Attachment J-1- SOO.pdf

ATTACHMENT J.1

USAID/UGANDA STRATEGIC INVESTMENT ACTIVITY (SIA) ACTIVITY

STATEMENT OF OBJECTIVE

1. PURPOSE

The purpose of the USAID/Uganda Strategic Investments Activity (the Activity) is to facilitate commercial investments that yield and advance development objectives. This

Activity seeks to facilitate development-related transactions and engagements to catalyze varying forms of investment capital including, but not limited to, local and international equity investors, entrepreneurs, pension funds, banks, impact funds, endowments, insurance firms, high-net-worth individuals, the diaspora, and development finance institutions. The

Activity will put less emphasis on traditional banks and focus more on equity, national, and multinational corporate expansion capital, growth capital, and other forms of less traditional investment capital. Traditional banks are typically risk averse and asynchronous with development-related industries. They require collateral amounts that are restrictive, offer interest rates that are punitive to borrowers, limit terms to periods that are shorter than business operation cycles, and ultimately inhibit growth potential. The Activity intends to recognize the importance of traditional banks and work collaboratively to address the restrictions but will emphasize catalyzing the higher risk growth capital that encourages growth and development.

Under the previous USAID/Uganda Feed the Future (FTF) strategy, investments drove reforms in a select group of value chains: coffee, maize, and beans. The Activity will take a broader view, prioritizing investments that have the best potential to improve the performance of a wide breadth of agricultural value chain actors, including the most vulnerable and extremely poor, without being tied to specific value chains. Many potential agriculture investments in Uganda are not bankable or have an extremely long payoff period due to risks, both real and perceived, because of the challenging nature of the sector.

However, these investments are needed to catalyze growth in the sector and bring people out of poverty. There is an opportunity for USAID to partner with firms to identify and de-risk investments that have the greatest potential to contribute to inclusive agriculture-led growth and improved well-being for people in the FTF Zones of Influence (ZoI). While FTF programming currently reaches over 380,000 farmers and a host of farmer groups/associations/cooperatives, many farming communities are still subject to shocks and significant challenges in production, post-harvest handling, and value addition resulting in lower output and lower quality. For example, many agribusinesses and farmers rely on fossil fuels and human labor for production, processing, and distribution, increasing costs and reducing efficiency which negatively impacts their competitiveness. Similarly, women, youth, the ultra-poor, landless, and other marginalized or vulnerable groups face varied and numerous constraints to engaging with the agricultural market, a key tenet of the FTF approach. The above limitation affects the capacity of vulnerable and marginalized actors to participate productively in private sector opportunities.

Development partners alone cannot sustainably address these challenges. The private sector needs to play its role, but in many cases the risks are too high or the returns are too low to do so on it’s own. With the rising demand for agricultural products locally and globally, agro-production needs to be increased and value addition enhanced. The role of reliable sources of electricity to improve value, production, and incomes is critical. The activity will build on FTF programming in Uganda that supports agribusinesses to adopt modern agricultural practices, increase food production, improve the efficiency of their operations, and adopt value addition enabling technologies that tap into reliable and safe electricity. The strategic transaction support under this Activity will complement other FTF activities by addressing barriers to investment, and by unlocking capital. By addressing specific risks with bespoke assistance and guidance to investors, this Activity aims to increase transparency, lower the costs of transactions, create partnerships that catalyze, and unlock private sector investments. Likewise, the Activity will complement USAID’s efforts by supporting marginalized and vulnerable people to improve their resilience and nutritional status by participating in local and regional private sector opportunities.

2. SCOPE

This Statement of Objectives (SOO) describes the objectives of the United States Agency for

International Development in Uganda (USAID/Uganda) for the USAID/Uganda Strategic

Investments Activity.

The Strategic Investments Activity seeks to mobilize financing for investment (“additional” financing, trade and/or revenue which otherwise would not have occurred) in support of

USAID/Uganda’s targeted development objectives over a period of five years. The Activity budget will include $19.3 million of FTF funds and a buy-in of $200,000 from the Office of

Health and HIV (OHH). Of the FTF funds, approximately $5 million will be allocated to supporting the commercial use of energy or, productive use energy (PUE) in agriculture and agriculture-related industries. This Activity will facilitate domestic and international commercial investments that are aligned with USAID/Uganda’s development priorities, namely agriculture and food security, including the productive use of energy for agriculture and health. Additionally, by supporting development-oriented investments, the Activity will integrate marginalized or vulnerable populations into the market economy and transition them from subsistence to commercial production.

2.1 PERIOD OF PERFORMANCE

The Strategic Investments Activity will run for a period of five years. The exact commencement date will be determined later.

2.2 GEOGRAPHIC FOCUS

The place of performance is Uganda, under the jurisdiction of the USAID/Uganda Mission.

This Activity will be managed by an implementing partner who will provide oversight to ensure results are met, while also working with investors and investees to facilitate sustainable investments. The Activity will abide by conditionalities tied to funding streams, including FTF funding, that has locality restrictions (zone of influence). Interventions funded by FTF are not tied to the FTF zone of influence, however the beneficiaries must be in the

ZOI. The Activity may also support cross-border trade-related transactions and businesses that align with the goals of FTF and have benefits for the ZOI. Identifying how/if transactions/activities may impact the ZOIs will require ongoing engagement with the

USAID/Uganda FTF coordinator. For additional guidance, including the ZOI map, see the

Uganda GFSS Country Plan.

2.3 DEVELOPMENT HYPOTHESIS

USAID/Uganda’s development hypothesis is that more investment in key sectors is critical to realizing economic growth and achieving development objectives.

The overall theory of change for the activity is: if USAID, through the Activity, supports interventions to attract more foreign and Ugandan investment to agriculture and related sectors, and these investments, among other factors, increase economic participation by vulnerable and marginalized people, then, by facilitating investment, opportunities for marginalized people through commercial growth, and the economy, as a whole, will grow.

The Mission contemplates the Activity as one activity in a larger constellation of

USAID/Uganda food security and economic growth activities that are intended to complement one another and work at different “levels” in the economy. It will collaborate with the Institutional Systems Strengthening Activity, Inclusive Agricultural Markets Activity, Integrated Community Agriculture and Nutrition Activity, Graduating to Resilience, Agricultural Research, Biodiversity for Resilience, Apolou, Nuyok, Health Systems

Strengthening Unit (OHH), and other Mission activities as appropriate.

2.4 PROBLEM STATEMENT

Private sector engagement is fundamental to USAID/Uganda’s goal to end the need for foreign assistance and further its Journey to Self-Reliance. Recently USAID launched a

Private Sector Engagement (PSE) policy that spells out an Agency-wide call to action and a mandate to work with the private sector to design and deliver development programs across all sectors.

In Uganda, the total value of the country’s domestic borrowing has increased significantly over recent years, arguably contributing to the continuation of Uganda’s high-interest rates and crowding out private sector credit. It is estimated that commercial banks in Uganda https://cg-281711fb-71ea-422c-b02c-ef79f539e9d2.s3.us-gov-west-1.amazonaws.com/uploads/2018/11/Uganda_GFSS_Country_Plan_Public_Version_Final.pdf https://www.usaid.gov/selfreliance https://www.usaid.gov/sites/default/files/documents/1865/usaid_psepolicy_final.pdf hold about 90 percent of the outstanding stock of treasury bills. This has several follow-on effects including a reduction of the resources available for private-sector borrowing.

Although strides have been made in improving the enabling environment, Ugandan businesses continue to face serious challenges in attracting commercial investments.

Investors often do not have the time, awareness, or capacity to source and evaluate investment opportunities, especially those opportunities that have barriers to investment, or which the payoff period is too long. Similarly, many potential investees lack the sophistication or capacity to be “investment ready” and therefore do not get the capital needed to grow or improve the quality or quantity of their offerings.

Uganda’s domestic private sector is largely small and informal. There are few strong, competitive enterprises that can grow, compete domestically with imports from the region, and take advantage of lucrative export markets. The weakness and low productivity of the private sector negatively affect Uganda’s economic growth and dampens its ability to create jobs and livelihood opportunities.

Barriers to growth across the economy include a lack of reliable and affordable access to electricity, the cost of finance, lack of infrastructure, low-trust among market actors, lack of a skilled workforce, lack of technical and management know-how, complicated land ownership and titling, distance to markets, corruption, inconsistent tax enforcement, and cumbersome or unclear bureaucratic processes. Specific to the agriculture sector, the fundamental problem is that the primary producer engages in low input, low output farming and this is a very weak base on which to build an engine for growth. Challenges specific to agriculture include low efficiency of farms, small plot size, poor quality and low volume of farm outputs, high cost of bulking, declining soil quality, poor quality of inputs, lack of equipment, lack of extension services, reliance on rain, and minimal access to finance. A key constraint to productivity and competitiveness among agribusiness and farms is the lack of electricity for basic post-harvest processing on-farm and for higher-level processing in the factory. “Upstream” farmers are focused on survival and are unable to make the investment or take the risks to take up farming as a real business. As a result, downstream agribusinesses are constrained by the low and poor quality of farm produce, and by the cost to obtain it. Agribusinesses require creative financing options to make the investments needed to be profitable in a challenging agriculture environment.

Marginalized groups face varied and multiple constraints to engaging with the agricultural market. For example, they frequently do not have sufficient access, assets, knowledge, or capabilities to fully benefit from their participation in the agriculture market. They need different types of support to bridge these gaps. Unfortunately, economic development and livelihood programs that target vulnerable people are often unconnected from market actors further downstream, leaving people with the ability to supply a product or service but without adequate demand for what they’re offering. There is a need to develop the demand side, especially related to increasing investment in the system. The vulnerable people in the ZOI that FTF targets include women, youth, and the ultra-poor. In order to boost resilience and reduce the need for future humanitarian assistance, FTF also takes a special interest in Karamoja and three refugee-hosting districts of Lamwo, Isingiro, and

Kamwenge.

Although many donors including USAID have taken steps to address the agricultural finance challenges before, there is an opportunity to attract foreign and domestic commercial capital to grow the sector.

2.4.1 SUMMARY OF OTHER KEY OPERATING CONSTRAINTS

● Nearly 31 million people in Uganda (78%) lack access to reliable and affordable electricity1. Without access to energy, Uganda cannot meet development outcomes in areas such as health, nutrition, poverty, gender, and education.

● Uganda has a large informal sector where jobs and business activities are not registered or protected by the state. The informal economy contributes 43 percent to the total economy and around 70 percent of employment (UBOS, 2012), yet they are inherently vulnerable, highly mobile, and insecure.

● The cost of finance is high, with interest rates often ranging between 22 to 25 percent of the total value of the amount borrowed2. The low return on savings fluctuates between 3 to 6 percent annually, and formal financial institutions are located far from borrowers.

● Evidence shows that poor public provision of infrastructure services in Uganda significantly reduces productive private investment. The UN estimates that infrastructure deficits, such as rail and road problems, have lowered Uganda’s productivity by as much as 40 percent.

● Complicated land ownership and titling disempowers women by exacerbating gender gaps in land tenure, dis-incentivizes investors, fosters foregone productivity from allocative inefficiencies, and lowers human capital investment.

● Corruption constitutes a major challenge for businesses operating or planning to invest in Uganda. For example, there is a high risk of corruption in Uganda’s judicial sector, the public sector, police, tax administration, procurement, and land systems, among others.

● Tax enforcement is inconsistent. For example, high marginal tax rates in Uganda discourage work, saving, investment, and innovation, while specific regressive tax preferences (like the mobile money tax) can affect the allocation of economic resources.

● The total value of the Government of Uganda’s (GOU’s) domestic borrowing has increased significantly over recent years, arguably contributing to the continuation of

Uganda’s high-interest rates and crowding out private sector credit.

● Commercial banks in Uganda hold about 90 percent of all the outstanding stock of treasury bills (Bank of Uganda, 2019). This has several follow-on effects including a reduction of the resources available for private-sector borrowing.

1https://www.wri.org/news/2019/09/release-new-data-platform-helps-governments-entrepreneurs-expand-access-clean-electricity-east-africa 2https://www.worldbank.org/en/news/feature/2017/02/07/uganda-economic-update-lets-solve-the-finance-puzzle-to-accelerate-growth-and-shared-prosperity

● The public sector lacks a long-term, unified vision when it comes to facilitating business creation. While investors often lack the awareness, interest, or capacity to source and evaluate investment opportunities. Analogously, many potential investees lack the sophistication or capacity to be “investment ready” and therefore cannot easily access capital.

2.5. RESPONSE TO USAID POLICY FRAMEWORK AND AGENCY WIDE

INITIATIVES

This Activity is aligned with the USAID PSE Policy that was launched in 2018. The PSE policy envisions a future development model where countries will be self-reliant and no longer require donor assistance. To this end, the policy deems it imperative that USAID increase and deepen its collaboration with the private sector. Thus, this policy is an Agency-wide call to action, and a mandate to work hand-in-hand with the private sector to design and deliver development programs across all sectors, and to harness available resources to open markets and provide opportunities for U.S. businesses. The PSE policy is a first step within a larger cultural and operational transformation to expand USAID’s engagement with the private sector to achieve outcomes of shared interest. The policy is part of USAID’s overall

Policy Framework, which articulates overarching policy goals for achieving USAID’s Mission and guides the Agency’s policy, strategy, and programming. The purpose of the PSE policy is to accomplish the following:

● Set forth the vision and operating principles that will guide and advance USAID’s engagement with the private sector, with an emphasis on promoting U.S. economic growth.

● Illustrate ways USAID can consistently and comprehensively integrate private-sector engagement into the Agency’s operating model and programming across sectors.

Accordingly, by drawing on the PSE policy, the Activity will contribute to the institutionalization of private-sector engagement as a core tenet of USAID/Uganda’s operating model.

2.5.1 JOURNEY TO SELF-RELIANCE

Private sector investment is critical for economic growth which is a key enabler of development. Market-based approaches and market-oriented solutions address development challenges more quickly, efficiently, and sustainably. Further, enhanced private sector investment will reduce the reliance on donor funds. To this end, the Activity will work with the private sector as a more sustainable way to empower Uganda’s people, communities, and the country as a whole, on their journey to self-reliance. By mobilizing public and private revenues, strengthening local capacities, and accelerating enterprise-driven development, the Activity will ensure that this investment yields locally sustained results - thus contributing to Uganda’s self-reliance.

2.5.2 YOUTH IN DEVELOPMENT

According to the Global Entrepreneurial Monitor, in 2015 Uganda was rated as the most entrepreneurial country in Africa, and its bulging youth population is creative, energetic, and innovative. This “youth bulge” represents a vast development opportunity for Uganda, if it is able to harness the potential of its young people. Instead, weak systems, including poor education and lack of access to land among young people, severely limit the ability of

Uganda’s youth to positively contribute to the country’s development and the bulge of unproductive, unfulfilled youth presents a risk to the country’s political stability. These conditions, rightly channeled and governed, provide a powerful platform for expanding opportunities to Uganda. Currently, youth unemployment is high, and labor is underutilized.

Uganda’s Vision 2040 cautions that youth unemployment is becoming a social and economic threat to national growth.

In light of the above, it is envisioned that the Activity will explore partnering with the private sector to advance youth training or employment initiatives in order to ensure that the development of skills reflects actual or future needs in the labor market. The Activity therefore aims to motivate youth to participate in the agriculture sector, Uganda's largest employer. For example, youth may engage agricultural extension and advisory services

(EAS), both as providers and recipients of the services, in order to mitigate unemployment and contribute to economic development. Private sector EAS offer the best opportunities for youth participation, so they can contribute and gain from food systems now and in the immediate future. Thus, the Activity will explore strengthening youth participation at all levels of the market system through cooperation among various stakeholders, as well as at highlighting the role of youth as agents of development. The Activity will encourage investors to adopt a long-term perspective on investment and growth by deploying inclusive business models that engage the poorest population segments, most of whom are youth, an approach that is commercially sustainable.

2.5.3 THE USE OF LOCAL SYSTEMS

Mobilizing private sector investment to achieve development objectives covering a broad range of financing targets (in terms of transaction size, sector, purpose, tenor, etc.) will require the engagement of local actors, both from the demand side (transaction and business services providers) and the supply side (financial services providers and investors).

The approach should consider transforming innovations and reforms into sustained development. The Activity should consider the inclusion of local systems as critical to promoting sustainability.

2.5.4 PRIVATE SECTOR ENGAGEMENT

In Uganda, some private-sector actors are making substantial investments at the firm and farm level. With these investments, significant productivity gains are being achieved relatively quickly among participating firms and farmers. However, at a systemic level, there are many critical weaknesses that still need to be addressed. For example, there is a high level of distrust between the various value chain actors, especially the government and the private sector. Accordingly, a key area of focus for the Activity is to build relationships and incentive mechanisms that foster longer-term win-win relationships for the private sector rather than the prevailing one-off transactions.

In appreciation for what the private sector can contribute to the objective of achieving broad-based and sustainable economic growth, the Activity will leverage the various tools and resources available in the Agency to support local private sector development. The

Activity’s private sector engagement approach will largely be transactional, focusing on inducing commercial enterprises to engage with USAID in a manner that furthers our development objectives. Reciprocally, USAID will offer technical support to target stakeholders affected by this Activity. To facilitate the latter, the Activity will capitalize on the structural and institutional reforms that Uganda has laid as a foundation for sustainable private sector engagement.

3. BACKGROUND

Uganda’s development ambitions are guided by Uganda Vision 2040, which aims to transition

Uganda from a low-income country to an upper-middle-income country within the next 20 years. The GOU considers the private sector to be critical in realizing the goals of the

National Development Plan and achieving Sustainable Development Goals. The government recently adopted a National Private Sector Development Strategy (NPSDS) 2017/18-

2021/22) that aims to improve the business enabling environment, accelerate industrialization and support firm-level productivity and modernization. The NPSDS considers the key lessons from the design and implementation of previous strategies. Some of the lessons include: the private sector is fragmented and needs laws and regulations that improve the investment environment, the donor community must invest more in establishing linkages between private sector interventions and poverty reduction, and there is limited transparency in information sharing and monitoring of results among the private sector and investment.

The Bank of Uganda (BoU) has spearheaded the implementation of several significant regulatory reforms. Particularly, in January 2016 the BoU advocated for, and facilitated amendments to, the Financial Institutions Act (FIA) 2004. These amendments paved the way for agent banking, Islamic banking, bancassurance (insurance companies using banks to sell their products), creation of a standalone Deposit Protection Fund (DPF), and a new requirement for commercial banks to hold more capital which will offer greater protection for account holders. BOU’s Financial Stability Department is also undertaking measures to strengthen the identification of systemic risks. Parliament enacted policy related to

Microfinance Institutions to protect deposits and limit informal predatory lending practices.

The above provisions have created a better enabling environment for private sector investment and development in Uganda.

https://www.finance.go.ug/sites/default/files/Publications/NSPSD%20BOOK%20WEB_0.pdf

3.1 COORDINATION WITH HOST COUNTRY COUNTERPARTS AND

OTHER USAID IMPLEMENTING PARTNERS

The Activity will complement the GOU’s focus of pursuing a private sector-led approach to economic policy and management. Supporting Uganda on its journey to self-reliance requires strong support from the host-government that has to create a sustainable environment for investments. On the other hand, the Activity will maximize USAID's relationships with national and local governments to advance private sector development.

Working with the host government, the Activity will support private sector related policy and regulatory reforms that encourage fair and open competition, institutional reforms and the adoption of standards, and government capacity-building.

USAID’s close engagement with the GOU supports alignment with government and community priorities. This alignment is fundamental to informed consultation and fostering alignment with the private sector. To this end, the activity will comply with host country policies, laws and regulations pertaining to private sector investments. In addition to aligning with U.S. government (USG) foreign policy, the outcome of any design must also support host country priorities. The successful implementation of the Activity entails, but is not limited to, coordination with key government ministries, departments, agencies, parastatals, USG entities, implementing partners, and other donors fostering a conducive investment climate.

The implementer is encouraged to consult and involve local organizations, the private sector, traditional USAID implementing partners, local experts, and host country government officials to enhance opportunities for increasing local ownership and lower programmatic risk. To foster better alignment with the USAID/Uganda Country

Development Cooperation Strategy, the activity will work closely across USAID/Uganda technical offices and units to collaborate where there are private sector finance gaps.

Descriptions of relevant USAID strategic programs include but are not limited to the following:

Feed the Future (FTF): FTF has three objectives: inclusive and sustainable agriculture-led growth; strengthened resilience among people and systems; and a well-nourished population, especially women and children. FTF Uganda’s development hypothesis is that in order for the people who rely on agriculture (including livestock) to be uplifted from poverty, there is a need to improve the functioning of the agriculture market system at multiple levels and among many types of actors. Broadly speaking, FTF efforts at the farmer level aim to improve productivity and quality. Interventions at the firm level aim to increase competitiveness and growth. FTF programming also targets the enabling environment, to help align and bolster incentives and to improve the rules of the game for farmers, firms, and investors alike. Among other related USAID economic growth activities, the Activity will collaborate and coordinate with Institutional Systems Strengthening Activity, Inclusive

Agricultural Markets Activity, Integrated Community Agriculture and Nutrition Activity, Graduating to Resilience, Agricultural Research, Biodiversity for Resilience, Graduating to

Resilience, Agricultural Research, Biodiversity for Resilience, Apolou, and Nuyok.

While the Institutional Systems Strengthening Activity (ISS) focuses on interventions that build the capacity and systems of investment-related ministries, departments, and agencies

(MDAs) and industry apex organizations, this Activity will provide specific services for identified investors or investees in targeted sectors. ISS aims to work with, for example, the

Uganda Investment Authority (UIA) to build the capacity of its after-care division to ensure that UIA provides the required levels of technical support to those investors who have invested in-country. ISS activities are complementary to the Activity’s interventions and will ensure the sustainability of investments and incentivize future investment in Uganda.

The Feed the Future Inclusive Agriculture Markets Activity (IAM) supports interventions that focus on creating efficiencies in cross-market functions through three key market entry points at the lower/local level, namely agribusinesses, market actor organizations, and GOU institutions. Among other factors, IAM supports the capacity development of producer organizations and their individual members to engage as viable business entities in the sector, while ISS will work with those producer organizations’ apex organization, the

Uganda Cooperative Alliance (UCA), to build its institutional capacity and governance structures in order that UCA might be able to provide efficient services to its members (the producer organizations). The Activity will coordinate with and distinguish its approach from

IAM and ISS by engaging from the investors’ vantage point. Furthermore, interventions by the Activity will direct value-additive activities to support and advance discrete investments.

Office of Health and HIV (OHH): The United States is the largest single donor providing health aid to Uganda. USAID’s health assistance in Uganda focuses on HIV/AIDS;

tuberculosis; malaria; maternal, newborn, and child health; family planning and reproductive health; nutrition; water, sanitation, and hygiene; emerging pandemic threats; neglected tropical diseases; and health systems strengthening. In partnership with the Ministry of

Health, USAID/Uganda is currently engaged in an assessment of health facilities across

Uganda to determine off-grid energy needs and the status of internet network connectivity to support continuous service delivery. The findings and recommendations will be leveraged by the Activity (with $200,000 of USAID/Uganda Health funding) to complement other

USAID and stakeholder investments to address the most immediate recommendations from this assessment.

Successful implementation will entail strong coordination with Mission technical activities as well as partnerships (long and short-term) with commercial enterprises. In this respect, USAID will share its sectoral knowledge and expertise as well as a deep understanding of emerging markets to inform and shape local private sector development. Drawing on its long track record in Uganda, USAID will also leverage its strong capabilities in convening actors around business opportunities that address development challenges.

4. GOAL AND OBJECTIVES

The goal of the Strategic Investments Activity is “increased foreign and domestic investment in agriculture and related industries.”

The Activity envisions that realizing its desired goal will lead to more beneficial economic participation by vulnerable and marginalized people and increased growth of the agriculture sector. The Activity’s goal is directly related to the current USAID/Uganda CDCS which aims to accelerate inclusive education, health, and economic development in Uganda’s systems. There are three Development Objectives (DOs) under the CDCS. This activity contributes to DO3: Key Systems More Accountable and Responsive to Uganda’s

Development Needs, and is authorized under the Market Systems Strengthening Project.

The Market Systems Project aims to ensure that markets consistently and inclusively provide competitive goods and services demanded by actors.

The Activity’s objectives are:

1. Increased commercial financing in agriculture and related sectors.

2. Improved policies, laws, and regulations regarding commercial investments.

3. Increased productive use of energy in the agriculture and health sectors.

For all the objectives, the Activity will prioritize investments that increase economic participation by vulnerable and marginalized people in the FTF zone of influence.

The table below provides a crosswalk among the CDCS, the Market Systems Strengthening

Project, and the Strategic Investments Activity.

CDCS Market Systems

Strengthening Project

Strategic Investments

Activity

CDCS Goal:

Uganda’s systems are accelerating inclusive education, health, and economic development

CDCS DO 3:

Key systems’ accountability and responsiveness to

Uganda’s development needs improved

Markets Project Goal:

Markets consistently and inclusively provide competitive goods and services demanded by actors.

Activity Goal:

Increased foreign and domestic investment in agriculture and related industries.

CDCS Market Systems

Strengthening Project

Strategic Investments

Activity

CDCS IR 3.1:

Leadership in development supported.

CDCS IR 3.2:

Citizens actively participate in development

Markets Project Obj 2:

Goods and services are affordable and distributed in response to demand.

N/A

CDCS IR 3.3:

Key elements of systems strengthened

Markets Project Obj 1:

Appropriate goods and services produced

N/A

Markets Project Obj 3:

Quality business services available and used by market actors to produce, buy, or sell goods and services

Obj 1: Increased commercial financing in agriculture and related industries.

Obj 3: Increased PUE in the agriculture sector.

CDCS IR 3.4:

Enabling environment that supports functional systems improved

Markets Project Obj 4:

Formal and informal rules enhance market system function

Obj 2: Improved policies, law and regulations regarding commercial investments.

4.1 RESULTS

This Activity will be a success if commercial investment in the agriculture and health sectors is catalyzed. The target industries and firms engaged by the Activity should have good potential for long term success and a strong likelihood of benefiting a large number of people in the FTF ZOI, particularly vulnerable or marginalized people. These groups include women, youth, the disabled, LGBTQ, people in refugee-hosting districts, the Karamojong, and the ultra-poor. The activity will also be successful if it finds and unlocks certain systemic bottlenecks that are slowing down PSE.

The Activity is expected to achieve the following results:

Goal level: Increased foreign and domestic investment in agriculture and related industries.

Goal Level Targets

● $100 million incremental increase in private sector investment in the agriculture-related sectors as a result of the Activity.

● 100,000 vulnerable and/or marginalized people have improved livelihoods as a result of the Activity.

Other Indicators

● Percentage increase in annual sales of producers and firms receiving USG assistance

(disaggregated by sex, age, and marginalized group where possible).

● EG.3-2 Number of individuals participating in USG food security programs

(required, disaggregated by sex, age, marginalized group).

● Increase in domestic and foreign direct investment (FDI) attributed to the Activity.

Objective 1: Increased commercial financing in agriculture and related industries.

Illustrative activities:

● Business and transaction advisory services could include proper capital and investment structuring, growth and investment strategy development, investment memorandum preparation, market research, legal analysis and due diligence on investment opportunities, financial modeling.

Objective 2: Improved policy, legal, regulatory and institutional frameworks regarding commercial investments.

● Policy reform/improvement advocacy (could include the development, discussion, passing and gazetting of policy and/or other regulatory instruments).

Objective 3: Increased Productive use of Energy in the agriculture-related sectors

● Provide transaction advisory and business development services for the adoption of

PUE technologies and staff capacity building.

In order to ensure that the USAID/Uganda Strategic Investments Activity is increasing investments that achieve development objectives, a “fit check” will be designed in collaboration between the implementer and USAID/Uganda and established as a key metric to evaluate engagements by Activity. The fit check must determine what development objective/s (indicator/s if relevant) is/are being addressed/achieved if the investment is facilitated by this Activity. The fit check could also include the viability of investment being made post Activity engagement and other non-development related metrics in order to build a pipeline of potential engagements that can be triaged by multiple considerations. The fit check can also be used to determine what/if other relevant stakeholders could partner with the USAID/Uganda Strategic Investments Activity to address specific elements of the engagement. In the event there are multiple barriers for an individual transaction, the fit check could assess which barriers should be addressed by whom first. It could also help determine which engagement could achieve the strongest development results as well as which transaction is most viable at different investment stages or cost to the Activity. It will be critical that all partnerships and engagements be vetted. When determining whether to collaborate with specific private sector partners, the Activity must assess the potential development impact of the proposed collaboration and the reputational implications of working with the proposed partner. In order to assess such matters, proper due diligence must be performed to gather information regarding the prospective private sector partner(s). The due diligence helps identify any reputational risks that might arise from the proposed collaboration. This reputational risk assessment, which is different from other types of due diligence, will be incorporated in USAID’s decision of whether to proceed with the proposed collaboration.

4.2 GRANTS UNDER CONTRACT

Private investments in Uganda still usually need some catalytic support, for example grants, to bridge challenges in accessing capital. To this end, the Activity will operate a grant under contract (GUC) catalytic facility to leverage commercial investment. The grants will serve as risk compensation instruments to incentivize adaptive investments and innovations that offer investors a higher profit or financial returns. The GUC will also be an important mechanism to support private-sector innovations that would otherwise be too costly to undertake.

The contractor will design and manage a grants program and related communications strategy. Targeted recipients of the grants program will be private sector, non-governmental organizations. The contractor must submit a grants manual no later than 30 days after the award, detailing the process for identifying, evaluating, vetting, awarding, and monitoring grant activities. All potential grantees will justify the contribution of their proposed activities to achieving the key results. The total value of grants under contract will be no more than

$1.5 million.

5. OTHER IMPLEMENTATION CONSIDERATIONS

5.1 COLLABORATION, LEARNING AND ADAPTATION (CLA)

The Offeror should also detail in their proposal how CLA will be utilized in their programmatic approach to implement the three objectives.

Collaboration enables cross-sector integration, convergence, and effective interventions to maximize development resources and enhance development results. The Contractor shall collaborate and engage with USAID activities and other stakeholders (defined collaboratively with USAID COR) to achieve results.

The Activity will be expected to coordinate, collaborate, and integrate with other USAID activities as well as other donor and government programs in accountability and other relevant sectors. Lessons learned from the Activity will be documented, incorporated into other USAID activities, and disseminated to ensure the sustainability of impacts and catalyze broader results. Specific collaboration approaches with other USAID implementing partners include but are not limited to: coordination of annual work plans, jointly selecting targeted institutions and communities, making joint field visits, proactively sharing reports with one another, co-design of layered activities, leveraging or reinforcing relevant activities from other implementers, and generally having regular productive communication with other implementers.

The Contractor shall 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 shall convene on a periodic basis to reflect on actions taken, exchange analysis, and propose decisions that affect implementation.

USAID will separately contract a partner to conduct an on-going evaluation to assess our efforts and contribute to the knowledge base in this field. Support provided by the external party may include general qualitative and quantitative evaluation, learning for adaptive management, or an Impact Evaluation, for example. Contractors will be required to cooperate with outside evaluators in the design and execution of their work.

The Contractor shall demonstrate adaptability using the Program Driven Iterative

Adaptation (PDIA) approach. Knowledge gained through learning shall influence decision making, resource allocation, and adaptation to contextual shifts. Application of new knowledge to implementation decisions shall 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; political shifts)

● Financial and human resource constraints

● Evidence that signals targets are unmet.

● Emerging evidence that interventions are not working or could work better if adapted.

In addition to these factors and the performance indicators referenced above in this SOO, the Activity will also seek to use the following learning questions as applicable during implementation. Findings from learning assessments and reviews will serve to inform the approach of future transactions and Activity support. Learning findings will also be one source of information that will assist USAID managers to determine the level of success of the activity’s supported transactions, partnerships and how it affected the investment environment.

Illustrative Learning Questions:

● For transactions - evaluation of fit check assessment o Leverage - how much did USAID spend versus the investor?

o How did the facilitated investment result in improving the economic opportunities for marginalized or vulnerable populations and/or addressing an underlying development indicator?

o Economy - what macro/micro economic issues are addressed by the results of the investment?

● For investment environment:

o How did the facilitation efforts address a problem that affects the investment environment broadly (non-investment-specific concern) and how can we apply those learnings to other sectors and efforts?

● For partnerships:

o How did the partnership align mutual interests and achieve commercial and development objectives?

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.

5.3 GUIDING PRINCIPLES AND CROSS-CUTTING ISSUES

In addition to addressing the development challenges and achieving performance objectives, the Contractor must address and integrate each of the following cross-cutting requirements and key principles below:

a) Pay-for-Results.

Where possible, the Activity will use pay-for-results (PforR), with the primary metric being evidence of disbursement of additional financing for targeted investment. For purposes of the Statement of Objectives, ‘additional financing’ will be defined as financing which otherwise would not have occurred.

b) Developmental Impact and Leverage

The Activity will use public U.S. foreign assistance funds to facilitate private investment. As such, it is incumbent upon the implementer to ensure that transactions facilitated are necessary to accomplish USAID developmental objectives.

c) Adaptive Management

Throughout the performance of the award, the implementer is encouraged to use the principles of adaptive management. Interventions performed under this contract are understood to be experimental in nature (meaning that the best efforts of the implementer may not achieve desired results because of unknown factors) and therefore includes continuous monitoring to assess effectiveness and performance. The implementer will establish frequent milestones at reasonable intervals to review each Activity. At milestone reviews, evidence gathered during the performance will be analyzed and, as a result, the activity may be modified, abandoned, or redefined. Milestone reviews will be conducted collaboratively between the implementer and the Mission.

d) Sustainable Investment Facilitation Capacity

Much of the sustainability of the Activity will be derived from the investments which it mobilizes (sustainable in that they will generate positive financial returns and allow for private sector-led growth). It will also be important as a legacy to ensure a stronger financial sector as well as a sustainable capacity to provide quality fee-based transaction advisory services. The implementer must conduct a sustainability analysis and develop a sustainability plan that includes details on how sustainability can be achieved through the life of the

Activity and how the Activity will build tools and capacity to ensure that local institutions and partners will have the ability to maintain results and processes after USAID support has ended.

e) Gender

The Activity must address the gender imbalance in both the investor and investee spaces.

The implementer should consider the findings from USAID’s gender, youth, and social inclusion analysis, as well as holding companies accountable through the UNDP Gender

Equality Seal certification systems that verify their investments in gender equality. The seal assesses a company’s business strategy from a gender perspective and helps to understand https://www.usaid.gov/sites/default/files/documents/1860/Gender_Social_Inclusion._Final_Report_08.23.17.pdf https://www.usaid.gov/sites/default/files/documents/1860/Gender_Social_Inclusion._Final_Report_08.23.17.pdf how decisions affect females as well as male staff and clients. It also analyzes how different issues affect gender roles in the workplace. These issues might relate to gender-related pay gaps, work-life balance, communication as well as sexual harassment in the workplace.

5.4 ENVIRONMENTAL COMPLIANCE

To comply with 22 CFR 216 and the Foreign Assistance Act of 1961 (Section 117), the selected offeror shall propose an environmental and social management framework (ESMF) that will be approved by the USAID post award. The ESMF, may include guiding principles for supporting practices that can lead to sustainable development in Uganda. The contractor, through the ESMF, must ensure implementation of sound environmental policies. The contractor must also demonstrate capacity to implement the ESMF.

5.5 CLIMATE RISK ASSESSMENT

USAID supports strengthening development outcomes by integrating climate change into

Agency programming, learning, policy dialogues, and operations. The Automated Directives

System (ADS) 201 requires climate risk assessment and management for all new projects and activities across sectors to ensure the effectiveness and sustainability of project and

Activity objectives in the face of extreme weather and climate events. Per ADS 201 and the climate risk screening process detailed in the mission’s approved CDCS, climate risk analysis for this Activity established that climate risks are low for all the planned interventions.

Rather, the Activity presents opportunities to reduce climate risks. Investment and transaction support designs could include climate risk management requirements, especially for high-risk sectors like agriculture.

5.5 Anticipated funding for this Activity

Subject to availability of funds, the anticipated funding per Program Area over the life of the award is follows:

Program Area Anticipated Funding contribution

Productive Use Energy in agriculture related sectors 20-25%

All other Agriculture-related sectors 67-73%

Health (Family Planning) 0.5-1%