USAID Mongolia Draft SOW for Comment 11-18-10.pdf

FBO SPECIAL NOTICE

SOL-438-11-000001

Please note that the attached document is not a request for proposals. Rather, the purpose of this special notice is to solicit industry comment on an attached draft statement of work for a proposed new activity sponsored by USAID/Mongolia.

USAID/Mongolia seeks comments on the attached draft statement of work. Comments are to be sent to the following email address: AIDMNLORP@USAID.GOV

Comments are welcome from the date of release through the closing of this special notice at 12 midnight, EST, Thursday, December 2, 2010. Interested parties may submit more than one set of comments if appropriate.

All are advised that funds are not yet available to award a possible contract, and that this request for comment neither obligates USAID to award a contract nor commits USAID to pay for any costs incurred in the preparation and submission of comments in response to this special notice.

Should you have any questions in regards to this special notice, please contact Ms. Irene Narag at: INARAG@USAID.GOV

USAID/Mongolia appreciates the input of its partners worldwide to make more effective and lasting development impacts.

mailto:AIDMNLORP@USAID.GOV mailto:INARAG@USAID.GOV

USAID/Mongolia Draft Statement of Work for Public Comment

November 18, 2010

I. INTRODUCTION

The BUSINESS PLUS INITIATIVE (BPI) project is designed to support an enhanced role for the private sector in Mongolia's economic growth by complementing and supporting the Government of Mongolia’s (GOM) strategy to advance the following objectives:

Improved implementation of business enabling policies Strengthened private sector capacity and competitiveness Increased financial sector capacity and enabling environment

The project will promote these objectives by building on the Economic Policy Reform and Competitiveness (EPRC) project which expires on June 18, 2011and its predecessor, the Economic Policy Support Project (EPSP) as well as The Competitiveness Initiative (TCI), the Gobi Project and the GER Initiative. The BUSINESS PLUS INITIATIVE will contribute directly to the achievement of Strategic Objective One (SO1): Accelerate and Broaden Sustainable Private Sector Led Economic Growth.

As detailed in this document, BUSINESS PLUS INITIATIVE’s clearly defined components will be focused on achieving measurable results. However, it is also designed to have sufficient program flexibility to respond rapidly and effectively to windows of opportunity such as new market or business opportunities, new economic reform opportunities or requirements, as well as unexpected domestic, regional or international economic and business developments. As such the contractor for BUSINESS PLUS INITIATIVE must have a high level of managerial and technical competence in core program areas, while maintaining sufficient flexibility to respond to critical USAID and U.S. Government, Government of Mongolia (GOM), private sector and NGO program assistance needs on an in-time, demand-driven basis.

USAID encourages the contractor to take an innovative approach to implementation of the program activities, bringing to bear international best practices and integrating it with local context and priorities. The contractor is encouraged to connect with leading innovators in the private sector and academia in Mongolia and beyond, and to access the recently created Development Innovation Ventures Fund—where creative solutions can be funded, piloted and brought to scale, as well as to seek appropriate opportunities to use the project as a catalyst to mobilize the resources of private corporations, foundations, universities, and other non-government organizations interested in working in Mongolia through the Global Development Alliance (GDA) Initiative.

II. BACKGROUND

In the last 20 years, Mongolia has made tremendous progress in its transition from a centrally-planned state to a democratic, market economy. The transition has been successful overall with the private sector currently constituting over 70 percent of the nation’s GDP. Despite initial challenges, Mongolia’s economy grew rapidly largely thanks to the rising prices of natural resources. From 2004 to 2008, growth averaged nearly 9 percent per year. Like much of the world, Mongolian experienced a down year in 2009, during which its economy contracted by 1.6 percent, but it is expected to grow by an annual average of 7 percent between 2010 and 2011, indicating that Mongolia’s economy is rebounding strongly.1

Mongolia is a mineral rich country with some of the largest untapped gold, copper, and coking-coal reserves in the world, in addition to a wide range of other mineral resources.

Since late 2009, the GOM has finalized an agreement with foreign investors to develop the vast Oyu Tolgoi (OT) copper and gold deposit, and articulated plans to develop the Tavan Tolgoi (TT) coal deposit with a mix of state-run and foreign investor-led development. Total investment to develop OT, TT and other announced minerals developments exceeds $6 billion in the next three years alone. Compared to 2009 GDP of $4.2 billion, this represents a significant financial injection into the economy. Many other developments—ranging from several millions of dollars to a $1 billion iron-ore project—are waiting to be developed depending on the investment environment.

Observers speculate that, if these plans materialize, GDP could double by 2015 and quadruple by 2020.

Although Mongolia anticipates unparalleled, mineral-driven economic growth, it is not prepared for either the massive expansion or the speed of transition. Complex economic, governance, environmental, social and capacity issues persist and require urgent attention. The undiversified economy is highly vulnerable to price volatility in natural resources, unemployment remains high, and 35% of the population continues to live under the poverty line. A big increase in commodity exports will put upward pressure on the togrog, making other exports less competitive. Mining is a capital-intensive industry and will not contribute significantly to reducing unemployment, and the country’s workforce may prove ill-suited to the jobs created by the sector’s growth. Mongolia’s poor regulatory capacity is a deterrent to retaining world class investors. Corruption, especially rent seeking activities, may also prove to be a long-term problem. Growing public frustration about how the dividends from the mining sector are spent, as well as the impact of mining on Mongolia's fragile environment, could also be a source of instability. The GoM has signaled that it recognizes these challenges, and is looking to learn from the example of countries like Chile, Malaysia and Botswana to discover how economies have managed their mineral resource wealth and rapid growth successfully.

Apart from the challenges and opportunities presented by its mineral wealth, Mongolia is struggling with the enormous challenge of improving performance on a range of areas necessary to expand the benefits of growth. They can be summarized as follows:

1 World Bank, 2010

Weak administrative capacity to promote business enabling environment:

Mongolia made significant strides in building the legal and institutional framework necessary to support a market economy; however, implementation and enforcement must improve in order to promote competitiveness and sustained growth. Administrative capacity and procedures need to be strengthened to enhance economic governance and to reduce the cost of doing business.

Lack of citizen participation in economic policy: Private sector and individual "citizen" involvement in policy formulation continues to be minimal. There are few effective business associations representing the views and advocating in the policy making process on behalf of their members. Public-private dialogue will become increasingly critical to ensure that revenues from the mining sector are effectively managed and that business perspectives are considered in policy decisions that affect the enabling environment. Further, confidence in public sector capacity for efficient service delivery is low. The concept of sound corporate and economic governance is gaining traction in Mongolia but is far from adequate.

Weak and under-developed financial sector: Significant improvements in the financial markets are necessary in order for Mongolians to capitalize on the rapid growth of the economy. Mongolian banks with steep interest rates dominate the financial sector with over 96 percent of the sector’s assets. The nascent non-banking financial sector lacks strong business managers, effective regulators and a financially literate customer base. Better regulated banks and access to longer term non-banking finance are necessary to support entrepreneurship, infrastructure development, and other ventures that require increased private sector investments.

II.A USAID Program

Since the dissolution of the Soviet Union in 1991, USAID has helped Mongolia build a solid macroeconomic policy framework and lay the institutional foundations for a stable and sovereign democracy. USAID programs focus on two of Mongolia’s most pressing concerns: strengthening the economy and improving governance. USAID has made vital contributions to Mongolia’s economic and political transformation with limited funding.

It has strengthened more than 7,000 small businesses, increased the availability of business information to half a million people, and facilitated business loans worth over US $6.4 million. USAID’s assistance was critical in transforming the troubled Agricultural Bank of Mongolia into Khan Bank, one of Mongolia’s largest banks and the bank with the most extensive branch network. After 20 years of engagement, USAID is seen as the lead donor in promoting private sector-led economic growth and good governance.

The current USAID strategy in Mongolia is organized around a strategic vision that focuses on two central Strategic Objectives (SOs):

-- First, USAID/Mongolia will work to accelerate and broaden sustainable, private sector-led economic growth;

-- Second, USAID/Mongolia will work to achieve more effective and accountable governance.

USAID projects have contributed to SO1 in the following ways:

1) The GER Initiative: Implemented by CHF international, the Growing Entrepreneurship Rapidly (GER) Initiative (2002-2009) promoted business development and employment services in the rapidly growing ger (traditional dwelling) districts that surround Mongolia's urban centers. The GER Initiative worked in five cities and their surrounding areas: Ulaanbaatar (UB), Darkhan, Erdenet, Choibalsan and Bayan Ulgii. Activities included facilitating loans to four partner banks, supply and demand linkages to larger businesses in city centers, and information services in partnership with government authorities.

The project was spun off into a local NGO, Development Solutions, which continues to operate independently and sustainably in and around the five cities.

2) The Gobi Regional Economic Growth Initiative Phase II: Implemented by Mercy

Corps International, the second phase of the ‘Gobi’ Initiative (2004-2009) promoted economic growth by developing and strengthening rural businesses in the six southern aimags (provinces) of Mongolia. Activities included facilitating financial transactions with local banks; technical support for herders and small and medium-sized enterprises; and providing expanded business information services through various media, including innovative radio programs and the monthly magazine Rural Business News.

3) Economic Policy Reform and Competitiveness Project (2003-2011):

Implemented by Chemonics, Inc., this project provides the GoM with a quick-response mechanism for addressing a wide range of economic policy reform and private sector development issues. Working in conjunction with the Prime Minister's office, long-term expatriate technical specialists provide information and analysis on key issues related to trade, investment, private sector development and related issues. Specially targeted emphases include commercialization of the energy sector and (until 2008) strengthening industries such as tourism and cashmere; key sectors of the economy.

The Gobi and GER projects, although successful, ended in early 2009 due to budget constraints. However, successor programs continue with USDA (United States Department of Agriculture) funding.

A new USAID strategy covering the period 2011-2016 is currently being prepared and will likely continue to emphasize these two central themes. The BUSINESS PLUS INITIATIVE project will contribute to the USAID strategy by building on the Economic Policy Reform and Competitiveness (EPRC) project and its predecessor, the Economic

Policy Support Project (EPSP) as well as The Competitiveness Initiative (TCI), the Gobi Project and the GER Initiative.

II.B Mongolia’s Development Priorities

Mongolia’s economic growth and development priorities and policies are defined in the fifth chapter of the ‘Millennium Development Goals-based Comprehensive National Development Strategy of Mongolia’ (MDGCDS) adopted in 2009.

Key elements of the strategy include increasing labor productivity, increasing investment efficiency, diversifying the economy, increasing exports, introducing technology, improving the business environment, and improving infrastructure.

On the macroeconomic level, the government aims to enhance economic growth, ensure budget and financial sustainability, increase incomes of the population and provide a sound welfare benefits system. Taxation policy will strengthen private sector-led economic growth and allow for the growth of export-oriented production and services.

Inflation and external debt will be managed, interest rates lowered, and favorable investment, trade and banking environments created.

Further, the country seeks to improve competitiveness and remove obstacles to private sector growth. Although the mining sector features prominently in the strategy, the GoM acknowledges the need for economic diversification, SME development, food security and agricultural development, and tourism development.

On infrastructure, the GoM will address the needs of the population and economic development by focusing on roads & transportation, energy, fuel, ICT, planning and construction.

III. SCOPE OF WORK

Flexibility and Creativity: The BUSINESS PLUS INITIATIVE project will be USAID’s primary implementation vehicle for achieving its economic growth objectives in Mongolia. It is designed as a substantive policy implementation and private sector strengthening project geared to deepening and accelerating economic growth. USAID recognizes the need for flexibility and creativity in the Contractor’s approach in order to achieve meaningful and sustainable results. Use of innovation is highly encouraged.

Linkages and Synergies: The BUSINESS PLUS INITIATIVE project will retain certain positive elements of the EPRC projects as well as its predecessor projects, EPSP and TCI while providing greater emphasis on synergies between policy design and implementation on the one hand and private sector growth on the other. Furthermore, the contractor should prepare its proposal and implement the project in a way to maintain synergies with other USAID and USG funded development projects such as the Millennium Challenge Account (MCA), and other donors.

Strategic Approach: BUSINESS PLUS INITIATIVE project will support policy changes that contribute to inclusive economic growth and permit Mongolians to participate in the growing economy. Its activities will influence the policy and institutional framework in ways that increase investment opportunities, improve trade capacity, and stimulate business growth. This will require addressing concerns in a broad range of areas affecting Mongolia's economic growth and private sector engagement in it, in areas ranging from macro-economic policy to business regulation to financing and regulation.

BUSINESS PLUS INITIATIVE project will continue to be a demand-driven process, building on the results-oriented agenda to maximize the benefits of economic growth.

The broad range of potential interventions in contrast to the limited resources available, requires a strategic framework that identifies priority interventions necessary to achieve objectives in the most cost efficient manner.

Cross-cutting Issues: USAID recognizes that meaningful success in the economic growth SO cannot occur in the absence of progress in the democracy and governance SO. The critical importance of the interplay between these two strategic objectives warrants particularly strong teamwork and linkages with other activities in the USAID portfolio, especially in the areas of:

Transparency Public outreach Performance monitoring and evaluation Citizen engagement in the policy making process

Donor Coordination: The contractor shall actively coordinate and, where appropriate collaborate with other donors so that USAID resources can be efficiently used to achieve its objectives. The BUSINESS PLUS INITIATIVE project should take account of lessons learned from previous USAID-funded projects and other donors. Coordination may entail participation in working group meetings as well as formal and informal information exchange with other bilateral donors and multilateral organizations.

USAID’s relatively small size in Mongolia heightens the importance of leveraging donor coordination to maximize results.

USAID Gender Requirements: USAID has a special interest in the participation of women and is working to improve women's equality and empowerment in developing countries. The Agency is increasingly integrating gender into its program planning process. A gender assessment is mandatory for the design of strategic plans and development objectives. USAID completed a gender analysis in 2005, which showed that women have a higher share of jobs in professional and white collar occupations than men. However, the higher education levels for women have not directly translated into higher salaries, senior-management, or decision-making positions. Mongolian women have lower levels of income for similar work, and higher levels of unemployment and poverty than men.2 With this in mind, the contractor shall update this gender analysis as

2 Fitch, p. 4 an initial task under this project. The contractor shall develop a strategy for building gender into the work plan in accordance with USAID requirements. Progress of all related activities will be measured and verified using indicators that are disaggregated by gender and will be part of the PMP.

Grants to local NGOs: The contractor will provide grant funding to local Mongolian NGOs, PVOs and other organizations with the consent of USAID/Mongolia in support of the objectives of this project. The amount of the grants may vary from year to year and the total value should not exceed $1,000,000 for the life of the project.

Indicators and Targets: The contractor will be responsible for monitoring, evaluating and reporting performance against an agreed upon framework of goals, objectives and results with indicators. The strategic objective indicators presented in this document are presented as illustrative and are not to be viewed as fixed.

IV. STATEMENT OF OBJECTIVES/EXPECTED RESULTS

Although economic growth prospects are promising, Mongolia faces a number of key challenges in achieving sustainable and equitable economic growth. These include, inter alia, poor economic diversification and independence, weak institutional capacity, under-developed financial sector, and weak economic governance.

As noted earlier, a new USAID strategy covering the period 2011-2016 is currently being prepared and will likely continue to emphasize the two central themes: Economic Growth and Democracy and Governance. The focus going forward will be on policy implementation as it relates to private sector-led economic growth and good governance.

The USAID strategy takes a pragmatic approach to doing just that. During the next and most critical years for Mongolia, USAID must play a catalytic role in helping Mongolia advance the financial sector, implement the policies and strengthen the institutional foundations that will ensure sustainable and equitable economic growth. The BUSINESS PLUS INITIATIVE project will be the primary vehicle to achieving USAID/Mongolia’s

SO1.

Under the first SO, USAID/Mongolia seeks to expand private sector growth in a more equitable and sustainable way. This is accomplished through advancing three objectives:

IV.1 Improved Implementation of Business Enabling Policies

Mongolia has made significant strides in building the legal and institutional framework necessary to support a market economy. However, implementation and enforcement must improve in order to promote competitiveness and sustained growth. Significant improvements are required in institutional and staff capacity to understand and communicate the provisions of the legislation, effectively administer the provisions, work collaboratively with the private sector, monitor and evaluate the process of implementation, ensure enforcement of regulations, and make policy adjustments as public and private sector needs require.

Indicative results under the objective are:

1.1 Government capacity to implement economic policies and programs increased

1.2 Trade capacity strengthened

1.3 Licensing, standards and inspections streamlined and enforced

1.4 Public-private dialogue broadened

IV.2 Strengthened Private Sector Capacity and Competitiveness

Despite significant improvements during the last few years, private sector capacity is far from adequate. In fact, the private sector requires assistance to effectively manage and participate in the anticipated strong economic growth.

Ambitious development plans require mobilization of substantial financial resources and GoM is aware of the need to attract the private investment. Mongolia has taken the right steps in implementing the Concession Law (February 2010) and the Privatization Guidelines for 2010-2012 (approved by the Parliament). However, there was limited private sector engagement in drafting the law and it is not sufficient for commercial transactions to be concluded in a timely manner. There are many details which could complicate and delay commercial agreements. Therefore, it is important to further enhance the understanding of key stakeholders and provide them with transaction-related support.

Business associations provide an important function in representing the combined views and advocating on behalf of its members. In Mongolia, business associations continue to struggle to provide effective services for their members, fail to effectively lobby their members’ interests to the GoM or create unity and cooperation within particular industries. Strong business associations in key areas would promote advocacy, information exchange, training, and other support services that enhance their competitiveness.

Indicative results under the objective are:

2.1 Foreign and domestic private sector investment in increased in priority sectors as identified by GoM

2.2 Business associations capacity strengthened

2.3 Partnership for entrepreneurship and innovation expanded

IV.3 Improved Financial Sector Capacity and Enabling Environment

Significant improvements in the financial markets are necessary in order for Mongolians to capitalize on the rapid growth of the economy. As Mongolia undergoes significant mining sector led growth in the next five years, there is an increasing demand for alternatives to bank financing. The business community and the Mongolian citizenry need access to longer-term affordable capital in the form of instruments which are suited to their needs. With the rise in income and complexity of development projects, the demand for pensions, insurance, and sophisticated financial instruments is also expected to increase. This in turn will provide the basis for development of non-bank investment products (beyond bank deposits) for domestic and international investors wanting to invest in Mongolia’s growth.

Expected results in these areas are:

3.1 Financial sector regulatory institutions capacity strengthened

3.2 NBFS financing and investment products increased

3.3 Corporate governance and transparency improved, as determined by both domestic observers and respected international organizations

V. DETAILED WORK REQUIREMENTS

The BUSINESS PLUS INITIATIVE project will consist of four main interrelated tasks:

a. Implementation of Business Enabling Policies.

b. Private Sector Investment Support.

c. Financial Sector Deepening Support.

d. Public Outreach and Performance Monitoring and Evaluation.

V.1 Implementation of Business Enabling Policies.

According to the WB, Mongolia ranks 73rd out of 183 countries in the 2010 Doing Business Index3; suggesting that it is easier to conduct business here than it is in China, Russia and Kazakhstan, but more difficult than in other countries of the former Soviet Union, such as Armenia, Azerbaijan, Kyrgyzstan and Georgia. Particular advantages of doing business in Mongolia are declared to be the ease of registering property, employing workers, the protection received by investors and the ability to enforce contracts.

Problematic areas include dealing with construction permits, customs procedures and closing businesses.

Increase Government Capacity to Implement Economic Policies. Mongolia made significant strides in building the legal and institutional framework necessary to support a market economy; however, implementation and enforcement must improve in order to promote competitiveness and sustained growth. Administrative capacity and procedures need to be strengthened and streamlined to enhance economic governance and to reduce the cost of doing business.

Trade Capacity Building. Mongolia ranks 116th in the world for its trading environment.4 There are a number of reasons for the poor score, although many are related to the quality of transport infrastructure for which short-term improvements in ranking will be

3 World Bank Doing Business 2010 4 World Economic Global Enabling Trade Index 2010 impossible. Mongolia also ranks low on policy and administrative procedures. Similarly poor results are disclosed by the WB with Mongolia ranking 158th out of 183 countries in the Doing Business indicators relating to Trading Across Borders.

Standards & Inspections. Many private sector stakeholders felt burdened by the number and procedures used for inspections. The MDGCDS highlights the need for improving, implementing and/or enforcing standards in education, healthcare, taxation, the financial system, mining, food safety, tourism, construction, transportation, urban planning, construction, environmental monitoring and property registration.

Business Regulation & Licensing. Mongolian businesses feel overly burdened by the regulations they face and the situation is getting worse. Ranked 92nd in 2007 for the burden of government regulation in the GCR, their rank has now dropped to 113th position. Related to this are poor scores for favoritism in decisions of government officials (134th) and transparency of government policy-making (120th).

Public Private Dialogue. The MDGCDS, which forms the basis for Mongolia’s economic growth policy, has had little to no private sector involvement or consultation in its development. While some public private dialogue is undertaken, largely through organizations such as the Business Council of Mongolia (BCM), Mongolian Chamber of Commerce and Industry (MCCI), the Trade Unions Confederation (TUC) and Mongolian Employers Federation (MONEF), it tends to be ad-hoc and private sector driven.

Through the MDGCDS, the GoM acknowledges the need to strengthen public private dialogue through a consultative committee and ensure private sector participation in economic decision-making. However, at present, there is no formal mechanism for public-private dialogue in place.

V.2 Private Sector Support

Mongolia has registered around 9,940 foreign investors from more than 95 countries with a total portfolio of some US $3.8 billion5. China, Canada, South Korea, Japan, Russia, the USA, Netherlands and Singapore led investment in 2009. 61.3 percent of total investment was targeted in geology, mining and oil, 19.7 percent in trade & catering, 3.1 percent in banking and finance, 2.8 percent in light industry, 1.9 percent in construction and 1.4 percent in animal by-product processing. Mongolia has a modern Foreign Investment Law, as well as double taxation agreements with 32 countries and investment protection agreements with 40 countries.

Approximately 32,105 business enterprises are registered in Mongolia with 99 percent having less than 199 employees and 70 percent of businesses classified as small and medium size enterprises (SMEs). Although the portion of the economy in private hands continues to increase, the state still controls many strategic enterprises and the level of

5 MCCI – Inspiring Mongolia Magazine – Summer 2010 business sophistication lags far behind neighboring and Commonwealth of Independent States (CIS) countries.

Private Sector Investment. In order to capitalize on the mining growth, Mongolia requires significant private sector investment in not only the mines themselves but also in infrastructure, energy, technology, and other productive capital. Development of the mines in the South Gobi region would require substantial investment, not only for the mines, but also for the infrastructure. The infrastructure alone is estimated to require US $5.2 billion6 including roads, railways, new townships, and power and heat supply.

Mining investments are expected to be provided by private investors who will enter into an agreement with the GOM. Infrastructure (not including power and heat) would require substantial participation of the GOM; even if investments could be financed through Public-Private Partnerships (PPPs), the GOM would be a strong participant along with multilateral and bilateral banks and agencies.

Mongolia has introduced a concession law. However, key stakeholders who will be involved in PPPs lack the necessary capacity to effectively structure the financial and legal agreements and are eager to receive support. Among others, Mongolia needs assistance in the following areas:

1) Ability to formulate and articulate a robust set of alternatives for private sector participation (direct investment; PPPs; equity investments; joint ventures).

2) Risk management: improving the risk profile of the country and the project;

promoting sound policies, transparent environment and legal framework.

3) Enhanced capacity to identify, evaluate and implement financial instruments which are suitable for Mongolia.

4) Training on how a financial transaction is carried out, best practice examples and examples to avoid.

5) Transaction support: this is not to complete a specific agreement (a transaction-specific advisor should be hired for each case), but to provide preliminary support to develop a strategy for the transaction, train and advise key individuals and assist in hiring the right transaction advisor.

The contractor shall support increased private investment through technical assistance to strengthen relevant policies and implementation mechanisms. Working closely with key GOM partners, including, but not be limited to State Property Committee (SPC), Ministry of Finance (MoF), Ministry of Mineral Resources and Energy (MMRE), Ministry of Foreign Affairs and Trade/Foreign Investment and Foreign Trade Agency (MFAT/FIFTA) and National Development and Innovation Committee (NDIC), the contractor shall provide technical advice and support for foreign and domestic investment. Examples of assistance include independent analysis and advice on the structure, finance and legal framework for PPPs and Global Development Alliances (GDAs).

6 Southern Mongolia Infrastructure Strategy, World Bank (2009)

Business Association Strengthening. Business Associations provide an important function in representing the combined views and advocating on behalf of its members.

The recent Economic Growth Assessment report observed the limited capacity within a number of Mongolian business associations. Evidence from best practices and earlier projects suggest that the way in which a project works with associations is critical. The role of these associations in policy making must be member-led with donors providing a supporting rather than leadership role. A positive sign is the apparent willingness of the GOM to engage with professional business associations. Illustrative activities in this area are as follows:

1) Support and facilitate the creation or strengthening of an association of mining supply chain enterprises and/or in other key sectors

2) Support the associations in their efforts to obtain advice and guidance from universities, think tanks and other relevant associations.

3) Assist the newly-created or expanded associations in developing capacity to lobby, disseminate information, coordinate with other organizations, train of members, network with other companies

Partnerships for Entrepreneurship and Innovation. Given that universities and technical and vocational training providers (TVETs) are responsible for providing the country’s future workforce, it is important that they are closely linked with the private sector and government while the students go through their education; not just handing them over when their education is completed.

It is also important for universities and research institutes to become involved in innovation and research projects either directly related to mining or within the mining supply chain. Further research will need to be undertaken to understand the opportunities that may exist among the following suggested activities:

1) Better prepare university and TVET graduates for employment through the introduction and continuation of internships with mining companies and supply chains.

2) Utilize the skills of MBA graduates in undertaking BDS assignments for mining, mining supply chain, energy and financial services companies. Recent graduates should be encouraged to undertake business planning, strategy development, feasibility studies, market research, financial modeling and other tasks for companies pro bono as a means to gain experience.

3) Encourage private sector engagement with universities through lecturing, organization of research projects or competitions, etc.

4) Establish careers guidance services or events within engineering and finance faculties to provide information and guidance on identifying and working with mining and financial services companies.

5) Integrate training components within PPP and financial agreements in order to build the skills of local professionals and manual labor.

V.3 Financial Sector Deepening Support

Under this task, the contractor shall focus on the following areas:

a) Bank oversight and regulation,

b) Non-bank financial institution strengthening and regulation,

c) Corporate governance and transparency.

Mongolia’s financial sector has grown exponentially over the past decade – but almost entirely within the banking sector, which accounts for 96 percent of all financial sector assets. The banking sector expanded 14 fold from MNT 287 billion (US $263 million) at the end of 2000 to MNT 4.1 trillion (US $3 billion)7 in July 20108; a singularly impressive achievement. However, Mongolia remains well behind its neighbors and peers in the depth and breadth of its financial sector. Its nascent equity and debt markets are narrow, illiquid, and not fully functional. Its excessive reliance on banks as virtually the sole source of financial intermediation is a constraint to growth and diversification of the economy. In the absence of alternative intermediation mechanisms, banks are essentially the only domestic source for financing, as well as the only domestic vehicle for investment.

While not a constraint for the 30-50 ‘blue chip’ businesses which are large enough to source capital and loans abroad, it is a large constraint for the vast majority of Mongolian enterprises which must rely on Mongolian banks. Loans through the Mongolian banking sector are expensive (both in nominal and real terms), are relatively short-term, and are heavily collateral-dependent. This presents a particular constraint for those start-up and rapidly growing businesses which need the longer-term, affordable credit, which is required for capital investment. It is also a constraint to poorer Mongolians (those without capital or collateral which can be pledged) who want to invest in housing upgrades, education or new business ventures.

Bank Regulation. The WB/IMF Financial Sector Stability Assessment, completed in May 2008, concluded Mongolia’s bank supervisory framework largely complies with Basel Core Principles. But the recent global financial crisis exposed weaknesses that need to be addressed. Mongol Bank has been subject to political influences, and more decisive action on the consolidation of Anod Bank and Zoos Bank might have resulted in a more optimal solution. Many challenges remain in the banking sector and the Mongol Bank is in need of continued assistance in improving its regulatory and supervisory capacity.

Non-Bank Financial Institutions. Mongolia has a relatively large number of NBFIs, but they constitute only 4 percent of overall financial sector assets. While the scope and activities of brokers and securities firms at present are limited, these intermediaries could assume a significant role. Most of these firms are small operations providing brokerage

7 Assuming exchange rates per USD in 2000 and 2010 of 1,091 MNT and 1,350 MNT respectively.

8 Mongol Bank services, and when and if the securities market develops, will be important in price discovery and imposition of market discipline. A few have licenses to perform underwriting, debt placements, IPOs and bond issuance. These actors, in conjunction with the new bank subsidiaries, are potential engines for introducing financial and advisory services to medium-size enterprises, as well as in the development of investment funds, mutual funds and other collective investment instruments.

The NBFI sector is regulated by the Financial Regulatory Commission (FRC) which was formed in 2005. The FRC has a huge portfolio, which also includes oversight and regulation of the insurance sector and domestic stock market, and faces enormous challenges as it seeks to develop its regulatory capacity. The FRC is aware that this is a critical stage for Mongolia’s financial sector development. Their strategy entails long-term support for capital markets infrastructure, development of corporate governance, improved ICT, and reform of the clearinghouse and central depository. Additional areas of focus are development of FRC capacity, and support for development of capital markets support services such as improved financial reporting, audit and valuation services.

Given the rapidly expanding prospective domestic and international investor base, the Mongolian capital markets are woefully underdeveloped. The Mongolian Stock Exchange (MSE) was established in the early 1990s to provide a vehicle for trading shares of privatized state-owned enterprises and has not evolved into a robust exchange.

The MSE is chartered as an exchange for both debt and stocks. However no bonds have been listed on the exchange for several years.

The equities market is essentially defunct. The current volume of equities trading is under US $100,000 per day. Total market capitalization of the top 20 firms is under US $300 million (total market capitalization was only US $610 million in July 2010). And the most recent market capitalization as a percent of GDP was only 8 percent compared with 400 percent for Malaysia, 295 percent for Korea, and 52 percent for Kazakhstan. Of the 339 companies listed on the exchange, 22 are still state-owned, and it is estimated that as many as 200 of the 339 companies are no longer under operation.

As Mongolia undergoes significant mining sector led growth in the next five years, there will be increasing demand for alternatives to bank financing. With the rise in income, the demand for pensions and insurance is also expected to increase. This in turn will provide the basis for development of non-bank investment products (beyond bank deposits) for domestic and international investors.

Corporate Governance. The EPRC Project, since 2008, has focused significantly in the area of Corporate Governance (CG) training of trainers, facilitating annual conference, research, standard setting, advocacy and increasing public awareness of the importance of CG. The Corporate Governance Development Centre (CGDC) was established in 2009 with support from the Financial Regulatory Commission (FRC), Institute of Finance and Economics, several banks and MONEF.

The concept of CG appears to be gaining traction in Mongolia, particularly in the mining sector where the Mongolian National Mining Association formed a partnership with CGDC in 2009 to undertake training within the sector.

V.4 Public Outreach and Performance Monitoring and Evaluation.

Communicating the results of development activities funded by the American people is a critical component of USAID’s work in Mongolia. The contractor will enhance USAID outreach and communication efforts by attracting positive publicity and promoting public awareness and support for USAID development programs. The contractor will also enhance the outreach capacity of local media and civil society organizations. These organizations can increase public and private commitment and community support to ensure program success. In carrying out this task, the contractor will coordinate with the USAID Public Outreach Specialist and will inform her and the COTR in advance of any planned public community event, speaking engagement, media release or scheduled media interview.

The contractor shall submit a Performance Monitoring Plan (PMP) that includes objectives, expected results and indicators for the first year. A more detailed and complete PMP will be developed and submitted with the first annual work plan for USAID’s approval within 90 days after award. The contractor and USAID will agree upon the final choice of performance indicators useful for timely management decisions.

The contractor will collect data for performance indicators, monitor progress, and report status at least annually to USAID. PMP data must meet reasonable quality criteria of validity, reliability, timeliness, precision and integrity, and be disaggregated by gender as appropriate and feasible.

The contractor will produce routine and special assessments of economic policy reform and implementation, including success stories for use by USAID, as agreed with the COTR. This will require systematic tracking, monitoring and diagnostic evaluation of developments as they relate to USAID’s Economic Growth Development Objective.

Finally, the contractor will provide USAID support for special activities and special reports and policy analyses.

VI. QUALIFICATIONS OF KEY PERSONNEL

The contractor will have ultimate responsibility for managing the contract, for achieving the performance results in the activity areas, and for determining the appropriate staffing pattern in support of its technical approach. Offerors must assemble a team with the required knowledge and experience in the components mentioned above. The team should be a combination of expatriates with strong international experience, preferably in Mongolia and the region, and strong long-term local professional staff, supplemented by local and/or international short-term consultants. The proposed team structure and an organizational chart must be included in the proposal with the names, positions and resumes of proposed personnel.

The following are designated key personnel:

VI.A. Chief of Party

The Chief of Party should possess the intellectual and leadership qualities necessary to develop, articulate and carry out a vision for the project. He/she must have a Master’s degree in economics, business or related field, with 15 years of progressively responsible experience and expertise to successfully achieve meaningful and sustainable results in the areas of macro and micro economic analysis, policy formulation and implementation. It is critical that the Chief of Party have extensive experience with counterparts at the highest levels of government and the private sector in managing international development assistance projects. She or he should have a proven record of success operating in cross-cultural environments, including at least 10 years of experience as an advisor in transition or developing countries, preferably in post command-control economies. Superb technical expertise combined with extraordinary communication skills are essential for this position.

VI.B. Deputy Chief of Party

The Deputy Chief of Party must have a Master’s degree in economics, business or related field with 5 or more years of relevant, progressively responsible experience, with a proven track record implementing and/or managing economic policy reform projects in countries with socio-cultural and economic conditions similar to Mongolia. He/she should posses a combination of technical familiarity and management skills that spans the subject areas covered by the project and in-depth experience in at least one of the major areas of involvement. The candidate should be able to demonstrate that he/she has the requisite experience to: a) effectively backstop and reinforce the other long-and short-term specialists b) ensure that synergies among project elements are capitalized upon/ c) ensure that the project focus remains on achieving results; and d) manage an effective monitoring and reporting system.

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World Governance Indicators…