INVESTORS AND DEVELOPERS“The licence to operate, risk management <strong>and</strong> commercial advantage are key considerations for developers <strong>and</strong> their funders.”Many leading commercial bankshave adopted the Equator Principleswhich are intended to provide acommon framework (benchmarkedagainst World Bank group criteria) forcommercial lenders. It is intended thatthe Equator Principles should becomean important element of lender duediligence <strong>and</strong> borrower compliance<strong>and</strong> that the principles will becomepart of the project managementprocess <strong>and</strong> extend over the lifecycleof a development.The benefits for developers, seekingcommercial finance, of compliancewith the Equator Principles may beexpected to include more favourablerepayment terms <strong>and</strong> less intrusivecovenants in loan agreements asbanks lend more selectively in order tominimise their risk. For investors <strong>and</strong>financial institutions the issues of riskmanagement are no less significant,the repayment of, <strong>and</strong> return on,their investments is dependent uponthe licence to operate, successful riskmanagement <strong>and</strong> market advantage ofthe borrower. By adopting a proactiveapproach through the EquatorPrinciples they can manage portfoliovolatility <strong>and</strong> increase returns.Where developers <strong>and</strong> investors areproactive in minimising negativeenvironmental, social <strong>and</strong> economicimpacts <strong>and</strong> maximising the positiveimpacts they have a competitiveadvantage in securing planningpermissions or licenses <strong>and</strong> in biddingfor development contracts.Different considerations apply inthe design <strong>and</strong> construction phases<strong>and</strong> in the operational phases ofa project. Developers are likely tofocus on securing construction <strong>and</strong>development contracts <strong>and</strong> financialinstitutions are oen partners inthis process. Their joint focus is onthe development <strong>and</strong> constructionphase, but as hoteliers point out,their capacity to adopt a CR approachin the operational phase is, to asignificant degree, dependent upondecisions made in siting, design<strong>and</strong> construction. Hotel <strong>and</strong> resortmanagement companies oenhave lile or no influence at thatstage <strong>and</strong> subsequent retrofiing tocomply with regulatory frameworks,insurance requirements <strong>and</strong> industrybest practices, as they develop overthe lifecycle of the development, isexpensive. Risk needs to be managedover the project lifecycle as a whole.The licence to operate, riskmanagement <strong>and</strong> commercialadvantage are key considerations fordevelopers <strong>and</strong> their funders. TheInternational Finance Corporation hasdeveloped <strong>Tourism</strong> <strong>and</strong> Hospitality<strong>Development</strong> guidelines which applyto developments which it finances.Whilst the agenda has beendominated by risk managementthere are commercial advantages fordevelopers, construction companies<strong>and</strong> banks. In winning licenses<strong>and</strong> construction contracts there iscommercial advantage in being ableto demonstrate not just low levelsof negative environmental <strong>and</strong>socio-cultural impacts but enhancedpositive economic <strong>and</strong> social impacts.Risk management has focussed primarily on the environment inhotel construction but there are significant social <strong>and</strong> economicrisks that are increasingly the focus of community, NGO, IGO<strong>and</strong> national <strong>and</strong> local government concerns.This can be achieved through thecreation of additional employment<strong>and</strong> SME opportunities for localcommunities by adopting strategies<strong>and</strong> development plans maximizingthe local economic development <strong>and</strong>poverty impacts whilst minimizingnegative livelihood impacts.The additional investment <strong>and</strong>partnering, mentoring <strong>and</strong>transaction costs associated with abroader approach to local economicdevelopment are likely to be smallin comparison to the commercialadvantage which comes fromenhancing the economic impacts,particularly in countries with highlevels of youth unemployment. Byengaging with local communitiesin tourism development projects<strong>and</strong> demonstrating both willingness<strong>and</strong> acumen in maximising the localeconomic benefits developers securetheir licence to operate <strong>and</strong> createa beer business environment forthe hotel <strong>and</strong> resort managementcompanies, with a richer product offerin the neighbourhood.<strong>Local</strong> sourcing <strong>and</strong> maintenancerequires the development of a rangeof local enterprises which will benefitthe development <strong>and</strong> the localeconomy by providing employment,local enterprise opportunities <strong>and</strong>supplies of goods <strong>and</strong> services whichbenefit the local community as wellas the tourism development. Thedevelopment of this strategy requiresthat both local sourcing <strong>and</strong> marketaccess issues are addressed in thedesign <strong>and</strong> development phases.If the approach is to be credible thelocal economic benefits need to beclearly specified, targets need to beset <strong>and</strong> the deliverables monitored.Processes like community labouragreements <strong>and</strong> established economicimpact measurements including themeasurement of local sourcing <strong>and</strong> jobcreation can be used for this purpose.<strong>Local</strong> communities can oen, but notalways, gain from the infrastructurethat comes to their area as a resultof tourism development. Companieswill increasingly be challenged toreport on these benefits – all of whichcontribute to risk management <strong>and</strong>ensuring the licence to operate.6 <strong>Tourism</strong> <strong>and</strong> <strong>Local</strong> <strong>Economic</strong> <strong>Development</strong>