Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4615 PROJECT PERFORMANCE AUDIT REPORT MEXICO: ZIHUATANEJO TOURISM PROJECT (LOAN 793-ME) AND TOURISM DEVELOPMENT PROJECT (LOAN 1524-ME) June 30, 1983 Operations Evaluation Department 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. FOR OFFICIAL USE ONLY PROJECT PERFORMANCL AUDIT REPORT MEXICO; ZIiUATANEJO TOURISM PROJECT (LOAN 793-ME) AND TOURISM DEVELOPMENT PROJECT (LOAN 1524-Nt) TABLE OF CONTENTS Page No. Preface ........................................................... i Basic Data Sheet.ii Highlights .....................--.------........................ iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. INTRODUCTION ............................... . 1 II. PROJECT IMPLEMENTATION ................................ 3 III. POINTS OF PARTICULAR INTEREST .......................... 9 IV. CONCLUSIONS ............................................ 15 PROJECT COMPLETION REPURT: Zihuatanejo Tourism Project (Loan 793-ME) I. Introduction ........................................... 17 II. Sector Background ...................................... 18 III. Project Preparation and Appraisal ...................... 19 IV. Project Implementation arid Costs ....................... 20 V. Institutional Aspects .................................. 28 VI. Hotel and Market Development ........................... 29 VI1. Financial Aspects ...................................... 31 VIII. Economic Re-Evaluation ................................. 36 IX. Social and Environmental Impact ........................ 40 X. Conclusions ............................................ 42 Annex I Annex II Annex III Annex IV Annex V Annex VI | 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. Table of Contents (cont'd) Page No. PROJECT COMPLETION REPORT: Tourism Development Project (Loan 1524-ME) I. Introduction .......................................... 59 II. The Sector ............................................ 60 III. Project Objectives .................................... 62 IV. Project Implementation ................................ 63 V. Use of Project Funds.................................. 65 VI. Subproject Operation ................................ 69 VII. Studies Component ..................................... 72 VIII. Economic Impact ....................................... 74 IX. Foreign Exchange Impact ............................... 75 X. Employment Effects .................................... 75 XI. Conclusions ........................-------------------- 76 Annex I PROJECT PERFORMANCE AUDIT REPORT MEXICO: ZIHUATANEJO TOURISM PROJECT (LOAN 793-ME) AND TOURISM DEVELOPMENT PROJECT (LOAN 1524-ME) PREFACE This report presents the performance audits for the Zihuatanejo Tourism Project and the Tourism Development Project, both in Mexico. The former was financed in January 1972, under a loan of US$22.0 million equiva- lent (Loan 793-ME). For the latter, a loan of US$50.0 million equivalent was made in March 1978 (Loan 1524-ME). Disbursements for the two projects were completed in June 1979 and December 1981, respectively. The report consists of a Project Performance Audit Memorandum prepared by the'Operations Evaluation Department (OED) and a Project Completion Report (PCR) for each project prepared by the Latin America and the Caribbean Region. The memorandum is based on the PCRs, discussions by `OED staff with'Government officials and other persons connected with the projects during an audit mission in September 1982 to Mexico, and interviews with Bank staff; the transcripts of the Executive Directors' meetings of December 1971 and February 1978 which considered the projects, have been read and project files and documents have been reviewed. The PCR for the Zihuatanejo project was prepared in 1980 and is based on 1979 data. The audit was postponed to allow a reasonable starting up period for the new resort. The PCR generally covers the implementation experience. It is partially based on a PCR prepared by the Borrower. The PCR for the Tourism Development Project covers some aspects in a very compre- hensive manner but the evaluation was carried out on too limited a data base. Even though required by the loan agreement, no PCR was prepared by the Borrower. The audit memorandum comments on some aspects which the PCRs did not fully cover, such as limited foreign exchange earnings; the need for low cost secondary investments at Ixtapa; the shortage of information on sub-pro- jects under the Tourism Development Project; the successes in institution strengthening; and ways to develop cofinancing on a national level. The draft PPAM was sent to the Borrower for comments; however, none were received. - ii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET MEXICO: ZIHUATANEJO TOURISM PROJECT (LOAN 793-ME) AND TOURISM DEVELOPMENT PROJECT (LOAN 1524-ME) KEY PROJECT DATA Zihuatanejo Tourism Project Tourism Development Project Appraisal Actual or Appraisal Actual or Item Estimate Reestimate Estimate Reestimate Total Project Cost (US$ million) 44.0 61.OQna 537.0 n/a/b Overrun (7) - +39 - n/a Loan Amount (US$ million) 22.0 22.0 50.0 50.0 Disbursed ) - 22.0 - 50.0 Repaid ) 12/31/82 - 3.7 1.0 Borrower's Obligation) - 19.8/C - 4 4 .1Ld Date Physical Components Completed 12/31/74 12/31/79 e 12/31/80 08/31/81 Proportion of Time Overrun (X) - 100 - 24 Proportion of Main Project Elements Finished by Original Project Completion Date 54 - n/a Economic Rate of Return (%) 19 n/a/f 14.5 n/a/9 Cumulative Estimated and Actual Disbursements (US$ million) Zihuatanejo Tourism Project Tourism Development Project FY73 FY74 FY75 FY76 FY77 FY78 FY79 FY78 FY79 FY80 FY81 FY82 Estimated 4.4 14.5 22.0 22.0 22.0 22.0 22.0 24.6 48.9 50.0 50.0 50.0 Actual 0 4.1 10.0 18.4 21.4 21.5 22.0 0 6.2 31.4 46.7 50.0 Actual/Estimated (Z) - 28 45 84 97 98 100 - 13 63 93 100 OTHER PROJECT DATA Zihuatanejo Tourism Project Tourism Development Project Original Original Item Plan Actual Plan Actual First Mention in Files - 08/68 - 08/13/76 Government-s Application - 04/69 - 02/77 Negotiations Date - 11/71 09/12/77 01/09-19/78 Board Approval Date - 12/21/71 10/25/77 02/28/78 Loan Agreement Date - 01/18/72 03/21/78 03/21/78 Effectiveness Date 06/01/72 03/30/73 05/22/78 01/12/79 Closing Date 12/31/75 06/30/Z9 12/31/81 12/31/81 Borrower Nacional Financiera, S.A Nacional Financiera, S.A. Executing Agency INFRATUR/FONATUR FONATUR Fiscal Year of Borrower January 1 - December 31 Follow-on Project Name Baja California Tourism Project None Loan Number Loan 1420-ME Amount (US$ million) 42.0 Loan Agreement Date 07/05/77 /a PCR estimate. 7- Information on final project cost is not available (see para. 40). /c Including an exchange adjustment of US$1.5 million. 7- Including an exchange adjustment of -US$4.9 million. 7T Excluding the hotel training school. /f The PCR has reestimated the economic return at 14%. However, the audit expects the economic return to be substantially lower, because of higher construction costs and benefits which are developing slower than expected (para. 23). /g Information on project results is not available (para. 40). - iii - MISSION DATA/a Zihustanejo Tourism Project Item Month/Year No. of Weeks No. of Persons Msanweeks Date of Report Identification 08/68 2.87 3 8.60 09/18/68 Preparation 1 05/69 2.10 3 6.40 06/12/69 Preparation I1 01/70 3.20 5 17.10 01/27/70 Preappraisal 1 07/70 1.80 6 11.00 07/24/70 Preappraisal II 10170 2.86 3 8.60 10/30/70 Preappraisal/Appraisal 04/71 3.00 7 21.20 05/21/71 Appraisal 05/06/71 2.90 7 20.30 12/07/71 Supervision I 03/12-18/72 1.60 1 1.60 03/23/72 Supervision II 06/22-24/72 .45 1 .45 07/05/72 Supervision III 07/09-14/72 .70 3 2.10 07/17/72 Supervision IV 08/07-13/72 1.00 2 2.00 08/15/72 Supervision V 10/24-29/72 .70 2 1.40 11/01/72 Supervision VI 12/08-13/72 .70 2 1.40 12/29/72 Supervision VII 01/11-20/73 1.50 1 1.50 02/07/73 Supervision VIII 01/17-21/73 .70 1 .70 02/20/73 Supervision IX 03/08-16/73 1.30 1 1.30 03/23/73 Supervision X 03/19-20/73 .30 2 .60 03/29/73 Supervision XI 05/07-12/73 1.00 1 1.00 05/16/73 Supervision XII 05/01-18/73 1.00 1 1.00 06/05/73 Supervision XIII 05/31-06/08/73 1.30 2 2.60 07/30/73 Supervision XIV 07/27-30/73 .60 1 .60 08/C8/73 Supervision XV 11/13-21/73 1.00 1 1.00 12/19/73 Supervision XVI 04/05-09/74 1.00 1 1.00 04/22/74 Supervision XVII 04/21-05/01/74 1.70 3 5.10 06/24/74 Supervision XVIII 04/74 Not Available Supervision XIX 07/24-31/74 1.00 2 2.00 08/28/74 Supervision XX 11/04-12/74 1.00 1 1.00 12/13/74 Supervision XXI 11/10-15/74 .70 1 .70 11/20/74 Supervision XXII 12/12-17/74 .10 1 .10 01/03/75 Supervision XXIII 01/29-31/75 .45 1 .45 02/21/75 Supervision XXIV 03/10-18/75 1.00 1 1.00 03/28/75 Supervision XXV 07/11-14/75 .70 1 .70 08/11/75 Supervision XXVI 08/10-17/75 1.10 3 3.30 10/10/75 Supervision XXVII 12/04-12/75 1.00 1 1.00 12/31/75 Supervision XXVIII 04/20-29/76 1.00 4 4.00 05/28/76 Supervision XXIX 07/26-08/02/76 1.00 3 3.00 08/10/76 Supervision XXX 05/76 .70 1 .70 Not Available Supervision XXXI 07/77 1.00 3 3.00 08/18/77 Supervision XXXII 11/09-14/77 1.00 1 1.00 11/17/77 Supervision XXXIII 03/13-15/78 .45 3 1.35 03/21/78 Supervision XXXIV 11/27-12/06/78 1.45 4 5.80 01/17/79 Supervisioa XXXV 04/23-30/79 6 No Report Supervision XXXVI 06/79 2.00 1 2.00 No Report Supervision XXXVII 12/04-12/79 1.30 4 5.20 12/14/79 Tourism Development Project Item Month/Year No. of Weeks No. of Persons Manweeks Date of Report Identification 09/76 3.50 2 7.00 - Preappralsal 03/13-20/71 1.00 5 5.00 04/20/77 Appraisal 06/07-21/77 3.00 9 27.00 02/14/78 Supervision 1 07/24-31/77 1.00 3 3.00 Not Available Supervision II 07/77 - - - Not Available Supervision III 09/01-07/77 1.00 1 1.00 Not Available Supervision IV 09/19-22/77 .45 1 .45 Not Available Supervision V 10/26-29/77 .45 1 .45 Not Available Supervision VI 11/10-14/77 1.00 1 1.00 11/17/77 Supervision VII 11/14-16/77 .45 1 .45 Not Available Supervision VIII - - - 08/30/78 Supervision IX 11/27-12/07/78 1.40 4 5.60 Not Available Supervision X 05/01-04/79 .45 1 .45 05/14/79 Supervision XI Not Available Supervision XII 12/04-12/79 1.30 4 5.20 12/14/79 12/20/79 Supervision XIII 05/26-06/07/80 1.90 1 1.90 06/23/80 Supervision XIV 03/18-24/81 .90 1 .90 04/10/81 Supervision XV 10/13-16/81 - - - Not Available Supervision XVI 10/30-11/06/81 .90 1 .90 11/24/81 Completion Report 03/15-26/82 1.70 2 3.40 06/17/82 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Mexican Peso (Mex$) Year: Exchange Rate: Appraisal Year Average (Zihuatanejo Project) 1970 US$1 - Mex$12.50 1972-1975 US$1 - Mex$12.50 1976 US$1 - Mex$13.00 Appraisal Year Average (Tourism Development Project) 1977 (Jan) US$1 - Mex$22.50 1978-81 US$1 - Mex$25.00 1982 (Aug-Dec) US$1 - Mex$70.00-$145.00 la Missions were sent by separate departments covering different aspects of the project. - iv - PROJECT PERFORMANCE AUDIT REPORT MEXICO ZIHUATANEJO TOURISM PROJECT (LOAN 793-Mm) AND TOURISMi DEVELOPIENT PROJECT (LOAN 1524-ME) hIGhLIGHTS The purpose of the above projects was to stimulate Mexico's eco- nomic development and in particular to create additional employment and generate foreign exchange earnings These objectives were largely achieved, but foreign exchange earnings from the Zihuatanejo project are disappointing The Zihuatanejo project resulted in a moaern. well planned resort the final cost, however, was considerably higher than expected at appraisal (para. 16), while implementation took about twice the anticipated time (para. 17). The Tourism Development project made an important contribution to the construction of new hotel rooms and modernization of existing capacity, even though achievements remained below the original targets (para. 21). Implemen- tation took slightly longer than anticipated. Data on the two projects were not sufficient for the audit to reestimate the economic returns (paras. 23, 25). Points of particular interest are - The audit ascribes the low foreign exchange earnings of the Zihuatanejo project to its location which relative to other MViexican resorts, is particularly attractive to national tourists and some- what less so for part of the foreign market (paras. 27-32, 49) - Development of capital intensive secondary facilities shoulo be handled with caution. In this case. investments in a new golf course appear excessive, while construction work on the marina was premature. The audit suggests that for the latter scheme further detailed market studies are desirable (paras. 12, 33-36, 50); - The employment potential of the projects has not yet been fully realized because of delays in developing secondary tourist tacili- ties, lower service levels in hotels than would normally be ex- pected and the use of labour saving devices (paras. 41-43), and - Channelling Bank loans through Government institutions which redis- count loans by commercial banks to private enterprises can have various advantages such as increasing the total funds available or achieving particular investment objectives. In some of tlhe Bank's regional offices it is used on only a very limited scale and it may deserve fuller consideration (paras. 38 51). PROJECT PERFORMANCE AUDIT MEMORANDUM MEXICO: ZIHUATANEJO TOURISM PROJECT (LOAN 793-ME) AND TOURISM DEVELOPMENT PROJECT (LOAN 1524-ME) I. INTRODUCTION 1. Mexico is a country with an unusual potential for tourism. It offers extensive cultural attractions as well as great possibilities for beach tourism. Because of Mexico's favorable climate tourism resorts can be exploited on a year-round basis, contrary to many countries which have a distinct low season due to cold weather or heavy rainfall. Furthermore, Mexico is geographically adjacent to the US/Canadian market which has a great potential for generating tourist traffic. Mexico's large underutilized labor force and its shortage of foreign exchange make tourism an attractive form of development. 2. In 1969, the Mexican'Government requested the Bank to consider financing a tourism project. Several alternative sites were proposed for construction of a new seaside resort; ultimately the selection fell on Ixtapa, some 8 km from the fishing village of Zihuatanejo on the Pacific coast. The project was one of the Bank's first ventures directly aimed at the tourism sector and the first for comprehensive tourism infrastructure development. At the time its cross-sectoral approach was rather unique for a Bank'Group operation and in part because of its novelty, it required some 2 years for preparation. 3. The purpose of the Zihuatanejo/Ixtapa project was to assist in the development of the tourism sector, to generally stimulate the country's economic development and, in particular, to create new employment and increase foreign exchange earnings. Furthermore, contrary to the then existing tourist areas along the Pacific coast, the new resort was to be developed in a coor- dinated manner on the basis of a satisfactory land use plan and with due regard for environmental factors. 4. The Zihuatanejo project consisted of the following elements: (a) the infrastructures within the tourist zone at Ixtapa comprising the boulevard and other streets, the land reclamation and drainage works, the electric power distribution network and public lighting, telephone connections, the water, sewerage and storm water drainage systems, beach works, the commercial center and golf course; (b) the infrastructures at Zihuatanejo comprising the improvement and expansion of principal streets, the electric power distri- bution network and public lighting, and the provision of water, sewerage, and storm water drainage systems; - 2 - (c) a new international airport, located about 10 km to the south- east of Zihuatanejo, designed to cater for non-stop flights from major U.S. cities; (d) training programs for hotel personnel; and (e) feasibility studies for 2 new tourism zones and for the possi- ble expansion and upgrading of infrastructure facilities in Acapulco. In order to promote timely and efficient project implementation, a number of actions were stipulated as conditions of effectiveness (PCR, para. 4.01), the principal ones dealing with the adoption of land use plans and zoning regulations and the acquisition of land from private owners. 5. In 1969, the Mexican Government established INFRATUR-11 as an independent fund within the Bank of Mexico to prepare, coordinate and imple- ment tourism projects. INFRATUR was designated as the principal executing agency for the Zihuatanejo project. However, parts of the project, such as the electricity supply and the airport, were to be implemented by various specialized'Government agencies. In 1974, the tourism sector was reorganized and INFRATUR became part of FONATUR,2/ which was entrusted by the 'Govern- ment to NAFINSA,3/ which is an agency of the Ministry of Finance. NAFINSA was also the official borrower and FONATUR the executing agency for the two subsequent tourism projects which were financed by the Bank. The second pro- ject, financed in 1977, was similar to the Zihuatanejo project. It financed tourism infrastructure for two new resorts in Baja California. This project is in the final construction stages but some time will be needed before the full impact can be measured. The performance audit of this project should, therefore, be delayed to allow for a suitable starting up period. 6. The third tourism lending operation in Mexico, in 1978, was for the Tourism Development Project. The purpose of this project was to contribute to Mexico's economic and social development and, in particular, to increase foreign exchange earnings and employment through the stimulation of tourism. It was prompted by Mexico's growing foreign exchange requirements and the difficulty of finding long-term financing for hotel construction through the country's conventional financial institutions. The project was to cover a portion of the foreign exchange costs of expansion of accommodation and other tourism related facilities. A number of agreements were reached between the Borrower and the Bank. The most significant of these were the upgrading of FONATUR's appraisal procedures of subprojects and the introduction of floating interest rates for the subprojects. 1/ Fondo de Promocion de Infraestructura Turistica. 2/ Fondo Nacional de Fomento al Turismo. 3/ Nacional Financiera S.A. II. PROJECT IMPLEMENTATION 7. Even though both projects under review were to aim at tourism development, the nature of the respective investments as well as the implemen- tation method were quite different. In part the last project h-s been comple- mentary to the first since it contributed to hotel development in Ixtapa. Because of the essential difference between the two projects they will be mostly reviewed separately. Development of Ixtapa/Zihuatanejo 8. The purpose of the project has been largely achieved. Tourism activity was boosted by the construction of-a modern, well serviced resort at Ixtapa. Considerable additional employment resulted from the project but foreign exchange earnings generated by the new resort are much below expecta- tions. These points are discussed in more detail in the next chapter. 9. As is evident from para. 4 above, the project in effect consisted of three separate subprojects, i.e., (a) construction of a new tourist resort at Ixtapa on a tract of virtually virgin land; (b) urban development and modernization in the old town of Zihuatanejo; and (c) the building of a new airport. The first two parts of the project presented the problem that they covered various jurisdictions within the Mexican Government as well as different Departments in the Bank. Initially the project was handled by Bank staff from three different projects departments: tourism, public utilities and transportation. This division resulted in a large number of separate missions. 10. The development of the resort at Ixtapa is described in the PCR (paras. 4.07-4.16). The works were completed in a mostly satisfactory manner. Coordination of the different elements at times provided some difficulties, but could generally be solved by FONATUR, sometimes helped by visiting Bank missions. Soil conditions at Ixtapa proved a major problem. The need to remove a deep layer of peat before the boulevard and dikes could be built required more time than expected and led to higher costs. The audit found that soil conditions had received inadequate consideration before the decision on the exact location of the new resort was taken.1 ' The Region suggested that adequate work was done but the audit was unable to obtain the information from FONATUR, nor from the Bank's records. 1/ The Region comments as follows: INFRATUR had prepared a site evaluation matrix for five locations including Zihuatanejo/Ixtapa, Bahia de Manza- nillo, Pacifico Centro above Puerto Vallarta and Pacifico Norte above Mazatlan. Soil condition was one of many factors that were analyzed. A more detailed evaluation was prepared on three of the above sites. In both evaluations, Zihuatanejo/Ixtapa had the highest location rating. - 4 - 11. Overall tourism development in Mexico during the last decade was dynamic. The country's local tourism experienced a strong growth, while foreign arrivals between 1971-82 increased by some 75%. In spite of this, hotel development in Ixtapa lagged behind the appraisal estimate and the target of 2,500 rooms for 1979 was achieved only in 1982. The lag seems to be due to optir!stic estimates in the appraisal and problems inherent in the creation of a new resort. The sale of residential lots also remained below expectations and very few foreigners appear interested in this aspect of the project. In 1981, the average hotel occupancy rate for Ixtapa was about 65%, which is comparable to the occupancy rate for hotels in other seaside resorts in Mexico. However, it is well below the 75-80% rates generally assumed in the appraisals for hotel financing. In part the starting-up period for the newer hotels may acount for the difference. 12. The project includes an 18 hole golf course, construction of which has been successfully completed. An ingenious system of irrigation has been developed for the course by using the treated effluent of the sewerage plant, which appears quite acceptable for this purpose. The golf course, however, takes up about as much space as the first stage hotel zone at Ixtapa and has been costly to construct. According to data given by FONATUR to the audit mission, the final cost was over US$7 million equivalent (the PCR, Annex 1, Table 3 suggests the cost to be much lower). The course is grossly under- utilized because only a few foreign tourists visit Ixtapa and Mexican tourists are not very interested in the game (see para. 27). FONATUR's data indicate that losses suffered by the golf course and club house since the opening six years ago are substantial. The audit believes that it would have been pru- dent to hav included only a nine hole course in the first stage development of Ixtapa.1/ 13. For Zihuatanejo the project included the development of services and a street improvement program. This part was substantially expanded during the implementation period (PCR, para. 4.18). The original thought behind these investments appeared to be largely of a social nature because it was considered difficult to have a local town without any services next to a modern resort with luxurious facilities; another motivation was pollution control. Providing the services has been mostly successful and, according to Government officials, has helped to overcome an initial resistance of the local population against the considerable changes in life style which were going to be imposed on them. 14. In the appraisal report Zihuatanejo was presented as only a second- ary tourist attraction. The audit mission was unable to find clear answers to the question of why Zihuatanejo and the area surrounding its bay have not received greater emphasis for tourism development. Other than being re- stricted in size, Zihuatanejo's hotel zone has several advantages over 1/ The Region suggests that for most international terminal resorts of 3,000 rooms or more, a tournament size 18-hole golf course is a necessity for the US market. The investment cost is not recovered by user fees but by the sale of residential frontage along the fairways for 2,000 condo- minium and private dwellings. For Ixtapa, cost recovery might take eight to ten years. - 5- Ixtapa. It provides an attractive view over the bay; direct access to shel- tered water for boating and swimming; and the proximity of the town's restau- rants, shops and other facilities. Presently only a few small hotels are available; reportedly these receive a higher percentage of foreign tourists than the hotels in Ixtapa. Further hotel development at Zihuatanejo would have enhanced the appeal of the Ixtapa/Zihuatanejo resort area, by providing more variety to tourists.l/ 15. The third aspect, the airport, is an equally essential part of the project. The nearest airport to Zihuatanejo is at Acapulco, some 200 km away. Road access is also via Acapulco, making the distance from Zihuatanejo to Mexico City close to 500 km, which will be about halved once the direct road has been completed. Therefore, even though the airport was in the first place needed to attract international travellers, it has also been important for local tourism. The construction cost of the new airport, according to the PCR (Annex 1, Table 1), was virtually as estimated in the appraisal. Since the Mexican officials who were directly involved in construction of the airport were not available, the audit mission was unable to obtain their views on matters related to this part of the project. 16. The audit finds it difficult to reconcile various cost data. This problem is partially caused by the PCR's effort to separate costs into essential and additional investments (PCR, para. 4.26), the latter being considered not crucial for the functioning of the resort. Furthermore, part of the 1977 cost data provided in FONATUR's completion report exceed the PCR cost data while some of the information obtained by the audit mission showed even higher cost figures. The audit, therefore believes that the final cost has been higher than the estimate used in the PCR and that the project's cost overrun in pesos is about 100%. Construction costs in the country increased by about two thirds on average during the project period. There- fore, a substantial part of the cost increase is due to inflation. Cost overruns on some individual components have exceeded 100%. 17. The project suffered from considerable delays and by the original closing date only 60% of the loan funds had been disbursed. With the excep- tion of the training center the project was completed in December 1977, 3 years later than originally envisaged, which represents a time overrun of 100%. If the training center is included, the time overrun increases to about 130%. The main reasons for the need to extend the project period were delays in loan effectiveness because some conditions could not be met in time, notably land acquisition and approval of the urban plan for Zihuatanejo and technical problems with soil conditions at Ixtapa as well as the need for extra flood protection works which have slowed project implementation. 1/ The Region suggests that large scale international tourism hotels on the Bay of Zihuatanejo could not be developed to a capacity of 3,000 rooms required without moving the entire support/service town planned for 25,000 to a remote location 10 to 20 km to the east. Apart from the social injustice, the land acquisition would have been politically untenable and would have destroyed what is today a charming Mexico style urban life with a low profile. 19. Employment opportunities were provided by the project, but this meant that new skills had to be acquired to switch from fishing and farming to various types of work in hotels. According to persons interviewed by the audit mission, part of the population had trouble in switching from a free life style to the discipline and routine required in hot?l employment. This problem apparently contributed to the fact that not many members of the poorest groups were able to obtain employment in hotels. A substantial number of the newly created jobs in the hotel sector have gone to persons from outside Zihuatanejo and its immediate vicinity, either to supplement the local labor force or more often because skills and experience were required which could not be provided locally. A study of the new tourism development con- cludes that with a few exceptions, the number of women who benefit from the newly created employment opportunities is lower than could normally be expected. Farming does not seem to have expanded which is in part because of climatic conditions. Most food products arrive by road from central Mexico. 20. The hotel training component was seriously delayed. After much hesitation the 'Government decided to refurbish some existing buildings to provide facilities for a hotel training school (PCR, para. 4.21). When the audit mission visited the school (CAPIH) it had been operating for about 3 years, training staff for the lesser skilled hotel jobs. Judging from the views expressed by several hotel managers the school does not fully meet their requirements. Some managers hired virtually no staff from the school and preferred to have their own training program while others made some use of the school½s graduates. The basic problem appears to be that the school is operated by the Mexican Social Security Institute (IMSS) which is not specialized in the hotel trade, with the result that often the training staff provided for the school are not fully qualified for their task. From various discussions the audit mission gathered that the most desirable way to improve the effectiveness of the school would be the introduction of much closer cooperation with the hotel owners on matters of the school's staffing and curriculum. Zihuatanejo has another hotel training school (CONALEP) which is sponsored by the Ministry of Education. This school gives evening classes and trains staff for the more complex functions. Hotel development under Loan 1524 21. According to'Government officials the Tourism Development Project has been successful in increasing economic activity and creating new employ- ment. All the loan funds were spent on hotel construction and renovation, while financing of tourism related facilities was done by FONATUR from other resources. FONATUR only made funds from the Bank loan available after carry- ing out detailed appraisals. Altogether, one hundred and one hotels bene- fitted from the loan. However, only about 8,000 rooms were built or renovated against a target of 21,000 at the time of appraisal, but details on the proportion which was planned to be new construction and the ratio actually achieved are not available. Total project cost based on the subloan agree- ments remained below the original estimates but the project required 24% 7- more time. The audit believes that the investment on the whole has been beneficial since it provided more and better hotel facilities during a period of rapidly growing economic activity in Mexico. uowever, little is known on final cost, hotel occupancy rates, hotel profitability and foreign exchange earnings, a problem which is discussed in more detail in the next chapter.l/ 22. The project was cofinanced with a private foreign bank for a total of US$25 million. In this case, the cofinancing was a rather loose arrange- ment. It had not yet been concluded at the time of Board presentation and is mentioned in the President's Report in only general terms. The only link with the Bank loan was an agreement to exchange information. A representative of the private bank appeared satisfied with the cofinancing experience. A knowledgeable Government official suggested that there was no particular gain from the cofinancing since at the time Mexico had ample access to foreign loans. The cofinancing amount represented only a fraction of Mexico-s foreign borrowing in 1978, and if obtained as a part of a syndicated loan to the Government less formalities would have been required.2/ Economic and Foreign Exchange Results of the Two Projects 23. Calculating an economic return on a tourism infrastructure project is a challenging task. The methodology used in the PCR appears adequate, but the audit questions some of the data used. On the cost side, the audit found that the value of the total investment was higher than the figures given in the PCR (para. 16). Benefits are growing slower than expected in the PCR with, in 1982, 2,600 hotel rooms developed instead of the 3,6CO projected in the PCR, while the sale of lots for private villas is lagging. Furthermore, average hotel occupancy in 1981 was only 65%. rather than reaching the 75% forecast. The lower hotel occupancy rates, which also prevailed in other Mexican resorts during a period of strong growth of the tourist industry may well indicate that overexpansion has taken place. This would imply that some of Ixtapa's growth took place at the cost of other resorts. Finally, it is unlikely that tourist expenditures outside the hotels would be important since very few facilities are available. The audit, therefore, has to conclude that the reestimated economic return will be well below the 14% suggested in the PCR. 1/ See footnote para. 40. 2/ The Region adds the following comments: The cofinanced loan from Grindlay Brandts was made by a syndicate to the Mexican Government and negotiated through NAFINSA. As such, the rates and conditions were equivalent to other loans raised in a similar manner by the Government. The opinion expressed by the audit on the relative unimportance of this loan does not appear to be supported by the way this loan was used. Within a year of becoming available, FONATUR has fully disbursed the cofinancing portion and was actively negotiating similar packages with France through NAFINSA. 24. Foreign tourist arrivals at Ixtapa are low which is discussed in more detail in the next chapter (paras. 27-29). Because of the resort's location the audit does not foresee a rapid increase in the percentage of foreign visitors to Ixtapa unless recent economic changes in Mexico were to lead to lower local demand and much higher foreign interest in the resort. Nor can extensive sales of residential lots to foreigners be expected imme- diately because recent events have affected the confidence of prospective foreign property owners. The PCR's estimate of foreign exchange earnings (PCR, para. 8.08) is, therefore, too optimistic. Some persons familiar with the project have suggested that substantial indirect foreign exchange benefits were generated because the extra hotel capacity enabled a number of Mexicans to take their holidays at home rather than abroad. However, travel abroad appears to have an appeal of its own. This seems to be borne out by the fact that in recent years, encouraged by the overvaluation of the peso, Mexicans travelled abroad in increasing numbers (see para. 28 below), while average hotel occupancy in major Mexican resorts during 1979-81 (later statistics are not available) was about 60-70% and declined somewhat over the years. Occu- pancy rates during peak months rarely reached 90%. 25. As is discussed in the next chapter (paras. 39-40), insufficient information is available on final costs and operating results of the hotels financed under the Tourism Development Project. Consequently, no meaningful reestimate for the economic return can be calculated and the PCR's estimates do not seem valid.l/ Financial results 26. Financial performance under the project can be measured in differ- ent ways. FONATUR was responsible for disbursement of most of the funds under the two loans. According to the organization's audited accounts for 1981, it was operating at a net profit. Certain components of the Ixtapa/Zihuatanejo project such as water supply and electricity are not covering their costs, while the situation for the airport is satisfactory (para. 44). Data on the financial results of individual hotels are not available. Under the present reporting system FONATUR only receives information from the lending banks on serious financial difficulties of the subborrowers. Apparently none had been reported when the audit mission visited. No indication is readily available on the effect of the recent peso devaluations on the viability of the pro- jects. 1/ See footnote para. 40. - 9 - III. POINTS OF PARTICULAR INTEREST Better site selection for the Ixtapa/Zihuatanejo project would have resulted in higher foreign exchange earnings 27. As already pointed out, a major reason for the Bank to participate in the project was its potential for earning foreign exchange. This was also recognized by the'Government as an important aim of the project. The results turned out to be disappointing. The appraisal estimated that out of the total tourist nights in Ixtapa, foreigners would account for 80% and Mexicans for 20%. The result, however, was the reverse, with mostly less than 25% foreign visitors in Ixtapa. In part, this situation was caused by internal develop- ments in Mexico but the primary reason appears to be the location of the project. 28. Over the last decade the annual growth rate of tourism by Mexicans increased unexpectedly and has been as high as 20%. A substantial number of these tourists went abroad and in 1981 more Mexicans visited the U.S. than there were U.S. tourists arriving in Mexico (excluding border tourism). At the same time, a greater number of Mexicans decided to spend their leisure time in resorts in their own country, thus strengthening the local demand for these facilities. It should be noted, however, that even at the time of project identification local tourism to resorts such as Acapulco was already of great importance. 29. Travel distances and costs are a significant factor in determining the attraction of a tourist resort. If earning foreign exchange is an impor- tant aim, a new resort should be located so that it is relatively close to the foreign market and care should be taken that it is not of primary attraction to local tourists. It appears, however, that these considerations were not fully recognized during project preparation. 30. According to Mexican officials the Bank had the first choice to participate in the development of Cancun in Yucatan. This project seemed to meet the travel distance criteria outlined in the previous paragraph. However, after a very brief site inspection which took place under unfavor- able weather conditions, the Bank rejected the offer. Cancun was finally developed with participation of IDB and in 1981, almost 50% of the visitors to this resort were foreigners. 31. During the project preparation stage several locations on Mexico's Pacific coast were considered. Ixtapa/Zihuatanejo, which was the southernmost site under consideration, was ultimately selected. This location was unfavor- able in respect to the factors mentioned in para. 29. Airfares from major urban centers in California to Ixtapa/Zihuatanejo are over 50% higher than to Mexican resort areas farther north even though this is not always the case for group fares. On the other hand, the airfare between Ixtapa and Mexico City is amongst the lowest between the capital and a seaside resort. Flying from - 10 - Mexico City to the nearest resort farther to the north from Ixtapa is at least 50% costlier and the airfare to Baja California or Yucatan would be about triple the fare to Ixtapa. Of course it should be noted that the location of Ixtapa/Zihuatanejo vis-a-vis the local and foreign tourist markets is vir- tually identical to that of Acapulco. However, the latter resort's capability to attract foreign tourists appears to result largely from the world wide reputation which it has enjoyed for several decades.l/ 32. Some Mexican officials blamed the poor performance of Ixtapa in attracting foreign tourists on unsatisfactory air connections with cities in the U.S. This factor was of significance until 197& when a new bilateral air agreement was signed between Mexico and the U.S. which allowed Zihuatanejo to be served directly from 23 U.S. cities. However, now after the removal of the legal restrictions the level of air service will largely be determined by demand. A number of flights between the U.S. and Zihuatanejo are operating, even though not all of them direct. Improved air service will encourage an increase in American and Canadian tourist arrivals, but it should also be kept in mind that Mexican tourism to Ixtapa will be stimulated once the direct access road to Mexico City is completed. Thus, there are no clear indications that the percentage of foreign tourists will increase substantially. It is still too early to assess the impact of the recent devaluation of Mexico-s peso. There are strong indications that the devaluation has stimulated tourism and apparently some resorts have over the recent Easter period reached hotel occupancy rates of 10U%. The new exchange rate has made Mexico a much more attractive tourist destination for foreigners. At the same time, how- ever, for Mexicans tourism outside their own country has become very costly and the large majority of the four million Mlexicans who travelled abroad in 1981 will now spend their holidays in their own country, even though part of the local demand will be eliminated by the current economic recession in Mexico. Forecasts on the ratio between foreign and local tourists in Mexican resorts are therefore difficult to make. Investment in Marinas 33. The appraisal for the Ixtapa/Zihuatanejo project refers to a small marina for pleasure boats which was to be constructed at the north end of Ixtapa-s main beach in the second stage of the project. Apparently, the plans have subsequently changed and as part of the first stage of the project two breakwaters were built in an attempt to protect the entrance channel to the projected marina. However, the breakwater design was inadequate and substantial further investment will be required (PCR, para. 4. J9). 1/ The Region adds the following: International terminal resorts are located in natural environments with high tourist attractions, lxtapa/Zihuatanejo location contains unique natural environments. In addition, Zihuatanejo is less than 1 1/2 hours flight from major markets from California to Texas. Acapulco was a well established resort by 1960, and Ixtapa in 20 years will become more important because of its well planned infrastruc- ture and environmental controls. - 11 - 34. A few Mexican officials stressed the immediate need for a marina at Ixtapa, suggesting that it would be used by Americans to keep their boats semi-permanently in Ixtapa. The audit is not convinced by that argument for two reasons. In the first place, ample sheltered anchorage is available in the Bay of Zihuatanejo while additional space and further protection could be provided by a marina at Zihuatanejo which has been provided for in the overall plan for the resort. The area for the marina has already been reserved and construction will be much cheaper than for facilities at Ixtapa because no breakwaters are needed and dredging requirements will be much more limited. A drawback of the location at Zihuatanejo is the slightly longer distance to the main hotel zone. 35. The second reason is the audit's conclusion that demand forecasts underlying plans for marina construction appear less comprehensive than would be desirable. The audit mission was informed by persons knowledgeable on the subject that American boat owners who leave their boats for longer periods in Mexico prefer to be fairly close to the U.S. in order to reduce the cost and time spent on travelling between their homes and boats. Therefore, facilities in the northern part of Mexico are more attractive. These are already avail- able and expansion is underway to create a multiple of the present capacity (e.g., Loreto's Puerto Escondido and the expansion of the marina at Puerto Vallarta). Marinas and port facilities farther south would mostly be aimed at vessels visiting for short periods and thus a limited capacity should suffice. 36. Based on the above, it appears that the appraisal assessment not to construct a marina during the first stage of the project was correct; the works already carried out are premature. Before further investments are committed for marinas along Mexico's Pacific coast it would be desirable to carry out a complete inventory of facilities now available or under construc- tion and undertake further studies of the demand side.!/ The Tourism Development Project served only partially to assist tourism 37. The purpose of the project as stated in the documents was to stim- ulate tourism, but the loan agreement did not require that subloans could only be made for hotels which would predominantly serve to accommodate tour- ists. As a result, hotels have been financed on the basis of general require- ments, with some located in tourist resorts such as Ixtapa or Cancun but others situated in the larger cities where business visitors account for a substantial part of the hotel clientele. The above does not necessarily detract from the usefulness of the investments. Actually, according to statistics provided by the Ministry of Tourism, hotel occupancy rates in Mexico's three largest cities where the main business traffic occurs have been substantially higher than at the main tourist resorts. Furthermore, in 1/ The Region comments that when Ixtapa is developed to 4,000-rooms in the near future, there will be a local demand for at least 120 small crafts in a small marina at Ixtapa, rather than transporting them daily eight nautical miles in the open sea from Zihuatanejo. - 12 - presenting the project its potential to increase Mexico's foreign exchange earnings was given much prominence. In fact, the loan agreement did not include any condition that subprojects should be selected in such a manner that they would especially contribute to the generation of foreign exchange earnings from tourism. No data are available on foreign exchange earnings generated by the project. Hotels were financed through two sequential financial intermediaries 38. The procedure for financing hotel subprojects under this Loan seems to be used only sparingly outside the Latin America Region. Proceeds of the loan were made available by NAFINSA to FONATUR (para. 5). However, the latter did not lend directly to the subborrowers. Instead, hotel companies borrowed from their own banks and FONATUR was prepared, after the necessary conditions had been met and detailed information supplied, to rediscount about 80% of the commercial bank's loan. FONATUR's financial exposure was only minor, since repayment depended on the viability of the financial institution and not on the subproject. The above procedure had the advantage that hotels continued to deal with the bank with which they already had an established relationship. A drawback is that it can lead to less control over the spend- ing of funds and insufficient feedback on the project results, as it did in this case. Because of the shortage of information, the audit is in no posi- tion to judge whether the loan funds in effect made extra resources available or that the hotels would have been able to borrow the same amount even without the intervention of FONATUR. Inadequacy of performance data on the Tourism Development Project 39. The loan agreement requires that the Borrower provide information on the subprojects but did not detail how this requirement was to be met. According to officials in FONATUR, plans were considered to create a separate unit for the supervision of hotel investments financed under the project. Ultimately this was not done. FONATUR did not see this as an omission because they considered the real supervision responsibility to rest with the banks which made the loans. They felt that because FONATUR only rediscounted these loans, repayment depended on the soundness of the financial institution concerned and not directly on the success of the subprojects. The Bank's project supervision appeared not to have made specific efforts to have FONATUR comply with the reporting requirements. 40. As a result, no systematic information is available on such essen- tial aspects as actual construction costs and operating results for the 101 hotels which benefitted from the loan. The PCR mission obtained some data, but the sample was too small to be representative, while the figures - 13 - obtained were not always fully reliable.!1 The statements on the financial viability of the hotels and the economic evaluation included in the PCK for this project are therefore not meaningful. The audit mission has requested complete information on the various subprojects as part of the PCR which, under the loan agreement, the borrower had agreed to prepare not later than December 31, 1982, but no information has so far been received. The potential for new employment opportunities has not yet been fully exploited 41. The employment generated by the two projects under review is re- lated to construction, hotel operation and secondary activities. For the first two categories actual data are either available or can be estimated with some degree of accuracy. The main construction phase of the Ixtapa/ Zihuatanejo project reportedly generated some 12,000 man-years of employment (PCR I, para. 8-10). Additional employment resulted from further construction work during the past four years, which included the completion of some 2,600 new hotel rooms. Direct employment in hotels in Ixtapa is now approaching some 3,500 jobs. The POR for the Tourism Development Project estimates that '2,G00 manr-years of work were generated by hotel construction and maintenance. Direct employment in the hotels is estimated at about 7,GGG jobs (PCR II1 para. 10.02), but several of these hotels are in Ixtapa and therefore some 5b0 jobs were already included in the earlier mentioned figures. 42. Secondary employment generated by the two projects is much more difficult to estimate. It consists of all the tourists activities outside the hotels which create additional work, such as transportation, outside meals and entertainment. FONATUR, in their estimates, have used general parameters of 1-1.5 indirect jobs per direct jobs (the indirect employment estimates do not include food production). It is difficult to judge how accurate the above parameter is. However, clearly it is an important aspect, the more so where many forms of indirect employment require only very modest investments. In the case of the Ixtapa project, the secondary tourist facilities largely remain to be developed. These would include such activities as water-skiing, deep sea fishing, horseback riding, tennis, etc. ln order to create addi- tional employment and increase the popularity of Ixtapa as a beach resort it would be desirable that these activities be strongly promoted. Secondary employment in Ixtapa at this stage is difficult to estimate but it would appear to be much lower than the parameter. 1/ The Regions comments as follows: Throughout project implementation, FONATUR maintained updated records on subproject costs and operation. These were used as input for later subproject evaluation. Various super- vision missions visited different project areas and verified FONATUR-s figures. The audit only took into account the final PCR missions sample and thus ignored other data of FONATUR. - 14 - 43. Increased employment in the hotel sector could be stimulated through the introduction of a higher level of service and more limited use of labor saving devices. In the first category, consideration may be given to less self-service in restaurants and evening servicing of rooms, which now does not appear to be the general rule in Mexico, even though it is common in first class hotels in most parts of the world. With regard to the second aspect, there may be a need to more carefully evaluate the advantages of such facili- ties as mini bars in hotel rooms and computerized accounting systems which require costly investments and replace low cost labor for whom often no other form of employment is available. Charges for some se-vices are too low 44. The audit has attempted to determine whether hotel guests, and especially foreign tourists, are paying for all the costs which they are causing. Even though only a superficial analysis was possible in the available time, some conclusions can be drawn with regard to the various 'Government services. Most of the information applies to Ixtapa, but in part it will also be indicative of problems in other parts of Mexico. When airport departure taxes are considered as an airport revenue the cost of providing airport facilities at Ixtapa/Zihuatanejo is largely recovered by the users. Unfor- tunately, this can not be said about Ixtapa's water supply since charges are well below the cost to the community. Electricity rates are being in- creased but at a rate which is much less than the current inflation. The picture on other services is not clear but it is unlikely that in those cases revenues would exceed costs. Apparently some potential sources of revenue are virtually neglected and a 'Government official suggested specifically that Mexico now derives very little revenue from boat tourism. Both projects achieved important institutional improvements 45. The most significant institutional contribution of the Ixtapa/ Zihuatanejo project was in the field of planning and organization. Around 1970, Mexico's existing resorts, such as Acapulco and Puerto Vallarta, were experiencing serious difficulties because they had grown without proper land use controls and services, while water supply and sewerage were inadequate or non-existent. Under the project the adoption of a land use plan and zoning regulations for the new tourism zone at Ixtapa and an urban plan for Zihuatanejo were required. Furthermore, the insistence that land acquisition be completed before the start of the project and that all services be included under the project and be constructed before the major influx of tourists and workers arrived has been an important contribution which helped to avoid a repetition of the problems which beset the older resorts. Mexican officials were appreciative of the Bank for this assistance and generally felt that it had made a lasting contribution to their work in the tourism sector. But they also mentioned that initially there had been some unhappiness because of their understanding that the Bank wished to use foreign consultants. In the end no foreign consultants were used except for two individual experts. - 15 - 4b. The main declared aims of the Tourism Development Project in the institutional field have also been quite successful and FONATUR officials mentioned that the changes introduced as part of the project have been very helpful in strengthening their organization's competence to the point where FONATUR has recently provided advice to Governments of several nearby counr- tries. Two major aspects were addressed. Firstly, FONATUR agreed that variable interest rates would be introduced for their lending in the tourism sector. This turned out to be especially significant in the light of the rapid inflation in Mexico. When the loan was agreed on FUNATUR made funds available at fixed rates of 12-13.5% p.a., these rates gradually increased (PCR II, Annex 1, Tables 21-30) and by September 1982, they had reached about 40% p.a. for hotel projects. The variable rates, which if necessary are revised quarterly, are based on the cost of money to financial institutions. 47. The second significant change ir FO0NATUR's operational procedures, which the Bank assisted, was a more systematic and comprehensive proce- dure for FONATUR's loan appraisals. For each subproject to be financed, it consists of an analysis of the proposed construction standards and costs, a forecast of operating costs and revenues, cashflow analyses and an economic return calculation. The weakest aspect of this new procedure appears to be the market forecast. After a 2-3 year starting-up period, most hotels expect to achieve high average occupancy rates (75-80%). This by itself may be rather optimistic and no risk analyses were done to determine the effects of higher construction costs or lower occupany rates than originally estimated. IV. CONCLUSIONS 48. The Ixtapa/Zihuatanejo project has been successful in creating a modern new tourist resort along Mexico's west coast. However, some of the major reasons which motivated the project and especially World Bank participation, namely generating new employment and increasing foreign ex- change earnings, have not been fully achieved. Substantial new employment has been created but the audit found that in order to provide the maximum number of new jobs it is not sufficient to just build infrastructure and hotels. In addition, secondary activities requiring low investments should be actively stimulated since these can lead to substantial additional employ- ment. The audit also found that Mexico's first class hotels could contribute to increased employment by using less labour saving devices and providing a higher level of service (para. 43). 49. Another lesson to be learned from the project is that to achieve high foreign exchange earnings, the geographical location of the new tourist resort should have been selected more in accordance with the purpose of the project. Easy and cheap access by foreign tourists should for this purpose be of primary concern and in countries where national tourism is rapidly develop- ing, care should be taken that the new resort does not become too great an attraction for local vacationers. - 16 - 50. The project also shows that markets have to be carefully assessed to avoid overdevelopment of capital intensive secondary facilities. In this particular case, investments for a new golf course were excessive and con- struction work for the marina premature. It should further be noted that more attention to soil conditions might have led to the selection of a site where construction costs would have been lower.l/ 51. Under the Tourism Development Project, because of the country s institutional structure, the loan funds from the World Bank were passed on to the ultimate borrowers through two sequential financial intermediaries. The World Bank loan was made available to FONATUR whose role is largely comparable to that of a development finance bank. Commercial banks made loans to hotels, but in turn, if FONATUR-s criteria were met, the latter organization would rediscount part of the commercial loans. FONATUR was not exposed to the risk of the subprojects because repayment obligations rested with the commercial banks. The financing system used under the project provides an interesting example of a form of cofinancing between the commercial (at the time private) banking sector and a Government institution. The rediscounting approach is apparently quite common in Latin America, but seems to be used only on a limited scale under World Bank financed projects in other regions, and then mostly in the agricultural sector. Loan rediscounting by development finance companies (DFCs) and similar institutions, however, can provide benefits which would appear to make it a desirable tool for much wider application. Firstly, the system can be used to mobilize funds from commercial banks to increase the available financing for specific projects (to reduce the commercial bank's exposure the DFC could assume part of the risk for the subloans). A second advantage is that the rediscounting can aim specifically at certain economic activities in order to stimulate these and possibly achieve other targets such as modernization or geographical distribution. Thirdly, this form of shared financing can be used to enhance a company's standing with the banking system. 1/ The Region comments as follows: there is no evidence to indicate that an alternative site with comparable outstanding natural environments could have been developed more cheaply. - 17 - MEXICO ZIEUATANEJO TOURISM PROJECT - LOAN 793-ME PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 In 1968 the Government of Mexico indicated interest in obtaining assistance from the Bank in financing the infrastructure required for the development of new tourism destinations. Early in 1969, the Government suggested that the Bank consider three sites for development along the Pacific coast. Subsequently, in the course of project preparation missions in 1969 and 1970, agreement was reached that attention should be focused on one site: at Zihuatanejo, located on Mexico's Pacific coast about 180 km northwest of Acapulco. 1.02 The tourism project consisted of basic infrastructure required for the development of a new tourist resort. This infrastructure was designed to support in its first stage, covering a period of eight to nine years, the construction by private investors of 3,500 hotel rooms and 500 vacation villas. It included an international airport, roads and streets, water and sewerage systems, electric power, telephone and ancillary services. Because of the novelty of the project and its complexity, the project took two years in preparation. Loan effectiveness was delayed because of problems relating to expropriation of land needed by the project. As a result, the airport and the first hotel opened for business only in 1975, one year behind schedule. Although the infrastructure is now in place, the project cannot be said to be complete since some of the hotel rooms and villas projected to be built have yet to be constructed. Accordingly, a more meaningful and comprehensive project completion evaluation can only be carried out at a later date. Never- theless, it is possible at this stage to state that the project will over time attain its original objectives. Moreover, the attractiveness of the project was somewhat enhanced with larger than envisaged urban investments made in the town of Zihuatanejo which are greatly benefitting the local population. 1.03. The project completion report is based on information contained in the Project Appraisal Report (No. PT-3a of December 7, 1971) and a review of Bank files, including supervision and progress reports of the project. A supervision mission visited Mexico in April/Mav 1979 to obtain additional information for the report. Basic project data are summarized in Annex VI. - 18 - LI. SECTOR BACKGROUND 2.01 Mexico is one of the world's major and most richly endowed tourist destinations. Its varied attractions include architectural remains of a series of major civilizations, entertainment ranging from modern to traditional music and dance, a wealth of contemporary creative arts, an agreeable climate and excellent beaches. In addition, Mexico is one of tne most accessible foreign destination for U.S. and Canadian tourists who, together, accounc for about 90 percent of foreign visitors. 2.02 The number of foreign visitors to Mexico increased by an average of 10% per year from 1960 to 1974, reaching 3.4 million in 1974. This growth was also fairly even; in no year from 1961 to 1974, when the energy crisis hit, was the growth rate less than 8.6%. Visitor arrivals to Mexico declined from the 1974 peak of 3.4 million to 3.2 million in 1975 and 3.1 million in 1976. This decline was due in large part to worldwide economic recession and Mexico's uncompetitive position resulting from an overvalued peso. Since 1976, with the imDrovement in the economic situation and the devaluation of the peso, visitor traffic to Mexico increased by 4.5% in 1977 to 3.2 million and by 15.3% to 3.7 million in 1978 and continued to show substantial increases in the first six months of 1979. 2.03 Domestic tourism in Mexico is also important, and with the increasing affluence of Mexico's middle class and the initiation of a five day work week, this market is growing rapidly. 2.04 As a result of the growth in demand, hotel capacity has expanded rapidly. In 1978, there were over 8,000 rooms under construction in all of Mexico. Occupancies also reached peak levels. In Mexico City, for example, the average room occupancy reached an unprecedented level of 72%, with 78 first-class hotels experiencing an average occupancy of over 78% in 1978. Although the major destinations for foreign visitors are Mexico Citv and Acapulco (Acapulco is also an important destination for Mexican residents), other new resorts along the Pacific and Caribbean coasts are becoming increas- ingly popular for both foreign and domestic tourists. 2.05 The major contribution of tourism is to the balance of payments, the generation of emplovment and, more recently, to the dispersal of economic activity. Foreign exchange earnings from tourism for the first time surpassed the US$l billion mark in 1978 and constituted about 12% of Mexico's export of goods and services (Table 1 below). Tourism earnings as a percentage of total exports declined largely because of the large increase in petroleum exports. As regards employment, it is estimated that between 300,000 and 400,000 jobs are directly generated by tourism, with many of the workers relatively unskilled. - 19 - Table 1: BALANCE OF PAYMENTS SU"2IARY (in US$ million) 1965 1970 1973 1974 1975 1976 1977 1973 (a) Exports of goods and nonfactor services 1,965 2,745 4,603 6,064 6,082 6,770 7,454 9,366 (b) of which tourism 275 415 724 842 800 836 866 1,117 (c) b:a (in %) 14.0 15.1 15.7 13.9 13.2 12.3 11.6 11.9 III. PROJECT PREPARATION AND APPRAISAL 3.01 Although prior to 1968 private individuals had requested assistance from IFC for hotel development in Mexico, it was not until 1968 that the Government of Mexico cited tourism to the Bank Group as a specific field for which it wished to obtain financing. The number of foreign visitors to Mexico was increasing rapidly and tourism was becoming a major source of foreign exchange earnings. However, a formal application for financing a tourism project was not submitted until April 1969. The proposed project was to include infrastructure and other facilities for the development of tourism in three areas along the Pacific coast: Zihuatanejo, Manzanillo and Puerto Vallarta. However, it took another two years before the project was ready for appraisal, largely because of the Bank's insistence that basic technical and economic investigations and studies were necessary to establish a firm basis to proceed with the project, the difficulties in coordinating the activities of various technical ministries responsible for the different studies, and land acquisition problems. During this period (i) the project was reduced in scope to the development of only one area, viz Zihuatanejo; (ii) a special trust fund called Fondo de Promocion de Infraestructura Turistica (INFRATUR) was established within the Bank of Mexico to prepare, coordinate and implement tourism infrastructure projects in Mexico; and (iii) four project preparation missions from the Bank visited Mexico. The appraisal mission completed its field work in June 1971, the project was approved in December 1971 and the loan signed on January 18, 1972. 3.02 The Zihuatanejo tourism project was one of the first of its kind in the developing world, and the first tourism infrastructure project handled by the Bank. This created conceptual and other problems. Nevertheless, in preparing the project, both the Government and the Bank were keenly aware of the congestion and infrastructure deficiencies in existing tourism destinations in the country, such as Acapulco, and were anxious to avoid the potential threat of such problems to the country's principal tourist assets. The - 20 - Government was also anxious to diversify geographicallv its tourism facilities in the hope that new tourism centers such as Z'huatanejo would in the longer run not only tap new markets and meet the growing demand for beach-based tourism, but would also 'nelp decentralize economic activity and have a favor- able social and economic impact on the poorer and less richly endowed regions in the country. IV. PROJECT I-STLEIENTATION ATD COSTS Loan Effectiveness 4.01 The Loan Agreement specified June 1, 1972 as the date of loan effectiveness and established the following conditions of effectiveness: (a) the adoption of a land-use-plan and zoning regulations for the tourism zone of Ixtapa, where most of the hotels and tourist facilities were to be concentrated; (b) the appointment of a full-time director of the project unit established within INFRATUR; (c) the completion of land acquisition from private owners by INFRATUR at Ixtapa; (d) the declaration of an urban area and adoption of an urban plan for the town of Zihuatanejo; (e) the preparation of a critical path plan for the execution of the project; and (f) agreement on the schedule of initial charges for water and sewerage. 4.02 The loan became effective nine months later than envisaged, on M!arch 1, 1973. Condition (c) above became the most difficult to fulfill and was the main cause for the delay in effectiveness. Although large portions of the land required by the project were in private hands and could be purchased, there was also land, particularly in and around the town of Zihuatanejo, that was owned bv the Federal Government but had, after the Mexican Revolution, been allocated to individuals and small farmers (ejidato- rios) who had the right to hold the land (ejido) so long as they farmed it. The Government could expropriate ejido land if the land was recuired for public purposes, although this could not be done until provisions were made to compensate the ejidos, a slow and time consuming process. Declaration of an urban area and the adoption of an urban plan for the town of Zihuatanejo under (d) above was dependent upon approval of new urban boundaries for the town by the State of Guerrero's congress which, in turn, was dependent upon proper provisions being made to compensate those affected. Negotiations on the proper provisions for compensation took 28 months and were completed onlv in earlv 1973. - 21 - Zihuatarejo AirDort - Part A of the Project 4.03 The original site proposed for the runway proved to be subject to flooding and even extensive river works would not assure adeouate protec- tion from floods. After further studies, the General Directorate of Civil ANeronautics (DGAC) recommended a new site approximatelv four kilometers northwest of the original site. This new location suffered from operational restrictions due to rising ground to the east. A third and fourth site were selected and then rejected because of poor soil conditions. Prior to apprai- sal, a fifth site was chosen about 14 km south of Zihuatanejo, which proved acceptable. Although this site had operational restrictions, they were within internat-onal criteria. The new location was nearer to the main highway, soil conditions were more favorable, but some flood control measures were still required. 4.04 The runway was to be 2,500 m long to allow operation of DC8 aircraft on non-stop flights to a point located some 3,200 km away. Future growth to 3,500 m for jumbo operations from more distant points was within the site capability. In the design of the first stage, taxiways were reduced to a minimum, on the assumption that until air traffic increased the runway would be used for all taxing operations. The size of the heavy aircraft apron was also designed for parking of only three standard jets of the DC9 or B727 type simultaneously. Large culverts were built under the runway to allow passage of water from a lagoon crossed by the runway. 4.05 The critical passenger flows of 250 international arrivals or departures and 80 arriving or departing domestic passengers during a peak design hour in 1978 were the basis for the design of the terminal buildinz. Flows within the building were designed to keep the various categories of passengers separated. During appraisal, the Bank staff suggested substantial modifications in the design of the building to improve the internal flows and to reduce the built-up area. These suggestions were accepted by the Mexican authorities. The design of a smaller terminal building, however, allowed for future extensions of the arrival and departure areas. 4.06 The design and construction of the airport also included other buildings and facilities such as a control tower, a technical block, a fire station, a 2 km long access road, parking facilities, electrical services, potable water, sewage disposal and a fuel storage area. Visual approach slope indicator lights (VASI) were installed at the threshold of Runway 26. A VOR/DME navigational aid (for use as an en-route aid as well as a terminal approach aid) completed the airport installations; however, the Bank has strongly suggested that, as soon as the air traffic increases, an instrument landing system (ILS) should be installed on Runway 26, since vertical and lateral guidance during landing approaches is highly desirable for large jet aircraft. Ixtapa Tourism Area - Part B of the Project 4.07 Boulevards and Roads: The infrastructure along the Ixtapa Boulevard was the most difficult item to construct due to adverse sub-soil conditions. In March 1971, prior to project appraisal, the first sub-soil investigations revealed seven meters of organic peat underlying 2 km of - 22 - the nroposed 2.7 'Km boulevard. An independent cninion of the sub-soil condi- tions was sought from sDec4alists at the Engineering Institute of the Universit-y of Mexico who recommended special drainage structures. 3y Anril 1973 the construc-ion access road was completed so that the construction on the main four-lane boulevard and service street could start, using a method of extrac- ing the peat and filling with comnactable material. The contractor later developed an innovative svstem of constructing a continuous embankment of sand, gravel and stone, 20 meters wide and 6 meters high, blaszing the seat and bulldozing the embankment into the peat. By the end of 1974, 90%O of the peat compaction and landfill was completed and an overburden placed to achieve the final compaction. A vear later the overburden was removed and the paving was started. The delay in the construction of the boulevard, in turn, caused a delay in the construction of the large utilitv conduit. The other roads in the project, however, were completed with only minor problems. 4.08 Hvdraulic Works: At the western end of the beach, the optimal point for tourism development, two breakwaters and a channel entrance connecting the sea to the lagoon were constructed during 1974/75. Unfortunately, this area is a high wave-energy impact zone since it is open to the south and southwest. The original breakwater design required modification to reduce the amount of wave energy that would have entered the inner channel causing intolerably rough, high waves in the lagoon/marina. In addition, the eastern breakwater had to be extended landward at least to the point where the highest storm tides reached. Dr. John Zeigler, consultant/coastal scientist, recommended extending the original eastern breakwater seaward to a depthl of over four meters, and extending the western breakwater on an angle to overlap the eastern breakwater and thus provide greater protection for the entrance. Additional bathymetric surveys were required to select the most efficient manner to reduce the wave energies. Dr. Zeigler also specified that both existing breakwaters should be clad with six to eight ton arvioc rock. 4.09 The additional cost to extend the breakwaters was estimated at over US$2 million in 1976 which would have been an increase of 240% over the appraisal estimate. By September 1976 over USSl.l million had been spent. The work was then stopped and the contract terminated. To provide a more economical solution, Dr. Zeigler proposed reducing the section of the channel from 75 meters to 5O meters and a modest extension of the western breakwater so that the entrance channel would be serviceable except during heavyi storm conditions (less than 5%K of the time). The dredging of the channel, and the connection to the lagoon estimated at USS3120,000, were not undertaken. It was concluded that there was no point in incurring that cost until there were final plans for the marina and its operation which is programmed for Phase II of the Development Plan. ,.10 With the channel entrance open to the sea, the qualityr of the lagoon waters would change and affect the ecology. To limit the salt intru- sion, separation dikes were built between the small part of the lagoon con- nected to the sea and the main wildlife sanctuary which extends for over 600 hectares. The dikes were completed in 1974 but the scoDe of the work was much larger than originally planned --an increase from one dike to four, as well as an increase in length and width of the crest. The same sub-soil conditions - 23 - with organic peat, as found under the boulevard prevailed in the dike area, requiring the same costly techniques to acnieve compaction. Also, a costly but essential flood protection work --La Puerta deviation channel-- was built above IxtaDa to intercept storm water run-off from the surrounding mountains. The run-off from recent storms and hurricanes was adequatelv controlled by this channel, thereby avoiding serious flooding of the Ixtapa development. 4.11 Dune Protection: Dr. Zeigler also provided guidelines for the protection of the dunes along the 2.7 km of beach. The sea comes within one meter of the top of the dune during periods of high water; therefore, he recommended that there should be no removal of the dunes which are required to provide protection to the backshore development. In a few cases where the dunes have drifted to six and seven meters above mean high water, Dr. Zeigler recommended reducing the dune to a minimum of four meters to improve the view of the sea from the lower hotel floors. By establishing the building line behind the primary dune there is no need to provide marine structures, only a low protection wall, especially for the swimming pool areas to block drifting sand. 4.12 Golf Course and Other Amenities: FONATUR commissioned Robert Trent Jones to design an 18-hole championship golf course which took full advantage of the existing palm plantation as well as beach overlooks. There was a one year delay in the completion of the golf course which was originally scheduled for completion in July 1975. The fairways had to be raised above the flood level to avoid salt intrusion during very high tides. The undergound irriga- tion system and landscaping also caused delays and cost increases. The treated effluent from the sanitary sewage treatment plant feeds a network of lakes which serve as additional "finishing" ponds. Pedestrian bridges over the waterways and underpasses under the main boulevard all added to the cost increase. The result is one of the most interesting and attractive albeit costly championship courses in Mexico which today is receiving loud acclaim by all who play it. 4.13 On the perimeter of the golf course, three types of housing were planned: 670 single family detached houses, 131 cluster houses and 413 condominium apartments. By December 1978 it was clear that the market called for less single family detached lots since only 100 out of the 250 then available lots had been sold. The market had shifted more to clusters and condominimums which provided the same amenities without the large lot mainte- nance and individual care. Single family detached lots, therefore, were reduced to 430 while the other two types were increased to 713 and 617 respec- tively. In addition, over four hectares have been allocated to condo hotels at medium density, thereby increasing the yield to over 2,000 dwellings on 81 hectares. This is still an acceptable average development density of 24.7 dwelling units per hectare, and would not adversely affect the attractiveness of the area. 4.14 To complete the amenities of the first stage development, a commer- cial center with a variety of shops, restaurants and convenience stores was constructed around an attractive plaza located along the boulevard across from the hotel zone. In addition, public buildings for police, fire, post office - 24 - and health clinic/dispensary were constructed along with a beach recreation facility. A central laundry and dryv-cleaning establishmsnt was constructed in Ixtapa by the private sector, to serve all the hotels. All these facilities were comple.ed on schedule in December l175. FONATUR also established its sales and promotion office in the ccmmercial cencer. The whole co=1ex was designed in traditional Mexican colonial style. 4.1 Public Utilities: The water mains, storage, treatment plant and distribution network were coTD leted by mid-1975. The water SUDPlY system _or the tourism zone at Ixtapa and the town cf Zihuatanejo were initially separate, with adequate water sources found to supply both consumption centers for the first five years. The main source was a gallery of wells along the Rio Ixtapa, 9 km from the tourism zone. As a safety precaution, however, an interconnection with the Zihuatanejo water system was made in December 1975. The topography precluded a linked sewerage system. For the tourism zone in Ixtapa, a separate gravity sanitary sewage network was comoleted at the same time as the water supply system; however, there were delavs in the installation of equipment for the pumping stations along the Ixtapa Boulevard and the force main connection to the sanitary sewage treatment plant. The treatment plant was originally designed using oxidation ponds (sewage lagoons), but due to the high cost of land and pumping to a remote area, FONATUR substituted a biological treatment plant with mechanical aeration on a site one kilometer from the hotel zone. It also did not comoletely follow Bank procurement procedures. However, since the plant was similar to the one constructed for the Cancun tourism project by the same company, where procurement procedures were followed, and since the contract had been awarded to the lowest evaluated bidder, the Bank agreed to finance this item. The treated effluent is used to irrigate the golf course. The whole system is working well and the quality of the effluent from the plant meets all environmental protection standards. 4.16 The source of electric power for the project is the national system of the Comision Federal de Electricidad (CFE). At the time of appraisal, a new interconnection between Acapulco and generating plants on the Rio Balsas, about 80 km northwest of Zihuatanejo, was under construction and was to be tapped to supply the town of Zihuatanejo and the Ixtapa tourism zone. These works which were not part of the project, as well as a new substation and the distribution system, which were part of the project, were completed by mid-1975. The undergound servicing of the hotel zone suffered long delays because of poor sub-soil conditions, which required underpinning and waterDroofing of elaborate manholes and conduits. Street lighting was also delayed because of this. Telecomminication facilities, which were not financed from the loan, included a new exchange and long-distance microwave links and were installed by early 1976 by Telecoimmnications of Mexico (TEL.IEX). The individual hotels have their own PABX automatic exchange. Separate underground conduits for telephone and power services were placed in parallel within a utility verge. The Town of Zihuatanejo - Part C of the Project 4.17 'While the principal investments were planned for the tourism zone in Ixtapa and the airport, some modest investments were included in the project for the town of Zihuatanejo, both for social and econcmic reasons. - 25 - These included improvement and expansion of principal streets, the electric power distribution network and public lighting, and the provision of water, sewerage and storm water drainage systems. 4.16 The earthworks and street paving for the existing town in the original project were expanded by a factor of five and included two outlying villages, Agua de Correa and El Limon. To provide immediate benefits, FCNAT!UR decided to improve and pave existing streets and to expand the street svstem as well. A large part of the work was undertaken by force account. irregular right of ways for both the vehicular and pedestrian ways made it di'ficult to prepare final contract documents; therefore, it was agreed that this component would not be financed with proceeds of the Bank Loan. The flood protection works which were financed by the loan had to be expanded to avoid serious flooding of the town from the two large drainage basins that traverse the town. Three retention dams with velocity check structures above the town had to be added to the storm water drainage component that was included in the project. The expanded works now appear to have been fully justified since the run-off of a recent "40 year storm" was adequately controlled; without these additional works, flood damage would have been in the order of llex$50 million or Mex$60 million. 4.19 To permit the Lxtapa resort area to utilize the full potential from the Rio Ixtapa, SRH drilled four production wells in the two large drainage basins above Zihuatanejo to supply the town, and provided storage and a treatment plant. The distribution network was completed by mid-1976. The sanitary sewage system was complicated by the difficult topograDhv of the area, which required the construction of two biological treatment plants in the first phase. The upper plant provided primary and secondary treatment of the effluent which flows into the main plant by gravity. The treated effluent of the main plant, adjacent to the marina and tidal basin, will be pumped in the near future over the ridge north of Lxtapa, to irrigate the botanical gardens to be developed by the Autonomous University of Mexico. 4.20 The CFE has installed the primary feeder lines and overhead distri- bution network throughout the town from a new substation. Due to the cost overruns of other components, it was agreed that this item including street lighting would not be financed by the loan. In addition, FONTATUR with its own resources undertook the construction of a much needed central retail market and the rehabilitation of the church, library and health clinic. These were considered the minimum community facilities reauired for the general welfare of the town. As part of the renovation of the town, a pedestrian promenade was constructed and fully landscaped along the beach as well as pedestrian zones with covered walkways. Part of the environmental sanitation, not financed by the loan, was the dredging of a major portion of the swamp to create a commercial marina with an average depth of three meters, thereby eliminating a major environmental hazard in the heart of the town. Both commercial fishing fleets and tourist boats will be able to moor stern to bulkhead, making a far more efficient operation. - 26 - Hotei Training School and Studies - Pqrt D ard E of the Proiect 4.21 After considerable study of alternatives, FONATUR, in coilaboration with the Mexican Institute for Social Security, renovated the existing voca- tional training facilities in Zihuatanejo to provide classrooms, workshoDs and iaboratories for tne Hotel Training School. The training program was prepared by EONATUR in collaboration with the Ministries of Tourism and Education, the Mexican _nstitute of Social Securitv (IMSS) and the I:.tapa-Zihuatanejo Hotel Association. The remodeling and equipping of the existing buildings plus the orovision of additional space was kept within the allocated budget of Mex1l7.6 million (USS800,000). The operation of thd hotel training school has become the responsibility of the !MSS and the recurring costs are provided in equal parts by the Ministry of Tourism, the Hotel Association, FONATUR and IMSS. The school has been operating successfully since March 1979 with more than 700 students receiving training so far. 4.22 AcaDulco Feasibility Study: The loan originally included funds for the financing of "feasibility studies for the possible expansion and upgrading of infrastructure facilities in Acapulco" (Part E. 2 of the Loan). These studies were expected to be carried out by consultants for the Secretariat of the National Patrimony (SEPANAL). 4.23 At the time of the appraisal mission, Acapulco was generating about 35% of total foreign exchange earnings from tourism in Mexico. However, the development of Acapulco as a tourist center and as an urban community was not balanced. Of the 173,000 inhabitants of the city in 1971, 105,000 lived in low income neighborhoods which were iargely without adequate public util- ties and municipal services. The contrast between the poor sections of the city and the milieu in which tourist acti-vities took place was striking. The rapid expansion of the tourism sector, and the growth of the low income population and of unemployment threatened to create a situation of conflict. 4.24 The Federal Government decided to reduce the disparities by measures aimed at raising the living conditions of the population and, at the same time, ensuring the continued growth of tourist activities. To this end, early in 1971 the Government established a technical and administrative instrument known as "Plan Acapulco" and made SEPANAL responsible for its implementation. Due to the urgency of the situation in Acapulco and to the fact that some foreign publications described the pollution affecting the city and the bav, the Government decided to give high priority to the studies, including the preparation of a comprehensive development plan for the bay area and of specific projects such as the urban transportation network and a solid waste collection and disposal system. 4.25 Between May and August 1972, the terms of reference for the stud4es were prepared by SEPANAL with the assistance of Bank staff. SEPAŽAL invited local and international consulting firms to submit proposals. A total of 22 consultants presented proposals which were evaluated bv the technical staff of SEPANAL. Given the uneven quality and incompleteness of the presentations, the Bank suggested that the best four consulting groups (all of them joint ventures of foreign and local firms) be invited to revise their proposals cn - 27 - the basis of the information alreadv collected for Plan Acapulco. SEPANAL followed the suggestion and after having received the revised proposals selected one group in consultation with the Bank. In May 1973, SEPANAL informed the Bank of its intention to carry out the studies without the financial assistance provided from the Loan. The studies were never prepared. 4.26 Costs. Procurement and Disbursement: The final cost of the project was i¶exS932.1 million as compared with the appraisal estimate of Mex$550 million, representing a cost overrun of about 69% in Mexican pesos. In dollar terms, the cost overrun amounted to about 39%. Cost overruns for individual components, however, varied greatly with some having increases of more than 100% (Annex I, Tables 1 to 5). In addition, because the Government wished to make the town of Zihuatanejo an example of urban development, a number of investments were made that were not called for by the original project. This also applied to certain facilities in the tourism zone of Ixtapa. The main reasons for the cost overrun were: (a) delays in project implementation and the domestic inflation that followed the 1973/4 oil crisis; (b) additional flood protection works, sub-base compaction needed for completing the boulevard, changes in design, including changes in design for treatment of sanitary sewage. The total additional investment was Mex$339.4 million of which 48% was spent for improvements in Zihuatanejo, 30% in Ixtapa and 22% for additional land acquisition in both areas. 4.27 The procurement of civil works and equipment was generally in accordance with provisions of the Loan Agreement and Bank guidelines. The main exception was for the biological treatment plant for Ixtapa, brought about by the pressure of having it installed prior to the opening of the first hotel, which was then well advanced in construction. The Bank, on several occasions, had to ask for additional details on bid evaluations to establish the validity of the lowest evaluated bid for civil works. 4.28 Delays in project execution caused equivalent delays in disbursement of the Bank loan. Nearly all funds were disbursed by CY1977, except for a small amount allocated to the hotel training school. The appraisal report had expected disbursements to be completed by CY75. 4.29 Oualitv of Work Comnleted: The quality of completed work throughout the project was good. The quality of buildings and community facilities provided by FONATUR was adequate to fulfill the objectives of the project. 4.30 Use and Performance of Consultants: Except for the coastal scientist, Dr. John Zeigler, all the consultants participating in the project were Mexicans. T7hile some of the recommendations of Dr. John Zeigler were not followed, especially the preliminary reconmmendations concerning the breakwaters for the Ixtapa marina, such problems will be rectified in the second stage. - 28 - The ultimate development plans were of high quality and e:mressed the objec- tives of the project. The architectural and engineering consultants produced satisfactory sets of contract documents in collaboration with the ooerational and regulatory agencies; however, the land planning consultants lacked adeauate experience in dealing with land-use regulations and ccntrols. All the consul- tants worked effectively in attempting to achieve an ootimum construction program within the financial framework of the project. V. INSTITUTION.AL ASECTS 5.01 In August 1968, when the Mexican authorities first approached the Bank, a committee was established consisting of representatives of the Secretariat of Finance, the Secretariat of the Presidency and the Bank of Mexico and charged with the responsibility for preparing plans for the develop- ment of tourism in priority coastal areas. In June 1969, a special trust fund, Fondo de Promocion de Infraestructura Turistica (INFRATUR), was estab- lished in the Bank of Mexico to continue the work of the committee, finance the acquisition of land that would be needed for tourism purposes, and prepare the necessary feasibility studies. 5.02 Initially, INFRATUR was provided with a capital of US$2.4 million which was increased in September 1971 to US$4.2 million. In that year, INFRATUR's professional staff numbered 30, including the director and his two principal assistants. In January 1974, under the new Federal Law for the Development of Tourism, a new fund called Fondo Nacional de Fomento al Turismo (FONATUR), was established under the administrative supervision of Nacional Financiera, S.A. (NAFINSA), the major public sector development financing institutions, by merging INFRATUR with another existing fund called Fondo de Garantia y Fomento al Turismo (FOGATUR). FOGATUR was a small fund that had been created in 1965 to finance hotel construction and related tourism facilities directly and by discounting loans made by financial inter- mediaries. Its volume of operations had grown slowly, to only Mex$375 million (about US$30 million) in 1973. 5.03 Since its creation, FONATUR's role and activities have greatly expanded. It now has a staff of over 450 persons with about half of them employed on fixed term contracts in its infrastructure operations. In addition to the Zihuatanejo project, FONATUR has two similar projects located in Cancun and Baja California, and a smaller one in Oaxaca. The Cancun project was undertaken with the assistance of two loans totaling US$42 million from the Inter-American Development Bank. The project in Baja California involves the development of tourism infrastructure at two sites, Loreto and San Jose del Cabo, for which the Bank extended a loan of USS42 million in 1977. With respect to its hotel credit operations, during the four years 1973-76, FONATUR had approved 428 credit applications totaling about >Iex$3.6 billion to help finance construction of about 21,000 new hotel rooms and renovation of about 3,000 existing hotel rooms, representing a total investment of about Mex$3.9 billion. Lending for hotels amounted to MexSl.3 billion in 1977 and 3.1 billion in 1978. On January 31, 1979, FONATUR's - 29 - total assets amounted to over MexS10 billion. The Bank has assisted FONATUR in its hotel lending operations with a loan of US$50 million made in February 1973. 5.04 Until the 1970s, Government institutions concerned with tourism had extremely little impact on the sector's development. Public sector expenditures for tourism development had been modest, and no coherent set of fiscal, credit or other sector's specific policies had been instituted to stimulate the growth of the industr.y. N1evertheless, the pr_vate sec.or responded vigorously to the rapid growth in demand, wJith little or no government assistance except for uncoordinated efforts by federal, state, and municipal agencies to provide infrastructure facilities. Such private development tended, however, to stress short-term profitability with little regard to the longer run impact on the social situation, the economy and the environment. 5.05 It was in response to these deficiencies and recognizing the impor- tance of the sector, that the Government established INFRATUR and expanded its role and activities. FONATUR, together with the Secretariat of Tourism under whose umbrella it operates,now integrates most activities of the public sector in the tourism field and strengthens the Government's hand in controlling the quality and pace of development of the sector. It is a unique and well respected institution. It has been successful in many respects, but particu- larly in assisting the coordination of activities of a variety of government ministries and agencies and getting them to implement their components on time. This was needed because tourism as a sector cuts across various other sectors in the economy. It is doubtful whether FONIATUR would have developed into the institution it is, if it had not been for the support and assistance provided by the Government of Mexico, the World Bank and the Inter-American Development Bank. VI. HOTEL ATD MARKET DEVELOPMENT 6.01 In spite of the great natural beauty of the Ixtapa-Zihuatanejo area, tourism had been growing only very slowly. In 1970, the area had several small lower category hotels with a total capacity of about 220 rooms. It was served by a small rather dangerous airstrip capable of taking only light planes, while road traffic from Mexico City had to come a circuitous way via Acapulco. The standard of amenities and urban services that would allow for tourism and urban expansion were either very low or notable for their absence. 6.02 The justification for providing infrastructure at Ixtapa and Zihuatanejo was the prospect that private investors and hotel companies would be prepared to build and operate hotels, wghich in turn would substan- tially increase tourism flows to the area. The apDraisal team expected 750 hotel rooms to be in operation in Ixtapa in 1975, all to be constructed bv the private sector. This capacity was projected to build up to 3,500 rooms in 1983. Since the risks involved in starting a new resort, however, were - 30 - greater than in expanding one already established, the Government agreed that, if necessary, it would take steps, (including the provision of finance), to see that a minimum number of rooms were built so that the econ_mic and finan- cial benefits of the project would not be jeoDardized. Table 2 below shows the appraisal projections of hotel development and the actual build-up and current expectations. Table 2: HOTEL DEVELOPMENT PROJECTIONS Number of Hotel Rooms Appraisal Actual and Current Year Projections Projections 1975 750 226 1976 1,000 530 1977 1,500 640 1978 2,000 1,272 1979 2,500 1,572 1980 2,750 2,492 1981 3,000 3,172 1982 3,250 3,629 1983 3,500 4,086 6.03 Although the number of hotel rooms actually built are lower than estimated in 1970 for the early years of operation of the resort area, largely because of starting-up problems, the rate of build-up and the total number of rooms in later years is expected to exceed estimates made at the time of appraisal (Annex II, Table 1). 6.04 Use of these facilities is expected to be better than anticipated. The appraisal report projected occupancy rates of individual hotels to start at 40% and reach a peak of 75% in the fourth year of operation, while average occupancies for the resort as a whole were to start at 40% and increase to 75% in the twelfth year of operation. Experience to date for five hotels shows a higher occupancy rate in the first year of operation of each hotel and a much faster build-up occupancy rates (Annex II, Table 2). 6.05 The number of persons visiting the area (123,000 in 1978) has been less than projected, largely because of the slow build-up of hotel rooms. The mix of tourists has also been different. At the time of appraisal, it was expected that the majority of the visitors would be foreigners. To date, the experience has shown the reverse with more than two-thirds of visitors being Mexicans at present while current projections call for a 50-50 mix in the future (Annex II, Tables 3 and 5). 6.06 One of the main reasons for the variances was air access, with other reasons being the devaluation of the peso and limited promotion by FONATUR. While construction of the international airport under the pro ect - 31 - provided the physical facilities to greatly imDrove air access to Zihuatanelo, it was necessary that the airport be served by international as well as domestic airlines. Accordingly, assurances were obtained from the Government, that the new airport would be declared a co-terminal for international flights with Acapulco, so that airlines serving Acapulco could also flv to Zihuatanejo without having to negotiate additional traffic rights. In 1975, however, the Mexican Government informed the Bank that while it would be prepared to allow U.S. and other carriers to serve Zihuatanejo, it would be unwilling to do so unless the governments concerned reciprocated by providing Mexican airlines with additional rights. However, in order to partially fulfill the substance of the Loan condition, the Mexican authorities proposed, and the Bank agreed, to have Mexican airlines serve Zihuatanejo from international points, including from points in the U.S. It was only in January 1978 that a new bilateral air agreement between Mexico and the U.S. was signed which now allows Zihuatanejo to be served directly from 23 U.S. cities, both by Mexican and U.S. airlines. This agreement is expected to begin to be implemented by the end of 1979. In the meantime, Zihuatanejo is still being served by Mexican carriers, providing 35 flights a week, all via Mexico City. This has affected not only the numbers of visitors to the area, but also the current mix, with more Mexicans using the facilities than foreign tourists. This trend was reinforced in 1977 with the devaluation of the peso which made domestic destinations relatively much cheaper than foreign destinations for Mexicans. The slow development of hotels and tourism can also be partially attributed to the limited promotion of Ixtapa by FONATUR. Because FONATUR was a small organiza- tion with limited experience, it decided to begin concentrating promotion on Cancun, which was about a year ahead in terms of infrastructure development. A promotional campaign for Ixtapa was begun only in 1977. 6.07 The current preponderance of Mexican visitors has also meant that visitor expenditures have been lower than projected at the time of appraisal. For 1978, it is estimated that Mexican visitors spent an average of US$30 a day while foreign visitors spent an average of US$40 a day. The appraisal report had estimated that starting from 1975 visitors would spend an average of USS38 a day. These expenditures make the destination very competitive in comparison to destinations in the Caribbean and Hawaii. The average length of stay of visitors is about four days and is about the same as projected at the time of appraisal. VII. FINANCIAL ASPECTS A. FONATUR's Operations in Lxtana General 7.01 The number and type of FONATUR operations makes an overall financial evaluation a complex undertaking. FONATUR functions as a land development agency which provides infrastructure and services, and sells lots for residen- tial and commercial development. In addition, FONATUR lends to hotels and either participates in the equity of hotels and condominiums or owns them - 32 - outright. It also provides a variety of other services. in Lxtava, FO'TA7TLR is a majority or sole owner of four hotels which are operated bv individual management companies. A f-fth hotel which was financed by FOmATU'R was sold ln 1977. Other revenues stem from sale of condominium units. finance char,es on loans, rent of commercial space, sale of wood, fruits and other minor items. Contrar:y to what had been expected at the time of appraisal, FCLTA':R does noc charge the various hotels for ground maintenance services, anticiDating a transfer of these functions to the munici,-alit-. in the near future Thich would finance these activities through its regular taxes. In carrying out the above functions, FONIATUR incurs promotional, administrative and operational costs. Land Sales 7.02 Standard terms for land sales are 15%o down-pavment with the rest paid over six years at 18% interest (about 3%. over current inflation rates). Sales prices currently range from Mex$500 to Mex$800 per square meter for hotels and condominiums, the average being l1ex$650 (US$28); and from MIex$450 to Mex$700 with an average figure of Mex$500 (US$22) per square meter for residential lots. These rates are adjusted from time to time to reflect increasing land prices. Total revenues from land sales up to the end of 1978 amounted to about Mex$113 million. Options put on land by investors have pro- duced an additional Mex$192 million in revenues. FONATUR projects further sales averaging Mex$75 million per year in the period 1973-83, when all land (about 172 hectares) in the Phase I Development is expected to be sold at a total cost to investors of about Mex$700 million (slightly over US$30 million). FONIATUR's Hotel Operations 7.03 In addition to the sale of land, FONATUR has financed four hotels in L-tapa: El Presidente, Aristos, Viva and Riviera del Sol. Tne Aristos Hotel started operations in 1975; the El Presidente in 1977, and the Viva and Riviera del Sol in 1978. Total construction costs amounted to about Mex$515 million. Except for the Aristos, which is partly financed bv the private sector, FONATUR fully owns the other hotels. Its equity investment in the hotels in 1978 totaled about Mex$352 million. A fifth hotel which was built at a cost of Mex$52.4 million was also financed bv FOINATUR but was sold before operations started in July 1977 for MexS59.2 million. Construction also has started on two more hotels: one which will be operated by Club Mediterranee is expected to cost MexS400 million, with FONATUR provid- ing 60% of the ecuity; the other hotel, a Camino Real venture, is expected to cost 'Mex$500 million. The majority of the ecuity for the latter hotel has been provided by the private sector, but includes some participation by FON'TATUR and IFC. 7.04 The operating results for the f;our existing hotels owned by FON'ATUR are shown in Annex III. Revenues are expected co increase from Miex$162 million in 1978 to Mex$488 million in 1983, reflecting increased occupancies as well as increased hotel tariffs; gross operating profit increases from about 'Iex$9 million -n 1978 to M.ex122 million in 1983. The gross operating profit (GOP) ratio increases from a low of 6% i n 1973 (due mainly7 to 'ow occu- pancies in early years of operation), to an expected satisfactory 25% in 1982. From a loss of Mex$23.4 million i'n 1978, net income is expected co improve - 33 - to .!ex$66 million in 1983 before income tax and to .iex$41 million after tax. Cash flow would be positive starting in 1980 and would reach :!ex$54 million by 1983. In 1983, the rate or return on equity will be 22% before income tax and an acceptable 15% after tax. Other Revenues 7.05 FONATUR is in the process of selling off the 82 condominium units called the Hotel Riviera. Ail units are expected to be sold bv the end of 1980, for a total price of about '-!exS220 million (of which about Mex$30 million were sold in 1978). The units are sold with private individuals putting down 25%, with the rest repaid over two years at 18% interest. The cash flow resulting from these sales is given in Annex IV. 7.06 In 1978, FONATUR received about 'lex$5 million generated by rental of buildings, revenues from the sale of various produce, and from the lease of the golf course and the commercial center. Assuming that FONATUR keeps on operating these facilities, revenues in future years are likely to increase in line with increases in hotel capacity and hotel occupancies. After allowing for inflation, other revenues are expected to increase to '1ex$15 million in 1985 and MIex$30 million in 1990. Operating Costs 7.07 FONATUR's costs in Ixtapa include promotional expenses, cost of maintaining and operating the common grounds and facilities, the costs of community development activities (clinic and school) as well as technical and administrative supervision costs associated with the project. Total accumulated costs by the end of 1978 were about 'Mex$318 million. In future years, these costs will be substantially reduced as administrative and super- vision costs are eliminated or transferred to the local municipality. The need for publicity and promotion costs will be reduced once land and other facilities FONATUR owns are sold. However, some operating and maintenance costs for the common grounds and recreation facilities will remain. Past and projected operating costs are shown in Annex IV. Financial Rates of Return 7.08 Financial rates of return were calculated separately for FONATUR and for the Government. No attempt has been made to evaluate the financial returns on investments in the town of Zihuatanejo. (_conomic rates of return, however, have been calculated separately for Lxtapa as well as all Government investments, including those in the town of ZihuataneJo --see para. 8.01). The financial returns to FOtIATUR were calculated based on the cost of con- struction of the infrastructure and of the hotels owned by FONATUR, as well as FONATUR's operating costs. Benefits consisted or revenues from land and condominium sales, and the operating profits of the hotels. Based on these costs and revenues, the financial return is 12.2% (assuming a 15% inflation rate) which implies a real return of 2.8 i. compared to 1.6% calculated at the time of appraisal. The appraisal report assumed that FOINATUR was not expected to maie either a loss or a profit. This return would have been even greater were it not for higher infrastructure costs, higher operating costs associated - 34 - with project administration and supervision, and the somewhat slow adjustments i-.prices for land. The latter is selling at about USS28.5 per scuare meter for hotel sites, or about 22%o below the inflation adjusted USS36.5 assumed during appraisal. The impact of these factors was mitigated to a certain extent by FONATUR's hotel investments, which imroved the overall financial return. 7.09 The financial return to the Government from the IxtaDa project is higher than that for FONATUR. The Government levies a 7% sales tax on hotel revenues and an income tax on FONATLTR and on other Ixtapa hotels. Income tax is comuted at 42% of the net income before tax after allowance for a fi-ze- year tax loss carryforward. Taking into consideration these Government revenues and assuming 3,500 rooms will be constructed, the financial return is 20% or 5% in real terms, compared to a 10.7% expected at the time of appraisal. The differential between the two rates (5.7%) is about the same as observed in FONATUR's, and is attributable to the same factors. B. Water Supply and Sewerage 7.10 Total investment costs of the water supply and sewerage system amounted to Mex$82 million, substantially higher than estimated at appraisal (about Mex$30 million). In addition to inflation, this was partly due to the system being expanded to serve a larger area and population. The system currently supplies all commercial entities and 60% of all residences. Water rates vary from Mex$4 to Mex$6.5 per cubic meter for domestic users and Mex$6.5 to MexS9 for commercial users (compared to Mex$l.2 and Mex$2.4, respectively, assumed during appraisal). Table 3 below reproduces the 1979 budget and income statement projections for 1981 and 1983 for water and sewerage operations. Table 3: WATER SUPPLY AND SEWERAGE OPERATIONS (In current MexS million) 1979 1981 1983 Operating revenues 3.5 13.0 34.5 Connection charges 3.0 14.0 2.6 Total Revenues 6.5 22.0 37.1 Operating costs 2.6 13.4 25.7 Administrative costs 1.3 3.4 5.4 Maintenance costs 0.6 2.5 3.3 Depreciation-water 1.8 1.8 1.8 Depreciation-sewerage 2.3 2.3 2.3 Total Costs 8.6 23.4 38.5 Net Operating Income (2.1) (1.4) (1-4) Net Cash Flow (2.0) (2.7) (2-7) - 35 - 7.11 In spite of the local authority charging tariffs higher than those envisaged at the time of appraisal, the water supply and sewerage system can be expected to suffer losses through the foreseeable future. However, the cash flow (before additional capital expenditures) becomes positive in 1983. These conclusions are in line with a recent studv carried out in Zihuatanejo, which found that the current average cost per cubic meter of water (including interest on loan) is about Mex$8, which is higher tnan the rates currently charged. In order to cover full costs bv the third year of operations, as assumed in the appraisal report, average water and sewerage rates will have to be increased even further by about 6% in real terms. C. Zihuatanejo Airport 7.12 The total cost of the airport amounted to Mex$167 million, only slightly higher than the Mex$159 million estimated during appraisal. The income statement for 1975 (old airport), 1979 (existing facility) and projections for 1981 and 1983 are given in Table 4 below. Table 4: AIRPORT OPERATIONS (In current Mex$ million) 1975 1978 1981 1983 Operating revenues 0.6 4.6 10.1 20.0 Other services 0.1 1.0 2.2 4.3 Total Revenues 0.7 5.6 12.3 24.3 Operating costs 2.6 8.6 16.0 28.6 Overhead 1.0 4.5 8.3 15.0 (Loss before Depreciation) (2.9) (7.5) (12.0) (19.3) Depreciation 0.3 4.0 5.5 5.5 (net Loss) (3.2) (11.5) (17.5) (24.8) Airport tax receipts n/a 3.0 22.2 58.9 7.13 The projections for 1981 through 1983 take into account the exDected reduction in air traffic growth with the opening of the new road to Ixtapa in 1980, as well as the expected increase in the share of foreign visitors. Total airport revenues are not expected to cover operating costs throughout this period. However, taking into account airport tax receipts (which are directly remitted to the Treasury), the airport would generate a positive cash - 36 - flow in 1981 of about MexS10 mill-on which would be sufficient to cover depreciation. These results are below those estimated during appraisal when it was assum.ed that exclusive of departure tax receipts, the airport would show a profit (before depreciation) starting in 1977. The reasons for the div-ergences appear to be both overestimation of aircraft movements and under- estimation of operating costs, and imputed overhead costs. Excluding airnort tax receipts, the rate of financial return is negative compared to the 9% estimated at the time of appraisal. According to the Airport Services Administration, this situation is common to almost all airports in Mexico due to the low levsel of airport charges. However, inclusion of airport tax receipts produces a positive financial return. VIII. ECONOMIC RE-EVALUATION Introduction 8.01 The economic re-evaluation was done separately for: (a) the Ixtapa facilities and (b) the entire project. This approach was used because invest- ments in Ixtapa are provided primarily for touristic activities, while works in Zihuatanejo are done mainly to improve housing and other basic amenities for local inhabitants, many of whom will be providing goods and services for the tourist industry. Although the beneficial impact of the project on health, education, and the general standard of living is great, these benefits cannot be easily measured objectively. They are thus not included in the analysis. Similarly, no attempt has been made to include in the economic analysis the large increases in land values, which tends to understate the return on the project. Also, no attempt was made to estimate the benefits generated by the planned Phase II Development. This second phase can proceed with only marginal investments in infrastructure. Along with expenditures made under this project, the Government of Mexico provided additional facili- ties in both Ixtapa and Zihuatanejo, as well as for the airport. These additional costs should not be regarded as a cost of the project since such expenditures were not recuired in order to obtain the benefits of the project. However, an analysis which includes these costs is done for completeness of the exercise and for purposes of comparison. Benefit and Cost Assumptions 8.02 All benefit and cost in this analysis are given in 1978 prices. Benefits of the project include expenditures of tourists in the project area, from sale of water and sanitation services (other than to hotels), and from the airport operation and concessions. Tourist expenditures include expenditures in and out of hotels, and are made on lodging, food and beverage, entertainment, local transportation, curios and other miscellaneous items. A tax of 7%, on tour-ist expenditures is included in the benefit stream. Since it is difficult to estimate the day-to-day expenditures as well as the cost associated with such expenditures by residents of private villas and condominiums, these costs and benefits have not been included in the analysis. These items are rela- tively small; in any case, their omission tends to understate the benefits of - 37 - the project since the receipts are usually much greater than their associated costs. Revenues from land purchased for villas and condominiums are included as benefits in the analysis. To deal with the double-counting problem of land used for hotels, the value of such land is included as a receipt to FONATUR and it is also counted as a cost in hotel investment. The accounts of hotels in Ixtapa are used as basis for the projection of tourist expenditures in the hotels. Yearly revenue per available room averaged MexS211,085 (USS9,595) in 1978, when most of the hotels were just starting up and the overall average occupancy was about 47%. By 1982, average vearlv revenue per room available is expected to reach Mex$297,024 (USS13,501) with an overall occuDancy rate of about 75%. Tourist expenditures outside the hotels for transportation, recreation, entertainment, etc., is estimated to be 50% of the in-hotel expenditures. The revenue streams, including revenues from the provision of municipal services, land sales, the airport operation and rental from a shopping complex in Ixtapa, are presented in Annex IV. 8.03 Economic costs include the capital costs of the infrastructural works and the superstructure facilities in Ixtapa and Zihuatanejo as well as the airport, and the cost of land acquisition. Other costs related to the above revenue streams are investment and operating costs associated with the expenditures tourists make outside the hotel for transportation, entertainment, etc. It is estimated that total operating costs for hotels average 70%-75% of gross income. For expenditures outside the hotels, the associated operating costs are conservatively estimated to be about 80%1. of the revenue received. This figure makes allowance for capital outlays required for the various activities. With the exception of transport facilities, such capital outlays are usually relatively small. The relevant cost streams including those for municipal services and the airport are given in Annex IV. 8.04 The life of the project is expected to be 25 years. No residual value is taken into account, although assets such as land and many of the basic infrastructure items are expected to have a high residual value. Also, as stated earlier, the value of the land earmarked for the second phase, which has been partially improved under this project, is not included in the analysis. The residual values are expected to be more than enough to offset the expendi- tures which will be needed for replacement of plant and equipment over the project's 25-year life. - 38 - 2zonomic Rate of Return 8.05 Economic rates of return for various cases are presented in Table 5 below. Table 5: ECONOMIC RATES OF RETURN (Figures in Percent) (b) (a) Base (c) Base-Plus Base with Unskilled Base-Plus With Unskilled Case Wages Shadow- Case Wages Shadow- prices _ _rices Ixtapa 10.35 15.15 9.45 14.05 Total project 8.65 10.75 7.15 10.75 Appraisal Estimate for total project 13.1 19.4 - - (a) Base case refers to works required in order to obtain the benefits of the project. (b) Unskilled labor is shadow-priced at 30% of wages paid. This is done to reflect the economic cost of labor in a market with abundant unskilled labor and strong labor unions. Only unskilled labor in infrastructure works is shadow-priced and unskilled labor cost is approximately 15% of the costs of these works. (c) The Base-Plus case takes into account works which the Government did in the project area. These works are not necessary in order to obtain the benefits of the project. 8.06 The economic rate of return is lower than estimated during appraisal. The difference is due to several reasons, chief among which are (a) the deval- uation of the Mexican peso in 1976, (b) additional investments bv the Mexican Government, (c) delays in initiating direct international air services between the project area and foreign nations, and (d) delays in the construction of roads linking the project area directly with Mexico City and other cities in the north. The peso devaluation had the most important impact. Most of the infrastructural investments were already comolete by 1976, but hotel construc- tion was just beginning. With a devaluation of about 57% and a foreign exchange component of about 36%, the peso value of hotel investments rose by approximatelv 27%. Moreover, on the revenue side, although the number of foreign visitors may have been larger, foreigners who paid pesos for accommoda- tion, food, etc., needed to spend less foreign exchange for the same quantity of goods services than before the devaluation. The net result of this for Mexico is higher investment cost and lower foreign exchange receipts. - 39 - 8.07 With the devaluation of the peso it appears that many Mexicans who planned a vacation in other countries, substituted local vacations instead. This, together with the rather limited access of the project area to foreigners, has led to a relativelv greater proportion of visitors being Mexican residents. Thus, instead of 70% to 80% of the guests being foreigners as initially projected by INFRATUR, it is now assumed that foreign guests will gradually increase from their present level of about 20%0 to about 50% bv 1982. With respect to expenditures, it was originally projected that foreign guests would spend approximately US$41.5 per day at 1975 prices, or US$72.3 at 1978 prices. In Ixtapa, the actual daily expenditure per foreign. guest averaged USS40-42 in 1978. This wide difEerence between projected and actual expenditures can be almost fully explained by the 1976 devaluation of the Mexican peso. Foreign Exchange Earnings 8.08 The current and projected foreign exchange earnings are given in Table 6 below: Table 6: FOREIGN EXCHANIGE EARNINGS (In millions of 1978 US Dollars) Net IBRD Repayment Net Foreign Cost Benefits Earned Disbursements To IBRD Exchange Gain 1972 10.2 - (10.2) - _ (10.2) 73 17.0 - (17.0) 0.1 - (16.9) 74 9.3 - ( 9.3) 1.3 - ( 8.0) 75 13.8 0.3 (13.5) 3.3 - (10.2) 76 16.1 0.4 (15.7) 5.7 - (10.0) 77 2.4 1.7 ( 0.7) 3.9 2.1 1.1 78 6.9 21.6 14.7 2.9 2.1 9.7 79 4.4 9.5 5.1 - 2.1 3.0 30 18.2 21.1 2.9 - 2.1 0.8 81 9.8 42.8 33.0 - 2.1 30.9 82 8.3 50.3 42.0 - 2.1 39.9 83 8.7 56.8 48.1 - 2.1 46.0 84 9.2 63.2 54.0 - 2.1 51.9 85 9.7 69.5 59.8 - 2.1 57.7 86 9.7 69.3 59.6 - 2.1 57.5 87-96 9.7 69.3 59.6 - 2.1 57.5 8.09 At full development, the project is now expected to earn foreign exchange amounting to almost USS58 million net annually. This compares well with the appraisal estimate of US$53 million. In 1978 prices, Mexico's gross foreign exchange earnings from tourism amounted to aDproximately US$1,117 million. Gross earnings for the project area was only about USS22 million during 1978, but by 1986 this figure is expected to more than triple in real terms. - 40 - 3.09 The above analysis is based on the following assump :ions: (a) the .oreign exchange cost (direct and indirect) of infrastructure investments were approximately 36%; (b) the foreign exchange cotmonent of cperati-ne costs of hotels is 5'%; and (c) the foreign exchange coTponent in "out-of hotel" operating costs (e.g., handicrafts, transportation, etc.) averaged 10%. Also, it is projected that the foreizn exchange revenues would increase from 20% of revenues in 1977 to about 60% in 1981, as a result of a change in composition of guests in the area. Although there are many Mexican guests who substitute local vacations for foreign ones and thus save foreign exchange for Mexico, foreign exchange earnings from this source have not been taken into account. Of the remaining land to be sold in Ixtapa, it is assumed that 30% will be sold to non-Mexicans. In addition, apDroximatelv 70% of the airport earnings from departure tax is assumed to be in foreign exchange. The above calculations also take into account the repayment of the Bank loan of US$22 million. EmDlovment 8.10 Approximately 12,000 man-years of employment were created during the four years of construction of the infrastructure works and the airport in the project area. Apart from direct construction-related employment, there are also other employment opportunities in hotels, gift shops, airport and local transport facilities and entertainment activities. In 1978, there were approximately 2,000 employees working in 15 hotels, including the small hotels in the town of Zihuatanejo (about 1,700 of which in the five new hotels at Ixtapa). Additionally, there were about 150-200 emplovees in establishments which serve tourists, and secondary and lower level facilities accounted for an additional 200 employees. 8.11 It is expected that by 1986 people directly e=ployed in servine tourists would amount to about 10,000 and that there would be an additional 10,000 - 15,000 indirectly employed in the project area. These estimates are in line with the appraisal projections. IX. SOCIAL AND ENVIRONMENTAL LMPACT 9.01 Zihuatanejo today is a vastly different place from the small rural fishing village of ten years ago, with the original population moving into an urban life-style, a process which ordinarily would have taken much longer. This brought with it intangible costs, but on the whole the original tran- quility has returned, albeit, in a completely different social structure. The social costs would have been much higher, had not FONATUR eased the pain of change through its comminity development efforts. The social impact of the project on the whole has been positive except for the poorest segment of the population, which felt a relative loss since it was hardly affected bv the development at a time when social condition of the other segments improved. 9.02 In 1970, the town of ZihuataneJo was a poor village with a population of less than 5,000 consisting mainly of fishermen, subsistence farmers and a few merchants. It had unpaved roads, an undrained and heavilv polluted swamp - 41 - in the center of town; limited water supply and no sewerage or telecommunica- tions systems. It was only in the sixties that it had become accessible by a paved road and, to a limited extent, by air. 9.03 While the principal investments under the project were to be in Ixtapa, located 5 km north of Zihuatanejo, and in the airport located south of the town, both for economic and social reasons the project made some modest provisions for the town of Zihuatanejo itself. Developing what by local standards would be a luxury resort area while making no provision for the existing domestic population would have been politically and socially unacceptable. Furthermore, development would bring about an increase in population, for which provision had to be made. The project did not intend, however, that Zihuatanejo serve as "dormitory" for workers at Ixtapa. Instead, it wanted both to upgrade living standards of the local population and, being located in an attractive site, allow it to develop as a secondary tourist attraction with small hotels, Mexican-style restaurants and other facilities. The original investments allocated to the improvement and expansion of urban services amounted to about ZMex$86 million or approximately US$7 million (of which US$2.6 million were to come from the Bank loan). Project delays, inflation and more elaborate facilities doubled these costs to approximately US$14.4 million. 9.04 In evaluating the social impact of the project, one can distinguish the sevreral phases: the land acquisition phase, the construction phase, and the tourism development phase, and the impact of the project on various sections of the population or economy, e.g., the poor and the women. in order to have Zihuatanejo declared an "urban area" which was a legal necessity before investments could proceed, land had to be accuired. Unfortunately, the town had been built in part on land belonging to the ejidatarios, represent- ing 7% of the population, who had illegally disposed of it, and in part on "national land," which was illegally occupied. Land had to be acquired from the original ejidatarios who had to be properly compensated and had then to be redistributed to the existing population, who, on payment for the land and the improvements made on it, obtained a clear title to their property. During this phase (1970-74), the eiidatarios, who had been handsomely compensated, emerged as a powerful group and were pitched against the rest of the population in the face of perceived or real injustice done. The impact during the con- struction phase was mostly economic: prices, income and employment increased; men left farming to find a job in construction; local women rented rooms, sold food and did laundry. Construction of roads and provision of utilities also disrupted the normal, tranquil life in the town. Following the comnletion of the major works, the town experienced a depression that lasted until the beginning of 1978. The steady development of hotels and tourism has since had a favorable impact on employment and income. However, local control of business and services is gradually being replaced by non-local and, in some cases, foreign ownership. 9.05 As a result of the investments and the process of urbanization, many families are better off. The poor and the illiterate, however, have had difficulties in adjusting to the new environment. Some could not purchase all of the land they had originally occupied, albeit illegally, and payment - 42 - for utilities and taxes put an addi-ional cash burden on them. Enfcrcement CL zoning and other regulations meant that raising of crops and animals in the backyards was prohibited, cutting off a source of inccme. Some of these negative impacts and stresses were minimized with the assistance of a commu- nity development team. 9.06 Zihuatanejo today is vibrant with activity. The population has increased by 10% per year and is estimated to be close to 20,000. The infrastructure is in place, with 6,000 homes having water connections; 4,000 sewerage conneccions and 8,000-10,000 electricit-;. Mevertheless, a serious 'ousing problem remains. Tne current housing deficit is estimated at 1,200 dwell4ngs and housing needs by 1990 are projected at 5,200, including the present deficit. W,hile housing was not intended to be financed under the project, the Government of Mexico undertook to organize means for providing assistance for self-help housing in Zihuatanejo. Although some new housing has been provided, a program of self-help housing has not yet been established. This will be necessary to enable the poorer sections of the community to be housed (experience in the Lazaro-Cardenas urban project has shown that a house of some 50 m- can be constructed through aided self-help for Mex$40,000 or US$1,800 for materials plus administrative costs.) 9.07 Parallel with the provision of urban infrastructure, the local municipality has been strengthened and its budget increased significantly. Education, health, police, fire protection, street maintenance, garbage collection and disposal services have been either introduced or greatlv improved and expanded. Other federal institutions have now begun overating in Zihuatanejo with a whole series of their own programs, designed to benefit the population. The population, through institutions such as the chamber of commerce, has become vocal and is influencing the decisions that affect the community. The urban plan and zoning regulations, the elimination of the swamp, the introduction of proper sewerage and water suppiy facilities, the encouragement of green areas and nature reserves have also greatly improved the environmental quality of the area. X. CONCLUSION 10.01 As stated earlier in this report, the nature of the project dictates the need for a more comprehensive and meaningful evaluation to be done at a later date, when all the hotels and other superstructure facilities are in place and in full operation. Nevertheless, one can state at this stage that although the project will not be a financial success (as generally expected of land development ventures), it will achieve its other objectives, includ_ng its economic, social, institutional, and tourism objectives. Based on the experience of this project, a number of conclusions and observations are worth emphasizing: (a) it is crucial that land acquisition and land-related issues should substantially be completed bV the time the project is oresented to the Board; - 43 - (b) private hotel investors are reluctant to be first in a new location, and generally tend to wait until all tourism infrastructure is in place before investing, which may be a year or more later than desirable from a financial and economic point of view. Also, these investments are important in setting the architectural tone of the resort. Accordingly, it is essential that financing for the first couple of hotels be included in the project, which would accelerate the generation of benefits from investments in infrastructure and other facilities; (c) comminity development efforts should be initiated very early in the project cycle, so that project implementation receives full support from the local inhabitants, and so that social and other costs and stresses can be minimized; (d) international air access is crucial to the development of tourism, and all steps should be taken to assure adequate and timely air access; (e) the implementing agency should be vested with strong coordinating powers and fully staffed in order that it may effectively coordinate activities of the various institutions involved and prevent delays; and (g) although an area or a beach may be very attractive, it is essential that the site and the adjoining terrain be thoroughly investigated, and the implications to project costs be identified. - 44 - *ADrE '.=aCO: Z=JATAfEJO TOURPS.!' ?P0J.7T (LOAC 7 ') -abi - 3FMUMOWN OF -OTAL ?ROjECT COST (a) (b) *l Auoraisal Estimate Ac:zjal Cost - '.exs ';ZzSS ' e.C uS S (3illi on) (Million) (million) (million) -xtapa ourism Area 213,117 17,063 371,067 23,277 :own of Zihuatanejo 79,163 6,338 225,556 13,438 Z Zihuatanejo International Airport 137,019 10,970 142,486 11,399 Hotel Training School 13,739 1,100 11,298 507 Sub-total 443,0Ad 35,471 751,607 49,116 ?rofessional services 32,802 2,627 55,660 3,708 'roject administration 26,368 2,111 62,600 4,010 ?romotional expenses 18,000 1,441 20,5C0 1,954 Land acquisition 29,350 2,350 31,778 2,179 TOLAL ?ROJECT COST 549,560 44,000 932,145 60,967 ?ercentage of (b), (c) and (b+c) to (a) ;8.67. As of December, 1978 MEXICO: ZIHUATANEJO TOURISH PROJECT (LOAN 793-HE) Z IA.'UATAEJO IIITERNATIONAT AIRPORT COST OF INFRASTRUCTURE AND SUPERSTRUCTURE (a) (b) 3/ Appraisal Estimates Actual Coat - Hex$ US$ 2/ Hex$ US$ (mnillion) (million) (million) (million) A. Mlaneuvering areas anid access road 75,720 6,058 90,655 7,252 B. Builditige (terminal, control tower, administrative) 19,639 1,571 28,000 2,240 C. Visual aids and electricity 3,450 276 7,922 634 D. Fuel, storage and supply 3,795 304 4,709 377 1 E. Navalda and coimuunicationis 4,000 320 11,200 896 D lBase cost 106,604 8,535 Contingencies 30,415 2_435 Sub-total 137,019 10,970 142,486 11,399 Professional services 1/ 13,202 1,057 13,730 1,098 Land acquisition 1/ 8,350 669 9,000 720 ThTAI AIlRPORT 158,571 12,696 165,216 13,217 1/ Not financed by the Loan 2/ Btate of exchiange: US$1.00=Mex$12.50 3/ As of December, 1978 -H - 46 - ANNEX I Table 3 XXCO: ZIHUATANEJO TOURISM PROJECT (LOAN 793-ME) IXTAPA TOURISM AREA COST OF INFRASTRDCTURE AND SUPERSTRUCTURE (a) (b) Aopraisal Estimates Actual Cost-. Mea$ USS 2/ Mex$ US$ (million) (million) (million) (million) A. Preliminary works 1/ 2,461 197 4,299 B. Temporary buildings 1/ 5,042 404 33,907 C. Earthworks and storm drainage 28,872 2,312 66,846 D. Paving of roads, streets and boulevard 25,464 2,038 47,722 E. Hydraulic works 20,371 1,631 47,497 F. Severage system 11,747 941 28,565 G. Water supply system 9,697 776 20,132 H. Environmental sanitation 6,566 526 5,573 I. Electricity and street lighting 22,404 1,794 47,264 J. Telecoumunications 1/ 7,090 567 12,432 K. Golf course and club house 15,149 1,213 40,784 L. Commercial center 3,915 313 9,820 M. Com=nity Service 4,011 321 2,385 N. Beach development 3,021 242 3,841 0. Landscaping and plant nursery 1/ P. Domestic gas service 1/ Base Cost 165,810 13,275 Contingencies (28.57.) 47.307 3.788 Sub-total 213,117 17,063 371,067 23,772 Professional services 1/ 12,308 986 26,160 1,676 Project administration 1/ 26,368 2,111 62,600 4,010 Promotional expenses 1/ 18,000 1,441 30,500 1,954 Land acquisition 1/ 21,000 1,681 22,778 1,460 TOTAL IXIAPA 290,793 23,282 513,105 32,872 1/ Not financed by the Loan 2/ Rate of exchange: US$1.00-Mex$12.50 3/ As of December, 1978 - 47 - A2YNEC: I Table 4 ,MEICO: ZUAIANETEJO TOURISM PROJECT (LOAN 793-ME) TCWU OF ZIHUATANEJO COST OF nTFRASTRUCTURE AND SUPERSTRUCTURES (a) (b) ADoraisal Estimates Actual Cost _ %ex$ USS 2/ Mex$ US$ (million) (million) (million) (million) A. Sewerage system 15,4L5 1,234 45,414 B. Environmental sanitation 1/ 800 64 3,O22 C. Water supply system 7,991 640 36,669 D. Electricity & street lighting 1/ 5,781 463 10,834 E. Storm water drainage syste- 10,763 862 27,185 F. Streets I/ 20,842 1,-668 103,532 G. Community facilities I/ H. Co0muity development 1/ I. Urban renewal 1/ Base cost 61,592 4,931 Contingencies (28.57.) 17,573 1,407 Sub-total 79,165 6,338 226,656 13,438 Professional services 1/ 7,292 584 15,770 934 Project administration 1/ Land adquisition I/ TOIAL ZIHUAT&NJO 86,457 6,922 242,426 14,372 1/ Not financed by the Loan 2/ Rate of exchange: US$1.00-Mex$12.30 3/ As of December, 1978 - 48 - ANNEX I Table 5 MICO: ZIHUATANEJO TOURISM PROJECT (LOAN 793-ME) HOTEL TRAINING SCHOOL 1/ COST OF REMODELLING AND EQUIPPING (a) (b) Anpraisal Estimates Actual Cost - Mex$ US$ I/ Mex$ US$ (million) - (million) (million) (million) A. Civil works 8,424 374 B. Equipment 2,974 133 Sub-total 13,739 1,100 11,398 507 1/ Under "Training and Feasibility Studies" in the appraisal report 2/ Rate of exchange: US$1.00mMex$12.50 3/ As of December, 1978 MEXICO: ZIIIUATANEJO TOURISM PROJECT (LOAN 793-ME) IIOTEL CONSTRUCTION COST Total Cost for Number Cost p/Room all lNotels in llotel Cost of Cost p/Room in 1978 Prices 1978 Prices Opening Date llotel (Hex$ mill.) Rooms (Hex$ '000) (Hex$ '000) (Mex$ mill.) April 1975 Aristos 88.0 226 389.4 683.2 154.4 Oct. 1976 Presidente 208.2 304 684.9 1,037.7 315.5 Dec. 1977 Viva 52.0 110 472.7 555.5 61.1 Mar. 1978 Riviera del Sol 207.6 312 665.5 665.5 207.6 June 1978 lHoliday Inn 150.0 320 468.8 468.8 150.0 1979 Pyasa 300 600.0++ 600.0 180.0 1980 Camino Real 500.0 450 1,111.1* 1,111.1 500.0 1980 Villa Palma Real 120 6,800.0++ 600.0 72.0 1980 Club Mediterranee 400.0 350 1,142.9* 1,142.9 400.0 1981 Ixtapa llyatt 400 6,800.0-++ 6,800.0 240.0 1981 Papanoa 80 6,800.0++ 6,800.0 48.0 1981 Los Remedlos 200 6,800.0++ 6,800.0 120.0 1982 Others 457 6,800.0++ 6,800.0 274.2 1983 Others 457 6,800.0+- 6,800.0 274.2 1984 Others 457 6,800.0++ 6,800.0 274.2 1985 Others 457 6,800.0++ 6,800.0 274.2 * estimates by FONATUR i+ missions' estimate MEXICO: ZIIIUATANEJO TOURISM PROJECT (LOAN 793-ME) ACTUAL AND PROJECTED IHOTEL DEVELOPMENT Total Opening Category Number of Cummulative Constructio n Coat Cost per Room Locatioi Hlotel Name Date Rooms Number of Rooms (Mex$ 000) (US$ 000) (Hex$ 000) (US$ 000) Ixtapa Aristos April 1975 II 226 226 88,000.0 4,000.0 389.4 17.7 Presidente Oct. 1976 1 304 530 208,167.7 9,462.2 684.8 31.1 Viva Dec. 1977 II 110 640 52,000.0 2.363.6 474.7 2].6 Riviera del Sol Har. 1978 I 312 952 207,641.2 9,438.2 665.5 30.3 lloliday Inn June 1978 I 320 1,272 150,000.0 6,818.2 468.8 21.3 Pyasa 1979 300 1,572 Camino Real 1980 450 2,022 500,000.0* 22,721.3 1,111.1 50.5 Villa Palma Real 1980 120 2,142 Club Mediterranee 1980 350 2,492 400,000.0* 18,181.8 Ixtapa Hyatt 1,142.9 52.0 1981 400 2,892 Papanoa 1981 80 2,972 Los Remedios 0 1981 .200 3,172 Hotel 1982 457 3,629 llotel 1983 457 4,086 llotel 1984 457 4,503 llotel 1985 457 5,000 Zihuatanejo Calpulli 1972 III 40 Caracol 1968 III 50 Catalina 1957 III 26 Irma 1961 III 30 Sotavento 1963 III 43 Avila 1963 IV 13 Palacios 1968 IV 15 Playa de la Madera 1967 IV 10 R3-Marias 1967 IV 24 Zafari 1960 IV 18 TOTAIL for categories III & IV 269 * Estimated Source: FONATUR MEXICO: ZIIIIJATANE.J0 T'URISM- PROJECT (LOAN 793-HE) OCCUPANCY RATES BY CATEGORY OF HOTEIS, 1970-78 Category 1970 1571 1972 1573 1574 1575 197_ 1577 1S73 1979 ! I 64.2 418.6 51.0 73 II 23.6 48.4 51.8 l,1.7 70 III 60.1 64.1 66.4 67.5 70.5 63.8 61. 58.5 5d'.4 - IV 47.5 54.0 60.6 66.7 62.7 39.4 50.0 45.4 42.9 _ V1 90o0 54.1 83.3 78.6 85.7 58.7 - - - T 0 T A 1. 62.1, 63.l 66.5 69.3 70.8 112.3 54.3 51.6 .9 4.3 1/ Category V hotels constitute 2.5Z of the total capacity and statistics for this category was discontinued as from 1976. 2/ Projections by hoteliere In Ixtapa. HP- SOURCE: FONATUR o o HIXICO; ZlUUATANgJO TOURISH (tUAH 793-fil) ?W3JKICT OF °rTMS IN IrfAPA/ZIHUANMVLJO CUXSThlCIIrTs 1976 1977 1 978 Cat.gory 386L IIAKE Hext." F.orsag, Total Averageo.floa n orsijo Total Average Haxois. Foreign Total Av-raga lmgtb at Iwsoth of Iaogtb of1 stay in 4ays stay In days stay in days l XTApA IEl Fr-ident. 2.736 1.692 4.428 3.3 2s,588 4,745 30.333 3.6 26.106 9.59 3S,645 3.7 RlviAra del 8.1 9.140 1,030 10.170 3.4 Holiday Ina 9.192 2,016 11.208 1.3 Total 2.716 1.692 4.428 3.S 25,1o8 4.745 30.333 3.6 44.4318 1225S5 57.021 5.6 11 Arl.tos 20,573 3.600 24,171 2.9 1S.52 4.708 24.233 4.5 14.584 6,58 218067 3.7 VWv 336 101 337 4. 6.*218 I.B49 0.067 3.1 To.ls 20.5713 3.600 24.173 2.9 19,761 4.809 24.70 3.6 20.752 8.312 29,134 3.5 Total of C16.8 I 6 11 23.309(82) 5.292(19) 2d.601 45,349(83) 9.334(17) 65.190(76) 20.967(24) 86.157 _3IIlATANt l0 111 Calpolil 3.758 1.046 4,H04 2.9 4.128 975 S,103 3.2 4.153 1,014 1.809 2 9 Caracol 7.201 961 8.162 2.4 5,486 610 6,156 3.1 6,140 8S4 6,994 2.5 Cateling 1.724 1.054 2,778 3.0 1.783 1.157 2.940 3.2 3,021 1.424 2.449 4.4 IDMs 3.999 1,412 5.411 2.9 4,007 1.229 5.216 3.3 3.502 12566 5.068 1.0 Sbta.e.mu 4.320 1.712 6,012 2.8 3,915 2.032 5.947 3.4 2,556 2.150 4,706 4.4 Total 21.002 6.185 27.187 2.7 19.319 6,063 25.382 3.2 17,9S8 7.068 25.026 3.3 IV Avilo 1.819 293 2.112 .5 2.3172 306 2,670 2.0 2.541 452 2,993 .17 Palaclos 1,469 265 1.734 2.8 2.848 166 3.014 1.9 1.973 20S 2.178 1.7 Plays la Had.ra 1.024 217 1,241 2.6 1.282 265 1.547 3.0 1,284 402 1.686 2.1 R-S Merlts 1.36S 554 1.923 5.4 973 S02 1,47S 4.6 834 S83 1.439 S6 Zlfat 1.95S 126 2.081 2.8 2.442 64 2.506 1.8 3.441 31 3.472 1.4 Total 71616 1.45S 9.091 2.8 9.917 1.303 11.220 2.4 10.097 1.671 11.768 2.2 Totl of CIS.. 111 h IV 28,638(79) 7.640(21) 36,278 29.236(80) 7,366(20) 36.602 28.053(76) 8.729(24) 36,794 Graod total 51,947(80) 12.912(20) 64.879 2.9 74,58S(82) 16.920(38) I3.S0S 3.S 91,245(76) 29.706(24) 112,951 1.4 A-orag. dilty .. pa.,dL.or* I.. prol..t *r.c (us$) 17 19 23 2S 30 40 A-e,a -goe.all daily .opo,,dito4a ((USO) 24 2h 28 Aorat-c. le-gtlh of * ay (days) 11.1 10.4 10.5 ''I h&o t .F P .. p...14, o..r. I.o,o,Lc..te* * t iIAi i ,, : It4AIt - 53 - 'AN;E{ II Table 4 MEXICO: ZIHUALANEJO TOURISI PROJECT (LOAN 793-ME) VISITORS TO IXTAkPA/Ih-UA.TANEJO Year Total Visitors I! 1975 33,543 1976 64,879 1977 91,505 1978 122,951 1979 166,311 1980 272,097 1981 367,370 1982 358,538 1983 429,185 1984 47/4,223 1985-96 519,260 1/ 1975-78 figures are actual; 1979-96 are projected. MExICo ZlIIIWATANEJO lltOUISMPROJECT (I.OAN 793-ME) VISITOR ARRIVALS TO IXTAPAtZlililATANEJ° BY WONTH AND HODe OF TRtANSPOBTATION 1977 1978 By Ale By Road By Air By Road Hexicua Non-Mexican texican Non-Hexican Total Hexican Non-Mexican Mexican Non-Mexican total January 3,313 1.743 701 194 5.951 3,995 3,583 1,451 398 9,427 February 3,934 2,063 538 229 6,764 3,066 4,871 9,647 541 10,135 March 4.221 1,879 783 209 7,092 5,245 3,693 1.443 410 10.79! Aprll 4,906 1,055 686 117 6,754 5,850 1,436 892 160 8,338 Hay 5,729 886 1,836 98 8.559 7,559 1.132 1,304 126 10,121 tn June 4,218 432 57 48 4,755 4,998 970 60 48 6,076 July 6,851 883 3,607 93 11.384 7,987 1,489 3,935 166 13.577 1 August 6,902 953 2,161 106 10,122 9,062 1.493 4.967 166 15,688 September 4,898 894 1,005 99 6,896 5,238 891 2,165 99 8,393 October 5,061 806 571 90 6,528 759 1/ 287 1/ 2,855 696 4,597 November 4,636 1,554 1,292 173 7,655 5,064 2,852 3.811 317 12,044 8 Decewber S,9 9 2,129 690 237 9,045 6,939 3,440 3,013 382 13,774 TOTAL 60,658 15,227 13,927 1,693 91.505 65,762 26,137 27,543 3,509 122,951 1/ Low figure are due to an air-traffic cOnLrollers' strike between October 5 and October 26, 1978. Source: HIOHAT UR MEICiIO: ZIXt':I- JO TOURISM ?ROJE= (LOAN- 793-ME) FONATUtR HOTEL OPERATIONS IN 1XTAPA (In MexS 'Million) Revenue 1978 1979 1980 198. 1982 1983 Room 82.1 104.5 137.4 164.0 200.6 235.2 Food and Beverage 76.3 99.3 128.1 161.6 200.7 240.5 Other 3.3 4.4 5.9 7.7 9.9 12.2 Total Revernue 161.7 208.2 266.4 333.3 4.1-2 487.9 Direct Costs Room 28.7 35.5 43.7 52.5 62.2 70.4 Food and Beverage 64.9 84.0 106.9 130.8 160.5 192.0 Other 1.7 2.2 3.0 3.9 5.0 6.1 Total Direct Costs 95.3 121.7 153.6 187.2 227.7 268.5 I^direct Casts Administration 26.5 30.0 33.4 36.8 40.2 43.6 Promotion 6.5 7.2 7.9 8.6 9.2 9.8 Maintenance 15.7 17.1 15.0 17.9 21.6 24.4 UtiLities 8.9 10.5 12.4 14.6 17.0 19.6 Total Indirect Costs 57.1 64.8 68.7 77.9 88.0 97.4 Gross Operating Profit 9.3 21.7 44.1 68.2 95.5 122.0 Management Fee 5.1 6.8 9.6 13.2 17.2 20.9 Depreciation & Amortization 13.2 21.5 21.5 2'.5 21.5 21.5 Interest 14.4 16.9 16.0 25.2 14.5 13.7 Net Income before Tax (23.4) (23.5) (3.0) 18.3 42.3 65.9 Tax - - - - 9.2 24.6 Net Income (23.4) (23.5) (3.0) 18.3 33.1 41.3 Occuoancv Rate 60 65 70 75 80 80 50 55 60 65 70 75 Presidente Botel 32 40 50 60 65 70 Aristos Hotel 35 45 55 60 65 70 Viva Hotel Riviera Hotel - 56 - g- .. * .10 _ flflt',fl.fl4 -.. _Of W0 -500$0 4 " ^ °Z > 0 fi z X " _ S 9 c . "> - ot__"w_. **flC_@Qf_< 3 S~ ~ g X Ss-e^3W3.- e Ssrs oo> w r.3...a-_ e 00% O I, s rs gt ei g 5%@ 0t4 'C^rM - O 00D 0~~~~~~~~~~ a. .4 0b0 o_ ~ ~ ...... 'I S,S, _ * D *'I' 0 - 3 0 _ - 3 ''~ .C.S * S u , , s t- _ 0 0 > o - -^ l l l i C 013 Is w_^e_n_ A A a i2~~~~~~~~~~~~~ e~ a°..a^'s-.0"0_000 553 ZbS 3W"r"_5 W0> ^_c .04e t3tZ - W0~ I1°C PS IS S I P S ||*S S S I g 10 j |<:. 04. .. _ ;" -S, 009 .100.0. - 5. *3,'CI4 4 @1CflflttI'0 43.e, __S ;A CU. L111ATA73LJjjI8I2M ?80 388 /LXi r (lOAN M4 3arn~~~~~~o ~ ~~~~ ~zitulin,.j _ _ _ _ _- ~ -- ~~~ __________ ~p- 1~~~~~~~~~~~~~~xtA3 A U.L b -.. l.. - ~Ba.. ac?~s .8a..l'In. __ s. Ai .. i. _ 33nL.J. I. 3C.1 - OperaclogOa*I9 911/ .1 Hn.L.3 Ln 3,,r.r&S pLC,8Ojrlu s,on adVi. 414,_ I ... In ....... T-nJ.. El.... Y'... L... l .., - I/2/ taL l_ Cn.t 2, GO.. 1l C.,.L 1--nn.L.n,. R.calpt. CoaL. 8800I3rL Cn*. Sa.I.. Mnl.a C..,. kno.,. 8 t,. l~tapa 7I a.a f L. Z3311-aLa.11. 39/2 249.9 24o.8 182 3. 86 8. 393 292.3 292.3 "2.-, 712. 224.8 12249.8 2 391'. 143.8 200.5 MA5. 105.6 /2.8 12.8 - - --- 39/5 221.5 ,,:8.I 8.1. e 180Jo.0 12.8 16.9 154.4 - -- - 4.1 4.6 ---- 39/,6 169.8 2182 8. 0 2226 - - 315.5 -- 9.1 1.1 1.0--- - 39/7 - - 63.6 152.8 - - 61.1 85.5 69.1 42.8 34.2 53.0 1.8 7.8- -- I98 - - 357.6 268.5 233.1 134.3 107.4 56.9 8.6 8.6 4.!s 3.5 435.0 40U.0 3979 - - - - - 180.0 366.8 303.4 183.4 146.1 353.0 35.0 9.1 6.5 4.5 - .S 1980 - - - 972.0 638.9 496.1 339.5 255.6 132.7 19.6 30.2 I3 6 9.5 - 1.2 4/ 3/fl/I - - - - - - ~~~~~~ ~~~~~~ 880.2 ~~~~~~ 654.3 ~~408.0 440.3 352.3 12.7 22.7 30.5 16.7 14.4* 53.6 -2.1 1962 - - - 274.2 3.0/7.9 772.15 539. 0 431.2 32.7 33.1 32.8 39.0 38.9 - -2.3 3 983 - . 1.213.6 869.8 806.8 465.4 26.6 41.4 34.2 21.2 19.4 -- 2.3 31984 1 .21336 869.8 606.8 48S.4 - 4i.2 14.7 30.5 26.6 -- 2.1 3913 1 .213.6 8819.8 606.8 485.4 - 41.2 14.1 30.5 26.6 -2.1 3988-Sn - - - - - - 3~~~~~~ ~ ~~~~~~ 869.8 ~~~~~ ~ ~~~~~,233.6 606.8 485.4 . 49.2 14.7 30.5 26.6 -- 2.1 .ala .o.d,,n.J 3.,~noa,333.4 llor . J04 ot -. ,aLtn 3 n (3n-k11I.d .L.bt ,, fi.o~ n aLn,,.aad..~tn..n .~ 1 p y 57. 0t aL-; oP-,., 1 --- ... L I,,I.-A3n,,a3, 301 'n-kI 33.0 n 3)//~ 2/3./ 223.7 38.2 36.2 80.2 80.2 - --- - ---- 39/5 2631.6 2683.6 64.9 64.9 2031.2 2031.2 ---- -.-. -- 3974 32.7 I79.4 94.5 94.5 65.2 652 ---- - --- 1979 213.6 226.4 729 163. 33.5 I31. 138. I 3916 152.0 395.3 13.4 399.2 - - 2812.4 --- - --..- 39/1 . ~ ~ ~~~~- 56.9 336.8 - 54.7 5 4. 27.0 -- 39/8 - -1 - 320.1 184. .1 84.4 - -- 399/ - 63.3 239./ - 15.9 --- 398(1 869.9 - 392.4 - 201.9 -- 3983 . 65.2 - 536.7 - 278.2 ---- 3962 . - - - - 241.4 . 630.5 340.6 - 3983 . .- - 245.4 - 6871. - 83.5 --..- 3984 - . - - 245.4 - 6871.- 383.5 - - -- 3989 - - 245.4 - 6871.- 383.5 - ...- - - . - ~~~~~~~~~~~~ 687.1 ~ ~ ~~~245.4 383.5 - --- /1.. 8.., ,.,, .. g... i. I,,3a aL . *..dAt - nL3.l...,,L G- I (,..J.d .rodn.. t.o3.. .- L 8.o.3L . J1 - . . E btilL -.. 1. 3.... . LI,../.d.n . -A,,,111-... by LI, a - nod J.. 13,. Cpr.3, -o3.US1 - 59 - MEXICO - TOURISM DEVELOPMENT LOAN (1524-ME) Project Completion Report I. Introduction 1.01 In 1976, the Mexican Government requested Bank support for its tourism lending program. Since the Bank was already involved in projects developing two new tourism poles (at Ixtapa and Baja California), and the Inter-American Development Bank was also partially financing another pole at Cancun, it was felt that a project which was country wide in scope would be most useful, particularly because of expected benefits in the areas of overall sector policies and institutional development. 1.02 The government was just beginning to become more actively involv- ed in structured development of the sector aimed at avoiding costly misma- nagement of resources. It was also interested in having Bank assistance at this time because a devaluation of the peso had occurred and Mexico was im- plementing a stringent economic policy. It was felt that Bank funds would assist the investment program of this sector and it would provide addi- tional benefits which included: (a) a relatively quick source of foreign exchange earnings; (b) decentralized development; and (c) improved manage- ment capability of sector institutions through technical assistance. 1.03 Although it is still too early to assess fully the impact of this loan, present indications are that many of the above-mentioned benefits will be even greater than originally e4pected. (See sections 8.01-11.03). Only one component of the project involving a study of ways to improve training facilities and promote employment in the hotel industry may not be as fully utilized as envisaged at appraisal. These studies have not been financed by loan proceeds although they form part of the project. (See sec- tions 7.01-7.05). 1.04 This being the final tourism Bank loan to Mexico, officials of FONATUR and NAFINSA have expressed some concern about future assistance, both financial as well as technical. It was explained to them that al- though there may be some initial adjustment period for FONATUR, it has grown into a capable institution which should have minimal problems func- tioning efficiently in. this sector (see sections 11.02-11.04) . Regarding other sources of funds, FONATUR and several sector institutions have suc- cessfully negotiated other loans with both public as well as otherprivate international lending agencies at vary competitive terms. Also, although Bank involvement within a purely tourism sectorial framework would no longer be feasible, there are still possibilities for assistance (a) as part of other loans (e.g. In DFC lending operations), and (b), through IFC (which is currently involved in two hotel projects at Ixtapa and Cancun). 1.05 This project completion report is based on information in the Project Appraisal Report (No. 1760-1E dated February 14, 1978) and a review of Bank files, including supervision reports of the project. Additional information was obtained by a supervtsion mission which visited Mexico 4arch 15-25, 1982. - 60 - 1.06 Initially, FONATUR and NAFINSA planned to prepare a joint evalua- tion report on of the project, and it was expected that preparation of the- Bank's PCR would benefit from their data base and analyses. Unfortunately, FONATUR's director did- not agree to a joint exercise and the planned prep- aration date was delayed. FONATUR now plans to complete its PCR by August, 1982. In preparing the Bank's PCR, representatives from both FONATUR and NAFINSA assisted in data collection and discussions with project benefi- ciaries. Also, the mission held discussions with both FONATUR and NAFINSA on the general findings of this report. 1.07 One hundred and one hotels were partially financed through fifteen intermediate institutions in this loan with subloans ranging in size between approximately US$4,000 and US$4,3000,000. These hotels are located in 25 states and they belong to all categories. Works done range from simple renovation and expansion of hotel facilities to construction of new hotels, with the majority of cases involving capacity expansion of existing hotels. 1.08 Although there was an eight month delay in loan effectiveness from May 22, 1978, to January 12, 1979 (to give the Mexican treasury time to receive appropriate authorization from the Mexican Congress to guarantee the loan), the loan was fully disbursed by the closing date, December 31, 1981. II. The Sector 2.01 Mexico's location, geography, historv and physical and social diversity make it one of the world's most richly endowed tourist destina- tions. Table 1 below shows that between 1965 and 1975 there was a three- fold increase in earnings from tourism with the inflow of foreign visitors showing a slightly lower figure. Up to 1976, tourism was the second most important export item (after border trade) in terms of foreign exchange earnings, and it provided an estimated 300,000 - 400,000 jobs for mostly unskilled and semiskilled workers. Table 1: Relative Importance of Tourism 1965 1975 1976 1977 1978 1979 1980 (a) Exports of goods and non-factor services (US$Mill) 1965 6082 6770 7454 9366 12966 20849 (b) Tourism earnings 275 800 836 867 1121 1443 1670 (US$Mill) (c) b/a (%) 14 13 12 12 12 11 8 (d) Foreign visitors (mill) 1.4 3.2 3.1 3.2 3.8 4.1 4.1 SOURCE: Banco de Mexico, S.A. - 61 - 2.02 In 1972, the Mexican Government received a Bank loan (793-ME) for US$22 million to help finance tourism infrastructure development of the Ixtapa/Zihuatanejo areal/. Another 3ank loan was granted in 1977 for US$42 million (L420-ME) to help LInance tourism infrastructure works in Baja California at Loreco and Sari Juse del Cabo. An Inter-American Devel- opment Bank (IDB) loan for US$47 was rnade in 1976 for development of Cancun as a tourist destination. The new Bank loan ( 1524-ME) for US$50 million, along with a co-financing loan of US$25 million from Grindlay Brandts Ltd., was used for financing hotel development and renovation throughout Mexico. Additiona:Lly, in 1978, IDB made a US$30 million loan available to Mexico to be used primarily to support development of hotel facilities of lower cate- gories. Structure of Tourism Sector and the Borrowing Institution 2.03 Although the Mexican Government had long recognized the impor- tance of tourism to the economy, it was not until the last decade that it attempted to coordinate and consolidate activities in the sector and pro- mote tourism development in a structured manner. The main Government in- stitutions involved in tourism activities are the Ministry of Tourism (SECTUR),2/ special trust: Fondo Nacional de Fomento al Turismo (FONATUR), and an advisory council: Consejo Nacional de Turismo (e A ). There is also Nacional Hotelera, a hotel management organiza- tion which functions independently but is under the organizational struc- ture of FONATUR. 2.04 The Federal Law for the Development of Tourism was enacted in January 1974, with its main provisions being: (a) laying the groundwork for formation of a 'Ministry of Tourism to plan and coordinate the growth of na- tional and foreign tourism, (b) formation of an interministerial commission on tourism development; and (c) consolidation of activities of two of the existing tourism related trusts, Fondo de Promocion de Infraestructura Turistica (INFRATUR) and Fondo de Garantia y Fomento al Turismo (FOGATUR) into a single trust: FONATUR. This new trust would have the responsibili- ty for formulating and implementing projects aimed at improving or expand- ing tourism facilities throughout Mexico. 1/ This project is complete and a Project Completion Report dated July 7, 1980, has been prepared. 2/ Among SECTUR's tasks are approval and registration of tariffs and prices in tourist establishments. According to law, all tourists establishments must register tlietr prices with SECTUR which has the authority to tccept or reje2ct stuch prices. In practice, SECTUR has not used its aLithiority to eniorce price control measures, and over tlle years, 1t has granted numerous tariff and price increases on grounds of inflation, upgraded hotel facilities, etc. Project hotels have thus not beeni in any way constrained by ptice control guidelines of SECTUR. - 62 - 2.05 FONATUR was established as a trust fund of the Federal Government under the administrative supervision of Nacional Financiera, SA, (NAFINSA), a major public sector development financing institution. FONATUR's operat- ing regulations permit its involvement in a wide range of activities throughout Mexico. However, among its primary responsibilities are,: (a) rediscounting of up to 90% of loans made for tourism related activities by intermediate institutions, (b) direct equity investment or lending in tou- rism related operations, especially with respect to infrastructure work and initial investments aimed at opening up new tourist destinations, (c) tech- nical assistance to intermediate institutions and borrowers; and (d) econo- mic studies involving market analysis, etc., in its areas of operation. 2.06 A nine-member board (the Technical Committee) chaired by the Secretary of Tourism, has overall responsibility for FONATUR's policies. This committee includes representatives from the Secretariats of Program- ming and Budgeting, Treasury and Public Credit, and Industrial Develop- ment, Banco de Mexico, NAFINSA and the Chamber of Commerce, along with the director general of FONATUR, who has responsibility for overall opera- tions. The board usually meets about six times annually to approve operat- ing programs and budgets and set policies and guidelines. 2.07 Basically, FONATUR's board (including its director) sees its pri- mary role as a second-tier financial institution discounting loans made by financial intermediaries for development of all categories of hotel accom- modation throughout the country. The task of developing new tourism poles is viewed as part of the above goal since they are so closely related. 2.08 Between 1973 and 1976 FON!ATUR approved 428 credit applications totaling about Mex$3.6 billion to help finance construction of approximately 21,000 new hotel rooms, renovation of 3,000 existing rooms, along with other miscellaneous investments, all of these investments am6unting to approximately Mex$8.9 billion. Its equity investments increased from Mex$44 million in 1974 to Mex$444 million in 1975 and Mex$1,045 million in 1976. Equity investments grew substantially over this period because of FONATUR's efforts to establish demonstration hotels in Ixtapa and Cancun. Also, during this period, the government's 13% equity participation in Nacional Hotelera was transferred to FONATUR. The Ixtapa and Cancun investments together with the Nacional Hotelera transfer account for almost 73% of FONATUR's total equity investment in 1976. Annex I, Tables 17-20 contair. details of FONATUR's credit and investment operations between 1973 and 1981. III. Project Objectives 3.01 The primary objectives of this loan included the following: (a) Assistance to the government in strengthening Mexico's balance of payment situation and ameliorating its financial position through increasing its gains from tourism; (b) increasing job opportunities, especially for unskilled and semi- skilled workers; and - 63 - (c) providing leverage to encourage greater private participation in financing of tourism-related activities. Complementir', these objectives were others aimed basically at achieving greater understanding and coordination of sector policies so that the va- rious tourism-related agencies could operate in a more harmonious manner. IV. Project Implementation 4.01 FONATUR prepared a detailed project proposal for the Bank in February 1977, approximately six months after it first approached the Bank for assistance. This proposal was reviewed in the field in March 1977, and appraised in May and June, 1977. A post-appraisal mission was made in July 1977, and negotiations began in January, 1978. Board approval of the loan took place on February 28, 1978, and the initial effectiveness date was April 17, 1978. However, there were administrative and procedural problems with respect to the granting of appropriate authorization to the MIexican Treasury by the Congress to guarantee the loan. As a result, this loan, along with several others, had the effectiveness date delayed until January 12, 1979. 4.02 Preparation of this loan took a relatively short time mainly be- cause of the uncomplicated nature of the project and the extensive expe- rience which FONATUR had in this type of operation. The project consisted of two parts: (a) provision of funds to partially finance tourism-related- operations throughoat Mexico, and (b) preparation of two studies aimed at: (i) assessing the demand for trained hotel personnel and sectoral training programs, and (ii) a study to identify means of increasing employment op- portunities in tourism operations. The Bank loan of US$50 million was to be used exclusively for assisting FONATUR's hotel investment and lending program, while resources from SECTUR and FONATUR were to be used for the studies component. 4.03 Regarding FONATUR's above-mentioned experience, it did not have much difficulty preparing the project proposal, because: (a) it had a capable staff, (b) there was close contact with the Bank throughout the preparation phase; and (c), only relatively minor procedural changes (but important in terms of policy, e.g. in interest rate policies) in FONATUR's ongoing lending program were required for it to be compatible with Bank policies. 4.04 FONATUR's lending and investment procedures are not complicated. For rediscounted loans, it has regular publicity programs and it has pre- pared a nineteen page manual 3 / which provides step-by-step illustrated guidelines to be used by potential borrowers in preparing their applica- tion. Applicants who need assistance can request help from FONATUR; how- ever, in the majority of cases, the contractor or intermediate institution 3/ A copy of this document is available on file. - 64 - prepares the applications. Once received, applications are analyzed and reviewed in detail with on-site visits made by the staff of FONATUR. Over- all evaluation includes a test of financial viability, design standards, nature and extent of owner participation, managerial experience, market conditions and economic analysis. Consideration of various government policies (e.g., on priority area of development) are also taken' into account. 4.05 Loan applications for amounts less than two million Mexican pesos are decided upon by the Director General of FONATUR acting alone, while those greater than this sum have to be approved by the Credit Committee.4 / On average , it takes approximately twenty days to evaluate and decide upon applications less than two million pesos, while for other applications, the time is about 30-45 days. After a decision is made, both the applicant and the intermediary institutions are informed. If it is a favorable decision, the loan amount, time, repayment conditions, interest rate, etc., are all stipulated and agreements are entered into with the intermediate institu- tion. 4.06 In each case, the intermediate institution has the task of super- vising subproject implementation and monitoring such factors as cost of ma- terials, labor, and other inputs, and to insure the reasonableness of such costs, competitiveness of contractors' prices, etc. It then makes periodi- cal payments against certified works done, and this forms the basis for re- imbursements to be made by FONATUR through authorizations to NAFINSA. In the case of subprojects involving funds partially reimbursable by the Bank, the approval procedure included prior Bank approval of: (a) the first five subprojects and (b) all subproject loans exceeding US$700,000 equivalent (Non-Free Limit, "NFL". loans). Additional Bank requirements included: (a) a US$12 million limit on financing from loan proceds for any single sub- project- (b) a total non-accommodation 5 /Bank-financing limit of US$4.5 million; (c) a limit of Bank financing up to a maximum of 30% of cost of investment; and (d) a 180 day limir on prior expenditures which are re- imbursable by the Bank. Also, there were financial and economic guidelines (dated January 31, 1978) which supplemented loan conditions in the form of minutes of negotiations. These guidelines contained various ratios and average costs which FONATUR agreed to use and update as necessary in its evaluation of subprojects. Debt collection and general performance moni- toring activities are done by the intermediate institution. Although the repayment to FONATUR is a matter not directly related to the institution's collection pace,if it does have collection problems, the institution is re- quired to inform FONATUR. 4.07 For equity investments, applications are analyzed by FONATUR's nine-member board, and apart from the areas of analysis mentioned above, special justification (on such grounds as a new pole of development, esta- blishment of appropriate environmental standards, etc.) has to be made. 4.08 Prior to this loan, FONATUR charged a fixed peso interest rate of 10-13% for loans ranging 10 to 15 years, including 2-3 years of grace. The interest spread for financial intermediaries was 2-3%, depending upon loan 4/ Comprising a total of four members from SECTUR, SPP, Banco de Mexico and NAFINSA. This committee meets monthly. 5/ For such items as marinas, recreation facilities, etc. - 65 - size. These rates were generally 2-4% below what commercial banks then charged for long-and medium-term loans financed out of their own resources. They were fixed and FONATUR was not breaking-even with such rates. 4.09 As part of the conditions for this loan, FONATUR agreed to: (a) charge a floating rate on its loans,(b) onlend to intermediaries at a rate whose weighted average is approximately equal to the average cost of funds to financieras (ACE) as published by the Bank of Mexico, and (c) have larger investors bear the foreign exchange risks on the part of their total debt requirements financed out of the co-financing resources (the Grindlay Brandts US$25 million loan). 6 / 4.10 Annex l, Tables 21-30 show the conditions and rates, charged by FONATUR over the 1978-1981 period. As indicated in these tables, the rates have steadily climbed from about 16% in 1978 to 29% in 1981 for new and renovated works. Adjustments to these rates have been made quarterly and tourism investors appear to accept such changes, although they occa- sionally argue for lower rates. Generally, the amount charged by banks for their counterpart funding bear an interest rate of approximately 6% higlher than the ACE index (which is about 4% higher than FONATUR-discounted loans after allowing for bank charges). Although FONATUR initially agreed to d.iscount: up to 90% of the loans granted by financial intermediaries, by mid-1979 it had reduced this proportion to 80%, and its Technical Committee is now trying to have intermediary banks assume an even greater share. Success in accomplishing this is based largely upon changes made in inte- rest rate policies and the greater understanding and confidence which com- mercial banks have now developed in the tourism sector. V. Use of Project Funds 5.01 The US$50 million project funds have been used exclusively for subloan assistance for construction, expansion and renovation of parts or all of 101 separate hotels in twenty-five states in Mexico. 7 / Total investment of these hotels amounted to Mex$9,101,921,900 (approximately US$364.1 million) of which the amount lent by intermediate institutions was Mex$566,965,400 (approximately US$22.7 million), and the amount provided by FONATUR was Mex$3,109,774,600--including approximately Mex$1,250,000,000 (US$50 million) in Bank funds. 5.02 All repayment schedules with intermediate institutions are up to date and FONATUR has no late-payment problem.8 / Should a bank be late in 6/ See para. 2.02. 7/ Initially, FONATUR, was interested in promoting and supporting other non hotel activities such as restaurants and bars, funicular construction, etc. Hlowever, after discussions with the Bank and gencral surveys, it agreed that such investments should be provided by private investors. 8/ The only lite-payment case which FONATUR reported involves a hotel in Acapulco, which is not financed as part of this project. - 66 - its payment, there is a clause in its agreement requiring payment of an additional 7% penalty rate on the overdue amount. 5.03 Details of use of project funds are presented in Table 2. Because there has been such a wide variety of facilities and types of work undertaken, aggregate figures can only give a general picture. For ex- ample, in construction of new rooms, the Hotel Maria del Carmen, a category IV hotel in Quintana Roo had four new rooms built at a total investment cost of approximately Mex$388,800 (US$15,512), which is approximately Mex$97,200 (US$4,000) per room. On the other hand the 428 room category I hotel, the Fiesta Guadalajara in Jalisco was built at a total cost of ap- proximately Mex$521.8 million (US$20.9 million)--or a cost per room of approximately Mex$1.2 million (US$48,763). 5.04 Building new hotels generally costs more per square foot of con- struction than expansions involving new rooms in existing hotels. Also, as Table 2 indicates, room space, amenities offered, location of the works, differences in scope of upgrading works, etc., all make it difficult to make detailed comparisons. In the following table, actual (pre-1982 deva- luation) costs are compared with cost estimates of the appraisal report for investment per room by category. Table 3. Comparison of Appraisal and Actual Room Cost Hotel Category I II III IV I Actual Average Cost/Room: (a) in Mex$ 905,200 536,000 280,600 218,600 (b) in US$ 36,200 21,400 11,200 8,700 II Appraisal Estimates in US$ 40,000 30,000 20,000 15,000 Note: Actual renovation costs (in 1981 US$) averaged 5,000 - 11,000 per room. No comparable figure is presented in the Appraisal Report. 5.05 As can be seen above, the estimates made during appraisal differ from actual average figures. This is so primarily because of the wide di- versity of works mentioned earlier. In areas such as Ixtapa and Cancun, for example, there are some new category I hotels which have average room costs of US$68,000 - US$90,000. However, there are also other category I hotels which average US$25,000 - US$30,000 per room, and the resulting overall average cost is only US$42,000 - US$45,000 per room for these states. 9 / 9/ As a general observation, when expressed in pre-1982 devaluation figures, room costs for new hotels average approximately 50-60% higher thani figures estimated at appraisal, wlhile room costs for renovation and expansion works are about 10-20% lower than the appraisal values. The cost increases in new hotels are due primarily to inflation in materials and labor cost. Interestingly enough, using current exchange rates results in new hotel room costs being 15-20% lower than aDDraisal estimates. Table 2: St"EARY OF USE OF 4'ROJECT FTLDS Tot. Invest. New Rooms Invest./Ronn Average Construction Cost/Room - Categgrv: 1 1 II7 1V ?ex S 000 Mex $ USS Hex S USS Mex 5 uSS laSS Hex $ Kea S Pr!'--rv States USS Baja California Norte 118.749.8 260 456.730 18.269 _ _ - 456.730 18,269 Co; !-a 284.171.4 431 659.330 26.373 678.150 27.126 597.039 23.82 - - - Chlu.as 182,760.2 505 361,901 14,476 - - 607.125 24.285 249.922 9,997 419.373 16.775 Cl;, <'.Ahua 15.628.0 75 20S.373 8.335 - - 191.443 7,658 227.723 9.109 C i-.- '~iro 10.829.0 42 252.833 10,313 - - 456.183 18,247 45,833 1.833 - - Di,:rlrt, Federal 959.403.6 1.574 603.179 24,127 958.570 38.343 913.932 36,757 459,804 18.392 Cucrrero 1.333,719.1 1.309 995.966 39,839 1.121,007 44,840 633.581 25.343 368,144 14.726 J.lAlsco 1.107.805.7 1,952 567.523 22,701 760,650 30.926 441.012 17.640 296.912 11,876 - _ Mi l,~o 152.9S6.6 160 956.166 38,247 956,166 38,247 - - - - - X : e;s' 41.338.6 49 943,644 33,746 843,645 33.746 - - 0C, re a To 50,78G.3 127 399,845 15994 - - - - 399,845 15.994 - - Ql.:nan.a Roo 527,415.7 609 866,036 34.641 1.047.878 41,915 532.157 21,286 331.412 13,256 199.333 7.653 5'a. 4^ 48,692.4 138 352,843 14,114 - _ 312,750 12,510 - - 1Z7.931 5,517 Srr.ra 48,307.7 123 392,746 15.710 - - 692,245 27.690 270,192 10.808 122.850 4.914 V'er-Crja 311,458.2 495 629.208 25,168 - - 788,175 - 350,729 14,029 - - Oth-r States S..1 California Sur Ca-,c.e 283,442 11,33 M1c!."can 612,231 24,489 298.269 11.931 n L..is Potosi 1'44,989 5.800 250.260 10.010 213.889 8,556 t i2ae 487,940 19,518 875,606 35.024 Zacatecas 289.257 11,570 236,875 9,475 180.957 7,238 XL;cvo Leon Average by category: 905.209 36.208 535.950 21.438 280.558 11.222 218.632 6.745 - 68 - 5.06 Just over 8,200 new rooms were constructed and about 425 addi- tional rooms were renovated through sub-loans from this project. Total in- vestments generated in hotel construction are estimated at US$364 million. During appraisal, it was estimated that a total of approximately 21,000 rooms would be renovated and constructed with total generated investment costs (hotel and related costs) of about US$537 million. Measuring related investment costs is not a simple task. SECTUR has attempted to do so by keeping track of investments for restaurants, bars, tour vehicles, etc. However, it has discontinued its effort after only six months and it is now reviewing alternative indices which it will compile. In interviews with hotel industry officials, SECTUR has estimated that for every dollar spent directly in construction of hotel facilities, approximately 10-20 percent of ancillary investments are required in non-accommodation facilities and services. Thus, total generated investments from this project would be ap- proximately US$400 - US$437 million. 5.07 The appraisal estimate of 21,000 rooms renovated or constructed is much higher than the actual figures of 8,213 new rooms and 417 renovated ones. Perhaps, the main reason for this difference is because of the dis- tribution between new rooms and renovated rooms. Although an actual break- down of these rigures is not given in the appraisal report, it was estimat- ed that there would have been many more rooms uporaded and renovated. How- ever, FONATUR placed relatively greater emphasis upon new room construc- tion, and since this activity is approximately five times costlier than re- novation works, it could, along with the above-mentioned inflation factor, account for the differences between planned and actual targets. 5.08 In both hotel and overall investments there was another factor wdrking against expansion. As the peso became increasingly overvalued and tourists sought alternative destinations, the attractiveness of tourist- related investments declined in Mexico. Consequently, many construction and renovation projects (especially those in new and marginal areas) never materialized. 5.09 Among the articles of FONATUR's operating regulations, Article 23, Chapter 10, requires intermediary institutions to submit reports at least every three months on each of their operations, indicating status of their loan committments, conditions, arrears, and basic data on hotel operations. It was expected that this information coming to FONATUR at re- gular intervals would allow it to continuously monitor project implementa- tion and general tourism conditions throughout the country. In discus- sions with the mission, FONATUR explained that they were not strictly enforcing this requirement because many intermediate institutions found it time consuming and uneconomical to segregate their FONATUR-discounted ac- counts from other portfolio activities, especially when there are no de- faults and arrears in these accounts. Insisting on this requirement would have therefore caused many intermediate instituitions to lose interest in such activities. Additionally, FONATUR explaiiied that its procedure for data collection provides enough evidence regarding average operating and capital costs and the level of touLrism activity. The mission agreed that this requlirement may be a disincentive to participation for many inter- mediate institutions, especially slace FONATUR has alternatives for moni- tortng, the level of lhotel acrtivities. However, it was recommended to FONATlJR that it shIouLld at least continu.e to request lists of delinquent - 69 - accounts and it should also continue to monitor, on a random basis, the fi- nancial performance of hotels in various parts of Mexico to see whether its data is consistent with observed trend from other statistical sources. VI. Subproject Operation 6.01 It was expected that the proceeds of this loan would partially finance FONATUR's 1977-1979 lending operations. However, because of the delays mentioned earlier, some financing went to investments made up to June 1980, with the majority of works occuring in 1978 and 1979. It usually takes between two and three years to have a new hotel fully opera- tional and established. However, in reviewing operations in several hotels, the mission found that the actual start-up period has been a bit shorter than normal for many hotels, averaging 1 - 2 years. 6.02 Differences among the 101 hotels partially financed under this project once again preclude detailed comparisons, although, as Tables 4 and 5 below show, general cost and revenue statistics can be presented to pro- vide an overall picture. 6.03 In comparing actual average operations with those projected for hotels in the various categories, several observations can be made. Average occupancy rates have differed from what was projected at appraisal for category III and IV hotels. In the former It is higher by about 5%, and in the latter it is lower by about 10%. In general, occupancy figures reflect an underlying situation which continues to benefit Mexico's hotel industry, namely, its composition of guests and seasonality factors. In areas such as the Distrito Federal, Tabasco and Veracruz, for example, there are guests who can generally be categorized as either business people or tourists. Business guests are not affected by seasonal factors (as are tourists) and with the majority of them staying in category I and II hotels, they provide year-round high occupancy rates for these facilities. In this way, while vacancies are extremely low in hotels in these places, purely vacation areas such as Acapulco, Cancun and Ixtapa-Zihuatanejo may have relatively high off-season vacancy rates. It should be noted that the hotels (especially those in resort areas) wotuld have had even higher vacancy rates had it not been for a growing porulation of local tourists whose preferential vacation season coincides with the off-peak foreign sea- son. 6.04 In terms of nightly room rates, hotels catering principally to business people have generally charged Mex$2,700-Mex$3,500. At pre-1982 devaluation rates, these amount to US$108-US$140, but the relatively in- elastic demand position of this sector led to consistently high occupancy rates in these hotels. On the other hand, the category I and II purely tourist hotels had to institute many incentive packages in order to attract tourists. However, they still managed to receive approximately Mex$2,000- Mex$2,500 per room (US$80 - US$100) because they usually charge according to the number of guests occupying the rooms and their room occupancy factor was generally between 2 and 5. 6.05 In comparing actual with projected financial operations, avail- able figures (see Table 5) indicate that for dlrect costs, the appraisal estimates tend to be greater than thte actual figures, while for indirect - 70 - Table 4: OPERATING PROIECTIONS COMPARFD TO AVERACF ACT'AjL PERFORKANCE FOR X'(OD'.E. IltOTEI.S IN TYPICAL YEAR OF OPERATION Averages for hotels In categories: I TI III IV uF'TELS At Appraisal Actual At Appraisal Actual At Appraisal Actual At Appraisal Actual N',.er of Rooms 300 300 200 200 100 100 100 50 Average Investment cost per room (in M,x$ 030) 920 905 690 536 460 281 345 219 (in *SS 003) 40 36 30 22 20 11 15 8 Average room occupancy (Z) 75 75 70 70 65 70 60 SO Average room rate (in .e.S) 800 2.500 600 2.000 403 1.222 250 650 (in LS$ ) 34.78 100 26.09 17.39 48.9 10.87 26.0 ------------- In Hex$ Million - - ------- … ---- - ---- RPcc 65.7 205.3 30.7 102.2 9.5 31.3 5.5 5.9 FQod4 51.1 128.3 20.3 44.7 5.2 16.2 2.5 3.4 Be%,rages 26.3 85.5 9.2 11.7 2.4 8.2 1.0 1.4 he r O:F. 2.9 8.6 1.2 2.2 0.1 3.8 0.1 0.5 -0t.l Sa:es 146.0 427.7 61.4 160.8 17.2 59.5 9.1 11.2 CG "-S AND EX?ENSES Dir.;: Costs 22.8 51.3 a/ 9.8 28.6 2.6 6.7 a/ 1.3 1.2.1/ ?a.roll 30.8 83.4 14.9 34.3 4.3 11.9 1.7 2.6 Cther 21.9 51.3 7.4 6.4 2.0 3.5 1.1 0.8 4.3 0.6 0.9 0.2 ,ctal Costs 75.5 190.3 32.1 69.9 8.9 23.0 4.1 4.8 CROSS INCOC' 70.5 29.3 8.3 5.0 l-.m.S-o;E ,'D EXPEsSES 8.9 40.2 3.7 21.0 0.9 5.8 0.4 0.4 prCz ::. ion 3.8 12.8 1.6 4.8 0.3 4.8 0.2 0.2 H'At, 1;g't and power 8.8 17.1 3.7 7.0 1.1 2.3 0.6 0.9 Rc,,iirs t.4 21.4 1.7 7.5 0.4 4.3 0.2 0.2 25.9 91.5 10.7 40.3 2.7 17.2 1.4 1.7 CROSS OPERA.INS PROFIT 44.6 145.9 18.6 50.6 5.6 19.3 3.6 4.7 G? a*sI of Sales 30.5 34.L 30.3 31.5 32.6 32.4 39.6 42.0 */ Actual costs are divided into departmental costa (in same order as sales revenues) and are thus not directly comparable with Individual headings of this category. However. ths total costs of this category can be compared with appraisal figures. Table 5: CCMPARISON BETWEEN PROJECTED OPFRATING COST RATIOS AND ACTUAEL RATIOS FOR THE VARIOUS HOTEL CATEGORIES Categories: I II III IV Actual T,praisal Actual Appraisal Actual Appraisal Actual ApDraisal 1. Deot. CostslDeit. Revenues ------- - - ---- - a/ (a) Rooms 25 _ _ 28 -L 21 - 20 - t (b) Food 65 - 77 - 73 - 76 - (c) Beverage 60 - 55 - 43 57 - (d) Other 50 - 27 - 24 - 40 - (e) Overall average 44 52 43 52 39 52 43 45 2. Overhead Cost/Total Revenues (a) Atdministration 9 6 13 6 15 5 4 4 (b) Promoticn 3 3 3 3 8 2 2 2 (c) Heat Light Power 4 6 4 6 4 6 8 7 (d) Repairs & Maintenance 5 3 5 3 7 2 2 2 (e) i'anage-ent Fee 3 5 3 5 2 3 1 4 (f) Overall average 21 18 25 17 29 16 1S 15 .Nu:'zer of E-?loyees/Ro=n 1.3 1.2 1.0 1.0 0.7 0.75 0.3 0.35 a! Not available in this form in Appraisal Report. - 72 - costs, the reverse situation holds. It should again be rememberedthat these figures are only indicative ones since they are derived from opera- tions which vary considerably with respect to management efficiency, system of operation (e.g. centralized versus individual purchases), accounting systems, etc. Figures from lower category hotels are especially difficult to rely on since they are for the most part, family-operated establishments with little or no systematized book keeping being done. 6.06 Having noted all of the above, the possible effects of the February 1982 devaluation should be discussed. After the 1976 devaluation (from approximately Mex$12.5 to about Mex$22/US$1), tourism inflows showed a reversal from a 3.5% increase in 1976 to a 4.5% increase in 1977, and 15.6% and 10.1% in 1978 and 1979, respectively. Then, as the peso became increasingly overvalued, the pre-1976 pattern was once more repeated with a 0.2% growth in 1980 and a 2.6% decline in 1981. (See Annex 1, Table 6.) 6.07 The February 1982 devaluation from about Mex$27 to approximately Mex$45/US$l will undoubtedly lead once again to increased inflows of tou- rists to Mexico. Rooms which formerly cost US$140 (Mex$3,500) would now cost only about US$78 and similar reductions also affect the majority of foreign tourist expenditures (a prominent exception being airline fares which are quoted in US dollars). The realignment of the peso has thus led to significant reductions in the foreign exchange cost of tourism goods and services. However, since provision of these goods and services is also af- fected by exchange rate changes at least insofar as they or their compo- nents are imported (or importables and exportables), not all of the deval- uation would be reflected in lower prices. Both the public and private sectors are currently implementing wage increases of from 10% to 30%, the latter rate being applicable to most wage earners in the tourist industry. Given the present political climate and international economic conditions, bdth supply and demand conditions affecting hotel activities in Mexico would undergo a somewhat lenghty period of readjustment before a new long- term operating situation emerges. Such a situation would depend upon, among other factors, the willingness of SECTUR to continue approving price increases (see footnote 2 above), and the extent to whiich the peso would be allowed to float freely. The latter would greatly reduce the impact upon foreign visitors. However, the effects upon local guests is not easy to determine since such factors as wage increases, international inflation, government controls, etc. would all have an effect. Still, the representa- tive figures presernted in the above tables do indicate that even with the pre-1982 devaluation constraints of high inflation and a fixed exchange rate regime, most hotels were operating profitably. VII. Studies Component 7.01 Although not financed by funds available under this loan, FONATUR agreed to undertake two studies aimed at: (a) providing a better under- standing of training needs for the hotel industry, and (b) achieving design standards which would be compatible with the various goals of employment creation, prcfitability, domestic production, etc. It was felt that part (a) of these studies would give FONATUR and Sl:CrUR a tool which they could use in making investments and policy d.ecisions involving more efficient use of available tralining futids as well as greater cooperation among the va- rious institutions invoived in tourism training programs. The part (b) studies were aimed at providing FONATUR and SlICTlR with an understanding of - 73 - how employment promotion and appropriate design standards could be benefi- cially combined. Essentially, with the financing role of FONATUR and the regulation/supervision role of SECTUR, it was expected that these institu- tions could use a wide variety of incentive policies in an effort to achieve standards which were compatible with employment and other public and private goals. 7.02 FONATUR maintained close contact with the Bank in formulating the general terms of reference of these studies, including their nature and scope, and Bank suggestions were considered and incorporated. FONATUR asked SECTUR to undertake the first study to determine the demand for trained hotel personnel and to make recommendations for a sectoral training program including a training curricula. Since this was an in-house study, SECTOR did not keep record of its exact cost. It began November, 1978, and was completed in May 1979, and its findings were discussed with FONATUR. Basically, the work done was a bit too general in its diagnosis. 1 0 / How- ever, it contained enough evidence to proceed in pin-pointing certain areas requiring improvement, e.g. the need for consolidation and consistency of goals among training institutions. 7.03 The second study, to identify means by which employment oppor- tunities for less skilled persons can be increased through the design and execution of tourism projects, began in February, 1980, and was completed in July 1980. The loan agreement stipulates that these studies should have both been completed by June 30, 1979. FONATUR could not meet this deadline because of a variety of reasons, chief among which were lack of appropriate personnel and lack of budgeted funds needed to hire consultants. FONATUR requested a twelve month extens'on of the June 1979 deadline and this was granted by the Bank. After several meetings with FONATUR's planning divi- sion, a consultant was hired and the work was completed at a cost of Mex$1,700,000 (US$68,000). 7.04 The Bank was given ample opportunity to make comments on this study as well, and these comments were taken into consideration in the final report. However, Bank attempts to get other tourism-related entities to make use of these studies have not been successful.U1/ In discussions with FONATUR, the staff admitted that the studies component has not been very useful. Basically, it was explained that studies of this nature should have been fully undertaken by an entity such as SECTUR, which has broad policy-making capabilities and can use its results more profitably. Also, it was stated that the findings of these studies, though well- 10/ Although it does include an overall list of problems facing training institutions (including a 60% drop-out rate), and it has some detailed profile of employees in all tourism sectors, available traiaing insti- tutions, possible future demands, level of courses offered, enrollment, etc., it does not treat such topics as streamlining of curricula, inter-institution-coordination, role of FONATUR and SECTUR, etc. 11/ For example, a letter was sent to FONATUR in April 1981, asking that it contact SECTUR to share study information and LCPED staff contacted CONALEP advlsing it of interest of FONATUR in having more information on CONALEP's training programs. Also, SECTUR was asked to prepare a list of related studies to share with other eritities. - 74 - meaning, could not be easily translated into action, and at best, for several parts (e.g., on training schools and curricula), it appears to be more efficient to have the hotels continue their present policies of train- ing their own employees12/. Additionally, the staff explained that espe- cially in the area of studies in Mexico, each administrative body prefers to undertake or commission its own studies even though these may have already been done elsewhere. Perhaps, one reason has been that budgeting for such studies has been relatively easy so long as local firms are involved. 7.05 The mission basically agrees with the above-noted points, espe- cially since the Bank has made several attempts both with FONATUR and SECTUR to have more intensive use and greater dissemination of studies which they have already undertaken. Still, the approximately US$120,000 spent on these studies have not been entirely useless, since the findings give FONATUR and SECTUR at least an awareness of the implication of training and design standards upon employment. VIII. Economic Impact 8.01 As part of its evaluation of subprojects, FONATUR has been analyzing their financial as well as economic impact. The methodology for such analysis was formulated during negotiations and FONATUR has followed these guidelines in evaluating all subprojects, including those financed by other institutions such as IDB. This method lacks many of the refinements undertaken in the appraisal report. However, deficiencies such as non- shadowed wage rates, inclusion of taxes in costs, etc., all work to make these sub-projects even more viable should a rigorous analysis be done.13/ In general, the economic rates of return computed by FONATUR have averaged 14-20 percent for most subprojects. However, some subprojects which had lower economic rates have also been financed under this loan. This occurred mainly during the period when FONATUR was just beginning to implement its new evaluation system, at which time it approved projects.so long as the economic rate of return was greater than the then estimated opportunity cost of capital of 10%. 8.02 The economic analysis performed during appraisal included not only costs and benefits associated with hotel sub-projects; it also consi- dered returns of incremental infrastructure works as well as all ancillary services such as restaurants, local transportation, nandicraft shops, etc., which would be provided in line with the hotel investments. In addition, it took into consideration price softening effects (i.e., the process in which new hotels cause an outward shift in the supply curve thus affecting prices) and demand diversion (i.e., when guests would have gone to existing hotels or used existing transport facilities in the absence of the proj- ect). 12/ At one time, it was proposed that FONAIUR and Fondo Nacional de Estudios y Proyectos (FONEP) undertake a mobile training program based partly upon the needs identified in the studies. This plan did not materialize because of lack of funds and adequately trained personnel. 13/ To the extent that costs paid by hotel; for utilities and otlher services do not reflect true economic cost, benefits would be overestimated. - 75 - 8.03 It is extremely difficult, if not impossible, to accurately as- sess the impact of demand diversion and price softening factors even for small incremental investments in well-defined locales. For package invest- ments dispersed throughout Mexico such a task becomes even more complicat- ed. Nevertheless, using assumptions similar to those made in the Appraisal Report (and presented in Annex I, Table 1) the internal economic rate of return (IERR) is estimated to be about 20%. In the Appraisal Report, this figure was estimated at 14.5%. Several factors contribute to this diffe- rence. Among these are higher hotel revenues (which were actually 3-4 times the revenues projected during appraisal), lower departmental costs and lower overall average room construction costs. Also, both in and aout of the hotels, another important income source was not taken into account. This is income from the 10% value added tax (IVA) which Mexico imposed in 1980. And there is a positive net revenue stream from the airport-user tax which in 1982 rose from Mex$100 (US$4) and Mex$20 (US$0.80) for foreign and domestic travel, to (post-devaluation) Mex$300 (US$6.67) and Mex$100 (US$2.22), respectively. Additionally, tne pace of renovation and opening up of new hotels is assumed to be much slower in the appraisal report than it actually was. 8.04 The combination of all of these factors helped to make the actual overall economic rate of return much better than expected at appraisal. IX. Foreign Exchange impact 9.01 Assuming that 60% of the new room capacity would be occupied by non-Mexican guests, at full development; it is expected that approximately US$150-US$180 million would be earned in foreign exchange from hotels in this project. 14/ During appraisal, it was expected that this figure would, be about U•S120 million. Since less than approximately 10% of the goods and sevices consumed in the hotel industry (operating costs) of Mexico originates overseas, most of the foreign exchange earned is expected to be retained by Mexicans after the estimated 25-35% of cost of capital investment goods are taken into account. X. Employment Effects 10.01 Figures compiled by FONATUR and NAFINSA indicate that in 1976 about US$100,000 of tourist expenditures were needed to generate approxi- mately 45 jobs throughout the tourism sector. it was also estimated that the capital investment required per person em?loyed in the sector then averaged approximately US$2,000. In relation to other sectors, tourism ranked fourth in capital investments required per occupied person; agricul- ture, construction and textiles .having lower capital requirements. 10.02 Under the assumption that it now takes approximately US$2,500 to create a person-year of employment and the wage bill represents about 25% of capital investment costs, this project has created approximately 52,000 person-years of employment (or about 3,500 direct jobs) in construction and 14/ Foreign exchange saved by Mexichns substituting local vacations for foreign ones is not taken into account since this is not easily determined. - 76 - maintenance operations. Additionally, at employment ratios of approxima- tely 1.0 and 0.5 per ICH and LCH15/ rooms respectively, there are about 7,000 new positions (approximateIy 100,000 person-years of employment) created within the hotels. New employment out3ide the hotels is difficult to estimate. However, with this project, direct out-of-hotel employmient is estimated to number approximately 10,000 - 20,000 person-years of employ- ment (1,000 - 1,500 permanent jobs). 10.03 The overall direct effect is therefore expected to be creation of approximately 165,000 person-years of employment or the equivalent of 11,000 new permanent positions. Additionally, assuming a direct/indirect employment ratio of 1:1.5 it is expected that about 250,000 person-years of employment could be attributed to this project. With the majority of these beneficiaries belonging to the lowest-income groups, (e.g., artisans and youths with a low level of education) , it can be assumed that this project will significantly contribute to Mexico's attempts to assist these groups. XI. Conclusion 11.01 During appraisal, it was estimated that the period of full devel- opment of this project would not begin until 1984-1985. Field observations by the mission indicate that the full development period may begin a year or so earlier for most of the accommodation supestructure, although for other related facilities, there may indeed be a lag of about 1-2 years. 11.02 When considered in the context of overall Bank activities in this sector, this loan has helped FONATUR to strengthen its position and assume a more rational policy within the development framework of the country. Perhaps the most outstanding achievements of this loan are: (a) its success in getting the government to adopt and continue with a more realistic inte- rest rate and lending condition structure based upon financial market con- siderations; (b) use of more explicit economic criteria for sub-loan eval- uation; and (c) institutionalization of these policies throughout all of FONATUR's lending activities. A direct outgrowth of this policy has been renewed interest by private commercial banks in their willingness to con- sider financing tourist-related investments both through loans and equity participation. 11.03 In spite of its frequent changes in administrative personnel, FONATUR has succeeded very well in institutionalizing many of the changes discussed with the Bank in such areas as overall investment strategy and subloan preparation, analysis and supervision. In fact, FONATUR has been working closely with private banks in disseminating information in these areas, and more recently, FONATUR has been more actively participating in international tourism conferences. It has also been invited by tourism agencies in such countries as Honduras, Costa Rica, Nicaragua, Grenada and Cuba to offer technical assistance aimed at promoting tourism in these areas.16/ 15/ ICH refers to International Class Hotels and LCH refers to Lower Class Hotels. 16/ In discussionis with FONATIIR, the request was mide that the Bank not publicize FONATUR's technical assistance activittes because of possible politic;il implications. - 77 - 11.04 Although much has been achieved through this project there is still a great deal to be accomplished in such a large and diverse country. It has not been fully a decade since the government began to establish na- tional entities aimed at coordinating operations and managing its tourism resources in an economic and consistent manner. Such efforts have been generally fruitful, but there is not a need for more coordination and con- sistency in policies if Mexico is to more beneficially exploit its touris- tic assets. SECTUR was established as the overall policy-deciding agency for this sector. However, CONATUR, FONATUR, Nacional Hotelera and other local agencies all continue to exercise a great degree of autonomy in their operations, and there hardly appears to be much inter-agency communication; in fact, to some extent, intra-agency communication also appears to be a significant problem. As a consequence, valuable manpower and other econo- mic resources are not fully utilized. A few examples may illustrate the problem. In Ixtapa/Zihuatanejo, hoteliers had to lobby for over a year before the transport ministry and other agencies gave permission to air- carriers to make direct flights from the USA and other foreign countries. And there still exist several conditions and restrictions on the nature and frequenc:y of such flights. Additionally, CONATUR's promotion budget was, until recently, only marginally focussed upon this area and a road linking It to Mexico City (eliminating a long detour) is only now being completed, years later than originally planned. 11.05 Another example involves training and manpower utilization in the tourism sector. The Mexican social security administration (IMSS) , the Mexican university system, and several of. the hotel chains, all offer training courses, many of these aimed at the same target groups. It is wi- dely acknowledged that the university courses are most inappropriate to Mexico's needs as the curricula are too theoretical. According to hotel- iers, the IMSS programs also have curricula deficiencies and a lack of skilled training staff. Because of these problems, most hotels have imple- mented their own programs even though they are legally obligated to help finance lMSS programs, whether or not they participate in them. 11.06 Problems of promotion, training, coordination, etc., are acknow- ledged to be serious. However, political realities are not conducive to quick solutions. What is needed is an analysis of the extent of such im- pediments and a general awareness among the affected entities of their costs. 11.07 In October, 1981, the government established a new tourism bank (BANTUR), which would assume the functions of NAFINSA vis-a-vis FONATUR. Apart from providing financing for tourism facilities, BANTUR is also ex- pected to finance loans for Mexicans desiring such loans for vacations wi- thin the country. A decision on the exact role of this agency is still being worked out; however, with the government's growing interest in pro- viding "social tourism" facilities for more blue-collar workers, there could be a tendency to supplant rather than supplement the achievements of FONATUR so far. Anv such policies involving attempts to subsidLze vaca- tions through loans, price controls, etc., could have sustained and wide- spread adverse ecoaonic effects for Mexico. i/i~ ~~~~~~~~~~~~~~~~~~~~~~~~~7 .. qd P:.. leeial 201tad a.reds edJ4 J. cey3iod.d apie.: £ . 1 P-uo joWo~.nn nav V. t~sve; .af *J4 laoJ;ls()IvtGp3eao yLooaiere lt. os~w q~a;:u I..e P .. vaa, pieo....1 yt il-atfl W1WOC eoey-loty oup5 ted i.tldeo eaoeboa; t oz03 fl (9d d.b't d o".F' pawWeIto : *WU baou ttu;idntd~~~dt 4 lTAddtt .p... Il a Wu0oIWaoo t luo *:_;oua. pu.po..111 P- dueol. u-t a-l t(ui o1%' sp-;.-1o nId; ei Pi- p leI o -X1pfllSWaloa ooteooLt o: t 01u ato et;"eI,ol t;e'aL:lltd.4 O 0 t...eat(ttequo4 tlWp-qIt O .uia"eVL 4WY 1000-00.,-JO -tIIt ii .P..Ia. e..6 ii aLPreiu1 urL 0IWo.3 eot 040 et ''n or- ou-,utbaebCJdlOe -.. tabt.io torOpatlol lqItpiielWeaa 01 pr pol p, 10 10 4 eo: jst td 51 £ neuaa orpa....ee,d ta: OOTISO(tuj 1204ItttdLttaudolja aut ,ro(It;O te ot b-pIittttW Ci-:A Pee; P-e toe: :o;X eat :ed zt1 tqAe......; oI P..... .... a;d I... 50651 1060 0J et1W Ii OtAS p149I 040: 1,voIA jo rt:'o;raOi ttao pr0iowe_ttOle 1 11...1) b0_0 ) e.... 100 XIt XI__u Juo, Lt,.toud Ii 1.94 1099 Cot SeLIt re-tea (1194 tt- lietel WIt ,eW 001191 L? 014 Si S itl 19101 111011 (I1;1124 4Atli1111 (eleCt tOt 4W bitt tillI'it 014 0(2 (oat (Ot Bitt itE .CC9 t i<2"bijilet It0'; 40(it.t 112111t~'00"Owir Ii C4~ t9llt (te9 Ic r: 22t90 tt tiC'? ti.u. t1 ItS .1 ot2stld 4490 0:-tin 5 OC 404 tOt 11 ~ 4 COtS tiltllI it ; ;s yr tLot(h le s lii 1.gee a , el b-at (0 1 ot 4tO le-lyi t ti~ 4W ee a .1.1 il vi: St cot tb ve 1 lii. lt Iail . it t 0I 1i:4 i-tic WI 22elI Ii .91(11 Wot 99902 ccrs4Wtt .i~~~~~~~l .401 tIm 421St :4 1199 1:-tIet 19 otreC re-gels Ill ei11,tlii(tt ire lit St Si' 8' Bolt 3012 ttitl tI(01 1115,4 tOOil viLle tt6t4 (124 (ICe .-~~s .411021(1 [lit 04 ill (hIlti (WC tll ie 49W t.CI 01t *11iz00l till aol 01. 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II 5261~~~~~~~~L i ' i ll.z ; 1041--It:i t ol11 .eIe:(A 4 -ye et e elIZtel Is9 DC& Si I 05te g tIe IC C tli 191 ti e Il It C (i 1(11 (., I lo I III I 11219 e122i1 I) ((Ca iWlel' Wt-Seeeit 01 hit liC (Isil tOo Si a- 04(5 09111 1:103 4 see tilt evil 011(1 titOl Lit IT, lie elil til- Ill lAb till 'otti B.C £ 2144 -tt0 'II WI2-0' Is WIeNol 111tIWtt112£ gets Cl ti'Wlvii I t411 cc It 1(099 1 i ; 'il (114 42 etS er-S Oj .0h ecft :- iCi WI .~~~~ eeirt coast t -tti tO c44 It (l'i191 112 te i ej (11191 lot IlelItItIc 19 (9 ise *,tS (54 ie itise :94 te it ~~~~~4 Si' i S.,ii Ci a 3* Bit L tohI liO (510 4~t~ (1(02 oo-lt 09-IIC tI-oCt 0-C tOl tI-Al i iS lte (( 01 Ste t lebeetle tie tll tICS - Oi 4121 eolA us 111(1 Se liti rIlol tvi 910 liliti tt tl il ALiii Ill CC eye 40W bY tt ash tl tIlt itl 112 tl tilt ill II LII ES. lit li 114 01(1C Ci! 12-C il Ilti tI ''-e I ti * 1,: 23.' li 110 M tE liLt. ii .eei~~~~~~~~~tr Cl 0 et lte ee ..t. .1 eel tc4IC401 11h (5 i i '.(0 t O 14X. ll 1 I cO 012 10.t.BW tl ui ii le 121 Od-Sit II e i ZItVi19 140. iil itC0 lt(19 C- 4441(Cl9Toilil g ol lI 11 toe le oS tIi etil Il te til o 1 Ol (1 IO ' 1 (e Cl 21-4 11191 WltI 21ioll 1.1141 leeS 01 02 410 eth 011111 SI'ltZ 1 114 Si g- 411 e 221'S I(9111 tIle (le -tW IIt(WIt- itl joe ('I (lii it (14 i ( t W 19116tYiilii el1ttl. 622 ulC ei Weo tie l I S' I 6 IiIS12113 £tLc 1I-4 eeS iti I MI 4S,tl IIZ 4i Dsil lol eli, tIe," . ot I 1 b2 ;4 iC04 2tl tIe (3re 1 z~t 0,9 it'S o"S il i'il 1911 91 i A 99' (te C 9111' 01'I'" A'at: elli 1911 W40 elmi 19 : ICr (let "I as tilSw t ct t 14(1 (( a Cto1lit ii 1211 4111 oIlti Il'? [tiL 1919 i-le tE 19' 09 (tO 1111 01119itt 4(0 Cli t0t 1 9011 1i IS I11 9001 99 Ot Cli 1.4 06 b.e.'.I..tGI14. 1IC 1 1 lelit 1)54 13-estt til! lieuaemlil ietO 1(0 tae 4 641 0(1 9 ' H-m( (411 It11 hu Oil cr01 tN'9 91 l4 (ii (t lol 44 41I(li:II i. t WIl.Sin i 1111 C.11'4 11W …--~0 1ll4-''-"" t, 111 1403 lii lelt 1*00 ii 0004 00~i II0ll 1)010 tn 41(41 23 mItt ot tryItot, 114 1110 org eZ" 4d Sa5 SC ti~~~~~~eCOo.tlt elotaLol ueaee.boettOi't - olliojet~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t avert bt4~~~~~~~~~y(I.Il ' fl - 79 - ANNEX 1 Table 2 MEXICO: TOURISM DEVELOPMENT LOAN FONATUR'S OPERATIONS DEPARTMENT BALANCE SHEETS 1974-81 (Actual in LexQ millions) 1977 1978 1979 1980 Current Assets Cash + other current assets 1,214.5 1,195.4 682.8 450.2 Current portion - loans recLived 10.2 11.1 1,302.2 901.2 Total current assets 1,224.7 1,206.5 1,985.0 1,351.4 Investment: + Assets Long-term loans receivable 2,391.9 3,113.9 4,581.0 7,520.0 Equity investments 1,106.3 1,355.5 1,627.1 1,732.4 Furniture and equipment - - 4.8 2.8 Total Assets 4,722.9 5,675.9 8,197.9 10,606.6 Current Liabilities Accounts payable + other 19.9 27.4 570.7 487.3 Current portion long-term debt 856.0 890.2 679.2 457.9 Total current liabilities 875.9 917.6 1,249.9 945.2 Long-term debt 2,276.9 2,558.7 3,629.2 4,710.6 Reserves for pensions, etc. - - 41.7 59.0 Due Development Department - - - - Total Liabilities 3,152.8 3,476.3 4,920.8 5,714.8 Government paid-in capital 1,509.0 2,154.6 3,236.2 5,671.1 Retained earnings 61.1 45.0 40.9 220.7 Total equity 1,570.1 2,199.6 3,277.1 4,891.8 Total Liability and Equity 4,722.9 5,675.9 8,197.90 10,606.6 - 80 - ANNEX 1 Table 3 >tI> 1CM): 'ILOUR12i DDitA2J:EPINENT LOANrTable 7OWrThPR',S OPLt.ATIONS DIJT ATM-I1T - TNQOME STi/4PAWTS (Actual in Mex$ millions) 1977 1978 1979 1980 Encoxlio Interest-existing loans 112.0 274.4 461. 5 910.2 Inter-est--short-t-ierm investments 6.7 7.9 - o - - o - Interest income 7.5 7.8 2.3 0.7 Inco,Tr (loss) on equity investments 24.0 37.9 47.5 22.8 Total incane 150.2 328.0 511.3 933.7 Interest exPrnse 110.7 256.0 41.5.6 638.5 cncrai andi actrranistati.ve e-x-ense 09. 32.0 8..1 iir.4 'Total expense 142.7 344. 515.4 753.9 Net incckme 7.5 ( 16.1) ( 4.1) 179.8 Beginning retained eaniings balance 53.6 61.1 45.0 40.9 Eniding retairecd earnings balanice 61.1 45.0 40.9 220.7 -81 - ANNEX 1 Table 4 '." 'TO'UflM S rTErI3PI4ENJ' DJ(37 1 -tmAh'k;< rn QQ'*~ DhD rF FIJ.DS, 197-7 U)S 2 2'.N.D U.SS O. 1 (Actual in Mex$ millions) 1977 1Y/8 1979 1980 -irccs of~Puid.s Nlow 4rrowing 145.0 500.0 1,425.6 1,494.3 Gov t. equity ccn;:ibutions 715.5 927.4 1,929.1 2,961.6 SaLe of ejuty ireestm,ents -t- land 344.4 134.2 348.4 404.2 IZcIuc-.ions in lonolc-term receivables 122.0 278.2 1,484.5 301.1 N4et maIC,_ne 7.5 ( 16.1) ( 4.1) 179.8 Non casuh exense + nmiscellaneous 32.6 56.9 103.0 136.5 Total Sources 1,367.0 1,880.6 5,286.5 5,477.5 Ls of FLwXds Di shkirsenie-nt6 410.1 1,214.3 361.1 110.8 ;c~ 1~y 4* - 252.4 _* * 1 0 890. 1 Infra-esti-ucture deveJ.opment 1 land 191.2 333.2 8,454.3 3,646.3 IncreaL2o in loncj-te-rn receivabl.es -- o - - o - - o - - o - ReducLion in long-ternm debt 78.5 2)8.2 356.3 395.G Total Uses 932.2 2,082.7 5,062.2 5,51i7.7 Net Change in Working Capital 434.8 ( 202.1) 224.3 ( 40.2) MEX ICO TOURISIM DEVELOPM5NT LOAN 11EXICO TOURISM INDICES 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981: Tourism Receipts 415.0 461.0 562.6 724.2 842.0 800.1 835.6 866.5 1,121.0 1,443.3 1,671.2 1,759.6 (US$ million) Average Expendit./ 184.5 1E3.7 193.0 224.5 250.4 248.7 268.9 266.9 298.6 349.1 498.4 435.7 cD Tourist (US$) Avetage Lenght of 12.3 11.9 10.5 11.0 10.9 10.6 11.3 10.4 10.6 10.1 10.! 10.2 Stay (days) 2,250.0 2,059.4 2,gl4.6 3,226.4 3,362.2 3.217.9 3,107.0 3,247.1 3,753.8 4,134.2 4,144.1 4,037.5 Foreign Visitors (000) Total employment 426.0 466.4 498.8 452.6 4)9.9 527.8 526.5 575.0 615.2 626.6 645.2 L/ in all tourist related act. (000) Preliminary Figures Source: Banco de Mexico, S.A. and Secretar!a de Turismo Estimated for 1981 '.4 MEXICO TOURISM DEVELOPMENT LOAN FOREIGN VISITORS TC MEXICO ('000 persons) 1970 1971 1972' j7 1973 I71 7S; 1576 1977 1978 1979 1980 1S1* ary iz:--a 161.4 186.7 215.8 242.0 252.9 253.3 252.7 235.4 292.7 332.6 ,r .-_ary 17. 1 187.4 226.4 244.9 271.8 264.4 363.8 34'0.4 270.4 260.6 312.0 357.3 374.9 36!.3 :::rc-. 214.6 176.3 280.4 270.5 295.3 327.5 267.3 268.0 368.0 377.3 407.6 35C.8 ,'1ril 143.3 219.8 209.9 283.1 296.4 216.2 279.2 288.9 277.4 357.8 180.2 180.9 I55.2 238.0 244.8 331.1 347.7 2,7.3 230.1 222.1 270.4 3C4.5 326.0 -_ 2',.9 222.8 276.1 286.6 317.7 301.9 2E0.1 255.1 257.0 300.5 351.9 7 i23t. 270.0 257.0 334.5 3;2.E 305.8 317.1 303.9 2&8.8 329.2 353.5 >¾ ,- 222.3 237.5 262.1 314.4 358.6 352.2 35.4 321.0 305.3 259.7 283.6 330.1 373.0 -, - er 1340.; 146.2 17&.7 191.8 184.4 365.6 333.2 ; : c 173. 7 175.1 197,5 23 7,1 245.3 226.0 2,6.1. r I 59, 177. 6 206.3 220.5 L35.2 233.7 231.4 236.0 248.7 284.5 279.6 17114 201.6 222.7 270.2 281.3 277.2 260.3 238.8 267.3 318.3 324.7 .-er 256.9 302.6 344.0 35o.6 364.2 327.1 317.2 362.2 358.4 401.5 440.1 466.7 455.8 4,3r.6 A-e,l To.al 2,250.0 2,509.4 2,914.6 3,226.4 3,362.2 3,217.9 3,107.0 3,247.1 3,753.8 4,134.2 4,144.1 4,037.5 ?rev3ioas year +11.5 +16.1 +10.7 +4.2 -4.3 -3.5 +4.5 +15.6 +10.1 +0.2 -2.6 *Preliminary Figures Source:Banco de Mexico SA CDX ma MEXICO: TOURISM DEVELOPMENT LOAN Country of Origin of Foreign Visitors to Mexico ('000 persors) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Ou : '. EstcZCos Unidos 2,102 2,274 2,584 2,830 2,911 2,786 2,672 2,736 3,073 3,430 3,443 ¢2PnC' a a,57 r,:! 73 112 116 131 110 119 155 210 183 170 Eur3ca 31 62 91 101 113 112 122 155 201 219 240 A-ictCa Latina 51 85 94 153 176 183 163 171 233 252 254 Gcros 9 15 34 26 31 27 31 30 37 50 37 TOTAL: 2,250 2,509 2,915 3,226 3,362 3,218 3,107 3,247 3,754 4,134 4,144 DISTRIBUCION (X) r7tadcs Unidos 93.4 90.6 88.6 87.7 86.6 86.6 86.0 84.3 81.8 83.0 83.1 L aN2C, a da' 2.5 2.9 3.9 3.6 3.9 304 3.8 4.8 5.6 4.4 4.1 E rCp,a 1.4 2.5 301 3.1 3,4 3e5 3.9 4.8 5.4 5.3 5.8 <-.eriCa Latina 2,3 3.4 3.2 4.8 5.2 5,7 5.3 5.2 6.2 6.1 6.1 Ot ros 0.4 0.6 1.2 0.8 0.9 0.8 1.0 0.9 1.0 1.2 0.9 TOTAL: 10040 100.0 100.0 1000 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Banco de Mdxico, S.A. 1N 13zICO: TOURISII DEVELOPMENT LOAN States of Residence of Tourists visiting Mexico from the U.S.A. (000 persons) 1970 1571 1972 1973 1974 1975 1976 1977 1978 1979 1980 ARIZL-A 166.7 213.1 275.9 299.0 270.2 240.9 192.1 204.1 265.2 286.9 CALI FC'!JIA 312.9 389.3 b26.3 429.0 426,.2 432.6 435.3 420.0 455.2 654.6 757.4 8..4 FLORIDA 4L.2 43.4 48.9 59.9 64.7 62.5 78.3 80.2 78.5 145.9 161.6 I!LII OIS 130.2 IC6.7 112.0 149.9 177.4 158.2 145.2 117.5 121.6 157.8 LCUISIIl; 151.1 25.3 34.6 27.5 32.2 39.2 34.0 37.8 46.7 71.3 47.8 25.2 NUICH!CA^ 40.9 43.3 56.8 62.5 73.9 51.3 59.4 58.5 44.5 68.5 __F .SEY 4C.4 18.1 22.0 34.2 32.8 35.7 32.3 27.4 39.9 42.3 24.0 19.8 l: .E.3 S: XIC0 47.3 71.4 74.2 86.1 90.4 67.7 58.2 64.8 66.3 72.5 NEW YC.' 57.1 136.3 134.3 119.4 126.2 112.7 93.5 65.6 55.3 123.9 118.0 125.5 C 20 34.6 30.1 36.9 46.0 42.7 44.9 44.6 35.1 40.9 32.3 28.4 F-;;SYL'JAIIIA 20.9 23.7 39.3 42.4 42.5 35.0 36.1 36.8 31.0 45.1 45.2 1 Thx>.S 692.6 729.7 841.5 837.3 859.3 963.4 922.5 981.9 931.9 1067.2 11C1.1 CS 358.9 395.7 488.0 629.4 669.5 561.6 584.6 559.6 600.6 606.3 501.3 u TOTAL United States 2102.3 2274.3 2583.6 2829.9 2910.8 2785.6 2671.8 2735.8 3072.6 3430.2 3443.0 7,93 9.37 10.68 10.56 9.28 8.65 7.19 7.47 8.63 8.36 5.09 'A' FOR?NIA 18.52 18.74 16.60 15.06 14.86 15.63 15.72 16.64 21.30 22.08 25.25 F'LCDMOC 1.96 1.91 1.89 2.12 2.22 2.24 2.93 2.93 2.55 4.25 1' ! ^'!S 4.69 6.19 4.69 4.34 5.30 6.09 5.68 5.43 4.29 3.96 4.60 4.39 L'., IA'1.\1.20 1.52 1.06 1.14 1.35 1.22 1.41 1.71 2.32 1.39 0.73 1.95 1.90 2.20 2.21 2.54 1.84 2.22 2.14 1.45 2.00 1.17 k:a -', 'Y 0.86 0.97 1.32 1.16 1.23 1.16 1.03 1.46 1.38 0.70 0.58 ;o t: XiC0 2.25 3.14 2.87 3.04 3.11 2.43 2.18 2.37 2.16 2.11 ,,~: YORK 1.66 6.L8 5.91 4.62 4.46 3.87 3.54 2.46 2.02 4.03 3.44 3.76 Cr, I S 1.65 1.32 1. 43 1.62 1.47 1.61 1.67 1.28 1.33 0.96 0.83 PEI.SYL'!ANIA 0.99 1.04 1.52 1.50 1.46 1.26 1.35 1.'5 1.01 1.32 1.3- TEXAS 32.95 32.09 32.58 29.59 29.52 34.58 34.53 35.89 30.33 31.11 31.58 CTROS 17.07 17.40 18.89 22.24 23.0 20.16 21.88 20.45 19.55 17.68 14.56 TMAL: 100.0 100.0 100.0 10.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Banco de Mexico, S.A. OD~ cols MEXICO: TOURISM DEVELOPMENT LOAN Tourist Nights and Average Daily Expenditures in Mexico, 1970 - 1981 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1581 Toura by 2C50 2,509 2,915 3,?.26 3,362 3,218 3,107 3,247 3,754 4,134 4, Atal and 1,3,5 1,523 1,737 1,794 1,817 1 ,786 1,576 1,54 1,586 1,639 Arrival by Air 875 9S6 1,178 I,432 1,545 1,432 1,531 1,723 2,168 Z,435 2,.7O LeriLht of SLaY (days) 12.3 11.9 10-' 11,0 10.9 106 11.3 10.4 10.6 IC,1 10.1 local 133 12.8 1O.o 11.7 11.1 10.6 12.4 11.4 12.0 91.6 ;2.0 Arrival by Land 10.8 10.5 lO,G 10,2 10.5 10.6 10,1 9.6 8.9 9.2 8.9 Arrival by Air 27.7 29.9 30.6 35.5 36.6 34.1 4339 35.1 33.3 .1.9 02.1 14±11 Toutist l4i~h 18.3 19.5 1K. 21.0 20.2 18.9 19-5 17.4 19.0 29.9 20.i Total 9t4 10.'3 11.8 14.6 16.2 15.2 15.6 16.5 19.3 229 22.. Arrival by Land Arrival by Air Average dally expend. (lJS) c15. 15.5 18.5 20.3 23.I 2,.4 To Al ~ e e9,311.9U13.1 15.4 14.4 23.8 14.0 25. 13.8 39.8 17.5 34,4 15.3 Arrival by Land 25,2 25.9 28.9 30.8 32.6 34.7 36D2 3Q,3 60.2 50.2 Arrival by Aif Source: Banco de Mexico, S.A. ~~ -~~~~~~~~~ ~ ~ ~ ~ ~ ~ ~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~jt ~ MEXICO: Tourism Development Loan 1524-M Hotel Establishments by Type and Categories Type of Accommodation Total Hotels Motels Guests House Apartments Resorts No. of No. of No. of No. of No. of No. of No of No. of No. of year Establish. No. of No. of No of Rooms Establish. Rooms Establish. Rooms Establish. Rooms Establish. Rooms Establish. Room. 1961 3,314 90.891 2.243 76,666 195 4,240 699 7,800 177 1965 3.452 96.653 2.185 - _ 1,987 75,909 371 8,205 866 1970 10.203 228 2,336 - 4.765 132,701 2,534 100.377 510 - 12.127 1,381 16,019 340 4,178 1972 5.892 163,016 - - 3,567 128.507 653 15,z28 1,239 1973 13,053 417 5.659 16 549 5.970 166.107 3,605 130,849 673 15,623 1,248 13,201 427 5,857 1974 6.159 171,551 3,759 17 577 135.581 695 16,136 1,254 13,241 1975 6,550 434 6.016 17 577 190,513 4,016 150,917 722 18,419 1976 1,299 12,754 496 7,181 17 6,809 - 4,196 - 1,242 754 - 1.321 - 521 1977 7.002 - - 17 4,341 - 785 - 1978 1,316 - 542 - 18 7,320 - 4,597 - 809 - 1.335 - 561 1979 7.624 - - 18 4.828 - 829 - 1.337 1980 - 614 - 16 7,838 - 4,989 - 849 - 1,350 - 633 - 1981 / 8.111 - 17 - - - - - - - - - Hotel Cat.g.rios Total AA A 9 B C 0 No. of No. of No. of No. of No. of No. of No. of No. of No. of Year Establish. Rooms No. of No. of No. of No. of No. of Establish. Rooms Establish. Rooms Establish. Rooms Establish. Rooms9 Establish. Roo,s Establish. Rooms 1961 3,314 90,891 121 6,267 354 14,713 419 13,278 382 19i5 3,452 96.653 10.564 942 26,541 1.096 19,528 233 10,994 739 26,047 478 1970 4,765 14,170 347 8,862 846 20,814 132,701 398 21.008 711 809 15,766 23,069 714 22,392 846 23,526 1972 5.892 163,016 167 1,218 27,118 878 15,588 14,700 422 19,642 912 1973 32,867 1,002 28,015 1.541 31,935 5.970 166,107 176 15,699 1,848 35,857 437 20,489 935 33,535 1,015 1974 6.159 171,551 28,194 1,556 32.256 1,851 35.034 192 16,500 449 20,954 986 1975 35,345 1.058 29.214 1,600 33,184 6,550 182,442 216 19,075 1,874 36,354 480 22.076 1,073 37.876 1,216 1976 6.809 192,183 34,411 1.653 34.189 1,912 36,815 223 20,420 497 24,051 1,101 1977 39,653 1,389 . 36,539 1.685 34,680 7,002 200.836 238 22,832 1,914 36,840 506 26,614 1,127 40,532 1,449 1?7S 7.320 213,ql3 37.798 1.744 35,934 ,1,938 37,315 256 25,257 535 29,576 1,177 1979 b/ 7,624 42,605 1,567 40.926 1,825 37.827 231,021 - - - 1,960 37,722 - - - - - 1980 7,838 237.564 - - - - - - - - - 1981 a/ 8.111 245.868 - - - - - - - - - - - Source: Secretaria de Turismo a/ Estimates h/ AS fro- 1979. distribution of hotels by categories as. diacontinued and a new syatem is being developed I-.I- 0 ME'XiCO: TOURIS'N L)LVELOPbLNT LOAN Occupancy Rates in Hotels by Categories For the Principal Tourist Destinations (in Z of room capacity) PlEx Ico ACAPULCO PUERTO VIALLARTA MAZATLAN Year aA A TJAA CANCUN IXTAPACOcL I II III I H .1! II III I i _ in _ i HI _ H ll 1970 68.4 02.5 - 74.o 61.0 57.0 50.0 66.0 59.0 76.0 65.0 54.0 68,0 55.0 - - _ 197; 5s,1 6i _ 76.0 65.0 56,0 67.0 66.0 59.0 76.0 66.0 55.0 70.0 55.0 - - - - 66.0 66.0 66.0 1972 6S.5 65,_ 70,0 64,3 58.0 76.0 67,0 66.o 77.0 71.0 55A0 6,.0 55.0 - _ _ _ _ 68.0 68.0 64.o 1973 77,5 70.9 - 81.0 74.0 67.0 81.0 67.0 64.0 64.0 64.0 69.0 85.0 61.0 56.0 45.0 59.0 - 73.6 1974 79.7 72.8 - 81.o 6s.o 66.o 64.0 71.0 70,0 74.3 55.9 83.4 75.2 65.8 55.8 45.6 - 1375a/ 82.0 69.5 70.6 72.0 57,0 61.0 73.0 62.0 71.0 66.7 - - - - _ 74.2 79.9 ,5.3 1 976 67.6 56.9 57.6 57.2 49.8 49.2 59.2 - 23.6 63.8 75.9 69.9 90.2 66.5 67.5 63.0 61.4 51.0 60.0 59.0 61.0 66.1 54.2 5.9 52.7 - - 64.5 59.1 53.2 64.2 48.4 61.4 52.0 82.1 -77 79.7 66.7 66.6 73.5 65.9 56.7 62.0 61.3 55.2 - - 57.0 157Z - - - 74.4 68.8 61.0 48.6 51.8 58.5 55.5 60.2 63.5 72,2 71.3 79.4 72.3 60.4 74.5 68.0 70.6 - - - 53.2 15 79 90.3 78.S 76.1 - - 81.2 76.7 55.1 51.0 41.7 58.4 67., 68.5 5ic6 - - - - 1s0 86.6 77.° 71.8 85.9 81.1 72.6 55.8 44.8 64.8 69.0 75.7 53.5 - - - - - _ 93S1b 82.2 72,6 69.6 75.3 61.6 61.7 65.3 54.2 75.4 64.7 59,7 52.; - - - - - - - - - 73.0 60.6 53.6 64.0 61.1 72.2 62.7 56.1 49.1 a Up to 1974 information was presented by Categories AA and A; after 1975 it was by categories I, II, and III. I b/ January to July co co Source: Direct surveys by FONATUR MEXICO: TOURISM DEVELOPMENT LOAN MEXICAN TOURISTS VISITING OTIIER COUnTRIES (000) '.-ONTRS 1970 1971 1972 I973 1974 1975 i97E- i977 1978 1979 1980 1981 P/ TOTAL ANNUAL 1,165.0 1,209.1 1,428.0 1 ,670.8 1 ,905-.4 2,239.6 1 ,977.2 2,109.1 2,237.9 2,755.6 3,322.4 3,885.7 JANUARY 79.6 79.0 121.1 108.4 111.8 164.2 108.3 121.6 132.7 157.7 189.6 205.7 FEBRIUARY 67.3 65.8 83.6 99.5 119.6 125.6 134.6 117.3 169.9 197.7 182.8 276.8 MARCH 117.5 79.5 129.7 120.7 135.4 208.1 127.5 152.4 222.9 210.8 300.9 263.3 APRIL 81.7 135.6 113.8 172.4 196.5 167.6 249.0 212.1 172.8 318.3 289.1 386.7 HAY 100.8 115.3 113.3 135.2 175.2 169.6 183.4 191.1 194.5 208.4 264.4 296.0 JUNE 97.5 79.1 107.6 135.2 146.9 180.3 175.1 168.0 173.7 225.9 259.4 29S.5 JULY 125.7 144.3 146.7 159.6 222.8 278.8 264.o 243.5 272.6 323.6 415.1 493.5 AUGUST 119.2 135.0 158.6 192.6 214.5 227.3 225.2 210.6 191.3 259.1 335.8: 388.6 SEPTEMBER 86.5 91.7 111.5 126.1 161.4 155.3 119.7 206.9 164.5 205.1 247.6 282.4 OCTOBER 97.2 101.3 108.2 128.2 142.7 147.3 138.5 150.9 155.6 171.4 234.3 283.8 NOVEMBER 78.7 86.8 100.9 127.7 115.9 139.8 100.8 124.9 156.2 184.1 223.6 261.6 DECEMBER 113.3 95.7 133.0 165.2 162.7 275.7 151.1 209.8 231.2 293.5 379.8 450.8 Source: Banco de Mexico, S.A. p/ Preliminary Data H=. P :D: ME.XICO: TOURISM DEVELOPMENT LOAN MEXICAN TOURISTS VISITING ABROAD BY AIR (000) Change MONTHS 1970 1975 1976 1977 1978 1979 pl 1980 p/ 1981 p/ 1981/1980 TOTAL ANNUAL 252.0 494.0 518.0 448.0 589.0 747.0 955.9 192.7': JANUARY 13.0 24.0 30.0 24.0 30.0 37.0 47.4 61.8 30.4 FEBRUARY 12.0 23.0 31.0 21.0 27.0 37.0 45.9 66.0 43.8 MARCH 21.0 41.0 31.0 28.0 48.0 45.0 87.4 64.9 -25.7 APRIL 19.0 28.0 53.0 36.0 37.0 76.0 62.3 MAY 23.0 47.0 55.0 39.0 52.0 51.0 65.0 1 JUNE 16.0 38.0 52.0 37.0 48.0 65.0 72.0 JULY 37.0 7i.0 92.0 63.0 87.0 107.0 144.0 AUGUST 31.0 57.0 62.0 45.0 64.0 85.0 119.6 SEPTEMBER 24.0 44.0 35.0 43.0 5.2.0 62.0 68.7 OCTOBER 19.0 32.0 28.0 34.0 39.0 56.0 65.9 NOVEMBER 17.0 32.0 18.0 26.0 38.0 43.0 62.3 DECEMBER 20.0 57.0 31.0 52.0 67.0 83.0 115.4 Source: FONATUR and Banco de Mexico, S.A. 21 Preliminary Data * January - March &X MEXICO: TOURISMI DEVELOPMENT LOAN MEXICAN TOURISTS VISITING ABROAD BY LAND (000) CHANGE MONTHS 1970 1975 1976 1977 1978 1979p/ 19 80 p/ 1981 a/ 1981/1980 TOTAL ANNUAL 913.0 1 ,745.0 1,459.0 1,661.0 1,649.0 2,009.0 2,228.4 553.1* JANUARY 67.0 140.0 78.0 97.0 103.0 120.0 130.6 143.8 10.1 FEBRUARY 55.0 102.0 104.0 96.0 143.0 161.0 183.7 210.8 14.7 MARCH 96.0 167.0 97.0 125.0 175.0 166.0 187.3 198.5 6.0 APRIL 63.0 140.0 196.0 177.0 136.0 243.0 247.4 MAY 78.0 123.0 128.0 152.0. 142.0 157.0 192.6 JUNE 81.0 142.0 123.0 130.0 125.0 161.0 189.1 JULY 89.o 208.0 172.0 181.0 185.0 217.0 229.3 AUGUST 88.0 170.0 163.0 165.0 128.0 174.0 191.5 SEPTEMBER 63.0 111.G 85.0 164.0 i13.0 143.0 147.5 OCTOBER 78.0 116.0 110.0 117.0 117.0 116.0 125.2 NOVEMBER 62.0 108.0 83.0 99.0 718.0 141.0 172.1 DECEMBER 93.0 218.0 120.0 158.0 164.0 210.0 232.1 Source: FONATUR and Banco de Mexico, S.A. -x 0 >4 p/ Preliminary Data * January - March MEXICO: Tourism Development Loan 1524-ME BASIC DATA ON MEXICAN TOURISTS ABROAD 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1983 1 2' Expenditures Abroad i9L4 201.0 259.7 303.0 391.6 445.8 423.1 396.0 519.0 692.8 1,045.2 1,546.8 (US$Mill) Average expenditure 164.3 166.2 181.9 18.,3 2C5.5 199.0 214.0 187.8 231.9 251.4 3!4.6 3'8.i (US$) Average length of stay 7.7 7.1 6.9 7.1 6.9 7.3 7.1 6.5 7.3 6.8 6.8 7.0 (Days) Number of Mexicans 1,165.0 1,209.1 1,428.0 1,670.8 1,905.4 2,239.6 1,977.2 2,109.1 2,237.9 2,755.6 3,322.4 3,885.7 visiting abroad (000) Source: Banco de Mexico, S.A. * Prliminary Figures UI MEXICO: TOURISM DEVELOPMENT LOAN Tourism and Border Transactions (US$ Mill) TOURISM BORDER TRANSACTIONS Year Receipts Outflows Balance Receipts Outflows Balance 1970 415.0 191.4 223.6 1,050.1 828.2 221.9 1971 461.0 201.0 260.0 1,176.1 867.9 308.2 1972 562.6 259.7 302.9 1,312.7 939.0 373.7 1973 724.2 303.0 421.2 1,526.3 1,103.7 422.6 1974 842.0 391.6 450.4 1,649.8 1,252.6 397.2 1975 800.1 445.8 354.3 1,924.7 1,588.8 335.9 1976 835.6 423.1 412.5 2,266.5 1,846.9 419.6 1977 866.5 396.0 470.5 2,075.9 1,361.0 714.9 1978 1,121.0 519.0 602.0 2,363.7 1,631.8 731.9 1979 1,443.3 713.6 729.7 2,919.2 2,241.2 678.0 1980 p/ 1,670.1 1,010.8 659.3 3,660.5 3,056.3 604.2 1981 p/* 522.1 241.6 280.5 1,072.4 967.7 104.7 Source: Banco de Mexico, S.A. pl Preliminary figures D x * January - March 94 ANNEX 1 Table 17 MEXICO: TOURISM DEVELOPMENT LOAN-1524-ME NUMBER OF ROOMS IN HOTELS FINANCED BY FONATUR TOTAL JAN.-MARCE ACCUMnLATED REGION 1973-1980 1981 1973-1981* TOTAL IN MEXICO 54,420 3,421 57,841 NORTHWEST 8,076 564 8,640 Baja California Norte 1,399 179 1,578 Baja California Sur 1,598 - 0 - 1,598 Chihuahua 810 45 855 Durango 439 -0 - 439 Sinaloa 2,681 278 2,959 Sonora 1,149 62 1,211 NORTHEAST 3,905 144 4,049 Coahuila 1,050 - o - 1,050 Nuevo Leon 1,054 144 -t,198 San Luis Potosi 447 -_ - 447 Tamulipas 1,054 - 0 - 1,054 Zacatecas 300 - o- 300 WEST 11,618 992 12,610 Aguascalientes 150 -o - 150 Colima 1,034 - 0 - 1,034 Guanajuato 1,958 198 2,156 Jalisco 6,706 659 7,365 Michoacan 1,708 135 1,843 Nayarit 62 -o - 62 EAST 3,220 169 3,389 Puebla 406 -o - 406 Tlaxcala 74 - - 71, Veracruz 2,740 169 2,909 CENTRAL 8,393 456 8,849 Distrito Federal 5,598 154 5,752 Hidalgo 156 - a- 156 Mexico 791 178 969 Queretaro 1,848 124 1,972 SOUTH 8,559 426 8,985 Guerrero 6,848 410 7,258 Morelos 599 16 615 Oaxaca 1,112 - o - 1,112 SOUTHWEST 10,649 670 11,319 Cainpeche 206 - o- 206 Chiapas 2,032 - o - 2,032 Quintana Roo 6,333 220 6,553 Tabasco 1,276 450 1,726 Yucatan 802 -a - 802 SOURCE: Fondo Nacional de Fcinento al Turismo. * March, 1981 - 95 - ANNEX 1 MEXICO: TOURISM DEVELOPMENT LOAN Table 18 NUMBER OF NEW JOBS CREATED IN HOTELS PARTIALLY FINANCED BY FONATUR CREDIT TOTAL JAN.-MARCH ACCUMULATED REGION 1973-1980 1,981 1973-1981* TOTAL IN MEXICO 40,464 2,495 42,959 NORTHWEST 5,939 360 6,299 Baja California Norte 1,164 153 1,317 Baja California Sur 1,134 - 0 - 1,134 Chihuahua 423 30 453 Durango 345 -0 - 345 Sinaloa 2,197 140 2,337 Sonora 676 37 713 NORTHEAST 2,587 126 2,713 Coahuila 538 -o - 538 Nuevo Leon 824 126 950 San Luis Potosi 390 - 0 - 390 Tamaulipas 573 - o- 573 Zacatecas 262 -0 - 262 WEST 7,775 735 8,510 Aguascalientes 158 - o - 158 Colima 564 -o - 564 Guanajuato 1,363 141 1,504 Jal isco 4,871 468 5,339 Michoacan 799 126 925 Nayarit 20 -o - 20 EAST 1,835 123 1,958 Puebla 218 -o - 218 Tlaxcala 25 -o - 25 Veracruz 1,592 123 1,715 CENTRAL 5,557 248 5,805 Distrito Federal 3,558 120 3,678 Hidalgo 65 -o - 65 Mexico 514 86 600 Queretaro 1,420 42 1,462 SOUTH 7,628 297 7,925 Guerrero 6,274 289 6,563 Morelos 674 8 682 Oaxaca 680 -o - 680 SOUTHWEST 9,1143 606 9,749 Campeche 188 -o - 188 Chiapas 1,484 - o - 1,484 Quintana Roo 5,872 161 6,033 Tabasco 983 445 1,428 Yucat6n 616 -o - 616 SOURCE: Fondo Nacional de Fomento al Turismo. * March, :1981 - 96 - ANNEX 1 Table 19 MEXICO: TOURISM DEVELOPMENT LOAN Investments in Hotels Financed by FONATUR (Mex. $ Mill) TOTAL 1973 - 1980 JAN.-KARCK 1981 TOTAL 1973-1981;': REGION AMOUNT (%) AMOUNT (Z) AMDUNT (%) TOTAL IN MEXICO 35,293.1 100.0 3,346.1 100.0 38,639.2 100.0 NORTHWEST 4,245.8 12.1 441.0 13.2 4,686.8 12.1 Baja California Norte 1,165.3 3.3 169.9 5.1 1,335.2 3.5 Baja California Sur 764.0 2.2 - o - - o - 764.0 2.0 Chihuahua 363.6 1.0 30.9 0.9 394.5 1.0 Durango 210.6 0.6 - o - - o - 210.6 0.5 Sinaloa 1,124.8 3.2 187.2 5.6 1,312.0 3.4 Sonora 617.5 1.8 53.0 1.6 670.5 1.7 NORTHEAST 2,197.3 6.2 100.9 3.0 2,298.2 5.9 Coahuila 447.9 1.3 - o - - o - 447.9 1.2 Nuevo Leon 915.0 2.6 100.9 3.0 1,015.9 2.6 San Luis Potost 287.0 0.8 - O - -o - 287.0 0.7 Tamaulipas 412.1 1.1 - o - - o - 412.1 1.1 Zacatecas 135.3 o.4 - 0 - -o - 135.3 0.3 WEST 7,398.2 20.9 1,018.? 30.4 8,4+16.4 21.8 Aguascalientes 120.4 0.3 - o - - o - 120.4 0.3 Colima 1,207.6 3.4 - a - - o - 1,207.6 3.1 Guanajuato 856.7 2.4 163.7 L4.9 1,020.4 2.7 Jalisco 4,536.2 12.9 731.5 21.8 5,267.7 13.6 MichoacSn 648.6 1.8 123.0 3.7 771.6 2.0 Nayarit 28.7 0.1 - o - - o - 28.7 0.1 EAST 1,646.2 4.6 193.0 5.8 1,839.2 4.8 Puebla 175.7 0.5 - o - - o - 175.7 0.5 Tlaxcala 8.7 0.0 - o - - o - 8.7 0.0 Veracruz 1,461.8 4.1 193.0 5.8 1,654.8 4.3 CENTRAL 5,945.4 16.9 380.3 11.4 6,325.7 16.4 Distrito Federal 3,941.6 11.2 182.4 5.5 4,124.0 10.7 Hidalgo 30.1 0.1 - 0 - - o - 30.1 0.1 K6xico 636.9 1.8 128.0 3.8 764.9 2.0 Queretaro 1,336.8 3.8 69.9 2.1 1,406.7 3.6 SOUTH 7,589.5 21.5 412.0 12.3 8,001.5 20.7 Guerrero 6,724.0 19.1 396.7 11.9 7,120.7 18.4 Morelos ~~~397,9 1.j 15.3 0.4 4+13.2 1.1 oaxaca 4967.6 1.3 - o - - - 44637.6 1.2 SOUTSWEsT 6,270.7 17.8 800.7 23.9 7,071.4 18.3 Cranpache conipeche ~~59.9 7988 0.2 2.3 -o - a - 59.9 0.2 - o - - o - 798.8 2.1 ChQipas 4,493.0 12.7 264.0 7.9 4,757.0 12.3 Quintana Roo 526.3 1.5 536.7 16.o 1,063.0 2.7 TYabasco 392.7 1.1 - o - - o - 392.7 1.0 SOURCE: Fondo Nacional de Fomento al Turismo. * March. 1981 - 97 - ANNEX 1 Table 20 MEXICO: TOURISM DEVELOPMENT LOAN FONATUR'S CREDIT OPERATIONS (Max. $ Mill.) TOTAI. 1973-1980 JAN.-MARCH 1981 TOTAL 1973-1981:' REGION AOUNT (%) AMOUNT (%) AMUNT (%) TOTAL IN MEXICO 18,046.1 100.0 1,850.3 100.0 19,896.4 100.0 NORTHWEST 2,315.0 12.8 231.0 12.5 2,546.0 12.8 Baja California Norte 677.2 3.8 104.3 5.6 781.5 3.9 Baja California Sur 500.2 2.8 - 0 - - o - 500.2 2.5 ChIhualhua 187.1 1.0 10.9 0.6 198.0 1.0 Durango 94.5 0.5 -o- -a- 94.5 0.5 Sinaloa 564.1 3.1 88.0 4.8 652.1 3.3 Sonora 291.9 1.6 27.8 1.5 319.7 1.6 NORTHEAST 959.4 5.4 40.9 2.2 1,000.3 5.0 Coahuila 176.4 1.0 - 0 - - 0 - 176.4 0.9 Nuevo Lc6n 355.0 2.0 40.9 2.2 395.9 2.0 San Luis Potosi 139.1 0.8 - O- - O- 139.1 0.7 Tamaulipas 228.7 1.3 - o - - 0 - 228.7 1.1 Zacatecas 60.2 0.3 - O - - O- 60.2 0.3 WEST 4,176.9 23.1 552.7 29.9 4,729.6 23.8 Aguascalientes 47.0 0.3 - o - - u - 47.0 0.-3 Colina 682.7 3.8 - o - - O - 682.7 3.4 Guanajuato 431.9 2.4 86.2 4.7 518.1 2.6 Jalisco 2,551.6 14.1 394.0 21.3 2,945.6 14.8 Michoacan 279.0 1.5 72.5 3.9 351.5 1.8 Nayarit 184.7 1.0 - O - - a - 184.7 0.9 EAST 844.2 4.7 102.4 5.5 946.6 4.7 Puebla 81.3 0.5 - o - - a - 81.3 0.4 Tlaxcala 5.2 0.0 - O- - O- 5.2 0.0 Veracruz 757.7 4.2 102.4 5.5 860.1 4.3 CENTRAL 2,812.9 15.6 206.8 11.2 3,019.7 15.2 Distrito Federal 1,963.9 10.9 102.7 5.6 2,066.6 10.4 Hidalgo 14.7 0.1 - 0 - - 0 14.7 0.1 Mexico 330.9 1.8 59.1 3.2 390.0 2.0 Queretaro 503.4 2.8 45.0 2.4 548.4 2.7 SOUTH 3,522.5 19.5 256.5 13.8 3,779.0 19.0 Guerrero 3,083.0 17.1 248.5 13.4 3,331.5 16.7 Morelos 209.0 1.1 8.0 0.4 217.0 1.1 Oaxaca 230.5 1.3 - 0 - - ° - 230.5 1.2 SOUTHWEST 3,415.2 18.9 460.0 24.9 3,875.2 19.5 Campeche 33.9 0.2 - o - - - 33.9 0.2 403.5 2.2 - a - - a 403.5 2.0 Chiapas 2,476.9 13.7 148.0 8.0 2,624.9 13.2 Quintana Roo 301.1 1.7 312.0 16.9 613.1 3.1 Tabasco 199.8 1.1 - a - - o 199.8 i.0 Yucat5n SOURCE: Fondo Nacional de Fomento al Turismo. * March, 1981 MEXICO: TOURISM DEVELOPXE`TT LOAN FONATUR'S RATE STRUCTURE FOR HOTELS January 1978 INTEREST RATES % Loan as YEARS Intermediate Discount max. % of Maximum Grace AMOUNT OF CREDIT FC'.ATUR Institution Beneficiary FONATUR investment Period Period Less than Mex.$5 million New 12.00 2.00 14.00 90 65 12 2 Expansion 12.C0 2.00 14.00 90 65 10 2 From Mex.$5 to Mex.$50 million New 12.50 1.50 14.00 90 65 15 3 Expansion 12.50 1.50 14.00 90 65 10 2 From Mex.$50 to Mex.$100 million New 13.00 2.00 15.00 90 65 15 3 Expansion 13.00 2.00 15.00 90 65 10 2 More than Mex.$100 million New 13.50 2.50 16.00 90 65 15 3 Expansion 13.50 2.50 16.00 90 65 15 3 '00 NON-HOTEL RATE STRUCTURE Less than Mex.$5 million New 15.00 2.00 17.00 90 65 12 2 Expansion 15.co 2.00 17.00 90 65 10 2 From Mex.$5 to Mex.$50 million New 16.25 2.50 i8.y5 90 65 15 Expansion 16.25 2.50 18.75 90 65 10 From Mex.$50 to Mex.$100 million a, New 17.00 2.00 19.C0 50 65 15 3 m Extension 17.00 2.uO 19.00 90 65 10 2 More than Mex.$100 million New 17.,0 1.50 19.00 go 65 15 3 Extension I11. 1 5 90 65 15 . A V E R A GE 1I 60 0() 2 .00 I MEXICO: Tourism Development Loan 1524-ME Interest Rate-December 1978 (Percentages) FOR HOTELS INTEREST RATES __ __% Y E.A R S Intermediate Discounted by Credit as AMOUNT OF CREDIT FONATUR Institution Beneficiary FONATUR Percent. of Inv. Masimum Time Grace Period 12.qQ 2.00v 14.00 90 65 12 2 Less than MexS5 mill. 12.o4 2.00 14.00 90 65 10 2 New Expansion From Mex$5 to Mex$100 mill. 14.00 2.00 16.00 90 65 15 3 New Expansion 14.00 2.00 16.00 90 65 10 2 From Ncx$100 to Yax$200 mill. 16 .00 2.00 18.00 90 65 15 3 New Expansion ~~~16.03 2.00 18.00 90 65 1 NON-HOTEL RATE STRUCTURE INTEREST RATES % % Y E A R S Intermediate Discounted by Credit as. FONATUR Institution Beneficiary FONATUR Percent. of Inv. Maximum Time Grace Period J6. 0 2.00 1F.00 93D 65 1, 2 Less than Mex$5 mill. 16.00 2.00 13.00 90 65 IG L New Expansion 17.22 2?03 19.22 30 65 15 3 From Mex$5 to Mex$50 mill. 17.-2 2.00 19.22 90 65 10 New Expansion From Mex$50 to Max$100 mill. 17-)0 2.03) 1 9.0 s0 65 15 3 Nlev Expansion 17I' 20010 10 1 trom Mex$50 to Mex$100 mill. 18.00 2.00 20.00 90 65 15 New Expansion 18.30 2.00 20.00 50 65 15 3 Averages 15.Qv2 2.03 17.82 MEXICO: Tourism Development Loan 1524-ME Interest Rate-June 1979 (Percentages) FOR HOTELS AMOUNT OF CREDIT FONATUR Intermediate Beneficiary Discount Credit as Max. Maximum Grace Institution FONATUR % of Investment Period Period Less than Mex$5 million 12.91 2.00 14.91 90 65 12 2 New Expansion 12.91 2.00 14.91 90 65 10 2 From Mex$5 to Mex$100 million 14.91 2.00 16.91 90 65 15 3 New Expansion 14.91 2.00 16.91 90 65 10 2 From Mex$100 to Mex$100 mill. 16.91 2.00 18.91 90 65 15 3 New Expansion 16.91 2.00 18.91 90 65 15 3 NON-HOTEL RATE STRUCTURE 0 Less than Mex$5 million 16.21 2.00 18.21 90 65 12 2 New Expansion 16.21 2.00 18.21 90 65 10 2 From Mex$5 to Mex$50 mill. 17.38 2.00 19.38 90 65 15 3 New Expansion 17.31 2.00 19.38 90 65 10 2 From Mex$50 to Mex$100 mill. 17.64 2.00 19.64 90 65 15 3 New Expansion 17.64 2.00 19.64 90 65 15 3 From Mex$50 to Mex$100 mill. 18.12 2.00 20.12 90 65 15 3 New Expansion 18.12 2.00 20.12 90 65 15 3 AVERAGES 16.29 2.00 18.29 o1 MEXICO: Tourism Development Loan 1524-ME Interest Rate-December 1979 (Percentages) FOR HOTELS Intermediate Discount Credit as Max. Maximum Grace AMOUNT OF CREDIT FONATUR Institution Beneficiary FONATUR % of Investment Period Period 13. 85 2.00( 15. 85 80 65 12 2 Less than Mex$5 million 13. 85 2.00 15.85 80 65 10 2 New Expansion 1 ' 1 6 From Mex$5 to Mex$100 million 15. 85 2.00 17. 85 80 65 15 3 New Expansion 15. 85 2.00 17. 85 80 65 10 2 From Mex$100 to Mex$100 millioii 17. 85 2.00 19. 85 80 65 15 3 New Expansion 17.85 2.00 19.85 80 65 15 3 o NON-HOTEL RATE STRUCTURE Less than Mex$5 million 17. 20 2.00 19. 20 80 65 12 2 New Expansion 17. 20 2.00 19. 20 80 65 10 2 From Mex$5 to Mex$50 million 18.50 2.00 20.50 80 65 15 -1 New Expansion 18. 50 2.00 20. 50 80 65 10 2 From Mex$50 to Mex$100 million 19. 20 2. OC 21. 20 80 65 15 New Expansion 19.20 2. OCi 21. 20 80 65 15 3 | From Mex$50 to Mex$100 million 19.50 2.00) 21. 50 80 65 15 3 > New E;cpansion 19. .90 2.00 21. 50 80 65 15 3 AVERAGES 17. -12 2.00 19. 42 MEXICO: Tourism Development Loan 1524-ME Interest Rate-June 1980 (Percentages) FOR HOTELS Intermediate Discount Credit as Max. Maximum Grace AMOUNT OF CREDIT FONATUR Institution Beneficiary FONATUR % of Investment Period Period Less than Mex$5 mill. 16.50 2.00 18.50 80 65 12 2 New Expansion 16.50 2.00 18.50 80 65 10 2 From Mex$5 to Mex$100 mill. 18.50 2.00 20.50 80 65 15 3 New Expansion 13.50 2.00 20.50 80 65 10 2 From Mex$100 to Mex$200 mill. 20.50 2.00 22.50 80 65 15 3 New Expansion 20.50 2.00 22.50 80 65 15 3 NON-HOTEL RATE STRUCTURE Less than Mex$5 mill. 20.50 2.00 22.50 80 65 12 2 New Expansion 20.50 2.00 22.50 80 65 10 2 From Mex$5 to Mex$50 mill. 21.50 2.00 28.50 80 65 15 3 New Expansion 21.50 2.00 28.50 80 65 10 2 From Mex$50 to Mex$100 mill. 22.50 2.00 24.50 80 65 15 3 New Expansion 22.50 2.00 24.50 80 65 15 3 From Mex$50 to Mex$100 mill. 22.75 2.00 24.75 80 65 15 3 New Expansion 22.75 2.00 24.75 80 65 15 3 AVERAGES 20.39 2.00 22.39 AVERAGES MEXICO: TOURISM DEVELOPMENT LOAN FONATUR'S RATE STRUCTURE FOR HOTELS DECEMBER 1980 INTEREST RATES % Loan as YEARS Intermediate Discount Max. % of Maximum Grace AMOUNT OF CREDIT FONATUR Institution Beneficiary FONATUR Investment Period Period Less than Mex$5 million 18.25 2.00 20.25 80 65 12 2 New Expansion 18.25 2.00 20.25 80 65 10 2 From Mex$5 to Mex$100 million 20.25 2.00 22.25 80 65 15 3 New Expansion 20.25 2.00 22.25 80 65 10 2 From Mex$100 to Mex$200 million 22.25 2.00 24.25 80 65 15 3 New Expansion 22.25 2.00 24.25 80 65 15 3 NON-IJOTEL RATE STRUCTURE 0 . I~~~~~~~~~~~~~~~~~~~~~ Less than Mex$5 million 23.00 2.00 25.00 80 65 12 2 New Expansion 23.00 2.00 25.00 80 65 10 2 From Mex$5 to Mex$50 million 24.00 2.00 26.00 80 65 15 3 New Expansion 24.00 2.00 26.00 80 65 10 2 From Mex$50 to Mex$100 million 25.25 2.00 27.25 80 65 15 3 New Expansion 25.25 2.00 27.25 80 65 15 3 From Mex$100 to Mex$200 million 26.40 2.00 28.40 80 65 15 3 New Expansion 26.40 2.00 28.40 80 65 15 3 A V E R A G E 22.77 2.00 24.77 80 65 15 3 tI " H al MEXICO: Tourism Development Loan 1524-ME Interest Rate-June 1981 (Percentages) FOR HOTELS Intermediate Disc. by Inv. Maximum Grace Amount of Credit FONATUR Institution Beneficiary FONATUR Credit Time Period Less than Mex$5 mill. New Expansion 21.75 2.00 23.75 80 65 12 2 21.75 2.00 23.75 80 65 10 2 From Mex$5 to Mex$100 mill. 23.75 2.00 25.75 80 65 1S 3 New Expansion 23.75 2.00 25.75 80 65 10 2 From Mex$100 to Mex$200 mill. 25.75 25. 7 2.00 2.00 27.75 27.75 80 80 65 15 3 65 15 3 New Expansion '7 NON-HOTEL RATE STRUCTURE Less than Mex$5 mill. New Expansion 28.00 2.00 30.00 80 65 12 2 28.00 2.00 30.00 80 65 10 2 From Mex$5 to Mex$50 mill. 29.23 2.00 31.25 80 65 15 3 New Expansion 29.25 2.00 31.25 80 65 10 2 From Mex$50 to Mex$100 mill. 30.50 2.00 32.50 80 65 15 3 New Expansion 30.50 2.00 32.50 80 65 15 3 Frnm Me-x$50 to '" 31. 54 2.00 33.54 80 65 15 3 New Expansion 31.54 '00 2. 33.54 80 65 15 Averages 27.22 2.00 29.22 80 65 15 3 N5 ,9 MEXICO: TOURISM DEVELOPH&iT LOAN FONATUK'S RATE STRL,URE FOR HOTELS December 1981 INTEREST RATES % Loan as YEARS Intermediate Discount mrx. % of Maximum Grace AMOUNT OF CREDIT FONATUR Institution Beneficiary FONATUR investment Period Period Less than Mex.$5 million New 25.25 2.00 27.25 80 65 12 2 Expansion 25.25 2.00 27.25 80 65 10 2 From Mex $5_ tn Mex-.-On million New 27.25 2.00 29.25 80 65 15 3 Expansion 27.25 2.00 29.25 80 65 10 2 From Mex.$100 to Mex.$200 million New 29.25 2.00 31.25 80 65 15 3 Expansion 29.25 2.00 31.25 80 65 15 3 NON-HOTEL RATE STRUCTURE 0 LI' Less than Mex.$5 million New 32.75 2.00 34.75 80 65 12 2 Expansion 32.75 2.00 34.75 80 65 10 2 From Mex.$5 to Mex.$50 million New 34.25 2.00 36.25 80 65 15 3 Expansion 34.25 2.00 36.25 80 65 10 2 From Mex.$50 to Mex.$100 million New 35.50 2.00 37.50 80 65 15 3 Expans on 35.50 2.00 37.50 80 65 15 3 From Mex.$100 to Mex.$200 million New 38.10 2.00 40.10 80 65 15 3 Expansion 38.10 2.00 40.10 80 65 15 3 A V E R A G E 31.77 2.00 33.77 80 65 15 3 ========= == ----- ====OS== =s:=================s======= fr t' m X4 t~0 FONATUR'S RATE STRUCTURE FOR HOTELS March 1982 INTER ESSt % Loan as Y E A R S Intermediate Discount max. % of Maximum Grace AMOUNT OF CREDIT :;-,-,-, Institution Beneficiary FONAtUR investment Period Period Less Than Mex$5 million New . 2.a 28.75 80 6 52 2 Expansion , 7 28. 7 5 6 I 2 From Mex.$5 to Mex. $100 mill.on New 28.75 2.00 30.7,5 80 65 15 Expansion 2 7.75 2.00 30.75 80 65 10 2 From Mex.$100 to Mex.$200 million New 3 ^.7- 2.CS ,2.7, 30 65 15 3 Expansion 30 7 5 2 .0J 2 . -/ 80 65 L5 NON-HOTEL RATE STRUCTURE 0 Less Than Mex.$5 million New 3 4,75 7. '23 0 65 12 2 Expansion 34.75 7 2,00 80 65 1C 2 From Mex.$5 to Mex.$50 million New _6 .00 -cc r 30 65 Expansion 36.03 2.G^ 33.0s 8o 65 From Mex.$50 to Mex.$100 million New _7.2- New ,33392 - Ir,9 39.25 80 65 5 Expansion 2.sr 39.25 a 65 From Mex.$100 to Mex.$200 million New -2 .00 4 76 83 65 li Expansion , AVERAGE 3J. 2.00 3 .43 80 65 E1 MEXICO: TOURISM DEVELOPMENT LOAN COST OF FUNDS TO FINANCIAL INSTITUTIONS AS ESTIMATED BY BANCO DE MEXICO (%) 1 9 7 5 1 9 7 6 1 9 7 78 7 1 9 7 9 1 9 8 0 1 9 8 1 1 9 8 2 January 11.72 11.86 12.10 14.60 16.21 17.90 25.46 32 .34 February 11.78 11.83 12.00 - 74 14 16.19 18.39 25.98 33.43 March 11.86 11.78 11.99 14.88 16.20 19.20 26.59 33.67 April 11.88 11.79 12.03 15.16 16.21 19.83 26.91 May 11.92 11.78 11.93 15.33 16.29 20.39 27.22 June 11.89 11.76 12.59 15.38 16.27 20.47 27.66 f July 11.92 11.74 13.23 15.58 16.29 20.53 28.42 August 11.91 11.74 13.52 15.59 16.31 20.82 29.50 September 11.91 11.74 13.57 15.67 16.62 21.51 30.45 October 11.94 11.96 13. 90 15.77 16.69 22.42 31.22 November 11.92 12.03 ;4.20 16.00 17.42 22.77 31.77 December 11.97 12.12 14.30 16.10 17.52 24.25 31.81 Source: Banco de Mexico HmZ DCx MAP 1 70 rG LA RHI \ J0. VO.! t v) (t-- \ S/ X0) E X I (S~~~~~~M .. .. ... .. . . v : L A I X,IXTAPA-ZIHUATANEJO TOURISM PROJECT _oj EXISTING NATIONAL ROADS ROAD SYSTEM FIRST STAGE / ~~~~~~ / !T 2' ~~~~~~~~~~~~~~~~~~~~ ~~~~~~LEGAL V~~~~~ *-.. ROAD SYSTEM SECOND STAGE OF BOUNDARYZIHUATANEJO .PROPERTY LINEOF INFRATUR POMETER COUNTOURS HO2MILON * rCHNTARIIO ' / jV HOTDIKE GRANDE co SLAN& ~~~~~~~~~~~~~~~N,RECREATION RESIDENTIAL PACIFIC OCEAoV 0 1 000000500 ~~~~~~~~~~~~~~~~~~~ BIiII~~~~~ ,~~~ COMMERCIAL f INDSUSTRIAL HOTELS 0 0 MILES '000~~~~~~~~~~~~~~~~~~~~~~~~~~-