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As discussed in Hawkins and Mann (2007), the WorldBank dropped its engagement in the tourism sectorduring the 1980s after twenty years of financing tourismprojects which included infrastructure for resort sites,lines of credit for hotels, training, and investment inhotels and other tourism related projects. At the time,World Bank lending for tourism in LAC was just aboveUS$350 million per year. After the Tourism Departmentclosed in the late 70s, some projects supporting tourismcontinued, but total annual lending for tourism fell toUS$150 million by the mid-80s. It had reached a low ofUS$50 million by the mid-90s.

To the mid-90s the trend started reversing itself andby 2007 annual lending for tourism grew to US$175million, and is expected to pass the $550 million dollarmark during FY09. The World Bank’s renewed interestin tourism derives from its direct and indirect roles inreducing poverty and achieving the United NationsMillennium Development Goals. Tourism is currentlyestimated to contribute around 10% of global GDP(Brida et al, 2007) and to be the largest contributorto employment worldwide. Thus tourism can impactpositively on local economic development (LED) and,in turn, can lead to poverty reduction in destinationcommunities and countries.

With its new focus on LED-based tourism, the World Bank

has shifted its project objectives from supporting beach(sun, sand and surf) development projects to povertyreduction through agro-eco-tourism, community-basedtourism, cultural and adventure tourism and, in general,the development of special niches where tourism canclaim both environmental sustainability and socialresponsibility (Ba and Mann, 2006).

Inspired by the session “Tourism and Local EconomicDevelopment: Success and Challenges” within theLearning Event “Sustainable, Responsible Tourism inLatin America and the Caribbean” held in the Bank onApril 14, 2008, this En Breve explores four approaches totourism as a driver of local economic development.

Stand Alone Community Projects

Community Based Tourism projects have a mixedreputation. Stand alone projects can be successful, asindicated by the remarkable experiences of ChalalanEcolodge (see Box 1) and Salar de Uyuni in Bolivia(see Box 5), but their impact appears to be limited.Despite generous support from the Inter-AmericanDevelopment Bank in both cases, and additional helpfrom GTZ (German Agency for Technical Cooperation)and Conservation International in the first case, andfrom Fundación PRODEM in the second, neither

project has been able to expand operations or togenerate companion enterprises to absorb the growingcommunity labor force or to produce desired multipliereffects. Nor is it evident that either project could everrecover the original investments made by donors,despite their high profitability.

While very appealing, the Community Based Tourismmodel has been questioned by Overseas DevelopmentInstitute tourism expert, Caroline Ashley as havingconsumed “vast amounts of community time and donorresources producing projects that are commercially notviable.” Ashley goes on to point out that when “enterprises

are run, literally by a collective community group” theyhave “all the problems of collectives operating in a fairlysophisticated consumer market.”

Still, as stand alone projects, Chalalan and Salar deUyuni have proved sustainable and profitable and haveundeniably generated local economic development intwo of the poorest regions of Bolivia. Moreover, theprojects have empowered their respective communitiesand bolstered ethnic pride. Indeed, their success couldstem in part from the characteristics of the indigenouscultures, which maintain traditional values, stayingclose to the land and within the community, over

LOCAL ECONOMIC DEVELOPMENT AND TOURISMBy Tatsuji Hayakawa and Monica Rivero

August 2009 Number 145

Responsible Tourism Series


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financial growth.

Box 1Chalalán Ecolodge in Madidi National Park, Bolivia---How to turn an initial funding by donors into asustainable tourism operation---

Located within the Madidi National Park createdin 1995, San José de Uchupiamonas is a remoteindigenous community, relying on traditionalfarming, hunting, fishing, and collecting forestfruits. The initiative of constructing rustic cabins

as Chalalán Ecolodge in the community started in1992 and benefited from the significant donationreceived from the Multilateral InvestmentFund of the Inter-American Development Bank(US$1,250,000) and Conservation International(US$200,000), in December 1994. The site waschosen because of its strong ecotourism potentialand the project designed in the expectation ofpositive impacts on the local community.

The Chalalán Ecolodge began operations in1998, when it received 400 visitors. Thanks to thecontinuous efforts by the members of ChalalánEcolodge, the number of visitors doubled from 700 in1999 to 1,406 in 2007. Cited as “Highly Commended”in the category of “Best in a Park or Protected Area”among the Virgin Holidays Responsible TourismAwards 2007, Chalalán Ecolodge has achievedannual revenues of US$280,000 for the past 5 years.Malky Harb and Saavedra (2007) attribute thesuccess of Chalalán Ecolodge, to the timely financialcontributions from donors, to the existing socialcapital (characteristic of an indigenous group),and to its stunning location. Chalalán Ecolodgetook advantage of its luck, and the model has beenreplicated in other projects in Bolivia such as SanMiguel del Bala in Tacana and Albergue Mapajo inPilón Laja.

Investments in Destination Cities or Regionscan Stimulate Sustainable Tourism

Recent World Bank projects have focused on enhancingtourist destinations – improving the quality of life forresidents while stimulating increased visitor growth. InSanta Rosa de Copan in Honduras (see Box 2) site of oneof the great Mayan temple cities with the best preservedpaintings in Central America, the World Bank has financedupgrading and works in the host city and at the ruins, as

well as training and financial support through a grantfacility for small businesses linked to the destination.At this writing, following its successful completion, theCopan Valley project is being extended to expand thetourist circuits, and to bring the benefits of tourism to thelarger area of influence of Santa Rosa de Copan and thearcheological site. Bank projects underway in VilcanotaVally, Peru and Copacabana on Lake Titicaca, Bolivia follow

similar approaches, building tourism markets and incomeby a combination of actions to improve local infrastructure,to make cultural heritage more accessible and to providesmall grants for enterprise development. Vilcanota Valleycounts also on the “geotourism map guide” developedby National Geographic Society (see Box 3) to furtherstimulate educated tourism.

Box 2Regional Development in the CopanValley Project, Honduras

Since 2003, the World Bank has been financinga regional cultural tourism development projectin the Copan Valley, Honduras. The project, a $12million credit from the International DevelopmentAssociation, has developed tourism circuits,signage, a Regional Investigation Center forArcheology and a visitor center at the Copan ruinsas well as developed a circuit to other four nearbyarcheological and ecological sites. It has alsofinanced infrastructure improvements in the hostcity of Copan Ruinas, and provided support to thepreparation of management plans of all five sites,including Los Naranjos Eco-archeological Park.

The project also includes capacity developmentactivities through a grant and technical assistanceprogram called Fondo Properidad (Prosperity Fund).

This fund financed 68 local tourism entrepreneurs,mostly women, benefiting more than 1,650 peopledirectly and an estimated 25,000 people indirectly.

Thanks to this project, the management capacityof the municipality of Copan Ruinas has beenstrengthened through the establishment of anUrban Planning Bureau and a Municipal TourismUnit. These bodies have helped to refine and enforcecritical urban development and managementnorms, as well as regulations for constructionlicensing, heritage protection, traffic control, streetcommercialization, environmental conservation,cadastre, street naming, and color and signagestandards. As a result, and also as a consequenceof the expansion of local economic activities,


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Box 4Puerto Limon, Costa Rica

The World Bank’s recently approved City-Port ofLimon Project on the Caribbean coast supportstourism development to capture benefits of theport modernization and expansion project for thecity. By financing the rehabilitation of the historiccity center it has created walks and inviting spacesfor citizens and transformed the city from a meretransfer point for tourists from cruise ships into a“must-do” stop-over. In doing so it stimulates anew generation of tourism businesses and sales oflocal products, providing employment and incomegeneration opportunities which have been fallingsince the modernized port has become automatedand reduced its labor needs. Evidently, the projectis meeting the country and city’s needs. Thegovernment of Costa Rica has requested similarcollaboration for its other City-Port on the Pacificside – Puntarenas.

Micro–Credits and Training: Investing in

the Market to Stimulate Local Economic Development

As micro-credits can offer timely capital to initiate or expandbusiness they also create jobs, generate income and buildlocal capacity in a variety of sectors thus contributing tolocal economic development. Several of the World Bank’smicro-credit programs have reported high demand andexcellent returns from tourism enterprises. Conversely, thegovernments of Bolivia and Guatemala, to name two, haveexpressly requested Bank assistance to promote micro-credit programs for small tourism businesses. However, theWorld Bank policy recommends that micro-credit programsfollow qualified demand, rather than predetermining it.

That said, other institutions have supported micro-creditprograms targeted to tourism, as described for examplein Box 5 on Fundación PRODEM in Bolivia. DFID and theFinnish government’s international Cooperation Agencyhave announced plans to finance a large scale micro-creditprogram in Nicaragua, with a special line of credit for smallscale and community based tourism businesses.

Both stand–alone and micro–credit projects in tourismemphasize the importance of human capital and generallyinclude technical assistance components, as illustrated by

municipal revenues rose. In five years, this projecthas helped give Copan Ruinas a brand new imagewhile expanding income generation opportunitiesto its poor inhabitants and increasing their senseof local heritage and distinctiveness. This model isnow being shared with other municipalities in theValley.

Box 3Geotourism Maps and Geotourism Circuits

A concept wider than ecotourism, “geotourism”,promoted by National Geographic Society, refers to

tourism that sustains or enhances the geographiccharacter of a place, such as its environment,

culture, aesthetics, heritage, and the well-being ofits residents. In its Vilcanota Valley Project, the Bank

collaborated with National Geographic Society andPeruvian authorities on a geotourism map guide forPeru. In Guatemala, some small coffee growers are

opening up their farms to “geotourists” so that theycan taste coffee, see the coffee production process,

and learn about the local Mayan culture. The Bankis supporting this initiative through the GuatemalaCompetitiveness Project (US$18.8 million loan) with

PRONACOM (National Competitiveness Program),in collaboration with Anacafé (Guatemalan National

Coffee Association) which will produce another“geotourism map guide.”

In Puerto Limon in Costa Rica (see Box 4) the WorldBank has begun its first “port-city” project, financing the

improvement of sites of cultural and architectural interest tocreate a circuit for visitors and to stimulate local investment

in tourism development. Projects under preparation in SaoLuis, and Santos, Brazil, and Colon, Panama, are following

the same model. Impact evaluations will be trackingindicators of jobs created in the tourism sector, as well asincreased income and number of visitors.


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About En Breve... “En breve” is a regular series of notes highlighting recentlessons emerging from the operational and analyticalprogram of the World Bank’s Latin America and theCaribbean Region.

In this special series on Responsible Tourism, we presentthe lessons learned by the different sectors in their varioustourism-related projects regarding socially responsible andenvironmentally sustainable tourism. Forthcoming notesin this series will include:(I) An overview on tourism; (II)Crime, violence, at-risk youth and tourism; (III) tourism andindigenous peoples; (IV) local economic development andtourism, (V) Macro-Economic Impacts of Tourism – – A CaseStudy from Panama, and (VI) Tourism’s Energy Challenge.

the cases of Chalalan Ecolodge, Santa Rosa de Copan andFundación PRODEM. Experience has shown that financingalone cannot generate local economic developmentthrough tourism. Like any business, micro-enterprisesrequire some basic finance and tourism enterprises canbenefit enormously from technical assistance in language,in cultural understanding (for international clients inparticular), in marketing and web-management.

While tourism cannot be developed everywhere, in“destinations” with potential, tourism can lead torobust local economic development, as these positiveexperiences demonstrate. Whether they support a standalone community-based project, development of a specificdestination, or a micro-credit program, tourism projectscan bolster local economic development.

Box 5Fundación PRODEM, Bolivia - Promoting small andmicro tourism enterprises -

Since its creation in 1986 as a non-profit micro-financeinstitution Fundación PRODEM has contributed toshaping Bolivia’s banking sector toward the poor.In 1992, Fundación PRODEM created BancoSol, acommercial bank to offer a full range of financialservices to microbusinesses in urban areas, followedseven years later by a private financial fund (PFF)focusing on rural clients. Recently, in response tothe Bolivia’s burgeoning tourism market, FundaciónPRODEM invested directly in developing the touristdestination “Salar de Uyuni” in a park of dramaticlandscapes, by the world’s largest salt lake. The Inter-American Development Bank has also supportedthe first stage, a community tourism endeavor, ofa long term development project. The recently

built eco-lodge owned and managed by thelocal indigenous community (a 32% equity shareholder), with assistance from PRODEM, is alreadyfinancing micro-enterprises aimed at contributingto the tourist experience and to the ecolodgeoperations: tour guides, handicrafts, laundries,signage, environmental management etc. Withinfifteen years PRODEM plans to sell out its shares to

the community and to leave the operations in thehands of the community and micro-enterprises.

References

Ba, Demba and Shaun Mann, “Tourism: An Opportunity toUnleash Shared Growth in Africa,” Note Number 16, AfricaPrivate Sector Development, The World Bank, July 2006.

Brida, Juan Gabriel, Juan Sebastián Pereyra and MaríaJesús Such Devesa, “Evaluating the contribution of tourismon economic growth,” Working Paper Series, Social ScienceResearch Network, December 21, 2007.http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1084466

Hawkins, Donald E. and Shaun Mann, “The World Bank’sRole in Tourism Development,” Annals of Tourism Research,Vol. 34, No.2, pp. 348-363, 2007.

Malky Harb, Alfonso and Cándido Pastor Saavedra, “ElEfecto Chalalán: Un Ejercicio de Valoración Económicapara una Empresa Comunitaria,” Conservación Estratégica,Numero 2, Octubre 2007.http://www.redesma.org/boletin/bol_2007/bol_9_24/historias_de_exito.pdf

About the Authors

Tatsuji Hayakawa is an Extended Term Consultantworking in the Sustainable Development Department ofthe Latin America and the Caribbean Region.

Monica Rivero is a Consultant working in the PovertyReduction and Economic Management Department of theLatin American and the Caribbean Region.

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Tourism and Local Enconomy Development2