Draft_SOW_for_CEO.pdf

CREATING ECONOMIC OPPORTUNITIES

USING THE FOUR LEVERS OF ECONOMIC DEVELOPMENT

C.1 INTRODUCTION

Following a wave of migration to the United States by tens of thousands of unaccompanied children (UAC) in the summer of 2014, supporting Central America became a top foreign policy priority of the United States Government (USG). As a result, the USG developed an inter-agency strategy – the U.S. Strategy for Engagement in Central America – which focuses on the underlying factors compelling migration. Specifically, the strategy directly addresses the root causes of migration by advancing three interrelated objectives: prosperity, security, and governance. The hypothesis being that a secure, democratic, and prosperous Central America will provide an environment in which all of its citizens choose to remain and thrive.

With the goal to further the U.S. Strategy for Engagement in Central America, the U.S. Vice President visited Guatemala in June 2014 and March 2015 and launched the Alliance for Prosperity, a partnership with the Governments of Guatemala (GOG), El Salvador (GOES), and Honduras (GOH) (collectively known as the Northern Triangle) to advance prosperity, security, and transparent, accountable governance in the region, backed by a Fiscal Year 2016 U.S.

foreign assistance budget request of $1 billion. On December 18, 2015, the U.S. Congress passed the Consolidated Appropriations Act to provide $750 million to address issues in Latin America.

By advancing prosperity, security, and governance in tandem for the Northern Triangle, the USG is seeking to support an economically integrated Central America that is fully democratic;

provides economic opportunities to its people; enjoys more accountable, transparent, and effective public institutions; and ensures a safe environment for its citizens.

USAID/Guatemala, through a highly integrated multi-sector portfolio, supports U.S. foreign policy goals in the form of sustainable development outcomes that place a premium on broad-based economic growth, human development, security and justice, democratic governance, game-changing innovations, and sustainable systems for meeting human needs. Lack of social and economic opportunity and insecurity, the main underlying causes of irregular migration of minors and young adults from Guatemala, are key areas of concern for the Mission. Thus, USAID/Guatemala intends to fund a new project, described herein, to specifically address those issues and support the U.S. Strategy for Engagement in Central America.

C.2 BACKGROUND

1. An Overview of Guatemala’s Demographic and Economic Situation

As of 2015, Guatemala, map below, is comprised of twenty-two departments, the six largest of which are home to over fifty-five percent of the population and are ranked, as a percentage of the population, as follows: (i) Guatemala (20.73%), (ii) Huehuetenango (7.82%), (iii) Alta Verapaz (7.77%), (iv) San Marcos (6.93%), (v) Quiche (6.73%), and (vi) Quetzaltenango (5.34%). The remaining population is more evenly distributed across the other sixteen departments.

Exhibit 1. Map of Guatemala

Source: http://www.lib.utexas.edu/maps/americas/guatemala_trans‐2001.jpg

The estimated total population is 16,176,133 persons (49% male and 51% female), about 40% indigenous, with a growth rate of 2.34%, and a life expectancy of 72.5 years (69.1 for males and

76.1 for females). The population is very young, with 60% being twenty-four years of age and under, as displayed in the following exhibit.1 As of 2014, the literacy rate for those aged 15-24 years of age was noted to be 93.3%.2 The workforce is moderately educated, averaging seven years of formal schooling.3

1 http://www.ine.gob.gt/index.php/estadisticas/tema-indicadores 2 Instituto Nacional de Estadística Guatemala. República de Guatemala: Encuesta Nacional de Condiciones de Vida (Encovi) 2014, Principales resultados, pp. 36 http://www.ine.gob.gt/sistema/uploads/2015/12/11/vjNVdb4IZswOj0ZtuivPIcaAXet8LZqZ.pdf 3 Inter-American Development Bank, Labor Market Indicators, 2014

Exhibit 2. Age Range as a Percentage of the Population (Shaded Area is Population under 24 Years of Age)

Source: http://www.ine.gob.gt/index.php/estadisticas/tema‐indicadores

Unfortunately, 59.3% of the population lives in poverty, earning less than Q10,218.00 or $1,327.31 per year.4 The Department of Guatemala has the lowest poverty rate, as noted below.

Exhibit 3. Percentage of the Population Living in Poverty by Department

Source: Instituto Nacional de Estadística Guatemala. República de Guatemala: Encuesta Nacional de Condiciones de Vida (ENCOVI) 2014, Principales resultados, pp. 6

4 Instituto Nacional de Estadística Guatemala. República de Guatemala: Encuesta Nacional de Condiciones de Vida (Encovi) 2014, Principales resultados, pp. 3

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Further, although for 2015 the Ministry of Labor and Social Welfare set the minimum salary for both agriculture and non-agriculture economic activities at Q2,644.40 or $343.51 per month, it was still below the estimated basic food basket cost per month, as noted in the following exhibit.

Thus, many people rely on informal sector jobs to make ends meet.5 As of the second half of 2014, almost 66% of the population worked in the informal sector, ranging from 43.1% of the population in urban metropolitan areas to 81.2% in rural areas.6

Exhibit 4. Average Monthly Incomes by Demographic Group, Food Basket Cost and Minimum Salary for 2015

Source: http://www.ine.gob.gt/index.php/estadisticas/tema‐indicadores and Banco de Guatemala (http://www.banguat.gob.gt/cambio/), Tipo de cambio : Dólares de EE.UU. average for July 1, 2014 to December 31, 2014, which equaled 7.69827 Quetzales per U.S. Dollar.

Compounding the economic situation is a dangerous security environment driven by a number of factors, including the legacy of civil war, international drug transit, fragmentation of organized crime leading to a large gang presence, and the corruption and criminalization of government.

For 2015, the Instituto Nacional de Ciencias Forenses de Guatemala (INACIF) reported 5,718 homicides,7 for a rate of about 33.8 people per 100,000.8 While Guatemala’s homicide rate has been declining, the country remains one of the most dangerous in the world. For comparison, the average homicide rate for member countries of the Organization for Economic Cooperation and Development (OECD) is about 4.0 people per 100,000.9

The Government of Guatemala (GOG) has limited resources to address the problems facing the country, in part due to previous federal government corruption and the GOG’s low collection and poor management of tax revenue. In April 2015, the Superintendent of Tax Administration (SAT) became the epicenter of corruption charges against the administration of the President. A joint operation involving the International Commission against Impunity in Guatemala (CICIG), the national police, and the Guatemalan Prosecutor’s Office led to the arrest of twenty-one

5 http://www.mintrabajo.gob.gt/index.php/salariominimo.html 6 http://www.ine.gob.gt/index.php/estadisticas/tema-indicadores 7 http://www.inacif.gob.gt/docs/estadisticas/anual/AnualM2015.pdf 8 http://www.prensalibre.com/guatemala/justicia/tasa-de-homicidios-aumento-en-el-2015 9 http://www.oecdbetterlifeindex.org/topics/safety/

1,000 1,500 2,000 2,500 3,000 3,500 4,000

Quetzales U.S. Dollars

C u rr en cy Food

Basket Cost

Exceeds Minimum Salary persons in a tax fraud scheme, including current and former employees of SAT. On May 8, 2015 the Vice President resigned as a result of the scandal and on September 2, 2015 the President, and both had their immunity stripped by the Guatemalan Congress. As of September 6, 2015, Election Day in Guatemala, both faced criminal prosecution. On October 25, 2015 in a run-off election, the citizens of Guatemala elected a new government. On January 14, 2016, the new government took office and is now under great pressure to reduce corruption and improve the economic situation for all Guatemalans. Corruption, unfortunately, is not relegated to the highest levels of the Guatemalan government, but rather permeates, to varying degrees, all political and commercial strata.

In summary, Guatemala exhibits a number of harsh realities – high levels of violence; social, cultural and historical divides between ethnic, economic, and geographic groups; and limited public resources designated to address such issues. While pressing on a national level – the problem translated to the individual level, and as defined by those leaving Guatemala is, a lack of “opportunity.”10 “Opportunity” is a more abstract, individualized concept than “a job.” Migrants defining “opportunity” often cite economic (employment and income generation) and educational (technical, business, and leadership) activities and skills that can be used to improve livelihoods. In difficult circumstances, and having seen what the modern world has to offer as a result of globalization, a large number of Guatemalans, particularly youth, are seeking the following:

An income above the minimum needed to live (subjective and varies by location) Liquid savings Transportable skills Good money management skills

Hence, lacking a sense of opportunity, Guatemalans are migrating to other countries, leading to the disintegration of families and social structures within Guatemala, and putting significant stresses on the economic, legal, and social foundations of destination countries, including the United States of America. While estimates vary, approximately one and a half million people left Guatemala over the last twenty years, with over 40% of those leaving Guatemala going to the United States. Following a wave of migration to the United States by tens of thousands of UAC in the summer of 2014, supporting Central America became a top USG foreign policy priority.

2. Development Plans for Central America and Guatemala

In response to growing pressure at home and from abroad, 2014 witnessed the release of a number of development plans for the countries of El Salvador, Guatemala, and Honduras, collectively known as the “Northern Triangle,” as well as, for Guatemala specifically. In support of the Northern Triangle, the USG seeks an economically integrated Central America that is fully democratic; provides economic opportunities to its people; enjoys more accountable, transparent, and effective public institutions; and ensures a safe environment for its citizens.

On November 14, 2014, the Northern Triangle, in coordination with the Inter-American

10 For example, on January 27, 2015, in a meeting with Ambassador Shannon and Ambassador Robinson, Guatemalan Indigenous Authorities stated one reason for migration is that there are no technical careers for youth in Guatemala.

Development Bank (IDB), officially presented the Plan of the Alliance for Prosperity in the Northern Triangle: A Road Map.11 The strategic lines of action of the Plan are as follows:

1. Stimulate the Productive Sector to Create Economic Opportunities o Promoting strategic sectors and attracting investment o Reducing energy costs and ensuring reliability of electricity supply o Modernizing and expanding infrastructure and logistical corridors o Coordinating border management o Encouraging international trade

2. Developing Opportunities for Our People o Tightening links between labor supply and demand from businesses o Building human capital

3. Improving Public Safety and Enhancing Access to the Legal System o Boosting programs to prevent violence o Strengthening institutions responsible for public safety o Modernizing the justice system

4. Strengthening Institutions to Increase People’s Trust in the State o Ensuring the State’s financial capacity o Increasing transparency

The Vice President of the United States traveled to Guatemala from March 2 to 3, 2015 for meetings with the Presidents of El Salvador, Guatemala, Honduras, and the Inter-American Development Bank to advance implementation of the Plan of the Alliance for Prosperity in the Northern Triangle: A Road Map.

Specific to Guatemala, in August of 2014, the Planning and Programming Secretariat of the Presidency (SEGEPLAN) released a national plan, Nuestra Guatemala K’atun 2032 (K’atun:

Our Guatemala 2032),12 inviting all Guatemalans to build a joint vision of the nation. A K’atun symbolizes a 20-year period of the Mayan calendar and represents the possibility of connecting the past, present, and future of indigenous peoples. Each new era represents a process of improvement of the human being and society. K’atun 2032 has five components, as follows:

1. Urban and Rural Guatemala – establishes a model of territorial management that articulates in cultural, economic, political, and environmental terms the public actions for sustainability in rural areas and the national urban system in a balanced and orderly manner.

2. Welfare for the People – ensures universal access to social protection, quality comprehensive services in health, education, and basic services, safe habitability, access to food, and resilience to ensure the sustainability of livelihoods through non-standard public policy interventions that recognize inequality and the specific ethnic cultures.

11 http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=39224238 12 http://www.segeplan.gob.gt/2.0/index.php?option=com_k2&view=item&task=download&id=877

3. Wealth for All – establishes the conditions that stimulate economic activities, and current and potential production. This will generate sources of decent employment and income to cover the needs of families, in addition to competitive mechanisms to reduce poverty and inequality, increase resilience, and incorporate more population groups into a dynamic economy.

4. Natural Resources Today and for the Future – aims to protect and enhance natural resources in balance with social, cultural, economic, and territorial development, that satisfies the current and future demands of the population, in terms of sustainability and resilience as to the impact on nature.

5. State as a Guarantor of Human Rights and a Driver of Development – means that the GOG guarantees human rights and acts as a driver of development, generating political, legal, technical, administrative, and financial capacity of public institutions to put the GOG in a position to lead a process of sustainable development, with a focus on rights within a framework of democratic governance.

Further, in June of 2013, the GOG installed the Cabinet for Integral Rural Development (GDRI), which is responsible for developing plans to carry out the Política Nacional de Desarrollo Rural Integral (PNDRI) (National Policy on Integrated Rural Development). The PNDRI had its genesis in the Peace Agreements: Agreement on the Socioeconomic and Agrarian Situation and the identity and rights of indigenous peoples.13 The GOG has been formalizing and systematizing an implementation plan with technical support from the United Nations Program for Development (UNDP), the Inter-American Institute for Cooperation on Agriculture (IICA), the Executive Secretariat of the Central American Agricultural Council (SECAC), and the United Nations Food and Agriculture Organization (FAO).14

In addition, the formal private sector of Guatemala started a development plan in 2010 called Mejoremos Guate (Let’s Make Guatemala Better).15 The two main Guatemalan backers of the plan are the Fundación para el Desarrollo de Guatemala (FUNDESA), which was established in 1984 by Guatemalan entrepreneurs to generate and implement programs and projects that promote sustainable economic and social development in the country, and the Coordinating Committee of Agricultural, Commercial, Industrial, and Financial Associations (CACIF). The agenda is as follows:

1. A Prosperous Guatemala – more jobs, more investment, and more income for the State to fulfill its obligations

2. A Guatemala of Solidarity – better social investment in education and health, providing greater opportunities for welfare to vulnerable groups

3. A Guatemala with Security and Justice – to live with tranquility and peace, where standards are met and there is equal justice for all Guatemalans

The goals to be achieved by 2021, the bicentennial of Guatemala, are ambitious, as noted below:

13 http://pndri.scep.gob.gt/sites/default/files/Acuerdo_sobre_Aspectos_Socioeconomicos_y_Situacion_Agraria.pdf 14 http://pndri.scep.gob.gt/es/proceso-de-formulacion-e-implementacion-de-la-politica-nacional-de-desarrollo-rural-integral 15 http://www.mejoremosguate.org/cms/

Harness the potential of 120,000 young people, 15-35 years old, entering the economically active population each year

Reduce the chronic malnutrition rate by at least 25%

Continue efforts to reduce the rates of homicides and extortions in the country

Create 200,000 new formal sector jobs every year

Increase the formal sector to 40% of the economically active population, which signifies growing the GDP at an average of 6.3% per year

Reduce the poverty rate from 50% to 35%, which is the average for Latin America

Prepare students to reach the expected levels for middle school in reading and mathematics

Mejoremos Guate identified, at a national level, twenty-five productive sectors with the potential to generate 1,000,000 jobs by 2021, which are shown in the next exhibit. While not all industries are types supported by USAID, the list provides an interesting window into the formal private sector’s perspective on the economy.

Exhibit 5. Mejoremos Guate: Twenty‐Five Productive Sectors with the Potential to Generate 1,000,000 Jobs

Sector Agriculture and Fishing Manufacturing Services Other

354,000 321,000 201,000 139,000

• Traditional • Banana

• Coffee

• Basic grains

• Sugar

• Forestry and furniture

• Livestock and dairy

• Palm and rubber

• Poultry farming

• Beverages

• Textile and footwear

• Financial services

• Tourism

• Formal trade

• Emerging • Fishing and aquaculture

• Fruits and vegetables

• Chemicals and plastics*

• Metalworking

• Pharmaceuticals*

• Processed foods

• Construction*

• Electric power*

• Mining and oil*

• New • Light manufacturing • Information and communication technologies / contact centers

• Transport and logistics

Source: “Mejoremos Guate” and AGEXPORT “Si la promesa es empleo… Las exportaciones son el camino!” pp. 100

* Productive sector not supported by USAID

Mejoremos Guate, in which over $10.1 million has been invested from 2010 to 2015, noted five factors limiting Guatemala’s economic growth and that could inhibit achieving the 2021 goals, as follows: (i) a lack of foreign investment, (ii) a lack of an ecosystem to support entrepreneurs, (iii) a lack of technical and vocational training, (iv) high energy costs, and (v) a lack of road and airport infrastructure.

The Guatemalan Association of Exporters (AGEXPORT) also authored a relevant development plan titled Si la promesa es empleo… Las exportaciones son el camino!16 The plan notes that 67% of the country’s total exports originate in rural areas, for example coffee, sugar, cardamom, fruits, and vegetables. If Guatemala is to create the number of jobs required to absorb the growing, young labor pool, then it must also reach markets beyond Guatemala’s borders. Finally, the National Network of Management Group’s (Red Nacional de Grupos Gestores) Mesas de Competitividad focuses on territorial development at regional and local levels.17

3. How USAID Will Support the Development Plans

A new project contemplated herein, USAID/Guatemala Creating Economic Opportunities Project (“CEO”), will support portions of each initiative described above. CEO will contribute to three pillars of the Plan of the Alliance for Prosperity in the Northern Triangle: A Road Map, specifically “1. Stimulate the Productive Sector to Create Economic Opportunities,” “2.

Developing Opportunity for Our People,” and “4. Strengthening Institutions to Increase People’s Trust in the State.”

CEO will also assist Guatemala in fulfilling the vision for development put forth in Nuestra Guatemala K’atun 2032, and in particular component “3. Wealth for All.” CEO will contribute to the Política Nacional de Desarrollo Rural Integral (PNDRI) by developing rural areas.

CEO will support Mejoremos Guate by incorporating youth into the economically active population, creating new formal sector jobs, providing support for entrepreneurs, delivering technical and vocational training, transitioning workers and businesses from the informal to the formal sector, and reducing poverty.

In addition, CEO will work to increase exports, thereby aiding the economic plan Si la promesa es empleo… Las exportaciones son el camino! Finally, CEO will pursue activities to improve the quality of life of local and regional populations through job creation and increased incomes, better trade, and workforce development, thereby supporting the Mesas de Competitividad.

16 http://export.com.gt/wp-content/uploads/2015/07/Resumen-FINAL-14-julio.pdf, as well as http://export.com.gt/wp-content/uploads/2015/07/Presentaci%C3%B3n-SI-LA-PROMESA-ES-EMPLEO-LAS-EXPORTACIONES-SON-EL- CAMINO.pdf 17 http://www.gruposgestores.org.gt/2011/i-congreso-nacional-de-mesas-de-competitividad/

C.3 RESULTS FRAMEWORK

USAID/Guatemala’s Country Development Cooperation Strategy (CDCS) for Fiscal Year (FY) 2012-2016 was approved on March 16, 2012 and marked a renewed commitment to poverty reduction, economic growth, and equitable social development. The goal of the CDCS is “a more secure Guatemala that fosters greater socio-economic development in the Western Highlands and sustainably manages its natural resources.” Broad based economic growth, through newly created economic opportunities, is thus a key issue for the achievement of the goal of the CDCS.

In order to place CEO in the context of USAID/Guatemala’s CDCS, the Results Framework is shown in the exhibit that follows.

Exhibit 6. USAID/Guatemala CDCS Results Framework

Goal: A More Secure Guatemala that Fosters Greater Socio‐ economic Development in the Western Highlands and

Sustainably Manages its Natural Resources

DO 1: Greater Security and Justice for Citizens

IR 1: Improved effectiveness and efficiency of security and justice sector institutions (SJSIs)

IR 2: Reduced levels of violence in targeted communites at risk

DO 2: Improved Levels of Economic Growth and Social Development in the Western

Highlands

IR 1: Broad based economic growth and food security improved

IR 2: Access to and use of sustainable quality health care and nutrition services expanded

IR 3: Education quality and access improved

DO 3: Improved Management of Natural Resources to Mitigate

Impacts of Global Climate Change

IR 1: Market‐driven conservation and management stategies implemented

IR 2: Vulnerability to the effects of global climage change reduced

IR 3: Environmental governance strengthened

CEO will contribute to the achievement of USAID/Guatemala’s CDCS DO 2: Improved levels of economic growth and social development in the Western Highlands through each of the following Intermediate Results (IRs) and associated Sub-IRs, as follows:

IR 2.1: Broad Based Economic Growth and Food Security Improved o Sub-IR 2.1.1: Agricultural Productivity and Rural Employment Expanded

Select participants and provide technical assistance to farmer producers to increase production and yield of high value horticulture crops and specialty coffee through the introduction of productivity-enhancing technologies that have the overall result of increased income from high value crops.

o Sub-IR 2.1.2: Access to Markets Expanded

Link small-scale, rural producers to domestic and international markets and increase incomes through improved access to market information.

o Sub-IR 2.1.3: Resiliency of Vulnerable Communities and Households Increased

Enhance the resilience of vulnerable (poor) communities and households within the Feed the Future (FTF) geographic coverage areas by aligning local governance and USG food assistance resources with FTF economic growth, health, and nutrition interventions.

Note, as the Sub-IRs under IR 2.1 focus primarily on agriculture, USAID/Guatemala established a new Sub-IR in order to include non-agricultural activities in CEO, as follows:

o Sub-IR 2.1.5: Non-Agricultural Economic Activity Increased

Partner with and expand existing businesses and support entrepreneurs to create new businesses to generate jobs and increase employment; diversify production and service offerings and improve product and service quality;

develop new financial products, provide financial education, and channel remittances for development purposes; and craft and implement policies that create incentives for employers and employees to transition from the informal to the formal private sector.

IR 2.3: Education Quality and Access Improved o Sub-IR 2.3.2: Access to Quality Non-traditional Education Programs Increased

Target out-of-school populations (children and youth); this intervention will strengthen existing options for out-of-school populations, will scale up innovative and best practices, and will create new pertinent education alternatives to provide long-term development paths to children and youth.

Two models of alternative education will be promoted and strengthened:

1. Non-traditional (flexible) secondary education models and primary completion programs for out-of-school and over-aged children and youth (up to 15 years of age).

2. Local workforce development and vocational/technical education support by providing workforce readiness and life competencies skills; efforts under this component will include strengthening basic competencies for life in technical education programs and providing support to sustainable reform of the secondary education system (including improvements to the technical and vocational national/local strategy).

Partners for these models will include the Ministry of Education (MOE), local non-governmental organizations (NGOs), local governments, private sector entities, and cooperative organizations.

C.4 GEOGRAPHIC FOCUS

CEO will support USAID/Guatemala’s Western Highlands Integrated Program (WHIP). The WHIP does not have its own funds, but rather it is a conceptual and operational framework for the collaborative implementation of USG-funded activities. USAID, the U.S. Department of Agriculture (USDA), the Peace Corps, and their implementing partners all contribute to achieving the goals of the WHIP. The objectives of the WHIP are to reduce poverty and chronic malnutrition in five departments of Guatemala’s Western Highlands (Huehuetenango, Quetzaltenango, Quiché, Totonicapán, and San Marcos) through sustainable rural development with a parallel focus on agriculture, economic development, healthcare, education, and nutrition, as well as adaption to the impacts of climate change, local governance, and gender equity. WHIP works in 30 municipalities and in more than 2,500 communities that suffer from the highest rates of poverty and chronic malnutrition, yet have the potential to improve their levels of economic growth and social development. These five departments also represent a significant origination point for unaccompanied children and irregular immigrants apprehended by the U.S. Customs and Border Patrol while attempting to enter the U.S.18

CEO will bolster the overall results of the WHIP by improving USAID’s ability to reduce poverty in the Western Highlands and strongly support USG initiatives, policies, and priorities, including FTF. Working in WHIP departments will enable CEO to focus on select geographic areas encompassing the poorest of the poor and the most vulnerable, with high levels of out migration. In the five WHIP departments, CEO may work with rural and urban communities within municipalities already participating in the WHIP or direct efforts to additional municipalities not currently served by the WHIP.

In addition, and of great importance, CEO will expand USAID/Guatemala’s economic growth program footprint to the Department of Guatemala, which is another major origination point of irregular migrants. CEO may work with rural and urban communities within municipalities in the Department of Guatemala. It should be noted that the GOG also identified four of the five WHIP

18 In FY 14, the U.S. Border Patrol apprehended 1,000 or more Guatemalans from: (i) Guatemala City = 5,257; (ii) Huehuetenango = 3,387; (iii) San Marcos = 2,837; (iv) Quetzaltenango = 1,334; (v) Joyabaj = 1,482; and (vi) Totonicapan = 1,059. Four of the six locations are in the Western Highlands Integrated Program (WHIP) coverage area.

departments, Huehuetenango, Quiché, Totonicapán, and San Marcos, along with Alta Verapaz, Chiquimula, and Zacapa, as areas in need of intervention in order to support the Plan of the Alliance for Prosperity in the Northern Triangle: A Road Map. Municipalities prioritized by the GOG and USAID/Guatemala, as well as shared focus areas are shown in the following exhibits.

Exhibit 7. GOG and USAID/Guatemala Prioritized Municipalities Map

Source: USAID/Guatemala Analysis

Exhibit 8. GOG and USAID/Guatemala Prioritized Municipalities List

Prioritized Municipalities Department GOG/Alliance for Prosperity USAID/Guatemala WHIP Shared Department GOG/Alliance for Prosperity USAID/Guatemala WHIP Shared

Alta Verapaz Chahal Quiché Chajul Chajul Yes

Alta Verapaz Chisec Quiché Chichicastenango Chichicastenango Yes

Alta Verapaz Cobán Quiché Cunén Cunén Yes

Alta Verapaz Fray Bartolomé de las Casas Quiché Joyobaj

Alta Verapaz Panzós Quiché Nebaj Nebaj Yes

Alta Verapaz Raxruhá Quiché Sacapulas

Alta Verapaz San Pedro Carchá Quiché San Andrés Sajcabajá

Alta Verapaz Santa Catarina La Tina Quiché San Bartolomé Jocotenango

Alta Verapaz Senahú Quiché Santa Cruz del Quiché

Alta Verapaz Tamahú Quiché San Juan Cotzal San Juan Cotzal Yes

Alta Verapaz Tucurú Quiché Uspantán

Chiquimula Camotán Quiché Zacualpa Zacualpa Yes

Chiquimula Jocotán San Marcos Comintacillo

Huehuetenango Barillas Barillas Yes San Marcos Concepción Tutuapa

Huehuetenango Chiantla Chiantla Yes San Marcos Nuevo Progreso

Huehuetenango Concepción Huista San Marcos San José El Rodeo

Huehuetenango Cuilco San Marcos San Lorenzo

Huehuetenango Huehuetenango San Marcos San Marcos

Huehuetenango Jacaltenango San Marcos San Miguel Ixtahuacán San Miguel Ixtahuacán Yes

Huehuetenango La Democracia San Marcos San Pablo

Huehuetenango La Libertad La Libertad Yes San Marcos San Rafael Pie de la Cuesta

Huehuetenango Malacatancito San Marcos Sibinal Sibinal Yes

Huehuetenango Nentón San Marcos Tacaná

Huehuetenango San Antonio Huista San Marcos Tajumulco Tajumulco Yes

Huehuetenango San Idelfonso Ixtahuacán Totonicapán Momostenango Momostenango Yes

Huehuetenango San Miguel Acatán Totonicapán Santa Lucía la Reforma Santa Lucía la Reforma Yes

Huehuetenango San Pedro Necta Totonicapán Tontonicapán

Huehuetenango San Sebastián Coatán Zacapa Estanzuela

Huehuetenango San Sebastián Huehuetenango San Sebastián Huehuetenango Yes Zacapa La Uníon

Huehuetenango Santa Bárbara Zacapa Río Hondo

Huehuetenango Santa Juan Atitán Zacapa Zacapa

Huehuetenango Todos Santos Cuchumatanes Todos Santos Cuchumatanes Yes Totals

Quetzaltenango Concepción Chiquichapa Department GOG/Alliance for Prosperity USAID/Guatemala WHIP Shared

Quetzaltenango San Juan Ostuncalco 8 51 30 16

Source: USAID/Guatemala Analysis

C.5 OBJECTIVE

Theory of Change

If communities define what “economic opportunity” means at their respective local levels and work jointly with GOG institutions and the private sector to utilize the four levers of economic development (markets, capacity, finance, and policy) to generate tailored solutions that address those definitions and thereby reduce poverty and improve their living conditions, closing gaps between Guatemala and migrant destination countries, then youth, indigenous, and non‐indigenous persons will choose to stay in Guatemala rather than assume the risks involved with migrating to another country and unaccompanied child and irregular migration will decrease.

The objective of CEO is to reduce poverty and improve living conditions, closing gaps between Guatemala and migrant destination countries, in order to decrease unaccompanied child and irregular migration. To achieve this objective, CEO will grow businesses, and increase employment and income generating opportunities for Guatemalans through a multi-pronged approach utilizing four levers of economic development – expanding access to markets, improving workforce capacity, increasing access to financial services, and strengthening the policy and enabling environment. CEO will work to benefit the poorest of the poor and the most vulnerable Guatemalans, particularly youth and indigenous persons, in select geographic areas with high levels of out migration (the Western Highlands and the Department of Guatemala). As CEO will partner with local communities to develop market-led local solutions, “economic opportunity” will be defined by CEO’s beneficiaries.19 To ensure sustainability and scalability, CEO will then work to contextualize and respond to these definitions of “economic opportunity” within the scope of USAID/Guatemala’s CDCS long-term development goals and Guatemala’s many plans.

Exhibit 9. CEO Results Framework

19 Market-led means that workforce, micro-, small-, and medium-sized enterprise (MSME) and value chain “supply-side” activities will address verified “demand-side” needs.

Goal: A Guatemala in which Economic Opportunities Exist and Migration is Not Necessary in Order to Find

Such Opportunities

Reduce Poverty and Improve Living Conditions

Access to Markets Expanded Workforce Capacity Improved Access to Financial Services

Increased Policy and Enabling

Environment Stregthened

C.6 SCOPE OF WORK

CEO must remove barriers to, and generate possibilities for, economic opportunity in both rural and urban areas; expand access to markets and strengthen participation in value chains; promote small businesses and encourage entrepreneurship; develop the next generation of job creators and leaders; enhance access to financial services, including credit and banking services, and the channeling of remittances; and strengthen the policy and enabling environment. CEO’s desired end state will lead to economic growth in Guatemala and decreased migration. The following exhibit displays CEO’s components, along with suggested funding allocations.

Exhibit 10. CEO’s Components and Suggested Funding Allocations

COMPONENTS, EXPECTED RESULTS, ILLUSTRATIVE INDICATORS AND DELIVERABLES

Component 1 – Access to Markets Expanded

CEO will work directly with beneficiaries to improve their economic situation by using a market-driven demand approach that responds to what the market is seeking, timing-, cost-, and quality-wise, as the entry point for spurring small business growth and reducing poverty.

Assessments will ensure that CEO is market-led.

While micro and small enterprises make up the majority of all enterprises, it is difficult for a microenterprise to transform itself into a small enterprise, and the transition from small to medium enterprise is also problematic. In the first instance the transformation typically involves shifting out of informality and for this to occur, the expected increase in income must be substantial. Therefore, small and medium enterprises, rather than micro, are likely the sources of income and employment expansion that Guatemala needs for growth.

Further, small and medium firms typically generate more employment opportunities than micro firms; also, growth of the latter depends on the growth of the former, which in turn is often tied to linkages with large firms. Absent large firms predisposed to subcontracting for goods and services, or robust national-level consumer demand, there is little incentive for micro and small enterprises to take the steps required to specialize, increase efficiency, and earn more money.

Finally, while antiquated technology and obtaining access to credit are constraints on business

Components Suggested Funding Allocations (%)

1. Access to Markets Expanded 50

2. Workforce Capacity Improved 30

3. Access to Financial Services Increased 15

4. Policy and Enabling Environment Strengthened 5 growth, they are second-order problems. The most important issue is how to form a connection with a buyer. Brokers and intermediaries frequently represent the single most important market channel for micro-, small-, and medium-sized enterprises (MSMEs). Thus, forming new and expanding existing relationships with brokers and intermediaries is an essential ingredient for turning MSMEs into engines of local growth.

Expected Results – include, but are not limited to:

“Economic opportunities” defined – value chains and businesses (product or service focused, existing or new) identified – for each participating community within a municipality that could be served by, or created in, non-saturated markets by persons in that community.

Small and medium farm and off-farm local enterprises, including artisan and light manufacturing, and tourism – based on the defined “economic opportunities” – created and expanded.

Small and medium farm and off-farm local enterprise, including artisan and light manufacturing, and tourism employment – based on the defined “economic opportunities” – increased.

Small and medium farm and off-farm local enterprise, including artisan and light manufacturing, and tourism sales – based on the defined “economic opportunities” – increased.

Product and service quality shortcomings identified and production output and service delivery quality improved.

Local market actors along entire supply chains, including brokers and intermediaries, identified.

Local market actors along entire supply chains utilized and linkages between small, medium, and large firms, as well as the formal and informal private sectors increased.

Existing producers associations strengthened and new ones formed, as needed, and negotiating with and selling directly to buyers in domestic, regional, and international markets.

Data and market intelligence availability enhanced and expanded.

Products, services, and the workforce advantages presented by each community promoted at domestic, regional, and international audiences as appropriate.

Illustrative Indicators – include, but are not limited to:

The following is a list of illustrative indicators for CEO utilizing the Standard Foreign Assistance Master Indicator List (MIL) as a guiding framework.20 Some indicators are taken directly from the MIL and others are custom indicators for the CEO context. Final indicators will be approved under the Monitoring and Evaluation Plan (MEP) of the final contract, should such be awarded.

20 The Standard Foreign Assistance Master Indicator List (MIL) may be found here:

http://www.state.gov/documents/organization/249383.xlsx

4 Economic Growth

Indicator 4‐17 Prevalence of Poverty: Percent of people living on less than $1.25/day

Definition This indicator measures Millennium Development Goal Target 1a and is also a Feed the Future required indicator. This is an Outcome indicator.

4.6 Private Sector Competitiveness

4.6.2 Private Sector Capacity

Indicator 4.6.2‐13 Percentage of firms that have achieved improved technologies as a result of USG assistance

Definition This indicator measures the percentage of firms that achieve improved production technologies, especially in hardware, because of USG assistance. Firms improve their productivity, and in turn their competitiveness, by accessing capital and increasing investment in productive assets. This is an Outcome indicator.

4.7 Economic Opportunity

4.7.3 Strengthen Microenterprise Productivity

Indicator 4.7.3‐7 Percent change in value of input purchases by micro‐entrepreneurs (or smallholders)

Definition Input purchases as an outcome indicate that the micro‐entrepreneur is willing to invest in inputs to improve productivity, suggesting that the value chain is growing to absorb new volumes and that the micro‐entrepreneurs perceive the opportunity to benefit from these investments. If these input purchases increase over time, it is an indication of improved productivity, on the one hand, and a value chain system that offers incentives for micro‐entrepreneurs to invest. This is an Outcome indicator.

CC Cross‐Cutting

Science, Technology and Innovation/Research

Indicator STIR‐2 Number of tools, technologies, or practices introduced to the commercial sector

Definition This indicator measures innovation. This is an Outcome indicator.

CI Custom Indicators

Indicator CI‐1 Number of new businesses created attributed to project implementation

Definition This indicator measures the total number of businesses created. This is an Outcome indicator.

Indicator CI‐2 Number of jobs (informal and formal sector) created attributed to project implementation

Definition This indicator measures the total number of jobs created attributed to project implementation.

Formal employment is calculated as wage and salaried workers, plus employers, and expressed as a percentage of total employment. This is an Outcome indicator.

Indicator CI‐3 Persons employed in non‐agricultural jobs attributed to project implementation

Definition This indicator measures the number of persons employed in non‐agricultural jobs. Non‐agricultural jobs comprise those jobs in industry and services. Persons will be disaggregated, including by male, female, youth, and indigenous. This is an Outcome indicator.

Indicator CI‐4 Number of brokers and intermediaries forming market linkages to the benefit of project beneficiaries attributed to project implementation

Definition This indicator measures the total number of brokers and intermediaries that are working to the benefit of project beneficiaries as a result of project implementation. This is an Outcome indicator.

Indicator CI‐5 Value of incremental sales (collected at the firm‐level) attributed to project implementation

Definition This indicator will collect both volume (in metric tons), as applicable, and value (in U.S. dollars) of purchases from beneficiary firms for its calculation. Sales may be in domestic, or regional or international export markets. This is an Outcome indicator.

Illustrative Deliverables – include, but are not limited to:

Published report defining “economic opportunities” at the local level, from a market demand perspective21

Published list of local market actors, including brokers and intermediaries

Published list of products and services that small and medium enterprises can deliver, including to the GOG

Published materials of best practices, technologies, and inspection techniques by value chain

New producers associations formed and negotiating with and selling directly to buyers

Technologies deployed for sending and receiving price and market information, and mobile banking

Published materials that promote products, services, and the workforce advantages presented by each community

Component 2 – Workforce Capacity Improved

In conjunction with Component 1 and its business establishment and growth efforts, and in order to ensure a supply of qualified and employable personnel, CEO must deliver workforce development training that is based on quality standards. While it is not within the scope of CEO to address the shortcomings of the Guatemalan education system, providing “valuable education” means imparting knowledge that employers want, and that is useful and relevant to communities.

People need actionable skills demanded by the market, not just a diploma or certificate from an accredited institution, and a job after completing a training program.

Of particular concern are out-of-school youth (OSY). The National Survey of Living Conditions (ENCOVI) estimated that there are nearly 1.67 million OSY in Guatemala, with 40% (approximately 667,000) in the Western Highlands. The greatest concentrations are in San Marcos and Huehuetenango, as well as in the department of Guatemala. These youth are open to migrating, at least within Guatemala and likely beyond. While internal migration is not necessarily negative, it does reduce labor force quality in the Western Highlands.

USAID/Guatemala’s Participatory Youth Assessment of twelve municipalities (11,900 households visited) found that 69.4% of respondents would go to the capital to study and 68.6% would do so for work. Regarding work, on average males participating in the study started work at 15 years of age and females at 16 years of age. Complicating the situation, 17% became parents before turning 16 years old and 28% of OSY females reported having their first child before turning 18 years of age. This means there is a large human capital base that likely does not have the capabilities required to meet its potential.

Note that within the Plan of the Alliance for Prosperity in the Northern Triangle: A Road Map there is a strategic line of action relevant to workforce capacity building, as follows: B.

Developing Opportunities for Our People, section i. Tightening links between labor supply and demand from businesses, part b. Provide more technical and vocational training. The

21 “Published” means prepared and issued; mediums can include, but are not limited to, printed and electronic formats.

commitments contained therein, which are noted below, shall help guide CEO and CEO shall contribute to them.

2.25 In geographic areas affected by the greatest social exclusion and emigration, we22 will identify the needs of the productive sector and seek to offer relevant workplace training courses. This will include a public-private partnership that will bring together private companies as potential employers, experts in training, NGOs, academics and the public sector. In the countryside, we will provide training courses to improve micro-entrepreneurs’ skills by giving them access to micro-credit and encouraging value chains that allow them to boost the added value of their products. At the same time we will invest in modernizing and upgrading training facilities so that they respond to the region’s present and future productive development needs, with national and local strategies that have specific goals. These measures will be accompanied by the implementation of a strategic plan to expand job centers so as to improve access to job counseling services and help people find work. In rural areas, these services will be offered in roving offices with Internet access.

2.27 Regarding female labor participation, we will work with training institutes and employment services to provide vocational training for women, so as to broaden their prospects of accessing non-traditional occupations that pay better. Efforts will also be made to improve day care for children and care for other dependents so that this responsibility does not prevent women from working.23

To help prepare the economically active population, CEO must strengthen skills that are valued in many fields, such as self-learning, problem solving, a customer service disposition, analytical skills, effective communication, team work, entrepreneurship, and creativity. Education can be a deterrent to international migration, and can be strongly correlated to rural-urban migration. In order for education initiatives to be a deterrent to migration they must be integral in nature and combine local development actions with the facilitation of economic opportunity.

Labor supply and business demand must be tightly linked. In the Western Highlands the traditional sector of agriculture is very important, particularly coffee and basic grains. In addition, through the WHIP, USAID/Guatemala is providing technical assistance to small farmers to expand horticulture production and incomes. However, small-scale agriculture by itself cannot address a large problem facing Guatemala; specifically, employing the approximately 220,000 young people maturing into the economically active population each year that will need jobs and ensuring they have viable skills.24 Thus, in order to provide the types of training most effective for growing small businesses and linking newly skilled workers to employment, CEO will need to form partnerships with the private sector at all levels –

22 “We” in this instance refers to the Governments of Guatemala (GOG), El Salvador (GOES), and Honduras (GOH) (collectively known as the Northern Triangle) 23 “Plan of the Alliance for Prosperity in the Northern Triangle: A Road Map,” Regional Plan Prepared by El Salvador, Guatemala, and Honduras. pp. 15, September 2014. http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=39224238 24 AGEXPORT. Resumen Ejecutivo. Si la promesa es empleo… Las exportaciones son el camino! pp. 9 community, municipal, departmental, national, regional, and international.

CEO will consider at least three alliance models, and others as deemed appropriate. First, is a Resources Model, in which companies and local governments are co-investors and/or cost-sharing partners that increase the scale or reach of CEO. Second, is an Expertise Model, in which businesses with unique sets of skills, technologies, or expertise act as strategic partners, as well as providers of resources beyond financial capital to increase scale and also to improve the effectiveness and/or efficiency of CEO. Third, and most important, is a Market-Based Solutions Model, which situates private sector players in core business functions in the context of the development challenge and utilizes market linkages to create jobs. Companies engaged in this model of partnership ultimately act as local employers and income generators; buyers, suppliers and/or distributors of goods, services and technologies in local markets; or long-term investors in local public goods and/or economies.25

As it is essential that the traditional formal private sector invest in Guatemala,…