Agenda

All-Inclusive Leisure Resort Proposal Meeting

Welcome

Land availability and form of ownership

Developer: 40 yr lease, free of charge granting exclusivity over the entire site (inc water)Government: 20 yr independent leases on the land and the beach/water. (Inc 10 year review)

No exclusivity to be granted over water and beach. Traditional lease cost structure.ResolvedA 30 year lease be granted to the developers. Licenced access to be built into lease. Costs to be discussed in the light of other items below (potential trade-off)

My thoughts………. Right of resale?? On the international market, local market, 1st refusal to government? Developers

might get ‘stuck’ and unable to get money out if they don’t protect their exit from the market. Possible joint venture with government land as the ‘stake’ conferring a seat on the management

board of the project? Are government missing an opportunity? Is lease the right way to go for developers?… This still guarantees state involvement as the

OWNER of the land….All a lease confers is the right to USE the land for a fixed period subject to contract conditions. Freehold ownership might have been a better bet for the developers.

Is 30 years long enough for a developer? If he operates for 10-12 and sells it so someone who expects to operate it for a similar period, then his chances of making a resale are limited as the lease will then have less then 10 yrs to run. Developers should have fought for more time if stuck with a lease and not freehold….a lease still leaves the government with some influence as the owner of the land, so what is their problem with a longer lease anyway?

Land assembly & resident relocation / compulsory purchase & price

Developer: Government to compulsorily purchase land, remove occupants, relocate and re-house at its own expense.

Government: Compensation required from developers for all owner / occupiers of land

ResolvedThe government will assemble the land via compulsory purchase and ensure a clean site. Developers will offer compensation of either new improved local housing with modern services adjacent to the site or the equivalent cash offer to enable the individual to relocate.

My thoughts……. Sensible and typical – developers don’t want to be seen as ‘Mr Nasty’and don’t have the capacity

to forcibly remove the locals. Neither do they have the local legal knowledge. State involvement is the only pragmatic way.

Government needs to ensure that the developer undertakes to build the new houses before it begins its project construction and that it runs in enough spare services (electricity water etc) NOT ONLY for their development, but for these relocated houses AND the additional expansion of the community and subsequent developments which you hope this development will attract.

Developers need to be careful about the above and that their agreement is ‘watertight’ before they commit to investments taking place BEFORE their own project.

It is easy to displace local people in the face of development opportunity, but never lose sight of the fact that these are the people you will want to work for you and to add ‘local culture’ – if you completely alienate them over the deal, they will have ‘their day’ and ‘payback’ will occur in antagonism etc (See Doxey’s Irridex)

Development density and design: planning control

Developer: Wants exclusive rights over designs. Does not see the need for planning control compliance. Willing to make concessions to local architectural style.

Government: Requires submission to planning control policies and procedures. Will enforce non-compliance. Has strict guidelines re density, height, screening upon which it will not compromise.

ResolvedDevelopers agree to submit to planning regulations

My Thoughts Developers – take care not to unnecessarily antagonise governments. You have to submit to

planning policies anywhere else….this system is unlikely to be that developed anyway. It is in the government’s interests, if it wants the project, to ensure that they are not unnecessarily unreasonable.

Access and exclusivity

Developers: Complete exclusivity. No access to locals to land, beach or water for any purpose. Guest security is paramount.

Government: Open access is an equally non-negotiable principle.ResolvedManaged access to the site is to be established. The developer will be the arbiter of the extent, timing and nature of access granted via a licensing system. This system also incorporates a ‘reasonable’ number of local on-site cultural events as insisted upon by the government.

My Thoughts The management of the system by the developer means they are in the ‘driving seat’ so technically

they can deny any access as they see fit. BUT, misuse of the system to deny access unreasonably is likely to make an enemy of the state…and as they own the land, that would be ‘risky’ . Thus there is balance and it is likely to work if the basic ground-rules are agreed.

Policing an ‘open’ site will be exceptionally difficult. With the magnet of people with money – locals will find a way round the managed access system….’reversing out of it’ may not be acceptable to the government. This could be a problem for developers – you might have unwittingly gone below your minimum criteria.

Project and infrastructure funding balance

Developers: Will fund and develop own infrastructure on site. Willing to construct infrastructure TO the site if at Government’s expense.

Government: Cannot afford To-site infrastructure costs.

ResolvedGovernment (with developer support) will discuss funding possibilities with institutional funding sources like World Bank/IMF to cover costs of infrastructure to the site. A possible exchange: land lease fee forgone if developers contribute substantially to the To-site infrastructure.

My Thoughts A practical and pragmatic solution, although the time for World Bank intervention may put the

development on hold for some considerable time. The land-for-infrastructure exchange presents interesting possibilities and solves the government cash shortage potentially.

Employment and training

Developers: Will train and recruit labour below Department Manager level from the local population (particularly those on-site prior to development who want employment. Require visas to import specialist management skills.

Government: Accept the concept of local employment but require acceptance on the part of developers of targets for local management (70% within 3 yrs 90% within 5 years). Will deny visas to foreign management after this point.

ResolvedIt is in the vested interests of BOTH parties to ensure local labour is used, but promotion of local employees can only come IF they succeed in training programmes and want such advancement. If local employees do not measure up denial of visas will not be unreasonably applied.

My Thoughts If Developers remain the arbiters of who is / is not going to advance through the career structure,

there is a chance that targets will not be met. Nevertheless, the visa denial threat should act as a stimulus.

Local supplier / purchasing conditions

Developers: Keen to purchase locally where goods and services measure up to quality standards as determined by the Developers.

Government: Requires Developers use the development period to establish criteria for quality services/products and to work with government and suppliers to achieve the standard.

ResolvedAs above…Developers will assist in improving supply, but if the supply quality is NOT there (and developers will be sole arbiters thereof) they reserve the right to purchase abroad and he state will consider non-punitive import taxes in such situations.

My Thoughts Sensible…but this leaves purchasing in the hands of the developers who can always think of

a reason why the supply does not measure up in order to be able to import from their global suppliers at a low import cost. Government beware.

Taxation, imports and leakage

ResolvedNot discussed owing to time constraints. Envisaged that the problem would be that although the government would want to tax revenue or profit, that revenue is paid in the tourists own country (ie outside the government’s control). If RDI agreed to some for of taxation based on declared revenue/profit, it would be no problem to ‘manufacture figures’ suggesting that this site hasn’t worked and is a loss-leader. The state will have to consider things directly under its control and which are capable of reasonably accurate measurement and verification. The one indisputable area relates to visas and entry. The government could simplify corporate taxation matters by taxing non-local purchases in terms of import duties plus levying high entry charges to the country. These could be ‘disguised’ within the overall package price. The charges might be gauged by looking at the pricing structures of the existing resorts, considering the margin likely to be made and then negotiating around a figure. Developers might not like it…but if everything else has been agreed and they almost have a done deal, they would be brave to pull out and go elsewhere as the cost of going through a similar process in another location would almost certainly be similar but would cost significantly in time terms.

Overall

There appears to have been enough movement on both sides for a deal to be ‘struck’ once the legal teams have gone in. The question is, have we broken out of the cycle of short-lived development into a longer life, truly sustainable future, or will RDI be leaving this resort area in 10 years as over-development has followed inexorably as other operators see the opportunity and the government and people come to see tourism as a cash cow? …………..

Now look at the title for the written element of the assignment. Hopefully this role-play has given you some understanding from the inside of the process of the issues and dynamics at stake.

I enjoyed the event and your interest, motivation and willingness to participate. I will produce marks for this element shortly. However, so much was obviously a team effort, I suspect there will be relatively little deviation from a team base mark.

PLEASE: I do want to run this with the 2nd cohort, so do NOT give away too many secrets! It is pointless anyway in the sense that there is no ‘right answer’, it is rather a question of how you ‘see’ the issues and how the negotiation process works. Please respect this. Thanks. Tony