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Business Egypt Award – Request for Information (RFI) USAID/Egypt January 2020 Introduction Subject to the availability of funds, USAID/Egypt is considering the design of a new Mission award that focus... Business Egypt Award – Request for Information (RFI) USAID/Egypt January 2020 Introduction Subject to the availability of funds, USAID/Egypt is considering the design of a new Mission award that focuses on business innovation and investment to achieve economic growth and create greater employment opportunities, particularly for youth and women. Background USAID/Egypt works closely with Egypt’s private and public sectors to help create a private sector-friendly business environment. Over the last several years, the Government of Egypt (GOE) has created an increasingly healthy macroeconomic environment by implementing reforms such as establishing a flexible exchange rate, consolidating the budget, and addressing regulatory constraints critical to business growth. While these reforms were necessary and set Egypt on a path toward greater economic growth and stability, these reforms had some negative repercussions. Egypt is recovering from a currency crisis that created a rapid depreciation of the Egyptian pound, price inflation, and loss of real income by Egyptians. These macroeconomic shocks are linked with sustained population growth, urbanization, and continued migration due to economic circumstances. Although the unemployment rate is edging downward, the absolute number of unemployed is high: over 2.3 million people are currently unemployed and the number will likely increase as Egypt’s population grows. Moreover, this unemployment level does not include the underemployed and discouraged workers who no longer seek employment. Egypt requires rapid and sustainable private sector-led job growth to counter high, growing, and chronic unemployment and underemployment. As the GOE enacts reforms to further improve the business environment, USAID/Egypt is committed to helping Egypt redress persistent unemployment and underemployment, especially women and youth. This should be accomplished through accelerated, inclusive private sector-led job growth that will generate employment. Research reveals that Egypt’s employment challenges are multifaceted. Egypt is the most populous country in the Middle East region and has a high unemployment level in absolute terms. Each year about 800,000 people join the labor market; of these, about 200,000 become unemployed, even at the current GDP growth rate of 5.6 to 6 percent. Thus, the pool of unemployed could grow by one million people in five years. The structure of the unemployed poses special challenges since it is young (67 percent under age 30) and often female (48 percent). In addition, the national female labor force participation rate is exceedingly low (by some estimates, as low as 19 percent). This level and structure of unemployment is an established risk factor for political instability, and it directly compromises the Mission’s overall goal of creating an inclusive and prosperous Egypt where the entire population shares in and benefits from economic growth. The mission is targeting under-served communities which may include a range of geographic locations such as Upper Egypt or urban centers. In a review of assistance activities working on these challenges, USAID/Egypt examined its Strengthening Entrepreneurship and Enterprise Development (SEED) activity as well as business development activities supported by the Egyptian private sector, the GOE, and other donors to identify successful approaches that led to business and job growth. The Mission reviewed literature and development experiences, particularly concerning innovation, new firm growth, and targeted technical assistance to rapidly growing small and medium enterprises (SMEs). The Mission also reviewed approaches to generate rapid firm and employment growth by supporting a buyer-led transaction strategy between large, anchor firms and rapidly growing SMEs in their supply (value) chains. The Mission is engaging with private sector entities in Egypt, the United States, and elsewhere to evaluate how these different approaches can be applied in Egypt to generate rapid, sustainable, and private sector-based employment growth. Finally, the Mission considered other factors in the business enabling environment that impede business and job growth in Egypt. Discussions with private sector and GOE officials indicated that targeted efforts to improve the business environment may be required to sustain and accelerate SME expansion. Areas such as simplified tax policies, a streamlined regulatory environment, and improved access to financing for investment were emphasized in these discussions. Activities that work directly with SMEs may encounter other policy and practical constraints to business growth and employment generation. If those impediments become prominent, the capacity to ameliorate them will be critical. The 2020 World Bank’s Ease of Doing Business Report shows that Egypt currently is ranked 156th for paying taxes, an area that could be much improved and have strong business growth impacts, according to recent literature. How the Mission Proposes to Resolve this Problem The Mission is considering a new award, Business Egypt, that will build on successes from the USAID Strengthening Entrepreneurship and Enterprise Development (SEED) activity as well as efforts by the GOE, international donors, and the private sector. The Mission hypothesizes that the goal of accelerated inclusive private sector-led growth can be achieved by: ? Assisting new and growing SMEs. This can be accomplished by supporting dynamic and innovative firms and startups through business incubators and accelerators and by delivering firm-level services through Business Development Service (BDS) centers. ? Building value chain linkages between anchor firms (buyers) and SMEs (suppliers). These value chains can trigger job creation through increasing business investment. This can be accomplished by developing and strengthening buyer-led (anchor firm) approaches to SME development. These approaches will ultimately increase SME productivity and enhance the competitiveness of Egypt’s private sector. ? Enhancing the business enabling environment for SME growth. This can be accomplished by focusing on the known constraints in tax policy, the regulatory environment, and access to finance as well as actively searching for and then addressing other prohibitive constraints for small business. The Mission is developing a three-prong approach under Business Egypt that focuses on business innovation and investment to achieve economic growth that will create greater employment opportunities. The three components are: 1. Assisting New and Growing SMEs by Supporting Innovation and Providing Targeted Assistance Strengthening Promising New Startup Companies through Business Incubators and Accelerators: Through SEED and other donor activities, experience shows that incubators and accelerators have an important role in supporting emerging, innovative firms – from refining startup ideas and innovations to assisting successful new firms as they emerge in the crucial early growth stages. These approaches are also important in targeting under-served communities. In the last several years, Egypt has shown remarkable growth in the innovation space. Egypt has had success with incubators and accelerators that take nascent firms and help them develop into thriving small businesses. Advancing these dynamic and innovative businesses into fast growing SMEs is important for private sector job growth. Strengthening Firm-Level Efficiency and Operations for Fast Growing SMEs: SMEs can be strengthened in various ways. Recent experience in Egypt shows that BDS centers that provide diagnostic assessments and targeted training to fast growing SMEs can substantially improve business operations and production efficiencies. This targeted approach to increase efficiency and productivity of SMEs, particularly those that have identified large buyers in value chains, is critical to rapid and sustainable job growth. In addition, many SMEs would benefit from better access to market information, possibly through BDS centers providing fee-based services. 2. Building Value Chain Linkages Between Anchor Firms and SMEs Identify and Develop New Value Chain Contacts for Anchor Firms and SMEs: A buyer-led approach links SMEs with the broader market through connections with large anchor firms. This activity will identify and strengthen commercial, productive relationships between these anchor firms and their supplier SMEs with a focus on Egypt’s growing domestic market or large Egypt-based international suppliers. This activity will also seek solutions to some of the challenges faced by the buyer-led approach, including better predicting the market conditions and growth prospects, properly identifying buyers and SME suppliers in value chains, and providing enough targeted assistance to improve the capability of SMEs to meet buyer requirements. Strengthen Existing Anchor Firm Linkages with SMEs for Buyer-Led Growth: This activity will work with anchor firms and their SME sources to strengthen business processes, helping anchor firms and SMEs become more efficient and productive, which will lead to business and employment growth. Access to Finance and Investment: Businesses of all types in Egypt complain about inadequate credit and the cost of finance, which are undeniable constraints to firm growth. Improving access to finance and investment opportunities, however, does not always require more credit or debt instruments. Experience suggests that expanding the definition of collateral, to include both mobile and fixed assets, can have a significant impact on financing for smaller firms. Similarly, improving credit information sharing across financial institutions has demonstrated a positive impact on firm-level access to credit in recent years. Business Egypt will consider interventions that seek to address financial limitations that constrain firm growth in the Egyptian context. 3. Enhancing the Business Enabling Environment for SME Growth Improving Policies and Regulations for Businesses: Businesses, small and large, complain that an adverse policy and regulatory environment in Egypt is the most serious constraint to business growth and job creation. Business Egypt expects to consider specific aspects of the policy or regulatory environment that constrain SME growth, particularly surrounding business tax policy and administration. Simplifying Registration Processes for New Businesses. One-stop shops and citizen service centers established by USAID show that it is possible to dramatically accelerate business registration and licensing processes to enable new or informal businesses to join the formal sector. Evidence from other countries shows that these types of enhancements can stimulate employment growth. Business Egypt expects to continue to support such approaches. Desired Outcomes USAID is looking for a series of strategic investments of technical assistance that will achieve the following desired outcomes: ? Accelerated growth of promising SMEs that unleashes the talents of entrepreneurs for dynamic employment growth. ? Increased growth of SMEs that receive targeted BDS services, which leads to increases in employment. ? Increased and stronger linkages between SMEs and larger anchor firms, which leads to job growth through business investment. ? 20 percent of new jobs created in under-served communities. ? Improved business enabling environment for SMEs, which fosters more rapid SME and employment growth. USAID Requirements and Objectives of Business Egypt Design Co-design Efforts USAID/Egypt hosted broad consultations with SME owners and visited with small and large growing businesses across Egypt in preparation for this RFI. The Mission also expects to host at least one industry day and undertake potential post-award co-design efforts. Private Sector Engagement USAID/Egypt will continue to engage the private sector in shaping this award to maximize sustainable job growth. Many modalities for this are possible and input from the private sector is encouraged. Serving Under-Served Communities The Mission continues to support the registration of businesses in hard-to-reach communities, especially through its previously SEED-supported one-stop shops. The Mission is considering a similar approach to assist SMEs to become more formal, including those owned and managed by women or people in under-served communities (such as Upper Egypt and urban areas). Utilizing Local and U.S. Partners Business Egypt will actively seek to partner with Egyptian and U.S.-based institutions, including institutions of higher education, small businesses, emerging sectors, etc. Ensuring Adaptive Learning to Achieve Results USAID/Egypt is committed to using evidence and data as management tools to adapt and achieve better results. The Mission believes a data-driven approach needs to be built into the design process from the outset to better ensure sustainable results. Coordination with Other Donors In addition to the GOE, the World Bank, European Bank for Reconstruction and Development, European Union, and German Corporation for International Cooperation (GIZ) are also engaged in business and job-growth activities. USAID wishes to design this award to leverage other donor efforts and minimize duplication. Journey to Self-Reliance This award will align with USAID’s efforts to support Egypt’s Journey to Self-Reliance by accelerating the commitment and capacity of the GOE to provide inclusive development and strengthen market-driven economic policy. RFI Questions for Public Response To improve the ultimate design of the new Business Egypt award, USAID/Egypt invites the participation and reflection of private firms on the construct, content, objectives, and approaches of this award. Thus, the Mission poses the following questions for an RFI. Respondents should limit their responses to one page per question below (up to eight pages total) and return them by February 3, 2020. Send responses to Benjamin Lawrence @ blawrence@usaid.gov and Mona Beshai @ mbeshai@usaid.gov 1.What are the most important regulatory, policy, financial, or other issues inhibiting business and employment growth of Egyptian SMEs? 2.What does the evidence show for the potential of business incubators, accelerators, one-stop shops, and business development service centers to generate rapid business and employment growth (what are realistic targets, including cost per job created)? 3.How can a new award best identify large anchor firms and promising SMEs in a buyer-led growth strategy? 4.How can the award best strengthen firm-level efficiency of Egyptian SMEs and engage local institutions to do so? 5.Under what conditions and resource constraints would this approach foster competitive new firms and significant business and employment growth in Egypt? 6.How can the award best link with local and U.S.-based partners to support the goals of this award? 7.What activities or policies might encourage more female participation in either business ownership or the Egyptian workforce? 8.Do you have any other comments or suggestions?