J.1.3_TMS Quarterly Report Q3 FY 2020.pdf

TRANSFORMING MARKET SYSTEMS ACTIVITY

NINTH QUARTERLY PROGRESS REPORT

Quarter 3 – FY 2020

April – June 2020

Transforming Market Systems Activity

Quarterly Report April – June 2020 ii

TRANSFORMING MARKET SYSTEMS ACTIVITY

NINTH QUARTERLY PROGRESS REPORT

QUARTER 3 – FY 2020

APRIL – JUNE 2020

This report covers activities under USAID IDIQ Contract No. 72052218D00001

Task order No. AID-522-TO-18-00001

SUBMITTED TO:

Jorge Reyes Reina

Activity Management Specialist

Office of Economic Growth

Contract Officer’s Representative

U.S. Agency for International Development

E-mail: joreyes@usaid.gov

SUBMITTED BY:

Sergio E. Rivas

Country Representative

Chief of Party

E-mail: srivas@acdivoca.org

August 20, 2020

DISCLAIMER

This report is made possible by the support of the American people through the United States

Agency for International Development (USAID). The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International

Development or the United States Government.

mailto:joreyes@usaid.gov mailto:srivas@acdivoca.org iii

CONTENTS

SECTION I: BACKGROUND

SECTION II: SUMMARY

SECTION III: PROGRESS BY ACTIVITY COMPONENT

COMPONENT 1: VALUE-ADDED AGRICULTURE

COMPONENT 2: TOURISM AND CREATIVE INDUSTRIES

Other Noteworthy Achievements:

COMPONENT 3: ENTREPRENEURSHIP

Other Noteworthy Achievements:

COMPONENT 4: BUSINESS ENABLING ENVIRONMENT

Other Noteworthy Achievements

SOCIAL INCLUSION, ENVIRONMENTAL COMPLIANCE AND COMMUNICATIONS

SOCIAL INCLUSION

ENVIRONMENTAL COMPLIANCE

COMMUNICATIONS

SECTION IV: MONITORING, EVALUATION AND LEARNING

MONITORING & EVALUATION SYSTEM

SECTION V: PROGRAM MANAGEMENT

PARTNERSHIP AND INNOVATION FUND (P&IF)

SECTION VI: LOOKING FORWARD

SECTION VII: FINANCIAL INFORMATION

ANNEX I – TMS PERFORMANCE INDICATORS

ANNEX II

ANNEX III

ANNEX IV

iv

ABBREVIATIONS

AGHAS Gastronomic Association of Honduras

ANDE Aspen Network Developing Entrepreneurs

AMCHAM American-Honduran Chamber

AMHON Association of Municipalities of Honduras

BANHPROVI National Production and Housing Bank

BCIE Central American Bank for Economic Integration

BCH Central Bank of Honduras

BEE Business Enabling Environment

CANATURH Honduran National Chamber of Tourism

CCICH Chamber of Commerce and Industry of Choloma

CDCS Country Development Cooperation Strategy

CHICO Honduran Chamber of Construction

CHTC Historical Center of Tegucigalpa and Comayagüela

CIES Center for Economic and Social Research

CNBS National Commission of Banking and Insurance

CLA Collaboration, Learning and Adapting

CNI National Investment Council

COHEP Consejo Hondureño de la Empresa Privada

COMSA Café Orgánico Marcala, S.A.

COHONDUCAFE Fundación de la Compañía Hondureña de Café

COR Contracting Officer Representative

COSUDE Swiss Agency for Development and Cooperation

DO Development Objective

DFC U.S. Development Finance Corporation

DMO Destination Management Organization

FCH Fundación CoHonducafé

FEDECAMARA Federation of Chambers of Commerce

FNAMP Honduran anti-gang Task Force

GALI Global Accelerator Learning Initiative

HOPEH Honduran Association of Small Hotels

IDB Interamerican Development Bank

IDIQ Indefinite Delivery, Indefinite Quantity

IFAD International Fund for Agricultural Development

IIES Institute for Social and Economic Research

IHT Honduran Institute of Tourism

INALMA Inversiones Amalgamadas S.A.

INFOP National Institute of Professional Training

LGBTI Lesbian, Gay, Bisexual, Transgender, Intersex

ME&L Plan Monitoring, Evaluation, and Learning Plan

MESCLA M&E Support for Collaborative Learning and Adapting

MIPYME Micro, Pequeña y Mediana Empresa

MSAR Markey Systems Assessment Report

MSME Micro, Small and Medium Enterprises

OPTURH Honduras Inbound Tour Operators Association

OGD Destination Management Organization

OIJ International Youth Organization for Ibero-America

P&IF Partnership and Innovation Fund

PTTE Temporary Work Abroad Program

SENPRENDE National Entrepreneurship and Small Businesses Service

SME Small and Medium Enterprises

SNA Social Network Analysis

TMS Transforming Market Systems Activity

UNAH National Autonomous University of Honduras

UNDP United Nations Development Program

UNICEF United Nations Children’s Fund

UNITEC Central American Technological University

USAID United States Agency for International Development

VAA Value-added Agriculture

SECTION I: BACKGROUND

Through Indefinite Delivery, Indefinite Quantity (IDIQ) Contract No. 72052218D00001, dated April

13, 2018, the United States Agency for International Development (USAID) awarded ACDI/VOCA the Transforming Market Systems Activity (TMS, or, the Activity) with an ordering period through

April 12, 2023 and a performance period through April 12, 2025.

The purpose of the Transforming Market Systems IDIQ is to foster competitive, resilient, and inclusive market systems that provide increased economic opportunities (jobs and income) that incorporate poor, marginalized Hondurans and reduce incentives to migrate.

TMS prioritizes investments based on U.S. Government strategic interests, objectives, and ongoing investments, as currently defined in the USAID/Honduras Country Development Cooperation

Strategy (CDCS) and as based on continuing learning being undertaken on U.S. Government efforts to counter illicit migration to the United States.

Task Order No. 1 of the IDIQ (No. AID-522-TO-18-00001), dated April 16, 2018, covers the development of the Activity’s Monitoring, Evaluation, and Learning Plan (ME&L Plan), the execution of actions under this ME&L Plan, and implementation of all Collaboration, Learning and

Adapting (CLA) activities, including analyses, studies and pilots throughout the life of the IDIQ. This

Task Order also covers the implementation of an Inception Phase, comprised of a series of formative consultations, assessments, and analyses with the purpose of developing Life of Activity Action Plans for priority economic sectors and their corresponding strategic areas for intervention, including improvements in the business enabling environment, with an emphasis on actions where USAID can have a competitive advantage. Task Order No. 1 was amended on October 29, 2018, February 24, 2020, and April 16, 2020, to incrementally fund the contract.

This document presents the quarterly progress of TMS covering the second quarter of fiscal year 2020

(the ninth quarter of Activity implementation), encompassing activities from April 1st to June 30th, 2020.

SECTION II: SUMMARY

“Two secretaries of state and several senior managers from the private sector have indicated that there was no other organization that would provide business information during the crisis, neither the National Institute of

Statistics (INE), nor the Central Bank (BCH) or any other entity – TMS’s

Enterprise Resilience Analysis is an incredible contribution."

- Ricardo Matamoros

Director of the Institute of Economic and Social Research (IIES) from the

National Autonomous University of Honduras

May 16, 2020

The most significant developments and accomplishments resulting from TMS implementation during the reporting period include the following:

In the past quarter, TMS facilitated 251 events benefitting 10,287 participants. This included

9,797 individuals from 150 municipalities representing 18 departments as well as 490 organizations from 17 different economic sectors. Sixty-nine percent of participants directly assisted were from vulnerable groups including, 36% youth and 57% women.

TMS provided assistance to 4,859 direct participants employed in food services and restaurants

(as part of the food system for reporting under E.G. 3-2). TMS facilitated training to these direct participants in biosecurity measures to support this critical end market segment for local food production which was significantly affected by the COVID-19 crisis.

In the past quarter, partners co-invested $185,825 bringing total co-investment total to $778,459 life of activity. This means for every $1 committed, TMS has managed to leverage $0.89 from its principal partners. Note that co-investments from secondary partners will be collected as part of the annual survey process and reported in the annual report.

TMS conducted two panel studies of the Business Resilience Analysis in association with the

Institute of Social Research (IIES) of the National University of Honduras (UNAH) and the

Honduran Council of Private Enterprises (COHEP), the National Chamber of Tourism

(CANATURH), the Federation of Chambers of Commerce (FEDECAMARA) and 24 local chambers of commerce. The first panel collected information across 1,173 enterprises in 16 departments and 17 different economic activities in Honduras. The second panel received responses from 1,330 companies from 15 economic sectors, with the largest representation from micro enterprises with 1,049 of the total 1,330 responses.

TMS facilitated the national response to COVID-19 through active engagement in 5 ad-hoc

Sectoral Dialogue Tables, namely the tables for National Tourism Emergency; Micro Small and

Medium Enterprises; Governance; Competitiveness; and Office for Coordination of Presidential

Affairs.

TMS obtained eligibility and facilitated the start of loan application process from the U.S.

Development Finance Corporation (DFC) on 3 new Honduran private sector investments for a total of over $16 million.

TMS completed the co-creation process for 26 new Fixed Amount Awards (FAAs) which involves 11 second-phase activities by existing alliances and an expansion of 15 new partnerships.

SECTION III: PROGRESS BY ACTIVITY COMPONENT

COMPONENT 1:

VALUE-ADDED AGRICULTURE

This quarter, in the wake of COVID-19, TMS concentrated its value-added agriculture efforts on proactively supporting its partners to maintain their business operations and adapt to the new reality by facilitating access to new markets through e-commerce platforms, substantially increasing financial options for the agricultural sector, and by facilitating linkages to new buyers. These adaptive actions have been critical to mitigating the impacts of the crisis and preserving jobs at the companies by allowing them to maintain revenue, stay afloat and keep payroll.

Alliances and current results:

Innovative Supply Chains - Industrias Amalgamadas S.A de C.V. (INALMA)

TMS and Inalma held a Pause & Reflect session after completing the first year of joint implementation of the “Rapid Generation of New and Better Jobs through Added Value in Short Cycle Crops” initiative. The scope of this initiative is to increase the footprint of small holder farmers in Inalmas’s supply chain and accelerate job creation in rural areas through a more inclusive out grower program with a timeframe of three years. The session provided initial evidence that TMS and Inalma are achieving results on the total area planted with plantain, cassava and sweet potato; that local growers are accessing premium prices; and that Inalma is in fact providing technical assistance through cost recovery at time of purchase and new innovative outsourcing models. Further, Inalma reported an increase in production investments and new sales. More importantly, the alliance has promoted a groundbreaking pathway for small farmers access to credit.

The COVID-19 pandemic closed most of Inalma´s international food service marketing channels, which forced them to temporarily shut down their cassava processing line. TMS facilitated the negotiation of a new contract with a local plantain chip processor, Dinant, which allowed Inalma to maintain operations and keep most of its workforce employed.

In addition, even in the middle of COVID-19, Inalma completed the installation of a new peeling facility for plantains and sweet potatoes (the second unit as part of the alliance). The facility is now fully operational and is processing an estimated 150,000 lbs. of product weekly. Of the total output of peeled products, approximately 17 percent is also sold to Dinant, who further processes sweet potato skins into Zambos Chips. This new facility has allowed Inalma to replace weekly imports from

Nicaragua of up to 52,000 lbs. of plantain and sweet potato, which came with the additional problem of being transported pre-peeled, which represents twice the weight.

Inalma's concern regarding raw material availability due to COVID-19 grew over the quarter. In response, Inalma increased their plantain planting from 10 to 15 hectares per month on their own farms, but the increase was estimated insufficient in the long term. To address this concern, TMS and

Inalma facilitated access to credit for their independent suppliers to accelerate new plantings utilizing the new resources made available by the GOH through the National Production and Housing Bank

(BANHPROVI) and its financial product Agrocredito 8.70. On May 20, intermediary bank Lafise approved the first loan agreement for 5 million lempiras (approximately $204,000) which will allow plantain growers to expand crops by 50 new hectares. This adds to the pool of financial options that the alliance is making available to growers through Cooperativa Usula, Inalma’s employee’s

Cooperative and now Banco Lafise.

Based on these results, TMS and Inalma completed the co-creation of the second phase of the project via a new Ficha that builds on this momentum and expands Inalma’s outsourcing to 240 additional hectares (108 ha of plantains and 132 ha of sweet potatoes). This new phase is projected to generate over 4,000 direct and indirect additional new jobs, both at the farms and at the processing plant, and add $7 million in incremental sales.

Youth Coffee Microenterprise Model - Café Orgánico Marcala, S.A. (COMSA)

On April 23, COMSA officially completed the first phase of the Youth Coffee Enterprise Model initiative which encompassed providing business development services to a total of 68 youth entrepreneurs (33 men and 35 women) over the course of the activity. COMSA delivered training in business models, cost structure development, and market feasibility analyses.

Building on these results, TMS and COMSA co-created the scope of the second phase of the partnership to incentivize specialty coffee production in 50 farms owned by young producers, continue strengthening the new ventures created during the first phase and add at least 35 youth or 15 new business enterprises, increase sales in over $340,000, and facilitate social inclusion through supporting 25 women-owned businesses related to organic vegetables and coffee.

Investment and Export Promotion – JJ Agro

JJ-Agro, like most businesses across the world, faced enormous disruption at the onset of the COVID-

19 crisis. Last quarter, TMS reported about its rapid response mobilization to link JJ Agro with Pyflor, a Tegucigalpa-based produce delivery service, thus rescuing JJ Agro’s inaugural strawberry harvest.

Through continued collaboration, this quarter TMS and JJ Agro were able to secure a second distribution channel for the San Pedro Sula region: retail company Yojoa Foods. The connection with

Yojoa Foods was possible because Yojoa Foods is one of the hundreds of companies that has recently migrated to e-commerce through the training and online transaction platform provided by TMS through its Entrepreneurship Component.

JJ-Agro was able to maintain and grow strawberry sales through these services, avoiding product and job losses and opening relationships and growth pathways.

JJ Agro is currently one of Walmart's largest suppliers of potatoes and cabbages (cabbage, broccoli, and cauliflower) in Honduras, and although it already has a pool of 25 to 30 small producers that supply the Walmart contract with potatoes, they could easily double their volume of deliveries to the formal and informal markets if they could manage to integrate a larger group of small producers into their supply chain, ensuring quality, competitive costs, and on-time deliveries throughout the year.

For an anchor firm like JJ Agro, expanding its pool of small producers, despite being an administrative, safety and quality assurance challenge, represents an opportunity to leverage additional resources through land, labor, and cash investment, and thus more quickly expand the planting areas required to meet market demand. This would not be possible under a vertical integration model due to the financial constraint of needing to buy more land to expand production.

Likewise, an integration model with small farmers helps the anchor company to mitigate several of its risks, such as pests, diseases and drought by having the crops dispersed in several regions, in addition to a high probability of being able to reduce the production costs given the peculiarity of the cost structure in small farmers who use family labor.

TMS and JJ Agro completed the co-creation of an expanded partnership to leverage the experience and access to the formal and informal markets of the company at the national and regional level to integrate at least 75 new young farmers (25 percent women) into JJ Agro's supply chains in a sustainable manner, ensuring their access to technical assistance, training and information systems that will allow traceability throughout the chain. At the same time, the initiative will facilitate access to financing to small integrated producers. The goal of this new partnership is to create 500 new and better jobs and increase sales by $3 million.

Nestlé Global Youth Initiative - Fundación CoHonducafé (FCH)

The main TMS objectives with this alliance are to facilitate the adoption of solar drying technologies by smallholder coffee growers and expose youth to opportunity-based entrepreneurship training.

TMS and CoHonducafe initiated co-creation of a second phase of the initiative that aims at facilitating installation of 700 new coffee solar dryers; support at least 6 local ventures that provide services gradually complementing and replacing the work of FCH in the solar dryer program; put in operation

3 new training centers; and train at least 2,500 young people. In total, the partnership will generate an estimated 1,490 new or better jobs over the next 12 months of implementation.

Market Opportunities in Non-Traditional Crops - EFI Solutions

On May 21, TMS and EFI Solutions held a Pause & Reflect session on the first year of the partnership which integrated 66 cardamom, ginger, and lemon grass growers to the company’s supply chain. The most innovative part of the alliance has been the consolidation of five local satellite companies that manage the majority of EFI Solutions’ supply of raw materials with growers. The new sourcing model strengthened the "buy local" concept through the identification and empowering of local entrepreneurs that added value to growers in terms of volume aggregation, technical assistance, access to financing through local bank BANRURAL, and processing. Further, formal intermediation services created a direct trade mechanism with high value markets.

TMS and EFI Solutions completed the co-creation of the second phase of the alliance projected to integrate 75 new growers with a target of 420 new or better jobs and $572,000 in incremental sales in an 18-month period. This phase will increase the planted area with vetiver, ginger, black pepper and lemongrass from 14 hectares to approximately 700 hectares and will facilitate the inclusion of

Garifuna communities in the Atlantic coast into export market systems through the production of a pilot project for 15 hectares of vetiver that will be processed into essential oils. Moreover, EFI

Solutions plans to invest in additional top certifications to access new markets including organic, Mabagrown and Nelixia Unique.

New Partnerships:

Employment and Income Impact of Cacao - Fundación Chocolats Halba

Chocolats Halba (CHH) is a Swiss company over 80 years old, part of the COOP supermarket chain, with more than 1,500 supermarkets that record sales of more than $30 billion annually. CHH is dedicated to manufacturing high-quality chocolates with a strong focus on ensuring social and environmental responsibility, using organic certification and fair-trade processes to share benefits with producers. CHH initiated operations in Honduras in 2009 - representing the only country outside of Europe where CHH has invested directly, creating Chocolats Halba Honduras, S.A. in 2012, to develop their cocoa supply chains.

To address the low quality of cocoa in the country, CHH invested in collection centers to process high-quality cocoa which has generated international recognition for Honduran cocoa. As part of this quality standard, CHH has invested in certification processes, achieving organic certification of more than 1,300 producers and 4 organizations in organic and fair trade, allowing the export of certified cocoa with prices that are more than 65% higher than the international market price. CHH maintains a strong commitment to cocoa producers in seeking alternatives to improve the income of families.

In addition, CHH plans to expand the portfolio of products to be marketed in the future which can be produced in association with cocoa (e.g. dehydrated pineapple).

The economic feasibility of the crop for Honduran farmers is not clear due to recurrent low yields resulting in a weak response of growers to the high-priced markets, like the one offered by CHH.

TMS reengaged with CHH after stopping initial conversations in 2019 due to the temporary suspension of USAID funding. With this partnership, TMS aims at responding to a fundamental question: if the price CHH offers is higher the price compared to the conventional market, why have farmers not responded to this signal? TMS and CHH will collaborate to create the necessary incentives for growers to engage in this market. Further, TMS seeks to ensure the participation of young farmers, which could result in a fast expansion of the crop by taking advantage of the full

Honduran potential, in terms of soil and climate conditions.

The goal of the partnership is to upgrade 80 hectares of organic/Fairtrade certified cocoa production among 4 grower’s groups into a new agroforestry model called dynamic agroforestry systems (DAF), to increase yields from 5.3 quintals/hectare to 10 quintals/hectare in three years. TMS plans to then use this pilot to document the changes needed at the grower’s level to make the crop feasible and attractive to new investors for scaling-up, with a focus on the incorporation of young entrepreneurs into the sector.

Improving Agribusiness Competitiveness Through Renewable Energy - IBS

Since 2008, Innovative Business Solutions (IBS) has provided renewable energy solutions based in

Tegucigalpa. The company specializes in biogas, solar energy, and energy efficiency. From 2013 to

2020 IBS developed projects for the commercial, tourism, and agro-industrial sectors and consulting for the Central American Bank for Economic Integration (BCIE) with funds from the German

Development Bank (KfW) and the European Union.

As articulated in the TMS Markey Systems Assessment Report (MSAR), the Honduran agro-processing sector holds significant potential for job creation, export revenues, and incomes.

Discussions with agro-processors highlighted several problems holding back the sector's competitiveness. One of the key constraints and challenges is in the cost of energy. Most agricultural enterprises pay retail energy rates because their energy demand tends to peak seasonally. Current grid-costs are around $0.21/kWh. Regulatory and structural issues in Honduras suggest that these costs will most likely increase in the short-term. TMS has partnered and co-created a pilot activity with IBS to address this issue. Off-grid alternative energy is a rapidly evolving sector and current energy costs show payback periods of 4-5 years for solar systems for individual enterprises. These systems have the potential to significantly reduce operating costs for Honduran agro-enterprises, increasing their competitiveness and ability to compete regionally.

The alliance with IBS plans to conduct at least 40 feasibility studies in key agroindustry clusters such as coffee, cocoa, fruits and vegetables, livestock, and food processors and implement at least 25 solar energy projects. The projects will include a workforce development component that will train 10 young technicians to operate the systems at the enterprise level. TMS plans to support IBS to design tailor-made products to facilitate engagement with the private sector “end users” of solar energy. The completed studies will be made available to all TMS anchor firms to learn about the impact on cost reduction in each sector. The project contemplates engaging financial service providers to increase lending in solar energy projects. In the long-term, this project will help TMS to conduct a more in-depth analysis of the state of Honduras’ renewable and off-grid energy sector, including where there may be workforce development or skills gaps, supply chain and installation logistics, and any potential negative externalities as the sector grows. Additionally, TMS plans to build on this study, strengthen the reach, and increase competitiveness and inclusivity of the renewable energy sector.

Adding Value Through E-commerce - Passion Coffee

Passion Coffee is the leading brand of specialty coffee in Honduras. They are experts in supplying high quality roasted coffee and facilitating and advising entrepreneurs and large companies for the establishment of new coffee shops as well as providing equipment and services to a larger market of the food service sector. Passion Coffee works with more than 50 coffee growers who earn a 25 percent premium price (above market conventional price) based on quality, generating 300 direct jobs in the fields and 30 jobs in processing, sales, and administration of the business. However, due to the

COVID-19 pandemic, local sales dropped by 50 percent. TMS considered this as a great opportunity to partner with such a lead actor in the coffee sector to be disruptive and launch an export program for roasted coffee to the U.S. market through an e-commerce platform.

This digital commercialization of roasted coffee and related products initiative will include creating unique products and developing a targeted data driven social media campaign that will spearhead the opening of the market for many other Honduran coffee roasters and traders through a scaling-up model and replication plan. This represents a great opportunity to add more value, innovate the sector, and adapt to the business necessities presented during COVID-19.

The partnership will develop a business-to-client (B2C) model through e-commerce to sell and deliver specialty roasted coffee in the Honduran and U.S. markets. Additionally, the partnership plans to make 4 trial shipments of roasted coffee to the U.S. and document and socialize the experience to facilitate crowding-in with other market actors.

Integrating Producers to the Sustainable Organic Coffee Chain - BonCafé

BonCafé is a coffee exporter based in San Pedro Sula which started operations 20 years ago and now sells around 150,000 bags1 of coffee per year valued at $33.7 million, specializing in certified and specialty coffees, which accounts for more than 50 percent of their exported volume. Their inclusive

1 The exact unit of measure is 69-kilo bags business model for certified coffee and direct trade made them an appealing partner for the benefit of

Honduran farmers.

BonCafé submitted a project proposal to partner with TMS with three goals: to increase farmers' incomes by adding value through direct trade and organic and Rain Forest Alliance (RFA) certifications; improve the availability of new genetic materials that facilitates adaptation to climate change and market requirements; and to standardize the processing of organic fertilizers.

The partnership targets at adding 900 additional hectares of organic and RFA certified coffees to

BonCafé’s program by integrating around 250 new growers into this market system. Next, the partnership plans to provide direct technical assistance to farmers in organic agriculture; diversify sources of income with new crops such as Hass avocado, plantains, and honey; improve the quality of coffee through the installation of a new processing/drying equipment; and finally standardize the production of organic fertilizers using state of the art technologies.

TMS Finance Transaction Unit

This quarter, TMS obtained eligibility and facilitated the start of loan application process to the U.S.

Development Finance Corporation (DFC) on 3 new Honduran private sector investments for a total of over $16 million:

Ticket Purpose Amount Expected impact

INALMA Farming operations in vulnerable and poor areas of the country.

Equipment at processing facility to increase production capacity and competitiveness of

Honduran products.

Debt readjustment to strengthen cash flow.

$4.055 MM

Debt readjustment $1.7 MM

Farming $1.2 MM

Equipment $1.155 MM

Secure 2,160 current direct and indirect jobs.

Generate up to 6,000 new direct and indirect jobs.

Reduce imports of plantains and cassava from 70 percent to less than 20 percent.

JJ AGRO Increase hydroponic strawberries by 30,000 M2

Increase potato plantation by

100 hectares per year

$4.7 MM

Strawberries $1,2 MM

Potatoes: $1,1 MM

Debt readjustment $0.68 MM

R&D $100,000

Generate at least 8,000 permanent jobs, benefiting a high percentage of women and Lenca indigenous people.

Initiate export to regional markets

Reduced cost of Goods Sold from 60 percent to 48 percent.

Honduchips Double actual production capacity from 60 to 120 full container loads per month

$8.2 MM

Processing equipment $3.9 MM

Debt readjustment $4.2 MM

800 to 1,000 additional new direct jobs

Based on DFC prioritized sectors, TMS is working on five additional tickets with strategic partners in the productive infrastructure, meat, renewable energy, oil refineries, and avocados sectors.

In addition, through at least 20 meetings, TMS conducted initial scoping for a second pipeline of $295 million for USAID consideration to start the DFC eligibility process.

COMPONENT 2:

TOURISM AND CREATIVE INDUSTRIES

This quarter, TMS advanced a national tourism response and recovery agenda with principal national tourism authorities and stakeholders, enabling a comprehensive COVID-19 crisis management and mitigation of its effects. TMS facilitated recovery and preparedness of regional tourism chambers, destination management organizations (DMOs), associations, and their enterprises for the restart of the tourism industry. TMS support included participatory development of biosecurity protocols for restaurants and hotels; digital training workshops for the application of these and other biosecurity measures, development of post-confinement tourism products, and direct technical assistance for the conceptualization, negotiation and application of government alleviation measures such as

BANHPROVI's financial products for tourism and a Solidarity Support Fund for suspended tourism employees. TMS also worked at the destination level, facilitating the creation of post COVID-19 economic development agendas for three prioritized tourism districts: the Jewel of the Lakes District, the Valleys and Mountains District, and the Lenca Maya District, and supported promotional activities for the restart of the tourism industry.

Advancing a National Tourism Approach & Recovery Agenda

The COVID-19 health crisis has had economic repercussions globally and across sectors, especially for the tourism sector. There are tremendous implications for international tourist arrivals and expenditures as a result. According to the UNWTO, the crisis could lead to an annual decline of between 60 to 80 percent depending on the easing of travel restrictions. TMS's latest COVID-19

Enterprise Resilience Analysis, shows that 73 percent of tourism enterprises suspended their employees, as 85 percent of businesses are not generating any sales since the confinement period started.

TMS mobilized quickly to be part of the leading response efforts through the Ad-hoc National

Tourism Emergency Table, beginning on April 8, recognizing that this emergency requires collective public-private interventions, as well as business model re-adaptations. Proposals built by the discussion table focused on the three stages for tourism recovery: crisis management and impact mitigation, accelerating recovery, and preparing for restart. Issues addressed included a review of taxes, charges, incentives, and regulations impacting tourism to formulate recommendations to incentivize job recuperation and retention.

National Tourism Emergency Table At the invitation of President Juan Orlando Hernandez to provide high-level input to address the COVID-19 crisis and input for economic relief policies for the sector, the ad-hoc

National Tourism Emergency Table convened for the first time on April 8. At this meeting TMS presented the Enterprise

Resilience Analysis for Tourism, conducted in partnership with the Federation of Chambers of Commerce (FEDECAMARA), the National Chamber of Tourism (CANATURH), the

Honduran Council of Private Enterprises (COHEP), and the

National University of Honduras (UNAH), along with 15 regional chambers of tourism.

National Tourism Table

Several three- and four-hour sessions were held afterwards from April to June (April 9, 10, 11, 13, 21 and 23, May 14, 20 and 16, and June 3 and 9), which focused on analyzing the projected effects of the crisis on the tourism economy and on the development of proposals for the reactivation of the industry with the aim of reducing the economic impact on the more than 500,000 direct and indirect jobs generated by tourism enterprises.

The first proposed measure: “solidarity support”, was approved on May 4 by the National Congress, for more than 150,000 employees whose source of income was paralyzed by the shutdown of the country's tourism activities. Starting on May 18, tourism employees could apply for the funds, and at quarter's end, 67 companies representing over 645 jobs successfully applied for relief support through http://CANATURH.org/aportacion-solidaria/.

Applications received from enterprises 149

Employees registered 2,346

Approved enterprises by the Ministry of Tourism 67 in verification process

Employees approved 645

Approved funds to de disbursed L. 2,257,500.00

Counterpart funds from the private sector L. 1,612,500.00

However, it was determined that this alleviation support did not satisfy the needs of employers as the qualification process was slow and complicated, and most applicants did not qualify for the alleviation funds.

To make sure tourism business owners were aware and knew how to take advantage of the alleviation measures, TMS also supported CANATURH and the Ministry of Tourism (IHT) to organize webinars via Zoom and Facebook Live, where legal experts advised enterprises on the application and use of the temporary benefits and to explain the temporary financial products that were available for tourism companies and its application process through the financial system.

Webinar Date Participants Women Men

1 BANHPROVI's financial products for tourism 6/2/2020 336 186 150

2 Solidarity support fund for the tourism sector 5/28/2020 253 157 96

3 Workplace suspension 5/5/2020 350 229 121

Another challenge that TMS addressed, which was caused by the COVID-19 crisis, was access to credit. Tourism enterprises need fresh operating resources to ensure their resilience and permanence, renegotiate current debt, and make new investments to implement the biosecurity measures required to resume services. However, the financial solutions presented by BANHPROVI did not fully address micro, small, and medium enterprise (MSME) needs because these funds could not be used for refinancing current debt, and because their access depends on credit policies and ultimately the good will of private banks. Therefore, TMS supported the development of a financing strategy through international bilateral and/or multilateral financing entities that included debt restructuring, grace periods, and longer loan terms for tourism enterprises. The strategy included four main components:

i) a deeper, individualized consultation about the financial struggles that tourism companies were facing in retaining jobs, ii) identification of bottlenecks and barriers to submit loan requests in the financial system, disaggregated by tourism subsector, iii) negotiation guidelines and illustrative work http://canaturh.org/aportacion-solidaria/ plans to help entrepreneurs successfully readjust their financial obligations and access fresh resources, and iv) an analysis of the accessibility of financial relief products currently available through financial institutions.

A first approach in the development of this strategy was made through the National Commission of

Banking and Insurance (CNBS), who expressed their commitment to work alongside the tourism sector on the development of a sector-wide proposal to launch specialized financial products to keep businesses afloat and prepare their recovery. On June 16, CANATURH, with TMS support, presented an analysis of the importance of tourism on the national economy, the impact of COVID-19 on the sector, and therefore in the general economy, and a quick look at the necessary financial support for tourism MSMEs through working capital, low interest loans, and grace periods.

Accelerating Recovery On May 19, the Minister of Tourism, the President of CANATURH, and representatives of 14 regional chambers and 6 associations agreed to move forward with the economic reactivation planning, including the readjustment of products and promotional campaign plans.

TMS supported national tourism authorities to review protocols to be adopted by tourism service providers to ensure the enhanced safety of tourists and employees in a

COVID-19 scenario and build capacities through training programs to enable MSMEs to adapt their tourism services to the new reality.

At quarter's end, TMS had revised the following six biosecurity protocols for the industry together with IHT, CANATURH, the association of small hotels (HOPEH), the association of inbound tour operators (OPTURH), and the gastronomic association of Honduras (AGHAS):

No. Protocol Status

1 Restaurants Approved by the Ministry of Labor

2 Small Hotels Approved

3 Grand Hotels Approved

4 Tour Operators In final revision

5 Complementary Tourism Activities In final revision

6 Tourism activities in Natural and Protected Areas In final revision

Specific biosecurity trainings to increase the capacities of the tourism workforce through online programs were co-designed by TMS, and carried out by CANATURH, IHT, AGHAS, and the

National Institute of Professional Training (INFOP). TMS also participated in the writing and overall

BIGOS, El Patio, Matambritas/Coco Baleada´s staff receiving the biosecurity webinar. These restaurants are members of the oldest and more important Honduran food franchises.

Juan Orlando Hernández, President of

Honduras, announces the new relief measures for the tourism sector development of the Biosecurity Manual for Restaurants and Cafeterias with delivery and take-out services.

Webinar CANATURH # Participants Women Men

1 Biosecurity Protocol for Restaurants and Cafeterias 4,738 2,865 1,873

1 Biosecurity Protocol for Hotels 492 284 208

Total 5,230 3,149 2,081

Restaurants and Cafeterias were prioritized considering that food and beverage services were among the first to start the GOH’s intelligent re-opening pilot. The food industry in the country is estimated to generate

100,000 direct jobs and is mostly made up of small and medium national enterprises. On May 7, in order to start a gradual opening of food and beverage establishments, CANATURH, AGHAS, IHT, and COHEP, with

TMS support, delivered a pilot test with 11 establishments in the cities of

Tegucigalpa and San Pedro Sula, to restablish partial income to restaurant owners and to save as many jobs as possible after the confinement measures. This work was well received by the GOH and the companies were the first to start operating again through delivery and takeout services.

Preparing for the Restart On June 3, TMS facilitated a Table meeting with the presidents of tourism associations and 16 regional chambers of tourism to discuss a timeline and specific actions for medium-term reopening plans by subsector. The industry depends on setting a date to lift mobilization and domestic travel restrictions, as well as the opening of borders, to start promotional campaigns and tour distribution.

TMS supported a scenario planning which included early engagement and training of workforce and support tools to tourism MSMEs to adapt to the new reality of the tourism and travel sector in anticipation of a gradual opening of services to domestic and foreign travelers.

With the economic reactivation that began on June 8 in Honduras, the sector began implementing actions to support opening the industry's initial subsectors, including a panel discussion on prospects for intelligent reopening. Further, there were presentations of destinations to international travel audiences programmed by OPTURH in collaboration with the Association for Culture and Tourism in Latin America (ACTUAL), aimed at professionals and authorities from more than 22 countries featuring attractions from Honduras’s five priority tourism districts, as follows:

No. Date Presentation Audience

1 June 8 Country Presentation by the Minister of Tourism, Ms. Nicole Marder 2,400 views

2 June 9 Destination Roatan by Antonio Moncada - Mayan Princess Beach Resort 1,600 views

3 June 10 Destination Copán by Sandra Guerra / Chamber of Tourism Copán Ruins -

La Casa de Todo 1,400 views

4 June 12 Honduras' Secrets by Fernando Carias - Honduras is Great Blog 2,100 views

Also, as part of the reinvention of tourism products, TMS, in conjunction with the Central American

Technological University (UNITEC), the Polytechnic University of Valencia, Spain, IHT, and

CANATURH held a webinar called "Tourism Product Development (post-confinement): Challenges and Opportunities" with the facilitation of two Spanish experts in recreational tourism and planning.

The workshop included the exchange of strategies and considerations based on Europe's experience with tourism reactivation and had an attendance of 253 participants (181 women, 72 men).

At the destination level, following the Destination Competitiveness Diagnostic (Travel and Tourism

Competitiveness Index (TTCI)) completed by TMS and IHT last quarter, TMS continued the work with three prioritized Tourism Districts: the Jewel of the Lakes District, Valleys and Mountains

District, and the Lenca Maya District. This quarter, the 3 strategic economic agendas were completed with an average participation of 35 organizations per district. The prioritized actions are included in

Annex IV of the report.

Marketing and Promotion The COVID-19 crisis has affected travel demand and patterns, caused countries to revisit priority markets, and forced promotional campaigns to readjust activities based on available resources and the new reality of the outbound markets. Further, marketing actions must now be oriented to build destination confidence, prioritizing domestic and intraregional (Central America) tourism which is expected to catch up faster than international travel.

This quarter, TMS started to build the knowledge base for subsectors to forecast future demand patterns and design an effective promotion and commercialization strategy with priority markets and products.

TMS worked alongside IHT and OPTURH to reassess (once again) the image of Honduras as a destination on the internet and across social media, based on new traveler trends as a result of COVID-

19, focusing on the outdoors and nature-based products, which are the segments expected to recover more quickly.

TMS and IHT worked on the identification of key improvements for the country's most important websites: honduras.travel and hondurasisgreat.org, etc., to redirect sector-wide campaigns that capitalize on the most frequent keywords and search patterns of international tourists, aimed at maximizing traveler confidence once international travel is resumed.

As the impacts of the COVID-19 global pandemic have caused a spike in e-commence activities, TMS continued to disseminate, through INFOP, the successful "Web Presence and Social Networks for Businesses" training (developed in 2019 by TMS and CANATURH) to improve internet presence and reputation management of tourism enterprises. The workshop transitioned to be a complete online course in early 2020 due to the great demand by chambers of tourism at the national level. The

National Institute of Professional Training (INFOP) made this course available to all Hondurans through its online education platform beginning on May 4. The dissemination of this training served to introduce proposed activities and share best practices on digital marketing with key tourism stakeholders and to accelerate e-commerce solutions adoption and innovative digital marketing activities among enterprises in tourism and other sectors seriously affected by restricted circulation.

The tools provided through the course helped tourism companies and other companies to easily adopt marketing and adaptation techniques for their products, and thus also take advantage of the increased and consistent contact with social platform users. With this digital workshop TMS also reached

MSMEs in small destinations at a more profound level.

During this last session, delivered on June 17, at the request of

HOPEH and IHT, hotel entrepreneurs (47 participants, 31 women and 16 men) learned about the importance of social networks in the hospitality sector, keeping clients informed about cleanliness and sanitization measures, and compliance to government safety standards in order to regain their client's confidence. Participants completed a three-stage practical exercise on preparations to reopen: i) confinement, ii) low demand reopening, and iii) top-of-mind brand marketing plan. These activities contributed to further improving the web presence within main tourism destinations at a national level, one of the top TMS systemic change objectives for tourism.

Urban Revitalization and Creative Industries – Nat. Identity Foundation (MIN)

The COVID-19 pandemic provoked the massive closing of all activities in Honduras, especially those related to tourism, recreational, and creative services. The alarming increase in the spread of the virus in Tegucigalpa forced the local and central governments to increase the restrictions in the city. Given such dramatic circumstances during the April-June trimester, TMS reviewed the direction of the Naranja Republik project activities and created new plans to be able to comply with the established targets of the project.

A large proportion of time was dedicated to administrative tasks necessary for the adequate articulation of all activities.

This quarter's main activities included:

1. Online interactions about COVID-19 with creative services subsectors for ecosystems and business communities that regrouped and came together to share their problems, ideas, and plans related to the pandemic. Over the past quarter, TMS and partner MIN co-created

Instagram Live events that enabled a space for stakeholders to report their current situation, exchange ideas, and make plans for alliances to support and alleviate some of the short-term needs of creative industries. It was also reported that several projects have been postponed or canceled. One of the participants for the cinema sector, Mexican actor Gaston Yanes, said that while one of his plays was postponed through August, rehearsals continue through virtual meetings with impressive results. A global message was given about the importance of unity within the guild, so they can capitalize on the opportunity presented by unexplored digital media that provides a great possibility of developing content that people will not find in other forms of entertainment.

N° MIN Livestreams Date # Viewers

1 Before, during and after the crisis: Future Prospects gastronomy 5/6/2020 36

2 Before, during and after the crisis: Future Prospects for cinema 5/13/2020 50

3 Before, during and after the crisis: Future Prospects for fashion 5/20/2020 917

4 Before, during and after the crisis: Future Prospects for editorial sector 5/27/2020 989

5 Before, during and after the crisis: Future Prospects for performing arts 6/3/2020 815

6 Before, during and after the crisis: Future Prospects for music 6/10/2020 784

7 Before, during and after the crisis: Future Prospects for urban tourism 6/17/2020 601

8 Before, during and after the crisis: Future Prospects for heritage sector 6/24/2020 1,300

9 Before, during and after the crisis: Future Prospects for technology sector 7/1/2020 1,400

Total 6,892

Common takeaways from these discussions were that the crisis also provides an opportunity for improvement; that this is the best moment to ‘deviate’ from old practices; implement biosecurity protocols, and that there is a reinvigorated awareness and appetite for online tools, courses, webinars and exchanges that can help solve current and future problems. Conversations within the cultural tourism entrepreneurs revolved around understanding the mentality of first travelers, highlighting that next steps are: i) to focus on "low contact" experiences, and ii) tourism "with a conscience."

2. The Naranja Republik baseline study was granted to ESA CONSULTORES to assess the initial situation of the target population, the dynamics of the Honduras creative ecosystem and its relationship with the rest of the urban fabric of the capital city, as well as the non-controllable risk factors that can condition the impact of the project, the construction of statistical instruments, and the review and measurement of final indicators, including its development, impact, and effects.

3. Negotiations with TMS partner Alterna, for the execution of the Project Cromática in Honduras, finished. Alterna will develop a campaign and call to identify at least 180 creative ventures and to train 90 of them to be accelerated.

4. TMS concluded the co-creation of a 3-month cultural-creative advancement…