Honduras - Tourism Development Project

Document of The World Bank FOR OFFiCIAL USE ONLY Report No. 8052 PROJECT COMPLETION REPORT HONDURAS TOURISM DEVELOPMENT PROJECT (LOAN 1673-HO) SEPTEMBER 7, 1989 Infrastructure and Operations Division Country Department II Latin American and the Caribbean Regional Office This document bas a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Lempira (L) US$1.00 = L2.00 L 1.00 = US$0.50 L 1,000,000 US$500,000 WEIGHTS AND MEASURES 1 Meter (M) 3.28 feet (ft) 1 Kilometer (km) = 0.62 mile (mi) 1 kilogram (kg) 2.2 pounds (lb) 1 hectare (ha) = 2.47 acres ACRONYMS AND EQUIVALENTS CABEI - Central American Bank for Economic Integration CONADI - National Investment Corporation FONDEI - National Industrial Development Fund GOH - Government of Honduras HTS - Hotel Tegucigalpa Sheraton ICB - International Competitive Bidding IHAH - Honduras Institute of Anthropology and History IHT - Honduran Tourism Institute INFOP - National Institute for Vocational Training OAS - Organization of American States SECOPT - Ministry of Communications, Public Works and Transport SECTUR - Ministry of Culture and Tourism USAID - United States Agency for International Development FISCAL YEAR OF THE BORROWER January 1 - December 31  FMo OFFICMIY in y TFE WORLD BANK WashaIon. D.C. 20433 U.S.A. O^t d OvwcHV.GHUV F ~~pabo_ twahw September 7, 1989 MEMORANDUM TO THE MEECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Honduras Tourism Development Pro1ect (Loan 1673-HO) Attached, for lnformation, is a copy of a report entitled 'Project Completior Report on Hondura - Tourism Development Project (Loon 1673-HO) prepared by the Latin America and the Caribbean Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document has a muucd ditrbuton nd May be Med by reciS Only In th pefonnuase of their ofllcht dutba Its conotsu maY not otheo bo dbcbced witbout Wodd Bank  FOR OFFICIAL USE ONLY HONDURAS TOURISM DEVELOPMENT PROJECT (LOAN 1673-HO) PROJECT COMPLETION REPORT TABLE OF CONfTENTS PREFACE ................. i BASIC DATA SHEET ......... ........... * . . ............ . ii EVALUATION SUMMARY .. ... . ...... . ... v I. INTRODUCTION ........................ .. . . .... 1 II. PROJECT 'DENTIFICATION, PREPARATION AND OBJECTIVES . 2 III. PROJECT IMPLEMENTATION .. .. . ...... .. ..... .. 3 IV. PROJECT COST AND DISBURSEMENT ...................* .... 9 V. PERFORMANCE OF THE BORROWER ................... ... 10 VI. PERFORMANCE OF THE BANK ............. . ....... . . 12 VII. ECONOMIC RE-EVALUATION ....... . ..... . . . ... . 13 VIII. CONCLUSIONS ...... ......... ........... ........... 13 TABLES 1. APPRAISAL ESTIMATED AND ACTUAL PROJECT COSTS ........ 15 2. REALLOCATIONS OF LOAN FUNDS .................. . ... . 16 3-5 ECONOMIC RE-EVALUATION-COST AND BENEFIT STREAMS ..... 17 MAP IBRD 13747R This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - i - HONDURAS TOURISM DEVELOPMENT PROJECT (LOAN 1673-HO) PROJECT COMPLETION REPORT PREFACE This is the Project Completion Report for the Honduras Tourism Development Project, for which Loan 1673-HO in the amount of US$19.5 million was approved on March 20, 1979. On June 25, 1986, US$6.0 million was cancelled. The Loan was closed on December 31, 1987, three years behind schedule. The last disbursement took place on January 25, 1989, and the remainder of the Loan, US$.75 million, was cancelled shortly thereafter, on February 10, 1989. The PCR was prepared by the Infrastructure and Operations Division, Country Department II, of the Latin America and the Caribbean Regional Office and is based, inter alia, on a Project Completion Report prepared by the Honduras Institute of Technology; the Staff Appraisal Report; the Loan Agreement, supervision reports, correspondence between the Bank and the Borrower; and internal Bank memoranda. This PCR was read by the Operations Evaluation Department (OED). The draft PCR was sent to the Borrower on July 7, 1989, for comments by August 25, 1989, but none were received.  - ii - HONDURAS TOURISM DEVELOPMENT PROJECT (LOAN 1673-HO) PROJECT COMPLETION REPORT BASIC DATA SHEET Key Project Data Appraisal Estimate Actual Total Project Cost (US$ million) 38.35 24.69 Loan Amount (US$ million) 19.50 13.52 Disbursed 19.50 12.72 Date Physical Component Completed 06/84 06/88 Proportion of Time Overrun (Z) - 88.90 Economic Rate of Return (Z) 19 22.3 Institutional Performance - fair/good Other Project Data Original Plan Actual First Mentioned in Files - 07/18/72 Appraisal 11/76 05/78 Negotiations 01/29/79 01129/79 Board Approval - 03(20/79 Loan Agreement Date ' - 06/25/79 Date of Effectiveness 09/24/79 11/08/79 Closing Date 12/31/84 12(31/87 Name of Borrower Republic of Honduras (Ministry of Finance) Executing Agencies Central Bank Ministry of Culture and Tourism Fiscal Year of the Borrower January 1-December 31 Follow-up Project none  - iii - HONDURAS TOURISM DEVELOPMENT PROJECT (LOAN 1673-HO) PROJECT COMPLETION REPORT MISSION DATA Staff Date of Item Date Staff Weeks Weeks Report Identification 01/76 2 1 2 01/76 Preparation 03/76 5 1 5 04/76 Preparation 06/76 1 .5 .5 06/76 Preparation 06/76 1 .5 .5 06/76 Preparation 01/77 2 2 4 07/77 Preparation 2-3/77 2 1 2 03/77 Preparation 5-6/77 5 1.5 7.5 07/77 Preparation 07/77 1 1 1 08/77 Preparation 08/77 1 .5 .5 08/77 Preparation 09/77 3 1.5 4.5 11/77 Preparation 12/77 2 1.5 3 01/78 Preparation 04/78 2 1 2 05/78 Subtotal 32.5 Appraisal 5-6/78 5 1.5 7.5 02/79 Post-Appraisal 09/78 2 .5 1 N.A. Supervision 06/7Q 1 .5 .5 06/79 Supervision 09/79 1 .5 .5 10/79 Supervision 01/80 2 1 2 01/80 Supervision 06/80 1 1 1 06/80 Supervision 10/80 1 1 1 10/80 Supervision 06/81 1 1 1 06/81 Supervision 12/81 1 1 1 01/82 Supervision 06/82 1 1 1 06/82 Supervision 12/82 2 1 2 12/82 Identification /1 05/83 3 1 3 05/83 Supervision 07/83' 1 1 1 07/83 Supervision 11/83 1 1.5 1.5 12/83 Supervision 06/84 1 1 1 06/84 Supervision 10/84 1 .5 .5 11/84 Supervision 03/86 1 1 1 03/86 Supervision /1 05/87 2 .5 1 05/87 Subtotal 27.5 TOTAL 60.0 /1 Refers to telecommunications cemponent only  -. iv - HONDURAS TOURISM DEVELOPMENT PROJECT (LOAN 1673-HO) SCHEDULE OF DISBURSEMENTS Accumtulated Disbursements (US$ millions) FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88 Estimated 0.7 4.0 9.8 15.4 18.6 19.5 Actual 0.5 1.4 4.0 7.8 8.5 8.3 11.4 11.6 12.7 Actual as S 71.4 35.0 40.8 50.7 45.7 42.6 58.5 59.4 65.1 of Estimated zSTAFI nr StafftVI Y zA ZA zz za ii ni Q Al a U 12 as af Dl a Tf Pre pprxisel .8 1.8 8.1 59.0 - - - - - - - - - - 144.3 Appraisal - - 37.4 33.6 - - - - - - - - - 71.2 Nveoiation - - - - 14.7 - - - - - - - - - 14.7 Supeeviairn - - - - 2.6 18.5 0.7 7.4 12.0 11.9 8.8 6.6 2.6 .S 71.4 Other - - - - - .1 - .0 .2 - - - - - .3 TOTAL .8 31.5 58.1 W.4 81.1 13.8 8.7 7.5 12.2 11.9 5.6 6.6 2.6 S 301.9 _ _ ____ ___ _______________________________________________-------- ----_-_ ---------  - v - HONDURAS TOURISM DEVELOPMENT PROJECT (LOAN 1673-HO) PROJECT COHPLETION REPORT EVALUATION SUMMARY Introduction The Tourism Development Project was initially based on the results of a study performed by a consortium of US consulting firms. The report proposed the construction of a major tourist complex on the north coast. After further analysis, however, it was decided that the plans outlined in the above mentioned study were too extensive with respect to Honduras' implementation capabilities. Thus, the project was scaled down to a size which was deemed more appropriate. Obiectives The primary objective of the project was to provide an initial impulse to the development of international tourism in Honduras. This in turn was to spawn: diversification of sources of foreign exchange, increased employment and incomes and the establishment of institutions within the target sector. Implementation Experience The project was to consist of the following components: a. a line of credit for onward lending to hotel and other tourism enterprises; b. improved facilities for international passenger handling at San Pedro Sula Airport; c. Roatan airfield improvements; d. Copan archaeological park development; e. technical assistance for strengthening of sector institutions; and f. establishment of a land tenure unit for Roatan.  - vi - The major implementation issues, aside from the fact that the line of credit was not fully utilized because of lack of demand, were the construction-cost overrun of the Roatan Airport works and a high default rate on credits, principally due to an equipment loan for the Hotel Tegucigalpa Sheraton which was never completed. The former would suggest that the Bank should place more emphasis on reviewing the accuracy of future cost estimates so as to avoid high cost overruns similar to that which occurred in this project component. Regarding the Sheraton, the management of CONADI should have been strengthened. A more active involvement on the part of the Bank, with appropriate staffing, might have also lead to better results. Results and Sustainability The objective of incre&sed tourism was only partially met, primarily due to exogenous reasons, namely the regional political situation. Nevertheless, as seen through the continued existence and functioning of the Technical Unit established within the Honduran Institute of Tourism, as well as the Hotel Training program, it would appear that the institutions necessary for the development of the Tourism Industry have been established, though the climate is not receptive to them at this time. When, or if, chis situation changes in the future, it would further appear that the established institutions will indeed be able to provide impetus for the desired development. Though the demand for the hotel line of credit fell well below the appraisal-anticipated level, the economic viability of the component still managed to surpass the original expectations. The flexibility provided by the line of credit proved to be the saving grace of the project by allowing expenditures to adjust to the demand. It would appear that the success of this component was due primarily to the low renovation expenditures which yielded similar benefits as the more expensive, newly constructed rooms. This low-cost alternative should be taken into consideration if the Bank, at some point in the future, were to again consider financing investments in the tourism sector.  HONDURAS TOURISM DEVELOPMENT PROJECT (LOAN 1673-HO) PROJECT COMPLETION REPORT I. Introduction 1.01 At the outset of this Project, Honduras was considered to have great potential for the development of international tourism. Its Caribbean coast includes some of t'Ae most attractive and extensive beaches in central America, featuring fine sand and palm-lined tropical vegetation. In addition, the Island of Roatan, located off Honduras' northern coast, provides access to the second largest coral reef in the world. Also, the Copan ruins, sitaated in the northwestern section of the country, are one of the most important archaeological centers of Mayan civilization, and attract an ever-growing number of culture-oriented international tourists. 1.02 In the early 1970's, international tourism in Honduras was in its infancy, and the Government accorded low priority to the sector. Tourism flows to the country were relatively low. In 1977, of the 181,113 foreign visitors to Honduras, nearly half were classified as 'transits' passing through the country. More than 60Z of all visitors came from neighboring Central American countries. By 1977, North American visitors numbered about 45,000, most of whom came to Honduras for business reasons. Between 1972 and 1979, their number increased at an annual rate of 62, in line with the growth of business activity. 1.03 The lack of adequate hotel facilities was considered to be one of the main reasons for the limited tourist flow to Honduras. It was considered that the private sector, without access to suitable financial resources, was unable to develop tourism facilities. In 1978, capacity was estimated at 2,530 rooms, of which only about 700 could be considered suitable for most international visitors (equivalent to three stars or more). More than 500 of the rooms in this category were situated in the two main cities of Tegucigalpa and San Pedro Sula, and primarily catered to business demand. The remaining 200 rooms of international standard were located on the Bay Islands. 1.04 Interest in tourism development in Honduras was first generated in 1972 when a USAID-financed regional study for all of Central America indicated that Honduras had good opportunities to develop its tourism industry, particularly on the north coast beaches. Subsequent to this study, the Government decided, in view of Honduras' lack of experience in tourism marketing, and in operating an international tourism industry, to adopt a gradual and pragmatic approach for developing the country's tourism potential. This approach had two main features: a. selective hotel development on the mainland in places where little additional public infrastructure was required or where such infrastructure was already planned for other purposes; and  -2- b. dispersed development on Roatan and other Bay Islands, with small hotels at suitable sites, together with supporting infrastructure (wells, septic tanks, electric generators and bulldozed access roads) on the basis of an environmental control plan, to be implemented by zoning and building regulations, and with the improvement of air access to Roatan. 1.05 The Honduras Tourism Development Project, subject of this report, was intended to support this Government strategy through the provision of adequate financing and technical assistance required to develop the target industry. II. Project Identification, Preparation, and objectives 2.01 Following the previously mentioned USAID study, the Government of Honduras (GOH), with the help of the Organization of American States (OAS), produced guidelines for a national -urism plan. In March 1974, a consortium of US consulting firms wa engaged by the GOH [with Central American Bank for Economic Integrati - (CABEI) financing] to prepare plans for a first project. The consultant'. report, submitted in late-1975, included a master plan for the development of 18 km of beach at Tornasal on the north coast to the west of Tela. This development entailed the construction of a 2,870 room tourist complex for a total estimated cost of US$81.5 million. 2.02 After an identificatior. mission i- mid-1976, the Bank felt that it was necessary to scale down the proiect to one more suitable to meet Honduras' implementation capabilities. Furt 3rmore, with a view towards diversifying the Honduran tourism product, the Bank also agreed to consider a program of works on the Island of Roatan and at the archaeological site of Copan, as well as attempting to eliminate the constraints put on the tourism industry by poor air access into the country. Finally, the Bank and the GOH agreed on the need to take a more gradual and dispersed approach to develop the Tourism Sector. The focus was to be the removal of the key constraints stifling sector development such as limited hotel availability and poor air access. Funds from the Bank's project preparation facility were utilized to explore possible options. 2.03 The project was appraised in May 1978. The primary objective of the project as described in the appraisa