USAID Sri Lanka PSD Activity draft Program Description 02 07 2020.pdf

DRAFT PROGRAM DESCRIPTION

1. Purpose The Private Sector Development (PSD) activity is designed to diversify Sri Lanka’s private sector and increase revenue, especially in target sectors including tourism. This will be done by

1) increasing SME competitiveness and 2) improving women’s labor force participation.

2. Background SME Competitiveness:

Ten years since the end of Sri Lanka’s civil war, the country’s economy has struggled to keep pace with its neighbors, growing at 3.2 percent in 2018 compared to the South Asia average of

6.7 percent.1 While the private sector is the engine of economic growth and prosperity in any country, local and international organizations have identified a number of firm-level issues that are inhibiting private sector growth in Sri Lanka. Small and medium enterprises (SMEs), in particular, have weak capacity for marketing, especially for ecommerce and export, product innovation, efficient financial management, awareness of government policies and regulations, and use of information and communications technology. Stakeholders have highlighted that unsophisticated, family-owned businesses are also unsustainable, as owners often shut down the business rather than sell it or hire professional managers if there is no heir within the family.

Sri Lanka’s production basket is unusually concentrated in services (61 percent of Gross Value Added in 20182) for its income level, with tourism taking up a significant portion. While Sri Lanka has a comparative advantage in tourism, this concentration also exposes its economy to risk. For example, tourist arrivals fell by 70 percent in the immediate aftermath of the April 2019 bombings. As such, diversification of Sri Lankan products and services are an important source of future growth and resilience for the Sri Lankan private sector.

Women’s Labor Force Participation:

Improving women’s participation in the economy is a prerequisite to accelerate economic growth. Sri Lanka has an impressive track record of delivering educational and health services to women and has almost closed the gender gap in these spheres. Girls outperform boys in both educational attainment and educational achievement. Enrollment at the secondary level is 90 percent for girls and 88 percent for boys. The gap is even wider at the tertiary level, with 23 percent enrollment for female students and 16 percent for male students3. There is a large discrepancy, however, in their subject choices. Women make up over 70 percent of enrollment in the arts, education, and law, but males dominate in engineering and computer science (78 percent and 66 percent, respectively).

1 World Bank WDI 2 http://www.statistics.gov.lk/national_accounts/dcsna_r2/production.php 3 http://uis.unesco.org/en/country/lk http://www.statistics.gov.lk/national_accounts/dcsna_r2/production.php http://uis.unesco.org/en/country/lk

However, while women are outperforming men in educational achievement, they are underrepresented in the labor force. For example, while Sri Lanka’s gross domestic product (GDP) purchasing power parity per capita increased from $5,543 in 2000 to $11,956 USD in 2018, female labour force participation has dropped from 37% to 35%. A fragmented labor regime, care responsibilities, social norms, inflexible work arrangements, discrimination and harassment, and transportation are among the most significant constraints to women’s economic participation. Even if women enter the workforce after completing their studies, they leave once they have children and rarely re-enter even as childcare responsibilities diminish because they lack opportunities to retain and improve professional skills during this period. Women’s participation in the economy needs to improve if Sri Lanka is to unlock its potential and accelerate economic growth.

3. Theory of Change If the implementer can improve SME owners’ and workers’ capacity and technology adoption, then market linkages and information, and innovation, the SMEs’ competitiveness in the regional and global market will increase.

If the implementer can improve the care economy, professional development for women, and growth of women-owned enterprises, then women’s labor force participation, especially in the private sector, will improve.

4. Activity Description:

Based on the most recent global evidence on growing SMEs, USAID/Sri Lanka and Maldives seeks creative approaches to achieve the following objectives:

Objective 1. Increased SME competitiveness Objective 2. Improved women’s labor force participation

Objective 1: Increased SME competitiveness This objective aims to increase Sri Lankan SMEs’ competitiveness in national, regional, and global markets in terms of product quality standards, price, volume, efficient delivery, and other market requirements. Improving on these fronts will allow Sri Lankan SMEs to expand into new markets, diversify products, and increase revenue. Firms on a growth path are more likely to formalize and pay taxes in order to gain more financing, supply to larger corporations and the government, and export.

Sub-objective 1.1: Increased Capacity and Technology Adoption This sub-objective aims to improve SME capacity in e-commerce, understanding of regulations and procedures (such as for paying taxes), and technology transfer by facilitating a commercially https://www.marketlinks.org/sites/marketlinks.org/files/theories_of_change_-_high-growth_sme_development_5.13.19.pdf sustainable business service marketplace. The ideal end-state includes a commercially self-sustaining market of professional consulting, accounting, management, and other business development services crucial to firm growth in the target sectors, where high-potential SMEs and entrepreneurs have full information on the potential benefits and quality of service providers, and pay for their services in order to grow.

Illustrative activities:

● Provide customized training to SMEs on marketing services, financial and operating efficiency improvements, and opportunities for adopting ICT tools (e.g. the use of e-commerce)

● Provide technical assistance to SMEs for product and process innovation to meet quality standards or obtain international certifications

● Facilitate information to the private sector on relevant policies and regulations on registration, paying taxes, trade, or others

Sub-objective 1.2: Improved Market Linkages and Information This sub-objective aims to improve market linkages and information by strengthening and expanding channels through which Sri Lankan SMEs receive information about existing and potential markets in the target sectors. It also includes strengthened and deepened market linkages via integration into global value chains, such that beneficiary SMEs fulfill larger value orders in a larger number of value chains serving a greater diversity of geographic markets.

Illustrative activities:

● Better link SMEs to commercial providers of market information including prices, consumer demand, and other trends to scale and diversify markets (e.g. linking SMEs to industry associations, media outlets, and end markets)

● Improve SME integration into global value chains through partnering with lead, buyer firms for repeat business and long-term relationships

● Support SMEs in trade shows, business exchange programs and other platforms for long-term business relationships

Sub-objective 1.3: Increased Innovation This sub-objectives seeks to increase innovation to improve product and market diversification, so that Sri Lankan SMEs can export a wider range of products to a wider range of geographical markets. This may involve horizontal upgrading to produce the same product but with higher-value characteristics; or vertical upgrading to add more value to inputs, and thus capture more of the end-market value for beneficiary SMEs as suppliers.

Illustrative activities:

● Partnering with higher education institutions to spur scientific and technological research that diversifies the Sri Lankan products/service basket, potentially including facilitation of commercialization of research

● Assist in licensing to support application of international research in Sri Lanka

● Facilitate business and investment matchmaking platforms between large conglomerates and SMEs

Objective 2: Improved Women’s Labor Force Participation This objective aims to contribute to improve women’s participation in the private sector labor force, both as employees and entrepreneurs, with specific focus on key economic growth sectors that have the most opportunity for women, including tourism and ICT. The activities under this objective should mitigate constraints that inhibit women’s participation in the economy and increase the competitiveness of women-owned enterprises, thereby creating and strengthening pathways to professional progress for women and expediting women-owned enterprises’ growth.

Sub-objective 2.1: Improved Care Economy This sub-objective aims to improve the care economy. A consistent theme throughout the literature on women’s economic participation in Sri Lanka is that household and care responsibilities are the primary drivers behind low labor force participation. Furthermore, with an aging population in Sri Lanka, aging parents also need care, and sometimes child and elder care needs overlap. This is reinforced by the traditional preference for a generally more household-centric role for women.

A 2017 time-use survey conducted by the Department of Census and Statistics found that women (age 15 and above) spend 6.8 hours per day on unpaid housework and care work, compared to

2.7 hours for men. These figures drop slightly for the working population: employed women spend 5.7 hours on unpaid work, compared to 2.5 hours for employed men.4

The commercial child and elderly care industry is still at a very nascent stage and is too expensive for most families, urban-centric and lacks credible quality assurances and oversight.

Therefore, this sub-objective focuses on improving the care industry, both as an enabler to increase women’s labor force participation in general, and also as an employment and business opportunity for women.

Illustrative activities:

● Provide technical assistance for provider start-up and expansion in the commercial care industry

● Strengthen quality assurance and self-regulation of the care industry by facilitating credible quality certification systems and professional qualifications

4 GSL Department of Census and Statistics, Sri Lanka Time Use Survey 2017

● Facilitate the development of women-owned care businesses, including a small business franchise model, for home-based elder and childcare.

● Disseminate positive examples and communication techniques around women working and balancing care and household responsibilities through engaging schools, religious centers, and other appropriate social institutions and media.

Sub-objective 2.2: Improved professional development for women This sub-objective aims to improve professional development for women. One factor contributing to the low participation of women in the workforce is that women rarely re-enter the workforce even as childcare responsibilities diminish over time as they lack opportunities to retain and improve professional skills while at home. Furthermore, women are under-represented in key economic growth sectors, including tourism and ICT, and often face lack of safe and convenient transportation and professional networking options. Therefore, this sub-objective focuses on improving women’s participation in economic growth sectors, increasing opportunities for career progression, and facilitating the re-entry of women to the workforce.

Illustrative activities:

● Provide technical assistance to encourage increased women’s participation in key economic growth sectors.

● Support potential employers to better understand the economic benefits of attracting more women to their workforce, and enforce a more supportive work environment for women free of discrimination and harassment.

● Facilitate commercially sustainable, women-friendly transport solutions.

● Facilitate mentorship programs for women to receive professional advice to plan, develop and progress in their careers or re-enter the workforce after a period of absence.

Sub-objective 2.3:Increased growth of women-owned enterprises This sub-objective aims to increase growth of women-owned enterprises. Many constraints that affect the competitiveness of all SMEs and inhibit growth, including inadequate managerial capacity and poor market linkages often disproportionately affect women. At the same time, intervention modalities that effectively reach male entrepreneurs do not necessarily work as well for female entrepreneurs. Therefore, activities under this sub-objective focus on building management capacity and improving the competitiveness of women-owned SMEs to expedite their sales growth.

Illustrative activities:

● Facilitate commercially sustainable technical and capacity building for women-owned SMEs to improve managerial capacity, market linkages and bankability

● Facilitate technology transfer to women-owned SMEs for product upgrading

● Facilitate networking and professional mentoring opportunities for women entrepreneurs, including with men

● Provide technical support to improve women-owned businesses’ utilization of ICT to improve efficiency and market linkages

Overarching Technical Considerations:

Beneficiary firms and sectors:

The primary beneficiaries for Objective 1 will be SMEs with annual revenues of LKR 16-50 Million at baseline, within focus sectors of tourism and up to two additional sectors within manufacturing or services, subject to adjustment in each annual work plan. Within this group, the implementer will develop criteria for identifying those firms most likely to benefit from their interventions, and use light-touch diagnostics, tailoring and optimal sequencing and bundling for individual start-ups or firms to maximize cost-effectiveness. The AOR may require the implementer to adjust targeting criteria depending on changes in the operating environment, such as other enterprise development programs or changes to the government definition of SMEs. The primary beneficiaries for Objective 2 will be women who are or have the potential to be economically active.

Geographic Focus:

Although PSD has no specific geographic focus, USAID values approaches that directly or indirectly support underserved communities (e.g., ethnic minority populations in the northern and eastern regions).

Gender:

Promoting gender equality and female empowerment are not only critical issues to tackle in employability activities, but also a USAID policy requirement. USAID policy (as per ADS 205 and ADS 201.3.16.3 (a)) requires that the Agency consider the differing roles of men and women in the planning and implementation of activities. The above programmatic approach reflects the gender analysis in Attachment ___. The awardee should conduct its own periodic gender analysis throughout implementation to inform adaptive management, and adjust the work plans accordingly, subject to approval of the AOR.

Environmental Considerations:

The Initial Environmental Examination with Categorical Exclusion and Negative Determination with Conditions determinations is being drafted for review and approval in the Mission, prior to its submission to BEO/Asia for review and concurrence.

Climate Risk Analysis:

USAID/Sri Lanka’s CDCS Climate Risk Screening identified current and planned activities as “low risk” for environmental and climate impact. At the activity level, climate risk considerations are incorporated into the Initial Environmental Examination and all subsequent amendments.

5. Alignment with USG and USAID Policies and Initiatives At the Agency level, Private Sector Development aligns with the following USAID and U.S.

Government policies, strategies, and initiatives:

Private Sector Engagement (PSE) Policy PSE is a strategic approach to planning and programming through which USAID consults, strategizes, aligns, collaborates, and implements with the private sector for greater scale, sustainability, and effectiveness of development or humanitarian outcomes.

Journey to Self Reliance This activity supports USAID’s Journey to Self Reliance (J2SR) which seeks to “end the need for foreign assistance.”5 J2SR priorities emphasized in this activity include “Invest for Impact” and “Sustain Results.”6 Both financial and human resources require prudent utilization, and interventions must be tailored to achieve lasting results.7 USAID prioritizes diversified and creative new partnership models (e.g., with the private sector) that engender measurable outcomes, as well as the taking of balanced risks.8 As a result of this approach, activity outcomes should become self-sustaining and scalable long-term without the need for continuous donor assistance.

Indo-Pacific Vision Together with our U.S. Government partners, and in coordination with like-minded donor partners including India, Australia, Japan, and the Republic of Korea, USAID supports key bilateral and regional efforts focused in three primary areas: strengthening democratic systems, unlocking private enterprise-led economic growth, and improving natural resource management.

This activity falls under Indo-Pacific Vision Objective 2: Foster Economic Growth.

Women’s Global Development and Prosperity (W-GDP) The W-GDP Initiative was launched by the White House in February 2019 as the first whole-of-government effort to advance global women’s economic empowerment focused on three pillars:

women prospering in the workforce, women succeeding as entrepreneurs, and women enabled in the economy. W-GDP seeks to reach 50 million women in the developing world by 2025 through

5 USAID Ending the Need for Foreign Assistance at pg. 16 (providing the framework for J2SR), available at https://www.usaid.gov/policyframework.

6 Id. at 36 & 39-43.

7 Id.

8 Id.

https://www.usaid.gov/policyframework

U.S. Government activities, public-private partnerships, and a new, innovative Fund, housed and managed by USAID.

Country Development Cooperation Strategy This activity supports Development Objective 2 in USAID’s Country Development Cooperation Strategy: “Sustained and inclusive economic growth.” Under this objective, the program supports Intermediate Result 2.2: “Strengthened enterprise competitiveness, especially in rural areas and secondary cities.”

U.S. Government Integrated Country Strategy This strategy is coordinated across the U.S. Embassy through the Integrated Country Strategy, “Mission Goal #3: “Sri Lanka’s economy strengthens and grows through good governance, responsible and inclusive economic action and policy, accountability, and rule of law.” Under this goal, USAID is contributing to Mission Objective 3.1: “Foster sustainable and inclusive economic growth in Sri Lanka.”

6. Coordination with U.S. Government and Other Donor Programs:

The selected applicant must coordinate and identify synergies among U.S. Government programs and with donor counterparts to leverage resources and maximize impact.

USAID Programs:

YouLead YouLead is a four-year program that seeks to enhance employment and entrepreneurship opportunities for youth in Sri Lanka. YouLead seeks to develop a tight fit between the skills demanded by a competitive economy and the skills possessed by its youth. The key objectives of the program are increase youth employability skills in targeted sectors, improve quality, relevance, and delivery of TVET and increase the prospects of successful self-employment.

Public Financial Management + Trade PFM+T is a five-year activity that provides technical assistance to the Government of Sri Lanka (GSL) to increase government accountability and efficiency on public financial management and trade. The activity will support GSL efforts to streamline processes and align current policies with international best practices, and is expected to improve the policy and regulatory environment for trade. PFM+T will assist in the implementation of procurement policies that are targeted at SMEs and WOSBs, as this has the potential to mitigate social exclusion and structural discrimination.

7. Collaboration, Learning, and Adapting:

This program description envisions that project learning will be core to the project’s monitoring and evaluation (M&E) efforts. The project will seek to adapt and change based upon these internal monitoring results. In order to ensure that the project is focused on project learning and achieving results, the development and monitoring of performance indicators should be conducted collaboratively with project stakeholders and the measurement and achievement of results should be owned by the stakeholders, with the implementing partner serving as a flexible and adaptable provider to achieve results. At the same time, the implementer must at minimum report against applicable State and USAID standard indicators under EG.5, listed here:

https://www.state.gov/wp-content/uploads/2019/11/IRS_Category5_EconomicGrowth-2019.xls.

Annually, prior to the development of the annual work plan, activity stakeholders should come together and reflect on the prior year’s achievements, failures and obstacles along with an examination of the context. Based on this holistic and reflective analysis, a work plan should be developed that will seek to achieve the activity results. USAID will participate in this annual stakeholder conference and ensure that the project award remains adaptable to any changing context and results.

https://www.state.gov/wp-content/uploads/2019/11/IRS_Category5_EconomicGrowth-2019.xls