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Is the investment in artificial reefs a profitable
- I - Kurzfassung der Master Thesis Master-Studiengang Internationales Projektmanagement Is the investment in artificial reefs a profitable decision to prevent beach erosion as well as for the sustainable development of tourism in Mexico? Eingereicht von: Dipl.–Ing. Aldo Sáez de Nanclares Juncos Matrikelnr.: 810037 Betreuer: Professor Dr. Klaus Schneider FH Stuttgart - Hochschule für Technik Dipl.–Betriebswirt. Thomas Schmid Phoenix Real Estate Development GmbH, Stuttgart - I - Table of Content Abbreviations.................................................................................................................III List of Figures.................................................................................................................V List of Tables.................................................................................................................VI 1 Introduction ............................................................................................................. 1 2 Methodology ........................................................................................................... 4 3 Tourism and Mexico..........................................Fehler! Textmarke nicht definiert. 4 5 3.1 Country Information..................................Fehler! Textmarke nicht definiert. 3.2 Importance of Tourism .............................Fehler! Textmarke nicht definiert. Erosion Problems..............................................Fehler! Textmarke nicht definiert. 4.1 Erosion Causes ........................................Fehler! Textmarke nicht definiert. 4.2 Worldwide.................................................Fehler! Textmarke nicht definiert. 4.3 Mexico – Quintana Roo............................Fehler! Textmarke nicht definiert. 4.4 Ways to Manage Beach Erosion ..............Fehler! Textmarke nicht definiert. Artificial Reefs ...................................................Fehler! Textmarke nicht definiert. 5.1 What are Artificial Reefs...........................Fehler! Textmarke nicht definiert. 5.2 Functioning...............................................Fehler! Textmarke nicht definiert. 5.3 Construction System ................................Fehler! Textmarke nicht definiert. 5.4 Stability.....................................................Fehler! Textmarke nicht definiert. 5.5 Reef Ball Sizes, Weights, Volume and Number of HolesFehler! Textmarke nicht definiert. 6 5.6 Other Advantages ....................................Fehler! Textmarke nicht definiert. 5.7 Successful Projects ..................................Fehler! Textmarke nicht definiert. Analysis of Expenses and Benefits of Artificial ReefsFehler! Textmarke nicht definiert. 6.1 Expenses..................................................Fehler! Textmarke nicht definiert. 6.1.1 Construction Costs ...............................Fehler! Textmarke nicht definiert. 6.1.2 Studies .................................................Fehler! Textmarke nicht definiert. 6.1.3 Concession Title ...................................Fehler! Textmarke nicht definiert. 6.2 6.2.1 Benefits ....................................................Fehler! Textmarke nicht definiert. Benefit from Creation of New Reef HabitatFehler! Textmarke nicht definiert. 6.2.2 Increase of Clients due the Beach Recovery ProjectFehler! nicht definiert. Textmarke - II 6.2.3 No Structure Damage and/or Loss PreventionFehler! Textmarke nicht definiert. 6.2.4 Increase of the Building and Land Value BenefitFehler! Textmarke nicht definiert. - III - 7 Financing ..........................................................Fehler! Textmarke nicht definiert. 7.1 Financial Institutions and Financing RulesFehler! Textmarke nicht definiert. 8 7.2 Characteristics of the Credit .....................Fehler! Textmarke nicht definiert. 7.3 Finance Loan............................................Fehler! Textmarke nicht definiert. 7.4 Credit Calculation .....................................Fehler! Textmarke nicht definiert. 7.5 Cash Flow ................................................Fehler! Textmarke nicht definiert. Project Evaluation .............................................Fehler! Textmarke nicht definiert. 8.1 Comparison of Methods Used to Manage Beach ErosionFehler! Textmarke nicht definiert. 9 8.2 Net Present Value (NPV) .........................Fehler! Textmarke nicht definiert. 8.3 Internal Rate of Return (IRR) ...................Fehler! Textmarke nicht definiert. 8.4 Return on Investment (RoI) ......................Fehler! Textmarke nicht definiert. 8.5 Pay Back Period.......................................Fehler! Textmarke nicht definiert. 8.6 Sensitivity Analysis...................................Fehler! Textmarke nicht definiert. 8.7 Conclusions..............................................Fehler! Textmarke nicht definiert. Summary...........................................................Fehler! Textmarke nicht definiert. Annex I..........................................................................................................................85 Bibliography..................................................................................................................86 - 1 - 1 Introduction One of the main phenomena that affects most of the coastal countries in the world is the loss of territory as a result of erosion that cause certain events, catastrophic or not, natural or induced by man. The United Nations Environment Program has estimated that due to the effect combined of these, 70% of sandy beaches of the world are in backward movement towards the continent and only less of 10% in advance towards the sea.1 This erosion problem has a tremendous impact on a country like Mexico, which has more than 11,000 Km of littoral and where beaches are one of the most important assets for tourism. The crystal clear, turquoise blue sea in combination with wide long white sand beaches have been the main attraction for millions of tourists coming to the Caribbean every year. Such “dream” beaches can be found in the state of Quintana Roo, situated in the southeastern part of Mexico. This state is the most desired tourist destination within Mexico. However, the so-called “Paradise” is in danger. The gathered facts show the evidence that the beaches in this zone are heavily exposed to extreme erosion.2 The problem is not only the possible loss of beaches, also the owners of hotel chains and private property, mostly located close to the beach, face an even greater problematic. In general, the beaches in Mexico are publicly owned. By law, this public beach area is measured from the highest sea tide level plus twenty meters inland and is called the Federal Maritime Land Zone which always belongs to the federal state. This means, in a zone with lots of erosion the Federal Maritime Land Zone will get closer and closer until it reaches the privately owned facilities located within that area. 1 See: Senado de la República (n.d.). APPCED: Country Report, Mexico, Page 6. http://www.senado.gob.mx/internacionales/assets/docs/ relaciones_parlamentarias/asia_pacifico/foros/foro_parla1.pdf, March 13, 2005 2 See: PNUMA (2003). Diagnóstico de los Procesos de Erosión en las Playas del Caribe. Estudio de caso: La Riviera Maya, México. La Habana, March, 2003. http://www.pnuma.or g/agua-compilacion/pdfs/resumen-espa%F1ol.pdf., February 24, 2005 - 2 As a result, these properties will fall into the newly established Federal Maritime Land Zone and will become the possession of the nation. Also due to the erosions, the ambitious plans of the Mexican Government might be threatened. The government wants to increase the importance of the tourist industry, so that it will reach a share of 10,5 % of the GDP with approximately 3,58 million employees until 2025. Current data reports that the tourist industry accounts for 9% of the GDP with just 1,9 million people. 3 Millions of people are affected by losing the main tourist attraction at the coast and in addition, it will be an obstacle for potential investors in the future referring to these property issues of the regulations of the Federal Maritime Land Zone In order to prevent and fight against the erosion problem, some hotels could start to prepare and even repair their beaches by adding sand. But this would cost about 1 million USD per mile and would last only a maximum of 8 years or until the next hurricane.4 Artificial reefs can be a permanent solution to avoid beach erosions. They can even be removed in the case of a change in plans. However, building reefs does more than just stop erosion. Reefs are a valuable natural asset to beaches; they provide interesting areas for snorkeling, diving and natural habitat for fish. For the establishment of an artificial coral reef certain coral propagation and transplanting systems are used. In just a few years, this manmade reef will develop the look and feel of a natural barrier.5 3 See: SECTUR (n.d. a). National Tourism Program 2001 – 2006. http://www.sectur.gob.mx/wb2/secturing/sect_1046_ntp_2001__2006, February 20, 2005 4 See: Gillian, Cambers (1998a). Coping with Beach Erosion, Adding more sand to the beach. UNESCO, Paris. www.unesco.org./csi/pub/source/ero19.htm, February 12, 2005 5 See: Reef Beach Company, Ltd (2004). Why Build Reefs to Protect or Create Beaches? www.reefbeach.com, May 5, 2005 - 3 Artificial reef solutions might also contribute to a sustainable development of tourism in Mexico. The short term as well as the long term goal of the National Tourism Program is to reach an annual growth rate of 4,1% in international tourism arrivals between 2006 and 2025 and to increase the revenue from international tourism from $8,295 million USD in 2000 to $35,459 million USD in 2025. With this rate of growth, Mexico is expected to rise its position from number 12 to number 9 in international tourism receipt position within the next twenty years.6 In the present work an economic evaluation of the investment in a method that copies a natural reef to prevent erosion is conducted, with a specific focus on the deployment of the so called Reef Balltm. Further, its effect on the sustainability of tourism in the mentioned zone will be examined. 6 See: SECTUR (n.d. b). National Tourism Program 2001 – 2006. http://www.sectur.gob.mx/wb2/secturing/sect_1046_ntp_2001__2006, February 20, 2005 - 4 - 2 Methodology This study focuses mainly on property and hotel owners, which are located close to the beach and therefore the development of their business or property is or soon will be affected by erosion. Also governmental institutions may notice by means of this work that it is worth to support private institutions with certain governmental programs for beach protection in order to support a sustainable development of the Mexican tourist industry in general. The essence oft this work lies in the economic analyses about artificial reefs. Apart from serving as a beach protection, they increase the attractiveness of hotels, so that the development of tourism in a sustainable way in Quintana Roo is more likely. The study is structured into 9 chapters. In order to get a better understanding of the Mexican situation and its economy, chapter three starts with a brief overview about the economic and geographic data of Mexico and the importance as well as the future desired development of the tourist industry. Apart from the general overview, the regional focus is on the state Quintana Roo, categorized as Mexican’s first beach tourist destination. In the next chapter, the threats on tourism and its future development due to various types of beach erosion and the consequences for hotel and property owners are stated as well as some common solutions to these problems. In continuation, a detailed explanation about artificial reefs including its definition, functioning and construction methods by means of the Reef Ball technique is provided. In order to be able to conduct the project evaluation later on, all project expenses and benefits resulting from the beach recovery project using Reef BallsTM as artificial reefs are mentioned. All further calculations refer to this artificial reef project explained in chapter six. The following chapter deals with financing resources, with a focus on credit financing including calculations and the cash flow. The project evaluation is realized by means of the most common performance measures in chapter 8, which is eventually followed by the recommendations of the author. It remains to mention that the calculations are based on values and data of the state of Quintana Roo; however, this analysis can be easily applied, if necessary, to any beach located on the 11.000 km of littoral in Mexico. - 5 - Bibliography Books Brealey, Richard; Myers, Stewart; Marcus, Alan (1995). Fundamentals of Corporate Finance. Third Edition. McGraw Hill. New York, 2001 Coss Bu (2000). Análisis y Evaluación de Proyectos de Inversión. 2th edition. Editorial Limusa; México D.F. 2000 Friscione Carrascosa, Alberto (2000). Chinchorro-Last Expedition. Gobierno del Estado de Quintana Roo. Quintana Roo, 2000 Leland Blank, Anthony Tarquin (1994). Ingenieria Economica. 2th Edition. McGraw Hill. México D.F. 1997 Molina, Concepción (1998). Normas Practicas Para el Desarrollo Turístico de la Zona Costera de Quintana Roo. Kromagraphics. Cancún, Quintana Roo, 1998 Ross, Stephen; Westerfield, Randolph; Jaffe, Jeffrey (1988). Corporate Finance. 6th edition. McGraw Hill. New York, 2002 Prof. Dr. Schneider, Klaus (2001). Lecture notes: Betriebswirtschaftslehre. Möglichkeiten der betriebswirtschaftlichen Finanzierung, p. 76. FH Stuttgart, 2005 - 6 - Internet Banamex (2005). http://www.banamex.com/esp/empresarial/financiamiento/ prestamo_refa.html Banco de México (2005). www.banxico.gob.com British Bankers’ Association (2005). www.bba..org.uk Cámara de Diputados del H. Congreso de la Unión (2005). www.cddhcu.gob.mx/leyinfo/pdf/8.pdf Centro de Información 3.0 Grupo SIPSE (2004). www.sipse.com.mx/ci/ver_campanas.php%3Fid%3D22354%26seccion_votos CIA (2005). World factbook Mexico. www.cia.gov/cia/publications/factbook/ CNET (n.d.). Consejo Nacional Empresarial Turístico (CNET): www.cnet.org.mx/revista/instituciones.htm Coastal and Hydraulics Laboratory (n.d.). http://chl.erdc.usace.army.mil/CHL.aspx?p=s&a=ARTICLES;192 Drake (2002). http://drake.marin.k12.ca.us/stuwork/rockwater/ Beach%20Erosion%20-%20Water%20Project/Resource%20Page.html El Mundo (2002). www.el-mundo.es/suvivienda/ Figaredo Alvarez, Francisco (n.d.). SEMARNAT. http://www.semarnat.gob.mx/qroo/zofemat/www/erosion/erosion1.shtml Florida, Department of Environmental Protection (n.d.). http://www.dep.state.fl.us/beaches/programs/bcherosn.htm - 7 FONATUR (n.d.). http://www.fonatur.gob.mx/indexmis.html Fundación Telmex (2003). www.fundaciontelmex.org/reporte/rep_2003/ Gillian, Cambers (1998). www.unesco.org./csi/pub/source/ero19.htm Gobierno del Estado de Quintana Roo (2004). http://caribemexicano.qroo.gob.mx/comunicacion_social/cs2004/ abr_19_tianguis.htm Gul-Maj, Roberts (n.d.). www.bergen.org/AAST/Projects/ES/BS/erosion_currents.htm Hospitality Financial and Technology Professionals (1999). www.hftp.org/members/bottomline/backissues/1999/april-may/capital.htm INEGI (2004, 2005). www.inegi.com.mx Instituto Nacional de Ecología (2002). http://www.ine.gob.mx/ueajei/publicaciones/gacetas/272/ conservacion.html?id_pub=272 International Coral Reef Action Network (n.d.). http://www.icran.org/ International Coral Reef Initiative (n.d.). http://www.icriforum.org/ International Monetary Found (n.d.). Ley Federal de Derechos (2005). www.cddhcu.mx/leyinfo/pdf/107.pdf Ley General del Equilibrio Ecológico y Protección al Ambiente (LGEEPA) SEMARNAT (2004). www.semarnat.gob.mx Marlowe & Company (2002). www.netlobby.com/fy02_table2x3.htm - 8 Marlowe & Company (2004). http://www.marloweco.com/files/pdf/value_of_beaches.pdf Marlowe, Howard (2005). http://www3.csc.noaa.gov/beachnourishment/html/human/dialog/series2d.htm, Mexican Tourism Promotion Board (2004). http://www.visitmexico.com/wb2/Visitmexico/Visi_Informacion_CPTM. NAFIN (2005). www.nafin.com PNUMA (2003). http://www.pnuma.org/agua-compilacion/pdfs/resumen-espa%F1ol.pdf Presidencia de la República (2005). http://envivo.presidencia.gob.mx/?NLang=en Reef Beach Company, Ltd (2004). www.reefbeach.com Reef Ball Foundation Inc. (2004). www.artificialreefs.org Reglamento para el uso y aprovechamiento del mar territorial, vías navegables, playas, zona federal marítimo terrestre y terrenos ganados al mar http://portal.semarnat.gob.mx/marco_juridico/reglamentos/mar.shtml Secretaría de Comunicaciones y Transportes (2005). www.portal.sct.gob.mx/SctPortal SECTUR (2005). http://www.sectur.gob.mx/wb2/sectur/sect_Estadisticas_del_Sector SEMARNAT (2005). http://www.semarnat.gob.mx/qroo/zofemat/www/intro/intro.htm Senado de la República (n.d.). http://www.senado.gob.mx/internacionales/assets/docs/ relaciones_parlamentarias/asia_pacifico/foros/foro_parla1.pdf - 9 Servicio de Administración Tributaria (2005). Ley del Impuesto Sobre la Renta, www.sat.gob.mx/sitio_internet/informacion_fiscal/legislacion/mrf2005/ 113_4998.html Solution Matrix (2005). http://de.solutionmatrix.com/return-on-investment-2.html The New York Times (2005). http://www.nytimes.com/ Travel Yucatan.com (2005). www.travelyucatan.com/quintana-roo-map.htm UNEP (2001). http://www.cep.unep.org/issues/czm.html US Army Corps of Engineers. http://www.sas.usace.army.mil/em/emhurcatinfo.htm World Tourism Organization (2005). http://www.world-tourism.org/ - 10 - Newspaper and Magazines Geo (2005). Das Unzähmbare Element. Deutschland; Year 3, March 2005. p. 120. Novedades de Quintana Roo (2004). Virginia Prospero. Polémica por la Mega-Mia. Cancún, Q. Roo. April 4, 2004 Novedades de Quintana Roo (2005). Verónica Martínez. Administración Costera Integral es solo una propuesta. Cancún, Q. Roo. May 18, 2005. Novedades de Quintana Roo (2005). Verónica Martínez. Polémica por el plan de Administración Costera Integral. Cancún, Q. Roo, May 18, 2005 Novedades de Quintana Roo (2005a, b, c). Verónica Martínez. Derrama Económica de 761 millones de dólares, Cancún, Q. Roo. April 22, 2005 Revista Peninsular (1997a, b, c). Elizabeth Martín López Se erosionan las playas de Cancún. Edición 391, Mérida, Yucatán, México. April 18, 1997 Tourist Investigation Institute (n.d.). Venegas, Marisol. Pamphlet: Estudio de Impacto Económico del Proyecto Corazone. La Salle University, Cancun.
