maendeleo resorts business plan version 3
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Maendeleo Resorts Limited
The Royal Dhow - Zanzibar
A Business Plan and Financial Feasibility for A Luxury Concept Resort Hotel at Fumba
Stephen Oehley - Mobile +27 84 800 9119 March 2004
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combination of debt and equity according to their own risk and return
profiles. The resort itself will yield at least 10% return on capitalemployed based on a debt equity split of US$13m / US$9m
respectively. These returns are subject to change based on the
specific investor requirements,
The Guest experience will be memorable, differentiated by a
commitment to service and an uncompromised presentation of
quality and standards. In addition, Guests shall be offered
personalised itineraries. These offerings will ensure that each
Guest's expectations are met, professionally executed and managed
and provide the opportunity for Guests to realistically claim a holistic,
meaningful and memorable Zanzibar experience. (See operatingand Design criteria).
A project team of development professionals has been assembled
all of whom have international development credentials. These
include veteran hotel development consultant - Mr John
Zimmerman, project managers - @Hart Property Development, cost
controllers -McIntosh Latilla Carrier & Laing, construction partners -
Murray & Roberts Developments, architects - Eugene Barnard &
Associates, civil and structural engineering consultants - DNS
Consulting, environmental specialists - Dr. Richard Cohen of CEN
Integrated Environmental Management Unit, technical consultant -
Johnny Smit, design consultants - Black Moon Studios, Martin Fine,Regional Manager for Tanzania of the Protea Hospitality
Corporation, corporate financial advisors - Executive Consulting and
financial and other consultants.
The resort development is presented as independently as possible
of state utilities in design and strives to presents a model for African
coastal sustainable development.
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MANAGEMENT & PARTNERS
STEPHEN OEHLEY
Stephen has over twenty years experience in business and has
focused on blue chip business development and marketing.
Following 10 years experience in the trade and technical publishingand advertising industries, Stephen established Digital Synergy (Pty)
Ltd, a design and communications services company. Stephen
managed and directed the company from 1990 until 2001 during
which time he produced solutions for corporate and parastatal
clients. These included Iscor Mining, (now Kumba Resources), JCI,
Voltex, Telkom, PPC Cement, the Council for Scientific and
Industrial Research and the Southern African Development
Community .
Stephen, his wife Belinda and family will emigrate to Fumba to serve
stakeholder interests and plan to contribute to communitydevelopment projects in the locality.
JOACHIM JOHN ZIMMERMANN
John Zimmermann is highly regarded as an international expert in all
aspects of food and beverage operations and has over 35 years of
experience in the hospitality industry. During this time, he has been
involved in the opening of over 40 hotels and has established a
worldwide reputation for everything from innovative food and
beverage concepts to efficient and cost-effective kitchen designs.These have been created for a wide range of developments, both
International and for Southern Africa Regions. Some of the more
prestigious developments include: The Ciragen Palace and Hotel in
Istanbul, The Sun City Hotel and Casino Complex, including the
Palace at the Lost City, A 3000 seat Convention Center in
Mmabatho, The luxury passenger liner S.S. Astor, operated by
Safmarine, The Sir S Ramgoolam Airport in Mauritius, Hotel
Management School in Mmbatho (an offspring of Belvoir Park,
Zurich), Hotel St. Geran in Mauritius
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John Zimmermann has been involved in the conceptual planning,
design, development and refurbishment of some of the most excitingHotel Projects in Southern Africa and the Indian Ocean Island hotels
that has included no less than eight 5 star City Hotels, twelve Casino
Hotels, five Resort Hotels and over fifteen major refurbishments
In January of 1993, in response to a growing demand for his
expertise, John Zimmermann decided to leave corporate life and
formed his own consultancy, John J Zimmermann and Associates
C.C., which is based in Johannesburg.
John brings a wealth of creative and professional expertise to the
project and shall directly influence and manage aspects of design,development and management through present stage, pre-opening
to opening and management installation. Johns Profile and Career
Portfolio are provided in the Addenda - Profiles
TREVOR t HART
Trevor has over twenty years experience in the field of project
management and civil engineering. His work ethic and dedication
were clearly demonstrated early in his working career by achieving
top place in his third year of civil engineering at Wits Technikon while
maintaining a job at Savage and Lovemore as Site Engineer and
Surveyor.
After completing his NDP in 1982, Trevor worked as Site agent for
various companies before accepting the appointment of Project
Manager for MLC Bonnet in 1990. During this time he completed
his MDP in Project Management through UNISA. He later joined
Sun International as Development Manager where he worked for 7
years before founding @HART PROPERTY DEVELOPMENT in
2002.
WAYNE TWIGG
Wayne qualified as a Chartered Accountant in 1996. He served his
articles with Ernst & Young between 1991 and 1994. After six yearsin corporate audit, a further two years in the Management Consulting
division, and time at Abbey National Bank Plc in the United
Kingdom, he founded Executive Consulting in 1999.
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For the past five years Wayne has been involved in consulting on
business and process restructuring with a focus on improving
profitability and gaining additional funding for companies. He alsoserved on the board of directors of MKN Equity, a private equity
fund.
Wayne is a member of the South African Institute of Chartered
Accountants and the Institute of Directors in South Africa. He serves
as the honorary auditor of Wycliffe, South Africa and Summer
Institute of Linguistics, South Africa. He is a trustee of OMF
International (Southern Africa) where he is a member of the
executive committee and chairs their finance committee.
ABDUL-HAKIM AMEIR ISSA
Abdul-hakim was awarded his Honours in 1999 after completing a
BA LLB at the National Law School of India in Bangalore. Other
qualifications include:
Stage en Linguistique et Methodologique de Francais undertaken
at the University of Burundi, a Company Directors Course in
Corporate Governance conducted by the Commonwealth
Association for Corporate Governance in Nairobi and Mutual
Evaluation Techniques For Anti Money-Laundering and Combatingthe Financing of Terrorism conducted by the Eastern and Southern
Africa Anti Money-Laundering Group in Bagamoyo.
Abdul-hakim is fluent in Kiswahili, French and English and practices
as State attorney in the Attorney Generals Chambers on Zanzibar.
He presently serves as a member of the Zanzibar Labour Laws
Reform Committee, on the Board of Directors of the State Fuel and
Power Corporation and as a member of The Medical Council Board.
He has also served as a member of the Quality Assurance Team for
Country Financial Assessment and Accountability conducted in
2002/3.
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BACKGROUND OF ZANZIBAR
The name Zanzibar is well known and ranks as "one of those exotic
world destinations" that everyone would like to visit. However few
people actually know where the island is and even fewer that is part
of Tanzania. Historically known as Unguja Island, Zanzibar is a coral
island connected to the mainland by a narrow submerged shelf and
lies about forty kilometers offshore east of Dar es Salaam on the
Tanzanian mainland. It measures about 110km by 40km. Annual
rainfall averages 1,500 mm with long rain between March and May
and short rains between October and December. Temperatures
moderated by sea breezes are fairly constant year round averaging
between 24 c and 29 c . The island was originally covered bytropical high forest 95% of which is now gone. The only remaining
forest is Jozani that is a protected reserve.
The population of the Archipelago is estimated at just over 813,000.
Although there is a cosmopolitan grouping in Stone Town on
Unguja, there are three principle indigenous ethnic groups, The
Hadimu, Tumbatu and the Pemba. Members of the non-African
population are primarily Shirazi who consider themselves
descendants of immigrants of Shiraz in Persia (Iran).
Most Zanzibari are SunniMuslims. Zanzibari claiming
direct descent from Omanis
follow Ibadhism. Christians
barely comprise 1% of the
population.
Zanzibar shares foreign and
monetary policy, postal and
telecommunication systems
and defense policy with the
mainland. There are two major political parties, the ruling CCM partyand CUF that draws most of its support from Pemba.
Zanzibar not only offers the visitor miles of white sand and blue
water but also has many places of historical interest. The island
holds out in addition world-class snorkeling, scuba diving and deep
sea angling opportunities. This serves to enlarge the Tourist
potential by offering history, culture, adventuring and exploring the
natural beauty of the islands resources.
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INTRODUCING THE MAENDELEO RESORT
The resort is envisaged as a welcoming, elegantly designed and well
built facility offering a spacious, cool and tranquil atmosphere with
efficient first-class guest-orientated service. The hotel will feature
voluminous use of space and water with sparse select dcor of great
beauty. There are 120 guest rooms each with magnificent sea
views. Of these, two Plantation luxury suites, four Peninsula Estate
suites and a mix of deluxe and standard accommodations with one
unit designed to facilitate accessibility for the disabled are planned.
The rooms will be interconnected to a central services facility by
boardwalks. This central facility will include all back of house supportinfrastructure, conference facilities, restaurants, lounges, shops, a
gymnasium, games room, library, a huge pool and bars and social
entertainment areas.
The construction will have a minimalist footprint and consequent low
impact on the environment and support infrastructure will include
road construction, alternative power generation and efficiency
management, water boreholes, reservoirs and purification, sewage
treatment, waste separation, compaction and management,
perimeter security fencing and maintenance infrastructure and
support.
The resort will be marketed and managed by outsourced partners
who will be required to commit to training and development and the
project will create at least 150 permanent employment opportunities.
Transport to and from the ports will be provided and excursions to
Stone Town and other places of interest facilitated. Swimming,
tennis, a social activity and entertainment calendar, cruises, diving,
angling and other water excursions from custom-built dhow craft
commissioned locally will be offered assisting local endeavours,
employment and empowerment at every opportunity.
The resort is planned within an existing free economic zone
(ZAFREZA) offering substantial incentives to developers. Details of
ZAFREZA are contained in ADDENDUM G : ZANZIBAR FREE
ECONOMIC ZONES AUTHORITY (ZAFREZA)
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MARKET RESEARCH
STRUCTURE OF THE TOURISM SECTOR
Despite its considerable potential, the tourism industry in Zanzibar is
relatively small. According to figures compiled by the Commission
for Tourism, there are currently 159 tourist accommodation
establishments, with a total of 2 979 rooms and 5 945 beds onUnguja,
In 1998, less than one-fifth of all beds were in 4 or 5 star properties,
and a further one fifth in 3 star properties. Most properties and 37 %
of all beds in 1998, are in unclassified establishments. This implies
that the bulk of tourist accommodation - probably as much as 60 %
of the total - is suitable mainly for budget travelers or backpackers.
There has been relatively little new investment in the
accommodation sector in recent years and, notwithstanding the
large number of projects that have been approved by ZIPA, only onemajor project (which will add another 400 rooms by 2004 and a
further 200 rooms in a second phase), is presently under
construction.
Outside the hotels, there are approximately twenty restaurants of
international standard, with several new high quality establishments
opened in Stone Town in the past few years.
DEMAND CHARACTERISTICS
Tourist Arrivals
According to statistics compiled by the Zanzibar Commission for
Tourism, a total of 76 329 tourists visited Zanzibar in 2001
( ADDENDUM A : TOURIST ARRIVALS BY NATIONALITY) ,
compared with 97 165 in 2000 - a decrease of 21 %. The decrease
was due partly to the adverse publicity received by Zanzibar
following the civil disturbances in January 2001 and partly to the
worldwide downturn in tourism following the events of 11th
September 2001.
These figures exclude domestic tourists visiting Zanzibar from themainland as well as foreign tourists arriving in Zanzibar on internal
air services. The true number of tourists visiting Zanzibar could
consequently be considerably greater than the official statistics
suggest.
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Market Segmentation
Europeans accounted for 70 % of total arrivals in 2001, with the
remainder divided between North America (8.3 %), Africa (9.8 %)and Rest of World (11.9 %). Within Europe, the main source
markets are Italy and Britain, which together accounted for 36 % of
total arrivals in 2001.
The main regional markets for Zanzibar are South Africa (3 121
arrivals in 2001) and Kenya (2 025 arrivals, mostly business visitors).
While mainland Tanzania has limited market potential for vacation
travel from South Africa, Zanzibar (while competing with Mauritius
and the Maldives) has generated an increase in South African
visitors for beach, diving and fishing vacations. The East African
expatriate market, concentrated in Nairobi and Mombassa, alsooffers good potential.
The Tanzania domestic market is growing and, though presently
limited in size for Zanzibar, it has some potential for development in
the short term, including Tanzanian residents with high disposable
incomes; expatriate residents living in Dar es Salaam and other
cities; VFRs of expatriate residents; conference and meetings; and
group travel by schools and clubs.
How do they come?
In 2001, some 53 % of all tourists arrived by air and the remaining
47 % by sea. Cruise ships made a total of 29 calls with a total of4 857 passengers.
How long do they stay?
The average length of stay for all categories of visitors is estimated
to be five nights in 2001*.
When do they come?
In 2000, 44 % of all visitors came in the period July to October
inclusive, compared with only 13.5 % in April-June.
How much do they spend?
The average daily expenditure was estimated at $120 per person for
2001 (for the peak season).
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ZANZIBAR'S MARKET PERFORMANCE
Competing Destinations
Compared with other destinations in eastern and southern Africa,
Zanzibar receives a very small market share. According to WTO
statistics, Zanzibar received less than one-quarter of the number of
persons who visited Reunion in 1998, less than one-fifth of the
visitors to mainland Tanzania and less than one-sixth of visitors to
Mauritius. Details are shown in ADDENDUM B : INTERNATIONALTOURIST ARRIVALS IN SUB-SAHARAN AFRICA
The number of visitors to Zanzibar is also very small compared with
competing island destinations in the Caribbean which, with in many
cases a more limited tourist product confined largely to beaches,
enjoy high standards of living due mainly to their highly developed
tourism industries.
Based on tour operator research, the structure of the European long-
haul market to sub-Saharan Africa is estimated to be
15% beach holidays only;40 % beach and safari;
16 % single destination safari/sightseeing;
17 % dual/multiple destination safari/sightseeing; and
12 % soft adventure
TOURIST ATTRACTIONS
Tourist attractions, together with access, accommodation and other
services, are the main features that distinguish one touristdestination from another.
Visitors select a destination mainly because of its primary attractions
i.e. attractions that have significant appeal and drawing power.
When they have made their decision to come to Zanzibar, the
objective is to get the visitors to stay as long as possible and to
encourage them to spend as much as possible during their visit by
providing a wide range of secondary attractions i.e. additional things
to do and see.
Because of its richly evocative name, Zanzibar already has a headstart in the minds of many travelers. Its historical and cultural legacy,
tropical climate and idyllic beaches and islands hold out opportunity
to invite travelers that have history in common with the island.
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Stone Town, with its wealth of historical buildings and traditional
Swahili culture, is Zanzibar's key, unique attraction.
The tourist product is further enhanced by a rich marine environmentcharacterised by coral reefs suitable for snorkeling and diving,
offshore islands and coral reefs, such as Changuu, Chumbe, and
Mnemba, big game fish, sea turtles and dolphins, sand beaches and
extensive water areas.
Tours to spice plantations depend on the degree of knowledge of the
tour guide or taxi driver. A knowledgeable guide or driver will result
in an experience that is both enjoyable and educational. Visits to the
Agricultural Experiment Station will also be of interest to visitors.
Jozani Forest provides a habitat for the endemic Red Colobus
monkey. Additionally, the forest offers a diverse, visually interesting
experience in the last remnant of Unguja's native forest vegetation.
Other sites and attractions, which are often included in island tours
and excursions, include the ruins of Maharubi Palace, the Mtoni
Slave Chambers, the ruins of Mtoni Palace, the Kidichi and
Kizambani Persian Baths and the Mangapwani Slave Cave.
The best known and distinctive arts activity in Zanzibar is carving,
especially production of wooden chests and doors, which has now
been expanded to include picture frames, miniature doors, chests,
other furniture and brass, copperware and jewelry. An indigenous
form of 'Tinga Tinga' art is available along with Makonde Carving
sold in the street markets and shops of Stone Town.
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MARKET POTENTIAL AND GROWTH PROJECTIONS
In 2001, according to data compiled by the Commission for Tourism
data, Zanzibar received a total of some 76 000 foreign tourists. To
this number must be added an allowance for foreign visitors
(including expatriates resident in Tanzania) traveling to Zanzibar on
internal flights (estimated at around 15 000 persons in 2001) and
domestic visitors from the mainland (estimated at around 30,000persons) who are not at present included in the official visitor arrival
statistics. This gives an estimated total of about 121 000 tourist
arrivals in 2001, plus just fewer than 5 000 cruise ship visitors.
Having fallen sharply in 2001, visitor numbers are expected to show
a substantial recovery in 2002. Thereafter, between 2003 and 2012,
an average target growth rate of around 6 % per annum has been
provisionally assumed for most categories of visitors.
On the basis of these assumptions, total tourist arrivals are
provisionally projected to reach 220 000 persons by 2012. Of thisnumber, the great majority is expected to be holiday/leisure visitors,
with business visitors expected to come mostly from mainland
Tanzania.
Based on a projected demand of around 1.2 million bed-nights by
2012, the total room requirements (assuming an average room
occupancy rate of 60 % and 1.7 persons per room) would be for
around 3 200 rooms, of which at least 2 500 would need to be of
international standard.
Of the estimated 2 500 international standard rooms required by
2012, some 1 200 rooms are currently available in 3-star or betterproperties that are operating to acceptable or near acceptable
international standards, and approximately 800 rooms are currently
under construction, or planned to be provided in the next few years.
The remaining 500 rooms will be required by 2012.
Tourism in Zanzibar is characterised by a surfeit of low quality
'backpacker' type accommodation that falls below international
standards. Analysis of the current situation indicates that, of the one
hundred and seventy one developments operating on Unguja Island,
72% (123) have not been given grades by the Commission for
Tourism and only ten properties fall within the four or five starcategory.
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The un-adopted Tourism Policy Statement (1997) produced by the
Commission For Tourism states that tourism should be culturally and
environmentally sensitive and based on fewer high spending
tourists. Services provided should be of the highest quality and mass
tourism should be rejected. This view has been widely supported in
discussions with various players in the public and private sectors.
Historically this assertion has been supported by the InvestmentProtection Act 1989 which set out to limit the lower levels of
investment, thereby encouraging 'quality' development.
Chart 1 : Tourist Accommodation by Grades on Unguja Island
No Grade72%
1 star 7%
2 star 13%
3 star 2%
4 star 3% 5 star 3%
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A breakdown of the significant competitor hotels and their pricing is
shown in ADDENDUM D : COMPETITOR ANALYSIS.
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MARKETING STRATEGY
In overall terms, the major source markets for vacation travel to
Zanzibar will continue to be the European markets, especially UK,
Italy, Scandinavia, Germany, France, the Netherlands and
Switzerland. The U.S. market is considered to have less growth
potential in the short-term - partly because comparatively few
Americans visit Zanzibar as a stand-alone destination and partly
because Americans are less likely to wish to travel overseas in the
present uncertain geo-political climate.
The main marketing effort will be focused on the more affluent
sections of the major European markets. Other markets should beserviced mostly via the Internet. This prioritisation of markets has
implications for overseas representation and trade fair participation.
The Resort will package to develop niche markets where it has a
comparative advantage, namely diving and other water sports;
deep-sea fishing; cultural tourism; eco-tourism; honeymoon market;
and smaller conferences, meetings and incentive travel.
Special promotions will be undertaken to increase occupancy levels
during the off-season, including the development of attractively
priced packages aimed at the domestic and regional markets.
MARKETING PLAN
INTERNATIONAL MARKET
International Incentive Groups
Markets will be targeted in conjunction with an outsource partner
responsible for marketing the hotel. Such a partner will be selected
partly for their international networks and ability to reach what areperceived to be the key markets. It is essential that the resort is able
to reach In-bound traffic to Sub Saharan African destinations through
sales representatives in London, Germany, Italy, France, Egypt and
North America. The resort will be marketed at all the major
International Trade Shows.
International Groups
Zanzibar is a popular destination with the main European Markets.
The South African Market has only just started to open out. It must
be remembered that prior to 1994 South African Passport holders
were not allowed entry. The purchase of Air Tanzania by South
African Airways who effectively take over the airline in December will
facilitate the introduction of Group travel from Johannesburg to the
Island. This is the fastest growing section of the market out of South
Africa.
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International Individual Tourists
This market is an important market, particularly from Europe. The
tendency today is for the Travel Agent and Tour Organizer to book
one company that can offer a bouquet of experience at their hotels,
this capacity will also be a consideration in choosing an outsource
partner.
The International Incentive Groups
This sector is seen as an important niche market particularly from
South Africa and Europe. The outward-bound incentive conference
market from South Africa alone is estimated to be worth more than
$50 million. This market is currently visiting Mauritius, Seychellesand the Islands of the Maldives.
DOMESTIC MARKET
Local Conference Market
Usually financed by NGO & International Funders, the value of thismarket is estimated to be worth more than $20 million per year to the
Tanzanian Hotel Market.
Domestic Tourism
Ambassadorial, United Nations and NGO's make up a local Tourist
market of 10 000 visitors all of whom tour the Country and stay inresort style hotels. The business sector of Tanzania accounts for
more than 500 000 bed nights in resort hotels (figures are supplied
from the
Tanzanian
Hoteliers
Association)
A significant
portion of
the
operational
marketingplan will be
developed by the outsource partner chosen to operate the resort.
Part of the selection criteria will be the strength both of their plan and
their perceived ability to implement the plan. In selecting outsource
partners, management have approached a number of potential
partners, the most significant of these being Protea Hotels who have
demonstrated their willingness to participate in this venture.
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WHY WILL THE RESORT BE SUCCESSFUL?
Location
White sand blue water beach location
Close Proximity to entry points Airport & Ferry Terminal.
Close Proximity to Stone Town
Quality Accommodation
The market needs quality accommodation most resorts are poorly
designed and badly built with the exception of the Protea Mboweni,
Serena, Blue Bay and Breezes.
The Power of the Brand
A powerfully branded operator will assist in providing credibility and
drawing guests to the resort.
Zanzibar and Tanzania
Zanzibar and Tanzania are one of the fastest growing Tourist
Destinations after South Africa in Sub Saharan Africa.
INFRASTRUCTURE
Zanzibar International Airport (ZNZ)
The airport has a 2.462m runway that in 2001 handled 68 342
international passengers in 1 795 movements (42 633 were non-
scheduled services). The domestic passenger services handled 90
910 passengers in 2001 (77 224 passengers in non-scheduled
services) by a total of 1 036 aircraft movements.
The design process for extending the runway to 3 000 m (US$ 2
million investment) and resurfacing the existing runway (US$ 2.4
million) are expected to be completed by the end of 2004. (World
Bank). Civil work is expected to commence March/April of 2004.
The terminal building is now being designed so as to separate
domestic and international traffic and to plan for an overall
upgrading. Implementation is anticipated for 2004, subject to
securing a loan to finance the project.
Labour and Supplies
There is a significant labour pool from the villages of Fumba and
neighbouring Bwelio to provide labour resources for the
development. There are commercial poultry rearing, fishing and
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farming activities in the district initiated by local residents with whom
supply agreements can be reached.
There is abundant loose alluvial coral rock in Fumba, which can be
crushed for a variety of building aggregate applications.
Local people and builders have indicated a plentiful supply of
potable water at shallow depths that can be treated and pumped toelevated reservoirs for
distribution to points of
requirement. Geotech analysis
will establish salinity and
suitability for purpose.
There is an existing electricity
supply that passes through the
property under lease and an
accessible water pipeline
(indicated on the waterengineering grid) from which the raw water reservoir can be
replenished.
There is adequate land for horticulture and other agricultural
activities. For example: the cultivation of a fresh produce market
garden.
There is a sand quarry approximately eight km from Fumba and
there are engineering contractors and locally available plant and
earthmoving equipment for civil works.
Cement is transported from Tanga on the Mainland.
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FINANCIAL PLAN
Maendeleo Resorts commissioned McIntosh Latilla Carrier & Laing,
quantity Surveyors & Construction Consultants to prepare costings
to build a five star 120 key Hotel. These together with forecasts on
operating costs that have been independently reviewed, have
together been assimilated as the basis for the financial plan and
capital requirements.
CAPITAL REQUIREMENTS
In addition to the US$2 million invested, the cost to build the Resort
will amount to US$9,25m. An additional $9.25m is necessary to
acquire the furniture and equipment, $1m is required for pre opening
expenses and $0,5m for capitalised interest. The total of $22m
amounts to 183 333 per key.
Maendeleo Resorts will raise this capital using a combination of both
debt and equity in such a manor as to facilitate equitable returns tothe providers of capital having regard to the risks associated with
such an investment.
The split between debt and equity together with the expected yields
the project will be able to provide are shown in the table below.
Table 1 Captial Requirements
Capital Type Amount Yield
Long Term Debt 13 000 000 8%
Equity 9 000 000
The Industrial Development Corporation in South Africa have
expressed an interest in providing the debt funding in the form of a
capital export loan. (ECIC). While an initial term sheet was obtained,
this is presently being revisited. Any remaining debt finance will besought from a combination of suppliers and conventional installment
sale arrangements.
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An equity partner who will add value to the Resort in the form of
expertise and influence will be sought. The return on investment
that such a partner will require will be achieved through one or more
of the following mechanisms:
An exit plan between 10 and 15 years at a fixed priceearning ratio
Preferential earnings
Convertible Stock
Based on the debt equity ratio in Table 1, the resort will provide a 10-
year return on Investment of 14%, while yielding 11.6% return on
capital employed. These returns are considered conservative and
take into account the following key assumptions:
Occupancy levels of 55%, 60%, 65%, 70% in the first threeyears respectively with an ongoing sustainable level of70% thereafter.
Inflation of 3%
Overheads of 8% of turnover
Marketing of 5% of turnoverDetailed assumptions are contained in ADDENDUM L : FINANCIALFEASIBILITY.
SUMMARY FINANCIAL DATA
Table 2 Summary Financial Information
Years3 5 10 15
Revenue 4980 10621 12313 14274
EBITDA 3787 4318 4990 5702
Attributable earnings 1517 2521 3224 4654
Net Free Cash 842 441 5279 8650
Return on Capital Employed 12% 16.7% 9.5% 6.3%
Return on Investment 10.2% 19.3% 11.7% 10%
Internal Rate of Return 21.1%
The table above represents an achievable budget with respect to
containing operating costs and maximising revenue through effective
management and marketing.
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A worse case scenario is reflected below indicating the robustness
of the hotel to fluctuations in occupancy. The table below represents
a 10% lower occupation level in each year. Such occupancy levels
will result in the Resort operating at levels that are profitable, but
yield very low returns for the first 15 years.
Table 3 Worse Case Financial Data
Year3 5 10 15
Revenue 7949 8998 10431 12092
EBITDA 3178 3672 4242 4904
Attributable earnings 873 1788 2227 3418
Net Free Cash 198 (292) 4282 (9985)
Return on Capital Employed 9.5% 15.9% 9.4% 6.3%
Internal Rate of Return 13%
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ADDENDUM A : TOURIST ARRIVALS BY NATIONALITY
Table 4 Tourist arrivals by nationality
Europe
Italy Britain Other
Europe
Total
Europe
North
America
Other
Africa
Rest of
World
Total
1995 8 922 10 391 18 882 38 195 4 804 6 680 6 736 56 415
1996 13 502 11 909 23 669 49 080 5 682 6 388 8 009 69 159
1997 19 583 14 884 26 471 60 938 7 603 8 022 9 932 86 495
1998 23 505 13 765 25 152 62 422 7 699 6 293 10 041 86 455
1999 23 279 14 141 24 939 62 359 6 745 6 367 11 447 86 918
2000 25 764 16 307 29 368 71 439 7 757 8 718 9 251 97 1652001 14 510 13 147 25 738 53 395 6 328 7 500 9 106 76 329
Source: Zanzibar Commission for Tourism
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ADDENDUM B : INTERNATIONAL TOURIST ARRIVALS IN SUB-SAHARAN AFRICA
Table 5 : Tourist Arrivals in Sub-Saharan Africa
International Tourist arrivalsDestination
Number (000) % share
South Africa 5,981 47
Zimbabwe 1,600 13
Kenya 951 8
Botswana 740 6
Mauritius 558 4
Namibia 560 4
Tanzania (incl. Zanzibar) 447 4
Reunion 377 3Zambia 362 3
Swaziland 325 3
Uganda 238 2
Malawi 205 2
Seychelles 128 1
TOTAL 12,344 100
Zanzibar (86) (0.7)
Source: World Tourism Organisation
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ADDENDUM C : TOUR OPERATOR CATALOGUES
As per the tour operator survey (Market Demand Survey forTanzania, August 2002) with programs to east and central Africa
destinations, the following inclusion of destinations were found:
Table 6 Market Demand - US Tour Operators
Destinations % of Operators Destinations % of
Operators
Tanzania 100 Zanzibar 60
Kenya 100 Zimbabwe 50*
Malawi 30 Namibia 50
Zambia 40 Uganda 40
Botswana 50 Mozambique 10
Madagascar 10
*Dropped considerably since the year 2000
Source : Market Demand Survey for Tanzania, August 2002
70% of the tour operators interviewed considered the tour program
Serengeti / Ngorongoro and Zanzibar to be popular, whereas 20%found Kenya Beach and Serengeti / Ngorongoro to be popular.
While the US tour operators sell Zanzibar, most of their market is not
looking for beach holidays, instead they are more interested in small
and mid-scale character filled hotels in Stone Town.
Table 7 Market Demand - European Tour Operators
Destinations % of
Operators
Destinations % of
Operators
Tanzania 84 Zanzibar 76
Kenya 79 Zimbabwe 57
Malawi 39 Namibia 51
Zambia 45 Uganda 39
Botswana 55 Mozambique 20
Madagascar 8 Sudan 5
Ethiopia 12 Indian Ocean Islands 5
Source : Market Demand Survey for Tanzania, August 2002
69% of those tour operators interviewed found Serengeti /
Ngorongoro and Zanzibar to be popular programs while 17% opted
for Serengeti / Ngorongoro and Kenya Beach.
Italian Tour Operators
Zanzibar is extensively covered by African Explorer, Francorosso,
Turisanda, African Safari Club etc. in the Italian market. This is due
to the direct charter flights selling mainly beach holidays with
optional safari trips to the mainland.
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ADDENDUM D : COMPETITOR ANALYSIS
BB HB FB
BLUE BAY BAY BEACH RESORT
Situated midway up the East Coast possibly the best on the Island 80 rooms High Season : 1st July - 19th Dec
Single $135 $153
Double $220 $238
Low Season: 1st April - 30th June
Single $75 $93
Double $150 $168
BREEZES
Situated midway up the East Coast 80 rooms High Season: 19h Dec-31st March
Standard room Per person per day $100
Deluxe (Supplement $25 on Deluxe room only) Per person per day $120
Superior Per person per day $130Low Season: 30th April 30th June
Standard room per person per day $65
Deluxe per person per day $75
Superior per person per day $90
Mid high Season : 1st July - 19th December
Standard room per person per day $90
Deluxe (Supplement $22 in deluxe only) per person per day $110
Superior per person per day $120
MAPENZI BEACH CLUB
Situated on the east coast 45kms from the airport 60 rooms deluxe resort
Single $135
Double $176
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BB HB FB
RAS NUNGWI VILLAGE
North of the island opposite Memba Island 40 rooms just burnt down
Low Season: 1st March - 24th April & 1st Nov-10th Dec
Single $160
Double $200
Chalet room without AC
Single $180
Double $270
High Season
Single $170
Double $220
FISHERMAN'S BEACH RESORT - (now Zanzibar beach resort)
Located next to Protea Mboweni Ruins it has an excellent location but is poorly managed and run down 60
rooms
Single $100 $110 $118
Double $130 $140 $148
CLUB VACANZE
Biggest of the Italian Resorts sleeps 600 people situated on the East Coast south of Blue Bay High season - 2002
Single $133 $143 $153
Double $266 $286 $306
Low Season: April-July: the hotel close down
PROTEA HOTEL MBWENI RUINS Only 13 rooms located close to the airport and Stone town currently running at 60% the highest occupancy in 5
years.
Standard Single $95 $105 $120
Standard Double $170 $190 $220
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( )
ADDENDUM E : SWOT ANALYSIS
STRENGTHS
Zanzibar - known name
Historic and cultural legacy
Proximity to entry/exit / key tour points
Aesthetic beauty of site
Stone Town - uniqueness and cultural experience
Paradise Islands - Pemba etc.
Variety marine activities
Friendliness of the Zanzibari
WEAKNESSES
Limited Beach
Infrastructure - roads, utilities, refuse and litter
State of sea and airport facilities
Low occupancy levels - affecting viability
Ineffective security / policing
Short high season period
OPPORTUNITIES
Infrastructure improvements
Community strengthening and funding
Participate in tourism associationTraining staff - improving service standard
Product and activities improvements
THREATS
Health and hygiene risks
Increase in rooms - insufficient airlift
Terrorism and global economic slump
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HOTEL PUBLIC AREAS
Porte cohere
95% bus, 5% hire car. Parking and Porte cochere planned
accordingly.
Reception and facilities
Desk, tour operator, shop, small business center
20-seater executive conference boardroom / library
Luggage storage: external access and departure day storage.
FOH offices: Requirement - 4 plus general office.
Other offices requirements noted
Toilets
Food and beverage outlets
Buffet restaurant (150 seats)
Bar/lounge (100 seats)
Pool/beach bar (serviced)
Pool
Size: currently 450m.
Loungers, tables, umbrellas
Features: rim-flow type.
Towel service.
Storage required.
Guest entertainment
Bandstand: visible from restaurant, bar/lounge and pool bar.
Water sports
Private beaches (man-made), loungers, shade, shower, ablutions
and food and beverage service
Curio village
Health spa: in room service.Snooker/pool table: adjacent to bar/lounge.
Satellite TV: in bar for special occasions and in bedrooms.
HOTEL BEDROOMS
Guest profile
85% double, small conference, mainly tour groups
Bed mix
60% double/double - 2 x 900mm.
40% king
Room facilities
Desk/dressing table
Armoire incorporating mini bar, TV with satellite channels, tea and
coffee
Lounger chairs (2)
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Coffee table
Telephone: internal system only.
Luggage rack
Cupboard with two hanging doors and one drawer
Mini safe
Air-conditioning
Card lock system
Bathroom facilities
Bath with hand shower
Vanity with single basin
Shower
Separate toilet
Patio facilities
Size (4m X 3m)
Armchairs (2), drinks table, chaise
Room service - provided at a premium from main kitchen if required
Store rooms - used only for linen and cleaning equipment
Room quantity and mix
Total 120 keys
Paraplegic: one part of 120 keys.
Suites: 4 parts of 120 keys.
OTHER FACILITIES ON SITE
Staff housing
Senior expat staff (families)
Middle local management (single)
Junior staff (single)
Do all laundry at central laundry
Staff feeding
40 seat facility located staff village
Training
Theoretical training (2 X 20 seats)
Practical (in hotel)
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STAFF MATRIX
120 Bedrooms HousingQuantity Exec Single
1 Expat. Director 1 12 Expat. General Manager 1 13 Expat. Rooms Division Manager 1 14 Expat. Housekeeper 1 15 Expat. F&B Manager 1 16 Expat. Chef 1 17 Expat. Finance Manager 1 18 Expat. Training Manager 1 19 Expat. Engineer 1 110 Local Human Resources Manager 111 Local Personal Manager 112 Local Human Resources Clerks 213 Local Accounts Staff 314 Local Assistant F&B Managers 215 Local Sales Executive 215 Local Reception Staff 6
16 Local Housekeeping Staff 1617 Local Maintenance/Pool 518 Local Security Manager 119 Local Security Staff 2020 Local Bar 1021 Local Waiters 3022 Local Linen / Housekeeping 323 Local Grounds Staff 5
24 Local Switchboard Operators 325 Local Training Trainers 226 Local Kitchen & Stewarding 30
Total 151
Expat Staff 9Local Staff 142
Core Staff Local 86 34
Trainees 56 56
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ADDENDUM G : ZANZIBAR FREE ECONOMIC ZONES
AUTHORITY (ZAFREZA)
The Zanzibar Free Economic Zones Authority - (ZAFREZA), was
established by law in 1992 as the sole Authority responsible for
management, administration and operation of the Export Processing
Zones Program on Zanzibar with full powers to approve and admit
projects therein. The legal instruments of its creation and authorityare the Free Economic Acts, No.s 16 & 17 of 1992 with subsequent
amendments enacted in April 1997. These, together with the
Investments Acts of 1986, lay the legal framework for a safe and
lucrative foreign investment climate in Zanzibar.
The Authority is an autonomous Government organ with a Common
Seal and has exclusive jurisdiction in the administration of the Free
Economic Zones that it is striving to promote and mobilize
investments thereto as part of the general effort to improve the
economy of Zanzibar.
(ZAFREZA) administers three export-processing zones (EPZ) s - the
Amaan Industrial Park, Fumba on the southwestern seaboard and
Micheweni on Pemba Island. The Authority caters for a variety of
investments in manufacturing, trade and industrial estate
development.
Although all investments generally are welcome, preference is given
to manufacturing or assembly industries for a variety of goods in
electronics, plastic wares, textile, garments and fruit canning that are
mainly export-orientated - in line with the Government policy of
industrialization for export.
The statutory conditional requirement to qualify to operate in an EPZ
holds that a minimum of 80% of the production of an enterprise must
be exported.
Transit and entropot trade, high potential for further expansion of
tourism and ancillary services; maritime ventures, infrastructure
projects on B.O.O.T or B.O.T basis and industrial fisheries make up
a few of the opportunities presented.
ZAFREZA INVESTMENT INCENTIVES
10 years corporate tax holiday. For subsequent 5 years taxwill be at 25% and thereafter at 50% of the ruling rate.
No customs duty and other taxes charged on the importsof machinery, equipment, spare parts, raw materials, andother supplies, necessarily required for the projects
established.
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Withholding tax exemptions for the initial period of 10years.
Exemption from income tax for the initial period of 10 yearson dividends, interest on shareholders loans or any othertype of income received by the investors.
No restrictions on recruitment of foreign staff onmanagement and technical contracts.
No restrictions on the repatriation of profits.100% foreign ownership is allowed.
ZAFREZA one-stop-center appraisal procedurescompleted within ten days.
Availability of low cost labour
Personal effects of eligible Directors and expatriates areexempt from import duties within a period of six monthsfrom date of first arrival in Zanzibar.
No exchange control restrictions
Autonomous control of investment proceeds byentrepreneurs
Exemption from Capital Gains Tax on the sale of fixedassets
Exemption from obligation to withholding tax from intereston loans from foreign banks and on bonds issued bycompanies, provided funds borrowed in both cases areused exclusively for investment or to finance operations inthe EPZ sector.
Exemption from obligation to withhold tax from royaltiesand other payments for the provision of know-how.
Exports are exempt from any export duty or levy.
ZAFREZA aftercare and facilitation.
COMPARATIVE ADVANTAGES
Good infrastructure
Good communication and transport network
An abundance of trainable English-speaking labour
Easy access to PTA, EAC, SADC, EU and other worldmarkets.
Political stability and warm attitude of welcome.
Favourable policy and positive government support.
Good business and social environments
No import licensing requirements
Minimal customs formalities.
Foreign and local currency accounts facilities.
Source ZAFREZA
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Consulting Engineers DNS Consulting Engineers
PO Box 298, Olifantsfontein 1665, South
Africa
Contact Nick StolpTel: + 2711 316 3990
Fax: + 2711 316 5137
Email [email protected]
Consulting Architects Eugene Barnard & Associates
PO Box 5952, Halfway House 1685,
South AfricaContact: Eugene Barnard
Tel: +2711 315 7357
Fax: +2711 315 9873
Email: [email protected]
Consulting Quantity Surveyors McIntosh Latilla Carrier & Laing
PO Box 52348 Saxonwold 2132 South Africa
Contact: Philip de Wet
Tel: +2711 283 1500
Fax: +2711 788 9015
Email [email protected]
Project Managers @Hart Property DevelopmentPO Box 14050 Farrarmere South Africa
Contact: Trevor t Hart
Tel: +2711 425 3717
Fax: +2711 849 6526
Email: [email protected]
Construction Partners Murray & Roberts Developments
PO Box 237, Pavillion 3611, South Africa
Contact: Peter Sherwin
Tel: +2711 820 4600Fax: +2711 820 4668
Email: [email protected]
Environmental Management Consultants CEN - Integrated Environmental
Management Unit
36 River Road Walmer
Port Elizabeth 6070 South Africa
Contact Dr Cohen
Telephone: +27 41 581 2983
Fax:+27 41 581 2983
Email: [email protected]
Hotel Management and Marketing *
* - MOU
Protea Hospitality Corporation
PO Box 75 Sea Point 8060 South Africa
Contact Mr Otto Stehlik
Tel: +2711 430 5000
Fax: +2711 430 5333
Email: [email protected]
Interior and Design Consultants Black Moon Design Studio
PO Box 6560944, Sandton, SA
Contact: Lauren Beckworth
Tel: +2711 656 0944
Email: [email protected]
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ADDENDUM I : LETTERS OF SUPPORT (UPON
REQUEST)
a) Ministry of Employment, Women, Youth and Children
Development
b) Ministry of Trade Industries, Marketing and Tourism
c) Ministry of Agriculture, Natural Resources, Environ. And Co-
operatives
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ADDENDUM J : PROFILES (UPON REQUEST)
a) Joachim J Zimmermann
b) Murray & Roberts Developments
c) McIntosh Latilla Carrier & Laing
d) CEN Integrated Environmental Management Unit
e) @Hart Property Developments
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ADDENDUM K : CERTIFICATES OF INCORPORATION
(UPON REQUEST)
a) Fumba Foundation Limited
b) Maendeleo Resorts Limited
c) Maendeleo Projects (Pty) Ltd
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ADDENDUM L : FINANCIAL FEASIBILITY
a) Key Notes and Assumptions
b) Ratio Analysis and Investment Returns
c) Projected Income
d) Balance Sheet
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A KEYASSUMPTIONS
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A KEY ASSUMPTIONS
A Hotel of 120 rooms can be built and furnished for $183 333per room.
An average room rate of $218 per night can be achieved onopening
Occupancy will be 55%, 60%, 65%, 70% in years 1 through 4respectively with a sustainable 70% thereafter.
85% of the rooms will have double occupancy
90% of breakfasts and dinners will be taken by guests, and 20%of the snacks and lunches will be eaten at the hotel
The hotel will achieve 82%, 34%, and 80% profit on rooms, foodand beverages and other revenues respectively.
8% of turnover will be spent on overheads
5% of turnover will be spent on marketing
Debt will cost approximately 8% pa.
All interest prior to commencement of operations will becapitalised and will approximate $0.5m.
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B RATIOANALYSIS ANDINVESTMENTRETURNS
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B RATIO ANALYSIS AND INVESTMENT RETURNS
Sensitivity Analysis
The project yields are significantly impacted by any differential
between planned occupancy of the resort and actual occupancy
achieved. Changes in occupancy that are planned do affect the
returns with higher occupancies yielding greater returns however by
far the greatest impact is not achieving the planned levels of
occupancy. By way of illustration, a 10% lower occupancy achieved
(in the long term) will reduce earnings by 20%.
Room rates affect earnings to a lesser extent with a 10% drop in rate
resulting in an 10% drop in earnings. From this one can conclude
that key to the success of the resort is accurate planning, and
secondly that where necessary, room rates should be discounted in
favour of achieving as close to planned for occupancy as possible.
The Internal rate of return based on the projects earnings, varies
predictably with changes in the occupancy levels and room rates,with sharper changes experienced at the lower occupancy levels.
But far the greatest impact on internal rate of return is the structure
of the project between debt and equity where the greater the
proportion of debt, the higher the yield for shareholders. A project
funded entirely by equity is unlikely to provide adequate returns forshareholders.
Change in the capital cost of the project also significantly affect the
viability of the project with a $1m under spend increasing the internal
rate of return from 21.1% to 21.6% after 15 years. A $1m overspend
will reduce the IRR to 20.6% for the same period.
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RATIO ANALYSIS
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RATIO ANALYSIS
The project is initially highly geared taking both losses expected in
the initial period of operation, and finance charges into account.Once fully operational, the gearing reduces to 0% by year 5. The
project retains a health ability to meet its interest commitments with a
minimum interest cover of 3.35 times in year one and rising to 49.79
times in year 5.
Return on capital employed rises to 16.9% in year five before fallingback to 11% in year 8 as a result of capital replacement. In theory
this would happen every seven years. In practice, an ongoing
capital replacement scheme would be put in place that would result
in the smoothing of this effect.
The profit margin anticipated varies from 23% to 27% depending on
the capital replacement levels with an average of 24.1% for the 15
years projected.
The project will start yielding positive internal rates of return from
year 6, which will climb to 21.1% in year 15.
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ADDENDUM M : SITE DEVELOPMENT PLAN
(UPON REQUEST)
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ADDENDUM N : ARCHITECHTURAL & ENGINEERINGDESIGN & PERSPECTIVES (UPONREQUEST)
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