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MACEDONIA BUSINESS ECOSYSTEM PROJECT Quarterly Progress Report October 1, 2018 – December 2018 (Q1 FY2019) AID-165-C-17-00001 Chief of Party: Mirjana Makedonska Email: Telephone: CONTENTS INDEX OF COMMON ACRONYMS AND ABBREVIATIONS 2 PROJECT BACKGROUND 3 OVERVIEW 3 OBJECTIVE 1: IMPROVED BSO SERVICES TO MSMES 6 OVERVIEW 6 NEW BSO’S SELECTION 6 PRE-AWARD PROCESS 7 STRENGTHEN INTERNAL CAPACITY AND SUSTAINABILTY OF BSOS 7 IMPLEMENTATION OF GRANTS AND TECHNICAL ASSISTANCE TO BSOS 8 INTRODUCED NEW OR UPGRADED EXISTING SERVICES BY THE BSO’S 8 BEP LOCAL PARTNER CAPACITY BUILDING 12 FACILITATE INTER-BSO NETWORKING AND PARTNERSHIPS 12 OBJECTIVE 2: IMPROVED MSMES’ ACCESS TO FINANCING 13 OVERVIEW 13 SUPPORT MSME’S TO IMPROVE THEIR FINANCIAL LITERACY, MANAGEMENT AND ACCESS TO FINANCE 14 DEVELOPING NEW OR DIVERSIFYING ALTERNATIVE SOURCES OF FINANCING FOR MSMES AND STARTUPS 15 RAISING AWARENESS FOR ALTERNATIVE FINANCE SOURCES 17 OBJECTIVE 3: INCREASING PRIVATE SECTOR ENGAGEMENT 18 OVERVIEW 18 INCREASE PRIVATE SECTOR INVESTMENT IN ECONOMIC DEVELOPMENT ACTIVITIES 19 CLA: COLLABORATION WITH DEVELOPMENT PARTNERS, LESSONS LEARNED AND ADAPTING THE PROJECT’S FOCUS 25 MONITORING, LEARNING AND EVALUATION 27 OVERVIEW 27 CLA PRESENTATION AT USAID ECONOMIC GROWTH PARTNERS’ MEETING 27 FINDINGS FROM THE EVALUATION OF BEP EVENTS 27 ANNUAL RESULTS REPORT SUBMITTED TO USAID 28 FOLLOW-UP EVALUATION OF STUDENTS ENGAGED IN RADE KONCHAR TEP INTERVENTION 28 DATA QUALITY ASSESSMENT MEETING WITH USAID MACEDONIA REPRESENTATIVES 29 MEETINGS ON M&E ISSUES WITH GRANTEES 29 OPERATIONS AND ADMINISTRATION 30 COMPLIANCE AND USAID APPROVALS 30 COMPLIANCE WITH MACEDONIAN LAWS & PALLADIUM POLICIES & PROCEDURES 30 ACTIVITIES IN THE NEXT QUARTER 32 EVENTS 32 ACTIVITIES 32 ANNEX 1: BEP PERFORMANCE DATA TABLE (JULY – SEPTEMBER 2018) 33 NARRATIVE EXPLANATION OF THE REPORTED DATA 37 ANNEX II: FINDINGS FROM THE EVALUATION OF BEP EVENTS 44 ANNEX III: FINANCIAL REPORT 46 ANNEX III: CALENDAR OF ACTIVITIES 47 INDEX OF COMMON ACRONYMS AND ABBREVIATIONS A2F – Access to Finance B2B – Business to Business BEP – Business Ecosystem Project BSO – Business Support Organization CLA – Collaboration, Learning and Adaptation (or Collaborate, Learn, Adapt) CM – Concurrence Memo CoP – Chief of Party COR – Contracting Officer Representative CSR – Corporate Social Responsibility DCoP – Deputy Chief of Party FF – Financial Facilitator FI – Financial Institution GUC – Grants Under Contract LED – Local Economic Development LoI – Letter of Interest LS – Local Subcontractor MAFWE- Ministry of Agriculture, Forestry and Water Economy M&E – Monitoring and Evaluation MEL – Monitoring, Evaluation and Learning MoU – Memorandum of Understanding MLS – Ministry of Local Self-Governance MSME – Micro, Small and Medium Enterprise O1 – BEP Objective 1 O2 – BEP Objective 2 O3 – BEP Objective 3 PSE – Private Sector Engagement RfA – Request for Applications RfQ – Request for Quotes USAID BUSINESS ECOSYSTEM PROJECT QUARTERLY PROGRESS REPORT (OCT 1, 2018 – DEC 31, 2018) | 2 PROJECT BACKGROUND The USAID/Macedonia Business Ecosystem Project (BEP) is a four-year economic development project that will transform the competitiveness of micro, small, and medium enterprises (MSMEs) in Macedonia by strengthening business services, finance, and market linkages to catalyze a significant increase in MSME growth, productivity, and employment. The Project, implemented by Palladium International, officially started operating on September 29, 2017 and is set to conclude in September 2021. BEP has three overarching and interlinked objectives: 1. IMPROVED BUSINESS SUPPORT ORGANIZATION (BSO) SERVICES TO MSMES. Through a mix of grants and technical assistance, BEP will strengthen BSOs to provide services for MSMEs and startups tailored to meet their most pressing constraints to growth— increasing productivity and job creation by introducing new technologies, innovations, standards, and business practices; facilitating relationships with new clients or markets; and building their technical and business skills. 2. IMPROVED MSMES’ ACCESS TO SOURCES OF FINANCING. BEP will work with traditional and alternative financial instruments and with MSMEs to ensure appropriate sources of financing are available and accessible for business expansion efforts. 3. LEAD FIRMS INVEST IN THE DEVELOPMENT OF SUPPLY CHAINS AND LABOR FORCES. BEP will catalyze lead firms to invest backward in their supply chains, helping suppliers meet standards, improve quality, and introduce new technologies and know-how, ultimately demonstrating the mutual advantages of investing in these areas. BEP will bring transformative, sustainable change to Macedonia’s business ecosystem at scale within its four-year life of project, paving the way for Macedonia’s market system to continue to function without USAID after BEP has concluded. To that end, BEP will achieve the following results: • 15% average annual growth rate for MSMEs, resulting in $81.5M in MSME revenue growth; • Create 5,750 new jobs; • Provide access to alternative and traditional financing for 250 MSMEs; • Facilitate $138 million in financing (investment and credit) for MSMEs and startups; • Leverage $70 million from lead firm and private sector partners in support of project activities. OVERVIEW BEP’s three objective areas address key facets of the business ecosystem in Macedonia and are naturally interconnected and mutually reinforcing. In the first quarter of Year 2, the implementation of BEP activities embodied this integration even more profoundly, with all three project objectives contributing to maximize impact in the selected sectors. As envisioned at the design stage, the three separate objectives have activities that complement each other and contribute to overall systemic progress. For example, in order to enhance the startup ecosystem and support access to finance (A2F) for startups, the Project initially looked at the sector through the lens of O2. Soon it became evident that the startup ecosystem needed broader support, rather than one-off A2F activities. With this realization, BEP began identifying relevant BSOs that could be considered for a grant under O1 in order to jointly work on enhancing the startup ecosystem, in addition to the A2F activities in O2. Another example is the dairy sector, initially a focus for BEP’s PSE initiative in O3, but now also supported with targeted access to funding through O2 and building advisory services and expertise through an O1 grantee (LAG Agro Lider). Similarly, BEP has seized upon the opportunity to support USAID BUSINESS ECOSYSTEM PROJECT QUARTERLY PROGRESS REPORT (OCT 1, 2018 – DEC 31, 2018) | 3 our O3 pilot in the apparel sector with a grant from O1 for the textile cluster (TTA) to develop a new service for its existing and potential members. The overlap of the three objectives, that became quite evident in Q1 of Y2, only proves the initial theory during project design that in order to build an efficient and effective business ecosystem all stakeholders and aspects need to be considered—BSOs, business development and access to finance, and the private sector—in order to achieve long-lasting results and catalytic impact in the targeted sectors. This quarter, under Objective 1, BEP continued assisting selected BSO’s with the implementation of their grant activities to develop commercial services while in parallel building the organizations’ internal institutional capacities. Through working with BSOs and MSMEs, BEP has gained a deeper understanding of the obstacles preventing Macedonian MSMEs from growth. Over the past six months of intensive communication with the stakeholders from the startup ecosystem, BEP, in close coordination with USAID Macedonia, finalized the concept for the development of Macedonia’s start up ecosystem. To fill the gaps in information, services and financing identified by the Year 1 mapping, the Project will support the development of an integrated web-based matchmaking and information sharing platform, combined with financial products suitable for startups (e.g. crowdfunding). The platform will be developed through a grant that will be implemented by four BSOs that are working within the ecosystem. Though the development of the startup ecosystem started as an O2 activity, the initiative is now being developed under O1, in alignment with BEP’s overarching efforts to improve BSO services to MSMEs, including startups. Similarly, as the proof of concept phase in one O3 initiative (Okitex) revealed that BSCI certification is invaluable for the development of the textile sector, the apparel cluster approach BEP with an unsolicited proposal for scaling the initiative. As a result, BEP will partner with an organization which will continue providing the sector with the knowledge and know-how for going through the BSCI process. The BSO (Textile Trade Association – TTA) had already worked with BEP on the Okitex initiative and realized that BSCI could be a sustainable fee-based service for their members. As sustainable development is one of the main goals of USAID in Macedonia, BEP will support TTA’s business growth through a grant. BEP is also in negotiations with Micro Finance Alliance (a BSO that unites the three microcredit institutions) to work on an A2F initiative, specifically, providing access to microcredit loans for vulnerable groups such as farmers, small businesses in rural areas, and sole traders selling at the green markets. Both TTA and MFA approached BEP with an unsolicited proposal, while the startup ecosystem joint project was

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