ANNEX INVESTMENT APPRAISAL OF UPGRADING VISITOR FACILITIES AT NABQ PROTECTED AREA

by

Adrian Whiteman
Economist,
Forest Economics Service,
FAO Forestry Department, Rome

Background

As part of the technical backstopping for FAO project TCP/EGY/0168(A): Rehabilitation, conservation and sustainable utilization of mangroves in Egypt, the Forest Economics Service of the FAO Forestry Department was asked to prepare an investment appraisal of the proposed upgrading of visitor facilities at Nabq Protected Area. This appraisal is based on the data collected by Cabahug and follows standard investment appraisal techniques used in many countries throughout the World.

Objective

The objective of this appraisal is to examine the economic viability of upgrading the visitor facilities at Nabq Protected Area and recovering the cost of this investment through higher entrance charges to the area.

Options

The appraisal examines two possible courses of action or options. These are as follows:

Option 1 - do nothing (baseline option): this option assumes a continuation of the current management of Nabq Protected Area, including a small amount of expenditure on staff costs and income from entrance charges maintained at their current level.

Option 2 - invest in upgrading visitor facilities: this option includes investment in new facilities at four sites within Nabq Protected Area and some upgrading of equipment used by staff. It also assumes that entrance charges can be raised to recover the cost of these investments.

Because both of these options include both costs and benefits, the financial return on the investment in upgrading visitor facilities is equal to the difference in the cash-flows (and associated measures of economic performance) between the two different options.

Calculation of projected revenue

Revenue or income in Nabq Protected Area is collected from entrance charges paid by visitors to the area. Currently, Egyptian tourists pay five Egyptian Pounds (EGP 5.00) to enter the area, while foreign tourists pay five United States Dollars (USD 5.00).

Although the entrance charge for foreign tourists is fixed in United States Dollars, statistics from the Income Department of the Egyptian Environmental Affairs Agency (South Sinai Sector National Parks) show that the majority of entrance charges are actually paid in Egyptian Pounds. Therefore, a significant proportion of foreign tourists must pay the entrance charge in local currency (converted from USD at the prevailing exchange rate).

Furthermore, because of the higher number of foreign tourists visiting Nabq Protected Area and the higher entrance charges paid by them, the proportion of total revenue collected from foreign tourists is much higher than the proportion collected from Egyptian tourists.

Figure 2 shows the total amount of revenue collected at Nabq converted into EGP at the prevailing exchange rates in each year from 1997/98 - 2001/02. The total height of each bar represents the total revenue collected and reported by the Income Department. The amounts paid by foreign and local visitors have been calculated by multiplying the visitor number statistics for each year by the entrance charges (and converting them into EGP in the case of foreign visitors). The unspecified amounts represent the difference between the amounts of revenue calculated by this method and the total revenue reported by the Income Department.

Figure 2 Trends in total revenue collection at Nabq Protected Area 1997/98 - 2001/02



Source: Income Department, National Parks, South Sinai Sector, EEAA, 2001. Note: reported figures have been converted to EGP at the exchange rate in each year. The unspecified amounts correspond to the difference between revenue calculated from visitor number statistics and the revenue reported by the Income Department.

This figure shows that income at Nabq has declined in the last two years in line with the decline in visitor numbers to the area. It also shows that foreign tourists account for at least 80 percent of the total revenue collected at Nabq and possibly more.

Assuming that the revenue statistics are probably more reliable than the visitor number statistics, the presence of a significant amount of unspecified or unexplained income also suggests that the visitor number statistics may be underestimates of the real numbers of people visiting the area.

Projections of visitor numbers

Figure 3 shows the trend in the number of foreign tourists visiting Egypt since 1980. On average, the annual number of foreign tourists has increased steadily over the last two decades by about 170,000 visitors per year or around eight percent. More recently, the tourism industry in Egypt was negatively affected by the bombing of the World Trade Centre on 11 September 2001, which resulted in a drastic reduction in the number of foreign tourists visiting the Red Sea. However, the effect of this was only temporary and the industry slowly recovered after six months. Apart from this temporary setback, it is expected that, on the whole, the number of foreign tourists visiting Egypt will continue to increase at the same rate as it has in the past.

Figure 3 Trend in the number of foreign tourists visiting Egypt 1980 - 2001



Source: Statistical, Economic & Social Research & Training Centre for Islamic Countries (www.sesrtcic.org).

At the local level, trends in visitor numbers to Sharm El Sheik and the Nabq Protected Area are shown in Table 2.

This table also shows the sudden fall in visitor numbers to Nabq in 2001/02 (July 2001 to June 2002), which could be attributed to the events of 11 September 2001.

Table 2 Visitors to Sharm El Sheik and Nabq Protected Area

Year	Number of Egyptian visitors			Number of foreign visitors
	Sharm El Sheik	Nabq	Nabq as % of Sharm El Sheik	Sharm El Sheik	Nabq	Nabq as % of Sharm El Sheik
1997/98	95,765	600	0.6%	317,150	15,750	5.0%
1998/99	143,355	1,000	0.7%	363,449	23,500	6.5%
1999/00	146,193	1,400	1.0%	645,687	26,150	4.0%
2000/01	185,781	1,700	0.9%	893,810	19,800	2.2%
2001/02	n.a.	1,550	n.a.	n.a.	13,000	n.a.
Average	142,774	1,250	0.8%	555,024	19,640	3.8%

Source: Income Department, National Parks, South Sinai Sector, EEAA, 2001

In order to make projections of the revenue that will be collected from visitors to Nabq, it is necessary to make projections of future visitor numbers. Excluding the last year (2001/02), the number of foreign visitors to Sharm El Sheik has increased by about 201,000 visitors per year or approximately 44 percent per year, while the annual number of Egyptians visiting Sharm El Sheik has increased by 27,000 or 26 percent per year (see Figure 4).

Figure 4 Trends in the number of visitors to Sharm El Sheik 1997/98 - 2000/01



Source: Income Department, National Parks, South Sinai Sector, EEAA, 2001

At Nabq, past increases in visitor numbers have been somewhat less than this. The number of foreign visitors to Nabq has increased by about 1,480 visitors per year or 12 percent per year over the period 1997/98 to 2000/01, while the annual number of Egyptians visiting Nabq has increased by 370 visitors or 23 percent per year (see Figure 5).

Figure 5 Trends in the number of visitors to Nabq Protected Area 1997/98 - 2000/01



Source: Income Department, National Parks, South Sinai Sector, EEAA, 2001

For the purpose of this analysis, it seems reasonable to exclude the figures for visitor numbers in 2001/02 from the estimation of the historical trends in visitor numbers, due to the unusual circumstances experienced during that year. Thus, it is assumed here that future visitor numbers will increase at the same rate as they have in the past (i.e. over the period 1997/98 to 2000/01), but starting from the relatively low level of visitor numbers recorded in 2001/02.

The projections of future visitor numbers made on this basis are shown in Figure 6.

The number of Egyptians visiting Nabq is projected to increase from 2,290 visitors per year in 2003/04 to 5,620 in 2012/13 (i.e. increasing each year by 370 visitors per year, in line with the historical trend).

For foreign tourists, two projections have been made. The high projection assumes that the number of foreign tourists visiting Nabq will increase from 15,960 visitors per year in 2003/04 to 29,280 in 2012/13 (i.e. at an annual increase of 1,480 visitors per year, in line with the historical trend), while the low projection assumes a more conservative increase in foreign tourists visiting Nabq, from 15,000 visitors per year in 2003/04 to 24,000 in 2012/13 (i.e. at an annual increase of 1,000 visitors per year).

Figure 6 Trends in visitor numbers to Nabq Protected Area 1997/98 - 2000/01 and projections from 2003/04 to 2012/13



Source: author’s estimates, based on Income Department, National Parks, South Sinai Sector, EEAA, 2001

It should be noted that both of these projections of increases in foreign tourists visiting Nabq are quite conservative. The lower projection results in a level of visitor numbers in 2012/13 that is less than the number of visitors experienced in 1999/00 and the higher projection rises to a level that is only 12 percent higher than this figure. Thus, it seems highly likely that these projected levels of visitor numbers can be achieved in the future.

Seasonality of visitor numbers

The variation throughout the year in the number of visitors to Nabq is not important for the calculation of projected revenue. However, this variation, or the seasonality of visitor numbers, is important in terms of the visitor facilities that will have to be provided. In order to maintain a high level of service provision, visitor facilities must be provided at a level that can cope with the numbers of visitors that will come on the most popular days of the week in the months when visitor numbers are at their highest.

Figure 7 Seasonality of visitor numbers to Nabq Protected Area 1997/98 - 2000/01



Figure 7 shows the average seasonality of visitor numbers to Nabq over the period 1997/98 to 2000/01. As this figure shows, the most popular month for Egyptian visitors to Nabq is January, while the most popular month for foreign tourists is April. Given that foreign tourists account for the majority of visitors to Nabq, the highest number of visitors can be expected in April, when just under 12 percent of the total annual number of foreign tourists will visit Nabq and just under 10 percent of the annual number of Egyptian tourists will visit the site.

In terms of the projections of visitor numbers, these seasonal patterns in visitor numbers suggest that, under the high growth scenario, the number of visitors to Nabq could rise to around 4,000 per month (or about 130 per day) in the most popular month (i.e. April) by 2012/13.

Projections of entrance charges

A policy of differential pricing (i.e. setting an entrance charge for foreign tourists that is higher than the entrance charge for local people) is common at visitor facilities in developing countries. This reflects the difference in ability to pay between these two groups of people and it is a sensible strategy for increasing revenue. Thus, it is recommended that this policy should be continued.

With respect to the potential to increase entrance charges at Nabq, a 1994 study of Dr Er-Hawary showed that visitors would be willing to pay higher entrance charges to Nabq Protected Area as long as a high standard of facilities, amenities and other services could be maintained. This also corresponds to international experiences in the management of ecotourism facilities, in that ecotourists are willing to pay high charges if they perceive that there is a high level of service provision at such sites.

The study by Er-Hawary indicated that foreigners would be willing to pay an additional USD 8.50 for entrance to the area, while Egyptian tourists would be willing to pay an additional EGP 7.50.

Based on this information, the following assumptions have been made about the potential to increase entrance charges to Nabq in the future:

Under Option 1 (do nothing), it has been assumed that entrance charges will remain the same (at EGP 5.00 for Egyptians and USD 5.00 for foreign tourists), but will be increased by 20 percent in years 3, 5, 7 and 9 (i.e. 2006/07, 2008/09, 2010/11 and 2012/13). These increases will be made to adjust the entrance charges for inflation (currently about 10 percent per year) so that the real price for admission to Nabq will remain roughly the same over the next 10 years.

Under Option 2 (upgrade the facilities at Nabq), it is assumed that entrance charges will be doubled in year 1 (2004/05) after work has started on upgrading the facilities. This increase is within the amounts reported in the study of Er-Hawary. Following this, the charges will again be increased by 20 percent in years 3, 5, 7 and 9 to account for inflation (i.e. as under Option 1).

A summary of the projected entrance charges to Nabq under both of these options is shown in Table 3. These entrance charges, along with the projections of visitor numbers presented earlier, have been used to produce the projections of revenue presented later on.

Table 3 Projected entrance charges to Nabq Protected Area under the two options

Option	Year
	Year 0 (2003/04)	Year 1 (2004/05)	Year 3 (2006/07)	Year 5 (2008/09)	Year 7 (2010/11)	Year 9 (2012/13)
Option 1 (do nothing) - Egyptian tourists (in EGP) - Foreign tourists (in USD)	5.00 5.00	5.00 5.00	6.00 6.00	7.20 7.20	8.64 8.64	10.37 10.37
Option 2 (upgrade facilities) - Egyptian tourists (in EGP) - Foreign tourists (in USD)	5.00 5.00	10.00 10.00	12.00 12.00	14.40 14.40	17.28 17.28	20.74 20.74

Calculation of projected costs

Proposals to upgrade the facilities at Nabq were obtained by Cabahug from the Program Manager of the Gulf of Aqaba Protectorate Development Program. The Program Manager suggested a number of improvements that could be made in terms of construction of new buildings and facilities for visitors, the increased provision of other facilities and services for visitors, improvements in staffing and the provision of equipment for staff.

In the original proposal, it was suggested that four of each new facility or building would be constructed at Nabq, implying that visitor facilities would be developed at four separate sites within the total Nabq Protected Area. Given that the total area of mangroves at Nabq is 54.5 ha (or 52.5 ha excluding Ras Mohammed) and that there is also a significant but unspecified area of land without trees in the protected area, it seems reasonable to propose the development of four separate visitor sites within Nabq.

Specifications for these proposals were obtained by Cabahug, along with estimates of costs (at September 2002 prices). The costs of these proposed improvements have been updated to 2003/04 prices and are briefly described below.

Proposals for new building construction

Proposals for the construction of new buildings included the construction of shelters for visitors and campers, the construction of toilet blocks, the construction of cafeterias and the construction of a Bedouin craft workshop.

• Shelters/sheds for visitors: the original proposal suggested constructing eight shelters/sheds for visitors (i.e. two at each visitor site) over the first four years of the development. Each shelter would be 10 metres in length at a cost of EGP 1,000 per metre (at September 2002 prices). Adjusted to 2003/04 prices, each shelter/shed would cost approximately EGP 1,100 per metre, giving a total investment cost of EGP 22,000 in each of the first four years of the development (i.e. EGP 1,100/metre x 10 metres x 2 shelters/sheds in each of the first four years). In addition, it is assumed here that each of these shelters/sheds would have to be refurbished after five years at a cost of 20 percent of the original building cost (i.e. EGP 4,400 in each year from Year 5 to Year 8).

• Camping shelters/sheds for visitors: the original proposal suggested that eight camping shelters (of the same specification as above) would also be provided over the same period. The costs of these would be exactly the same as those described above.

• Toilet blocks: Cabahug reported that a single toilet block costs EGP 3,000 and a double block costs EGP 8,000, but then went on to report that “four site costs” amount to EGP 15,000 (all at September 2002 prices). Although it is unclear what this means, it is certainly likely that the total cost of installing toilet blocks will amount to more than the cost of purchasing the blocks themselves (i.e. to include the costs of site preparation, plumbing etc.). Based on experience at other locations, it is assumed that the total cost of installing double toilet blocks will amount to approximately twice the cost of purchasing the toilet blocks or EGP 16,500 each (at 2003/04 prices). The proposal calls for installation of four double toilet blocks (one in each of the first four years of the development), which seems more than adequate to cope with the maximum expected number of daily visitors to the site (about 130 visitors on a busy day by 2012/13). In addition, as above it is assumed here that each of these toilet blocks would have to be refurbished after five years at a cost of 20 percent of the original building cost (i.e. EGP 3,300 in each year from Year 5 to Year 8).

• Cafeteria, with toilet, deep freezer and solar power: the original cost calculations by Cabahug included the construction of four cafeterias and the installation of a deep freezer (powered by solar power) in the Bedouin craft workshop. Firstly, it seems unlikely that the number of visitors would be sufficient to justify the construction of four cafeterias, so this has been reduced to only two (the first in Year 0 and the second in Year 5). Secondly, it would seem to make more sense to install deep freezers in the cafeterias rather than the Bedouin craft workshop, so it has been assumed here that each cafeteria will include a deep freezer and solar power unit. The building cost has been updated for inflation from the figure of EGP 25,000 given by Cabahug (at September 2002 prices) to a figure of EGP 27,500 (at 2003/04 prices). Similarly, the cost of the deep freezer and associated solar power equipment has been updated for inflation to EGP 57,200 per unit. It has also been assumed that the building will have to be refurbished after five years (at a cost of 20 percent of the original construction cost) and that the deep freezer and solar power unit will have to be completely replaced after five years.

• Bedouin craft workshop: the original proposal also included the construction of a Bedouin craft workshop. This would cost the same as the construction of a cafeteria and it has been assumed that this will be constructed in Year 1. As with the cafeteria, it has also been assumed that the Bedouin craft workshop will have to be refurbished after five years at a cost of 20 percent of the original construction cost.

• Maintenance cost: the original calculations by Cabahug estimated the cost of maintenance as equal to 10 percent of the cost of all capital expenditure in all previous years. A similar approach has been used here, except that the refurbishment of buildings has been specified explicitly (see above) and it has been assumed that more general maintenance costs (e.g. painting, minor repairs, replacement of windows, cleaning, etc.) will amount to five percent of the costs of construction (including the cost of purchasing the deep freezers and solar power units).

A synthesis of all of these costs over the next ten years (i.e. from 2003/04 to 2012/13) is given in Table 4, along with the estimate of the total building construction and maintenance costs for these improvements.

Table 4 Estimated building construction and maintenance costs for upgrading the visitor facilities at Nabq Protected Area

Construction and maintenance of buildings	Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Shelter/shed
Quantity (length in metres)	20	20	20	20
Cost @ EGP 1,100/metre	22,000	22,000	22,000	22,000
Refurbishment @ 20% of cost after 5 years						4,400	4,400	4,400	4,400
Double toilet block
Quantity	1	1	1	1
Cost @ EGP 16,500/block	16,500	16,500	16,500	16,500
Refurbishment @ 20% of cost after 5 years						3,300	3,300	3,300	3,300
Camping shed
Quantity (length in metres)	20	20	20	20
Cost @ EGP 1,100/metre	22,000	22,000	22,000	22,000
Refurbishment @ 20% of cost after 5 years						4,400	4,400	4,400	4,400
Cafeteria, with toilet, deep freeze and solar power
Quantity: building and toilet	1					1
Cost @ EGP 27,500/building	27,500					27,500
Refurbishment @ 20% of cost after 5 years						5,500
Quantity: deep freeze and solar power system	1					1
Cost @ EGP 57,200/unit	57,200					57,200
Replacement after 5 years						57,200
Bedouin craft workshop
Quantity		1
Cost @ EGP 27,500/building		27,500
Refurbishment @ 20% of cost after 5 years							5,500
Building maintenance (including deep freeze and solar power)
Annual cost @ 5% of construction cost after 1 year		7,260	10,285	13,310	16,335	16,335	20,570	20,570	20,570	20,570
TOTAL COST OF BUILDING CONSTRUCTION AND MAINTENANCE	145,200	95,260	70,785	73,810	16,335	175,835	38,170	32,670	32,670	20,570

Proposals for the construction of other visitor facilities

In addition to the proposals for new building construction, the construction of other visitor facilities has also been proposed as follows.

• Carparks: the original proposal included the construction of four carparks at a total cost of about EGP 12,000 each (at September 2002 prices). Each carpark would have the capacity for 30 cars and this cost would include all site preparation, signs and the construction of low stone walls around each carpark. With a projected maximum of only 130 visitors to Nabq on a busy day, the provision of 120 parking spaces is a little on the high side, but this has been included in the cost calculations, using an updated cost estimate of EGP 13,200 per carpark (at 2003/04 prices) and assuming that one carpark will be constructed in each of the first four years of the development. The cost of maintaining these carparks has been estimated as 2.5 percent of the construction costs over each of the first five years, increasing to five percent of the construction costs for the years after this. This increase in maintenance costs is expected to occur as more visitors come to Nabq and the carparks are used more heavily.

• Simple walking trails: simple walking trails will be constructed by clearing paths through the mangroves and using lines and ropes to delineate these paths. The proposal includes the construction of 500 metres of such paths in each of the first four years of the development. The original cost estimated by Cabahug was EGP 7,500 per 500 metres or EGP 15 per metre (at September 2002 prices). Updated to 2003/04 prices, it has been assumed that these will cost EGP 17 per metre or a total of EGP 8,500 in each of the first four years. Maintenance of these paths is assumed to start three years after they are constructed and will cost five percent of the original construction cost every year.

• Boardwalks: boardwalks will also be constructed to allow people access to see the mangroves. The original costs presented by Cabahug contained a discrepancy, giving a cost of EGP 1,000 per metre in the text and USD 250 per five metres (equal to about EGP 230 per metre) in the financial calculations later on. Given that the cost of constructing the sheds was also estimated at EGP 1,000 per metre, it seems likely that the higher figure presented by Cabahug is a mistake. Therefore, it is assumed here that the construction of boardwalks will cost around EGP 300 per metre (at 2003/04 prices) and that 200 metres of boardwalk will be constructed in each of the first four years of the development. As with the simple walking trails, it is assumed that maintenance of the boardwalks will start three years after they are constructed and will cost five percent of the original construction cost every year.

• Viewing decks: four viewing decks will be constructed (one in each of the first four years). Each viewing deck will be five metres high and constructed of wood and/or metal poles with a palm-leaf roof. Cabahug estimated the cost of each viewing deck as EGP 25,000 (at September 2002 prices), which has been updated to EGP 27,500 per unit (at 2003/04 prices). For maintenance costs, the same assumptions as above have been used.

A synthesis of all of these costs along with the total cost of construction and maintenance of these other facilities is given in Table 5.

Table 5 Estimated costs of construction and maintenance of other facilities as part of the upgrading of visitor facilities at Nabq Protected Area

Construction and maintenance of other visitor facilities	Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Carpark (for 30cars)
Quantity	1	1	1	1
Cost @ EGP 13,200/carpark	13,200	13,200	13,200	13,200
Maintenance @ 2.5% of cost each year after 1 year, 5% after 5 years		330	660	990	1,320	2,640	2,640	2,640	2,640	2,640
Simple walking trails
Quantity (length in metres)	500	500	500	500
Cost @ EGP 17/metre	8,500	8,500	8,500	8,500
Maintenance @ 5% of cost each year after 3 years				425	850	1,275	1,700	1,700	1,700	1,700
Board walk
Quantity (length in metres)	200	200	200	200
Cost @ EGP 300/metre	60,000	60,000	60,000	60,000
Maintenance @ 5% of cost each year after 3 years				3,000	6,000	9,000	12,000	12,000	12,000	12,000
Viewing deck (5m height)
Quantity	1	1	1	1
Cost @ EGP 27,500/deck	27,500	27,500	27,500	27,500
Maintenance @ 5% of cost each year after 3 years				1,375	2,750	4,125	5,500	5,500	5,500	5,500
TOTAL COST OF CONSTRUCTION AND MAINTENANCE OF OTHER FACILITIES	109,200	109,530	109,860	114,990	10,920	17,040	21,840	21,840	21,840	21,840

Purchase of other equipment for visitors

The proposal included the purchase of a variety of other equipment and materials for visitors, including the following:

• Two-door safety lockers/cabinets: purchase of one two-door safety locker/cabinet in each of the first four years (i.e. one at each site). The purchase price estimated by Cabahug of EGP 500 per unit is equal to EGP 550 per unit at 2003/04 prices.

• Litter bins: the original proposal included the purchase of ten stone/wooden litter bins (with metallic lids) in each of the first four years (i.e. ten for each site). It is assumed here that five litter bins will be purchased for each site at first, with another five after five years. The purchase price estimated by Cabahug of EGP 500 per unit is equal to EGP 550 per unit at 2003/04 prices.

• Road signs: purchase of ten road signs made of wood and stone with ceramics, in each of the first four years (i.e. forty in total). The purchase price estimated by Cabahug of EGP 250 per unit is equal to EGP 275 per unit at 2003/04 prices.

• Direction signs: purchase of ten wooden direction signs for on-site use, in each of the first four years (i.e. forty in total). The purchase price estimated by Cabahug of EGP 50 per unit is equal to EGP 55 per unit at 2003/04 prices.

• On-site information panel: two on-site information panels (2.00m x 1.20m) made of aluminium with a fibre cover and UV-resistant printing will be installed in each of the first four years (i.e. eight in total). The purchase price estimated by Cabahug of EGP 2,500 per panel is equal to EGP 2,750 per panel at 2003/04 prices.

• Three-dimensional site map: site maps (2.00m x 1.00m) will be installed, one in each of the first four years (i.e. four in total). The purchase price estimated by Cabahug of EGP 6,000 per panel is equal to EGP 6,600 per panel at 2003/04 prices.

• Fencing rope: fencing rope (nylon marine type) will be required to restrict access to some areas. It is assumed that 500 metres of rope will be required in each of the first four years and 50 metres of rope each year after this. The purchase price estimated by Cabahug of EGP 5.00 per metre is equal to EGP 5.50 per metre at 2003/04 prices.

• Brochures: the original cost calculations by Cabahug included printing 2,000 brochures about Nabq in each of the first four years. Effective marketing will be very important for the success of this development, so this appraisal has included the cost of 2,000 brochures in every year, at a total cost of EGP 12,600 per year.

• Maintenance and replacement: the maintenance cost has been estimated as 10 percent of the purchase price of all of the above items each year (excluding the fencing rope and brochures). It has also been assumed that the above equipment will be replaced after thee to five years.

A synthesis of all of these costs along with the total cost of purchasing other equipment for visitors is given in Table 6.

Table 6 Estimated costs of purchasing other equipment for visitors as part of the upgrading of facilities at Nabq Protected Area

Purchase of other equipment for visitors	Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Two-door safety lockers/cabinets
Quantity	1	1	1	1
Cost @ EGP 550/unit	550	550	550	550
Replacement after 3 years				550	550	550	1,100	550	550	1,100
Litter bins
Quantity	5	5	5	5		5	5	5	5
Cost @ EGP 550/unit	2,750	2,750	2,750	2,750		2,750	2,750	2,750	2,750
Replacement after 5 years						2,750	2,750	2,750	2,750
Road signs
Quantity	10	10	10	10
Cost @ EGP 275/unit	2,750	2,750	2,750	2,750
Replacement after 5 years						2,750	2,750	2,750	2,750
Direction signs
Quantity	10	10	10	10
Cost @ EGP 55/unit	550	550	550	550
Replacement after 3 years				550	550	550	1,100	550	550	1,100
On-site information panel (2.00m x 1.20m)
Quantity	2	2	2	2
Cost @ EGP 2,750/unit	5,500	5,500	5,500	5,500
Replacement after 3 years				5,500	5,500	5,500	11,000	5,500	5,500	11,000
Three-dimensional site map (2.00m x 1.00m)
Quantity	1	1	1	1
Cost @ EGP 6,600/unit	6,600	6,600	6,600	6,600
Replacement after 5 years						6,600	6,600	6,600	6,600
Fencing rope (nylon marine type)
Quantity (length in metres)	500	500	500	500	50	50	50	50	50	50
Cost @ EGP 5.50/metre	2,750	2,750	2,750	2,750	275	275	275	275	275	275
Brochures (printing)
Quantity (number of brochures)	2,000	2,000	2,000	2,000	2,000	2,000	2,000	2,000	2,000	2,000
Cost @ EGP 6.30/copy	12,600	12,600	12,600	12,600	12,600	12,600	12,600	12,600	12,600	12,600
Maintenance of other equipment
Cost @ 10% of purchase price each year	1,870	3,740	5,610	7,480	7,480	7,755	8,030	8,305	8,580	8,580
TOTAL COST OF OTHER EQUIPMENT	35,920	37,790	39,660	48,130	26,955	42,080	48,955	42,630	42,905	34,655

Staffing costs

Irrespectively of whether the visitor facilities at Nabq Protected Area are upgraded, staff will be required to collect the entrance charges at the site, maintain the facilities and generally look after the area. The costs of this are as follows:

• Revenue collector: one revenue collector will be required at Nabq to collect the entrance charges to the site. Cabahug estimated the cost of this as EGP 800 per month or EGP 9,600 per year, which is equal to EGP 10,560 per year at 2003/04 prices.

• Caretaker: one caretaker will be required at Nabq to look after the site. Cabahug estimated the cost of this as EGP 750 per month or EGP 9,000 per year, which is equal to EGP 9,900 per year at 2003/04 prices.

• Rubbish collectors: rubbish collectors will be required to collect rubbish at the site and perform other simple cleaning and maintenance tasks. It is assumed that only one will be required at first, rising to two in Year 2 and three in Year 5, as the number of visitors to the site increases. Cabahug estimated the cost of this (per person) as EGP 500 per month or EGP 6,000 per year, which is equal to EGP 6,600 per year at 2003/04 prices.

• Staff management overhead: as given by Cabahug, the staff management overhead has been estimated to amount to an additional 15 percent on top of salary costs.

The above staff salary costs and overheads will be incurred whether the visitor facilities at Nabq are upgraded or not, so they have been included in the calculation of cash-flows under both options. A synthesis of all of these costs along with the total staff salary costs is given in Table 7.

Table 7 Estimated staff salary costs at Nabq Protected Area

Staff salary costs	Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Revenue collector
Quantity	1	1	1	1	1	1	1	1	1	1
Cost (salary) @ EGP 10,560/year	10,560	10,560	10,560	10,560	10,560	10,560	10,560	10,560	10,560	10,560
Caretaker
Quantity	1	1	1	1	1	1	1	1	1	1
Cost (salary) @ EGP 9,900/year	9,900	9,900	9,900	9,900	9,900	9,900	9,900	9,900	9,900	9,900
Rubbish collector
Quantity	1	1	2	2	2	3	3	3	3	3
Cost (salary) @ EGP 6,600/year	6,600	6,600	13,200	13,200	13,200	19,800	19,800	19,800	19,800	19,800
Staff management overhead
Cost @ 15% of salary cost	4,059	4,059	5,049	5,049	5,049	6,039	6,039	6,039	6,039	6,039
TOTAL STAFF SALARY COSTS (INCLUDING OVERHEADS)	31,119	31,119	38,709	38,709	38,709	46,299	46,299	46,299	46,299	46,299

Purchase of other equipment for staff

The proposal to upgrade facilities at Nabq also included the purchase of other equipment and materials for staff at the site. Most of these proposals were not included in the original text of the proposal, but were included in the cash-flow calculations made separately by Cabahug. There is always a risk that a new investment proposal provides an opportunity for staff to request additional equipment that might not necessarily be essential for the success of the development. Therefore, all such requests must be scrutinised very carefully. In this case, most of the proposals seemed reasonable and have been included in the appraisal (with some modifications). The full details of the equipment proposed for staff are given below.

• Small truck for rubbish collection and water delivery: the original cost calculations by Cabahug included the purchase of a small truck or dump truck for rubbish collection and water delivery. Such a vehicle would be useful to improve the operation of the site and successfully maintain a high level of service provision, so this request seems reasonable. Cabahug estimated the cost of this as USD 11,000, which is equal to about EGP 55,000 at 2003/04 prices and exchange rates. It has been assumed that one small truck will be purchased in the first year of the development (i.e. Year 0) and that this will be replaced after five years (i.e. in Year 5).

• Car for caretaker/revenue collector: the calculations by Cabahug also included the rental or purchase of a car for the rubbish collector. If there is already a truck for rubbish collection, it does not seem necessary to have a car for the rubbish collector as well. However, having a car on site could probably be justified for use by the revenue collector (e.g. to take money to the bank) and caretaker (e.g. to collect materials for repairs, distribute brochures to local hotels and tourist information centres, etc.). Therefore, the purchase of a car has been included in the appraisal. Cabahug’s original estimate was that it would cost approximately EGP 1,000 per month to rent a car or EGP 50,000 to purchase a car (at September 2002 prices). This cost for renting a car seems too low compared to the cost of purchasing a car. Therefore, it has been assumed that a car will be purchased in the first year (i.e. Year 0) at a cost of EGP 55,000 (at 2003/04 prices). This will be replaced after five years (i.e. in Year 5).

• Motorcycles: Cabahug proposed that three motorcycles would be purchased (one each in Years 2, 3 and 4). The original proposal did not give any justification for these purchases and this timing would result in more vehicles than staff at the site in the early years of the development. The purchase of motorcycles would help staff to move around the facility, so this can be justified and it has been assumed here that a motorcycle would be purchased in Year 0, Year 2 and Year 5, to coincide with the increase in the number of rubbish collectors at the facility. This timing of the purchase of vehicles (including the car and truck) would ensure that the number of vehicles at the facility will match the number of staff as the facility expands. In addition, as with the truck and car, it is assumed that the motorcycles will be replaced after five years.

• Vehicle operating costs (petrol, oil, lubricants): the original cost calculation by Cabahug estimated vehicle operating costs at USD 1,000 (or about EGP 4,600) per year. This seems a little on the low side and the assumption of the same amount every year does not take into account the fact that the number of vehicles at the site will increase over time. It has been assumed in this appraisal, that the vehicle operating costs of the car and truck will amount to EGP 2,500 per unit per year and that vehicle operating costs of the motorcycles will amount to EGP 1,000 per unit per year.

• Vehicle maintenance costs: as given by Cabahug, annual vehicle maintenance costs have been estimated to amount to 10 percent of the vehicle purchase price.

• Binoculars/telescope: Cabahug included the cost of purchasing an unspecified number of binoculars or telescopes in Years 1, 2 and 3 of the development. Binoculars or telescopes could be useful for staff in the performance of their duties or to enhance the experience of visitors to the site, so it has been assumed here that four binoculars or telescopes will be purchased in each of the first four years of the development at a cost of EGP 500 per unit and that these will be replaced after five years.

• Mobile/two way radio: Cabahug also included the cost of purchasing a number of mobile/two way radios (four in Year 1, two in Year 2 and another four in Year 3). Again, no justification was given for the number or timing of these purchases. It has been assumed here that four mobile/two way radios will be purchased in Year 0 and that an additional unit will be purchased in Year 2 and Year 5. The timing of these purchases will ensure that every staff member can have a radio and that there will also be a spare radio in case one of them breaks down. The cost given by Cabahug of USD 350 per unit has been updated to a cost of EGP 1,800 per unit (at 2003/04 prices) and it has been assumed that these will be replaced after five years.

• Computer and cash register: Cabahug included the cost of purchasing one computer or cash register in the first year of operation at a cost of USD 1,500. It has been assumed here that one computer and one cash register will be purchased in Year 0 at a cost of EGP 7,600 per unit and that these items will be replaced after five years.

• Maintenance costs: as given by Cabahug, it has been estimated that the annual costs of maintaining this equipment will amount to 10 percent of the purchase price.

• Plastic jars/drums for water supply: Cabahug included the cost of purchasing 20 plastic jars/drums for water supply in Years 1, 2 and 3 at a cost of USD 50 each. This seems a little on the low side, so it has been assumed here that 20 plastic jars/drums will be purchased in each of the first four years, at a cost of EGP 250 per unit. It has also been assumed that these will have to be replaced every three years.

• Plastic rubbish bags: Cabahug estimated the cost of purchasing rubbish bags as a fixed amount of USD 40 per month or USD 480 per year (equal to about EGP 2,200 per year). It seems likely that the number of rubbish bags required will start off lower than this, then increase over the first four years as the four sites at Nabq are developed. Therefore, it has been assumed here that the provision of rubbish bags will cost EGP 600 per site and that this will increase from serving one site in Year 0 to all four sites in Year 3 (and thereafter).

A synthesis of all of these costs along with the total cost of purchasing all of this equipment is given in Table 8.

Table 8 Estimated costs of purchasing other equipment for staff as part of the upgrading of facilities at Nabq Protected Area

Purchase of other equipment for staff	Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Small truck for rubbish collection and water delivery
Quantity	1
Cost @ EGP 55,000/unit	55,000
Replacement after 5 years						55,000
Car for caretaker/revenue collector
Quantity	1
Cost @ EGP 55,000/unit	55,000
Replacement after 5 years						55,000
Motorcycle for staff
Quantity	1		1			1
Cost @ EGP 7,600/unit	7,600		7,600			7,600
Replacement after 5 years						7,600		7,600
Vehicle operating costs (petrol, oil, lubricants)
Car and truck: cost @ EGP 2,500/unit/year	5,000	5,000	5,000	5,000	5,000	5,000	5,000	5,000	5,000	5,000
Motorcycle: cost @ EGP 1,000/unit/year	1,000	1,000	2,000	2,000	2,000	3,000	3,000	3,000	3,000	3,000
Vehicle maintenance costs
Cost @ 10% of purchase price each year	11,760	11,760	12,520	12,520	12,520	13,280	13,280	13,280	13,280	13,280

Table 8 Estimated costs of purchasing other equipment for staff as part of the upgrading of facilities at Nabq Protected Area (cont.)

Purchase of other equipment for staff	Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Binoculars/telescope
Quantity	4	4	4	4
Cost @ EGP 500/unit	2,000	2,000	2,000	2,000
Replacement after 5 years						2,000	2,000	2,000	2,000
Mobile/two way radio
Quantity	4		1			1
Cost @ EGP 1,800/unit	7,200		1,800			1,800
Replacement after 5 years						7,200		1,800
Computer and cash register
Quantity	2
Cost @ EGP 7,600/unit	15,200
Replacement after 5 years						15,200
Maintenance of other equipment (except vehicles)
Cost @ 10% of purchase price each year	2,440	2,640	3,020	3,220	3,220	3,400	3,400	3,400	3,400	3,400
Plastic jars/drums for water supply
Quantity	20	20	20	20
Cost @ EGP 250/unit	5,000	5,000	5,000	5,000
Replacement after 3 years				5,000	5,000	5,000	10,000	5,000	5,000	10,000
Plastic rubbish bags
Quantity (number of sites served)	1	2	3	4	4	4	4	4	4	4
Cost @ EGP 600/site/year	600	1,200	1,800	2,400	2,400	2,400	2,400	2,400	2,400	2,400
TOTAL COST OF OTHER EQUIPMENT FOR STAFF	167,800	28,600	40,740	37,140	30,140	183,480	39,080	43,480	34,080	37,080

Discounted cash-flow analysis

In order to assess and compare the economic viability of the two options for future developments at Nabq, it is necessary to combine all of the revenue and cost information described above and to calculate measures of the economic or financial performance of the two options. The process for doing this is called discounted cash-flow analysis.

Explanation of financial methodology and terminology used in this appraisal

Before proceeding, it is useful to first explain a little of the methodology and terminology that will be used in this analysis.

• A cash-flow presents the projections of revenue and costs over a specified investment period. For the purpose of this analysis, a ten-year investment period has been used. This is a reasonable length of time, so that the much of the impact of upgrading the visitor facilities at Nabq can be measured and included in the analysis without having to make projections too far into the (uncertain) future. Each year in the investment period is numbered from Year 0 to Year 9, where Year 0 represents the current year or the first year of the development (i.e. 2003/04).

• A discounted cash-flow presents the projections of future revenue and costs, but the figures in each year are adjusted to account for the fact that monetary amounts in later years have less value now (i.e. in the current year) than amounts in earlier years. The easiest way to think of the process of discounting is to consider the process in reverse. For example, USD 100 at the present time could be invested in a bank account at an interest rate of 10 percent, to give USD 110 in one year’s time. In other words, the present (or discounted) value of USD 110 in one year’s time would be only USD 100 at the present time. Discounting is the process whereby monetary amounts in later years are reduced to take this effect into account. After discounting, revenue and costs become discounted revenue and discounted costs.

• The discount rate is the amount by which future values are reduced and can be thought of as similar to an interest rate. For the purpose of this analysis, two discount rates have been used: 10 percent and 15 percent. In other words, at the 10 percent discount rate, all future costs and benefits have been reduced by 10 percent for each year in the future in which they occur. The use of a 10 percent discount rate is common in investment appraisals in developing countries and the 15 percent discount rate has also been used as a simple way of accounting for the potential risk associated with this development (i.e. in order to adjust for potential uncertainty in the future, it places less weight on the costs and benefits that will occur in later years of the development). The discount rate is also sometimes referred to as the target rate of return (TRR), which is the (real) rate of return that the investor expects to earn on all money invested in the project (also see NPV and IRR below).

• Investment analysis is always conducted in real terms rather than nominal terms. In other words, future revenues and costs are not increased to take into account the possible effects of inflation. This is because it is difficult to forecast future inflation. In stead it is assumed that inflation will have exactly the same effect on all revenues and costs in the future, so that any monetary amounts specified at current prices can be input into the cash-flow in later years without adjustment (i.e. under the assumption that they will not change in real terms). In the case of this appraisal, there is one item that will not automatically increase with inflation and this is the level of entrance charges to Nabq, which will be fixed by the Government. It is proposed that the entrance charges will be increased in future years to take some account of inflation so, for the purposes of this analysis, they are shown in the cash-flows in both nominal terms and converted into real terms (i.e. after adjustment for future inflation, assuming a 10 percent rate of inflation).

• Net discounted revenue is equal to discounted revenue minus discounted cost and is a measure of the surplus of revenue over costs in each year of the investment period, after adjusting these figures to take into account the discount rate. Net discounted revenue, discounted revenue and discounted costs over the whole investment period can also be added together to give total net discounted revenue or net present value (see below), total discounted revenue and total discounted cost.

• The net present value (NPV) of each cash-flow is calculated by adding together the net discounted revenue in every year of the investment period. The NPV is a measure of the total economic or financial value of each cash-flow. If the NPV is positive, this indicates that the revenue from the cash-flow is sufficient to cover all costs, meet the target rate of return (i.e. discount rate) on all of the money spent over the investment period and produce a surplus over and above this. If the NPV is negative, this indicates that the revenue is not sufficient to cover all costs and meet the target rate of return. If NPV equals zero, this indicates that the revenue is just sufficient to cover all costs and meet the target rate of return. As noted at the start of this appraisal, the investment in new facilities at Nabq is represented by the difference in the cash-flows between Option 1 and Option 2 (i.e. if the investment in new facilities at Nabq can be economically justified, the cash-flow for Option 2 should be better than the cash-flow for Option 1), so it is the difference in NPV between these two options that is the correct measure of the economic or financial performance of the investment in new facilities.

• The internal rate of return (IRR) is the rate of return earned on all money invested in the project (i.e. all costs). This can be calculated by adjusting the discount rate until NPV = 0. When this occurs, that discount rate is the IRR of the project or the rate of return earned on all of the money invested in the project. For a project to be economically viable, the IRR must also be higher than the target rate of return (or discount rate). IRR can only be calculated if the net discounted revenue in at least one of the years of the investment period is negative (i.e. in at least one year, costs are higher than revenue). As noted above, in the case of this appraisal the return on the investment in new facilities at Nabq should be calculated as the difference in the cash-flows between Options 1 and 2, so the IRR of the investment in new facilities should also be calculated from the difference in the two cash-flows.

Discounted cash-flows for Option 1 - do nothing (baseline option)

The cash-flows and discounted cash-flows for Option 1- do nothing (baseline option), are shown in Table 9 and Table 10 respectively.

Starting with Table 9, the first set of rows in this table shows the projections for visitor numbers made earlier (and shown in Figure 6 above). The next set of rows then shows the projected entrance charges to Nabq assumed under Option 1 (i.e. from Table 3 above). The entrance charges in USD here are also converted to EGP using the average exchange rate in 2002/03 (i.e. USD 1.00 = EGP 5.15). This is done because the whole of the remainder of this financial analysis is calculated in EGP.

As noted above, these entrance charges are stated in nominal values (i.e. they will not automatically increase to account for inflation, although some increases in nominal values have been assumed). Therefore, the next two rows present the entrance charges in EGP in real terms (i.e. after adjustment for inflation, assuming a 10 percent rate of inflation).

The five rows after this then present the projections of total real revenue at Nabq over the next 10 years. These have been calculated by multiplying the projections of visitor numbers by the real entrance charges in EGP. The last two rows here present the totals under the two different scenarios of high and low growth in the number of foreign tourists visiting Nabq.

The original calculations made by Cabahug also deducted 10 percent from the projections of revenue. No explanation was given for this, but it is assumed here that this is sales tax on the entrance charges. Thus, the next two rows calculate the amount of sales tax that will have to be paid out of the revenue from entrance charges (under the high and low visitor number scenarios). This is deducted from the pre-tax revenue from entrance charges (given above) to give the projections of post-tax revenue from entrance charges in the last two rows of this section.

The next section of this table then presents the projected costs under Option 1. Because under Option 1 there is no investment in upgrading the facilities at Nabq, this is simply equal to the projections of staffing costs (already shown in Table 7 above).

The last section of this table then shows the projections of net revenue. These are calculated as the projected revenue after tax in each year less the projected cost. Again, two projections are given, corresponding to the two different scenarios of high and low growth in the number of foreign tourists visiting Nabq.

In Table 10, the figures for total revenue, total costs and total net revenue are presented again except that in this table they are discounted. In the top part of this table, all of the figures are discounted using a 10 percent discount rate while, in the lower part of this table, the figures are presented after discounting using a 15 percent discount rate.

This table also gives the total discounted revenue, total discounted cost and total discounted net revenue or NPV in the column on the left-hand side of the figures for Year 0. These figures are simply the sum of the amounts given in Year 0 to Year 9 in each row.

Table 9 Cash-flow for Option 1 - do nothing (baseline option)

Undiscounted revenue projections	Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Number of visitors
Egyptian visitors	2,290	2,660	3,030	3,400	3,770	4,140	4,510	4,880	5,250	5,620
Foreign visitors: low projection	15,000	16,000	17,000	18,000	19,000	20,000	21,000	22,000	23,000	24,000
Foreign visitors: high projection	15,960	17,440	18,920	20,400	21,880	23,360	24,840	26,320	27,800	29,280
Entrance charge (nominal value)
Egyptian visitors (in EGP)	5.00	5.00	5.00	6.00	6.00	7.20	7.20	8.64	8.64	10.37
Foreign visitors (in USD)	5.00	5.00	5.00	6.00	6.00	7.20	7.20	8.64	8.64	10.37
Exchange rate (EGP per USD 1.00)	5.15	5.15	5.15	5.15	5.15	5.15	5.15	5.15	5.15	5.15
Foreign visitors (in EGP)	25.75	25.75	25.75	30.90	30.90	37.08	37.08	44.50	44.50	53.40
Entrance charge (real value, assuming 10% inflation)
Egyptian visitors (in EGP)	5.00	4.55	4.13	4.51	4.10	4.47	4.06	4.43	4.03	4.40
Foreign visitors (in EGP)	25.75	23.41	21.28	23.22	21.11	23.02	20.93	22.83	20.76	22.64
Real revenue (before tax) from entrance charges
Egyptian visitors (in EGP)	11,450	12,091	12,521	15,327	15,450	18,508	18,330	21,636	21,161	24,711
Foreign visitors: low projection (in EGP)	386,250	374,545	361,777	417,881	400,997	460,475	439,545	502,337	477,427	543,475
Foreign visitors: high projection (in EGP)	410,970	408,255	402,636	473,599	461,780	537,835	519,918	600,977	577,064	663,039
Total - Egyptian visitors plus foreign visitors: low projection (in EGP)	397,700	386,636	374,298	433,208	416,447	478,984	457,874	523,973	498,588	568,186
Total - Egyptian visitors plus foreign visitors: high projection (in EGP)	422,420	420,345	415,157	488,926	477,230	556,344	538,248	622,614	598,225	687,750
Sales tax (10% of pre-tax entrance charge)
Total - Egyptian visitors plus foreign visitors: low projection (in EGP)	36,155	35,149	34,027	39,383	37,859	43,544	41,625	47,634	45,326	51,653
Total - Egyptian visitors plus foreign visitors: high projection (in EGP)	38,402	38,213	37,742	44,448	43,385	50,577	48,932	56,601	54,384	62,523
Real revenue (after tax) from entrance charges
Total - Egyptian visitors plus foreign visitors: low projection (in EGP)	361,545	351,488	340,270	393,826	378,588	435,440	416,249	476,339	453,262	516,533
Total - Egyptian visitors plus foreign visitors: high projection (in EGP)	384,018	382,132	377,415	444,478	433,845	505,767	489,316	566,012	543,841	625,228

Undiscounted cost projection	Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Total staff salary costs including overheads (in EGP)	31,119	31,119	38,709	38,709	38,709	46,299	46,299	46,299	46,299	46,299

Undiscounted net revenue projection	Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Net revenue (revenue after tax minus costs)
Total - Egyptian visitors plus foreign visitors: low projection (in EGP)	330,426	320,369	301,561	355,117	339,879	389,141	369,950	430,040	406,963	470,234
Total - Egyptian visitors plus foreign visitors: high projection (in EGP)	352,899	351,013	338,706	405,769	395,136	459,468	443,017	519,713	497,542	578,929

Table 10 Discounted cash-flow for Option 1 - do nothing (baseline option)

Discounted cash-flow: discount rate = 10%		Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Discounted revenue (after tax)	Total
Total - Egyptians plus foreign visitors: low projection (in EGP)	2,697,046	361,545	319,534	281,215	295,887	258,581	270,374	234,962	244,437	211,450	219,060
Total - Egyptians plus foreign visitors: high projection (in EGP)	3,073,155	384,018	347,393	311,914	333,943	296,322	314,041	276,206	290,454	253,706	265,158
Discounted cost	Total
Total staff salary costs including overheads (in EGP)	266,797	31,119	28,290	31,991	29,083	26,439	28,748	26,135	23,759	21,599	19,635
Net discounted revenue (revenue after tax minus costs)	Total
Total - Egyptians plus foreign visitors: low projection (in EGP)	2,430,249	330,426	291,244	249,224	266,804	232,142	241,626	208,827	220,679	189,851	199,425
Total - Egyptians plus foreign visitors: high projection (in EGP)	2,806,358	352,899	319,103	279,923	304,860	269,883	285,293	250,072	266,695	232,107	245,522

Discounted cash-flow: discount rate = 15%		Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Discounted revenue (after tax)	Total
Total - Egyptians plus foreign visitors: low projection (in EGP)	2,270,409	361,545	305,641	257,293	258,947	216,459	216,490	179,956	179,074	148,172	146,831
Total - Egyptians plus foreign visitors: high projection (in EGP)	2,573,288	384,018	332,289	285,380	292,251	248,052	251,456	211,545	212,785	177,783	177,729
Discounted cost	Total
Total staff salary costs including overheads (in EGP)	223,769	31,119	27,060	29,270	25,452	22,132	23,019	20,016	17,406	15,135	13,161
Net discounted revenue (revenue after tax minus costs)	Total
Total - Egyptians plus foreign visitors: low projection (in EGP)	2,046,640	330,426	278,581	228,024	233,495	194,327	193,472	159,940	161,668	133,037	133,670
Total - Egyptians plus foreign visitors: high projection (in EGP)	2,349,519	352,899	305,229	256,111	266,800	225,920	228,437	191,529	195,380	162,647	164,568

Discounted cash-flows for Option 2 - invest in upgrading visitor facilities at Nabq

The cash-flows and discounted cash-flows for Option 2 - invest in upgrading visitor facilities at Nabq, are shown in Table 11 and Table 12 respectively. These tables follow the same format and are the same as the tables presented above for Option 1, except for the following:

• In Table 11, a doubling of nominal entrance charges in shown in Year 1 (as already discussed and described in Table 3 above). Following this, the same assumptions have been made with respect to the increase in nominal entrance charges every two years to account for some of the effects of inflation. These increases in entrance charges also result in higher projections of total real revenue in other rows lower down the table.

• Table 11 also includes projections of costs based on all of the proposed investments in new facilities as described and shown in Table 4 to Table 8 above. These higher cost figures also result in different projections of net revenue given in the final section of Table 11 (and shown on the next page).

• Table 12 gives the projections of discounted revenue, discounted costs and discounted net revenue, using these new figures, along with total discounted revenue, total discounted cost and total discounted net revenue or NPV in the column on the left-hand side of the figures for Year 0.

Table 11 Cash-flow for Option 2 - invest in upgrading visitor facilities at Nabq

Undiscounted revenue projections	Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Number of visitors
Egyptian visitors	2,290	2,660	3,030	3,400	3,770	4,140	4,510	4,880	5,250	5,620
Foreign visitors: low projection	15,000	16,000	17,000	18,000	19,000	20,000	21,000	22,000	23,000	24,000
Foreign visitors: high projection	15,960	17,440	18,920	20,400	21,880	23,360	24,840	26,320	27,800	29,280
Entrance charge (nominal value)
Egyptian visitors (in EGP)	5.00	10.00	10.00	12.00	12.00	14.40	14.40	17.28	17.28	20.74
Foreign visitors (in USD)	5.00	10.00	10.00	12.00	12.00	14.40	14.40	17.28	17.28	20.74
Exchange rate (EGP per USD 1.00)	5.15	5.15	5.15	5.15	5.15	5.15	5.15	5.15	5.15	5.15
Foreign visitors (in EGP)	25.75	51.50	51.50	61.80	61.80	74.16	74.16	88.99	88.99	106.79
Entrance charge (real value, assuming 10% inflation)
Egyptian visitors (in EGP)	5.00	9.09	8.26	9.02	8.20	8.94	8.13	8.87	8.06	8.79
Foreign visitors (in EGP)	25.75	46.82	42.56	46.43	42.21	46.05	41.86	45.67	41.52	45.29
Real revenue (before tax) from entrance charges
Egyptian visitors (in EGP)	11,450	24,182	25,041	30,654	30,900	37,017	36,659	43,273	42,322	49,423
Foreign visitors: low projection (in EGP)	386,250	749,091	723,554	835,763	801,994	920,951	879,089	1,004,673	954,855	1,086,949
Foreign visitors: high projection (in EGP)	410,970	816,509	805,273	947,198	923,560	1,075,670	1,039,837	1,201,955	1,154,129	1,326,078
Total - Egyptian visitors plus foreign visitors: low projection (in EGP)	397,700	773,273	748,595	866,416	832,894	957,967	915,748	1,047,946	997,176	1,136,372
Total - Egyptian visitors plus foreign visitors: high projection (in EGP)	422,420	840,691	830,314	977,851	954,459	1,112,687	1,076,496	1,245,227	1,196,450	1,375,501
Sales tax (10% of pre-tax entrance charge)
Total - Egyptian visitors plus foreign visitors: low projection (in EGP)	36,155	70,298	68,054	78,765	75,718	87,088	83,250	95,268	90,652	103,307
Total - Egyptian visitors plus foreign visitors: high projection (in EGP)	38,402	76,426	75,483	88,896	86,769	101,153	97,863	113,202	108,768	125,046
Real revenue (after tax) from entrance charges
Total - Egyptian visitors plus foreign visitors: low projection (in EGP)	361,545	702,975	680,541	787,651	757,176	870,879	832,498	952,678	906,524	1,033,066
Total - Egyptian visitors plus foreign visitors: high projection (in EGP)	384,018	764,264	754,831	888,956	867,690	1,011,534	978,633	1,132,025	1,087,682	1,250,455

Undiscounted cost projection	Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Total cost of building construction and maintenance (in EGP)	145,200	95,260	70,785	73,810	16,335	175,835	38,170	32,670	32,670	20,570
Total cost of construction and maintenance of other facilities (in EGP)	109,200	109,530	109,860	114,990	10,920	17,040	21,840	21,840	21,840	21,840
Total cost of other equipment (in EGP)	35,920	37,790	39,660	48,130	26,955	42,080	48,955	42,630	42,905	34,655
Total staff salary costs including overheads (in EGP)	31,119	31,119	38,709	38,709	38,709	46,299	46,299	46,299	46,299	46,299
Total cost of other equipment for staff (in EGP)	167,800	28,600	40,740	37,140	30,140	183,480	39,080	43,480	34,080	37,080
Total cost (in EGP)	489,239	302,299	299,754	312,779	123,059	464,734	194,344	186,919	177,794	160,444

Table 11 Cash-flow for Option 2 - invest in upgrading visitor facilities at Nabq (cont.)

Undiscounted net revenue projection	Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Net revenue (revenue after tax minus costs)
Total - Egyptian visitors plus foreign visitors: low projection (in EGP)	-127,694	400,676	380,787	474,872	634,117	406,145	638,154	765,759	728,730	872,622
Total - Egyptian visitors plus foreign visitors: high projection (in EGP)	-105,221	461,965	455,077	576,177	744,631	546,800	784,289	945,106	909,888	1,090,011

Table 12 Discounted cash-flow for Option 2 - invest in upgrading visitor facilities at Nabq

Discounted cash-flow: discount rate = 10%		Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Discounted revenue (after tax)	Total
Total - Egyptians plus foreign visitors: low projection (in EGP)	5,032,546	361,545	639,068	562,431	591,774	517,162	540,748	469,924	488,875	422,900	438,121
Total - Egyptians plus foreign visitors: high projection (in EGP)	5,762,291	384,018	694,786	623,827	667,886	592,644	628,083	552,413	580,908	507,412	530,315
Discounted cost	Total
Total of all costs (in EGP)	1,976,004	489,239	274,817	247,731	234,995	84,051	288,563	109,702	95,919	82,942	68,044
Net discounted revenue (revenue after tax minus costs)	Total
Total - Egyptians plus foreign visitors: low projection (in EGP)	3,056,543	-127,694	364,251	314,700	356,778	433,111	252,184	360,222	392,956	339,958	370,077
Total - Egyptians plus foreign visitors: high projection (in EGP)	3,786,287	-105,221	419,969	376,097	432,890	508,593	339,520	442,711	484,989	424,470	462,271

Discounted cash-flow: discount rate = 15%		Year 0 (2003/04)	Year 1 (2004/05)	Year 2 (2005/06)	Year 3 (2006/07)	Year 4 (2007/08)	Year 5 (2008/09)	Year 6 (2009/10)	Year 7 (2010/11)	Year 8 (2011/12)	Year 9 (2012/13)
Discounted revenue (after tax)	Total
Total - Egyptians plus foreign visitors: low projection (in EGP)	4,179,272	361,545	611,283	514,587	517,893	432,918	432,981	359,912	358,147	296,344	293,662
Total - Egyptians plus foreign visitors: high projection (in EGP)	4,762,558	384,018	664,578	570,761	584,503	496,105	502,911	423,090	425,570	355,565	355,457
Discounted cost	Total
Total of all costs (in EGP)	1,743,856	489,239	262,869	226,657	205,657	70,359	231,055	84,020	70,270	58,121	45,608
Net discounted revenue (revenue after tax minus costs)	Total
Total - Egyptians plus foreign visitors: low projection (in EGP)	2,435,417	-127,694	348,414	287,930	312,236	362,559	201,926	275,892	287,877	238,223	248,053
Total - Egyptians plus foreign visitors: high projection (in EGP)	3,018,702	-105,221	401,709	344,104	378,846	425,745	271,856	339,070	355,300	297,444	309,849

Summary of the cash-flow analysis

A summary of the discounted cash-flow analysis for Options 1 and 2 is given in Table 13. This also shows the return on the investment in new facilities at Nabq as the difference between the two options (i.e. the amount by which Option 2 is preferred to Option 1).

Table 13 Summary of the discounted cash-flow analysis for Options 1 and 2

Measure of economic or financial performance	Option 1		Option 2		Difference between Option 2 and Option 1
	Discount rate = 10%	Discount rate = 15%	Discount rate = 10%	Discount rate = 15%	Discount rate = 10%	Discount rate = 15%
Total discounted revenue (low)	2,697,046	2,270,409	5,032,546	4,179,272	2,335,501	1,908,863
Total discounted revenue (high)	3,073,155	2,573,288	5,762,291	4,762,558	2,689,137	2,189,270
Total discounted cost	266,797	223,769	1,976,004	1,743,856	1,709,207	1,520,087
NPV (low)	2,430,249	2,046,640	3,056,543	2,435,417	626,293	388,777
NPV (high)	2,806,358	2,349,519	3,786,287	3,018,702	979,929	669,183
IRR (low)					29.9%
IRR (high)					39.1%
Payback period (low)					3.6 years
Payback period (high)					3.2 years

Note: except for the IRR and payback periods, all of the above figures are given in EGP.

As the table shows, the total discounted revenue from Option 2 is just under twice the total amount of discounted revenue from Option 1, due to the doubling of entrance charges from Year 1 onwards under Option 2. This difference in total discounted revenue amounts to between EGP 1.9 million and EGP 2.7 million over the 10 year investment period, depending on which discount rate and visitor number scenario is used.

The difference between total discounted costs under the two options is much less than this. At a 10 percent discount rate, the investment in new facilities at Nabq increases total discounted costs by EGP 1.7 million. At a 15 percent discount rate, the increase in total discounted costs is only EGP 1.5 million.

By adding the total discounted revenue and costs together, the NPV of the investment in new facilities at Nabq (i.e. the difference in the NPVs of the two options) is somewhere between EGP 0.4 million and EGP 1.0 million, depending on which discount rate and visitor number scenario is used.

The IRR of the investment in new facilities is 29.9 percent under the assumption of low growth in visitor numbers or 39.1 percent if the assumption of high growth in visitor numbers is used.

Table 13 also shows the payback period for the investment in new facilities at Nabq. This is the point in time in the future when the difference in the accumulated cash-flows between the two options turns positive. It represents the point in time at which the revenue from Option 2 will cover all of the costs of the investment in new facilities and increase beyond the revenues that would have been collected if the investment had not been made. This is approximately 3.6 years under the scenario of low growth in visitor numbers or 3.2 years under the high growth scenario.

Sensitivity analysis

Because all investment appraisals include a number of assumptions about the future, it is always sensible to test the results of the analysis under a range of different assumptions. This is called a sensitivity analysis. A sensitivity analysis identifies the variables that have the most impact on the financial performance of the investment and examines how changes in these variables result in changes in those measures of financial performance (e.g. NPV and IRR).

Clearly, in the case of this appraisal, the projections of revenue are the most important variables in the analysis, because revenue is projected to increase by much more than costs if the investment in new facilities at Nabq takes place. The projections of revenue in the analysis are based on the following two main assumptions:

• the assumption that visitor numbers will increase in the future at approximately the same rate as they have in the past; and

• the assumption that entrance charges at Nabq can be doubled if visitor facilities are improved.

Changes in both of these assumptions should be tested to examine what effect they might have on the results of the analysis.

In addition, one other important variable that should be examined is the exchange rate. Most of the materials that will be purchased for the upgrading of facilities at Nabq will be obtained from local suppliers, so all of the cash-flows used in this investment appraisal have been specified in EGP. However, a substantial proportion of the revenue at Nabq will come from entrance charges paid by foreign tourists, which are denominated in USD. It has been assumed that the future EGP:USD exchange rate will remain at the same level as in 2002/03 (i.e. USD 1.00 = EGP 5.15), but the EGP has depreciated over the last few years. Therefore, an assumption of continued depreciation of the EGP should also be examined to see what effect this would have on the results of the analysis.

Alternative assumptions about changes in visitor numbers and entrance charges

The easiest way to examine the effect of alternative assumptions about visitor numbers and entrance charges is as follows:

• firstly, assuming that the visitor number projections are correct, it is possible to calculate the increase in entrance charges that would be required under Option 2 to meet the Target Rate of Return on the investment in new facilities (i.e. the minimum increase in charges that would result in no difference between the NPVs of Options 1 and 2 at a discount rate or TRR or 10 percent or 15 percent);

• alternatively, assuming that entrance charges can be doubled (i.e. raised by 100 percent) under Option 2, it is possible to calculate the minimum increase in the annual number of foreign visitors that would be required to meet the TRR of 10 percent or 15 percent.

These amounts have been calculated and are shown in Table 14 below. The first two rows of this table show the minimum increases in entrance charges that would be required to cover the costs of investment in new facilities and earn a rate of return of 10 percent or 15 percent on this investment. As the table shows, entrance charges must increase by at least 64 percent to justify the investment in new facilities. However, if the higher rate of return of 15 percent is required and the more pessimistic scenario for visitor numbers is used (i.e. an increase of only 1,000 foreign visitors per year), then entrance charges to Nabq must be raised by at least 80 percent to cover the costs of the investment in new facilities.

Table 14 Sensitivity analysis of changes in the assumptions about visitor numbers and increases in entrance charges at Nabq if visitor facilities are improved

Alternative assumption	Target Rate of Return (TRR) = 10%		Target Rate of Return (TRR) = 15%
Increase in entrance charges under Option 2 that would be required to meet the TRR if the annual number of foreign visitors to Nabq increases by 1,000 per year	+73%	A	+80%	B
Increase in entrance charges under Option 2 that would be required to meet the TRR if the annual number of foreign visitors to Nabq increases by 1,480 per year	+64%	C	+69%	D
Increase in the annual number of foreign visitors to Nabq that would be required under Option 2 to meet the TRR if entrance charges increase by 100 percent	+150 visitors per year	E	+335 visitors per year	F

The third row in Table 14 shows the increase in visitor numbers that must occur to meet the TRR, assuming that entrance charges can be doubled under Option 2. This shows that only relatively modest increases in visitor numbers are required to justify the investment in new facilities at Nabq, if entrance charges can definitely be doubled.

Figure 8 Increases in foreign visitor numbers at Nabq required under a range of different assumptions about increases in entrance charges

Another way of presenting this type of analysis is to show the increases in visitor numbers that would be required to meet the TRR across a range of different increases in the entrance charges and this is shown in Figure 8. The results shown in Table 14 are also displayed in this figure labelled as the points A to F.

This figure shows that the most important variable in this analysis is the assumption that it will be possible to increase visitor entrance charges by 100 percent under Option 2. If there is resistance to increasing visitor charges, then visitor numbers would have to increase dramatically to justify the investment in new facilities. For example, if entrance charges could only be raised by 50 percent, then foreign visitor numbers would have to increase by 2,500 per year to earn a TRR of 10 percent or by 3,000 per year to earn a TRR of 15 percent.

The effect of continued depreciation of the Egyptian Pound on the analysis

The trend in the EGP:USD exchange rate from 1997/98 to 2002/03 is shown in Figure 9. As this figure shows, the exchange rate was fairly stable at around EGP 3.40 to the USD over the first three years of this period, but the Egyptian Pound has since depreciated to EGP 5.15 to the USD. Furthermore, in the last two years, the EGP has fallen in value each year by about EGP 0.70 to the USD.

Figure 9 Trend in the EGP:USD exchange rate from 1997/98 to 2002/03



The preceding analysis has been based on an assumption that the EGP:USD exchange rate will remain at a level of EGP 5.15 to the USD. Although it is not possible to forecast future exchange rates very accurately, it is possible to show the effect that a continued depreciation in the Egyptian Pound would have on the internal rate of return (IRR) on the investment in new visitor facilities at Nabq and this is shown in Figure 10.

The results shown in Figure 10 have been calculated assuming that future depreciation in the exchange rate will only have an impact on the revenue collected from the entrance charges paid by foreign visitors to Nabq. They may be a slight overestimate of the impact of depreciation on the IRR because some items of expenditure (e.g. the purchase of vehicles and vehicle maintenance and running costs) may also increase if the Egyptian Pound continues to depreciate. However, the effect of depreciation on costs is only likely to be small, because the majority of materials and other inputs to the development are likely to be purchased from local suppliers.

Figure 10 Effect of continued depreciation in the EGP:USD exchange rate on the internal rate of return (IRR) on investment in visitor new facilities at Nabq



Figure 10 shows that the IRR of the investment in new facilities increases by three to four percentage points for every increase of EGP 0.10 to the USD each year. In other words, the investment in new facilities is very well protected from future currency depreciation (indeed, it will improve if the currency depreciates), because the entrance charges for foreign tourists are denominated in USD rather than local currency.

Social and environmental costs and benefits

No attempt has been made to value the social and environmental costs and benefits of both options. However, Option 2 is likely to result in a number of social and environmental benefits compared to Option 1.

Environmental benefits

Compared to Option 1, Option 2 is likely to result in the following environmental benefits:

• investment in recreational infrastructure will allow the managers of Nabq Protected Area to guide visitors to areas where they will have minimal impact on the mangroves and keep them out of the most sensitive areas at the site;

• investment in facilities such as carparks, walking trails and boardwalks will also reduce the impact of visitors on the mangroves;

• investment in information displays will make visitors more aware of the fragility of the mangrove ecosystem, which should encourage them to act more carefully; and

• investment in litter bins and toilet blocks and the concentration of visitors at developed sites within the protected area will reduce the impact of the waste left by visitors on the site and make it easier to clean-up after visitors.

In order to minimise the environmental impact of the development, care should be taken to ensure that all facilities are developed in an environmentally sensitive way and that they are maintained to a high standard

Social benefits

The main social benefits of the development will be as follows:

• the provision of information panels at the site will increase visitors knowledge and understanding about the mangrove ecosystem, enhancing their education and generating more support for the protection of such areas; and

• the development of visitor facilities will lead to indirect employment in the provision of services to the site (e.g. construction and maintenance of the facilities and employment in the cafeterias and craft workshop); and

• the development may also lead to other opportunities for local people to sell local products and services to visitors on an informal basis.

Conclusions and recommendations

The proposed development of visitor facilities at Nabq Protected Area includes a significant amount of investment in new facilities and upgrading of the equipment available for staff at the site. The level of investment in the first year of the development will exceed the revenue collected at the site and will require investment by the Government from other revenue sources. In later years, the levels of investment required could be funded out of revenue collected from entrance charges.

Compared with the current and expected numbers of visitors to the site, the level of proposed investment seems a little on the high side. However, this appraisal has assumed a very modest increase in the number of visitors to the site, which could easily be exceeded. Furthermore, the financial analysis indicates that the investment in new facilities would be more than adequately covered by the expected increases in revenue each year given the expected increases in visitor numbers to the site and the increases in entrance charges that have been proposed.

However, the one factor that will be most crucial to the success of this development will be the ability to raise entrance charges by 100 percent. If it is not possible to do this, then the financial success of this development will be at risk. The sensitivity analysis has shown that, under the most optimistic assumptions, entrance charges must be raised by at least 64 percent to cover the costs of the investment in new facilities.

The managers of Nabq Protected Area must critically assess whether they think it will be possible to increase visitor charges by this much. Although the study by Er-Hawary indicated that visitors said they would be prepared to pay a lot more to visit the site, there are often differences between what people say they will pay and what actually happens when charges are increased. In particular, it will be important to ensure that the (increased) entrance charges to Nabq seem reasonable when compared to entrance charges for other similar facilities and attractions in the local area.

If there is any doubt that it will be possible to increase entrance charges by so much, then it is recommended that a more gradual approach should be taken to the development of the site. For example, increases in the real level of entrance charges could be introduced in stages over the next ten years and the construction of new facilities could be undertaken more gradually (e.g. they could be funded out of the net revenue collected at the site each year).

However, if it is genuinely felt that entrance charges could be doubled without much resistance, then the development could go ahead as proposed.

Monitoring and evaluation

All investment proposals are based on numerous assumptions that are made before the new development is actually implemented. Therefore, it is always wise to monitor the implementation of the development, so that adjustments can be made if future costs and revenues start to deviate from the assumptions made in the proposal.

It is recommended that the managers of Nabq Protected Area should carefully monitor the costs of the investments in new facilities as the development is implemented and continue to monitor visitor numbers and the income from entrance charges to the site. As part of this monitoring, it may also be useful to obtain feedback from visitors about what they think about the improvement of facilities at the site. This could be done using visitor books at the cafeterias and craft workshop and by distributing cards for comments when people pay to enter the site.

It is also recommended that the managers at Nabq should evaluate the development in Year 4 before expenditure increases again as some of the facilities are renovated and refurbished. This evaluation should critically examine the condition of the facilities and the need to refurbish or replace some of them. It should also re-examine the trends in visitor numbers and revenue from entrance charges to see whether they are increasing as projected. If the revenue from visitor charges is not increasing by as much as expected, then the managers at Nabq should look at other ways in which they might increase revenue or cut costs.