INANDA DAM RESORT BUSINESS PLAN PREPARED FOR THE RURAL ABM PROGRAMME AND GIFT OF SERVICE BY GRAHAM MULLER ASSOCIATES 30th JANUARY 2006 1 1. Executive Summary 2. Introduction 3. Background 4. Planning and Decision-Making Framework 5. Business Objectives 6. Tourism Market Analysis 7. Tourism SWOT Analysis 8. Tourism Development 9. Agri-Business Analysis 10. Institutional Arrangements 11. Financial Forecasts 12. Way Forward 2 1. EXECUTIVE SUMMARY Introduction and background This business plan was formulated by Graham Muller Associates (GMA) in collaboration with the project proponents, Gift of Service, for the eThekwini Rural ABM Programme. The aim of the business planning exercise was to scrutinise feasibility considerations and to provide the necessary information and analysis to facilitate the project towards implementation. Gift of Service (GOS) is a community-based organisation which has attracted a number of skilled, energetic and entrepreneurial members into its ranks. GOS is pursuing the establishment of Inanda Resort - a tourism, recreation and agri- business destination. The main objectives of the project include creating sustainable and meaningful jobs for the local community, fostering broad base black economic empowerment through participation in the business and creating small and medium enterprise (SME) development opportunities through other business linkages with the resort. The 20 hectare project site is located on the eastern shore of the dam within the boundaries of the Qadi Tribal Authority and Ward 3 (Amzinyati) of the Municipality. The land in question is under the ownership of the Ngonyama Trust. Msinsi administers and controls the surface of the water and a buffer area between the water’s edge and the purchase line. The strengths and weaknesses of the site are summarised below: Strengths Weaknesses  Situated on the edge of the main  Emerging tourism destination that is water body of Inanda Dam not known by the market  Situated on the eastern shore for  Complex and unresolved land-legal views of spectacular sunsets issues  Panoromic views of Inanda Mountain  No financial capacity or resources in and the Valley the project team  Relatively large (approximately 20  Limited capacity in construction, hectares) tourism hospitality operations and  Relatively low environmental marketing sensitivity  Poor condition of roads and no signage  Suitable aspect and slope for  Disturbed site of moderate development and agriculture attractiveness  Abundant water supply  No infrastructure on site, especially  Electricity to site sanitation system  Road access via KwaMashu Highway  Perceptions of safety and security and District Road  No shared development plan and  Close proximity to Durban North, N2 spatial development framework for the and M4 broader destination  Well organised project team  Proximity of local labour  Demarcated site with no conflicting proposals  Support from traditional authorities and municipal agencies  Strong interest and commitment to LED of the Inanda Dam destination  Part of the Inanda Heritage and 1000 Hills tourism routes  Project contributes towards the transformation of tourism industry and broad based BEE. 3 Inanda Dam Feasibility Study The existing policy and planning frameworks for the area should inform the Inanda Dam Resort business plan. The Inanda Dam Feasibility Study identified a number of project concepts that should be prioritised for the Dam (see table below). It argued that there are a number of barriers to entry for private investors that include the emerging status of the destination, uncertainty around land ownership and development rights, complex institutional arrangements, risks to the long term integrity to the surrounding landscape, safety and security and lack of infrastructure. Key LED projects identified by Inanda Dam Feasibility Study Project Location Description 3 Star lodge Adjacent to Family orientated Mahlabatini experience targeting Resort domestic market 4-5 Star lodge On the eastern Exclusive boutique shore of Dam. 4 type lodges. Set at possible sites the water edge or in identified. the water. House boat/ floating Mobile Floating lodge, restaurant restaurant or pleasure cruiser. Preferably linked to lodges. Wildlife Centre Mahlabatini Facilitate visitor Reserve interaction with wildlife Recreational areas Various Picnic, boating facilities, entertainment etc Arts and Craft Mahlabatini, Large manufacture Centre KwaNgcolosi and retail centre in the park. Arts and Crafts Various Stalls Although the feasibility study recommends that the priority development for the destination is a low-volume high spend 4/5-star lodge, this business plan motivates that a more low risk product (in terms of cap-ex value, ROI and market demand) should be pursued in parallel to the high profile project. The low risk project will allow role players to address many of the same barriers to entry, although with less at stake, in a learning-by-doing exercise. Regarding the proposed 4/5 star hotel development on the same side of the dam, GMA believes the project site is of sufficient quality for a facility of that standard. GMA also contends that it is unlikely that an appropriately managed resort development on the said site will negatively impact on the development options of the more attractive adjacent peninsulas if certain zoning and land use controls are implemented by authorities. Tourism Product development The market demand analysis, site potential analysis and the development expectations of the proponents collectively point to a mid-volume, mid-value 4 destination. In order to maximise revenue yield, GMA recommends a cautious approach of focusing on the proven market demand from the existing water-sports and recreational fishing markets, through the establishment of a water-sports resort. A phased approach is envisaged to the development of resort. List of product development recommendations 1st Phase Future phases Water-sports resort Open-air theatre and marquee Bar and retail shop Arts & craft market 20 camping sites Additional accommodation 6 Self-catered timber and Sports Club canvass chalets Tour Boat cruises and fishing Catering facility Small conference centre It is envisaged that 29 permanent jobs will be created and at least the same amount of jobs in casual labour. Agricultural product development Approximately seven hectares of the project site was for some years used as a productive market garden, under an NGO facilitated project (Valley Trust). Indications are that the land appears to have good potential, although the results of a land capability analysis by the Department of Agriculture are still outstanding. However the Department indicated that the soils are suited to most vegetables including cabbages, potatoes, spinach, carrots, butternut and onions. Based on the agricultural analysis, it is recommended that a vegetable garden and nursery are feasible and should be established with the close assistance of DoA. Financial analysis The total capital expenditure for the project is estimated at R3,422,800. The financial forecast shows revenue growing steadily over the ten-year time horizon as occupancies and visitor numbers and productivity rise. Total turnover increases from approximately R770,000 in year 1 to R2,300,000 in year 8 showing growth of 300% in the 8 years. The largest line item for expenditure is salaries and wages. Year 1 shows variable labour expenses of at R278 048 and a fixed labour cost of R466,000. Gross departmental profit after variable costs in year 1 is R349,104 and R1,570,542 in year 8. The resort’s consolidated net loss/ profit before tax is – R274,964 in year 1, entering the black in year 3 and reaching R718,514 in year 8. As stated above the financial figures presented here are sensitive to the nature of the involvement of the private investor and the quality of their operational and marketing inputs. 5 Item Amount Landscape rehabilitation and preparation R142,000 Transport infrastructure R1,150,000 6 Chalets, 20 camp sites and ancillary facilities R1,030,500 Other Resort Facilities and Infrastructure R1,035,500 Water, waste and electricity R494,000 Resort Equipment R470,800 Total R4,322,800 Less: Infrastructure outside of resort (government) R900 000 Total Project Cost R3,422,800 Land tenure It is recommended that for a project of this size, it is prudent to separate land rights, ownership of the assets and facilities and the management of the resort. There are a few different scenarios for establishing land rights (see below). Selection of the appropriate option requires further discussion with Qadi Traditional Authority and the Ngonyama Trust. Figure : Options for securing land tenure Option A Option B Ngonyama Trust Ngonyama Trust Net proceeds from lease Long Term lease Qadi TA Trust Qadi TA Trust Long Term lease Medium Term lease Business Entity/ land Business Entity/ land user user Options for development and management of the resort There are various possible scenarios for the development and management of the resort. After extensive consultation with GOS and after due consideration of lessons learnt in developments of this nature elsewhere in southern Africa, GMA provides two potential models that could be applied. The first involves the development company (GOS and partners) concessionning out the entire site to a qualified private investor. The second option involves GOS establishing a strategic partnership though either equity sharing in the resort company or through a management agreement with a professional operator (for instance Msinsi). Both options are seen as potentially viable. The first option can guarantee a revenue stream (from lease fees) to the Dev Co to cover its rental and financing obligations. The second option may appear to hold more empowerment opportunities but carries more risk to the investment in terms of capacity gaps and lack of guaranteed lease 6 payments. The first option is also likely to be more attractive to the private sector due to simpler and better defined governance structures, although the interest of the market in this venture must still be tested once an enabling environment is created. The impact of both options is explored in more detail in the main report. 7 Option A Option B Development Company Development Company Joint Venture Joint Venture Rental Rental Sports Market Theatre Clubhouse Garden Whatever option is agreed upon by the role players, a formal process should be pursued to secure a suitable private sector partner. It is important that a “Transaction Advisor” consultancy is appointed to manage the partner selection procedure and an Evaluation Committee be established. This business plan has demonstrated that the Inanda Resort has high potential in terms of meeting the economic aspirations of the local community and the Local Economic Development objectives of the eThekwini Municipality, the Inanda Dam Management Forum and other role players. The project should be prioritised by all involved to unlock this potential. There are a number of critical actions that need to take place (see list below). Critical Actions  This plan needs to reviewed and commented upon by the relevant role players (which include GOS, Inanda Dam Management Forum (IDMF), Msinsi, DWAF, Qadi Tribal Authority and eThekwini municipality). It should then be updated and endorsed.  A project steering committee, which could be the IDMF, should be established to monitor the project.  Secure funding to contribute towards the capital cost of the project and technical support for the next phase of facilitation and planning.  Procure technical assistance team. Team should include o Project manager and co-ordinator o Transaction Advisors (concession and legal specialists), o Landscape architect (spatial development and conservation plan), o Facilitator (development approvals, use rights and institutional development), and o Business analyst.  Facilitate institutional development. Includes stakeholder consultation, establishment of the Development Company and Community Trust and ad-hoc legal work.  Secure development approvals, leases, land use rights, licences etc  At the destination level, initiate a programme to clarify the project application and approvals process. Clarify the authority associated with the land and water resources including inter- departmental and operational issues. Support the IDMF.  Also at the destination level, formulate a spatial development framework for the dam and surrounds as decision-support tool for stakeholders  Pursue investor/ business partner mobilisation process and identify preferred partner.  Negotiate agreements and contracts.  Finalise detailed business management plan and marketing plan based on above agreements and business arrangements.  Undertake an environmental Scoping Study in collaboration with DAEA.  Commence skills development programme.  Undertake engineering studies (roads, water, sanitation and electricity).  Formulate construction / site development plan (architect, quantity surveyor)  Commence construction programme. 8  2. INTRODUCTION The Area-Based Management and Development Programme (ABM) is a multi- faceted development initiative implemented by the eThekwini Municipal Authority (EMA) with support from the European Commission that aims to enhance service delivery, address spatial and social inequalities and deepen democracy. The Rural Area Based Management and Development Programme office has been approached by a non-governmental organisation known as the Gift of Service (GOS) with a request for support in the establishment of their agri-business and tourism initiative. A business plan has been submitted to the Rural ABM office outlining the objectives and components of the project together with the capital requirements and cash flow projections as envisaged. On thorough perusal of the submission by Gift of Service, the Rural ABM appointed GMA to provide technical assistance to the initiative through undertaking a detailed feasibility assessment and business planning exercise, with a view to assisting with the finalisation and implementation of the plans for this initiative. As agreed, the approach of GMA has been to work with the project proponents and their proposals, rather that to provide an isolated assessment of feasibility. A number of site visits and meetings with the proponents and other stakeholders have taken place. Secondary research and a review of the policy and planning framework for the dam have also taken place. A feasibility checklist has been constructed that should allow iterative amendments to the business proposals. GMA has relied on its extensive experience in this field and technical capabilities to assess the feasibility of the proposals. GMA has also consulted with industry role players and has reviewed relevant best practice locally and regionally. The end result is a business plan sufficiently detailed to give the project proponents, other role players and potential funders practical guidance in pursuing the development of this project. 9 3. BACKGROUND TO THE PROJECT 3.1 Project Proponent The project proponent is Gift of Service (GOS), a community-based, not-for- profit organisation whose main objective is to initiate community development and skills development programmes in its local area. GOS aims to stimulate civic participation and youth development as well as provide technical support to local community institutions. GOS has thirteen members and carries out its affairs according to its adopted Constitution. Five office bearers make up the management committee. GOS has decided to establish a legal entity to participate in the business venture described in this plan. Institutional arrangements for the business are covered below. 3.2 Description of business proposal GOS has secured permission from the Qadi Tribal Authority to pursue a local economic development initiative on an 20 hectare site on the south-eastern side of the Inanda Dam. The organisation has obtained a “Recommendation for a Permission to Occupy” from the Tribal Authority and has the support of the community, ward councillor and the Department of Agriculture. The original business concept for the site, formulated by GOS, outlines the development of an integrated agri-business, tourism and recreational destination. According to the GOS business plan, the agricultural component would focus on organic farming for all kinds of fruit and vegetables and the poultry farm would set out to supply 300 broilers per week. The tourism component would provide an eco-tourism and activity-based experience with facilities to accommodate overnight stays. Recreational opportunities would include tennis and basketball courts, picnic sites and an outdoor theatre. Following a feasibility assessment of the original business concept, GMA and GOS have collaborated to formulate this revised business plan for a tourism and recreational resort combined with a community-based agricultural production initiative. 3.3 Locality and description of the site The Inanda Dam is situated in the Valley of a Thousand Hills region Qadi in the outer western area of the eThekwini Municipal Authority. The Project Area dam was completed in 1989 and has a water surface area of approximately 1,500 hectares and an outer circumference of approximately 100 Development Company kilometres. The Dam is Joint Venture 10