Attachment J.1- SOO .docx

ATTACHEMENT J.1

SECTION C—STATEMENT OF OBJECTIVES (SOO)

“Investment Promotion Activity (IPA)”

C.1 ACTIVITY PURPOSE

The purpose of the “Investment Promotion Activity '' (IPA or the Activity) is to strengthen Pakistan’s business enabling environment (BEE) to build greater credibility of Pakistani institutions and improve the ecosystem for foreign direct investment (FDI) and increase U.S. - Pakistan bi-lateral trade and investment. The Contractor is expected to work closely with the Government of Pakistan (GoP) to build their capacity to streamline business practices, improve operational transparency and governance, promote regulatory reforms and competition with an aim to reduce the cost of doing business, strengthen the investment climate for foreign investors in Pakistan and promote opportunities for enhanced trade and investment between U.S. and Pakistan businesses. The Contractor is also expected to work closely with the private sector stakeholders to ensure that the above mentioned reforms are developed and implemented in collaboration with the private sector. USAID expects the Contractor to keep in view the current COVID-19 pandemic and its economic impact on the business enabling environment and U.S. - Pakistan bilateral trade and investment.

C.2 BACKGROUND AND PROBLEM STATEMENT

(a) Background

Improving Business Enabling Environment Despite an impressive improvement in the most recent World Bank Doing Business Survey (2020: 108 out of 190; 2019: 136 out of 190;), Pakistan’s business ecosystem remains a challenging environment for entrepreneurs and investors. For the last 20 years Pakistan put forward a welcoming stance on FDI funds as also demonstrated by its Foreign Investment Policy[footnoteRef:0], although the continued trickle of funds, excluding China, indicate that something else in Pakistan’s larger business ecosystem continues to deter foreign investment. FDI is critical to Pakistan’s future economic growth and development, as noted in the World Investment Report 2018. [0: https://invest.gov.pk/sites/default/files/inline-files/InvestmentGuide.pdf]

In 2008, foreign investment into Pakistan reached as high as $5.4 billion (3.4 percent of GDP). Trends post-2008 show that FDI declined significantly between 2009 to 2012 and have remained stagnated between 0.4 to 1.2 percent of GDP between 2013 to 2018 (refer to Annex 2 for details). According to the State Bank of Pakistan, FDI halved to $1.73 billion in the fiscal year ended June 30, 2019 as it stood at $3.47 billion in the preceding fiscal year 2017-18. While China has been a large investor as a result of the current China-Pakistan Economic Corridor (CPEC) infrastructure build out in recent years, Chinese investment in Pakistan also declined to $546.8 million in fiscal year 2019 to almost one-fourth of China’s $2 billion+ investment in the previous fiscal year[footnoteRef:1]. [1: Source: State Bank of Pakistan]

Analysts and multinational firms, such as Santander’s and KPMG, identify weak contract enforcement, cumbersome regulatory regime, inconsistent policy outlook, corruption and poor infrastructure as key factors discouraging foreign investors from increasing their participation in Pakistan. In addition, the government's tariff and subsidy framework, and challenging pricing policies contribute to a relatively high cost of production, thereby squeezing profit margins. The fragile democratic government and rapidly deteriorating domestic security situation also increase the perceived levels of risk and uncertainty associated with investment in Pakistan.

Assistance that targets key factors of the business enabling environment, such as starting a business, paying taxes, trading across borders, enforcing contracts, and other common proxies of openness to business, would help with Pakistan’s efforts to rebuild investor confidence. Reviving the business ecosystem starts by addressing the common measures of business friendliness and fostering greater customer service orientation. As Pakistan improves its business enabling environment, business/ investment opportunities will attract FDI, which USAID believes will drive private sector led economic growth.

Improving U.S.-Pakistan Economic Ties Overall, U.S.-Pakistan trade is up nearly 20 percent since 2013, reaching $6.4 billion in 2017. There was a 33% increase in U.S exports to Pakistan in 2017-18 alone. U.S. exports to Pakistan are at an all-time high and up some 70% over the same period. The United States has consistently been one of the largest sources of FDI in Pakistan over the years. Members of the American Business Council and American Business Forum, most of which are Fortune 500 companies, operate in Pakistan across a range of industries, specifically in construction, fast-moving consumer goods, communications and financial services. All the same, overall FDI levels are woefully behind where they should be.

While there are no laws or practices that discriminate against foreign investors, enforcement remains a concern. U.S. investors in Pakistan regularly report that both federal and provincial tax regulations are difficult to navigate. Foreign companies frequently lament the lack of transparency in the assessment of taxes as the government intentionally delays tax refunds, and businesses struggle to repatriate their profits, dampening investment enthusiasm. However, despite the ongoing security concerns, Pakistan remains an attractive market for U.S. companies due to favorable demographics and a growing middle class, with major U.S. investments concentrated in fast-moving consumer goods, construction, chemicals, energy, agricultural technologies, transportation, and communications.

(b) Problem statement The withdrawal in foreign investment (following a period of significant security, political and fiscal challenges in Pakistan) is coinciding with the slower GDP growth trend that Pakistan has experienced over the last decade and may continue to remain stagnant without reforms and is expected to further worsen with the current COVID-19 pandemic. This scenario does not bode well for Pakistan’s growth prospects over the medium to long term. Failure to diversify and expand foreign investment sources leaves Pakistan more economically isolated, less competitive and less resilient.

C.3 THEORY OF CHANGE, USG ASSISTANCE OBJECTIVES AND RESULTS

The activity will support USAID/Pakistan’s Country Development Cooperation Strategy (CDCS) which aims to promote a more stable, peaceful and prosperous Pakistan. The activity will advance DO-3 “Increase Private Sector-led Inclusive Economic Growth.'' The activity will directly contribute to intermediate result 3.1 “Business enabling environment improved”. The Theory of change is that IF GoP improves policies, regulations, laws and institutions to promote FDI, AND improve U.S.-Pakistan bi-lateral trade and investment, THEN the business enabling environment will improve and private sector investment will increase in the Pakistani economy. It will help set Pakistan on its Journey to Self-Reliance.

USAID expects the Contractor to take a holistic approach to helping Pakistan become a more attractive investment destination by improving the business enabling environment. USAID strongly believes the private sector is an inextricable stakeholder in driving and sustaining outcomes capable of moving countries beyond the need for assistance. The private sector has the scale and resources to match the complexity of challenges countries face on their path to self determination.

Support through the activity will address the following areas:

Objective One: Address the business enabling regulatory environment for investment promotion.

Objective Two: Address institutional reforms, ease of compliance and doing business, and transparency.

Objective Three: Address the U.S.-Pakistan Bilateral Trade and Investment.

Objective Four: Address the mobilization of FDI and U.S.-Pakistan Bilateral Trade.

The Offeror must identify the constraints and risk associated with the achievement of the above mentioned objectives and propose their methodology and risk mitigation strategy in the proposal, given all the constraints.

C4. ACTIVITY PARAMETERS

The Contractor is expected to use a private sector oriented, business facilitation approach to achieve the intended goal. USAID expects the Contractor to support reforms of Pakistan’s business and investment climate agenda that would help open markets for FDI and the most competitive U.S.-produced goods and services. The Contractor is also expected to support programs and initiatives that will build greater credibility of Pakistani institutions, improve the ecosystem for FDI, reduce soft barriers to trade, and generally enable legal environments conducive to the efficient conduct of business and economic growth. USAID also expects the Contractor to provide support to improve the level of transparency in laws, and understanding of regulations, agreements and other practices affecting FDI and U.S.-Pakistan trade and investment. These measures will help improve investor-confidence and allow private businesses to tap larger markets for their goods.

The Contractor is expected to work with relevant Federal and Provincial ministries, Board of Investments, departments or agencies of the GoP, and the private sector. The Contractor should explain which additional entities they plan to support and propose illustrative activities as part of their proposal.

C.5 GUIDING PRINCIPLES FOR IMPLEMENTATION

1. Private Sector Engagement:

For sustainable development outcomes, the Contractor should aim to create strong partnerships between the public and the private sector including Chambers of Commerce, corporate sector, business associations, and other(s) for advocacy with the GoP on areas critical to improve the business enabling environment, such as improving the legal framework for protecting legitimate rights and benefits of investors and refining institutions related to business and investment, aimed at encouraging FDI. The Contractor is expected to also work with the private sector for beta testing of the systems. As foreign businesses register for operation, possible public sector partners may be paired with relevant businesses; thereby developing a fountainhead for partnership formation within the GoP’s FDI landscape.

To promote U.S.-Pakistan Bilateral Trade and Investment, the Contractor should partner with private sector entities (e.g. the U.S.-Pakistan Business Council, American Business Council and American Business Forum etc.) to broaden dialogue on advancement of U.S. commercial engagement in Pakistan; and enhance cooperation with key organizations in both countries to ensure cohesive and coordinated strategies for promoting U.S. private sector interests.

2. Sustainability:

The Contractor must ensure that the benefits of the IPA interventions continue to accrue after the activity ends. This will entail engaging with the private sector, advocating for and working with the GoP to encourage foreign investments in Pakistan and enhancing Pak-U.S bilateral trade. The Contractor must conduct a sustainability analysis and develop a sustainability plan within 30 days of award.

3. Coordination and Flexibility:

The Contractor should consult with all relevant stakeholders and partners to determine appropriate interventions. Close collaboration with USAID in the design of this activity’s work plan and in setting performance metrics will be critically important, as USAID and the Contractor adapt to changing conditions in a dynamic environment. The Contractor will coordinate with related USAID activities working on improving the overall business enabling environment while specifically addressing the issues impeding FDI and Pak-U.S bilateral trade (see Annex I). The Contractor should leverage the work of USAID and other development programs, such as the World Bank's initiative on improving ease of doing business, and other donor efforts, that work to strengthen public sector capacity and policy reform related to IPA.

In addition, the Contractor must regularly coordinate with other U.S. Government departments including e.g. The Office of the United States Trade Representative (USTR); U.S. Trade and Development Agency (USTDA); the U.S. International Development Finance Corporation (DFC); U.S. Department of Commerce (USDOC); the U.S. Export-Import Bank and the Department of State; to ensure complementarity with ongoing efforts that aim to improve cooperation for enhancing mutual trade and investment interests. Activities under IPA should align with the principles for enhancing trade and investment ties as outlined under the The U.S.- Pakistan Trade and Investment Framework Agreement (TIFA), which provides the strategic framework for mutual dialogue on expanding bilateral trade and investment.

4. Geographic Coverage:

The Contractor is expected to implement this activity nation-wide, and interventions in any part of Pakistan may be considered. However, the Contractor, based on their analysis, may propose an approach to focus IPA’s resources on geographic areas with the potential to cost-effectively maximize the impact, particularly by building on previous investments of USAID and other development programs. See Annex I for a list of projects.

C.6 CROSS CUTTING REQUIREMENTS

(a) Environmental Best Practices and Climate Change:

In order to identify any potential negative impacts and ensure compliance with USAID and USG environmental procedures, the Contractor will be required to develop procedures to assess the environmental impact of proposed assistance and develop mechanisms to address the relevant assessment requirements. The environmental compliance of the award will be guided by an approved Initial Environmental Examination (IEE).

(b) Gender:

The policy environment of FDI and trade is gender blind, therefore the gender outcomes of these policy choices are not well understood. The Contractor should develop strategies and focus on gender in the design and implementation of IPA’s Monitoring, Evaluation and Learning (MEL) Plan (mentioned below) to contribute to greater social equity and equality. The Contractor must ensure that men and women, including people with disabilities are equally eligible for technical assistance, capacity building, grants and other benefits provided under the activity. In the MEL Plan, data will be disaggregated by sex, and gender-focused standard or custom indicators will be used where appropriate. While this activity does not seek to bias benefits or support to women at the expense of men, proposals must make sure that a gender integration and social inclusion plan is in place to ensure inclusiveness, and equality of access and opportunity for activity interventions.

Contractor will be required to conduct a gender analysis to identify the gaps and generate a gender action plan based on the recommendations of that analysis. The Contractor will also responsible for complying with USAID’s “Gender Equality and Female Empowerment Policy” and integrating gender into all relevant aspects of programming. The analysis and action plan must be submitted as part of the technical proposal.

(c) Local Participation and Ownership:

Successful implementation of IPA will depend on effective and sustained local participation and ownership; including improving coordination between federal and provincial authorities/stakeholders as it will play an instrumental role in streamlining any investments. Stakeholders include Government of Pakistan and related entities such as the Securities and Exchange Commission of Pakistan, State Bank of Pakistan, Ministry of Finance, Financial Monitoring Unit, Board of Investment, Commercial Banks/Financial Institutions, etc. that will work together to ensure Pakistan’s compliance with the globally recognized financial sector anti-money laundering and countering financing for terrorism standards. Support to these institutions will help develop and implement informed policies and standards while enabling business to better access financing, expand operations and generate more jobs. Support through IPA will further improve the investment climate in Pakistan and promote expansion of business activity leading to more foreign direct investment. The Contractor must engage local partners with the commitment and potential to maximize benefit from IPA’s interventions. Local market actors’ incentives should be aligned to encourage local ownership and entrepreneurship. The Contractor must be cognizant of and proactively coordinate with the Government of Pakistan’s efforts in the financial and other relevant sectors, including those at the provincial level.

(d) Monitoring, Evaluation and Learning:

The Contractor should include a logical framework with the technical proposal to summarize the cause and effect relationship of its technical approach, along with illustrative indicators to measure the intended impact, results and change. The logical framework should provide a summary of the intended inputs to the project that will be used to achieve the objectives.

After the award, the Contractor must submit a Monitoring, Evaluation and Learning (MEL) Plan to measure implementation progress against performance indicators and related targets and benchmarks for USAID approval. The Cointractor must develop performance indicators; collect necessary baseline, and annual follow-up data and numerical targets to measure the results for each activity component and to assess the impact of proposed interventions. The Contractor must produce a Performance Indicator Sheet for each indicator, which will identify the data sources and collection methods. The MEL Plan must be updated and submitted, and approved annually, unless specified otherwise by USAID.

USAID Pakistan may support monitoring efforts for IPA with a third-party monitor. This may include collecting data regarding the current regulatory environment and developing a needs-based approach through technical assistance, capacity building and raising public awareness. Use of third-party monitoring will be done in close consultation with the Contractor and will be incorporated into the Contractor’s MEL Plan.

USAID Pakistan will regularly analyze monitoring data and if required, the Agency has the right to conduct an external evaluation of IPA. The evaluation is intended to understand why aspects of the activity are working or not working and to make recommendations to increase the efficiency and effectiveness of IPA. The Contractor is required to cooperate with and provide information as needed to the evaluation team. The Contractor must plan to conduct a mid-term evaluation of the activity and ensure independence and objectivity of such evaluation irrespective of USAID’s independent evaluation.

The Contractor will incorporate a Knowledge Management and Learning Plan in the MEL Plan to strengthen feedback mechanisms to address emerging needs and to effectively and quickly integrate lessons learned into IPA’s activities. The Contractor is encouraged to include innovative approaches that build upon industry best practices.

Annex I

On-going USAID Economic Growth and Agriculture Activities

Pakistan Private Investment Initiative (PPII) - IBH, JSPEM and Abraaj

End date: 2027 Under the Pakistan Private Investment Initiative (PPII), USAID partnered with three Private Equity funds to provide capital and management resources for the support and expansion of high-growth potential small and medium enterprises SME) in Pakistan. The fund has helped provide growth capital for these SMEs and helped build confidence in the private equity space in Pakistan leading to multiple new private equity funds being set up and investing in high growth and profitable SMEs. Currently, all three funds have been able to make investments in various sectors including, pharmaceuticals, logistics, communications, transportation, renewable energy, auto-parts, asset management, entertainment, etc.

Development Credit Authority (DCA)

End Date: September 2022 In collaboration with USAID’s Development Credit Authority (DCA), USAID/Pakistan launched a Loan Portfolio Guarantee to support Micro, Small and Medium Enterprises (MSME) by providing access to formal financing facilities. The eight-year loan portfolio guarantee with Bank Alfalah Limited, JS Bank Limited, First Microfinance Bank of Pakistan Limited, and Khushhali Bank Limited, encourages lending to Pakistani MSMEs by providing a partial guarantee for up to $60 million. $12.1 million is reserved for low cost private education.

Pakistan Regional Economic Integration Activity (PREIA)

End Date: September 2022 PREIA focuses on increasing access to international markets in order to enhance Pakistan’s regional economic integration with its neighbors. By strengthening public and private sector capacities to effectively implement trade policy reform and by improving trade promotion and facilitation, PREIA aims to improve the bilateral and international trade environment, resulting in increased trade and transit volumes.

Small and Medium Enterprise Activity (SMEA)

End Date: November 2021 SMEA’s purpose is to enhance competitiveness of Pakistani SMEs by (1) improving business enabling environment through improved Government of Pakistan’s capacity to reform laws, policies and regulations and strengthening institutions key to private sector led growth; and (2) improving economic performance of SMEs in seven industrial/manufacturing and service sectors by increasing access to technology and innovation; domestic and export markets; finance; and by improving the capacity of women to run profitable SMEs. SMEA will set up a Pakistan Challenge Fund for technology and innovation to encourage existing businesses and young entrepreneurs to find innovative, sustainable and scalable solutions to address business development challenges.

Commercial Law Development Program

End date: September 2022 The Commercial Law Development Program and International Trade Administration goal is to improve business opportunities between Pakistan and the U.S. by providing legal and regulatory technical assistance and trade and business technical assistance for Pakistan’s public and private sector. Key areas of intervention include: oil and gas capacity building; technology transfer/intellectual property rights; commercial law education and competition law; American business internship training program in targeted sectors; franchising and business roundtable outreach initiatives.

Punjab Enabling Environment Project (PEEP)

End date: March 2021 The goal of PEEP is to improve the enabling environment for the agribusiness sector in Punjab by promoting private sector-led growth. The project will develop and implement a set of activities that will result in significant policy reforms, capacity building of sector associations, and investments in Punjab to support the government, private sector, and civil society organizations in improving livestock, dairy, and horticulture value chains.

Gomal Zam Irrigation Project and Gomal Zam Command Area Development

End date: December 2019 The Gomal Zam Command Area is an irrigation project located in the Tank and D.I. Khan Districts of Khyber Pakhtunkhwa province that will improve flood control, provide 324,400 acre-feet of water annually to irrigate 191,000 acres, and boost incomes in vulnerable areas. The irrigation canals and waterways of the dam will enable increased cropping intensity, improved cultivation of high-value cash crops, and improved income and employment opportunities.

Pakistan Agriculture Technology Transfer Activity

End date: March 2021 PATTA’s objective is to identify, support, and bring to scale private sector solutions to improve agricultural productivity in Pakistan. PATTA will partner with agricultural technology related companies to commercialize products and services that can increase the productivity and competitiveness of smallholder farmers. PATTA’s partnerships will give smallholder farmers broader access to affordable technologies to increase productivity, build resilience to climate change, and reduce post-harvest losses.

The Horticulture Advancement Activity (THAzA)

End date: June 2022

This nation-wide contract improves commercial horticulture value chains with competitive advantage. The activity focuses on increasing production and processing, and improving market linkages. The activity engages the private sector to set up on-farm or close-to-farm processing facilities that cater to a variety of fruit and vegetable processing, improving cold chain and linking big food companies to the farmers. The activity also works with farmers and farmer associations to improve yield, and quality of their produce and links them to large buyers. Finally, the activity will also focus on mobilizing farmer organizations to advocate for policy changes which increase access to high-end markets.

Pakistan Agricultural Capacity enhancement Activity (PACE)

End Date: Sep 2020

PACE strengthens provincial governments’ capacity in agriculture by identifying important challenges faced by provinces after the introduction of the 18th amendment to the Pakistani Constitution. Increasing the capacity of the provincial agricultural and livestock departments and other government entities will allow for better management of issues related to devolution of authority related to agriculture that not only contribute to economic growth but also ensure food security in Pakistan.

FATA Economic Revitalization Program

End date: Nov 2024 FATA-ERP’s objective is to provide sustainable livelihood and income opportunities to the people of NMDs.

FATA Reforms Support Activity

End date: April 2022 FATA Reforms Support Activity objectives are to 1) strengthen local-level capacity for governance and reform implementation, 2) assist in implementation of local governance system in NMDs, 3) provide critical policy support for mainstreaming/integration through technical assistance and advisory services to the government bodies tasked with implementing reforms, and 4) strengthen justice service delivery through support to justice institutions to provide services in NMDs.

Restoring Subsistence and Commercial Agriculture in FATA

End date: March 2021 Restoring Subsistence and Commercial Agriculture in FATA’s objective is to restore disrupted agriculture and promote commercial agriculture for the farmers affected by armed conflict in the focused NMDs

Women's Economic Empowerment Activity (WEEA)

End date: Nov 2024 WEEA’s objectives are to 1) expanded women’s socio-economic participation including their role as peace builders in local communities, 2) reduced risk of gender-based violence through advocacy and community engagement, particularly with men and boys, and 3) Enhanced women’s rights to access social, economic, and political opportunities through CNIC registration.

Annex 2:

Board of Investment (BOI) figures summarized in Table 1 below indicate that China’s contribution to FDI grew consistently over the last five years, while at the same time there was little to no meaningful growth in FDI, excluding China. Pakistan’s FDI is also lower in comparison to its neighbors per the World Bank’s 2018 statistics: FDI into China $136 billion (1.4 percent of GDP) and FDI into India $40 billion in 2018 (2.5 percent of GDP). Pakistan’s FDI over the same period was $3.4 billion (1.1 percent of GDP) and foreign investment into Pakistan from all other sources excluding China was 0.4 percent of GDP. The concentration of FDI into Pakistan from a single source, leaves Pakistan vulnerable to shocks and mean-reversion.

Table 1

Sources: Board of Investment, State Bank of Pakistan, and World Bank.