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Today: Dec 14, 2017

Outcome II

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OUTCOME II: Levels of financial resource mobilization are adequate to ensure effective conservation-orientation management of Egypt’s PA system

The framework that can be used to analyze and understand the different options for the delivery of biodiversity finance involves four criteria: Level (at which level will revenue be delivered?); Participation (who will participate in funding?); Theme (what activities can be financed?), and Performance-based (is the provision of funding linked to performance?)

The level at which finance is delivered (national or project) will have important implications for both the effectiveness -- in terms of coverage achieved, reduced risks of leakage, ownership and coordination with ongoing national development plans -- and efficiency of ecosystem finance. National – level delivery mechanisms are more likely to achieve economics of scale and are often associated with reduced transaction costs to both contributions and recipients. Project – level finance on the other hand can often be better evaluated than national approaches and might also be the most appropriate for certain biodiversity and ecosystem service interventions, particularly those that require immediate and urgent actions or those that capture a direct local benefit to users.

Theme options include conservation, sustainable use, capacity building, and technology transfer. Performance – based delivery means that delivery of finance is conditional upon the already executed or expected delivery of ecosystem service or biodiversity conservation. Measuring performance can be direct (actual services delivered such as tonnes of carbon sequestered) or indirect (based on activities that improve biodiversity conservation such as habitat restoration and success of PA policy reform.)

Based on the above criteria, there are about 20 mechanisms used to generate finance for biodiversity and ecosystem services: These include: domestic budget allocation, (government), official development assistance, cap-and tradeable market, direct payment for ecosystem services, baseline and credit markets, auctioning off allowances, natural capital tax, bio prospecting, greening commodities, natural capital brands, aviation tax, maritime tax, financial transaction tax, and levy on insurance premiums. Each mechanism will be analyzed using the framework presented above (level, participation, theme, and performance-based), and the ones agreed upon by NCS, EEAA, EPF and stakeholders, will be evaluated and tested before implementation.

Currently, the existing tools for resource mobilization are operating well below their potential. Under Egypt’s baseline system, revenue generated by the PA system consists mainly of funds (70%) collected from visitors to 5 of the 29 PAs. At least 9 other PAs have substantial potential for revenue generation, but no institutional framework or mechanism has so far been established to generate revenues in them effectively. Revenues generated through concessions and other sources remain at low levels. Overall, there is clearly substantial room for enhancing revenue generation by the system, by addressing these barriers, and improving existing revenue generation.

Therefore, the project will work with NCS to develop and implement tools and practices for enhancing and diversifying revenue sources. This will lead to NCS’s having the capacity to attract and take advantage of a variety of revenue generating mechanisms within the context of its overall management priorities. This will include updating user fee levels across the PA system, establishing effective fee collection systems, marketing and communication strategies aimed at tapping into potential latent demand associated with Egypt’s massive tourist industry, and establishing operational mechanisms associated with capacity building. In addition, diversified revenue sources such as tourism services arrangements or even carefully controlled levels of resource extraction (e.g. medicinal plants and fisheries) will be explored in order to offer additional sources of revenues and reduce reliance on a single revenue (e.g. user fees). Efforts to increase levels of revenue generation are expected to focus on 12 PAs, 3 of which are already generating substantial revenues.

Under this outcome, an increased and more consistent level of financial resources will be mobilized by the PA system. The use of tools for revenue generation, including user fees, concessions, environmental offsets, payment for environmental services, uses permits, publicity, corporate social responsibility schemes, and donation programs, will be expanded and diversified. The annual increase in revenue mobilization is expected to be at least 33% with a total 460% increase from 2007–2008 baseline expenditure by the end of the project. Although some of the increase in revenue generation will be due to increased visitation, this will be achieved with a reduced level of overall degradation, as user fees and penalties begin to be implemented as management tools in order to limit and redistribute pressure on resources.

Output 2.1. Strategy and action plan to increase the number and variety of revenue resources developed.

There are 7 mechanisms to deliver finance for biodiversity and ecosystem services. These are: unconditional grants, performance-based payments, national concessional debt, microfinance, non-financial incentives, positive tax incentives, insurance and guarantees.

Unconditional grants are limited; their use should be targeted. They need not have financial returns when primarily used for protected areas or capacity building (policy reform / technology transfer), need little close monitoring, may have a negative effect on domestic revenue generation, may involve technical assistance “financial leverage”, but do allow integration with national development goals.

Performance-based mechanisms are conditional upon provision of ecological sustainable use. They may be direct or indirect, implemented at national and project levels, and effectiveness will depend on the establishment of credible baselines, understanding the costs of implementation, customizing payments to local dynamics, and targeting agents with credible land claims and clear threats to conservation involved.

National concessional debt, used successfully for development, can be directed to ecosystem-friendly activities, and can be conditional upon provision of services. Some resources will be rapid (recycled for other purposes); can be cost effective and increase finance, and requires certain institutional capacities.

Microfinance mechanisms are conditional, cost effective, and increase finance. They are used for sustainable use (e.g. ecotourism) by local communities and individuals.

Non-Financial incentives are mostly insignificant, cash or in-kind payments, both conditional and unconditional for conservation; they can have psychological benefits (e.g. cultural motivation).

Positive tax incentives (e.g. tax exemption) are used to promote ecosystem – friendly products and influence domestic policy. They attract many investors and local peope, and can increase finance. More information is needed on the impacts of such measures to better understand their effectiveness.

Insurance and guarantees address the symptoms, not the causes of barriers, to increase private sector investments and are usually implemented to reduce risks.

NCS made use of the many donor projects funded by GEF, USAID, EU, and Italian Cooperation, investing considerable resources in producing high quality products such as books, videos, CDs, handicrafts, medicinal plants products (including herbal teas, wild honey, natural aromatic wax), organic farming, fish farms, and many others. They have also granted concessions and permits for various activities such as cafeterias, camp sites, salt extraction, oil and mineral extraction from PAs.

However, revenues generated from these are still very low compared with PA systems in other countries such as South Africa, which generates more than $ 60 million from 20 PA’s. This is due to the fact that in Egypt, revenue generation is not used as a mangement tool in management of PA’s. Enhancing revenue generation by a PA system should be achieved through a well-defined strategy and action plan, as suggested by the Resource Mobilization Strategy of the CBD at COP10. The Egyptian Biodiversity Strategy and Action Plan, being updated, will include revenue generation as a tool in PA system management.

The number and variety of revenue sources in use within a PA system can be an important indicator of the reliability and stability of income sources. In financial terms, diversification can provide important benefits in terms of reduced volatility. Egypt’s current PA system “portfolio” is very limited, relying almost exclusively on tourist fees. The existing mechanism exclusively affects visitors directly at the entrance gate; there are no other related mechanisms, such as permits, patents, parking fees, hotel fees, etc. In addition, existing mechanisms are applied in only a few PAs. Barriers to improving this situation include the absence of any feasibility assessment or formal process to explore new mechanisms and sources of funding, together with the limited understanding of different potential sources of income for the PA system. Separately, an important opportunity to develop a branding strategy involving origin denomination, “products from Egypt’s PAs,” for products created by local communities, have not been fully explored or pursued.

Therefore, the project will work with NCS to develop a strategy and action plan to increase the number and variety of revenue sources, by identifying a diversified “portfolio” at 12 PA’s (starting with 3 PA’s) that will increase income levels for the system, reduce long-term dependency on governmental and international cooperation resources and increase revenues from mechanisms not related to tourism. The process will begin with an up-to-date analysis of revenue options, including relevant feasibility studies, based on which PA selection will be finalized and a menu of revenue generating options agreed. Options are expected to include a diverse set of sources and mechanisms, and will include new products and market opportunities for PAs based on market intelligence and continued research of opportunities and business trends that offer potential for mutual benefits with public, private and social partners. Among other options, activities and products produced by local communities will be integrated into a larger branding strategy, resulting in reduced threats to the PA’s and a stronger positioning of PA benefits to local communities. In addition to raising revenues for PA’s, this work will help demonstrate our mechanism for sharing benefits with local communities.

Output 2.2. Marketing and communication strategies for revenue generation mechanisms in place.

It is important to communicate to service users what they are paying for. The better this is communicated and the greater confidence consumers have their fees are going to conservation investments, the more they will be willing to pay. Effective communications can also act as a tool to connect consumers to conservation practices by allowing them to understand better the cost of conservation and to realize they are playing a role in conservation and sustaining the services they are paying for through such payments.

In Egypt’s case, there is a written strategy for branding and marketing that has not yet been implemented, due to limited financial resources, and also the limited capacities of NCS to implement and update existing tools such as marketing plans, communication strategies and other materials. The alternative of relying on partnerships with private sector or other entities to use and implement existing tools has not yet been developed.

Therefore, the project will assist NCS to update its website with complete information about PA features, services and facilities for visitation. National and PA communication campaign and marketing efforts, including signage and brochures, will be made to inform tourists and the Egyptian public about user fees, conservation taxes, etc. Media exposure will be encouraged. Promotional materials will be developed and distributed in cooperation with relevant stakeholders.

Output 2.3. Setting and establishment of appropriate user fees at pilot PAs.

User fees should reflect the cost of supplying recreational services, the demand for natural resources, and the value that visitors place on their experience at the PA. The direct link between maintaining natural areas and income from user fees is often a strong economic incentive for conservation.

In Egypt’s case, the setting and establishment of user fees does not follow either a national strategy or a technical method (e.g. willingness to pay estimates) to define the appropriate level of fees to be charged in each PA. For example, a recent questionnaire was made for entrance fees at Ras Mohamed, based on zoning, divers and snorkelers willing to pay, varied between 9 and 18 $ compared with the current entrance fee of $ 5. The cumulative revenues after 10 years (2010 – 2020) will exceed $ 200 million (534% increase). User fees are not yet used as management tools, e.g. using higher fees as an economic instrument to help contain visitation levels at high value, ecologically sensitive locations. Specific barriers include: (1) There is limited capacity to assess / analyze the correct level of fees or to establish an overall system wide strategy for the PA system. (2) User fees are not perceived as management tools, but exclusively as sources of income. (3) Negotiation capacity of NCS is low and there is no technical support to present the case for increasing fees or creating new ones to other more powerful governmental entities. (4) There is no analysis or assessment of the potential for environmental services associated with the PA system. (5) There is a perception that as a “mass” tourisms market, particularly in its coastal area, Egypt cannot easily market “exclusively”.

Therefore, user fees, particularly entrance fees, will continue to represent an important part of NCS revenue source and will be developed further based on operational, transparent and efficient accounting and auditing systems at the priority 12 PAs (starting with 3 selected PAs) (Output 3.2). Governmental entities and the private sector will be engaged in order to increase support for implementing new user fees. With respect to tourism, this will include raising awareness of PAs as desirable destinations with capacity to attract higher-end visitors. Management-related infrastructure investments will be proposed and developed for priority PAs, using Government co-financing and based on analysis of revenue potential and return on investment. PA managers will seek to increase fees whilst not threatening PA conservation activities. Non-tourism user fees, such as fish farms and agriculture-related fees, will also be applied and will generate additional revenue.

Output 2.4. Efficient fee collection systems in place.

Once user fees are agreed and applied, it is important to implement a system for collecting fees which is professional in appearance, transparent and cost-effective. Fee collection systems can influence both how much a park visitor is willing to pay and the percentage of visitors who actually pay. Transparency will ensure all fees levied are channeled into the appropriate accounts and recorded.

Reasonably effective fee collection systems based on existing guidelines for visitor fees are currently implemented in 5 PAs. Effective measures were incorporated in recent years, such as opportunities for tour operators to purchase tickets in advance. Shortcomings include: (1) There is no survey in place in order to assess visitor satisfaction. (2) Fee evasion is relatively high due to the lack of personnel and lack of incentives to improve. (3) PA staff lack incentives to increase fee collection since they do not see the benefit of it, given the limited level of re-injection. (4) NCS might not be the most effective and best collector of fees, in comparison with a private sector or community partner. (5) Anyone can operate tourism within the PA system; the system does not allow for exclusive operators that commit to playing by the rules.

Therefore, system-wide guidelines for fee collection will be completed and approved by NCS by end of the first year. Fee collection systems will be implemented at pilot PAs in a cost-effective manner, including schemes involving private and community participation, which are expected to reduce fee evasion. Fee collection systems will be subjective to adaptive management tools, i.e., they will be monitored and evaluated, with findings acted upon. PA visitors should be satisfied with the professionalism of fee collection and the services provided. Expanded use of information technologies will improve fee collection and allow real-time monitoring.

Output 2.5. New and / or improved concessions operating at pilot PAs.

The financial contribution from operational concessions such as tourism and mineral extraction can be considerable. Concessionaires generally pay a concession fee as a down payment plus periodic payments throughout the life of the concession contract. An important issue is to ensure that the uses permitted by the concession, and the terms of the concession agreement, provide benefits to conservation and minimize incidental consequences. Some uses (e.g. mining, oil, etc) should be avoided, whenever possible, whereas others (more ecologically sensitive activities) concessions should be carefully negotiated. Currently, concessions are enforced through ministerial decrees, but an adequate strategy, procedures and technical definition of values that are charged to concessionaires are all lacking. In the case of oil and mining companies, there is a clear conflict of interest since companies perceive that they are paying the same concession fee twice, to EEAA and to the Ministry of Oil and Mining or to the local authorities of the governorates where these resources are extracted, and located within PA boundaries. Concessions are defined, negotiated, and valued with little contribution from NCS. However, the cost of monitoring and follow up is assumed by each PA. Current charges to concessionaires are very low, and do not generate positive net revenues, i.e. NCS spends more on monitoring than they recover from these mechanisms.

Therefore, under this output, an action plan for PA concessions will be implemented for improving existing concession schemes and developing new ones. The former might include technical support for, vis-à-vis, concessions that fulfill a social function (e.g. gift shop, small-scale fish farming), while the latter would in value economic analysis of potentially larger-scale concession agreements. The project will support the operationalization of agreed concessions to administer certain infrastructure such as visitor centers and cafeterias, or to provide services such as fee collection, general maintenance, and visitor management, at pilot PAs (start with 3 PAs). Government co-financing will be made available to support national-level commitments (e.g. infrastructure) vis-à-vis concessionaires. Operational performance (environmental and financial) of pilots will be monitored, evaluated, reported and acted upon. In the case of extractive concessions, a revised approach will be put in place including: the development of operational standards and requirements for strategic impact assessment for proposed new concessions; economic analysis of potential damage and valuation of corresponding offset requirements, and the gradual application of new measures to pre-existing concessions.

Output 2.6. Innovative revenue mechanisms designed and operational.

PA systems must be able to attract and take advantage of all existing and potential revenue mechanisms within the context of their overall management priorities. Diversification of revenue sources is a powerful strategy to reduce vulnerability to external shocks (e.g. tourism declined remarkably due to shark attacks incidents in Sharm El-Sheikh, and the new revolution of 25th January 2011).

Sources of revenue for PA systems include traditional funding sources-governmental subsidies and donor projects-along with innovative ones such as dept swaps, tourism concession arrangements, and in some cases, carefully controlled levels of resource extraction, and many others (see below). Thus, Egypt’s PA’s system possesses highly significant opportunities for source mobilization.

Following COP10 in Nagoya, Japan October 2010, a regional workshop on biodiversity and finance was held in Cairo, November 2010 to discuss the innovative financing in the Arab World. The potential of innovative financial mechanism were recognized.

These included payment for ecosystem services (transfer of resources from beneficiaries of ecosystem services to ensure that ecosystem use changes will not be made or will be made in their interest), biodiversity offset (measurable conservation outcomes resulting from actions designed to compensate for significant residual adverse biodiversity impacts arising from project development / programs / plans after appropriate prevention and mitigation measures have been taken), environmental fiscal reforms (enhance the capacity to mobilize revenues for environmental purposes, and increase the allocative (efficiency and effectiveness of environmental funds by improving environmental practices and conserving resources) market for green products (market mechanisms that reflect the value of biodiversity are well established for some goods and services; they reflect awareness of consumers and producers that conventional production and consumption practices threaten the long-term viability of ecosystems and biodiversity), innovative financing for development (new innovative sources of international finance mechanisms such as international airline solidarity contributions, international financial facility, advance market commitment), climate funds such as green development mechanism, UN REED + and biodiversity), integrating finance strategies (global mechanism of UN convention to combat desertification), life web (partnerships for financing protected areas), and many other mechanisms such as dedicated fund-raising campaigns or events, social marketing, donation programs, biodiversity – friendly products (medicinal plants products), and public-private community partnerships.

Under this input, innovative revenue mechanisms and opportunities will be researched, designed, tested, and implemented. Based on market intelligence and feasibility assessment, the sustainable finance unit of NCS will explore, and where possible, develop the potential of innovative revenue mechanisms. These will be discussed with NCS partners, agreed upon, and then tested in the selected PAs. They will be later implemented in other PAs.

Output 2.7. PA training program on financial resources mobilization provided.

Training programs can help to build the capacity of PA authorities, i.e. tools for making financial projections, identification of suitable mechanisms and in-depth feasibility studies. However, no formal training and capacity building efforts are currently been developed. Current job descriptions do not include revenue generation as a responsibility of staff. This means that staff is neither evaluated according to their revenue generation performance nor against management effectiveness ($ / conservation outcome). In general, the current institutional framework does not provide incentives for staff to innovate and apply acquired knowledge.

Thus, managing a broader and wider range of revenue generation mechanism will pose new challenges to NCS. Specific curricula will be designed and implemented to address learning needs at central and PAs levels. One approach will be to establish relationships with private sector and universities to borrow some business capacity to provide support in this area.