilitation inthe 11 10. The GoE's draft tourism policy states objectives and strategies for the sector. It calls for improved infrastructure in tourist sites; better public and private sector human resources, strengthened supply chains, higher quality and standards o f goods and services offered to tourists; and more effective marketing and promotion o f tourism products. Adequate resources to effectively deploy strategies targeted at these objectives are still insufficient; and external assistance, both financial and technical, is expected to play a critical role inrealizing the policy's objectives. Through support to the tourism sector, there i s an opportunity to accelerate growth through focused interventions that leverage the GoE's strategic choices inareas that can generate jobs and incomes while fostering local development. 11. Based on a 2006 World Bank diagnostic study o f the tourism sector, excluding foreign exchange earnings from Ethiopian Airlines, tourism generated approximately US$ 132 million in direct in-country expenditure on accommodation, inland transport, food and drinks, visitor fees and arts and crafts purchases, making it the third highest foreign exchange earner behindcoffee at US$ 185 million and oil seeds at US$ 168 million. The source o f this revenue was nearly 150,000 foreign visitors who came to Ethiopia for various purposes such as leisure (63,000), business and conferences (62,000) and to visit friends and relatives (22,000). The average length o f stay was 8.4 days, which i s lower than in competing neighboring countries including Kenya (12.8 days), Tanzania (14.1 days) and Uganda (9.7 days). With an average expenditure per visitor estimated at US$ 803, daily expenditure in Ethiopia o f US$ 95 was lower than in Tanzania (US$ 104), but higher than in Kenya (US$ 62), Uganda (US$ 71), and South Africa (US$ 47). These figures confirm that, as a tourism destination, Ethiopia i s at an early stage o f development characterized by relatively short and expensive stays due to poor tourism infrastructure and a weak supply side. Consequently, the development strategy aims to correct these weaknesses so as to allow Ethiopia to surpass competitors in market segments where Ethiopia has a comparative advantage in order tQ claim a larger share o f the global tourism market. 12. Tourismand povertyreduction.The project seeks not only to support accelerated tourism sector development but also to maximize its impact on poverty reduction, since: 0 Tourism is labor-intensive and therefore has potential to impact a large number o f lives through employment generation; 0 Tourism has considerable potential linkages, especially with the rural sector and communities through food and artisanal products. It may also create initial demand for goods and services that can themselves develop into growth sectors. Moreover, due to the highincome elasticity o f demandfor internationaltourism, it could offer a relatively rapidly growing market; 0 Tourism has the potential to provide opportunities for off-farm diversification, particularly inareasthat do not attract many other types ofdevelopment options. The figure below shows the channels through which tourism contributes to poverty reduction. areas of licensing, allocation of land, infiastructure, access to finance, supporting investments and advice, andhigh level public-private sector dialogue. 12 Figure1: Channelsof tourismbenefitsfor the poor 1 Loneer-termDvnamic Induced DirectEffects 1 Indirect Source:MitchellandAshley (2008) Pathways to Prosperity: How can tourism reducepoverty? Economic multipliers (direct, indirect and induced effects), resultingfrom the process by which tourist spending stimulates further spending and increased economic activity, stimulate employment and incomes. The direct effects are economic impacts directly related to tourism such as income earned by tourist suppliers @e., hotels, airlines and the travel agents). This translates into wages, rent, interest and payments to the suppliers o f goods and services to the tourism establishments, which represent the indirect effects. The induced effects, on the other hand, arise from the re-spending o f wages earned in businesses that benefit from direct or indirect effects. 13. In order to optimize the deployment of the above series of effects on the poor, the Ethiopia Sustainable Tourism Development Project (ESTDP) will place an emphasis on the strengthening o f inter-sectoral linkages while fostering enhanced community involvement inthe tourism sector. To that effect, partnerships with specialized non-government organizations and private businesses such as tour operators will be sought to foster effective community participation inthe tourism industry. B. Rationalefor Bankinvolvement 14. The various constraints and challenges faced by the tourism sector pertaining to deficiencies in infrastructure, finance, land and institutions, are to various degrees being addressed by the PASDEP (2005-2010) and cannot, in their entirety, be tackled by a single project intervention. Yet, considering the potential o f the tourism sector to help Ethiopia address pressing development issues, such as employment and incomes particularly inrural areas and the need to diversify foreign exchange earnings sources, this project has the potential to return high developmental impact incrucial elements o f Ethiopia's growth and poverty reduction strategy. 13 15. The project offers an integrated set o f interventions including improved sector policies, public-private sector partnerships, product and market development, linkages and community involvement, as well as institutions and skills enhancement. Recognizing the importance o f reaching a high threshold to make the specific destinations internationally attractive, the project will focus on three sites, namely Lalibela, Axum and Addis Ababa, where the integrated interventions will contribute to easing current constraints and producing a demonstration effect for subsequent replication. The overall impact o f this approach i s expected to be an increased role o f both the private sector and communities in the tourism sector, translating into higher investments and inclusive growth inservices. 16. To this effect, this project seeks to improve the attractiveness and appeal o f three sites; buildpublic and private sector capacity to leverage the potential o f the sector through improved policies involving stakeholders; and foster the creation o f an enabling environment for increased private sector participation. The enhanced capacity o f the public sector and the support to institutions that provide skilled human resources will contribute to easing the most pressing constraints o f the tourism sector in a strategic and sequenced manner. The project also supports the implementation o f sector policy frameworks as well as institutional development to foster public-private partnerships that are necessary for the sector to leapfrog to the level o f more advanced competing countries. It i s inthis context that both the public and private sector players will collaborate to remove the constraints such as minimal access to finance, inefficient, out-of- date payment systems, poor access to land, limited investment incentives and inadequate promotion. The improvement o f heritage assets through this project in order to enhance the quality o f the visitors' experiences will attract more tourists. The upgrading o f basic infrastructure (roads, water supply and sanitation) in Lalibela will also contribute to enhancing the sector's attractiveness to tourists and private sector investors. The project will also assist Ethiopia in better marketing and promotion o f its destinations through improved means o f targeted and better packaged promotion. The matching grant scheme will foster private industry innovation through a demand-driven approach which will also support backward and forward linkages within the sector. At the same time, support will be given to skills enhancement and higher community engagement insector activities. 17. This broader course of action is inline with a strategic objective o fthe 2008-11 Country Assistance Strategy (CAS), which was endorsed by the World Bank's Board in April 2008, aiming at strengthening the supply responsiveness of the industry and services sectors as a way o f achieving accelerated growth. The development o f the tourism sector should contribute to broadening the economic base beyond the small number o f "priority sectors" focused on by the Government over the last several years. Moreover, tourism has a high potential to increase private sector initiative; to strengthen linkages to small businesses that foster inclusive growth, and to become a leading foreign currency earner. 18. This project can create a major growth trend by setting an example o f what can be done under a dynamic development situation. It will seek to create a model tourist destination -the Northern route- that will trigger a high growth trend for the sector. By the end o f the project, Lalibela for example will be a cleaner, better organized and functional tourism destination with enhanced services o f international standard. Inaddition, the area's satellite sites will have better access and amenities giving the tourist motivation to stay longer and spend more. Moreover, 14 private sector investment confidence will be increased, thus leading to business expansion, increased economic opportunities and higher contribution to economic growth. 19. The World Bank i s well placed to provide an integrated set o f support services to unleash the pro-poor potential o f tourism, drawing on global sound practices and experience in areas such as policy; cultural heritage protection and infrastructure improvement; linkages for private sector and community involvement, and skills enhancement. This is particularly justified by the fact that other donors (see annex 2), with whom the Bank coordinated throughout project preparation, have limitedinvolvement inthe tourism sector inspite o ftheir intentions. 20. Related World Bank involvement includes (i) the Cultural Heritage Project (CHP), a US$5 million equivalent Learning and Innovation Loan (LIL) that focused on the conservation o f World Heritage sites in Gondar, Axum and Harar, and which closed in October 2008, (ii) the Private Sector Capacity Building Project (FY06), and the Urban Local Government Development Project (FY08). Each o f these projects contributes additional momentum to the improvement o fthe tourism sector directly and indirectly. C. Higherlevelobjectivesto whichthe project contributes 21. The project will help Ethiopia diversify and broaden its economic base, increase its competitiveness, and strengthen inclusive growth prospects. Successful implementation o f this project will contribute to poverty reduction as well as to the realization o f Millennium Development Goals. 11. PROJECTDESCRIPTION A. Lendinginstrument,financingarrangementsand other approaches 22. The lending instrument i s a Sector Investment Loan (SIL) under standard International Development Association (IDA) terms. The total project cost amounts to US$ 39.50 million, consisting of an IDA Credit o f US$35 million equivalent, US$1.5 million equivalent government financing o f the resettlement compensation, and US$3 million contribution by the private sector in the context o f a Matching Grant Scheme (MGS). The funds will finance civil works, goods, services, operating costs andtraining. B. Projectdevelopmentobjectiveand key indicators 23. The project development objective (PDO) is to enhance the quality and variety of tourism products and services in targeted destinations so as to increase the volume of tourism, foreign exchange earnings,andjobs. 24. It is expected that the implementation o f the project will yield the following key outcomes, particularly in key destinations: (i)an increase o f annual international visitors; (ii) increased average spending by visitors translating into higher foreign exchange earnings; and (iii) increasednumberofdirectandindirecttourism-relatedjobs.Intermediateoutcomesthat an are expected to contribute to achieving the desired PDO are detailed inAnnex 3. 15 C. Projectcomponents 25. The project will have four components: (1) destination development, (2) market development, (3) institutional development and capacity building, and (4) implementation and results monitoring. Component 1:Destination Development- US$15.43 million 26. This component will have three sub-components: (i) rehabilitation and enhancement the o f basic infrastructure in key historic sites, (ii)visitor services enhancement in selected destinations, and (iii)tourism product development. Sub-component 1.1: Rehabilitation of heritage sites and enhancement of basic infrastructurein selected destinations(US%10.33 million) 27. Under this sub-component, the project will finance the following activities: (a) conservation o f selected historic churches, delineation o f World Heritage site boundaries and development o f satellite sites in Lalibela; (b) improvement o f basic infrastructure including access and by-pass roads, water supply, sanitation and solid waste management in Lalibela; (c) improvement o f stelae field, archeological museum, monuments and attractions in Axum; and (d) renovationand improvement o fthe Addis Ababa Museum. Sub-component 1.2: Visitor services enhancement in selected destinations (US$ 4.00 million) 28. This sub-component will be comprised o f the following activities: (a) rehabilitation and upgrading o f tourists/visitor facilities, including interpretative services in key destinations (Le. Lalibela, Axum, and Addis Ababa and environs); (b) signage and trail enhancement proximate to tourism sites; and (c) documentation and exhibitions at historic sites. Sub-component1.3:Tourismproductsdevelopment(US$1.10 million) 29. The sub-component will finance activities seeking to diversify offerings in targeted destination and to support asset inventory in emerging destinations. Activities will consist of: 0 tourism products development utilizing vernacular architecture, landscape features including historic district assets, and intangibleheritage inAxum and Lalibela; tourism products development such as Entoto mountainview, museums and old houses in Addis Ababa and environs including Adadi Marim, Melka Qunture, Tiya; 0 tourism products development and capacity development plans for the Southern, Western and Eastern routes. Component 2: Market Development (US$ 7.84 million IDAfinancing and US$3.00 million beneficiary contribution) 30. This component will focus on promotion and marketing activities. It will have the following two sub-components: (i) positioning and marketing, and (ii) demand-driven linkages a program utilizing a matching grant scheme and providing support to communities. 16 Subcomponent2.1: Positioningandmarketing(US$2.69 million) 3 1. This sub-component's activities will enable Ethiopia to develop and implement strategies to attract specific target segments from key markets. Attracting target segments involves development of: (i)a competitive position through defining target markets; (ii)collaterals accessible and attractive to target markets; and (iii)a program for on-going marketing, communication and promotion. 32. The following activities will be specifically financed: (i)development of a positioning and marketing strategy, (ii)implementation o f a communication and promotion plan, (iii) development o f promotional materials, (iv) participation in trade fairs, and (v) development o f a tourism e-commerce online platform. Subcomponent2.2: Demand-drivenlinkagesprogram(US$ 5.15 million) 33. This sub-component seeks to (i) enhance the competitiveness o f the Ethiopian tourism private sector through a cost-sharing (50-50 percent) matching grant scheme with an allocation o f US$ 3.0 million; and (ii)foster community involvement in the sector so as to optimize benefits for the poor with an allocation o f US$2.15 million. Beneficiaries in this category will not be required to match the support they receive through the project because it will not be feasible. Matching grant scheme (US$ 3 million IDA financing and US$ 3 million beneficiarv contribution) 34. The matching grant scheme will foster linkages by supporting small businesses mostly focusing on the selected destinations so that they can participate more fully in tourism sector activities through expandingtheir business skills and improving the quality o f their products and services. In the target sites, some "flagship"-type investments in high-quality hotels are beginning to take place spontaneously, with significant financing from foreign sources (including Ethiopian Diaspora). For the destinations to become more attractive sites that offer comprehensive services (not just self-contained in high-end lodging), they need more active ' engagement from smaller businesses. This segment, however, tends to lack financial capacity or skills. Addressing this gap, the matching grant scheme will seek to finance projects (with both established and emerging entrepreneurs) that will allow entrepreneurs to increase, upgrade and innovate inthe tourism value chain. The scheme will inparticular help (i) upgrade technological and managerial skills; (ii)improve market intelligence and access; and (iii) backward and foster forward linkages within the private sector and eventually increase the spill-over effects o f the entire sector. The matching grant scheme will be inthe amount o f US$3.0 million, which will be matched dollar for dollar by private sector beneficiaries. These can be individual firms or groups o f businesses legally registered. The individual grant amount will not exceed US$150,000 per beneficiary. 35. Implementation arrangements for this sub-component are discussed further in Annex 4, and a dedicated Matching Grants Specialist, who will be on the PCU team, will be on board upon project effectiveness. A matching grants procedure manual will be part o f the overall Project Implementation Manual (PIM). Key factors determining the proposal selection process will be 17 achievable outcomes expressed in measurable indicators contributing to the provision o f improved products and services to tourists at the destinations. Technical guidance to beneficiaries for business plan development will be provided by the PCU as needed while making sure to remain at arm's length (e.g. utilization o f external business development services providers). The grant scheme will operate on a reimbursement basis upon the successful implementation o f proposals approved by the evaluation committee. Communitv involvement (US$2.15 million) 36. With respect to community involvement, the project will provide support to communities in the form o f (a) awareness-raising about how they can better participate in industry activities and to mitigate tourism's social impacts; (b) training and skills enhancement in areas that can help increase their actual participation as employees, suppliers, and small business operators; and (c) partnerships with the private sector to develop linkages for common benefits. Economic opportunities that will benefit communities cover a wide range of areas such as retail activities, crafts and souvenirs, tour guiding, catering, transportation services (e.g. animal renting for transportation), entertainment and performance arts, and possibly bed and breakfast operations. The expertise accumulated by Civil Society Organizations (CSOs) working at the community level in tourism will be tapped in the process o f the above; and activities and partnerships with private businesses will be encouraged in the three destinations o f Axum, Lalibela and Addis Ababa and environs. Communities will make in-kind participation to the various support activities so as to ensure full ownership and sustainability. Component 3: Institutional Development and Capacity Building (US$ 5.55 million IDA financing and US$1.5 million governmentcontribution) 37. This component will aim to build capacity in sector management through supporting existing and new institutions. It will consist o f two sub-components: institutional development and capacity building. Sub-component3.1: Institutionaldevelopment(US$3.92 million IDA financing and US$ 1.5 milliongovernmentcontribution) 38. Specific activities that will be financed include: (i)policy implementation frameworks, including development o f sector strategic plan, and competitiveness enhancement including development o f sector strategic .planbased on the national tourism policy and competitiveness enhancement packages;; (ii) Strengthening o f the Ministry of Culture and Tourism (MoCT) and o f Regional Tourism Bureaux, (iii) Establishment o f standards and rating schemes for tourism enterprises; (iv) tourism data collection and statistics strengthening; and (v) Institutionalization o f and support to the Tourism Council3; (vi) Establishment o f and support to a Tourism Board to foster public-private partnerships in the area o f tourism promotion. The Government contribution, estimated at US$ 1.5 million, will finance the resettlement cost foreseen in Lalibela. Tourism Councils are expectedto operate at federal, regional and Woreda levels. There is aprovisional guideline governing their operation which will needto be revisited to formally institutionalize the councils. They are expected to (1) discuss and solve operationalproblems, (2) provide policy adviceto government and (3) act as feed-back loop for generaloperationaltrends. 18 Sub-component3.2: Capacitybuilding(US%1.63 million) 39. To enhance the skills in the tourism sector and the quality o f services that would contribute to higher tourist satisfaction, this sub-component will support (i) the assessment ofthe tourism education and training strategic needs, (ii)the improvement o f tourism training institutions' programs, (iii) skills enhancement at the MOCT and other sector stakeholders, and (iv) the upgrading o f guides and the hospitality industry workforce to standard levels o f professionalization. Component4: Implementation Supportand ResultsMonitoring (US$2.70million) 40. The implementation arrangements are based on the set-up of a PCU, with Site Management Units (SMUs), staffed with high-standard professionals who will be competitively selected. SMUs will provide support to regional tourism bureaux in the Amhara and Tigray Regions as well as inthe Addis Ababa City Administration. The PCU's work will be advised and facilitated by a Project Steering Committee composed o f public sector and private sector representatives, and reporting to the Minister o f Culture and Tourism.This component will support reporting, auditing, results monitoring and evaluation as well as safeguards compliance activities, including the recruitment o f an environmental expert on a need basis. 41. Implementation support will be allocated as follows: (i) implementation support PCU (US$ 2.06 million) and (ii)results monitoring and evaluation (US$ 0.64 million). This component will particularly put an emphasis on fiduciary (procurement and financial management) and safeguard compliance activities. In addition, it will support the set up o f results-tracking system as well as periodic reviews, including the mid-term review and the completion report. D. Lessonslearnedand reflectedinthe project design 42. Project design and implementation lessons relevant to this project are drawn from Ethiopia-specific projects, private sector development projects with tourism components and tourism dedicated projects inAfrica and other regions. 43. In Ethiopia, there was an extended implementation period o f the Cultural Heritage Project (FY2002-2009). The CHP was a Learning and Innovation Loan inthe amount o f US$ 5 million equivalent aiming at supporting conservation efforts in Axum, Gondar and Harar. The most relevant lessons learned from the CHP are as follows: Importance of offering an integrated set of interventions to achieve meaningful outcomes:inorder to transform the tourist destinations into growth poles, it i s necessary to finance a comprehensive set o f aspects including tourism assets and infrastructure improvement, visitors' facilities (e.g. walkways, parking lot, signage, interpretation, reuse if traditional houses, etc), skills enhancement (e.g. site managers, guides, communities). This approach i s the foundation for meaningful outcomes instead o f isolated outputs that have limitedimpact. 19 0 Need for capacity strengthening: Capacity in the public administration (particularly regional tourism and culture bureaux), the private sector and the civil society remains weak. Implementation calls for on-going and consistent support. 0 Foster linkages and community involvement: The optimization o f project impact on poverty reduction requires that, beyond the support to the various segments o f stakeholders, backward and forward linkages along the industry value chain be strengthened. This calls for systematic action to encourage innovation and cooperation withinindustry stakeholders, particularly the private sector andthe communities. 0 Norms and standards: The regulatory framework needs to be strengthened so as to have the private sector operate by defined standards. 0 Offering diversification: CHP site-specific lessons suggest that more needs to be done to diversify and improve the quality o f attractions. For instance, there i s a need to further support the Axum Museumto improve display quality andthe level ofthe tourist services. And in Harar, an effort needs to be deployed to appeal to a wider range o f tourists, beyond low end back-packers, by not only upgrading the attractions but also through improved town planning. 44. Moreover, the designo fthis project also takes into account the following lessons learned from other World Bank operations: Geographic focus: Similar to the Jordan Cultural Heritage, Tourism and Urban Development Project which focused on tourism development infive key historically and culturally important cities as well as its premier tourism attraction o f Petra, the project's main focus is on key destinations on Ethiopia's Northern Historic Route that will be developed in conjunction with supporting tourism in the gateway city o f Addis Ababa. Interventions on other routes are much more limited inscope. 0 Leveraging the partnership between the public and the private sector: Building on other countries' past experience, this project seeks to build and strengthen partnerships between the public and the private sector through institutions such as the National Tourism Council and the Tourism Bureaux as well as an inclusive Project Steering Committee to ensure timely inputsinto project implementation. 0 Establishing a clearly definedproject implementationstructure: Tourism development at multiple sites in the vast country of Ethiopia requires a clearly defined project implementation system which allows for accountability and timely decision-making while actively engaging all stakeholders. This lesson, learned from both the Jordan Cultural Heritage, the Tourism and Urban Development Project and the CHP, i s reflected inthe designof the implementationarrangements. 0 Matching grant scheme tofoster private sector engagement and strengthen linkages: Building on experience from other projects and other countries, a matching grant scheme i s included in this project to strengthen tourism businesses and other relevant 20 private sector entities, to encourage the adoption o f industry standards and ratings and to improve the quality o fproducts and services. E. Alternatives considered and reasons for rejection 45. The underpinningof the project lies inthe extensive analytical work carried out ahead of its design. This includes a sector review and strategy; a tourism value chain analysis; a market study; a linkages program assessment, and several destination-specific studies financed under the Project Preparation Facility (PPF). 46. The first alternative considered was to design anAdaptable Program Lending(APL) over a period o f 10-15 years due to the important needs for tourism sector development. However, consideration o f Ethiopia's competing financing needs ledto the rejection o f this option. 47. The second alternative considered was a sector Development Policy Loan (DPL). However, the weakness o f the systems inplace and the nature o f the activities needed to support the jump-starting o f the sector's development led the team to conclude that a sector investment lendingapproach is more appropriate. 48. The third option was to maintain the status quo and not do anything to support the tourism sector. However, in light o f the stated Government policies to emphasize on tourism as one o f the drivers o f growth, confirmed by the findings o f the analytical work, it was concluded that doing nothing would be a missedopportunity to leverage tourism for the achievement o f the government's overall development strategy as articulated inthe PASDEP. 111. IMPLEMENTATION A. Partnershiparrangements/ Harmonization 49. The ESTDP is designed amidst the context o f the other donors' activities: United States Agency for International Development USAID/Global Sustainable Tourism Alliance, German Technical Cooperation (GTZ), UNESCO and United Nations World Tourism Organization (UNWTO). Close coordination, including joint missions, was done during project preparation; andtheir respective activities are briefly presented inAnnex 2. USAID, inparticular, has plans to implement a five-year community-basedtourism project with US$7 million direct funding, with a focus on communities located along the Southern and Eastern tourist routes. When confirmed and operational, the USAID project will be complementary o f the ESTDP interventions inthese respective routes. Other areas of synergy include the following two donor-funded operations : (i) the ongoing UNESCO-executed "Lalibela ConservationAction Plan" ,funded byNorway with a matching fund from the World Monuments Fund, and (ii) planned "Harnessing cultural the diversity for development and social progress in Ethiopia" which i s financed by Spain and will be jointly executed by UNESCO and UNDP. Close coordination with other donors will be sought throughout project implementation in order to ensure effective support to Ethiopia's tourism sector development. 21 B. Institutionalandimplementationarrangements 50. The overriding principle guidingthe institutional and implementation arrangements o fthe ESTDP is mainstreaming operational responsibility to federal and regional agencies responsible for destination and site development in activity areas. The public sector, the private sector and the communities will also be involved in the process o f project implementation so as to discuss all relevant issues and enhance the project developmental impact. 51. MoCT will be in charge o f the overall implementation coordination, and the regional tourism bureaux will have an oversight on the interventions carried out in relevant destinationdsites. Due to the very limited capacity in the MoCT, it was determined that implementation responsibility could not be mainstreamed at this stage, and that the set up o f a Project Coordination Unit (PCU), staffed with dedicated full-time professionals recruited on competitive basis, i s necessary to ensure efficient implementation. There will be a Site Management Unit (SMU) at each o f the three target destinations, which, though reporting administratively to the PCU, will work closely with local authorities at regional and Woreda levels. PCU and SMU staff will be contracted for the period o f the project implementation, contingent upon satisfactory annual performance. Capacity o f the MoCT will be strengthened throughout project implementation, particularly through the PCU, with a view to creating conditions that would allow implementation mainstreaming inthe future. 52. The oversight o f the project will be exercised by the Culture and Tourism Minister's Office. The Ministrywill establish a Project Steering Committee (PSC), chaired by the Minister, and composed o f representatives o f federal and regional governments, private sector and civil society, including religious institutions. Some donor agencies involved in the sector could be invited to participate inthe PSC. 53. The PCU will be responsible for the day to day implementation o f the project and will report to the Minister's Office. It will also be responsible for the oversight o f the implementation o f environmental and resettlement activities as discussed in the Environmental and Social Management Framework (ESMF) and the Resettlement Policy Framework (RPF). In the three focus destinations, SMUs will be responsible for implementation, reporting to the PCU and getting guidance as well as inputs from regional authorities. Each SMUwill also ensure that the relevant Woreda level Tourism Office Head and other local stakeholders, including private sector representatives, are engaged throughout project implementation. Project activities outside the three main destinations, i.e. Lalibela, Axum, and Addis Ababa, will come under the PCU in close coordination with regional tourism bureaux and the Addis Ababa City Administration. A graphic representation o f the implementation arrangements structure i s provided inAnnex 6. 54. The PCU will be responsible for handling procurement and Financial Management (FM) functions for the project. A tendering committee composed o f staffs o f the MoCT and the PCU (procurement specialist may be included in the committee to provide expert advice to the committee as member o f the committee or ex-officio) and others as required, will be responsible for evaluation o f bids and selection o f consultants. End users o f the procured services or goods may also participate as members o f the tendering committee as required to ensure that the procurement i s done according to specified needs. Endorsement on procurement will be made by the tendering committee andthe MOCT headwill approve the award recommendations. 22 55. A Project Implementation Manual (PIM), including a project implementation plan, a matching grants manual, administrative, procurement, financial and accounting, monitoring and evaluation procedures, will be finalized by project effectiveness. The P I M will discuss issues pertaining to periodic reporting and independent operational audits that may be carried out from time to time. A mid-term review will be held no later than May 2012 with a view to assessing progress and, if necessary, to re-direct the project by integrating additional lessons learned and implementationrealities. C. Monitoringand evaluationof outcomes/results 56. An emphasis will be put on monitoring and evaluation (M&E) to ensure that the project achieves its development objectives. An overall M&E system, based on the results framework in Annex 3, will be discussed in the Project Implementation Plan (PIP). The PCU will have the responsibility for results framework monitoring; and, buildingon the baseline andthe findings o f the planned annual surveys, the results framework will be further strengthened throughout implementation. A synthesis o f the expected outcomes by component is provided below. 57. For Component 1, Destination Development, the outcomes are as follows: (i) o f number historic monuments rehabilitated inkey destinations (Lalibela, Axum, Addis Ababa); (ii) number o f kilometers o f secondary roads rehabilitated in Lalibela; (iii)number o f enhanced visitor services in operations in key destinations (Lalibela, Axum, and Addis Ababa), and (iv) number o f trails with signage in selected destinations. 58. For Component 2, Market Development, outcomes and outcome indicators focus on improving the quality o f promotion and marketing through applying strategies to attract specific segments and markets. In this regard, Ethiopia must be able to compete on a global scale as target visitor segments can choose from destinations around the world. The outcomes for this component support strategic positioning and promotion of Ethiopia's tourism product. The outcomes are: (i)international standard promotional materials developed; (ii)number o f independent Small and Medium Enterprises (SME) travel service providers using e-travel platform; and (iii)number o f businesses in the tourism value chain that have successfully implemented upgrading plans through the MGS. 59. For Component 3, Institutional Development and Capacity Building, a crucial building block for Ethiopia's tourism sector is the strengthening o f the Ministry of Culture and Tourism and other stakeholders inall efforts encouraging the private sector. This i s requisite for the sector to become both strong and sustainable. Component 3 outcomes also contribute to the strengthening o f the sector's management capacity and increased professionalism. Specific outcomes are: (i) number of norms and standards supporting tourist development and promotion developed; (ii)hospitality industry operational standards established and implemented; (iii) National Tourism Council and Tourism Board established and operationalized; and (iv) tourism training and education upgraded at technical, vocational and university levels. 60. The PCU will be responsible for conducting M&E activities. Building on the baseline established during project preparation, the PCU will initiate the design o f surveys required to track performance and results during the start-up phase. An outcome-oriented approach, as 23 presented inAnnex 3, has beendeveloped that would allow corrections during implementation to achieve the objectives and efficient incorporation o f lessons learned. 61. Project impact data collection will be the responsibility o f the PCU, working closely with the Statistics Department, which will collect data on various outcome and key performance indicators as reflected inAnnex 3. PCU will also be responsible for tracking the performance o f project environmental and social safeguards activities as per ESMF and RPF. Moreover, the PCU will be responsible for preparing all periodic fiduciary reporting requirements including impact and output indicators to IDA as well as the annual project audit. D. Sustainability 62. The importance o f the project has been recognized by the government and the proposed technical and financial assistance i s perceived by all stakeholders as timely and necessary. ESTDP supports the government's PASDEP and its policy commitments in the area o f expanding the benefits to be realized from the tourism industry at national, regional and community levels. The project i s also underpinned by Tourism Policy developed by the M O C T which is accountable to the Council o f Ministers for the implementation o f the project. A high degree o f commitment i s expected in the implementation o f project activities. The ESTDP project will also address the constraints stemming from low capacity at the different tiers o f implementing authorities through the Institutional Development and Capacity Building component. 63. The heightened engagement o f both the private sector and communities in this project's activities through the Demand-driven Linkages Program, the strengthening o f the Tourism Councils at the different tiers o f Government and the establishment and operationalization o f the Tourism Board will lay the ground for a sustained development trend for the sector. The expansion o f economic opportunities such as the creation o f new businesses and new jobs will contribute to sustainability as well. 64. Finally, sustainability will also be ensured through compliance with all environmental and social requirements identified in the ESMF and RPF and to be further documented in the environmental and social management plans as well as resettlement actionplans. E. Critical risksand possible controversial aspects 65. The major risks facing the successful implementation o fthe project are relatedto (i) weak institutional capacity; (ii) experience inmanagingprocurement and financial limited aspects o f World Bank-funded projects; (iii) safeguards issues; and (iv) weak private sector response compoundedby the global economic crisis. 66. Institutional capacity. Project implementation success will require sustained government commitment to addressing the challenges faced by the tourism sector as well as strengthened capacity at both the federal and regional levels. This will also require action- oriented approach to issues pertaining to infrastructure, term finance and payment systems, private sector incentives and community engagement. Heightenedpublic-private sector dialogue under the PASDEP framework and through the National Tourism Council is critical to mitigate this risk; andthe project will support this dialogue through advisory services and analytical work 24 that may lead to effective and timely implementation o f reforms and related operational actions. Moreover, day-to-day implementation will be managed by a PCU, staffed with competent, experienced, and competitively recruited professionals; and capacity development will be supported at federal (MoCT) and regional levels. 67. Limited experience in managing fiduciary aspects of World Bank-funded projects. The only one World Bank-financed project executed by the MoCT was the CHP, a US$ 5 million equivalent LILYand there was no capacity built within the Ministry so as to master procurement and financial management in accordance with IDA guidelines. To mitigate the risk in this area, the project will ensure that qualified professionals are recruited to professionally handle procurement and financial management issues. Moreover, training will be provided; and IDA will sustain implementationsupport throughout the project life. 68. Safeguards issues. Management capacity for an orderly resettlement process in Lalibela may be a challenge for the local administration with regard to fair compensation and transparency in particular. The discussion has taken place with various levels o f the administration and with the affected population. A RPF has been developed in the process o f project preparation; and a resettlement action plan will be prepared prior to the relocation o f people. It has also been agreed that a Resettlement Specialist will be placed by the PCU in the Lalibela Mayor's office to ensure that the process i s properly handled throughout. O n the environmental side, specialized expertise will be mobilized by the PCU on a needbasis to ensure compliance with the provisions o f the ESMF. 69. Weak supply response from the,private sector and global crisis impact. This risk concerns the private sector's response in the area o f investment, particularly for improved accommodation and better tourist services. It also concerns the effectiveness o f the linkages expected at SME and community levels with products and services that can meet the quality standards expected by the tourists. While this may not pose a major problem inAddis Ababa, it may be a constraint in the smaller towns such as Axum and Lalibela. The public-private sector dialogue and partnerships in the sector, involving private sector representatives and associations and leveraging instruments such as the matching grant scheme, will help mitigate this risk by improving both the investment climate and the sector competitiveness. It i s also expected that the global economic crisis translates into a slower growth o f tourists arrivals in Ethiopia; and this will be mitigated by a stepped-upeffort to make the Ethiopia destination more attractive and to promote it ina more systematic manner. 25 70. The followingtable summarizes other keyrisksandmitigation measures: Table 1: Critical risks and possible controversialaspects Potential Project ProposedMitigationMeasures RiskRating Risk Weak Government Leverage the overall policy dialogue Moderate commitment and under the PASDEP and the public- institutional private sector partnerships inthe context capacity o f the National Tourism Council; Strengthen the MOCT's implementation capacity by hiringqualified professionals for the PCU and support targeted destinations through adequate staffing o f SMUswhile ensuringstakeholders participation. CSOs' contribution and private sector partnerships will be encouraged to foster community involvement. Limited Recruitment o f qualified procurement High procurement specialist and procurement assistant to capacity handle procurement matters; training for PCU staff including SMUs. Financial Recruitment o f qualified financial Moderate management management staff (financial management issues related to officer and accountants) to execute the quality and project. timeliness o f reporting and audits Resettlement A Resettlement Policy Framework has Moderate issues not well been prepared and a Resettlement Action handledby the Plan will also be developed in the early Lalibela local stage o f project implementation. A authorities. Resettlement Specialist will be hired under the project to assist the Lalibela administration carry out the resettlement process in an orderly manner. The Government has budgeted for compensation o f the affected population and the latter will be consulted throughout the process. Environment An ESMF has been prepared and Moderate deterioration as a mitigation measures have been 26 result o f project identified. Fundinghas been provided for intervention in the project costing. An Environment specialist hired by the Government. Close supervision my Bank and UNESCO to ensure that environment will not be affected Weak private The private sector may be reluctant to Moderate sector response invest in competitiveness enhancement and adverse and tourists' arrivals may not increase at impact o f the the same pace as the historic trends global crisis because o f the global crisis. The matching grants as well as the combination o f destination development and increased marketing effort are exDected to mitinate these risks. Overall risk Strengthen institutional capacity and Moderate skills in Bank-funded project imdementation. F. Credit conditionsandcovenants 71. Conditions for project effectiveness will be: 0 establishment o f Project implementing entities with functions, composition and resources satisfactory to the Association: (i) Coordination Unit, comprised o f key Project staff recruited on a competitive basis including a Project coordinator, a financial management officer, a procurement officer and an assistant procurement officer, a monitoring and evaluation specialist, a civil engineer, a resettlement specialist, and an administrative assistant; (ii) Management Units, for each o f the three targeted Project Site sites (Lalibela, Axum and Addis Ababa), which shall include an implementation officer and an accountant; and (iii) Project Steering Committee; adoption o f a Project Implementation Manual, including a project implementation plan, matching grants manual, administrative, procurement, financial and accounting, monitoring and evaluation procedures, and a procurement manual, inform and substance satisfactory to the Association; and submissionto the Association o f a Letter o f Tourism Policy. 72. Covenants applicable to project implementation will be: 0 maintenance o f a satisfactory financial management system, submission o f quarterly interim financial reports to IDA forty five days after the end of each quarter period, and submission o f the audited project accounts to IDA six months after the end of each fiscal year ending on July 7, and 0 conduct o f a project mid-term reviewby May 31,2012 27 IV. APPRAISAL SUMMARY A. Economicand financialanalyses 73. A,cost-benefit analysis model was developed to calculate the net present value (NPV) and the economic rate o f return (ERR) ina "with" and "without" project framework on a 12-year time horizon. The Net Present Value o f the net benefits o f the components of the project at the discount rate o f 12 percent i s estimated at US$ 88 million with an ERR o f 43 percent. Substantial fiscal benefits o f US$32 million are expected to accrue. Detailed assumptions and analysis, as well as the results by activities categories, are provided inAnnex 9. Present Values of Flows Fiscal Impact Net Economic-Financial Taxes ($ mn) I Benefits (US$ 108.1 32.4 Costs (US$ mn) 19.8 I 88.3 I ERR(%) I 43% 74. A sensitivity analysis was also conducted to assess the robustness o f results. The positive NPV in all three scenarios entertained (Le. slow disbursementresulting in a seven year project implementation period, a 4% growth rate in tourism revenues, and a six year period to see the materializationof the economic benefits) indicates that the results of analysis are robust. 75. The economic benefits expected from the project include job creation, increased productivity and economic diversification. Improvements in service delivery are expected to result inan increased number o f foreign and local tourists as well as average duration o f stay that would generate higher level o f tourism receipts. Also, increased production and output o f the firms, particularly those benefitting from the matching grant scheme, will result in more job opportunities. B. Technical 76. A study was carried out during project preparation to determine the needs for water, sanitation and waste management in Lalibela. Adequate funding for necessary activities inthese areas has been provided inthe project design. Moreover, the project seeks to ensure appropriate standards are achieved in (i) the provision o f service to tourists visiting Ethiopia, (ii) hospitality industrybusiness delivery, and (iii) technical, vocational and educational capacity building.Each o f these will enhance the quality o f service rendered to the tourists while improving the standard o f living o f Ethiopians. 28 77. Moreover, given the need to sustain the infrastructure maintenance in relevant regions, the respective local governments will be encouraged to develop realistic operations and maintenance plansthat should be adequately funded inthe respective budgets. C. Fiduciary Financial management: 78. The FM assessment o f the MoCT was conducted in line with the Financial Management I'ractices Manual issued by the FM Sector Board on November 3, 2005. The objective o f the assessments was to determine whether the respective institution has adequate FM systems and related capacity inplace that satisfy the Bank's Operation PolicylBank Procedure (OPBP) 10.02 with respect to FM. Under the policy, borrowers and project implementation entities are supposed to have and maintain adequate FM systems throughout the project implementation period, to include budgeting, accounting, internal controls, funds flow, financial reporting, and auditing arrangements to ensure they can readily provide accurate and timely information regarding project resources and expenditures. These arrangements are deemed acceptable if: (i) they are capable of correctly and completely recording all financial transactions and balances relating to the project resources; (ii)they can facilitate the preparation o f regular, timely, and reliable financial statements; (iii) they safeguard the project's assets; and (iv) they are subject to auditing arrangements acceptable to IDA. The assessments also included the identification o f key perceived FMrisksthat may affect program implementation and proceeded to develop mitigation measures against such risks. 79. The MoCT will prepare annual budgets based on its strategic plans following the government budgetprocesses. All regional bureaux will submit their annual plans to MoCT. The latter, after incorporating its own annual plans, will send the same to Ministry o f Finance and Economic Development (MoFED). The project budget will be included in the annual budget proclamation o fthe federal government, under the name o fthe MoCT. 80. The project will prepare regular reports comparing actual and budget expenditures. These will be submitted to management and donors for information and decision making. The financial management manual will explain the detailed budgeting and budget control processes in the project. In light o f the arrangements considered for project financial management, including the recruitment o f qualified financial management officer and accountants, the associated risk i s considered moderate. 81. Disbursement o f IDA funds to the Designated Account will initially follow Transaction- Based Disbursement through the use o f the Statement o f Expenditures (SOE) format. The transaction-based disbursement method will be used during at least the first two years o f implementation. In order for the project to move from transaction-based disbursement to report- based disbursement where six month forecasts of expenditure are paid quarterly hence ensuring the project has adequate funding at all times, the project will have to meet the following requirements during implementation: (a) sustain satisfactory financial management rating during the project's supervision; (b) submit Interim Financial Reports consistent with the agreed form and content within 45 days o f the end o f each reporting period; and (c) submit all expected Audit Reports by the due date. It has also been determined that retroactive financing i s likely to be 29 needed for eligible transactions not covered by the PPF occurring between the Credit Board approval and DFA signing. Reimbursement of eligible expenditures would also be made for transactions taking place between signing and effectiveness. 82. The main weaknesses for the FM arrangements are expected to be a shortage o f qualified accountants at the federal and regional levels. Preparation and submission o f quarterly Interim Financial Reports (IFRs) could be a challenge due to the multiplicity o f project sites and involvement o f regional tourism bureaux. Procurement: Procurement management for this project will be based on the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004 and revised October 01, 2006, as well as on "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004 and revised October 01, 2006. Considering the weak procurement capacity assessed under this project, the risk i s considered high; but it can be reduced to moderate level by hiring qualified project staff and providing adequate training. Below are the arrangements for the review o fvarious procurement activities under the project. Works and Goods: 83. Prior review: all contracts o f goods estimated to cost equivalent and above US$500,000 and works to cost equivalent and above US$5,000,000 and the first two (2) contracts o f each procurement method, irrespective o f their amount, will be subject to IDA prior review as determined mandatory inparagraphs 2 and 3 o f Annex 1o f the Bank's Procurement Guidelines. 84. Post review: for each contract not submitted to the prior review process, the procurement documents will be submitted to IDA post review in accordance with the provisions o f paragraph 4 o f Annex 1 o f the World Bank's Procurement Guidelines. The post review will be based on a ratio o f at least 1to 5 contracts. Consultants: 85. Prior review: (a) each contract estimated to cost equivalent and more than US$200,000 per contract for Firms and US$ 100,000 per contract for individuals consultants; (b) all single source selection; (c) the first two (2) contracts o f each selection method irrespective o f the amount; (d) all trainings; (e) all terms o f reference of contracts whose cost estimate is greater thanUS$50,000, and (f) all amendments o f contracts raising the initial contract value by more than 15 percent o f original amount or above the prior review thresholds will be subject to IDA prior review according to paragraphs 2 and 3 o f Annex 1 o f the World Bank's Consultants Selection Guidelines. 86. Short lists composed entirely of national consultants: Short lists o f consultants for services estimated to cost less than US$ 200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the World Bank Consultant Guidelines. 87. Post review: For each contract for services not submitted to the prior review, the procurement documents will be submitted to IDA post review in accordance with the provisions 30 o f paragraph 4 o f Annex 1 of the Bank's Consultant Selection Guidelines. The post review will be based on a ratio o f at least 1 to 5 contracts. D. Social 88. It is essential that this project is sensitive to social issues from the perspectives o f the three main affected groups: the communities living in tourist sites, the visitors to these sites and the tourism suppliers inthe public and private sectors. Detailed social assessments o f the three sites o f Axum, Gondar and Harar have been undertakenin2006 during the implementation o f the recently completed Ethiopia Cultural Heritage Project. These qualitative and quantitative studies provide a good insight into the issues o f these areas' three affected groups. These social assessments, as well as the evaluation reports o f the Ethiopia Cultural Project, will form the basis for understanding the social issues in the target project sites. This earlier project also had immense learning in the area o f craft marketing both locally and internationally which will also greatly benefit the current project. 89. The site o f Lalibela which is the focus o f much o f the rehabilitation and civil works activities in this project was not included in the earlier social assessment o f Ethiopia Cultural Heritage Project. Most o f the social challenges in Lalibela are linked to the presence o f communities inhabiting the ancient church sites. A brief socio-economic study has been undertaken as part o f the Resettlement Policy Framework which provides an insight into the profile o f the community inLalibela, and highlightsthe main issues. It has been decided that the households living inthe core zone o f the Lalibela church site, except for priests and nuns, will be relocated. The traditional abandoned buildings will be restored and used to demonstrate church related crafts. The other structures will be transported to the new site or discarded. The team supports the view that the Terms o f Reference (TOR) for the Resettlement Action Plan (RAP) should be expandedto cover a wider coverage o f social issues than i s normally expected for a RAP, rather than commissioning a separate social analysis study for Lalibela. 90. In Axum the social issues are largely around the planned activity o f (i) enhancing the town square as a social arena (e.g. cafes and souvenir outlets managed by locals) and (ii) restoring some traditional houses possibly to transform them into small lodges run by community-based entrepreneurs who could also benefit from the matching grant scheme. It i s desirable that a particular attention be given to vulnerable groups such as women and the youth so as to generate employment and incomes for them. 91. Based on the current knowledge, the project has identified the following social issues on which to focus: 0 Identification of vulnerable groups (e.g. widows, women and youth inhabiting the churches in Lalibela) and targeted activities to improve their livelihoods. It i s suggested that these groups be given priority injobs in the upgraded site (e.g. ticket sales, parking attendants, guides, etc.), based on broader community consultations; 0 Consultation and involvement o f affected groups as informants and partners inproject implementation (e.g. informing households to be resettled o f the package, training o f local guides, development o f community tourism especially inAxum and Lalibela); 31 0 Focus on local traditions and practices and foster tourism that allows for local area development in conjunction with cultural heritage preservation. This also includes focusing on reviving local craft, improving facilities for locals to sell their wares proximate to sites, and improving the awareness o f locals about their own culture (e.g. through pamphlet on the site in local language, raising awareness in schools and setting up a systemwhere local schools are given a free tours once a month by a project-trained guide, helping locals set up cafes and possibly lodges). 92. Finally, since much o f the core development objectives o f this project are focused on improving livelihoods and community living spaces, all technical studies will ensure that social issues are addressed adequately and people are consulted and informed. The above studies and project implementation will strongly stress stakeholder involvement and participation. This i s seen as an essential principle o f sustainable tourism and will be respected throughout project implementation. Especially in Lalibela, where tourism is the most promising base for economic growth, it i s hoped that the community will develop a genuine sense o f collective ownership o f this sector. Such a consensus will be crucial ingaining support for the overall urbanplanning and other adjustments (such as resettlement o f some households and related adequate compensation) needed to maximize Lalibela's potential as a tourism-based economic center. Once a successful model o f this nature i s created, it i s likely that other communities will emulate it. E. Environment 93. Under component 1, the ESTDP will finance (i) improvements o f basic infrastructures (Le. access and by-pass roads, water supply and sanitation) in Lalibela; (ii)renovation and improvements o f Addis Ababa museum; and (iii) rehabilitation and upgrading o f tourist/visitor facilities in Lalibela, Axum, Addis Ababa and environs. The construction and rehabilitation activities related to the afore-mentioned investments are likely to incur some localized adverse environmental and social impacts such as soil and water pollution, loss o f vegetation, soil erosion, air and noise pollution, and loss o f livelihoods. Since the actual investment sites could not be determine prior to project appraisal and in order to ensure that the planned activities are carried out in an environmentally and socially sustainable manner, the borrower has prepared a revised final Environmental and Social Management Framework (ESMF) dated March 11,2009. 94. The ESMF was prepared in consultation with relevant government officials as well as urban and rural residents o f potential investment areas to solicit their views, and representative project sites were visited. The results o f these consultations indicated that while there may be some difficulties associated with the relocation o f potentially affected persons, there will also emerge new job and training opportunities, and the infrastructure investments such as improved roads will not only benefit the tourists, but also the local residents who will have easier access to markets, health and education facilities. 95. The ESMF describes the environmental and social screening process for sub-projects and includes (i) an Environmental and Social Screening Form which includes requirements for public consultations, disclosure o f the screening results and Environmental Assessments (EAs), and the identification o f potential adverse social impacts due to land acquisition during the screening process; (ii)an Environmental and Social Checklist; (iii) a summary o f the World World Bank's safeguard policies; (iv) draft EA terms o f reference; (v) Environmental Guidelines 32 for Contractors to be attached to the tender documents; and (vi) an Environmental and Social Management Plan (ESMP) for the proposed ESTDP. The ESMP (i) outlines the institutional responsibilities and cost estimates for implementation and monitoring of environmental and social mitigation measures pertaining to the investments under component 1; and (ii) includes funding for environmental and social managementcapacity building under ESTDP. As discussed below, ESTDP will hire an Environmental Specialist, located in Addis Ababa, who will be responsible for overseeing the implementation of the ESMF and to assist Site Officers as necessary. F. Safeguardpolicies 96. The following table reflects the safeguardspolicies that are expectedto be triggered by the project: Table 3: SafeguardsPolicies Safeguard PoliciesTriggered by the Project Yes No Environmental Assessment (OP/BP 4.01) E X I [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I [X I Physical CulturalResources (OP/BP 4.11) [XI [I Involuntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples (OPBP 4.10) [I [XI Forests(OP/BP 4.36) [I [XI Safety of Dams (OP/BP 4.37) [I [x 1 Projects inDisputedAreas (OP/BP 7.60)* [I [XI Projects on International Waterways (OP/BP 7.50) [I [ XI 97. The project has been assigned the environmental screening category B. It has triggered OP 4.01 Environmental Assessment; OP 4.11 Physical Cultural Resources; and OP 4.12 Involuntary Resettlementdue to the construction and rehabilitation activities under component 1. 'To ensure that the planned activities are carried out in an environmentally and socially sustainable manner, the borrower has prepared (i)a revised final ESMF dated March 11, 2009 and (ii) revised final RPF dated March 11,2009 as well. Both reports have been disclosed in a Ethiopia on March 11,2009, and at the Bank's Infoshop on May 19,2009. 98. To ensure efficient implementation of the ESMF, the Project Coordination Unit (PCU) will hire an Environmental Consultant on a need basis. This Environmental Consultant will (i) coordinate activities related to the implementation of the ESMF with the Site Officers, the regional EPAs as well as the relevant municipalities in the Amhara and Tigray Regions; (ii) arrange for the implementation of the relevant provisions of the ESMF in Addis Ababa; (iii) make appropriate arrangements for environmental monitoring as recommended in the ESSF and/or separate EA reports as part of the ESTDP M&E system; and (iv) oversee the overall implementation of the ESMF. ~~ * By supporting theproposedproject, the Bank does not intend toprejudice thefinal determination of theparties' claims on the disputed areas 33 99. In addition, ESTDP will fund an environmental training program to ensure that qualified personnel are available to implementthe ESMF. According to the consultants, training i s needed particularly for regional and local staff working in tourism development and environmental management.Provisions have also beenmade for (i) preparation of EA reports the that might be required on the basis of the screening results; and (ii)environmental protection works at the core sites and the buffer zone inLalibela. G. Policy Exceptions and Readiness 100. There are no policy exceptions identifiedunder the project. 101. Throughout project preparation, the Ministry of Culture and Tourism has demonstrateda high ownership of this project, and progress made to date is the basis for project readiness for implementation. Senior staff in the MoCT have been highly involved in the preparation of the project and stakeholders participated in the process through extensive consultations. The sector policy has been preparedand is awaiting Cabinet review, PCU and SMUstaff i s being recruited, andthe PIM is underpreparation. 34 Annex 1:Countryand Sector or ProgramBackground ETHIOPIA SUSTAINABLETOURISM DEVELOPMENT PROJECT 1. Several years of research by varied organizations, including the UN World Tourism Organization and the World Travel and Tourism Council, have ledto the realization that tourism i s one o f the largest world export industries. In addition to generating foreign exchange, tourism contributes to economic growth through employment creation and income generation. 2. According to existing data, tourism i s Ethiopia's third export industry, after coffee and oil seeds, as reflected by the following chart: Figure2: Tourism exportperformance I Tourism relative to Ethiopia`s top 15 Exports $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $- I Source: World Bank (2006), Towards a tourism strategy. 3. Tourism has potential to become the leading vehicle for Ethiopia's development. If strategically planned and managed, the sector can lead by earning foreign exchange and generating both employment and incomes especially for rural residents. 4. Ethiopia enjoys a large number o f historical and cultural heritage sites, coupled with natural attractions: it has eight UNESCO World Heritage Sites (as many as South Africa and Morocco), four important national parks, a source o f the world's longest river, and sites revered among adherents to Christianity, Islam and Judaism and diverse African traditional societies. Ethiopia has very distinct cultural and historic tourism products based on (a) ancient Axumite civilizations and the Ethiopian Orthodox Church; (b) the walled Old City o f Harar with its seven gates considered as the fourth holiest city in Islam; and (c) being the cradle o f civilization, with fossilized evidence of the ancestors o f homo sapiens as old as 4.4 million years B.C., as well as the much more famous Dinknesh, or Lucy. The table below shows Ethiopia's World Heritage sites and key natural parks. Two additional sites, namely Konso and Bale National Park in the south of the country, are in the process o f getting added to the list o f UNESCO World Heritage list. 35 Box 1: Ethiopia's World Heritage Sites and Natural Parks The Eight UNESCOWorld Heritage Sites: Axum's Obelisks 0 Hadar (a place where the skeleton 0 Monolithic Churches o f Lalibela o f Lucy was discovered) 0 The Castles o f Gondar 0 Tia's carved standing stones The Omo Valley 0 The SemienNational Park 0 The walled city o f Harar The FourMajor NaturalParks: . Omo Mago National Park .. Awash National Park Bale Mountains National Park Nechisar National Park 5. Unfortunately, Ethiopia's tourism sector did not receive the due attention it deserved for a number of decades, particularly under the Derg regime. Since it was not viewed as a strategic sector, the cultural and natural attractions were neglected. Lack o f coordination between the government and stakeholders resulted inpoor infrastructure and under developed tourist sites as well as a shortage o f skilled workers inthe sector. As a result, despite the historical (cultural ,and heritage product) and natural advantages, Ethiopia hardly sees its tourism attractions transformed into income, compared to the 175 countries ina 2008 World Travel and Tourism Council report. Inthat study, Ethiopia's travel and tourism industry ranks 110thinabsolute size, 105 inrelative contribution to national economies and 143rd in long-term (10-year) growth. Ethiopia holds less than 0.05% o f the cultural and heritage tourism market share, a market segment which i s estimated to grow at 4% per annum accordingto the UNWTO. Figure 3: Comparisonof Visitors to other World Heritage Sites (in thousands) 2004 860 Petra Jordan Slave Forts Ghana Lalibela Ethiopia Angkor Wat Machu Pichu Peru Cambodia Source: Acorn (2006), Market research study for Ethiopia 6. The biggest challenge currently faced by the GoE is to preserve the historic sites from natural decay and the national parks from degradation by the communities that live inside them. The entrance fees in church sites such as Lalibela go towards supporting the church's priests and deacons, and not the actual churches themselves. But even ifthe entrance fees were put to church 36 restoration, they are currently too small to make much of a difference. An estimate of fees at Lalibela is about Birr 1 million per annum (10,000 visitors paying Birr 100 each would provide the 700 priests and deacons with an income of only Birr 120per month). The national parks face a similar situation. The total of entrance fees in 2000 was a mere Birr 500,000. There i s some federal money for restoration and conservation, but given the limited tax base and other priorities, this is limited. There are funds for specific projects related to cultural and natural site preservation, but they too are limited. 7. Revenues generatedfrom tourism remain below the potential. The current limitedquality of service to tourists (e.g. lack of basic facilities, food and beverage outlets and shops, poor interpretation), compared to those offered at competing destinations such as Egypt, Petra and Angkor, keeps Ethiopia's tourism prices relatively low. The quality of facilities at tourist sites impacts boththe amount tourists spend and their relative enjoyment of each site. EvenEthiopia's urbantourist attractions often fail to access the maximum spending by tourists at sites (e.g. the national museum has no shop). The 2003 DTIS found that tourists rated facilities as below average and would spend, on average, US$15 more per day if facilities were better. This translates into lost revenue of US$6 million from vacation visitors and US$2.4million from business visitors. 8. Over the past decade, there has been a gradual revival of the tourism industry, and the following graph shows the trendbetween 1998 and 2007: Figure 4: International arrivals inEthiopia, 1998-2007 350000 __l_l__~______- ________I_ 300000 - 250000 200000 / 100000 50000 0 I I I I 1 1 I I I Source: ODI (2009), Ethiopia tourism pro-poor linkages. 9. It should be noted that the 2007 arrivals, inthe amount of 303,000 visitors, are double the 2001 number, which suggests that the sector has been growing rather fast. While most of the tourists who visit Ethiopia stay in Addis Ababa because they account for business (conference) tourism than cultural, it should be noted that about 25% of vacation tourists do visit the site of 37 Lalibela. Most o f the tourists visit Ethiopia for conferences. Combined business and conference tourists represent about 64% o f the market in 2007, tourists visiting relatives and transiting represented 25% and leisure tourists represented about 10% during the same period. Growth has been strong in all o f these segments in recent years, growing at an average annual rate o f more than 13% but vacation tourism has grown fastest, at 25% per year. Within this segment, the dominant product is the cultural and historic heritage tourism. It should be noted also that the increased attractiveness o f Ethiopian tourism products and services would be a major driver for business and conference tourists to stay longer and visit historic and cultural sites. 10. Inlight of the,current global economic crisis affecting source markets, it is expected that the rate o f tourist arrivals will slow down at least for 3-5 years, in keeping with global forecasts reported by the WTTC. There should be a recovery during 2011. By that time, Ethiopia should also have invested more in the development o f its products and its promotion and be well- positionedto take advantage o f increasingtourism flows. 11. Tourism sector development i s constrained by a series o f supply-side challenges, which also translate into reduced private investment. The main constraints are the availability and quality o f infrastructure, land, term finance and adequate payment systems, as well as weak institutions and capacity. 12. Severe infrastructure constraints involve below standard roads, water and sanitation, telecommunications, and air transport. The bad quality of roads as well as the lack o f their interconnection intourism destinations limit the possibility o f visiting cultural and natural assets in various destinations and increases the cost of travel. Insufficient water supply and poor sanitation in key destinations places a strain on communities' living conditions and discourages private investments in hotels. The poor quality o f telecommunication services in Ethiopia limits sector professionals and tourists' ability to leverage technology in accessing information, marketing the destination, and maintaining the necessary communication during the trip. These infrastructure limitations directly impact the tourist experience and diminish Ethiopia's competitiveness in comparison to other destinations. Moreover, the absence o f modern payment systems due inpart to poor quality o f ICT depresses tourist spending levels. 13. With respect to air transport, Ethiopia has air transport to the major destinations, particularly along the Northern Historic Route. However, the reliability, frequency and quality o f service need improvement. Domestic flights are only operated by Ethiopian Airlines although independent charter flights are permitted. Government control o f all air tariffs contributes to domestic flight revenues for Ethiopian Airlines not covering costs. Consequently, Ethiopia Airlines subsidizes domestic flights with profitable revenues from their international routes. Improvement o f Ethiopian Airlines' quality and frequency o f service, and development o f competition in the domestic air transport market segment are desirable to ensure more efficient service provision necessary for tourism development. Moreover, the upgrading o f existing airports to international standards will enhance the attractiveness o f destinations. 14. Availability of and access to land have been a constraint in terms of both time and cost. The provision o f land i s the primary responsibility o f regional administrations, and the lack o f clear city zoning policies often results in lodging developers not accessing prime locations for 38 their businesses. Moreover, while auctioning plots creates transparency, the limited number o f available sites usually results ininflated prices. 15. There are also issues pertaining to availability of and access to term finance stemming from banks preferring to finance short term transactions to minimize risk. Moreover, the financial sector i s geared toward the financing o f urban property markets and mainstream structures, neglecting many tourist enterprises which are often in rural locations or use non- traditional building materials (e.g. eco-tourism lodges). This is a result o f both a low degree o f competition and innovation in the banking sector and a lack o f familiarity with tourism operations. As term financing i s limited in availability and accessibility, this translates into very low debt to equity ratios and a severe limitation to investment and the development o f innovative products. Moreover, payment systems remain quite underdeveloped; but the Government i s planning to make improvement on this front inthe coming years. 16. Weak institutions and capacity, both in the public and the private sectors, are a limiting factor to sector development. Skills remain quite limited; and this leads to a mismatch between the wealth o f cultural assets that appeal to savvy tourists and the sub-standard quality o f services that they receive along the value chain. For example, the limited professionalism o f ground handlers (tour operators) is a hindrance to the quality o f visitors' experience. The currently dismal coordination between the government and stakeholders, characterized by the absence o f an operational national tourism council and tourism board as well as weak partnerships, has resulted in non-competitive tourism services, under developed tourist sites and a shortage o f skilledworkers inthe sector. 17. Inadditionto the above limitations to private sector-led tourism development inEthiopia, community involvement needs to be strengthened to ensure pro-poor benefits and sustainable growth inthe sector. The current limited share o f tourism earnings reaching the local community is affecting the sustainability o f the sector and having a negative impact on the contribution o f tourism to poverty alleviation. Expanded community involvement will entail not only participation in the design and implementation of sector activities, but also the creation o f new economic opportunities in the form o f employment in tourism businesses; supply o f goods and services to tourism enterprises; or direct sales o f tourism services;, and establishment o f community-based businesses in areas such as retail including crafts and souvenirs, guiding, entertainment, transport, cateringand even accommodation. 18. Moreover, Ethiopia needs to overcome an issue o f negative image, which i s cited by all tour operators in source markets. Cases o f recurrent droughts and human crises broadcast across international media have reinforced this negative perception which needs to be reversed through effective marketing and promotion. At the moment, the marketing of Ethiopia as a destination is of a poor standard and ineffective. In a competitive marketplace, the extent and standard o f Ethiopia's tourism promotion deters potential travelers. Previous studies have found that, since tour operators are not effectively marketing Ethiopia, over 50 percent o f visitors find information about the country through their own efforts including friends or the internet, and make their own booking travel bookings. A dismal share o f European tour operators offer an itinerary to Ethiopia. The lack o f up-to-date information available through multiple channels limits the numberofpotential tourists evenconsideringEthiopia as a travel destination. 39 19. Ethiopia can establish its niche as a cultural heritage experience well worth travelers' time and budget. The country's distinctive product is based on cultural and heritage assets of the Orthodox Christian Church andthe ancient Axumite civilization. It is an "off the beatentrack" destinationproviding a "new discovery" experience for tourists. Moreover, the tourist has an opportunity to enjoy nature and intangible heritage.Nevertheless, there i s a lack o f marketing and promotional strategy exacerbated by a low awareness o f tourism by various stakeholders, particularly local communities. Ethiopia has a limited budget for promotion and, given its limited budget and many other demands for resources, this will continue. International standard promotion initiatives therefore need to be having maximum impact, target priority markets and use creative methods to promote Ethiopia's unique tourism assets. Theway forward. 20. Realizing the tourism sector's potential, the GOE has articulated a long-term vision with the goal o f Ethiopia becoming one o f the top ten tourist destinations in Africa by the year 2020 and a model for maximizing poverty-reducing impacts o f tourism. To that effect, a draft tourism policy has been developed and it is expected to be endorsed by the Cabinet in first half o f 2009. Its main priorities, along which the project i s aligned, are captured inthe box below: Tourism Development Vision: "Serving Ethiopia's tourism development, moving along a community focused direction to fully develop in a responsible, sustainable and advantageous way and contribution in the country's building of new socio-economic order and in its developmentprocesses" Strategicpillars of Ethiopia's tourismpolicy: 1.Guiding the development direction o f the tourism industry on broad bases including community participation, transparency and responsibility across the industry 2. Increasingthe number and quality o f current and newtourist attractions andproducts 3. Developing infrastructure network and hospitality services essential for the tourism industry 4. Strengthening market links and promotion so as to make the country's tourist products competitive inthe international tourism market 5, Strengthening partnerships betweendifferent actors inthe tourism sector 6. Buildingcapacity throughout the industry. The policy also defines the roles and responsibilities o f the actors participating in the execution o f the policy: Government bodies, development partners, communities, civil society and the general public. The sector financing i s expected to be addressed through a combination o f regular financing sources (government recurrent and capital budget, and donor assistance) and a tourism development fund to be established and fed by private contributions and levies. Source: EthiopiaNational TourismPolicy (2009 draft) 21. The context for developing tourism i s somewhat unique in Africa since Ethiopia has been, until recently, closed to foreign investors. This has resulted in an unusual and potentially 40 powerful paradigm where businesses in the tourism sector are almost entirely Ethiopian-owned (either by the government, the Ethiopian Orthodox Church or the private sector). On the other hand, this closed and relatively controlled system has stifled the development o f a creative and innovative industry (interms of product development, crafts, exploration o f new attractions, etc). However, a gradually open economic system has started to emerge; and international investors are increasingly active in selective segments o f the tourism industry, particularly in hospitality andtour operations. 22. Inthe search for mitigating current overall constraints to investment, the Government has formulated the following investment policy provisions inthe 2002 proclamation, which apply to and benefit the tourism sector as well: Box 3: Key InvestmentIncentives The following are the key features o f investment incentives provided for inthe 2002 investment proclamation and other regulations applying to the tourism sector: Capital goods and buildingmaterials may be imported duty-free by star designated hotels and international standard restaurants. Buses for tourist use may be imported duty free. Four-wheel-drive passenger vehicles o f the Land Cruiser type may be imported duty-free subject to the conditions that three brandnew vehicles must be purchased within a period o f one year ina maximum o f two consignments. Foreign investors require a permit and minimum capital o f USD 100,000 for a single project (USD 60,000 for joint projects with domestic investors, USD 50,000 for sole investors inthe areas o f engineering, architectural, accounting and audit services, project studies, business and management consultancy services or publishing, and USD 25,000 for joint investments inthese fields). External loans must be registered with the National Bank o f Ethiopia; foreign investors may open foreign currency accounts in authorized local banks for transactions related to their investment. Any investor may employ duly qualified expatriate experts required for the operation of the business. Any investor is responsible for replacing expatriate personnel, except those in top management positions in an enterprise in which they are the sole or major shareholder, with Ethiopians within a limited period. Any foreign investor had the right to make remittances out o f Ethiopia inconvertible foreign currency for profits and dividends accruing to the investment. Sources: Ethiopia, Investment Proclamation (Proclamation No 280/2002) ; World Bank, In Makedas footstem. 2006. 23. Nevertheless, private sector operators in the tourism sector feel that the Government should do more and treat the sector as a priority, similar to its current priority policies for horticulture, agro-processing, textiles and leather. The Government i s considering adopting such an approach. Establishment o f the proposed institutions, namely the National Tourism Council 41 and the Tourism Board, are expected to help formulate and implement strategic options on a public-private partnershipplatform enabling tourism to be a priority sector. 24. The development o f tourism is expected to result in three types o f economic impacts: balance o f payment effects, income effects and the employment effects. The promotion o f international tourism as a development strategy i s expected to stimulate economic growth in its capacity to earn much needed foreign exchange and thus help with the balance o f payments. The discussion o f the various types of economic multipliers (direct, indirect and induced effects) are provided inSection A o f the main text. 42 Annex 2: Major RelatedProjectsFinancedby the Bankand/or other Agencies ETHIOPIA SUSTAINABLETOURISM DEVELOPMENT PROJECT 1. The identify leading agencies that currently support or intend to support the tourism sector development are the following: USAID, Germany, Spain, Norway and UNWTO. 2. USA: USAIDis preparing a five-year $7 million dollar (to be matched by local funding and other sources, including community participation) community-focused tourism program, to be implemented by the Global Sustainable Tourism Alliance (GSTA) over the period of 2009- 2014. The program's geographic scope is focused on communities along the emerging southern and eastern tourism routes. The program will focus on community benefits and job creation through tourism that relates to and benefits biodiversity conservation. The focus will be at the destination and community level. The intervention expects to utilize destinatiodcommunity level activities to enhance product offerings and diversify the economic benefit from tourism at the local level. This i s likely to include travel philanthropy program with tour operators, carbon offset program, training, and investment promotion, business development, route development in the region, etc. Business level assistance and market linkages are planned for artisans andhandicraft development. 4. Germany: GTZ has focused on supporting the development of the Ethiopian brand for key products overall, including tourism to support marketing of products. GTZ also support HawassaUniversity insetting up a model hotel for students' practical training. 5. Spain: A recent financing in the amount of US$5.00 million to be executedjointly by UNESCO and UNDP over a period of three years was extended to Ethiopia for "Harnessing Cultural Diversity for Development and Social Progress )).The project, scheduled to become operational soon, will partly focus on the Amhara region, including Lalibela. The main areas addressed in the project are cultural diversity and cultural industries (crafts and intangible heritage). 6. Norway: The government of Norway is financing the UNESCO-executed ((The Lalibela Conservation Action Plan D. The project is in the amount of US$ 0.8 million with a matching fund of US$l.O million from the World Monuments Fund;and it is scheduled to end in November 2011. It includes architectural and structural studies, structural monitoring and conservation works at the Gabriel Rufael Church inLalibela, training intraditional conservation techniques for local workers and on-the-job training during the works, the drafting o f a Site Management Plan for Lalibela in a participatory manner, the awareness raising on the intangible heritage values, development of a training module for tourism guides and training of 20 guides inLalibela. 7. UNWTO: the UNWTO, through the use of the SNV (The Netherlands Development Organization) technical assistance, i s working with the Ministry of Culture and Tourism on a couple of community-based tourism projects, applying the "Sustainable Tourism for Eliminating 43 Poverty (STEP)" approach. Rather than considering tourism as a single activity, these interventions seek to support linkages along the sector's value chain. 8. The two community-based tourism interventions are located in Konso and Chencha- Dorze (Southern Region). Konsu was chosen strategically for its location at the gateway to the Omo valley at the heart of the southern circuit tourist route. Out of the 12 villages studiedby the WTO, three villages are considered as pilot projects and funded by the STEP Foundation. Projects implementedto date include the passing of a revenue act to collect fees fiom visitors, training for government desk officers and local guides, and the initiation of microfinance enterprises. In the Chencha-Dorze cummunz@, UNWTO, in collaboration with SNV, plans to provide capacity building support for marketing and destination management with products including handicrafts, locally guided tours, horse riding and performance and dance. The project's target is for 200 households to earn incomes directly from tourism. Additionally, some participants are trained to enable their employment inlocal tourist lodges. 44 Annex 3: Results Framework ETHIOPIA SUSTAINABLE TOURlSM DEVELOPMENT PROJECT ProjectOutcomeIndicators Use of ProjectOutcome Information 1. Average percentageimrease Evaluatethe extent to which inthe numberof international the project success is supporting tourist arrivals intargeted tourism sector growth. To enhance the quality and variety of tourismproducts and services in destinations targeted destinationsso as to 2. Average expenditure bytourists Assess relative effectiveness O f increase the volumeof tourism, intargeted destinations various components. foreign exchange earnings, andjobs. Inform future Ckwe*ment jobs created intargeted policy formulation and tourism destinations development plan. IntermediateOutcomes IntermediateOutcome Use of IntermediateOutcomes ... - Indicators for Monitoring I 1 Component 1: -.-.... . -. - .- Destination Develc tment jof heritage sites andenhancementof basic infrastructure - 4. Number of historic monuments Monitor annual progress made rehabilitated(including churches on key destination activity and conservation) in key destinations 1.1. Historic sites in key quality indicators. (Lalibela, Axum, Addis) destinations rehabilitated and enhanced. 5. Number of km o f secondary Provide feedback on roads rehabilitatedin Lalibela implementation progress of specific development plans. 1 - :s enhancement in seteeted destinations 6. Number of enhancedvisitor Evaluate progress annually to 1.2.1. Enhanced visitor centers in centers inoperation inkey 0 assess capacity within the operation destinations (Lalibela, Axum, and regulatory authority. I Addis Ababa) 7. Number of trails with signage in 1.2.2. Increased cultural offerings Measure the project selected destinations intargeted destinations contribution to local economic 1 growth. Sub-component 1.3. Tourismpro 1.3. Tourism products improved 8. Number of emerging Assess use oftourism at emerging destinations. destinations with tourism development plans by regional development plans administrations. 45 Component 2: Market Developm at Sub-component 2.1. Positioning2 ,dMarketing 2.1.1. Branding and marketing 9. Internationalstandard strategiesto attract specific target promotional materials developed Demonstrate the project segments and markets developed contributionto local economic and implemented. development/growth. 2.1.2. Efficient and informative e- 10.Number of independent $ME Evaluate the effectiveness of travel platform and online travel service providers usinge- integrated service provision booking developed and travel platform models and contribution of other operational. relevant services and facilities to provide information on future development alternatives. Sub-component 2.2. Demand-Dri en LinkagesProgram __ 2.2.1. Matching grant schemeto 11.Number of businessesinthe support private sector innovation tourism value chainthat have operational successfully implemented product upgradingplans through the MGS Demonstrate the scope, variety, quality and effectiveness of 12. Number of artisans selling tourism promotion activities and 2.2.2. Community-based products crafts products to tourists at services. and services diversified and selecteddestinations improved -.---- Component3: lnstitutionaf Oeve pment and CapacityBuilding L Sub-component 3.1. lnstitutional bevelopmeut -. 13.Number of norms and standards supporting tourist development and promotion Demonstrate improved 3.1. Capacity of the Ministry o f adopted capacity of the government Culture and Tourism expanded agency for planning and and strengthened 14. Hospitality industry management. operational standards established and implemented Sub-contponcnt 3.2. Capacity Bu jing Demonstrate improved 3.2. Management capacity and capacity of the government and professionalism of the tourism 15. National Tourism Council and private sector to carry out sector strengthened Tourism Board established program developments and improvements. 16. Tourism training and education upgraded at technical, vocational Indicate the degree to which and university levels the project has contributedto the tourism sector development. 46 sm 0 Annex 4: DetailedProjectDescription ETHIOPIA SUSTAINABLE TOURISM DEVELOPMENT PROJECT 1. The project will have four components: (i)destination development, focused on tourism product, including the quality o f both tangible and intangible cultural experience, infrastructure improvement, and diversification o f offerings; (ii)market development, (iii) institutional and capacity building, and (iv) implementation support and results monitoring. 2. The project focuses on three major destinations, Lalibela, Aksum and Addis Ababa while addressing some areas of development for the other destinations. Its main objective i s to demonstrate what a well developed destination can bring to the tourism sector not only through the increased income andjobs it can create, but also the learning effect for the other destinations. It is hoped that both the public and private sectors will gain useful lessons and replicate the development experience inthe other destinations. Box 4: Lalibelawill be the GrowthModelfor Ethiopia's Tourism Sector: Lalibela town, with a population o f about 20,000, is significantly dependent on tourism for its development. The World Heritage designated rock churches have distinguished the town as Ethiopia's Flagship for tourism development. Lalibela's signature had beenthe top-view o f the Bete-Giorgis, one o f its 11 rock churches. But Lalibela has more wonders and mysteries that it has been carrying through more than 700 years. The carving out o f complex church systems from single rocks may have meant less for Lalibela's distinction without the sophisticated architecture usedwhich still shows absolute precision and art. Lalibela received about 22,000 tourists in 2008, 80% o f whom arrived at its airport which is connected to the town by a paved road. The tourist arrival rate has been increasing at about 20% per year in the last five years while the national average stands at about 13% for the same period. Lalibela has also gained the attention o f development partners such as the European Union, Germany and Finland as a worthy site for their investments in development. The preservation o f the churches by the temporary shelters, the construction o f a modern Cultural Heritage Center with museums, a library, an amphitheatre and VIP guest rooms and the water supply project which i s nearing completion will enhance the quality of services for tourists. The local Government's own project that upgraded the dusty road around the core zone by cobble- stone construction shows their commitment for the improvement o f Lalibela. More than three-quarters o f Lalibela's visitors are older tourists with high education and income. This type o f tourist can pay more and extend their stay provided they can get gain good value. This project can create a major growth trend by taking Lalibela to the next stage and setting an example of what can be done under a dynamic development situation. It will attempt to create a model tourist destination that will trigger a high growth trend for the sector. The project aims to do that by creating a differentiated product at Lalibela that will set an example for the other destinations. At the end o f the project, Lalibela will be a cleaner, better organized and laid out 50 product with enhanced services that will bring it to international standards. In addition, the satellite sites will have better access and amenities giving the tourist better enjoyment and experience. This destination already receives the highest number o f tourists without including pilgrimage. The project will change Lalibela's feature through the improvement o f infrastructure including lighting, provision o f sanitation facilities, supporting the development o f community/cultural products in the core site, after the Government has relocated existing dwellers and improving the environment around the core site through landscaping and tree- planting. There is, currently, an encouraging trend in private sector participation in realizing Lalibela's potential. Inthe last few years, the basis for accelerated destination attractiveness has been laid by (i) implementation o f a GermadFinnish-funded water supply project, (ii) support o f the the the European Union which built a temporary shelter for a rock-hewn church as well as a Cultural Heritage Center with museum, a library; an amphitheatre, and other facilities, and (iii) the Government-financed construction o f a cobblestone road on a previously dusty road crossing the town, (iv) the construction o f three new hotels o f improved standards which increased the number o f beds in the area to 369. Currently, there are another four new lodges under different stages o f planning and construction; one o f them by a foreign investor whose 5- star lodge and conference center i s under construction. The local community and private sector have already started development linkages with the surrounding farmers supplying vegetables, poultry products, meat and other products to the hotels and restaurants. The project's matching grant scheme activities will help further this trend to make it more sustainable and take it to a higher level. Figure 5: Proiect Structure --~ ~ _ _ _ _ _ ~ Ethiopia Sustainable TourismDevelopmentProjectStructure 1 Iomponent1:Destination Component2: Market 1evelopmmt Imp1ementationSupport &Results Monitoring H I HsvppMi7-I I . 3.1: Institutional 4.1: Implementation Development 1 Historic I I I Sites I I 4.2: Results 2.2: Daad-DriPm Building Llnkages program: Enhancementin Selected *PrivateSector Matching Destinations Grant Scheme *CommunityInvolvement Development 51 Component 1:Destination Development $15.43 million - 3. This component supports the objective that the historic and cultural sites need to become productive sources o f jobs, incomes and economic growth for Ethiopians. To achieve this, the project will provide support for destination improvement and management in Lalibela, Axum and Addis Ababa. The implementation of activities that have been identified will increase the appeal o f the selected destinations and circuits, and it is expected that the tourism growth that will betriggered will inturnfueljob creation and income generating activities. 4. This component will have the three sub-components: (i)the rehabilitation and enhancement o f basic infrastructure in historic sites, (ii) enhancement o f visitor services in the selected destinations, and (iii) tourism investmentandproduct development. 5. The following chart displays spatial distribution o fthe activities that will be supported by the project: Bacnbdla SNNPR Sub-component 1.1: Rehabilitation and enhancement of basic infrastructure in historic sites (US$10.33 million). 6. Under this sub-component, the project will finance the following activities aimed at improving cultural assets and enhancing the quality o f the tourism experience so as to provide motivation to the tourist to stay longer and spend more. The sub-component will primarily focus on key destinations, namely Lalibela, Axum, Addis Ababa and environs, but also support 52 emerging destinations in the identification o f the most promising products that should be developed. (1) Lalibela (a) conservation o f selected historic churches, delineation o f World Heritage boundaries, and development o f satellite sites including Yimherane Kristos, Ashten Mariam, Genet Mariam, Na'akuto La'ab and Abune Yosef. These activities will support protection o f the cultural assets necessary for improving the quality o f the overall tourist experience and increasing the likelihood o f an average length o f stay; and (b) improvement o f basic infrastructure entailing (i)the construction o f two short by-pass roads (3km and 2.5 km) to establish the links between the three tourism zones around the churches zone area; (ii) improvement of the the Yemherana Kristos gravel road (12 km), and (iii)the improvement o f water supply, sanitation and solid waste management. (2) Axum (a) conservation o f the old church, upgrading o fthe stelae field, interpretation and signage o f key attractions typically visited by tourists and religious pilgrims, and improvement o f archeological museum; (b) enhancement of a tourist walking route through Axum's historic area including the renovation o f historic houses to support tourism private sector activities and renovation o f two plazas enhancing local and tourist interactions; (c) circuits signage and interpretation inkey tourists attractions around Axum, and (d) support for the operation o fthe crafts center initiatedunderthe CHP. (3) Addis Ababa and environs (a) rehabilitation and improvement o fthe Addis Ababa museum, (b) improvement of information centers at the airport and at Meskel Square, (c) development o f satellite sites (Tiya, Adadi Mariam, Melka Qunture, Entoto), and (d) technical study on the rehabilitation ofold houses. Sub-component 1.2: Visitor services enhancement in selected destinations (US% 4.00 million). 7. This sub-component will be comprised ofthe following activities: (a) rehabilitation and upgrading o f visitor information facilities, including interpretation services inkey destinations (Lalibela, Axum, Addis Ababa and environs), (b) upgrading of signage and visitor routes, and c) expanded documentation and information displays illuminating the relevance o f historic sites. 53 Sub-component1.3: Tourism productdevelopment(US$1.10 million). 8. The sub-component focuses on providing support to (i)mature destinations such as Lalibela, Axum and Addis Ababa to further diversify their offerings, and (ii)emerging destinations to determine their tourism assets and prepare integrated tourism development plans which emphasize sustainability. This sub-component will support, through surveys and technical studies primarily, the following activities: tourism product development utilizing vernacular architecture (including adaptive reuse o f old/historic houses), landscape features including historic district assets, and intangible heritage inAxum and Lalibela; tourism product development including museums and old houses, in Addis Ababa and environs namely, Adadi Mariam, Melka Qunture, Tiya and Entoto; tourism product development and capacity development plans for the Southern, Western and Easternroutes. It should be notedthat all activities to be carried out on World Heritage sites will needto comply with the UNESCO ConventionConcerningthe Protectionofthe World Cultural andNatural Heritageof 1972. Component2: Market Development(US7.85 million) 9. For Ethiopia's tourism sector to grow, be sustainable and contribute to poverty alleviation, it will need to be competitive with other destinations available to travelers. To be competitive, the private sector will need to consistently deliver a competitive tourism product. In conjunction with the development o f the tourism product (i.e., integrated destinations with attractions and travel services through Component l), communication of the tourism offering through marketing and promotion i s necessary. Component 2 will support both specific marketing and promotion programs as well as capacity building assuring marketing and promotion initiatives continue beyond the life o f the project. 54 Subcomponent2.1: Positioningandmarketing($2.69 million). 10. In discussions with members of Ethiopia's tourism private sector, the challenge of overcoming negative images is voiced as an ongoing struggle. Field research indicates that operators are, in fact, facing a variety of challenges. First, Ethiopia suffers from being relatively unknown for its tourism assets. This is exacerbated by limited and poor quality information about the country's tourism offerings. Second, Ethiopia suffers from a lingering negative image attributed to recurring media images of political instability and food shortages. 11. Sustainable tourism which contributes to poverty alleviation requires development of a competitive tourism product appealing to potential travelers. To harness the economic value of integrated tourism development in component 1, it i s crucial to communicate Ethiopia's tourism offerings to potential tourists. This requires establishing marketing programs and promotional systems supporting private sector competitiveness. Through this component, marketing and promotion activities will build capacity through technical assistance and introduction of best practices. Specific activities will enable public and private sector players inthe tourism sector to craft Ethiopia's image positively and buildmarket share through strategic promotional activities. A. Positioningand marketing 12. This component's activities will enable Ethiopia to develop and implement strategies to attract specific target segments from key markets. Attracting target segments involves development of 1) a competitive positionthrough definingtarget markets; 2) a strategic brand; 3) collaterals accessible and attractive to target markets; and 4) a program for marketing and promotionimplementation. 13. Promotion and marketing activities will be coordinated by the Ministry of Culture and Tourism with private sector involvement through the establishment of a public/private partnership.Activities will support regional and local plans. On-going strategic guidance will be provided by the National Tourism Council chaired by the Minister o f Culture and Tourism and comprised of key members of boththe public andprivate sectors. 14. Traditionally, Ethiopia's tourism has attracted international visitors from European countries and the USA. Specifically, market research conducted as part o f the WB's ESW efforts leadingto this project, ranked source markets as follows: Box 5: Tourism Markets Primary Markets SecondaryMarkets EmergingMarkets USA Japan China UK Netherlands Russia Italy Canada Norway France Spain Sweden Germany Australia SaudiArabia Switzerland 55 15. Tourism source markets are inherently dynamic The current global crisis will have an impact on international travel which i s likely to cause shifts inthese source markets. Therefore, as part o f this component, it i s proposed that a detailed marketing strategy i s developed identifying shifts in the market and focuses on the top five growth markets. The subsequent strategy will identify critical investments in the form o f marketing collaterals; familiarization trips for journalists and international tour operators; and public relations initiatives supporting the improved positioning of the country's tourism sector. These efforts are also anticipated to buildlinkages with neighboring countries to facilitate collaborative marketing andpromotion for multi-country itineraries and offerings. The strategy will be developed jointly as a public/private partnershipwith MOCT, EthiopianAirlines and interested private sector players. 16. Determination o f target markets i s driven by analysis o f traditional and emerging source markets attracted to Ethiopia's expanded tourism product. Development o f an overall destination brand facilitates the delivery o f a unifying message augmenting niche product (i.e. cultural heritage, nature-based tourism, etc.) promotion. The development o f international standard promotional materials will capture and communicate tourism product attributes valued by target visitors. These will be made accessible to target markets through multiple channels. Marketing to the trade and specific tour operators will be facilitated through support o f trade fair attendance serving targeted markets. Familiarization tours which enable both tour operators and media professionals to experience Ethiopia's product first hand, will also be supported to facilitate publicizing Ethiopia's tourism products to target segments. B. Developmentof an e-commerceplatform 17. The flexibility and adaptability o f the internet has transformed global travel supply and demand patterns. From initial interest to booking specific arrangements to reporting ex post trip experiences, the internet i s used by a diverse demographic o f travelers. Online promotion for destinations, transportation, attractions, amenities and services is sophisticated and targeted. The lack o f an online presence, as i s the case for the majority o f Ethiopia's tourism related MSEs, i s a serious handicap for operators intoday's marketplace. 18. Today's international tourists increasingly search for travel options via the web. For destinations and their related stakeholders to capture tourist expenditures, a presence on the web i s vital. Therefore, it i s also proposed to target and strengthen the marketing outreach o f local hotels, guesthouses and other tourism businesses by buildingan online reservation platform and increasing the capacity o f all enterprises involved in the tourism value chain. This effort will involve technical assistance as well as capacity building to assure sustainability o f an e- commerce platform as detailed below. 19. To be competitive, tourism operators o f all sizes in developed and developing countries need to have an established presence on the internet. Previous WB projects have supported the development o f online platforms for tourism SMEs inTanzania, Kenya and Mozambique. These projects have aided destinations and operators to communicate ina cohesive manner as well as to compete effectively. 20. Development o f an online presence provides a focal point and hub for all stakeholders in a destination's value chain. Furthermore, the ability to "look and book" in one instance adds 56 greatly to a destination's popularity and individual operators' viability. While a significant number of leisure visitors to Ethiopia travel on packaged tours, a growing number of independent international travelers are making their own travel arrangements directly through the internet. Ethiopia's tourism sector i s handicapped by a poor online presence in general. Individual operators are further challenged by not having links with established portals or being able to offer online booking options to travelers. 21, To address this limitation, this subcomponent will seek to: 0 provide professional online e-marketing and booking services for accommodations, attractions and service providers who have not had access to the internet; 0 create commercially-viable, locally-owned and operated e-marketplace operators (MPOs) which can continue beyondthe ESTDP project timeframe; and 0 incorporate and utilize online ratings for service quality and sustainable practices o f tourism SMEs to drive continuous improvement and competitiveness with other destinations. Sub-component2.2: Linkagesdevelopmentprogram (US$5.15 million). 22. This sub-component seeks (i)to support private sector initiatives to enhance the competitiveness o f the tourism sector through a matching grant scheme, and (ii)to foster community involvement in the overall tourism sector activities. It will focus on backward linkages by addressing specific issues that hinder the ability o f small businesses and communities to participate in tourism sector activities by helping them improve the quality o f their products and services that can meet various segments o f tourists segments. Such an improvement would allow the private sector to charge higher prices and the tourists to stay longer and spendmore as a reflection o fthe quality o f their visit experience. Matching grant scheme (US$3 million IDA funding and US$3 million beneficiary contribution) 23. The vehicle to support private sector initiatives will be a matching grant entailing a 50%- 50% cost-sharing scheme to support private sector initiatives aimed at improving Ethiopia's competitiveness through innovation and linkage strengthening. The matching grants will seek to finance projects (with both established and emerging entrepreneurs) that will allow entrepreneurs to increase, upgrade and innovate in the tourism value chain. The scheme will inparticular help (i)upgrade technological and managerial skills, (ii) improve market intelligence and access, and (ii) backwardandforwardlinkageswithintheprivatesectorandeventuallyincreasethe foster spill-over effects o f the entire sector. For example, the project could support private hotels plans in developing new amenities, upgrading the quality of their services offerings such as front- office systems, connection to World Hotel Link, entertainment services, or setting up focused training for their employees (e.g. restaurant and/or housekeeping staff), etc. 24. The application to the matching grant can come from an individual firm or an association representing a group o f businesses (e.g. fruits and vegetables producers' association, hotels owners' association, tour operators association, etc). The applicant commits to bearing 50% o f the cost o f the proposed activity consisting o f technical assistance or training to improve a product, a service or a process. The maximum cumulative grant per firm or group o f businesses under common ownership or control will be US$150,000. 57 25. The sub-component will be implemented by the PCU. A dedicated specialist in management o f matching grants will be recruited for the task. The PCU and the MG specialist will be supported by an international expert for the development o f differentiated travel and hospitality products particularly at the destinations the project focuses on. An implementation manual will be developed by the client governing the detailed procedures about the screening process including the preparation o f a comprehensive businessplanthat shows the improvements the support bringsto the beneficiary firms. 26. Expected achievable outcomes will be expressed in measurable indicators. The net outcome o f the intervention will be the provision o f improved products and services to tourists at the destinations which lead to more spending and longer stays. The PCU will provide free hand- holding support for the preparation o f business plans that describe each beneficiary's proposal. 27. The PCUwill promotethe scheme inthe major urbancenters to ensure that private sector stakeholders such as hoteliers, restaurant owners, tour operators and guides, transporters and SME's inthe tourism value chain are informed about the scheme through promotional materials, disseminationworkshops and the media. The implementationmanual will detail out the different steps from promoting the scheme, launching calls for proposals, screening o f proposals and finalization o f the business plan (the proposal by the firm) up to its finalization and approval by the a public-private committee to be chaired by an appointed official o f the MOCT. The PCU will guidethe process which will includethe following steps: Preparation and adoption o f an implementation manual, promotional materials and delivery o f same; Appointment o fprivate sector representatives to the approval committee; Launching calls for proposals with clear description o f the scheme on who can apply and what framework to follow; Receiving and processing proposals from potential beneficiaries; Conducting diagnostic work at firm level to validate the quality o f the proposals; Provision o f hand-holding support to the applicants to refine and finalize the proposals Having the proposal approved; Preparation o f agreement for the implementation and subsequent reimbursement o fthe cost as per the provisions o fthe scheme. 28. Inaddition to firms including SMEs, institutions that support the industry, such as those that promote setting o f industry standards and norms, provide skills development, etc. will also be eligible to apply. In applying the resources to private sector initiatives, the following tourist spending structure, which shows that accommodation and food represent the largest spending share, as well as the need to work along value chains (instead o f isolated players only) should be borne inmind: 58 Figure 6: Tourist SpendingStructure 5% 31% 17% Craft ElExcursions Source: ODI (2009), Ethiopia tourismpro-poor linkages. Community involvement (US$2.15million) 29. Under this sub-component, targeting community involvement activities will be carried out, with a view to creating newjob and economic opportunities for the communities which will be in direct contact with tourists and affect the visitors' experience in targeted destinations. Community engagement and opportunities will particularly materialize inthe following ways: 30. Sector development policies, priority setting and project implementation: communities, through their leaders or representatives, will participate in the sector dialogue for policy and priority setting as well as project activities planning and periodic evaluation. That mechanism should ensure that options considered take into consideration the needs o f the communities as well as sustainability requirements. 3 1. Employment opportunities intourism businesses: the expansion o f investment intargeted destinations i s expected to generate newjobs for communities in various capacities. This project will participate in enhancing skills so that local communities can seize employment opportunities. Moreover, communities will be involved in the implementation o f a number o f project activities (infrastructure and other basic services) which will also contribute to facilitating their access to markets. 32. Supply o f goods and services to tourism enterprises: communities will have the opportunity to provide goods and services in the tourism supply chain. In order to maximize the opportunities for communities to participate in the supply chain, the project will help improve the skills and enhance the quality o f their products and services so that they can meet the market 59 quality requirements.This includes the training in crafts and other areas. Communities can also offer to tourists performing arts includingdance, music, fine arts rooted inlocal cultures. 33. Direct sales of goods and services to tourists: this will include agricultural products, food and beverages, handicrafts, guiding, entertainment, mule renting and other transportation services, entertainment and recreation, etc. 34. Establishment of community-based businesses in the form of micro, small and medium sized enterprises or community-owned ventures. It i s expected that community members would engage in activities such as accommodation establishment, catering, transport, retail outlets, guiding and entertainment. Nature eco-tourism o f hiking and trekking, involving local guides, I and village tourism, where small groups of tourists stay in a traditional village to learn about local life and culture (e.g. the UNWTO pilot project inKonso), may also expand inthe future. Component3: InstitutionalDevelopmentand CapacityBuilding(US$5.55 million) 35. Access to an adequate pool of properly trained human resources is vital to developing a sustainable tourism sector. Ethiopia's success in building tourism competitiveness hinges on trained staff and management providing targeted services expected by tourists. Such activity supports not only job creation, but also enables upward mobility as tourism expands and diversifies. Establishing and sustaining a significant tourism sector also requires strong public and private sector capacity. This component addresses institutional development activities for both sectors. Capacity building efforts are designed to support educational activities crucial for building the private sector. Sub-component 3.1: Institutional Development (US$ 3.92 million IDA financing and US$ 1.50 millionGovernmentcontribution) 36. This sub-component will support existing federal and regional government structures to create the enabling environment for tourism to thrive. The federal political system in Ethiopia has now established a Culture and Tourism Bureau4 and a Regional Tourism Council in every region and these institutions are charged with managing the tourism sector. Capacity, especially inthe regions where ESTDP will be operational, needs targeted support inthe areas of: tourism strategy development, policy and planning; technical guidelines; marketing and promotion; standards supervision and regulation; cultural heritage protection research; monitoring; training and education; tourist service and informationcenters; exhibitions; and international cooperation. Inpart, this demand will be met by long term technical assistance attached to the Ministry,but the bulk of the technical assistance will be tailored to individual regions' demands and targeted assignments. 37. Designed principally as a technical assistance package, this sub-component will enable capacity building in sector management through supporting existing federal and regional government structures to create the enabling environment for tourism to thrive. Culture and Tourism Bureaux and a Regional Tourism Councils, established in every region through federal Following the Business Process Re-engineering" ,which is a thorough administrative reform at all three tiers of " government (federal, regional levels and Woreda levels), the Bureaux are renamed either Processes" or " " Clusters" . 60 mechanisms, are charged with managing the tourism sector in conjunction with the Ministry o f Culture and Tourism. Capacity, especially in the regions where ESTDP will be operational, needs targeted support in the areas of: tourism strategy development, policy and planning; technical guidelines; marketing and promotion; standards supervision and regulation; cultural heritage protection research; monitoring; training and education; tourist service and information centers; exhibitions; and international cooperation. Inpart, this demandwill be met by long term technical assistance attached to the Ministry. Also, technical assistance will be tailored to individual regions' demands and targeted assignments. 38. The Ministryof Culture and Tourism is Ethiopia's youngest ministry with motivated staff committed to supporting the sector to achieve its full potential. This commitment i s handicapped by limited technical resources and a low skill levels in certain areas. For example, there is an unquestionable need for improved statistical collection documenting tourism operational activity and the sector's contribution to the overall economy. In addition to statistical collection systems beingupdated, this component will support the development o f a higher level o f analysis and the timely distribution o f findings. Such activities, guided by the general parameters o f the UNWTO's TSA methodology, are critical to attracting investment and generating realistic assessments o f the sector's progress. Establishment o f improved statistical collection systems of travel and tourism statistics will enable greater integration with statistics collected by other ministries across the Government o f Ethiopia (such as MoFED). 39. Under this sub-component, the Government o f Ethiopia will finance the cost of resettlement compensation in Lalibela. The Federal Government has committed to making a budget o f US$ 1.50 million available for that purpose; and the Amhara Region may also contribute ifnecessary. 40. In conjunction with integrated destination development plans developed through component 1activities, specific institutional development activities will include the following: 0 Policy implementation frameworks including the development o f a sector strategic plan and competitiveness enhancement, 0 norms and standards for tourism establishments, 0 formalization and institutionalization o fthe Tourism Council, set-up o f and support to the Tourism Board, 0 strengthening o f the M O C T and Regional Tourism Bureaux, 0 tourism statistics strengthening, and 0 completion o f the resettlement process (compensation cost covered by the Government). Sub-component3.2: Capacitybuilding(US%1.63 million) 41. Capacity building efforts inthis sector to date include technical, vocational and university offerings by the public and private sector. Technical training programs, offered at sites throughout the country by the public sector, provide basic skills such as hygiene and food preparation techniques. Vocational training, emphasizing skills and knowledge, supports food preparation, service techniques and business fundamentals for tourism and lodging operations. Privately operated technical and vocational programs o f varying quality are offered in Addis Ababa. Specialized university programs, designed to meet the needs o f an expanding sector, are 61 now offered at four public universities. At all levels these programs are limited, suffer from inadequate resources and are challenged to find qualified teaching staff. Furthermore, for students and instructors alike, there is a large gap inthe ability to secure practical experience in the industry. This contributes to a mismatch o f the skills graduates offer and the needs o f the industry. 42. The country's oldest and largest vocational level program, the Catering and Tourism Training Institute (CTTI) in Addis Ababa, i s operated under the Ministry o f Culture and Tourism. The Institute includes basic instructional areas. These are planned to be augmented by the renovation o f the Genet Hotel into a formal teaching hotel. Efforts are also currently underway for the Institute to qualify to become a member o f the Africa Hotel Schools Association. These changes will support a flow o f graduates, with 2 or 3 year diplomas, to be entry level frontline workers and supervisors in the private sector. Upgrading at this institution will assure a continuous source o f graduates educated by qualified staff at a specialized institution. 43. Overall activities in this component will be guided by an initial review o f technical, vocational and university level offerings across the country with particular focus the target destinations o f Lalibela, Axum and Addis Ababa. The private sector will be engaged to define their current and future needs in an effort to better align educational program objectives with desired outputs. To bridge strategic gaps, activities will involve: 1) development o f qualified teachers who possess academic credentials, teaching capabilities and an adequate level o f industry experience; 2) program upgrading through the provision o f technical books and equipmentneededfor hands-on training and academic studies by students and instructors; and 3) facilitation o f visiting instructors, industry experts and faculty to work alongside instructors at institutions for 3-6 months. Each o f these activities i s anticipated to trigger significant change improving the quality o f training and education and, consequently, improving human resources employed inthe sector. Component4: Implementationsupport and resultsmonitoring($2.70 million) 44. This component will support (i) operations o fthe project coordinationunit (US$2.06 the million) and (ii) the set up of monitoring and evaluation systems in order to track results (US$ 0.64 million). The implementation arrangements are based on the set-up o f a Project Coordination Unit, staffed with first class professionals who will be competitively selected. They will be assisted by a few experts who will support the Directors o f Regional tourism bureaux in key destinations, particularly the Amhara, Tigray and Addis Ababa Regions. The PCU's work will be advised and facilitated by a Steering committee composed o f public sector and private sector representatives, and it will report to the Minister o f Culture and Tourism. O n the Ministry's behalf, the PCU will have the responsibility for project monitoring and evaluation. This component will particularly put an emphasis on fiduciary (procurement and financial management), monitoring and evaluation as well as safeguards capacities enhancement throughout project implementation. 62 * Annex 5: ProjectCosts x ETHIOPIA SUSTAINABLE TOURISM DEVELOPMENT PROJECT Beneficiaries Project Components Local Foreign Total T O T A L q - z - us Million Million Million Million US Million Million Component 1. Destination Uevelopnient 0.00 ~ 1.1, Rehabilitationo f heritage sites and I 4- enhancement o f basic infrastructure in 10.33 selected destinations (Lalibela, Axum, Addis Ababa and environs) 7.23 3'10 10.33 1.2. Visitor services enhancement in selected destinations 2.80 1.20 4.00 ~ 1.3. Product develoDment 0.77 0.33 1.10 Component 2. Market Develupnient I 5.33 I 2.51 7.84 3.00 10.8'4 2.1. Positioning and marketing 1.21 1.48 2.69 2.69 2.2. Demand driven linkages 4.12 1.03 5.15 8.15 v 3.005 Component 3. Institutional ,Developmentand CapacityBuilding 4.08 I.J7 5.55 1.50 7.05 3.1. Institutional development 2.94 0.98 3.92 1S06 5.42 3.2. CaDacitv building 1.14 0.49 1.63 1.63 I 1 I I I - I , v Component 1.ImpfernentationSupport 1.89 0.81 2.70 2.70 5Private sector matching grants cost-sharing The Governmentcontribution inthe amount of US$1.5 millionwill finance the resettlementcost. 63 Annex 6: ImplementationArrangements ETHIOPIA SUSTAINABLETOURISMDEVELOPMENT PROJECT 1. The overriding principle guiding the institutional and implementation arrangements o f the ESTDP i s mainstreaming the operational responsibility to each Federal and Regional agencies that are responsible for the development o f each o f the destinations and sites along the tourism routes. It is also necessary to lay down the mechanism for carrying out capacity buildingand institutional strengthening of the institutions along the sector development tiers of government as well as streamlining cooperation betweenpublic and private actors to enhance the development process in a manner that would link communities, the broader private businesses and institutions working in the sector. While the MoCT will remain the overall executing body for the overall project, it will be important that the local institutions including regional and Woreda-level culture and tourism bureaux7 be the primary clients and participate in decision-making. At the same time, local private sector and community representatives should participate inthe project implementation process. Particular emphasis i s put on the work planningand reporting, monitoring and evaluation. Figure7: ImplementationArrangementsStructure ImplementationArrangements Structure I Ministry of Culture and Tourism (MoCT) I -e I Project Steering Committee I E Project CoordinationUnit (PCU) CI Regional Tourism Bureaus Lalibela Site Addis Ababa Site ManagementUnit ManagementUnit Management Unit (Addis Ababa) 'Inmany instances,tourismbureauxhavebeenrenamed"tourism clusters" inthe context ofthe recentBusiness ProcessRe-engineering(BPR). 64 2. The oversight o f the Project will be formally delegated by the Minister o f Culture and Tourism to a Project Steering Committee (PSC) chaired by the Minister o f Culture and Tourism or hisker representative. The PSC will consist o f Federal as well as Regional stakeholders including private sector and civil society representatives. The project team establi,shed by the Minister during preparation will act as an interface between the PSC, public and private stakeholders and development partners. The PSC will be assisted by a Project Coordination Unit (PCU) funded by the project. The option o f setting up a PCU, instead o f mainstreaming implementation, was taken in light o f MOCT's limited capacity. The PCU8 will consist o f a Project Manager, a Financial Management Officer and an Accountant, a Procurement Specialist and an Assistant Procurement Specialist, a Monitoring and Evaluation Specialist, a Matching Grants Specialist, a Civil Engineer and an Administrative Assistant. They will be located within MOCT. The Government will provide the office space and has already allocated vehicles from the Cultural Heritage Project to the ESTDP preparationteam. 3. For the purpose o f effective implementation and speedy disbursement, the PCU will be dedicated exclusively to the management o f the ESTD Project and will be staffed with dedicated full-time professional personnel to be recruited on competitive basis. The dedicated staff o f the Project will be contracted for one year renewable upon satisfactory performance until the end o f project implementation. 4. Site Management Units (SMUs) will be established in Axum, Lalibela, and Addis Ababa and environs to closely oversee their respective implementation activities. The SMUs will consist o f an Operations Officer and an Accountant. They will report administratively to the PCU, but they will work closely with Regional and Woreda level Tourism Office Heads, and regional stakeholders including private sector and community representatives. 6. The PCUwill be responsible for handling procurement and FMfunctions for the project. A tendering committee composed o f some members o f the MoCT tendering committee and the PCU procurement and FM specialists would be responsible for evaluation o f bids, both for selection o f consultants, as well as goods and civil works procurement. Representatives o f end users o f the procured services, goods or works may participate as members o f the tendering committee as required to ensure that the procurement i s done according to specified needs. Final decisions on procurement will be made by the tendering committee and representatives o f the respective regional and/or destinatiodworeda level representatives. The detailed procedures to be followed are outlined inthe Project ImplementationManual (PIM). 7. A Project Implementation Manual including a Project Implementation Plan and procedures pertaining to Financial Management, Procurement, Monitoring and Evaluation and Administrative aspects will be finalized by project effectiveness. The operation o f the matching grant scheme will be included as well. The P I M will be specific on periodic reporting aspects throughout the life o f the project and will include annual project performance assessments covering the various project components. A mid-term review will be carried out by end May 2012 and, in addition to assessing progress, will determine ifthere is any need to make changes to the project. * ThePCU's Accountant and MatchingGrants Specialistwill be brought on board upon project effectiveness. 65 8. The PCUwill be responsible for conducting M&Eactivities. Baseline data collection for all the agreed indicators have been established and the PCU will ensure that annual surveys and other means o f performance monitoring are deployed in a timely manner. An outcome-oriented approach has been developed that would allow corrections during implementationto achieve the objectives. 9. Project impact data collection will be mainly the responsibility o f the PCU and the Statistics Department o f the MOCT. Key outcome indicators, namely tourist arrivals, foreign exchange earnings, and jobs will be reported on at least once a year. Detailed outcome and output indicators are provided inthe Results Framework. Lessons learned from the M&Eprocess will be usedto inform and improve project implementation at the federal and local (regional and destinatiodworeda) levels. 10. The PCU will be responsible for preparing all periodic reporting requirements, including progress o f different activities in the annual work plan, key performance indicators, financial reports and annual audits, procurement and any administrative matter. 11. The Government has indicated the intention to actively involve the private sector and communities inan active policy dialogue as well as inproject work planningandmonitoring and evaluation. 66 Annex 7: FinancialManagementandDisbursementArrangements ETHIOPIA SUSTAINABLETOURISM DEVELOPMENT PROJECT Introduction 1. The financial management (FM) assessment i s conducted in line with the Financial Management Practices Manual issued by the FM Board on 3 November 2005. The objective o f the assessment i s to determine whether the implementing entities have acceptable financial management arrangements, which will ensure: (i) the funds are used only for the intended purposes in an efficient and economical way; (ii) preparation o f accurate, reliable and timely the periodic financial reports; (iii)ensure that funds are properly managed and flow smoothly, rapidly, adequately, regularly and predictably to implementing agencies at all levels (federal and regional ); (iv) enable project management to monitor the efficient implementation o f the project and (iii)safeguard the entities' assets and resources. 2. As part of the FM assessment, the financial management team visited the Ministry o f Culture and Tourism (MoCT). Furthermore, the assessment made for the PPF o f the same project andthe experience of other projects implementedby MoCT have been considered. CountryIssues 3. The Government has been implementing a comprehensive public Financial Management (PFM) with support from Development Partners including the Bank. The main instrument used for effecting Ethiopia's PFM reforms has been the Expenditure Management and Control sub- program (EMCP) o f the Government's Civil Service Reform Program (CSRP). This is being supported by the IDA financed-PSCAP and further support i s envisaged under the PBS I1 Project. 4. The latest PFM study for Ethiopia was completed in 2007 using the Public Expenditure and Financial Accountability (PEFA) PFM performance measurement framework. The assessment was done at the federal and regional levels (covering 7 regions) and two separate reports were issued. The PFM study notes that Ethiopia has made significant progress in strengthening PFM in recent years at both federal and regional levels. Satisfactory progress has been made in budgeting and accounting reform but the adequacy and quality o f budget reporting needs further improvement. The classification o f the budget meets international standards and the information included in the budget documentation is o f good quality. The fiscal relations between the federal government and the regions are transparent. The budget process is well ordered with the existence o f a budget calendar generally adhered to, and a budget circular issued to budgetary institutions. Cash flow management is not fully established. Government posts financial information including the annual budget on its website and also publishes the same information in the official Gazette, but there i s scope for improvement in public access to fiscal information. Payroll and procurement controls are satisfactory while control for non-salary expenditure shows some weaknesses. There i s need for further improvements in financial reporting (reducing delays in in-year and annual financial reporting), internal audit, external audits and scrutiny o f public finances. The first phase o f the reform (transaction platform) has taken place through budgeting, planning, accounting, and information systems. The second 67 phase o f the reform, the policy platform, i s continuing at the sub-national level with reforms to the block grant mechanisms and a move towards more performance based budgeting. The government leadership and ownership regarding ongoing PFMreform efforts are bothhigh. 5. The PFM study also notes that at the regional level, the status of PFM reform and performance varies between regions. Southern Nations, Nationalities and People's Region and Tigray have been the beneficiaries o f investment and local initiatives to support PFM reform. They both show improvement in the overall public finance function and a consequent reduction infiduciary risk. A few other Regions, such as Amhara and Oromia, have also shownsignificant progress in PFM while others are at an earlier stage o f investment in PFM or have not yet commenced their plans and therefore have demonstrated less progress in PFM improvement. There have been improvements in some areas, including budgetary transparency inrecent years, robust budgetpreparation, internal audit scrutiny and follow up, timeliness o f in-year and annual financial reports, and mutual supportiveness o f the federal and regional Auditor Generals. Nonetheless, the report noted that the quality and nature o f internal audit needs to be improved. Untimely clearance of suspense accounts and significant delays inproducing timely in-year and end o f year information insome regions are also major weaknesses. There are capacity issues in reviewing annual budgets. It was noted that supplementary budgets are endorsed by the Parliament as needed. There continue to be capacity and staffing issues in areas such as audit in all the regions. An insufficient number o f qualified professional staff at the sub-national level, particularly at the woreda level, and lack o f some basic office infrastructure i s a major challenge. It must be noted that there is a shortage o f qualified accountants and auditors inthe country. 68 RiskAssessmentandMitigation 6. The programs perceived risksat assessment are outlined inthe following table: Table 4: Riskassessment Conditions Residual for Risk Risk Rating RiskMitigatingMeasures Risk Effectiven Rating ess (Y/N)? Inherent Risk Country Level- S The noted weaknesses are being M N addressed by the ongoing Civil Weak capacity including Service ReformProgram shortage of qualified supportedby PSCAP. The PBS I1 accountantsand auditors. includes a sub component that There is a weak control will support external audit environment with capacity building. weaknesses observed, lowly paid civil service, inadequaciesinthe public accounting system, and weak internal and external auditing capacity. EntityLevel- I s MoCT has experience in M N implementing one Bank financed Lack of adequate skilled project and other donor financed man power throughout the projects. entity. 69 Project Level- S N reporting requirementwill be Project activities are made clear. implemented inthree destination sites. Training will be givento staff on bank procedures and IFR Delay inreporting and preparation. auditing I External auditors will be recruited within2 months after effectiveness. Overall Inherent Risk Moderate Control Risk Budgeting- L Budgeting mainly follows the government's budgetingsystem. Accounting - S A new financial management manual will be prepared for the Accounting treatment and project by project effectiveness. recording vary among implementing entities. Lack o f required skill and Finance officers will be recruited manpower. at the PCU and at the other Site Management Units(SMUs). One FMS for the PCUat MoCT and three accountants for the Staff not trained inBank destination sites will be recruited. procedures. 70 Internal Control- The PBS I1has a component to M N internal audit departments strengthen internal audit and the may not review the activities general internal control environment inEthiopia. The Internal audit department o f all implementing entities will incorporate the project intheir annual work plans. The financial management manual will indetail show the internal control mechanisms and procedures. Financial Reporting- Since The FMmanual will lay out the M N implementation i s spread detail dates for submittingthe out to three destination sites, report of all tiers. reporting may be delayed. IFR format has been agreed with The quality o fthe financial MOCT. reports may not be up to standard Training will be given by the Bank on preparation o f IFRs. Audit TOR for auditors will be M N submission of external audit agreed inadvance. Auditors will reports. be recruited withintwo months o f effectiveness. MoCT implemented CHP submitted all reports on time. Overall Control Risk Moderate Overall Project risk rating Moderate 7. Considering the above risk assessment and mitigation table, the overall residual risk o f the project will be Moderate after the risk mitigation measures are undertaken. Any additional risks encountered during the project implementation will be assessed and requisite mitigation measures developed to address such risks. 71 Strengths and Weaknesses of FinancialManagement 8. As noted in various reports, the country's discipline in executing budget, classification system and compliance with the existing Government regulations are the major strengths in implementing the project. The Government's existing arrangements are already being used in a number ofprojects, including PSNP and PBS which is currently under implementation. 9. The main weaknesses for the FM arrangements continue to be shortage o f qualified accountants at the federal and regional levels. Preparation and submission o f quarterly IFRs could be a challenge due to inthe spatial distribution o f the site management units.This may also delay the submission o fthe audit report on time. Table 5: Weaknesses and Action Plan Significant Weaknesses Action Responsible Completion Person Date The FMmanual needsto be Prepare FMmanual MoCT Before DreDared effectiveness Lack o f adequate and Recruit one FMS MoCT Before skilled manpower . for the PCU and effectiveness three SMU Accountants with clearly defined TORSwhich were approved by the Bank Lack o f submission o f Closer follow-up on MoCT, WB Regular regular financial the submission of information from the PCU IFRs One month after Training staff on effectiveness. IFRpreparation Indicating on the FMmanual the submission date o f each tier. Timely submissiono f audit Appoint external MoCT Within 60 days reports auditors (OFAG) o f effectiveness. within 2 months o f effectiveness. Audit terms of Agreed upon at reference. negotiations. 72 Implementingentities 10. The MoCT, at the federal level, will take the overall responsibility for project implementation. The Project coordination unit (PCU) that is established to oversee the project withinthe ministry will have the responsibility for coordinating project implementation inclose collaboration with site management units at relevant destinations, i.e. Axum, Lalibela and Addis Ababa. The site management units will be placed inLalibela culture and Tourism office, Axum Tourism development, Axum cluster and the Addis Ababa Culture and Tourism bureau. A Project Steering Committee will be established to provide strategic guidance to the PCU, review and approve annual work plans and progress reports. Budgeting 11. The Ethiopian budget system is complex, reflecting the fiscal decentralization structure. Budget is processed at federal, regional, zonal (in some regions), woreda and municipality levels. The federal budgeting process usually begins by issuing the budget preparation note to the Budgetary Institutions. Based on the budget manual, the Budgetary Institutions prepare their budgetsinline with the budgetceilings and submit these to MoFED within six weeks following the budget call. The budgets are reviewed at first by MoFED and then by the Council o f Ministers. The final recommended draft budget i s sent to parliament around early June and expected to be cleared at the latest by the end o f the fiscal year. 12. MoCT prepares annual budgets based on its strategic plans following the government budget processes. All processes and the regions regarding this particular project under MoCT involved inthis project will submit their annual plans to MoCT. These budgets are prepared by experts ineach area o f the budget. MoCT will consolidate the budgets received and will present the same to the minister and the management team. A thorough discussion will be held among the different processes and then the minister will approve the budget and present the same to MoFED. MoFED after analyzing the budget request and after holding discussions with the ministry will approve the budget. The project budget will be included in the annual budget proclamation o f the federal government, under the name o f MoCT. 13. The project prepares regular reports comparing actual and budget and submit the same for management and donors for information and decision making. There i s a section o f budget preparation and control under the finance department which i s handling this responsibility. The financial management manual will explain the detailed budgeting and budget control processes inthe project. Accounting 14. MoCT through the PCU will be responsible for the overall financial management of the project. MoCT follows the government accounting system -double entry accounting system on a modified cash basis starting from July 2002. MoCT uses the government's financial management manual which spells out important internal control and accounting procedure. In order to have consistency inthe accounting and reporting o f all entities involved inthis project, it needs a financial management manual which outlines the necessary control arrangements and 73 also the accounting policies, procedures, chart o f accounts, reporting formats etc. The manual will be prepared by project effectiveness andwill have to be acceptable to IDA. 15. Integrated Budget and Expenditure (IBEX) accounting system i s used for recurrent and capital budgets. A computerized accounting system will be used by MoCT to record transactions and for reporting. As i s the practice in other IDA-funded projects, Peach Tree accounting system will be used for accounting and reporting under this project. This software will also be introduced to all SMUs for efficiency and consistency. Finance staff will be trained on the use o f the software withinone month after effectiveness. 16. Each o f the implementing agencies i s responsible for maintaining the project's record and documents for all financial transactions occurred in their offices. These documents and records will be made available to the Bank's regular supervision missions and to the external auditors. 17. MoCT currently has 10 staff inthe accounts department, three holding BA degrees and seven holding Diplomas inaccounting. Four o fthe staff can handlethe Peach tree software very well. The PCU will hire a financial management specialist with good qualifications and experience in bank procedures, and s h e will be assisted by an accountant at the Federal level and three other accountants at the key sites, i.e. Lalibela, Axum and Addis Ababa. The recruitment o f the accountant at federal level will not be a condition o f effectiveness. The accountant willjoin the PCU once the need arises from project implementation. Support will be provided to strengthen the capacity o f financial officers' at all relevant levels o f project implementation. This will in particular entail training all finance officers with the newly developed financial manual, creating awareness o f the overall project and also training on World Bank policies and procedures. InternalControlandInternalAuditing 18. Internal control comprises the whole system o f control, financial or otherwise, and has beenestablished by management inorder to (i) out the project activities inan orderly and carry efficient manner, (ii) ensure adherence to policies and procedures, (iii) maintenance o f ensure complete and accurate accounting records, and (iv) safeguard the assets o f the project. 19. Internal control arrangements will be spelled out inthe P I M and the Project Coordinator along with the FM Officer will be responsible for their implementation. The New FM manual needs to cover thoroughly the important internal control areas such as segregation o f duties, physical control o f assets, authorization and approval, clear channels o f command, arithmetic and accounting accuracy, integrity and performance o f staff at all levels, supervision, etc. In addition to this, MoCT will make sure that all o f the crucial posts are filled immediately by competent staff if these posts are to be found vacant at any time. MoCT has an internal audit department performing post audit activities on all the financial transactions o f the entity. The internal audit department at MoCT i s adequately staffed for reviewing the activities o f this project. The internal audit department will include the project intheir work plans and assist the project in its implementation. The internal audit department should also help in following the rectification o f irregularities noted inthe external auditor reports. 74 20. The government Civil Service Reform Program i s buildingthe capacity o f internal audit inthe country. So far, internal audit manuals have beenissuedandtraining hasbeenprovided to internal auditors. The improvement in internal audit has been recognized in recent diagnostic works, e.g., the FA assessment. FundsFlow andDisbursementArrangements 21. This project will provide funding to MoCT, which will be the main implementing agency together with the site management units. SMUs will receive funding from the MOCT's PCU and maintain accounts inlocal currency. Disbursement Mechanism 22. The project may follow one or a combination o f the following disbursement methods: Designated Account, Direct Payment, Reimbursement and Special Commitment. Designated Account and Disbursement Method: MoCT will open a new Designated Account denominated in US Dollars at the National Bank o f Ethiopia or it can use the designated account already opened for the PPF. Local Account inBirr will also be opened to receive transfer from the USD account. The local account inBirr would finance all eligible project expenditures at the respective offices and would be used by MoCT to transfer funds to the site offices. The authorized ceiling o f the Designated Account would be equivalent to 6 months o f project operations and would be US$3.5 million. 23. Three regions (Lalibela, Axum and Addis Ababa) will open a separate project Birr accounts to receive funds from MoCT through the PCU. Advances to the SMUs will be based on the approved work plan. The initial advance will cover four months expected expenditures and the subsequent transfer will be based on actual expenditures justified through statement o f expenditures. Whenever MoCT makes transfer o f fund to the SMUs it will notify the respective regional tourism bureaus o fthe date and the amount for monitoring purposes. 24. Disbursement of IDA funds to the Designated Account will initially follow Transaction- Based Disbursement through the use o f statement o f expenditures (SOE). The Transaction- Based Disbursement Method will be used during at least the first two years o f implementation. In order for the project to move from transaction based disbursement to report based disbursement where six monthly forecasts o f expenditure are paid quarterly hence ensuring the project has adequate funding at all times, the project will during implementation have to meet the following requirements: (a) sustain satisfactory financial management rating during the project's supervision; (b) submit Interim Financial Reports consistent with the agreed form and content within 45 days o f the end o f each reporting period, and (c) submit all expected Audit Reports by the due date. The fund flow arrangement for the project i s summarized in the following chart: 75 Figure 8: Flow of FundsArrangements Designated Account at MoCT BirrAccount at MoCT Lalibela Culture Axum Tourism Addis Ababa and Tourism Development, Culture and Office Axumcluster Tourism Bureau 25. The allocation of IDA Credit will is based on the project components. This will facilitate the monitoring o f the project performance indicators as well as financial aspects since expenditures are directly allocated to components. Requests for replenishment o f the Designated Account for expenditures incurred under each component will be based on expenditures incurred at the implementing agencies for which justification o f utilization has been provided. 26. Retroactive financing, up to US$3.5 million equivalent, has been provided for in the DFA to cover all eligible expenditures not funded under the PPF taking place between Board approval and effectiveness. This i s particularly justified by the narrow scope o f the PPF and the large amount o f activities that are expected to enter into implementationinearly FY10. Reporting on use of IDA Credit and Grant Proceeds andSOE limits 27. Disbursements for all expenditures should be made against full documentation except for contracts valued at less than as follows: i)US$ 200,000 for works; (ii)US$ 200,000 for goods; (iii) US$ 100,000 for consulting firms and (iv) US$ 50,000 for individual consultants (v) training and workshops, and operating costs on all contracts regardless o f the amount which will be claimed on the basis o f Statement o f Expenditures (SOEs). All supporting documentation for SOEs will be retained at each o f the offices where financial transactions occurred. They will be kept in a manner readily accessible for review by regular IDA missions and internal and external auditors. The statement o f expenditures will be included in the Withdrawal Applications that will be submitted to IDA on a monthly basis. 76 28. The supporting documentation for reporting eligible expenditures paid from the Designated Account will be summary reports and records evidencing eligible expenditures for payments against contracts valued above the SOE thresholds defined above. The supporting documentation for direct payment requests should be records evidencing eligible expenditures (Le., copies o f receipts, suppliers' invoices, etc). The project will submit a bank statement and a reconciliation o f the Designated Account together with the Withdrawal Application on a monthly basis. Minimum Value ofApplication 29. The Minimum Value o f Applications for Direct Payment and special commitments i s US$ 100,000.. 30. The Project will have a life o f five years. The IDA Credit would be disbursedagainst the categories shown in the table below in a proportionate manner across all disbursement categories. Disbursements will be made in accordance with procedures and policies outlined in the Bank'sDisbursement Handbook. Table 6: IDA Credit ProceedsAllocation Percentageof ExpenditureCategories us Expenditureto be Financed f1) Works 14.29 100% (2) Goods 2.22 100% f3) Services 7.67 100% (4) Training 2.27 100% (5) MatchingGrant 3.00 100% (5) OperationCosts 1.37 100% (6) Advance PPF 0.70 (7) Unallocated 3-48 TOTAL AMOUNT 35.00 100% FinancialReporting 31. Financial reports will be designed to provide quality and timely information on project performance to project management, IDA and other relevant stakeholders. The existing accounting and reporting systems o f MoCT are capable o f producing the required information regarding project resources and expenditures. Duties o f each implementing entity in the preparationo f the regular financial reports are explained below. 32. Based on the regular reports received from Site Management Units, it i s the responsibility of the PCU in MoCT to prepare and consolidate quarterly Interim un-audited 77 Financial Reports (IFRs) and annual accounts and facilitates the external audit o f the consolidated accounts. 3. The SMUs are responsible for preparing and submitting quarterly reports to the Federal PCU at the MoCT. The SMUs will also submit the same report to their respective regional tourism offices for monitoring purposes. 33. On the basis o f financial reports received from destination CU, MoCT will submit a consolidated IFR to IDA within 45 days after the end o f each quarter. Timeliness o f the financial report i s crucial and hence due attention will be given to submission of regular financial reports to the higher tiers. This will be conducted within the timeframe prescribed in the financial management manual. 34. In compliance with International Aceounting Standards and IDA requirements, MoCT will produce annual financial statements. These include: (i) Balance Sheet that shows Assets, a Liabilities and Fund balances; (ii) a Statement o f Sources and Uses o f Funds showing all the sources o f Project funds, expenditures analyzed by Project component and or category; (iii) a Designated Account Activity Statement; (iv) a Summary o f Withdrawals using SOE, listing individual withdrawal applications by reference number, date and amount; and (v) Notes related to significant accounting policies and accounting standards adopted by management and underlyingthe preparation o f financial statements. These financial statements will be submitted for audit at the end o f each year. Auditing 35. The Office of the Federal Auditor General (OFAG) is responsible to carry out the audit o f all the financial transactions o f the federal government and subsidies to the regions. Each o f the regionshas regional auditor general responsible to audit financial transactions inthe region. OFAG usually delegates its responsibility mostly to the Audit Services Corporations (ASC), the government owned audit firm, and in some cases to private audit firms to carry out the audit o f donor-financed projects. The ASC and most o f the private audit firms conduct audits in accordance with international standards on auditing. For this project, OFAG will assign external auditors acceptable to IDA. The project external auditors with qualifications, experience and TORS satisfactory to IDA should be recruited within 60 days after IDA Credit effectiveness. The audit TOR were agreed at the time of financing agreement negotiation. 36. According to the audit policy o f IDA, MoCT will prepare consolidated project annual accounts, including all the statements explained above, and the auditors will express a single opinion on each o f these consolidated accounts. 37. MoCT will submit to IDA audit reports six months after the end of each fiscal year, which ends on 7 July o f each year. MoCT will also insure that all the audit findings identified by the auditors are resolved on a timely manner since this practice will enhance accountability and internal control arrangements. 78 Report Responsible FiscalYear DueDate Agency Ending Consolidated opinion on the project Within 6 financial statements M O C T July 7 months o f end o f fiscal year Financial Covenants and other agreements 38. Financial management-related covenants in the financing agreement include: (i) maintenance o f a satisfactory FM system; (ii) submission o f quarterly IFRs to IDA forty five 'days after the end o f each quarter period and (iii) submission o f the audited Project accounts to IDA six after the end o f each fiscal year. The fiscal year ends on 7 July o f each year. The audited financial statement will include Government contribution to the project financing. 39. MoCT in consultation with OFAG will appoint project auditors for this project within two months o f effectiveness. Financial Management Action Plan 40. The action plan below indicates the actions to be taken for the project to strengthen its financial management systemand the dates that they are due to be completed by. Table 7: FinancialManagementAction Plan Recruit the FMS for the PCU at MoCT and an 2 Accountant for each o f the three Site Before MoCT Management Units. effectiveness 3 Prepare financial management manual for the Before project effectiveness MoCT 4 Training o f all finance staff on Bank One month after procedures and IFRpreparation effectiveness MoCT/WB 79 SupervisionPlan 41. The project's risk identification sheet shows that the financial management residual risk rating i s moderate. Inthe circumstances, at least one full supervisionmission will be undertaken ina year and at times short missions will be undertaken. Supervision activities will include: i) review o f quarterly IFRs; ii)review o f annual audited financial statements as well as timely follow-up o f issues arising; iii)transaction review; iv) participation in project supervision missions as appropriate; and v) updating the FM rating in the Implementation Status Report (ISR). 80 Annex 8: ProcurementArrangements ETHIOPIA SUSTAINABLE TOURISM DEVELOPMENT PROJECT A. General 1. Procurement for the project will be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004; revised October 01, 2006 and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004; revised October 01, 2006, and the provisions stipulated in the Legal Agreement. The national procurement system and the provisions o f Proclamation 430/2005 of January 2005 and Federal Public Government Procurement Directive o f July 2005 have been reviewedby the Bank. Based on the review, contracts that will not be procured under International Competitive Bidding (ICB) and consulting assignments that will not involve international competition may follow the Recipient's federal procurement procedures, subject to the following additional procedures:(i) the Recipient's standard bid documents for procurement o f goods and works shall be used; (ii)if pre-qualification is used, the Bank's standard prequalification document shall be used; (iii) margin o f preference shall not be applicable; (iv) bidders shall be given a minimum o f 30 days to submit bids from the date o f availability o f the bidding documents; (v) use o f merit points for evaluation o f bids shall not be allowed; (vi) foreign bidders shall not be excluded from participation; and (vii) results o f evaluation and award o f contract shall be made public; (vii) In accordance with para.1.14 (e) o f the Procurement Guidelines, each bidding document and contract financed out o f the proceeds o f the Financing shall provide that: (a) the bidders , suppliers, contractors and subcontractors shall permit the Association, at its request, to inspect their accounts and records relating to the bid submission and performance o f the contract, and to have said accounts and records audited by auditors appointed by the association; and (b) the deliberate and material violation by the bidder, supplier, contractor or subcontractor o f such provision may amount to an obstructive practice as defined in paragraph 1.14(a)(v) o f the Procurement Guidelines. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank inthe Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 2. Procurement Environment: Public procurement in Ethiopia follows the federal structure o f the government. Procurement at the federal level i s governed by the procurement code issued by the federal government on January 12, 2005. At the regional level the procurement code i s enacted by the regional governments, and the procurement directive i s adapted to each region based on the model prepared by the federal government. 3. The Country ProcurementAssessment Report (CPAR) conducted in 2002 identified weakness in the country procurement system. The government has taken the following actions based on the recommendation o f the CPAR: (i) a new procurement code have been enacted at the federal level. All regions and city administration, except Dire Dawa City Administration, have also enacted their procurement codes. Dire Dawa City Administration follows the federal 81 procurement law and directives issued by MoFED; (ii)anindependent Public Procurement Agency (PPA) with monitoring functions has been established at the federal level; (iii)new Federal Procurement Directives were issued in July 2005; (iv) standard bid documents for procurement o f works, goods, and selection o f consultants have been prepared and distributed to federal and regional government bodies; and (v) procurement has been fully decentralized to implementing agencies. However, gaps in capacity building still remain, as the large training program envisaged in the CPAR action plan could not be implemented in full. In addition, independent regulatory bodies (Regional Public Procurement Agencies) have not been established in the regions. It has been reported that professional staff have been assigned in some o f the regions like the Oromiya and region, and that similar efforts have been made at the SNNPR, Amhara and Tigray regions. However, there is a need for fwther actions to make the regulatory agencies at each o fthe regions fully staffed and functional. Procurementof Works: Works to be procuredunderthis project would include: (a) maintenance and improvement o f historic churches, (b) delineation of World Heritage boundaries, and (c) development o f satellite sites in Lalibela so as to protect the cultural assets while improving the quality o f the product to allow better tourist experience and longer stay; (d) the improvement o f basic infrastructure entailing (i)the paving o f current core site road (which will would be restricted to walking and animal-based transport) and the construction o f two short by-pass roads --3km and 2.5 km respectively-to establish the links between the three tourism zones around the churches zone area, (ii)the improvement o f water supply, sanitation and solid waste management, (iii)the improvement o f the Yemherana Kristos gravel road (12 km); (e) improvement o f the museum, stelae field, monuments and attractions inAxum; (0 renovationand improvementofthe nationalmuseuminAddisAbaba and environs; (g) environmental restorationand protectionworks at the core sites and buffer zones; (h) Some other constructionworks; (i)Othersimilarimprovementoftouristattractionsites,andenvironmentalworks. 4. The procurement will be done using the Bank's Standard BiddingDocuments (SBD) for all ICB and National SBD agreed with or satisfactory to the Bank. Detail implementation arrangements will be indicated inthe Procurement section o f the Project Implementation Manual (PIM) 5. Procurementof Goods: Goods procured under this project would include: Garbage and sewage trucks, Furniture and equipment, vehicles, office equipment, materials, Films and other Exhibition items, IT Equipment, and others. As the nature o f the project is a kind o f demand driven, the other necessary goods procurementmay be included as found necessary indue course to meet the objectives o f the project. The procurement will be done usingthe Bank's SBD for all ICB and National SBD agreed with or satisfactory to the Bank. Procurement of non-consultingservices: There will be a number o f non-consulting services envisaged in this project as listed in the attached indicative Procurement Plan. All Sub- component 2, Visitor services enhancement in selected destinations will be non - consultancy 82 services. This sub-component will be comprised o f the following activities: enhancement and modernization o f tourists/visitor facilities, including interpretation services in key destinations (Lalibela, Axum, Addis Ababa), information and guidance enhancement, documentation and libraryexhibitions inhistoric sites, andhandicraft development. 6. The procurement may be done usingthe Bank's Sample Bidding Documents (SBD) for non-consulting services or other acceptable standard for the Bank for all I C B and National SBD as agreed with or found satisfactory to the Bank 7. Selection of Consultants: Selection of consultants shall be carried out using Bank's standard Request for Proposals (RFP). Consulting firms for services estimated to cost more than US$ 200,000 equivalent would be selected through Quality and Cost Based Selection (QCBS) method. Consulting firms services estimated to cost less than US$ 100,000 equivalent may be selected using the Consultants' Qualification (SBCQ) method. Individual consultants will be selected on the basis o f their qualifications in accordance with Section V o f the Bank's Consultants Guidelines. Consulting services for audits and other services o f a standard nature or routine nature may be procured using the Least Cost Selection method. Single source selection may be used where it can bejustified. Short lists o f consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultants Guidelines. When there i s need for capacity reasons, CSOs, universities, research institutions, public training institutions, or any special organizations could be employed to assist where they have an advantage over commercial firms. Venues for workshops and training and purchase o f materials will be done on the basis o f at least three quotations, but annual training plans and budget shall be prepared and approvedby the Bank inadvance o fthe training. 8. Operating Costs: Operating costs for the project shall consist o f operation and maintenance costs o f equipment, communication charges, transportation costs and travel allowances to carry out field supervision, office supplies, fuel and other consumables among others. These will be procured using Government procedures as described inthe ESTDP P I M 9. The procurementprocess/procedures and SBDs to beusedfor each procurement method, as well as model contracts and formats for each procurement process are presented inthe ESTDP PIM. 10. Training and workshops will be based on the capacity building needs. The training would include short term (study tour exchange visits, training o f trainers etc) programs in the areas o f fiduciary management (Financial & Procurement), as well as human resources, tourism and cultural heritage management. Venues for workshops and training and purchase o f materials will be done on the basis of at least three quotations. The selection o f institutions for specialized training will be done on the basis o f quality and therefore the QBS method will be used. Annual training plans and budgetshall be prepared and approvedby the Bank inadvance o f the training. 11. Inaccordance with para.1.14 (e) o f the Procurement Guidelines, each biddingdocument and contract financed out o f the proceeds o f the Financing shall provide that: (i)the bidders , suppliers, contractors and sub-contractors shall permit the Association, at its request, to inspect their accounts and records relating to the bid submissionandperformance ofthe contract, and to 83 have said accounts and records audited by auditors appointed by the association; and (ii) the deliberate and material violation by the bidder, supplier, contractor or subcontractor o f such provision may amount to an obstructive practice as defined in paragraph 1.14(a)(v) of the Procurement Guidelines. B. Assessment of the agency's capacityto implementprocurement 12. The scope and objectivesof this procurementcapacityassessmentis to: evaluate the capacity o f the Ministry o f Culture and Tourism (MoCT) to manage procurement in general and the Bank-financed Projects in particular, with particular emphasis on the intended procurements under the Ethiopian Sustainable Tourism Development Project; assess the risks (institutional, political, organizational, procedural etcetera) that may negatively affect the ability o fthe ministryto carry out the procurement process; 0 develop an action planto be implemented as part o fthe project to address deficiencies and minimize the risks revealed by the assessment; propose a suitable procurement supervision plan for the project considering the relative strengths, weaknesses and risks revealed by the assessment; 13. ExistingprocurementUnit:There is a procurement unit inthe organizational structure o f the ministry. The existing unit has very limited experience inprocurement o f Bank-financed contracts and has no adequate skilled staffs. In light o f the current capacity limitations, the ministry has already established a separate Project Coordination Unit (PCU) for ESTDP which has a procurement team in it. Therefore the procurement activities o f the project will be carried out by ESTDP PCU. The PCU, that will be accountable to the Ministry o f Culture and Tourism (MOCT), i s being staffed and will be responsible for the implementation o fthe project. The PCU will have one procurement specialist and an assistant procurement officer for the duration of the project or until all the procurement activities will be completed. The PCU may bring on board temporary expertise as needed. 14. An assessment o f the capacity o f the PCU of the MoCT to implement procurement actions for the project has been carried out by the Country Procurement Specialist during appraisal. The assessment included the organizational structure o f the procurement unit to implement the project, staff availability, institutional arrangements, and experience and procurement environment in general to carry out efficient procurement. The following key capacity indicators have been assessedinthe newly established PCU o f MoCT: 15. Legal Aspects and Procurement Practices:the legal corporate status o f the agency being government department, its procurement practices and procedures would be modeled and closely follow national regulations and procedures. Public procurement in Ethiopia follows the federal structure of the government. Procurement at the federal level i s governed by the procurement code issued by the federal government on January 12, 2005. Inthe case o f Bank / Donor financed projects, the ministry will follow the Bank's standard procedures. As the PCU i s 84 a new establishment, no existing internal written procurement working manuals i s available. The procurement procedures o f ESTDP will be detailed inthe PIM. 16. ProcurementCycleManagement:the entity's procurement planning, RFP preparation, management o f biddingprocess, proposals evaluation and general handlingo f procurement cycle for the few contracts already procured by the newly established unit is acceptable. But the PCU, as an entity, i s a new establishment and has little prior experience in managing major goods and works procurement process. Therefore it needs further capacity building actions to manage international procurement. 17. Organization and Functions:the organization o f the procurement unit o f PCU o f the ESTDP and allocation o f functions, at the federal level is acceptable. The situation at the region levels (site management units) is not yet known. The flow o f procurement process or activity, at the federal level, is that the procurement section prepares all procurement documents and the PCU manager would clear. Regarding tenders evaluation, there i s tender committee chaired by the PCU's M&E department head. The committee has three members and conducts the tender analysis and makes recommendations o f the award. The award recommendation is approved by the PCU manager. 18. Supportand ControlSystems:there is an internal audit division within the MoCT. The project procurement function will be audited by the ministry's audit division. The tender committee reviews and endorses tender evaluations which will be further approved by the Manager. The existing segregation o f duties and support system is satisfactory for the small sized procurements. Though there i s no written internal procedural manual the team i s working with good knowledge o f the federal government's procurement procedures. 19. Record-keeping:the review o f limitedprocurement documents o f the procurement unit o f PCU indicates that the records keeping practice is acceptable. 20. Staffing:at the federal PCU, there is only single procurement staff at the moment. There i s a plan to recruit additional one. The existing single staff has relevant knowledge to undertake acceptable procurement. The PCU team, in general, has good understanding o f the project and there i s good communication, among the team, both lateral as well as vertical. 21. With the Understandingo f the existing capacity limitations, the ministryhas established a separate PCU and the PCU has already hired qualified procurement specialist. The hired Procurement specialist has been involving inthis project preparation over the last several months 22. General Procurement Environment:the PCU o f the MoCT at the federal level is a newly established unit and has no previous experience o f working together as a team and no record o f success or failure. All the procedures and systems are currently under development. However, the staffs o f the PCU are well experienced and have good sprit for the success of the project. With specific to procurement, at the federal level the start seems good, but the situatiodthe capacity at the regional levels (site management units) i s very uncertain. At the moment, the site management i s not yet organized. The ministry has confirmed to finalize this task by end June 2009. 85 23. The key issues and risks concerning procurement for implementation o f the project have been identified and include: 0 The PCU i s newly established and all positions are not staffed yet. The team has no previous experience o f working together as a team; 0 Institutional experience limitations to administer international contracts procurement ingeneral andBank-financedprocurement inparticular; 0 Quality o f supporting and control systems i s not adequate; 0 The organizational aspects and skills o f the staff, at the regional levels (Site management unit level) i s not yet known/not inplace; 0 Lack o f written procedural manualdsystems inplace; 0 Unavailability o f qualified contractors/suppliers/consultants for the unique/ uncommon/ works/ goods/ services to be procured. 24. The following actions were agreeduponwith the MoCT as risk mitigation measures: 0 The Ministry will recruit additional procurement staff at the federal level, and complete this before end o f June 2009; 0 The Ministry will prepare Project Implementation Manual (PIM) which will have a procurement section containing detailed procedures o f the project procurement management and laying out all steps required. Procurement training on the use o f Bank's standard procurement documents will be provided to the procurement staff o f the project; The PCU's procurement performance will be over sighted by the Project Steering Committee (PSC) and also audited by an independent auditor either by PPA or Office o f the auditor General; 0 The procurement part o f the PIM will establish detailed procedures and lays out all steps to conduct efficient procurement to assist the practitioners as guidance; 0 Cognizant and flexible contract packaging and procurement planningto be adopted to attract international suppliers, even if the contract amounts are below the ICB thresholds. 25. The overall project risk for procurement is HIGH and the thresholds for prior review, for international competitive bidding (ICB) including the maximum contract value for which the short list may comprise exclusively National firms in the selection of consultants, are presented inthe table below. 86 Table 8: ProcurementThresholds CATEGORY PRIOR ICB NATIONAL SHORT REVIEW THRESHOLD LIST THRESHOLD MAX VALUE [$1 [$1 [$1 Works =>5,000,000 =>5,000,000 NA Goods =>500,000 =>500,000 NA Consultants(Firms) =>200,000 NA <200,000 Consultants(Individuals) =>I 00,000 NA NA 26. Additionally, the first two (2) contracts o f each procurement method, irrespective o f the amount, will be subject to IDA prior review as determined mandatory inparagraphs 2 and 3 o f Annex 1 of the Bank's procurement Guidelines. all single source selection and all direct contracts; irrespective o f the amount; and all amendments o f contracts raising the initial contract value by more than 15 percent o f original amount or above the prior review thresholds will be subject to IDA prior review mandatory inparagraphs 2 and 3 o f Annex 1o f the Bank's Consultants selection Guidelines. 27. Post review: for each contract not submitted to the prior review, the procurement documents will be submitted to IDA post review inaccordance with the provisions o f paragraph 4 o f Annex 1o f the Bank's procurement Guidelines. The post review will be based on a ratio o f at least 1to 5 contracts. C. ProcurementPlan 28. The Borrower developed, at appraisal, a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team during negotiations and is available at the office o f the ESTDP Coordination unit. It will also be available in the project's database and inthe Bank's external website. The Procurement Plan will be updated inagreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. D. Frequencyof ProcurementSupervision 29. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the Implementing Agency has recommended semi-annual supervision missions to visit the field to carry out post review o fprocurement actions. 87 F. Detailsof the ProcurementArrangementsInvolvingInternationalCompetition 1. Works, goods, andnonconsultingservices. fa) WorksProcurement Packages with Methods and TimeSchedule 1 2 3 4 5 6 7 R Estimate Pre- ef Amount d Procurement qualification Prior or Bid Closing- N Description Method (yesho) Post Opening 0. in US%, Review 000 Improvementof heritage assets 4,034 NCB No Post 2/19/2010 7/29/2010 Road improvement 4,260.0 NCB No post 1/10/2009 8/8/2010 1 1 I 1 I Visitor centers, training center and trail signage enhancement at core and 2,998.8 NCB No post 4/29/2010 8/12/2010 satellite sites Provision of sanitation, water, solid waste and other 4 environmental and 1,496.9 NCB No post 3/16/2010 6/29/2010 protection works in the core sites and buffer zone Support to resettlement 1 I process 1,000 NCB No post 04/29/2010 08/12/2010 fb) GoodsProcurement Packages with Methods and TimeSchedule 1 1 2 3 4 Re f Prior or Date Amount in Estimated Procurement Bid Closing- No Description US%000 Method Review Opening Signature 1 Garbage and sewage truck 270.0 ICB Prior 6/28/2010 8/25/2010 I I 2 IT Equipment 100.0 NCB post 12/27/2009 3/29/2010 May Furniture, office equipment, and be materials for the Tourist Information 773.0 ICB Prior 10/28/2009 1/28/2010 broken I I into small Center lots I I 1I Vehicles I 330.0 NCB post I 10/28/2009 1/28/2010 Exhibition items and equipments for visitor centers 500.0 ICB Prior 1/13/2010 4/15/2010 1 6 / 1 1 I Promotionalmaterials and reproduction 325.0 NCB post 8/13/2010 11/15/2010l l 88 t 2. Consultantservices (c) ConsultancvAssignmentswith SelectionMethodsandTime Schedule I I 1 Estimated 7 8 9 Estimate d Bids Estimated Description* Amount Selection PriorPos opening/c contract Comments Ref in US%, Method t Review losing signingdate No. 000 Date 06/23/20] Prior 0 10/27/2010 02/10/201 + Prior 0 06/16/2010 02/24/201 0 1 06/30/2010 I 10/30/200 I CBS Prior 9 03/05/2010 10/30/200 Prior 9 03/05/2010 11/01/201 0 03/07/20] 1 01/20/201 Design ofpromotional materials 260.0 QCBS Prior 0 1 05/26/2010 I ,,, Norms and standards for tourist 10/30/200 I 03/05/2010 11/01/201 01/20/201 05/26/20] 0 I E-+T Prior QCBS I Prior 1 IC Post 12/02/200 9 02/10/2010 artistic ieritage including coffee experience 110.0 I Prior 9 IC Attractions inventory assessment along the westernroute 50.0 2o Tourists satisfaction and beneficiary surveys and M&E annual survey 140.0 89 Technical studies for old houses, Adaptive reuse study for large 1/25/200 21 buildings and vernacular homes and 252.0 QCBS prior 02/03/2010 Study on historical district management 9 framework, Vernacular Architectural Heritage Survey Site development study and tourism 07/21/201 22 development plan 100.0 IC Post 0 11/24/2010 Inventory study and preparation of 23 development plan for potential 12/21/200 attraction for Somali region 70.0 IC Post 9 04/26/2010 Identificationof World Heritage Site 11/01/201 24 Boundaries for Lalibela 90.0 IC Prior 0 03/07/2011 90 Annex 9: Economic and FinancialAnalysis ETHIOPIA SUSTAINABLE TOURISM DEVELOPMENT PROJECT 1. This project's main outcomes are related to tourist visitation, income generation through tourist spending, and jobs. The Project takes place in the context of, and i s an important contribution to, Ethiopia's overall tourism strategy, grounded in a new paradigm formulated in 2005 that i s meant to set in motion and rapidly build the sector as a pivotal component o f the country's economic development. The Project, by providing support in the form o f cultural heritage site improvement, institutional development and capacity building as well as through a linkages program aimed at fostering small and medium enterprise development (many o f them located in rural areas), i s likely to contribute to the broader objectives o f economic diversification and inclusive growth. EconomicAnalysis Methodology 2. The economic analysis o f this type o f project faces some difficulties particularly where there i s an indirect relationship betweenthe technical assistance provided under the project on its stream o f benefits, and from the lagged effects o f the project. Also, most o f the benefits do not lend themselves easily to being assigned a precise monetary value and cannot always be unambiguously attributed to the project, for example tourism revenues. For these reasons, sometimes a cost effectiveness methodology i s used for economic analysis o f these types o f projects, however due to lack o f adequate information for conducting this type o f analysis this methodology has not been adopted. For the purpose o f this project a simple cost-benefit analysis model has been developed to calculate the net present value (NPV) and the economic rate o f return (ERR) in a "with" and "without" project framework on a 12-year time horizon. To address the limitations o fthis approach a conservative set o f assumptions is used and sensitivity analysis has also been conducted to assess the robustness o f results. In addition, for a project o f this type the focus of analysis is on estimating the economic benefits and costs rather than financial analysis. Main Assumptions 3. Based on the information from field visits, background analytical studies done for the purpose o f the project and experience from similar projects in other African countries, the following assumptions were made: 0 The discount rate used for the economic analysis is 12% based on the standard assumption that the opportunity cost o f capital i s 10% in most o f World Bank Projects9. The project impact i s expected to start materializing during project implementation. The maximum impact o f the project will be reached once the relevant capacity and institutions are strengthened.Keeping this inview a 12-year time horizon is used. Handbookon EconomicAnalysis of InvestmentOperations, OPR, May 2006 91 0 Under the destination development and marketing components, it is assumed that the number o f international tourist arrivals in targeted destination (Addis Ababa, Axum and Lalibela) would be close to 80 percent o f total arrivals. This is a conservative estimate based on the Overseas Development Institute (ODI) study which estimates that out o f the total o f 303,241 tourist arrivals in 2007, 212,000 (70 percent) are conference and business tourist that come to Addis Ababa. And almost all international leisure tourists to Ethiopia visit the Northern Historical Route including the destinations of Axum and Lalibelalo. 0 Further,incase o f domestic tourists, due to inadequate data the baseline estimates for Addis Ababa, Axum and Lalibela are based on recent estimates provided in the OD1report, according to which 403,000 domestic business tourists visit Addis and for Axum and Lalibela the estimate is 17,961 and 9,644 respectively. The estimate o f average length of stay and average spending per person per day are also based on OD1estimates. 0 In order to arrive at an expected growth rate for tourism revenues, we have analyzed the historical trend in tourist arrivals based on official statistics1 1. According to these during the period 2000 to 2007 the average annual growth in international tourists arrivals is above 13 percent. However, taking into account the weaknesses in data collections and weak macroeconomic outlook for the global economy we are taking a conservative estimate of 8 percent growth in tourism revenue with `a lag effect o f two years' for `with project' base case scenario and a 6 percent growth rate for `without project' base case scenario. Taking into account the difficulties in estimating tourism revenues sensitivity analysis with a more conservative growth rate o f 4 percent `with project' and 3 percent `without project' with a lag effect o f 2 years is also conducted. In addition, increase in tourism revenues i s adjusted by 50 percent to take into account the impact o f activities not supported by the project. 0 Under the Demand-driven Linkages component it is assumed that a total of 60 MSMEs and Associations would be supported by the project based on an average grant funding o f USD 50,000 per firm. Further it i s assumed that as a result o f increased efficiency and capacity utilization, the supported firms would yield an increase in output at a multiple o f two times the support provided with a lag o f 1 year. This i s based on experience in other countries such as Burkina Faso and Uganda inwhich a multiple o f 10 and 5 times the grant were used respectively. In addition, support to these enterprises would also result in direct and indirect job creation, however due to difficulty in accurately estimating this variable, the secondary impacts in terms o f increased employment income have not been included inthe calculation ofNPV and ERR. loOverseas DevelopmentInstitute, `EnhancingPrivateSector andCommunityengagement intourismservices inEthiopia' draft report January,2009. Ministryof CultureandTourism, `Tourist StatisticsBulletin' 2003-2005 92 0 The additional output created by assisted firms is defined as the difference between the level of output achieved by firms assisted by the grant scheme funding and the level of output these same firms would have achieved otherwise. 0 Under the Institutional Development component, in line with common practices used inthe appraisal o f this type o f projects, it i s assumed that technical assistance efforts do yield tangible economic benefits. Therefore, we assume that the capacity building support provided to various public entities as part o f this component would result in an increase in output at a multiple o f 2 times the amount o f funding provided under the project with a lag effect o f 2 years. 0 The corporate and income tax rate o f 30 percent i s assumed to estimate the fiscal impact. 0 A stable macroeconomic environment with price and exchange rate stability i s also assumed. Summaryof Benefitsand Costs Table 9: Aggregate EconomicAnalysis of the Project Present Values o f Flows Fiscal Impact Net Economic-Financial Taxes ($ mn) Benefits (US$ mn) 108.1 32.4 Costs (US$ mn) 19.8 I Net Benefits (US$ 88.3 mn) ERR(%) 43% Base Case Results 4. Table 9 displays the aggregate cost benefitanalysis o fthe project. The Net Present Value o f the net benefitso f the components o f the project at the discount rate o f 12 percent i s estimated at $88 million with an ERR o f 43 percent. Substantial fiscal benefits o f $32 million are expected to accrue. The detailed analysis by component i s presented intable 10 below. 93 Tab 10: DetailedEconomicCost-BenefitAnal7 is Preser Value c Flows Benefits costs Net ERR Benefits (%I i.DestinationDevelopmentand 94.34 14.06 80.28 46% Marketing 0 Rehabilitation of historic sites and basic infrastructure 0 Visitor services enhancement 0 Product development in emerging destinations 0 Positioning and Marketing ii.MatchingGrant 5.71 2.01 3.70 43% Scheme/Community Involvement 0 Sustainable Tourism Development iii.InstitutionalDevelopmentand 8.01 3.74 4.28 27% Capacity Building 0 Institutional Development 0 Capacity Building 5. The project is expected to yield gains in terms of increased number of tourist arrivals and extended-length of average stay that -are expected to yield significant tourism receipts. In addition under the matching grant fund the supported MSMEs are likely to create direct jobs as a result o f increasedoutput. Also, a significant number of indirect jobs would also be created that are not accountedfor inthis analysis. Resultsof SensitivityAnalysis 6. Sensitivity analyses were effectuated through adoption of more conservative scenarios. The first conservative scenario consists in assuming slow disbursement schedule of 7 year against baseline of 6 years. This is done to take into account the risks associated with weak implementation capacity. 94 Table 11:DetailedEconomicCost-BenefitAnalysis(7 year disbursementschedule) Present Value of Flows Benefits costs Net ERR(%) Benefits i.DestinationDevelopmentandMarketing 76.90 13.29 63.61 39% 0 Rehabilitationofhistoric sites and basic infrastructure 0 Visitor services enhancement 0 Product development in emergingdestinations 0 PositioningandMarketing ii.MatchingGrantSchemeKomrnunity Involvement 0 Sustainable Tourism 5.41 1.90 3.52 40% Development iii.InstitutionalDevelopmentandCapacity Building 7.57 3.53 4.04 26% 0 InstitutionalDevelopment 0 Capacity Building Overall Project 89.9 I 18.7 71.2 38% 7. The second conservative scenario takes into account sensitivity to growth in tourism revenues by assuming a growth rate of 4 percent with project and 3 percent without project against a baseline scenario of 8 percent and 6 percent respectively. Table 12: DetailedEconomicCost-BenefitAnalysis (4 percentgrowthintourism r e nues) Preser Value ( Flows Benefits costs Net ERR Benefits ("A) i.DestinationDevelopmentandMarketing 36.42 14.06 22.35 27% 0 Rehabilitationof historic sites and basic infrastructure 0 Visitor services enhancement 0 Product development in emergingdestinations PositioningandMarketing ii.MatchingGrantSchemeKommunity Involvement 0 Sustainable Tourism 5.71 2.01 3.70 43% Development iii.InstitutionalDevelopmentandCapacity Building 8.01 3.74 4.28 27% 0 InstitutionalDevelopment 0 Capacity Building Overall Project 50.1 19.8 30.3 28% 95 8. The thirdscenario takes into account a shorter time horizon of 6 years instead of the base case scenario of 12 years to estimate the net benefits and costs of the project that would result duringthe first 6 years of the project life. Table 13: DetailedEconomicCost-BenefitAnalvsis(6-vear time horizon) c Presen Value c Flows Benefits costs Net ERR Benefits (%I i.DestinationDevelopmentandMarketing 27.69 14.06 13.63 28% Rehabilitationof historic sites and basic infrastructure 0 Visitor services enhancement Product development in emergingdestinations 0 PositioningandMarketing ii.MatchingGrantScheme/Community Involvement 0 SustainableTourism 5.4 2. 2.35 37% Development iii.InstitutionalDevelopmentand CapacityBuilding Institutional Development 4.29 3-74 0.56 15% Capacity Building Overall Project 37.4 19.8 17.6 28% 9. The positive NPV inall three scenarios indicates that the results o fanalysis are robust. Conclusion 10. In summary, the economic benefits expected from the project include job creation, increased productivity and economic diversification. Improvements in service delivery are expected to result inan increase number of foreign and local tourists as well as average duration of stay that would generate higher level o f tourism receipts. Also, increase production and output of the firms inthe SME sector will result inmorejob opportunities. 96 Annex 10: SafeguardPolicyIssues ETHIOPIA SUSTAINABLETOURISM DEVELOPMENT PROJECT 1. The project has triggered OP 4.01 Environmental Assessment, OP 4.11Physical Cultural Resources; and OP 4.12 Involuntary Resettlement due to civil works that are required to enhance selected sites. OP 4.01 EnvironmentalAssessment OP 4.01 has been triggered due to the planned construction and rehabilitation activities under component 1: (i)Improvements o f basic infrastructures (Le. access and by-pass roads, water supply and sanitation) in Lalibela; (ii) renovation and improvements at the National Museum in Addis Ababa; and (iii) rehabilitation and upgrading o f touristhisitor facilities inLalibela, Axum, Addis Ababa and environs. The construction and rehabilitation activities related to the afore- mentioned investments are likely to incur some localized adverse environmental and social impacts such as soil and water pollution, loss o f vegetation, soil erosion, air and noise pollution, and loss o f livelihoods. 2. Since the actual locations o f the future investments could not be firmly determined prior project appraisal and to ensure that the planned activities are carried out in an environmentally and socially sustainable manner, the borrower has prepared a revised Environmental and Social Management Framework (ESMF) dated March 11, 2009. The environmental and social screening process outlined in the ESMF i s intended to enable sub-project implementers to identify, assess, mitigate and monitor the potential localized adverse environmental and social impacts (i.e. soil and water pollution, loss o f vegetation, soil erosion, air and noise pollution, and loss o f livelihoods) o f the planned constructiodrehabilitation activities. 3. The ESMF was prepared in consultations with relevant government officials as well as urban and rural residents o f potential investment areas to generate information regarding how they use space in their locality for livelihood generation, residence and cultural purposes to identify the potential localized adverse environmental and social impacts due to project implementation. The results o f these consultations indicated that while there may be some difficulties associated with potential relocation o f potentially affected persons, there will also emerge newjob and training opportunities, and the infrastructure investments such as improved roads will not only benefit the tourists, but also the local residents who will have easier access to markets, health and education facilities. 4. The ESMF describes the environmental and social screening process for sub-projects (screening, assignment o f the appropriate environmental category, public consultations, carrying out o f the requisite environmental work; review and clearance; environmental monitoring, environmental monitoring indicators) and includes (i)an Environmental and Social Screening Form which includes requirements for public consultations, disclosure o f the screening results and EAs, and the identification o f potential adverse social impacts due to land acquisition during the screening process; (ii) Environmental and Social Checklist; (iii)summary of the Bank's an a safeguard policies; (iv) draft EA terms o f reference; (v) Environmental Guidelines for Contractors to be attached to the tender documents; and (vi) an Environmental and Social 97 Management Plan (ESMP) for the proposed ESTDP. The ESMP (i)outlines the institutional responsibilities and cost estimates for implementation and monitoring o f environmental and social mitigation measures pertaining to the investments under component 1; and (ii) includes fundingfor environmental and social management capacity buildingunder ESTDP. 5. If the environmental and social screening results indicate that there will be a loss of livelihoods due to the planned investment, sub-project implementers will arrange for the implementation o f the provisions o f the Resettlement Policy Framework (RPF) to ensure that the appropriate mitigation measures are implemented in compliance with the provisions o f OP 4.12 Involuntary Resettlement. 6. To ensure efficient implementation o f the ESMF, the PCU will hire an Environmental Consultant to be located in Addis Ababa. This Environmental Consultant will (i)coordinate activities related to the implementation o f the ESMF with the Site Officers, the regional EPAs as well as the relevant municipalities in the Amhara and Tigray Regions; (ii)arrange for the implementation o f the relevant provisions o f the ESMF in Addis Ababa, Oromia Region; (iii) make appropriate arrangements for environmental monitoring as recommended in the ESMF and/or separate environmental assessment (EA) reports; and (iv) oversee the overall implementation o f the ESMF. 7. In addition, the project will fund an environmental training program to ensure that qualified personnel are available to implement the ESMF. The consultants concluded that the technical and management capacity to execute ESMF i s weak at the local level, and qualified environmental management staff in are very limited even at the Federal and Regional levels. Availability o f qualified and well-trained personnel is, therefore, crucial to effective implementation o f the ESMF. Training i s needed particularly for regional and local staff working intourism development and Environmental Management sectors as well as for local government leaders and decision makers. 8. Detailed technical training for participants overall should focus on the need to analyze potentially adverse environmental impacts, to prescribe mitigation approaches and measures, and to prepare and supervise the implementation o f management plans. This training should address such matters as community participation needs and methods; environmental analysis; with the use o f environmental screening and other checklist, reporting; and subproject supervision and monitoring that i s the implementation o f the environmental and social screening process outlined inthe ESMF.Provisions have also been made for (i) preparationof EA reports that mightbe the requiredon the basis ofthe screening results; and (ii) environmental protection works at the core sites and the buffer zone inLalibela. OP 4.11on PhysicalCulturalResources 10. OP 4.11 on Physical Cultural Resources is triggered as a consequence o f planned restoration works on culturally significant structures in the World Heritage sites o f Lalibela (churches) and Axum (stelae field, church, traditional houses). It i s also triggered in recognition o f the rich archaeological heritage in the area and to ensure that the chance find clause i s respected in any civil works especially those involving digging such as road works financed through the project. The ESMF covers this policy and any specific EMPs will also detail 98 mitigation actions. The project will work closely with ARCCH which i s the Federal Agency charged with carrying out rescue archaeological activities in the country. This group and regional counterpart offices have benefitted from the training in this area received through the recently completed World Bank financed Ethiopia Cultural Heritage Project. OP 4.12 on InvoluntaryResettlement 11. OP 4.12 on involuntary resettlement i s triggered by the planned relocation o f about half o f the 258 households from the core area o f the Lalibela church complex, as well as possible resettlement /compensation as needed for people whose lands or businesses (vendors) are acquired along the planned by-pass roads inLalibela. No activities inAxum or Addis Ababa will have any land acquisition. A resettlement policy framework (RPF) has been prepared and disclosed which provides a profile o f the affected community and lays down the framework for compensation and restoration o f livelihoods. Now that the core zone has been mapped out, a more detailed Resettlement Action Plan (RAP) will be prepared soon and will be sent for approval by the World Bank. Simultaneously, the affected communities are being consulted and informed. The relocation site has been identifiedand i s inthe process o f being made serviceable with school, electricity and water supply. Inthe unlikely event that land is acquired or access restricted in any other project activity, the RPF will apply and its procedures will be strictly adhered to. The resettlement will also need to be carried ina way that preserves the special status o f Lalibela as a living World Heritage pilgrimage site so as not to weaken its tourism attractiveness. 99 Annex 11: ProjectPreparationand Supervision ETHIOPIA SUSTAINABLE TOURISMDEVELOPMENT PROJECT Planned Actual PCN review 05/25/2007 06/21/2007 Initial PID to PIC 05/30/2007 05116/2008 Initial ISDS to PIC 05/30/2007 05116/2008 Appraisal 05/06/2009 05/06/2009 Negotiations 05/29/2009 05/29/2009 BoardfRVP approval 06/30/2009 Planned date of effectiveness 11/30/2009 Planned date of mid-term review 05/31/2012 Planned closing date 1213012014 Key institutionsresponsiblefor preparationof the project: Ministry of Culture and Tourism, Addis Ababa, Ethiopia Regional Tourism Bureaux Agency for Researchand Conservation of Cultural Heritage (ARCCH) Ministryof Finance and Economic Development Bankstaffand consultantswho worked on the projectincluded: Name Title Unit Francois Nankobogo Senior Operation Officer, TTL AFTFP Hannah Messerli Senior. Private Sector Dev. Specialist AFTFP Menbere Tesfa Private Sector Specialist AFTFP Ibrahim Dione Consultant AFTFP Nevena Alexieva Senior OperationOfficer AFTRL Victoria Gyllerup Senior Operation Officer AFTSN Edeltraut Gilgan-Hunt Environment Specialist ASPEN Meron Tadesse Extended Term Consultant, Financial AFTFM Management Specialist Tesfaye Ayele Procurement Specialist AFTPC Evarist Baimu Counsel LEGAF JohnathanD.Pavluk Senior Counsel LEGAF Roxanne Hakim Senior Anthropologist AFTCS Luis Schwartz Senior Finance Officer LOAFC Hemam Girma Team Assistant AFCEC Yeshareg Dagne Program Assistant AFTFP Bank funds expendedto date on project preparation: 1. Bank resources:US$350,000.00 2. Trust funds: US$ 145,000.00 3. Total: US$495,000.00 Estimated annual supervision cost: US$120,000 100 Annex 12: Documentsinthe ProjectFile ETHIOPIA SUSTAINABLE TOURISM DEVELOPMENT PROJECT 1. World Bank, InMakeda's Footsteps-Towards a Tourism Sector Strategy, 2006 2. World Bank/ODI, Enhancing private sector and community engagement intourism services inEthiopia(draft report), 2009 3. Preparation missions' Aide-Memoire 4. Destination studies funded under the PPF: - Lalibela: Cultural Heritage and Social Safeguards Plan / Tourism and Heritage Management Plan - Lalibela Water Supply and Sanitation Plan Axum: Integrated Destination Development Plan Destination Development Plan for Addis Ababa and its Environs Destination Development Plan for an EasternRoute inEthiopia Destination Development Plan for a Southern Route inEthiopia 5. Ministry of Culture and Tourism, Environment and Social Management Framework, March 2009 6. Ministry of Culture and Tourism, Resettlement Policy Framework, March 2009 7. USAID/Ethiopian Sustainable Tourism Alliance: Creating the Structure for Sustainable and Responsible Tourism inEthiopia, Strategic Planning Workshop Report. 8. Ethiopian Tourism Masterplan - Tourconsult, 1995/6 9. World Bank, Diagnostic Trade Integration Study-Annex 11: The Tourism Sector in Ethiopia: Profile, Problems and a Way Forward, 2003. 10. World Tourism Organization, Tourism and Poverty Alleviation inEthiopia, Preparedby Richard Denman, The Tourism Company, June 2004 11. Ethiopia, Integrated Value Chain Analysis for Tourism, 2006 12. World Bank, Toward the Competitive Frontier - Strategies for ImprovingEthiopia's Investment Climate (draft), June 2008 13. Ministryof Culture and Tourism, Tourism Policy (final draft), December 2008 14.Ministry of Finance and Economic Development, A Plan for Accelerated and Sustained Development to EndPoverty (PASDEP), 2005/6-2009/10, September 2006. 15. Government of Ethiopia, Ethiopia Tourism Paradigm, 2005. 101 Annex 13: Statementof Loansand Credits ETHIOPIA SUSTAINABLE TOURISM DEVELOPMENT PROJECT _ _ _ _ ~ ~ ~ ~~~ ~ Difference between expected and actual Original Amount inUS$Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd P103022 2009 ET-Protect. Basic Serv. PhaseI1 (FY09) 0.00 540.00 0.00 0.00 0.00 556.06 0.00 0.00 P106855 2009 ET-GeneralEduc Quality Improv.(FY09) 0.00 50.00 0.00 0.00 0.00 51.60 0.00 0.00 P113156 2009 ETHIOPIA GLOBAL FOODCRISIS 0.00 250.00 0.00 0.00 0.00 9.41 -9.00 0.00 RESPONSE PRO PO96323 2008 ET-Tana&Beles lnt. Wat Res Dev Project 0.00 45.00 0.00 0.00 0.00 37.86 -3.17 0.00 P101474 2008 ET-Urban LocalGovt Development 0.00 150.00 0.00 0.00 0.00 123.71 -2.81 0.00 (FY08) P101556 2008 ET-Elect.Access RuralI1SIL (FY07) 0.00 130.00 0.00 0.00 0.00 132.72 50.78 0.00 PO74011 2008 ET/Nile Basin 1nitiative:ET-SUInterconn 0.00 41.05 0.00 0.00 0.00 34.84 4.46 0.00 P106228 2008 ET- EthiopiaNutritionSIL (FY08) 0.00 30.00 0.00 0.00 0.00 26.69 -3.00 0.00 P107139 2008 ET-SustainableLand Mngt SIL (FY08) 0.00 20.00 0.00 0.00 0.00 18.21 -0.50 0.00 PI08932 2008 ET-PastoralCommunity Develpt I1 0.00 80.00 0.00 0.00 0.00 63.52 4.33 0.00 (FY08) P101473 2007 ET-UrbanWSS SIL FY07) 0.00 100.00 0.00 0.00 0.00 88.64 11.41 0.00 PO98031 2007 ET-Multi-SectoralHIV/AIDS I1(FY07) 0.00 30.00 0.00 0.00 0.00 17.51 16.64 0.00 PO92353 2007 ET-Irrigation & DrainageSIL (FY07) 0.00 100.00 0.00 0.00 10.00 77.38 38.29 0.00 PO91077 2007 ET-APL3-RSDPStage I11Proj (FY07) 0.00 225.00 0.00 0.00 0.00 191.15 20.82 0.00 PO79275 2006 ET- Cap.Building for Agric. Serv (FY06) 0.00 54.00 0.00 0.00 13.00 27.61 6.57 -1.29 PO94704 2006 ET-FinancialSector Cap Bldg.Project 0.00 15.00 0.00 0.00 7.00 5.64 8.04 0.00 PO97271 2006 ET-Electricity Access (Rural) Expansion 0.00 133.40 0.00 0.00 0.00 106.63 93.56 0.00 PO74015 2006 ET-Protectionof Basic Services (FY06) 0.00 430.00 0.00 0.00 ' 0.00 9.15 -221.56 0.00 PO82998 2005 ET-RoadSec Dev Prgm Ph2 Sup12 0.00 248.20 0.00 0.00 0.00 129.97 19.50 -6.60 (FY05) PO78692 2005 ET-PostSecondary Education SIL (FY05) 0.00 40.00 0.00 0.00 15.00 7.00 19.58 0.00 PO78458 2005 ET-ICT AssistedDev SIM (FY05) 0.00 25.00 0.00 0.00 10.00 5.75 14.20 2.70 PO50272 2005 ET-Priv Sec Dev CB (FY05) 0.00 24.00 0.00 0.00 7.00 9.03 8.22 2.30 PO74020 2004 ET-Pub Sec Cap Bldg Prj (FY04) 0.00 100.00 0.00 0.00 20.00 11.14 27.66 0.00 PO76735 2004 ET-Water Sply & Sanitation SIL (FY04) 0.00 100.00 0.00 0.00 13.00 44.86 44.14 0.00 PO49395 2003 ET-Energy Access SIL (FY03) 0.00 132.70 0.00 0.00 0.00 100.41 71.27 70.42 PO44613 2003 ET-RSDPAPLl (FY03) 0.00 126.80 0.00 0.00 0.00 17.36 2.51 0.00 PO50383 2002 ET-Food Security SIL (FY02) 0.00 85.00 0.00 0.00 35.00 1.06 16.76 -14.23 Total: 0.00 3,305.15 0.00 0.00 130.00 1,904.91 238.70 53.30 102 ETHIOPIA STATEMENT OF IFC's Held and DisbursedPortfolio InMillionsofUSDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. Total portfolio 0 00 0.00 0.00 0.00 0.00 0 00 0 00 0 00 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic. Total pending commitment: 0.00 0.00 0.00 0.00 103 Annex 14: Country at a Glance ETHIOPIA SUSTAINABLE TOURISM DEVELOPMENT PROJECT Sub- POVERTY and SOCIAL Saharan Low- Ethlopia Afrlca Income Development dlamo nd* 2007 Population,mid-year(millions) 79.1 600 1296 Lifeexpectancy GNIpercapita (Atlasmethod, US$) 220 952 576 GNI(Atlas method, US$ billions) 7.6 762 749 T Average annual growth, 2001-07 Population (Yd 2.6 2.5 2.2 Laborforce (%) 2.9 2.6 2.7 GNI Gross per primary M out recent ertlmate (latest year avallable, 2001-07) capita enrollment Poverty (%of population belownafionalPOvertyline) Urbanpopulation(%of totalpopulation) n 36 32 Life expectancyat birth(pars) 52 51 57 L Infantmortaiity(per IOOOllvebiiths) 77 94 65 Child malnutrition (%ofchildrenunder5J 35 27 29 Access to improvedwatersource Access to an improvedwatersource (%ofpopulation) 42 58 68 Literacy(%ofpopulation age 159 36 59 61 Gross primaryenrollment (%ofschool-agepopulation) 91 94 94 .~ Ethiopia _I_- Male 97 99 0 0 LOW-incomegroup Female 85 88 89 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1987 1997 2008 2007 GDP (US$ billions) 0.4 8.9 15.2 8.4 Gross capital formation1GDP 8.1 8.8 242 25.0 Exports of goods andseNiceslGDP 6.0 Trade 114 0.6 P.6 Gross domestic savingsiGDP 0.5 0.2 25 5.5 Gross nationalsavings1GDP 119 7,8 15.1 20.7 Current account balance1GDP -4.2 -2.2 -9.1 4.5 Interest payments1GDP 0.6 0.5 0.4 Total debtlGDP 70.5 formation lQ.3 15.3 Total debt SeNiCelexpOrtS 36.3 9.5 7.1 Present value of debtiGDP 5.9 Present value of debtlexports 38.7 Indebtedness I 1987-97 1997.07 2008 2007 2007-11 (averageannualgmvdh) GDP 2.0 6.2 0.9 111 --Ethiopia GDP percapita -13 3.3 6.0 6.4 Low-incomeorou~ Eqlorts of goods andSeNiCeS 12 P.6 -0.2 0 . 2 STRUCTURE of the ECONOMY 1987 1997 2008 2007 (%Of GDP) Agriculture 54.3 57.6 47 9 46.3 Industry 0.3 0.7 2 7 0.4 Manufacturing 5.5 5.0 4 5 5.1 Services 32.5 327 394 40.3 Householdfinal consumption expenditure 790 788 664 63.9 Generalgov't final consumption expenditure 0 6 80 121 0.6 Imports of goods and services 117 7 9 36 5 32.2 ---GCF -GDP 1987-97 1997-07 2008 2007 I" (averageannualgrowth) Growth o f exports and Imports (Oh) Agnculture 3.1 4.3 0 9 9.4 40T Industry -15 7.8 0 2 110 30 Manufacturing -2.6 5.7 0 6 0.5 Services 15 7.7 t29 0.9 Householdfinal consumption expenditure 3.1 6.4 143 6.9 Generalgov't final consumption expenditure -2.9 6.4 8 1 -3.8 1 02 03 04 05 OB 01 Gross capital formation -0.6 6.6 185 7 . 4 Imports of goods and services 0.7 0.4 mo 3.8 -EXPOT11 -lmOrts Note 2007 data arepreliminaryestimates This tablawas pmducedfmm the Development Economics LDB database 'Thediamonds showfour keyindicators inthe country(in bold) compared with its lncome-group average Ifdata are missing.the diamondwll be incomplete 104 PRICES and GOVERNMENT FINANCE 1987 I997 2006 2007 Domestic p r k e s (%change) Consumer pnces -9.5 -8.4 P.3 17.8 Implicit GDP deflator -6.1 4.5 116 8.8 Government finance (%of GDP,includescurrent grants) Current revenue 14.5 15.4 8.7 8.3 Current budget balance 2.3 5.5 5.2 5.9 I -CPi I Overall surplus/deficit -4.1 -13 -5.5 4.9 ----GDPdeflator TRADE war 1997 2008 2007 Export and Import levels (US$ mill.) (US$ millions) Totalexports (fob) 391 599 1,000 185 0.000 Coffee 253 355 354 424 Pulses andoilseeds 9 23 248 258 M anufactures 74 75 94 0 5 4,000 Total imports (cif) 1,081 1,309 4,592 5,126 Food 194 17 333 259 2,000 Fuel and energy 0 9 147 861 875 Capitalgoods 466 528 1552 2,020 0 Export pnce index(2000=00) I oe 115 t32 10 18 01 02 03 04 os 07 Import pnce index(2OOO=WO) 99 87 t39 151 I 4 Exports 0 imports T e n s of trade (200O=VJO) 18 152 79 78 BALANCE o f PAYMENTS 1987 1997 2006 2007 /Current account balance to GDP (US$ millions) ( O X ) Exports of goods end services 623 1011 2.05 2,486 Imports of goods and services 1,217 1,589 5,548 6,266 Resource balance -594 -578 -3,443 -3,780 Net income -48 -97 -38 0 Net current transfers 204 484 2,095 2,885 Current account balance -437 -81 -1366 -682 Financing items (net) 4 8 -94 969 1050 Changes in net reserves 21 285 397 -88 Memo: Reserves including gold (US$ millions) 224 558 1158 1326 Conversion rate (DEC,local/US$) 2.1 6.5 8.7 8.8 EXTERNAL DEBT and RESOURCE FLOWS 1987 1997 2006 2007 (US$ millions) Total debt outstandinganddisbursed 7,364 0,077 2,326 IBRD 57 0 0 0 IDA 601 1532 553 711 0:114 Total debt service 249 99 8 4 IBRD t3 0 0 0 IDA 9 26 39 6 Composition of net resourceflows Official grants 346 357 5,015 Official creditors 422 0 4 306 Private creditors 72 23 -45 Foreigndirect investment (net inflows) -3 266 364 Portfolio equity(net inflows) 0 0 0 World Bank program Commitments 50 0 281 520 A . IERD E- Eilak-4 Disbursements 86 65 179 t32 E-IDA D.OtMmltil&LaPI F-Private Principal repayments 0 15 23 0 C.IMF 0-Short-tori Net flows 73 50 157 0 2 Interest payments 0 11 8 6 Net transfers 64 38 140 126 Note:This tablewas producedfrom the Development Economics LDB database 9/24/08 105 MAP SECTION 32°E 36°E 40°E 42°E 44°E ERITREAERITREA ETHIOPIA To To Keren R e REP. d OF SELECTED CITIES AND TOWNS ETHIOPIA To To Adigrat S YEMEN REGION CAPITALS Gedaref Humera 14°N Tekeze Axum NATIONAL CAPITAL T I G R AY Mekele RIVERS Ras Dashen Terara (4620 m) MAIN ROADS Atbara D e n a k i l e 14°N a D RAILROADS Gonder A M H A R A REGION BOUNDARIES Lake A FA R Dinder INTERNATIONAL BOUNDARIES Tana 12°N Debra 12°N Tabor Weldiya esert DJIB DJIBOUTI Bahir Dar Blue Asayita 46°E 48°E Aba Nile n Dese e G u l f o f A d y SUDANSUDAN BENSHANGUL Asosa Hanger Debre Markos Awash E t h i o p i a n 10°N 10°N Didesa P l a t e a u DIRE DAWA Dire Dawa To To Harer Hargeysa Gimbi Nekemte ADDIS ABABA ADDIS HARARI Jijiga ABABA AwashAwash SOMALIASOMALIA Nazret Baro Welkite Ramis AwareAware Degeh Bur Gambela Gore O R O M I YA 8°N G A M B E L A y Domo 8°N Asela e Akobo Jima Hosaina ll Shebele Bonga a Wabe O g a d e n Shashemene V S O M A L I Sodo AwasaAwasa Goba t Dodola Warder Kebri Dehar SOUTHERN NATIONS, Wendo f i Imi NATIONALITES R 6°N AND PEOPLES Wabe Gestro t Wabe 6°N a Shebele 0 50 100 150 200 Kilometers r e Genale Negele 0 50 100 150 Miles G FerferToTo Yavello Dawa Mogadishu Dolo Odo IBRD This map was produced by the Map Design Unit of The World Bank. Lake The boundaries, colors, denominations and any other information 4°N Mega shown on this map do not imply, on the part of The World Bank 4°N 33405 JUNE Turkana Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. INDIAN 2007 UGANDA KENYA Moyale To To OCEAN To To 32°E 34°E 36°E 38°E To To Wajir Wajir R1 Marsabit 40°E 42°E Mogadishu 44°E 46°E 48°E