Draft IPS-C Statement of Objectives (SOO).pdf

USAID IMPROVING PRIVATE SECTOR COMPETITIVENESS

(DRAFT) STATEMENT OF OBJECTIVES (SOO)

C.1 PURPOSE

The USAID Improving Private Sector Competitiveness activity seeks to remove constraints and build the competitiveness of small and growing businesses (SGBs) in Vietnam, especially those led by vulnerable populations. With this activity, USAID/Vietnam aims to adopt a holistic view in supporting Vietnam’s competitiveness: vertically at the policy, market and firm level; and horizontally by working along the entire spectrum of enterprise growth models, from household businesses transforming into registered firms to small firms on the cusp of scaling up.

Theory of Change/Development Hypothesis

If Vietnamese small and growing businesses (SGBs), especially those led by vulnerable populations,1 have equitable access to resources (land, capital, technology, information); national and provincial authorities actively engage with the private sector to put in place a favorable business climate; and SGB owners and managers embrace innovation and adopt efficient business practices, then Vietnam can grow a more dynamic and modernized private sector better able to compete domestically, regionally, and globally, thereby facilitating its journey to self-reliance.

C.2 BACKGROUND

The private sector2 has been a key contributor to Vietnam’s economic growth in recent years, accounting for almost 90% of the gross domestic product (GDP).3 In particular, small and growing businesses (SGBs), which account for more than 98 percent of all businesses, 40 percent of Vietnam’s gross domestic product, and 50 percent of total employment, are the main contributor to poverty reduction, improved living conditions, and inclusive and sustainable growth in Vietnam.

Each year, over 126,000 firms are newly-established in Vietnam. The figure in 2019 is expected to reach 136,000 with total registered capital of about $73.3 billion, raising the total number of active businesses in Vietnam to 760,000. The country aimed to achieve one million active businesses by 2020. Private sector expansion has also contributed significantly to women’s economic empowerment, with 24% of registered businesses owned by women and over 1.6 million workers employed by these businesses.

1 Vulnerable populations are defined as women, ethnic minorities, youth, victims of trafficking in persons, and people with disabilities.

2 The private sector includes three subsets which are household businesses, domestic private companies and foreign investment enterprises.

3 Vietnam Private Sector: Productivity and Prosperity, Le Duy Binh, 2018

For the purpose of this activity, SGBs are defined as commercially viable businesses, including household enterprises, agribusinesses, or start-ups, with up to 500 employees that have significant potential for growth, but often lack access to the financial and knowledge resources required to achieve growth/scale.

The Law on the Provision of Assistance to Small and Medium Enterprises (SMEs) (No. 04/2017/QH14), passed by the Vietnam National Assembly in June 2017, affirmed the GVN’s commitment to private sector development.4 The Law and the subsequent implementing decrees contained specific provisions to support the growth and productivity of SMEs including fiscal allocations for business consultancy services, access to uncollateralized credit through provincial credit guarantee funds, access to land for production, incentives for adoption of new technology, and tax remissions for household enterprises transforming into licensed businesses.

C.3 DEVELOPMENT CHALLENGES

SGBs in Vietnam face a number of challenges affecting their growth and competitiveness. The following is a summary of key findings from USAID/Vietnam’s analyses and stakeholder consultations. While it is not meant to be a comprehensive list, offerors are expected to take these challenges into consideration for all proposed interventions.

C.3.1 Policy Reform

Vietnam has made significant strides towards a market-oriented policy environment, however, the business climate still favors state-owned and larger-scale enterprises. Implementation of policy regulations and decrees is not consistent across provinces, and the level of engagement and consultation with the private sector on policy reforms is not systematic, especially below provincial levels where local authorities have limited capacity. There is still room to make continued reforms, especially as neighboring ASEAN countries expand efforts to improve their domestic business ecosystems.

C.3.2 Sustainable and inclusive growth

Business management capacity of SGBs remain weak. In 2017, 60,553 SGBs closed their business or temporarily ceased operations. More than half (55.6%) of SGB owners have a secondary education level or lower; 75% of the workforce in small and medium-sized businesses have not yet received technical or professional training. There is general agreement within the private sector that not all SGBs in Vietnam have equal access to skills, technology, and financing that are needed to strive and compete. Further, low productivity and efficiency is associated with a large number of micro and small enterprises. Although Industrial Revolution 4.0 (IR 4.0) is considered a high priority of the GVN,5 the private sector’s access to advanced technology is yet to be fully utilized.

4 http://vbpl.vn/TW/Pages/vbpqen-toanvan.aspx?ItemID=11095&Keyword= 5 Vietnam’s IR 4.0 strategy aims to apply technology to upgrade and transform the existing production and business system in order to optimize resource allocation, reduce production and business costs, find new outlet markets at home and abroad, better manage supply chains, and improve the productivity of enterprises in particular and the whole economy in general.

Women-owned businesses6

Key facts7

● Total of 285,689 women-owned businesses, comprising 24% of all registered enterprises in Vietnam.

● 75% are in the trade and services sector

● 68.6% used to be household businesses

● 68.6% of female business owners possess a bachelor or master degree in business administration

● 90% have fewer than 50 employees and 59% have fewer than 10 employees

● Business performance of women-owned businesses are similar to men-owned businesses, with 64% of women reporting a profit compared to 63% of men

Women-owned businesses (WOBs) face cultural norms and social constraints that limit their potential.

Unlike their male counterparts, women are expected to balance work and family life, with family often prioritized over business goals. Prospects for growth of WOBs are perceived to be lower for many reasons. The data suggest that women tend to be more risk-averse and tend to “self-check” their potential.

Only 0.4% of WOBs are listed on the Vietnamese stock exchange. There are also societal expectations that WOBs are not as competitive or work in sectors that are considered high growth.

These biases – conscious or unconscious – directly impact women’s ability to access formal financing and other desired services:

● 37% of women-owned SMEs report to have accessed bank loans in the past two years compared to 47% of male business owners. Even when women entrepreneurs do qualify for a bank loan, they tend to receive a smaller loan and less favorable loan terms than their male counterparts.

● Nearly 90% of women-owned businesses believe that they cannot borrow money without collateral while 64% said that state-owned enterprises were more favored in terms of interest rates and lending conditions than private enterprises.

● 40% of women-owned businesses perceived bank loan procedures to be cumbersome.8

Ethnic minority businesses Vietnam is an ethnically diverse country with 54 recognised ethnic groups. The majority of the population (85.5%) belongs to the Kinh ethnic group, with the 53 other ethnic groups in Vietnam accounting for around 14 million people. Many of these ethnic minority groups are concentrated in geographically remote and mountainous regions of the country (central highlands and the northwest). While the majority

6 Women-owned businesses are defined as a business with a woman as the Chief Executive Officer/Board Chair or holding 51% of equity.

7 Dau Anh Tuan, Doing Business in Vietnam: An Assessment from Women-Owned Enterprises’ Perspective.

VCCI/Aus4Reform, December 2019.

8 International Finance Corporation (IFC), 2017. Women-owned enterprises in Vietnam: Perceptions and Potential.

of households rely on agriculture as a primary source of income, they also derive income from wage employment and household non-farm enterprises.9

Inequalities between the Kinh ethnic group and ethnic minority groups remain wide and persistent, especially in education and training, employment and income, healthcare and reproduction. Gender roles and power have been partly addressed by adaptation of participatory socio-economic development planning, but the gender gap among and within ethnic minority groups still persists. Ethnic minority people are mainly engaged in low productivity agriculture with limited access to markets; finance and innovative finance solutions; and new technologies. Despite the existence of subsidized lending schemes through the Vietnam Bank for Social Policies (VBSP), access to credit remains a significant barrier, further impeding investment in mechanization and new production techniques.

Key drivers impeding growth for ethnic minority households include:

● Low quality of agricultural land and ownership certificate rates.

● Low participation in value chains means more problems producing and selling their agricultural output.

● Higher rejection rate for loan applications and an average loan size that is less than half of the size of Kinh household loans.

● Low level of income diversification and location in remote and mountainous regions means productions and livelihoods are more vulnerable to extreme weather events such as storms and flash floods, further depleting their asset base.

Household businesses

Key facts10

● Total of 5.2 million household businesses (HHBs) in Vietnam.11

● Contribute almost one-third of non-farm GDP and 23% of total GDP

● Absorb nearly one-third of all employed workers and 57% of all non-farm employment

● Average size is 2.3 workers -- usually owner and family members

● Over one third of HHBs consist sole proprietorships, 24% have 3-5 workers

Household businesses are often used as an income diversification strategy, especially for those involved in agricultural production. Research shows that eight in ten household businesses have problems running their business. The most widespread problem is a lack of market outlets, especially in the trade sector, reflecting the strong competition between household businesses and a lack of information available to them on market opportunities and innovation.

9 Singhal, Saurabh; Beck, Ulrik. Ethnic disadvantage in Vietnam: Evidence using panel data. WIDER Working Paper, No. 2015/097.

10 Laure Pasquier-Doumer, Xavier Oudin, and Nguyen Thang (eds.), The Importance of Household Businesses and the Informal Sector for Inclusive Growth in Vietnam. 2017: Vietnam Academy of Social Sciences and the French National Research Institute for Sustainable Development.

11 Since registration of HHBs are only at the district level and not captured at the national level, the size of the sector may be significantly under-counted.

Given uncertain access to markets, HHBs tend to have a low level of investment and productivity. Once the business is in operation, most owners invest only a small share into expansion by reinvesting profits in new equipment. As a result, although household businesses make a large contribution to GDP, their contribution to capital investment and the technological progress of the national economy is small.

The lack of formal credit may be another underlying cause for the low level of investment. Access to formal credit is particularly difficult for HHBs due to the lack of government institution recognition of household businesses and calls for household business mainstreaming in the government’s enterprise policy. Consequently, informal lenders provide one-third of the amount lent to household businesses.

C.4 OBJECTIVES

The Improving Private Sector Competitiveness activity has four main objectives.

Objective 1. Building business management capacity of SGBs, especially those led by vulnerable populations. While GVN and donor-supported training programs exist for private sector businesses, concerns remain about accessibility, quality, relevance, and sustainability. Many SGBs need support to adjust their business mindset and practices from short-term revenue maximization towards a more long-term strategic vision focused on sustainability. Vulnerable populations such as women and ethnic minorities may require more foundational business skills such as business planning, financial planning, marketing to improve their branding and increase sales.

Offerors are requested to propose a technical approach and specific interventions for strengthening SGB management capacity. Proposed interventions are expected to include details regarding potential partners, value addition, and sustainability. Efforts to leverage local expertise, build on existing resources, and develop sustainable local institutions are encouraged.

Expected results include:

i. Development of innovative market-based models for business skills training that go beyond in-classroom training (e.g. e-learning);

ii. Increased availability of tailored business development services based on stage of enterprise development, demographics, sector, reflecting the differentiated needs of managers and employees, men and women, Kinh and non-Kinh, etc.;

iii. Creation of a suite of business management tools that can help managers map, assess, and improve their firm’s performance; and,

iv. Transformation of traditional business models, especially those led by vulnerable populations, into scalable and sustainable sources for local economic development and job creation.

Objective 2. Improving efficiency and productivity by promoting innovation, technology adoption , and sustainable business models. SGBs need to invest in new technology and adopt enhanced business practices in order to gain competitive advantage. Recent business survey data shows that only 10% of enterprises have ever registered or successfully registered for one patent within 3 consecutive years; their investment in technological innovation accounts for only nearly 0.3% of their revenue, much lower than that of other countries like India (5%) and South Korea (10%). Moreover, only about 10.2% of enterprises have invested in research and development (R&D) activities and enterprises invest only a modest proportion of their revenue in scientific and technological research. Linkages between industries, academia, and research institutions remain weak.

Offerors are requested to propose a technical approach and specific interventions for transforming SGBs into a modern and innovative sector. Interventions that work to incubate and accelerate a portfolio of promising business models, covering different firm size, stage of development, and sector are encouraged.

Expected results include:

i. Development of locally appropriate technologies that meet the needs of SGBs through the promotion and and scaling of technology start-ups;

ii. Strengthened linkages between research institutions, technology developers, and SGBs to build an innovation ecosystem

iii. Increased SGB adoption of new technologies (business processes, production techniques, product design, product distribution, etc.) through improved access to investment loans;

iv. Creation of Vietnamese products (“Made by Vietnam”) with a firm position in regional and international markets; and,

v. Adoption of sustainable business models (socially responsible, energy efficient, eco-friendly).

Objective 3. Enhancing business enabling environment for a broad-based inclusive economy. This activity aims to accelerate and amplify ongoing reform efforts by the GVN to create a business climate that is conducive to SGB growth and competitiveness. Many bottlenecks and gaps remain in the system of institutions, laws, policies, and procedures that govern private sector enterprises. Effective implementation of these reforms will require more concerted efforts to engage the private sector into the policy process.

Offerors are requested to propose a technical approach and specific interventions for fostering a better business climate. Expected results include:

i. Improved coordination within the GVN, both across relevant ministries as well as between central, provincial, and local authorities;

ii. Increased collaboration between the GVN and the private sector in order to increase transparency and accountability of policy implementation and service delivery;

iii. Implementation of policies that encourage equity and gender inclusion;.

iv. Implementation of administrative reforms that streamline and reduce the transaction cost for business processes such as paying taxes or declaring bankruptcy;

v. Implementation of policies that facilitate improved access to finance, such as strengthening of the Credit Information Center, enhancing collateral registries, and developing innovative financial products;

vi. Implementation of stronger investor protection policies to attract increased domestic, regional, and international investments for SGBs; and,

vii. Improved system for monitoring and measuring regulatory impact, including public feedback on policy implementation.

Objective 4. Strengthening business-to-business (B2B) and cross-sectoral linkages. While a plethora of business associations and industry groups exist in Vietnam, their capacity to deliver business development services to their membership and to engage with the GVN on policy reform varies across sectors and regions. Moreover, these associations have yet to realize the full value of collective action whereby associations, mass organizations, and other interest groups come together to develop a common voice to achieve mutually beneficial goals.

Offerors are requested to propose a technical approach and specific interventions that reflect successful market development and linkage models for SGBs either in Vietnam or in the region. Expected results include:

i. Increased cohesion and coordination among the disparate private sector stakeholders so that they can become a more effective advocate for policy reform;

ii. Strengthened capacity of business associations to respond to the needs of SGBs in terms of business planning, human resources management, product design and innovation, distribution, and market linkages;

iii. Establishment of platforms for peer to peer information exchange and mentoring (study tours, exchange visits, apprenticeships, etc.) to improve knowledge about international best practices and enable technological transfer; and,

iv. Reduction of information asymmetries through a multi-channel platform for promoting SGB products and services (e.g. the development of a business portals, organization of supplier days and trade fairs).

C.5 RESULTS AND PERFORMANCE INDICATORS

The table below lists USAID standard indicators for economic growth activities, which will be used as a basis for monitoring activity progress and measuring contractor performance. Offerors are requested to propose targets based on the technical approach and interventions included in their submission for the indicators listed below.

Offerors may opt to propose additional custom indicators and associated targets, as long as they are well-aligned with the contract objectives and expected results.

# Indicator Description Annual Targets*

Year 1 Year 2 Year 3 Year 4 Year 5

1 Number of SGBs receiving USG-funded technical assistance for improving business performance Of which

+ Women-led + Ethnic minority-led

2 Number of SGBs reporting increased income as a result of USG assistance Of which

3 USD sales of firms receiving USG-funded assistance

4 % increase in number of jobs created by SGBs as a result of USG assistance

5 Number of SGBs adopting competitiveness enhancing techniques (new technology, new business processes, new production techniques, new product design, etc.) as a result of USG assistance Of which

6 Number of SGBs successfully participating in regional and international markets as a result of USG assistance Of which

7 Number of Business Enabling Environment (BEE) laws, regulations, or resolutions introduced and reforms proposed for GVN adoption as a result of USG assistance

8 Number of USG-assisted CSOs (associations, trade groups, etc.) that participate in legislative proceedings and/or engage in advocacy with national legislature and its committees

* To be proposed by the Offeror and inserted into the chart

C.6 ACTIVITY PARAMETERS AND GUIDING PRINCIPLES

C.6.1 Counterparts and partners. The primary counterpart for this activity is the Ministry of Planning and Investment (MPI), with the Vietnam Women’s Union (VWU) serving as a co-counterpart.

MPI brings strength in the business enabling environment (BEE), networking, and innovation areas, while the VWU brings experience in working with women-owned and ethnic minority-owned businesses. Other relevant stakeholders include other GVN agencies, Vietnam Chamber of Commerce and Industry (VCCI), professional and business associations, private sector companies, sustainable supplier networks, and academic/research institutions.

C.6.2 Geographic focus and sector selection. This activity is sector-agnostic and the selection of sectors shall be done in consultation with relevant stakeholders, based on criteria such as environmental, social, and gender impact. While the activity aims to benefit SGBs nation-wide, interventions in a particular geographic region will need to be determined collaboratively with the counterparts (using a mutually agreed selection criteria) to ensure buy-in and playing to the strengths of the counterparts.

C.6.3 Gender and social inclusions. Proposed interventions are expected to promote the participation of women, ethnic minorities, and other vulnerable populations to maximize developmental impact, and fair and equitable distribution of resources (e.g. setting a 50% participation rate of women and ethnic minority for training programs). Offerors are requested to be mindful of implicit or explicit gender biases and be ready to address these challenges, throughout the life of the activity, so that the activity can be as inclusive and responsive to gender issues as possible. Interventions that directly or indirectly complement current efforts by local counterparts such as the VWU in combating trafficking in persons (CTIP) are encouraged.

C.6.4 Sustainability. Offerors are expected to design interventions that have an intentional pathway towards sustainability--economic, social, and environmental. Using market-based solutions and actively engaging local institutions and local market players to bring forth systemic changes is strongly encouraged.

C.6.5 Market-based solutions. Interventions are expected to focus on creating shared value partnerships with the private sector. USAID/Vietnam’s private sector engagement strategy aims to work with its implementing partners and the private sector to identify where development challenges present business opportunities, leading to market-driven (as opposed to donor-driven) solutions.

C.6.6 Civic engagement. Proposed interventions are expected to promote government outreach and consultations with industry groups and associations to encourage civic engagement and increase transparency in the policy reform process.

C.6.7 Promoting competition. Proposed interventions are expected to build on the culture of friendly competition among provinces that were fostered through USAID/Vietnam’s Provincial Competitiveness Index (PCI) activity. Reform-minded provinces can be leveraged to accelerate reform and also used as models to spur change in other provinces.

C.6.8 Coordination and outreach. Offerors are expected to coordinate with other donor programs and to leverage existing activities and networks to avoid duplication of efforts on the one hand, and to amplify/replicate successful initiatives on the other.

C.6.9 Collaborating, Learning, and Adapting. Offerors are expected to incorporate collaborative learning and adaptive management into its management approach. USAID/Vietnam is committed to obtaining stakeholder input to our activities, coordinating all implementing partners’ efforts for greater efficiency and effectiveness, and measuring high-level indicators in an effort to apply the following Monitoring, Evaluation and Learning (MEL) objectives:

● Promote collaboration and multi-stakeholder engagement to design evidence-based interventions.

● Innovate, reflect, and iterate to strengthen activity implementation and foster greater replication/scaling.

● Coordinate, collaborate and explore synergies with other USAID implementing partners, other donor programs, and private sector players (businesses, industry groups, investors, etc.).

C.7 EVALUATION

Consistent with USAID’s Evaluation Policy, USAID/Vietnam may conduct an independent impact and/or performance evaluation of this activity due to its innovative nature and the need to for evidence to inform future economic growth and governance activities. Any evaluation design would be completed in consultation with the Contractor to ensure alignment with the activity work plan and locations. In the case of an impact evaluation, the Contractor must coordinate with the evaluation team to facilitate the impact evaluation.

[END OF STATEMENT OF OBJECTIVES]