J.1 SOO FINAL.docx

Attachment J.1 Statement of Objectives (SOO)

C.1 Purpose:

The purpose of the Activity is to accelerate economic growth in the tourism sector, which will lead to more jobs, provide sustainable income for producer organizations and tourism-related companies, help to change the “BiH brand”, and have a positive spill-over effect to other sectors; such as agriculture, transportation, and environmental protection.

C2 Background C.2a General Background and Country Context BiH is well-positioned to compete in the burgeoning global tourism industry. The travel and tourism industry generated a direct contribution of about 409 million euros (BAM 799.7 million) in 2018 to the BiH economy, representing 2.6% of the total GDP. BiH welcomed more than 700,000 international tourists in 2018. From January-November 2019 BiH welcomed 1,544,452 international tourists, leading to an overall record year for tourism. BiH will have the 3rd highest tourism growth rate in the world between 1995-2020.

BiH is gifted with a varied natural landscape conducive to outdoor sports and adventure activities, ecotourism, a wide range of cultural, historical and religious sites, and other unique natural resources (Stolac-Radmilje, Trebinje, etc.) Mostar welcomes thousands of tourists every year, many of whom take day trips from the coast just to take pictures of the famous bridge. The streets of Sarajevo’s old city are filled with those who want to experience the “Jerusalem of Europe,” a unique mix of Eastern and Western cultures. Whitewater rafting, hiking, and cycling are available in multiple areas of the country. The soil is mostly unspoiled and fertile, leading to a unique offering of culinary products.

However, the World Economic Forum’s 2019 “Travel & Tourism Competitiveness Report” ranks BiH 105th out of 142 analyzed countries and the second-lowest ranking in the Europe & Eurasia region. Both private and public sector stakeholders acknowledge that the tourism sector is fragmented and underdeveloped due to mismanagement, lack of capacity, and poor access to finance. The industry suffers from several constraints to growth, including fragmented offerings, a lack of qualified human resources, inadequate infrastructure - especially air transport infrastructure - , inefficient transportation, poor promotion, and an international image that struggles to escape a troubled past. One key factor in tourism competitiveness is environmental sustainability. The natural environment provides an attractive location for tourism. Policies and factors enhancing environmental sustainability are an important competitive advantage in ensuring BiH’s future attractiveness as a destination.

Many of these challenges could be addressed effectively through targeted interventions. The tourism industry has the potential to promote a single economic space between the two BiH entities, BiH Federation and Republika Srpska. An international tourist will not distinguish one entity from another, therefore effective tourism development and promotion will maximize the synergy among attractions – regardless of their location – and create the most attractive tourism packages. Successful tourism development will bring jobs and income opportunities to many underdeveloped regions of the country and to related sectors such as agriculture, arts and crafts, transportation, and entertainment. Rural areas would particularly benefit from investments in tourism development since agriculture remains an economic mainstay for many communities. With more concentration occurring among producers of high quality and unique natural products, which are in much demand by segments of the tourism industry, there is a natural connection between agriculture and tourism. In addition, successful tourism development will support and perpetuate a positive image for the country that will benefit other economic development initiatives.

Recent progress has been made in improving agricultural quality standards to compete in not only regional markets but also world markets including the demanding market of the European Union. This progress is shown by the entry into EU markets of cheese, chicken, and eggs. Additional progress is necessary, however, to improve policy relating to the quality standards of other agriculture products. One significant recent step forward was the approval of an Agriculture strategy that has unlocked EU IPA funding, although many agri-businesses require technical assistance to access these funds. Many agricultural sectors are closely linked with rural tourism.

This mismatch between high growth potential and relatively low competitiveness indicators is the main driving force behind this activity. BiH ranks towards the middle or lower end of the Journey to Self-Reliance country roadmap spectrum in government effectiveness, biodiversity and habitat protection, and gender economic gap. This activity seeks to improve these three key indicators and, as a result, help accelerate BiH’s journey to self-reliance. USAID also believes that the tourism sector can grow exponentially with targeted assistance.

C.2b Development Challenge There are numerous challenges to improving the competitiveness of the BiH tourism sector. The current government structure in BiH suffers from a lack of vertical and horizontal coordination among stakeholders, and is a major factor hampering the development of the tourism sector. In previous years, development activities in tourism have been managed in an uncoordinated manner without a strategic long-term orientation. This underlines the need for an amended policy framework and creation of strategic documents that are aimed at regulating the tourism sector and improving inadequate infrastructure.

BiH does not have a strong brand image. On the contrary, BiH’s international image is often negative due to the events that occurred during the 1990’s. While several efforts and initiatives exist to promote BiH as a tourist destination, there is little coordination among these initiatives. Effective marketing and promotion will require a commitment from the governments at all levels and the private sector.

Tourism quality and services need improvement. For example, guides certified in one entity are often not certified in the other. Hospitality workers generally lack the training to provide high quality customer service. Tourism workers generally possess proficient levels of language skills in urban areas. However, populations in rural areas, in which much of BiH’s tourism assets are located, are much weaker in foreign language skills and other aspects of delivering high quality customer service. Cultural heritage sites are underdeveloped and need additional investments to provide a quality experience to tourists.

Access to financing is vital to promote entrepreneurship and SME development in order to create an innovative and sustainable tourism sector. According to a recent World Bank study, According to the survey results, 19 percent of Micro and SMEs consider access to finance a major or severe obstacle to the development of their business. Businesses with female participation in management or ownership were found to be the most constrained. Furthermore, less than one third of women are active, while the women employment rate of only 26.7% recorded in 2019 is the highest in the last 10 years. Most MSMEs – with no significant differences with regard to gender and size – use predominantly internal sources to finance working capital (74 percent) and fixed assets (71 percent) in 2017.

Although the agriculture sector strategy has been approved, reports indicate that there are still obstacles to implementation, which, together with other lagging reforms, hinders the access of agricultural products to neighboring markets. More specifically local products and handicrafts are neither recognized in the international market nor visible to the tourist visiting the region. International market trends also bode well for agribusiness producers from BiH, who could take advantage of increasing demand for organic food and ethnic handcrafts.

While the above challenges are extensive, they are by no means exhaustive.

C.2c Relationship to Other Activities USAID has a long history of support to the BiH private sector, including companies in the tourism and agriculture sectors. The Contractor must take into account and build upon this previous programming, to include activities already completed, relationships already established, materials already produced, and government plans and normative frameworks already developed. See “C.4.i. Coordination with USAID and Other Donor Activities” for a list of current activities that the Contractor must coordinate with during implementation. The Contractor shall plan and carry out a program of activities with a clear understanding of the scope and impacts of other donor efforts in private sector development, particularly those in the tourism and agriculture sectors.

C.3 Contract Objectives C.3a Description of Objectives This activity will focus on strengthening and improving economic growth in BiH through the tourism industry, including but not limited to government (state, entity, cantonal, and municipal levels), the private sector, and trade organizations to improve the industry in both qualitative and quantitative measures. This will be measured by the country’s score on the Travel and Tourism Competitiveness Index and at least one more outcome-level indicator proposed and developed by the contractor.

USAID/BiH envisions that the resultant contract will be divided into four objectives/components:

1) Objective 1: An enabling environment with the harmonized policies and regulations necessary for noticeable growth in the tourism sector established.

2) Objective 2: Tourism quality, services, and branding strengthened resulting in an improved BiH tourism industry.

3) Objective 3: Tourism service-providers, agriculture, and other tourism-related SMEs gain improved access to finance resulting in a substantial increase in investment.

4) Objective 4: Tourism and indigenous agriculture products gain increased access to regional and global markets.

C.3b Indicators USAID expects offerors to include the below indicators in their proposals.

1) Amount of tourism receipts, per the World Bank study.

3) Number of tourism nights, per the Agency for Statistics of BiH

4) Amount of new investments in the tourism sector per implementer records

5) Number of new public-private partnerships created

6) Number of new full-time jobs created, disaggregated by rural and urban areas, per Agency for Financial and Intermediation Services (AFIP) and implenter records

7) Number of seasonal-time jobs, disaggregated by rural and urban areas, per implementer records

8) Number of new, indigenous agriculture products that have achieved protected status and/or an increase in sales.

9) Increased proportion of land area to be classified as protected.

10) In addition, the contractor must include the following Standard Foreign Assistance Indicator: Percent of U.S. Government-assisted organizations with improved performance (also known as: CBLD-9). This indicator measures whether USG-funded capacity development efforts have led to improved organizational performance in organizations receiving organizational capacity development support. This indicator should only be used when an activity intentionally allocates resources (human, financial, and/or other) toward strengthening organizational capacity and undergoes a deliberate performance improvement process that is documented. Details and resources related to this global indicator can be found on this link https://www.usaid.gov/npi/capacity-building-indicator-resources.

Data sources for the above indicators may be found as an exhibit in Section J of this solicitation. The Contractor will develop final baselines and targets in consultation with USAID, but must indicate proposed baselines and targets where available or appropriate. In addition, the Contractor is required to include the following standard “F” indicators: USD sales of firms receiving USG-funded assistance and Number of firms receiving USG-funded technical assistance for improving business performance.

C.3c Theory of Change If an enabling environment that fosters and promotes tourism in BiH is created, and if the quality and marketing of tourism and tourism-related products and services is improved, and if tourism and tourism-related private sector actors get access to financing, and if tourism and indigenous agriculture produces gain access to regional and global markets, then the BiH tourism industry will strengthen and significantly contribute to the overall economic growth of the country."

C.4a Scope This activity has an estimated cost of $16-$19.99 million for a base period of five years. Interventions may take place country-wide, however USAID will consider other approaches.

C.4.b Local Systems To increase the likelihood of sustainability, the Contractor must support the local system in the contexts in which it works. Local system refers to those interconnected sets of actors - governments, civil society, the private sector, universities, individual citizens, and others - that jointly produce a particular development outcome. Whether the local system will own the outcomes produced under this contract after it is finished must be a key consideration for planned activities.

C.4c Private Sector The private sector will play a key role within this local system. The Contractor must include demand-driven interventions that include the private sector in producing and sustaining development outcomes. Please refer to the USAID Private Sector Engagement Policy.

C.4d Innovation The tourism sector - and BiH private sector in general - offers fertile terrain for innovation. Innovation refers to new technologies, new ways of delivering or financing goods and services, more cost-effective adaptations to existing solutions, new ways of increasing implementation of existing proven solutions and policy changes based on insights from behavioral economics, social or behavioral innovations. The Contractor must address innovation in its approach.

C.4e Gender Mainstreaming The Contractor must analyze how programs will be tailored to maximize gender and social inclusion. Per ADS 205, all USAID activities are required to take into account not only the different roles of men and women, but also the relationship between and among men and women, as well as the broader institutional and social structures that support them. The analysis must not focus only on numbers but how interventions are likely to impact individuals differently based on their gender roles and cultural norms. The Contractor must consult 2019 USAID country-level gender analysis and produce an activity level gender analysis within the first three months of implementation.

C.4f Disability Considerations USAID has a priority to help underserved groups, including people with disabilities. According to the United Nations Convention on the Rights of People with Disabilities, a person with a disability is defined as someone who has long term physical, mental, and intellectual or sensory impairments which, in interaction with various barriers, may hinder their full and effective participation in society on an equal basis with others.

Under this award, every effort will be made to accommodate the needs of people with disabilities. Furthermore, the offeror shall include a disability inclusion plan specifically delineating how the project will address barriers for people with disabilities relevant to the project and ensure equal access and disability inclusive development practices.

C.4g Flexibility The Contractor must ensure technical and programmatic flexibility within and across program components to respond to changing circumstances in the BiH political and economic contexts. The Contractor will outline its approach to keeping abreast of changes in the situation on the ground by conducting relevant assessments and other monitoring, evaluation, and learning activities to maintain flexibility and accommodate changes. The Contractor must include such situational analyses and scenarios as part of its regular reporting and engage with USAID to make appropriate programmatic adjustments.

C.4h Integration of Activity Components There is a substantial amount of overlap between all four components of this activity and, in many cases, they are mutually reinforcing. The Contractor must look for opportunities to connect thematic areas throughout the four components.

C.4i Evaluations Impact and Performance Evaluations Consistent with the USAID Evaluation Policy, USAID/BiH may conduct independent impact and/or performance evaluations of this activity due to its innovative nature and the need for assessing progress and evidence to inform future private sector development interventions. Any evaluation design would be completed in consultation with the Contract to ensure alignment with the activity work plan and locations. The Contractor must coordinate with the evaluation team to facilitate an impact or performance evaluation.

C.4.j Coordination with USAID and Other Donor Activities The contractor must coordinate closely with current and future USAID activities and work to synergize the initiatives with other international donors. Please find below a brief summary of current and future activities the Contractor must closely coordinate with:

USAID/BiH Development Credit Authority (DCA) Program: USAID/BiH, the USAID/DCA Office and have developed a variable coverage loan portfolio guarantee with two commercial banks to expand the availability of credit to SMEs operating across multiple sectors including tourism and agriculture. As a result of these guarantees, SME borrowers and municipalities will have available financing, providing a demonstration effect to local banks for the viability of lending to the SME sector and for municipal capital investments.

Fostering Agricultural Markets Activity II (FARMA II): FARMA II is a five-year activity jointly funded by USAID and the Embassy of Sweden. The activity provides technical assistance and training to targeted subsectors through a demand-driven program aimed at improving the competitiveness of food and agricultural products by expanding environmentally sustainable production and processing and enhancing the production of value-added food products. Success in these areas will contribute greatly to the inclusive economic growth in the agricultural sector and reduce rural poverty. This activity is ending in 2021.

Via Dinarica: Rural Incomes and Sustainable Enterprises Activity fosters economic development opportunities along the Via Dinarica trails thus creating private sector jobs and generating income in rural areas in Bosnia and Herzegovina. The Activity is funded by USAID and implemented by the United Nations Development Program (UNDP).

Economic Development, Governance, and Enterprise Growth Activity (EDGE) EDGE is a 3- to 5-year, up to $21 million, regional activity in Europe and Eurasia (E&E) that aims to create inclusive, sustainable economic growth and to support intra-regional and Euro-Atlantic integration. EDGE is managed by the E&E Bureau in Washington and works closely with USAID Missions and projects in the region. EDGE aims to generate synergies among the USAID projects working in economic growth and bring together stakeholders across countries to work on mutual problems, giving the E&E portfolio a regional dimension. Components include: Improved Business Enabling Environment (BEE) and Reduced Barriers to Trade; Improved Financial Sector Stability and Increased Access to Finance; and Improved Competitiveness through Value Chains and Trade Promotion.

The “Competitiveness and Innovation: Local Development Strategies – EU4Business” Project is a 4-year initiative (2018-2022), primarily funded by the European Union (EU) under the Instrument for Pre-Accession Assistance (IPA) II. It aims to contribute to economic growth and job creation through support for competitiveness and innovation in export-oriented sectors (e.g. wood processing, metal, textile, plastics or information and communication technologies), as well as in agriculture, food production, tourism and rural development in Bosnia and Herzegovina. The Project will also actively support the improvement of the business environment by providing technical assistance to relevant authorities in the country in the design, management and monitoring of financial incentives meant to strengthen competitiveness of small and medium-sized enterprises, improve cross-sectoral cooperation, and stimulate entrepreneurial initiatives, including development of local digital entrepreneurship. It is jointly implemented by the United Nations Development Programme (UNDP), the German Development Cooperation Agency (GIZ), and the International Labour Organization (ILO).

EU4Agri The European Union will soon be implementing a robust agriculture assistance project to increase levels of production of safe and quality foods based on introduced innovative practices. The project will also ensure that policy actions are implemented in an EU aligned manner, based on improving sector services and systems. This project is a direct result of the adoption of the BiH Rural Development Strategy. The Contractor must coordinate with the EU and its implementer(s) to ensure that this activity adds value to EU interventions. The Contractor must also take into account that agriculture twinning activities will take place in the near future.

Sustainable production of traditional home-made Livno cheese is a five year initiative (2015–2020), started as a common project of the Czech Development Agency (CzDA) and UNDP in cooperation with the Livno municipality and Canton 10. The project aimed at supporting standardized production method that would ensure high quality and health standards needed to ensure introduction of the cheese to the market, both in BiH and abroad.

J.1 Data Sources:

1. World Economic Forum: https://www.weforum.org/reports/the-travel-tourism-competitiveness-report-2019;

2. BiH Agency for Statistics http://www.bhas.ba/?lang=en

3. AFIP Agency for financial and intermediation services: Web only available for registered users

4. BiH Food Safety Agency: https://fsa.gov.ba/en/

5. World Bank “Access to Finance for MSMEs in Bosnia and Herzegovina with a Focus on Gender” March 2018. http://documents.worldbank.org/curated/en/575941521232862413/pdf/124353-REVISED-BiH-Access-to-Finance-Gender-Full-Report-FINAL-formatted.pdf

6. Terrestrial Protected Areas (% of total land area) - Bosnia and Herzegovina https://data.worldbank.org/indicator/ER.LND.PTLD.ZS?end=2018&locations=BA&start=2016&view=chart World Tourism Organization, Yearbook of Tourism Statistics, Compendium of Tourism Statistics and data files, International tourism, receipts (current US$) - Bosnia and Herzegovina: https://data.worldbank.org/indicator/ST.INT.RCPT.CD?locations=BA

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