Business Case and Intervention Summary
Intervention Summary
Title: Private Enterprise Programme Ethiopia
What support will the UK provide?
DFID will provide between £56m and £70m to the Private Enterprise Programme Ethiopia
(PEPE) over 7 years from 2012/13 to 2018/19.
Why is UK support required?
What need are we trying to address
Economic growth is desperately needed to create jobs and raise incomes in what is one of
the ten poorest countries in the world, where only 1 in 15 working age adults has a formal job
(1 in 20 women). Greater private sector activity is critical to driving this. It will boost
investment and spur productivity improvements through innovation.
Currently the economic environment, which includes low levels of investment and credit for
small and medium enterprises and market failures in key growth industries, , and the low
levels of activity by other donors in this area, means that UK support will be critical. The
UK’s role will be especially important in focusing benefits on women, to improve equality,
and green-growth1.
This programme aims to have a transformational effect, supporting Ethiopia’s economic
growth and ability to respond to climate change, thereby facilitating its graduation from aiddependency and reducing the need other DFID Ethiopia programmes over time, including
those providing welfare safety nets and humanitarian support.
What will we do to tackle this problem?
DFID will catalyse Ethiopian private sector development by tackling constraints to growth.
These constraints result from both limited access to finance and market failures and
regulatory issues in key, priority industries. This will create job opportunities (especially for
women) and raise household incomes.
Output 1 – Access to Finance: DFID will increase the availability of financial products, both
for saving and lending, for micro, small and medium enterprises through support to microfinance institutions and banks. DFID will provide both technical assistance and grant funding.
This support will enable the financial institutions to better serve firms’ needs, addressing the
“missing middle funding gap” faced by firms currently too small for bank lending, but too big
for micro-finance. DFID will complement this by catalysing equity-type support to meet
longer-term or riskier investments. In each intervention, DFID will partner with donors to
1
Note that for this programme, green growth is interpreted as an umbrella term for low-carbon,
climate-resilient and resource-efficient growth. The programme may therefore be aimed at meeting
some or all of these sub-components at any one time.
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provide credit lines, and to support policy development, where required.
Output 2 – Priority Industries: DFID will catalyse productivity improvements and investment
in key Ethiopian sectors, including leather, textiles and horticulture. DFID will again, provide
both technical assistance and grant funding. Our support will include research to identify
binding constraints, capacity building in key institutions, including private sector firms
themselves, to overcome key market failures, as well as work with Government to best assist
pro-poor growth in these sectors.
A diagram summarising the complete package of programmes is at Annex J. Both strands
are included in the programme since 1) they target different constraints to the private sector,
2) they are mutually reinforcing: increased finance availability supports sector development
while sector productivity improvements create the opportunity for successful financial
investment, 3) a mixed portfolio helps mitigate political risk to private sector development in
Ethiopia.
Complementing and contributing to these strands is a third strand: flexible programme
management. This covers programme development and management, monitoring and
evaluation, research and contribution to a multi-donor fund (which could deliver some access
to finance activities and some investment climate improvement, supporting the priority
sectors). These activities will help support delivery of the access to finance and priority
sector outputs.
Throughout, DFID will focus on addressing the needs of women and firms with the potential
to positively impact the environment.
Who will be implementing the support we provide?
PEPE adopts a portfolio approach in delivering the results above, meaning pursuing several
different interventions simultaneously. Engagement with the private sector is a new,
complex, area of work for DFID in Ethiopia. We have a good understanding of what should
work, drawn from international experience and local market research, but not with certainty
what will work. Like the private sector itself, our engagement is certain to have its own
successes and failures, especially in the context of a Government active in areas of
economic production more usually left to the private sector. A portfolio approach will spread
DFID’s risk, and coupled with on-going monitoring and evaluation (M&E) allow PEPE to
respond to what is shown to work and cease doing what does not. It will also enable any
issues presented by Government policy changes to be managed. The portfolio includes:
Output 1 – Support to microfinance institutions will be implemented, in part, by the World
Bank under its planned “Women’s Entrepreneurship Development Programme” (WEDP).
DFID’s access to finance portfolio will be managed by a technical service provider (TSP)
appointed by DFID. They will oversee support to the World Bank, and have responsibility
(either direct or through partnership with other donors and development finance institutions)
for delivering the other interventions: additional support to the micro-finance industry, as well
as banking and equity-type interventions.
Output 2 – Some grant support for productivity improvements will be provided through a
project management unit attached to the Ministry of Industry, continuing an existing
programme, the “Ethiopia Competitiveness Facility” (ECF), thereby enabling quick delivery of
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results. To more fully address the problems in the identified sectors, new programmes will be
developed for each, mixing technical assistance and grant funding to the public and private
sectors, which will be implemented directly by a separate TSP.
Elements of the programme which entail scaling up existing programmes will be
implemented more quickly to enable delivery of quick results. This includes the support to
the WEDP and ECF, which will go-live soon after PEPE approval. Other interventions will
start more slowly, following procurement of the services of the TSP, who will in turn need to
finalise design elements during inception, and in some cases undertake further procurement.
What are the expected results?
The results expected of PEPE are:
 By 2018/19, to leverage the creation of 41,400 jobs, with 31,100 jobs attributable to
DFID (By 2014/15, to leverage the creation of 10,300 jobs, with 7,750 jobs attributable
to DFID ), of which 75% will be for women
 By 2018/19, raise the incomes of 42,000 households (6,000 by 2014/15) by at least
20% (100% attributable to DFID)
 By 2018/19, to leverage the creation of 350,000 new micro-savers, with 56,450
attributable to DFID (By 2014/15, to leverage 40,000, with 6,450 attributable to DFID)
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Strategic Case
A. Context and need for a DFID intervention
Need – Ethiopia is fragile country with a large number of vulnerable people and areas
of on-going conflict. Whilst inequality is low, as the economy grows, there is a risk
that this becomes more unequal, especially between men and women and that in
order to achieve zero carbon growth, support to green growth is critical.
Ethiopia is poor with high unemployment; is aid dependent; and is vulnerable to external
shocks. Despite rapid growth, Ethiopia remains one of the world’s poorest ten countries 1. It
ranks 174th out of 177 countries on the Human Development Index2 and 39% of the
population live on less than $1.25 a day3. It remains highly aid dependent, with aid
constituting 12% of GDP. Only 1 in every 15 adults (1 in 20 women) of working age has a
paid formal job2 while an extra two million people come onto the labour market every year 4.
Environmental shocks and commodity price fluctuations, continue to have damaging
consequences. In 2011, monetary policy and inadequate domestic rain-fall combined with a
global spike in food prices drove food price inflation above 50%.
Ethiopia is relatively equal economically, but there is a risk of this changing. Ethiopian
income inequality is low compared to many of its neighbours, with a gini coefficient of 30 3.
This compares with almost 50 in Kenya, Mozambique and Uganda5. However, based on the
experience of some developing countries6, there is a risk of this rising in parallel with
economic growth. Already benefits of recent growth are imbalanced, with poverty reduction
occurring faster in urban than rural areas7.
Environmentally, Ethiopia is projected to rise from a low to high emission economy. On
current trajectory, by 2030, Ethiopia’s emissions will equal South African levels, making it a
carbon intensive economy8. But this outcome is not inevitable, and there are many
opportunities for green growth, reflected in Ethiopia’s Climate Resilient Green Economy
strategy (see below).
Ethiopia is also vulnerable to changing environmental conditions. Over the next 50 years
Ethiopia’s weather will get significantly wetter, at least 3°C warmer4 and increasingly erratic.
This will result in prolonged droughts, damaging crops and reducing yields; increased
incidence of floods impacting on hydro-electric power generation; and increased disease, in
particular malaria. If Ethiopia does not prepare for these impacts now – for instance by
reducing reliance on single cash crops – the changing climate will significantly harm its
growth potential and poverty alleviation.
Ethiopia is also vulnerable to regional conflict, which undermines economics growth.
Averting conflict is economically beneficial9, opening up trade via neighbours, and providing
security for would-be investors. Equally, economic growth contributes to greater stability10.
As a partner the Government of Ethiopia (GoE) is capable, committed to growth and
2
There is no standard accepted definition of a formal job in the context of Ethiopia. The definition that
will be developed for the purposes of measurement under PEPE is drawn from the relevant DFID
“How to Note” and set out in annex K
3
4
where 0 indicates perfect equality and 100 perfect inequality
UNDP Climate Change Profile : Ethiopia (McSweeney et al)
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development, and is proven in making rapid progress towards the Millennium
Development Goals (MDGs). But the approach to private sector development presents
substantive challenges to that sector’s sustainable development. There is a critical need
for DFID to work in this area, so as to set Ethiopia on a faster path to poverty alleviation
and protect our investment in the MDGs. It will not be without challenges.
Economic barriers – Ethiopia’s economy is impeded by the uncompetitive nature of
its private sector and the low levels of investment and credit, especially for growing
small and medium enterprises (SMEs) and women. Green(er) activities and services
represent an opportunity for growth in this context.
A growth diagnostic11 was undertaken to assess binding constraints to growth, the results of
which are summarised below.
Ethiopia’s private sector is small, un-competitive and largely informal contributing only 25%
of total economic output12. Private sector investment in 2006/7 was 7% of GDP, compared
to 18% for Government investment13. With fewer than 7,000 new firms registering each year,
Ethiopia’s business formation is around 5% of Ghana’s14. The informal sector dominates,
accounting for 80% of GDP and 88% of the workforce15. Women are confined to the small,
informal sector, accounting for only 23% of formally registered micro and small enterprises 16.
This matters for growth: international experience shows that a vibrant private sector
generates investment and drives innovation17.
Private sector credit availability is low and falling, while women face particular barriers.
Private sector credit represented 18% of GDP in 2010, down from 24% in 2006. It compares
to 35% in Kenya18. In World Bank Enterprise Surveys, formal businesses ranked access to
finance as the second biggest constraint to investment19. Ethiopia is ranked the 150th
hardest country in the world in which to get credit20, and the Commercial Bank of Ethiopia
(CBE) lends less than 1% of its portfolio to women. This matters for economic prosperity.
The World Bank finds that productivity, investment and job creation are significantly lower in
firms citing access to finance as a constraint21.
Private sector credit as is available is concentrated on larger and priority firms impeding
competition. The state owned CBE, which accounts for almost 50% of loans, saw SME
lending22 levels drop from 26% to 15% in the 5 years to 201123. This causes a financing gap
for firms whose borrowing needs are too large for micro-finance institutions (MFIs) but too
small for banks: the “missing middle”. This raises barriers to firm entry to, or expansion within
the, market, stifling competition.
Equity finance is also lacking. Equity finance is more appropriate for businesses that are
uncertain of their cash flow, such as new start-ups, businesses with new products and
services (e.g. green growth) and those that have reached their limits in terms of securing
debt. The private equity industry is in its infancy in Ethiopia - two firms are currently
operating both focused on medium to large investments only.
Causes (1): Access to finance – Bank lending to SMEs is constrained by public sector
crowding out lending towards very small or large firms only; compounded by risk
aversion and negative real interest rates that deters saving and reduces liquidity.
Micro-finance institutions focus on survivalist firms, have low market responsiveness, and
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are not self-sufficient or adequately liquid. Large MFIs dominate in the Regions, for example
the largest, the Amhara Credit & Savings Institution (ACSI) having a 33% market share of
the micro-loan portfolio. Despite their capability24, state ownership has constrained the
growth and sustainability of the industry. Consequently the average loan size has been kept
low ($ 100 compared to the sub-Saharan African average of $ 412). Regional governments
have also viewed the MFIs as providing social protection. Loans of the size ($2,000-$30,000)
needed by growth oriented micro and small enterprises represent just 3% of the total loan
portfolio25.
Reflecting Government’s social objectives, interest rates have remained suppressed, despite
high inflation26. As a result MFIs are risk averse reducing innovation of new products - low
margins cannot withstand high rates of default. MFIs have not invested in building human
capacity and in systems to allow them to expand, and address unmet demand. Loan portfolio
growth has averaged only 4% since 2008, compared to 57% growth in the preceding 5
years27.
Unlike the rest of the African industry, where the demand for savings exceeds demand for
loans28, Ethiopian institutions have focused on loans. Deposits represent just 33% of loans
against an African average of 56%29. Combined with low profits (resulting from low interest
rates), MFIs have low “internally generated funds”, resulting in low liquidity. This undermines
self-sufficiency, increasing reliance on shareholders and donors for funds to lend, and
compromising sustainability. Problems in the sector also result from lack of national policy30.
The industry remains un-automated, with MFIs relying on manual management information
systems.
Bank lending to SMEs is constrained by public sector crowding out, negative real interest
rates and the availability of more lucrative, less risky alternatives. Private Banks are required
to invest 27% of the value of new loans in 5 year, low-yielding Government bonds, aimed at
supporting public sector investment. This erodes liquidity, acting as an implicit tax on private
lending. This is compounded by a barring of foreign participation in the banking sector. In
addition, regulation diverts capital to state owned banks. Combined with Government
domination of the banking sector -accounting for 65% of lending in 201131 - this crowds out
the private sector. The latter’s share of total credit has dropped from 81% in 2006/7 to 70%
in 2008/932.
Bank capacity is weak. Most of the employees of the commercial banks were trained by the
state owned banks. Significantly, high collateral requirements bar many firms from loans –
95% of loans require collateral of 182% of loan value and inadequate collateral was the chief
reason in 77% of loan rejections33. High collateral requirements affect women especially,
when they may need to obtain their father or husband’s consent for using assets as collateral
for lending34. Moreover, weak credit bureaus and asset registries, exacerbate information
asymmetry and increase the risk of lending to SMEs. Evidence suggests that the lack of
credit information reduces access to credit35 and regulations that enable secured
transactions increase access to finance36.
Negative real interest rates deter saving, thereby impeding lending. It is also more profitable
for the banks to use the funds at their disposal for more attractive (i.e. foreign-exchange
trading) or less risky purposes (i.e. lending to government/large companies) than to SMEs37.
Equity investment is constrained by limited exit opportunities and entrepreneurs’ unfamiliarity
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with it, impeding investor confidence. Without a regulated stock market in which to sell
shares, or regulation which adequately protects investors38, investors lack opportunities to
divest. It is also a relatively untested concept in Ethiopia, causing first-mover disadvantages.
Moreover, investors report that Ethiopian entrepreneurs are reluctant to cede control of their
firms. Meanwhile, many potential investors (such as venture capital funds and the
development finance institutions) operate a minimum investment size which is beyond the
absorption capacity of almost all Ethiopian private sector firms.
Causes (2) – Low productivity / returns on investment: these result from a mixture of
macroeconomic and regulatory issues (macroeconomic instability and, treatment of
SMEs) and market failures (including information failures and monopoly power)
Macroeconomic and regulatory issues – SMEs suffer from macroeconomic instability, and
are harmed by “unfair” competition/treatment of larger firms as well as burdensome
regulation. Key macro problems include high inflation (it stood around 40% in August 2011
though it has been following a downward trend over the last year associated with relatively
tight monetary policy ), volatile exchange rates and unpredictable (sometimes retrospective)
changes in Government policy (e.g. Introduction of price caps in response to inflation). Tax
collection is concentrated on the relatively few formal businesses39 and business registration
processes impose barriers to business creation. Competition risks being distorted by
preferential treatment of larger firms and priority sectors.
Government often prioritises state-owned business, reflected in the public ownership of key
parts of industry, such as Ethiopian Airways and in the creation of new mega corporations in
the areas of sugar and metal. The Government is pursuing a “developmental state” model,
but faces capacity constraints. For example, according to senior members of the investment
agency, intended to help foreign investors overcome regulatory hurdles, there is a struggle to
retain good staff.
Market failures – SMEs’ opportunities are constrained by information asymmetries,
coordination failures and monopoly power impeding spread of good practice. Ethiopia’s
concentrated exports (5 products account for over 75% of exports) signals lack of
exploitation of alternative market opportunities. Export diversification is associated with
higher rates of income40. In horticulture, smallholder farmers have productivity levels half that
of their larger peers, resulting from a lack of knowledge and skills transfer41. This in turn can
lead to inefficient use of key resources, such as water, and misuse of pollutants, such as
agrichemicals. In manufacturing, there are often undiscovered inefficiencies through supply
chains, accompanied by a lack of understanding of the benefits of upgraded technology. The
Enterprise Map of Ethiopia argues that the key to business success lies in management
skills and market knowledge42. Of the 50 largest industrial firms it surveyed across Ethiopia’s
main industries, half started life as traders, identifying commercial opportunities, thereby
overcoming information asymmetries. However, Government concerns about traders
(sometimes described as “rent seekers”) can stifle the ability of such firms to capitalise on
these opportunities.
Coordination failures between businesses restrict constructive cooperation within existing
industries which could drive productivity improvements. In agricultural supply chains,
difficulties in supplying inputs to large numbers of small holders and ensuring quality produce
has led large textile businesses to establish huge cotton farms. There are few out-grower
schemes and contracting out to a range of smaller businesses that can perform specialist
functions more efficiently, is rare. For example, in textiles, little sub-contracting takes place
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by larger businesses for specialist functions such as button making 43. Equivalent problems
exist in the horticulture and leather sectors44 45. The Ethiopian Enterprise Map found that the
key capability of leading firms was an ability to manage all functions in house, which
compromises their competitiveness46.
With many industries dominated by a few, large, formerly state owned producers, new firms
are reluctant to compete in these markets. Where they do form part of industry value chains,
they are price takers. For example, the Enterprise Map notes that in the construction industry
there are few firms capable enough to bid for large contracts 47. Weak competition tends to
reduce output, stifle productivity and raise prices, as shown, for example in the reduction in
telephone call prices in EU countries following liberalization, often by over 50%48.
Causes (3) – inadequate green growth prioritisation
The problems of low productivity, innovation and returns on investment and natural capital
hinder and create disincentives for Ethiopia to harness its environmental advantages,
exacerbating constraints to growth and creating potential future constraints to growth.
Since the Industrial Revolution, economic growth has caused substantial environmental
degradation, underpinned by market failures and inefficient policies. Even today, the world
spends more than $1 trillion a year in subsidizing the inefficient use of natural resources
(from energy to water to agriculture) and, therefore, its depletion 49. This can have strong
negative effects on growth in four key ways, globally and in the Ethiopian context specifically.
First, as noted above, a lack of competition in key Ethiopian sectors such as agriculture,
horticulture, leather and creates few incentives for productivity and resource efficiency. Such
resource inefficiency hinders growth – for example if Ethiopia’s leather industry is to survive
it needs to compete against cheaper Chinese footwear imports50. On current trends, the
costs of raw materials and imports that industry is dependent on in Ethiopia will continue to
rise. If Ethiopia’s firms don’t become efficient they may become uncompetitive and need to
close. In this context, harnessing Ethiopia’s potential for resource efficiency, at the same
time as investing in industries such as horticulture or leather, can be an effective strategy for
realising growth and sustaining it into the future.
Second, and related to the constraint above, there are few incentives for diversification and
innovation. Innovation is a driver of economic growth more widely, as previous industrial
revolutions show51. The channels are related to the direct productivity implications of
innovation and – importantly – to the spillover effects of innovation across different sectors of
the economy. For example, innovations in the management of natural resource use- such as
forestry, agriculture, pastoral activities, and land use can spill over into improved
management of other economic activities. Yet in Ethiopia, Government support for nontraditional but relatively greener sectors, such as poultry (relative to livestock), is not yet
sufficient. There are few SMEs differentiating themselves by trying out eco-friendly
production methods. These problems are exacerbated by a shortage of skilled labour. In this
context, harnessing Ethiopia’s potential for diversification and innovation by encouraging
SMEs to try out new technologies or encouraging new (women) entrepreneurs can be an
effective strategy for realising growth and sustaining it into the future.
Third, general low-returns on private investments as well as government policy mean that
green investments – such as solar-technology or low-waste/water technologies – are deprioritised by firms, because they often require payback over many years. Inadequate
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capital availability exacerbates this, as does a lack of clarity on where the electricity grid will
be expanded to next, or information such as the location of renewable opportunities52.
Economically viable opportunities are often foregone. This lack of investment in green
options has a strong impact on growth in the private sector. Power outages resulting from
the 2009/10 electricity shortfall in Ethiopia led to an estimated GDP loss of 1.5 per cent53. In
this context, harnessing Ethiopia’s potential for green investments by firms by correcting
these market failures / regulatory issues5 and reducing barriers to access to finance can be
an effective strategy for realising growth and sustaining it into the future.
Fourth, environmental degradation can be costly for growth and poverty. On average,
environmental degradation costs the world about 8% of GDP a year 54. This can translate
directly into exacerbated poverty, as the poor depend directly on natural resources for their
livelihoods. In Ethiopia, it was estimated that the amount of grain lost to land degradation
(often due to poor environmental management) alone could feed more than 4 million
people55. Environmental pollution problems that are associated with manufacturing are
intensifying, especially tanneries (leather/footwear), creating costs of clean up and a poor
public profile for these industries. Yet there are techniques and technologies available that
can avoid these problems, and thus help protect and stimulate growth. For example, a better
managed agricultural sector in Ethiopia (e.g. through reduced fertiliser/pesticide inputs,
improved irrigation) could allow more frequent harvests or retain more water in the terrain. In
this context, increasing Ethiopia’s natural capital can be an effective strategy for realising
growth and sustaining it into the future.
In these four ways – improving resource productivity, stimulating innovation, removing
market failures / regulatory issues and increasing natural resources/capital – greening
Ethiopia offers win-win opportunities for growth. It should be noted that these will not
necessarily offer equal opportunities however – it may be harder to increase natural capital
than improve resource productivity. It will be important to understand these trends. The M&E
framework will be designed to capture these lessons.
Argument for DFID intervening and consequences of not doing so
Economically, the factors above suggest that DFID assistance that tackles some of these
would support faster economic growth. Limited Government resources (direct support to
businesses is around £20m p/a) and limited levels of donor private-sector development
(PSD) expenditure (estimated at around £40m p/a, only 3% of total donor support) suggest
such problems will not be addressed in the absence of DFID intervention.
This is coupled with analysis which suggests that such intervention has the potential to
succeed in Ethiopia. This assessment makes most sense at the sector level; analysis of
Ethiopia’s potential in sectors of particular relevance to this programme is set out at Annex
C. Additionally, looking across the economy as a whole, there are significant indicators that
Ethiopia has potential for pro-poor growth, via job-creation and raised incomes:

Demand – Ethiopia is the 2nd largest country in Africa by population, with a fast
growing economy. It also has ready access to large global markets, for example
under EU and US free trade agreements aimed at least developed countries,
5
Note that this program will not favour investment in the energy sector specifically over investment in
industrial sectors or transport systems for example. This is because there are many other donor
schemes (including DFID funded schemes) around energy access. However, the evidence above is
provided as an illustration of the relationship between green investment and growth.
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consequently, it has significant and growing demand. This is reflected in the World
Economic Forum’s Global Competitiveness Report’s ranking Ethiopia 79 th in the world
for market size (relative to its overall ranking of 119th).
 Productivity – The World Bank finds in its report “Light manufacturing in Africa” that
Ethiopian labour productivity in some well-managed firms can approach levels in
China and Vietnam, while its wages are only a quarter of China’s and a half of
Vietnam’s56. This is starting to attract significant investment to Ethiopia, for example
in the recent commencement of a $2bn investment in Ethiopia by Chinese shoe
manufacturer Huajian
 Employment potential (especially female) – although currently under-represented in
the labour market (especially formal), the potential for rises in jobs for women is
indicated by the growth of industries with high female employment levels. For
example, the horticulture sector, which only took off in Ethiopia from 2005, now
employs 50,000 people, of whom 80-85% are female. Ethiopia’s potential for further
growth is suggested by other countries, many of whom Ethiopia is starting to catch up
in terms of competitiveness; Kenya for example employs 200,000 in horticulture, while
ranking only slightly higher (106th) than Ethiopia in the WEF’s analysis (above).
Active government support for private sector growth in this area suggests the potential
for positive change
Socially, DFID assistance would help redress economic inequalities felt by women. Doing so
is likely to improve economic efficiency (see below). Gender objectives are more firmly
embedded in PEPE than in other donor PSD programmes.
Environmentally, DFID assistance will help support green-growth. The programme aims to
help shift Ethiopia onto a lower-carbon and resource-efficient trajectory, contributing to its
economic growth and sustaining that growth into the long-term.. Green-growth objectives are
also more firmly embedded in PEPE than most other donor PSD programmes.
Analysis suggests that there is the potential for such an approach to succeed in Ethiopia.
Government led “Climate Resilient Green Economy” analysis identified a large number of
initiatives whose economic costs are more than met by the resulting resource efficiency
savings. Consequently, capital availability and opportunity awareness are likely to be the
main barriers to such investments; these are both issues which PEPE will help address. 6
Politically, PEPE aligns with the Ethiopian Government’s economic growth focus and the
thrust of its private sector policy. DFID has a close working relationship with GoE in private
sector issues, developed through bilateral support as well as the International Growth
Centre. Government policy is not always fully aligned with private sector interests, leading
some other donors to withdraw from private sector support. However, this increases the risk
that the private sector is further hampered and places greater importance on PEPE which
aims to support private sector activity in areas where our analysis of requirements aligns with
Government objectives.
Intervention suitability
PEPE’s design draws on the experience in Ethiopia of other donors active in private sector
development and reflects significant stakeholder engagement. PEPE is intended to support
the private sector directly; it will work in cooperation with the parallel DFID Land Investment
6
It is recognised that there are potential trade-offs between differing objectives, such as green-growth
and employment. These will be explored fully during the inception phase of PEPE. The more refined
package of interventions developed by the TSP will draw on a clear analysis of where these tensions /
trade-offs fall and how they will be managed.
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for Transformation (LIFT) programme, which addresses another binding constraint to private
sector growth, access to secure land tenure. PEPE adopts a portfolio approach, meaning
pursuing several interventions simultaneously.
Engagement with the private sector is a new, complex, area of work for DFID in Ethiopia. We
have a good understanding of what should work, drawn from international experience and
local market research, but not with certainty, what will work. Like the private sector itself, our
engagement is certain to have its own successes and failures. A portfolio approach will
spread DFID’s risk, and coupled with on-going monitoring and evaluation (M&E) allow PEPE
to respond to what is shown to work and cease doing what does not. It will also enable any
issues presented by Government policy changes to be managed.
Why we are working with partners and fit of PEPE with their plans
 Working through others is key to diversifying our portfolio, as well as delivering results
quickly through established programmes.
 World Bank – under the Women’s Enterprise Development Programme (WEDP), DFID
support to the micro finance sector complements their planned provision of credit lines.
This uses DFID’s smaller, grant contribution to leverage the world banks’, larger loan
resources to mutual advantage. Under the Ethiopian Competitiveness Fund, DFID
support will sustain a programme previously funded by the World Bank which would
otherwise close due to a funding gap. DFID is contributing grant resources to the design
of the World Bank’s new Ethiopian financial and private sector programme, thereby
facilitating its introduction, and enabling DFID to influence it (e.g. to include green growth
objectives).
 Development Finance Institutions (DFIs) and other donors (possibly including CDC, IFC,
KfW, EIB) – DFID financial interventions would use grant resources to leverage larger
loan and equity investment capacity from DFIs.
 Other donors – Careful consideration has been given to PEPE’s support for and fit with
other donors’ interventions. Details are set out in the appraisal case, including those
which we appraise as not offering a return on DFID’s investment. As other major PSD
donors (USAID, GIZ, World Bank, IFC) are currently re-designing their PSD programmes,
this is an opportune moment to align with and influence them.
Fit with UK strategic priorities
 This programme supports DFID objectives relating to the private sector, wealth creation,
gender and the environment. PEPE will: deliver private sector objectives set out in DFID
Ethiopia’s Operation Plan’s wealth creation pillar; contribute to DFID’s Business Plan
objective of “developing new projects in …microfinance and small and medium-sized
enterprise finance, and investment climate improvement”; contribute to the millennium
development goal objective of eradicating extreme poverty and hunger.
 PEPE is carefully aligned with DFID-E’s other forthcoming PSD programme Government
for Growth (G4G), which will looks to tackle issues of land security, another binding
constraint to private sector growth.
 In regard of gender objectives, PEPE will contribute to: the DFID Business Plan objective
to “promote economic empowerment of girls and women through jobs and access to
financial services”; the DFID Ethiopia operational plan objective of “putting girls and
women front and centre of all we do. Across the programme we will work to build assets,
[and] create economic opportunities”; and the aim set out in the DFID Strategic Vision for
Girls and Women to “get economic assets directly to girls and women”
 In regard of environmental objectives, PEPE will: contribute to the DFID Business Plan
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

objective to “Support developing countries’ climate adaptation and low-carbon growth”;
and to the DFID Ethiopia operational plan objective of facilitating “low-carbon growth
opportunities presented by climate change” and “building tools and skills across … the
private sector … to adapt to future climate change, and benefit from opportunities for low
carbon growth”
By driving economic growth PEPE, will support other DFID Ethiopia programmes, for
example by: providing economic opportunities to increase the returns to education;
reducing the need for large increases in social protection; helping to maintain peace;
raising incentives to defer early child-birth and marriage; and reducing dependency on
aid for the funding of basic services and social protection.
PEPE will complement two other DFID funded programmes in particular. First, a
programme focused on supporting access to secure land tenure (LIFT - still under
design). Second, the Climate Innovation Centre (CIC). CIC aims to provide a range of
business incubation services (e.g. seed funding and proof of concept) for small
enterprises specialising in low carbon activities. PEPE’s green focus will complement
CIC.
Fit with Ethiopian Government Priorities
 Economic objectives – Government has bold ambitions for economic growth in its Growth
and Transformation Plan (GTP) – its five year poverty reduction strategy. It plans to
achieve middle income status in 15 years, attain GDP annual growth rates averaging
11%-15%, delivering three million jobs in the SME sector and over 40,000 formal jobs in
the manufacturing sector57. The government’s plans highlight the same weaknesses
identified in this Business Case with regards to private sector development. Government
are seeking donor support to provide innovation and funding. Moreover despite its
“developmental state” model, the level of priority the Government attaches to this agenda
creates a strong opportunity for DFID to support its development and inform its approach.
 Gender objectives – Promoting gender and youth empowerment is one of the seven GTP
strategic pillars, which targets increasing growth of female owned firmed, training of
women in management and entrepreneurship, and increasing the number of women
beneficiaries of credit and savings58.
 Green objectives – The Ethiopian Government places a high priority on the green growth
agenda. Ethiopia leads coordination of the African position at the UN. Domestically, it
has developed a Climate Resilient Green Economy strategy. The Government has also
committed in certain key sectors (especially agriculture, forestry, energy, and
industry/construction) and to a transformative growth strategy which focuses on lowcarbon and resource-efficient technologies.
B. Impact and Outcome that we expect to achieve
The results expected of PEPE are:
 By 2018/19, to leverage the creation of 41,400 jobs, with 31,100 jobs attributable to
DFID (By 2014/15, to leverage the creation of 10,300 jobs, with 7,750 jobs attributable
to DFID ), of which 75% will be for women
 By 2018/19, raise the incomes of 42,000 households (6,000 by 2014/15) by at least
20% (100% attributable to DFID)
 By 2018/19, to leverage the creation of 350,000 new micro-savers, with 56,450
attributable to DFID (By 2014/15, to leverage 40,000, with 6,450 attributable to DFID)
12
The primary focus of PEPE is the generation of jobs, especially formal ones, which are most
prized for their security and better remuneration. In the Ethiopian context, we have been
conservative in our estimates of what can be achieved in the private sector.
Other results appear low compared to other similar programmes since:
 Incomes raised – have been calculated using a conservative approach to estimating
impact; with the primary focus of the programme being on job-creation, the income
benefits have not been factored into the household number to avoid perceptions of
double-counting.
 financial beneficiaries – are firms rather than individuals, which have much higher
finance requirements.
13
Appraisal Case
A. What are the feasible options that address the need set out in the Strategic case?
A.1 Theory of change
Having identified binding constraints to growth, options were generated to address these,
reflected a theory of change.
These are set out in the diagram overleaf.
14
Theory of Change
Assumption: a focus on
growth-oriented SMEs
will better support
growth and job creation
/ income increases
SMEs lack access to
finance
Assumption: donor support (e.g.
grants) can facilitate greater
financial activity and supporting
productivity improvements
Market failures cause low
productivity /
competitiveness which
reduces returns to
investment and incentives
for resource-efficient
business models
Government failures
contribute to a high risk
business environment
Assumption: a focus on
women will support
growth and job creation /
income increases
Assumption: GoE policy
permits private sector growth;
GoE is open to financial
sector donor activity and
regulatory improvements
Microfinance, banking,
equity / quasi-equity:
 DFID (and MDF)
innovation grants
 3rd party credit lines
for on-lending /
equity investment
 research and
evaluation carried
out
Example: grant to MFI
supports product
development (loan and
saving) and internal
capacity increases
Assumption: increased
finance supports
increased investment
and job creation
Assumption: investment
increases with returns on
it and leads to growth, job
creation and increased
incomes
New savings, lending and
equity-type finance
products which result in
Increased MFI and bank
saving and lending and
equity investment ;
informed and targeted by
research and evaluation
lesson-learning
Example: new loan/saving
products developed and
effectively implemented,
generating saving for MFI
(enabling more lending)
and targeted loan to firms
Increased SME
investment
Lesson learning from
research and evaluation
available to inform other
programmes
Example: new loan to
firms enables growth via
investment; feeds through
to productivity increases
by creating incentives
(improvements now
rewarded with investment
and growth)
Investment
Priority Industries
DFID innovation support
(e.g. grants) for:
 Policy and
institutional
improvement
(supported by the
MDF)
 Innovation
 Business services
 Resource-efficiency
improvements
innovation supported by
research and evaluation
Assumption: additional
investment generated will
be put to productive use
Assumption: jobs created
will be sustainable



jobs created
Incomes
increased
Growth and jobs
decoupled from
negative
environmental
effects
Lessons learned
by other
programmes
Productivity increases due to:
Increased investment and
 Increased links between
returns on investment
SMEs and large business
 improved management

Lesson learning from
 introduction of innovative
research and evaluation
business models
available to inform other
 improved regulation
programmes
 resource-efficiency
Assumption: a green-growth
improvements
focus is compatible with job
research and evaluation
creation / income increases
outputs produced
Assumption: GoE policy
Assumption: economic
permits private sector growth;
improvements (Eg
GoE is open to sectorproductivity) yield benefits
specific regulatory
for poor in value chains
improvements
15gender and green-growth focus
Cross-cutting:
A.2 Assumption assessment
1. Evidence linking investment to growth / job creation / increased house-hold income:
Evidence that private investment is a driver of growth: a cross-country sample of 24
developing countries concluded that public investment has a negligible effect on growth while
private investment has a significantly positive effect59. Calamitsis, Basu and Ghura (1999)
found that the ratio of private investment to GDP was significant and positive in explaining real
GDP growth in Sub-Saharan Africa60. Devarajan, Easterly and Pack (2001)61 find that private
investment has a significant impact on growth rates in a sample of countries across Africa.
The DFID PSD Strategy62 shows that a higher share of private investment in total investment is
correlated with faster growth (figure 1, Annex G). This was supported by the findings of the G20
Inter- Agency Working Group, shown in the analysis at Annex G, figure 263
However, the relationship between investment levels and job creation is not straightforward,
and is affected by factors such as the intensity of capital in the economy, productivity levels,
and labour costs64. The ratio of private credit to GDP, a key driver of investment, has been
shown by Beck et al to be a causal factor in growth and poverty reduction65. It is estimated by
the World Bank that a doubling of the measure is associated with a 2% increase in the rate of
GDP growth66. Honohan shows that a 10 percentage-point increase in the ratio of private credit
to GDP could lead to a 2.5–3.0 percentage-point reduction in poverty incidence67. A study by
the Small Industries Development Bank of India (SIDBI), which tracked the outcomes of
borrowers over time, found 69% increases in income for 75% of clients compared to 31% in the
control group68.
In the Ethiopian context, investment’s link with growth and job-creation / household income
increases, will depend in part upon demand for finance and the availability of productive
opportunities for investment. Constraints in availability of finance, identified in the strategic
case, suggest the presence of demand. 41% of firms consulted in the World Bank’s Enterprise
Survey identified access to finance as a major obstacle69. The availability of currently unfunded productive opportunities is further suggested by: the extent of market failures /
regulatory issues impeding the financial sector, particularly in creating liquidity constraints
(detailed in the strategic case); in spite of this, the momentum in the private sector to open up
new avenues for finance (around 10 new banks are seeking a licence to operate and the first
sizeable Ethiopia-specific equity investment fund has recently launched); the high level of
public-investment being undertaken by the Government, creating business opportunities, but
simultaneously crowding business out from obtaining the finance required to exploit them.
Positive results generated in other countries from programmes stimulating finance in markets
where it represented a binding constraint, further suggest potential in Ethiopia. In Morocco,
donor-stimulated micro-credit provision resulted in firms turnover increasing by 42% over 2
years70. In China, returns to capital have remained consistently high over a number of decades
despite maintaining exceptionally high rates of capital investment71.
Evidence that growth drives job creation / income increases: a G-20 Inter-Agency Working
Group found 48 developing countries over three episodes, the level of private investment,
growth and job creation were highly correlated72. However, there are concerns about the
emergence of “jobless growth”, especially in Africa73.
16
While this analysis supports an approach aimed at encouraging investment and economic
growth generally, it also flags the need to target industries and sectors with the ability to
generate high value added with high labour intensity74.
2. Evidence that a focus on SMEs (especially growth-oriented ones) will support growth and
job creation / income increases:
Beck et al show that a higher share of SME output is associated with higher levels of per capita
growth worldwide75. World Bank analysis of cross-country data concluded that small firms have
the largest share in job creation and have higher job creation rates than large firms 76. The
same analysis showed that larger and younger firms tend to have higher productivity growth
rates than smaller and older ones (but where that productivity growth does not translate as well
to job creation). Scholar shows there is a distinction between survival businesses, made up of
people who are driven to self-employment by a lack of jobs and growth oriented or
transformational enterprises (of the type PEPE will focus on) which are responsible for driving
growth and creating jobs77.
In the Ethiopian context, where credit is more readily accessed by larger firms (evidenced by
Central Bank of Ethiopia (CBE) lending figures above), support to the smaller, more credit
constrained firms, is likely to unlock growth. Small enterprises are the main employers in
Ethiopia, especially for women, accounting for 94% of total employment in the manufacturing
sector78, and 71% of urban employment79. By contrast medium and large sized firms produce
73% of the gross value of production80, but absorb a very small share of the annual increase in
the Ethiopian workforce. The Government’s support for growth through MSMEs in particular,
emphasises the political economy case for focus in this area.
Together, this analysis supports PEPE’s focus on growth-oriented SMEs for job creation and
political economy reasons. However, it suggests the need for PEPE to retain the flexibility to
work with larger firms where this is necessary to achieving the programme’s goals, is genuinely
additional and avoids inappropriately undermining competition.
3. Evidence that a focus on women will support growth and job creation / income increases
The World Bank estimate that gender inequality in education and employment has reduced
sub-Saharan Africa’s per capita growth from 1960 to 1992 by 0.8 per cent per year81. The
OECD show that women’s empowerment, specifically as entrepreneurs with access to growth
markets, is a major contributor to pro-poor growth within a nation’s economy82. Goldman Sachs
analysis of a mix of emerging and developing economies (such as Bangladesh and Nigeria)
show that closing the gender gap in employment could push per capita incomes 14 per cent
higher than current projections by 2020 and 20 per cent higher by 203083. Using data from Latin
America and the Caribbean, Tzannatos (1999)84 shows that the elimination of gender bias
within industries would result in an increase in women’s wages by up to 96% and that output
would rise by between 2% and 9% of GDP85 due mainly to increased women’s participation in
the workforce.
In Ethiopia a World Bank survey showed that growth oriented women entrepreneurs had used
micro-finance to double employment over a period of two years, despite generally receiving
loans of lower size than required. The average loan ($5,647) created 3.6 jobs86. This is
consistent with further World Bank research identifying female entrepreneurs as having a
17
strong potential to deliver jobs, if assisted in the crucial areas of access to finance and business
development services (BDS)87, as well as International Labour Organisation (ILO) research
showing that larger businesses owned by women employed a larger workforce and grew faster
than male owned enterprises88. Additionally an ILO study of young male and female
entrepreneurs in Addis Ababa found women to be more entrepreneurial than their male
counterparts89. As Ethiopia increasingly makes progress on gender equality in education,
inequality in employment opportunities will become a significant drag on growth 90. Equally,
economic growth can have a positive effect on gender equality in education by increasing the
incentives and opportunities for educating girls, delaying marriage and reducing earlypregnancy91.
In relation to the programme, realising the benefits of supporting women will be achieved by
appropriate selection of sectors which have large numbers of women operating in them (or
potentially doing so), and ensuring cross-cutting support (particularly finance) is designed to
target them especially.
4. Evidence that green (low-carbon and resource efficient) growth is compatible with job
creation / income increases:
Evidence shows that economic growth no longer needs to entail dependency on natural
resources and carbon production – growth is plausible and can even be increased by avoiding
such dependency.. The United Nations Environment Programme (UNEP) found that globally,
“even with conservative assumptions, a green investment scenario achieves higher annual
growth rates within 5-10 years and an increase in renewable resource stocks that contribute to
global wealth” compared to a business as usual investment scenario92. Separate UNEP
research indicates that far more green jobs will be created in the move toward a sustainable
economy than jobs lost93.
At the same time, evidence is also building that developing countries are actively seeking such
“green” growth pathways because they offer direct benefits that they value. Uganda increased
its exports of organically farmed products from US $4m in 2003/4 to $23m in 2007/8, while
achieving a 36% reduction in greenhouse gas emissions per hectare94. China has grown its
environmental goods and services sector to stimulate innovation and capture new markets –
the value of the sector in China is estimated at £411bn, capturing 13.5% of the global market 7.
Countries facing rapid urbanisation are weighing up how to green their cities to be able to cope
with rising demand for transport, shelter and other resources. Over 40% of global greenhouse
gas emissions are influenced by long-lived infrastructure (buildings, energy supply etc). Such
infrastructure can lock-in behavioural choices, making it more costly and difficult to shift
investment over time. For example, investing in roads makes cars more competitive relative to
rail, increasing incentives for investment in cars, thereby increasing demand for oil95. Countries
such as Ethiopia, which have made relatively little investment in infrastructure to date, are less
fixed on a high-carbon trajectory compared to more developed countries96. They have the
greatest opportunity for, but also need for green growth. Countries no longer have the luxury of
trading off short-term growth with long-term environmental management8. It is now a case of
considering environmental issues directly – otherwise countries will be locked-into costly
pathways, which themselves could exacerbate poverty (or, at least, the means to address
poverty).
7
8
www.bis.gov.uk/files/file50254.pdf
Report on Inclusive Green Growth, World Bank, 2012
18
Analysis from the Ethiopian Government’s Climate Resilient Green Economy (2011) paper
shows that Ethiopia has a number of green growth opportunities, some of which have been
outlined in earlier sections. For example, Ethiopia can increase agricultural output through
improved farm productivity rather than area of land cultivated by use of resource efficient
approaches. Together, these measures could achieve emissions reductions equal to 50% of its
total current level, versus a business as usual approach. Ethiopia can also grow its
industrial/construction sector whilst simultaneously making emissions reductions equal to 20%
of its total current level. This can be achieved by investing in technologies with lower capital
costs than the efficiency savings they generate.
These considerations around Ethiopia’s potential for green growth have been incorporated
explicitly into the design of this programme, in particular through selection of key sectors to
focus on and approaches to grow the private sector.
5. Evidence that economic improvements (eg productivity gains) yield benefits for poor in value
chains which are sustainable
Evidence on the relationship between economic improvements, such as increases in sectoral
productivity, and social benefits (particularly increased employment and incomes) are mixed.
The poor are likely to participate in value chains as providers of labour inputs, where
employees, or other product inputs, as entrepreneurs. Theoretically, as productivity rises across
the value chain, and demand for output increases, we would expect at least some of the
resulting gains to fall to the poor as suppliers of such inputs.
In an examination of cross-country evidence, Bernhardt and Milberg found that social
improvements are almost always accompanied by economic improvements, but economic
improvements are not always accompanied by social improvements. They did find however,
that the textile and horticulture sectors both found a positive correlation between social and
economic improvements97. Lee et al find that economic improvements may not lead to social
ones, especially for vulnerable groups such as women, and that issues like freedom of
association can be negatively affected.
Regarding sustainability of results, the evidence available is incomplete. A USAID study on the
impact of its programmes which aim at job creation in transition economies shows mixed
results: in some countries, firms supported continued to experience greater employment growth
rates even 2 years after the programme closed. However, this analysis flagged a deficiency
common to many such analyses, that the duration of jobs created was not measured in the
programmes98. There are significant deficiencies in the availability of robust data on the impact
of donor activities on jobs, revealed by an IFC literature review on the subject99. A DFID “How
to Note” on defining what a job is for the purposes of measurement does not even include job
duration as an essential measure100.
6. The Government of Ethiopia will permit private led growth: Political economy of the
private sector in Ethiopia and PEPE’s approach to engaging Government
Government’s stance towards the private sector and underlying ideology
Overall stance – The GoE encourages private sector economic development, while continuing
19
to emphasise the importance of state-led investment and enterprise. Consequently, some
sectors are closed to foreign and even domestic investors while the private sector is crowded
out (particularly through financial policy). Land, a key factor of production, remains state owned
(although generally is made widely available for investors in priority areas and Government is
taking steps to make land rental entitlements more transparent, a process DFID plans to
support via a separate wealth creation programme, articulated at Annex J). There are
accusations from some that the playing-field is tilted in favour of state owned enterprises (eg.
Ethiopian Airways) which benefit from preferential treatment, eg. in land and finance. Investor
confidence is buoyed by a largely stable macro-economy, but undermined by occasional adhoc anti-free market measures, such as price-caps in the face of inflation, or placing of lendingcaps on banks. Nonetheless, ranked 111th in the World Bank Doing Business ratings, Ethiopia
compares favourably to others like Tanzania (127th) and remains a relatively attractive place to
do business given its growth levels.
Policy development and interests
Strategic focus – GoE’s early focus on agricultural-led growth reflected the origins of its power
among farmers who supported it during its revolutionary phase. More recently focus has
broadened to other sectors, albeit that these are largely agriculturally related, eg agroprocessing and textiles. GoE provides incentives (eg finance and tax breaks) for investors in
priority sectors.
Policy development - Ethiopia has a federal system of Government, with power decentralised
through Regions and local administrative units.
Policy implementation – GoE is generally relatively efficient and transparent, compared to its
African peers, but requires strengthening to achieve the quality of administration which many
east-Asian states benefited from in effectively executing developmental state growth models.
PEPE’s approach – objectives and means for engaging government
The approach set out in PEPE is designed to go with the grain of Government’s objectives and
priorities for achieving equitable development. Priority sectors are in line with the
Government’s priorities. Access to finance has been targeted since it is key to enabling these
and other sectors to grow.
Substantial progress can be made in promoting economic development through direct
engagement purely with the private sector, within the parameters of the existing investment
climate. However, to take progress further, DFID will also need to work with the Government to
identify and resolve the investment climate issues which impede growth. With regard to the
priority sectors, GoE is likely to be willing and able to support changes to the investment climate
provided it is specific to those industries. Where issues are economy-wide, resolving them may
be more difficult, both since doing so may conflict with wider Government policy or simply
because it is more difficult to achieve.
DFID will also need to work with the Government on access to finance issues to find ways of
facilitating the planned investment in ways consistent with GoE’s policy objectives. It may be
that GoE is less receptive to reforming the sector so as to free up finance for private firms,
given its own investment plans. However, it is more likely to be accommodating enabling donor
support to unlock additional finance for the economy, which would otherwise not be channelled
into the economy.
20
To secure Government buy-in and ownership, GoE has been regularly consulted in the design
of PEPE and its views reflected. During implementation, we will seek the participation of
relevant GoE officials in governance as a member of advisory councils. DFID will also seek to
involve business representative groups, such as the chambers of commerce, in these councils.
Additionally, where appropriate, we will support their wider advocacy work, both to strengthen
the case for change and to support them in becoming stronger interlocutors. We will also
continue engagement at ministerial level to maintain high-level buy-in and support.
A.3 Option Generation
Access to finance
The options developed were framed by the following five strategic considerations:
1. Scale of enterprises to support – to focus on SMEs (to the exclusion of large firms), given
their greater levels of employment generation and the greater market failures they face in
accessing finance.
2. Type of finance to provide – to help fill the “missing middle” of lending both by up-scaling
microfinance and down-scaling bank lending. This approach is more likely to succeed given
that MFIs and banks are more likely to extend their credit-range incrementally. This would
be supplemented by provision of equity-type finance to meet the needs of viable firms for
whom debt finance is unsuitable. A broad range of finance (including variable interest rates)
will also assist in meeting green growth objectives, as green growth interventions and
related market/governance failures differ considerably across sectors.
3. Approach to take:
i. Microfinance – to help address “internal” problems (survivalist-business focus, low
outreach and product development, weak staff capacity and IT systems, inadequate
savings focus, inadequate innovation and resource efficiency), via direct support to the
MFIs; to help address problems arising from “external” issues (“developmental state”
orientation and lack of sector policy– including for green investment) via Government
engagement to support policy development
ii. Banking – to help address “internal” problems (weak human capacity, especially for riskbased lending and new product development), via direct support to the banks; to help
address “external” problems (restrictive regulation, leading to crowding-out, and
collateral constraints (which affects green investment), Government domination of the
banking system and weak financial infrastructure) via Government engagement to
support policy development
iii. Equity-type finance – to test appetite for addressing “internal” problems (untested market
and market unfamiliarity with equity), via direct support to encourage market entry; to
help address “external” problems (limited exit strategy) via Government engagement to
support policy development
4. Managing liquidity constraints – interventions aimed at increasing financial provision in
Ethiopia must deal with liquidity constraints. In the medium or long term, support to
increasing saving levels can help address this. In the meantime, support to improve MFIs’
and banks’ “internal” problems, need to be accompanied by provision of a credit line.
Without this, improved products and systems will not be deployed, for lack of finance. DFID
could either partner with a development finance institution (DFIs) willing to provide this
liquidity or do so itself. The former is preferable since DFID’s systems and expertise are not
as well geared to provision of loans, whereas this is part of DFIs' core business.
5. Tool choice – to develop a portfolio, spreading risk across both current interventions DFID
21
could scale up, enabling quick delivery of results, as well as new interventions if suitable
existing ones are not available and/or do not address cross-cutting issues sufficiently.
Priority Industries
The options developed were framed by the following two strategic considerations:
1. Level of engagement – to tackle problems principally at the meso-level (that is the sector
level, eg the horticulture sector), rather than the micro (individual firm) or macro level
(economy wide). Economically, the meso-level a) provides a sufficiently narrow focus to
enable problems to be appropriately assessed and addressed, and b) reflects the fact that
similar types of firm face similar types of problem, so intervention will deliver wider benefits
than if pitched at the micro-level9.Politically, it reflects the reality that a) it is generally easier
to demonstrate results and the need for change at a sector rather than a macro-level, where
problems are more tangible, b) Governments are generally more receptive to specific,
sector-focused proposals, being more achievable and perceived as less critical (since more
focused), than calls for wide ranging policy development, c) the Ethiopian Government will
be more receptive to support aimed at helping it achieve growth in the sectors it has
prioritised in the GTP and Climate Resilient Green Economy (CRGE) strategy.
2. Tool choice – to develop a portfolio, spreading risk across both current interventions DFID
could scale up, enabling quick delivery of results, as well as new interventions if suitable
existing ones are not available and/or do not address cross-cutting issues sufficiently.
Intervention Mix
Complementarities exist between the two types of proposed interventions. Sector growth is
only feasible through additional investment while such investment will only be provided if
productivity improvements increase returns. This suggests the importance of PEPE supporting
both types of intervention.
A.4 Summary of Options
Based on the strategic considerations identified above, the following specific programme
options were identified and considered. These are described more fully subsequently.
Programme Options Considered
Pillar 1 - United Nations Capital Development Fund (UNCDF) / ILO
Access
to micro-insurance capacity building and product development
finance
WB Women’s economic development programme microfinance
Microfinance – new DFID-led intervention
Bank and equity-type finance – new DFID-led intervention
Pillar 2 - SNV - Business Organisations and their Access to markets
Priority
GIZ - Engineering Capacity Building Programme
Industries
World Bank - Ethiopia Competitiveness Fund
9
In some cases interventions will channel support to individual firms but this is a) guided by the fact
that they are part of a targeted sector, b) aimed at generating spillover benefits for the sector as a
whole. Consequently, it is distinct from an approach framed at the micro-level, which might support
firms in a range of different sectors, and without consideration for sectoral implications.
22
Making Markets Work for the Poor programme - textile /
garments (new DFID-led intervention)
Making Markets Work for the Poor programme –
horticulture (new DFID-led intervention)
Making Markets Work for the Poor programme - livestock /
leather (new DFID-led intervention)
Pillar 3 - Overall programme design and management
Flexible
Multi-Donor Fund
Programme Research and independent M&E
Management
Note – some figures are indicative given uncertainties described more fully later
Access to finance
Micro-finance
The only existing donor programme identified as an option for DFID investment was a UNCDF /
ILO programme aimed at supporting micro-insurance providers. A request for £0.4m was
received to support capacity building and product development. This option was rejected due
to a) lack of evidence of impact, b) its small size, and a desire to avoid DFID support for a
proliferation of small programmes, given transaction costs101.
Given this, remaining options are to support new programmes or ones under-development:
1) contribute funding to the World Bank’s planned £42m Women Entrepreneurship
Development Programme (WEDP), which includes a significant microfinance component,
alongside skills, technology and product development components. DFID would contribute
to the microfinance components. Funding (£2-3m) has been requested for technical
assistance to support evaluation and ensure MFIs supported from the WEDP’s £27 million
credit line have the capacity to on-lend effectively to growth oriented, women-owned MSEs.
This would support improvements within 6 MFIs and creation of the project implementation
unit in the Development Bank of Ethiopia, housing the programme.
2) A new DFID-led micro-finance intervention package, to include:
a) Direct support to MFIs to enable them to i) increase outreach and develop new
products (saving and lending) to help MFIs overcome the barriers created by the lowinterest, statist environment, and ii) replace paper-based management information
systems with automated ones, to increase MFI capacity, especially to handle more
clients. This would enable MFIs to a) support greater lending, particularly to growth
oriented MSEs, and b) support greater saving (possibly in collaboration with a Bill &
Melinda Gates Foundation branchless banking initiative) increasing financial inclusion
and thereby increasing funds available for lending and MFI self-sustainability. This
support could be provided through use of a challenge fund catalysing innovation by
MFIs, leaving it to them to provide the majority of funds (an anticipated £30m) needed
and to manage implementation. Green growth would be promoted through, for
example, creating a new product line for “green business”102, see below.
b) Seek to support development of government microfinance policy and strengthen
regulatory capacity (see M4P section below), in particular through funding the
development of an agreed, sector wide policy (currently lacking) to address problems
arising from the current uncoordinated approach; likely to be undertaken in conjunction
with the key industry body, the Association of Ethiopian Microfinance Institutions
(AEMFI).
23
c) Demand side support to better enable customers to obtain skills in financial literacy
and business skills, and to support local providers of such services through business
development services (costs to be borne out of “direct support to MFIs” line).
d) Management, communication and M&E costs
Banking and Equity-type finance
No suitable existing donor programmes were identified for potential DFID support.
Consequently, the options are to create new programmes:
1. facilitate direct support to banks to encourage commercial banks to a) develop new
savings products to increase their liquidity and meet customer demand; and b) establish
units specialising in lending to SMEs with appropriate systems and skills. Two banks could
be supported. Alongside this, PEPE would negotiate provision of a £40m credit line by a DFI
(CDC, IFC, and EIB have expressed interest) to support SME lending – a sum sufficient to
make it worth the banks implementing the SME units. DFID tools for support will depend in
part on negotiations with DFIs, but could include DFID management of a challenge fund, or
support to the DFI via first loss guarantees or exchange rate risk hedging (since to operate
in Ethiopia the DFI would need to lend in local currency). Demand side measures, as for the
MFI instrument, would also be considered.
2. establish a SME finance facility for equity-type10 finance to cater for the needs of firms
unsuited to debt. This would potentially include seed capital to incubate SME Private Equity
funds. DFID could seek to negotiate provision of a £10m - £15m facility (which represents
minimum efficient scale) by a DFI (EIB and CDC expressed some interest). DFID could
contribute to costs of fund management and potentially subsidise the facility through first
loss.
3. seek to support development of government banking policy and strengthen
regulatory capacity (see M4P section below).
Details of the micro-finance and banking/equity interventions would be further refined during an
inception phase. This would: further test market demand, both among firms (e.g. for equity
finance) and banks to create SME units (building on provisional expressions of interest);
confirm DFI interest (again, building on provisional expressions of interest, e.g. from IFC and
EIB) and negotiate terms; finalise instrument design, including structures and procedures. The
equity-type finance instrument is the more innovative and untested; if it does not proceed,
resources earmarked for it could be rolled into an expanded banking support or dropped
altogether.
General
Options for explicitly linking access to finance to the sectors supported by DFID under priority
sector interventions will be explored during an inception period. Even if this link is not drawn
explicitly, these sectors are likely to benefit from investment resulting from DFID access to
finance interventions, given those sectors’ economic potential. Consequently, analysis set out
at Annex C, which describes the impact of DFID intervention in priority sectors, provides a
broad indication of the context into which DFID-stimulated investment will fall.
Cross-cutting themes
In the DFID-led access to finance programmes, cross-cutting themes would be promoted as
follows:
This includes the possibility of “quasi-equity”, a category of debt taken on by a company that has some traits of
equity, such as having flexible repayment options or being unsecured by collateral.
10
24


Green growth – as noted above, there will be targets to ensure 20% of funds go to “green”
companies/activities. While this will not be ring-fenced, to prevent funds going unused,
cheaper credit/greater subsidy may be provided to stimulate demand. There will also be
activities to raise awareness and demand among potential users through linking to relevant
business representative groups and use of sales and marketing channels; plus technical
assistance to the relevant enterprises and institutions to appraise green product and service
design. The option for providing preferential terms (eg interest rate subsidies) will be
explored with financial institutions; their potential receptiveness to this will be a factor but,
for reasons set out in the next paragraph, they are likely to be amenable to this.
female focus – technical assistance to finance institutions to develop female savings
products; raising awareness and demand among potential users through linking to relevant
business representative groups and use of sales and marketing channels; lending products
targeted at women-run SMEs and female-employing sectors. Initial analysis suggests that
financial institutions will be willing to accept the constraint of targeting a high portion of
assistance on female owned / female employing firms. There are thought to be profitable
investments to be made in this area (as well as others) which are currently not being met
due to lack of liquidity. In providing the liquidity needed by financial institutions, donors
should be able to make this conditional on its deployment in-line with its requirements. The
receptiveness of financial institutions to this approach is suggested by the WEDP, where the
World Bank have been able to prescribe that the microfinance lending it will support is
targeted exclusively at female or partly female owned enterprises.
Priority Industries
Existing interventions
3 existing donor intervention options were identified which broadly aligned with DFID’s
objectives in this area:
1) SNV’s Business Organisations and their Access to markets (BOAM) focused on improving
agricultural value chains (honey, dairy, oil seeds, edible oils, dairy and fruits). It is similar to
“making markets work for the poor” (see below), comprising:
 Sector development – including through research, public private dialogue, institutional
change provision of finance
 Business development – linking business to markets, promoting embedded services,
finance and supporting innovation
 Knowledge development and sharing
 Business development services provider strengthening – increasing capacity, sharing
information on service availability
Although DFID requested a proposal setting out what could be done with DFID-provided
funding, none was received.
2) GIZ Engineering Capacity Building Programme (ECBP) contains a number of strands
including private sector development - focused on value chain development in the textile /
garments, leather, agro-processing and pharmaceutical industries - export promotion, and
support to chambers of commerce
It is planned that, if the ECBP, proceeds, it would expand to include i) support to supplier
incubation centres, supporting leasing to supply industries, and coordinating sub-contracting
among SMEs to produce for exporting companies and ii) establishing funds supporting regional
25
innovation and business linkages.
Although DFID requested a proposal setting out what could be done with DFID-provided
funding, none was received.
3) World Bank Ethiopia Competitiveness Fund (ECF) provides matching grants to exporting
firms, their representative organisations and institutions supporting exports (such as
certification bodies) to improve their competitiveness, and encourage exports. Firms supported
are mainly assisted in improving manufacturing and business processes. Its focus has been on
leather and textiles. Changes had been planned including: (temporary) support for firms that
produce for the domestic market in competition with imports; expansion into a wider range of
sectors. An unquantified request for DFID’s continued support of the programme was received
from the Ministry of Industry.
DFID funds would be used to enable this programme to continue. World Bank funds will end
from December 2012. This is not due to concerns about the programme; rather the World Bank
and GoE both regard the programme as a huge success, but rather due to ECF forming part of
a wider programme, other elements of which have encountered problems, and the impossibility
of separating out ECF to enable it to continue funding it (as it would wish) for administrative
reasons. The results that would be delivered under a DFID-funded window would be the same
firm-level productivity gains, and associated creation of jobs, which have been achieved under
the ECF’s first phase (detailed later in the appraisal case).
New Interventions
“Making Markets Work for the Poor” – new industry-focused interventions could be created for
one or more sectors. These could be modelled on a new approach being pioneered by DFID,
called “making markets work for the poor” (M4P). The intervention would entail the following
(while remaining flexible in respect of responding to opportunities/failures):
 Undertake research and analysis to identify binding constraints to industry development,
especially relating to female job creation and green investment. This would inform the focus
and design of the other intervention components.
 Support continued development of Government policies and institutions, for example in
pressing for private participation/increased competition in trade logistics (incl. sea freight,
etc.). This could be achieved through technical assistance to support existing Government
policy development programmes, use of research to generate proposals for further
development, and support for business representative groups and others in dialogue with
Government to help develop policy.
 Support improvement to industry support functions, for example improving the supply of
veterinary services in the leather industry or improving business development services and
standards, including working with industry associations.
 Providing direct support to firms, for example through a challenge fund, to address
identified market failures, through incentivising larger businesses to invest in innovative
business models and technologies that can deliver public benefits. This could include: outgrower schemes to increase sub-contracting to SMEs, thereby generating employment and
encouraging skills transfer, adopting Ethical Trade Initiative11 standards to improve working
conditions for women, or adopting new technologies to “green” operations or create new
business models.
11ETI
is a DFID sponsored initiative to improve working conditions in garments and other industries.
26

Effective management, facilitation, communication, coordination and monitoring and
evaluation. A technical service provider (TSP) would be appointed to facilitate public private
partnership, disseminate knowledge, coordinate with other donor programmes and
undertake monitoring and evaluation. The TSP would help create and support a DFID
appointed industry group to provide strategic leadership and progressively transfer authority
to it as it develops appropriate capability.
Certain more detailed aspects of design would be left to an inception phase which would
include a more detailed economic and political analysis of the sectors (further details in section
C.1.8 below).
In the M4P programmes, approaches to promoting cross-cutting themes would vary by sector,
but could include the following:


green growth - encouraging growth of industry sub-sectors with a lower environmental
footprint (e.g. poultry), encouraging more efficient transport (e.g. facilitating increased use of
sea freight, or more efficient air freight in horticulture), promoting adoption of environmental
standards to deliver better production methods (e.g. reduced water and fertiliser inputs in
horticulture and cotton production, reduced chemical use in leather tanneries). Means by
which green growth would be promoted will vary, but could include inclusion in challenge
fund rounds of green growth as a selection criterion.
female focus – focusing on industries with high female-employment; research on women’s
roles and employment barriers by sector; training of women to undertake better skilled,
better paid roles; development and implementation of standards to protect female
employees; support structures within firms to help women manage implications of domestic
responsibilities; support to viable women owned enterprises (including finance, skills and
linkages). Note that sectors has been primarily undertaken based on analysis of the
number of women working in them; it is recognised that in many cases the quality of work
within those sectors may be low. Aspects of the programme, described above, will be
designed to address this; these aspects will be developed following more detailed analysis
during inception.
Additional metrics for the cross-cutting themes will be identified to be measured alongside the
will be included in log-frames so that the outcomes can be appropriately monitored (e.g. for
green growth indicators might include annual water use for the sector/firms involved, tonnage
of waste disposal for the sector/firms involved, no-, of efficient technologies introduced, etc).
These metrics will be identified during the inception phase.
Up to 3 industries could be supported - at the outset spending will be earmarked as equal for
each sector, but with the flexibility to re-allocate if one or more offers greater opportunity for
results delivery than others.
Flexible programme management
DFID funding is proposed for the interventions below. As their precise details will be developed
during the programme cycle, the criteria which will be used to determine whether funding is
allocated are set out in the commercial case and the process for taking this decision set out in
the management case.
Programme design and management
27
Costs both for an in-house PSD advisor and external experts, some used already in
programme design and some to be incurred in subsequent management and work to refine
design. These cover PEPE and the World Bank’s WEDP and a separate Financial and Private
sector programme, both aligned with DFID objectives.
Multi-donor fund (MDF)
To better coordinate activities between donors, thereby improving effectiveness, a private
sector multi-donor fund is planned which would, 1) support investment climate improvements,
2) provide financial support to the private sector, and 3) undertake activities a) of shared value
to all donors, such as measuring changes in Ethiopian private sector development or
undertaking research and b) aimed at improving harmonisation between donors, such as
regularly mapping activities undertaken by all donors, undertaking research or supporting
public-private dialogue.
The MDF could be used as the delivery mechanism for certain of the intervention options
outlined under PEPE, which align with the broad remit of strands 1 and 2. As such, the MDF is
considered as a potential delivery vehicle under the management case. Additionally, the fund
could support related types of activity, as yet to be designed. Also, strand 3 is distinct, and
considered as a separate option. As well as funding the costs of undertaking such work, it is
proposed to provide a contribution towards costs of providing dedicated PSD consultancy which
would help support the creation of the MDF.
Research, and independent evaluation
It is proposed to fund research, evaluation and opportunities which arise over the life-time of
PEPE. Research would be aimed at improving understanding of problems facing the Ethiopian
private sector, improving programme implementation, supporting policy development,
facilitating future programme development and carrying out programme evaluation including
evaluating the successes/failures within the PEPE portfolio. Knowledge would be disseminated
on successful approaches and activities to inform policy makers, other development partners,
the wider private sector, and where we evaluate relative success/failure to change the focus, or
relative spend, within the PEPE portfolio itself. Evaluation will assess the impacts of PEPE’s
innovative new interventions.
Programme coherence – synergies between different components
Both access to finance and priority sectors strands are included in PEPE for a mix of reasons.
First, both target key binding constraints in the economy. Second, they are mutually
reinforcing: the access to finance strand addresses the financial deficiencies firms face which
prevent good business investment opportunities being pursued, thereby raising the incentive for
businesses to develop proposals for new and expanded business; the priority sectors strand
improves the quality of business investment opportunities by raising productivity, thereby
creating a more conducive environment for financial expansion. This mutual reinforcement will
occur regardless of whether the programme explicitly seeks to link the activities. However, the
possibility of linking in this way, and the means by which it can best be done, will be explored
further during inception phase. This highlights the need for close alignment in delivery of the
two strands. Third, Ethiopia is in some ways a risky environment for encouraging private sector
activity, as set out elsewhere, particularly given the role of the state in the market. This argues
for diversification of risk by seeking to support growth through different channels.
The third aspect of funding, flexible programme management reinforces the other two strands
28
in different ways: improving knowledge through monitoring, research and evaluation to help
refine design and management of the other components; through the MDF, providing
complimentary regulatory improvement and offering an alternatives delivery mechanism for
access to finance interventions which leverages the contribution of other donors.
Do nothing
In the absence of an existing DFID Ethiopia wealth creation programme, the additional benefits
identified below resulting from intervention would be largely foregone, subject to the following
analysis on displacement.
Displacement
Microfinance
 World Bank’s WEDP
 Design – DFID funding has already been provided; without it the programme would
either have been funded by other donors, but incurring delay in identifying them and
therefore in implementing the programme; or under-funded, resulting in weaker design of
a $50m programme
 Technical assistance in support of the credit line - either the credit line would be
reduced in size; or technical assistance provided through Government approved World
Bank funds, which would preclude the use of international consultants (due to
Government preferences), thereby possibly reducing the effectiveness of the support
and the resulting lending
 DFID-led intervention – full additional funding is unlikely to be provided by others; MFIs
would not be incentivised to develop new products or leverage their own money; no trusted
institution is available capable of driving forward the remaining policy outputs
Banking and Equity-type finance
IFC may not proceed with their credit line in the absence of DFID funding; assuming they do,
there will be no support to stimulate product innovation and no new savings products to
generate new funds for lending. The equity finance component will not proceed at all.
Investment value added and job creation would fall
Priority Industries
 SNV’s Business Organisations and their Access to markets – additional funding is unlikely
to be provided by others; funding would continue at current projected levels of expenditure
 GIZ Engineering Capacity Building Programme – additional funding is unlikely to be
provided by others; funding would continue at current projected levels of expenditure (likely
to entail programme closure)
 Ethiopia Competitiveness Fund – additional funding is unlikely to be provided by others; the
programme, which has been funded by the World Bank to date, would end; the benefits
foregone would include both those associated with activity funded during the requested 2
year “gap” (until funding under the new WB programme is available), as well as some
associated with activity under the intended subsequent WB funding period. This is since the
existence of an experienced team is key to the programme’s success. If, in the absence of
gap funding, they leave, then the WB would need to rebuild that team from scratch, incurring
delay, inferior performance in the short to medium term, and potentially deterring
programme recommencement.
 M4P programmes – without DFID support, other donors will not take forward the proposed
29
programmes, and all industry investment to be catalysed by the programme would be
foregone
Flexible Programme Management
 Programme design and management - DFID funding for the World Bank programme
development has already been provided; without it funding would either have been provided
by other donors, but incurring delay in securing their agreement and therefore in
implementing the programme; or under-funded, resulting in weaker design of a sizeable
multi-million-pound programme.
 Multi-donor fund – as a key participant, without DFID participation, the fund may not be
created. This would reduce efficiency of donor interventions, through reduced alignment; it
may also reduce allocation of other donor resources on DFID priority areas, through
reduced influence over shared resources. Conversely, if the fund were not introduced, this
would reduce the risk of DFID resources being allocated to non-DFID priority areas.
 Research, and independent evaluation – without this, implementers would suffer a weaker
understanding of the Ethiopian economic context, and the impact of the programme, thereby
compromising the intended “portfolio approach” and preventing lessons learned being
reflected in other programmes.
Costs and benefits of do nothing are set out below in section E. These calculate the results
that would be delivered by those programmes which DFID proposes to support, in the absence
of our support. Where the intervention does not entail a scale up of other donors’ programmes,
no do nothing is calculated. This is since it is unfeasible to calculate the wider trends and
developments that would be expected (for example changes in overall country-wide
employments levels) in the absence of any donor activity.
Additionally, there would be particular losses in terms of gender green growth as no other major
donors are seriously looking at integrating these into their programmes. These have not been
quantified.
B. Assessing the strength of the evidence base for each feasible option
Microfinance
Evidence on the likely impact of microfinance interventions in the Ethiopian context is rated
“medium”. A number of issues are involved:
1) Evidence of micro-finance’s ability to drive job creation and increase incomes, especially for
women
While there is evidence at the macro level that micro finance penetration has little association
with rates of poverty103, there is evidence at the firm level of positive impact of microfinance on
business activity, business profitability and asset ownership, if in the appropriate context.104
Randomized evaluations, such as that of an Indian MFI’s impact found that, where used by
existing businesses, micro-credit has positive impacts on profits105. Overall, in systematic
review, Stewart et al found that microfinance had mixed impacts on poor peoples’ income,
some on women’s empowerment and none on job-creation (although they have wider benefits,
such as health and nutrition). Problems of microfinance increasing indebtedness are also
flagged; focusing on engaging poorer people through savings rather than credit can be more
30
helpful106 (a conclusion shared by a recent analysis by David Roodman)107. They conclude it
is preferable to target loans on existing entrepreneurs rather than the “poorest of the
poor”,Another systematic review108 concluded found there is insufficient reliable evidence (using
robust methods such as randomised control trials), to confirm the impact of micro-finance one
way or the other.Evidence of micro-finance’s impact in the Ethiopian context comes from a
single survey carried out for WEDP109. The survey covered only 113 enterprises, so its findings
must be treated with caution. Nonetheless, it revealed positive results: women entrepreneurs
receiving micro-finance loans over £1100, increased sales on average by 287% over 2 years,
likely to have translated into substantial increases in profitability and incomes; loans of £3600
(the average size of those surveyed, selected for being “growth oriented”) created 3 to 4 jobs.
Significant unmet demand exists suggesting the potential for further such lending. The survey
showed that, across the sector as a whole, only 3% of loans exceeded £740, resulting in a
financing “gap” from that level up to the point at which bank lending really picks up. Market
demand surveys suggest that there remains significant unmet demand for larger value
microfinance loans110. In 2007, Micro Finance institutions reached 1.8 million clients (95% in
rural areas) but met less than 20% of the demand for their services 111. Filling that gap by
lending to growth oriented women owned businesses could stimulate investment delivering
large wealth and job creation impacts.
Together, the evidence points to the need to target microfinance support appropriately (this is in
line with PEPE’s emphasis on supporting growth oriented SMEs) and supporting the
programme with a strong evaluation component.
2) Evidence of donor support to MFIs having potential to drive financial inclusion
a) Through additional lending: between 2005 and 2008 Ethiopian MFI borrowers increased from
1.2 to 2.2 million. This was enabled by a combination of technical and financial assistance to
the MFIs provided by donors (the Rural Financial Intermediation Programme (RUFIP)),
provided £60m over this period, reckoned to have accounted for a sizeable portion of the
change) and regional governments. MFI borrowing levels have stagnated since 2008, with only
100,000 borrowers added112. Nonetheless, consumer demand remains high, with an estimated
85% of rural households claiming that their financial needs remain unmet. Triodos found that
67,000 growth oriented MFI borrowers needed larger loans113. Similarly, demand exists among
MFIs to borrow to on-lend, evidenced by uptake of credit lines provided under the International
Fund for Agricultural Development’s (IFAD’s) RUFIP and interest expressed in those planned
under WB’s WEDP (16 applications were received).
b) Through additional saving: globally, demand for formal savings products is higher than for
borrowing from formal sources114. In Ethiopia, saving is impeded by nominal interest rates
being suppressed, resulting in negative real interest rates. Yet, depositor numbers are
increasing despite this, suggesting high demand and anecdotally there are suggestions some
people even pay to save115. Pilot tests in the Ethiopian MFI ACSI have shown increases of
around 200 new savings accounts per month per branch. This was facilitated in part through
the introduction of an automated management information system.
Evidence from other countries suggests that the number of savers could increase rapidly as a
result of better outreach and product innovation. For example, in the Philippines, a group
31
provided with access to “commitment” savings accounts increased their savings balance by
81% after twelve months12. Equity Bank in Kenya grew from 100,000 depositors in 2002 to 6.5
million in 2012 through increased outreach. This was also facilitated in large part through the
introduction of an automated management information system which invested one fifth of its
balance sheet in introducing it116. Uptake in Ethiopia under UNCDF’s micro-insurance
programme has shown appetite amongst the MFIs to innovate new products
3) Evidence of effectiveness of challenge funds
There is reasonable evidence that challenge funds deliver strong positive social impacts, using
a portfolio approach to mitigate project risk117. The two pilot enterprise challenge funds
sponsored by DFID - the Financial Deepening Challenge Fund (FDCF) and Business Linkage
Challenge Funds (BLCF) - promoted innovative projects with large pro-poor benefits. FDCF
supported “M-PESA” which provides cheap money transfer services to over 26 million
customers.. Recent reviews of the multi donor Africa Enterprise Challenge Fund (AECF)
confirm the potential for large impacts that will improve access to finance and rural markets and
promote renewable energy and climate change adaptation118. Nonetheless, challenge funds
have not been extensively used in Ethiopia, and not on an Ethiopia-specific basis (though
Ethiopian firms have benefited from region-wide funds). PEPE’s M&E will scrutinise their
success.
Banking and Equity-type finance
Evidence on the likely impact of banking interventions in the Ethiopian context is rated
“medium”. A number of issues are involved:
1) Evidence of initiatives promoting creation of SME banking units resulting in increased SME
lending and downscaling. A World Bank “SME Project” in Nigeria provided a competitively
allocated £1m grant to Oceanic bank to downscale activities, resulting in the bank serving over
1 million savers and lending £5m to 3,300 clients at an average loan size of £1,300. The bank
reports that its downscaling activities are the fastest growing part of its businesses and is
profitable.
2) Evidence of credit-lines leveraging increased SME lending, especially for women-owned
firms. IFC’s “Financing Women-owned SMEs” in Nigeria generated £24m of lending based on a
£10m credit line, with non-performing loans of less than 0.5%119. An Asian Development Bank
programme in the Philippines generated 40,000 new jobs and raised institutional lending to
SMEs through provision of a £17m credit line and £12m partial credit guarantees to encourage
banks to lend to SMEs120. USAID’s Diaspora Direct Investment project in Ethiopia, a credit
guarantee fund, leveraged bank lending several times the investment made; $6.5 million in
private finance was mobilised121.
3) Evidence of promoting green-growth lending via banking interventions and microfinance. A
number of International Finance Institutions (IFIs) have developed integrated technical
assistance and financing programmes to support green lending programmes to SMEs, through
financial intermediaries. The European Bank for Reconstruction and Development’s (EBRD’s)
Sustainable Energy Finance Facility, which supports climate change mitigation, has invested
£800m, largely through credit lines to local banks for on-lending at the local banks’ own risk.
The IFC has implemented large SME climate finance programmes, which mix partial credit
guarantees with credit lines, in Russia, China and Central Europe. These mostly aim to provide
12N.
Ashraf, D.Karlan and W. Yin(July 2005)“Tying Odysseus to the Mast: Evidence from a Commitment Savings
Product in the Philippines”.http://papers.ssrn.com/sol3/papers.cfm?abstract_id=770387
32
access to finance for SMEs looking to invest in small scale renewable or energy efficiency
technology, and provide some element of concessional finance and technical assistance to
identify benefits. Microfinance institutions, such as KADET in Kenya and FINCA in Uganda, are
beginning to offer “green” products, providing, for example, clean technology, sustainable
agriculture, ecological building, renewable energy and improved sanitation systems
4) Evidence of equity-type finance instruments supporting SME investment. The Acumen Fund
provides a mix of debt and equity investment, supported by technical assistance, to early-stage
enterprises which provide low income consumers with access to basic services such as
healthcare and water. It aims to generate high social rather than economic returns. To date it
has provided $2.9 million since 2004 to Water Health International (WHI), a firm providing clean
drinking water to villages in India, helping it raise $50 million in follow on capital. This has
provided safe water to more than 300,000 people on a recurring basis 122. Similarly the Omidyar
Network made a $1.8m equity investment in 2009 in Bridge International Academies, which
provide low-cost, high-quality education enabling its expansion from 2 schools across SubSaharan African countries to around 80 by the end of 2011..There is also good evidence that
DFID’s funding can mobilise other investors. For every $1 of Acumen investment they have
been able to leverage $3 of further investment, while CDC mobilised £3.70 for every £1 of
investment in 2010123. A survey of similar funds showed the provision of early stage “patient
capital” by philanthropic investors, Governments or DFIs would facilitate the expansion of
impact investment124.
5) Evidence of promoting green investment via equity-type finance instruments. The IFC
developed the “CleanTech Venture Capital Investment Program” to encourage green
technologies by taking equity stakes in small, growth oriented companies. It operates between
the grant/seed capital space, and full commercialisation and is focused at technologies where
there is currently limited government support. By 2009, it had invested £2.5m in 4 companies.
Other such programmes are being developed, such as the DFID / IFC / African Development
Bank (ADB) “CP3” green private equity support programme, but existing evidence of impact
globally is limited.
B1.2 Strength of evidence– Priority Industries
1) SNV - BOAM
Evidence is rated “strong”. The programmes’ Monitoring and evaluation system provides
substantial data on its direct and indirect impacts. Using reasonably robust methodologies, and
examining the programme’s impact in key areas such as impact on productivity, employment
generated, and revenue impact, the data entailed provides sufficient material to undertake a
clear analysis of its relevance to PEPE.
2) GIZ - ECBP
Evidence is rated “limited”. The programme’s monitoring and evaluation does not report impact
on firms’ productivity and competitiveness, instead assessing the performance of Ethiopian
industries supported. Consequently, it is not possible to attribute increases in exports or assess
value added at an industry level.
3) WB - ECF
33
Evidence is rated “medium”. Significant data is available globally on the performance of
matching grant support programmes to act as a comparator for ECF, e.g. cross-country
analysis carried out by David Phillips13. Significant data is also available on the performance of
firms receiving ECF support, particularly with regard to their exports, but also on job creation.
However, assessing the programme’s additionality based on available evidence is more
difficult. No data was collected on control groups against which to measure performance of
supported firms. Doing so would have been challenging, given a) “horizontal spill-overs” (firms
not supported may learn from firms which were, and thereby improve performance), b) the
potential bias in selection of ECF beneficiaries (those with the most to gain will presumably be
the most willing participants), and c) firms receiving ECF grants account in some cases for the
vast majority of the industry’s exports (95% for leather hides and skins).
One approach to address this is to compare trend growth in the industries benefitting from ECF
before and after its inception. Performance of the leather sector as a whole is affected by the
introduction of a Government ban on unfinished leather exports in 2009, making assessment
difficult. However, data is available to extrapolate the performance of sub-sectors, including
leather shoes and textiles. Even so, the above-trajectory growth in these sectors (elaborated in
the next section), may be the result of the industry being nascent and hence rapidly growing.
Consequently, additional analysis was commissioned to assess ECF’s impact based on
interviews with beneficiaries. This provides an additional data source to help triangulate our
assessment, but, as with any survey, relies on the assessment of interviewees who may not
provide fully accurate information.
4) Making Markets Work for the Poor
Evidence on M4P projects is rated “medium”. M4P is a relatively new and broad ranging
approach, so evidence of success in one context must be used with caution in considering
application elsewhere. Nonetheless, evaluations have been carried out of the impact of a
number of relevant M4P programmes, covering different markets and instrument types:



Katalyst (Bangladesh) - since 2002 £16m has been spent to facilitate market development
across 15 sectors; it has created additional income, in profits and wages, of £77m through
its impact on 453,000 small enterprises and farmers125.
PrOpCom (Nigeria) - since 2002 £17m has been spent to facilitate market development
across 5 sectors; it has increased the income of 412,000 poor households by £34 million,
and created about 70,000 new jobs126.
ComMark (Lesotho) - since 2003 around £5m has been spent to modernise the garment
industry. Similar to the approach envisaged under PEPE, ComMark developed a publicprivate partnership between the Government and largely foreign owned industry; used
research to motivate investment by the Government in infrastructure and by the private
sector (combined with additional incentives) in productivity. It contributed to employment
increases of 12,000, a doubling of exports to around £270m, and increases in productivity to
a level higher than India’s and close to China’s.
Table summarising evidence rating
13Implementing
the Market Approach to Enterprise Support: An Evaluation of Ten Matching Grant Schemes by
David A. Phillips, Policy Research Working Paper 2589, World Bank
34
Option
Micro-finance
Banking and equity-type finance
SNV’s Business Organisations and their Access to markets
GIZ - Engineering Capacity Building Programme
WB - Ethiopia Competitiveness Fund
Making Markets Work for the Poor
Evidence Rating
Medium
Medium
Strong
Limited
Medium
Medium
Reflecting gaps in evidence, especially in the Ethiopian context, a strong emphasis is placed
upon evaluation, both carried out within the programme, and independently (see management
case).
B2 Evaluate likely climate change impact
Climate
change
and Climate change and environment
Option
environment risks/ impacts
opportunities
Do nothing
A (high)
C (low)
B (medium)
B (medium)
PEPE
As outlined earlier, Ethiopia has a number of opportunities that it can capture by moving along a
green growth path, increasing resilience to climate change, and diversifying the economy.
PEPE exploits those opportunities through in line with a broader Theory of Change for green
growth: (1) encouraging the development of new, innovative businesses; (2) focusing on
particular sectors or sub-sectors that have high green growth potential (e.g. poultry, recycling,
etc); (3) creating extra and (potentially) cheaper credit lines to incentivise green growth
activities (to deal with market failures / regulatory issues); (4) focusing on particular sectors that
have high potential for environmental damage, but where that harm can be averted or reduced
through appropriate intervention (e.g. horticulture, leather); (5) focusing on stimulating
businesses to take up energy/resource efficiency as we know this can increase productivity.
This is why PEPE is rated as having a medium impact and opportunity on climate change and
environment risks.
C. What are the costs and benefits of each feasible option?
C.1 Cost and Benefit Analysis
C.1.1 Access to finance - Microfinance
World Bank Women Entrepreneurship Development Programme
Qualitative Assessment
Alignment with objectives – WEDP’s focus on helping growth-oriented women entrepreneurs
overcome access to finance constraints matches PEPE objectives. Green-growth is less
prominent in design, but DFID participation could influence this , eg by promoting green
indicators are incorporated into the log-frame, etc..
Provides credit line – It is unlikely that DFID would find another DFI willing to provide funds for a
project with aims as closely allied to PEPE’s as WEDP. As detailed earlier, the alternative of
DFID providing the credit itself is undesirable.
Benefit from other WEDP components - PEPE funded elements of the WEDP will benefit from
35
the programme’s other components, including provision of business development services
(BDS) and training to improve technical and vocational skills. BDS will be provided separately
to financial support (see below for rationale) but recipients will be made aware of the availability
of the other, and vice-versa.
Scale – the size of DFID support proposed reflects detailed analysis undertaken by the WB on
support required to build bank capacity, in line with the scale of the credit-line they are
proposing to provide.
New DFID-led Microfinance intervention
Qualitative Assessment
Alignment with objectives – Since women already make up 54% of the borrowers from
Ethiopian MFIs127, supported by the measures set out to improve female access, gender
targets should be achievable. DFID’s attribution of jobs created is calculated on the basis of our
percentage of total financial contribution. Since we are assuming a leveraging effect (i.e.
attracting other donors and financial institutions resources), this understates the likely effect.
The same applies for banking / equity.
Quantitative assessment
The costs factored into the economic appraisal include those to DFID (£14.8m), and those to
other parties, comprising credit lines provided by DFIs (£47m) and lending generated by MFIs
themselves from their own resources (£10m), and those from the MFI generated as a result of
new savings products (£20m) against the benefits of additional lending to firms. The
methodology for calculating the benefits is set out at Annex K.
Scenario case
Present value of costs (£ million)
Present value of benefits (£ million)
attributable to DFID
Net Present value (£ million)
Internal Rate of Return (interest rate)
Benefit to cost ratio
low
69.5
70.8
11.3
1.3
13%
1.0
middle
high
Do Nothing
69.5
69.5
36.7
96.8
132.2
11.5
15.5
21.2
27.2
62.7
-25.3
19%
25%
-5%
1.4
1.9
0.3
Total Jobs created - total including others'
contribution
31,001
34,101
37,890
Incremental Jobs created - those leveraged
by PEPE (ie total minus do nothing)
13,542
16,642
20,431
Jobs attributable to DFID (ie total divided by
value of DFID £ contribution)
4,960
5,456
6,062
Low case : 35% RoI and Unit cost of Job 10% more
16,642
Middle case: 42% RoI and 40% Value added
2,662.73
High case : 50% RoI and Unit cost of Job 10% less
Attribution calculated on the base of DFID funding contribution %
Do nothing: 25% RoI, 20% Value added
36
17459
The calculations above are based on the following assumptions:
 Investment generated - £27m credit line provided by the World Bank, £20m by the RUFIP,
£10m of MFI own resources and £20m from savings (supported by PEPE). The leveraging
effect from MFI and savings resources is in-line with that achieved by the FCDF, which
leveraged 1:375.
 Financial customers - The World Bank’s micro small and medium enterprise (MSME)
Project in Nigeria supported 1.2 million new savers via £7m of grants; extrapolating from
this, on conservative estimates, PEPE’s £4.6m of grants should support 350,000 new
savers.
 Return on investment – 42% based on ‘Impact of micro credit in rural areas of Morocco:
Evidence from a Randomized Evaluation128, 2011 which shows turnover increases of 42%
over 2 years, based on loan sizes one third that envisaged under PEPE.
 Value added - 40% based on a survey by Triodos in Ethiopia129 showing value added of
55% in the food industry and 35% in manufacturing.
 Non-performing loans - 5% based on “MIX Microfinance World: Sub-Saharan Africa
Microfinance Analysis and Benchmarking Report 2010” where average portfolio at risk was
5.9% for >30 days and 3.1% >90 days in Sub Saharan Africa.
 Loans per job – £2670 based on Triodos Facet study findings130
Unit cost comparison for jobs created ($)
SME Nigeria
PEPE ILO*
**
Microfinance 4,037 11,807 8,000
* This was through a credit line to commercial banks rather than MFI lending. The Impact of
Microfinance on Employment: what do we know? Bernd Balkenhol, ILO, 2005
** The Micro, Small and Medium Enterprise (SME) Project (2005-2011): pilot programme of the
World Bank and the Government of Nigeria.
The intervention is expected to produce benefits that will potentially arise through conservative
assumption of 40% return on investment14 and 40% in value-added. As can be seen from the
table, it has generated a discounted net benefit (NPV) of £27.2 million with 34,101 jobs created
and 28,875 and 350,000 loans and savings generated. This implies that over £1.4 of benefits is
delivered to Ethiopia for every £1 that is invested. Even on the low case scenario, where return
on investment is reduced by 7%, the programme is expected to generate a discounted net
benefit of £1.3 million with 31,001 jobs created
i. Incremental cost: The incremental cost to DFID includes 1) supporting Government of
Ethiopia develop policy for the microfinance sector that will be agreed with sector
participants and development partners, accompanied by an improved future sector
consultative process 2) Extended ranges of MFI products developed, and the modalities
for continued product development introduced 3) A standardised, computer MIS selected
and agreed for smaller MFIs and installed in at least two MFIs on trial bases to increase
the number of clients served and 4) management and facilitation cost that includes
monitoring and evaluation. This amounts to £12.8 million (£10.5 million discounted) cost
to DFID.
14
All assumptions on ROI and value added use the lowest assumptions selected from the evidences provided.
To ensure our assumptions are still not optimistic we have set up a low case scenario where we have reduced
ROI by half and value added by 10% for microfinance
37
ii. Incremental benefit: DFID’s leveraging effect will generate an incremental discounted
benefit of £85.4 million (due to challenge fund being set up, MFIs incentivised to develop
innovative products as well as leverage their own money, ring-fencing World Bank’s fund
solely for the WEDP’s credit line and not diverted to cover technical assistance cost, and
average loan size increasing) with £15.5 million directly attributed to DFID’s support.
There will be additional 16,642 jobs created due to DFID’s leveraging effect with 5,456
directly attributed to DFID. Furthermore, DFID will leverage 28,875 loans and 350,000
savers, with 4,700 and 56,400 respectively directly attributed to DFID.
C.1.2 Access to Finance – banking and equity-type finance
1) Qualitative analysis
Equity-type finance is a relatively new concept in Ethiopia, and a successful DFID-supported
intervention could help demonstrate potential, encouraging further investment. Market research
suggests that there is considerable potential “angel capital” (small scale capital provided by
individual investors), especially resulting from the Diaspora network, which could be catalysed.
3) Quantitative analysis
The costs factored into the economic appraisal include those to DFID (£4.5m), and those to
other parties, comprising credit lines by banks and (£40m) and quasi-equity provided by a DFI
(£20m). The methodology for calculating the benefits is set out at Annex K.
Scenario case
Present value of costs (£ million)
Present value of benefits (£
million)
attributable to DFID
Net Present value (£ million)
Internal Rate of Return (interest
rate)
Benefit to cost ratio
low
Jobs created
middle
48.44
48.44
Do Nothing
48.44
28.76
50.58
3.5
2.1
61.34
4.3
12.9
73.49
5.14
25
-17.5
13%
1.04
16%
1.27
19%
1.52
-1%
0.39
7,500
high
8,250 9,167
Incremental Jobs created - those
leveraged by PEPE (ie total minus
do nothing)
1,500
2,250
3,167
Jobs attributable to DFID (ie total
divided by value of DFID £
contribution)
525
578
642
Low case : 45% RoI and Unit cost of Job 10% more
Middle case: 50% RoI and 45% Value added
High case : 55% RoI and Unit cost of Job 10% less
Attribution calculated on the base of DFID funding contribution %
Do nothing: 40% RoI, 30% Value added
The calculations above are based on the following assumptions
38
11.2
6,000





Investment generated - £40m of IFC capital for banking interventions (tentatively proposed
amount); £10m of DFI capital for the equity-type finance (minimum efficient scale), enabling
leverage of £10m of bank capital (a conservative assumption based on the current
internationally-low loan to deposit ratio of 51%)
Return on investment – 50% (i.e. for every extra pound lent, turnover increases by 50
pence) conservatively assuming benefits start to accrue three years after the first
investment and are spread-over five years; non-revolving assuming medium term
investments
Value added – 45% based on analysis of the Ethiopian manufacturing industry131.
Non-performing loans (NPLs) (for the loan component) – 5% based on IFC’s “Financing
Women-owned SMEs” in Nigeria which experienced NPLs of less than 5%132
Loans / investment per job – £6,670 for banking intervention, an average of the costs in the
industries analysed under M4P interventions (see later). £10,000 for equity interventions,
reflecting the proportionately larger size of firms supported, compared to the banking
intervention.
Unit cost comparison for jobs created ($)
FCPLA
European
IFC*** Global
Ghanaian
Development
SME
PEPE
private equity Finance
Finance****
fund *
Institutions **
SME
12,900
28,250
56,000
58,333 8,600
*The Growing Role of Development Finance Institutions in International Development Policy,
Dahlberg Global Development Advisors, July 2010
** The high cost is due to the programme’s investment on large enterprise as compared to the
average Ethiopian SME. The Growing Role of Development Finance Institutions in International
Development Policy, Dahlberg Global Development Advisors, July 2010.
*** IFC Open Source Study: Assessing Private Sector Contributions to Job Creation and
Poverty Reduction http://www.ifc.org/ifcext/devresultsinvestments.nsf/content/jobcreation
The intervention is expected to produce benefits that will potentially arise through conservative
assumption of 50% return on investment15 and 45% in value-added. As can be seen from the
table, it has generated a discounted net benefit (NPV) of £12.9 million with 8,250 jobs created.
This implies that over £1.27 of benefits is delivered to Ethiopia for every £1 that is invested.
Even on the low case scenario, where return on investment is reduced by 5%, the programme
is expected to generate a discounted net benefit of £2.1 million with 7,500 jobs created.
i.
Incremental cost: The incremental cost to DFID includes 1) cost of managing the
investment and challenge funds (to catalyse product innovation such as loans, savings,
transaction products and so on) including monitoring and evaluation and 2) capacity
building for banks lend profitably to SMEs by providing guarantee. This amounts to £4.5
million (£3.34 million discounted) cost to DFID.
Incremental benefit: DFID’s leveraging effect will generate an incremental net
discounted benefit of £50.14 million (due to challenge fund being set up to stimulate
product innovation, new savings products to generate new funds for lending by banks,
equity finance facility formed with SMEs receiving new quasi-equity investments) with
ii.
15
All assumptions on ROI and value added use the lowest assumptions selected from the evidences provided.
To ensure our assumptions are still not optimistic we have set up a low case scenario where we have reduced
ROI by 25% and value added by 10% for banking and equity type of finance.
39
£4.3 million directly attributed to DFID’s support. There will be additional 2,250 jobs
created due to DFID’s leveraging effect with 578 directly attributed to DFID.
Conclusion – identifying the preferred option
Based on the analysis, the preferred option is to proceed with all of the proposed interventions,
across micro-finance, banking and equity-type finance. Taking a mixed approach will improve
the prospect of success given the risk associated with all financial interventions resulting from
the difficult and uncertain policy environment, under which interventions in any area could be
affected by change in Government policy. The proposed size of each different component
reflects a mix of factors: minimum efficient scale needed to operate; industry absorption
capacity and value for money.
C.1.4 Priority Industries – short-term
The existing interventions were assessed against the following criteria: alignment to DFID
objectives; openness to and ability to deploy DFID resources; evidence of effectiveness in
delivery.
SNV - Business Organisations and their Access to markets:
1) Quantitative Analysis
From the impact data provided by SNV for its historical programme the following value for
money results were calculated:
SNV
Present value of Cost ($ million)
Present value of Benefit ($ million)
Net Present value ($ million)
Internal Rate of Return (interest rate)
Benefit to cost ratio
10.6
70.3
16.8
44%
14.4
2) Qualitative Analysis
a) alignment to DFID objectives – Low:
Female jobs - the sectors focused on have relatively low levels of female participation. Of the
total jobs created, only 13% were held by women.
Green investment - no information on environmental impacts was available, implying a low
policy focus on this aspect.
b) openness to and ability to deploy DFID resources – DFID funding could be used to support
SNV’s planned up-scaling of operations within existing sectors, or to fund expansion into new
value chains. However, a concrete proposal to manage DFID funding was not received during
the design process.
c) Effectiveness in delivery –
Effective engagement with the public sector which commands their attention is key to M4P
programmes’ success in securing necessary regulatory and institutional improvement133. This
is particularly important in the Ethiopian context where regulatory issues are in some cases
40
binding constraints on industry growth. However, BOAM’s focus has been largely at the firm
level, omitting policy or institutional engagement; a genuine M4P approach would address
binding constraints wherever they are, rather than focusing on one aspect of business
development.
GIZ - Engineering Capacity Building Programme
1) Quantitative analysis
Inadequate data prevented quantitative analysis of ECBP’s impact
2) Qualitative Analysis
a) alignment to DFID objectives – Medium
Female jobs - the programme’s initially strong focus on supporting women, through female
specific interventions, has been diluted. Nonetheless, it retains a focus on sectors with high
levels of female participation.
Green investment - The programme is not explicitly green-growth focused, but has contributed
to this agenda through supporting resource efficiency (e.g. reduction of waste in the leather
sector), environmental standards (e.g. Waste-water treatment), and green-certified business
creation (e.g. organic cotton production).
b) openness to and ability to deploy DFID resources – Medium / Low:
ECBP was open to DFID co-funding, although no specific funding request was received.
However, the programme is currently under review and there is significant uncertainty about its
future, due to wider political considerations. Were the wider programme to be withdrawn, the
impact of any DFID contribution would be substantially reduced, being no longer able to
leverage GIZ’s programme management and other resources.
c) effectiveness in delivery – Medium:
Discussions with Government stakeholders indicate the programme as a whole has managed
to capture its attention. However, a number of elements of the programme’s design
compromise its effectiveness:
o almost all assistance provided to businesses used foreign (German) inputs.
o the programme failed to engage adequately with local institutions
o the private sector is taken as recipient of support, failing to involve it either as
implementer or “owner” of change (through participation in strategic leadership
o PSD elements of the are not at the core of what the ECBP programme aims to do
(promoting engineering skills)
These features mean the programme is inadequately tailored to local requirements and has a
reduced likelihood of knowledge being transferred to local actors, thereby undermining the
sustainability of benefits.Some of these shortcomings have begun to be addressed since the
programme was redesigned in 2010. However, there was a widely held view among
stakeholders surveyed that the programme remains less effective than ECF. Combined with
the absence of quantitative measures indicating the programme’s success, this makes support
for it a more uncertain prospect.
WB Ethiopia Competitiveness Fund (ECF)
1) Quantitative Analysis
The costs factored into the economic appraisal include those incurred by DFID only (£4 m) as
41
there are no other partners supporting this programme. The methodology for calculating the
benefits is set out at Annex K.
Scenario case
Present value of costs (£ million)
Present value of benefits (£ million)
attributable to DFID
Net Present value (£ million)
Internal Rate of Return (interest rate)
Benefit to cost ratio
Jobs created
low
3.78
25.01
25.01
21.22
162%
6.61
Jobs attributable to DFID (ie total divided by
value of DFID £ contribution)
middle
high
3.78
3.78
33.33
42.76
33.33
42.76
29.55
38.98
197%
232%
8.81
11.31
2,597
2,857
3,174
2,597
2,857
3,174
Low case : 1.01 RoI and 35% Productivity gain and Unit cost of Job 10% more
Middle case: 2.01 RoI and 45% Productivity gain
High case : 3.01 RoI and 55% Productivity gainand Unit cost of Job 10% less
The calculations above are based on the following assumptions
 Investment generated - no additional investment assumed
 Return on investment – Every £1 invested in ECF generates £2.01 per year. This
assumption is based on the performance of ECF-supported firms16 which experienced £41m
increases during 4 years of ECF operations to 2011 based on a £2.5m investment 17 with
evaluation revealing a cost benefit ratio of £6.04 over the life span of the programme.
 Productivity gains – 45% starting from the third year of the programme (i.e. the continued
productivity benefits which sustain even after the grant support has ended 18). This figure is
based on evaluation of ECF which showed firms experienced a 40% increase in turnover
and a 22% increase in employment on average; consequently 18 percentage points of the
turnover increase (which is 45% of the total increase) can be attributed to productivity
gains19.
Unit cost comparison for jobs created ($)
PEPE - African Enterprise Challenge Fund
ECF
*
Cost
2,100
14,400
* Hans Slegtenhorst and Martin Whiteside, Mid Term Review Africa Enterprise Challenge Fund
(AECF), 2011, 33
16
For sectors for which sufficient data are available (leather tannery, leather shoes, textile fabrics and yarn, and
textile garments).
17 The conservative nature of this assumption reflects the difficulties attributing the gains to ECF, for reasons
cited earlier. However, the conclusion that ECF should have attributed to it some role in the success is drawn
from positive changes in trend growth of ECF supported industries versus those not supported.
18 It’s based on an increase in know-how from on-site training, more efficient processes, and in adopting
technical progress through enhanced machinery, all of which should outlast the 3-year persistence of direct
benefits used in the ex-post cost-benefit analysis of the former ECF programme 2008-2012. Evaluation of the
impact and value for money of the Ethiopian competitiveness Facility. Benjamin Fowler. Coffee International
Development Ltd. May 2012
19 A sub-sample of 15 firms, out of the 25 supported, was selected for having been able to quantify both their
current levels of turnover and employment, as well as the proportion of these that can be attributed to ECF
42
The cost of implementing the ECF seems reasonable when compared with other challenge
funds. As the table below indicates, ECF’s administration costs make up 17.5% of the total
value of funds expended. This is lower than four other comparison challenge funds, which
ranged from 20% to 27%. This is impressive given that ECF’s total budget was lower. The
consultancy team believes ECF achieved this through its focus on a single country, the
comparatively low costs of operations in Ethiopia, modest spending on its building and other
equipment and its use of a local management structure that did not require supporting
international overheads. However, there are indications that ECF may want to increase its
administrative costs slightly to achieve better efficiency. The average unit cost for generating
one additional job was circa $2,10020. This compares favourably with the $14,400 estimated
cost per job created by the Africa Enterprise Challenge Fund134. Cost comparison with other
challenge funds is at Annex H135
i.
ii.
Incremental cost: The incremental cost to DFID includes 1) matching grants schemes for
export firms 2) business development advice and training for export firms 3) capacity
building of chamber of commerce and secotral associations and institutions supporting
private sectors 4) support to domestic firms to enhance their competitiveness against
international competitions and 5) operating cost of the Programme Management Unit
including monitoring and evaluation. This amounts to £4 million (£3.78 million discounted)
cost to DFID.
Incremental benefit: DFID’s leveraging effect will generate an incremental net discounted
benefit of £33.3 million from improved efficiency in production and return of investment. All
are directly attributed to DFID’s support as there is no other contribution by any
development partner to this programme. All 2,857 jobs created are attributed to DFID
2) Qualitative Analysis
a) alignment to DFID objectives – Medium / Low (potentially High):
Female jobs – ECF is active in sectors such as horticulture and garments that have high female
employment levels. Evaluation of ECF programme136 found that 71% of the surveyed ECFsupported firms’ employees were women. This varied between the sectors. 49% of employees
were female among surveyed tanneries, rising to 63% of shoe factories and 85% of textile and
garment companies. There are also broader changes that are accelerating female employment.
In the tanneries sector, for instance, government requirements for greater value addition is
creating new female-orientated positions in finishing. However, promoting female jobs is not
currently mainstreamed within the programme, for example, in its selection criteria.
Green investment – Promoting green growth is not a core theme of the programme; it is not
prominent in the selection criteria or marketing strategy. Nonetheless, ECF has supported
green activities, for example through supporting the introduction of environmental standards
such as the “Organic” mark, enabling reduced use of chemicals and promoting recycling of
waste products. Currently, an estimated 20% of the businesses supported were proposing an
explicit green agenda.
b) openness to and ability to deploy DFID resources –
20
This calculation is made on the basis of the information available to the ECF Evaluation consultants
from the respondents (self-reported figure) and thus should be interpreted with caution.
43
DFID funding was requested by the WB and Ethiopian Government to fill a funding gap in ECF
resulting from the failure to agree additional WB funding for the programme under its current
programme cycle (for wider reasons unrelated to the ECF). An assessment of implementation
capacity suggests up to £2m a year could be deployed. The Government has asked that this
full amount be provided. Given the ECF’s short-term reliance on DFID resources, there is a
strong opportunity for DFID to influence the ECF’s design, to improve both its alignment to
DFID objectives, and effectiveness.
c) Effectiveness in delivery –
ECF has not taken a value-chain based approach; consequently, technical support directed to
firms may not resolve problems they face which originate elsewhere in the value-chain. ECF
also does not focus sufficiently on improving links between larger businesses and smaller ones.
Conclusion – identifying the preferred option
Of the 3 options analysed, the ECF is preferable since a) it is already effective and reliance on
DFID resources creates the opportunity to improve and better align it with DFID objectives; b)
there is little evidence of ECBP’s impact, its design is not business focused, and there is
considerable doubt about its continued existence; c) BOAM does not have sufficient potential
for female job creation and has a more limited M4P focus at firm level. Therefore, DFID should
support ECF; it is proposed that up to £4m be provided over 2 years (possibly extending to 3
depending on implementation progress), in light of a) its proven effectiveness, b) this being
around the upper limit of its implementation capacity, c) the expectation that M4P programmes
operating in the same sectors should be fully up and running after this period, implying a need
at that stage to either end support for ECF or incorporate it into those programmes as a tool to
be funded out of them (subject to evaluation of the different options). This is based on the
assumption that changes proposed to further focus the ECF on female job creation and green
growth are agreed by the Government (a proportionately lower amount would be appropriate if
not).
C.1.5 Priority Industries – longer-term
Making Markets Work for the Poor
1) Qualitative analysis
Rationale for the M4P approach
The M4P approach is based on the re-emergence of theoretical analysis that industrial policy
can make a positive contribution to economic development137. It incorporates a market-oriented
approach which encourages competition and seeks to avoid protecting inefficient industries.
M4P aims to help deliver system-wide, sustainable change by addressing whichever
constraints are “binding”, be they regulatory issues or market failures, combining policy and
institutional change with private sector investment and innovation. M4P is well suited to
Ethiopia as it: i) makes it possible to address the wide range of market failures / regulatory
issues constraining industries using a range of instruments suited to engaging both the public
and private sectors; ii) helps to forge a stronger partnership between the public and private
sector, which is critical given the state-centric development model pursued by the Government.
The focus of analysis on the needs of the poor from the outset improves the potential for
poverty reduction.
44
Provision of BDS
Skills deficiencies would be addressed through shared and embedded BDS and training. This
approach is preferable to stand-alone provision of BDS and training, which is both expensive 21
and ineffective138. Those receiving such support will be made aware of finance available
through other parts of the programme.
Sector choice: the following criteria were used to prioritise choice of sectors:
 Government-priority alignment - The political economy analysis above implies the
importance of focusing on GTP priority industries..
 Potential to benefit the rural poor - Poverty in Ethiopia is concentrated in rural areas (30%
poverty incidence in rural areas vs. 26% in urban areas)139.
 jobs for women – targeting industries employing a high proportion of women
 green growth - targeting industries with a high green growth potential and where business
development could be linked to the Climate Innovation Centre (CIC).
 economic potential:
o Strong market demand and growth underpinned by international competitiveness –
intended to mitigate against the risk entailed in M4P of “picking winners”, by supporting
industries which are resilient to domestic and international downturns as well as climate
change, yet are also likely to need to increase their resilience to resource scarcity
(higher input and commodity prices) in particular.
o Ability to attract large scale investment -. Investment is essential for job creation. Those
already attracting investment are more likely to create jobs more quickly and will have
higher potential for investment in green activities
o Potential for innovation on a large scale to benefit small farmers and SMEs - potential for
pro-poor and green innovation in the form of new business models and technologies.
o Contribution to export diversification – to help address the large trade deficit and given
exporting businesses tend to outperform non-exporters and can be the source of the
transfer of new technologies and business models, generating spill-over benefits140.
Initial consideration identified 5 potential industries: horticulture, textiles and garments, leather,
agro-processing, sustainable fuels. Based on an initial analysis, this was narrowed down to the
first 3, which better met the criteria. Fuller assessment of these is set out at Annex C
The analysis above shows that all 3 sectors meet the criteria. Of them, the horticulture sector
offers the best opportunities, given especially, its higher levels of existing employment
(particularly female), the export scale it has already reached its green growth potential (in
particular the need to manage water use and pollution) and the further growth-potential
suggested by Kenya’s success.
Having assessed the sectors, it is then necessary to determine how many to support and at
what funding scale. There are two key considerations:
 Scale – experience in other M4P interventions has shown the need to achieve a minimum
efficient scale. This is necessary to a) attract the attention of the Government, b) attract the
attention of the private sector, to secure their interest (e.g. in bidding for challenge fund
resources), c) have sufficient capacity to achieve transformational sectoral change, for
example, through facilitating rapid progress to break through “thresholds of
competitiveness”141, d) secure the interest of good quality implementing managers. In the
Ethiopian context, an intervention of around $21m (£13m) or more over 7 years is likely to
21
The average cost of BDS in a recent Sida project was $ 4,000 per enterprise.
45

meet these requirements.
Risk – concentrating on fewer sectors increases the risk that the failure of large
investments, or the emergence of unforeseen problems, prevents overall delivery of results.
2) Quantitative Analysis
Precise quantitative assessment of M4P programmes is not possible, since they are structured
so as to leave detailed design of activities to the implementing party. Nonetheless, drawing on
the evidence from similar projects, assessment can be made, based on certain assumptions
(set out below):
The costs factored into the economic appraisal include those incurred by DFID only (£40 m in
total with £13.3m per sector)) as there are no other partners supporting this programme. The
methodology for calculating the benefits is set out at Annex K.
Scenario case
Present value of costs (£ million)
Present value of benefits (£ million)
attributable to DFID
Net Present value (£ million)
Internal Rate of Return (interest rate)
Benefit to cost ratio
Jobs created
low
middle
28
136
136
107
81%
4.8
high
28
162
162
134
84%
5.7
28
193
193
164.9
89%
6.8
Horticulture
6,181
7,500 8,333
Textile
10,228
11,250 12,500
Leather
10,228
11,250 12,500
all
attributable to DFID
all
all
Low case : 75% RoI, 10% Value added in Horticulture, 70% value added in Textile,
30% value added in Leather and Unit cost of Job 10% more
Middle case : 100% RoI, 20% Value added in Horticulture, 80% value added in Textile
and 40% value added in Leather
High case : 125% RoI, 30% Value added in Horticulture, 90% value added in Textile,
50% value added in Leather and Unit cost of Job 10% more
In addition, the incomes of 42,000 households will increase by at least 20%

Investment generated –
o
Garments - £33.3m – based on recent investment trends; £67m of new upstream
investment has been announced recently; an additional half of this level could be
generated through investment climate improvements.
o
Horticulture - £86.7m – based on industry discussions, stage of sector
development and Government policy, it is estimated that 1000 hectares could be
developed at an average cost of £86.7 thousand per hectare
o
Leather - £26.7m – based also on recent investment trends, but assuming lower
46
levels than garments given much upstream industry investment has already
occurred in response to government legislation
Return on investment - 100%, with the returns starting three years after the first
investment is made in 2012; draws on evidence of ECF performance as the closest
proxy available.
Value added
o
Leather - 40% - based on analysis of the leather footwear sector in the World
Bank Light Manufacturing Industries (LMI) Study 2011
o
Garments - 20% - based also on the World Bank LMI study
o
Horticulture - 80% - based on three studies showing value added over 80%,
specifically in Ethiopia and sub-Saharan Africa more generally142.
Investment per job– garments - £4,447; horticulture £11,555; leather - £3,333.
Calculations are based on data collected during interviews with firms and industry bodies
from the relevant sectors,
Investment per household income raised - Result from improvements to Veterinary
services will benefit the 20,000 workers (and their households) increasing their income
through improved livestock outcomes; the textile industry currently employs 10,000
people – doubling its size will benefit 20,000 households; smallholder horticulture
farmers work on an average ½ acre of land, so cultivating 1000 acres will benefit 2000 of
them.




It should be noted that we have not incorporated quantitative analysis of environmental costs
and benefits of the programme in the above, as sufficient data is unavailable to do so.
The intervention is expected to produce benefits that will potentially arise through conservative
assumption of 100% return on investment22 and 40%, 20% and 80% in value-added for leather,
garments and horticulture, respectively. As can be seen from the table, it has generated a
discounted net benefit of £134 million with 30,000 jobs created. This implies that over £5.7 of
benefits is delivered to Ethiopia for every £1 that is invested. Even on the low case scenario,
where return on investment is reduced by 25% and value-added reduced by 10%, the
programme is expected to generate a discounted net benefit of £136 million with 26,637 jobs
created.
i.
Incremental cost: The incremental cost to DFID includes 1) challenge fund performance
grants within the priority sector 2) business development advice and training 3) technical
assistance to tackle systems issues using Making Market Work for The Poor (M4P)
approaches 4) research and communication and 5) management cost including
monitoring and evaluation. This amounts to £40 million (£28 million discounted) cost to
DFID.
Incremental benefit: DFID’s leveraging effect will generate an incremental net
discounted benefit of £162 million from improved efficiency in production and return of
investment. All are directly attributed to DFID’s support as there is no other contribution
by any development partner to this programme. All 30,000 jobs created and 42,000
households incomes improved are attributed to DFID
ii.
22
All assumptions on ROI and value added use the lowest assumptions selected from the evidences provided.
Using ECF as proxy that shows a 200% ROI, we have conservatively assumed 100% - reduced by half. To
ensure our assumptions are still not optimistic we have set up a low case scenario where we have reduced ROI
by further 25% and value added by 10%.
47
Conclusion – identifying the preferred option
Based on the analysis above, we recommend funding all 3 of the proposed M4P programmes.
This strikes an appropriate balance between reducing the risk that progress in any one
intervention is not achieved, for example due to failure to secure necessary policy
improvement, while not spreading resources too thinly. Budgets and targets will be revisited in
light of bids received during the procurement and inception processes. Pending this, budgets
are indicatively set at the same level. They will be continually refined to optimise value for
money, based on thorough evaluation.
C.1.6 Flexible Funding
1) Qualitative Analysis
Overall, the benefits of this intervention include greater alignment with other donors
programmes, thereby reducing duplication, enhanced understanding of the Ethiopian problem
and priorities (such as green growth) It should be noted that while the climate change and
environmental effects of the programme will need to be monitored, this programme is different
to other existing DFID programmes in that it will explicitly aim to ensure that support for
industries or entrepreneurs is targeted towards energy/ resource-efficient measures or green
businesses so as to minimise the overall environmental impact. As is clear from the
assessment above, this will be incorporated specifically into the design of each sub-component
of the programme and their log-frames so that environmental indicators will be able to track
progress on relevant parameters, thereby improving the design of programmes both run by
DFID and others, enhanced understanding of the effectiveness of DFID programmes, thereby
enabling improved design of future programmes. In particular, the case for each component is
as follows:



Programme design and management – design of PEPE overall is a necessary part of
ensuring a well-targeted, outcome-focused programme. Contribution to design of the WB
programme helps ensure the creation of an effective programme, into which DFID may
co-invest to deliver its objectives, and helps ensure alignment between what will be two
of the larger PSD programmes in Ethiopia, to mutual benefit
Multi-donor fund – the precise nature of the support provided under the MDF will be
developed during the programme’s inception phase. However, its broad remit is closely
aligned with PEPE’s, and it will provide highly complementary types of support. The
benefits of providing funding via the MDF are a) ensuring closer alignment of donor
activities, in line with Paris Principles, to improve effectiveness and value for money by
reducing duplication of activity and administrative burden on the GoE; this creates the
potential for substantial scaling up of the MDF in the future, as a mechanism for
achieving PSD objectives by all donors, if it proves effective, b) providing DFID with
influence over the deployment of a larger pool of funding (while recognising that others
gain influence over deployment of DFID resources), c) leveraging other donor resources
into PSD, including by smaller donors who may be willing to contribute to the MDF, but
would not otherwise pursue PSD programmes.
Research and independent evaluation – this will contribute to the effective delivery of the
access to finance and M4P strands of the programme by: continually developing the
programme’s understanding of the challenges and opportunities faced in the private
sector; providing information on intervention effectiveness to enable refinement of design
and to inform allocation of resources under the portfolio approach, thereby helping to
mitigate risk (including political risk); providing analysis to help shape the views and
actions of others, including GoE, to support delivery of PEPE objectives. Additionally, it
will facilitate provision of public goods, namely greater understanding of the
48
effectiveness of different types of intervention, of relevance in Ethiopia and more widely,
to the benefit of other programme design.
Without these interventions, there would be substantially greater risk to achievement of the
objectives of the access to finance and M4P programme strands.
2) Quantitative Analysis
Since the benefits are both difficult to measure, and they are realised in large part through
improvements in the impact of other programmes, rather than directly contributing to objectives,
they are not quantified here.
C.1.7 Overall programme supported
For simplicity, the complete package of programmes proposed for support is summarised in a
table of figures at Annex E; Annex J provides an additional diagrammatic summary which
shows how the programme coheres.
The interventions selected present the best chance of driving job creation and raising incomes
given that:
 They explicitly address the binding constraints set out in the strategic case
 to minimise political risk, interventions align closely with Government objectives /
priorities, and will be supported by close engagement with Government,
 to maximise economic potential, interventions focus on sectors which have been
explicitly selected for their economic potential (particularly for the cross-cutting themes of
gender and green growth; however, they will also support generation of outputs (such as
improved managerial skills) relevant to development of other industries, which helps
avoid precluding their potential growth
 interventions take a portfolio approach to help address residual risk
 the required M4P approach will place addressing the needs of the poor at the centre of
analysis
 Implementing partners will be required to prioritise the cross-cutting themes of gender
and green growth, capitalising on opportunities and minimising potential risks.
The financial size of the different proposed interventions is influenced partly by the quantitative
economic analysis of the value for money they offer, in so far as all components are found to
offer relatively returns / positive cost/benefit ratios which are broadly of the same magnitude.
However, other factors were more important in driving the proposed intervention size, in
particular a) relative political risk, b) absorptive capacity, c) qualitative value for money
considerations detailed above. These reasons explain why more money is (indicatively)
allocated to microfinance than debt/equity-type interventions, and to M4P interventions than the
ECF, despite having lower cost-benefit ratios. A summary of this specific rationale in each case
is set out in the table below.
Intervention area
Microfinance
Funding
level: Higher
or lower than
quantitative
economic
analysis
suggests
Higher
Reason for difference to funding level implied by
quantitative analysis
Relative political Absorptive
Qualitative vfm
risk
capacity
Largely
exempt Initial
49
indiciations
institutions
Banking
equity-type
investment
ECF
M4P
funding than from Government
suggested
regulation
given
perception
of
serving
social
objectives
of
interest
combined
with
significant
capacity problems
(eg
widespread
reliance
on
paper-based MIS)
suggests
large
absorptive
capacity
and Lower funding Banking affected Initial indications
than
by more restrictive of interest and
suggested
government
higher
starting
regulation
levels of capacity
suggest
more
modest absorptive
capacity
Lower funding
Relatively narrow
than
focus
of
suggested
intervention
(productivityimproving
matching grants)
limits scope for
broader reaching
interventions
Higher
Broader
funding than
intervention range
suggested
creates
opportunity for far
reaching impact,
within a larger
programme
Focus to growth
barriers
exclusively in the
private
sector
impedes
effectiveness
addressing
deeper
seated
problems
Focus to growth
barriers wherever
they occur (private
or public sector)
likely to
drive
stronger
effectiveness
This analysis will be further tested and refined during the inception period and subsequently during
implementation. Flexibility in budget allocations will be key in responding to changes.
C.1.8 Implementation approach
An inception phase will be undertaken both for the Access to Finance and Priority Industry
suites of interventions. This will include additional economic and political analysis which will
buld on that produced so far and will inform more detailed design of the interventions. In
particular, it will include an emphasis on determining how gender and green growth objectives
will be developed within interventions (including how green growth will be defined for the
relevant sector, and what the appropriate target should be for incorporating green growth in
each intervention), building on the indicative approach set out in section A.4 of the appraisal
case. In refining these details, other issues will need to be addressed, including: the relative
focus on urban versus rural growth; the focus on exporting versus non-exporting firms; the
means of engaging with firms of different sizes (and particularly the role that growth-oriented
SMEs may play); the particular parts of sub-sectors which are to be targeted; means of
ensuring the benefits realised are sustainable (eg sustainable jobs); means of measuring the
quality as well as the quantity of jobs. The primary criterion guiding development of the detailed
approach will be achievement of PEPE’s specified results. Other desirable factors, such as
achievement of wider economic and social benefits will also be considered. The analysis and
50
the detailed intervention approaches which flow from this will be subject to final DFID review
and confirmation, prior to moving to delivery.
C.3 Insert climate change / environmental “assurance note”
See Annex I.
It should be noted that while the climate change and environmental effects of the programme
will need to be monitored, this programme is different to other existing DFID programmes in
that it will explicitly aim to ensure that support for industries or entrepreneurs is targeted
towards energy/ resource-efficient measures or green businesses so as to minimise the overall
environmental impact. As is clear from the assessment above, this will be incorporated
specifically into the design of each sub-component of the programme and their log-frames so
that environmental indicators will be able to track progress on relevant parameters.
51
D. What measures can be used to assess Value for Money for the intervention?
Value for money will be measured on an on-going basis, drawing on the log-frame, which
reflects analysis so-far undertaken. This will be further revised and developed at the
intervention level during the procurement process and at the programme level considering
and developing metrics that fully capture economy, efficiency, effectiveness, costeffectiveness and by focussing on gender a measure of equity. Such indicators will be
developed, in collaboration with the team appointed to undertake overarching impact
evaluation.
The following gives an indication of the kind of indicators to be used:
 Economy (Unit costs):
a. General: Cost of consultants; Management charges
b. Finance: unit cost of management information systems installed; unit cost of
new SME units set up;
c. Priority Industries: unit cost of institutions improved; unit cost of delivering
types of skills training
 Efficiency (inputs to outputs)
a. Costs of new products developed
b. Cost and quality assessments of loan portfolios
c. Productivity gains realised in supported firms for every £ of funding from DFID
d. Volume of investments leveraged from DFIs and commercial investors for
every £ of funding from DFID.
 Effectiveness (outputs to outcomes)
a. Jobs created / incomes raised linked to value of loans
b. Jobs created / incomes raised linked to type and size of intervention
 Cost-Effectiveness (economic appraisal data): covering net present value, internal rate
of return, value added and cost benefit ratios.
a. Cost per job created
b. cost per house-hold income increased by 20%
c. cost per financial customer generated
Equity: Indicators above will be disaggregated by gender to allow assessment of equity.
Unit costs will be measured in order to ensure that input costs do not exceed market rates.
This will be achieved by comparing costs to those in similar countries and environments,
and with other similar programmes run in Ethiopia, especially those by other donors. They
are not generally expected to decline during PEPE’s life, but rather are likely to increase in
line with wage growth. Data will be reported to DFID by the technical service providers
themselves, and reviewed by independent evaluators.
Further data focussed on DFID’s 3E’s approach will be collected to inform programme
design and refinement; consistent with the portfolio approach, TSPs will be expected to
continually appraise which programmes are working better or worse, using the sort of
metrics set out above, and scale up and down accordingly. It is expected that trajectories
will differ by intervention. Some will benefit from increasing marginal returns where-by high
up-front costs yield little returns, but where later support builds on this, generating high
returns. This will need to be factored into TSP portfolio analysis. Again, TSPs will report
52
data to DFID, connected to their analysis on programme performance and intervention
refinement. This will also be reviewed by independent evaluators.
Baselines will be further developed as part of the approach to monitoring and evaluation
during inception (see management case). Disaggregation by gender and green growth will
be undertaken.
Overall the benchmark for poor value for money for the programme taken as a whole will be
if two or more outcome purpose level indicators fall short of targets by more than 30% at the
Mid Term. In this case, DFID will consider significant modification to the programme course,
strategies and partnerships, including the option of stopping funding for the relevant
initiative.
E. Summary Value for Money Statement for the preferred option
Scenario case
Present value of costs (£ million)
Present value of benefits (£ million)
attributable to DFID
Net Present value (£ million)
Internal Rate of Return (interest rate)
Benefit to cost ratio
Total Jobs created
Total Jobs created with 20% reduced
for overlap
attributable to DFID
Incremental Jobs created - those leveraged
by PEPE (ie total minus do nothing) minus
20% overlap
low
155
218
74
63
20%
1.4
67,735
middle
155
277
94
122
26%
1.8
75,209
high
155
363
123
208
34%
2.3
83,564
54,188
18,424
60,167
31,113
66,851
22,729
35,421
41,400
Do Nothing
65
18
-47
-5%
0.3
23,459
48,084
Low case : all the assumption under low case scenario of the interventions and Unit cost
of Job 10% more
Middle case : all the assumption under middle case scenario of the interventions
High case : all the assumption under high case scenario of the interventions and Unit cost
of Job 10% more
Attribution calculated on the base of DFID funding contribution %
Do nothing for PEPE should be seen with caution as it does not include the Do Nothing
for ECF and with no cost added on the do nothing for M4P
With a benefit to cost ratio of 1.8 under the conservative assumptions presented in the
middle case, PEPE presents good value for money. Details of incremental costs/benefits are
as follows:
i.
ii.
Incremental cost: The incremental cost of the overall programme amounts to £69.9
million (£50.22 million discounted) cost to DFID.
Incremental benefit: DFID’s leveraging effect as well as direct intervention will generate
an incremental net discounted benefit of £259 million with £88.06 million directly
53
attributed to DFID’s support. There will be additional 41,400 jobs created due to DFID’s
leveraging effect with 31,113 directly attributed to DFID.
The main cost drivers are management fees mitigated by the use of careful review during
competition. The main risks to achieving these benefits are a) erratic changes in business
regulation b) inflation and exchange rate fluctuation, c) a general economic slowdown which
undermines local investment and d) increased and costly environmental damage due to
industrial growth, as well as rainfall variation impacting on yields in agricultural sectors,
cotton and horticulture in particular. It should be noted that (d) has been explicitly designed
to be addressed within and by the programme as a cross-cutting issue, and will be
monitored, but has not been included in the quantitative analysis as data was unavailable.
A summary of the results delivered and the underpinning calculations is included at Annex
D.
54
Commercial Case
PEPE will entail a portfolio of interventions which are a) directly procured - technical service
providers for 1) microfinance, debt and equity-type finance, 2) M4P programmes; overall
programme evaluation; and b) indirectly procured - World Bank WEDP, IFC multi-donor fund,
World Bank Financial and Private Sector Development programme (FPD); Ethiopia
Competitiveness Fund (but entailing no procurement).
Access to finance delivery – options considered
For the access to finance interventions, substantial analysis was given to the option of
delivery via setting up a Financial Sector Deepening Trust (FSDT), and drawing on relevant
centrally managed DFID programmes, Skills and Innovation for micro banking in Africa
(SIMBA) the Global SME Finance Initiative (GSFI) and Investment Mobilisation for Prosperity
And Catalytic Transformation (IMPACT).
The FSDT model entails creation of a semi-autonomous entity, responsible for delivering
donor-funded support for financial sector development. It has been successfully deployed by
DFID in a number of other African countries. Despite considerable attractions (development
of long-term expertise, suitability for multi-donor coordination, sustainability), this option was
rejected, due to a) the slower anticipated set up time, and b) concerns over whether a highprofile, autonomous financial sector entity would be well received by the Ethiopian
Government. Nonetheless, it is planned that this option be further examined, and assessed
against the performance of the proposed IFC multi-donor fund and stand-alone DFID
interventions, with a view to possible creation in the second half of the PEPE programme. If
then endorsed, its creation could be supported by the planned pan-regional FSDT Africa .
SIMBA aims to increase the capacity of financial service providers to help the poor, through:
a) creation of a regional FSDT to provide programme management and coordinate other
FSDTs; b) provided matching grants to increase the capacity of poor-focused financial
providers' (MIS, product development and outreach); c) creating a regional training centre for
financial skills; d) support regional knowledge and skills transfers. SIMBA will be considered
as a potential candidate for delivering certain outputs under PEPE, including training
(outputs of which could be bought in by the relevant TSP). SIMBA was rejected as an
overarching delivery vehicle for PEPE’s microfinance interventions, given the fundamental
difference in focus: PEPE focuses on growth oriented businesses while SIMBA focuses on
financial inclusion.
GSFI aims to support provision of bank lending to SMEs through: a) use of risk sharing and
credit line provision to support new lending, b) technical assistance to financial institutions to
develop strategy, products, delivery channels, credit risk management processes, IT and
MIS; c) support for creation of “market infrastructure” (for credit reporting and collateral
registries); d) a challenge fund supporting innovative approaches to support SME financing.
GSFI will be considered under the first phase of the banking / equity TSP as a potential
delivery mechanism for the proposed debt interventions since using it could yield benefits
including: a) reduced administration and management burden for DFID Ethiopia, b) improved
value for money through economies of scale via reduced TSP management costs. However,
consideration will need to be given to whether a generically designed programme will meet
the peculiar requirements of the Ethiopian financial system.
IMPACT aims to support impact investment (that is equity and debt provided to generate
55
below market-rate financial returns, but high social returns) through a) support to develop the
impact investment market, through helping develop standards and market information,
evidence and in-country capacity, and b) provision of “patient” capital (whose long-term
financial returns may not compensate for the high early stage risks) combined with technical
assistance, to leverage others’ investments. It is designed to operate in collaboration with
CDC. IMPACT will be considered under the first phase of the banking / equity TSP as a
potential delivery mechanism for the proposed, principally to deliver equity-type finance
interventions, measured against the same criteria as the GSFI.
Multi-donor fund – Some of the access to finance package could also be delivered via the
MDF, if there is appetite among other donors. This would help reduce administrative costs,
and leverage the intervention, although it would also impact on results attributable to DFID.
This will be further considered during inception, but could lead to reduced emphasis on
delivery via DFID managed programmes.
An indicative timetable for the direct elements of the procurement process and subsequent
delivery is as follows23:
(timing
by Access to finance TSP
M4P TSP
calendar
quarter)
2012 - Quarter Procurement
process Procurement
3
launches
launches
2012
Quarter 4
– Procurement
concludes
2013
Quarter 1
– Inception
phase
commences; TSP team
set up and offices put in
place
process
– Inception
phase
concludes;
final
intervention
portfolios
agreed
2013
– Timetable
from
here
Quarter 3 to onwards
subject
to
end 2014
inception,
but
characterised
by
additional preparation
and
early
implementation likely to
include: selection of MFI
MIS
system
and
2013
Quarter 2
Evaluation
process Procurement
process
launches
Procurement
process Procurement
launches
process
launches;
inception phase
commences
Inception
phase Metrics
and
commences; TSP team methodologies
set up and offices put in fully agreed; ;
place
baselines put in
place
Inception
phase
concludes;
final
intervention
portfolios
agreed
Timetable from here First
annual
onwards
subject
to reviews provided
inception,
but
characterised
by
additional preparation
and
early
implementation
examples of activity
include:
capacity
Indirect elements are not covered since this is of less relevance to DFID’s management of the
procurement process.
23
56
2015-17
2018-19
allocation via challenge
fund; development of MFI
and banking products;
selection of banks and
MFIs for capacity building
and initiation thereof;
preparation for equity
delivery
and
early
investments
Period characterised as
full
implementation:
MIS systems put in place;
full implementation of MFI
and
bank
capacity
raising;
equity
investments
being
undertaken
Period characterised by
wind down: further work
with MFIs and banks to
embed
improvements;
appraisal of need for
PEPE follow up.
building
work
with
Government; launch of
challenge funds where
relevant etc
Period characterised as
full
implementation:
firms to be assisted
under challenge funds
receiving support; major
programmes
for
investment
climate
improvement
(eg
supporting
cold-chain
storage)
under
implementation
Period characterised by
wind down: further
work with public sector
institutions and private
sector
recipients
of
support
to
embed
improvements; appraisal
of need for PEPE follow
up.
2019-2014
Annual reviews
continue;
mid
term
review
undertaken
Annual reviews
designed
to
inform decision
on PEPE follow
up; full term
review
undertaken;
Final
PEPE
impact
evaluation
undertaken
Direct procurement
A. Clearly state the procurement/commercial requirements for intervention
A competitive tender will be carried out for the technical service providers (TSPs). It is
anticipated there will be 2 covering each of access to finance and priority industries and one
for the overall programme evaluation team, who will be recruited by and remain accountable
to DFID. TSPs will be expected to contain a mix of international and local expertise relevant
to the specific intervention and the cross-cutting issues. Incentivising partnership with
Ethiopian firms ensure local knowledge is harnessed effectively and provide consulting
services at lower cost.
The access to finance and priority industries TSPs have been grouped together to increase
the scope for realising economies of scale and reducing DFID administrative costs in
overseeing the programmes. Grouping them together into a single TSP was ruled out to
57
partially diversify against the risk of problems in TSP management
DFID Ethiopia’s PSD staff resources – comprising an A2 advisor, A2L advisor, and part of
the time of the A1 team leader and support staff - will be used to oversee programme
implementation and ensure delivery of value for money. DFID’s climate advisor and/or an
advisor from GRD’s green growth team will provide continual support on green growth
components - including indicators for log-frames, etc. The approach to programme
management is set out in the management case. Demands on DFID’s management time will
be included as a factor in evaluating bids received.
Overall programme evaluation will be procured via the resource centre or, where unavailable
specialist skills are needed, via local or open procurement as appropriate by DFID Ethiopia.
For example, there may be a need to conduct a specific assessment of the leather or
horticulture industry’s environmental impacts in order to inform M&E work.
B. How does the intervention design use competition to drive commercial advantage
for DFID?
Potential suppliers will be invited to bid in competition against defined Terms of Reference
(ToR) specific to each TSP contract. DFID E is currently undertaking discussion with
colleagues in DFID’s procurement group with the aim of ensuring that the structure of the
contract to conduct this work is appropriate and delivers high quality, flexible and timely
support. Adopting this approach will help support the delivery of value for money for both
DFID and other agencies. Consideration will be given to using existing centrally managed
DFID or HMG Frameworks on advice from DFID's procurement group. Where these are not
appropriate DFID-E will work with DFID's procurement group to use the Official Journal of
the European Union (OJEU) platform to implement a new results based contract. A similar
smaller scale approach will be considered for other elements to cover future corporate
monitoring and evaluation requirements.
Proposals will compete on the basis of delivering the services required of the TSP,
accounting for the level and quality of inputs proposed, and the cost which represent the
most economically advantageous tender. Awareness of and interest in the tender processes
will be maximised through appropriate channels, such as advertisement in the OJEU, if that
option is taken (see below).
To enable DFID to properly assess the different bids and determine which offers best value
for money, detailed information will be requested on the consultants’ approach, and the costs
associated with it. This should detail, as a minimum:
 The approach that will be taken to delivering the outcomes and outputs specified in the
different components of the programme.
 A breakdown of costs associated with delivery, including detail of the role of the TSP in
delivery, ie which outputs (such as training or implementation of new IT systems) the TSP
expects to deliver themselves directly vs those they expect to buy-in externally
 The inputs the TSP expect to be attached to delivery of outputs and the breakdown of
these (eg consultants time; grade and cost of consultants; material costs)
 The method by which payment is expected by DFID, with an emphasis of output based
payment and a strong case for any areas where this is not believed to be possible; where
output-based payment is used, a proposed approach to generating milestones and
clearly specified criteria by which DFID can assess successful delivery will be expected
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to be included by the bidders
The procurement process for overall programme evaluation will use the competitive process
entailed in selecting resource centre participant consultant firms, or the fuller competitive
processes where appropriate
C. How do we expect the market place will respond to this opportunity?
Market analysis undertaken indicates there is likely to be sufficient interest to ensure
competition for each TSP. We have spoken to a number of suppliers who have signalled
appetite; informal conversations have been held with more than 10 firms which have
approached DFID to express interest in bidding for the different parts of PEPE. These have
included a mix of large international consultancy firms, capable of delivering all of the
different elements of the programme (about 7-8 such firms) as well as smaller, more
specialised organisations, better suited to delivering specific components. Additionally,
given the sizeable scale and profile of the contracts, the reasonably large number of
international firms operating in the private sector development field, there are likely to be a
large number of additional interested parties.
The adjudication of bids and proposals will primarily be on the basis of ability to deliver a
specified set of services to an adequate standard at a reduced budget. It will be important
though to manage the contracting processes to ensure the maximum number of potential
competitors. DFID-E will work closely with DFID’s procurement group to determine the most
appropriate route to market and which enables DFID-E to provide responsive support. It is
anticipated that there will be a sufficient number of competitors to ensure cost competition
and innovation - recent DFID tenders for M4P programmes have elicited strong interest from
TSPs, e.g. The Rural Access to Markets Programme in Northern Nigeria. The smaller size of
the access to finance programmes is suited to the small, specialist firms that provide TSP
services. Other recent DFID programmes with an access to finance approach have also
received strong interest among potential implementers, such as SIMBA. In Ethiopia,
significant interest has been expressed by some of the firms consulted in managing both the
M4P and access to finance components.
Local economic and private sector development capacity is less readily available. This may
result in competing bids proposing use of the same local experts. In the tendering process,
DFID will seek to alleviate this risk by a) engaging with international suppliers to help them
identify potentially suitable local candidates, b) encouraging suppliers to draw on the large
pool of Diaspora with suitable skills. In the medium to long term, DFID will encourage growth
in local capacity through a requirement for the appointed firms to gradually increase the level
of local expertise in the teams’ composition.
For the overall programme evaluation, based on our use of a mix of different consultants,
sourced both from the resource centres and competitive procurement, we expect a wide
availability of suitable expertise.
D. What are the key cost elements that affect overall price? How is value added and
how will we measure and improve this?
The cost drivers which are common to both TSPs are: staff costs, which are: a function of
the quantity and unit cost of staff time deployed by the implementing firm; the cost of
59
securing suitable work premises, which will also be affected if it proves necessary to set up
offices outside of Addis; costs of obtaining suitable vehicles, where necessary; security costs
associated with working in certain less stable parts of the country; management costs
associated with managing a complex programme, such as managing a consortium
comprising different firms.
In addition, DFID will bear the costs of providing goods and services which will be tendered
for or implemented by the TSPs which differ by intervention:
 Access to finance – the cost of the MIS system procured; the costs of raising MFI and
banking capacity and developing products; the costs associated with achieving policy
improvement; the costs of attracting a third party credit line; the costs of hiring a fund
management unit to manage the equity-type finance intervention
 Priority Industries: new-DFID led interventions (M4P) - the costs associated with
achieving policy improvement; the costs associated with improving firm productivity
To manage the costs and mitigate the risks incurred by the TSPs but not met out of their
funds (i.e. which are met by DFID directly – those listed above) DFID will a) where possible,
require suppliers to set out such costs in their tender, and including such costs within the
selection criteria, b) retain oversight of the methodologies used by the TSPs in identifying
and procuring further outputs, c) put in place governance arrangements which provide DFID
with the ability to scrutinise, challenge and take the final decision on key spending issues, d)
include incentives in the TSPs contract which encourage cost-effective delivery (the
incentives offered will be developed with the commercial advisor prior to ToR being set out).
To enable DFID to manage this process effectively, we will draw on the resources of a multidisciplinary DFID virtual team, bringing together commercial, finance, results and Information
Technology specialism. We will also draw on the input of external representatives, including
those from the Government and private sector, as detailed in the management case.
For overall programme evaluation, the key cost drivers will be centrally agreed consultancy
rates, in the case of resource centres, and availability of suitable expertise using competitive
procurement.
E. What is the intended Procurement Process to support contract award?
In the case of the availability of frameworks DFID-E will explore with DFID procurement
group colleagues to determine whether it is possible to use existing centrally managed DFID
or HMG Frameworks. DFID E will consider alternative approaches dependent on the value
of the contract. These will be discussed with Procurement DFID E and the procurement
group. Whichever approach is adopted transparency and non-discrimination will be used.
The work being placed out to competition will be delivered through the DFID procurement
group, using either open or restricted procedures dependent on market conditions. DFID-E
will engage in early discussions with procurement group colleagues with the aim of ensuring
that Terms of Reference are clear, the award criteria are appropriate, ensure that the
maximum number of interested parties (both globally and in-country) bid are reached and
that the time frame is agreed to ensure that resources are in place to manage the
evaluations etc.
For each of these options, a decision was taken for DFID to procure the outputs directly
rather than through a multilateral development partner, reflecting a) the absence of suitable
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programmes already being run by appropriate partners and b) the benefit of greater DFID
intervention control via direct procurement.
For the new-DFID led interventions (M4P) contract, the ToRs will define expected activities
and outputs in broad terms only to enable innovation and responsiveness. Outcomes will be
defined (based on further scoping analysis to be carried out prior to TSP tendering, which
will refine the outcomes set out in this business case) and firms invited to bid against delivery
these.
For the micro-finance component of the access to finance TSP, the expected activities and
outputs will be largely defined, reflecting DFID’s greater level of understanding of the
industry’s precise requirements. Flexibility will nonetheless be built in to enable innovation
and responsiveness. Firms will be invited to bid against the already defined outcomes.
Design of the banking and equity-type finance components of the access to finance TSP are
at differing stages of development. The banking component’s activities and outputs are
largely defined, although the intervention’s implementation relies on identification of
accompanying providers of a credit line and further testing of demand among banks. The
equity-type finance component requires further development to test the fundamental
potential of the approach in Ethiopia and, subject to that, its detailed design.
Consequently, for these elements of the access to finance TSP, the contract will be split into
two parts: 1) an initial design phase, during which the potential for both intervention types will
be further tested, and 2) a subsequent implementation phase. If the design phase finds that
there are suitable banking and / or equity interventions, these will be managed under the
access to finance TSP. If not, these interventions will not be pursued. This will be
independently verified by DFID and relevant stakeholders. The TSP contract will then be
modified accordingly, and consideration will be given to up-scaling other parts of the access
to finance package to address the finance gap via an alternative means. This approach will
be reflected in the ToR for the access to finance TSP and the contract ensuring from it.
A similar two-phased approach will be taken for the M4P TSP contract. Considerable
analysis has been involved to identify the suitability of the sectors for intervention. However,
further work during the inception phase may identify greater scope for delivery of objectives
in certain sectors over others. Consequently, DFID will remain open to reallocation of
resources between the three different sectors. In extremis, we are open to narrowing the
number of sectors focused on, if the case can be made based on the further analysis, that
this will deliver substantially better results.
Evaluation of all proposals will be undertaken by a multi-disciplinary DFID team against the
following (indicative) criteria:
 The quality of the team proposed, including expertise in and experience of:
o working in lower income developing countries, preferably in Ethiopia itself or
sub-Saharan Africa
o working in the relevant area of intervention (M4P, MFI, banks, equity as
appropriate), using the relevant tools
o delivering DFID’s priority objectives, green growth and women’s
entrepreneurship.
o programme management
 The quality of the implementation proposals, which will be assessed for
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o Understanding of ToR and deliverables;
o Development of a clear, evidence based approach clearly linking to results
o Credibility of plans to deliver superior programme outputs


Cost
Terms for payment – potentially including proposals to manage performance on an
outcome rather than output basis;
 innovation – methodology set out for delivering the desired outcomes;
 approach to financial and performance monitoring and evaluation – including
methodologies for supplying data will be supplied to DFID in a clear and transparent way
regarding M&E, suppliers will need to demonstrate they have in place systems to monitor
and manage their carbon footprint and environmental impact
The approach to procurement will be developed in parallel to the business case approval
process, so as to commence immediately after business case approval and procurement
group terms of reference approval.
F. How will contract & supplier performance be managed through the life of the
intervention?
Clear Terms of Reference with clear deliverables will be used to support the contracts. Each
contract will contain clear roles and responsibilities which will be adopted to manage the
contracting partners24. The contract will reflect the needs of the sector programme along with
the cross-cutting elements and quality of its outputs to be assessed as part of on-going
management of the Programme (including periodic fiduciary risk assessment monitoring
processes).
The contract will be developed so that the contracting partners will be required to take
ownership of key performance indicators, targets and baselines which will form the basis for
performance-based management of the supplier by DFID.
The potential suppliers will be commissioned on the basis of clearly defined ToRs. They will
be required, as part of their tender bid to set out clearly their implementation plans, which will
include a proposed approach to monitoring and evaluation of performance. DFID will seek
the use of appropriate service level agreements and key performance indicators DFID will
expect this to include regular reporting against agreed indicators.
DFID will include defined milestones, and reserve the right to scale the programme up or
down based on performance, and to terminate the contract if performance is unsatisfactory.
The initial contract will run to March 2015, with potential extension to March 2019, subject to
continued programme funding and TSP performance.
Indirect procurement
A. Why is the proposed funding mechanism/form of arrangement the right one for this
intervention, with this development partner?
24
See risk assessment and mitigation under management section for more detail.
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World Bank WEDP
Choice of partner - Given the closeness of alignment of the WB programme with DFID
objectives, and the absence of other programmes with such close alignment, it is appropriate
for DFID to support the WEDP programme.
DFID’s Multi-lateral aid review (MAR) found that the “WB IDA closely aligns with DFID’s
focus on poverty reduction and priority sectors. Its comparative advantage is the breadth and
quality of its technical knowledge, expertise and global reach. Areas for reform under IDA 16
are improving its impact in addressing the needs of girls and women, delivery in Fragile
States, and its partnership behaviour”. The latter points will be taken into account in
managing relations with the WB.
Choice of funding mechanism – A "client-executed" trust fund entailing DFID transferring
funds directly to the World Bank is planned for the technical assistance in support of MFIs.
The Bank would report to DFID on progress and account for the funds. Although the MAR
showed that use of World Bank trust funds has not been found to be as flexible and
responsive as DFID had hoped, alternative options were precluded by prior agreements
reached between WB and the Government.
An “externally funded output” mechanism (similar to a trust fund) was used for WEDP
design, chosen for its administrative simplicity and speed of implementation.
IFC multi-donor fund
In seeking a partner to lead the MDF, DFID was looking for an organisation which a) has
private sector expertise, b) has suitable financial and programme management capacity, c)
has pre-existing fiduciary relationships with donors (to reduce the administrative burden on
donors in interacting with it, and to increase the number of donors legally eligible to
contribute to it), d) makes use of a multi-lateral institution, thereby encouraging them to fill
one aspect of their mandate (that is, to better coordinate donor activity), e) enables donors
reasonable control over the fund, f) has reasonable costs. As negotiations on design of the
multi-donor fund are being finalised, these criteria will be used to take a final decision on
whether to provide DFID funding.
Fund manager options assessed included a) creating a new private sector entity, b)
channelling resources through one of the bilateral donors, c) a United Nations Development
Programme (UNDP) / United Nations Industrial Development Organisation (UNIDO)
managed fund, d) an IFC managed fund.
The new private sector entity option was rejected since it would require significant resource
to set up and manage, and would limit the number of potential donor contributors. The
option to channel resources via a bilateral donor was rejected, since it would create
significant administrative burdens for that donor and would limit the number of donor
contributors. Neither option would be able to draw on pre-established fiduciary relationships
or make use of a multi-lateral institution.
The UNDP / UNIDO option was explored extensively and rejected. This was partly due to
non-alignment of objectives where there was concern that the agencies wished to use the
MDF to pursue a UN-led PSD agenda at odds with that endorsed by the donor group. It was
also due to concerns about the levels of PSD expertise within the organisations (which, at
least in the case of UNDP, does not have a specifically PSD focused remit). Finally, it was
63
due to concerns about institutional capacity: UNIDO was found by the MAR to be
organisationally weak, including in the areas of value for money and managing for results:
the UNDP was found to be organisationally satisfactory, but weak in key aspects such as
cost control. Furthermore, alternative delivery mechanisms were less favourable: a) UNDP
management – explored and rejected primarily due to non-alignment of objectives, b) private
sector management – explored and found to be inferior to MDF delivery primarily due to the
higher administrative costs overseeing its creation and management
The IFC option has already been well analysed, and continues to be developed. However,
analysis so far suggest that IFC management of the MDF would be appropriate, since a) its
remit and area of expertise are both closely aligned with the purpose of the fund, that is,
private sector development, where the IFC has particular experience in investment climate
improvement and supporting financial interventions of the type envisaged under the MDF, b)
the MAR found the IFC to have strong organisational strengths, including in key areas of
financial management and delivering results143, c) as a Development Finance Institution, it is
well positioned to provide the credit lines needed to support implementation of financial
interventions, d) its management costs, although not yet identified, have been shown to be
low in other programmes managed for donors (e.g. 6.4% for the planned IFC managed,
DFID co-funded “Global SME Finance Initiative” which compares to 9.2% for the
internationally tendered DFID India “Poorest States Inclusive Growth” programme). In light of
this analysis, negotiations with the IFC continue as preferred partner.
Choice of funding mechanism – it is proposed that, under the MDF, a common strategy
would be agreed between all participating donors, and that the funding would then be
provided to the IFC from each donor, for the portions of that strategy they wish to support,
via a trust fund. This arrangement implies the constraint that projects funded via the MDF
must a) be aligned with IFC’s expertise, b) be approved internally on the basis that IFC
would itself invest in them, regardless of whether the funding provided was external. This
has the impact of reducing donor control over the fund. Nonetheless, this arrangement
ensures a largely appropriate discipline on MDF activity.
A decision to proceed will be subject to satisfactory negotiation of start-up and management
fees. In implementing the MDF, there will be a transparent data requirement which enables
us to have a clear view of cost allocations to help monitor value for money including of
administrative spend and ensure funding is allocated in line with donor priorities.
World Bank FPD design
Choice of partner - Given the closeness of alignment of the WB programme with DFID
objectives, and its potential as a vehicle for future DFID investment, it was appropriate for
DFID to support the FPD design.
Choice of funding mechanism – An “externally funded output” mechanism (similar to a trust
fund) was used for WEDP design, chosen for its administrative simplicity and speed of
implementation.
World Bank Group procurement methodology
All of the proposed indirect procurement is intended to be channelled via the World
Bank Group (WBG). Consequently, standard and well established WBG procurement
policies, procedures, and processes would be followed. Where required, WBG
procurement will generally take place via open and fair competition in all its tenders.
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Exceptions to open bidding may be granted for contracts below the following thresholds:


Technical procurement/Consulting services: Contracts under $50,000
Administrative procurement: Contracts under $10,000
The World Bank has rigorous procurement procedures in place which are implemented
by qualified and experienced staff, which provide confidence that value for money will be
delivered.
WBG members will evaluate offers and award contracts to the highest-scoring bidder,
with detailed terms and conditions to ensure value for money.
The World Bank procurement operations unit usually reviews around 5% of all
procurements internally with an additional element subject to external review
DFID has in the past provided for staff cost coverage in WB Trust Funds (e.g. Multi-donor
trust fund (MDTF) for the Gender Action plan, MDTF for the Governance Partnership Facility
and the MDTF for the Debt Management Facility). New guidance on Trust Funds from
DFID’s International Financial Institutions Department states that as a general rule staff costs
should not be supported by the MDTF and only as an exception the MDTF could pay for a
small proportion of staff costs when these are clearly justified – i.e. costs are additional and
needed.
Ethiopia Competitiveness Facility
The ECF is managed by an existing programme management unit (PMU) located within, but
operationally separate to, the Government of Ethiopia. This unit is responsible for managing
the matching grant scheme, as well as managing the programme’s finance, monitoring and
evaluation and communication strategies. No procurement process will take place, since we
will be signing a Memorandum of Understanding with the government. The existing team
would be retained within the institution. As discussed later, the PMU’s operating cost
represent good value for money while setting up a new unit would incur additional up-front
costs, and risk loss of key staff. As set out in the appraisal case the PMU’s performance has
demonstrated delivery of previous value for money.
The ECF provides a cost effective way to deliver assistance quickly. It has a track record of
delivering results and is valued by both GoE and the private sector. Further, the
administrative cost the Programme Management Unit at 17.5%25, compares favourably with
similar matching grant schemes and challenge funds. Administration of the African
Enterprise Challenge Fund, for example, amounts to 20% of total costs, while an Australian
Enterprise Challenge Fund run across 9 countries had admin costs of 27%. Efforts will be
made to continue to drive efficiency.
B. Value for money through procurement
25
There are costs associated with the PMU since it was set up by the World Bank to manage WB
funded programmes; while located in the Government, it is not a Government entity, and will become
essentially a DFID-funded team, located in the Ministry of Industry.
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DFID will ensure that its requirements are clearly specified in the trust fund and Externally
Financed Output (EFO) agreements it signs. This will entail clear and timed specification of
expected activities, outputs and, where appropriate, outcomes.
DFID E’s previous experience and the view of our Commercial Advisor (in country) who has
met with the World Bank are positive. In addition observations of the WB in the Multilateral
Aid Review (MAR) depict that the WB is an effective and professional organisation capable
of delivering credible services at scale, in an environment that is difficult and at times
corrupt. The WB will use competition at various stages of procurement for funding to drive
costs down, minimise fiduciary risk and deliver value for money for all participating donors.
The annual fiduciary review process is extremely comprehensive and includes both periodic
post-procurement review of transactions and prior review of larger procurement activities
along with an assessment of the effectiveness of Government procurement processes.
Short narrative reports detailing progress along with details of actual and forecasted
expenditure will be produced regularly by the World Bank. This will enable DFID E to have
sufficient management oversight including early sight of risks and other issues. This will set
out some key general principles regarding programme effectiveness and the extent to which
it is delivering value for money. Clear arrangements will be agreed for measuring delivery
against these agreements. This will include requirements for reporting evidence of delivering
value for money outcomes through WBG activities.
The ECF will be accountable to DFID for operational matters, and to a supervisory board
comprised of Government and private sector representatives for strategic and investment
issues. Monitoring and evaluation criteria are being developed by the World Bank against
which to measure ECF performance26, and the potential for introducing appropriate
incentives, performance indicators, and break points explored.
The World Bank’s continued involvement owes to their ongoing strong interest in the programme,
which will be facilitated by DFID.
26
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Financial Case
A. What are the costs, how are they profiled and how will you ensure accurate
forecasting?
Programme costs should be seen as a range rather than fixed given remaining uncertainties.
Within the portfolio approach, rigorous M&E will determine success and failure and spending
will be directed accordingly. Figures, at Annex E, are our best estimate at this stage.
DFID Ethiopia has indicatively allocated £32.5m within the Comprehensive Spending Review
(CSR) period during the BAR review for this programme. However, it is proposed that the
programme be extended from the originally envisaged 3 years to a longer 7 year
programme. This reflects analysis of absorption capacity in similar programmes, which
suggests that providing a longer period for programmes to bed-in will enable better results to
be delivered, and thereby improve value for money. Consequently, costs during the CSR
period are likely to be £28.9m. The remainder of the costs – up to £40.7m – will be incurred
in the period beyond the current CSR period. This profiling reflects the ramping up of cost as
programmes become better established. Total costs are represented as a range of between
£56m and £70m, reflecting the uncertainty about whether some programmes will proceed as
currently planned. Deliverability of the access to finance interventions, for example, rests on
finding other partners willing to provide credit lines to invest alongside DFID grants. While
there is scope to transfer DFID resources between interventions in response to this, the
overall programme size may need to be reduced, if sufficient support from others is not
found.
Spending under some programme components will be subject to external factors which will
be determined during inception and implementation such as success in securing agreement
from DFIs to provision of credit lines, or receipt of appropriate applications for support under
challenge fund windows.
To reflect uncertainties, the budget and associated forecasting should be considered as a
range, and will be monitored continually. All implementing partners i.e. TSPs and the Project
Management Unit for ECF will be submitting quarterly financial reports (Expenditure is made
against milestones reimbursed against cost incurred as per agreed schedule and work plan
for TSPs while PMU will be on quarterly advance based on agreed milestone and timeline as
per Memorandum of Understanding (MoU) signed with the National Bank of Ethiopia) that
will help assess their budget utilisation rate as well as programme budget forecasting.
B. How will it be funded: capital/programme/admin?
The programme will be funded from programme resources. The planned resources for the
next two years are within the current spending round period (to 2015). Based on
performance and need, consideration will be given for the remaining as to whether to
continue funding and if so whether this continues to be the optimum mechanism to do so. No
contingent or actual liabilities have been identified associated with PEPE, and funding from
third parties is not envisaged though should opportunities arise these will be considered
carefully.
C. How will funds be paid out?
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Direct Procurement
DFID anticipates transferring funds to the suppliers on a milestone basis and based on
receipt of a detailed statement of progress and financial reports and a request for release of
funds from the suppliers. Transfer of funds will be governed by a contract between the UK
and each of the suppliers. The contract will outline the roles and responsibilities of the
signatories including the schedule of payments, reporting and auditing requirements.
Indirect procurement
DFID trust-funds and externally financed outputs with the WB / IFC (World Bank Group –
WBG) will be administered in accordance with the standard policies of those organizations,
details of which will be set out in the relevant Administration Agreements, Memorandums of
Understanding and Framework Agreements to be created between DFID and the WBG.
These will detail governance and funding arrangements of the trust funds.
The World Bank Group regulatory framework requires that funding must be received in full
before commitments/contracts can be negotiated. Funds will be paid out on receipt of call of
funds requests subject to prior agreement of delivery of programme or activity inputs or
outputs. A proposed schedule of disbursements will be agreed under these MoUs. In order
to avoid the risk of cash piling up in the trust fund bank accounts, payments will be matched
to expenditure/contracting needs for forthcoming 6 months (we will seek to reduce this to 3
months if possible). DFID will manage its funding to ensure that funds provided are for use
over the next identified period and that all earlier funds have been used.
Any interest accruing on the trust funds bank accounts will be recycled back to the
programme delivery.
D. What is the assessment of financial risk and fraud?
Partner Risk
A financial risk assessment is being undertaken for Ethiopia. Design of financial
arrangements for PEPE – ECF component that uses the government system will be refined
to reflect this once finalised
In managing direct procurement, one of the criteria for selection of directly procured
contractors to carry out activities would be the robustness of proposed financial
management and procurement capacity. Subsequent to appointment, DFID’s standard
approach to disbursement, financial monitoring and reporting will be applied in all cases, and
all relevant checks applied. Criteria to assess eligibility of grant recipients will be developed
during inception phase in consultation with relevant stakeholders from both the public and
private sectors.
In addition there will be several mechanisms put in place to assess how grant recipients
access PEPE funds and ratify TSPs evaluation of applicants. For instance, for the
microfinance component an advisory committee will be established to assess performance.
An Investment Panel comprising acknowledged experts in microfinance from Ethiopia and
internationally will be set up for grant making decisions for the Microfinance Challenge Fund.
This will ensure a separation of the investment decisions from the management function
performed by the TSP (i.e. evaluating applications) thus safeguarding the risk of the TSP
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favouring particular applicants. The TSP will report directly to DFID PSD Adviser. All
recommendations of the advisory committee and Investment Panel will be ratified by the
PSD Adviser and conveyed to the TSP by the PSD Adviser.
A similar arrangement will be followed for the banking and equity fund. The PMU of the ECF
will report directly to the DFID PSD Adviser, has and already has an oversight body made up
of representatives of the public and private sectors. Under the M4P programmes each
sector will be overseen by an Industry Leadership Group drawn from the public and private
sector stakeholders and interested donors. The role of the leadership group will, to start with,
be confined to advising the DFID PSD Adviser. The TSP will follow the same reporting
format as the other programmes i.e. directly to DFID PSD advisor. DFID Ethiopia has
increased its internal capacity as well as set up an internal steering committee indicated in
section 6.
For programmes managed by the World Bank Group, their standard financial management
processes will be applied. The relevant MAR findings on the World Bank are as follows:
“Adequate cost control systems to ensure costs do not inflate. Committed to a flat budget in
real terms. Financial accountability process and policies are robust; Largely predictable,
transparent financing and extensive financial policies”. The MAR relevant findings on the
IFC are as follows “Financial management, independent audit and transparency are very
strong.”
DFID will ensure that these strengths are reflected in local management approaches. It will
support this by ensuring that standard practice in respect of WBG Trust Funds is applied.
This will include:
 Within six months of the end of each Bank fiscal year, the Bank will provide DFID with a
management assertion, together with an attestation from the Bank’s external auditors
concerning the adequacy of internal control over cash-based financial reporting for Trust
Funds as a whole.
 DFID will request audited financial statement of the Trust Fund, carried out by the Bank’s
external auditors.
 Within six months of all commitments and liabilities under a Trust Fund having been
satisfied and the Trust Fund has been closed, final financial information relating to
receipts, disbursements and fund balance will be made available.
In respect of World Bank Group managed trust funds, DFID Ethiopia will follow internal best
practice including:
 DFID reviewing financial and progress reports, matching spending reports to project
activities and resolving any discrepancies, and reinforcing Bank-supplied information with
information gained from annual reviews, feedback from stakeholders or beneficiaries, etc.
 Financial detail for each Trust Fund will be reviewed on a regular basis.
 Requiring submission of audited accounts
We will consider the need for external assessment of partner financial systems and controls
where we do not have sufficient in house expertise
To further improve management of fraud and fiduciary risk, DFID will require programme
managers to work with DFID in undertaking a partner-by-partner/level-by-level review of the
delivery chain during the inception phase, to assess where risk is present and provide
assurance that this will be actively managed.
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Other risks
Changing costs – arising from exchange rate movements and inflationary pressure (which
also present the possibility for potential benefits. Costs such as input and administrative
costs would be affected through any such changes and will need to be closely monitored.
Implementation delay - delay in disbursement of funds, which could result from a number of
factors, would increase potential exposure to inflationary and exchange rate pressure
leading to further pressure on costs.
Management approach - We will monitor cost changes through regular interaction with the
service providers. We will seek to transfer cost risk to contractors where appropriate, in
order to incentivise efficiency, while taking care to ensure doing so offers value for money,
by allocating risk in line with ability to manage it.
During the inception phase, once the system and implementing partners are in place, we will
closely assess, and quantify, the financial risks under each area of project and put measures
to mitigate those risks.
E. How will expenditure be monitored, reported, and accounted for?
All accounting, recording, reporting and audit functions will use systems and procedures
agreed with suppliers in line with DFID best practice. On the part of DFID, rigorous
forecasting, monitoring and accounting of expenditures and assets will be carried out using
the ARIES system and standard DFID Ethiopia procedures.
Financial Reporting
The potential suppliers will submit a detailed financial (and activity) report to DFID twice a
year. This report will include the details of activities implemented and the expenses since the
previous reporting period. Along with each of these reports, the agencies will also submit
their activity plan for the next reporting period. Release of funds will be contingent on receipt
of a timely and quality report.
Accounting and auditing
Accounting and auditing will be the responsibility of the suppliers using financial
management systems, policies and procedures agreed with DFID in line with best practice.
Further, DFID will make sure that the suppliers have in place a double accounting system, a
strong internal control measures, a cash flow management system, and a financial and
budget management systems.
We will ensure that the potential suppliers will conduct an internal audit of the financial
transaction of the project and assess whether budget utilisation is in line with the intended
purpose. Further, the financial statements and asset of this project will be audited by an
external auditor/s annually over the life of the project. These annual audit reports will be
submitted to DFID within four months of the end of the financial year of the suppliers.
All costs related to financial management will be the responsibility of the suppliers. The
administrative burden of the financial management to DFID will be subject to the number of
contracts entered into. If each of the programme are contracted individually, the burden will
be high - approximately 14 person days (2 per TSP, 1 for the remainder of directly procured
70
programmes, and 3 for the indirectly procured programmes) per six month to review activity
and financial reports and to make payments, and 7 person days per year to review audit,
inventory and other reports (half of the total for each above) - a total of 21 person days per
year. If some of the TSPs are aggregated (perhaps into 2 rather than 5 contracts) this could
lead to the overall time requirement being reduced to approximately 11 person days per year
Asset management
Assets procured through the funds released to this project are
be tracked and monitored. Each potential supplier will establish
all items of equipment purchased (above £1000), and report
project, the disposal of the items shown on the inventory will
DFID
attributable to DFID and will
and maintain an inventory of
to DFID. At the end of the
be subject to agreement by
Management Case
A. What are the Management Arrangements for implementing the intervention?
A portfolio approach
The strategic case is explicit about both the challenges and therefore risks of private sector
programming in Ethiopia. PSD is a new theme, not just for DFID, but also for other donors.
As a consequence PEPE deliberately adopts a portfolio of interventions all designed to raise
investment from the private sector, with each intervention having somewhat different
requisites for success. Accompanied by rigorous M&E (below) to assess, and critically
respond to both success and failure, this will spread risk and allow PEPE to flexibly react to
opportunities.
Rationale for a portfolio: the business case sets out a good understanding of what should
work in Ethiopia, drawn from international experience and local market research, but not
what will work with certainty. Markets by their nature are dynamic and we will learn most
about which of our multiple interventions deliver results during programming itself.
Moreover, some of the strands of work will have their own sub-portfolio of interventions. For
example, within the new-DFID led M4P interventions the service providers will design and
implement a range of interventions. Success of any specific intervention will depend on the
right combination of skilfully judging complex market interactions, the response of other
market players including government, and perhaps even luck. These interventions will be
developed based on rigorous analysis but, just like the success of any company in the
private sector, some will succeed and some will fail. Further detail of the specific
management of sub-components of this portfolio is provided below:
Existing Interventions
WEDP
The Ministry of Urban Development & Construction will have oversight of the WEDP. The
microfinance component of the programme will be managed by a dedicated project
management team (PMT) within the Development Bank of Ethiopia. Benefiting microfinance
institutions will be monitored and evaluated by the PMT against clearly identified
benchmarks and performance indicators (including for cross-cutting issues), based on
quarterly reports. The PMT will provide project implementation reports on a semi-annual
71
basis to the World Bank for the duration of the project. The WB will in turn report to DFID on
the performance of the technical assistance provided in accordance with the terms of the
Trust Fund to be created for that purpose. Additionally, DFID will participate in supervisory
missions evaluating the performance of the facility.
ECF
Subject to the outcome of the separate ECF evaluation, and associated negotiations with
Government, management will take place as follows: operational management of the ECF
will be carried out by the existing project management unit, who will transfer their
accountability from the WB to DFID. Under this arrangement, the ECF management team
would continue to report (to DFID now instead of the World Bank), on delivery against
performance targets to be agreed following agreement to provide DFID funding.
The Project implementation manual governing its operations will be updated in light of
agreement reached with the Government on the programme’s operation. Grant making
decisions will be undertaken by a supervisory board chaired by the State Minister of Industry
and including private sector representatives
New Interventions
Microfinance, banking/equity-type finance, M4P interventions
Each of the contracts for the access to finance (microfinance and banking / equity-type
finance interventions) and M4P interventions will be structured as set out below.
A technical service provider (TSP) will be responsible for day to day management of the
programme including leading industry research, management of any challenge fund rounds
and evaluation of resulting proposals, and wider stakeholder engagement. The TSP will be
appointed by and remain accountable to the DFID-E PSD Adviser.
An industry leadership group, made up of capable public, private sector and donor
representatives with a relevant interest will be appointed. They will review and inform
progress (quarterly), work plans and budgets developed by the TSP (annually). They will be
appointed by DFID. Their role will be advisory only. For the M4P programmes, depending on
performance, DFID could gradually delegate authority and decision making to the panel,
while holding them accountable according to agreed rules, and while retaining the power of
veto on decisions.
Awards of grants above agreed thresholds will be decided on by DFID based on the
recommendation of the TSP.
Performance of interventions and the parties responsible for delivering them will be
evaluated against agreed key performance indicators (including with respect to cross-cutting
issues, tailored where necessary), and a TSP service level agreement, to be agreed during
the contracting process. Programmes do not deliver on cross-cutting elements – including
green growth such that the climate and environment assessment is breached. We will
mitigate this by ensuring cross-cutting elements are raised in all discussions, log-frames and
other M&E arrangements for the existing and newly designed sub-components.
Multi-donor fund
Full details will be developed during the inception period. It is proposed that, once
established, the IFC will be responsible for day to day management overseen by a steering
72
group comprising donor, government and private sector representatives.
developed in line with experience of similar multi-donor trust fund models.
Details will be
General
Across all interventions, DFID will incorporate break points into contracts which enable it to
terminate them if evaluated performance is below agreed levels. DFID will also ensure that
the contract extension is based on the outcome of the inception period as well as
development of a clear strategy that sets out how DFID’s objectives will be met. In respect of
non-management costs, PEPE will not expose DFID to on-going liabilities; once discrete
phases or projects within each intervention are complete, DFID will be able to exit if required.
DFID will ensure oversight of the programme as a whole through use of an internal steering
committee, comprised of the DFID Ethiopia Wealth creation team leader, PSD advisors,
climate advisor and gender advisor (together the latter will be important in helping assess
whether cross-cutting themes are being addressed sufficiently). This committee will engage
closely with the TSP team leaders. In the event that the access to finance and M4P strands
of work are contracted to different companies, this committee will also be used as a
mechanism for bringing together the team leaders for these, to ensure close alignment of
activity. The contribution of other external parties will be sought as necessary. All progress
reports, reviews and evaluations will be initially submitted to the PSD advisors as the first
point of contact. It will be then presented to the internal steering committee to take decisions
on programme delivery.
Exit strategy
The instruments that PEPE intends to deploy allow for programme exit without significant
risk to impact sustainability. Sustainability will be ensured as follows:
 WEDP: The TA provided by PEPE will build capacity amongst MFIs selected by the
World Bank for on-lending its credit line. The capacity built should enable the MFIs to
keep the risk of default, measured as portfolio at risk at 30 days, within industry norms
(5%). This will enable the MFIs to revolve the credit line and lend to others well beyond
PEPE’s expected life.
 Microfinance – new DFID-led intervention: Potential for commercial viability of savings
and lending products will form essential eligibility criteria for the recipients of support.
Though there will be some failures, as innovation is inherently high risk, those products
that achieve commercial viability will be continued by their host institution spurred on by
the profit motive. Hence, commercial viability will ensure sustainability.
 Bank - new-DFID led interventions: As per the microfinance new-DFID led interventions .
 Equity-type finance: new-DFID led interventions: The sustainability of such a venture
rests with the skills of the fund manager in identifying worthwhile businesses to invest in.
If they are able to service the finance provided and provide good returns, the facility
could be sustained out of profits and even scaled up. There are several examples of
equity funds operating in difficult environments being scaled up, for instance Mano Cap
in Sierra Leone27.
 ECF: The TA provided is expected to result in the firms’ improved capacity to compete in
world markets which are increasingly turning to new sources of supply. If
competitiveness is improved, export growth should be sustained well beyond the life of
PEPE.
 M4P programmes: Even without delivering systemic change, the use of enterprise
27Manocap.com
73
challenge funds would ensure that projects have the potential for commercial viability
and, those that succeed will be sustained, as set out under the microfinance section
above. If policies and institutional changes can also be delivered, then the resulting
systemic change should be able to change incentives and deliver lasting behavioural
change.
B. What are the risks and how these will be managed?
PEPE is judged to medium risk and high impact. Key risks and the associated mitigation
strategy are as follows (others are set out at Annex F).

Government policy changes increase the cost and risk of investment – we will mitigate
this by prioritising Government engagement the programme, and targeting
Government priority sectors.
 GoE’s commitment to public investment crowds out the private sector.
 Technical Service providers (TSP) appointed prove incapable of delivering the large
and innovative programmes – we will mitigate this through careful engagement with
procurement group to support appropriate TSP selection and by including periodic
performance milestones combined with careful oversight.
 Programmes do not deliver on cross-cutting elements – including green growth such
that the climate and environment assessment is breached. We will mitigate this by
ensuring cross-cutting elements are raised in all discussions, log-frames and other
M&E arrangements for the existing and newly designed sub-components.
C. What conditions apply (for financial aid only)?
There are no specific conditions for this programme beyond the UK’s overall conditionality
policy which applies to any financial aid provided. Financial aid will be considered in the
context of the annual review of the UK’s Partnership Principles in Ethiopia.
D. How will progress and results be monitored, measured and evaluated?
M&E Vision: A portfolio (continually) adapted to evidence strength
Overall, the strength of evidence for PEPE at the outset of programming is rated “medium”.
The programme contains elements which are a) relatively novel (M4P programmes), or b)
well tested, but new to the Ethiopian context (the access to finance programmes).
This implies a need for a rigorous approach to monitoring and evaluation to inform DFID on
the effectiveness and impact of its investment. A monitoring and evaluation framework - as
well as a programme of thorough research - will be used to adjust the content and weight of
the PEPE portfolio. It will also be used to contribute to creation of public-goods. The
framework will cover both delivery (i.e. effectiveness of programme management in
converting inputs to outputs) and impact (whether delivery outputs achieve anticipated
outcomes and impacts).
The proposed approach to evaluation is consistent with DFID Ethiopia’s Evaluation Strategy.
The programme meets three of the main criteria within the strategy for priority evaluation:

Strategic importance: As noted in the strategic case, private sector development is a key
74


priority for DFID Ethiopia and globally
Size: The planned investment is the largest DFID Ethiopia programme outside existing
investments in core government basic service delivery and safety net programmes
Innovation: The proposed portfolio approach contains a large amount of innovation
especially in terms of the cross-cutting elements and can serve as a pilot for future
investments in Ethiopia and globally
Monitoring and Evaluation Strategy
Monitoring is used to judge the overall performance of the programme and the
subcomponents within it. All implementing partners will design monitoring plans tailored to
reflect the overarching programme ambition as well as specific needs of each intervention
during the inception period in line with the 3E’s methodology outlined in the VfM section
(above). Monitoring will rely largely on TSP self-assessment, based on rigorous
methodology, established baselines and a comprehensive log-frame including cross-cutting
elements all agreed with DFID. Monitoring results will also be reported to the PEPE steering
committee for further review.
Evaluation is used to specifically test what works and what does not within the portfolio and
whether cross-cutting elements are feasible and deliver benefits. This will ensure that even if
our monitoring shows overall positive performance we are able to identify which components
are most effectively delivering this. This will provide rigorous analysis to make decisions to
further support successful interventions and ensure that those sub-components which are
less successful, or outright failures, are either changed or stopped. It will also help test the
premise whether there are indeed complementarities (rather than trade-offs) between growth
and the cross-cutting elements of gender and green growth. It will also be designed to
inform on critical questions such as whether green growth through resource efficiency is
easier to achieve than green growth through increasing natural capital, to provide valuable
lessons for other programme design and inform on the local context. This also forms a
critical part of the value for money strategy: actively reporting, and stopping failing
interventions, including those that are not delivering on the cross-cutting themes, whilst
scaling up successful ones is key. All interventions within the PEPE portfolio will have a
carefully designed evaluation plan unless specifically agreed with the DFID advisor on the
basis that it is not feasible / appropriate.
Programme activities will be considered as a platform to undertake research. PEPE will
ensure use of a combination of appropriate trails (Randomised control trials, systematic
variation trials etc.) and market tests to develop public goods in this new area of
programming. In addition research questions should aim to test the impact of programming
not just on principle objectives but also wider social impacts (e.g. gender violence).
During the tender process for PEPE, significant weighting will be given to the quality of each
bids’ M&E strategy and ability to demonstrate capability to undertake this kind of analysis.
Currently the Wealth Creation and Climate Change team is fully staffed with one PSD A2
Advisor, one PSD A2L advisor (recently recruited) and programme officer dedicated for the
wealth creation programmes. DFID E’s Result Advisor will also be part of the internal
steering committee that reviews the programme. M & E training will be part of the PSD A2L
Learning and Development objective, and where possible all advisors will seek accreditation
to the evaluation cadre.
75
Monitoring Plan
Each TSP will be required to identify base-line data, including vfm metrics, and conditions
affecting the relevant sectors during the inception phase by undertaking surveys as well as
assessing the credibility of existing data sources (currently rated low – see log frame) during
the inception. Target levels in the log-frame have been developed considering the
performance of similar DFID interventions in other countries and tailored to the Ethiopian
context.
TSPs will be required to submit detailed bi-annual progress updates depending on the
complexity and availability of data and comprehensive annual reports, assessing progress
against work plans, financial plans and agreed performance indicators. These plans and
indicators will be developed during the inception phase of the programmes and will help
inform DFID’s decision in approving annual implementation plans and resource envelops
prepared by the TSPs. Every year, reviews will be undertaken by DFID to assess how
improvements can be made to overall programme effectiveness and to inform future
allocation of resources between sub-components of the portfolio. Where relevant reviews will
included relevant stakeholders comprising the public, private and development partners (list
to be comprised and finalised during inception phase).
The accompanying logframe details headline monitoring indicators. So far, all baseline data
for the logframe was unavailable and a preliminary survey undertaken by the TSP during the
inception period is planned to fill this gap with regular surveys built into the programme to
track performance.
The only intervention that will use the government system is the ECF that has a dedicated
and highly qualified28 team. Nonetheless, the M & E will be built in to ensure continuity of
high quality review.
Evaluation Plan
What evaluation questions will be addressed?
The approach to evaluation will be tailored to assess the quality of each PEPE intervention
and to assess the overall effectiveness linked directly to the assumptions laid out in the
theory of change. In broad terms, reflecting the framework set out above, the following
issues will be addressed. A comprehensive list of evaluation and research questions will be
developed by the TSPs by the end of the inception phase, tested during implementation and
quality assured / verified through independent assessment. Examples will include:

Output achievement: have outputs set out at the beginning of each intervention been
delivered? Has the envisaged focus on gender and green growth been achieved (e.g.
has the loan portfolio successfully targeted female entrepreneurs or business employing
disproportionately high numbers of women)? Has the innovative M4P approach achieved
intended outputs? Has M4P had any unintended consequences (positive or negative)?
28
This was verified and commended during the independent evaluation of the project funded by DFID in
March 2012
76


Effectiveness
of
approaches:
which
components
and/or
combination
of
components of the programme deliver the
most effective results (e.g. has the anticipated
targeting of existing entrepreneurs led to
greater wealth creation, and have different
institutions been more/less effective at doing
so)? This will be based on rigorous testing,
including where possible randomized control
testing or market tests.
Key success factors: what factors were key in
the success or failure of each intervention
(e.g. has political economy incentives
facilitated or hindered wealth creation)? Have
the results been sustained over several years
(e.g. have challenge funds or technical
assistance been more effective at market
failures in the short, medium and longer
term)?
Box 1: A hypothetical example of an
evaluation trial
The service provider should seek to test
the impact of either grant or technical
support in terms of increased finance
delivered.
A hypothetical example, linked to creation
of SME units, would be to provide different
degrees of assistance to different control
groups (bank branches). For example the
assistance might be divided into (a) no
training, (b) a light -touch training and (c) a
thorough training on specific risk topics
relating to SMEs. The trial would then test
the subsequent quality of loan portfolio
amongst the three groups, to gauge
effectiveness of the various interventions,
and the level of support (if any) that is
most suitable.
A full independent impact evaluation will be undertaken at the planned end-point of the
programme with a mid-term evaluation in 2013/14. Rigorous independent annual review will
also be incorporated.
How will evaluation be undertaken?
Each TSP will be required to develop a monitoring and internal evaluation framework and
plan for approval by DFID by the close of the inception period. This will require further
elaboration of the precise questions to be addressed and the methodology for doing so.
Depending on data availability a mix of qualitative and quantitative methods will be
considered as part of the methodology. There will be a requirement for development of
appropriate baselines and, where possible, establishment of control groups for each
intervention.
For the access to finance programme, support for a series of “Finscope” studies was
envisaged to provide baseline data. In its stead a NBE-led baseline study is understood to
be underway. Any gaps in this will need to be addressed by the relevant TSP through
undertaking of relevant studies, as far as possible within the constraint imposed by political
resistance to externally managed financial evaluations. For the M4P programmes, baseline
studies will be undertaken for each industry, wherein political obstacles are less likely to be
present. Where possible control groups will be established. In such cases where this is not
feasible, an appropriate range of alternative approaches, including market tests, will be
developed. For the ECF, a monitoring and evaluation strategy is being developed as part of
the further analysis to be undertaken, by the World Bank. For the WEDP, monitoring and
evaluation will be carried out by the project management team and WB in line with identified
outcome targets, agreed with the Government.
There will be a comprehensive mid-term review in 2015 (during the end of the current CSR
period) to evaluate the project, covering each component of the portfolio, as part of the
decision for future investment for the remaining years. Each TSP will be required to carry
77
out a post completion review. This will be scrutinised and reviewed by the industry groups
aligned to each of the interventions, and made public to enable wider scrutiny, to qualify and
validate findings.
An independent evaluation measuring the overall impact of PEPE will also be competitively
commissioned to ensure technically high-standard output. This evaluation process will be
tendered at the same time as the tendering of the access to finance, and priority sector
components. This will allow independent evaluators to work collaboratively with the delivery
TSPs informing development of their own monitoring and internal evaluation plans /
procedures. DFID Ethiopia will consider the use of the PARC resource centre used to select
from the pool of international evaluation expert in this field, who have not been involved in
other aspects of PEPE design or delivery. This evaluation will be carried out by the same
organisation responsible for the two-yearly reviews (see below) in order to ensure continuity
of analysis.
The primary user of all the evaluation reports will be DFID but they will be made publicly
available. The results of the evaluation strategy will be communicated domestically, via
communication channels established during PEPE’s life (likely to include the DFID Ethiopia
website), and internationally, through DFID’s research and evaluation department.
Logframe
Quest No of logframe for this intervention: 3625989
78
Annex A – acronyms
Acronyms
ACSI………………. Amhara Credit and Saving Institution
ADB………………... African Development Bank
AECF………………. African Enterprise Challenge Fund
BDS…………………Business Development Services
BLCF………………. Business Linkage Challenge Fund
BOAM……………… Business Organisations and their Access to Markets
CBE…………………Commercial Bank of Ethiopia
CDC………………. Commonwealth Development Corporation
CIC………………….Climate Innovation Centre
CRGE……………… Climate-Resilient Green Economy
CSR………………. Comprehensive Spending Review
DFI…………………. Development Finance Institutions
EBRD……………….European Bank for Reconstruction and Development
ECBP……………….Engineering Capacity Building Programme
ECF…………………Ethiopian Competitiveness Facility
EFO ……………….. Externally Financed Output
EIB………………… European Investment Bank
EPHEA…………….. Ethiopian Horticultural Producer & Exporters. Association
ETI…………………. Ethical Trade Initiative
FCO…………………Foreign and Commonwealth Office
FDCF………………. Financial Deepening Challenge Fund
FPD…………………Financial and Private Sector Development
FSDT………………..Financial Sector Deepening Trust
GDP…………… ......Gross Domestic Product
GGGI………….. ......Global Green Growth Institute
GIZ………………. Deutsche Gesellschaft für Technische Zusamenarbeit (German
Technical Cooperation)
GoE…………………Government of Ethiopia
GSFI……………......Global Small and medium enterprises Finance Initiative
GTP…………………Growth and Transformation Plan
IDA……………….....International development Association
IFAD……………… .International Fund for Agricultural Development
IFC…………………. International Finance Corporation
IFI……………….…..International finance Institutions
ILO…………………. International Labour Organisation
IMF………………….International Monetary Fund
IMPACT…………….Investment Mobilisation for Prosperity and Catalytic
Transformation
KADET…………… ..Kenya Agency for the Development of Enterprise and
Technology
KFW……………… Entwicklungsbank (German Development Bank)
LIFT ………………...Land Investment for Transformation
LMI…………………. Light Manufacturing Industries
M4P…………………Making Markets Work for the Poor
MAR……………...... Multi-lateral Aid Review
MDF…………………Multi Donor Fund
79
MDGs…………….. . Millennium Development Goals
MDTF……………… Multi Donor Trust Fund
MFI………………… Micro Finance Institutions
MIS……………….. Management Information System
MoU……………….. Memorandum of Understanding
MSME…………….. Micro, Small and Medium Enterprises
NBE……………….. National Bank of Ethiopia
NPL.........................Non Performing Loan
NPV……………….. Net Present Value
OECD…………….. Organisation for Economic Co-Operation and Development
OJEU……………... Official Journal of European Union
PEPE……………... Private Enterprise Programme Ethiopia
PMT……………….. Project Management Team
PMU………………. Project Management Unit
PrG………………... Procurement Group
PSD……………….. Private Sector Development
RUFIP…………….. Rural Financial Intermediation Programme
SIDA…………… ... Swedish International Development Cooperation Agency
SIDBI……………... Small Industries Development Bank of India
SIMBA……………. Skills and Innovation for Micro Banking in Africa
SME………………. Small and Medium Enterprises
SSA……………….. Sub-Saharan Africa
ToR……………….. Terms of Reference
TSP……………….. Technical Service Provider
UKTI………………. UK Trade and Investment
UNCDF…………… United Nations Capital Development Fund
UNDP……………. . United Nations Development Programme
UNEP……………... United Nations Environment Programme
UNIDO…………….. United Nations Industrial Development Organisation
VfM……………….... Value for Money
WB…………………. World Bank
WBG……………….. World Bank Group
WEDP………………Women Enterprise Development Programme
WHI…………………Water Health International
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Annex C – M4P sector summary analysis
Table assessing leather sector's suitability for DFID support
Criteria
Government-priority sector
Leather
Features as a GTP priority sector
Green growth potential based on
investment and innovation
* risk from contribution of the livestock to green house gas emissions and
pollution resulting from chemicals used in leather-production.
* Opportunities to reduce the number of animals required for production
of outputs, with improved health and animal husbandry practices
* Opportunity to move to more efficient use of chemical inputs, thereby
reducing production/pollution ratios
Potential focus on (rural) poor
* Rural focus; labour intensive [2]
Labour intensity and potential for
female jobs (and type of jobs)
* Tanneries - Total employment is around 5,000, mainly men
* Finished leather (shoes, uppers, clothes) - around 8,000 mainly women
Economic
potential
Strong market demand +
international
competitiveness
* Ethiopia is competitive in production cost against the world’s dominant
shoe manufacturer, China; lower overall competitiveness due to factors
such as higher transport costs. [2]
* Ethiopian cost-competitiveness results from low labour costs; but could
be further improved by addressing problems, including power shortages,
low productivity and raw material shortages
Ability to attract large scale
investment
* Ethiopia has the largest herd of animals in Africa
* privatisation of the industry has injected new growth impetus attracting
foreign and domestic investment
* Due to rising Chinese production costs, the Ethiopian industry is
experiencing unprecedented interest from foreign buyers
Potential for productivity
improvements and
innovation on a large scale
to benefit small farmers
and MSMEs
* potential for subcontracting to increase productivity and quality, while
leading to greater job creation than would occur in larger businesses
Contribution to export
diversification
* total leather exports of $104 million p/a (of which unfinished hides and
skins accounted for $ 50 million p.a - though now unfinished product
export is now banned by the Government)
* Leather is becoming a scarce commodity with rising prices
internationally
Barriers to the participation of poor
people
* low productivity / skills deficits preventing effective incorporation of
small-holders into the value chain as entrepreneurs
* investment climate barriers to overall industry growth preventing poor's
participation as employees
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Indicative interventions and impact
chain
* Promotion of out-grower schemes, incentivising larger firms to subcontract to smaller, resulting in greater employment
* Promotion of knowledge / skills among smaller sub-contractors to
enable them to meet larger firms requirements, catalysing small-holder
contracts and subsequent employment generation
* investment climate improvements, eg to prevent delays in importing
which hold-up production, thereby increasing competitiveness across the
sector, generating investment and employment
Data sources
[1] Figures for 2009/10 are from official Central Statistics Agency data, current figures from EPHEA.
[2] World Bank, Light Manufacturing Industries (LMI) Study, Global Development Solutions, 2011
[3] Enterprise Map Ethiopia, IGC, 2010
[4] World Bank, (2009), Towards the Competitive Frontier: Strategies for Improving Ethiopia’s Investment Climate
82
Table assessing horticulture sector's suitability for DFID support
Criteria
Government-priority sector
Horticulture
Features as a GTP priority sector
Green growth potential based on
investment and innovation
* Industry currently reliant on air freight
* Moving to sea freight would reduce emissions, enable the industry to
compete more effectively, and open up the market for fruit and
vegetables
* risks of greater deforestation and less sustainable practice; potential for
PEPE to help mitigate through green-growth prioritisation
Potential focus on (rural) poor
* Rural focus; labour intensive
Labour intensity and potential for
female jobs (and type of jobs)
* labour intensive, currently employing 50,000 people directly, 80%-85%
of which are women
* female jobs largely light-manual, but with increasing opportunities for
low and mid-level management
* Kenya employs 200,000 people directly, highlighting potential.
Economic
potential
Strong market demand +
international
competitiveness
* Strong growth of c. 200% p.a. up to the global downturn in 2008
* UK supermarkets are seeking alternatives to Kenyan supply; strong EU
wide demand
* Ethiopia is competitive against Kenya in flowers and certain fruit and
vegetables; Ethiopian labour costs are nearly half Kenya's.
Ability to attract large scale
investment
Potential for productivity
improvements and
innovation on a large scale
to benefit small farmers
and MSMEs
* Kenya exports $ 400m flowers and $1 billion fruit and vegetable;
Contribution to export
diversification
Barriers to the participation of poor
people
Indicative interventions and impact
chain
* Potential for out-grower schemes to support poor
* Potential to stimulate new input markets, generating employment
growth and reducing transport-associated pollution
* Current exports of flowers at $180m and fruit and vegetable of c.$50m
* low productivity / skills deficits preventing effective incorporation of
small-holders into the value chain as entrepreneurs
* low worker productivity blocking market share gains versus competitor
countries
* investment climate barriers to overall industry growth preventing poor's
participation as employees
* Promotion of out-grower schemes, incentivising larger firms to subcontract to smaller, resulting in greater employment
* Promotion of knowledge / skills among potential employees to enable
them to secure employment and raise productivity, thereby attracting
additional investment and generating further employment and raised
incomes
* investment climate improvements, eg to prevent compulsory
enforcement of practices by the horticulture development agency which
jeopardise international competitiveness, thereby attracting further
investment and raising employment and incomes
Data sources
[1] Figures for 2009/10 are from official Central Statistics Agency data, current figures from EPHEA.
83
[2] World Bank, Light Manufacturing Industries (LMI) Study, Global Development Solutions, 2011
[3] Enterprise Map Ethiopia, IGC, 2010
[4] World Bank, (2009), Towards the Competitive Frontier: Strategies for Improving Ethiopia’s Investment Climate
84
Table assessing textile sector's suitability for DFID support
Criteria
Government-priority sector
Textiles / Garments
Features as a GTP priority sector
Green growth potential
based on investment and
innovation
* Potential for cleaner production through minimising resource
inputs; aligned with objective of improving competitiveness
* Potential for cotton stalk residues to be used for fuel, using
proven technologies.
Potential focus on (rural)
poor
* areas of the country that are suited to cotton growing are
generally poor
Labour intensity and
potential for female jobs
(and type of jobs)
* Total employment is 35,000; plus 500,000 engaged in informal
hand-loom weaving. Female composition unknown, but thought
to be significant (80% of workers at a new Turkish textiles
factory employing 6000 people are female; female roles in all
stages of processing, including cotton production and garment
sewing)
Economic
potential
Strong market
demand +
international
competitiveness
* as costs rise in China, India and elsewhere, the industry is
looking for new sources of supply
* Ethiopia has low production costs; its most efficient factories'
cost-competitiveness already exceeds China and Vietnam in
some areas (eg "cut, make, trim") [2]; Its overall
competitiveness is undermined by logistics costs
Ability to attract
large scale
investment
* US and European buyers have approached Ethiopian
manufacturers seeking increased supply
* Large firms, for example from Turkey, are relocating to
Ethiopia
Potential for
productivity
improvements
and innovation
on a large scale
to benefit small
farmers and
MSMEs
* Potential for out-grower schemes to support poor, including
sub-contracting by larger businesses in specialist functions (eg.
sewing)
* The main type of textile factory in Ethiopia is an integrated
mill, integrating spinning, weaving and finishing. This
configuration has been replaced globally with more specialised
approaches
* Alternative crops such as Sorghum and sesame offer lower
returns than cotton, implying new opportunities for production
Contribution to
export
diversification
* exports of textiles / textile products trebled to $17m between
2005/6 and 2009/10
85
Barriers to the participation
of poor people
* low quality output of domestic cotton preventing greater use of
Ethiopian inputs into production
* low productivity / skills deficits preventing effective
incorporation of small-holders into the value chain as
entrepreneurs, resulting in vertical integration of largest plants
* low worker productivity blocking market share gains versus
competitor countries
* investment climate barriers to overall industry growth
preventing poor's participation as employees
Indicative interventions and
impact chain
* support to improve quality of cotton production, resulting in
greater domestic input use, resulting in increased employment
* facilitation of outsourcing of other inputs, such as packaging,
to facilitate efficiency and employment gains
* investment climate improvements, eg to prevent delays in
importing which hold-up production, thereby facilitating
increased competitiveness, investment and employment
Data sources
[1] Figures for 2009/10 are from official Central Statistics Agency data, current figures from
EPHEA.
[2] World Bank, Light Manufacturing Industries (LMI) Study, Global Development Solutions,
2011
[3] Enterprise Map Ethiopia, IGC, 2010
[4] World Bank, (2009), Towards the Competitive Frontier: Strategies for Improving Ethiopia’s
Investment Climate
86
Annex F – Detailed risk assessment and mitigation strategy
Risk Table
Risk
Macro conditions
Macro-economic
instability
undermines
growth
Probability Impact
Low
- High
Ethiopia has
enjoyed
strong
growth
despite
macro
instability.
IMF
and
World Bank
project
strong
growth.
Political instability or low
- The Medium
civil unrest undermine country has unrest
private
sector been
following the
confidence
relatively
last
stable since elections did
the
last not
elections
undermine
growth
Policy factors
GoE
policy
affects Low
- Medium
PEPE interventions
women’s
economic
empowerme
nt,
MSE
Developmen
t and the
promotion of
the
3
industries
selected are
GoE policy
priorities
GoE’s commitment to
public
investment
crowds out the private
sector
High - GoE Medium
policies are
already
having this
effect
and
87
Mitigation measures
Effects of instability would be partially
mitigated by improvements to the
investment climate brought about by G4G
and PEPE
In particular, Her Majesty’s Government
(HMG) will work with others (donors, the
private sector) to support pro-private
sector macro-policy, including through
DFID chairing of the Donor Assistance
Group private sector technical working
group.
Other DFID programmes, such as the
Peace and Development Programme,
seek to improve political stability.
involvement of the public sector in
oversight arrangements and effective
communication should reduce the
probability. The LIFT programme also
aims to support business-relevant policy
improvements.
Increase availability of finance via World
Bank and other DFI credit lines linked to
PEPE
Risk Table
Risk
Probability Impact
their impact
will increase
Changes to business High
- Medium
regulations
increase Ethiopia’s
investment costs
rank in the
World
Bank’s doing
business
index
has
been falling
Environmental factors
Economic
growth Medium
generated
through
PEPE drives detrimental
climate change
Adverse
climatic
conditions derail growth
and poverty reduction
and
divert
public
resources
Financial risks
PEPE may not be able
to mobilize all the
resources needed from
development partners
Medium
Mitigation measures
PEPE (and potentially G4G) will help
support
business
regulation
improvements, including through the
multi-donor fund
Programme design is intended to support
growth that is low-carbon. Implementing
partners will be required to prioritise
green growth considerations, capitalising
on opportunities and minimising potential
risks.
Medium
- Medium
Ethiopia
is recent
vulnerable to evidence
shows that it
droughts
would take a
prolonged
drought
to
derail growth
Social protection measures appear to be
able to cope with periodic droughts; DFID
and other donor backing helps reduce the
drain on public resources
Medium
- Medium
The World
Bank is at an
advanced
stage
of
preparing
the WEDP;
some
interest has
been
expressed
by
other
DFIs
Innovative savings products supported by
PEPE could help to increase funds
available to MFIs and the commercial
banks for on-lending
Flexibility on PEPE products could further
incentivize DFI interest
DFID may also be able to draw on
alliances with others such as the Gates
foundation to either mobilize the
resources directly, or find / persuade
other partners to do so.
Operational risks
Poor quality and delay Low
of TSPs procurement
results in slow progress
or failure to deliver
High
There is a large range of capable TSPs
able to deliver PEPE interventions.
Careful screening of proposals to assess
that TSPs
88
Risk Table
Risk
Probability Impact
Challenge
fund Low
- High
instrument
fails
to Challenge
deliver innovation
funds have
delivered
innovation in
far
more
challenging
environment
s
(e.g.
Zimbabwe,
Sierra
Leone).
M4P programmes fail to Medium
Medium
deliver systemic change
Mitigation measures
Clearly identified performance metrics
and incentives built into contracts
Started drafting the TOR during the
design phase in collaboration with
procurement group, design team as well
as internal PSD experts to get clear TOR
on time for tendering by the time of
approval
The consultations to design PEPE
suggest strong appetite from MFIs, banks
and businesses in the 3 industries.
Careful design, monitoring of success
and subsequent refinement
Lack of capability in the public sector to
bring about policy & institutional change
can be mitigated by PEPE assistance
Flexibility in approach will seek different
means of addressing binding constraints
Failure
to
deliver Low
intended benefits for
women and to promote
green growth.
Economic
Medium
empowerment
may
increase
violence
against women
Difficulties coordinating Medium
Participation
of
Government
in
programme governance to increase
ownership
High
Programme design prioritises crosscutting objectives:
 Use of credit lines dedicated to
women entrepreneurs & working on 3
industries where women make up
over 70% of the workforce reduced
the probability.
 Selection criteria for all grants will
include benefits to women and the
promotion of green growth.
Medium
Research carried out under the
programme will examine this question.
The programme will also link up with
other DFID programmes aimed at
preventing violence against women to
prevent this where concern is identified.
Low - DFID Close cooperation with IFC and key
89
Risk Table
Risk
Probability Impact
donors result in delay to
can deliver
multi-donor
fund
most
implementation
scheduled
outputs
bilaterally
Mitigation measures
interested donors, including through
engagement with IFC’s regional head of
donor relations.
A continued lead DFID role in negotiating
processes and programme content.
Use of DFID’s leverage on IFC’s board to
press for progress, if necessary.
Procurement
Grouping
TSPs
for Medium
access to finance under
one contract undermine
programme
management
High
Increase the scope
economies of scale
for
realising
Reduces DFID administrative costs in
overseeing the programmes
One TSP for M4P Medium
component undermine
programme
management
High
Management cost of Low
TSPs may be significant
High
90
 Work closely with procurement group
to assess the TSPs skill and capacity to
handle such programme as well as
assess performance during inception
period
 If decided to use two TSP based on
unavailability of right mix of specialist,
Any potential loss of economies of scale
will be compensated by the level of
expertise brought to bear by the TSPs
Increase the scope for realising
economies of scale
Reduces DFID administrative costs in
overseeing the programmes
 Work closely with procurement group
to assess the TSPs skill and capacity to
handle such programme as well as
assess performance during inception
period
By
using
open
and
transparent
competition
using
all
appropriate
channels,
we
will
ensure
that
management cost proposed meet our
value for money requirement i.e.
economy, efficiency and effectiveness.
Annex G – Assumption evidence data
Figure 1: Cross country evidence on the
relationship between investment and growth
(source: World Development Report 2005)
Figure 2: CBE trend in loan portfolio (Birr m) (Source: CBE, 2011)
Figure 2: cross country evidence on the
relationship between investment and growth
(source G20 Inter-agency working group)
91
Annex H – comparison of costs of different grant funds
Challenge Fund
Donor
Ethiopia
Competitiveness
Fund
Enterprise
Challenge Fund
Africa
Enterprise
Challenge Fund
World
Bank
Business
Linkages
Challenge Fund
Financial
Deepening
Challenge Fund
% of Budget
for
Implementing
the Fund
17.5%
Total
Grant
Fund
Coverage
US$
6,900,000
1 country
AusAID
27%
AusAID,
DANIDA,
DFID,
IFAD,
MNFA,
Sida
DFID
20%
14,500,00 9 countries
(Aus$)
US$
54 countries
40,000,000
20%
US$
International
16,600,000
DFID
22%
US$
Africa and
32,000,000 South Asia
92
Annex I – Climate & Environment Assurance Note
Intervention Details
Private Enterprise
Programme Ethiopia
DFID Ethiopia
£56m- £70m over 7 years
(2012/13 – 2018/19)
Responsible Officers
Title
Project Owner
Climate Change and
Environment Advisor
Name
Kerry Conway
Negusu Aklilu
Department
DFID Ethiopia
DFID Ethiopia
Appraisal
Success Criteria
Sensitivity Analysis
Alignment with Ethiopian Government’s Climate
Resilient Green Economy strategy was a criterion
for selection of priority sectors
Climate & Environment Category
Risks & impacts
B
Yes
Opportunities
B
Management
Risks and opportunities
defined
Risks: support for horticulture
and leather industries, where
impact on water use and
potential for increased
pollution will need to be
monitored.
Opportunities: increased
microfinance and equity for
green growth; sector
selection aligned with, and
will support implementation
of, Ethiopia’s Climate
Resilient Green Economy
strategy
Climate & Environment
Measures agreed
Implementing partners
required to ensure that
negative environmental
impacts of horticultural and
leather activities minimised
20% of finance supplied by
PEPE will be reserved for
‘green’ companies / activities
Opportunities for green
growth and increased
resource efficiency will be
prioritised in three focal
sectors
Climate and Environment
adviser included in PEPE
steering committee
SIGNED OFF BY: Negusu Aklilu
DATE:
13/6/12
93
Climate & Environment
Measures in log-frame
Yes – greater investment in
green growth opportunities
specified at impact and
outcome levels, and in all
three outputs.
Annex J – diagrammatic summary of
PEPE
Private Enterprise Programme Ethiopia (PEPE) –
7 years (2012-2019)
Access to
Finance
Micro-finance
- New products
- Improved MFI
capacity
- improved regulation
Banking:
- New products
- Improved bank
capacity
- improved regulation
WB led:
Women’s
Entrepreneurship
Development
Programme
DFID-led
Equity-type
finance
- nature TBC
Finance
Finance
Flexible Funding
Priority Sectors
Finance
Ethiopia
Competitiveness
Facility
- matching grants
(leather, textiles,
agri-business)
Productivity
gains
Making Markets Work
for the Poor:
1) Leather
2) Textiles
3) Horticulture
- support to firms
- investment climate
improvement
Productivity
gains
Multi-donor Fund
- investment
climate
improvement
- access to
finance
- better donor
coordination
Finance
Other
- M&E
- programme
design
- research
Productivity
gains
Finance
Ethiopian Private Sector
Especially small and medium, growth-oriented firms, with high female employment levels, and green growth opportunities
Security of land title
Land Investment for Transformation (LIFT) - 6 years (2012-2018)
- Land titling support to Government for improved accuracy
- Land administration support for improved dispute resolution etc.
94
- Research on land-related productivity improvement opportunities
Annex K – definition of a job
The DFID How to Note on defining jobs sets out the following definition, which will be used as the basis for calculations in PEPE:
1. Working at least 20 hours/week for at least 26 weeks/year29
2. In conditions that comply with the 8 ILO Core Conventions
3. And earning at least the “living wage” for that country i.e. the greater of:
a. the national minimum wage
b. the wage required to take the worker plus an average number of dependents to the $2 poverty line
We may also wish to add a minimum number of years’ work. Notes 1 and 3 suggest that we should be aiming for a sustainable i.e. long-run change and the
methods recommended are designed to focus on this. A 3 year minimum might be appropriate if we want to add this qualifier.
29
95
Annex L – Economic Appraisal methodology
Quantified Cost and benefits of the interventions
Term definitions:
 Net Present Value – the discounted cumulative present value of all the future returns minus all the discounted cumulative costs
 Internal rate of return –the discount rate at which the NPV equals zero. The higher a project's internal rate of return, the more desirable it is
to undertake the project
Activity
Cost to who
Link to benefits
Benefit calculation
DFID Partners
(WB, a DFI yet
to be identified)
and the MFI
themselves
Lending to firms (note
that loans are counted
as a permanent cost,
to DFID, since it is
assumed they are reloaned when repaid to
MFIs)
NPV is calculated as follows:
1) Microfinance
Credit line: credit line for new
lending generated from MFI
savings and/or credit line
provided by WB and DFI for
MSMEs (leveraged by other
DFID activity detailed below)
Policies: to develop
microfinance policy currently
lacking in the country
Management Information
System (MIS) identification
and ranking: standardised
computer MIS to be selected
and installed in at least 2 MFIs
on trial bases (with the MFI’s
putting 25% of the cost) to
move from manual mechanism
MIS Challenge Fund: once
the trials are successful,
challenge funds will be
available for MFIs who wish to
install the new software
systems
Product Innovation
Challenge Fund: funds for
innovative ideas from MFIs on
saving and loans (with the
DFID
DFID, MFI
Facilitates
lending;
initial benefit to the
MFI, which on-lends to
firms in turn






DFID
(potentially also
the MFI)
DFID, MFI
96
The impact on turnover is calculated based on the amount of lending
assumed to be generated from DFID support.
The impact on turnover this generates is calculated by multiplying the
credit lines by the return on investment (42%) and rate of nonperforming loans (5%).
It is assumed that repaid loans are re-lent, generating further benefit
which is calculated as above Benefits from Value Added is calculated
by multiplying the benefits generated from the turnover impact and relending impact (above) by 40% as per our assumption
The sum of turnover, relending and value added generates a net cash
flow.
This rate is then discounted to reflect time preference and results in a
final net present value.
large MFI’s putting 50% of the
cost and small MFI’s putting
20% of the cost)
Management: Cost of
DFID
facilitation, communication,
MCF investment panel, M&E
including WEDP TA )
2) Banking and Equity type finance
Facilitates overall
programme
Challenge fund: lending and
Partner Banks
other services provision such
as saving, transaction products
as well as capacity building of
partner banks. The relevant
banks will also be required to
match DFID funding in
proportion of 1:1, although the
final proportion will depend on
any negotiations and other
contributions by the bank
CF management: cost of
DFID
managing the challenge fund
On-lending facility: estimated DFID and
cost of first loss in the first
partner Banks
year, based on preliminary
estimation, from the on-lending
facility and guarantee
SME IF management: cost of
DFID
managing the investment fund
Management: Cost of
DFID
facilitation, communication and
M&E of both CF and IF)
3) Ethiopia Competitiveness Facility
Lending to SMEs (note
that loans are counted
as a permanent cost,
to DFID, since it is
assumed they are reloaned when repaid to
banks)
NPV is calculated as follows:
Facilitates
lending;
initial benefit to the
banks, which on-lends
to SMEs in turn;

Competitiveness fund: firm
level support (exporting firms
to borrow up to $100k at a rate
of 75% and a further $100k at
50%), grants to private
institutions that support export
development as well as grants
Lending to exporting
firms (note that loans
are counted as a
permanent cost, to
DFID, since it is
assumed they are reloaned when repaid)
NPV is calculated as follows:
DFID






97
The impact on turnover is calculated based on the amount of lending
assumed to be generated from DFID support.
The impact on turnover this generates is calculated by multiplying the
credit lines by the return on investment (50%) and rate of nonperforming loans (5%).
It is assumed that repaid loans are re-lent, generating further benefit
which is calculated as above Benefits from Value Added is calculated
by multiplying the benefits generated from the turnover impact and relending impact (above) by 45% as per our assumption
The sum of turnover, relending and value added generates a net cash
flow.
This rate is then discounted to reflect time preference and results in a
final net present value.
The private return on investment generated from DFID’s support is
calculated by multiplying the credit lines by the return on investment
i.e.£2.01 for every £1 lent Productivity gains of the private return is
assumed to be long lasting and continue beyond the third year
calculated by multiplying the private return on investment by 45%
From this, a net cashflow is calculated by adding the benefits
to chamber of commerce and
sectoral associations
Management: Cost of
facilitation, communication and
M&E of the fund)

DFID
Facilitates
lending;
builds
capacity
of
private institutions that
support
export
development including
chamber of commerce
and
sectoral
associations
DFID
Lending
to
firms
focusing in the priority
sectors;
generated from turnover impact, relending impact and value added
revenue growth.
This rate is then discounted to reflect time preference and results in a
final net present value.
4) M4P
Public sector grants and TA:
Challenge fund performance
grants
Support for training
Research and Communication
Management: Cost of
management, communication
and M&E of the priority
sectors)
Facilitates
improvement
investment
issues
support
to
climate
NPV is calculated as follows:



Facilitates overall
programme

98
The Value added revenue growth comprise benefits arising from the
additional exports generated from the sector resulting from DFID
support multiplied by 40% for Leather, 20% for Garments and 80% for
Horticulture (to capture the job creation/income generation and
productivity benefit) and rate of non-performing loan (5%) to take in to
account non-performing loans with benefits becoming tangible three
years later
Investments are calculated based on current investment trend as well
as public announcements made by the government and private sector.
From this, a net cash flow is calculated by adding the benefits
generated from turnover impact, relending impact and value added
revenue growth.
This rate is then discounted to reflect time preference and results in a
final net present value.
Annex M – assumptions justifications
No.
Interventions
Assumption
Evidence
1
Microfinance
ROI : - 42%
 Impact of micro credit in rural areas of Morocco: Evidence from a Randomized
Evaluationcxliv showing 42%,
 Based on a study on MFIs, one in Ghana and the other in South Africa shows a
157% and 118% increase in turnovercxlv.
Value added: 40%
survey by Triodos in Ethiopiacxlvi showing 60%
2
3
SME
ECF
ROI : - 50%
Value added: 45%
Based on analysis of the Ethiopian manufacturing industrycxlvii.
ROI: £2.01
Based on the performance of ECF-supported firms30
Productivity gains:
45%
Based on evaluation of ECF which showed firms experienced a 40% increase in
turnover and a 22% increase in employment on average; consequently 18
percentage points of the turnover increase (which is 45% of the total increase) can be
attributed to productivity gains31
4
M4P
ROI : - 100%
ECF used as a proxy
Value added: Leather 40%
Value
added:
Garments - 20%
Based on analysis of the leather footwear sector in the World Bank Light
Manufacturing Industries (LMI) Study 2011 showing 45% value added
Based also on the World Bank LMI study. In 2005 in Cambodia, the value added in
the garment industry was higher at 43% according to the study Cambodia’s Garment
Industry, Origins and Prospect, ODI. 2005. Eurostat reports value added in the textile
and garment industry in Europe at 30%.
Value
added:
Horticulture - 80%
Based on three studies showing value added over 80%, specifically in Ethiopia and
sub-Saharan Africa more generallycxlviii.
30
For sectors for which sufficient data are available (leather tannery, leather shoes, textile fabrics and yarn, and textile garments).
A sub-sample of 15 firms, out of the 25 supported, was selected for having been able to quantify both their current levels of turnover and employment, as well as the
proportion of these that can be attributed to ECF
31
99
There are Ethiopian studies that give value added figures, i) constraints &
Opportunities of Horticulture Production & marketing in Eastern Ethiopia, Emana B
and Gebremedhin H, Drylands Coordination Group, 2007 and Analysis of Fruit and
Vegetable Marketing Chains in Tigray, Teka AT, 2009. Both show that value added in
vegetables is over 80%. This is because the use of inputs is low
100
1
World Development Indicators, World Bank 2010 Atlas Methodology
UNDP, Human Development Index, http://hdrstats.undp.org/en/countries/profiles/ETH.html, accessed 13 April 2012
3
World Bank, http://data.worldbank.org/indicator/SI.POV.DDAY/countries/ET?display=graph, accessed 13 April 2012
4
2005 Labour Force Survey, Central Statistical Agency
5
Development Data Group, The World Bank. 2009. 2009 World Development Indicators Online. Washington, DC: The World Bank. Available at: http://go.worldbank.org/U0FSM7AQ40.
6
M Todaro and S Smith, Economic Development, Ninth Edition, Chapter 5
7
“Ethiopia’s Progress Towards Eradicating Poverty: An Interim Report on Poverty Analysis Study (2010/11)”, Ethiopian Ministry of Finance and Economic Development
8
Ethiopia’s Climate-Resilient Green Economy Strategy http://www.uncsd2012.org/rio20/content/documents/287CRGE%20Ethiopia%20Green%20Economy_Brochure.pdf
9
The Bottom Billion, Paul Collier, p.27
10
The Bottom Billion, Paul Collier, p.20
11
A methodology for analysing the underlying causes of economic problems, outlined in, Growth Diagnostics (2004), R. Hausmann, D. Rodrik, and A. Velasco.
2
12
A Study on the Determination of the Share of the Private Sector in Ethiopian Gross Domestic Product, Ramesh Kolli, 2010, p.27
Towards the Competitive Frontier, Strategies for Improving Ethiopia’s Investment Climate World Bank, 2009
Calculation based on data from the World Bank Enterprise data base and the Ethiopian Ministry of Trade (http://www.ethiopia.gov.et/English/MOTI/Information/Pages/Statistics.aspx)
15
Nathan, PEPE report, phase 1, p.17
16
Solomon, D. (2010)
17
The Engine of Development, the private sector and prosperity for poor people; DFID, 2011
18
World Bank, World Development Indicators
19
Towards the Competitive Frontier, Strategies for Improving Ethiopia’s Investment Climate World Bank, 2009
20
World Bank, Doing Business Survey, 2012
21
Towards a Competitive Frontier: Strategies for Improving Ethiopia‘s Investment Climate (June 2009) World Bank
22
Taken to mean loans between $30,000 and $175,000
23
Data provided by the Commercial Bank of Ethiopia, 2011
24
ACSI was recently rated by Forbes Magazine globally as the 6th best MFI
25
Women Entrepreneurship Capacity Building Studies: Ethiopia, Triodos Facet for World Bank, 2011
26
Nathan, PEPE report, phase 1, p.68 based on a stakeholder workshop.
27
Evidence for this comes from the Ethiopian Microfinance Institutions Performanc1e Analysis Report – Bulletin 7 – Wolday Amha (Ph.D) & Anteneh Kifle – AEMFI – March 201
28
Towards the Competitive Frontier, Strategies for Improving Ethiopia’s Investment Climate World Bank, 2009
29
http://mixmarket.org/mfi/country/Ethiopia
30
Finding reported during a PEPE design stakeholder workshop.
31
Data provided by the National Bank of Ethiopia
32
ODI Global Financial Crisis Discussion Series, Paper 7: Kenya, May 2009 [cited in Ph1.p.60]
33
African Development Bank (2010) A Diagnostic of the Ethiopian Financial Sector
34
OECD, Social Inequality and Gender Index, http://genderindex.org/country/ethiopia
35
Evidence of how greater credit information helps to reduce financing constraints can be found in Love, I. and NataliyaMylenko, (2004), “Credit reporting and financing constraints”, The
World Bank, Policy Research Working Paper Series: 3142
36
Secured Transaction Reform and Access to Credit, Duhan F. & Simpson J. , EBRD 2009.
37
Nathan, PEPE report, phase 1, section 3 – based on interviews.
38
PSD Hub report
39
Cited in World Bank Enterprise Surveys by 14% of firms as the key problem: http://enterprisesurveys.org/Data/ExploreEconomies/2006/ethiopia
40
Between the early 1960s and 2000 Chile’s export concentration reduced by 75% as its GDP more than doubled
41
PEPE ph1 p45
42
An Enterprise Map of Ethiopia, John Sutton and Nebil Kellow, 2010
43
Light Manufacturing Industries (LMI) Study, Global Development Solutions, 2011
44
World Bank, 2004, Opportunities and Challenges for Developing high-value agricultural exports in Ethiopia, Washington, DC.
45
Japanese Embassy Series of Studies on Ethiopian Industries, March 2008, http://www.et.emb-japan.go.jp/Eco_Research_E.pdf
46
An Enterprise Map of Ethiopia, John Sutton and Nebil Kellow, 2010
47
An Enterprise Map of Ethiopia, John Sutton and Nebil Kellow, 2010
48
Economics, D. Begg, S Fischer, R. Dornbusch, p.110
13
14
101
49
McKinsey, The Resource Productivity Revolution, 2011
Needs Assessment for Promoting Resource Efficiency in SMEs in Ethiopia (Ethiopia Cleaner Production Center, 2009):
http://www.ecpc.org.et/sites/default/files/Documents/Publications/PRE-SME_Needs_Assessment_Final.pdf
51 IMF 2001, World Economic Outlook: The Information Technology Revolution
50
52
Ethiopia’s Climate Resilient Green Economy: Green Economy Strategy (GoE, 2011), p.18.
53
Economy wide Impact of Electricity Shortage: ACGE Analysis, Newsletter: Ethiopia Strategy Support Program (Tsehaye,E., S.Tamiru andE. Engida
(2010)): www.edri.org.et/Documents/IFPRI-ESSP%20II%20newsletter%20July-August2010.pdf.
54 World Bank, WDR 2011.
55 Demel 2001
56
Light Manufacturing in Africa,Targeted Policies to Enhance Private Investment and Create Jobs, World Bank, 2012
Government of Ethiopia Growth and Transformation Plan, volume 1, 2010
58
Government of Ethiopia Growth and Transformation Plan, volume 1, 2010
59
Mohsin Khan and Carmen Reinhart (1989) "Private investment and economic growth in developing countries"
60
Evangelos Calamitsis, Anupam Basu, Dhaneshwar Ghura (1999) “Adjustment and Growth in Sub-Saharan Africa”
61
Shantayanan Devarajan, William R. Easterly and Howard Pack (2001) “Is Investment in Africa too Low or too High?”
62
Prosperity for All: Making Markets Work, Private Sector Strategy, DFID
63
Indicators for measuring and maximizing value added and job creation arising from private investment in value chains’, Inter-Agency Working Group on Private Sector and Job Creation
Pillar of the G20 Multi-Year Action Plan on Development, 2011.
64
Indicators for measuring and maximizing value added and job creation arising from private investment in value chains’, Inter-Agency Working Group on Private Sector and Job Creation
Pillar of the G20 Multi-Year Action Plan on Development, 2011..
65
Finance, Growth and Inequality, Beck, Demigurc-Kunt and Levine, 2004.Ayyagari, M. and Demirguc-Kunt,A. “How important are financing constraints? The role of finance in Business
development.” The Worls Bank Economic review, 2008.
66
World Bank. 2001. Finance for Growth, Policy Choices in a Volatile World. New York: Oxford University
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67
Honohan, Patrick. 2004. “Financial Sector Policy and the Poor: Selected Findings and Issues.” World
Bank Working Paper 43. Washington, D.C.
68
SIDBI (2008) “Assessing Development Impact of Micro Finance Programmes: Findings and Policy Implications from a National Study of Indian Micro Finance Sector”
http://www.sidbi.in/NOTICES/Impact_study.pdf
69 Towards the Competitive Frontier, Strategies for Improving Ethiopia’s Investment Climate World Bank, 2009
70
Impact of microcredit in rural areas of Morocco: Evidence from a Randomized Evaluation (2011) - Bruno Crépon, Florencia Devoto, Esther Duflo and William Parienté
71 The Returns to Capital in China, Chong-en Bai et al, 2006
72
Indicators for measuring and maximizing value added and job creation arising from private investment in value chains’, Inter-Agency Working Group on Private Sector and Job Creation
Pillar of the G20 Multi-Year Action Plan on Development, 2011.
73
Economic Report on Africa, UNECA, AU, 2011
74
Work in Progress: Job Creation and the Quality of Growth. Fox L. &Sekkel M, World Bank, 2006.
75
Small & Medium Enterprises, Growth and Poverty: Cross Country Evidence, Beck, Demigurc-Kunt and Levine, 2003.
76
Ayyagari, M., A. Demirguc-Kunt., and V. Maksimovic (March 2011), “Small vs. Young Firms across the World: Contribution to Employment, Job Creation and Growth”, World Bank.
77
SME Growth &Entrepreneurship: What do we know? Prof. A. Scholar, MIT. Innovation for Poverty Action Conference, 2011.
78
CSA 1997, cited in Solomon, D (2010)
79
World Bank (2009) Financial Access 2009: Measuring Access to Financial Services around the World, cited in O’Brien, B. And Khalaf, R. (2010)
80
AEMFI (2009) Occasional Paper 24, cited in Solomon, D. (2010)
81 World Bank Group (1999) Gender, growth and poverty reduction Issue 129, Feb 1999
82 OECD, (2006) Promoting Pro-Poor Growth: Private Sector Development
83 Goldman Sachs, (2007) Global Economics Paper 154
84
Zafiris Tzannatos (1999) “Women and labour markets changes in the global economy: Growth
helps, inequalities hurt and public policy matters”
85
http://siteresources.worldbank.org/INTGENDER/Resources/tradezafiris.pdf
86
: Ethiopian Women Entrepreneurship Capacity Building Studies, Triodos Facet, 2011.
87
WEDP Target Group: the Growth Oriented Microenterprises, Lessons from the last two decades of research on MSE growth, World Bank, 2010.
57
102
World Bank (2009) Towards the Competitive Frontier: Strategies for Improving Ethiopia’s Investment Climate, Chapter 6: Unlocking the Power of Women, cited in Solomon, D. (2010)
Solomon (2010)
90
Ward, J. Et al (2010), Evidence for Action: Gender Equality and Economic Growth, Chatham House and Vivid Economics
91
Women's Work and Economic Development, Kristin Mammen; Christina Paxson, The Journal of Economic Perspectives, Vol. 14, No. 4. (Autumn, 2000), pp. 141-164. Also, World Bank
Development Report, Gender Equality and Development, 2012
92
UNEP, 2011, Towards a Green Economy: http://www.unep.org/greeneconomy/GreenEconomyReport/tabid/29846/Default.aspx
93
See UNEP (2008) Background Paper on Green Jobs
94
UNEP Report on the Green Economy (2010): http://www.unep.org/greeneconomy/GreenEconomyReport/tabid/29846/Default.aspx
95
Shalizi & Lecocq, 2009.
96
An example of such behavioural lock-in is the fact that we use QWERTY keyboards and VHS video standards, yet at some point AZERTY keyboards and BETAMAX video standards
could have been adopted instead.
97 Does economic upgrading generate social upgrading? Insights from the horticulture, apparel, mobile phones and tourism sectors; Thomas Bernhardt, William Milberg, November 2011.
98 Assessing the impact of US Government Assistance on employment , Josef Brada et al, 2008
88
89
99
www.ifc.org/jobcreation
100 DFID “How to Note” - Measuring job creation 2 - How do we define a job?; June 2012
The DFID multi-lateral aid review ranked the ILO as “weak” in terms of organisational efficiency
As Kiva.org have done – e.g. see the global green microfinance website: http://www.greenmicrofinance.org/)
103
Honohan, Patrick. 2004. “Financial Sector Policy and the Poor: Selected Findings and Issues.” World
Bank Working Paper 43. Washington, D.C.
104
What is the impact of microfinance, and what does this imply for microfinance policy and for future impact studies? Copestake and Williams, 2011
105 Presentation delivered to DFID The Impacts of Microfinance: A Randomized Evaluation of
Spandana’s program in Hyderabad; June 8, 2009; Abhijit Banerjee, Esther Duflo, Rachel Glennerster, Cynthia Kinnan
106What is the impact of micro-finance on poor people? A systematic review of evidence from sub-Saharan Africa; Stewart R, van Rooyen C, Dickson K, Majoro M, de Wet T; 2010
107 Due Diligence- an impertinent inquiry into microfinance; David Roodman – Centre for Global Development, 2012
108 What is the evidence of the impact of microfinance on the well-being of poor people?; Maren Duvendack et al, August 2011
101
102
109
Ethiopian Women Entrepreneurship Capacity Building Studies, Triodos Facet, 2011.
Ethiopian Women Entrepreneurship Capacity Building Studies, Triodos Facet, 2011
111
AEMFI (2009) Performance Analysis Report: Bulletin 5
112
Ethiopian Women Entrepreneurship Capacity Building Studies, Triodos Facet, 2011
113
Ethiopian Women Entrepreneurship Capacity Building Studies, Triodos Facet, 2011
114
Access to Financial Services: A review of the issues and Public Policy Objectives, Stijn Claessens, World Bank, 2006.
115
The GirlHub, Girl Led learning journey found examples of young women paying third parties to hold their savings
116
(Wright and Cracknell – The Market-led Revolution of Equity Bank)
117
Financial Sector Deepening Challenge Fund ( FDCF) Output to Performance Review (2005), Bankable Frontier
118
AECF Summary Review, March 2010.
119
IFC publications (October 2010) “Scaling-Up SME Access to Financial Services in the Developing World”
120
Asian Development Bank (October 2010) “Philippines: Small and Medium Enterprise Development Support Project Completion Report “
121
Final report by Vega Alliance, http://www.vegaalliance.org/files/u1/thiopia__AGOA___Final_Report__Final_12_21_11.pdf
122 Impact Finance Survey commissioned for the Bank of Luxembourg in partnership with the European Investment Fund and Ernst and Young and carried out by the Swiss Investment
advisory firm The Alphamundi Group), 2010
123 CDC Annual Review 2010
110
124 Impact Finance Survey commissioned for the Bank of Luxembourg in partnership with the European Investment Fund and Ernst and Young and carried out by the Swiss Investment
advisory firm The Alphamundi Group), 2010
125
www.katalyst.com.bd
PropCom, final report, http://www.propcom.org/documents/home/Low_Res_PrOpCom_FINAL.pdf
127
Association of Ethiopian Microfinance Institutions (AEMFI) (2010)“Ethiopian Microfinance Institutions Performance Analysis Report (2010
128
Impact of microcredit in rural areas of Morocco: Evidence from a Randomized Evaluation (2011) - Bruno Crépon, Florencia Devoto, Esther Duflo and William Parienté
126
103
129
Ethiopian Women Entrepreneurship Capacity Building Studies, Triodos Fact, 2011.
Ethiopian Women Entrepreneurship Capacity Building Studies, Triodos Fact, 2011.
131
Agri-processing and the Developing Countries, Background paper for the 2008 World Development Report, Wilkinson J. and Rocha R. 2006.
132
IFC publications (October 2010) “Scaling-Up SME Access to Financial Services in the Developing World”
133
Miguel Laric, DFID, Investment Climate Practice Note 1: Transforming the Enabling Environment for Business to Transform Markets: Why an M4P Approach?
134
Hans Slegtenhorst and Martin Whiteside, Mid Term Review Africa Enterprise Challenge Fund (AECF), 2011
135
Authors and Sarah Barlow, Enterprise Challenge Fund: Mid-Term Review. Annex 4: Efficiency.
136
Evaluation of the impact and value for money of the Ethiopia Competitiveness Facility. Benjamin Fowler. Coffee International Development Ltd. Funded by DFID. 2012
137
See Paul Collier in, UNIDO (2009) “Industrial Development Report 2009 Breaking In and Moving Up: New Industrial Challenges for the Bottom Billion and the Middle-Income Countries;
and Ganeshan Wignaraja (2003)“Competitiveness Strategy in Developing Countries”
138
What Capital is Missing from the Developing Countries, Karlan D., Yale University, IPA conference 2011.
139
“Ethiopia’s Progress Towards Eradicating Poverty: An Interim Report on Poverty Analysis Study (2010/11)”, Ethiopian Ministry of Finance and Economic Development
140
See for example “Exporting and productivity in business services: Evidence from the United States” J.Love. 2011
141
UNIDO (2009) “Industrial Development Report 2009 Breaking In and Moving Up: New Industrial Challenges for the Bottom Billion and the Middle-Income Countries
142
“Constraints & Opportunities of Horticulture Production & marketing in Eastern Ethiopia”, Emana B and Gebremedhin H, Drylands Coordination Group, 2007; Also, “Analysis of Fruit
and Vegetable Marketing Chains in Tigray”, Teka AT, 2009; Also “Profitability and Sustainability of Urban and Peri- urban Agriculture”, FAO, 2007
130
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Impact of microcredit in rural areas of Morocco: Evidence from a Randomized Evaluation (2011) - Bruno Crépon, Florencia Devoto, Esther Duflo and William Parienté
Impact of Microfinance interventions in Ghana and South Africa, Afrane S.
cxlvi
Ethiopian Women Entrepreneurship Capacity Building Studies, Triodos Fact, 2011.
cxlvii
Agri-processing and the Developing Countries, Background paper for the 2008 World Development Report, Wilkinson J. and Rocha R. 2006.
cxlviii
“Constraints & Opportunities of Horticulture Production & marketing in Eastern Ethiopia”, Emana B and Gebremedhin H, Drylands Coordination Group, 2007; Also, “Analysis of Fruit
and Vegetable Marketing Chains in Tigray”, Teka AT, 2009; Also “Profitability and Sustainability of Urban and Peri- urban Agriculture”, FAO, 2007
cxlv
104