The World Bank Armenia Tourism and Regional Infrastructure Project(P504282) @#&OPS~Doctype~OPS^blank@pidconcoverpage#doctemplate Project Information Document (PID) Concept Stage | Date Prepared/Updated: 16-Feb-2024 | Report No: PIDDC00339 Feb 20, 2024 Page 1 of 7 The World Bank Armenia Tourism and Regional Infrastructure Project(P504282) @#&OPS~Doctype~OPS^dynamics@pidbasicinformation#doctemplate BASIC INFORMATION A. Basic Project Data Project Beneficiary(ies) Operation ID Operation Name Armenia P504282 Armenia Tourism and Regional Infrastructure Project Region Estimated Appraisal Date Estimated Approval Date Practice Area (Lead) EUROPE AND CENTRAL 23-Apr-2024 31-Jul-2024 Urban, Resilience and Land ASIA Financing Instrument Borrower(s) Implementing Agency Investment Project Ministry of Finance Ministry of Economy Financing (IPF) Proposed Development Objective(s) The proposed Project Development Objective (PDO) is to improve access to sustainable, resilient and climate smart tourism-related infrastructure and services in project-supported clusters. @#&OPS~Doctype~OPS^dynamics@pidprojectfinancing#doctemplate PROJECT FINANCING DATA (US$, Millions) Maximizing Finance for Development Is this an MFD-Enabling Project (MFD-EP)? No Is this project Private Capital Enabling (PCE)? No SUMMARY Total Operation Cost 100.00 Total Financing 100.00 of which IBRD/IDA 100.00 Financing Gap 0.00 DETAILS World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 100.00 @#&OPS~Doctype~OPS^dynamics@envsocriskclassification#doctemplate Feb 20, 2024 Page 2 of 7 The World Bank Armenia Tourism and Regional Infrastructure Project(P504282) Environmental and Social Risk Classification Concept Review Decision Moderate The review did authorize the preparation to continue Other Decision (as needed) B. Introduction and Context Country Context 1. Armenia is an upper middle-income country that accomplished a lot over the past two decades. It became an upper middle-income country in 2019 and an International Development Association (IDA) donor in 2023, with gross national income per capita (Atlas method) reaching US$5,960 in 2022. The country is landlocked and two of its four borders with neighboring countries are closed, which makes regional connectivity a key challenge. Over the past two decades, Armenia has experienced high yet volatile growth, with average growth during 2000-22 standing at 6.2 percent, which contributed to a decline in the poverty rate from 32.1 percent in 2000 to 24.8 percent in 2022 (national poverty line)1. Growth has been accompanied by a structural transformation of the economy with a gradual shift from low-productivity agriculture toward industry and services (especially, tourism and Information and Communication Technology (ICT))2. The country has also achieved near eradication of extreme poverty and has registered important improvements in life expectancy, survival rates, school enrollment rates and other welfare measures. Sectoral and Institutional Context 2. Regional, urban and tourism development priorities are well embedded in the Government Program (2021-20263) as key reform areas. Tourism continues to be a major contributor to economic growth at national and sub-national levels despite recent negative impacts imposed on the sector by the COVID-19 pandemic and military escalations. In 2019, before the pandemic, the travel and tourism industry registered 1.89 million international visitors and contributed 12.9 percent to the total GDP and 13.8 percent to the total employment. Despite rapid decline in international arrivals since 2019 due to the pandemic, the data for 2022 and 2023 shows rebounding and dynamic growth compared to 2020-21 levels. The main markets of visitors have been Russia, Georgia, and Iran. 3. The tourism sector in Armenia has shown potential for greater exports that, however, faces several constraints. While international tourist arrivals have been growing steadily with post-COVID-19 numbers picking up and rebounding by reaching close to pre-COVID-19 figures (1.67 million international arrivals in 2022), and surpassing all time numbers in 2023 (2.3 million international visitors), the average per-visitor earnings have declined over the past decade, suggesting that available tourism offerings are somewhat static and that marketing efforts are failing to capture higher-spending visitors. Armenia demonstrated Travel & Tourism GDP growth of 78.4 percent in 20214 1 Statistical Committee of RA, Social snapshot and poverty in Armenia, 2023. https://armstat.am/file/article/poverty_2023_a_2.pdf 2 The share of employment in services grew from 45.1 percent in 2012 to 51.2 percent in 2019 led by trade, accommodation, and food service activities. The share of employed in industry rose to 24.8 percent by 2019 led by construction and manufacturing. While the agriculture sector used to employ 37.3 percent of the population, it employed 24.0 percent by 2019 (SCD, 2023). 3 https://www.gov.am/files/docs/4737.pdf 4 https://wttc.org/Portals/0/Documents/Reports/2022/EIR2022-Global%20Trends.pdf Feb 20, 2024 Page 3 of 7 The World Bank Armenia Tourism and Regional Infrastructure Project(P504282) and ranks 61st of 117 countries on the World Economic Forum’s 2021 Travel and Tourism Development Index5, improving four positions over the previous 2019 report, but low rankings on infrastructure holding back the exploitation of its strengths. Improving infrastructure would make it easier for visitors to reach attractive parts of the country, promote greater economic benefits for more people, and help diversify services to attract a wider range of potential tourists. 4. In addition, the GoA has made progress during 2023 towards enhancing the regulatory and policy framework governing the tourism sector. Specifically, a new Tourism Law was adopted to help better regulate the sector to improve tourism experience and offerings, clearly define key actors and stakeholders and introduce several regulations to ensure the provision of high-quality offerings to visitors. To further define priority actions that respond to the existing challenges in the tourism sector, the GoA has also committed to adopting a new National Tourism Strategy within the first half of 2024. The Strategy will be a high-level document which provides an overarching vision and direction for the sector’s development and operationalization of the cluster approach over the next five years, including a robust Action Plan. Among the key challenges it will seek to address include low awareness of Armenia as a destination on the global tourism map, poor quality of basic infrastructure and services, seasonality of tourists, and insufficiently qualified human resources in the sector. 5. The proposed Tourism and Regional Infrastructure Project (TRIP) in the amount of US$100 million is expected to be the first in a potential series of investments by the GoA that can serve as an anchor for implementing Armenia’s cluster program and its ambitions of significantly increasing the sustainable contribution of the tourism sector to the economy. The tourism sector can serve as a key driver for economic growth and job creation at national and sub-national levels and the provision of more balanced regional development leading to reduced disparities, increased economic activity, and improved quality of life of the citizens. In support of the existing government programs and the new Tourism Strategy under preparation, this operation would aim to improve livability in urban areas and communities with increased attractiveness for private capital mobilization; strengthen resilience of urban and community infrastructure; enhance workforce skills, service provision, and tourism business capacities; increase tourism spending resulting in additional revenue generation for the communities and overall competitiveness. It will also support positioning Armenia as a destination with diversified product offerings, and leverage the experience gained and investments made under completed and ongoing Government investments in tourism for synergies and sustainability. Relationship to CPF 6. The proposed operation is fully aligned with the approved Country Partnership Framework for FY19-FY236, and the adjustments made to the program following the PLR in 2022 and will contribute to the proposed outcomes and objectives of the new FY24-28 CPF under preparation. The TRIP is aligned with current CPF regarding its three focus areas, Enabling exports and firm competitiveness, through supporting job creation and private sector participation in the tourism sector7; Boosting human capital and strengthening equity, through trainings and enhancing skills in hospitality, and Promoting sustainable management of the environment and natural resources, through strengthening the resilience of infrastructure and safeguarding livelihoods of low-income populations engaged in tourism and other nature-dependent sectors vulnerable to climate change. Per the current CPF the export of goods and services are among the primary drivers of economic growth in Armenia, with tourism, ICT and technology, agriculture and agro-processing identified as the most relevant sectors in which more economic dynamism could bring additional benefits. The Project is also aligned with the provisions of future CPF for FY24-28, which is currently 5 https://www3.weforum.org/docs/WEF_Travel_Tourism_Development_2021.pdf 6 Armenia Country Partnership Framework (CPF) FY: https://openknowledge.worldbank.org/server/api/core/bitstreams/b5190a1d-7868-533d-acff-0c536d1ac19i 7 The Project will seek to remove existing barriers of development and support with reliable connectivity, improving the investment climate through private capital enabling, enhancement of competitiveness and productivity gains in the tourism value chain. Feb 20, 2024 Page 4 of 7 The World Bank Armenia Tourism and Regional Infrastructure Project(P504282) under preparation. The new CPF outlines the World Bank’s commitment to support improving the conditions for private sector development and more resilient economic activity. C. Proposed Development Objective(s) The proposed Project Development Objective (PDO) is to improve access to sustainable, resilient and climate smart tourism-related infrastructure and services in project-supported clusters. Key Results (From PCN) 7. The proposed Project will measure the progress toward the PDO through the following proposed indicators: • People benefitting from improved access to sustainable, resilient, and climate-smart infrastructure and tourism services (number, percent gender disaggregated) • Project-financed investments supporting enhanced resilience to climate and geophysical hazards (percent) • Increased tourism spending in Project-supported tourism clusters (US$ per day) • Increased number of jobs created by activities linked to the project (number, percent gender disaggregated) D. Concept Description 8. The project will support investments in six clusters: Aparan, Areni, Dilijan, Dvin, Gyumri, and Goris. The proposed Project would have the following four components: 9. Component 1 - Promoting Integrated, Sustainable, and Inclusive Local Tourism Development (estimated US$5 million) will finance technical assistance (TA) and consultancy services to support the preparation of Cluster Development Plans (CDPs) and associated analytical studies under the GoA’s Cluster Approach. The CDPs are expected to inform and guide national and regional development planning practices in tourism, including through fostering community engagement, coordination, governance, and ownership, and supporting private sector participation. 10. Component 2 – Supporting Green and Resilient Tourism Infrastructure and Institutional Development (estimated US$90 million) aims at closing the identified gaps in basic service provision and service delivery from the urban and tourism-development perspectives across the six priority clusters. It aims to enhance the experience of tourists while simultaneously improving the livability and livelihood opportunities for the local communities. It will support interventions for improving access to touristic sites and surrounding areas, improving attractiveness of public areas, enhancing provision of tourism services, and rehabilitation/upgrading of priority municipal infrastructure. The component will also support the sustainable operation and management of the touristic assets and overall local economic development and tourism management. Finally, it will seek to enhance the enabling environment for private sector investments and to increase local private sector participation and business development. 11. Component 3 - Contingent Emergency Response Component, CERC (US$0). This zero-dollar component will allow for rapid reallocation of Project funds from other Components to provide immediate response, recovery and reconstruction support to the Government following an eligible crisis or emergency in Armenia, as needed. 12. Component 4 - Program Management (estimated. US$5 million) will finance overall project management costs related to operational activities, consulting services, non-consulting services, vehicles, goods, and communications, outreach, trainings, and the costs of the core Project Team (PT) to carry out project management functions and Feb 20, 2024 Page 5 of 7 The World Bank Armenia Tourism and Regional Infrastructure Project(P504282) ensure the project meets the Bank requirements related to environmental, social, fiduciary, audits, and technical standards. @#&OPS~Doctype~OPS^dynamics@legalpolicyandscreeningrisk#doctemplate Legal Operational Policies Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Area OP 7.60 No Summary of Screening of Environmental and Social Risks and Impacts 13. The following Environmental and Social Standards (ESSs) are considered relevant: ESS1, ESS2, ESS3, ESS4, ESS5, ESS6, ESS8, and ESS10. The overall environmental risk of the project is considered moderate. The extent and magnitude of potential negative impacts will vary depending on the specific interventions. Small to medium-scale infrastructure-related rehabilitations and constructions carry low to moderate risks and impacts. Activities around or within cultural heritage sites can result in physical hazards and potential loss of aesthetic value of intangible heritage. However, at the PCN level, no adverse impacts have been identified for the introduced cluster-related activities. Any negative environmental footprints and impacts associated with subproject interventions can be effectively addressed and managed through the adoption of environmentally sound subproject designs, environmental and social screening and assessment in line with ESSs, and the implementation of mitigation measures, including monitoring and oversight. The Social Risk rating for the project is also moderate. Most impacts will be resulted from the rehabilitation of basic infrastructure and services such as access roads, parking and streetlights; and upgrading of clean water and sewage systems. Restrictions on land use are expected to be minimal as the project focuses on rehabilitation of the already existing infrastructure. There may be disruption of small business activities during the construction works. This disruption may involve difficulties related to access, construction noise, dust, and changes in the local environment. All temporary and permanent impacts will be subject to mitigation and compensation. Lack of consultations and participation of vulnerable groups will increase risks of exclusion and adverse impacts. Seasonal influx of tourists may also present community health and safety risks, which might require assessment at a later stage. Risks related to SEA/SH will be addressed through the introduction of a Code of Conduct for workers, SEA/SH sensitive GRM, and awareness-raising for all Project components, an adequate Grievance Redress Mechanism (GRM) will be established and made available for Project stakeholders and affected parties to gather information and resolve issues related to Project activities. The SEP will expand on this to ensure that the established GRM adequately considers the peculiarities of all project components. The SEP will also include measures for addressing project-specific procedures to manage SEA/SH grievances. @#&OPS~Doctype~OPS^dynamics@contactpoint#doctemplate CONTACT POINT World Bank Feb 20, 2024 Page 6 of 7 The World Bank Armenia Tourism and Regional Infrastructure Project(P504282) Tafadzwa Irvine Dube Senior Disaster Risk Management Specialist Borrower/Client/Recipient Ministry of Finance Vahe Hovhannisyan, Minister of Finance, secretariat@minfin.am Implementing Agencies Ministry of Economy Arman Khojoyan, Acting Minister of Economy, akhojoyan@mineconomy.am FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects @#&OPS~Doctype~OPS^dynamics@approval#doctemplate APPROVAL Task Team Leader(s): Tafadzwa Irvine Dube Approved By Practice Manager/Manager: Country Director: Rolande Simone Pryce 20-Feb-2024 Feb 20, 2024 Page 7 of 7