RFI-612-22-Growth Poles-01 Final.pdf

REQUEST FOR INFORMATION (RFI)

RFI Number RFI-612-22-Growth Poles-01 Issuance Date November 22, 2021 Closing Date/Time December 20, 2021, 6:00 pm local time Lilongwe, Malawi Subject Investing in Diversified Agriculture-led Growth Poles for Inclusive, Sustainable and Resilient Wealth Creation (Growth Poles Activity)

Dear Stakeholders:

The United States Agency for International Development (USAID) Mission in Malawi is in the process of designing an Activity tentatively called “Investing in Diversified Agriculture-led Growth Poles for Inclusive, Sustainable and Resilient Wealth Creation (Growth Poles Activity)”. Given the critical nature of the activity, the Agency seeks contributions and comments from all interested organizations in this related portfolio.

The following are the purposes of this Request for Information (RFI):

1. To allow interested organizations and all stakeholders to review, comment, and provide suggestions on the proposed scope under the draft description of objectives;

2. To solicit stakeholder responses to the questions below; and

3. To increase USAID's knowledge of capabilities of potential partner organizations and solicit information that will enable USAID to better prepare a solicitation that meets the needs of host country Malawi, for this potential procurement.

Through this RFI, USAID/Malawi is conducting market research by publicly consulting with interested organizations and individuals to provide information, opinions, and recommendations on approaches for the implementation of a contemplative activity to address inclusive, resilient and sustainable wealth creation, and commercialization of smallholder agriculture through private sector led approaches and growth poles development. The duration of a potential award is anticipated to be five (5) years with an estimated budget range between $30,000,000 and $40,000,000.

We are requesting information, opinions, and recommendations on approaches for the implementation of the described activity. Stakeholder comments are requested to help refine the draft objectives and strategic approaches to ensure maximum development impact, provide feedback on key strategies associated with private-sector led engagement in Malawi, sound coordination with existing activities, and alignment with the Government of Malawi’s top priorities, while also supporting USAID’s Country Development Cooperation Strategy (CDCS).

While there are no limits on the length of submissions accepted, we value concise issue-specific responses with reference to page and section numbers in the draft description of objectives.

Eligibility criteria: USAID/Malawi will accept responses from all interested organizations or individuals.

THIS IS A REQUEST FOR INFORMATION ONLY and is issued solely for information and planning purposes. It does not constitute a request for proposal/application/quotation, an invitation for bids or solicitation, nor any proposals/applications. If submitted in response to this request, they will not be considered. The information provided in the RFI is subject to change and does not bind the Government. This RFI does not commit the U.S. Government to issue a solicitation.

Furthermore, USAID/Malawi is not at this time seeking applications and will not accept unsolicited applications. Respondents are hereby notified that all costs associated with responding to this RFI will be solely at the interested party’s expense. The U.S. Government will not pay for any information or administrative costs incurred in response to this RFI, and release of this RFI shall not be construed as a commitment or as authorization to incur costs for which reimbursement would be required or sought.

Responses to this RFI are strictly voluntary and will not be returned. Respondents will not be notified of the result of the review. If a solicitation is issued, it will be announced on beta.SAM.gov or www.grants.gov at a later date.

It is your responsibility to monitor the indicated websites and interested parties are responsible for checking these websites for further information and updates. Respondents are advised that USAID is under no obligation to acknowledge receipt of the information, answer questions, or provide feedback to respondents with respect to any information submitted. It should be noted that respondents to this RFI will not obtain any advantage and will not be precluded from participation in future solicitations, if any are issued.

RESPONSES:

Interested parties are requested to respond to this RFI including any documents that support their comments. Respondents may provide responses through email or through attachments to email in Microsoft Word compatible format or Adobe Acrobat formats electronically to oaa-malawi-solicit@usaid.gov with a copy to lchimangeni@usaid.gov by not later than December 20, 2021 at 6:00 pm Lilongwe time. Responses to the RFI must be written in English, submitted in Microsoft Word compatible formats and use 12pt font. Please number each page consecutively and please include the title RFI-612-22-Growth Poles-01 in the subject line of your e-mail.

Please note that there will not be a Q&A opportunity during this RFI. While there are no limits on the length of submissions accepted, we value concise issue-specific responses with reference to page and section numbers in the draft description of objectives. Responses must at a minimum http://beta.sam.gov/ http://www.grants.gov/ mailto:oaa-malawi-solicit@usaid.gov mailto:oaa-malawi-solicit@usaid.gov mailto:lchimangeni@usaid.gov contain the following:

(1) Name and address of the responding organization or individual;

(2) Primary point of contact, phone number and e-mail address.

Responses may be used by USAID without restriction or limitation, therefore, proprietary information should not be sent. Again, your voluntary responses will be used to inform USAID’s strategy and activity design. The comments received may or may not be incorporated into any future solicitation. Please note again, that respondents will not receive individualized feedback.

All submissions will be considered Government property and will not be returned.

Again, USAID is not obligated to procure any of the services described herein, nor should the release of this request be construed as such a commitment on the part of USAID.

Thank you for your interest in USAID/Malawi activities.

Sincerely, Natalie J. Thunberg Contracting/Agreement Officer

KEY QUESTIONS

As part of the consultation process, USAID is interested in receiving stakeholder perspectives on the proposed approach including past successes and failures of these types of activities as well as opportunities to leverage existing efforts and resources. USAID/Malawi may significantly revise this proposed new activity and planned solicitation resulting from the comments received and further literature review and internal discussions.

In view of the draft description of objectives respondents are requested to provide answers, comments, and recommendations in response to the specific question below in the objective’s context:

1. Please provide a brief description of your organization and why it would be interested in this type of activity.

2. This is a comprehensive activity involving outcomes expected related to private sector engagement, access to finance, agricultural diversification, productivity, and commercialization; farmer organization development (organizational governance and agribusiness management); rural economic growth and livelihoods diversification;

employment, with a focus on youth and women; poverty reduction; and household, community and systems resilience, including climate adaptation, improved natural resource management, nutrition and food security.

a. Does the logic behind the development hypothesis, results framework, strategic approach and expected outcomes (see below) make sense?

b. Do these elements appropriately address the needs, challenges and bottlenecks to inclusive, sustainable wealth creation in Malawi? If not, what is missing?

c. What recommendations do you have to ensure that the activity can deploy innovative, hybrid financing of different types (matched funding, rotating funds, risk mitigation, first loss, debt, equity, performance grants, etc.)?

d. Do you have any suggestions on how strategies described could be improved?

3. This activity will require good indicators across all of the outcomes that are well-aligned with private sector shared value objectives and desired outcomes. Given that, please consider these MEL questions in a private-sector led context:

a. What indicators would you recommend for tracking the high-level results, outcomes, and impact? (sustainable, inclusive, resilient wealth creation in targeted rural areas). Are there illustrative indicators listed below that you would drop, change, or add?

b. A key premise of this activity is to increasingly have development outcomes be country-led and private sector and/or market-led. How can we best measure this?

c. A key premise of this activity is to generate poles/nodes/corridors of rural economic growth centered around anchor firms or other private sector led initiatives that generate indirect benefits and knock-on effects beyond the direct actors or partners of the activity. How can we best measure this?

d. How can we best measure the change in the capacity of smallholder farmers to organize, consolidate, diversity and commercialize in partnerships with private sector firms?

e. How can we best measure household, community, and systems resilience in the context of this activity, including issues such as climate mitigation and adaptation, soil and watershed management, food security and nutrition, gender and youth opportunities, assets and savings?

f. How could we best measure changes in smallholder agriculture transformation towards commercialization?

g. How could we best measure access to finance and private sector mobilization and hybrid financing models?

h. How can we best measure reduction in poverty levels among the targeted populations?

i. Do you think the approach described can ensure sustainability of results after the activity?

j. How best can we measure (and report) the sustainability (of results)?

k. This activity is expected to stimulate spillover opportunities for non-farm and off-farm income-generating opportunities for thousands of additional beneficiaries within the growth poles. How do you think this impact can best be tracked and reported?

l. This activity may be evaluated using OECD evaluation criteria. How do you think each criterion (relevance, efficiency, effectiveness, impact, sustainability and value for money (VFM) can best be tracked and evaluated?

4. In your experience delivering similar or relevant services, what contract type/mechanism do you think can work well and why?

5. Do you have any recommendations for literature or any other form of information that could be consulted for further information (e.g., similar past, ongoing or future activities)?

6. Do you have any other feedback or recommendations that you would like to share with USAID relevant to this RFI?

Annex 1: Description of Objectives

COMMERCIALIZING SMALLHOLDER AGRICULTURE THROUGH

GROWTH POLES DEVELOPMENT ACTIVITY

1. ACTIVITY PURPOSE

The purpose of this activity is to accelerate sustainable, resilient and more inclusive wealth generation in Malawi by mobilizing private sector investments and partnerships with surrounding communities, smallholder organizations, cooperatives, and MSMEs in a growth pole approach. This will be done with and through anchor firms who have long-term strategies with potential for broader impact, if gaps and risks can be catalyzed through partnership. Using a ‘growth pole1’ or ‘growth corridor’ approach, driven by private sector actors, USAID will help catalyze rural economic growth transformation, strategically building a critical mass of multiple value-chain and/or geographically linked partnerships, product and service providers that have downstream and upstream impacts on jobs and incomes, resilience, and greater inclusivity of women and youth, e.g. broader positive impacts. These growth poles will act as engines of economic growth with substantial revenues and profits that drive local economies, with spillover effects for those who are not direct beneficiaries – stimulating opportunities for on-farm and off-farm income-generating opportunities for thousands of additional beneficiaries. Thus, both direct beneficiaries and those in the surrounding communities are expected to benefit at household, community and systems levels, from various entry points: (a) direct participation in the activity,

(b) on-farm and off-farm employment, diversified income sources and business opportunities generated as a result of the activity, and (d) increased access to services, products, enhanced community safety nets, and infrastructure (energy, markets, transport, other infrastructure, digital technology, health, education, etc.). The activity will, through private sector led partners, layer in or bundle resilience, inclusivity, and climate activities, building on private sector resources and capacities to expand outcomes in these areas. The activity will bring a resilience lens that strengthens systems and structures to build capacities, productive assets and human capital, leveraging diverse resources to achieve climate adaptation, natural resource management, and inclusion elements in private sector-led strategies and partnerships. The activity will seek partnerships that provide sustainable pathways out of poverty in the face of shocks and stresses, in particular climate change and population growth.

The activity will result in increased jobs, incomes and assets (especially for youth and women), food security, more resilient households, sustainably managed resources, a larger, better organized, and competitive ecosystem of micro, small, and medium enterprises, farmers and communities, sustainable access to finance, and private sector resource mobilization.

1 Growth poles can center on a geographic location like a municipality, a designated economic zone, a specific industry hub or anchor firm, or a specific value chain region.

The activity will foster long-term, sustainable development models that leverage private sector actors, strengthen public sector support for and foster greater joint investments in resilient agriculture-led and other diversified rural development approaches. The project is designed to mobilize and/or solidify current and new private sector led partnerships with surrounding communities so that investments carry long on past the end of this activity.

The activity will work with the private sector to identify opportunities for new, expanded and/or improved resilience approaches that generate longer-term investments and commitments that are not donor driven, building assets in local communities and providing greater protection for households and communities most vulnerable to shocks and stresses while mitigating risks, and strengthening, response and stronger recovery, as well as long-term adaptation strategies, implemented through private sector-led partnerships. The activity will align with and collaborate closely across Malawi’s multisectoral approaches and strengthen a range of resilience capacities and assets, such as physical, financial, environmental, social, and political.

This activity will have several key strategies to achieve these goals, below, but will be inherently responsive and flexible, able to adapt and take advantage of and respond to diverse private sector partnership opportunities with potential for benefiting economic growth and resilience in Malawi’s rural sector, deploying a diverse set of tools and strategies to partner with companies where there is best value added. As such, the activity has not pre-identified specific value chains, nor limited the activity to farm-based or agricultural activities only and does not limit opportunities geographically. Outcomes will necessarily be flexible based on private-sector partnerships that are developed, with targeted results jointly developed with companies, during early implementation of the activity. Rural economic diversification and commercialization opportunities will remain broad and will be analyzed and selected according to their potential to produce results in line with purpose and goals of the activity.

USAID/Malawi intends to build on the success of its current project, AgDiv, partnering with at least ten established relationships with large, well-capitalized, high-capacity domestic and international private sector actors in order to leverage their long-term agricultural growth and diversification strategies and investments. The activity will work with both existing and new anchor firms, industry leaders, growing medium-sized cooperatives, and enterprises, and will develop other innovative, promising public-private partnerships that can advance and leverage direct and indirect benefits around economic zones, or growth corridors or geographic growth poles, improving inclusive and sustainable jobs, incomes and services in rural Malawi. The activity will leverage and strengthen the agricultural sector and specific high-potential commodity systems as sector-based growth poles.

This activity will achieve results towards the Embassy Integrated Country Strategy (ICS) and USAID/Malawi’s CDCS, DO3: to advance a more inclusive, diversified, and resilient private sector2 that drives sustainable wealth creation, with a focus ensuring benefits are inclusive of and take a youth- and gender- lens. The activity will generate results focused on IR 3.2: Malawian

2 Private sector is defined broadly in this activity description and includes micro, small, medium, and large businesses, individual entrepreneurs, farmers, cooperatives, social enterprises, conservation enterprises, business associations, and private financial institutions. USAID intends to work with and through a large variety of private sector actors, including large, well-capitalized, Malawian and international businesses with high capacity, but the development impact intended is geared towards Malawian micro, small, and medium sized businesses and entrepreneurs, including farmers, women and youth that are needed for sustainable wealth generation.

https://docs.google.com/document/d/1NHR__-vCFUQbOYQkeyvHg1WG9byey8UR1tzd0lWn7zA/edit?usp=sharing firms' economic competitiveness3 increased, and will advance Mission’s strategic approaches:

Broader partnerships, Bolder Selectivity and Better Approaches. Broader partnerships will diversify the partner base and the ways in which awards are made and managed. Bolder selectivity prioritizes investments where there is greater commitment and ownership. Better approaches bring innovative and catalytic interventions and implementation approaches (e.g., systems based) to complex development problems. These approaches are designed to help implement the Government of Malawi (GOM) Vision 2063 and should also be closely aligned with USAID’s Private Sector Engagement Policy and Strategies. Through this approach, USAID/Malawi will focus energies on aligning itself with new and current local partners, in particular the private sector for this activity, invest where there is demonstrated commitment and political will for change, and use an integrated approach across sectors to untangle some of Malawi’s most intractable development challenges.

The wealth to be created through and by the private sector will bolster the socio-economic well-being of Malawians in an inclusive manner, while protecting critical aspects of the natural resource base, such as forests, the quality and quantity of water resources, fisheries, and other biodiversity. Socio-economic well-being includes increased food security and improves nutritional status; increased incomes, assets, and wealth; reduced poverty; increased access to employment and livelihood opportunities; increased access to and quality of education and health services; and improved household and community resilience to respond to a wide variety of shocks and stressors. Increased well-being, resilience, and incomes for vulnerable households will only be possible through a broader-based, multi-sectoral, and inclusive (women- and youth-led) private sector landscape that generates growth and competitiveness among diverse Malawian entrepreneurs and micro, small, and medium-sized enterprises (MSME), as well as an improved business enabling environment that stimulates private sector investment and growth, that take a gender-inclusive, youth-inclusive, climate-positive lens while conserving Malawi’s natural resource base and help households and systems better manage shocks and stresses.

The criteria by which targeted growth poles will be selected will balance opportunities (potential for impact) with need and will largely be based on: 1) location of private sector entities with whom the activity will partner, based on an analysis of shared interests and impacts; 2) potential to leverage GOM and donor initiatives, including MCC’s proposed transportation and growth corridor locations, other large-scale energy and transport initiatives, GOM’s proposed four new ‘economic zones’, among others; 3) highly vulnerable areas (using indicators for poverty, jobs, youth, gender, nutrition, food security, vulnerability to shocks and stresses, climate change). The activity will pro-actively encourage its existing and new partnerships in several key districts, defined as USAID/Malawi’s “resilience focus zone” (RFZ) – also known as the Feed the Future Zone of Influence (ZOI), due to their levels of vulnerability, as well as in other districts with high levels of vulnerability. Expansion and/or adjustments of the RFZ to include new key districts is currently under consideration and is likely to be influenced by this activity.

3 Competitiveness is used broadly, and incorporates increased agricultural competitiveness, given its significant influence of Malawi’s economy, including all aspects of on-farm and off-farm services and goods along the agricultural value chains, as well as improved capacity, growth, formalization and access to financing for MSMEs, entrepreneurs, and other private sector actors in diverse sectors.

Goal and Objectives

Goal: To accelerate sustainable, resilient and more inclusive wealth generation in Malawi by mobilizing private sector investments and partnerships with surrounding communities, smallholder organizations, cooperatives, and MSMEs focused around growth poles. This will be done with and through anchor firms who have long-term strategies and business cases that overlap with the activity’s intended development impacts.

The project has four primary Objectives centered around economic growth, sustainability, resilience, inclusivity, each with related sub-objectives and/or associated intermediate results.

Primary Objectives:

1. Objective 1: Using a growth pole and private sector-led approach, increase rural incomes and assets through diversified jobs, growth of formalized SMEs, increased sale for farmers/entrepreneur/MSMEs, and other on and off-farm benefits

1.1. Sustainable and inclusive economic growth poles that are private sector led, created and/or strengthened in partnership with progressive, responsible, like-minded private sector firms sharing USAID’s development goals.

1.1. Formalized, expanded and more competitive MSMEs ecosystem (MSMEs includes farmers cooperatives)

1.2. Improved productivity and yields through significant advancements in agricultural technologies (seed systems, widespread market led production, availability and adoption of certified seeds; development of innovative farmer-cooperative-anchor firm models for expanded access to sustainable irrigation and mechanization;

access to renewable energy)

1.3. Increased beneficiary adoption of appropriate new technologies to foster improved efficiency, increased yields, improved post-harvest storage, increased value-added processing, etc.

1.4. Increased use of irrigation by beneficiary households.

1.5. Credit and finance mobilized and (with links to formal financial structures) expanded (including for women, youth, farmers, MSMEs) and Increased access to and utilization of financial services including credit, savings, and other products.

1.6. Value-added and processing increased across diverse sectors expanded and made more accessible and competitive (e.g., value addition and/or processing of nutritious food products and services, home and industry energy solutions – solar, briquettes, sustainable charcoal, LPG, biogas, etc.), other sustainable forestry value-added processing; other fisheries value-added processing; other tourism/conservation/climate services and processing).

1.7. Increased capacity for innovative, multi-win partnership models among anchor / large firms, MSMEs, farmer cooperatives and organizations, GOM, civil society and research institutes

1.8. Private sector investments increased through new and current anchor firms, both new and current with business cases, business plans, long-term strategies and investments that will improve resilience, sustainability and inclusivity.

1.9. Regional and US-Malawi trade expanded

1.10. Barriers to private sector growth and investments within the enabling environment collaboratively addressed

2. Objective 2: Using a growth pole and private sector-led approach, expand women, youth and vulnerable households’ economic opportunities

2.1. Youth ages 18 to 35 participation in, and incomes increased, through greater entrepreneurship, innovation, incubation, acceleration and access to finance, and targeted partnering with anchor firm model (expanded youth owned businesses, incomes/sales/net profit, capacities)

2.2. Women’s participation in, and incomes increased, through greater entrepreneurship, innovation, incubation/business capacity, acceleration and access to finance, and targeted partnering with anchor firm model (expanded women-owned businesses, incomes/sales/net profits, and capacities)

2.3. Greater gender equality and women, and youth empowerment, and enhanced economic inclusion among all beneficiaries, and especially economically disadvantaged or marginalized groups (e.g., women and youth).

2.4. Increased beneficiary household participation in well-managed farmer groups to obtain economies of scale and to improve the terms of trade for inputs and outputs.

3. Objective 3: Using a growth pole and private sector-led approach, strengthen resilience of households, communities and systems

3.1. Increased beneficiary household resilience as measured by RFMS methodologies

(adaptive capacity, diversification, assets, nutrition, access to health and education) agricultural diversification, yields, value of total production, natural resource management and profit/income.

3.2. Transformative systems-level capacities built among GOM, civil society, that support private sector modernization and resilience

4. Objective 3: Using a growth pole and private sector-led approach, strengthen sustainable natural resource management and climate adaptation

4.1. Improve natural resource management, including soils and watersheds; Reduce deforestation and watershed, soil and forest degradation

4.2. Foster private sector-led sustainable forestry products and services and other climate positive business practices

4.3. Improved climate resilience through integrated, private sector/growth pole led approaches related to climate-smart agriculture, fisheries, forestry and food systems, watershed management, regenerated forests, and governance leading to substantially increased absorption of rainwater, recharged groundwater tables, and reduced flooding and soil erosion.

4.4. Increased contribution to greenhouse emissions mitigation and reduction.

Cross-cutting enablers or objectives include strong coordination with GOM, major donor projects, MCC, and other USAID activities in and around chosen growth poles to ensure maximum synergies, and a robust MEL/CLA approach.

Visual results framework diagram shown below:

2. PROBLEM STATEMENT

Malawi’s economic development challenges are interwoven and inseparable and require multi-sector, integrated solutions designed to mobilize Malawi’s private sector to lift people out of poverty and accelerate Malawi’s ability to achieve inclusive and sustainable wealth generation.

Malawi has also not fully addressed some of the indicators needed to strengthen the economic enabling environment to outpace the country’s population growth, poverty, and environmental degradation. New generations are facing increasing risks, with 75% of the population under 35 and the population set to double in just over two decades. Malawi also has one of the highest disparities between men and women, so economic opportunities for women, and youth are critical. While Malawi’s economy depends largely on agriculture, productivity is constrained by declining farm sizes and degrading soils and watersheds and exacerbated by the growing population. Wood and charcoal continue to be the mainstay of Malawi’s fuel, driving up deforestation, resulting in a negative cycle of watershed and soil degradation and declining productivity, reducing Malawi’s ability to mitigate for, and adapt to increasing shocks and stresses. Access to electricity remains stubbornly low at only 11.4 percent of the population, further hampering private sector growth. The average gross national income (GNI) of a Malawian is the third lowest in the world, just US$380 as of 20194, and 51 percent of the population still live below the poverty line. Gross domestic product (GDP) growth expectations for 2020 have been lowered from 4.8 percent to 0.8 percent due to COVID-19.

Agriculture remains the foundation of Malawi’s economy, providing livelihoods to more than 4.5 million smallholder farming families, and accounting for 80-90 percent of the country’s foreign currency earnings, but the sector’s contribution to gross domestic product continues to decline.

Roughly 80 percent of Malawians work in the agriculture sector, mostly in rain-fed subsistence farming on declining farm sizes. Farmers continue to operate largely as independent

4 IMF Malawi Country Private Sector Diagnostic (CPSD) smallholders rather than in organized groups, irrigation, digitalization, financing, technology use and mechanism are almost non-existent, and the economy is undiversified, largely dependent on tobacco and maize, and vulnerable to external shocks. A more prosperous future for all Malawians will require a more sustainable, resilient agri-food system. Today, most farming households are extremely vulnerable to climatic shocks. The Notre Dame Global Adaptation Initiative ranks Malawi 165th out of 181 countries in terms of both vulnerability to the impacts of climate change and overall readiness to adapt to it. Bouts of severe drought and flooding are increasingly frequent, often leading to significant economic losses. These losses are likely to worsen unless urgent action is taken to strengthen economic, social, and climate resilience.

The government of Malawi sees agricultural industrialization playing a central role for creating wealth and transforming Malawi, articulated in its Vision 2063. Strong growth in agribusiness will also be needed to facilitate the economic recovery from the COVID-19 crisis. Economic prospects largely hinge on the health of the agriculture sector and its ability to transform the sector with value addition and processing, to mobilize technology and to finance expand yield, productivity, sales, profit margins, competitive and capacity of all actors within the sector.

Malawi has done well to become a major producer and exporter of high-demand commodities like tobacco, tea, and sugar. But these successes belie the tremendous poverty and vulnerability among farming households. Decades of interventions to boost productivity and diversification through government programs targeting smallholder farmers have largely failed to improve food security or create a more resilient, commercial agribusiness sector. Production remains reliant on rainfall, with concerns over basic food security keeping most farmers from diversifying away from maize production.

People not working in agriculture are mostly employed in unproductive micro, small, and medium enterprises (MSMEs). Nearly 9 out of 10 jobs are informal. Three-quarters of Malawi’s firms consist of only the proprietor, with only 3.6 percent of all nonfarm enterprises having four employees or more. Much of Malawi’s economy is informal and this undermines the creation of a sufficient domestic tax revenue base for public investments. Worker migration is largely the result of negative factors that push labor off of household farm plots rather than pull factors such as industrializing job growth or a growing entrepreneurial base across diverse sectors. The resources and energy needed to initiate development are regularly diverted by a cycle of food insecurity, droughts, floods, and other disasters. Malawi’s MSMEs are largely informal made up of thousands of self-employed informal traders, craftsmen, and entrepreneurs. This private sector ecosystem is characterized by a “missing middle” due to the lack of formal, medium growing businesses. Despite being an invaluable part of the economy, the informal micro-enterprises tend to suffer from under-investment, stagnation, an unpredictable policy environment, lack of access to finance, high interest rates, lack of collateral by youth and women, non-adherence to quality standards, lack of streamlined and coherent licensing and taxing systems, lack of markets and trade, lack for formalized linkages to large firms, and rampant corruption. As a result, the informal micro-economy is stymied in its ability to expand, grow, and mature into more medium-sized businesses, which would operate within the formal economy, produce jobs, generate wealth, and contribute toward a sufficient domestic tax revenue for public investments.

Now more than ever, Malawi needs new drivers of growth to jumpstart an economic recovery and help meet the jobs challenge of a rapidly growing, youthful population. The population is growing at roughly 3 percent a year, meaning that the already densely populated country will likely double its citizenry within a generation. Three-quarters of Malawians are younger than 35—over 40 percent are under age 14. An estimated 400,000 Malawians are entering the job force each year, and the economy is not growing at a pace to provide decent work. Even for those who do find work, most are underemployed. The latest government household survey (2020) found that 9 out of 10 respondents were engaged in at least some income-generating activity over the survey’s preceding 12-month period. But most of these activities were in temporary, informal farming and fishing work. In urban areas, where farming is more limited, roughly one quarter of all residents reported being unable to find work in the past 12 months.

Only 1 in 10 Malawians over age 15 has a wage- or salary-paying job. Even those with a tertiary education struggle to find formal employment, with less than two-thirds finding a waged job.

Creating more and better jobs for Malawians requires the infrastructure, enabling environment, and good governance to foster economic transformation. The new administration has put job creation at the center of its development agenda. Continuing a campaign promise, the president has pledged to create one million new jobs by June 2021. This is an ambitious target, and one that will be difficult to meet. For Malawi to seize these opportunities and create new markets, the government will need to tackle long-standing governance and policy implementation weaknesses.

Companies of all sizes face limited energy, transport, and land related barriers inhibiting Malawi’s ability to increase FDI or stimulate medium and large domestic companies. With the pandemic expected to reduce international investment flows, Malawi will need its incumbent lead firms to drive investment. Many have already been investing in diversification of tree crops, legumes, and groundnuts and the development of improved seed varieties. The most active in doing so are the tobacco firms, and to some extent, the tea and sugar companies. These firms are already demonstrating returns on investment in diversified crops, climate-smart agricultural practices, and new technologies. As large buyers and leaders in contract farming, they have tens of thousands of farmers in their supplier networks and the market power to drive behavior change throughout their supply chains5.

Any economic approach needs to incorporate and understanding of Malawi’s growing vulnerabilities in order to strengthen its resilience. Far too many Malawians are trapped between the triple intertwined challenges of poverty, vulnerability to various shocks, and periodic food insecurity. Strengthening the resilience of vulnerable households and communities through long-term development investments, appropriate humanitarian assistance, and drought cycle management is critical to 'break this cycle of food insecurity'. There is an urgent need to transition away from annual humanitarian appeals and reduce the chronic over-dependence on foreign aid. There is also a need to diversify Malawi’s economy and reduce the over-dependence on maize and tobacco and building and or sustaining micro/small enterprises toward midsize enterprises This activity, in coordination with other complementary programming, is designed to specifically build resilience, reduce vulnerability to shocks, and reduce dependence on humanitarian assistance. Yet, Malawi has limited resilience capacities to reduce exposure and risk to multi-variate shocks and maintain stable and sustainable progress on food security and nutrition.

Malawi experiences multi-variate shocks, including seasonal food and nutrition security shocks, economic shocks, and severe climate-related shocks which have increased in frequency and severity over the past two decades. These shocks combined with sluggish agricultural productivity, and inadequate off- and non-farm investments have prevented poor Malawians

5 IMF Malawi Country Private Sector Diagnostic (CPSD) June 2021 from accumulating and protecting productive and human assets that would build resilience in a sustainable way. The most severe shocks are droughts and floods; however, Malawi also routinely suffers from pests and livestock diseases, cholera outbreaks which ensue from floods, and poor water and sanitation conditions, and recently a cyclone. Figure 8 shows the combined risk of drought and flood in 2014.6

As shown in Figure 9, the number of food insecure households has drastically increased since 2000.7 In 2015-16 over 40 percent of the country was in need of humanitarian assistance due to the severe droughts and floods, which were the worst in 50 years. This was followed by Cyclone Idai, which destroyed the crops of 300,000 households in 2019. The impact of cyclical flooding and the Fall Army Worm (FAW) infestations also continues to increase risk. 8 The health and economic impacts of the COVID-19 pandemic have also taken a toll in Malawi, and resulted in more people falling into poverty, including an additional 500,000 people in urban areas due to bottlenecks in food systems and economic slowdowns in Malawi and in neighboring countries

Climate change has emerged as the largest threat that is exacerbating other existing shocks, and the limited adaptation capacity. However, the root causes of severe impacts are also intertwined with years of economic volatility, pervasive poverty, food and nutrition emergencies and inter-generational impacts of stunting, poor agricultural and natural resource management policy implementation, misuse of public and donor funds, and low private sector investments in resilient agricultural, environmental practices. The resulting land degradation is a core driver of other shocks and the severity of natural disasters. There is extensive land degradation due to loss of forest coverage in Malawi especially in the south, which is highly degraded and impacted by both droughts and floods. Two districts in the north still have relatively high forest cover and density; however, poverty is also at 60-80 percent.9 In addition to land clearance for agricultural expansion, other causes of land degradation include fuel wood harvesting in urban peripheries, such as Blantyre, Lilongwe and Zomba. Moreover, limited and uncoordinated implementation of policies, such as the Charcoal Strategy, National Forestry Policy, and the Energy Strategy, also lead to deforestation.10 Over 80% of national energy consumption uses forest biomass (fuelwood and charcoal).11 The impact on Malawi is devastating as deforestation is causing erosion, reduced watershed protection, which is in turn increasing vulnerability to severe shocks, resulting in cyclical climate-related food and nutrition emergencies, disrupting livelihoods, and long-term nutrition and health impacts.

Climate-related shocks in Malawi have become the new normal and are anticipated to increase in severity and impact. Significant crop yield impacts are already being felt at 0.8°C warming, and as temperatures rise, climate change will add further pressure on Malawi’s agricultural and food systems, nutrition, social services, migration patterns, and infrastructure in urban and rural areas.

6 Government of Malawi, National Resilience Strategy 2018-2030, sourced from World Food Program Context Data Analysis, 2018.

7 Government of Malawi, National Resilience Strategy, sourced from World Food Program.

8 Malawi Economic Monitor, Strengthening Human Capital through Nutrition, The World Bank, December 2019.

9 State of the World’s Forests, Food and Agriculture Organization, 2020. Note that the correlation between forest coverage and density and food insecurity is suggestive, and this same correlation varies in other countries, where densely forested areas are also food insecure.

10 National Resilience Strategy, Breaking the Cycle of Food Insecurity in Malawi (2018-2030), Government of Malawi, 2018.

11 Malawi: Systematic Country Diagnostic, The World Bank Group, December 2018.

Climate change is expected to further shift precipitation regimes away from their long- term norms, with the possibility to change the intensity, magnitude, and frequency of severe weather events. Recent observable events indicate that the frequency of extreme weather events in Malawi has increased - more droughts and floods have occurred in the last decade (2000 – 2010) than in the past three decades before (1970 – 2000), with other reports noting that 25% of the population has experienced drought seven or more times during this decade, with similar trends in flood affected populations.12

The impacts of climate change, and reductions in agricultural resilience and human capital will be felt most severely by poor, food insecure, and nutritionally vulnerable, and socially excluded groups, whose capacity to adapt to both rapid- and slow-onset climate change impacts is more limited. These include migrant workers, women, girls, older people, and children.

Building sustainable resilience to multi-variate shocks requires coordinated multi-sectoral interventions Key challenges remain in investments in modernizing the agricultural sector and diversifying livelihoods and job creation to reduce dependence on natural resources. Other core challenges include scaling up investments in climate-resilient agriculture, sustaining investments in natural resource management and watershed rehabilitation, and scaling up nutrition. Malawi has improved the systems and structures and is scaling up its social safety net programs, including the Social Cash Transfer Program (SCTP) and the Unified Beneficiary Registry (UBR)13 through the Malawi National Social Support II Program (MNSSP II); however, challenges still remain in targeting and coordinating productive livelihoods with safety net beneficiaries, and those who are still very poor, but are not eligible for cash transfer or other safety net services. Other crosscutting measures include limited capacity for multi-criteria analysis to inform sequencing, layering, and integrated programming that links safety nets to higher value and more diversified and resilient livelihoods. Additionally, programs are not establishing and reaching optimal targets and reaching scale within a given district or territory such as a localized food system or micro-catchment, which would serve to have greater returns on investments and foster economies of scale.

3. ACTIVITY DESCRIPTION

This activity will need to deploy diverse and innovative strategies to achieve its goals, adapted to each unique set of partnerships/anchor firms/growth pole context.

Potential Strategies to Achieve Outcomes:

1. Identify, Develop and Manage effective and innovative private sector partnerships and hybrid financing models that develop the agricultural, forestry, and/or rural sector and specific VCs as growth poles by facilitating the co-creation of transformative shared-value partnerships with companies (U.S., multinational, and local firms, MSMEs, and cooperatives), investors and financial institutions, civil society or research organizations and entities, GOM, etc.

12 Government of Malawi, National Resilience Strategy, Breaking the Cycle of Food Insecurity in Malawi (2018-2030), 2018.

13 The Unified Beneficiary Registry (UBR) is a social registry that is being designed to survey 100 percent of Malawi’s population, with the intent of fostering inclusion of the ultra poor, as well as identifying and reaching the moderately poor, and better off households to enable well-targeted programs, and link appropriate intervention with different popualtion segments.

2. Playing a Networking and linkages ‘connecting the dots’ role, Leveraging Other Investments and Coordination with Other Development Partners and Institutions

3. Demand-driven R&D - link existing research and development resources to those who can best use it

4. Building technical, organizational, strategic capacity of actors to enable them to be able to partner and achieve / receive benefits effectively (e.g., build and strengthen cooperatives that partner with larger companies, including targeted capacities within key GOM entities to enable effective partnering, and MSMEs needed to provide services and products within these growth corridors/anchor firm ecosystems)

5. Development of new financial approaches, products, and structures, Innovation in finance

- Mobilize and pilot new blended finance mechanisms, such as providing catalytic capital to attract and/or de-risk and expand private investment; mobilize credit, strengthen linkages between informal and formal credit, equity, performance and matching grant and other hybrid and partnership financing approaches, promote innovation in finance, mobile money, digital systems, etc.

6. Helping Malawi actors to identify, attract and promote new private sector actors, helping expand value added processing, trade and investment, which could include business to business and/or investor matching, networking with USG and regional actors (Prosper Africa, DFC, etc.), transaction facilitations, identifying and promoting value-added processing opportunities and/or helping address barriers needed for growing these areas.

7. Communications and Outreach including deal promotion and events management

8. Shared value monitoring, Evaluation and Learning that produces evidence, results and information and communications that is useful to investors/anchor firms, GOM, while also testing the theory of change on how private sector led interventions in this activity result in expanded inclusive, resilience, and sustainable wealth creation

9. Create Economies of Scale – Individual smallholder farmers have very small-scale operations and thus cannot effectively buy inputs with volume discounts, nor can they cost-effectively market their output to buyers seeking larger quantities and stable supply. Well-organized and well-managed farmer organizations (e.g., cooperatives or smallholder-owned enterprises) provide an opportunity for smallholder farmers to operate as a more cohesive group and capture those economies of scale. Similarly, contract farming arrangements between smallholder farmers and off-takers also provide opportunities to gain economies of scale. Offerors should seek to implement operational models that enable smallholder farmers to capture these economies of scale.

10. Fostering Local Capacity/Self-Reliance/Sustainability - The activity must clearly outline how proposed activities will foster local capacity and national self-reliance to achieve the goal and objectives and ensure sustainability well beyond the life of the activity. USAID emphasizes the importance of utilizing local systems and resources (including multinational firms’ resident in Malawi). Emphasis must be placed on the human and institutional capacity development of local non-governmental and for-profit institutions by taking a facilitation role and delivering the majority of assistance through existing private sector firms, farmer groups, VSLs, local financial and business associations, business service providers, and financial sector service providers.

Interventions focusing on asset creation should include a clear plan for long-term user-funded maintenance and management of the assets. Interventions without a strong likelihood of being profitable and sustainable after the life of activity in the absence of further donor support should not be included in proposals.

11. Foster Resilience – The activity will foster the key resilience concepts of building absorptive, adaptive, and transformative capacities including interventions such as diversifying income streams, access to finance (hazard insurance, savings, credit), asset ownership, access to…