SOL -663-12-000013

RFP Number: SOL-663-12-000013 Issuance Date: April 26, 2012 Deadline for Questions: May 14, 2012 Closing Date: June 11, 2012 By 1600 hours (local Ethiopian time)

SUBJECT:

Request for Proposal (RFP) No. SOL-663-12-000013, “Finance and Business Services (FaBS)” Project Dear Prospective Offerors:

USAID/Ethiopia is soliciting proposals for performance of services detailed in the attached RFP. The proposals must be prepared in accordance with instructions included in Section L and will be evaluated based on the evaluation criteria contained in Section M.

USAID/Ethiopia contemplates award of one Cost Plus Fixed Fee (CPFF) completion type contract to cover a two year base period of performance. Option I will be for a two year period. Option II will be for a one year period as follows:

Base Period (Program Module I) is estimated between $7-9 million.

Option I (Program Module II) is estimated between $11-13 million

Option II (Program Module III) is estimated between $1-2 million

Revealing the total estimated cost for the contract does not mean that Offerors should necessarily strive to meet the maximum amount. The Offeror must propose costs that it believes are realistic and reasonable for the work. Cost proposals will be evaluated as part of a Best-Value determination for contract award, including cost effective approaches to achieve the results. Issuance of a contract is subject to availability of funds and successful negotiation of contract terms and conditions.

Proposal Due Date:

Proposals are due on June 11, 2012 by 1600 hours local Ethiopian time.

All questions and requests for clarification must be received by May 14, 2012 no later than 1600 hours (local Ethiopian time) and must be sent to the following email address: caddis@usaid.gov with a copy to Tigist Yifru at tyifru@usaid.gov and gtaitt@usaid.gov. Offerors must not submit questions to any other USAID staff, including the technical office.

Proposals shall be submitted as follows:

(see Section L.6 of solicitation)

One (1) original and three (3) copies of the technical proposal and one (1) original and one (1) copy of the cost proposal with an electronic copy of the technical proposal and cost proposal in Microsoft Excel with workable calculations shown in the spreadsheet and an electronic version of the narrative discussing the costs for each budget line item in Microsoft Word via email and on a CD-ROM must be submitted to the following:

Courier Address:

Gregory E. Taitt

Supervisory Contracting Officer

USAID/Ethiopia c/o American Embassy

Entoto Road, Addis Ababa, Ethiopia e-mail address:

caddis@usaid.gov Late proposals will not be accepted. Acceptance is upon receipt of the hard copy However, both the electronic and hard copies should arrive by the stated deadline. Faxes are not accepted.

Please note that this does not constitute any guarantee that a contract will be awarded nor does it constitute any authorization by USAID to reimburse costs incurred in the preparation of a proposal.

Sincerely, /Sd/

Gregory E. Taitt

Supervisory Contracting Officer

USAID/Ethiopia

Table of Contents

6SECTION B – SUPPLIES OR SERVICES AND PRICE/COST

6B.1

PURPOSE

6B.2

CONTRACT TYPE

6B.3

BUDGET

9B.4

PAYMENT

9B.5

COST REIMBURSABLE

9B.6

INDIRECT COST

11SECTION C – DESCRIPTION / SPECIFICATIONS/STATEMENT OF WORK

11C.1

TITLE

C.2 OBJECTIVE……………………………………………………..………………… ……………….…..11

C.3

HYPERLINK \l "_Toc321320878"

BACKGROUND

18C.4 STATEMENT OF WORK

19Sub IR 3.1: Increased access to financial sector instruments

20Sub IR 3.2: Improved policy framework to support private sector growth

Sub IR 3.3: Public and private sector capacity to promote trade increased …. ……………...22

22C.5 IMPLEMENTATION MODEL

27C.6. PROGRAM STRUCTURE

C.7 GRANTS MANAGEMENT

33SECTION D – PACKAGING AND MARKING

33D.1

AIDAR 752.7009 MARKING (JAN 1993)

33D.2

BRANDING STRATEGY AND MARKING PLAN

34SECTION E - INSPECTION AND ACCEPTANCE

34E.1

CONTRACT PERFORMANCE EVALUATION

34E.2

NOTICE LISTING CONTRACT CLAUSES INCORPORATED BY REFERENCE

34E.3

INSPECTION AND ACCEPTANCE

35SECTION F – DELIVERIES OR PERFORMANCE

35F.1

PERIOD OF PERFORMANCE

F.2 DELIVERABLES

.37

36F.3

MANAGEMENT OF CONTRACT

37F.4

CONTRACT MONITORING PLAN

39F. 5 SUMMARY REPORTING MATRIX

39F.6

TECHNICAL DIRECTION AND DESIGNATION OF RESPONSIBLE USAID OFFICIALS

39F.7

PLACE OF PERFORMANCE

40F.8

AUTHORIZED WORK DAY / WEEK

40F.9

REPORTS AND DELIVERABLES OR OUTPUTS

41F.10

CLOSE-OUT PLAN

F.11

SUBMISSION REQUIREMENTS FOR DEVELOPMENT EXPERIENCE DOCUMENTS ..…….41

SECTION G – 43 TASK ORDER ADMINISTRATION DATA

44G.1

CONTRACTING OFFICER'S AUTHORITY

44G.2

TECHNICAL DIRECTION

44G.3

ACCEPTANCE AND APPROVAL

44G.4

INVOICES

46SECTION H – SPECIAL TASK ORDER REQUIREMENTS

46H.1

KEY PERSONNEL

47H.2

LANGUAGE REQUIREMENTS

47H. 3

GRANTS UNDER CONTRACTS

48H.4

GOVERNMENT FURNISHED FACILITIES OR PROPERTY

48H.5

TITLE TO PROPERTY

48H.6

CONFIDENTIALITY AND OWNERSHIP OF INTELLECTUAL PROPERTY

H.7

CONTRACTOR’S STAFF SUPPORT, AND ADMINISTRATIVE AND LOGISTICS

ARRANGEMENTS

49H.8 AIDAR 752.7007 PERSONNEL COMPENSATION (July 2007)

49H. 9

ADDITIONAL REQUIREMENTS FOR PERSONNEL COMPENSATION

51H.10

AUTHORIZED GEOGRAPHIC CODE

51H.11

LANGUAGE REQUIREMENTS

51H.12

INTERNATIONAL TRAVEL

52H.13 EXECUTIVE ORDER ON TERRORISM FINANCING

52H.14 REPORTING ON TAXATION OF U.S. FOREIGN ASSISTANCE

53H.15 REQUESTS FOR CO CONSENT TO SUBCONTRACT

53H.16 PRESS RELATIONS

53H.17

HYPERLINK \l "_Toc321320932" AGRICULTURAL ACTIVITIES (BUMPERS AMENDMENT). (FY 2008 Act Sec.13(b),.…………

53H.18

ENVIRONMENTAL COMPLIANCE

55SECTION I – CONTRACT CLAUSES

55I.1

NOTICE LISTING CONTRACT CLAUSES INCORPORATED BY REFERENCE

58I.2

FAR 52.227-23 RIGHTS TO PROPOSAL DATA (TECHNICAL) (JUN 1987)

58I.3

FAR 52.232-25 PROMPT PAYMENT (OCT 2003)

62I.4 AIDAR 752.7032 INTERNATIONAL TRAVEL APPROVAL………………………………….…….

62I.5

COMMUNICATIONS PRODUCTS (OCT 1994)

64SECTION J – LIST OF DOCUMENTS EXHIBITS AND OTHER ATTACHEMENTS

SECTION K – REPRESENTATIONS, CERTIFICATIONS OF OFFERORS

SECTION L - INSTRUCTIONS, CONDITIONS, AND NOTICES TO OFFERORS

67L.1 52.215-1 INSTRUCTIONS TO OFFERORS—COMPETITIVE ACQUISITION (JAN 2004)

71L.2 52.216-1 TYPE OF CONTRACT (APR 1984)

71L.3 52.233-2 SERVICE OF PROTEST (SEPT 2006)

L.4 52.252-1 SOLICITATION PROVISIONS INCORPORATED BY REFERENCE (FEB 1998)

73L.5.

QUESTIONS AND CLARIFICATIONS:

73L.6

GENERAL INSTRUCTIONS TO OFFERORS

L.7 INSTRUCTIONS FOR THE PREPARATION OF THE TECHNICAL PROPOSAL

L.8 INSTRUCTIONS FOR THE PREPARATION OF THE COST PROPOSAL

88L.9 INSTRUCTIONS FOR THE PREPARATION OF THE BRANDING IMPLEMENTATION PLAN (BIP) AND THE MARKING PLAN

89SECTION M - EVALUATION FACTORS FOR AWARD

M.1

GENERAL INFORMATION

89M.2 COST EVALUATION CRITERIA

89M.3 TECHNICAL EVALUATION CRITERIA

SECTION B – SUPPLIES OR SERVICES AND PRICE/COSTS

B.1

PURPOSE

In order to increase food security and rural incomes, USAID/Ethiopia, in support of its Development Objective, “Increased Growth with Resiliency in Rural Ethiopia”, specifically targeting the Improved Private Sector Competitiveness Intermediate Result, the contractor will support a sustained effort on agricultural performance which is necessary to facilitate gross domestic product (GDP) growth and employment creation required to meet Millennium Development Goals (MDG) 1: Eradicate Extreme Poverty and Hunger within the next five years.

B.2

CONTRACT TYPE

This is a cost plus fixed fee completion type contract. For the consideration set forth in the contract, the Contractor shall provide the deliverables or outputs described in Sections C and F and otherwise comply with all contract requirements.

B.3

BUDGET

The Total Estimated Cost of the Base Period of the Contract is $____TBD__. The Fixed Fee for the Base Period is $ ___TBD___. The Total Estimated Cost plus Fixed Fee for the Base Period is $___TBD_____.

The Total Estimated Cost of the first option period is $____TBD______. The Fixed Fee for the first option period is $ __TBD____. The Total Estimated Cost plus Fixed Fee for the first option period is $___TBD______.

The Total Estimated Cost of the second option period is $____TBD_____. The Fixed Fee for the second option period is $ __TBD___. The Total Estimated Cost plus Fixed Fee for the second option period is $___TBD_____.

The combined Total Estimated Cost of the base period and two option periods is $____TBD_____. The combined Fixed Fee of the base period and two option periods is $ ___TBD______. The combined Total Estimated Cost plus Fixed Fee for the base period and two option periods is $___TBD____ as further detailed below.

ITEMIZED PROGRAM BUDGET – by Program Module

Program Module I

Option I

Program Module II Option II

Program Module III Totals

Salaries

Fringe Benefits

Consultants

Travel, Transportation &

Per Diem

Allowances

Subcontracts

Other Direct Costs

Indirect Cost

Fixed Fee

Total Estimated

Cost Plus Fixed

Fee

NOTE: The budget proposal submitted for this contract should include an estimated grant fund that is not to exceed $ 5 million over the five year period.

ITEMIZED PROGRAM BUDGET: by Intermediate Results (IRs)

IR 3.1

Line Item

Salaries

Fringe Benefits

Consultants

Travel, Transportation &

Per Diem

Allowances

Subcontracts

Grants

5,000,000

Other Direct Costs

Indirect Cost

Fixed Fee

Total Estimated

Cost Plus Fixed

Fee

NOTE: The budget proposal submitted for this contract should include an estimated grant fund that is not to exceed $ 5 million over the five year period.

B.4

PAYMENT

The paying office information is included in Section G.4 below.

B.5

COST REIMBURSABLE

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

B.6

INDIRECT COST

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

Description

Rate

Base

Type

Period

1/

1/

1/

2/

2/

2/

3/

3/

3/

1/Base of Application:

Type of Rate:

Period:

Source:

2/Base of Application:

Type of Rate:

Period:

Source:

3/Base of Application:

Type of Rate:

Period:

Source:

Note: The Contractor is allowed to recover applicable indirect costs (i.e., overhead, G&A, etc.) on other direct costs (ODCs), if it is part of the Contractor’s usual accounting procedures, consistent with FAR Part 31, and Negotiated Indirect Cost Rate Agreement (NICRA). Indirect costs shall not be allowed for local organizations. All costs for local organizations shall be budgeted and billed as direct costs.

B. 7

CEILING ON INDIRECT COST RATES AND FINAL REIMBURSEMENT FOR INDIRECT COSTS

(a) Reimbursement for allowable indirect costs shall be at the lower rate of the final negotiated (or predetermined) rates, or the following ceiling rates:

The Contractor shall not receive indirect costs that exceed rates two percentage points or 10% of the individual indirect cost rates above, whichever is lower. The Contractor shall also negotiate ceiling indirect costs rates with their sub awardees that do not exceed two percentage points or 10% of their respective indirect costs rates in NICRA at time of award.

(b) The Government will not be obligated to pay any additional amount should the final indirect cost rates exceed the negotiated ceiling rates. If the final indirect cost rates are less than the negotiated ceiling rates, the negotiated rates will be reduced to conform to the lower rates. Final indirect costs exceeding the rate(s) applied to the base(s) shown above shall be absorbed by the Contractor.

(c) This understanding shall not change any monetary ceiling, obligation, or specific cost allowance or disallowance. Any changes in classifying or allocating indirect costs require the prior written approval of the Contracting Officer.

END OF SECTION B

SECTION C – DESCRIPTION / SPECIFICATIONS/STATEMENT OF WORK

C.1

TITLE

“Finance and Business Services” (FaBS) C.2

OBJECTIVE

The objective of this contract is obtain services that will substantially improve private sector competiveness in general, and of financial intermediation in particular, as key drivers of sustainable economic growth and reduced poverty in Ethiopia. While FaBS will have a national mandate to engage throughout Ethiopia, emphasis will be placed on providing complimentary support to other projects within the EG&T portfolio, including the regional coverage identified in those programs.

C.3

BACKGROUND

Financial and business service providers play a critical enabling role in any economy, even more so in developing economies such as Ethiopia. The intermediation roles of these actors are crucial to broad objectives of economic growth, poverty reduction and food security in Ethiopia in general and in the agricultural sector in particular.

Ethiopia recently announced an ambitious five-year strategic plan, the Growth and Transformation Plan (GTP) that is aimed at moving the country to middle income status. In order to achieve the ambitious goals under the GTP major reforms are required in the area of private sector competitiveness during the next five years. However, for several structural reasons, this will not be an easy task given that over 80% of the population continues to be engaged in some form of rain-fed agriculture as their main source of income; the costs of trading in Ethiopia are among the highest in the Horn of Africa; user rates for Information and Communications Technology (ICT) are very low, even by African standards; and investments by the private sector lag far behind that of government

Despite impressive growth over the past 5-7 years, Ethiopia’s private sector continues to struggle as a result of an inefficient business climate as well as a number of firm/industry bottlenecks. Particularly during the past two years, with the economy showing strains associated with the global downturn, escalation of prices for major import products and resultant restrictive monetary policy by government designed to help contain the impact of the global crisis and associated inflation, the prospects for private sector growth appear to have stalled according to some, or to have diminished according to others. With credit growth continuing to decline, an already challenged business environment has become even more challenging during the past couple of years.

Ethiopia, and the private sector in particular, now face the challenge of not only continuing the growth rates of the past decade, but to do so in a more inclusive, diversified framework while managing to hold inflation and broader macroeconomic instability in check. No small task for a country facing severe capacity gaps at every level, both public and private. Achieving these goals will require a focus on building the competitiveness of the private sector. While government has long maintained an objective of rapid technology adaption as an impetus for development, the type and absorptive capacity of the economy to fully utilize technology is linked to broad range of factors – including an enabling business environment in which the legal/contract enforcement regime encourages longer-term investments, a developed framework for Business Development Services (BDS) providers, as well as a system of chambers and business associations that can effectively advocate for necessary reforms and deliver services to their membership.

Ethiopia has experienced tremendous growth in the past five years. Average GDP growth from 2005/06 to 2009/10 stands at 11% according to government figures and at a more conservative level of 8% according to IMF/WB statistics. Regardless of which figure one utilizes, the rate of growth over this period has been impressive. Further, a breakdown by sector shows that despite Ethiopia’s heavy reliance on agriculture as a key contributor to GDP, all three major economic sectors – agriculture, industry and services - showed substantial growth during this period: agriculture and related activities 8.0%; industry 10.0%; and services 14.6 %. These growth rates met or exceeded GoE projections under the five-year Plan for Accelerated and Sustained Development to End Poverty (PASDEP).

Over the past 18 months, a number of studies, supported by USAID as well as several other donor groups have examined key aspects of Ethiopia’s economy. Key areas examined in these studies include: trade Reform, financial sector reform, information communication sector, general environment for competition and business services, role and size of the Private Sector in GDP, ease of company registration, and tax policy and implementation. Several of the major constraints identified from these and other studies are listed below, with those of particular relevance to the scope of the Finance and Business Services (FaBS) Project highlighted in italics.

1. GoE restrictions in terms of the amount/type of credit provided by private banks;

2. Financial sector characterized by short-term, collateral dependent lending, with limited options/sources of long term capital in the form of insurance and pension funds

3. Small and highly import dependent industrial sector;

4. Overly bureaucratic customs regulations and limited participation in international trade regimes;

5. Monetary policy favoring inflation rate control over lower interest rates for investment;

6. Presence of GoE or other “parastatal” owned enterprises in key sectors (i.e. concrete, fertilizer, transportation);

7. Limited engagement by the GoE in working with PS to design/implement clear strategy for PS development, including how best to address policy and regulatory reforms;

8. Limited capacity in the ICT sector;

9. Lack of standards and quality control systems;

10. Low level of capacity/business expertise among entrepreneurs looking to begin new enterprises and/or engage with donor institutions for the management of local contracts; and

11. Lack of/limited range of financial products to promote a diversified investment sector.

According to World Bank report Doing Business 2011, the country ranked 104th out of 183 countries in ease of doing business. The following table shows some of the major indicators of the business environment as compared with other economies. Although the time and cost necessary to start a business in Ethiopia has decreased in recent years, starting a business in Ethiopia continues to be significantly more expensive and time consuming as compared to other countries in the region.

Selected requirements necessary to start a business

(New Zealand) Best in East Africa(Rwanda)

This implies that greater efforts are needed to improve the regulatory practices of public institutions in Ethiopia. The Finance and Business Services (FaBS) project intends to address many of above challenges associated with doing business in Ethiopia. In particular FaBS will focus on several finance and business development service components as well as improved capacity of several public and private sector chambers/associations in order to effectively promote an enabling business environment.

HOST COUNTRY STRATEGY LINKAGE

The GTP, which spells out government economic planning for the next five years, proposes an ambitious set of goals for Ethiopia. But more importantly, GTP will serve as a major economic roadmap of the goals and ambitions of the government over the coming five years. As a result, FaBS will try to closely align its objectives with the GTP in order to maximize government buy-in and in order to promote maximum likelihood of sustainable to local partners. GTP will serve as a framework or broad outline for key sectors of Ethiopia: economy, education, infrastructure development, and social services, to name a few. At the core of the GTP is the desire to maintain the past high levels of economic growth as a key enabling factor for the achievement of the stated vision, which is: “to build an economy which has a modern and productive agricultural sector with enhanced technology and an industrial sector that plays a leading role in the economy to sustain economic development and secure social justice; and, increase per capita income of citizens so that it reaches at the level of those in middle-income countries.”

Keys to achieving the GTP goal for economic growth include:

1. Maintain average real GDP growth rate of at least 11% and meet the Millennium Development Goals; and

2. Ensure sustainable growth within a stable macroeconomic framework.

The above GTP goals will serve as the main drivers for expanding private sector and financial sector development. The goals will in turn be supported by the following five pillars:

1. Sustaining fast and equitable economic growth;

2. Maintaining agriculture as a major source of economic growth; with increasing complimentary role to be played by agro-industrial transformation

3. Promotion of a supportive environment for long-term investments both in terms of real and financial assets (i.e. value-addition in manufacturing, industrialization as well as pension and insurance products)

4. Creating favorable conditions for the manufacturing and industrial sectors to play key role in the economy; and

5. Building capacity/trust of both private and public sector actors to develop/implement appropriate policy reform framework conducive to achieving the ambitious growth targets envisioned by the country in order to obtain middle-income status.

FaBS will be aligned with the GTP objectives aimed at supporting increased economic growth through a more favorable enabling environment and will serve to address the policy and capacity shortfalls presented within the GTP related to the financial and private sector development. But achieving the GTP goals will require a prolonged time period, and will depend, to some extent, on the willingness of GoE and private sector actors to buy into major policy changes. For this reason, we propose that interventions proposed under FaBS should be centered on the agricultural sector, including agro-industrial transformation. This will help to align our interventions in a particular sector and increase ability to attribute project deliverables with development goals in a particular sector.

USAID/ETHIOPIA: Country Development Cooperation Strategy (CDCS)

Through an emphasis on rural economic growth, the Ethiopian people will gain greater access to improved education, healthcare, and water resources. Food insecure areas will be served by a coordinated humanitarian response and sustainable disaster risk reduction interventions. Conflict resolution and governance structures will focus on the building of civil society (including the private sector) and will support the aspiration of the Ethiopian people for better transparency in governance across all sectors.

The USAID/Ethiopia Country Development Cooperation Strategy (CDCS) builds on the progress in Ethiopia since the last country strategy and the efforts made to reduce vulnerability. The threat of famine has not been completely removed, but enough progress has been made so that USAID can now focus more on helping Ethiopia transform its economy and sociaty toward middle income status.

Overall Goal: Accelerate Ethiopia’s economic Transformation via Strengthened Economic Growth, increased Resiliency, improved Social well- being and greater Accountability

Development Objective (DO) 1: Increased Growth with Resiliency in Rural Ethiopia

a) IR 1: Performance of the agriculture sector improved

b) IR 2: Livelihood transition opportunities increased

c) IR 3: Private sector competitiveness improved

d) IR 4: Resiliency to and protection from shocks and disasters increased

e) IR 5: Nutritional status of women and young children improved In order to increase Food Security and Rural Incomes, a sustained effort on agricultural performance is necessary to facilitate GDP growth and employment creation required to meet MDG 1: Eradicate Extreme Poverty and Hunger within the next five years. To support this effort, USAID will target its programs on:

1. Focused efforts to develop full growth potential in “Productive Ethiopia”;

2. Proactive efforts to link vulnerable populations in safety net and pastoral areas with new growth opportunities;

3. Continue to increase resiliency of vulnerable populations to disasters (e.g., assets and capacity protection; where required, Humanitarian Assistance);

Increase nutritional status among Ethiopians

4. Improve the enabling economic environment and support increased private sector investment and growth.

DO #1 builds on the previous Mission strategy Foundation Established for Reducing Famine Vulnerability, Hunger and Poverty, which the Mission has been operating under from 2004 to-date. Given the progress made, the tremendous growth in the agriculture sector over that time period, the concerted effort being made by the GoE to ensure continued growth, and the up-tick in interest by the donor community in economic growth in Ethiopia, the new DO takes the logical next step in the economic development of Ethiopia. This DO moves from creating the foundation for economic development to developing the means to promote economic independence and prevent future shocks, and limit the potential for shocks to return Ethiopia to a state of famine and chronic poverty.

FaBS will contribute to DO #1 under IR 3, Private sector competitiveness improved, by promoting an economic enabling environment that will encourage increased private sector investment and growth, leading to greater livelihood opportunities.

FEED THE FUTURE INITIATIVE (FtF)

USG’s FtF Initiative for Ethiopia builds on considerable USAID and other USG partners’ experience and knowledge of the key constraints – structural, human capacity, regulatory, attitudinal, and institutional – that continue to limit Ethiopia’s ability to reach its economic potential and aggressively and effectively advance a robust, high-impact hunger and food security initiative. Ethiopia can be visualized as three distinct regions based on broader agro-ecological conditions and livelihood patterns. USAID refers to these three regions as “Productive Ethiopia,” “Hungry Ethiopia” and “Pastoral Ethiopia.” Framed within the context of these Three Ethiopians, USAID/Ethiopia’s FtF strategy focuses on three core components: (1) Agricultural Growth-Enabled Food Security; (2) Linking the Vulnerable to Markets; and (3) Policy and Capacity Enabler.

To link growth-oriented efforts with vulnerable areas, USAID will employ a “Push-Pull” Model which seeks to strengthen capacities of vulnerable and chronically food insecure populations to participate in economic activity (“push”), while mobilizing market-led agricultural growth in high potential areas to generate economic opportunity and demand for smallholder production, labor, and services (“pull”).The FtF Strategy links with long-standing programs supported by USAID’s Food for Peace program and Office of Foreign Disaster Assistance (OFDA), such as the Productive Safety Net Program (PSNP), which assists households in vulnerable areas to build their resiliency and ability to benefit from the FtF push in economic opportunity.

The FaBS project will contribute to the creation of an enabling business environment for the implementation of FtF strategy by strengthening private sector capacity and developing greater competency of production and operation through business services and financial management capacity building, and improving the technology and management skill of the financial and business development service providers.

PRIVATE SECTOR STRATEGY (EG-PSDS)

In an effort to support several new initiatives, including the Government of Ethiopia’s Growth and Transformation Plan (GTP), the Agriculture Growth Program (AGP), USAID’s Feed the Future Initiative (FtF), and the USAID/Ethiopia CDCS, USAID/Ethiopia has developed the “Economic Growth and Private Sector Development Support Strategy (EG-PSDS).”

The EG-PSDS serves as a guiding document for the Mission as it develops a set of projects that will lay the foundation for FtF efforts and, more generally, promote private sector development in Ethiopia. The EG-PSDS targets those areas of Economic Growth (EG) and Private Sector Development (PSD) that are most directly tied to FtF and that compliment future USAID/Ethiopia investment. A main factor in the creation of the EG-PSDS was to identify those areas where USAID/Ethiopia, and USAID in general, has a significant competitive advantage, and a prior history of successfully delivering assistance, informed by current sector analytics. Finally, while the areas highlighted in this strategy do not address every aspect of the GTP, they are directly linked to furthering the goals set forth within the GTP. They also build upon successful elements of existing projects within the USAID/Ethiopia portfolio and are linked to other donor projects in the EG and PSD sectors.

FaBS will contribute to the EG-PSDS Results framework shown below:

EG-PSDS centers on establishing the required “enabling environment” needed to promote FtF as well as the broader private sector stakeholders affiliated with or supporting agriculture sector development under GTP. The EG-PSDS seeks to promote the development of both public and private sector actors in the target reform areas of Finance, Trade, Business Capacity and the cross-cutting” area of ICT.

Goal of EG-PSDS: (IR 3) Improved Private Sector Competitiveness

a) Sub IR 3.1: Increased access to financial sector instruments

b) Sub IR.3.2: Improved policy framework to support private sector growth.

c) Sub IR 3.3: Public and private sector capacity to promote trade increased The EG-PSDS strategy will be implemented via several projects – one of which is the Finance and Business Services Project (FaBS). Several other initiatives, whether developed as part of the missions Annual Program Statement (APS) and/or through Fixed Amount Reimbursement Agreements (FARAs), will support the broad EG-PSDS objectives outlined above. While more detailed information on APS/FARA initiatives is available elsewhere, we have included a brief summary of the key objectives below. In the pages that follow we provide a detailed explanation of the FaBS project, including the main objectives, suggested interventions and intended impact of the project on the broader goal of promoting increased growth and resiliency in rural Ethiopia.

C.4 STATEMENT OF WORK

FaBS will serve as the mission’s flagship private sector activity, designed to significantly compliment several other initiatives under the Feed the Future program. A central, guiding principle of FaBS is that the recent ambitious economic growth projections - outlined under the USG-led FtF initiative as well as in Ethiopia’s 5 year Growth and Transformation Plan (GTP) - will require a vibrant, competitive private sector whose need for investment capital can be affordable and met by both bank and non-bank intermediaries. In consideration of the role of financial intermediation to achieve sustained economic growth rates in excess of 10% annually over the next five years, the capacity of financial institutions will have to be vastly improved to enable them to channel resources from savers to investors in a cost-effective framework, where risk is appropriately priced. At present the Ethiopian economy in general, and the financial sector in particular, exhibit several deficiencies in how well it delivers the above services. As a result, the development of a stable, efficient and inclusive financial system, along with an effective policy and institutional environment for private sector growth are crucial to sustained economic growth for Ethiopia.

FaBS will address several market imperfections in the areas of finance and business services in Ethiopia. FaBS will also look to establish a framework that will address key capacity development needs necessary for continual improvements in the above areas. The intended impact of FaBS in each of the key areas covered under the program, is listed below under three broad headings: financial reforms, business development services and trade facilitation.

The goal of FaBS is to substantially improve private sector competiveness in general, and of financial intermediation in particular, as key drivers of sustainable economic growth and reduced poverty in Ethiopia. To measure the overall impact and effective implementation of FaBS, the following broad indicators will be measured throughout implementation:

A more detailed discussion of each of the intermediate results and cross-cutting objectives of FaBS are provided below, together with illustrative activities expected to be carried out under each program area:

Sub IR 3.1: Increased access to financial sector instruments In addressing the financial sector component, FaBS will strive to implement initiatives in the following related areas: a) Establish institutional framework for the identification, analysis and diffusion of financial instruments suited for agriculture and other underserved market segments; b) Increase the capacity of both private bank staff and non-bank actors to properly assess and determine risks associated with financial transactions; c) Promote the adoption of internationally recognized accounting standards, d) establish both regulatory framework and financial products suited for Islamic or sharia banking and e) promote conducive environment for long term capital/investment funds management in Ethiopia.

Sub IR 3.1.1 Broadening the range of financial instruments

FaBS will strive to broaden the range and availability of financial products in Ethiopia, with particularly emphasis on agricultural financing and on approved financial products targeted at Muslim communities.. For each of the intervention areas listed below an illustrative set of activities is also provided. The five primary areas where activities under FaBS may be carried out include:

A.

Develop and expand use of credit enhancement tools to stimulate bank/non-banks actors to introduce/expand use of non-traditional credit/financing mechanisms (i.e. leasing, account receivable, pension funds and Insurance);

B.

Increase client-oriented product development processes as well as risk management practices in the financial sector - including increased understanding/use of credit rating /information sharing systems and improved regulatory environment for capital market operations;

C.

Adoption of international audit, reporting practices, including the use of twining arrangements to promote the transfer of best practices in commercial bank management;

D.

Development of a comprehensive technical assistance program aimed at maximizing the leveraging potential of the USAID/DCA program to stimulate lending/provision of credit to underserved communities, including agriculture SMEs, Islamic communities and other under-served sectors.

Sub IR 3.1.2: Addressing banking needs of Ethiopia’s Islamic Communities

Ethiopia’s Muslim population has been steadily increasing over the past several decades. However, financial institutions in the country offer mainly/only conventional banking products that may not comply with Islamic banking principles. The inability of existing banks to design approaches that cater to the needs of this sizeable Muslim population is sometimes seen as an impediment to the country’s development. This is because many in Islamic communities tend to believe that conventional bank services – related to the payment of interest rates - are against their religious faith. As a result, a good number of potential customers elect to use more informal savings and investment mechanisms and stay away from more traditional banks in Ethiopia. Even very basic banking practices, including the payment of interest on both short/medium term deposits, may be in conflict with Islamic banking practices. Given the large number of people who practice Islam in Ethiopia, FaBS will pay particular attention to supporting both the regulatory as well as product design elements of sharia banking in Ethiopia.

In addition to the above intervention areas, the contractor will work with other projects supported by USAID and/or other donors towards improving/expanding regulatory framework for capital and/or equity market products, including, IPOs, venture capital or subordinated debt programs as appropriate and depending on the availability of funds.

Illustrative activities may include, but are not limited to:

a Support local commercial banks to introduce the new credit products, b.

Establish an investment and regulatory framework related to private/public pension program c.

Promote pension funds as means for contributing to long-term capital investment projects d.

Introduce new financial products, in line with sharia banking principles e.

Train national and local commercial banks employees in management of risk in financial sector or areas g.

Train ICT professionals trained (or ICT services introduced) and linked to financial service intermediation h.

Provide financial intermediaries with Technical assistance in design of business plans, risk management framework, contract and pricing plans related to DCA credit enhancement initiatives i.

Introduce standard procedures and manuals for managing leasing business

Sub IR 3.2: Improved policy framework to support private sector growth

The major goals and objectives of the BDS component will be to: a) Increase the capacity of the Chambers and trade associations to provide effective services; b) Increase the capacity of Business Development Service providers to deliver cost-effective, efficient services, particularly along selected value chains; c) Raise the capacity of the Chamber system to participate in GOE sponsored dialogues and service their membership; and d) strengthen ability of BDS providers to better address credit/financial constraints of SMEs.

Reform must be anchored in dialogue and deliberation amongst the public and private sectors in Ethiopia. The development of a vibrant market economy requires a dialogue between government and private actors with the view of developing an institutional environment that rewards private sector competitiveness. This cannot be accomplished without partnership with government at every level. The newly established Public-Private Consultative Forum (PPCF) has the potential to transform the dialogue framework in Ethiopia into one that is productive for both the Government and the private sector. A framework to hold PPCF forums have been established at the both the national and regional levels, and are expected to focus on resolving constraints to the business enabling environment. The major role of the private sector, particularly the business management organizations (BMOs) in the policy dialogue forum will be promoting the introduction, amendment or abolishment of relevant laws and regulations that affect private businesses in Ethiopia. FaBS will focus on building the capacity of the private sector to effectively participate in the policy dialogue to promote the development of an enabling business environment. In addition to strengthening the PPCF process, FaBS will also emphasize the development of strong PPP – Public-Private-Partnerships – opportunities in Ethiopia, with a particular focus on opportunities in key agricultural value chains.

Sub IR 3.2.1: Improved Business Development Services for Small and Medium Enterprises

The second high-level result expected under the BDS component is: sustainable BDS market that is less and less dependent on donor/ government contracts as primary source of revenues. Approaches to establish this self-sustaining BDS framework will initially focus on pilot BDS support in selected Agro-Industrial Sectors as well as Special Economic Zones.

By almost any measure, the capacity of the private sector in Ethiopia is limited. Many entrepreneurs and businesses lack the necessary management skills needed to become successful in a more global climate. Additionally, the business associations and the Chamber system, while growing in numbers, often are not capable of supplying needed services to its membership.

A market for BDS can be fostered through sound assistance that encourages both the supply and demand for these services, resulting in commercially viable delivery and sustainable models of BDS provision. The economics of these interventions require an approach that will develop capabilities of BDS organizations to address general private sector needs but also specific sector/value chain constraints. The Contractor shall develop a strategy to strengthen BDS providers for the purpose of providing more effective management practices to private sector firms and facilitate their adoption of new technology. As part of the FaBS project, the contractor shall develop specific programs to strengthen the management of BDS providers and help them become capable of offering the required range of services demanded by private firms to become more competitive. More importantly, this assistance will be delivered in a cost effective, competitive manner that will ensure gradually declining dependence of BDS service providers on USAID/project funding.

Illustrative activities may include, but are not limited to:

A. Raising the capacity of the Chamber system to effectively participate in PPCF reform dialogue;

B. Conduct fact-based research as part of negotiations in the context of PPCF and larger development planning related to private sector reforms, sequencing of priorities for GoE/private sector at both the regional and national levels;

C. Assistance to Chambers and sectorial Business Membership Associations (BMOs) to launch national business agendas and develop advocacy strategies at the national level;

D. Use grant mechanisms to incentivize BDS providers to enter/expand services in key sectors;

E. Conducting outreach activities to educate the business community about policy issues;

F. Work with government bodies, or indirectly through local partners, to improve the legislative/regulatory and policy framework in support of a more enabling environment for business operations/expansion G. Provide a combination of credit enhancements and TA to selected enterprises to enable them to effectively serve as “lead firms”

H. Training Business membership organization (BMOs) members in policy advocacy, skills building, and program delivery techniques.

Sub IR 3.3: Public and private sector capacity to promote trade increased Under the Trade Facilitation component, key objectives include: a) Promote economic growth and reduce poverty, by enabling Ethiopian firms to take advantage of the opportunities created by trade; (b) improve Ethiopia’s trade policies, remove trade barriers, build well-functioning trade facilitation and promotion institutions and improve regulatory policies that affect the way firms trade; (c) assist private sector stakeholders to maximize opportunities/play more active role in Ethiopia’s bid to join the World Trade Organization (WTO) and other international trade agreements that can act as an anchor for critical national reforms that promote good economic governance at national, regional and international forums.

Under this objective assistance may be provided to:

a) Increase the capacity of Ethiopian firms to participate in export markets;

b) Streamline transportation procedures to lower costs and time to export;

c) Promote new and innovative production/management methods;

d) Increase the industrial, value-added component of Ethiopia’s exports; and

e) Raise the capacity of Ethiopian firms to better manage production, marketing and shipping for U.S. markets.

C.5 Implementation Model

USAID seeks to promote a very inclusive management model for FaBS, one that will embrace many of the objectives outlined under the USAID FORWARD initiative. Key components of that model are discussed below, including host country buy-in, use of local contractors and US small business entities as well as strategic use of cross-cutting approach, i.e. Information technology (IT) as one of the ways to leverage mission resources. One example of the type of cross-cutting intervention suggestion under FaBS is the provision of both BDS/credit enhancements to firms operating in special economic zones and/or other economic clusters. Other examples are provided below. Offerers are free to provide others.

Host Country Ownership

The major host country partners likely to be instrumental in the effective implementation of FaBS include: the Public Private Consultative Forum (PPCF) secretariat; the National Bank of Ethiopia (NBE), the Social Security Agency (SSA); and the Chamber system, including regional business membership organizations (BMOs). As appropriate the implementer will be assisted in securing the appropriate Memorandum of Understanding (MoU) with the above government institutions to ensure government buy in. FaBS will also look to promote strategic alliances with a variety of sector specific associations that represent private sector stakeholders at different levels.

Core Implementing Principles (CIP)

USAID/Ethiopia will not prescribe how to achieve the program’s objective and IRs but will prescribe the principles believed to be necessary for success. The successful offeror will be required to demonstrate an approach that is aligned with the following core implementation principles (CIP):

CIP 1 – Use of local systems and building of local capacity

As a long-term strategy for sustainability, the contractor must identify opportunities to strengthen partner-country public institutions, NGOs, BDS providers, local civil society and private sector actors. The offeror should have a thorough knowledge of public and private sector efforts that are already underway in Ethiopia. Building on this understanding, the approaches/interventions proposed by each offeror should complement existing structures/approaches in addressing the key bottlenecks to increased competitiveness of the private sector As such, the implementation methodology has to be adaptable to the local context; particularly given the existing legal/regulatory systems in Ethiopia, which are, in some respects, very fluid or prone to extreme shifts in government policy direction.

CIP 2 – Enhancing existing models and structures

There are several new programs being designed by international donor partners as well as the GoE, private organizations and chamber representatives in the areas of improving financial and BDS services in Ethiopia. However, many of these models have not been implemented at sufficient scale and therefore do not achieve maximum developmental impact across the broader economy. By identifying existing activities –whether initiated by government and/or other donor partners - as well as the associated gaps and areas of improvement, FaBS will have a catalytic effect in building on/scaling up those interventions seen as effective by USAID, GoE and/or other donor partners working in Ethiopia.

CIP 3 – Ability to learn and adapt approaches based on project evaluations and program experience

The successful applicant must present a vision and strategy for program management that allows adaptation of program approaches based on program learning, experience, and inputs from various stakeholders. Three evaluations are expected during the project period; one at the start of project, designed to establish base line statistics for key indicators, a second evaluation is expected after implementation of program module one which is expected to from 1 year to 18 months and a third/impact evaluation after year 3 (or after program module two). The evaluations will be carried out by independent contractors but with technical input from USAID and the implementing partner. The SOW for the evaluations will be developed by USAID, with input from the implementing partner. The focus on innovation and external evaluators proposed under FaBS is in line with recently introduced agency wide guidelines on project evaluation.

CIP 4 - Leveraging ICT to expand risk management and financial service delivery

Improvements in the area of ICT services are sought in order to improve overall competitiveness in Ethiopia’s private sector, in general and as one of the tools that will support scaling of effective interventions under FaBS. ICT can be used to: (a) Develop a sustainable/scalable framework to address training and other capacity needs of key stakeholders in above areas; (b) establish/improve capacity of local professional to acquire international caliber business/financial management skills and (c) improve overall risk management and competitiveness framework in key sectors, with particular focus on the financial sector.

According to recent studies on Ethiopia’s ICT network, the “negative direct impact between 2005 and 2010 on the GDP can be estimated from 2.2 to 3.3 billion USD and the loss of tax revenue around 1 billion USD.” However, since 2001, Ethiopia has invested significant resources to expand its ICT infrastructure. Despite these investments, the level of ICT penetration in Ethiopia remains among the lowest on the African continent. While FaBS will not focus generally on expanding ICT penetration in Ethiopia, it will selectively identify opportunities to leverage ICT to advance its three stated objectives, as well as others identified through USAID’s FaBS project. As such, the ICT interventions will be fully identified post-contract award and will be narrowly focused on the deliverables outlined under the FaBS.

While FaBS will not focus generally on expanding ICT penetration in Ethiopia, it will selectively identify opportunities to leverage ICT to advance its three stated objectives, as well as others identified through USAID’s FaBS project. As such, the ICT interventions will be fully identified post-contract award and will be narrowly focused on the deliverables outlined under the FaBS project. One possible intervention may involve development of a “Silicon Valley” model in support of the ICT Park that was recently announced by the Ethiopian government.