Presolicitation_Notice_and_Draft_SOO_-_FINAL_02.02.2017.pdf

TO: Prospective Offerors

DATE: February 2, 2017

SUBJECT: Announcement of a Pre-solicitation Conference for the

USAID/KEA, Kenya Investment Mechanism (KIM) to Mobilize

Capital in Support of USAID Priorities in Kenya to Be Held on

Tuesday, February 21, 2017.

SOLICITATION NO.: SOL-615-17-000006

Dear Prospective Offerors:

The U.S. Agency for International Development (USAID) Mission to Kenya and East Africa

(KEA) seeks to carry out a five-year project to support capital mobilization in agriculture value chains (AVCs) as well as in clean energy and water, sanitation and hygiene (WASH) activities in

Kenya. USAID/KEA envisions the project as focusing on four thematic areas, namely: county-led investment, cross-border trade, youth, and entrepreneurship.

The Mission invites all interested international and local organizations with experience and/or interest in carrying out capital mobilization activities to attend a consultative pre-solicitation conference regarding this non-traditional competitive programming opportunity. USAID anticipates a full and open competition resulting in a single contract with an estimated value of between $40-$60 million. The project will work closely with the public and private sectors to support mobilization of capital in agriculture value chains (AVCs) as well as in clean energy and water, sanitation and hygiene (WASH) activities.

Attached to this announcement is the DRAFT Statement of Objectives (SOO) for the potential opportunity. The purpose of the Pre-Solicitation Conference is to generate discussion regarding the anticipated activity and for USAID to receive feedback from potential offerors regarding the draft SOO.

In order for USAID to respond to organizations’ feedback in the most substantive manner possible, USAID requests that questions and comments regarding the draft SOO be submitted in advance of the conference date itself and no later than February 10, 2017, 5.00pm, Nairobi local time. Interested organizations are encouraged to submit feedback on the draft

SOO by this date, whether or not they intend to participate in the pre-solicitation conference.

A full record of the Pre-solicitation Conference will be made available to the public following the close of the session via FedBizOpps (www.fbo.gov).

USAID/KEA intends to issue a Request for Proposal (RFP) following this pre-solicitation conference. Offerors are advised that neither the pre-solicitation conference nor this announcement of it constitute a RFP, and in no way obligates USAID/KEA to issue a RFP or subsequent award. The information contained in this notice is released to the public for informational purposes only and is subject to change.

The conference will be held via teleconference only. USAID appreciates this opportunity to gather industry and stakeholder’s feedback and comments from as many sources as possible.

Details for the conference are as follows:

Title: USAID/KEA Kenya Investment Mechanism (KIM) Pre-Solicitation Conference

When: Tuesday, February 21, 2017, 4.00pm – 6.30pm, Nairobi local time

RSVP Deadline: Due to capacity limitations of the teleconference line, interested organizations are required to respond to USAID/KEA no later than Friday, February 10, 2017, 5:00pm, Nairobi local time. Registration for participation will therefore be approved until those maximum capacities are reached or the RSVP deadline is reached, whichever comes first.

Please register by sending 1) the organization name, 2) name(s) of attendees, 3) email address and 4) telephone number to Wacu Kiragu at wkiragu@usaid.gov, with a copy to Caroline Hillas at cbertolin@usaid.gov no later than the RSVP deadline noted above. Logistical details for the teleconference including call-in information will be shared with those registered only.

USAID/KEA encourages interested parties to register for updates on this activity via www.fbo.gov. All inquiries concerning this notice must be directed via email to Wacu Kiragu at wkiragu@usaid.gov, with a copy to Caroline Hillas at cbertolin@usaid.gov. Phone inquiries will not be entertained.

Sincerely, Caroline Hillas

Contracting Officer

USAID/KEA/OAA

ATTACHMENTS:

1. DRAFT Statement of Objectives (SOO) mailto:wkiragu@usaid.gov mailto:cbertolin@usaid.gov mailto:wkiragu@usaid.gov mailto:cbertolin@usaid.gov

KENYA INVESTMENT MECHANISM

DRAFT STATEMENT OF OBJECTIVES (SOO)

1. SCOPE

This Statement of Objectives (SOO) describes the objectives of the U.S. Agency for International Development/Kenya and East Africa (USAID/KEA) for the Kenya Investment Mechanism (KIM)— an activity that will mobilize capital for targeted agriculture value chains (AVCs), clean energy and water, sanitation and hygiene (WASH) (with particular attention to small and medium enterprises within these sectors). The KIM activity will also further current USAID/KEA priorities in the areas of county-led investment, cross-border trade, youth, and entrepreneurship. The activity intends to engage with a broad range of financial actors to reach this goal using a broad range of financial instruments; such as debt, equity, and various forms of concessional/subsidized capital (i.e. funds, competitions, etc). The successful Contractor will implement a highly innovative, scalable, replicable activity to unlock public and private Kenyan and international capital for investments to enhance competitiveness. The Contractor will actively contribute to collaborative engagement on the activity with USAID over an anticipated five-year life of project through an adaptive contracting mechanism.

KIM intends to mobilize financing for investment in USAID/KEA’s priority areas, as defined by the Country Development Cooperation Strategy (CDCS)1, strategies for Feed the Future2, Power Africa, and WASH and to a lesser extent the Regional Development Cooperation Strategy (RDCS)3. Specifically, a strategic focus on dairy, horticulture, staple crops, and livestock value chains as well as small scale renewable energy and WASH. The activity will also creatively integrate USAID/KEA priorities in county-level investment, cross-border trade, youth and entrepreneurship, throughout its components.

KIM will incorporate flexible and adaptive management to be continuously monitored and reviewed at regular pre-established increments. The activity, through collaboration between the Contractor and Mission, anticipates the possibility of making significant changes during the course of the contract in number, type, and performance of activities based on evidence gathered during continuous performance monitoring. Successful implementation will require strong partnership with other current and future Mission technical activities. For example, financial, transactional and business expertise in establishing, closing and fostering transactions might be part of this activity, and deeper technical knowledge and assistance for those transactions could well be in partnership with another USAID activity.

Rather than state how the work is to be accomplished, a SOO provides potential offerors with the flexibility to develop cost-effective solutions and the opportunity to propose innovative approaches to meet the stated objectives. The U.S. government provides this SOO to facilitate the widest possible response on how to implement within the set parameters.

In response to this SOO, offerors will provide a Performance Work Statement (PWS). The PWS submitted by offerors must describe the approach to achieve the objectives of the activity as well as the impact of https://www.usaid.gov/sites/default/files/documents/1860/CDCS-w%20Annexes%20Lo.pdf http://feedthefuture.gov/sites/default/files/resource/files/KenyaFeedtheFutureMultiYearStrategy.pdf

Currently under review at USAID/Washington with public version to be released in August.

interventions to include the extent to which economic wealth is generated and distributed across targeted populations as appropriate. The PWS must enable USAID to assess the performance of the work against specific, clear, and measurable performance standards (such as quality, quantity, and timeliness) and show the method of assessing Contractor performance against the performance standards.

2. PURPOSE

The KIM activity will mobilize financing for investment in targeted agriculture value chains (approximately 60% of funds mobilized), clean energy (approximately 30% of funds mobilized), and WASH (approximately 10% of funds mobilized), while advancing USAID/KEA priorities in small and medium businesses, county-led investment, cross-border trade, and youth, as well as entrepreneurship.

It is noted that the investment to be mobilized covers a broad spectrum of need. For example, with AVCs, the spectrum might span from the relatively small amounts farmers may need in invest in irrigation pipe or walking tractors, to the significantly larger amounts needed for regional processing facilities.

3. PERIOD AND PLACE OF PERFORMANCE

(a) Period of Performance: USAID anticipates a period of performance of up to five years from the date of contract award with a 3-year base period and two potential 1-year options.

(b) Place of Performance: KIM will be implemented in Kenya.

4. BACKGROUND

USAID/KEA believes that the Kenyan investment climate is sufficiently conducive to facilitate the flow of financing for investment in AVCs, clean energy and WASH. However, USAID/KEA’s development hypothesis holds that it is possible to accelerate this flow and to facilitate substantial additional financing for investment over five years in the three USAID priority areas noted, as well as four thematic areas of high importance: county-led investment, cross-border trade, youth, and entrepreneurship.

As envisaged, the KIM activity will include (but is not limited to):

● A transaction identification and support function to be provided through a network of Kenyan and international business advisory service (BAS) providers and transaction advisors;

● An incentive mechanism involving a ‘pay-for-results’ methodology. The primary metric of such a mechanism would be evidence of disbursement of ‘additional financing’ (both equity and debt) for targeted investment. For purposes of this Statement of Objectives, ‘additional financing’ is construed to be financing which otherwise would not have occurred without this intervention;

● To a lesser extent, technical assistance for specific financial development challenges, such as smallholder access to finance, and policy reforms when and as needed (it is noted that the majority of sector technical assistance should come through partnership and cooperation with other USAID agriculture, energy and WASH focused activities);

● Optimizing existing and future risk sharing agreements such as the USAID DCA (Development Credit Authority4) tools and other risk mitigating products. This activity will steward the Mission DCA portfolio; and https://www.usaid.gov/dca

● Structuring creative financing mechanisms/schemes within value chains, which integrate and incentivize multiple stakeholders to collaborate more closely together (possibly using futures contracts, warehouse receipts, inter alia.) and which ultimately impact small holder farmers.

These relationships will be identified/fostered in partnership with other USAID agriculture, energy and WASH focused activities.

Development Challenges

Kenya is the largest economy in East Africa, and a regional financial hub, but the country continues to underperform relative to its potential regarding economic growth rates, disparity of income levels, and high poverty rates. Kenya ranks 96th out of 144 countries in the most recent World Economic Forum Global Competitiveness Report; its economic growth rarely exceeds six percent per annum. Most economic growth projections fall well short of the Government of Kenya’s Vision 2030 target of ten percent per year.5

Despite these challenges, Kenya’s financial sector is making significant strides, providing millions of people with access to financial services and demonstrating an impressive entrepreneurial spirit and culture. Kenya leads Africa in mobile banking technology, with other parts of the developing world emulating its innovations. Kenya’s trade with the region and the world is expanding, especially in tourism, agriculture, and manufacturing. However, concentrated wealth in Kenya has led to economic inequality. Kenya’s Gini coefficient6 of 47.7 is the sixth-highest in sub-Saharan Africa, with an estimated 46 percent of the population (16.7 million people) living in poverty, including 1.5 million who are chronically food insecure. Access to finance for investment, both equity and debt, remains a constraint to Kenya’s ability to meet its aggressive Vision 20307 growth targets, as well as a challenge to the accomplishment of USAID priorities. According to the World Bank Data Source8, 2014 Credit to the Private Sector as a Percent of GDP was 35 percent in Kenya as compared to Chile (109 percent), Korea (138 percent), Malaysia (120 percent) and Thailand (146 percent).

On the supply side of Kenya’s financing, banks are generally strong, liquid and profitable—they dominate the domestic financial sector. The Savings and Credit Cooperatives (SACCO) system is well-established with broad geographic coverage, and digital finance is well-established and growing. The country’s capital markets, however, remain relatively illiquid with limited reach. While institutional capital is growing rapidly, with assets held by pension funds already at 17 percent of GDP or nearly $10 billion, the capital is not being efficiently mobilized to meet investment requirements in many agricultural value chains, clean energy, and WASH. The primary goal of KIM is to pull this domestic capital in from the sidelines and, in combination with foreign direct investment, to channel this as financing for investment critical to accomplishing development objectives.

This mismatch between the supply and demand for financing for investment presents a constraint to the accomplishment of USAID/KEA priorities outlined in the Kenya Country Development Cooperation http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/05/01/090224b082df926f/1_0/Rendered/PDF/Kenya000Financial0Sector0Support0Project.pdf; also supra note 1, page 17.

The Gini coefficient is a measure of statistical dispersion intended to represent the income distribution of a nation's residents, and is the most commonly used measure of inequality.

http://www.vision2030.go.ke/ http://data.worldbank.org/ http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/05/01/090224b082df926f/1_0/Rendered/PDF/Kenya000Financial0Sector0Support0Project.pdf http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/05/01/090224b082df926f/1_0/Rendered/PDF/Kenya000Financial0Sector0Support0Project.pdf

Strategy (CDCS) 2014-2018. The strategy provides a framework for achieving the overall goal of sustainably transforming Kenya’s governance and economy through three mutually reinforcing development objectives (DOs):

● DO1: Devolution effectively implemented

● DO2: Health and human capacity strengthened

● DO3: Inclusive, market-driven, environmentally sustainable economic growth.

The KIM activity will be designed to incorporate innovative strategies to mobilize $1 billion in financing for investment to close this gap, with specific attention to achieving specific results for agriculture, WASH, and renewable energy. While its approach should be applicable across the full platform of USAID/KEA activities, this activity anticipates facilitating—mobilizing through a combination of transaction advisory services, risk mitigation and transaction enhancement—additional financing for investment (both equity and debt) over five years in three USAID priority areas: (i) AVCs (60 percent); (ii) clean energy (30 percent), and (iii) WASH (10 percent).

The development hypothesis underlying the KIM activity proposes that effectively mobilizing private sector capital9—often blended finance packages-- to finance investment in Kenyan development priorities is a force-multiplier for accomplishing development outcomes, as well as achieving USAID/KEA development objectives more efficiently.

5. PERFORMANCE OBJECTIVES

The overarching objective of KIM is to mobilize substantial additional capital from private and public sectors that will enhance inclusive, market-driven, environmentally sustainable economic growth in the targeted areas in Kenya.

In pursuit of the Activity’s overarching objective, USAID has identified the following three specific Performance Objectives, with Performance Objective No. I being the most critical:

I. Mobilize capital--once or continuously over time as needed for growth--for development of targeted agricultural value chains, livestock sectors (approximately 60%), clean energy (approximately 30%), water, sanitation and hygiene WASH (approximately 10%). A large portion will be at the small and medium enterprise (SME) level. Support transactions to efficiently utilize finance and organically grow their enterprises.

II. Facilitate an enabling environment for private sector financing through policy reform, including investment policies under Kenya’s devolved governance structure.

III. Pro-active management oversight of the DCA portfolio to increase its utilization by participating Kenyan financial institutions.

As used herein, “private sector capital” is deemed to be funds held by the private sector (banks, pension and investment funds, etc.) which are capable of being extended through loans, equity or quasi-equity to enable investment such as purchase of equipment, upgrading of technology, construction of plants and facilities, etc.

The three objectives stated above will at the same time advance the Mission priority areas of county-led investment, cross-border trade, and youth, as well as entrepreneurship and small and growing businesses. Successful implementation will require strong partnership with other current and future Mission technical activities; financial, transactional and business expertise in establishing, closing and fostering transactions might be part of this activity, and deeper technical knowledge and assistance for those transactions could well be in partnership with another activity.

The Performance Work Statement (PWS) must incorporate interventions to:

i) address the development challenges laid out above

ii) meet all of the specific performance objectives

iii) meet KIM’s stated overarching objective

The PWS must provide a variety of innovative solutions to address the challenges of the financial sector discussed above.

Per the stated focus on AVC, the PWS must demonstrate an understanding of financial flows in the horticulture, dairy, and livestock value chains. It must also clearly show how the financial services, products and support services will flow through those value chains to address the needs and constraints of those involved in that chain; be it a need for finance, to increase linkages to markets to procure products, to reduce risk and/or to improve efficiency within the value chains. Finally, the PWS must demonstrate an understanding of USAID’s Feed the Future (FTF) priorities and strategies.

Illustrative Activities and Results

Offerors will propose PWS’s which they feel will best accomplish the objectives laid out above. The following are some activities and results which are intended to be illustrative only, and are by no means required components of the offeror’s PWS :

● Identify and support transactions which contribute to Mission development objectives.

Illustrative activities include development of a performance based network of Business Advisory Services (BAS) providers and transaction support advisors which can identify, develop a pipeline of, and support close of transactions critical to accomplishment of its development priorities.

Illustrative results include financing a substantial portfolio of agribusiness for local value addition and/or export trade; completed financing packages for smallholder investment in on-farm mechanization, on-farm technology adoption, etc; completed financing packages to foster off-grid electrification; sourcing actionable investment opportunities for private water treatment facilities; commercializing sanitation services; and/or facilitating a sizable amount of financing for rapidly growing SMEs, which have outgrown their ability to source senior debt. We are particularly looking for innovative ways for establishing and upscaling these particular portfolios.

● Catalyze financing to support targeted investment. Illustrative activities include developing a network of Kenyan and international finance providers to consider transactions offered under KIM and establishing and managing a facility which could be used to compensate BAS providers and transaction support providers for successful efforts and/or to de-risk or improve the yield to finance providers on targeted transactions. Illustrative results include incentive fees to BAS and transaction support advisors and/or incentive fees to participating financial institutions upon evidence of disbursement on targeted transactions.

● Technical assistance as required. Illustrative activities include technical assistance as needed for specific development challenges (i.e. supporting counties to attract investment), policy reforms, and support in overseeing the Mission’s extensive DCA portfolio. Illustrative results include increased ability of counties to attract investment, policy reforms which facilitate private investment in water delivery systems, and increased DCA utilization.

6. OPERATING CONSTRAINTS, MANAGEMENT OBJECTIVES AND GENERAL CROSS-CUTTING

REQUIREMENTS

In addition to addressing the development challenges and achieving performance objectives, the PWS must address and integrate each of the following cross-cutting requirements and key principles below:

(a) Collaboration and Flexibility: Collaboration with USAID and other USAID-funded activities in the design of KIM and in setting performance metrics will be required, as USAID and the Contractor learn and adapt (over the course of implementation). Identified transactions will require cooperation with other USAID agriculture, energy and WASH focused activities, even to the extent where a successful collaboration would “split” indicators; e.g. amount leveraged for KIM and future sales for the corresponding technical activity. The PWS must incorporate a collaborating, learning and adapting approach that: a) generates, captures, shares, and applies information and knowledge to support and improve development outcomes; b) promotes collaborative learning and exchanges with relevant institutions, stakeholders, and development partners; c) coordinates efforts to increase synergies and encourage innovations and sound resource management; d) supports sharing lessons learned, best practices and using innovative methods to reach stakeholders; e) describes collaboration with other USAID activities.

(b) Market Distortion: KIM must prevent market distortion, promote competition, and avoid favoritism. The activity will ensure that the funding is used where it is most required and to the greatest extent possible is facilitating additional transactions (transactions which otherwise would not have occurred). Not to interfere in market systems, but to encourage private sector investment.

(c) Pay-for-Performance: A key driver on the KIM initiative is expected to be ‘pay-for-performance’ methodology. Compensation to BAS providers, transaction advisors and finance providers will be based upon tangible, realized results rather than best-efforts. The Mission is also considering a significant performance award fee which would be available to the Contractor based on accomplishment of exceptional results.

(d) Local Capacity/Sustainability: USAID emphasizes the importance of the utilization of local systems. Accomplishing the KIM objectives, which cover a broad range of financing targets in terms of transaction size, sector, purpose, and tenor, will require the engagement of local Kenyan actors, both from the demand and the supply side. Sustainability must be considered a top priority. Host country partners and beneficiaries must be empowered and have the capacity to take ownership of development processes and maintain the activity’s results and impacts beyond its life. Much of the sustainability of this activity will derive from the investments which it mobilizes as well as demonstrated sustainable capacity to provide quality fee-based BAS and transaction advisory services.

(e) Non-Exclusivity: In order to encourage the innovative approaches for successful accomplishment of the stated objectives for this activity, USAID requires that offerors not stipulate exclusive arrangements with sub-partners.

(f) Integration of Portfolio: USAID/KEA expects the successful offeror to heavily integrate and coordinate with other USAID implementing partners focused in the targeted technical areas, where appropriate and as directed by USAID, potentially including but not limited to collaborative work planning.

(g) Developmental Impact and Leverage: KIM will use public funds to facilitate private investment. As such, it is incumbent upon the Contractor to ensure that transactions facilitated are necessary to accomplish USAID developmental impacts, that the cost of facilitating the targeted transactions facilitated is minimized and that the amount of funds used to facilitate transactions achieves maximum impact. A Monitoring & Evaluation (M&E) system that can track debt/investment to the ‘final user’, and which includes the DCA portfolio, will also be a vital component of the activity.

(h) Adaptive Management: Throughout the performance of this contract, the Contractor will utilize the principles of adaptive management. Activities performed under this contract are understood to be evolving in nature (meaning that the best efforts of the Contractor may not achieve desired results because of unknown factors) and therefore will include continuous monitoring to assess effectiveness and performance. The Contractor will establish frequent milestones at reasonable intervals to review each activity. At milestone reviews, evidence gathered during performance will be analyzed and, as a result, the activity may be modified, abandoned, or redefined. Milestone reviews will be conducted collaboratively between the Contractor and the Mission.

(i) Gender mainstreaming: USAID has an explicit commitment to gender equality in all of its development activities. The Activity is required to ensure that gender issues are suitably addressed throughout and identify opportunities to bring women into structures that control access to finance. Interventions and approaches must be adapted to ensure women’s equitable access to resources and increase women’s participation in financial sector institutions.

(j) Communication Strategy: The Contractor must develop a comprehensive communication strategy that will shape the internal and external environment and atmosphere in which the Activity will operate and be culturally appropriate and effective to ensure that the target audience can easily understand the message. The strategy must enable the sharing of information and ideas, support interaction, and create cohesion among the stakeholders.

(k) Environmental Best Practices and Climate Change: In order to identify any potential negative impacts and ensure compliance with USAID and USG environmental procedures, the Contractor will be required to develop procedures to assess the environmental impact of proposed assistance and develop mechanisms to address the relevant assessment requirements. The environmental compliance of the award will be guided by the approved Initial Environmental Examination (IEE). The IEE is attached to the RFP and Offerors must incorporate IEE requirements in their proposals.

(l) Youth: USAID has an explicit commitment to mainstream youth in all of its development activities.