Quarterly report: July – September 2014

Report submitted on: October 31, 2014

Contents

Quarterly report Jul-Sept 2014

List of acronyms ...... 3 Executive Summary ...... 5 1. Introduction ...... 8 2. Progress against sector workplans ...... 8 2.1 Coffee ...... 8 2.2 Micro Hydro ...... 14 2.3 Mobile Money ...... 16

2.4 Rice ...... 18 2.5 River Transport ...... 20 2.6 Seeds ...... 23 2.7 Access to Finance ...... 24 3. New sector identification and regional strategies ...... 25 3.1 Overview ...... 25 3.2 Equateur...... 26 3.3 Katanga ...... 27 3.4 North and South Kivu ...... 28

3.5 Kasai Occidental ...... 29 3.6 Kinshasa ...... 29 4. Cross cutting issues ...... 30 4.1 Gender and social inclusion ...... 30 5. Lessons learned and way forward ...... 31

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Quarterly report Jul-Sept 2014

List of acronyms ACOBA Association des Commerçants de Basankusu ANSER Agence Nationale des Services d'Electrification en milieu Rural BOA Bank of Africa COPROSEM Conseil Provincial des Semences CPTF Comité Professionnel des Transporteurs Fluviaux CRM Centre for Maize Research CRS Catholic Relief Services CSO Civil Society Organization CSR Corporate Social Responsability DFID Department for International Development DGDA Direction Générale des Droits et Accises DGRAD Direction Générale des Recettes Administratives DRC The Democratic Republic of the Congo ECHO European Community Humanitarian aid Office EDC Electricite Du Congo FEC Fédération des Entreprises du Congo FOB Free On Board FONER Fonds National d’Entretien Routier GTM Groupe Transport Multimodal IECD Institut Européen pour la Coopération et le Développement IFC International Finance Corporation IFDP Innovation et Formation pour le Développement de la Paix INERA Institut de l'Environnement et de Recherches Agricoles MHRE Ministère des Ressources Hydraulique et de l’Energie MNO Mobile Network Operator MONUSCO United Nations Stabilization Mission in the DRC MSA Market System Analysis NDA Non Disclosure Agreement NGO Non-Governmental Organisation OCC Office Congolais de Contrôle OGEFREM Office de Gestion du Fret Multimodal OHADA Organisation pour l'Harmonisation en Afrique du Droit des Affaires ONC Office National du Cafe RTMK Riz Transport et Manutention a Kashobwe RTNC Radiotélévision Nationale Congolaise SME Small and Medium Enterprise SNEL Societe Nationale d’Electricite SNV Stichting Nederlandse Vrijwilligers SODOPAL Société domaine de la Palmeraie TFCE Transport Fluvial et Commerce de l’Equateur TMB Trust Merchant Bank UN The United Nations UNHAS United Nations Humanitarian Air Service UNIKIN Université de Kinshasa UNILU Universite de Lumumbashi VAT value-added tax VECO Vredeseilanden Country Office, Congo WFP World Food Programme

Quarterly report Jul-Sept 2014

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Executive Summary

This report provides an analysis of ÉLAN RDC’s progress and achievements for the period from July to September 2014, the third quarter of programme implementation. This quarter is marked by some extraordinary coups, proof that the M4P approach can and will yield results but often requires longer lead times and more substantial investments in relationship development than traditional development programmes.

Highlights from this quarter include:

- Creation of an export advocacy working group which successfully lobbied national and provincial governments to streamline tax collection and abolish numerous illegal taxes which has already resulted in savings of $548 per container (190MTs) of exported coffee;

- Finalisation of the first of several coffee partnerships which intend to provide over 7,000 smallholder farmers with access to seedlings and training to improve the quality and quantity of coffee production and access to higher value markets to further increase incomes;

- Securing the endorsement of the Congolese Central Bank for a national mobile money campaign, a critical step in increasing confidence and use of mobile money among poor people;

- Launch of two new pilots which aim to increase incomes of thousands of smallholder farmers: product aggregation in Basankusu and development of demand for agricultural services among rice farmers in Bukenya;

- Creation of 13 savings and credit groups for river transport operators based in Kinshasa and Mbandaka, a stepping stone to facilitating access to finance for underserved baleiniere operators;

- Opening and staffing of ÉLAN RDC’s third office in Lubumbashi.

While ÉLAN RDC is proud of these recent accomplishments, we are also cognizant of the need to continue to refine our interventions and establish scalable partnerships with reputable market influencers. To this end, ÉLAN RDC embarked on a process of developing provincial strategies that are intended to complement the original portfolio and provide a more nuanced understanding of context, partners and obstacles to scale and sustainability. These provincial strategies, which will be ready before the end of Q4, also take into account recent lessons learned such as the difficulty in getting the private sector to make decisions that conform to programme timelines. For example, management turnover and competing priorities among potential partners have delayed response times and have led to protracted partnership and intervention plan development periods. Also reflected in these provincial strategies is the ongoing need for ÉLAN RDC to market itself and value its offer to potential partners. With less

than an estimated 5,000 formal businesses in the Congo1 it is particularly important that the programme attracts high calibre and committed partners that are ready to invest in inclusive development, a real challenge in a country that is accustomed to NGO handouts.

1 Based on estimates provided by the Fédération des entreprises congolaises (FEC).

1. Introduction

This quarterly report captures the progress in the programme from July till end of September 2014. During this quarter, ÉLAN continued to deepen its understanding of the business environment in the DRC and to polish customized strategies and activity plans that are relevant to each market.

This report is structured as follows: Part I gives an overview of the progress against workplans and new sectors. Part II presents a brief analysis of the risks at the intervention level, and Part III captures the programme staffing and operations issues. Sector workplans for quarters 3 and 4 are attached as annex 1.

2. Progress against sector workplans

2.1 Coffee

ÉLAN RDC’s vision for the coffee sector is to simultaneously increase smallholder productivity and exporter competitiveness. More specifically, the project aims to: increase smallholder access to improved seedlings; facilitate the provision of agronomic extension services by coffee exporters/input dealers/seedling companies; increase the volumes of locally produced coffee parchment purchased by exporters, and; facilitate the streamlining and enforcement of the export tax regime for coffee. Activities in this sector are focused in North and South Kivu, where both Arabica and Robusta coffee are produced.

Market System Change (A): Smallholder farmers have access to improved seedlings

As noted in the previous quarterly report, an assessment of farmer perceptions of improved seedlings conducted by ÉLAN RDC found that producers are currently unwilling to invest in these seedlings. Many farmers said they would need to see the results of improved seeds in practice before being prepared to pay for improved varieties themselves. As such, ÉLAN RDC took the decision to support the implementation of pilot demonstration plots and training about nursery maintenance under the umbrella of the outgrower schemes being put in place – see Market System Change (B) for more details. Once farmer trust in improved seedlings has been established, strategies may be developed regarding the commercial marketing of these seedlings.

While ÉLAN RDC is getting seedlings out to farmers via the medium of the outgrower schemes that it is supporting, it has become evident that stand-alone seedling businesses are not viable at this time. This was reflected in the proposals that were received during the quarter from Café Africa, VECO and the Catholic University of Bukavu, organisations with which initial discussions regarding the multiplication and sale of improved seedlings were held. As a result, partnerships with these organisations are not being pursued at this time. Instead, ÉLAN RDC continues to evaluate opportunities to address seedling demand by combining seedling sales with other complementary commercial activities such as rural washing stations. In this model,

washing station owners, needing more coffee to stimulate their own activities, may be willing to invest in seedling distribution. This idea will continue to be explored in the coming quarter.

Market System Change (B): Agronomic extension services are provided by exporters/processors

In order to achieve Market System Change B, ÉLAN RDC had chosen to facilitate the implementation of viable outgrower pilots. To this end, the following deliverables were achieved during Q1 and Q2:

• Call for proposal for outgrower pilots designed and launched

• Review of 10 proposals (SYDIP, Ferme de Kavumu, Tsongo Kasereka, Domaine de Katale, SOPROCOPIV, Virunga, COOPAC, Plantation Motando, SOPACDI, Coffee Lac)

• 3 best proposals (SOPROCOPIV, Ferme de Kavumu, Coffee Lac) selected according to strict and transparent criteria (1. Impact and relevance of proposed interventions in relation with an increase of the revenue of the smallholders 2. Level of effort of co- financing 3. Value for money 4. Gender 5. Sustainability and replicability 6. Zone of intervention)

Q3 and Q4 will focus on developing and implementing three Activity Plans with the three selected partners.

In July, discussions were underway with three potential partners in North Kivu. In August, an Activity plan was finalised with SOPROCOPIV (Solidarité pour la Production et la Commercialisation des Produits Industriels et Vivriers), DRC’s largest exporting coffee cooperative, based in Butembo. Following a field mission in Butembo in early September by ÉLAN RDC’s Project Manager for the Kivus, the partnership agreement was signed. This agreement focuses on the implementation of a pilot project aimed at strengthening the capacity of the cooperative’s existing 5000 members, and expanding their organisation to include an additional 2000 members. The three main activities to be run with the pilot are: i) development of nurseries; and iii) training of trainers on good agricultural practices; iii) reinforcement of certification process.

The project involves training and demonstrations relating to the implementation and monitoring of coffee nurseries, planting techniques, harvesting and drying of coffee, composting, and the requirements of the UTZ sustainable farming certification process. Ongoing monitoring will be provided by agronomists throughout the pilot project, and the ONC (Office National Café) will provide the cooperative with coffee seedlings that has been selected and tested in the area around Lubero, where the SOPROCOPIV farms are based.

An assignment is to be undertaken in Q4 to use the pilot to build the certification business model and demonstrate its sustainability. This will be disseminated to other cooperatives and exporters through a major event organised in Goma in year 2.

Due to competing priorities and weak quality of the proposals, Coffee Lac and Ferme de Kavumu’s initial proposals were finally rejected but new ones are being resubmitted at the time this report is written. New intervention proposals are also anticipated from COOPAC and the Domaine de Katale at the end of October. As with the SOPROCOPIV project, these are expected to focus on the establishment of contract farming arrangements and on the reinforcement of the capacities of smallholder producers with regard to the renewal of old coffee farms in the vicinity of Rutshuru.

A lesson learnt by ÉLAN RDC is to collaborate more closely with private sector partners in writing proposals. Indeed, the delays that the programme has experienced with the implementation of the pilots are due to the poor quality of the proposals received from such partners as Coffee Lac and Ferme de Kavumu. As a result, the programme has adopted a flexible and proactive attitude to ensure we work hand in hand with potential partners to overcome their limited capacity in designing proposals.

Market System Change (C): Exporters purchase increased quantities of locally produced parchment

Early on in the project, a need was identified for a financial product specifically adapted to the characteristics of the coffee sector. To this end, the following deliverables were achieved during Q1 and Q2:

• Completion of a study on coffee exporters’ access to finance • Identification of potential financial partners, analysis of their procedures, signature of 4 MoUs (ProCredit, BOA, Rawbank, TMB) and development of adapted financial products with two banks (BOA and TMB) • Completion of a feasibility study on a financial and risk mitigation product that uses commercial coffee stock as a guarantee (informal warehouse receipt): this study confirmed the appropriateness of such a product and the interest of both coffee exporters and financial institutions and explored the willingness of a number of freight and logistics companies to act as collateral managers (GTM and Comexas) to oversee the micro-storage units where the coffee is stocked during the loan period. • Development of a preliminary concept note describing the prototype of a collateral management product

Q3 and Q4 would focus on developing and then piloting the collateral management product.

During Q3, ÉLAN RDC played the challenging but critical role of facilitator and deal-broker in having GTM and Comexas to submit a proposal for a collateral management product that could be acceptable for exporters. Our access to finance expert and a subcontractor (AZMJ – report available on request) were both involved during Q3 and two field missions to the Kivu were organised.

Negotiating the proposal turned out to be an intricate task as the companies were reluctant to lower the tariff of their proposed product. A first proposition was submitted by GTM in August but the quotation was overly expensive. Moreover, a change in the CEO of the company meant negotiations were held back and ÉLAN RDC had to wait until October to receive a revised proposal. Successful discussions conducted by ÉLAN RDC resulted in GTM lowering their costs by over 20%. However, the proposed service remains too expensive for coffee exporters, and negotiations continue. A recent meeting with the newly appointed CEO has proven to be positive and GTM are now suggesting that they could provide collateral management services at a minimal additional cost to those exporters who use their transportation/freight services and an MoU is being reviewed at the time this report is written, after which the idea will be formally floated with the coffee exporters. Provision of technical assistance from ÉLAN RDC to banks and collateral management companies on legal, technical and operational aspects will then be critical.

In a similar vein to our experience with the outgrower pilot proposals, an important lesson learnt by ELAN RDC is the importance to influence the design of partners' proposals at an earlier stage, working together with the partner in writing the proposals, rather than waiting to receive proposals and provide feedback reactively. This will shorten the process and ensure closer alignment with ÉLAN RDC programme objectives. Instead of negotiating with collateral management companies to convince them to lower the tariff of their proposed product, we are changing our approach and are proposing to work with them and provide technical assistance to help them develop the product (particularly important given the Congolese context where there is no regulation for collateral management, by contrast with Ivory Coast,

Tanzania, Kenya etc). This way, ÉLAN RDC can ensure the product matches exporters’ needs as well as their ability and willingness to pay for it. The two products – offered by the bank, on the one hand, and by the collateral management company, on the other hand – will then be presented to the exporters. ÉLAN RDC‘s role will stop at this stage and the negotiation of the tariff will be carried out between the service provider and the exporters.

Once developed and operational, it is expected that this loan product could be replicated in other similar export sectors, particularly cocoa. Ultimately, this service could be used for any other unperishable goods, including maize, rice etc. In the meantime, ÉLAN RDC’s efforts will focus on: reinforcing the lending procedures of banks and strengthening their capacity to assess the loan applications of coffee exporters; reinforcing the procedures of collateral managers; developing the legal framework that will define the collaboration between coffee exporters, financial institutions and an eventual collateral manager(s); and investing in the equipment needed to reinforce the security of coffee stocks (micro storage units).

Market System Change (D): Export tax regime is streamlined and enforced

To lead to a sustainable change in the market system above, ÉLAN RDC had focused on advocacy initiatives. To this end, the following deliverables were achieved during Q1 and Q2:

• Impact assessment study of current tax regime on coffee exports, a key finding of which was that 92% of the administrative costs involved in coffee exportation are related to taxes and customs fees; • Presentation of the above evidence to the exporters during the coffee Forum held in Goma in June in partnership with ECI; • Identification of potential advocacy partners to carry out the advocacy campaign and creation of an advocacy working group of coffee exporters to become a national association of exporters.

Q3 and Q4 would focus on working with the exporters association to build their capacity, encourage collective action and help develop an advocacy strategy and effectively lobby the government.

In August 2014, five representatives of the advocacy working group conducted an advocacy mission to Kinshasa. The purpose of this mission was to meet with government officials to discuss the issue of taxation in the coffee sector and to highlight recommendations for improving the business climate and enhancing the competitiveness of Congolese coffee. Numerous senior government officials were met by the exporters group, including the Finance Minister, Agriculture Minister, Minister of Interior and key Members of Parliament, and at the end of the mission a series of recommendations were presented to the Prime Minister.

To support this mission, we secured high profile media coverage, including the publication on the 12th of September on the website of a local magazine, Le Potential, of an article reporting

on the problems encountered by the coffee exporters in the Kivu as well as their expectations after their advocacy campaign in Kinshasa (see under Communications).

In response to this lobbying, the Prime Minister established two committees to review the questions raised by the coffee exporters, including an analysis of how the 0.25% tax levied on agricultural exports is divided amongst the four concerned Government agencies2, and of tax relief measures that could make Congolese coffee exports more competitive. These committees, both of which submitted their report to the Prime Minister in September, agreed with the recommendations proposed by the coffee advocacy group, and further suggested that these recommendations should apply to all agricultural exports. A specific allocation of the 0.25% exportation tax was proposed by the concerned commission, and this will come into effect in January 2015. In addition, the commission’s suggestion that the ONC levy a fixed 2% of the FOB value of exported Arabica and Robusta has been adopted; this is less than the 3% originally proposed by the coffee exporters association and less than half the 4- 4.5% currently being levied.

The President of the Association of exporters of coffee presents the problems that they face in the sector.

While the full effect of these advocacy efforts is due to be felt after the changes come into place in 2015, in the interim coffee exporters are already reporting positive changes related to the abolition of a number of illegal taxes. The DGDA has issued an official letter citing the abolition of a number of charges that in practice add up to a saving of $548 per container of K4 quality coffee exported.

2 Article 73 of the 2011 Agriculture Code states that a tax of 0.25% of the FOB value of exported agricultural goods can be levied, but does not stipulate how this amount is to be divided amongst the concerned Government agencies: DGDA, OCC, DGRAD, and OGEFREM. This has lead to in-fighting between these agencies and has created problems for exporters.

Following the efforts of the coffee exporters’ advocacy mission, in September 2014 ÉLAN RDC conducted a series of workshops in Goma, Bukavu and Beni to publicise the commitments made by the Government and to continue to promote synergy and dialogue between public and private sector actors involved in the coffee sector. These workshops each involved up to 100 participants, including representatives of coffee producers and exporters, and senior representatives of the state agencies involved in the industry.

Alongside our support to this campaigning, we will strengthen the exporter associations’ advocacy capacities. To this end, in Q3 an external consultant completed an organisational diagnosis of the associations and prepared as well as a training manual on advocacy techniques.

2.2 Micro Hydro

ÉLAN RDC’s activities in the micro-hydro sector aim to increase the incomes of poor women and men by improving access to electricity and water for productive usage. These activities are structured around three key market system changes: making concessions easier to obtain; making information on investments and potential returns available; and ensuring appropriate financial products are available to potential investors. Initial activities in the micro-hydro sector are focused in Kasai Occidental.

Market System Change (A): Concessions are easier to obtain

As noted in the previous quarterly report, a new electricity law for the DRC was enacted in June 2014. Amongst other things, this law, which paves the way for the liberalisation of the sector, mandates the establishment of a new rural energy service, ANSER (Agence Nationale de Service Energétique Rural). Under the new law, this agency will be involved in the granting of concessions for micro-hydro installations in the future.

ANSER is not yet formally established: the current plan is for it to be officially launched at the end of November (the exact launch date depending on approval by the Minister of Energy). Nevertheless, ÉLAN RDC has been engaging proactively with the stakeholders responsible for the design and operationalisation of ANSER. During the reporting period, ÉLAN RDC has been in discussion with those stakeholders about linking ANSER’s official launch to a broader promotional event presenting evidence from ÉLAN RDC’s studies of the micro-hydro sector’s strong investment potential and offering practical guidance on making investments.

Market System Change (B): Information on investments and potential returns is available

ÉLAN RDC’s efforts over the past quarter have focused on the development of a credible business case for investment in the micro-hydro sector. This has included a focus on the three key elements that build such a case: legal, technical, and economic.

As a first step, we commissioned a legal study, conducted during the reporting period, aimed at assessing the implications of the new electricity law for potential and existing investors. The findings of this study have been compiled in two simple and accessible presentations to be given to investors: i) a presentation highlighting the key differences between the procedures under the old and new laws for obtaining a concession for a microhydro installation; and ii) a presentation of the key elements of the new law that are of relevance to potential investors. The latter includes: confirmation of the opening up of the sector to private actors wanting to be involved in the generation, transmission and distribution of electricity; the distinction between the powers of the central and provincial governments as they relate to the electricity sector; the right of investors to own installations; new regulations regarding tariff setting based on cost recovery (rather than the previous system of fixed rates), and; the expected roles of ANSER and the proposed regulatory authority. Following on from this (and outside the reporting period), in early October ÉLAN RDC’s legal expert travelled to Kananga to review the local authorities’ approval practices for micro-hydro projects in light of the new law.

A complementary technical study was conducted, aiming at evaluating potential hydroelectric sites located on the Lubi-a-Mpata, Nganza and Tshibashi rivers around Kananga town in Kasai Occidental. It identified sites with the potential to generate sufficient energy to meet local demand, analysed their strengths and weaknesses, and provided an initial assessment of the type and estimated cost of installations that could be constructed at each site. This enabled the sites to be classified by their perceived potential to attract investors.

In parallel, an economic study assessed the demand and supply for energy, as well as the willingness and ability of potential consumers to pay for connection feeds and power consumption. This work has enabled ÉLAN RDC to identify potential local partners and to develop a series of adapted business models targeted at different categories of potential investors (a single customer site, multiple clients with single site distribution, minineighbourhood networks, etc.).

Building on these studies, we have held discussions with potential regional and national investors regarding the development of one or more sites in Kananga. Once all three elements of the business case have been completed, the next step will be to disseminate this information to all concerned stakeholders (potential investors, but also potential financial backers, the concerned local authorities, potential technical firms, etc.) in Kasai Occidental but also at the national level.

Market System Change (C): Appropriate financial products are available to potential investors

Under the umbrella of the economic study, ÉLAN RDC has begun to engage with financial institutions to gauge their interest in supporting initiatives in the micro-hydro sector and in developing appropriate financial products targeted at potential investors.

Following the identification last quarter of a specific opportunity to design a financial product that would support rural and peri-urban electrification by promoting uptake of connections to

an existing hydro-electric site in Tshikapa (another town in Kasai Occidental), ÉLAN RDC has continued its discussions with EDC (the site operator) with the aim of developing a business model that reduces the costs of connection and power consumption for individual households. As a result of these negotiations, EDC has already agreed to bring the initial connection rate down from $760 to $675 (a saving of $85 for new customers), and has further expressed its willingness to bring this fee down to $600 upon implementation of the initiative. At this stage, ÉLAN RDC is working on the development of a model that would increase household-level grid connections through intermediary promoter agents who assume the high set-up costs of connecting to the grid and installing the required electricity meter, and then manage a mini distribution network to households within a prescribed area.

2.3 Mobile Money

In the mobile money sector, ÉLAN RDC aims to increase confidence in mobile banking products and services that serve the needs of poor consumers in an effort to bring about direct cost-savings through reduced fees, travel costs, theft and insecurity, and the growth and expansion of income generating activities arising from time-savings and increased transactions.

Market System Charge (A): Increased confidence in M-banking

• Following the study of consumer financial needs and behaviours, ÉLAN RDC has developed a broad strategy for a consumer education campaign to increase confidence in M-banking. Efforts have focused principally on i) bringing the three mobile network operators (MNOs), Airtel, Tigo and Vodacom, onto a common platform to run a joint campaign, and ii) identifying an appropriate service provider to implement the campaign.

• Deepening of the partnership with Banque Centrale du Congo (BCC, the Central Bank of Congo) has continued. BCC have agreed to allow the consumer education campaign to be conducted under the umbrella of the BCC.

The development of a common platform from which to launch the consumer education campaign was less straightforward than we anticipated. Despite early indications from all three MNOs of their interest in the campaign, conflicting priorities and commercial nature of the companies meant that formal negotiations with each organisation took considerable time, as did discussions about the proposed content and format of the campaign. At the quarter’s close, these negotiations continue; although agreement has now been reached about the content of the consumer education campaign, the MNOs are slow to make firm commitments regarding the resources they will contribute to the campaign.

A service provider, a local media house, was identified to run the campaign through a call for proposals. The work is expected to start in early Q4.

Meanwhile, we took the decision to put on hold the discussions that had been instigated with various church associations about a potential role in the campaign. These discussions may be revisited once the main body of the campaign is underway.

Market System Change (B): MNOs use appropriate strategies to reach poor consumer and Market System Change (C): MNOs have appropriate products and services to serve poor consumer

A market penetration strategy developed jointly with the three MNOs based on the findings of the consumer financial needs and behaviours study.

The consumer study developed in the previous quarter found that the existing mobile money products in DRC largely meet the needs of poor consumers. We recognise, however, that additional strategies need to be developed to target low-income consumers. To this end, ÉLAN RDC solicited proposals from the three MNOs for activities that could reach large numbers of low-income consumers, while at the same time improving the performance of the relevant MNOs (the latter being a pre-requisite for the MNOs involvement). In response to this request, we received four proposals that focus on the use of mobile money facilities to provide micro- credit opportunities to low income business people (primarily women). We are also exploring ways to enable small businesses to incentivize consumers to use mobile money for transactions, for example by offering small discounts.

The mobile network market is intensely competitive in the DRC, and building the confidence of the MNOs to come together and consider ÉLAN RDC as a neutral, trusted partner has not been straightforward. The resources invested in this are now beginning to pay off and it is anticipated that these projects will launch before the end of 2014.

Market System Change (D): MNOs expand agent’s network to serve poor consumers

Existing mobile money users are raising red flags regarding the agent networks of the MNOs. In addition to problems of liquidity (agents in rural areas often struggle to ‘cash out’ on payments), the quality and honesty of agents has been questioned by some users. These problems can, and in some cases already do, have a significant negative impact on the reputation of the mobile money services. The success of agent distribution networks will also be critical to the success of the consumer education campaign.

The market penetration strategy developed by ÉLAN RDC proposed increased monitoring of existing agent networks, including the development of a common monitoring module. The MNOs attitude towards engaging in this initiative reflects that of the other market system changes in the sector: the MNOs are reluctant to adopt the approach, potentially due to perceived risks associated with close engagement with the other MNOs. Discussions are underway regarding alternative means of strengthening agent networks. These include the idea of providing loans (either cash or mobile credit) to ‘super agents’ who manage

approximately 50 agents and who could then use these loans to assure the liquidity of the network of agents for which they are responsible.

2.4 Rice

ÉLAN RDC’s vision in the rice sector is to increase the incomes of small scale producers by increasing access to improved seed and agricultural extension services, increasing demand for domestic consumption of rice from wholesalers, and rendering the tax environment more favourable. Our original rice sector strategy and implementation plan focused exclusively on activities in Bumba Territory (Equateur). While quarter three began with an initial setback, as a partnership with, SOCAM, the key potential partner identified in Bumba fell through (see below), we responded quickly by shifting the focus of our efforts in the rice sector to high potential opportunities identified in Katanga province and around the capital of Equateur (Mbandaka). A brief market sector analysis confirmed that similar interventions to those envisaged for Bumba were required in Katanga and Mbandaka.

Market system change (A): Smallholder farmers have access to improved seed varieties

As noted elsewhere, years of market distortions have heavily affected the demand for, distribution of, and willingness of farmers to pay for commercial seed varieties. Moreover, there has been a manifest lack of interest from existing rice processors to invest in improved seed varieties, even with project support. While we pursue other opportunities on the supply of locally produced improved seed varieties (see the section on the seed sector, later in this report), as far as the rice sector is concerned, we decided to focus our present efforts in the rice sector on the implementation of outgrower schemes and other production models that provide smallholders farmers with access to (imported) improved seeds and other inputs.

Market system change (B): Agronomic extension services are provided by rice processors

At the beginning of the reporting period, SOCAM, the largest rice producer in Bumba, officially confirmed that it did not want to pursue a formal partnership with ÉLAN RDC, despite the existence of an overarching memorandum of understanding that ÉLAN RDC signed in April 2014 and months of negotiations on an operational plan and budget for a proposed pilot initiative.

To respond to this set back, we shifted our focus towards high potential opportunities identified with in the Bunkeya and Kashobwe areas of Katanga province. Based on these sites, we have designed pilots to test two contrasting rice production models with an overarching aim of increasing the quantity, quality and import competitivity of local rice production. In Bunkeya, an area where rice is the traditional and dominant crop but its production is entirely smallholder-led, ÉLAN RDC developed a pilot working with five farmer associations to demonstrate an improved model of collectivised smallholder production and pooled financing, with farmer field schools demonstrating improved agricultural practices (production and processing), and further technical assistance on marketing and collective

production and financial management. The pilot capitalises on existing strong smallholder organisational structures (associations) that are also prevalent in other areas of Katanga that are underserved by agricultural input and extension service providers. The pilot aims to prove that collective smallholder rice production (which could be replicated by other associations outside the pilot) can generate sufficient improvements in the quantity and quality of production to sustain an increased demand for improved inputs and agricultural services that could be met profitably by commercial operators. Replication of this pilot will be supported by intensive engagement with agrodealers and other potential input/service providers from quarter four onwards. Preparations for the pilot began in quarter three and full implementation will begin in quarter four.

The pilot in the Kashobwe area, where rice is not a traditional crop, is designed to test improvements to an outgrower production model. RTMK, a farm owned by Provincial Governor Moise Katumbi, has trialled a small rice outgrower scheme, but the scheme has proved to be loss-making due to a combination of inappropriate inputs, poor agricultural practices which the farm’s on-site staff members do not possess the technical capacity to correct, and ineffective smallholder management. The pilot will set up farmer field schools for smallholders outside the farm in order to identify a more effective combination of inputs and technical practices that would make the outgrower scheme viable and therefore replicable, whilst also building the smallholder associations’ management capacity. The pilot will not involve direct engagement with Governor Katumbi’s farm, but since it raises potential reputational risks, it has been referred to DFID DRC for approval. Implementation of this pilot is due to begin in quarter four, pending this approval.

In addition to the opportunities in Katanga, additional possibilities for working with rice processors in Mbandaka, the capital of Equateur, are also being explored. As these opportunities are linked to irrigated rice, in the coming months ÉLAN RDC will conduct a technical study regarding the potential for irrigated rice in the region.

Market system change (C): Wholesalers demand more consumer-grade local rice from processors

A planned exploratory study of the upstream wholesale rice market has been put on hold while efforts are concentrated on downstream interventions to improve production, transformation and marketing.

Market system change (D): Tax regime for local rice is improved

ÉLAN RDC will begin to engage in efforts to improve the tax regime for local rice in 2015 under the umbrella of the partnerships that have been formed with rice producers and processors in Katanga. At this time, there are no activities planned in this regard in Kinshasa, due to a lack of demand from partner organisations.

2.5 River Transport

ÉLAN RDC vision for the river transport sector is to increase incomes of farming households along the Congo River and its tributaries by improving market access for smallholder agricultural production. More specifically, the project aims to: facilitate a more enabling tax regime for river transport; improve access to finance for boat operators; and improve smallholder agricultural product aggregation.

Market System Change (A): Tax regime for river transport is improved

• A detailed report on the formal and informal taxation in the river transport sector was concluded in Q2 • The findings of the taxation study were presented to development partners during the Groupe Interbailleurs Finances Publiques, as well as during a donor forum entitled ‘Optimisation et compétitivité du système fiscal en RDC. Quelles alternatives?’ • In September, ÉLAN RDC facilitated a three day workshop bringing together senior representatives of the five principle river and lake transport associations that exist in DRC. During the course of the forum, a formal alliance was established between these associations with a view to engaging in joint advocacy actions around issues of taxation. Over the coming quarter, ELAN RDC will work to deepen the partnership with the alliance of river and lake transport associations, led by the Comite Professionel des Transporteurs Fluviaux (CPTF, the river transport committee of the FEC) by signing a MoU with the CPTF alliance in October 2014. We will determine the extent and precise content of the support ÉLAN RDC will provide to the alliance on the basis of internal consultations and discussions with the CPTF following completion of the final version of the advocacy work plan.

Business enabling environment in the river transport sector The study on informal and formal taxation in the river transport sector found that 20% of the total transport cost of a barge push-boat is due to taxation, with informal taxes accounting for 2% and formal taxes (primarily the fuel tax) accounting for 18%. For baleinieres (whaleboats), taxes constitute 15% of the total transport cost, with 12% attributable to informal taxes and 3% to formal taxes. Compliance with the recent inter-ministerial decree to abolish 38 informal taxes is a major issue. The transporters report that compliance at inland ports in the provinces of Bandundu, Equateur and North and South Kivu has been poor.

ÉLAN RDC has partnered with the Comite Professionel des Transporteurs Fluviaux (CPTF, the river transport committee of the FEC) to support them in their advocacy efforts.. CPTF plans to work to ensure the nationwide compliance of state agents with the recent inter-ministerial decree abolishing the 38 informal taxes. The CPTF aspires to a decree that exempts river transport operators from paying the FONER tax by the end of 2015. In 2015, the alliance then plans to develop a strategy to target the road maintenance taxes levied by the ‘Fonds National d’Entretien Routier’ (FONER). These taxes account for 6% of the total fuel cost for river transport operators

Moving forward, ÉLAN RDC will also look to continue collaboration with interested donors on tax related issues in order to ensure that both state and private sector concerns are taken into consideration for the development of win-win revisions to the tax regime.

Market System Change: (B) Financial products available to boat operators

• In total, 903 river transporters were trained in business and financial management.

• In addition, 534 river transporters participated in the training sessions on the formation of savings and credit groups. In addition to training materials, these participants were provided with an operational guide containing procedures for the establishment and management of a savings and credit group, together with sample exercises.

• Following this training, 13 groups, each consisting of 5-9 operators, were created in Kinshasa and Mbandaka.

During Q2, savings and credit based group product was designed tailored to the needs of river transporters, and specifically baleiniere operators. The aim of this group is to: i) educate baleiniere operators about the key characteristics of financial services; ii) establish a credit history for baleiniere operators through the group; iii) provide access to credit for working capital purposes in the very short term to multiple operators.

What is a baleiniere? Baleiniere operators form the largest group of river transporters in DRC, with estimated 500600 operators across the provinces of Equateur, Kinshasa, Bandundu and Kasai Occidental. It is baleiniere operators that are the key actors involved in the collection of agriculture goods sold out of small local ports located on the Congo and Kasai River tributaries.

During the present reporting period, ÉLAN RDC developed procedures and training materials relating to the establishment of the groups, after which we organized a training of trainers session for two senior group officers based in Kinshasa and Mbandaka. The training focused on business and financial management, group constitution, and savings and credit activities. We organized the training sessions with the groups to reinforce procedures and tools, and monitor and support baleiniere operators in their operationalisation of the savings groups.

3 Sixty-six in Kinshasa (including 5 women) and 24 in Mbandaka (including 1 woman). 4 Twenty-eight in Kinsahasa (including 4 women) and 25 in Mbandaka (including 1 woman).

A participant raises his concerns to the representatives of the partner banks

To date, about half of the groups that were created are operating as anticipated, with the primary factor affecting whether or not groups function being the motivation/interest of participants. Adjustments are currently being made to ensure that the remaining groups develop appropriately. During the next phase of work with these groups, training will be conducted on lending activities, ÉLAN RDC will support the groups in engaging with the banks to open bank accounts, and the groups will be expected to start saving. Increased collaboration between the savings and credit groups and formal financial institutions will also be fostered.

Market System Change: (C) Improved smallholder agricultural product aggregation

• In partnership with the Dutch development organisation SNV, this quarter ÉLAN RDC launched a pilot project aimed at developing and implementing a market information system and improved product aggregation model in the Basankusu Territory of Equateur Province.

• The market information system was developed and is now up and running, and to date 159 MT of smallholder agricultural produce has been already captured by this system.

The product aggregation pilot involves the construction of two warehouses (250 MT capacity each), the development and facilitation of warehouse management and agricultural commodity storage training, development of a market information tool and related market information system management training, and development of a business support unit for traders interested in replicating the model.

During the current reporting period, an open bidding process was conducted in order to identify construction firms and a foreman to oversee the building of the warehouses. The construction is set to commence in October 2014.

At the same time, efforts are ongoing to find innovative solutions to increase transportation options for evacuating smallholder agricultural produce in both season A (when the river is high) and season B (when water levels are low and large vessels cannot access Basankusu and other upstream ports). To date, consultations with transportation companies such as TFCE (Transport Fluvial et Commerce de l'Equateur) and SODOPAL (Societe Domaine de la Palmeraie), as well as with baleiniere operators in Mbandaka, have presented a number of possibilities. For example, TFCE has expressed a willingness to increase barge rotations to Basankusu on the provision that these could be filled within a two-week timeframe. SODOPAL is also conducting a cost-benefit analysis of sending transport units to inland ports throughout the year. Another idea involves the stationing of a barge at an accessible port downstream from Basankusu during season B and using vessels with a shallower draft, such as baleinieres, to shuttle cargo from Basankusu to the barge.

During talks with Mamba Metal in Kinshasa, the president of the shipyard informed ÉLAN RDC of recent developments relating to the construction of metal hulled baleinieres. Since 2012, Mamba Metal has constructed approximately 10 such boats, which they refer to as ‘baleiniere express’. These new forms of boat, which provide faster, more economic and safer services for the transport of goods, present an interesting investment opportunity for existing baleiniere owners/operators and could prove a viable option for evacuating smallholder produce from season B harvests in Equateur.

ÉLAN RDC will continue to explore these and other opportunities during the coming few months in an effort to identify additional pilot activities.

2.6 Seeds

As explained in the previous quarterly report, our initial plan to facilitate the access of smallholder farmers to locally-produced improved seed varieties has been held back by significant delays in the passing of legislation that would, amongst other things, afford intellectual property protection for (and therefore reduce the investment risks of) foundation seed production by private sector operators. We therefore took the decision to pull back from this sector and adopt a “watch and wait” approach. But developments occurring in discussions with key stakeholders initiated at the seed forum in February 2014 and the positive developments in Katanga province led us to renew our efforts in the seed sector in quarter four.

Market System Change (A): Sustainable sources of appropriate foundation seeds available

We have held ongoing discussions with the public institutions responsible for the production of foundation seeds in Katanga province (INERA, the National Institute for Agronomic Study and Research, and UNILU, the University of Lubumbashi) as well as with commercial seed

producers since early 2014. Throughout these discussions, our counterparts have been reluctant to engage with us on these questions. However, our persistent engagement finally bore fruit in quarter four, with six local commercial seed producers in Katanga confirming their willingness to be involved in a pilot initiative together with INERA and UNILU. The envisaged pilot will overcome the obstacles imposed by a lack of intellectual property protection through a hitherto unheard of partnership under which INERA and UNILU will provide breeder seeds and technical support for commercial seed producers to produce high quality foundation seeds. The vision of the initiative is to reduce local input costs by increasing the quantity of locally-produced foundation seed available on the local market and encouraging greater involvement of commercial seed producers in the development of foundation seeds (previously a role restricted to public institutions).

Market System Change (B): Distribution and marketing of improved seed by private seed businesses

As noted in the previous quarterly report, we are not pursuing efforts specifically related to this market system change at this time. However, if the proposed pilot initiative described above is successful in bringing together commercial players and state institutions, it could prove to be an important first step towards the distribution and marketing of improved seed by private seed businesses.

Market System Change (C): Increased confidence and willingness from smallholder farmers to invest in improved seeds

Specific interventions aimed at increasing the confidence and willingness of smallholder farmers to invest in improved seed will also be dependent on the success of the pilot seed multiplication initiatives.

2.7 Access to Finance

During the reporting period, the programme-wide Access to Finance strategy described in the previous quarterly report was further developed and is currently being finalised. Initiatives related to the four identified areas of work below are being further developed in order to ensure their impact on the short and long term period as well as their replicability and sustainability in the long term:

i) development of partnerships with local and international financial institutions (for instance ÉLAN RDC has started to discuss with international lenders to bring additional services on the market, such as Alterfin, Oikocredit, rA etc) ii) development of a market information system to increase financial institutions’ understanding of sectors targeted by ÉLAN RDC, iii) reinforcement of SME capacities in bank and financial services management, and iv) support for the development of financial products adapted to the characteristics of sectors targeted by ÉLAN RDC.

The general purpose of the strategy is to develop standardized methodologies that can then be applied and adapted at the regional level as opportunities present themselves.

Regarding i), a recent proposal submitted by Twin Trading highlighted some potential areas of collaboration where ÉLAN RDC could benefit from Twin’s networks of ethical lenders based in Europe and USA (including Root Capital, Alterfin, Fefisol and reponsAbility) for the coffee sector in particular.

Further to this, specific activities relating to the development of financial products in the coffee and river transport sectors have been described in the relevant sections of this report.

Lastly, during Q3, ÉLAN RDC continued discussions with the International Finance Corporation (IFC) and the European Institute for Cooperation and Development (IECD). These discussions dealt with the development of training tools, materials and networks for reinforcing the capacity of small and medium enterprises to engage with financial services. Technical and financial proposals from these two institutions were received during the reporting period and are in the process of being reviewed. 3. New sector identification and regional strategies

3.1 Overview

ÉLAN RDC is committed to remaining dynamic, and additional sectors outside of the opening portfolio are continually being considered for the opportunities they present. Potential new sectors or interventions of interest are reviewed against a number of key criteria, including specifically: i) the sector’s potential for reaching a large number of poor people; ii) the ability of proposed interventions to significantly increase the incomes of poor people; and iii) the feasibility of achieving systemic change in the short to medium term.

As noted in the previous quarterly report, detailed market system analyses have been conducted for a number new of sectors, including cocoa, palm oil and biomass. In addition, given the geographical spread and socio-economic and political differences between the provinces, the scoping of new opportunities is increasingly being led by provincial teams. The identification of potential opportunities by these teams will ultimately feed into provincial level strategies that will guide the expansion of the project’s portfolio at the provincial level, as well as providing strategic direction for provincial teams operating within an increasingly decentralised management structure. It is expected that provincial strategies, once finalised, would be reviewed on an annual basis, and updated as necessary.

What is presented below is an overview of activities in each of ÉLAN RDC’s target provinces (Equateur, Katanga, Kinshasa, Kasai Occidental, and North and South Kivu), including specifically a focus on new sector identification.

3.2 Equateur

Equateur is the newest of the regions where ÉLAN RDC has continued expanding its activities.. While activities have been ongoing in the river transport sector since the project inception (see section on river transport above), a range of potential new sectors are being explored.

Following an analysis of the cocoa market and the receipt of a proposal by a local entrepreneur with an interest in rehabilitating a cocoa plantation close to Gemena, a detailed intervention plan for activities in this sector is being prepared. Moreover, discussions are close to be finalised with BTC Export, a DRC cocoa exporter, on access to credit. Increased access to finance would allow them to buy more cocoa at the market price from close to 1,000 farmers. One of the constraints identified with the cocoa sector in Equateur is that the market price is distorted due to smuggling from neighbouring countries. Access to long term credit from a formal financing institution would allow BTC Export to develop their domestic supply chain and purchase cocoa from the farmers at a fair price.

In addition, following analysis of the opportunities in the palm oil market, the programme is identifying interventions in this sector. Opportunities have been identified in facilitation of training and technical assistance for oil palm producers, business development support for enterprises involved in the transformation of palm oil into products such as soap and biofuel, and a technical study on the feasibility of producing of the higher value palm kernel oil. Project proposals collected during a stakeholder forum facilitated by ÉLAN RDC are being reviewed, and a palm oil expert will the ÉLAN RDC team in Equateur in the next quarter. As with a number of sectors in Equateur, the palm oil sector is largely unorganised, and identification of viable partners is ongoing.

Following the dissolution of the intended partnership with SOCAM for rice related activities in Equateur’s Bumba region, alternative opportunities and partners in the rice sector, particularly in irrigated rice, were explored this quarter. Two potential partners, Jean Mbangui, a local entrepreneur in Mbandaka and Les Aiglons, a small NGO based outside of Gemena, were identified, and the development of an outgrower scheme for rice farmers is being investigated with these stakeholders. While the factors affecting smallholders’ productivity are similar to those found in the other regions (e.g. lack of access to improved inputs, agricultural services/expertise and technology; a lack of short-term credit; and limited access to markets), the private sector is very thin in Equateur, and most farmers live solely on subsistence farming with very little commercial activity related to their work. It is thus likely that elements of the A2F strategy, particularly with regards to SME capacity strengthening, will be relevant additions to the portfolio in Equateur.

We have also explored options to work with COLFEQ, a women owned cooperative that is in the process of being formally registered. In addition to small scale business development support by the ÉLAN RDC team, discussions are also underway to explore opportunities for expanding commercial activities particularly in poultry farming and supporting the establishment of a small agro input selling point. Regarding this, ÉLAN RDC is also in touch with a fertilizer importer in Kinshasa who is willing to extend its activities in Equateur.

3.3 Katanga

ÉLAN RDC scaled up its operations in Katanga in Q3, with the opening of a new regional office in Lubumbashi and intensive new sector identification based around two broad intervention areas: promoting a model of inclusive agriculture that can compete with imported produce; and reducing dependence on non-renewable energy.

Katanga's potential for inclusive agriculture With its favourable agro-climatic conditions, abundant land and water resources, significant mining presence and large urban centres, Katanga has ideal production conditions and large consumption markets for agricultural produce, yet most of its (staple and non-staple) food produce is imported. Local produce fails to compete both on price and on quality due to a lack of affordable high quality local inputs (meaning producers depend on expensive imported inputs), limited local processing capacity and extension services, scarce sources of finance, poor energy and transport infrastructure, and an unfavourable tax regime (in which a combination of unenforced import taxes and high local transport taxes conspires against local producers). Yet, there is a strong political push for the province to achieve selfsufficient agricultural production and recent years have witnessed a growth in investments in large- scale production. We aim to capitalise on this trend by promoting models that ensure poor people are included in, and not marginalised by, that growth.

In addition to our ongoing work in the rice and seed sectors, we identified maize as a sector with considerable potential in Katanga. Maize is the main cereal crop in Katanga and is grown by the majority of the province’s poor smallholders. Current smallholder yields produce very limited surplus beyond subsistence: the provincial average is 0.97 MT/ha.

In quarter four, we developed a partnership with Mbeko Shamba, a 5,000 Ha commercial farm situated on the Tenke Fungurume Mining concession in south Katanga. The farm supplies TFM and the mining sector’s leading catering companies with agriculture, horticulture and poultry products, as well as maize flour processed on-site. Our partnership with Mbeko Shamba is centred on a pilot outgrower scheme that seeks to address the systemic constraints that we have identified as limiting smallholders’ productivity and capture of value creation in maize production, namely: lack of access to improved inputs, agricultural services/expertise and technology; a lack of short-term credit; and limited access to markets. The proposed outgrower scheme pilot offers the opportunity for smallholders to overcome all of these constraints and should also be attractive from the large farm’s perspective since it will generate increased volumes of unprocessed maize, which the farm can then process on-site and on-sell at a profit. The pilot will test and demonstrate the viability and commercial attractiveness of this model, and enable us to refine it for further replication. Mbeko Shamba has been selected as a partner because it has already demonstrated its willingness to pursue this model by launching its own pilot outgrower scheme last year. Our project intervention aims to support Mbeko Shamba in scaling up and ensuring the sustainability of the scheme by providing (i) technical assistance to improve the smallholders’ agricultural and managerial practices (including crop diversification and improved processing) via the intermediary of a local agricultural services provider, Sud Ouest Développement, and an experienced socio- economist specialised in smallholder organisation; (ii) business development support to enable the farm to produce a business plan capable of attracting external finance for

subsequent runs of the scheme; and (iii) M&E support to capture the economic and social benefits of the scheme to build a strong case to convince other large farms to replicate the scheme.

In addition to Mbeko Shamba, Ferme Futuka, a 4,500 Ha commercial farm located just outside of Lubumbashi, was identified as a site for a similar pilot. As with the RTMK rice farm, the proposal for this pilot was submitted to DFID for approval since Ferme Futuka is also owned by the Provincial Governor.

Aside from efforts promoting agri-business, ÉLAN RDC also seeks to exploit the large presence of the mining sector in Katanga. Mining companies have a large need for agricultural products to feed their staff and labourers. In addition, they often have corporate social responsibility (CSR) objectives, under which they engage in activities in the communities surrounding their concessions. ÉLAN RDC aims to work with such mining companies to encourage them to source local products wherever possible, and to ensure that their CSR initiatives are sustainable. To this end, ÉLAN RDC has been in discussion with the Tiger Mining company about providing technical inputs (on post-harvest processing, marketing, etc) to improve the agricultural activities that the company supports, and also to strengthen the savings and credit groups that Tiger Mining is establishing under its CSR arm.

Meanwhile, in Lubumbashi, ÉLAN RDC is in the process of finalizing an intervention to promote improved cook stoves. This opportunity, which emerged from the market system analysis that was conducted on biomass, focuses on supporting local producers of improved stoves to enhance their production standards, stimulate demand, and develop appropriate distribution channels. This initiative is due to be launched in the coming quarter.

Finally, ÉLAN RDC is in the process of developing a research study on the economic benefits of women’s empowerment to local business. This is expected to be launched in early 2015.

3.4 North and South Kivu

The Kivus are the focus for the work that ÉLAN RDC has been doing in the coffee sector. During Q3, ÉLAN RDC continued to implement the work plan that was developed for the coffee during the design phase.

In addition, as part of the move of the programme from a centralised to a decentralised approach of its portfolio, the team in South Kivu team started to develop a South Kivu portfolio by looking at opportunities in new sectors.

During Q3, the team in South Kivu conducted a series of market system analyses in order to identify new sectors of operation. As a result of these, palm oil, maize, horticulture and cassava have emerged as key sectors of interest in the province, with issues of access to finance and transport as two cross cutting areas of intervention. At the quarter’s close, detailed intervention plans are in the process of being finalised (Maize and onions) for these new sectors of intervention, as is an overall strategy for the province.

In the horticulture sector for instance, the following systemic constraints were identified: lack of provision of extension services to enable smallholders to apply adequate agricultural practices, limited access to good quality input (fertilizers and seedling), weak storage systems translating in low selling price during high season, weak access to market information (producers are price-takers), extremely fragmented value chain. Via a pilot with the cooperative AFRP (Bukavu), the agro-dealer company, YARA, is willing to test and understand the demand for agricultural inputs in the region and improve their supply and distribution network, currently inexistent. An Activity Plan is being developed and will be implemented in Q4.

In North Kivu, where ÉLAN RDC has focused on coffee activities, a similar scoping exercise was kicked off at the quarter’s close. Resulting intervention plans and an overarching provincial strategy are expected in Q4.

Both provincial strategies will include a deep analysis of each region’s political economy and conflict environment. These analyses are to be undertaken in Q4 by a new long term senior PECA consultant who is joining the programme at the time this report is being written and who will replace the current local PECA advisor who will transition to an advocacy role.

3.5 Kasai Occidental

Kasai Occidental is the focus province for the micro-hydro studies (legal, technical and economic) currently being undertaken by ÉLAN RDC. During the reporting period, several field visits were undertaken to the province in relation to the micro-hydro studies and in an effort to identify entry points in other sectors. A range of potential entry points were identified and are currently being evaluated, including soya, maize and pineapple production and processing. We have approached a number of private sector actors, including Copromor, Caritas, Electricite du Congo (EDC), CEPEA, CADEFA and Femmes FENAPEC, and are currently discussing potential partnerships with them.

3.6 Kinshasa

In addition to the ongoing work in the mobile money sector which largely focuses on Kinshasa, the ÉLAN RDC team has identified opportunities for engagement in the horticulture and biomass sectors in the urban and peri-urban markets.

Opportunities for engagement in the horticulture sector seem promising. Within the boundaries of Kinshasa it is estimated that nearly 40,000 smallholder producers are involved in horticultural production. This is also a sector where women’s participation is important both during production and during the sale of horticultural produce. The market system analysis identified several systemic constraints: at the point of production, appropriate agricultural inputs are lacking or of prohibitive cost, and functioning irrigation facilities are limited. Post- harvest practices are largely inappropriate, and there is a lack of appropriate transport, storage/conservation and transformation opportunities, which result in considerable produce loss along the value chain, and lost revenues for producers. A range of potential interventions

are being explored, and a sector strategy for horticulture is in the process of being defined. One potential stumbling block is related to the identification of partners; as the horticulture sector is primarily informal, there are few formal private sector actors operating along the value chain.

Despite early positive indications, opportunities for concrete interventions in the biomass sector in Kinshasa proved difficult to identify, largely because a number of other development actors already active in the sector. One interesting potential partner was identified, however; Congo Assurance, a company that has invested in the equipment for producing briquettes made of compressed sawdust, an energy efficient alternative to charcoal. At this point, ÉLAN RDC has agreed to provide some basic support to Congo Assurance for the development of a robust business plan. Once that process has been completed, opportunities for continued engagement with the company and the promotion of briquettes will be re-evaluated. In the meantime, other advancements in the biomass sector, including the planned establishment of a factory producing improved cook stoves, will continue to be monitored. 4. Cross-cutting issues

4.1 Gender and social inclusion

To strengthen the integration of gender issues in our projects, we are working to ensure each sector analyst or consultant follows, as a minimum, a “do no harm approach” and, where possible, targets opportunities to actively promote women’s economic empowerment in developing new market system analyses or intervention plans.

The market system analyses and other studies conducted during the reporting period led to similar conclusions:

a) Women tend to be involved in the low value segments of the value chain, and rarely have sufficient capital to enable them to expand their business or position themselves in growth sectors.

b) There is little space in current market systems to really integrate the most vulnerable communities; for example, the few large commercial farms that currently operate outgrower schemes primarily work with those producers who already have land and/or sufficient capital to minimize their risks, meaning women, and particularly more marginalised women, tend to be excluded from their benefits.

c) Large financial (lending) institutions have to a limited extent adapted their offer to the needs of micro-entrepreneurs and the poor in general, and tend to see these groups as risks rather than as potential triggers for economic growth and job creation. As such, there is a general lack of credit opportunities and/or policies related to the creation of businesses by those who have no existing collateral. There is also a tendency by these institutions to favour traditionally ‘male’ industries, which further detracts from the competitiveness of female entrepreneurs.

d) Women are over-represented in the informal sector, an area in which we have not yet focused our efforts, but for which we are looking to bring in expertise over the coming two quarters.

In Q3, the ÉLAN RDC GESI advisor finalised a gender audit manual and improved our existing gender checklist to equip the wider team with the tools necessary to build these considerations more systematically into our project design. Over Q4 and 2015, ÉLAN RDC will bring in external additional technical assistance to ensure the programme benefits from more strategic input on how best to look at markets with a GESI lens.

Various pilots that will be implemented in Q4 have huge potential to promote women’s economic empowerment. This is the case for the onion project in South Kivu where ÉLAN RDC would be working with a women cooperative, as well as a coffee pilot with Domaine de Katale who has a tradition of working with the NGO Women for Women. In Equateur, we are assessing the best way to engage with COLFEQ, a women’s cooperative. Meanwhile, in Katanga, special attention has been paid to proportionate participation of women in the Bunkeya, Kashobwe and Mbeko Shamba pilots; moreover, the former two pilots will include farmer field schools exclusively targeted at women in particular, while the latter will include specific support to encourage women to pursue entrepreneurial activities alongside farming.

5. Lessons learned and way forward

Informal Sector

• With the exception of a few notable industries (e.g. mining, banking, etc.), the Congolese economy is for the most part an informal economy with a very limited number of private sector companies. For example, the FEC, the largest business membership organization in DRC counts only 3,000 members. • The original six sectors in the opening portfolio represent some of the most formal industries. As ÉLAN RDC broadens its portfolio to include more (informal) sectors, it becomes harder to apply the traditional M4P framework. • While it is harder to devise sustainable and replicable interventions in informal sectors, these same sectors tend to have an over-representation of poor women, and therefore have a higher potential to increase incomes and contribute to the economic empowerment of women.

Taxation and the broader business enabling environment

• Illegal and over-taxation continues to be one of the key constraints facing the growth and competitiveness of the private sector in DRC, particularly in the sectors targeted by ÉLAN RDC. This has been the principle focus of the project’s advocacy efforts to date, and as noted elsewhere these efforts are already bearing fruit. However, addressing fiscal policies alone may not be sufficient to achieve project objectives, and there is a need for ÉLAN RDC to more aggressively address other business enabling environment issues such

as access to affordable and reliable electricity and finance and a streamlining of administrative procedures. • Regarding tax policy, our experience to date demonstrates that sustained advocacy efforts for the appropriate application of fiscal policy at the national and provincial level is of equal importance to advocacy for a change in fiscal policy. • Despite the need for sustained pressure at both the national and provincial levels, few business membership or advocacy organizations have the organizational structure or financial wherewithal to pursue this two tiered approach. • Effective advocacy efforts are further hindered by the lack of sophisticated approaches. Even the FEC, one of the most notable advocacy organizations, relies on formal letters of complaint directed towards various government officials as their primary advocacy strategy. There is little use of media, civil society or other stakeholders to raise awareness on key issues and gain broader civic support.

Partnerships • Forming partnerships is the core of ÉLAN RDC’s business. As such, there is a need to continue to evaluate and adjust our partnership engagement and management processes. We are learning that in the context of the DRC many private sector companies are very risk averse, and our offer to buy down risk of investing in new ways of doing business will need to be sensitive to this. • The due diligence process needs to be better integrated into partner engagement processes, not tacked on towards the end. • ÉLAN RDC market analysts need to find ways to accelerate the partnership engagement and vetting process. This includes finding ways to influence the agenda and priorities of potential partners. To date, competing priorities among potential partners have led to protracted engagement processes. • There is an ongoing need to market the project to the private sector. While we are gaining the confidence of the private sector in our core sectors, ÉLAN RDC needs to find new ways to communicate the project approach, objectives and value offer to companies outside of the original six sectors.

Way forward

• ÉLAN RDC is developing a methodology and concrete examples (pilots) of how to intervene in informal markets. Once proven in the Kinshasa marketplace, this approach will be disseminated to each of the provinces. • In September, ÉLAN RDC met with DFID’s VAWG delegation. This encounter helped to formalize lines of communication between ÉLAN RDC and DFID’s GESI programmes and implementing partners. ÉLAN RDC remains committed to sharing experiences and seeking opportunities within its existing sectors to integrate populations targeted by the GESI programmes. • Building on the credibility created by the tax studies in the coffee and river transport sectors, ÉLAN RDC will continue to support these industries to upgrade their advocacy efforts. In addition, the project will develop a more robust cross-cutting strategy to

address other issues in the business enabling environment. Close coordination with other DFID PSD programmes will be necessary. • ÉLAN RDC is introducing mechanisms to track the pace of partnership engagement. We are also introducing and training our teams on appropriate due diligence and political economy analyses at the beginning and throughout the engagement process. • Further, ÉLAN RDC is seeking new ways to market the project to the private sector. The project will present to the FEC members in Quarter 4. The project is also considering the idea of a business breakfast series to attract interest from the private sector. Through these initiatives, ÉLAN RDC intends to not only gain the interest of private sector, but expose them to the benefits of engaging more closely with their supply chains.