Draft_SOW_Basic_IDIQ_Transforming_Market_Systems.pdf

Transforming Market Systems

Section C. STATEMENT OF WORK

C.1 INTRODUCTION & PURPOSE

Dramatic spikes in migration in 2014 from Central America to the United States by tens of thousands of families and unaccompanied children led the U.S. Government (USG) to develop an interagency strategy that addresses the underlying factors that contribute to migration. USG investments in the region focus on three interrelated objectives: prosperity, security, and governance. The objective of this approach is that a secure, democratic, and prosperous Central America will provide an environment in which citizens choose to remain in their countries and are able to thrive. The Transforming Market Systems Indefinite Delivery Indefinite Quantity contract (IDIQ) advances the prosperity objective by focusing on systemic, transformative changes to market systems in Honduras that will accelerate sustainable, broad-based, and inclusive growth. Throughout this document, the terms “IDIQ” and “Activity” will be used roughly interchangeably to refer to Transforming Market Systems, with “IDIQ” referring to the overall form and contractual particulars of the award, and “Activity” referring to the operational and conceptual content thereof.

The purpose of the Transforming Market Systems IDIQ is to foster competitive, resilient, and inclusive market systems that provide increased economic opportunities (jobs and income) that incorporate poor, marginalized Hondurans and reduce incentives to migrate.

The constantly-changing nature of market systems demands an agile implementing mechanism, in which USAID and the Contractor can respond to new information, challenges, and opportunities that arise after the initial contract is drafted. Contractors must understand the market system development and Collaboration, Learning, and Adapting (CLA) principles described for the overall IDIQ, and apply these principles through Task Order #1. This Task Order solicits offerors to design and implement an initial 6 month Inception Phase during which assessments on the business enabling environment and key value chains where USAID can have a competitive advantage will be carried out and specific priority value chain interventions can be recommended based on those findings. Additionally, Task Order #1 will also start piloting interventions that can be scaled through subsequent task orders in this IDIQ, and monitor and report on performance and outcomes throughout the five-year life of the activity.

A “market system” refers to “a dynamic space—incorporating resources, roles, relationships, rules, and results—in which private and public actors collaborate, coordinate, and compete for the production, distribution, and consumption of goods and services. The behavior and performance of actors within a market system are influenced by other actors’ decisions, and by rules, incentives, and the physical environment. Market systems are composed of vertically and horizontally linked firms and the relationships embedded in these linkages; end markets, input, and support service markets; and the environment in which they operate, which may include socio-cultural, geographic, and political factors, infrastructure and institutions.

Inclusive market systems are those that engage and benefit a range of actors including the poor, women, youth, ethnic minorities, people with disabilities, and/or other marginalized groups who are often excluded—or even exploited—by traditional market systems. In inclusive market systems, such actors are able to acquire access to the opportunities, skills, and resources to upgrade, and the capabilities to engage with and influence these systems to reap the benefits that arise from the upgrading process.”

(https://www.microlinks.org/sites/default/files/resource/files/Market_Systems_Framework.pdf)

Task orders under this IDIQ will follow a facilitative market systems approach aimed at:

improving the business enabling environment, promoting a resilient market system, and strengthening key value chains. “Resilience” in this scope of work is understood as: “system actors being able to address, absorb and overcome shocks in the market, policy environment, resource base or other aspect of the system.” The focus on market systems implies the need to intervene at strategic leverage points in order to optimize market efficiency and promote inclusion for improved development results.

Market System Development The objective of inclusive market system development is to catalyze a process that results in a market system that is competitive—system actors are able to effectively innovate, upgrade and add value to their products and services to match market demand and maintain or grow market share; inclusive—delivering a sustainable flow of benefits to a range of actors, including the poor and otherwise marginalized, as well as to society as a whole; and resilient—system actors are able to address, absorb and overcome shocks in the market, policy environment, resource base or other aspect of the system.

C.2 BACKGROUND & RATIONALE

The USAID/Honduras Country Development Cooperation Strategy (CDCS, see https://www.usaid.gov/documents/1862/honduras-country-development-cooperation-strategy) aims for a more prosperous and safer Honduras that advances inclusive social and economic development among vulnerable populations. In particular, the strategy prioritizes the social and economic development of vulnerable populations. The focus of USAID development assistance to ensure that the economic trajectory of Honduras is not only upward but also equitable, inclusive, and sustainable. The CDCS has three development objectives: Development Objective 1 (DO1), which aims to improve citizen security for vulnerable populations in five cities (Tegucigalpa, Tela, La Ceiba, Choloma, and San Pedro Sula); DO2, which aims to reduce extreme poverty in western Honduras (the departments of Santa Bárbara, Copán, Ocotepeque, Lempira, Intibucá, and La Paz); and DO3, whose objective is to make national-level public https://www.microlinks.org/sites/default/files/resource/files/Market_Systems_Framework.pdf administration more transparent and accountable. (Annex documentation includes a description of USAID/Honduras ongoing and future activities.)

The Government of Honduras (GOH) is committed to actively supporting private sector development through the multi-country Plan of the Alliance for Prosperity in the Northern Triangle, which aims to stem mass migration from Guatemala, Honduras, and El Salvador through country-led programs in governance, citizen security, human capital (education), and economic growth. This Activity responds to several priorities identified by the GOH in its Alliance for Prosperity and Honduras 20/20 Plans (https://www.honduras2020.com/).

Summary Problem Analysis Honduras’ fragile democracy is increasingly threatened by alarming levels of crime and violence, weak institutions, high levels of poverty, and high rates of out-migration. Honduras is one of the poorest countries in Latin America and the Caribbean, with more than 62 percent of the population living below the national poverty line in 2014 (The World Bank.

http://data.worldbank.org/country/honduras).

Crime and violence, as well as lack of economic opportunities, have been identified as key motivating drivers of illegal migration from Honduras to the United States. Honduras also has one of the highest murder rates in the world at 59.1 homicides per 100,000 people in 2016.

Violent acts are primarily concentrated in low-income, urban areas and primarily perpetrated by young males against other young males. In addition to being the primary victims of violence, young males who are neither in school nor employed are especially vulnerable to engaging in illicit income generating activities (micro-trafficking of narcotics, smuggling, and petty crime) or joining gangs. Honduras also has one of the highest rates of femicide, or gender-motivated killing of women, in the world. Crime and generalized insecurity affect Honduras’ economic development and drive out-migration. The World Bank, in its 2016 Systematic Country Diagnostic for Honduras (World Bank 2016. Honduras: Unlocking Economic Potential for Greater Opportunities: Systematic Country Diagnostic), describes how violence manifests itself in low economic growth cycles, such that slow growth leads to the creation of fewer jobs, which encourages the proliferation of gangs and thus violence and migration, which in turn further slow growth.

Widespread poverty and lack of economic opportunities also increase the likelihood of an individual migrating to the United States. From 2010 to 2015, the number of returned or deported migrants to Honduras increased by 353 percent to a total of 33,478 in 2015. This Activity is unique in its capacity to address some of the key factors driving unauthorized migration, such as the lack of economic opportunities, in rural and urban areas. DO1 geographic areas sent the most migrants in absolute numbers, while DO2 areas included municipalities that sent the most migrants as a percentage of total population in 2016. The primary factors driving migration of unaccompanied children are: 1) lack of economic opportunity, 2) family reunification, 3) poverty and deprivation, 4) domestic violence, and 5) high violence and crime https://www.microlinks.org/good-practice-center/value-chain-wiki/risk-youth

(UN High Commissioner on Refugees Children on the Run Report, May 2016;

http://www.unhcr.org).

As mentioned above, lack of economic opportunities is one of the leading causes of out-migration from Honduras. In fact, 90 percent of all migrants returned to Honduras cite “economic reasons” as a motive for migrating. Economic drivers of migration are complex and include diverse sub-drivers. At the most immediate and measurable level, economic factors can be understood as limited employment opportunities and/or inadequate income levels. Digging deeper, these factors are often exacerbated when combined with other “sub-drivers,” including, but not limited, to discrimination and demographic problem (Honduras’ population structure is dominated by youth).

Underlying all of these dynamics is a context of weak institutions that are vulnerable to corruption and significantly add to the cost of doing business. Honduras also has a long history of extractive business models, from mining to timber extraction to banana production. Such models can stifle growth by promoting rent-seeking behavior that leads to inequality and concentration of resources, while eroding the resource base upon which long-term growth and inclusion ultimately depend.

As a means to identify potential approaches, interventions, and solutions to address root causes of poverty and out-migration, USAID conducted extensive consultations with both the private and public sectors throughout Honduras. The interviewees confirmed the need to focus on improving both the business enabling environment and investments in high priority value chains.

Enabling environment work includes norms and customs, laws, regulations, policies, international trade agreements, and public infrastructure that either facilitate or hinder the movement of a product or service along its value chain. See https://www.microlinks.org/good-practice-center/value-chain-wiki/business-enabling-environmen t-overview).

Tourism and value-added agriculture are two value chains that were identified by USAID as having the ability to have an impact at both national and regional economies within our areas of geographic focus. These value chains have great potential to generate jobs for men, women, and young adults.

Stakeholder interviews demonstrated a need for a comprehensive approach that addresses constraints such as capacity, competitiveness, financing, and the lack of trust and collaboration among value chain actors. It is important that USAID not “choose winners” (i.e. only work with a select number of firms) but work in a holistic and systemic manner that would be most beneficial for improving local livelihoods and fostering sustained broad-based economic growth.

The World Economic Forum (WEF) Global Competitiveness Report (http://www.nmi.is/media/338436/the_global_competitiveness_report_2016-2017.pdf) for Honduras points out that exports comprise a relatively large proportion of the country’s Gross https://www.microlinks.org/good-practice-center/value-chain-wiki/business-enabling-environment-overview http://www.unhcr.org/ https://www.microlinks.org/good-practice-center/value-chain-wiki/business-enabling-environment-overview

Domestic Product, but that local providers and internal markets are weak in Honduras.

Improving the general market system and key value chains has the potential to link the poor into virtuous cycles of growth both as employees and suppliers to larger companies. At the same time, the WEF report identifies the lack of innovation, business sophistication, and market size as weaknesses in the Honduran economy.

An illustration of the high-level problem analysis is provided below. The problem statement is:

“broad-based, long-term economic development is limited by weak, inefficient, and noncompetitive market systems that do not sufficiently include or benefit poor and otherwise marginalized groups.”

The causes of this problem are many and include:

● Disjointed value chains (lack of integration between actors)

● Lack of resiliency

● Generalized insecurity (violence and extortion, for example)

● Weak institutions, including the inability to resolve commercial disputes quickly and fairly

● Sectors of the population are excluded from economic benefits (job opportunities) by both geography and explicit discrimination

● Businesses are not competitive and do not respond to the market

● Poor business enabling environment

● Lack of competitive financial services tailored for target groups

● Poor infrastructure

● Lack of transparency in public procurements and other government processes

The offeror is expected to examine additional layers of these causes, as well as to examine the differences between groups of people, such as men, women, and minority groups. For example, sectors of the population may be excluded from economic benefits because they are not literate, lack skills, and/or have limited financial literacy.

Historical patterns of systemic discrimination and extractive business models are at the root of many of the causes and sub-causes. In addition, Honduras suffers from weak national and municipal government capacity to deliver services and a fragmented civil society that struggles to influence government decision making. Part of this stems from a lack of transparency and accountability in national-level public administration. All of these issues are linked to the:

● High prevalence of poverty

● High internal and external migration, especially by youth

● Participation in crime and illicit activities

● Slower economic growth due to gap between women’s and men’s labor force participation

C.3 DEVELOPMENT HYPOTHESIS, THEORY OF CHANGE, and LESSONS

LEARNED

Development Hypothesis The development hypothesis for this Activity is: If USAID facilitates transformative change in key market systems by improving the business enabling environment, promoting resilience, and strengthening interrelated value chains, then these market systems will yield a sustainable increase in income, through more business sales and jobs for Hondurans, including marginalized populations, while building the foundation for broad-based, long-term economic growth.

USAID acknowledges that in order to have sustainable, transformative change, Task Orders awarded through this IDIQ need to address key elements of the market system in a holistic manner. This requires that all actors involved in target value chains will need to be engaged.

These Task Orders will also focus on improving an enabling environment where municipal and national government institutions provide the required guidelines, regulations, and incentives to promote economic growth in an inclusive, yet competitive market.

Theory of change The following figure depicts the Activity's high-level theory of change. The star around infrastructure signifies the actions implemented through this IDIQ will not directly include substantial work in infrastructure, but that such parallel investments are assumed to contribute toward achievement of the Activity purpose. An underlying assumption being that these infrastructure investments, will be further funded through USAID, the Government of Honduras, or other donors.

In order to be transformative for Honduras, this Activity depends upon a multi-layered theory of change, which states that its purpose and intended results will be achieved if the Task Orders awarded under this IDIQ:

● Build upon USG, GOH, and ongoing international donor investment in human capacity and workforce development, governance, infrastructure, environment, and agricultural development, among other key/interrelated areas;

● Identify and reduce key constraints/root causes to economic development to effect change at a systemic level;

● Identify and address key issues in the enabling environment that are undermining progress (this requires particular attention to the political economy http://pdf.usaid.gov/pdf_docs/PBAAA891.pdf);

● Identify and work with strong private sector and government partners, and facilitate a ‘light touch’ to ensure local actors are leading their own development efforts;

● Target and strengthen key value chains through a Portfolio Approach to improve competitiveness of entire sectors, thus creating a systemic and sustainable impact (https://www.microlinks.org/sites/default/files/resource/files/Designing_a_VC_project.pdf.

“to mitigate the risks associated with working in dynamic and sometimes volatile markets, some activities take a portfolio approach—selecting multiple value chains with diverse risk profiles”);

● Maintain flexibility to adopt new and/or adapt interventions (over the course of the Activity) to respond to emerging system dynamics, value chain constraints, unexpected contextual shifts, and learning opportunities that emerge;

● Ensure a systemic view to recognize opportunities to employ and/or magnify the effect of interventions across multiple value chains and leverage the mutually reinforcing impact of addressing enabling environment constraints simultaneously; and

● Prioritize intentional and collaborative learning to ensure rapid feedback loops and adaptation to achieve both short- and long-term change.

Ultimately, this Activity will increase incomes through better sales and more jobs. However, USAID recognizes that given the complexity of the current development landscape, the development hypothesis and theory of change will need to be periodically revisited through Contractor/USAID concerted efforts, and potentially adjusted in accordance with an ongoing, iterative analytical approach. It will be essential for monitoring, evaluation, and learning actions, as well as staff skills and processes, to periodically examine ongoing progress with respect to the key drivers for transformative and sustainable development. Task Order #1 is specifically centered on learning processes through studies and pilots, but this principle should imbue all work under the Activity.

Summary of Lessons Learned USAID has achieved significant results in both reducing extreme poverty (DO2) and improving citizen security (DO1), especially in terms of on-the-ground impacts for local communities and direct beneficiaries. At the same time, many policy reform programs in Honduras operate at a very macro level, where short-term effects are often difficult to see on the ground but whose https://www.microlinks.org/sites/default/files/resource/files/Designing_a_VC_project.pdf importance is undeniable. This Activity seeks to focus on the intermediate space between direct beneficiary work and high-level policy.

Through interviews and consultations with internal and external stakeholders in Honduras, USAID identified that in order to foster sustainable economic growth it is important to work both on improving system-wide enabling environment factors, while providing strategic support to critical economic actors. Using a CLA approach, this Activity will undergo analysis through the Inception Phase to identify barriers in the business enabling environment, and will then use evidence-based decision-making to select specific value chains that have the greatest potential for systemic, inclusive, and sustainable economic impact in the USAID/Honduras geographic target areas. For example, at the national level, poor implementation of import regulations and processes (such as product registration) can lead to increased cost of inputs for agriculture, manufacturing, and service sectors. At the local level, some of the most salient business enabling environment needs have to do with municipal services like garbage pickup and a year-round potable water supply. Such factors are often neglected in considerations of business enabling environment, but private sector stakeholders repeatedly mentioned them as the most pressing issues at a local level. Without this key support, many businesses are constrained from expansion or investment.

The Mission has built an increasingly robust and integrated portfolio in western Honduras around its food security and local service provision programs (DO2), and in urban areas of Honduras using its Place-Based approach to curb violence in key neighborhoods (DO1). Much of this work represents a “push” (or production enhancing) factor in the first case for small farmers or artisans to produce more for the market, and in the latter case for youth and other vulnerable citizens to leave or avoid a life of crime or victimization by improving their job skills and civic awareness. The Activity would strengthen the “pull” element by giving these groups a place to go, in the form of a functioning market system that will demand the production of small businesses, as well as the labor force of youth beneficiaries from vulnerable communities (see https://www.microlinks.org/sites/default/files/resource/files/LEO_Framework_for_a_Push_Pull_A pproach_to_Inclusive_Market_Systems_Devel....pdf). The goal is to increase opportunities within Honduras, which will in the long term reduce the need or desire to migrate to the U.S.

USAID has adopted integrated and flexible approaches to development. The Market Systems approach relies on an understanding of and openness to complex, constantly-changing dynamics in the social, political, and economic realms, informed by close observation of local contexts and consultation with local actors. This Market Systems framework implies a light-touch, facilitative approach to intervene where most needed, while not creating artificial market dynamics as a direct player. It also relies on push-pull thinking up and down the value chain, to ensure both demand for a given product and the capacity for value chain actors to supply a product at the desired level of quality and volume.

The Market Systems approach puts into practice the adaptive management outlined in USAID’s recently revised Program Cycle guidance in ADS 201

(https://usaidlearninglab.org/program-cycle-overview-page). Three key principles of this guidance are:

1. Apply analytic rigor: Make strategic choices based on conclusions supported by evidence;

2. Manage adaptively: Make adjustments in response to new information and context changes; and

3. Promote sustainability: Generate lasting changes that can be sustained by local actors.

In order to be responsive to complex and variable market conditions, offerors must build in feedback loops, moments for reflection, and the flexibility to adjust programming during implementation.

Inclusion must be a component of any market system that will remain viable in Honduras. Civil society organizations in the country are increasingly manifesting their opposition to economic projects that exclude or damage the wellbeing of local communities. A key lesson learned in Honduras is that extensive, ongoing consultation with local communities and coordination with other USAID activities working on these issues is not only the right thing to do, but it is crucial to the success of any economic project.

C.4 GUIDING PRINCIPLES

The following principles will guide all aspects of Activity implementation, monitoring, learning and evaluation. Most importantly, they will provide vision and set the tone for the Activity that will inform decision-making.

Focus on systemic changes: The Activity will require a constant focus on addressing root causes of constraints as well as underlying incentives that are both significant, yet amenable to change. Alleviating these particular constraints and aligning underlying incentives will allow for more sustainable, scalable, and systemic change to stimulate MSME growth, job creation, and increased capacities among target populations to engage in the market system.

Facilitating change through local systems: The Activity will need to follow a “light touch” facilitative approach that stimulates systemic change without taking a direct role in the market system. It will involve working through market participants and ensuring that they are drivers of the change process (USAID 2012. “Understanding Facilitation.” USAID Briefing Paper.

https://www.microlinks.org/sites/microlinks/files/resource/files/Facilitation_Brief.pdf , https://usaidlearninglab.org/sites/default/files/resource/files/the_facilitation_approach_at_usaid_ 07.28.2015.pdf). Similarly, the Activity will encourage the broad participation of local partners who self-select to engage throughout the life of the Activity. The desire to invest in change must come from within the local system. The Activity should actively seek out the integration of marginalized groups, including the poor, women, youth, those with disabilities, and ethnic minorities.

https://usaidlearninglab.org/sites/default/files/resource/files/the_facilitation_approach_at_usaid_07.28.2015.pdf https://usaidlearninglab.org/sites/default/files/resource/files/the_facilitation_approach_at_usaid_07.28.2015.pdf https://www.microlinks.org/sites/microlinks/files/resource/files/Facilitation_Brief.pdf https://usaidlearninglab.org/program-cycle-overview-page

Focus on results: Achievement of high-level results is critical and successful implementation of the Activity will require a strong emphasis on measuring and tracking results, including cost-effectiveness of interventions.

Apply Collaborative Learning and Adaptive management approaches: Collaboration and integration with other GOH and USAID activities will promote synergies and avoid redundancy.

Beyond collaboration at an Activity level, the facilitative approach also entails promoting greater collaboration among market actors. Continuous learning translates into intentional and systematic approaches to understanding the system and the changes this Activity seeks to catalyze.

Adaptive management will require an intentional approach to making decisions and adjustments in response to new information and changes in context. In particular, efforts to seek ongoing analysis, across various evidence sources and types is critical. As such, establishing clear means of data collection that will inform implementation decision points/milestones will be necessary throughout the life of the Activity, while leaving room for unexpected ‘pause and reflect’ moments prompted by contextual shifts and/or other triggers to occur outside what may be anticipated.

Active Social Inclusion: The Activity should actively work with local systems actors to reduce barriers for poor and vulnerable populations, including the stigma attached to these populations.

In the face of increasing economic concentration and various forms of exclusion and discrimination, approaches and interventions will need to specifically empower marginalized and vulnerable populations throughout all stages of Activity design and implementation. A special focus on the poor, women, and youth is critical, however, other marginalized and vulnerable populations include: residents of crime-afflicted neighborhoods, LGBTI people, persons with disabilities, and minority ethnic groups (including indigenous and Afro-Honduran populations).

C.5 EXPECTED RESULTS

Actions implemented through the Task Orders under this IDIQ will directly contribute to the CDCS Goal of “a more prosperous and safer Honduras that advances inclusive social and economic development among vulnerable populations” (https://www.usaid.gov/documents/1862/honduras-country-development-cooperation-strategy).

The actions implemented through the Task Orders under this IDIQ will achieve the following results:

Market systems strengthened

1. Select value chains strengthened

Achievements will be measured through indicators of both: 1) tangible economic benefits, and

2) market systems that are growing more competitive, resilient, and inclusive, as touched on by the following illustrative indicators:

● USD sales of firms receiving USG-funded assistance

● Number of new employment opportunities generated as a result of USG assistance

(disaggregated by target populations)

● Value of new private and public sector investment leveraged as a result of USG assistance

● Trust among key value chain actors

● Grassroots groups’ perceptions of participation and inclusion in market systems

Result 1: Market systems strengthened The Contractor will implement an approach that will not only address business enabling environment constraints to private sector investment and economic growth, but that will also result in identifying strategies and leverage points to usher in transformative, sustained changes in market dynamics that result in inclusive economic development.

The 5 Rs framework, presented in USAID’s 2014 Local Systems Framework paper (https://www.usaid.gov/policy/local-systems-framework), identifies key aspects of a system that are critical to understanding how the system functions and important as leverage points for introducing change. These include: Results generated by the market system are realized via income for target populations, sales to/for diverse markets, and value-added products and services generated. Roles within a strong, adaptive market system are fluid, they may have actors playing roles of facilitators, knowledge hubs, networkers, and advocates. People should be able to have different roles at different leverage points throughout the system. Relationships in the market system are win-win, particularly inclusive of target beneficiaries and avoiding harm to those community members not participating in the market system, and manifest an exchange in value, rather than an extractive relationship. Rules - formal and informal - are conducive for well-functioning value chains, businesses, and market actors. This includes policies that are enabling to inclusive growth, as well as an increasingly enabling informal environments (trust, social norms, etc). Resource inflows need to increase, particularly from the private sector, foreign revenue/external markets (e.g. tourism), in order to fuel growth. Domestic investments in target value chains (e.g. firm-level upgrading) should demonstrate a pattern of investment and not merely short-term profit maximization.

A critical initial phase of the IDIQ will be an Inception Phase, further defined in Task Order #1, to first analyze and understand system dynamics, and where the Activity might best intervene, via a facilitative approach, to create systemic change. Interventions under subsequent task orders will be informed by the findings of the Inception Phase, the studies, and pilots carried out as part of Task Order #1. The offeror will utilize collaborative planning (with USAID and key stakeholders, including the Competitiveness Point of contact within the Ministry of Economic Development) in order to engage appropriate resources in the design, scale and sequence of this Activity. This will allow the Activity to create maximum impact, while employing an iterative and adaptive approach. In this sense, the illustrative actions listed below are only to be regarded as tentative illustrations as opposed to guidance from USAID for required elements of a proposal.

The intermediate results and illustrative interventions for this outcome in the draft Theory of Change include:

Intermediate Result 1.1 - Business enabling environment enhanced Illustrative interventions might include those affecting a national and/or local business enabling environment, such as:

● Working at the central level to address GOH 20/20 Strategy priorities that can be further advanced through USAID support

● Working with CDCS target municipalities to support them in streamlining procedures and reducing institutional and policy bottlenecks; barriers may include but are not limited to sanitary and phytosanitary measures, environmental regulations and licensing, business registration, land tenure issues, taxes, private market standards with local and regional buyers, product registration, lack of municipal infrastructure for proper waste disposal or reliable water supply, inability to resolve commercial disputes quickly and fairly, etc.

Intermediate Result - 1.2 Market system resilience increased Systemic change may also be facilitated through interventions such as:

● Convening cross-sectoral stakeholders for facilitated problem-solving, economic planning, and coordination (among government, private sector, and community groups, for example)

● Promoting risk management mechanisms, including financial tools such as insurance and credit markets or diversification of products offered by firms

● Reducing barriers of entry to ensure more diverse and deeper market systems

● Creating elements of a market system that benefit local communities taking into consideration informal norms (i.e. credit reports based on community input for those without formal credit history)

Illustrative indicators for this result may include:

● Total annual cost savings by private sector as a result of enabling environment reforms supported by the Activity

● Improvements in administrative efficiency of public institutions (should be created in consultation with other USAID activities working in overlapping thematic areas)

● Innovation in processing, products and/or services provided (can signal long-term growth)

● Report card scores from community members rating how positive a given policy, institution, or value chain actor is for local wellbeing

Result 2: Select value chains strengthened The IDIQ is expected to work on 4-5 representative or emblematic value chains, to both increase economic opportunity for individuals and to identify roadblocks that may provide benefits beyond the single value chain. Through work across the entire value chain, the IDIQ will increase productivity and facilitate linkages to new, expanded markets that will sustain competitiveness beyond the life of this Activity. In addition to identifying the value chains, the Activity must identify at what points in the value chain would be most critical to intervene in order to improve overall efficiency while enhancing their resilience. The interventions should promote inclusion of marginalized populations that have traditionally been excluded.

This Activity will follow a Portfolio Approach:

(https://www.microlinks.org/sites/default/files/resource/files/Designing_a_VC_project.pdf) to identify, select, and develop value chains in a way that diversifies risk while also seeking to establish reinforcing loops between the value chains so that a virtuous cycle by which strengthening one particular value chain will result in more opportunities for other interconnected value chains.

The intermediate results and illustrative interventions for this outcome include:

Intermediate Result 2.1 - Increased access to new, growing, and diverse markets

● Build capacity for conducting and applying market research in local and international markets

● Link Honduran businesses to international buyers (supermarkets, tour wholesalers, coffee roasters, etc.)

● Facilitate private sector investment (lead firms, et al), particularly in upgrading processes, production and/or investing in new markets

● Build capacity for new product development and design that meets market demand

● Expand availability of appropriate financing services and practices

Intermediate Result 2.2 - Enhanced value chain productivity

● Facilitate technical assistance to encourage the adoption of higher value inputs, production processes and value-added elements;

● Facilitate technical assistance to introduce/improve production techniques particularly aimed at women and youth;

● Facilitate producer associations (including women’s groups) to realize economies of scale in input purchasing and efficiencies;

● Technical assistance and training to diffuse information at a rapid pace;

● Facilitate private sector linkages with aggregated producers.

● Facilitate access and strengthen linkages among producers and relevant support services (e.g. packaging, transport, storage, communications)

Illustrative indicators for this result may include:

● Investment in secondary/supporting value chains (magnifying effect)

● Value of firm investments/upgrades

● Quality of relationships between value chain actors

● Behavior change by key value chain actors - eg customer service practices, quality based price premiums https://www.microlinks.org/sites/default/files/resource/files/Designing_a_VC_project.pdf

● Technical indicators specific to a given value chain (cost/km of transport for logistics, number of foreign and Honduran visitors for a tourist destination, etc.)

● Number of firms receiving USG-funded technical assistance for improving business performance

● Number of private sector firms that have improved management practices or technologies as a result of USG assistance

C.6 ANALYSIS AND PRIORITY-SETTING TO GUIDE WORK PLANNING

Systems Mapping and Selection of Value Chains The implementation of this IDIQ will include an initial six-month Inception Phase, further spelled out in Task Order #1 of this IDIQ, during which the implementer will work closely with USAID/Honduras to review existing analyses, as well as collaboratively engage in systems mapping, cost-benefit, and value chain analysis which will best inform early intervention strategies. Network mapping, causal loop diagramming as well as stakeholder-generated value chain mapping tools and political economy analysis are examples of the types of analyses USAID anticipates being applied, as well as any others that might provide particular insight into the ‘current state’ of the market system, the proposed theory of change, and methods for monitoring progress throughout implementation.

Applying best practices from the field of market systems and value chain development, the implementer of this Activity will work with USAID/Honduras to identify an initial portfolio of 8-10 value chains during the Inception Phase (Task Order #1), from which 4-5 will then be recommended to USAID for approval. These recommendations will be based upon value chain selection criteria that align with the goals of the Activity and USAID’s priority objectives in Honduras. The selection process and evaluation criteria for selecting winning value chains will be guided by USAID. The USAID/COR will approve the final selection of value chain interventions. Other USG partners, Government of Honduras partners, and private sector partners may be included in the selection and approval process of the 4-5 value chains.

In collaboration with USAID/Honduras, the Activity will invest in early and ongoing analysis to map the key elements of the market system, potential intervention points, and identify signs of change resulting from USAID’s investment in strengthening these value chains and the associated enabling environment.

The Contractor for the Transforming Market Systems IDIQ is anticipated to have considerable interaction and coordination with other USAID implementing partners, such as other economic growth programs and the USAID/Honduras Local Services Delivery Program, as well as Government of Honduras actors, and civil society organizations.

Systems Analysis: seeks to define the inter-connections in the system using a framework of relationships, roles, rules, resources and results. Identify the key inter-connections in the system, such as: Who, in what function, is connected to whom? Which connections are most intense in terms of volume of interaction, product flows, information exchanges, benefit streams, and learning? Who and where are the drivers of change? What are the power dynamics in various inter-connections (e.g., price setters vs. price takers)? Who has the most resources to invest, and who has the least? Which nodes in the system offer the greatest leverage for catalyzing change? Where is there risk in the system (environmental, financial,political or social)?

https://www.microlinks.org/sites/default/files/resource/files/Market_Systems_Framework.pdf

Value chain selection criteria When making the initial selection of the actions included in the Transforming Market systems activity, offerors must first consider whether those areas of intervention meet the following required criteria, listed here in order of priority:

● Ability to effect systemic change that leads to broad-based growth within the DO1 and DO2 target areas

● Potential to raise incomes within the DO1 and DO2 target areas

● Potential for promoting inclusive development and involvement of vulnerable populations

(particularly women, youth, as well as other traditionally marginalized groups such as indigenous populations, people with disabilities, and youth from violent neighborhoods) Youth is defined by the USAID Youth in Development policy as people between 10 and 29 years of age, https://www.usaid.gov/sites/default/files/documents/1870/Youth_in_Development_Policy _0.pdf. See also https://www.microlinks.org/good-practice-center/value-chain-wiki/risk-youth)

● Consideration of the value chain’s ability to impact drivers/effects related to migration, both internal (particularly rural-urban), as well as out-migration to the United States

● Consideration of USAID’s manageable interest and influence

● Consideration of the salient political economy and context

While the criteria stated above need to be met for the activity to select a given value chain, there are additional selection criteria through which the Activity’s potential interventions must be evaluated. These selection criteria, also listed in order of priority, include:

● Potential to increase the value of sales generated

● Potential number of new employment opportunities generated

● Consideration of GOH priority investments (when aligned with USAID/Honduras development goals), as expressed in strategic investment plans like the Alliance for Prosperity and Plan 20/20 strategies

● Potential to benefit other related value chains in a way that magnifies results and systemic change

● Potential to promote a multiplier effect that impacts longer-term complexity in the market (thus providing greater economic diversification, workforce development, and value-added opportunities)

USAID/Honduras’ initial assessments suggest that among those value chains that may well meet these criteria include tourism and value-added agriculture. Therefore, as part of the Inception Phase the Contractor will include these two sectors, as further defined below, as at least two of the initial 8-10 value chains to be assessed. The problem analysis for further study into these two value chains is further defined below. Additional references and findings from this initial assessment process are included in the annexes.

1. Tourism - This sector often requires a holistic, country-wide system approach beyond support to individual businesses or sites of interest, in order to promote a national brand and destination. USAID/Honduras believes this value chain represents particularly strong growth and job-creation potential, as well as potential for private sector investment. Additionally, as part of a Portfolio Approach, strengthening national and local tourism value chains in coordination with a focus on ancillary value chains such as transportation, construction, and food service, may provide synergies that magnify results and create more systemic change. Finally, growth in responsible tourism may benefit from, as well as contribute to, USAID and GOH environmental objectives and existing USAID-funded activities.

2. Value-added agriculture - Value-added agriculture provides particular opportunities to reach the DO2 Zone of Influence (ZOI) and target populations. Additionally, facilitating change in these value chains offers a particular opportunity to leverage USAID’s ongoing Feed the Future investments for a more transformative approach to the sector at large.

Partnerships with processors, wholesale buyers, and exporters located outside the DO1 and DO2 ZOIs will be analyzed for the purpose of integrating other beneficiaries into these value chains.

In addition to the value chains above, the contractor should explore cross-cutting complementary value chains during the Inception Phase, such as logistics, transportation, and business services that enhance growth, productivity, and inclusion across multiple other sectors, which USAID/Honduras believes are critical for achieving transformative, systemic change.

Geographic Focus & Target Populations The Transforming Market System IDIQ will prioritize investments based on U.S. Government strategic interests, objectives, and investments, as currently defined in the USAID/Honduras CDCS and as based on continuing learning being undertaken on U.S. Government efforts to counter illicit migration to the United States. Although investment recipients, such as anchor firms, may be located outside of CDCS Zones of Influence, ultimate recipient beneficiaries will be targeted in six departments within western Honduras (the departments of Santa Bárbara, Copán, Ocotepeque, Lempira, Intibucá, and La Paz) as well as in particularly high-crime areas of the five cities where our citizen security work is located: Tegucigalpa, Tela, La Ceiba, Choloma, and San Pedro Sula. In western Honduras and in our DO1 areas, the Contractor will engage USAID after award to better understand where multiple USAID activities are being implemented in an integrated fashion, where USAID has Memorandums of Understanding directly with municipalities, and to understand the specialized needs of beneficiaries living in the target cities under our DO1 citizen security portfolio.

Given its broad scope of interventions and keeping in line with the inclusiveness and integration that are hallmarks of the Market Systems approach, this Activity will work with different types of clients at all different levels of the selected value chains. This Activity is expected to include a special focus on the creation of new and the strengthening of existing micro, small, and medium enterprises (MSMEs) both in DO1 and DO2 target areas.

USAID expects a proactive focus on ensuring inclusion of traditionally excluded populations and those with a higher propensity to migrate. Such vulnerable populations include but are not limited to youth, women, the poor, persons with disabilities, and indigenous/ethnic populations located within the DO1 and DO2 target areas. There will be a strong focus on inclusion throughout the Activity, beginning with the selection of priority value chains and the analysis of barriers to market participation. Specific inclusion strategies and action plans will be developed by the Contractor to fully integrate gender, youth, and vulnerable populations into the Activity.

This Activity will work with Anchor firms, i.e. medium and large processors, wholesale buyers and exporters, for both agricultural and non-agricultural value chains. The implementer will partner with these private sector firms to assist them in expanding their markets and increasing the variety and quality of their product. Through mechanisms like innovation grant funds, the Activity may address barriers for investment while securing the commitment of private sector partners to invest in community wellbeing, employ marginalized populations, and to act as anchor firms. Anchor firms will help integrate our target populations into selected value chains either by contracting out services from MSMEs or creating more direct and indirect job opportunities within the CDCS geographic area. The Ministry of Economic Development has created the Centros de Desarrollo Empresarial (CDE) as a mechanism to provide TA and seed capital for the creation of MSMEs at the community level.

This Activity will also engage local and national government actors, public and private sector associations (such as mancomunidades, chambers of commerce, local economic development agencies, producer and/or exporter associations) and other community based organizations (CBOs) in order to identify key policy and business enabling environment needs to increase private sector competitiveness and ensure that business and value chain growth translates into improvements in wellbeing for local communities.

C.7 COLLABORATION AND INTEGRATION TO SUPPORT SUSTAINABLE

RESULTS

As part of the holistic systems approach to market development, the Activity will collaborate strategically and intentionally with other USAID activities as well as GOH and other development partners programs. The Activity’s implementation approach will require clear systems analysis and stakeholder mapping, that inform collaboration plans and actions consistent with the overarching goals of the Activity, a market systems and facilitative approach, and USAID’s Collaborating, Learning and Adapting approach (See:

https://usaidlearninglab.org/). It is important to note that while some activities, initiatives and partners may be particularly…