Concessions allow people to use land or property in a protected area or natural site for a specified purpose. Concessions are granted by a government, company, or other controlling body, usually in exchange for a fee. Concessions revenues reinvested in conservation or distributed to communities can be a significant and sustainable source of finance.
Key words: tourism, user fees, concession fees, protected areas, biodiversity conservation, public-private partnership, lease, permit, license
How does it work?
Travel and tourism is one of the world’s largest and fastest growing industries, and nature-based tourism forms an economically significant portion of this industry. Estimates are unavoidably imprecise, but research on terrestrial Protected Areas (PAs) indicates that PA visits alone generate US$600 billion in direct in-country expenditure every year. Nature-based tourism has therefore become an increasingly important source of PA finance, captured through entrance and activity fees, taxes, donations, and concessions.
A concession is the right to undertake a commercial or management operation within a PA, granted by a government, local community, or other body (concessioning authority) to another party (concessionaire), in exchange for a fee or some form of revenue. If best practices are followed, concessions can produce a wide range of social, economic, and environmental benefits (e.g. job creation) in developing countries. The potential of concessions is highly dependent on whether or not a PA can make profits by selling services.
Concessions generate revenues for PAs in two main ways:
- Commercial concessions: A concessionaire pays a fee for the right to undertake a commercial operation in a PA, in accordance with the ‘user-pays’ principle. If the concession is profitable, and some of the revenues from the concession fee are directly retained by a PA or PA system (through a park account or environmental or conservation trust fund), or otherwise earmarked for conservation, it can become a significant and sustainable source of financing. For example, South African National Parks (SANParks) has outsourced commercial services (lodges, shops, restaurants and picnic sites), generating about US$62 million in concession revenues over 15 years.
- Management concessions: A concessioning authority outsources responsibility for management or conservation activities (e.g. education, monitoring, community engagement, ecosystem restoration, etc.) to a concessionaire with greater capacity—usually in the form of a public-private partnership (PPP). These partnerships often generate revenue from PA entrance and activity fees. For example, African Parks develops partnerships with governments to manage and finance PAs in the Democratic Republic of Congo, Ethiopia, Malawi, Sudan, and Zambia. Revenue in Zambia rose from less than US$100 before the partnership was launched to US$42,000 in three years, and generated an additional US$9,000 for local communities.
Commercial concessions are commonly used for tourism services such as accommodation, food and beverages, recreation (e.g. hunting, fishing, biking, kayaking, canoeing, rafting and caving), education, retail, and guiding/interpretation. Given the potential for sustainable tourism to raise revenues while meeting social and ecological objectives, this entry focuses on tourism concessions. However, concessions can also be used to capture revenues from other commercial operations such as resource extraction, telecommunication services, and commercial filming. Concessions for commercial resource extraction (e.g. forest concessions) tend to be applied only in multiple-use PAs, rather than those under strict protection. In Guatemala the government has granted rights to community-based organizations to manage some forest areas for commercial purposes for 25-year periods, in exchange for a fee. Revenue generation is not always the primary objective; instead, by providing local communities with harvesting or use rights, the primary objective is to support sustainable livelihoods in local communities. In Guatemala, community forest concessions have had positive effects on income and have much lower deforestation rates than most adjacent forest under strict protection.
Key concession elements include the type of operation, type of partnership (public-private, public-community, public-private-community, etc.), legal instrument (lease, license, permit, etc.), fees, duration of term, transaction strategy, and contract management. A concession may be issued for a day or up to 30-40 years. The different types of tourism and management concession models in PAs can be broadly categorized as follows, although it should be noted that legal instruments and definitions vary widely among countries:
- Concession: A concessionaire pays a fee for the rights (10-40 years) to design, build, and manage tourism facilities (accommodation, restaurants, shops etc.), usually taking the responsibility for all upfront investments. The conditions for transferring the facilities to the authority at the end of the agreement are part of the agreement (e.g. Build-Operate-Transfer PPP). For example: SANParks has offered commercial operators permission to build new facilities and manage existing ones through 20-year concession contracts.
- Lease: A concessionaire pays a rental fee to lease land (5-30 years) with existing facilities (telecommunication, accommodation, restaurant, retail, etc.) and assumes full operating responsibility, while the concessioning authority usually remains responsible for capital expenditures on assets. For example: in Botswana the government leases land to community trusts who, in turn, sub-lease it to safari companies.
- Permit: A temporary form of permission (up to 10 years) to access an area to do a lawful activity (e.g. guided walking, canoeing, climbing, hunting, and fishing) in exchange for a fee. For example: all tourism operators in the Phoenix Islands Protected Area, Kiribati, require permits.
- License: Permission given to a legally competent authority (up to 10 years) to exercise a certain privilege that would otherwise constitute an illegal act (e.g. vehicle-based tours using operators’ equipment, such as hot-air balloon rides or game drives). A license differs from a permit in that it requires due diligence by the competent authority. For example: tour vessels must have a license to use the Galapagos National Park and the Marine Reserve.
- Management contract: A concessionaire enters into an agreement (5-30 years) to manage land or existing facilities (e.g. accommodation, restaurant), which may include responsibility for operations and maintenance of assets, while the concessioning authority remains responsible for all investments. Unlike a lease, the concessionaire typically receives rather than pays a fee. For example: Bonaire National Marine Park is managed by an NGO, Stichting Nationale Parken Bonaire (STINAPA), which is responsible for enforcement, education, maintenance and research.
- Service agreement: A concessionaire receives the right to manage a PA, usually with responsibility for all investments (e.g. vehicles, vessels, equipment, visitor centres) and main operational expenditures. In exchange, the concessionaire can collect user fees. For example: a non-profit consortium has signed a PPP with the Government of the Dominican Republic for co-management of the marine sanctuary, Arrecifes del Sureste.
These different models maybe combined within one concession package. They work best in combination with other sources of finance such as donor funds, debt for nature swaps, and payments for ecosystem services. Concession agreements are the most common model for tourism operations. Lease arrangements are common where authority-owned infrastructure already exists. Service agreements are increasingly popular where authority-owned infrastructure does not exist.
The procedures for awarding concessions (transaction strategies) should be clear, transparent, and competitive. They can be divided into two categories: those arising from supply-driven processes, whereby a concessioning authority identifies an opportunity; and those arising from demand-driven processes, whereby a prospective concessionaire submits an unsolicited proposal. Direct awards can be used to award local communities in or adjacent to PAs, as in Namibia.
The concessioning authority often charges a monthly or annual fee, and the fee-setting process should be transparent, fair, and consistent. Managers should draw on domestic experience and regional comparisons for pricing. If these are unavailable, they should obtain a professional valuation as SANParks did in the early 2000s. Fees can be fixed, fixed per unit of use, revenue-based, or a combination of these. They are commonly set as a proportion of gross revenues—for example, in Belize, concessionaires pay 20 percent of revenues. Revenue-based fees are often used in combination with a fixed minimum. In Colombia’s Gorgona National Park, concessionaires either pay a fixed minimum or a percentage of gross revenues, whichever is higher (US$57,000 or 10.5 percent of gross revenues in 2007).
Alternatively, fees can be fixed per unit of use. These fees are easy to administer, but they must be based on realistic valuations and regularly reviewed to maximize cost recovery. For example, license fees for vessels operating in the Galapagos Islands are based on a fixed annual rate for each available bed (between US$50 and US$100), but because the fees were established in 1998, their value to the park’s budget has declined.
Fixed fees remain the same whether a concessionaire’s business is growing or not, and do not allow parties to share in the risk and returns. They should therefore be avoided unless the concession is small, or the authority lacks auditing capacity. In addition to fees, performance bonds are sometimes used as insurance if a concessionaire cannot fulfil all financial obligations, or to cover environmental costs. In Chile, performance bonds are valued at 10 percent of annual turnover, while in Colombia they are set at US$475,000.
- Regulatory entity/ies: The government entity/ies mandated by law to regulate and govern the process of concessioning may include the ministry responsible for environmental policy, laws, regulations, monitoring and evaluation; the ministry responsible for PPPs and concessions (including enforcement of environmental legislation applicable to the concessions); the ministry responsible for making budget allocations to PAs; and government or parastatal agencies responsible for regulating tourism at all levels.
- Concessioning authority: A concessioning authority aims to raise revenues and make PAs accessible to visitors, while meeting social and environmental objectives. Since most PAs are publicly owned, the concessioning authority is usually a government or parastatal agency. Government entities include any division or agency responsible for PA management at all levels. Different PA types can be managed by different divisions or agencies. In Tanzania, national parks are managed by Tanzania National Parks, game reserves and wildlife management areas are managed by the Wildlife Division/Tanzania Wildlife Management Authority, and the Ngorongoro Conservation Area has its own designated management authority. In some countries, parastatal agencies have been assigned to PA management, with the goal of improving management efficiency. These organizations tend to manage their own budgets, thus having greater flexibility than government to capture and spend revenue streams. An example is South Africa’s Ezemvelo KZN Wildlife agency.
- Concessionaire(s): Concessionaires are usually private for-profit companies or non-profit enterprises, but they can also be community-based organizations, NGOs, or partnerships between any of these entities. For instance, the non-profit body that will co-manage the Dominican Republic’s Arrecifes del Sureste is a consortium of local and international NGOs and private sector organisations. Concessions are rarely granted to government entities, but such arrangements have been used for highly specialized activities such as road maintenance or security. Under a two-tiered arrangement, a concessionaire can give another entity the responsibility of operating the concession development or facility through a management contract or lease. This is common when the concessionaire is a community-based organization that lacks expertise in operating commercial activities. Two-tier arrangements are prevalent in Namibia and have been replicated throughout southern Africa. For example, in South Africa’s Madikwe Game Reserve, two lodges are owned by communities on land leased from the North West Parks and Tourism Board, and these are sub-leased to a private operator.
- Local communities and individuals: People who live within or adjacent to PAs seek to ensure that concessions improve livelihoods for present and future generations and do not harm their environment or way of life.
- Development community (including donor and development agencies): The development community provides funding and technical support, which may include advising on poverty reduction initiatives, sustainability, and environmental protection.
- Tourists: A large body of research indicates that foreign and domestic tourists tend to be willing to pay to use PAs or to participate in nature-based activities, but tourism concessions are feasible only where there is potential demand.
Potential in monetary terms
International tourist arrivals reached 1.3 billion in 2016, generating expenditure of US$1.4 trillion (WTTC). These expenditures are projected to increase by 4.3 percent per year up to 2027. Including domestic tourism, travel and tourism was estimated to make up 10.2 percent of global GDP, and projected to rise to 11.4 percent of GDP in 2027. Nature-based tourism and ecotourism make up a substantial portion of the industry. Research on terrestrial PAs alone indicates that PA visits generate an annual US$600 billion in direct in-country expenditure and US$250 billion in consumer surplus. Moreover, visits to PAs are growing by more than 4 percent per year in many developing countries.
The financial benefits of tourism are largely captured by hotels, transportation, tour operators, and other sectors, not always by PAs. Concession fees thus provide an essential means for PAs to generate revenues from tourism for PA management. In southern Africa, concessions for tourism and trophy hunting are growing sources of revenue for conservation. In Namibia, for example, the National Policy on Tourism and Wildlife Concessions on State Land has led to the allocation of 45 tourism and hunting concessions since 2007 and generated revenues of around US$1.7 million. A 2010 survey of PA financing compared 20 countries in Latin America and the Caribbean (LAC), and found that concessions were the second most important source of site-based revenues, accounting for 13 percent of total site-based revenues, or around US$7 million per year.
Commercial tourism concessions rarely cover all PA operating costs, but they can make a significant contribution. For example, tourism concessions make up around 7.4 percent of SANParks’ total site-based revenues, which together cover 80 percent of operating costs. Tourism concessions are also the third-largest source of revenue generated by the Galapagos National Park, which is financially self-sufficient. In 2011, they accounted for almost 7 percent (over US$1 million) of total revenues. However, PAs managed through concessions can sometimes generate enough revenue through tourism to fully cover operating and maintenance costs. For instance, in Bonaire National Marine Park, STINAPA operates a ‘Nature Fee’ system for scuba diving and other water-based activities (up to US$25 per person for diving and US$10 for other uses). These revenues must legally be used for management of the park, which they fully finance. Similarly, the non-profit consortium set up to manage the Dominican Republic’s Arrecifes del Sureste will receive major financing for its initial capital expenditures from international impact investors. It is expected to become financially sustainable over time through user fees.
When is it feasible?
There should be a strong legal, regulatory, and policy framework governing how PA authorities manage concessions. Weak concessions frameworks can discourage investors, and so changes may be required before beginning a concessions programme. The framework must always be underpinned by strong foundational laws—which may take the form of a concessions law, PPP law, or amendments to a pre-existing law—and should define which activities concessions can or should be applied to in PAs. To illustrate: Although concessions are widely used across LAC for public services such as airports and roads, they are not so widely applied in PAs because many countries lack the specific legislation to do so. Laws and regulations should provide for private investment in PAs, including the ability to grant secure tenure to them. Effective concessions also rely on robust PA management plans, which should provide valuable context for tourism and reduce risk for investors.
- Attractiveness: A profitable and sustainable tourism concession must have sufficiently attractive or unique natural or cultural features to compete with existing operations and destinations.
- Accessibility and infrastructure: Accessibility, connectivity, and availability of infrastructure (e.g. roads, water supply, communications) are important cost considerations.
- Governance and management: A concessioning authority must have the capacity and willingness to manage concessions; a good reputation, transparency and effective management are attractive assets to concessionaires.
- Stability and social dynamics: Risk from political instability, safety, and other potential threats should be manageable.
Minimum investment required and running costs
The process of designing, awarding, and managing concessions bears financial and transaction costs. Countries with poorly funded PA authorities usually require donor support. Concessions in southern Africa have been supported by the World Bank Group, the African Development Bank, and the United States Agency for International Development (USAID).
Tourism concessions may also require significant initial capital investment in infrastructure and equipment by the concessionaire, particularly when environmental restoration is needed. The level of capital investment required also depends on the type of tourism operation under consideration. More facilities, or higher quality facilities, may require more capital investment—but, at the same time, are likely to generate higher returns on investment. The extent to which the concessionaire assumes the risk for capital investment depends on the concession model (e.g. under a lease arrangement or management contract, the concessioning authority usually remains responsible for capital investments, whereas under a concession agreement, the concessionaire takes responsibility). Typically, a contract that requires capital investment has longer terms (at least 20, if not 30-40 years) to allow cost recovery. Some programmes require concessionaires to demonstrate their financial reliability with an upfront payment of fees that are reimbursed once targets are met. In Colombia, concessionaires must have initial capital of about US$1,000 and demonstrate that they have made an additional US$1,000 by the ninth year of a contract; while in South Africa’s Kruger National Park, the Maluleke community requires an upfront fee of US$23,077, which is forfeited if the concessionaire does not meet at least 50 percent of annual payment targets in the fourth and fifth years.
Since PAs usually generate too little income to repay the capital investment, private and public grants are most often needed. However, project finance is being developed in the Caribbean and South East Asia with impact investments in PPPs for marine protected area management e.g. in Dominican Republic). Several development finance institutions (DFIs) and other financing institutions can provide support to private concessionaires in the form of grants, concessionary loan finance, incentives, and marketing support. Community concessionaires almost always need financial support from NGOs, who can either give direct grants or purchase equity in a joint-venture partnership (e.g. Africa Wildlife Foundation and Africa Safari Foundation).
What are the pros, cons, and risks?
- Concessions can provide income for PA authorities to reinvest in conservation.
- Private management of resources in public PAs tends to be more efficient.
- Concessions can provide additional tourism services and products that a PA authority may not be able to provide.
- Concessions can leverage private sector expertise to enhance visitor and education experiences.
- Concessions allow PA staff to focus on their core function of biodiversity conservation with no increase in public debt or transfer of property.
- Concessions can strengthen the financial potential of entrance and activity fees because tourists are willing to pay more for higher quality experiences.
- PA agencies can avoid the high liability exposure that comes from direct provision of some recreation services (e.g. water-based activities, vehicle-based tours, or aircraft transport).
- Concessions can have local economic benefits (e.g. capacity-building, employment, and access to capital) and provide vital links among local communities, sustainable development, and conservation (e.g. see Namibia).
- Concessions can increase tourism demand in a PA and extend opportunities to a broader range of visitors, thanks to generally more advanced marketing expertise.
- Increased tourism demand can justify the expansion of PAs to include adjacent critical biodiversity areas and create biodiversity corridors, which in turn enhance nature-based experiences.).
- Concessions provide an extra presence in PAs that can help to reduce the incidence of illegal or destructive behaviours.
- The economic benefits of tourism concessions can justify political support for and investment in PA management and conservation.
- Concessions may require significant upfront investment in environmental restoration and basic infrastructure (roads, water, communication, etc.).
- All profit made by commercial concessionaires is potential income foregone by the PA authority.
- Concessions are more complex than other user fee systems. The allocation, management, monitoring and enforcement, and evaluation of contracts is relatively expensive and may occupy a significant amount of staff time, or stretch the PA authority beyond capacity.
- If a PA policy is to provide public services to all, at prices below production cost, then the authority may have to subsidize the concessionaire during periods when it may not be financially feasible to maintain operations (e.g. during periods of very low tourism volume).
- The volatility, seasonality, and competitive nature of tourism demand can make tourism revenues an unpredictable and unreliable source of finance for conservation. This vulnerability can be mitigated, for example with financial reserves to cover periods of low tourism demand.
- Non-compliance with concession agreement conditions or PA rules and regulations can cause environmental, cultural, and social damage.
- Political influence from concessionaires, the incentive of concession fee revenues, and poor concessions management can lead to inappropriate awarding, weak contract conditions, or inadequate enforcement of those conditions. This can cause overdevelopment of a site, which can ultimately damage the visitor experience and compromise conservation outcomes.
- Corruption and inefficiencies in the governance of the concession process can result in low demand for concessions.
- Parties may fail to find sufficient financial support to begin the concession process or meet capital investment requirements.
- Prescriptive social requirements (e.g. community ownership) can impact the feasibility or profitability of a concession.
How can the design enhance impact?
If best practices are followed, concessions can be an effective tool to capture revenues from tourism and direct them towards better PA management and conservation efforts. At the same time, well-designed concessions can ensure that development is aligned with a PA’s core purpose of conservation; increase demand for tourism in a PA, entrance fee revenues, the economic value of a PA, and visitor awareness of and support for conservation; and provide vital links among local communities, rural development, and conservation. The World Bank, UNDP, and IUCN have developed sets of guidelines and best practices for successful tourism concessions in PAs.
Concessioning programmes must balance tourism development with environmental protection. Establishing guidelines and requirements in concessions policy, bidding documents, and contracts that minimize environmental impacts during planning, construction, operation, and decommissioning of facilities is an important means of minimizing negative environmental impacts. Bidding documents may stipulate support for specific conservation goals of the PA, and contracts may require concessionaires to fulfil specific environmental obligations (in Costa Rica, every concession must implement environmentally sensitive waste management procedures). Environmental Impact Assessment (EIA) is a key tool to predict, avoid and mitigate adverse environmental impacts of a concession activity, and should be incorporated into all allocation processes. In Botswana, bidding documents require concessionaires to conduct EIAs during development and operation of the concession. Concessioning authorities can also practice effective risk management through stakeholder engagement, regular reporting, adequate due diligence, and employing experienced technical personnel.
Communities living in and near PAs may incur costs from loss of access to resources, but concessions can provide socio-economic benefits for these communities in return. There should always be some level of community consultation and engagement throughout the concession process. To maximize socio-economic benefits, specific requirements and responsibilities can be established in concessions policy and bidding documents, and should form part of the contract. These requirements and responsibilities can take several forms:
- Local community employment: PA authorities sometimes require concessionaires to employ members of local communities or hire local communities to run the concession. For instance, in Namibia, all concession proposals must include details of an agreement between the applicant and the local community before it can be approved. This approach tends to provide the greatest flow of revenues to poor communities.
- Local community ownership and capacity-building: PA authorities can award concessions directly to local communities. It may be necessary for the PA authority to support the community by helping to build capacity, which can take many years, or to encourage the community to go into partnership with a private sector operator in a joint venture. In South Africa’s Madikwe Game Reserve, a limited number of lodge concessions were reserved for neighbouring communities. Managed under community-private sector partnerships, these community-owned lodges have outperformed others as generators of local economic returns.
- Community revenue-sharing: Concessioning authorities can specify or encourage revenue-sharing options between local communities and private concessionaires. In Botswana, private concessionaires reserve a proportion of revenues from PA entrance fees for local communities, while in Namibia, financial and tax incentives are provided for revenue-sharing ventures.
- Local business involvement: Concessionaires can be encouraged to strengthen local supply and value chains by spending locally where possible. Concession processes can confer ‘preferred bidder’ status to local companies, or to concessionaires that are committed to supporting local businesses. In Zambia, some leases and hunting concessions have been reserved for domestic bidders, and in Madikwe, lodges buy fresh produce and services from local suppliers.
In order for PAs to balance protection with sustainable tourism development, authorities must monitor concession activities and continually evaluate and adapt concession processes. Three types of monitoring should be considered:
- Impact monitoring: the measurement of the environmental, social, and economic impact of commercial activities. Impact monitoring may not be required for small concessions that are known to be low impact (e.g. an ice cream vendor).
- Contract compliance monitoring: ensuring concessionaires are operating according to the contract and/or dealing with businesses operating illegally. Contracts must be effective and equitable (i.e. clearly stipulate payment terms, breach and termination procedures, and any specific requirements of the concession).
- Activity and administrative monitoring: ensuring concession activities correspond with those permitted and reporting on commercial activity.
To optimize the performance of concessions in PAs, a national concession policy should be developed (see South Africa, Namibia, Dominican Republic, and Colombia). Concessions policies that are not national in scope could result in the development of a series of legal exceptions, rather than optimal revenue generation. Provisions should promote effective contract management, including in partnership management, contract monitoring and enforcement, and contract termination or renewal procedures. For example, there must be contingency plans in place to deal with a failed concession (e.g. when repeated contract breaches lead to termination), which can otherwise result in serious disruption of service and ultimately bankruptcy for the PA.
To strengthen the potential for commercial concessions to contribute to the financial sustainability of PAs, PA authorities should be able to retain at least some tourism revenues. This retention acts as an incentive for cost-saving, accountability, and improved management, creating a positive cycle leading back to increased revenue generation. If institutional capacity is adequate, it also improves trust from private sector concessionaires that their fees directly support PA management, encouraging investment.
Guidelines and Case Studies
- Guidelines for tourism partnerships and concessions for protected areas (IUCN and CBD)
- Tourism concessions in protected natural areas: Guidelines for managers (UNDP)
- An introduction to tourism concessioning: 14 characteristics of successful programs (World Bank)
- Best practices for tourism concessions in protected areas: A review of the field
- Best practice for tourism concessions in protected areas: Case studies from Latin America
- Guidelines for planning and management of concessions, licenses and permits for tourism in protected areas
- Tourism and visitor management in protected areas: Guidelines for sustainability (IUCN)
- Understanding tourism revenues for effective management plans (WWF)
- Financial sustainability of protected areas in Latin America and the Caribbean: Investment policy guidance (UNDP & TNC)
- Public private partnership toolkit for tourism