DESCRIPTION The project will remove physical and capacity constraints impeding tourism development in Champassak, Khammouane, Luangprabang, and Oudomxay_four provinces situated astride the GMS Central Corridor. It will contribute to the creation of 27,000 tourism-related jobs in the Lao PDR by: (i) paving 70 kilometers (km) of rural roads to open new areas for private tourism investment and improve access to markets and social services for 15,000 people; (ii) improving environmental services in areas important for cross-border tourism to reduce public health hazards for 35,000 residents and 2.4 million annual visitors, beginning in 2019; and (iii) facilitating business support services for at least 500 small and medium-sized enterprises.3 The project will strengthen regional cooperation and integration by implementing regional tourism standards, promoting multicountry tour circuits, and supporting structured policy dialogue to reduce nonphysical barriers to travel. The project investment plan is in line with the GMS Tourism Sector Strategy,4 and the government's National Tourism Strategy, 2012_2020. PROJECT RATIONALE AND LINKAGE TO COUNTRY/REGIONAL STRATEGY Regional context. Among country groupings in Asia and the Pacific, the GMS has a strong comparative advantage in tourism as a result of its diverse cultural and natural assets, good international air and land transport connections between gateway destinations, and surging demand for intraregional leisure travel. International tourist arrivals are growing by 12.4% per year; in 2012 arrivals reached an all-time high of 44.8 million, and generated $44.3 billion in receipts. Tourism supports 7 million jobs and creates positive economic impacts in other service and productive sectors. About one-third of international arrivals visit at least two countries while travelling in the GMS and millions of residents cross borders each year for day trips. GMS countries are eager to strengthen subregional tourism cooperation and recently reaffirmed their commitment to promote cross-border tourism under the GMS Economic Cooperation Program Strategic Framework, 2012_2022.6 Nevertheless, underinvestment in public infrastructure beyond the major gateways remains a critical constraint that restrains expansion of private tourism enterprises and dispersal of benefits to less-developed areas. National priorities. The Lao PDR received 3.33 million international tourists in 2012, a 22% increase over 2011, but accounting for less than 8% of GMS arrivals. Travel and tourism contribute 5.3% of gross domestic product and support 134,000 jobs, equal to 4.5% of total employment.8 The government's National Tourism Strategy is consistent with the GMS Tourism Sector Strategy, which prioritizes transport and urban infrastructure upgrades, education and training, and policy enhancements to improve the business enabling environment. The 2005 Tourism Law provides the legal basis for the strategy, setting out the parameters for creation of a sustainable tourism industry that contributes to national development and strengthens international cooperation. Strategic objectives are to: (i) generate employment and income for local people, (ii) strengthen tourism destination management, (iii) expand public_private cooperation in tourism, and (iv) diversify tourism products and services. The estimated cost of the government's investment program for tourism between 2011 and 2015 is $118 million. Key issues. Although the Lao PDR has many cultural and natural tourist attractions with good development potential, tourism is highly concentrated in Vientiane Capital, which accounts for 43% of international arrivals and 47% of hospitality investment. Women comprise about half of tourism workers; however, many are employed in low-skill, low-wage jobs, and are underrepresented in tourism management. The key impediments to more inclusive and geographically dispersed growth are insufficient last-mile transport infrastructure in secondary destinations; weak market linkages between the tourism industry and other economic sectors; and limited institutional capacity to promote local tourism-related enterprise development. Consequently, at least 40% of tourism receipts leave the country in the form of tourism-related imports. Inadequate environmental infrastructure and low service standards suppress tourist length of stay, spending, and yield, resulting in average receipts per visitor of about $154_the lowest in the GMS and much less than the benchmark of $1,390 in Asia and the Pacific. To remove these constraints and engender a more equitable pattern of tourism development, the project will upgrade access roads that link rural tourist attractions with urban centers, improve environmental services in areas important for tourism, and support training and capacity building for destination management organizations and local entrepreneurs.10 Project investments are designed to catalyze additional private investment in tourism superstructure and services, boost tourist spending and related job creation in underdeveloped areas, and ensure that tourism growth is environmentally and socially sustainable. Related policies and strategies. The project is consistent with the Lao PDR's Seventh National Socioeconomic Development Plan, 2011_2015, which aims to promote sustainable economic growth and reduce poverty and inequality. Project outputs will contribute to economic diversification and human resource development, and strengthen the participation of women and ethnic groups in national development. The emphasis on improving connectivity between urban and rural areas, strengthening value chains linked to the rapidly growing tourism sector, and creating jobs for unskilled and semiskilled workers is closely aligned with the overarching objectives of the ADB's Lao PDR country partnership strategy, 2012_2016: inclusive and sustainable economic growth and poverty reduction.12 The project reinforces regional efforts to increase cross-border investment flows and develop the GMS corridors into economic corridors. Development coordination. The GMS Tourism Working Group is the forum for coordinating regional tourism sector assistance. Senior GMS tourism officials and ADB co-chair semiannual working group meetings to guide implementation of the GMS Tourism Sector Strategy and identify policy issues for elevation to the annual GMS tourism ministers meeting and the triennial GMS summit. In the Lao PDR, sector coordination is led by the Ministry of Information, Culture and Tourism (MICT). Other development partners engaged in tourism are German development cooperation through Deutsche Gesellschaft f_r Internationale Zusammenarbeit, the International Trade Center, the Japan International Cooperation Agency, the Lux-Development, the New Zealand Aid Programme, Swisscontact, the World Wildlife Fund, and the Wildlife Conservation Society.13 The Pacific Asia Travel Association is the leading industry group with over 1,100 members and an active chapter in the Lao PDR. Parallel financing opportunities will be actively sought during implementation. Lessons. ADB's GMS tourism sector assistance program and completed tourism projects in the Lao PDR are rated successful.14 Lessons from past projects include the need to (i) analyze tourism demand in project areas to guide selection of infrastructure investments, (ii) improve cross-sector coordination and build synergies with other ADB assistance, (iii) provide capacity building for project management and operation and maintenance (O&M;), and (iv) promote tourism-related private enterprise development alongside infrastructure to expand income-generating opportunities for local residents. Applying these lessons, the project has selected relevant infrastructure subprojects based on robust market analysis,15 as well as complementarities with other ADB and development partner assistance for urban development, water supply and sanitation, vocational training, and tourism. Capacity building for entities responsible for infrastructure O&M;, and parallel support for small enterprises led by women and ethnic groups, will enhance the sustainability of project outputs and ensure benefits reach vulnerable groups. The project has deliberately selected infrastructure and capacity-building interventions that will connect lower-income groups to basic services and markets and enable them to access tourism employment, education, health care, and other opportunities Special features. The project will (i) strengthen collaboration between government, the private sector, civil society, and local communities to improve tourism destination management; (ii) demonstrate how tourist entry fees and charges can help finance the maintenance of public goods such as heritage sites, roads, and environmental services; (iii) strengthen knowledge partnerships among GMS and Association of Southeast Asian Nations members; and (iv) leverage service sector opportunities to accelerate widening of the GMS corridors into economic corridors by linking secondary tourism destinations with increasingly affluent IMPACT Increased tourism employment for men and women living in underdeveloped segments of the GMS Central Corridor

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