Document of The World Bank

Report No: 35651

IMPLEMENTATION COMPLETION REPORT(IDA-35580)

ON A

CREDIT

IN THE AMOUNT OF SDR 4.0 MILLION (US$5.0 MILLION EQUIVALENT)

TO THE

REPUBLIC OF HONDURAS

FOR A

SUSTAINABLE COASTAL TOURISM PROJECT

June 20, 2006

Environmentally and Socially Sustainable Development Sector Management Unit Central America Country Management Unit Latin America and the Caribbean Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective January 25, 2006)

Currency Unit = Lempira (Lps.) Lps. 1.00 = US$ 0.0530786

US$ 1.00 = 18.8400 Lps.

FISCAL YEARJanuary 1 – December 31

ABBREVIATIONS AND ACRONYMSAECI Spanish International Cooperation Agency (Agencia Espanola de Cooperación Internacional)AHMON Association of Municipalities of Honduras (Asociación de Municipios de Honduras)CAS Country Assistance StrategyEOP End of ProjectGEF Global Environment FacilityGOH Government of HondurasIDB Inter-American Development BankICB International Competitive BiddingICR Implementation Completion ReportIDA International Development AssociationIHT Honduras Institute of Tourism (Instituto Hondureño de Turismo)INA National Agrarian Institute (Instituto Nacional Agraria)IHAH Honduras Institute of Anthropology and History (Instituto Hondureño de Antropología y

Historía)INFOP National Training Institute (Instituto Nacional de Formación Profesional) IPDP Indigenous Peoples Development PlanLAC Latin America and Caribbean Region/World BankLIL Learning and Innovation LoanMACAHO Association of the Municipalities of the Honduran Caribbean (Mancomunidad de Municipios del

Caribe Hondureño)NCB National Competitive BiddingNGO nongovernmental organizationPAAR Rural Land Management Project (Proyecto de Administración de Areas Rurales)PAD Project Appraisal DocumentPATH Land Administration Project (Programa de Administracion de Tierras de Honduras)PHRD Policy and Human Resources Development / Japan Trust FundPIU Project Implementation UnitPSR/ISR Project Status Report/Implementation Status ReportQAT Quality Assurance Team/Latin America and Caribbean RegionQBS Quality-Based SelectionQCBS Quality and Cost-Based SelectionSCT Sustainable Coastal TourismSEA Strategic Environmental AssessmentUTM Municipal Tourism Units (Unidad Turistica Municipal)

Vice President: Pamela CoxCountry Director Jane Armitage

Sector Director Laura Tuck Task Team Leader Maria-Valéria Pena

HONDURASSUSTAINABLE COASTAL TOURISM PROJECT

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 65. Major Factors Affecting Implementation and Outcome 176. Sustainability 187. Bank and Borrower Performance 198. Lessons Learned 229. Partner Comments 2410. Additional Information 25Annex 1. Key Performance Indicators/Log Frame Matrix 26Annex 2. Project Costs and Financing 28Annex 3. Economic Costs and Benefits 30Annex 4. Bank Inputs 31Annex 5. Ratings for Achievement of Objectives/Outputs of Components 33Annex 6. Ratings of Bank and Borrower Performance 34Annex 7. List of Supporting Documents 35Annex 8. Borrower's Contribution 36Annex 9. Data Tables 42Annex 10. Endnote References 45

Project ID: P057859 Project Name: SUSTAINABLE COASTAL TOURISM PROJECT

Team Leader: Maria-Valeria Pena TL Unit: LCSEOICR Type: Core ICR Report Date: June 20, 2006

1. Project DataName: SUSTAINABLE COASTAL TOURISM

PROJECTL/C/TF Number: IDA-35580

Country/Department: HONDURAS Region: Latin America and the Caribbean Region

Sector/subsector: Other industry (37%); Sub-national government administration (34%); Central government administration (29%)

Theme: Water resource management (P); Biodiversity (P); Rural non-farm income generation (P); Environmental policies and institutions (P); Municipal governance and institution building (P)

KEY DATES Original Revised/ActualPCD: 09/14/2000 Effective: 10/25/2001 05/29/2002

Appraisal: 05/14/2001 MTR: 12/15/2003 03/15/2004Approval: 07/25/2001 Closing: 06/30/2005 12/30/2005

Borrower/Implementing Agency: Republic of Honduras/Honduras Institute of Tourism (IHT)Other Partners:

STAFF Current At AppraisalVice President: Pamela Cox David de FerrantiCountry Director: Jane Armitage Donna Dowsett-CoiroloSector Director: Laura Tuck John RedwoodTeam Leader at ICR: Maria-Valeria Pena Marea HatziolosICR Primary Author: Kathryn Johns Swartz;

Maria-Valeria Pena

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: HS

Sustainability: HL

Institutional Development Impact: H

Bank Performance: S

Borrower Performance: HS

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:The North Coast and Bay Islands of Honduras possess outstanding natural and cultural resources, including a portion of the Mesoamerican Barrier Reef System, several national parks, historic sites, and the populations of ladinos/mestizos

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, Garífunas2

, Miskitos3

, and Bay Islands Creole or Isleños4

. These resources endow the Honduras coastal area with a tourism potential that is unique in the Central American region.

Tourism in Honduras has grown consistently over the past decade, including a 50 percent increase in the number of visitors between 2000 and 2004. When the Sustainable Coastal Tourism Project was being prepared, the Government of Honduras (GOH) was just beginning to recognize the tourism potential of the Caribbean area. At the time, there was no policy framework for the strategic development and sustainable management of these resources and a concern that when tourism development occurred, it would be environmentally unsustainable and economic growth would not benefit local residents and particularly the poorest populations in the area.

The project was developed to address these concerns and identify the conditions that would catalyze sustainable tourism with benefits for local communities. The Project Development Objective was to create an enabling environment for the development and management of sustainable coastal tourism along the North Coast mainland and offshore Bay Islands, through a learning and participatory process that: (a) promotes dialogue on the objectives and elements of sustainable coastal tourism; (b) identifies best practice means to promote its adoption; (c) strengthens capacity at municipal and local levels to manage and benefit from sustainable coastal tourism; and (d) rewards innovation in pursuit of these objectives.

The project area included three departments along the North Coast and the Bay Islands Department, with specific attention to the Municipality of Omoa in the Department of Cortés; the Municipalities of Tela and La Ceiba in the Department of Atlántida; the Municipality of Trujillo in the Department of Colón; and the Municipalities of Utila and Guanaja in the Bay Islands.

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3.2 Revised Objective:N/A

3.3 Original Components:

The project, designed as a Learning and Innovation Loan (LIL), had four components financed with a SDR 4.0 million (US$5.0 million equivalent) IDA Credit, Government of Honduras (GOH) counterpart of US$0.56 million, and beneficiary contributions of US$0.48 million, for a total cost of US$6.04 million equivalent.

Component 1: National Strategy and Institutional Support for Sustainable Coastal Tourism (US$1.32 million; 21.9 percent of total project cost financing). This component would finance the development and implementation of a national strategy for sustainable coastal tourism on the North Coast, including tourism plans and development scenarios for priority areas. There were three sub-components:

Sub-component 1.1: Formulate and promote a participatory approach to policy dialogue with public and private sector stakeholders at the national, regional and local levels - US$0.33 million. This sub-component would finance workshops in project areas and background studies related to Honduras’ sustainable tourism potential.

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Sub-component 1.2: Develop and implement a national tourism strategy for the North Coast, which includes integrated, sustainable tourism action plans over the short, medium and long term - US$0.47 million.

Sub-component 1.3: Provide technical assistance to promote reform of policy, legal and regulatory instruments and improve institutional arrangements in support of plan implementation - US$0.52 million. This component would finance technical assistance and build the capacity of Project Implementation Unit (PIU) staff, the Honduras Institute of Tourism (Instituto Hondureño de Turismo, or IHT) staff in its new Environment Unit, and staff in the six Municipal Tourism Units (Unidades Turisticas Municipales, or UTM) to be established (see Component 2 below).

Component 2 – Institutional Strengthening, Training, and Technical Assistance at the Municipal Level (US$2.01 million; 33.3 percent of total project cost financing). This component would develop the capacity of coastal municipalities to engage in sustainable tourism development planning. A complementary sub-component would support restoration works in Trujillo. There were three sub-components:

Sub-component 2.1: Create tourism and environmental technical assistance units at the municipal level to provide resources for local tourism development and environmental management - US$0.97 million. This sub-component would finance the development of Municipal Tourism Units (UTM) in Utila, Guanaja, Omoa, Tela, Trujillo, and La Ceiba.

Sub-component 2.2: Provide training for municipalities in identified areas of need - US$0.34 million. This sub-component would support training for the participating municipalities in topics related to coastal tourism and environmental management.

Sub-component 2.3: Conduct heritage site restoration activities for Trujillo's historic city center - US$0.70 million. This sub-component would support the creation of a cultural tourism destination demonstration site through the restoration of historic sites in Trujillo, one of Central America’s oldest towns. This activity would be coordinated with the Honduras Institute of Anthropology and History (Instituto Hondureno de Antropologia y Historia, or IHAH) and the Spanish International Cooperation Agency (Agencia Espanola de Cooperacion Internacional, or AECI).

Component 3 – Pilot Entrepreneurship Program for Sustainable Coastal Tourism (US$2.15 million; 35.6 percent of total project cost financing). This component would support the establishment of an entrepreneurship center and a matching seed grant fund to support innovative tourism enterprises. There were three sub-components:

Sub-component 3.1: Design and deliver micro and small business enterprise training to stimulate productive capacity and create business opportunities - US$0.25 million. This sub-component would support the establishment of a Sustainable Coastal Tourism Enterprise Center, including training in the preparation of market studies, business plans and development of skills necessary to stimulate productive capacity and opportunities for public-private partnerships in sustainable tourism enterprise.

Sub-component 3.2: Test and prepare for replication pilot innovation subprojects in local communities focused on sustainable tourism (e.g., ecolodges, handicrafts, tour guides and operators, and adventure travel outfitters) involving entrepreneurs in partnership with NGOs or government - US$1.14 million. This sub-component would support technical assistance for tourism product development and finance a

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seed grant program to stimulate innovative proposals for public/private partnerships in some form of tourism enterprise. Up to 29 grants totaling up to $30,000 each would be awarded on a 2:1 matching basis. Grant administration would be contracted out to an eligible firm or NGO.

Sub-Component 3.3: Build capacity in indigenous communities for preparation, financing and implementation of pilot innovation subprojects focused on sustainable tourism involving entrepreneurs in partnership with NGOs or government - US$0.76 million. This sub-component would finance a training program, provision of technical assistance, and a matching seed grant fund targeting the indigenous population. Up to 14 matching grants totaling $28,000 each would be awarded to eligible communities or to NGOs/representatives on their behalf. Grants would be awarded on the basis of a 3:1 match.

Component 4 – Project Management (US$0.56 million; 9.3 percent of total project cost financing). This component would support the establishment of a Project Implementation Unit (PIU) in the IHT to implement the project, process all procurement in accordance with World Bank guidelines, and handle financial management and monitoring and evaluation. In addition to the PIU in Tegucigalpa, a sub-team of technical specialists would be based in La Ceiba to oversee field activities and carry out community outreach along the North Coast.

3.4 Revised Components:N/A

3.5 Quality at Entry:ICR Rating: Satisfactory. The Quality at Entry is rated satisfactory for the following reasons: (a) the LIL was consistent with the objectives of the 1999 Country Assistance Strategy (CAS); (b) the project supported the GOH’s strategy for tourism development as part of the reconstruction effort after Hurricane Mitch devastated much of Honduras in October 1998; and (c) the project design was based on substantial analytical work and lessons learned from Latin America and around the world on how to stimulate sustainable tourism.

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Preparation included a partial Environmental Assessment (Category B), a Social Assessment, and an Indigenous Peoples Development Plan (IPDP). As a LIL, this project was designed to be flexible and respond to new priorities and plans implemented by the IHT, and this functioned as planned.

Honduras' North Coast is a complex area characterized by poverty, land conflicts and unclear land rights, as well as competing priorities among the private sector, international tourists, indigenous/ethnic communities, and civil society organizations, in a scenario of increasing crime and security concerns in certain areas. These factors complicated the preparation of a participatory project and generated relatively high expectations. The Bank managed these complexities and completed extensive background studies with the support of a strong local team that traveled frequently to the project area.

Yet, as a result of these complexities, the project preparation period was relatively long (interrupted by Hurricane Mitch, the worst natural disaster to strike Honduras in modern times) and the preparation cost was relatively high (over US$700,000, including a US$500,000 PHRD grant). Some of the lengthy preparation was also due to the Bank’s need for assurances that the communal land titling issues in the North Coast were being or would be addressed by the GOH through parallel initiatives, including the World Bank-financed Rural Land Management Project, its Supplemental Credit, and the World Bank-financed Land Administration Project.

Unresolved land issues, especially those related to Garífuna communally-held lands, were clearly identified as a possible controversial issue. However, the Project Appraisal Document (PAD) acknowledged that land

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regularization and resolution of land tenure issues are a huge challenge and went far beyond the scope of the LIL. However as a first step, a Land Diagnostic to identify the legal and technical obstacles to more efficient land administration in the North Coast, to be financed by the GEF-financed Biodiversity in Priority Areas Project, was included as a dated covenant in the Credit Agreement of the LIL.

The project design was appropriate for a LIL, as it was exploring a new area of growth in Honduras and seeking to develop a framework for sustainable pro-poor tourism development which would prepare the GOH for a larger follow-on project. The GOH did request the Regional Development in the Copán Valley Project (Cr. 3764 2003), a US$12.0 million follow-on project to be implemented by the IHT, to sustainable tourism development with creation of an archeological tourism circuit including the Copán Archeological Park. That project was approved by the Executive Directors of the World Bank on May 3, 2005.

Country Assistance Strategy. The LIL was included in the 1999 CAS, which discussed economic growth that benefits coastal communities in the aftermath of Hurricane Mitch. The project was designed to support capacity building to manage natural and cultural resources, innovation in private-public partnerships, promotion of private sector-led growth, and greater participation of civil society.

Government Strategy. Tourism was identified as a key part of the GOH’s strategy for National Reconstruction and Transformation after Hurricane Mitch. The LIL supported the Government’s strategy in the tourism sector both in terms of creating a framework for sustainable coastal tourism and in generating employment. At the time of project preparation, government institutions in the tourism sector were weak and had not established strong working relationships with other stakeholders, particularly the private sector. The project was designed to strengthen the institutional capacity of the IHT and support its efforts to network among the private sector, civil society organizations, and other involved parties.

Assessments. The Environmental Assessment highlighted the need to build capacity for municipal level environmental planning. The assessment included preparation of an Environmental Management Plan that emphasized strengthening the IHT’s Environmental Unit and the municipalities’ environmental/tourism units. An extensive Social Assessment was carried out and an Indigenous Peoples Development Plan (IPDP) was prepared to ensure that these groups benefited from the project activities. The project addressed many of the issues identified in the Social Assessment by linking the project to complementary World Bank-financed projects, such as the Rural Land Management Project.

The issue of HIV/AIDS also surfaced as a serious concern and a portion of World Bank funding was allocated specifically to address HIV/AIDs in North Coast communities. However, after project approval, the GOH received US$23.0 million in international funds directed towards HIV/AIDS programs, which included activities that were originally budgeted in project. Therefore, at the time of the Mid-term Review, the GOH and the Bank agreed that these IDA resources would be reallocated to other activities within the project.

Risks. The project identified the main risks, some of which were mitigated over time. Three risks were identified as high: (a) lack of government investment in physical infrastructure to support tourism destinations; (b) short implementation period and weak project management capacity; and (c) security situation in the North Coast and high rate of HIV/AIDS in coastal communities. With the Government that took office in 2002, there was a strong interest and financial backing for building the infrastructure needed to support tourism destinations and the PIU proved capable of executing the project within the available time. The security situation was mitigated somewhat with the special tourism police financed by the IHT,

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but security concerns and the HIV/AIDS crisis remain high risks to the economic potential of the North

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Coast. Weak government leadership in the sector was identified as a concern, but the IHT team included strong leaders in promoting environmental and social sustainability in tourism development on the North Coast.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:ICR Rating: Highly Satisfactory. The overall achievement of objective is rated as highly satisfactory since the project successfully helped to create an enabling environment for the development and management of sustainable coastal tourism in the North Coast and Bay Islands of Honduras, and exceeded the planned activities in some cases. Since many activities only concluded in 2005, it is too early to evaluate long-term impacts. However, based on initial indications, field visits and feedback from beneficiaries and stakeholders, it is highly likely that the project will achieve substantial development results. These results are expected to be sustained based on continuing tourism growth in Honduras (see Table A9.1). In recent years, tourism has become one of the most important factors in the Honduran economy, with the North Coast, Bay Islands, and Copán Archeological Park areas contributing nearly all of the tourism inflows.

Six of the seven impact indicators of the LIL were achieved8

and the project exceeded expectations for performance, particularly related to the matching seed grant fund Fondo Prosperidad (Prosperity Fund), technical assistance to improve artisan work, and the restoration work in Trujillo. The project started with an implementation delay as there were ten months between Board approval and project effectiveness, but the PIU was able to complete nearly all activities, and some new initiatives, within the planned time. A six-month extension of the Closing Date was needed to complete two restoration works in Trujillo that were affected by inclement weather.

The project had a broad, cross-cutting communications/dissemination strategy and emphasized learning and participatory approaches to sustainable tourism. The project was also responsive to the needs of the IHT to improve its planning of sustainable tourism and environmental management. The LIL provided direction and structure to the IHT’s actions during 2002-05, particularly for public-private collaboration. In 2005, the project was one of 12 projects recognized by the World Bank’s “Results Showcase” in the Annual Strategic Forum for its results and impact on beneficiaries, particularly through the Fondo Prosperidad. The main outcomes and impact indicators of the LIL at the national, municipal, and local levels are detailed below (see also Annex 1):

(1) Strategy for Sustainable Coastal Tourism in the North Coast. The Regional Sustainable Coastal Tourism Strategy was prepared using a participatory methodology during 2003-04 and finalized, disseminated, and implementation initiated in 2005. This impact indicator was fully achieved, although with a delay (originally planned to be under implementation by 2003), mainly due to the above-mentioned effectiveness delay and additional time needed for consultations prior to finalizing the document.

The Regional Strategy includes six Municipal Action Plans developed through a participatory process that involved diverse sectors, including governmental authorities, tour operators, business leaders, community leaders, and Garífuna communities. The Strategy and the Municipal Plans are available on the website of the project (www.turismocostero.org) and serve as a framework for tourism development. The accompanying Action Plan identified 112 actions, grouped into 24 priorities to be implemented over the next two years, with identification of the responsible party and funding. Ten of the actions are currently under implementation with government, donor, or municipality funding, including inter alia: training in sustainable tourism practices for tourism service providers; improved management of solid waste, water

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and sanitation systems in Trujillo (financed by the Inter-American Development Bank); and tourism marketing and promotion. The Regional Strategy also served as a basis for the development of a National Sustainable Tourism Strategy.

The participatory approach used to develop the Regional Strategy produced important results, including the organization of municipal committees for tourism development and the formation of the Association of the Municipalities of the Honduran Caribbean (Mancomunidad de Municipios del Caribe Hondureño, or MACAHO), which is responsible for implementing and monitoring the strategy. MACAHO was founded in October 2004 and is a legal entity with a budget and Board of Directors consisting of the main authorities of the six municipalities in the project area. The development of the MACAHO was supported from the beginning by the IHT, the Ministry of Governance and Justice, AECI, and the Association of Municipalities of Honduras (Asociación de Municipios de Honduras, or AHMON).

One of the impact indicators of this activity was that the perceived economic, ecological and social benefits of tourism by key stakeholders in the pilot destinations increased 35 percent from the baseline measure of attitudes. Based on a study by the Department of Statistics in the IHT, the perception of the benefits derived from tourism increased by 22 percent from 2003-05 in the project area. This is less than the planned percentage, but it covers only three years, whereas the original indicator covered almost four years (2002-05).

Pilot Strategic Environmental Assessment. As a complement to the Regional Strategy, the World Bank team secured US$300,000 from the Norwegian Trust Fund for Environmentally and Socially Sustainable Development for analytical work related to eco/cultural tourism development and a Strategic Environmental Assessment (SEA) of the tourism sector. In coordination with the Environmental Unit in the IHT, the SEA addressed: Environmental and Social Best Practice Guidelines; Wastewater Policy Analysis and Management Plan; Solid Waster Policy and Management Plan; and Maximization of Income Generation and Social Inclusion through Micro-enterprise Development.

The SEA currently serves as a framework to inform decisionmaking in the tourism sector. The SEA has resulted in several environment and licensing legislation initiatives supported by the IHT, including inter alia changes in the wastewater law to allow for more sustainable management of wastewater in tourism areas. The Ministry of Tourism and the IHT were very satisfied with outcome of the SEA and it is being disseminated as international best practice in SEAs.

(2) Municipal Strengthening. The project strengthened the tourism and environmental management capacities in the six municipalities of La Ceiba, Tela, Trujillo, Omoa, Utila, and Guanaja. Through agreements with the six municipalities, Municipal Tourism Units (Unidades Turisticas Municipales, or UTMs) were established and staffed, as part of the technical team of the municipality; responsibilities include providing technical assistance in many different areas, including tourism promotion, environmental guidelines, networking and building partnerships, outreach to communities, and training for municipal staff and local communities. A special Technical Unit was also created in La Ceiba to provide specialized environmental expertise to the UTMs. These municipalities also had municipal-level Environmental Units, supported in part by the Ministry of Natural Resources and Environment, and the UTMs worked closely with these units in many of the environmental-related activities.

In four of the six municipalities (Tela, Utila, Trujillo, and Omoa), the project supported the development and implementation of a database of tourism information which is consistently updated. This database allows municipalities to identify and adopt tourism revenue capturing mechanisms at the local level, among other types of information.

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The UTMs faced challenges in working with the municipalities, mainly due to institutional weaknesses, lack of leadership, and difficulties coordinating with the other public and private sector actors. During implementation, the municipalities financed 25 percent of the salaries of the UTM coordinators. There was some concern about the sustainability of all of the UTMs after project closing; however, at the time of drafting the ICR, the operating costs of four of the six units were assumed by the municipalities (La Ceiba, Tela, Trujillo, and Utila). Unfortunately, the units in Omoa and Guanaja were practically dissolved after local government changes. The IHT has continued to maintain a dialogue with these municipalities to explore funding options and encourage the continuation of the units.

(3) Cultural Tourism Demonstration Site. The restoration and rehabilitation civil works in Trujillo exceeded the original plans as the work was very popular and it was expanded to other buildings and facilities. In total, more than 25 sites and historic buildings in the Historic Center were restored; the original target was five sites. The work in Trujillo was truly a collaborative effort among the IHT, AECI, IHAH, the National Training Institute (Instituto Nacional de Formación Profesional, or INFOP), the World Bank, the United States Agency for International Development, and local leadership of Trujillo. There are indications that tourism to Trujillo is increasing, as the numbers of visitors increased from 6,433 in 2004 to 9,196 in 2005 (see Table A9.2).

The restoration work generated substantial interest from the general public about historic preservation and there were many requests for technical assistance. The overall quality of the works was very good and despite tropical storms and significant flooding in late 2005, the buildings that were restored suffered no damage. The project also supported the indirect development of micro-enterprises related to the restoration work, including carpentry, collection of waste and recycling, private museums, and small firms specialized in restoration. The local Garífuna community in Trujillo is the most enthusiastic supporters of this program and the municipality has assumed maintenance costs for some of the buildings restored by the project.

(4) Fondo Prosperidad. The Fondo Prosperidad was established in 2004 and managed by a well-respected international NGO (selected through international competitive bidding), which also operates a micro-lending program in Honduras. The Fondo included a competitive seed grant fund and technical assistance and training to small and micro-enterprises and community enterprises.

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The grants and technical assistance together are referred to as “subprojects.”

Ninety-five seed capital co-investments grants, totaling over US$1.0 million, were awarded to eligible enterprises in 25 communities in six municipalities. These subprojects helped hundreds of beneficiaries establish and expand sustainable businesses that both provide income to support their families and enhance their communities’ economic viability through tourism development. Based on a questionnaire filled out by beneficiaries, 61 percent benefited from enhanced facilities/installations, 23 percent from improved production, 10 percent from better products, and 6 percent in greater sales. Examples of subprojects include: recycling, artisan groups, hotels and bed and breakfasts, tour operators, kayak and boat rental companies, a glass bottom boat enterprise, restaurants, bakery, art gallery, outdoor adventure company, a historic museum, and transportation operators.

Most of the grants were awarded in 2004 and 2005 and there was close monitoring of the execution of the grants and the planned activities by the NGO and IHT. In general, all of the grants were successful, with 99 percent of the assigned resources disbursed. At the time of preparation of the ICR, all of the enterprises are operating well, but it is too early to assess the future sustainability of these enterprises.

The competitive process utilized by the Fondo consisted of a general call for subprojects, which resulted in

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approval of 69 grants, and a special Business Development Program in Tela, which awarded 26 grants (see below). For the 69 subprojects, there were 144 direct beneficiaries (57 private entrepreneurs and 87 as members of groups) representing 57 micro-enterprises, 10 business associations; 1 business chamber, and 1 NGO. The grants provided direct employment for approximately 426 individuals (276 men and 150 women). The grants included co-investment from the beneficiaries, which totaled 139 percent of the total Fondo grants. Over half of the beneficiaries were women (55 percent) and the beneficiaries by ethnicity were: Garífuna: 42 percent; Ladino/mestizo 33 percent; Isleño 22 percent; and foreign residents 3 percent. Approximately 54 percent of the resources benefited Garífuna micro-enterprises (100 percent in the Business Development Program in Tela). The Fondo Prosperidad model was so successful that it was replicated in the follow-on Copán Valley Project and it has been recognized by the GOH and other Central American countries as a model for supporting pro-poor, small-scale tourism development. Additional data regarding the subprojects can be found in Section 4.2 below.

Business Development in Tela. A targeted Business Development Program in Tela supported 26 subprojects, mainly among poor, ethnic (Garífuna), female-led micro-enterprises. The implementation of this program helped to build trust between the IHT and the local Garífuna communities. (See Section 4.2 below.)

Technical Assistance for New Tourism/Artisan Products. This program was developed separately from the Fondo to consolidate and enhance tourist/artisan products developed by Garífuna artists in the project areas. From July 2004 to February 2005, high quality technical assistance and training was provided to 16 micro-enterprises, the majority of which are Garífuna. This assistance resulted in the generation of 78 product designs to be produced in the following lines: candles, jewelry, shirts and clothing, and bags and purses. (See Section 4.2 below.)

(5) Environmental Actions for Sustainable Tourism Development. A series of environmental activities were carried out to improve the tourism potential of the zone based on sustainable development principles, including: Municipal Environmental Action Plans, the Rehabilitation of Coral Gardens (one of two such projects in Latin America), Solid Waste Management in the Bay Islands, a “Clean Honduran Caribbean” Campaign, a recycling program in hotels, and an environmentally-sensitive program to eradicate the jején or “no-see-um” sand fly.

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The jején program has been noted as a best practice by the Quality Assurance Team in the Latin America Region. These activities filled important financing gaps for the IHT in terms of helping to improve the conditions for sustainable coastal tourism in the North Coast and Bay Islands. Some challenges to sustainable tourism development remain, including regular garbage collection and improved sanitation systems, but the project made a contribution in certain areas of environmental enhancement. (See Section 4.2 below.)

(6) Land Issues/Indigenous Peoples Development PlanThe IPDP for the project included some actions to be financed by the LIL and others that were ongoing or to be financed by complementary World Bank-financed projects. On land issues, the IHT signed an agreement with the World Bank-financed Rural Land Management Project and World Bank-financed Land Administration Project. The following actions were carried out as part of the IPDP:

a) Completion of the Land Titling Diagnostic in October 2002, financed by the GEF-financed Biodiversity in Priority Areas Project. This Diagnostic was prepared by an expert team and contains substantial information on the legal issues, claims, conflicts, and trends on the ground.

b) Execution of aerial photographs in the Departments of Atlántida and Colón (441,847 hectares) as an

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input into the land titling process.

c) Introduction of conflict resolution strategies in the municipal planning process for the above-mentioned Regional Sustainable Coastal Tourism Strategy.

d) Execution of urban land planning for the Municipalities of Omoa and Tela and the process of consultation.

e) Allocation of 54 percent of the Fondo resources to Garífuna enterprises. In the Business Development Program in Tela, 100 percent of beneficiaries were Garífuna.

4.2 Outputs by components:Component 1: National Strategy and Institutional Support for Sustainable Coastal Tourism. Highly Satisfactory. Overall, the outputs of this component were highly satisfactory, although the Regional Strategy was launched later than originally planned. The Regional Tourism Strategy for the Honduras Caribbean was officially launched at the national level in December 2005 and is currently under implementation. The innovative participatory planning process used in the development of the strategy helped to build a strong consensus about the strategy and led to the formation of the Association of the Municipalities of the Honduran Caribbean (Mancomunidad de Municipios del Caribe Hondureño, or MACAHO), which is responsible for the implementation of the strategy.

A Municipal Strategic Planning process was carried out in the six participating municipalities (Omoa, Tela, Utila, Guanaja, La Ceiba, Trujillo) with approximately 394 participants and documents were prepared, which are available on-line at www.turismocostero.org, including: methodology, objectives and strategies, programs, actions, implementation, and participants. The on-line information also includes information on the history, demography, socioeconomic issues, calendar of events, tourist travel, and photos of each municipality.

Based on the results of this process, the Regional Strategy was prepared during regional- and national-level dialogues. The Strategy includes the results of the Municipal Strategic Planning process; methodology; as well as identification of objectives, strategies, and lines of action for tourism in the North Coast area. The Strategy also includes annexes on urban development, an inventory of tourism attractions, characteristics of tourist segments of interest, legal aspects, a national ecotourism strategy, tourism circuits, criteria for hotel classification, good practices, and an investment program.

Communications and Dissemination. The project financed a cross-cutting communications/dissemination campaign in the project areas and nationally with the following activities:

a) Design and launch of webpage for the project (www.turismocostero.org) with discussion forums and an informational bulletin. This site was nominated as the best government web site in 2005. From 2004 to the end of 2005, there were approximately 5,427 visitors to the site.

b) Production of a monthly informational bulletin reaching 1,068 individuals on the Internet, of which 296 subscribed to the bulletin.

c) Dissemination of approximately 83 press releases and publication of 18 special reports in the project areas.

d) Preparation of public information notices for local radio during the Clean Honduran Caribbean Campaign.

e) Design of tourism signs, garbage cans, hats and shirts, and other promotional items.

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The project also developed promotional materials to support the future sustainability of the UTMs, including: 21,000 tourist maps and 14,000 postcards of the six project municipalities; 6,000 brochures about tourist sites in Omoa and Trujillo; and 14,000 copies of the Caribe Hondureño Magazine. The project also financed the production of 58 small, illuminated tourism informational signs in the main streets in La Cieba, Tela, Omoa, and Trujillo. After project closing, it is expected that the UTMs will manage the content of these signs and solicit sponsorships. This income will help support the functioning of the UTMs.

Specific Studies. This component supported the following studies that have informed planning in the IHT:

• Level of Satisfaction of Foreign Tourists that visit Honduras.• Investigation of the USA Market related to Honduras.• Market Study on the Vacation Habits of the Honduran People. • Study on the Behavior of International Tourists in Honduras.• Tourist Classification of Hotels and Services in Honduras. • Design and Adoption of Legal and Policy Instruments for the Sustainable Tourism Strategy.

The Environmental Unit in the IHT also carried out an environmental classification of hotels in Honduras. This process was fully participatory and the hotels were in agreement with the final results. This was not certification, but rather a process to provide information to visitors about quality standards and to the hotels regarding how to become more environmentally friendly and attractive to travelers.

Component 2 – Institutional Strengthening, Training, and Technical Assistance at the Municipal Level. Highly Satisfactory. Overall, the outputs of this component were highly satisfactory, particularly the improvements in Trujillo. The main activities are detailed below:

Sub-components 2.1 and 2.2: Technical Assistance and Training for Local Tourism Development and Environmental Management. Satisfactory. The project financed the creation of Municipal Tourism Units (UTM) in the six project municipalities. The technical specialists provided support to the municipalities and served as resource people for the local communities on tourism-related opportunities. All of the UTMs created a Tourist Information Center in the municipality stocked with maps, the Caribe Hondureño magazine, postcards, promotional videos, and guides to local tourism sites. The UTM in Trujillo has a multiple use room that can be used for community meetings. Some of the main activities carried out by the UTMs include:

• Provided training to 5,902 individuals through 230 workshops on sustainable tourism development and environmental management. These training workshops were carried out in coordination with community organizations, business owners, and local government personnel. • Developed environmental actions plans and environmental inspections in the municipalities, in coordination with the Municipal Environmental Units.• Organized and launched Environmental Committees in the municipalities.• Carried out environmental sensitivity campaigns including clean up, garbage removal, radio programs, signs, etc.• Developed a Best Practice Manual in Environmental Issues, which was approved by the municipal authorities.• Established six new tourism circuits, based on sustainable tourism development, including the Trujillo Circuit, the Forts Route, the Garífuna Coast, Cruises of the Bay Islands, National Parks, and La Ceiba and Cayos Cochinos.

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• Planned and organized cultural activities in the municipalities including carnivals, fairs, and special events to promote tourism.

Some of the UTMs performed better than others, and all of the UTMs encountered some common challenges in performing their duties, including: weak human resource capacity for tourism in the municipality; limited budget support for the UTMs and tourism-related activities; lack of support from the municipalities for trash removal; and poor coordination among all stakeholders in the municipalities. In some cases, these challenges were addressed over time and the participatory planning process for the Regional Tourism Strategy helped to bring together all the stakeholders to agree on priority issues, but in other municipalities, these problems persist.

Training. The project financed training and workshops in the project areas for the general public, for micro and small business owners in tourism management, and for university students to be trainers in tourism management and environmental impacts. Some of these workshops included: presentation/ introduction of the project; forum on the Mesoamerican Barrier Reef; Sustainable Tourism and Ecotourism; Introduction to the UTMs; training for taxi drivers on tourism culture and customer service; training in restaurant service and technical assistance in providing tourism services; inventory of tourism attractions; development of profiles of tourism projects; design of urban spaces; the role of the municipality; and conflict resolution. Among the training programs for micro-enterprises was a three-day course on “My First Business,” which included the formation of a simulated micro-enterprise and the selection of personnel, a feasibility study, development of a business plan, and the simulation of a business day.

Environmental Activities. There were several innovative activities that directly supported environmental conservation and/or tourism enhancement in the project areas. These programs included:

Solid Waste Management in the Bay Islands. The project financed the collection of solid waste and sensitization among the residents about reducing, reusing, and recycling materials. This effort generated visible changes in some areas on the Bay Islands, particularly in the Cayo Bonacca in Guanaja, but full implementation was hindered by the lack of recycling on the islands together with the expense and difficulty of shipping items to the recycling plant in La Ceiba (located on the mainland).

Coral Gardens Project. The Bay Islands coral reefs have been affected by many factors, including water contamination from sediment and run-off and uncontrolled fishing. In coordination with a well-respected international NGO and the Inter-American Development Bank (IDB)-financed Environmental Management in the Bay Islands Project, a coral garden in the Bay Islands was restored with the conservation of coral species. The introduction of coral gardens is expected to maintain and improve the environmental quality in the Bay Islands as a base for sustainable economic development. This technique has only been implemented in two countries in Latin America—Honduras and Jamaica.

This program was multifaceted and included conservation and restoration of the coral reefs, community awareness (e.g., ten brochures in English and Spanish on coral reefs and sustainable fishing), and local participation in management of coastal and marine resources. The program specifically sought to conserve and rescue the Acropora coral species, which provide an essential habitat for marine species. The program also worked with local fishermen to create economic opportunities based on better fisheries management and greater participation in the tourism industry.

Local volunteers were mobilized to map, monitor and stabilize wild coral species to recuperate the biological diversity of the coral reefs. This effort was supported by multiple stakeholders including the government, hotel resorts, diving industry, youth groups, fishermen, and conservation organizations. The

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above-mentioned NGO is currently raising funds to expand this program and begin a second phase in Tela, Omoa, and Trujillo.

Hotels Recycling. This program was designed to encourage recycling of solid wastes generated in the hotels in La Ceiba, including separation of recyclables and fostering the concept of social responsibility. The Technical Unit in La Ceiba led this program, together with a local recycling company. The program included identification of recyclables (e.g., paper, plastics, cans, cardboard), location of recycling containers, and training of hotel employees (124 individuals). To date, 11 hotels are voluntarily participating in the program and they receive a payment from the local recycling company based on the type and amount of material and condition.

“Clean Honduran Caribbean” Campaign. A national campaign was launched during spring breaks in 2004 and 2005 to inform the local population and visitors about maintaining clean beaches and tourist areas in the municipalities of Omoa, Tela, La Ceiba, Trujillo, Utila, Guanaja, and Copán Ruinas. The campaign provided garbage containers, recruited volunteers to keep tourist areas clean, posted signs about tourist areas, and provided information about tourist security. In total, 450 volunteers supported the UTMs in beach monitoring.

Pilot Recycling Program. A pilot recycling program was designed for 2005 to address some of the problems encountered in the previous year. One village in each of the municipalities of Omoa, Tela y La Ceiba was selected and 121 volunteers were identified. In order to help launch this program, the coordinator of the Technical Unit in La Cieba carried out a study tour to visit a local, micro-enterprise recycling project supported by the World Bank-financed Gender Equity Project in Mexico. This visit provided valuable information for the launch and coordination of this pilot program.

The objective was to support a change in attitude of the vacationers and local residents regarding garbage disposal and increase awareness about the importance of recycling. This program had the strong support of a private sector partner that provided hats and t-shirts to the volunteers in each municipality, as well as signs and garbage bags for the containers. The volunteers distributed information on recycling, provided garbage bags to people, and cleaned and separated solid waste materials. Other partners in this effort included new recycling micro-enterprises in Omoa and Tela, which benefited from the Fondo Prosperidad, and the existing recycling company in La Ceiba. The pilot program was very successful with collection of large quantities of cans and plastic bottles. For example, after witnessing the positive effects of recycling, a local restaurant in one of the villages decided to implement a permanent system of garbage separation for recycling. The students involved in the program also commented about how easy it was to think about separating garbage into recyclables and many seemed to have a new appreciation for the people who collected garbage and sorted it for recyclables. The program also helped to stimulate the interest of local residents in recycling materials, particularly when the companies provided cash for the items.

Jején Control Program. The prevalence of the jején on the Bay Islands was a concern for the IHT in terms of promoting sustainable tourism development. In order to learn more about this problem, the IHT proposed an environmentally-sensitive Pilot Program of Integrated Management of the Jején in the Bay Islands, which included the participation of a prominent NGO, other donors and the private sector. This program was launched in 2003 and included a technical component with a fumigation plan for adults and larvae with environmental monitoring; a research component on biological controls; the use of non-chemical alternatives; and a social component with public awareness, and monitoring and evaluation. This program was approved by a World Bank Pest Management Specialist prior to being launched and based on the initial results, the World Bank identified this is a best practice example in the Latin America and Caribbean Region of pest management. This work is continuing with support from the GOH and other

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donors.

Sub-component 2.3: Heritage Site Restoration in Trujillo. Highly Satisfactory. The restoration and revitalization activities in Trujillo were highly satisfactory and exceeded the original plans with more than 25 sites and historic buildings restored in the Historic Center. All of the works were inaugurated with participation from a Bank mission in December 2005. The coordination with the AECI, IHAH, and other partners was excellent. Some of the main activities included:

• Establishment of a technical office of the Historic Center of Trujillo with the Director financed by the project and an architect financed by AECI. • Implementation of a topographic survey of the Historic Center of Trujillo.• Completion of small works in 2002 to accommodate visitors for the ceremony of the 500-year anniversary of the first Catholic mass in the Americas. • Restoration and inauguration of the Historic Fort of Santa Barbara in October 2003. Likewise, a small museum about the colonial period and Garífuna culture was included inside the fort. • Completion of a socioeconomic study of the Historic Center and buffer zone of Trujillo.• Development of regulations for the preservation of the Historic Center of Trujillo.• Restoration and adaptation of the National Training Institute (Instituto Nacional de Formación Profesional, or INFOP) building, one of the most significant architectural buildings in the city. This building also serves as a training center for the region. • Restoration and adaptation of the colonial Comandancia of Trujillo for use as a tourist information center and for the Office of the Historic Center of Trujillo. • Provision of technical assistance for the remodeling of 22 buildings in the historic center. • Construction of a small traditional boat pier to improve tourist access from the Bay Islands and as a point of departure for tours of the Guaymoreto Lake and the Bay of Trujillo. The pier improves the image of the shoreline and encourages tourists to stay longer in the city. The pier was formally transferred to the municipality for maintenance in coordination with the UTM.

Component 3 – Pilot Entrepreneurship Program for Sustainable Coastal Tourism (Fondo Prosperidad). Highly Satisfactory. The NGO managing the Fondo established an office in the project area and initiated a series of public meetings to present information about the program (about 420 individuals participated in the sessions). In the first call for proposals, approximately 400 subproject proposals were received. These proposals were evaluated by the NGO based on the eligibility requirements and the eligible proposals were presented to the Approval Committee. Of these, 69 were selected to receive seed grants and an additional 26 were approved under the Business Development Program in Tela (see below).

These 69 micro-enterprises were trained in basic accounting, business management and administration so that the beneficiaries could handle the seed grant funds. Each subproject had a plan of investment and disbursement, and the NGO carried out monitoring and evaluation of the activities. A database with the baseline situation of the subproject beneficiaries was established and will be used for future impact evaluations. Concurrent audits were carried out and recommendations made as necessary; and the NGO team carried out field visits to all of the subprojects during project implementation.

The average seed grant amount for the selected subprojects was US$14,000. Subprojects represented the following sectors in the tourism industry: Hotel: 25 percent; Tour operators: 19 percent; Artisan groups 16 percent; Solid waste management/recycling 8 percent; Tourist information: 5 percent; and Transport 4 percent. Approximately 60 percent of the Fondo resources were concentrated in the municipalities of La Ceiba, Trujillo, and Utila. Utila had the most subprojects (15) and Omoa had the lowest rate of participation. Forty-three percent of the Fondo resources were awarded to female micro-enterprises or

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associations of women. A total of 25 micro-enterprises led by women were beneficiaries of the Fondo. Tables A9.3 and A9.4 provide additional data on the Fondo and Box A9.1 presents a short case study of beneficiaries from Utila.

It bears noting that the Enterprise Center, as originally proposed in the PAD, was not established as it was agreed that this center would duplicate the services being provided by the NGO administering the Fondo.

Fondo Prosperidad Business Development Program in Tela. During the first call for subprojects, there was no participation from the Municipality of Tela. After investigating this situation, the IHT became aware that there were some conflicts in this area related to hotel development and therefore, most people were suspicious about the Fondo and did not participate. Community leaders however, were supportive of the program and asked for another call for proposals, particularly for the Municipality of Tela. The Garífuna Tourism Board worked together with the IHT to develop a program that was appropriate for the population, specifically for Garífuna women, which would strengthen the capacity of these poor entrepreneurs through technical assistance and training in production, marketing, and management and administration of the enterprises.

A feasibility study was carried out to determine opportunities for tourism initiatives and training was provided to interested groups in the preparation of proposals and business plans. Twenty-six micro-enterprises were selected, mainly from the villages of Tornabë and Miami, to receive seed grants and technical assistance; the total budget for this program was US$250,000. All 26 subprojects benefited the Garífuna population, with 15 subprojects (64 percent of the funds) benefiting Garífuna-owned, female-led micro-enterprises (the most vulnerable population group in Honduras). A sample of subprojects supported includes a crab and fishing enterprise that employed 60 people during times allowed for fishing by environmental authorities in Tela, small food preparation and restaurant micro-enterprises. Given the initial climate of suspicion and anti-government sentiment in Tela, the success of this small program was significant.

Technical Assistance for New Tourism/Artisan Products. This program was managed by a specialist in the development of high-quality artisan products in coordination with poor women’s groups in Honduras, which are successful at an international level. The technical assistance was provided in a collaborative manner with the specialist providing advice based on market interests and demands, then working closely with the groups to develop product lines. Workshops and training events benefited approximately 202 artisans (majority Garífuna and women). In addition to developing 78 product designs, the technical assistance helped the community groups secure primary materials and develop an informational brochure for each item, which was disseminated in an exhibition in Tegucigalpa. At present, the artisan groups are now producing and selling their items to buyers in Omoa, Tela, La Ceiba, Trujillo, Roatán, and San Pedro Sula. The micro-enterprises will need to continue to build their capacity to produce quality products. The start-up costs are often difficult to secure and there is relatively little experience in strategic planning and commercialization.

Component 4 – Project Management. Highly Satisfactory. A PIU was established, trained, and it carried out all project coordination and administration, procurement, financial management, and monitoring and evaluation. A state-of-the-art financial management system, with procurement and accounting modules, was developed and installed, based on the requirements of the World Bank for reporting, monitoring, and budget management. The PIU established a monitoring and evaluation system based on the logical framework in order to provide regular reporting and ensure information was available for the Mid-term Review and final report. A Technical Unit was established in La Ceiba to oversee field activities and undertake community outreach in the project areas.

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The PIU successfully developed strategic alliances with a number of different organizations during implementation to enhance sustainability when the project concluded, including:

a) Inter-agency agreements with the six municipalities for the UTMs.

b) Inter-institutional agreement with IHAH for supervision of historical preservation work in Trujillo.

c) Agreement with the University of San Pedro Sula for technical assistance to continue improving the Historic Center of Trujillo in a permanent and sustainable way.

d) Partnership with INFOP and the Ministry of Education to support sustainability of the restored INFOP training center in Trujillo.

e) Alliance with the World Bank-financed Rural Land Management Project related to land issues.

f) Linkages with the NGOs managing the Coral Gardens Project and the Jején Pilot Project.

The PIU team worked well together to implement (i) project activities, (ii) additionally identified activities, and (iii) prepared the follow-on Regional Development in the Copán Valley Project, which as approved by the Executive Directors of the World Bank in 2005. The introduction of this new project, which was managed by the same Project Coordinator, caused some slowdowns in the LIL, but once a new team was established, both projects began implementing smoothly. Financial management and procurement performance are discussed in Section 7.6.

4.3 Net Present Value/Economic rate of return:Not applicable. As a LIL, the objective and outputs of the project were primarily institutional and the effectiveness and benefits of the project were shown as the result of a learning process. This learning was successful as demonstrated in the follow-on Regional Development in the Copán Valley Project.

4.4 Financial rate of return:N/A

4.5 Institutional development impact:ICR Rating: High. The overall institutional development impact is rated high since the project significantly improved IHT’s ability to use its human and financial resources and it also enhanced the capacity of the six project municipalities to manage and plan for sustainable tourism development. The training and technical assistance provided to beneficiaries of the Fondo Prosperidad has also improved the operations of 95 small and micro-enterprises operating in the tourism area in the North Coast and Bay Islands.

Honduras Institute of Tourism. The impact on the IHT is rated as high. When the project was designed, IHT was a relatively weak agency and did not have a clear direction or leadership on the concept of sustainable tourism. The project contributed to strengthening IHT, building a more effective Environmental Unit, developing strong communications and public relations, and provided support to the other departments within IHT. The project also helped IHT establish a strategic direction for sustainable tourism in the North Coast and Bay Islands with the Regional Strategy for Sustainable Coastal Tourism and build a foundation for greater participation of local communities in tourism planning. Given its strong performance in the project, IHT is now implementing the Regional Development in the Copán Valley Project, a larger project with many different activities; many of the project staff from the LIL are now working on this follow-on project.

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Project Municipalities. The impact on the municipalities is rated as substantial. The UTMs provided strong support to the municipalities during implementation and this effort has resulted in the formation of municipal tourism committees, MACAHO, and the development of Tourism Information Centers in all six project municipalities. The UTMs provided training to municipal staff and the local communities on a variety of different topics related to tourism planning and management and based on feedback from participants, there is a greater degree of understanding of and appreciation for sustainable tourism. However, the UTMs faced challenges in working with the municipalities, mainly due to the weak capacity of the municipalities, political changes, and limited budgets. Four of the municipalities have assumed the operating costs of the UTMs, which indicates the value of the services provided by the UTMs to the municipalities.

There was a significant impact on the human resource capacity in the Municipality of Trujillo, due to the presence of the UTM and the restoration work in the Historic Center. The municipal leaders are very proactive on sustainable tourism and the historic preservation of their town. The activities in Trujillo have led to a revitalization of the city and the strong participation of local citizens and leaders in many different tourism activities, including clean-up campaigns and tourism promotion.

Fondo Prosperidad and Artisan Training. The institutional development impact on the beneficiaries of the Fondo Prosperidad subprojects and the technical assistance provided to the artisans is rated as high. Based on feedback from beneficiaries, the support provided by these programs significantly improved their capacity to manage their enterprises, expand operations, and launch new products to meet tourist demand.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:Heavy Rains. Two of the reconstruction works in Trujillo were delayed by tropical storms in mid-2005 and the project was extended by six months in order to complete those activities.

5.2 Factors generally subject to government control:Counterpart Funds. There was timely provision of counterpart funds for the project, which produced efficient project implementation.

Municipal Capacity and Leadership. The project successfully strengthened the capacity of the municipalities sustainable tourism management. However, the UTMs faced issues that were beyond their control, including political changes, new priorities, and limited budget resources, which limited some of their effectiveness.

Land Conflicts. There are continuing conflicts related to Garífuna lands in the North Coast. Land regularization and resolution of land tenure issues is the responsibility of the National Agrarian Institute (Instituto Nacional Agraria, or INA) and the GOH continues to work on these issues.

Security Situation. The security situation in parts of the North Coast continues to be problematic, mainly due to poverty, gangs, and low apprehension and conviction rates of criminals. The GOH has placed a priority on improving the security situation in Honduras with a “zero tolerance” policy and the tourism police, supported by the IHT, have had an impact in those areas where they are deployed.

5.3 Factors generally subject to implementing agency control:IHT’s Commitment. The IHT was very pro-active in terms of implementing the project and internalizing the lessons learned from the various actions. This strong commitment from the IHT was a crucial factor in

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the timely and successful completion of the project.

5.4 Costs and financing:

The total project cost was US$6.18 million equivalent, with US$5.33 million (SDR 3.69 million) financed by IDA and US$0.85 million equivalent financed by the GOH and local communities (see Table 1). 93 percent of the IDA Credit was disbursed and the remaining resources were cancelled.

Table 1: Actual Project Costs by Financing Source (US$ million) Source Total Cost

(Original)

Actual Total Cost

% of Revised

Cost IDA 5.00 5.33* 93** GOH 0.56 0.85 152 Local communities

0.48 Included in GOH --

TOTAL 6.04 6.18 102 *With exchange rate fluctuations, the original US$ amount was US$5.79 million. US$5.33 million was disbursed and US$0.45 was cancelled. ** % of Revised Cost for IDA Credit is based on SDR amounts, which more accurately reflects percentage disbursed.

6. Sustainability

6.1 Rationale for sustainability rating:ICR Rating: Highly Likely. The overall sustainability of the project is rated as highly likely. The sustainability of each of the main project actions is detailed below:

1. Regional Sustainable Coastal Tourism Strategy. Highly Likely. The new government of Honduras has expressed support for the implementation of priority actions in the Regional Sustainable Coastal Tourism Strategy. In addition, the MACAHO is charged with implementing this Strategy and the Action Plans for each municipality and thus far, there are indications that this organization is functioning as planned. The policy environment continues to be favorable for the promotion of sustainable tourism management and planning in the project areas and tourism growth continues to increase, which will provide incentives for the municipal authorities and others involved in the tourism industry to continue to implement these plans and programs.

2. Municipal Capacity Building. Likely. The sustainability of the achievements of the UTMs is likely in all project areas, but the operating costs of the UTMs are only being covered in four of the six project municipalities. The programs launched by the UTMs, such as the Hotels Recycling Program, the pilot recycling program, and the Clean Honduras Caribbean campaigns are expected to continue due in large part to increased leadership in the municipalities, incentives produced by increased tourism, involvement and in-kind donations from the private sector, and the large corps of trained volunteers. However, it is too early to evaluate the impact of the revenue-generating initiatives launched by the IHT to help fund the UTMs, including informational signs that are available for sponsorships, sale of items in the Tourist Information Centers, and additional budgetary support from municipalities. In some of the municipalities, fees were established for parking near beaches, which is also generating income for the UTMs. IHT is proactively seeking funds to help support the UTMs and continue to build capacity for tourism management at the local level.

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3. Fondo Prosperidad and Business Development. Highly Likely. The achievements of the Fondo Prosperidad are highly likely since (i) the program awarded subprojects to only the most promising enterprises and (ii) a highly qualified NGO provided training and technical assistance to ensure that funds were spent appropriately and enterprises had plans for future sustainability. These enterprises are dependent on a consistent and growing tourism industry in the North Coast and Bay Islands, but they are also now in a better position to seek out other funding sources and/or enhance their programs based on the lessons they learned as part of the Fondo Prosperidad.

6.2 Transition arrangement to regular operations:There are indications that the new government will continue to support the municipalities in the North Coast and Bay Islands related to sustainable coastal tourism planning and management. The follow-on Regional Development in the Copán Valley Project is also implementing well and the IHT is continuing to support the pro-poor approach to tourism development, as piloted and developed under this LIL.

7. Bank and Borrower Performance

Bank7.1 Lending:ICR Rating: Satisfactory. Bank performance during preparation was satisfactory. The Bank team was staffed with very experienced professionals and consultants and extensive analytical studies were carried out during preparation. The team benefited from the close involvement of a Bank staff member in the Honduras Country Office and a consultant who worked closely with the Bank team. The PAD is a comprehensive document with significant information on lessons learned and innovations in the management and planning of sustainable tourism initiatives in the Americas and around the world.

A review of the preparation documents in the electronic archives did show some gaps in information, particularly regarding preparation missions and Aide-Memoires, and implementation of the PHRD. These gaps are mostly due to the fact that the Task Team Leader for project preparation was not in the Latin America Region Vice Presidency, but rather in the Environmentally Sustainable Development Vice Presidency with different filing systems.

To complement preparation funds, the GOH requested PHRD preparation funds of US$500,000 to be administered by the Bank to support analytical work, including the environmental, economic and fiscal analyses, the Social Assessment, IPDP, a review of existing legislation and the regulatory framework, and design of the training program. This grant implemented from 1999 to 2001 and was fully executed.

A LIL was an appropriate lending instrument for this type of activity and the project design addressed the main issues facing the GOH. Yet, the extensive analyses during preparation were more similar to a regular investment credit than a LIL, in which many of these studies would have been carried out during implementation. This resulted in a relatively lengthy and costly preparation, mainly due to the complicated nature of the North Coast area, with numerous interest groups, politicization of issues, and land issues. All of these factors, particularly the Bank’s concern about land, caused some delays in the preparation activities as new issues arose and then had to be addressed. Even with these delays, the LIL was still a suitable lending instrument as it provided the GOH with incentives to pilot new initiatives, launch a program like the Fondo Prosperidad, and take the lead on developing participatory planning for sustainable coastal tourism.

The Bank team approached all of the issues in the North Coast carefully, but there was a trade-off between fully assessing all of the possible issues, of which there are many, and moving forward with a LIL that

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could have done some of this work in implementation. The long preparation process raised expectations from community groups very early and they were impatient for the promised results.

7.2 Supervision:ICR Rating: Satisfactory. The Bank carried out effective supervision of the LIL with regular Supervision Missions, a comprehensive Mid-term Review, and excellent documentation of findings in Aide-Memoires and follow-up reporting. The transition to a new Task Team Leader after Board approval was very smooth. The ratings provided in the Project Status Reports/Implementation Status Reports (PSR/ISR) were realistic. The Bank missions were staffed with specialized consultants, procurement specialists, and operations specialists to ensure that the project remained focused on achievement of the development objective. On occasion, there were special mission visits by the Bank Financial Management Specialist and/or the Procurement Specialist. The Bank team remained intact during the entire project implementation period, which contributed to a strong relationship with IHT.

A Technical Specialist in the Bank’s Honduras Country Office provided outstanding support to IHT during implementation. This individual was involved in preparation and was very knowledgeable about the project design and planned activities. The Specialist participated in all Supervision Missions and provided follow-up.

Since the project was slow to start, the Bank helped the PIU to prioritize the launch of the civil works in Trujillo and then advance to other activities. The Bank also provided support to the PIU when it was simultaneously implementing the LIL and preparing the Regional Development in the Copán Valley Project. This was a difficult time for the PIU, but the Bank helped the unit to plan for two parallel implementing teams with one Coordinator, a structure that worked well. Bank staff also showed flexibility in responding to the priorities of IHT and the alignment of these needs with the development objective of the LIL.

IHT noted that the communication with the Disbursement Department was complicated at times since they would return a withdrawal application if there were inconsistencies, without checking with the Financial Management Specialist in the PIU beforehand. The return of the applications was a problem when it was a minor issue that could have been cleared up by consulting with IHT, as it slowed down disbursement and execution progress. IHT also would have benefited more training from the Bank’s Financial Management Team in the presentation of semester and annual financial reports.

7.3 Overall Bank performance:ICR Rating: Satisfactory. The overall Bank performance during lending and supervision was satisfactory for the following reason: (a) the LIL had a solid design and good supervision from the Bank; (b) the Bank team was responsive to the Borrower’s needs; and (c) consistent supervision, support, and technical assistance from the Bank ensured timely completion of the project and full achievement of the project development objective.

Borrower7.4 Preparation:ICR Rating: Satisfactory. The Borrower’s performance in preparation is rated satisfactory for the following reasons: (a) the Borrower carried out all required analyses including the environmental and social assessments and the IPDP; (b) the Borrower responded to the Bank’s request for additional information related to land issues and coordinated with INA; and (c) the Borrower worked diligently to prepare a project that would address sustainable tourism issues at multiple levels, with inclusion of local communities, the municipalities, and higher-level national stakeholders.

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7.5 Government implementation performance:ICR Rating: Highly Satisfactory. The Ministry of Finance provided counterpart funds, except for a few occasions when there was a minor delay. This was always resolved immediately when the IHT made contact with the Ministry of Finance. The Ministry of Finance was also consistently supportive of the project and accommodated Bank Supervision Missions when necessary.

The GOH provided substantial support to the growing tourism industry in the country and for this reason, ensured and maintained strong leadership of the Ministry of Tourism.

7.6 Implementing Agency:ICR Rating: Highly Satisfactory. The performance of the Ministry of Tourism and IHT was highly satisfactory at all levels. The PIU had a strong Coordinator and experienced and trained staff members. Even with a lengthy effectiveness delay at the start of the project, the project only needed a six-month extension. It was clear that IHT had true ownership of this project; it was not a Bank-driven agenda. In short, IHT truly believed in building community support and private/public sector partnerships for sustainable coastal tourism development. IHT also identified new funding needs and took the initiative, within the context of the development objective and with Bank approval, to pilot several new activities to enhance the tourism potential of the zone.

The performance of the PIU was very good. The PIU team remained intact during project implementation and had close coordination and support from both the Minister and Vice-Minister of Tourism. Once the effectiveness conditions were met, the only time the project execution slowed down was during the preparation of the Regional Development in the Copán Valley Project. Once this follow-on project was effective and a new implementing team was in place, implementation of the LIL accelerated. The PIU produced regular reports and special monitoring and evaluation information for the Supervision Missions, the Mid-Term Review and final reports.

Financial Management. After some initial delays and clarifications in early implementation due to the implementation of a new financial management system, the Financial Management Reports were submitted on time – every three months, and were generally of good quality. Based on a financial management review carried out in 2006, the financial management system and arrangements, which link procurement, accounting, and disbursement, were found to be satisfactory.

Audits. All the required audits were delivered to the Bank with only minor delays between 0-3 months and the IHT always informed the Bank when the delivery was expected to be late. The final audit of 2005 was not yet due when the ICR was finalized. Audits were received for 2001/02 and 2004 with an unqualified (clean) opinion by the auditor on the financial statement, and for 2003, the audits were issued with a qualified opinion by the auditor. All the audits reports were reviewed by the Bank’s Financial Management Specialist and considered acceptable. There were generally some minor observations that were communicated to IHT and addressed either with a clarification or action plan for certain issues. IHT always responded immediately to these requests and communicated this to the Bank.

Procurement. The procurement performance of the PIU was weak at the start, but after the team participated in Bank procurement training, the performance improved. The procurement process also improved substantially with the oversight of a highly qualified Coordinator who had significant experience in donor-financed projects. The first post-review of procurement carried out during the Mid-term Review in 2004 concluded that procurement was satisfactory during the period covered, in which all major contracts for the project were defined.

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The final post-review in February 2006 was carried out after the Closing Date after the PIU team was dismantled, the lead Procurement Officer had departed, and the new government administration was not yet confirmed. The review identified some areas of less than satisfactory performance, including an inadequate filing system that did not reflect all the documentation available in the Bank’s internal archives and the lack of documentation made available to the mission, principally due to the absence of the procurement team. Other areas of concern included: (a) a lack of understanding about the Bank’s procurement procedures, also due in large part to the absence of the procurement team since the majority of contracts were procured according to the Bank's procedures; (b) a high number of direct contracts, many of which were due to the law in Honduras mandating that all contracts finish at the end of the calendar year, even though the competitively awarded work surpassed this period; and (c) the need for more internal controls, which was apparent at the time of the mission due to the absence of the procurement team. During project implementation, these internal controls were reviewed by the auditors and detailed in the quarterly Financial Management Reports that were reviewed by the Bank’s Financial Management Specialists. As the project is closed, all other issues, including the need to continue to build a strong procurement team, were communicated to the PIU of the Regional Development in the Copán Valley Project.

7.7 Overall Borrower performance:ICR Rating: Highly Satisfactory. Overall, the performance of the Borrower is rated highly satisfactory for the following reasons: (a) the GOH carried out all necessary actions to prepare the project and address Bank concerns; (b) IHT made a significant effort to build trust among community members in the project areas and was successful in introducing a greater awareness of sustainable tourism development and the environmental issues; (c) the project established a foundation for local-level participation in tourism development and strengthened the capacity of IHT to continue to build a tourism development strategy for the country that is based on sustainability and creating a high-quality experience for travelers; and (d) IHT has strengthened its institutional ability to prepare and implement large investment projects with accountability and results.

8. Lessons Learned

There were lessons learned in following areas: Sustainable Tourism, Municipal Capacity Building, and the Fondo Prosperidad.

A. Sustainable Tourism

Include actions that produce short- and long-term results. In the process of building ownership for 1.sustainable coastal tourism, it is important to integrate both short- and long-term incentives. For example, the development of the Regional Strategy was a long-term process, but the Fondo Prosperidad awarded grants and provided training which produced immediate impacts.

Future of tourism development in the Honduran Caribbean. Honduras is entering a critical period for 2.building a future for sustainable coastal tourism. The potential of tourism income from larger-scale investments in the Caribbean is very attractive, but it can conflict with smaller-scale, community-based tourism and the interests of local communities. The participatory planning process and Regional Strategy financed by the project are important steps towards building a consensus among the local residents and municipal governments about the priorities for tourism development. In future programs and developments in the North Coast area, it will be important to continue open communication and consultation with all stakeholders, particularly related to the use of land and beaches for tourism

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development.

Challenges to increased tourism. Honduras has increased its numbers of visitors, but it still remains in 3.fourth place in terms of number of tourism arrivals in Central America. The income per visitor has also increased, but it is less than half of the income in Costa Rica and Panama, and only higher than El Salvador and Nicaragua in Central America. Honduras will need to continue to capitalize on its culture, people, environment, and cultural heritage, and address the problems that affect the quality of the tourist’s visit, including poor infrastructure, public security, sanitation and environmental concerns, and social problems (IHT Visitor Satisfaction Survey, 2003).

Quality technical assistance. Micro-enterprises can flourish when provided with high-quality technical 4.assistance geared toward enhancing access to markets. The technical assistance provided to artisans, specifically to develop culturally-appropriate items and product lines that would be attractive and interesting to consumers, was one of the innovative aspects of this project.

Expand awareness of sustainable tourism. The next step in promoting sustainable coastal tourism will 5.be to build on the pilot programs, such as the Clean Honduran Caribbean campaign, and seek to create ownership of programs related to solid waste management and recycling in local communities. Future programs will have to support the necessary infrastructure and provide technical expertise for the development of enterprises that are involved in garbage collection and/or recycling.

B. Municipal Capacity Building

Municipal Governance. Future projects will need to continue overall strengthening of the human 1.resource capacity in the municipalities in Honduras. It will also be important to consider options for sustainability of units such as the UTMs early on and develop agreements with municipalities for their continuity.

Historic restoration projects can build enthusiasm and have a multiplier effect. The integration of a 2.cultural heritage revitalization component in a tourism project can have a multiplier effect on other initiatives in a community, including strengthening municipal capacity and creating linkages with other partners and donors.

Importance of leadership and teamwork. In order to build successful environmental campaigns or 3.programs, it is important for municipalities to lead the effort and encourage community members to work together. For example, the pilot recycling initiative was most successful in a village where there was involvement of municipal representatives, school children, the private sector, the community, the UTM, and the Municipal Environmental Unit.

C. Fondo Prosperidad

Management of the fund. It is important to assess the implementation capacity of the government 1.agency to implement these types of funds, as well as consider contracting fund management out to third parties. In this case, it was agreed during project preparation to contract out the fund management due to weak capacity in IHT. However, over the course of preparation, IHT’s capacity improved and in the end, it was the view of government that it could have managed the fund. This is an option that should be considered in order to save on the high administration costs charged by a third party. However, there is also some flexibility that is gained by working with an NGO, particularly one that has a local

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network and experience in micro-finance.

Provide training up-front. In the first call for proposals, many potential beneficiaries lacked complete 2.business plans. In a very poor environment with limited human resource capacity, it is important to plan for assisting potential beneficiaries before they submit proposals, through training and technical assistance, to learn how to prepare business plans and the other requirements of the subproject proposals.

Social communications. A strong social communications campaign is needed when launching this type 3.of fund. In the first call for proposals, there was low participation in some municipalities. To address this issue, the responsible NGO, with assistance from the UTMs, expanded its social outreach program, going door-to-door in some instances to invite enterprises to a workshop to ensure more participation. Also, in the Bay Islands of Honduras, information must be provided in English and Spanish.

Continual technical assistance. Many beneficiaries required consistent and close follow-up during 4.implementation of the Fondo grants. This type of assistance should be expected and budgeted into project implementation when a fund is designed for small-scale entrepreneurs and/or community enterprises where formal education levels are low. When small civil works are involved, close monitoring of design plans and execution is even more important.

9. Partner Comments

(a) Borrower/implementing agency:The Executive Summary of the Borrower’s Contribution is in Annex 8 and a letter from the Ministry of Finance, expressing agreement with the ICR content, is below.

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(b) Cofinanciers:

(c) Other partners (NGOs/private sector):

10. Additional Information

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Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

A strategy for Sustainable Coastal Tourism on the North Coast, developed and under implementation with stakeholder participation and support of national and local government.

Completed: 7 local workshops, 1 regional workshop, 1 national dialogue event with local organizations, local authorities, public and private sectors.

Strategy was completed, distributed (800 copies) and presented to the international development assistance organizations in 2005.

Perceived economic, ecological and social benefits of tourism by key stakeholders in the pilot destinations increases 35% from baseline measure of attitudes between Project initiation and EOP.

Perception is positive. According to Statistics Department of IHT, the perception of economic benefits derived from tourism has increased by 22% from 2003 to 2005.

Tourism revenue capturing mechanisms identified and adopted at municipal level by EOP in at least four municipalities.

Registry of tourism providers established in six municipalities.

A database with tourism information that is updated is established in four of six municipalities (Tela, Utila, Trujillo, and Omoa).

Institutionalized mechanisms for the equitable distribution of tourism benefits from the Project, including eligibility criteria for innovation grants to private sector and communities, established and functioning by middle of 2003.

Mechanism was achieved through establishment of Fondo Prosperidad.

The Fondo Prosperidad established the mechanisms for identification, selection, financing, and monitoring of small grants and training awarded to private sector tourism operators and communities.

Strengthening and regularization of a legal, institutional, and procedural framework for the titling of communal lands, the expansion of titles to include ancestral lands, and conflict resolution mechanisms in the Project area by end of 2004.

An agreement was signed with IDA-financed Rural Land Management Project to define the activities to be carried out related to land.

a) Completion of the Land Titling Diagnostic. b) Aerial photographs in the Departments of Atlántida and Colón (441,847 hectares). c) Introduction of conflict resolution strategies in the municipal planning process. d) Urban land planning for the Municipalities of Omoa and Tela.

A participatory strategy for resolving conflicts and securing land tenure in indigenous communities in Project area established by beginning of 2003 and incorporated into strategy for Sustainable Tourism on the North Coast.

Achieved, including carrying out workshops in communities.

The workshops on conflict resolution resulted in the development of working groups of the private sector, ethnic organizations, and local authorities.

HIV/AIDS issues identified and resources mobilized to support awareness and prevention in most vulnerable communities of North Coast by early 2002.

Resources were mobilized, but reassigned due to factors external to the project.

Output Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

Component 1: Sustainable coastal tourism development strategy designed and implemented at the national and local levels

- Sustainable Tourism Action Plan for the North Coast drafted in year 1; plan under implementation at the local level in years 2 and 3

Achieved Regional Strategy was finalized in 2005 and under implementation.

Action Plans for each municipality were developed and priorities are under implementation.

Component 2: Municipal officials have the knowledge, skill, and tools needed to develop and coordinate sustainable tourism.

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- Six municipalities provided with incremental technical staff and equipment in tourism and environmental management by EOP.

- At least one revenue capture mechanism introduced by each municipality participating in training and technical assistance activities by EOP.

Achieved. A UTM was established in each municipality with professionals in tourism and environmental management, equipment and budget from the municipality.

-Six municipalities provided with staff and equipment. At EOP, four of six are functioning.

-Revenue capture mechanisms established through municipal decree. Municipal incomes will be enhanced with the administration of the illuminated signs for rent, beach parking fees, and other potential rentals.

A voluntary environmental rating and certification program is successfully piloted.

- Environmental Management Systems (EMS audits are conducted at five pilot sites by EOP.

- Criteria for environmental and social sustainability of coastal tourism operations established and agreed with IHT and local communities.

Mechanisms are in process of being developed. Pilot sites are in process of identification, and audits carried out in 2004.

Criteria are defined; presentation to local governments.

Through an agreement with the Municipal Environmental Units, inspections were programmed and carried out in each municipality.

Criteria developed and approved by the municipal authorities in a Best Practice Environmental Manual.

Honduran North Coast is emerging as a sustainable tourism destination with distinctive natural and cultural attractions

- At least five new tourism destination packages based on a sustainable tourism model and incorporating sustainability criteria promoted by IHT by EOP.

Six packages were developed: Circuito Trujillo and the Rutas de Fortalezas, the Costa Garífuna, the Cruceros de la Isla de la Bahia, the Parques Nacionales and the La Ceiba y Cayos Cochinos.

The MACAHO was created, which will implement and coordinate the Regional Sustainable Coastal Tourism Strategy, including the new destination packages.

Heritage restoration activities established for Trujillo as a basis for attracting tourists.

- At least five heritage sites or building facades restored and supported with signaled interpretation and walkways.

More than five sites restored in Trujillo. Over 25 sites restored in Trujillo.

Micro-and small entrepreneurs trained

- Small Business Enterprise Center established and operational by end of year 2.

It was agreed this would not be implemented to avoid replicating the Fondo Prosperidad activities.

Micro- and small entrepreneurs trained as part of Fondo Prosperidad.

Component 3: Pilot small and medium enterprises are developed

- At least ten additional public-private sector innovation projects (in addition to Trujillo) are initiated by EOP.

- At least seven innovation subprojects targeting indigenous populations are initiated by EOP.

Six Tourism Information Centers were established; An Artisan Market was established in Omoa; and Municipal Tourism Police in Ceiba and Tela (20 in each).

Subprojects financed with three Garífuna groups.

95 subprojects in Fondo Prosperidad.

Fondo Prosperidad financed 50 subprojects managed by Garífuna communities.

1 End of project

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Annex 2. Project Costs and Financing

Project Cost by Component (IDA and counterpart in US$ million equivalent) Appraisal

Estimate Actual/Latest

Estimate Percentage of

Appraisal Estimate Component 1. National Strategy and Institutional Support 1.32 0.56 43 2. Institutional Strengthening for Municipalities

2.01 2.52 125

3. Pilot Entrepreneurship Programs 2.15 2.25 105 4. Project Management 0.56 0.85 152 Total Project Costs 6.04 6.18 102 Total Financing Required (excluding Gov’t)

5.00 5.33 107

Total of Actual is higher than original due to exchange rate fluctuations.

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) Procurement Method 1/ Expenditure Category

NCB Other 2/ N.B.F. Total Cost

1. Works

0.76 (0.66)

0.76 (0.66)

2. Goods 0.14 (0.12)

0.07 (0.06)

0.21 (0.18)

3. Services 2.63 (2.60)

0.28 2.91 (2.60)

4. Training 0.36 (0.34)

0.36 (0.34)

5. Subprojects 1.50 (1.04)

1.50 (1.04)

6. Operating Costs 0.30 (0.18)

0.30 (0.18)

Total 0.14 (0.12)

5.67 (4.88)

0.28

6.04 (5.00)

1. Figures in parenthesis are the amounts to be financed by the IDA credit. All costs

include contingencies. 2. Includes civil works and goods to be procured through national shopping,

consulting services, services of contracted staff of the PIU, training, technical assistance services, and incremental operating costs related to (i) managing the Project; and (ii) re-lending project funds to local government units.

3. N.B.F. = Non-Bank financing

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Project Costs by Procurement Arrangements (Final Actual/Latest Estimate) (US$ million equivalent) Procurement Method 1/

Expenditure Category ICB NCB Other 2/ N.B.F. Total Cost

1. Works 0.42 (0.37)

0.75 (0.66)

1.17 (1.03)

2. Goods 0.03 (0.025)

0.40 (0.35)

0.43 (0.37)

3. Services 0.80 (0.80)

1.20 (1.20)

0.31 (0.23)

2.31 (2.23)

4. Training

0.36 (0.36)

0.36 (0.36)

5. Subprojects

1.27 (1.13)

1.27 (1.13)

6. Operating Costs

0.65 (0.22)

0.65 (0.22)

Total 0.80 (0.80)

1.65 (1.59)

3.74 (2.95)

0.00 (0.00)

6.18 (5.33)

Data provided by IHT. Numbers may not add due to rounding.

1. Figures in parenthesis are the amounts financed by the IDA credit. 2. Includes civil works and goods to be procured through national shopping, consulting

services, services of contracted staff of the PIU, training, technical assistance services, and incremental operating costs related to (i) managing the Project; and (ii) re-lending project funds to local government units.

3. N.B.F. = Non-Bank financing

Project Financing by Component (in US$ million equivalent) .Component Appraisal Estimate Actual/Latest

Estimate Percentage of

Appraisal Estimate IDA Gov’t* IDA Gov’t* IDA Gov’t* 1. National Strategy and Institutional Support

1.27 0.05 0.56 -- 44 --

2. Institutional Strengthening for Municipalities

1.52 0.49 2.33 0.19 153 42

3. Pilot Entrepreneurship Programs

1.67 0.48 1.63 0.62 98 129

4. Project Management

0.54 0.02 0.81 0.04 147 200

TOTAL Project Costs

5.0 1.04 5.33** 0.85 106 82

*Includes contributions from local communities. **Higher than original Credit amount due to exchange rate fluctuations. Based on SDR values, 93 percent of IDA Credit was disbursed.

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Annex 3. Economic Costs and Benefits

Not applicable.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/Preparation6/1999 1 Tourism Specialist/Firm.

Beginning in June 1999, several missions were carried out under a contract, with exact dates not available.

9/1999 1 Env. Engineer3/2000 5 TTL; NRM Economist; Tourism

Specialist; Env. Engineer; Operations Spec.

9/2000 2 Social Scientists10/2000 4 TTL; Env. Engineer; Operations

Spec., Env. Spec., Procurement Specialist

11/2000 1 TTL; Country Director (meeting in DC with Minister of Tourism)

Appraisal/Negotiation5/2001 8 TTL; Env. Engineer; Land

Specialist; NRM Specialist; Land Titling Consultant; Indigenous Peoples Specialist; NRM Economist; Lawyer

6/2001 3 TTL; Lawyer, Env. Engineer

Supervision12/31/2001 PSR Update S S01/25/2002 2 TASK MANAGER (1);

PROCUREMENT (1)S S

04/06/2002 4 TASK MANAGER (1); CULTURAL SPEC., OPERATIONS SPEC., CONSULTANT (1)

S S

07/12/2002

9/2002

3 TASK TEAM LEADER (1); PROCUREMENT SPECIALIST (1); OPERATIONS SPECIALIST (1)

TASK TEAM LEADER (1); PROCUREMENT SPECIALIST (1); OPERATIONS SPECIALIST (1)

S S

02/18/2003 7 TASK TEAM LEADER (1); OPERATIONS ANA/PROC. (1); LOCAL DEV. SPECIALIST (1); CONSULTANT (1);

S S

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CONSULTANT FAO (2); FINANCIAL MGMT. SPEC. (1)

07/25/2003 5 TASK TEAM LEADER (1); CONSULTANT/OPERATIONS (2); CONSULTANT/SOCIAL SCIENTIST (1); SPECIALIST/RESIDENT M (1)

S S

10/31/2003 2 TASK TEAM LEADER (1); SOCIAL SCIENTIST (1)

S S

03/12/2004 7 MTR: TTL; PROC. SPEC, JPA, OPERATIONS SPEC; 3 CONSULTANTS (SOCIAL SCIENTISTS, CULTURAL TOURISM SPECIALIST)

S S

9/2004 2 TASK TEAM LEADER (1); JPA HS HS4/2005 5 TASK TEAM LEADER (1); JPA

(1); CONSULTANTS IN TOURISM (3)

HS HS

ICR12/2005 3 TASK TEAM LEADER (1);

JPA (1); CONSULTANT (1)

HS HS

2/2006 2 PROC. SPEC (1); CONSULTANT

3/2006 1 TASK TEAM LEADER (1)

(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation 24 118,478*Appraisal/Negotiation 20 100,000Supervision 52 257,861ICR 5 20,000Total 101 496,339

*A Bank-executed PHRD Grant for preparation of US$500,000 was also used during lending for this project, which does not appear on this table.

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Indigenous PeoplesPrivate sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

IHT, 2006. Informe Final de Proyecto Turismo Costero Sostenible.

IHT, Interim Progress Reports, Presentations to Bank Supervision Missions, FMRs.

Hawkins & Associates. An Assessment of the Tourism Potential of Honduras: Observations and Recommendations for Sustainable Coastal Tourism, April 2002.

World Bank, Project Status Reports/Implementation Status Reports, #1- 12.

World Bank, Aide-mémoires, Back-to-Office Reports, etc. in Project Files

World Bank, Project Appraisal Document. Honduras Sustainable Coastal Tourism Project, July 19, 2001.

World Bank, Credit Agreement. Honduras Sustainable Coastal Tourism Project, November 22, 2001.

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Additional Annex 8. Borrower's Contribution

Full text in Project Files. Unofficial translation

SUSTAINABLE COASTAL TOURISM PROJECT 2002-2005FINAL REPORT—EXECUTIVE SUMMARY

1. OverviewThe Government of Honduras (GOH) believes that tourism offers the greatest opportunity for short-term economic growth based on the sustainable use of Honduras’ remarkable natural and cultural resources located on the Northern Coast and the Bay Islands. It therefore seeks to expand this opportunity on a local level as a mainstream activity that can create jobs, generate investment opportunities, increase foreign currency flows, and guarantee broad-based social and economic growth.

Public-private partnerships involving a wide range of stakeholders (government agencies, the private sector, and social and community organizations, particularly indigenous peoples, Afro-Hondurans, and farmers) can promote investments and economic growth in this area, with significant potential benefits for coastal communities.

Based on this framework, the Sustainable Coastal Tourism Project emerged as a World Bank-supported pilot project to be implemented in four coastal municipalities –Omoa, Tela, La Ceiba, and Trujillo– and two island municipalities –Guanaja and Utila– with a participatory approach engaging communities, civil society, and the private sector under the National Sustainable Tourism Strategy.

The Project Development Objective of this Learning and Innovation Loan (LIL) is to create an enabling environment for the development and management of sustainable coastal tourism along the North Coast mainland and offshore Bay Islands, through a learning and participatory process.

Project implementation includes four large components:

1) National Strategy and Institutional Support for Sustainable Coastal Tourism.2) Training in Institutional Strengthening and Technical Assistance for Municipal Governments.3) Entrepreneurial Pilot Programs for Sustainable Coastal Tourism. 4) Project Administration.

2. Performance Assessment

Component 1: National Strategy and Institutional Support for Sustainable Coastal Tourism.

Specific objective: Establish a regional strategy for Sustainable Coastal Tourism for priority areas along the Northern Coast bordering the Caribbean.

Goal 1: Establish a participatory methodology for broad based policy dialogue and consensus with local and national entrepreneurs, municipal governments, Garífuna (ethnic) organizations, and international development aid organizations.

Outcome: The responsible participation of 394 people was achieved, the majority of whom are local entrepreneurs involved in tourism activities, municipal workers and technicians, and nongovernmental

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organizations related with municipal development. Through workshops in each municipality, these participants agreed upon the Strengths, Weaknesses, Opportunities and Threats, mission, vision, objectives, and action programs driving tourism, as well as appointed local representatives for the regional strategy.

Goal: Create and implement a Regional Sustainable Tourism Strategy for the Northern Coast, backed by the municipal governments from Omoa, Tela, La Ceiba, Trujillo, Utila, and Guanaja, as well as authorized by the Central Government.

Outcome: The six municipalities, through the respective mayor’s offices, offered support for the Tourism Strategy Report produced. They showed their support for the outcomes and facilitated the dissemination and introduction of the strategy to international development aid organizations.

Goal: Facilitate planning for actions, policy reforms, legal instruments, and regulations.

Outcome: The level of local commitment by entrepreneurs and the general population led local governments to form an organizational structure that supervises the fulfillment of target plans and programs proposed in the Strategy through the creation of the Association of the Municipalities of the Honduran Caribbean (MACAHO), a legal entity with funding and an executive board formed by the highest authorities from the six municipalities in the project’s area of influence.

The participatory process in creating the strategy generated important outcomes, such as the organization of municipal committees on tourism development, the formation of the MACAHO, and, of great importance, the production of the Strategy and its methodology, which served as the basis for developing the Strategy.

Component 2: Training in Institutional Strengthening and Technical Assistance for Municipal Governments.

Specific objective: Supporting planning and management capacity building for the sustainable use of coastal and marine resources for tourism activities in the coastal municipalities bordering the Caribbean, including: local governments, the private sector, and organizations located in these municipalities.

Goal: Establish a Municipal Tourism Unit (UTM) in each of the participating municipalities.

Outcome: The local government, entrepreneurs, general population, and tourists have a local tourist information center with staff members trained to provide continuous support for investment project design and information on tourism and environmental legislation, documents and securing financial resources.

The municipalities that have assumed the overhead costs of UTMs are La Ceiba, Tela, Trujillo, and Utila. In Guanaja and Omoa, on the other hand, the Tourism Units practically disappeared when new officials were elected to the local governments.

Goal 2: Training municipal personnel in areas related to environmental management.

Outcome: 5,902 people were trained in 230 workshops held in the municipalities within the project’s area of influence; community organizations, business owners, and local government personnel participated.

Goal 3: Restore over 25 historic sites and buildings in historic downtown Trujillo.

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Outcome: The following areas were restored: 1) La Comandancia; 2) Old Courthouses; 3) INFOP; 4) the Santa Bárbara Fort; 5) Central Park, 6) technical assistance was provided for the rehabilitation of 22 buildings in Historic Downtown; and 7) “Señorita Aguilar” street.

Component 3: Entrepreneurial Pilot Programs for Sustainable Coastal Tourism.

Objective # 3: Strengthen productive, technical, and financial skills of small businesses located in the Project’s area of influence.

Goal: Train small and micro-enterprises through the Training Program to promote their productive capacity and create business opportunities as a joint initiative with institutions and universities offering training services.

Outcome: Women were trained in the design of new production models, business owners were trained in tourism culture, and college students were prepared to train others in tourism and environmental issues. Another example of micro-enterprise training was a methodological simulation called “My First Company,” which involves simulating the establishment of a micro-enterprise over three days and includes selecting the managers (general, marketing, production, finance, and personnel). Then a feasibility study was carried out based on the estimation of a balance point by calculating fixed and variable costs, contribution margins, and sales goals for generating earnings. With this business plan, company stocks are purchased, the business plan is implemented, production is carried out, and sales are made all day; then wages, salaries, commissions, and dividends are paid, the company is liquidated, and the value of shared stocks is returned. All of this occurs prior to the discussion of potential companies and the planning of a production company for either goods or services.

Goal: Finance and launch Innovative Pilot Projects focused on coastal tourism by the public sector, NGOs, and small and micro-enterprises.

Outcome: Innovative projects.

Goal: Support or implement Innovative Pilot Projects located in indigenous communities by the public sector, NGOs, and small and micro-enterprises.

Outcome: Innovative projects related to Garífuna and women.

Component 4. Project Administration

Goal: Capacity building with the IHT technical team according to project intervention areas.

Goal: Administrative coordination, procurement, monitoring, and evaluation of the activities designed and included in the Project Implementation Plan.

Goal: Introduce international standards aligned with the World Bank in the project’s procurement and monitoring operational systems.

Outcome: A Computerized Bi-currency System for procurement, finance, and accounting, especially designed to implement World Bank procedures, submit reports, and ensure improved budget management. A monitoring and assessment system with impact indicators under the project’s logical framework

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established to ensure a mid-term and final project assessment.

3. Description of Implemented Activities:

• Terms of reference were defined for the hiring of the different consultants needed for project implementation.

• Proposals were requested, received, and evaluated and companies and consultants were hired to obtain the following outcomes: 1) Design of legal instruments and policies for implementing a sustainable tourism strategy; 2) Regional Sustainable Coastal Tourism Strategy, 3) Research on the satisfaction level among foreign visitors in Honduras; 4) Studies on international travelers’ behavior linked to Honduras; 5) Training in restaurant services and technical assistance for tourism services in six municipalities; 6) Tourism signage plan and garbage bins; 7) Hotel classification; 8) Municipal Tourism Coordinators; 9) Management of the Fondo Prosperidad, operations manual, and eligibility criteria; 10) Restoration and rehabilitation of the old commander’s building; 11) Restoration and rehabilitation of the INFOP building; 12) Restoration and rehabilitation of the old courthouse; 13) Construction of a pier for small boats; 14) Restoration and rehabilitation of the Santa Bárbara fort; 15) Basic clean-up in Trujillo; 16) Development of new lines of handicraft and textile products; 17) Planning, Monitoring, and Assessment System; 18) Surveying Trujillo’s historic downtown area; 19) Master Plan for revitalizing Trujillo’s historic downtown area; 20) Operational planning and logical framework workshop; 21) Project website; 22) Project administrative and financial system; 23) External audits.

• Technical specifications were created for acquiring furniture, office equipment, information technology equipment, and vehicles.

• Cooperation agreements were established between the IHT and other institutions: the Rural Land Management Project, aerial photographs; Municipalities of Omoa, La Ceiba, Tela, Trujillo, Guanaja, and Utila; Organizations representing Garífuna ethnic communities; Ministry of Education; INFOP; and IHAH.

• A training program was developed through workshops in six municipalities that addresses: 1) Conceptualization of the Sustainable Coastal Tourism Project, Dialogue and consulting to create the Regional Strategy, Forum on the Mesoamerican Reef System, sustainable tourism and ecotourism, socialization of the UTMs structures, training for taxi drivers on tourist culture and quality service; inventory of tourist attractions; local cultural development; candle production; the role of civil servants and record of tourist services offered; creation of tourism project profiles; community development, tourism, and the environment, urban space design; local development and sustainable tourism, the role of the Municipality; monitoring and statistics; conflict resolution; development of new handicraft products;

Other activities: • Funding the Jején Research and Control Program in the Bay Islands; Financial and technical support for the Garífuna Lanigi mua dance group Corazon de la Tierra, a guide to prepare tourism project profiles, a guide to identify needs in the handicrafts area; a fact sheet to identify tourist attractions; creation and distribution of investment profiles, compendium of laws on tourism and the environment, promotional material about the country, socio-demographic information and municipal investment guidelines; Procedural and Guidelines Manual created for Municipal Tourism Units; annual operations plan for each UTM; municipal tourism commission organized; operating Tourist Information Centers; organization and coordination of sponsored carnivals and fairs; Creation of basic services map; Establishment of a database on the perception of municipal income; organization of clean-up campaigns; development of videos and

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promotional posters for tourist attractions; tourism micro-enterprise identification manual.

Suggestions for improved administrative performance

• Regarding disbursements, when inconsistencies are found in the disbursement requests, it would be best if Bank staff contacted the PIU prior to them being returned, since amounts were deducted without consulting the PIU, which then slowed down the disbursement of requested amount.• World Bank financial experts should train the PIU personnel in the proper way to submit quarterly and annual reports to the World Bank.• No obstacles were presented by the Ministry of Finance regarding disbursements. However, there were small delays in the disbursement of the national counterpart, which did not match the amounts to be executed with external funding. The timely intervention by the Ministry of Tourism prevented any further problems.

Benefits• A marked increase in the annual income growth rate per visitor within the project’s area of influence.• Existing hotel offerings and tourism services were classified.• More than five strategic alliances were established between the public and private sectors supporting tourism and business infrastructure investments.• The municipalities adopted the action plans developed by the Regional Sustainable Development Strategy. • Public and private institutions and external cooperation agencies accepted and adopted the Regional Strategy.• The population of each municipality in the project’s area of influence is more knowledgeable about the region’s biodiversity under the regional tourism framework.• The population has adopted at least five practices consistent with biodiversity conservation in coastal tourism areas.• The Municipality and other local authorities are aware of environmental legislation and regulations related to project implementation.• The amount of quality basic services offered for national and foreign visitors has increased.• Over 30 new innovative public-private projects were established in the project area (Bed & Breakfasts, suppliers, guides).• Over 30 innovative projects with indigenous communities were implemented at the end of the project.• The number of businesses created or strengthened by the project meeting satisfactory standards for international and local tourism has increased.• A population of 285,000 people in six different municipalities has been integrated with complementary tourism opportunities under the development vision of a single tourism development strategy.• Fourteen coastal communities have benefited from the implementation of pilot projects, strengthening the initiatives of the tourism micro-enterprises.• More than 200 people (owners, members, or employees) have benefited from seed investment funds to access or remain in the tourism sector.• Entrepreneurial training: The 95 micro-enterprises selected by the Approval Committee were trained in basic accounting, corporate management, and administration.• Monitoring and assessment: Throughout the project, the technical team of the NGO managing the Fondo and the Sustainable Coastal Tourism Project conducted monitoring and assessment visits to the 95 subprojects to verify the adequate administration of funds, identify specific technical assistance or logistical shortcomings or needs.

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• Forty-three percent of the resources were allocated to women micro-entrepreneurs or women’s associations with a shared goal.• The Municipality with the highest percentage of women-led micro-enterprises is Tela; Omoa is the municipality with the lowest participation rate in the Fondo Prosperidad.• Population groups involved: mestizos –the majority group in Honduras – the Garífunas, an African American group concentrated along the country’s Atlantic coast, the Isleños, born on the Bay Islands and whose native tongue is Caribbean English, and others, such as foreign residents in Honduras.• Resources (54%) were mostly allocated to Garífuna-run micro-enterprises; in the Municipality of Tela, 100% of resources were allocated to Garífuna-run micro-enterprises.• The Fondo Prosperidad has directly benefited more than 200 families in the Honduran Caribbean through job creation.

Fondo Prosperidad US$

Program Funds 1,271,000.00 Grant Funds 1,157,000.00 Training Funds 114,000.00 Number of approved Projects 95 Percent of approved Funds 100.00% Total approved funds 1,001,908.00 Total training costs 29,201.00 Percent of training funds 25.61%

Lessons learned:

• As a team, the PIU developed adequate skills and knowledge to carry out all of the planned activities in an efficient and transparent manner, as demonstrated by the five financial audits, the World Bank team missions, and the international recognition received as one of the 12 most successful projects in the World Bank portfolio.

• Payment to the NGO for the Fondo Prosperidad’s management had extremely high costs for Honduran society. PIU personnel have demonstrated strong capacity for directly managing a fund of such importance for poverty reduction in Honduras.

• Local governments, private companies, and marginalized and vulnerable groups support tourism when they see specific initiatives with short-term results, receive the needed information, and can become a social audit of government investments.

• According to the perception of micro-entrepreneurs, financing provided by the Fondo Prosperidad improved their facilities (61%), production (23%), products (10%), and sales (6%).

• Micro-entrepreneurs are willing to receive a national or foreign volunteer to provide technical consulting and 90% of them are willing to cover the volunteer’s food and board expenses.

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Additional Annex 9. Data Tables

Table A9.1: Honduras Tourism Statistics 2002-05 2002 2003 2004 (p) 2005( e) % increase

2004-05

Total Number of Visitors(‘000) 788.1 886.6 1056.6 1194.1 13.0

Number of Tourists (‘000) 549.5 610.5 672.1 749.4 11.5

Visitors as part of excursions (‘000)

238.6 276.1 384.5 444.6 15.6

Income from foreign currency (‘000)

341.5 373.2 401.2 431.3 7.5

Tourism as part of the GDP (%) 14.8 15.3 16.2 16.8 5.9

Average daily expenditure of tourists (US$)

60.1 63.4 51.6 61.9 19.9

Direct Employment 34,207 38,428 43,172 48,452 12.2

Indirect Employment 43,006 46,511 50,301 56,488 12.3

p: Preliminary numbers e: Estimates Source: IHT, Department of Planning

Table A9.2: Number of Visitors to Trujillo Month Years 2004 2005 January* 963 219 February 609 1,132 March* 915 213 April 1,382 2,111 May 191 551 June 566 1,414 July 499 841 August 452 1,045 September 262 718 October 215 709 November 176 243 December 203 456 TOTAL 6,433 9,196

*Numbers are lower, after busy months with Christmas and Holy Week. Source: Municipal Tourism Commission

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Table A9.3 Women in the Fondo Prosperidad Municipality % Female-led Micro-

enterprises % of Fondo Resources

Tela 23 18 La Ceiba 28 22 Trujillo 44 53 Omoa 50 65 Utila 47 46 Guanaja 14 6

Table A9.4 Fondo Prosperidad Indicators (69 subprojects) Results Data Amount for Seed Grants US$1.0 million total

25 communities in six municipalities. Co-investment from Beneficiaries US$1.5 million (139.76%) 99 percent of assigned funds were disbursed.

Number of Seed Grants 69 Average amount per grant per subproject was US$14,000 with smallest seed grant of US$1,165 and largest at US$30,600

Categorization of subprojects

Hotel: 25%; Tour operators: 19%; Artisan groups 16%; Garbage recycling: 8%; Tourist information: 5%; Transport 4%.

Number of Direct Beneficiaries

144 persons (individual business owners or organizations) including: • 57 individual micro-enterprises • 10 business associations • 1 business chamber (Camara Empresarial) • 1 NGO

Strengthened employment 426 persons (276 women, 150 men) in the 69 micro-enterprises Co-investment contribution

Individuals: 33% Associations or women’s groups: 25%

Beneficiaries by Ethnicity Garífuna: 42% (54% of resources); Ladino 33%; Isleño 22%; Foreign residents 3% Beneficiaries by Gender Women: 55%; Men 45%

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BOX A9.1: Case Study of Fondo Prosperidad Noticing the increasing number of tourists coming to their native land, two individuals were determined to create a new tourist attraction on the Bay Islands. They dreamed about giving tours on glass-bottom boats to show off the beautiful coral reef. Seeing an opportunity to generate a stable income to provide for their families, a small enterprise was born. "We wanted to introduce the glass floor boat so that children and the elderly can observe the reefs without the risks involved with diving," said the beneficiary. Both men worked long and hard to launch their business. However, this was not an easy task. The glass-bottom boat was very expensive and required a special docking facility. They reconstructed the one boat they had and put it to work, transporting tourists who arrived at the island. In 2005, the enterprise applied to the Fondo Prosperidad program to obtain the economic assistance they needed to purchase the glass floor for the boat and to further expand their venture. With the additional money they were eligible to receive from the NGO’s micro-lending program, the entrepreneurs decided to build a tourist pier with an observation deck on the top, in addition to a special area to dock the boats. Not only has the Fondo helped generate additional income for the enterprise, but the introduction of the glass bottom boat has made this enterprise one of the most popular tourist attractions on the island, providing the individuals exactly what they were looking for: a reliable source of sustainable income and the opportunity to provide a better life for their families. Source: http://www.chfhq.org/files/935_file_Honduras_MAR_06.pdf

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Additional Annex 10. Endnote References

1. Terms of Spanish origin used to designate the people of mixed European and indigenous non-European ancestry.2. The Garífuna are descendants of the Island Carib indigenous population and a group of African slaves who escaped two ship-wrecked Spanish slave ships in 1635. Through a mixture of these cultures and the influence of European settlers in the Americas, the Garífuna have a diverse culture that incorporates African traditions of music, dance, religious rites, and ceremonies; Native American cultivation, hunting, and fishing techniques; and a French and Arawak influenced language. There are 46 communities with a population of approximately 200,000, living in the Departments of Cortés, Atlántida, Colón, Gracias a Dios and the Bay Islands. 3. The Miskito indigenous population lives mainly in the Gracias a Dios Department along the North Coast. This department was not part of the project area. However, the Miskitos have expanded their settlements to urban areas outside of their traditional territories.4. The Bay Islands population/Isleños includes Afro-Antilleans (from the West Indies), Anglo-Antilleans, Garífunas, Miskitos, Spanish-speaking Hondurans, Americans and Europeans. Bay Islands English is spoken on the islands. 5. The project area included municipalities in all four departments. Roatán in the Bay Islands was considered for a Municipal Tourism Unit (UTM), but the Inter-American Development Bank-financed Environmental Management in the Bay Islands Project was financing similar activities in Roatán. Thus, in order to use resources in the LIL most effectively, the GOH and the Bank agreed to support the UTM in Guanaja in the Bay Islands. 6. An Assessment of the Tourism Potential of Honduras: Observations and Recommendations for Sustainable Coastal Tourism, April 2002.7. The tourism police were installed in the municipalities of Tela, La Ceiba, the Bay Islands, San Pedro Sula, and Tegucigalpa. These units were established through agreements with the national police and the local tourism chambers of commerce. The IHT was responsible for training in tourism culture, languages, and legal and police policies. The tourism police were provided with uniforms, but they are not armed. Agreements were established with the police of France, Miami (USA) and Japan for donations of equipment and training, and Indonesia donated motorcycles. 8.The HIV/AIDS indicator was eliminated.9. Eligible enterprises were either legally constituted; informally constituted and needing technical assistance to be constituted, or initiatives that were interested in becoming new micro-enterprises. Micro-enterprises have five or fewer employees; small enterprises are defined as between 5 and 15 employees.10. The jején is a nearly invisible sand flea (no-see-um) that is found near beach areas in the Bay Islands. One in four people is allergic to the bites and each one turns into a big red sore like a mosquito bite that can be very itchy for days.

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