Attachment 1 - Draft Program Concept.pdf

Attachment 1

ATTACHMENT 1

DRAFT PROGRAM CONCEPT

I. INTRODUCTION

This Draft Program/Concept is for the potential implementing partner(s) to provide technical services to implement the proposed Strengthening Private Enterprise for the Digital Economy (SPEED) activity. This activity will engage an implementing partner that can effectively and efficiently provide technical advisory services and commodities support that will enable greater participation of Philippine small and medium enterprises (SME) in the digital economy.

Mobilizing the digital economy for enterprise-led development is integral to USAID’s goal of helping countries on their journey to self-reliance. This activity is closely aligned with USAID’s core mission of enabling businesses to operate in the digital economy resulting in more employment and higher incomes; increased profitability and reduced costs for businesses; and greater innovation, productivity and competition in the economy. Digital development holds the potential to be inclusive and available to all—ultimately playing a key role in helping countries become more self-reliant.

This draft Program Concept invites potential offerors/applicants to develop cost effective solutions and innovative approaches to meet the stated objectives. It also presents USAID/Philippines with an opportunity to assess potential offerors/applicants’ understanding of all aspects of the effort to be performed by eliminating detailed instructions on how to accomplish the stated objectives.

Offerors/Applicants are invited to provide responses that include information, evidence-based and data-informed analyses, strategies, and recommendations that demonstrate approaches for the implementation of a technical assistance activity that will help address the problem of weak competitiveness and non-inclusivity of economic growth in the Philippines.

For purposes of this RFI, the words “activity”, “program”, or “project” are used interchangeably to refer to SPEED.

II. PURPOSE

SPEED contributes to the USAID/Philippines’ Country Development and Cooperation Strategy (CDCS) 2020-2024’s goal of a “well-governed and more self-reliant Indo-Pacific partner”.

Specifically, this project supports Development Objective (DO) 2, Inclusive, Market-Driven Growth Expanded, and Intermediate Result (IR) 2.4 Private Sector-led Growth Promoted and sub-IR 2.1.4 Enabling environment for the digital economy strengthened.

This activity is an integral part of the USAID/Philippines project “Economic Growth, Democracy and Governance with Equity” which seeks to assist the Philippines to strengthen its path to self-reliance, improve democratic practices, and become a stable, middle-income country by 2040. Specifically, it supports the EGDGE Program’s goal of “economic development is made more inclusive” and the sub-objectives of “environment for trade and investment is made more open and competitive.”

III. BACKGROUND AND CONTEXT

Growth prospects for the Philippine’s digital economy is high.1 According to a Google report, the Philippine internet economy grew 32 percent since 2015, registering at $7 billion in 2019 growing from US$2 billion in 2015 and is further estimated to grow three times more to US$25 billion by 2025.2 Filipinos are increasingly selling and buying products online. The Philippines have more than 69 million internet users according to GlobalWebIndex, three-fourths of that shop on-line.3 A PayPal report noted that 87 percent of Filipino merchants sell products on social media with Facebook as a major driver of traffic and engagement on Lazada, Shopee, and Zalora.4 Most of these transactions take place over mobile devices5. According to the iPrice State of E-commerce in Southeast Asia 2017 report, mobile commerce traffic in the Philippines grew by 15 percent between 2016-2017.6

The COVID-19 pandemic has accelerated the uptake of digital solutions, tools, and services, speeding up the transition towards a digital economy. Steep declines in mobility, such as usage of retail establishments, restaurants and shopping malls, due to government mandated quarantines led to a greater use of on-line platforms.7 Efforts to maintain social distancing will quicken the pace of digital transition. During the enhanced community quarantine (ECQ) period, employees were forced to work from home with many businesses shifting to remote working using cloud meeting and other internet enabled collaboration tools. School closures have forced

1 The term “digital economy” refers to a range of technology-enabled capacities and transactions between and among businesses, consumers, and individuals. It includes businesses using such resources as the internet, fixed and mobile broadband infrastructure, cloud computing, digital platforms, artificial Intelligence, and more.

2 See Google. 2019. E-Conomy in SEA 2019. In contrast, the Indonesian internet economy is estimated at $40 billion in 2019, quadrupling in size since 2015 at an average growth rate of 49 percent a year. The internet economy in Southeast Asia, which accounts for almost 3 percent of the region’s GDP, is projected to hit $300 billion, growing by 8 percent, by 2025.

3 Filipinos spend an average of 10 hours and two minutes browsing the Internet each day with nearly half of that time—four hours and 12 minutes— spent on social media, according to Hootsuite.

4 According to PayPal, social media users in Asia surpassed one billion users in 2018, double the number in 2012.

See PayPal. “Beyond Networking: Social Commerce as a Driver of Digital Payments Asia Report. Available at https://www.paypalobjects.com/digitalassets/c/website/marketing/global/stories/images/paypal-asia-social-commerce-report.pdf 5 Hootsuite and We Are Social’s findings that 89 per cent of adult Filipinos use mobile phones of any type.

6 However, this was the slowest in the region. The increase was steepest in Vietnam (+26%) while the regional average was 19% in 2017. IPrice, State of eCommerce in Southeast Asia 2017.

7 According to Google’s COVID-19 community mobility reports, usage of retail and recreation facilities such as restaurants, shopping malls and cinemas plunged 82 percent in the Philippines compared to the baseline period. Use of groceries and pharmacies saw a drop of 60 percent during the same period. On the other hand, data from the BSP showed that transactions using PESONet and InstaPay significantly increased compared before the restrictions on movement of people outside their residences.

https://www.paypalobjects.com/digitalassets/c/website/marketing/global/stories/images/paypal-asia-social-commerce-report.pdf https://www.paypalobjects.com/digitalassets/c/website/marketing/global/stories/images/paypal-asia-social-commerce-report.pdf https://www.paypalobjects.com/digitalassets/c/website/marketing/global/stories/images/paypal-asia-social-commerce-report.pdf https://www.paypalobjects.com/digitalassets/c/website/marketing/global/stories/images/paypal-asia-social-commerce-report.pdf educational institutions to adopt on-line learning and other virtual means to deliver their lessons.

Until a vaccine is made available, social distancing may remain a feature of the marketplace.

Buyers have increasingly resorted to “no-contact” deliveries and e-payment methods as a low-risk solution for such transactions as food deliveries, utilities, banking and insurance, etc. It is expected that COVID-19 will continue to shape the Philippine digital landscape.

The Philippines’ e-commerce market is still relatively small. The country has the smallest internet economy of the six primary markets in Southeast Asia, despite being home to the region’s second-largest population. E-commerce transactions accounted for only 1.6% of GDP in 2018, the smallest in the region (see table below). Despite having one of the largest number of users in the region, the Philippines has the lowest penetration rate. Statista’s Digital Market Outlook survey indicated that the country delivers the lowest revenue earnings in the region. The average Filipino e-commerce shopper also spent the least - just US$21.7 on online consumer goods purchases – compared to its neighbors such as Indonesia ($143), Thailand ($136) and Vietnam ($58.4). Statista reports that e-commerce spending in the Philippines was the lowest and growing more slowly than the rest of Southeast Asia in 2018, growing by 16 percent compared to a regional average of 21 percent.

E-commerce Comparative Metrics as % of

GDP

(2018)

Penetration rate (%)

Users (in million)

ARPU*

(in USD)

Revenue

(USD

million)

Indonesia 2.9 66.3 181.5 143.36 26,922

Malaysia 2.7 62.9 20.3 213.16 4,337

Philippines 1.6 45.9 50.3 21.68 1,091

Singapore 3.2 70.4 4.1 675.71 2,784

Thailand 2.7 52.1 36.4 136.36 4,960

Vietnam 4.0 59.5 57.9 58.44 3,385

Source: Compiled data from IPrice and Statista, 2020 data *Refers to Average Revenue Per User

The main challenge is getting SMEs to transition to the digital economy.8 To be able to tap business opportunities in the evolving digital economy, digital transformation is key. In an ASEAN survey, the following challenges faced SMEs: (1) lack of knowledge and low awareness of digital technologies; (2) reluctance to adopt new technologies and change business processes;

8 There are approximately 900,000 businesses operating in the Philippines, 99.5 percent of which are SMEs.

(3) lack of expertise and skilled human resources; and (4) weak collaboration with government and poor awareness of government support programs.9 Local SMEs often complain about not having access to affordable and reliable internet connections. They also lack the knowledge and technology to integrate their businesses in on-line marketplaces and use electronic payment systems. Seller protection, data privacy, intellectual property protection and the overall security of their online transactions are also among the concerns. The importance of logistics integration and efficient delivery services were also cited.10

IV. OBJECTIVES

The primary goal of SPEED is to enable Philippine SMEs to safely, reliably, and competitively participate in the digital economy. To expand the participation of the SME sector in the digital economy, this activity will (1) improve the capacity of SMEs to innovate and adopt safe, reliable and affordable technology solutions; (2) expand the use of e-payment systems and other FinTech innovations; and (3) improve the integration of e-commerce platforms with logistical supply chains.

Results framework

Objective 1: Improve technology adaptation of local SMEs

The demand from local enterprises seeking to participate in e-commerce is high. In a 2018 survey of 500 Philippine SMEs by Harris Interactive in behalf of FedEx Express, 96 percent of SMEs use e-commerce to source goods and find new customers in other markets. The survey also showed that e-commerce transactions accounted for 52 percent of total SME revenues.11 The report also shows 89 percent of SMEs use mobile commerce, generating 46 percent of their total revenues. The Harris survey showed that eight of out 10 Philippine SMEs use both software automation (88 percent) and mobile payments (87 percent) in their business.12 The study also revealed that 73 percent of the SMEs surveyed said they expect their e-commerce business to rise next year. A 2019 survey conducted by Ernst & Young Global noted that local SMEs are increasing their investments in digital technologies.13 New technologies are being sought to drive efficiencies in supply chain and distribution channels, thereby driving business growth. In a separate survey conducted by the Philippine Exporters Confederation, about 42 percent of

9 See Economic Research Institute for ASEAN and East Asia (ERIA). 2019. “Study on MSMEs Participation in the Digital Economy in ASEAN” available at https://asean.org/storage/2012/05/ASEAN-MSME-Full-Report-Final.pdf 10 Based on a 2018 survey conducted by the Philippine Exporters Confederation of their members. In another 2019 survey, 75% of the respondents from the Philippines cited cybersecurity as a major challenge. Other challenges include sluggish customer demand (68.4%), human capital challenges (67.7%), competition from new entrants (67%) and rising production costs (66.7%). See Ernst and Young Global, 2019. “Redesigning for the Digital Economy: A Study of SMEs in Southeast Asia”.

11 FedEx Express. 2018. “Global is the New Local: The Changing International Trade Patterns of Small Businesses in Asia Pacific.”

12 Ibid.

13 The survey found that 88% of respondents from the Philippines will invest in network upgrades and expansion of existing ICT assets while 83.3% said they would invest heavily in transformative technologies include artificial intelligence, blockchain, internet of things and smart sensors. See Ernst and Young Global, 2019. “Redesigning for the Digital Economy: A Study of SMEs in Southeast Asia” https://asean.org/storage/2012/05/ASEAN-MSME-Full-Report-Final.pdf https://asean.org/storage/2012/05/ASEAN-MSME-Full-Report-Final.pdf respondents were engaged in e-commerce while 71% of the non-users said they had plans of starting.

How can this project assist SMEs’ access to and beneficial use of digital services? How can this activity promote greater awareness and literacy of the benefits of the digital economy? What interventions can be undertaken to increase SME adoption of digital platforms and innovate their production processes and service delivery, and invest in cybersecurity measures?

Objective 2: Expand SME use of e-payment platforms

One of the reasons behind the relatively slow uptake of eCommerce in the country is the continued dominance of cash-based transactions. According to the Philippines’ central bank, cash still accounted for 99 per cent of all local transactions as of January 2018.14 Over 80 per cent of online retail players in the Philippines have had to offer cash-on-delivery or payment centers as a payment option.15 The Philippine Retailers Association reported only 1 to 2 percent of its transactions are made online. In addition, the country has been slow to adopt eWallets, with only 1.3 percent of Filipinos owning electronic money accounts based on BSP’s 2017 Financial Inclusion Survey. According to the APEC e-Payment Index, which assesses the level of readiness and potential to engage in adopt, and reap the broad range of economic and societal benefits that e-payments hold, the Philippines ranked 17th behind Singapore (2), Malaysia (10), Thailand (15), and Indonesia (16).16

How can this project enable more businesses to use e-payments platforms? How can this activity boost consumer confidence in making cashless payments? How can this project assist firms to lessen the risks associated with on-line transactions?

Objective 3: Improve SME access to reliable and affordable logistics supply chain

As the growth of e-commerce continues, the demand for logistics, for a seamless and efficient flow of goods from supplier to the customers, likewise expands.17 One study noted that the express delivery market in the Philippines has grown 9% over the last six years and is expected to further increase by 24.6% by 2023.18 Major logistics firms in the Philippines have shifted their focus on timely, reliable and safe delivery of products, thereby making them an integral part of

14 Data from BSP indicates that only 15.8 million Filipinos or 22.6% of the total population have a formal bank account. Of this segment, only 18% use their accounts for payments. Almost two-thirds (64%) of adults who did not use their accounts for payments cited that they still prefer cash in paying while 20% said that they are not aware that they could pay electronically using their account. Nearly half (46%) of account holders who have access to the internet are ambivalent about e-payments due to issues such as hacking, personal security breaches, and unsafe access. See BSP 2017 Financial Inclusion Survey.

15 This partly because only 1.9 percent of Filipinos over the age of 15 have a credit card and 68 percent of Filipinos with savings keep them at home instead of a bank according to a 2019 survey. A MoneyMax survey reported that many Filipinos are reluctant to get credit cards because they fear it will lead to overspending and debt. Credit card penetration is even lower amongst women – just 1.4 percent, or 1 in 70 women.

16 The Index measures countries’ (1) policy and regulatory environments, (2) infrastructure, (3) demand, and (4) innovative products and services.

17 Logistics cuts across the whole supply chain, including transport, insurance, customs clearance, inspection, storage, packing, handling and distribution of goods.

18 See Ken Research, “Philippines Express and E-Commerce Logistics Market Outlook to 2023”.

the digital ecosystem. Local SMEs engaging in e-commerce will need to integrate with seamless logistics solutions, such as the delivery and return of goods with an online real-time tracking system. Unfortunately, delivery across the country remains expensive. A World Bank study showed logistics costs in the Philippines took up 27.16% of the total sales of companies, making the country the most expensive compared to regional peers Indonesia (21.4%), Vietnam (16.3%) and Thailand (11.11%). Cost of logistics automation is still prohibitive for many companies.19

How can this activity support SME access to reliable and affordable logistics services? How can this project enable SMEs to interface with logistics service providers? What interventions can be taken to lower logistics costs and make these processes more efficient?

V. ADDITIONAL CONSIDERATIONS

(1) Strategic Approach

This activity supports the U.S. government’s Indo-Pacific vision which aims to promote “a free and open Indo-Pacific in which independent nations with diverse cultures and different aspirations can prosper side-by-side in freedom and in peace.” Specifically, SPEED aligns with the Digital Connectivity and Cybersecurity Partnership (DCCP) initiative economic pillar of Indo-Pacific vision. The DCCP seeks to promote open, interoperable, reliable and secure communications infrastructure and internet connectivity. This activity also implements USAID’s Digital Strategy which seeks to improve USAID development assistance outcomes through responsible use of digital technology and seeks to strengthen openness, inclusiveness, and security of the country’s digital ecosystems.20 This activity also implements USAID’s Private Sector Engagement (PSE) policy that seeks to collaborate with companies and business associations where there is strong alignment between business interests and development objectives.21 The Offeror/Applicant will undertake efforts to engage companies and investors to explore opportunities for collaboration and work with the private sector to create new solutions and approaches that achieve project outcomes.

This activity will support Philippine government programs and priorities in the country’s transition to a digital economy.22 The government is currently revising the Philippine E- Commerce Roadmap 2016-2020 and updating the present law23 with the aim of promoting robust e-commerce growth. Assistance will also support the implementation of the Philippine Innovation Act (RA 11293), signed into law in July 2019, that seeks to harness technological advancements to enhance the competitiveness of the country’s micro, small and medium enterprises (MSMEs). This activity also supports the BSP’s

19 Installing an entry-level warehouse management system, for instance, costs around P2 million to P4 million.

20 See https://www.usaid.gov/usaid-digital-strategy 21 See https://www.usaid.gov/sites/default/files/documents/1865/USAIDPSEPolicy_ExecutiveSummary.pdf 22 This activity complements the Better Access and Connectivity (BEACON) project that focuses on ICT and logistics infrastructure development, enabling environment reforms, and cybersecurity. BEACON is targeted to strengthen government capacity and support policy and regulatory reform initiatives that improve ICT and logistics connectivity in the Philippines.

23 Republic Act 8792 or the E-Commerce Act of 2000.

https://www.usaid.gov/usaid-digital-strategy https://www.usaid.gov/usaid-digital-strategy https://www.usaid.gov/sites/default/files/documents/1865/USAIDPSEPolicy_ExecutiveSummary.pdf https://www.usaid.gov/sites/default/files/documents/1865/USAIDPSEPolicy_ExecutiveSummary.pdf

National Retail Payment System’s (NRPS) goal of increasing adoption of electronic retail payments and access to financial services. Assistance will also support SME participation in the Department of Trade and Investment’s National Logistics Master Plan 2017-2022 and the Department of Transportation’s Philippine Transportation System Master Plan to ensure efficient logistics and supply chains.

(2) Gender and Social Inclusion

The Offeror/Applicant must demonstrate that gender and social inclusion issues are suitably integrated into various components of the project and will undertake specific efforts to ensure that interventions do not discriminate against or disproportionately benefit either gender.24 To the extent possible, the implementing partner is required to encourage the equal participation of men and women in all aspects of this activity. People with disabilities are isolated from the communities due to physical infrastructure barriers, ICT technology can be an enabler and help them connect to the community and engage them in the global economy. SPEED activities should comply with Section 508 of Rehabilitation Act25 to promote equal access. Specific steps should be made to provide ICT technology to people with disabilities and to engage them in the global market. The Offeror/Applicant is also required to identify and outline any potential gender and social inclusion issues that might be encountered during the implementation and how these issues will be addressed. Specific interventions should be identified that will benefit women-owned and those owned by persons with disabilities enterprises and businesses and that women and disabled persons are not unduly harmed by the digital economy.

(3) Sustainability

Sustainability and scalability are central to the objectives and design of the activity and is reflected in the considerations for city selection. The Offeror/Applicant must identify the elements of sustainability and scalability considered essential to achieve the activity purpose and describe how sustainability objectives will be integrated and how benefits and results will continue and be scaled up beyond USAID funding. The Offeror/Applicant must identify key sustainability issues and considerations around a host of issues, as necessary, including economic, financial, social soundness, institutional capacity, political economy, technical/sectoral, and environmental (including climate change vulnerability). The Offeror/Applicant’s Performance Work Statement or Program Description must propose interventions on these issues that will be considered to more sustainable outcomes for the activity as a whole and for specific city engagements.

24 USAID ADS 201.3.9.3 states: “Gender issues are central to the achievement of strategic plans and Assistance Objectives (AO), and USAID strives to promote gender equality, in which both men and women have equal opportunity to benefit from and contribute to economic, social, cultural and political development; enjoy socially valued resources and rewards; and realize their human rights.”

25 https://www.fcc.gov/general/section-508-rehabilitation-act https://www.fcc.gov/general/section-508-rehabilitation-act

(4) Environmental Guidelines and Climate Risk Management

The implementing partner will perform the work in accordance with the approved programmatic Initial Environmental Examination (IEE) and its subsequent amendment(s), USAID’s environmental regulations at 22 CFR 216, and in accordance with application local environmental laws and regulations. SPEED’s activities will largely entail technical assistance and capacity building initiatives and is not expected to be directly carrying out construction activities. As such, the initial environmental assessment may recommend a Categorical Exclusion threshold decision. Activities under the Categorical Exclusion do not require an Environmental Assessment because the actions do not impact the natural or physical environment. However, some activities may be recommended for Negative Determination with Conditions to capture the nature of some tasks that may have a potential harmful environmental impact. All activities recommended for a Negative Determination with Conditions are subjected to further environmental review for approval by the activity’s program manager and the Mission Environmental Officer (MEO) using the Environmental Screening Report (ESR) prior to implementation.

As reported in USAID’s Climate Change Risk Profile for the Philippines in 2017, the country is highly vulnerable to the impacts of climate change, sea level rise, increased frequency of extreme weather events, rising temperatures and extreme rainfall. The ADS 201 puts in place the new Climate Risk Management guidance for USAID activities. This requires the Offeror/Applicant will develop climate risk management measures to ensure that the SPEED Activity is more climate resilient and avoids maladaptation.

(5) Monitoring, Evaluation and Learning

The implementing partner is also expected to develop a monitoring, evaluation and learning plan. Collaborative Learning and Adaptive Management will be key to the success of SPEED. As stated in ADS 201, the project MEL Plan serves to measure progress towards planned results and to identify the cause of any delays or impediments during implementation. The MEL Plan for the project provides a framework for monitoring, evaluation and learning that pulls together performance information from all activities contributing to a project. Evaluations will provide opportunities to learn by doing and generate knowledge for the agency. Lessons from the monitoring, evaluations and budget analysis will be integrated into the project cycle to improve efficiency and effectiveness of the interventions.