Attachment J.1_Statement of Objectives - Amendment I.pdf

ATTACHMENT J.1– STATEMENT OF OBJECTIVES – Amendment 1

C.1 ACTIVITY TITLE

The activity title is USAID/Zambia’s Enterprise Development and Growth Enhanced

(EDGE).

C.2 PURPOSE

The purpose of USAID’s Enterprise Development and Growth Enhanced Activity is to increase the profitability for agricultural SMEs by addressing their key investment constraints on access to finance, limited business management skills and technology, and access to markets, thereby increasing SMEs productivity and ability to create new jobs.

C.3 BACKGROUND

Zambia’s agricultural sector plays a critical role in employing more than 60 percent of the country’s workforce, yet only contributes less than 10 percent of the country’s Gross

Domestic Product. While positive agricultural developments including improved yields and more private sector investments have occurred over the past decade, almost 80 percent of the rural population, the majority of whom depend on agriculture for their livelihood, remain poor.

USAID has been contributing to Zambia’s economic development for over 50 years. In agriculture, USAID’s programs have supported capacity building of the Ministry of Agriculture, increased agricultural production and processing, and strengthened the viability of the sector through improved agricultural policies. Under the Feed the Future (FTF) initiative, USAID has supported farmers to increase productivity and diversification for vegetables, legumes, sunflower, and maize; improved market access and trade primarily in Eastern Province; and strengthened the enabling policy environment for private sector investment nationwide.

In 2016, the FTF team implemented a rapid assessment of the portfolio by conducting field interviews with stakeholders, beneficiaries, and government partners. A clear finding of the assessment was that access to credit was a key inhibiting factor to agricultural growth, productivity, and diversification. Almost half of the workforce engaged in agriculture in rural areas has no access to financial services (FSD Zambia 2017).

Some of the key barriers limiting access to financial services for farmers and Small and Medium

Enterprises (SMEs) are: (i) limited collateral for potential borrowers; (ii) high interest rates; (iii) poor financial literacy; (iv) rain dependent agriculture; (v) inappropriately designed financial products; and (vi) a weak formal Financial Service Providers’ (FSP) appreciation of needs, (FinMark Trust Survey 2013, FSD Zambia 2017). In this context a Financial Service Provider

(FSP) is a formal business providing relatively good coverage of financial services such as credit, insurance, savings, and transactions to various types of customers.

High interest rates and strict collateral requirements are the biggest sub-challenges SMEs face in accessing credit. For commercial banks, interest rates can be as high as 30%, while up to 150% collateral is required for loans. For microfinance, interest rates can be as high as 70% and are typically provided using a group lending approach to mitigate lenders’ risk.

The main challenges in addressing financial service delivery to SMEs include: (i) High cost of capital for FSPs; (ii) lack of information on SME locations and business conditions; (iii) market perception by FSPs that SMEs are risky clients; (iv) weak institutional understanding of the products and services needed to attract SMEs as customers; (v) disaggregated and geographically disperse SMEs; and (vi) weak SME understanding of what is needed to engage with financial service providers. Improving the supply of appropriate financial services to SMEs and improving market capacity to understand and deliver appropriate combinations of financial services to SMEs can generate strategic and sustainable economic development.

Typically, SMEs face multiple constraints which reinforce each other; they lack access to finance, they have limited business skills and technology, and they lack access to markets or supply chains. To flourish and grow, SMEs need integrated support addressing these constraints.

Accordingly, this activity addresses key agricultural SME constraints, particularly; lack of access to finance, limited business skills and technology, and lack of access to market or supply chains.

Working with FSPs, the activity will target SMEs on a spectrum that is defined by the following.

The targeted SMEs are a mix of formal and informal businesses, including agro-dealers, processors and input dealers with turnover/revenue of at least 100,000 Kwacha and/or have at least five Full-Time Equivalent (FTE) employees, but not more than 100 (FTE) employees. They range from some relying on informal financing such as village savings and loans groups, to those that can access formal loans such as from the Government's Citizens Economic Empowerment

Commission (CEEC) with lower interest rates for capital investments. The targeted SMEs face a range of problems from inability to qualify for loans, due to lack of collateral (e.g., farmland or business title deed) or financial capacity (e.g., business plans) to unfavorable financial repayment terms from commercial banks (including high interest rates) that do not factor in their seasonal income or capital needs.

The activity must target SMEs in Central, Eastern, and Lusaka Provinces but the Contractor may propose to include SMEs in Southern Province. The activity will target SMEs working on various agricultural and livestock value chains. The target SMEs and focus value chains will be determined through capacity assessment and market analysis respectively, both to be conducted by the Contractor within the first three months of the award. It is however recommended that the targeted value chains not be more than five.

C.4 ACTIVITY OBJECTIVES

In order to reach the purpose of this activity, which is to increase the profitability for agricultural SMEs and improve job creation, there are two mutually reinforcing objectives:

1. Increased access to finance for agricultural SMEs, including female-owned enterprises;

2. Increased competitiveness for SMEs’ products.

It is anticipated that the Contractor will champion Zambia’s journey to self-reliance through partnerships. The Contractor will engage with relevant entities within the Government of the

Republic of Zambia on the design and implementation of the approaches to engender commitment and support of an enhanced business enabling environment for SMEs. This will include entering into formal Memorandum of Understanding (MOU) partnership agreements with the Ministry of Agriculture and the Ministry of Commerce, Trade and Industry, at a minimum. The Contractor will engage not only with the private sector entities as represented by the targeted SMEs and FSPs but will also endeavor to partner and bring along private sector associations and other larger private sector stakeholders, through formal MOU partnership agreements. Lastly, the Contractor will support and nurture connections and relationships with other organizations and civil society actors that have aligned development goals and who may be able to provide ongoing support following the conclusion of this activity.

C.5 SUCCESS

Success will be measured by increased net profit and job creation for the targeted SMEs as a result of increased financing and access to markets. At the end of this activity, targeted SMEs will have increased their profits by employing sound business management and innovation skills, expanding their businesses, creating jobs and promoting greater competitiveness in their respective sectors.

The Contractor must propose a minimum number of SMEs to be targeted to meet the following targets by the end of the activity:

1. Profit of assisted SMEs increased by 15 percent from the baseline to midline, and from midline to endline.

2. 2,500 net increase in full-time equivalent jobs (with 30% women and 40% youth) across the assisted SMEs.

3. Revenue for assisted SMEs increased by 20 percent from the baseline to midline, and from midline to endline.

4. 20 percent of targeted SMEs female owned.

5. 80 percent of the targeted SMEs have independently accessed finance after receiving

USG assistance.

USAID will contract, through a separate mechanism, for the collection of the baseline before the start of the project, as well as for the midpoint and end-line.

C.6 LINKAGES TO MISSION OBJECTIVES AND OTHER USG PROGRAMS

The goal of EDGE is consistent with USAID/Zambia’s Development Objective 2 (DO2), which is “Rural Poverty Reduced through Enterprise-Driven Inclusive Economic Growth.” EDGE will support the key Intermediate Results (IRs) of “Rural Business Enabling Environment Improved” and “Rural Enterprises Strengthened” as well as the supporting and relevant sub-Intermediate

Results (sub-IRs).

Numerous USG programs have invested or are currently investing in Zambia to improve food security and nutrition. The Contractor will be expected to build upon these past programs with specific focus on learning from USAID/Zambia’s Profit Plus activity. Furthermore, the

Contractor will work to incorporate and leverage new and ongoing activities and opportunities including USAID/Zambia’s Alternatives to Charcoal (A2C) activity, USAID/Zambia’s Scaling Up

Nutrition Technical Assistance (SUN-TA) activity, USAID’s Southern Africa Trade and

Investment Hub activity and potential other activities initiated through the recently formed U.S

International Development Finance Corporation (DFC), under Prosper Africa, and others where appropriate, to maximize the impact of EDGE. The Contractor will also coordinate, where appropriate, with relevant USAID non-agriculture partnerships programs and other donor supported initiatives that complement EDGE objectives and are in line with national policies or priorities to improve the economy.

C.7 STRATEGIC ALIGNMENT WITH GRZ GOVERNMENT PRIORITIES

Increasing access to financial services across targeted agricultural businesses is relevant to the national strategies for economic and agricultural sector growth, poverty reduction and food security. Accordingly, one of the strategic areas of Zambia’s Seventh National Development

Plan (2017-2021) is to promote economic diversification and job creation by improving access to finance with the expected outcome of a diversified and export-oriented agriculture sector.

This is in line with EDGE’s objective. Most importantly, the Contractor will closely align this activity with and support the GRZ’s agricultural enterprise development initiatives and overarching strategy, including facilitating an improved business enabling environment. The GRZ is expected to be a close partner in the implementation and sustainability of this activity.

C.8 ASSUMPTIONS

USAID/Zambia believes that through this activity the results will be achieved in five years given the following assumptions:

● GRZ supports and implements policies to facilitate increased private-sector engagement in economic development;

● Addressing Zambia’s ability to become economically independent and self-reliant remains a USG policy priority, with commensurate levels of resources available to

USAID/Zambia;

● FSPs are willing to learn and develop products and services needed to attract SMEs as customers;

● There are sufficient numbers of SMEs as defined in this solicitation to work with in the targeted Provinces and who have the desire and incentive to partner with USAID on this activity; and

● Borrowers understand and accept the requirements (particularly time to repayment) for receiving loans and can insure themselves against the unexpected.

C.9 THE DEVELOPMENT HYPOTHESIS

The Development Hypothesis holds that, if the EDGE activity works to ease supply and demand constraints to access financial services; facilitate business relationships between the

FSPs and SMEs and increased competitiveness for SME products, then SMEs’ investment capacity will increase, leading to job creation and increased profitability for the SMEs.

The Contractor must propose relevant indicators to measure progress and performance.

C.10 COMPONENTS AND ILLUSTRATIVE ACTIVITIES:

Objective 1: Increased Access to Finance for Agricultural SMEs including Female-

Owned Enterprises

The Contractor is expected to articulate how it will improve investment readiness for agricultural SMEs and their ability to seek and qualify for finance and investment. The

Contractor is also expected to clearly articulate how it will improve the ability and willingness for FSPs to lend to agricultural SMEs and facilitate for sustainable linkages/business relationships between the SMEs and FSPs. Emphasis shall be placed on ensuring that female-owned enterprises are supported, and that women and youth employment is prioritized in job creation.

As already mentioned, unfavorable financial repayment terms (high interest rates and lack of sufficient collateral) are the major challenges for SMEs in accessing credit. Due to the high cost of capital, FSPs have constraints offering cheaper long-term loans to SMEs. The Contractor is expected to demonstrate the use of innovative financing options, such as, but not limited to, impact investing, private sector forward funding and blended finance to succeed in this highly constrained lending environment.

Objective 2: Increased competitiveness for SMEs’ products

The Contractor is expected to articulate how it will strengthen the capacity of SMEs to increase profitability by reducing operational costs and increasing sales through a market-driven approach. In addition, the Contractor is expected to show how it will facilitate SME access to markets for selected value chains including promotion of value addition.

C.11 COLLABORATING LEARNING AND ADAPTING (CLA)

Development work presents many opportunities to collaborate and engage with a broad set of stakeholders, to learn from both evidence and experience and to adapt iteratively to unexpected results or changes in context. This is why USAID places “Collaborating, Learning and Adapting” at the center of its Program Cycle, both as a connector between, and an integrated part of the components.

COLLABORATING

Collaboration enables cross-sector integration, convergence, and effective interventions to maximize development resources and enhance development results. The Contractor will collaborate with USAID-supported and other development partners (e.g., multilateral, other donors, host government) activities in common areas of operation and engage with stakeholders (defined with USAID COR) to deliver integrated services to target populations.

LEARNING

Learning should be intentional, systematic and resourced. Sources for learning include data from monitoring, portfolio reviews, findings of research, evaluations, analyses conducted by

USAID or third parties, knowledge gained from experience, stocktaking exercises, and other sources. Those documents produced by USAID will be shared with the Contractor by the

COR for consideration in the learning phase of CLA.

These sources will be used to develop and implement plans, manage adaptively, and contribute to the USAID/Zambia knowledge base in order to improve development outcomes. A collaborating, learning, and adapting focus helps to ensure that programming is coordinated, grounded in evidence, and adjusted as necessary to remain relevant and effective throughout implementation.

Knowledge generated by learning will be applied throughout programming to implementation approaches, processes, and stakeholder engagement. Knowledge generated by learning should also be disseminated to activity stakeholders, partners, and collaborators in an appropriate forum and format so that it may be translated into decisions and actions that enhance the success of approaches and interventions designed to achieve common intermediate results.

The Contractor will share information and knowledge generated by monitoring data, portfolio review results, research findings, evaluations, analyses, and experiences with other USAID implementing partners. The Contractor will apply actionable information and knowledge gained from collaborating partners to activity implementation in order to improve results.

USAID implementing partners and other development partners’ activity staff, as relevant, will convene on a periodic basis to reflect on actions taken, exchange analysis, and propose decisions that affect implementation.

ADAPTING

The Contractor will demonstrate adaptability that is informed by knowledge gained through learning, and recognize behaviors and incentives necessary to create change. Knowledge gained through learning shall influence decision making, resource allocation, and adaptation to contextual shifts. Application of new knowledge to implementation decisions will be reflected in the Annual Work Plan and Activity Monitoring, Evaluation, and Learning Plan (AMELP).

Decisions to adapt may be based on, but not limited to the following:

• Extraneous changes in the operating environment (i.e. emergency or natural disaster;

national policy changes)

• Financial and human resource constraints

• Evidence that signals targets are unmet

• Emerging evidence that interventions are not working or could work be if adapted

Any changes to the scope of the contract must be approved by the Cognizant Contracting

Officer in a modification to the contract. Changes in technical approach may be approved by the COR by way of the COR’s authority to provide technical direction and approve Annual

Work Plans.

C.12 ENVIRONMENTAL COMPLIANCE

A negative determination with conditions has been reached for this award. The Contractor is subject to the terms and conditions for Environmental Compliance as defined in Section H.

C.13 SELF RELIANCE AND SUSTAINABILITY

The decision on interventions will be primarily driven by the end goal of sustainable rural economic growth with poverty reduction through private sector investments. Accordingly, EDGE seeks to unleash private sector investment in rural areas and build local capacity to advance economic development that generates sustainable solutions. Ideally, the activity will work in partnership with the host government to demonstrate the value of investing and growing the agricultural SMEs. The business skills and relationships built between SMEs and the

FSPs will be driven by the incentive for both parties to sustainably make profit and grow.

USAID prioritizes approaches that support Zambia’s Journey to Self-Reliance, which seeks to strengthen our development outcomes by focusing our assistance in ways that support and strengthen GRZ, civil society and the private sector to lead its development.

C.14 GENDER CONSIDERATIONS

Gender roles in the Zambian society result in a general imbalance in women’s economic activity participation. Women provide approximately 70 percent of the country’s smallholder agricultural labor force, yet do not benefit from productive assets control including access to credit. Planned activities will need to be carefully tailored to ensure that clear, realistic, and equitable strategies are implemented for women to ensure they directly benefit from the activities implemented with the ultimate aim of increasing women’s access to and control over productive resources, and market opportunities. A gender balanced approach for EDGE activity will include targeted capacity building for women owned agricultural SMEs, emphasis on SME job creation for women and disaggregated data by gender on selected performance indicators.

Under this activity, at least 20 percent of the targeted SMEs will be women owned/operated.

This target is based on the past five years’ experience of FTF implementation; the number of women owned enterprises in the Feed the Future Zone of Influence ranged from 15-35 percent. In addition, the Contractor must integrate gender considerations into all other activities. The work plan, objectives, results, indicators, staffing and budget should demonstrate commitment to the equitable inclusion of women in the activities and indicate specific results to be achieved.

C.15 EFFECTIVE YOUTH INTEGRATION

This activity is rooted in a Positive Youth Development (PYD) approach, which is based on the belief that, “given guidance and support from caring adults, all youth (ages 10-29) can grow up healthy and productive, making positive contributions to their families, schools, and communities.” PYD programs intentionally focus on developing competencies and behaviors that support pro-social attitudes, a clear and positive personal identity, and positive belief in the future. PYD programs encourage youth leadership and experiential learning, as well as adult approachability and champions. Services and opportunities are designed to support young people in developing a sense of competence, usefulness, belonging and empowerment. For many, the PYD approach is a paradigm shift in the way that they think about youth, education, employment, leadership, health and environment and its resources. The activity will include concrete and practical approaches that will not only address the challenges that youth face to accomplish the activity results but will also involve and support young people in the decision-making, management and leadership of this activity. Youth integration will at a minimum include emphasis on SME job creation for youth.

C.16 MONITORING, EVALUATION, AND REPORTING

The Contractor must produce an Activity Monitoring, Learning and Evaluation Plan (AMELP) in accordance with F.5.2(b). The AMELP must reflect the expected project main results in C.5 above and specific outcome indicators and targets by year. The AMELP must demonstrate how all outcomes will support robust and evidence-based results. The AMELP will also include: the development hypothesis and critical assumptions; baseline values and targets to show progress over time; a Performance Data Table summarizing the key performance monitoring information, and; Performance Indicator Reference Sheets (PIRS) for each indicator that include detailed description of performance indicators to be tracked, source, method and schedule of data collection, known data limitations and planned actions to address the limitations. Baselines will be established within six months of award. Beyond including a PIRS for each performance indicator, the plan should identify how data will be collected and stored and how data quality will be ensured.

C.17 EVALUATION

As set forth in ADS 201.3.5.13, each Mission that manages program funds and designs and implements projects must conduct at least one evaluation per project. The Mission will contract separately for an independent third party to conduct a mid-term performance evaluation of this activity whose overall objective will be to generate evidence of what works well and why, as well as what specific set of interventions can be scaled-up to increase the probability of achieving the activities main objectives and guide program management for the second half of the activity. Therefore, the Contractor must comply with USAID requirements regarding evaluation planning and implementation, including selection of sites / beneficiaries, providing contact information and relevant documentation, collection of data, and working closely with

USAID and the Evaluation Contractor. The Contractor must consider the recommendations in the midterm evaluation report and adequately integrate them in subsequent work plans.

C.18 PERFORMANCE MANAGEMENT AND REPORTING

Performance reports submitted by the Contractor must be focused on reporting progress against the approved AMELP. Narrative progress reports must be given to USAID Zambia, both verbally and written or as advised by the COR. Written quarterly reports are due no longer than 30 days after the end of each quarter and will review accomplishments towards indicators, targets and highlight events that occurred with detailed information (agendas and meeting notes, where relevant), upcoming events, and any relevant challenges and associated actions to overcome those challenges.

Up until the USAID rolls out a cloud-based performance management system, dubbed

Development Information Solution (DIS), USAID/Zambia is implementing a performance management information system called DevResults to track activities for all mission-funded activities at the national, provincial and district. As appropriate, the Contractor must provide a quarterly update of information (including, but not limited to, performance results, geospatial coordinates, success stories, and/or photographs) on the activities under the Contract by entering this information into the designated reporting system. The Contractor must enter information via an Internet website; USAID will provide the URL address and a user

ID/password. As needed, USAID/Zambia will orient the Contractor’s Monitoring and Evaluation

Advisor (or other relevant staff) on how to use DevResults. The contractor may choose to use their own data management system for their internal management needs. However, it is cardinal that the system should be able to interface with DevResults for easy transfer of information and reporting.

C.19 CLIMATE CHANGE INTEGRATION

Climate risk management (CRM) is required for all USAID-supported activities, with limited exceptions. Climate risk is the potential for negative consequences on activity objectives and/or outcomes due to changing climatic conditions. The focus of climate risk management at USAID is on the risk to USAID development programming. The CRM process may also identify potential development opportunities associated with current and expected climatic and meteorological changes, including chances to achieve additional development objectives (as well as increasing climate resilience and reducing greenhouse gas emissions).

Climate risks can be manifested through potentially severe adverse consequences for development programs resulting from the interaction of climate-related hazards with the vulnerability of societies and systems. A climate risk may arise when an activity element, target, or beneficiary is exposed to a climate hazard such as higher temperatures, flooding or drought.

The level of risk increases both as the severity and probability of negative impact increases. Per

USAID policy, moderate and high climate risks must be addressed in the activity design and/or during implementation. In some cases, the USAID/design team may accept a/some risk(s) upon consideration of tradeoffs and how USAID can best achieve its development objectives.

In view of the above, this activity was screened and rated as moderate risk [See Attachment

J.10]. Therefore, the Contractor must implement and adaptively manage climate change throughout the life of project. In addition, given the challenges posed by climate change, the

Contractor will need to articulate practices and interventions that can enable climate resilient approaches to succeed and support the sustainability of the investments made under this activity.

Specifically, the Contractor must:

• Implement the actions identified in the attached climate risk summary table (see annex) and any other that will be identified through their own climate risk screening exercise

• Create awareness for beneficiaries to understand the impacts of climate change on agriculture, including early warning systems.

• Work with SMEs to encourage producers to adopt climate smart agriculture

• Encourage insurance to protect against climate change risks

• Increase training and investment in more sustainable agricultural practices.

• Include all the risks and mitigation measures in the EMMP

• Identify indicators and track CRM in the MEL plan

• Identify a position to oversee EMMP implementation, monitoring, and reporting.

Progress reports must include a summary of progress on CRM, including any issues that have been identified and how they have been addressed.

• Consider CRM in the initial work plan and all annual work plans thereafter

• Develop monitoring and control strategies to ensure that the activity remains resilient throughout the LOP and beyond

C.20 SCIENCE, TECHNOLOGY, INNOVATION AND PARTNERSHIP (STIP)

USAID/Zambia is one of 20 Missions recognized as a “Lead Mission” in applying Science, Technology, Innovation and Partnership (STIP) to enhance its development impact. The

Contractor must describe their approach and use of cost-effective methods to reach beneficiaries and accelerating the timeline for obtaining results, and/or bringing ground-breaking innovations to scale.

[END SECTION C]

[END OF ATTACHMENT J.1]