SOL-111-10-000005revised.rtf

Attachment B

Subject: Request for Proposals SOL-111-10-000005, Enterprise Development and Market Competitiveness (EDMC) program

The United States Government, represented by the U.S. Agency for International Development (USAID), is seeking proposals from qualified companies and organizations interested in providing the services described in the attached solicitation.

If you decide to submit a proposal, it must be submitted in accordance with the attached solicitation and received in Yerevan no later than the date and time indicated above. Offerors are advised that a minimum of 5 days should be allowed for proposals sent by courier. A minimum of 3 weeks should be allowed for proposals sent through the Washington, D.C. State Department address.

The NAICS Code for this solicitation is 541618. This procurement will be conducted as a full and open competition, under which any type of organization may submit proposals. The procedures set forth in FAR Part 15 will apply. USAID plans to award a 5-year Cost-Plus-Fixed-Fee (CPFF), Completion Type Contract with a total estimated cost in the range of $20-$22 million for the implementation of this activity. Cost proposals will be evaluated as a part of a Best Value determination for Contract award. Sections B through J of the solicitation will become the Contract, with blanks completed by the Contracting Officer based on the successful proposal.

This solicitation in no way obligates USAID to award a Contract, nor does it commit USAID to pay any cost incurred in the preparation and submission of the proposal.

Receipt of this RFP through the internet must be confirmed by written notification to Armen Tamazyan, Acquisition Specialist, USAID/Armenia if the Offeror wishes to be notified of any amendments to the solicitation. Mr. Tamazyan can be reached via e-mail at atamazyan@usaid.gov or via facsimile at (374-10) 464 728. Offerors should retain for their records copies of any and all enclosures which accompany their proposals.

Sincerely, John F. Lord Regional Contracting Officer USAID/Caucasus

1. THIS CONTRACT IS A RATED ORDER

RATING

PAGE OF

PAGES

UNDER DPAS (15 CFR 700)

2. CONTRACT NUMBER

3. SOLICITATION NUMBER

4. TYPE OF SOLICITATION

5. DATE ISSUED

6. REQUISITION/PURCHASE NUMBER

SEALED BID (IFB)

NEGOTIATED (RFP)

7. ISSUED BY

CODE

8. ADDRESS OFFER TO

(If other than Item 7) NOTE: In sealed bid solicitations "offer" and "offeror" mean "bid" and "bidder".

9. Sealed offers in original and ___________________ copies for furnishing the supplies or services in the Schedule will be received at the place specified in Item 8, or if handcarried, in the depository located in until local time _______________________ (Hour) (Date) CAUTION - LATE Submissions, Modifications, and Withdrawals: See Section L, Provision No. 52.214-7 or 52.215-1. All Offers are subject to all terms and conditions contained in this solicitation.

A. NAME

B. TELEPHONE (NO COLLECT CALLS)

C. E-MAIL ADDRESS

AREA CODE

NUMBER

EXT.

(X)

SEC.

DESCRIPTION

PAGE(S)

(X)

SEC.

DESCRIPTION

PAGE(S)

PART I - THE SCHEDULE

PART II - CONTRACT CLAUSES

A

SOLICITATION/CONTRACT FORM

I

CONTRACT CLAUSES

B

SUPPLIES OR SERVICES AND PRICES/COSTS

PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.

C

DESCRIPTION/SPECS./WORK STATEMENT

J

LIST OF ATTACHMENTS

D

PACKAGING AND MARKING

PART IV - REPRESENTATIONS AND INSTRUCTIONS

E

INSPECTION AND ACCEPTANCE

F

DELIVERIES OR PERFORMANCE

G

CONTRACT ADMINISTRATION DATA

L

INSTR., CONDS., AND NOTICES TO OFFERORS

H

SPECIAL CONTRACT REQUIREMENTS

M

EVALUATION FACTORS FOR AWARD

K

REPRESENTATIONS, CERTIFICATIONS AND OTHER

STATEMENTS OF OFFERORS

NOTE: Item 12 does not apply if the solicitation includes the provisions at 52.214-16, Minimum Bid Acceptance Period.

12. In compliance with the above, the undersigned agrees, if this offer is accepted within ___ _____ calendar days (60 calendar days unless a different period is inserted by the offeror) from the date for receipt of offers specified above, to furnish any or all items upon which prices are offered at the price set opposite each item, delivered at the designated point(s), within the time specified in the schedule.

13. DISCOUNT FOR PROMPT PAYMENT

10 CALENDAR DAYS (%)

20 CALENDAR DAYS (%)

30 CALENDAR DAYS (%)

CALENDAR DAYS (%)

(See Section I, Clause No. 52-232-8)

14. ACKNOWLEDGEMENT OF AMENDMENTS

AMENDMENT NO.

DATE

AMENDMENT NO.

DATE

(The offeror acknowledges receipt of amendments to the SOLICITATION for offerors and related documents numbered and dated:

CODE

FACILITY

16. NAME AND TITLE OF PERSON AUTHORIZED TO SIGN OFFER

15A. NAME AND

ADDRESS

OF OFFEROR

(Type or print)

15B. TELEPHONE NUMBER

17. SIGNATURE

18. OFFER DATE

AREA CODE

NUMBER

EXT.

15C. CHECK IF REMITTANCE ADDRESS IS DIFFERENT FROM

ABOVE - ENTER SUCH ADDRESS IN SCHEDULE

19. ACCEPTED AS TO ITEMS NUMBERED

20. AMOUNT

21. ACCOUNTING AND APPROPRIATION

22. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION:

23. SUBMIT INVOICES TO ADDRESS SHOWN IN

ITEM 26

(4 copies unless otherwise specified) 10 U.S.C. 2304(a) ( ) 41 U.S.C. 253(c) ( )

24. ADMINISTERED BY (If other than Item 7)

25. PAYMENT WILL BE MADE BY

CODE

CODE

26. NAME OF CONTRACTING OFFICER (Type or print)

27. UNITED STATES OF AMERICA

28. AWARD DATE

IMPORTANT - Award will be made on this Form, or on Standard Form 26, or by other authorized official written notice.

(Signature of Contracting Officer)

(REV. 9-97)

10. FOR INFORMATION CALL:

11. TABLE OF CONTENTS

STANDARD FORM 33

SOLICITATION OFFER AND AWARD

SOLICITATION

OFFER (Must be fully completed by Offeror) AWARD (To be completed by Government) N/A 91

SOL-111-10-000005

X 08/05, 2010 USAID/Armenia 1 American Avenue Yerevan 0082, Armenia

10:00 AM

October 1, 2010 Armen Tamazyan

Supervisory Contracting Officer 374-10 494-493 atamazyan@usaid.gov

See Attached Table of Contents pages 1-3

SECTION E - INSPECTION AND ACCEPTANCE 22

H.6 NONEXPENDABLE PROPERTY PURCHASES AND INFORMATION

H.9 SUBCONTRACTING PLAN AND THE SF 294 – SUBCONTRACTING REPORT FOR

I.3 52.215-22 LIMITATIONS ON PASS-THROUGH CHARGES-IDENTIFICATION OF

SECTION K - REPRESENTATIONS, CERTIFICATIONS AND

SOL-111-10-000005 SECTION B

PART I - THE SCHEDULE

SECTION B - SUPPLIES OR SERVICES AND PRICE/COSTS

B.1 PURPOSE

The purpose of the Enterprise Development and Market Competitiveness (EDMC) Project is to raise incomes and employment in Armenia by promoting growth in selected value chains with export potential.

B.2 CONTRACT TYPE

The Government contemplates award of a Cost-Plus-Fixed-Fee (CPFF), Completion Contract resulting from this solicitation. For the consideration set forth below, the Contractor shall provide the deliverables or outputs described in Section F in accordance with the performance standards specified in section E.

B.3 ESTIMATED COST, FIXED FEE, AND OBLIGATED AMOUNT

(a) The estimated cost for the performance of the work required hereunder, exclusive of Fixed Fee, if any, is $_______. The Fixed Fee, if any, is $__________. The estimated Cost-Plus-Fixed-Fee, if any, is $____________.

(b) Within the estimated Cost-Plus-Fixed-Fee (if any) specified in paragraph (a) above, the amount currently obligated and available for reimbursement of allowable costs incurred by the Contractor (and payment of fee, if any) for performance hereunder is $____________. The Contractor shall not exceed the aforesaid obligated amount.

(c) Funds obligated hereunder are anticipated to be sufficient through ____________.

B.4 LINE ITEMS

Item

CLIN 1

(Develop more productive enterprises and value chain management capacity for greater efficiencies)

CLIN 2

(Enhance workforce skills and entrepreneurial development)

CLIN 3

(Improve business environment)

CLIN 4

(Facilitate effective financial intermediation) Total Program Direct Cost

Indirect Cost

Grants

$1,500,000 Fixed Fee

Total Estimated Cost

B.5 INDIRECT COSTS

Pending establishment of revised provisional or final indirect cost rates, allowable indirect costs shall be reimbursed on the basis of the following negotiated provisional or predetermined rates and the appropriate bases:

Description Rate Base Type Period

TBD 1/ 1/ 1/

1/Base of Application:

Type of Rate: Predetermined Period:

B.6 COSTS REIMBURSABLE

The U.S. dollar costs allowable shall be limited to reasonable, allocable and necessary costs determined in accordance with FAR 52.216-7, Allowable Cost and Payment, FAR 52.216-8, Fixed Fee, if applicable, and AIDAR 752.7003, Documentation for Payment.

[END OF SECTION B]SOL-111-10-000005 SECTION C

SECTION C - DESCRIPTION/SPECIFICATIONS/STATEMENT OF WORK

ENTERPRISE DEVELOPMENT AND MARKET COMPETITIVENESS (EDMC) PROJECT

C.1 OBJECTIVE / BACKGROUND / INTRODUCTION

I. Purpose

The Enterprise Development and Market Competitiveness (EDMC) Project is a 5-year intervention designed to raise incomes and employment in Armenia by promoting growth in selected value chains (VCs) with export potential. Value chains represent dynamic building blocks of the economy, subject to evolution and change. Focusing on the role of Small and Medium-sized Enterprises (SMEs), the Project is expected to facilitate the development of competitive enterprises and value chains by stimulating innovation, enhancing workforce skills, accelerating new enterprise formation, improving access to finance, and addressing shortcomings in the business environment. The Project will employ technical assistance, training, and grants to assist target value chains in “going global,” to reach into new and expand in existing markets. The Project is designed to be a catalyst, mobilizing additional resources from other sources to accelerate growth in the target value chains.

USAID Armenia remains focused on ensuring the US Government investment in Armenia reform process has a lasting positive effect. Through this contract, USAID will continue to support Armenian institutions and organizations to become legacy organizations, which after the completion of the project would continue to promote issues of economic growth reform. The Contractor will identify and support a number of Armenian institutions and organizations to become legacy organizations, which after the completion of the project would continue promoting issues of diversification of the economy and competitiveness of the private sector in a sustainable manner.

II. Background

A. Overview

Rapid economic growth between 2000 and 2007 earned Armenia the moniker “Caucasian tiger.” Between 2003 and 2007, exports increased at an average annual rate of over 24 percent, albeit from a relatively small base. Remittances further fueled the economic expansion, contributing to a domestic construction boom. The construction sector has been the main contributor to GDP growth in Armenia since 2005, reaching 27 percent of GDP in 2008. However, in 2008, the global economic crisis slowed GDP growth to 6.8 percent, and exports declined slightly. In 2009, Armenia felt the full impact of the crisis: real GDP contracted by 14.4 percent, much of which was due to construction, and exports declined by almost a third (31.5 percent). Exports to the European Union (EU) and other European countries contracted by over 50 percent. Remittances, which quintupled in dollar terms between 2003 and 2008 (reaching almost 18 percent of GDP in 2008) collapsed by about 30 percent. Russia alone accounted for over 80 percent of them in 2008. Returning migrant workers added to the pressure in the country’s labor markets.

Still, there were some positive signs. In terms of the Doing Business rankings, Armenia actually improved its position. Between 2008 and 2009 Armenia moved from rank 50 to 43, in effect into the top 25 percent of the 183 countries rated. For “Starting a business,” Armenia’s ranking improved by 44 places, from rank 65 to 21. For “Trading across borders,” Armenia gained 34 places, from rank 136 to 102, still lagging behind its overall rating. The positive trend is also reflected in the World Bank Institute’s summary indicator of “regulatory quality,” where Armenia moved from a poor score in 1996 to above the median for all countries in 2008.

With respect to competitiveness, Armenia ranked just above the bottom 25 percent in the World Economic Forum’s Global Competitiveness Report (GCR). The country’s overall rank has remained steady over the past two years - at 97 out of the 133 (134 in 2008) countries ranked; it has actually dropped slightly from its position in 2007. Armenia scored especially low in terms of “Innovation and sophistication factors,” with a rank of 112. A recent assessment sponsored by USAID/Armenia confirmed that Armenian enterprises and SMEs in particular, exhibit a generally low level of business sophistication. The country ranks low on the World Bank’s Logistics Performance Index (LPI): 111 out of 155 countries ranked, but relatively high on the Knowledge Economy Index (KEI), also developed by the World Bank: 56 out of 146 countries.

The largest foreign currency earnings source in Armenia is remittances, mainly from Russia. In 2008, for example, total remittances dwarfed the proceeds from commodity exports. Moreover, many of the country’s exports contain relatively little domestic value added. Precious stones (diamonds) are shipped in, cut and polished, and shipped back out. Aluminum (foil) is basically one factory, the former Kanaker aluminum smelter, now Armenal. The top five commodity categories (out of 100 commodity groups categorized by the Harmonized System) account for roughly 80 percent of total exports. And the only high-value added commodity group is beverages—primarily brandy.

As the LPI ranking suggests, Armenia faces serious potential systemic constraints regarding the infrastructure needed to support business development—telecoms, energy, and water. Constraints are further complicated by environmental issues related to the application of clean production/manufacturing principles, and the low incidence of third party certifications such as HACCP and ISO.

Since the onset of the global downturn, the Armenian authorities have swiftly implemented a range of measures to help contain the impact of the crisis. Financial support from external partners has played an important role, with Armenia receiving nearly $50 million from the World Bank for on-lending to SMEs, $500 million from Russia, and program support from a number of other donors. Despite the easing, credit growth has continued to decline, leading the government and the Central Bank to take additional measures. Bank lending rates, which have remained at around 18 percent, have not been responsive to the drop in both repo and interbank rates, which implies that the monetary transmission remains weak. The government and the Central Bank have arranged to on lend at competitive rates to SMEs and other targeted sectors through the Central Bank and commercial banks, using resources from Russia and other donors. Use of the lending facilities has been slow, however, as banks have tightened their lending standards in the face of economic uncertainty.

Armenia now faces the challenge of recapturing the growth rates of the past decade, but diversifying its base. That goal requires a focus on building the competitiveness of the private sector. Systems for knowledge utilization exist, but the kind of innovation needed for becoming and staying competitive is the product of broad range of factors. To achieve an appreciable impact, assistance should be focused on specific products and specific markets, that is, value chains that already exist or have potential. Such a focus holds the promise of strengthening Armenia’s private sector, improve its ability to compete in both the domestic and export markets, and diversify and expand exports as the basis for a more sustainable economic future. It allows for addressing the principal factors that shape competitiveness.

B. USAID/Armenia Private Sector Activities

During the last few years, several activities under USAID/Armenia have provided assistance to SMEs as well as the financial sector. These activities have included technical assistance, training, capacity building and increasing access to finance for enterprises in the sectors of agribusiness, information technologies, tourism, and pharmaceuticals. USAID/Armenia has also devoted significant resources to developing the required infrastructure for a vibrant financial system. This development effort has led to the creation of the required building blocks for an effective, modern system, like basic legal and regulatory framework, a strong financial regulator in the form of the Central Bank of Armenia (CBA), electronic market systems for currency and securities, the required clearance and settlement systems and central depository, new information nodes such as the credit bureau, stock exchange disclosure filings and a growing financial media, and private sector participants in each of the financial system’s sub sectors.

Current and past USAID-financed activities that have dealt with some of the issues related to this activity include the following.

The Financial Sector Deepening (FSD) Project provided assistance to support growth in financial intermediation, improving quality and variety of financial services; developing the financial sector infrastructure, and strengthening regulation and supervision. This $8 mln project ended in fall 2009.

In addition, USAID is also contemplating a number of additional programs such as technical assistance for financial intermediation and regulatory reform, and improved infrastructure for cleaner production, and the EDMC project will be expected to coordinate with these initiatives.

C. Other USG and Other Donor Private Sector Activities

The following is a summary of activities related to the EDMC project which are supported other USG agencies and by other donors.

The Center for Agribusiness and Rural Development (CARD) is supported by the USDA Foreign Agriculture Service (FAS) and is working with agricultural producers, covering all sectors: dairy, meat, fresh produce, wine, new crops, animal husbandry (goats) genetics, and new technology. Primary activities are market infrastructure development for rural communities, SME development for strategic rural areas, improving efficiency of agricultural production, management of water resources in agriculture, and food safety.

The MCA/Armenia Water-to-Market activity supports the transition to more profitable agricultural production through irrigation rehabilitation, by introducing and encouraging best practices in irrigated agriculture, and fostering the adoption of improved water management techniques. Other activities aim to support the shift to higher value crops and livestock, strengthening the post-harvest and processing enterprises linking producers to their markets, both domestic and international, and strengthening the capacity of credit providers to fund viable proposals in production and post-harvest activities.

The European Bank for Reconstruction and Development (EBRD) country program works with eleven commercial banks to provide long term financing, and co-financing with local banks, co-financing for SME lines of credit and equity financing. Other activities include training and capacity building and promoting lending to industries where banks are traditionally reluctant to lend, such as microfinance and agriculture.

ProSME is a project of the German Agency for Technical Cooperation (GTZ) in Armenia. The goal of the project is the sustainable promotion of the development of small and medium enterprises (SMEs) in Armenia. Activities include: municipal development; coordination of technical co-operation; self-assistance activities; SME promotion; Poverty Reduction Strategy Paper (PRSP); commercial professions; consolidation of the legal framework; and financial controls.

The World Bank Country Strategy 2009-2012 focuses on supporting the creation of a knowledge based economy supporting infrastructure development, developing the high-tech industry and promoting public-private partnerships. Their activities include the “E-society and Innovation for Competitiveness” project, focused on developing the high-tech industry and IT industry in general. An approximately USD 40 million infrastructure-related project, techno-park related venture capital fund (grants) for students to innovate and, if successful, be financed. Other activities that the World Bank will develop include irrigation rehabilitation to improve water use efficiency in two selected irrigation schemes, and to foster immediate rural employment. [USD 24 million project — E-Society] Germany’s Kreditanstalt für Wiederaufbau (KfW) is a significant provider of wholesale funds to the SME market. It made available a revolving facility of €16.7 million (US$25 million), to the German-Armenian Fund (GAF) in the late 1990s, supporting the micro, small, and medium enterprise market. These funds are disbursed through five partner banks (ACBA-Credit Agricole, Anelik, Armeconom, Converse and Ineco), who then on-lend to the sector on market terms and conditions.

The European Commission’s (EC) assistance under the National Indicative Programme for Armenia focuses on three priority areas: strengthening democratic structures and good governance; supporting regulatory reforms and administrative capacity building; and supporting poverty reduction efforts. The EC’s activities related to reforming the business and investment environment in Armenia are to facilitate market and trade relations, including reforming customs and tax legislation and procedures, technical regulations, sanitary and phyto-sanitary issues, as well as sector specific activities related to reforms in specific sectors as well as SMEs in general.

The United Nations Development Programme (UNDP), in partnership with the Government of Denmark, the private sector, Government of Armenia (GOAM) and academic institutions, implements the Modernization of Vocational Education and Training System Project which aims at strengthening and enhancing the vocational-technical education delivery system in providing quality programs by conducting trainings, implementing projects, developing curricula, education materials and textbooks, as well as upgrading the vocation education institutions with modern informational technologies and facilities.

The United Nations Industrial Development Organization (UNIDO) implements activities targeted at poverty reduction through productive projects aimed at building trade capacity, creating investment opportunities, export promotion, agro processing, promotion of clean technology, IT promotion for SMEs, and providing technical assistance for standardizations such as complying with the standards of the International Standards Organization (ISO) and Hazard Analysis and Critical Control Points (HACCP).

D. Related GOAM Institutions and Programs

The following is a summary of GOAM activities related the activity.

EDMC is expected to work with the existing and upcoming projects, whether sponsored by USAID, the GOAM or other donors.

C.2. STATEMENT OF WORK

A. Objective

The overall goal of EDMC is to assist Armenia to develop a more competitive and diversified private sector, particularly by increasing enterprise productivity and competitiveness. To achieve this goal the Project will pursue the following objectives in the target value chains: develop competitive enterprises and value chains by stimulating innovation; enhance workforce skills and accelerate new enterprise formation; address shortcomings in the business environment; and improve access to finance;. The Project will employ technical assistance, training, and grants to assist target value chains in “going global,” to reach into new and expand in existing markets. EDMC is designed to be a catalyst, mobilizing additional resources from other sources to accelerate growth in the target value chains.

The Project will directly contribute to the Mission’s Assistance Objective of “More Competitive and Diversified Private Sector” and supports Intermediate Result (IR) 1: “Increased Enterprise Efficiency and Productivity.” In addition, the Project will also contribute to and support IR 2: “Improved regulatory & Institutional framework for financial and trade services” and IR3. “Improved infrastructure and environmental policy and management practices”, as they relate to development of enterprises. The overall outcomes expected from this project will be: improve Armenia’s Global Competitiveness Ranking and increase non-construction employment and sales.

B. Proposed Interventions / Components

One of the biggest challenges for the Armenian economy is to increase the competitiveness of Armenia’s private sector, improve its ability to compete in both the domestic and export markets, and diversify and expand exports as the basis for a more sustainable economic future. That goal requires a focus on building the competitiveness of the private sector. Systems for knowledge utilization exist, but the kind of innovation needed for becoming and staying competitive is limited. To achieve an appreciable impact, assistance should be focused on specific products and specific markets, that is, value chains that already exist and/or have potential to grow.

The recently completed USAID analysis identified the key strengths and weaknesses of Armenia’s business environment, and articulated a series of key findings related to the constraints for SME development. These include: (i) weak business sophistication such as, limited use of strategic planning; low levels of out-sourcing; and limited use of business development services (BDS); (ii) lack of marketing skills and information, including limited access to quality and market price information, resulting in poor understanding of the end market for their products and services; (iii) lack of export orientation; (iv) regulation and administrative procedures that constrain enterprise development; and (v) poor financial services, including business access to finance and underdeveloped financial markets and services. For the complete list of Supporting Studies and Documentation see Section J.

The principal counterpart of EDMC will be Armenia’s private sector, such as enterprises, value chains, business associations and financial institutions. However, government institutions will also play a major role, shaping the business environment, encouraging and facilitating investment in certain sectors, and carrying out policy reform. Thus, relevant Government agencies, like Ministries of Economy, Finance and other relevant ministries, the Central Bank of Armenia, institutions under the Ministry of Economy, such as the Armenian Development Agency, and the National Competitiveness Foundation may be counterparts for the Project. Academic and research institutions, as well as think tanks may also become partners and clients in the implementation of the project.

The EDMC Contractor will work with value chain stakeholders to tackle priority business environment reforms critical for competitiveness. The combination of technical assistance, training and grants to strengthen management, finance, workforce development and the business environment delineates the underlying strategy of the EDMC activities.

Work under this contract will start with the identification of selected value chains for intervention. The initially proposed selection of potential VCs will be preliminary and will need to be updated and deepened as part of the more detailed assessment of VC selection within the first three months of the project start up. The in-depth value chain assessment will also involve formal consultations with value chain key stakeholders. This interaction will be designed to ground-truth the analysis, leverage resources, and stimulate institutional responses. The VC appraisal will be updated at least on an annual basis to review the selections, add or drop value chains, and measure progress. The final approved selection of VCs, in consultation with USAID, will lead to development of a concrete Work Plan that will guide the activities across the project components.

The selection of the target VCs will be accomplished based on their potential to become more competitive and contribute to diversification of the private sector. The Contractor will also give priority to value chains that offer the greatest opportunities for innovation and absorption of new management, production and marketing technology for private enterprises. The choice of target value chains should include, at a minimum, the following elements:

Access to finance issues associated with value chain growth deserve particular attention. Value chain finance (VCF) has developed its own approaches and procedures, and the appraisal and selection of VCs should reflect best practices (see http://apps.develebridge.net/amap/index.php/resources" http://apps.develebridge.net/amap/index.php/resources). VCF issues related to intra and inter-firm finance issues should be incorporated into the final selection of target value chains and appropriate interventions for addressing financing gaps.

In order to achieve the objectives set forth in section C.2.A, EDMC will consist of the following four integrated components: (1) Develop more productive enterprises and value chain management capacity for greater efficiencies; (2) Enhance workforce skills and entrepreneurial development; (3) Improve business environment; and (4) Facilitate effective financial intermediation. Several of the expected results under each component will require periodic revisions throughout the live of the Project. The Contractor will conduct baseline surveys among SME owners and managers and others after the target VCs have been selected

Component 1: Develop more productive enterprises and value chain management capacity for greater efficiencies

USAID has identified inadequate business sophistication and lack of management capacity of business owners and managers as one of the major constraints on the competitive performance of Armenia’s economy and its value chains. Armenia’s business leaders agreed: the 2009 Global Competitiveness Report ranked the country 112th (out of 133 countries) on “business sophistication.” The principal challenge is to promote innovation and increase export orientation among the enterprises in different stages of the value chain. The focus is to access new markets, and also to deepen the reach of the value chain by upgrading to capture additional value added. Assistance under this component will support the following tasks.

1.1: Improve management skills to raise product quality and lower costs

The Contractor will assist private companies in the target VCs to improve business management capacity to enhance business sophistication and more effectively strengthen sustainable linkages and collaboration along the target value chains. The Contractor will develop and implement approaches that will increase the capacity of business owners/managers, business associations, marketers and service providers to upgrade management among the new and existing companies that participate (or strive to participate) in the target VCs. Business management capacity includes, among others, strengthening the ability to assess end markets and to address constraints in sourcing, operation/production, marketing, quality control, use of new technology, workforce, and finance.

The Contractor will help companies to understand the need for and use of market information and intelligence, and more aggressively market their products and services. For example, this can be done through expanding access to and use of Information and Communication Technologies (ICT) both as a business development service and a marketing tool.

In addition, the Contractor will strengthen the capacity of VCs to become more bankable. Understanding and adoption of modern financial management techniques—cash flow management, financial leverage indicators, and indebtedness management—by enterprises in the target VCs, therefore, becomes an important aspect of the assistance. The Contractor will also reduce demand-side (enterprise level) barriers to access to financing for the targeted VCs.

1.2: Employ greater use of business development services (BDS) and strengthen the capacity of BDS providers

The Contractor will assist the BDS sector to become commercially sustainable, and to stimulate supply responses where they are not being provided at present. The Contractor will suggest innovative, alternative strategies for building a sustainable market for BDS through expansion BDS services use by SMEs in targeted VCs. The EBRD-BAS project provides direct assistance to businesses through business services consultancy companies. The Contractor will closely coordinate with this project.

The Contractor will also improve enterprise bankability through enhanced linkages between BDSs and banks and non-bank financial institutions.

USAID/Armenia has a history of supporting development of the market for BDS. The relevant functions include knowledge and information management, marketing and logistics, production and operation, accounting and finance, development of bankable business plans, or concrete market development plans or strategies. A network of local consulting firms capable of providing technical assistance and training support has already been identified in previous programs and studies. Some of these firms are fully capable, while others lack the breadth of experience that would allow them to become a driver of the pursuit of competitiveness in the target VCs. The Contractor will update the existing information, and develop a training-cum-technical assistance approach to advance the capabilities of the existing BDS firms that provide services to the selected VC stakeholders.

1.3: Adopt clean production processes

The adoption of clean production processes has become a major determinant of global competitiveness. The Contractor will examine best practices for clean production in the target VCs, including any technical regulations or voluntary standards. Based on that assessment, an action plan for promoting the adoption of clean production techniques will be developed and discussed with VC stakeholders. The action plan should include incentives and support for enterprises that desire to obtain the necessary certifications, including training. The Contractor will assist the enterprises in targeted VCs to obtain the appropriate certifications (such as HACCP, ISO 9000, or ISO 14000, and/or other relevant international certifications).

1.4: Strengthen value chain governance and commercial collaboration.

The Contractor will provide support for multi-firm collaboration, to effectively respond to market opportunities. Focus will be on good business practices, advocacy, and intra-VC linkages. To enhance the quest for competitiveness, Armenia’s value chains, both domestic and the local portions of global commodity chains, require a more effective performance of governance structures. Exporters, network orchestrators, or the dominant links in global value chains need to establish standards and provide guidance up and down the value chain in reaching those standards. In addition, value chain governance can be supplemented by advice from related value chains provided under some form of corporate social responsibility (CSR).

1.5. Support the introduction of new technology and innovation

The Contractor will support enterprises in targeted VCs adopting and using more productive and innovative technologies that will help them have more improved enterprise operations and increased productivity, leading to modernization and expansion of enterprises; increased sales, export and employment. This may include access to new technologies and supporting research and development capacity to upgrade operations and improve performance.

Expected results under this component:

A minimum average annual expansion of sales of 10 percent for the respective value chain above the industry average, starting in year 2 of the Project; and a minimum increase in the value-added content of total exports by 3% by year 2, 6% by year 3, 9% by year 4, and 12% by year 5

A minimum average annual expansion of employment levels of assisted firms 1% by year 2, 2% by year 3, 3% by year 4, 4% by year 5 At least 80% of the enterprises in the assisted VCs adopt modern financial management procedures by the end of year 4 At least 10% of the assisted enterprises in the target VCs have used business development services, and at least 50% of the clients of BDS providers become repeat customers of BDS providers

Increased number of enterprises adopting modern technologies

Component 2: Enhance workforce skills and entrepreneurial development

To achieve VC competitiveness, the workforce in the target VCs must possess the skills to meet quality standards. As management improves, new demands for workforce skills ensue. Ensuring that workers have these required skills depends in part on the ability of the educational system, especially its technical and vocational education and training (TVET), as well as professional certification schemes, to respond adequately to the demand of businesses. It also depends on the private sector to articulate its needs, and to work with the TVET and professional associations system to teach those skills. There are efforts under way to address these issues, such as the UNDP-funded VET program, special efforts by the Armenian universities to equip its graduates with skills needed by a knowledge economy, and support for development of internationally certified professionals (such as accountants, actuaries, ect.). These skills should be brought to market.

Workforce development efforts, in particular at the level of the higher education system, need to be complemented by initiatives to familiarize prospective graduates with opportunities and to provide them with support, advice, and guidance with respect to markets, finance and management.

At the same time, the country needs to boost entrepreneur talent to foster private sector development and diversification. This task assumes providing support to nurture the entrepreneurial thinking and facilitation of new venture formation. In an attempt to bridge these gaps, the Contractor will identify core elements that will help increase people's likelihood to go into business.

Tasks under this component:

2.1: Develop and implement innovative solutions to overcome skills constraints

The basic insight for successful programs in developing skills is the critical nature of the interaction between supply (the TVET system) and demand (industry). Dual systems combine the resources of both sides by having trainees learn and work part-time. It is possible that such solutions have been developed for Armenia, but certainly not on a system-wide basis.

The Contractor will conduct a basic appraisal of the existing system of bringing skills to market for the target value chains. That assessment will serve as the basis for any further intervention, such as internships, mentoring programs, skill based short and long term training, etc.

2.2: Facilitate the formation of new sustainable enterprises

The Contractor will assist with the promotion of new enterprise formation which will be linked directly to opportunities created within the target value chains. The initial appraisal should identify gaps that provide real opportunities for new (as well as existing) enterprises. The work with the VCs will also seek to develop markets for national suppliers, again creating opportunities. New enterprises can respond directly to these opportunities, allowing for targeted promotion of investments in new (as well as existing) firms. A baseline survey will be needed to determine whether the basic concept of private enterprise requires marketing.

The Contractor will encourage formation of start-ups and/or create new opportunities for existing firms, through collaboration with young professionals and entrepreneurs.

Armenia’s experience with an incubator/business accelerator makes a strong case for the role of an incubator…