INANDA DAM RESORT BUSINESS PLAN PREPARED FOR THE RURAL ABM PROGRAMME ...

46 Pages·2011·0.98 MB·English

by  Graham Muller

INANDA DAM RESORT BUSINESS PLAN

PREPARED FOR THE RURAL ABM PROGRAMME
AND GIFT OF SERVICE

BY GRAHAM MULLER ASSOCIATES

30th JANUARY 2006

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1. Executive Summary

2. Introduction

3. Background

4. Planning and Decision-Making Framework

5. Business Objectives

6. Tourism Market Analysis

7. Tourism SWOT Analysis

8. Tourism Development

9. Agri-Business Analysis

10. Institutional Arrangements

11. Financial Forecasts

12. Way Forward

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1. EXECUTIVE SUMMARY

Introduction and background
This business plan was formulated by Graham Muller Associates (GMA) in
collaboration with the project proponents, Gift of Service, for the eThekwini Rural
ABM Programme. The aim of the business planning exercise was to scrutinise
feasibility considerations and to provide the necessary information and analysis to
facilitate the project towards implementation.

Gift of Service (GOS) is a community-based organisation which has attracted a
number of skilled, energetic and entrepreneurial members into its ranks. GOS is
pursuing the establishment of Inanda Resort - a tourism, recreation and agri-
business destination. The main objectives of the project include creating sustainable
and meaningful jobs for the local community, fostering broad base black economic
empowerment through participation in the business and creating small and medium
enterprise (SME) development opportunities through other business linkages with the
resort.

The 20 hectare project site is located on the eastern shore of the dam within the
boundaries of the Qadi Tribal Authority and Ward 3 (Amzinyati) of the Municipality.
The land in question is under the ownership of the Ngonyama Trust. Msinsi
administers and controls the surface of the water and a buffer area between the
water’s edge and the purchase line. The strengths and weaknesses of the site are
summarised below:

Strengths Weaknesses
 Situated on the edge of the main  Emerging tourism destination that is
water body of Inanda Dam not known by the market
 Situated on the eastern shore for  Complex and unresolved land-legal
views of spectacular sunsets issues
 Panoromic views of Inanda Mountain  No financial capacity or resources in
and the Valley the project team
 Relatively large (approximately 20  Limited capacity in construction,
hectares) tourism hospitality operations and
 Relatively low environmental marketing
sensitivity  Poor condition of roads and no signage
 Suitable aspect and slope for  Disturbed site of moderate
development and agriculture attractiveness
 Abundant water supply  No infrastructure on site, especially
 Electricity to site sanitation system
 Road access via KwaMashu Highway  Perceptions of safety and security
and District Road  No shared development plan and
 Close proximity to Durban North, N2 spatial development framework for the
and M4 broader destination
 Well organised project team
 Proximity of local labour
 Demarcated site with no conflicting
proposals
 Support from traditional authorities
and municipal agencies
 Strong interest and commitment to
LED of the Inanda Dam destination
 Part of the Inanda Heritage and 1000
Hills tourism routes
 Project contributes towards the
transformation of tourism industry and
broad based BEE.

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Inanda Dam Feasibility Study
The existing policy and planning frameworks for the area should inform the Inanda
Dam Resort business plan. The Inanda Dam Feasibility Study identified a number of
project concepts that should be prioritised for the Dam (see table below). It argued
that there are a number of barriers to entry for private investors that include the
emerging status of the destination, uncertainty around land ownership and
development rights, complex institutional arrangements, risks to the long term
integrity to the surrounding landscape, safety and security and lack of infrastructure.

Key LED projects identified by Inanda Dam Feasibility Study
Project Location Description
3 Star lodge Adjacent to Family orientated
Mahlabatini experience targeting
Resort domestic market
4-5 Star lodge On the eastern Exclusive boutique
shore of Dam. 4 type lodges. Set at
possible sites the water edge or in
identified. the water.
House boat/ floating Mobile Floating lodge,
restaurant restaurant or
pleasure cruiser.
Preferably linked to
lodges.
Wildlife Centre Mahlabatini Facilitate visitor
Reserve interaction with
wildlife
Recreational areas Various Picnic, boating
facilities,
entertainment etc
Arts and Craft Mahlabatini, Large manufacture
Centre KwaNgcolosi and retail centre in
the park.
Arts and Crafts Various
Stalls

Although the feasibility study recommends that the priority development for the
destination is a low-volume high spend 4/5-star lodge, this business plan motivates
that a more low risk product (in terms of cap-ex value, ROI and market demand)
should be pursued in parallel to the high profile project. The low risk project will
allow role players to address many of the same barriers to entry, although with less
at stake, in a learning-by-doing exercise.

Regarding the proposed 4/5 star hotel development on the same side of the dam,
GMA believes the project site is of sufficient quality for a facility of that standard.
GMA also contends that it is unlikely that an appropriately managed resort
development on the said site will negatively impact on the development options of
the more attractive adjacent peninsulas if certain zoning and land use controls are
implemented by authorities.

Tourism Product development
The market demand analysis, site potential analysis and the development
expectations of the proponents collectively point to a mid-volume, mid-value
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destination. In order to maximise revenue yield, GMA recommends a cautious
approach of focusing on the proven market demand from the existing water-sports
and recreational fishing markets, through the establishment of a water-sports resort.
A phased approach is envisaged to the development of resort.

List of product development recommendations
1st Phase Future phases
Water-sports resort Open-air theatre and marquee
Bar and retail shop Arts & craft market
20 camping sites Additional accommodation
6 Self-catered timber and Sports Club
canvass chalets
Tour Boat cruises and fishing Catering facility
Small conference centre

It is envisaged that 29 permanent jobs will be created and at least the same amount
of jobs in casual labour.

Agricultural product development
Approximately seven hectares of the project site was for some years used as a
productive market garden, under an NGO facilitated project (Valley Trust).
Indications are that the land appears to have good potential, although the results of
a land capability analysis by the Department of Agriculture are still outstanding.
However the Department indicated that the soils are suited to most vegetables
including cabbages, potatoes, spinach, carrots, butternut and onions.

Based on the agricultural analysis, it is recommended that a vegetable garden and
nursery are feasible and should be established with the close assistance of DoA.

Financial analysis
The total capital expenditure for the project is estimated at R3,422,800.

The financial forecast shows revenue growing steadily over the ten-year time horizon
as occupancies and visitor numbers and productivity rise. Total turnover increases
from approximately R770,000 in year 1 to R2,300,000 in year 8 showing growth of
300% in the 8 years. The largest line item for expenditure is salaries and wages.
Year 1 shows variable labour expenses of at R278 048 and a fixed labour cost of
R466,000. Gross departmental profit after variable costs in year 1 is R349,104 and
R1,570,542 in year 8. The resort’s consolidated net loss/ profit before tax is –
R274,964 in year 1, entering the black in year 3 and reaching R718,514 in year 8.

As stated above the financial figures presented here are sensitive to the nature of
the involvement of the private investor and the quality of their operational and
marketing inputs.

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Item Amount
Landscape rehabilitation and preparation R142,000
Transport infrastructure R1,150,000
6 Chalets, 20 camp sites and ancillary facilities R1,030,500
Other Resort Facilities and Infrastructure R1,035,500
Water, waste and electricity R494,000
Resort Equipment R470,800
Total R4,322,800
Less: Infrastructure outside of resort (government) R900 000
Total Project Cost R3,422,800

Land tenure
It is recommended that for a project of this size, it is prudent to separate land rights,
ownership of the assets and facilities and the management of the resort. There are a
few different scenarios for establishing land rights (see below). Selection of the
appropriate option requires further discussion with Qadi Traditional Authority and the
Ngonyama Trust.

Figure : Options for securing land tenure
Option A Option B
Ngonyama Trust Ngonyama Trust
Net proceeds from lease
Long Term lease
Qadi TA Trust
Qadi TA Trust
Long Term lease
Medium Term lease
Business Entity/ land Business Entity/ land
user user

Options for development and management of the resort
There are various possible scenarios for the development and management of the
resort. After extensive consultation with GOS and after due consideration of lessons
learnt in developments of this nature elsewhere in southern Africa, GMA provides two
potential models that could be applied. The first involves the development company
(GOS and partners) concessionning out the entire site to a qualified private investor.
The second option involves GOS establishing a strategic partnership though either
equity sharing in the resort company or through a management agreement with a
professional operator (for instance Msinsi).

Both options are seen as potentially viable. The first option can guarantee a revenue
stream (from lease fees) to the Dev Co to cover its rental and financing obligations.
The second option may appear to hold more empowerment opportunities but carries
more risk to the investment in terms of capacity gaps and lack of guaranteed lease
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payments. The first option is also likely to be more attractive to the private sector
due to simpler and better defined governance structures, although the interest of the
market in this venture must still be tested once an enabling environment is created.
The impact of both options is explored in more detail in the main report.

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Option A Option B

Development Company Development Company

Joint Venture Joint Venture

Rental Rental

Sports Market Theatre
Clubhouse Garden

Whatever option is agreed upon by the role players, a formal process should be
pursued to secure a suitable private sector partner. It is important that a
“Transaction Advisor” consultancy is appointed to manage the partner selection
procedure and an Evaluation Committee be established.

This business plan has demonstrated that the Inanda Resort has high potential in
terms of meeting the economic aspirations of the local community and the Local
Economic Development objectives of the eThekwini Municipality, the Inanda Dam
Management Forum and other role players. The project should be prioritised by all
involved to unlock this potential. There are a number of critical actions that need to
take place (see list below).

Critical Actions

 This plan needs to reviewed and commented upon by the relevant role players (which
include GOS, Inanda Dam Management Forum (IDMF), Msinsi, DWAF, Qadi Tribal Authority
and eThekwini municipality). It should then be updated and endorsed.
 A project steering committee, which could be the IDMF, should be established to monitor the
project.
 Secure funding to contribute towards the capital cost of the project and technical support for
the next phase of facilitation and planning.
 Procure technical assistance team. Team should include
o Project manager and co-ordinator
o Transaction Advisors (concession and legal specialists),
o Landscape architect (spatial development and conservation plan),
o Facilitator (development approvals, use rights and institutional development),
and
o Business analyst.
 Facilitate institutional development. Includes stakeholder consultation, establishment of the
Development Company and Community Trust and ad-hoc legal work.
 Secure development approvals, leases, land use rights, licences etc
 At the destination level, initiate a programme to clarify the project application and approvals
process. Clarify the authority associated with the land and water resources including inter-
departmental and operational issues. Support the IDMF.
 Also at the destination level, formulate a spatial development framework for the dam and
surrounds as decision-support tool for stakeholders
 Pursue investor/ business partner mobilisation process and identify preferred partner.
 Negotiate agreements and contracts.
 Finalise detailed business management plan and marketing plan based on above agreements
and business arrangements.
 Undertake an environmental Scoping Study in collaboration with DAEA.
 Commence skills development programme.
 Undertake engineering studies (roads, water, sanitation and electricity).
 Formulate construction / site development plan (architect, quantity surveyor)
 Commence construction programme.

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
2. INTRODUCTION

The Area-Based Management and Development Programme (ABM) is a multi-
faceted development initiative implemented by the eThekwini Municipal
Authority (EMA) with support from the European Commission that aims to
enhance service delivery, address spatial and social inequalities and deepen
democracy. The Rural Area Based Management and Development Programme
office has been approached by a non-governmental organisation known as the
Gift of Service (GOS) with a request for support in the establishment of their
agri-business and tourism initiative. A business plan has been submitted to
the Rural ABM office outlining the objectives and components of the project
together with the capital requirements and cash flow projections as
envisaged.

On thorough perusal of the submission by Gift of Service, the Rural ABM
appointed GMA to provide technical assistance to the initiative through
undertaking a detailed feasibility assessment and business planning exercise,
with a view to assisting with the finalisation and implementation of the plans
for this initiative.

As agreed, the approach of GMA has been to work with the project
proponents and their proposals, rather that to provide an isolated assessment
of feasibility. A number of site visits and meetings with the proponents and
other stakeholders have taken place. Secondary research and a review of the
policy and planning framework for the dam have also taken place. A feasibility
checklist has been constructed that should allow iterative amendments to the
business proposals. GMA has relied on its extensive experience in this field
and technical capabilities to assess the feasibility of the proposals. GMA has
also consulted with industry role players and has reviewed relevant best
practice locally and regionally. The end result is a business plan sufficiently
detailed to give the project proponents, other role players and potential
funders practical guidance in pursuing the development of this project.

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3. BACKGROUND TO THE PROJECT

3.1 Project Proponent

The project proponent is Gift of Service (GOS), a community-based, not-for-
profit organisation whose main objective is to initiate community development
and skills development programmes in its local area. GOS aims to stimulate
civic participation and youth development as well as provide technical support
to local community institutions. GOS has thirteen members and carries out its
affairs according to its adopted Constitution. Five office bearers make up the
management committee. GOS has decided to establish a legal entity to
participate in the business venture described in this plan. Institutional
arrangements for the business are covered below.

3.2 Description of business proposal

GOS has secured permission from the Qadi Tribal Authority to pursue a local
economic development initiative on an 20 hectare site on the south-eastern
side of the Inanda Dam. The organisation has obtained a “Recommendation
for a Permission to Occupy” from the Tribal Authority and has the support of
the community, ward councillor and the Department of Agriculture.

The original business concept for the site, formulated by GOS, outlines the
development of an integrated agri-business, tourism and recreational
destination. According to the GOS business plan, the agricultural component
would focus on organic farming for all kinds of fruit and vegetables and the
poultry farm would set out to supply 300 broilers per week. The tourism
component would provide an eco-tourism and activity-based experience with
facilities to accommodate overnight stays. Recreational opportunities would
include tennis and basketball courts, picnic sites and an outdoor theatre.

Following a feasibility assessment of the original business concept, GMA and
GOS have collaborated to formulate this revised business plan for a tourism
and recreational resort combined with a community-based agricultural
production initiative.

3.3 Locality and description of the site

The Inanda Dam is
situated in the Valley of
a Thousand Hills region Qadi
in the outer western
area of the eThekwini
Municipal Authority. The
Project Area
dam was completed in
1989 and has a water
surface area of
approximately 1,500
hectares and an outer
circumference of
approximately 100 Development Company
kilometres. The Dam is Joint Venture

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