Document Type: Progress Reports

The results of the parliamentary elections that took place on the first day of EPI’s third year profoundly changed the political landscape in Georgia and with it EPI’s priorities for economic policy reforms. As the priorities of the new government became clear, a number of EPI’s policy initiatives were suspended. EPI’s support to newly elected leaders across key ministries became transitional, focused on securing buy-in for ongoing reforms and identifying new opportunities to bring Georgian policies in line with international best practices.

Many of EPI’s relationships in government organizations endured after the election, and they ultimately served as a foundation on which to build ties with new senior leaders. Through this period, the quality of EPI technical assistance, the strength of ties EPI has forged between public and private stakeholders, and results in targeted value chains continued to demonstrate EPI’s value as a neutral, supportive partner in Georgia’s economic development. EPI was able to immediately engage with new Government of Georgia (GoG) counterparts as early as two months after the elections.

As a result, in the first quarter of Year 3, EPI was able to support USAID as an advisor to the new government. EPI continued to focus on building sustainable structures between the public and private sectors, strengthening economic governance through dialog and engagement. A focus on mechanisms to engage the public and private sectors together has resulted in tangible, far-reaching policy improvements, and it has catalyzed a sea change in the way the public and private sectors interact in meeting Georgia’s toughest economic and policy challenges. Among them, three activities especially stand out:

• EPI facilitated the development of an agrarian land registration strategy and implementation plan, bringing together three ministries in an effective interministerial dialogue.
• EPI supported the Minister of Finance to establish a sustainable public-private working group to simplify and clarify the Tax Code, a long awaited initiative by the Georgian businesses and taxpayers.
• EPI designed a state property management and privatization strategy and implementation framework. With EPI support, GoG management of state property will become more efficient and transparent, and unproductive assets will be freed or repurposed to support growth.

EPI support also resulted in tangible improvements to the economy in target value chains, where new mindsets and business practices promoted by EPI are taking root. Georgian producers and enterprises have seen improved productivity and revenues, and a new focus on quality and high-value markets as keys to economic prosperity has begun to take hold.

Through the end of Year 3, EPI facilitated a total of USD 196.5 million in domestic finance, including investments and commitments, loans, leasing and other financial products. EPI activities supported a total of USD 280 million in exports, almost doubling the target of USD 150 million. Results included 10,459 new jobs in target value chains, of which close to 90% are in M&S sectors. M&S companies have seen average revenue increases of 35%, or USD 266 million across 593 businesses. EPI’s assistance in Year 3 focused on enabling value chain enterprises to take more ownership of their own capacity building. In addition to the various sector associations that are emerging as focal points for policy advocacy and sector strengthening activities, the seeds of other organizations—like the Georgian National Convention Bureau in MICE tourism or a chapter of the Supply Chain Council in transport and logistics (T&L)—have been sown for development in Year 4.

In the agricultural sectors, estimated revenue increases averaged 63%, to USD 61 million, across 8,577 farms and 301 agribusinesses, and 2,068 new hectares are now being cultivated under improved technology or management practices as a result of EPI assistance. EPI supported the formation of 46 informal farmer groups, and EPI advisors effectively linked agricultural training at EPI’s Knowledge Plots to some 2,000 farmers. The resulting improvements to their access to finance and quality inputs have markedly improved overall productivity and quality, and during the Year 3 mandarin and hazelnut harvest periods these groups have already seen commercial benefits. EPI specifically focused on directly linking the informal farmer groups with processors to create the right market incentives for Georgian producers to increase quality. For the first time, farmers have seen tangible, financial benefits, and the changing mindset that is resulting is one of the most significant achievements facilitated by EPI in its agricultural activities.

In the hazelnut sector, these quality improvements resulted in direct commercial linkages for processors with Ferrero, which is now sourcing an increased amount of hazelnuts from Georgia under quality standards that exceed European Union (EU) benchmarks. EPI also focused on connecting processors, packing houses and greenhouse operators to high-value markets in Ukraine, Belarus, and the EU that increased their incentives to improve management of their operations, adoption of standards, such as GlobalGAP by a mandarin grower association and its packing house, and build trust at the sector level. This level of trust has now manifested in an increased interest by agricultural actors to create associations or cooperatives that will be the focus of EPI’s assistance during Year 4 of the project.

EPI continued to facilitate commercial linkages between value chain enterprises and buyers in domestic and export markets. EPI also focused on strengthening the skills of workers through successful workforce development, especially in the apparel and wine tourism value chains, and support to four vocational colleges (VoCs) introduced public-private partnership models into the workforce development space. EPI training built the skills and improved customer service in tourism and hospitality, and more Georgian educators will seek to acquire internationally-recognized certifications for continuous delivery of courses after EPI ends.

In the T&L sector, EPI supported the GoG to improve the competitiveness of the Caucasus Transit Corridor (CTC), and stakeholders across the public and private sectors have ramped up the development of a national trade data exchange. EPI also supported these same public and private stakeholders’ international linkages at the third regional conference on trade and transport facilitation.

Finally, EPI has itself evolved in important ways. True to the values of “Georgians for Georgia,” Deloitte transitioned leadership of the project and its components to Georgian leadership. These professionals will be among the most powerful agents of sustainability that EPI leaves behind, as they take the skills and experience they have gained under EPI and advance their careers in the public and private sectors.

Economic Prosperity Initiative (EPI) project has reached its mid-point. The due diligence activities of conducting over eighty assessments at the project start, followed by targeted action plans, have paid off. EPI was able to identify opportunities for catalytic policy reforms and activities in key leverage points within its value chains and sectors where EPI’s assistance was applied during Year 2 of the project. As a result, several EPI supported policy reforms have been implemented in a broad consultative process, such as financial leasing, risk-based audit, customs warehousing, tax simplification, and e-Governance initiatives, which are already creating a positive impact for the Georgian economy. Similarly, sectors that barely existed when EPI commenced its activities, with very limited knowledge of their potential, such as corrugated paper packaging, heated greenhouse industry, Meetings, Incentives, Congresses, and Exhibitions (MICE) tourism and crop insurance, are truly starting to take off. EPI connected Georgian businesses to the market and helped them adopt the right technology, standards or practices; after which, these businesses saw the potential and made their own investments to seize on these opportunities.

EPI’s targeted approach supported by rigorous impact analysis of all our activities, including policy reforms, enabled the project to made significant progress towards meeting or even exceeding its life of project targets already at this half-way point. EPI was able to achieve this by building partnerships, promoting public private dialogue and facilitating fact-based policy making, as well as by building the capacity of local businesses and employees to adopt international best practices and standards. EPI’s efforts secured USD 109 million in foreign investment and commitments, with an additional pipeline of investment opportunities of USD 559 million. EPI also facilitated USD 155 million in exports, mostly through its efforts in the wine and MICE tourism, hazelnut and apparel sectors, already exceeding its life of project export target of USD 150 million.

The financial leasing reform that EPI implemented through a consultative process with private and public sector stakeholders, the promotion of investments in the heated greenhouse industry, and the launch of a crop insurance industry, resulted overall in a domestic finance increase of USD 125 million since project start. EPI also achieved consistent increases in productivity (40% average productivity increases for all of its value chains), employment (7,050 new jobs) and revenues (annual revenue increase of 27% or USD 11.8 million for agricultural sector, and 61% increase or USD 47 million for manufacturing and services sectors) for all of its value chains.

EPI also ensured that the project activities impact a broad population of farmers and businesses, while building local capacity of Georgian service providers. EPI policy reforms and value chain activities reached 5,666 farmers and 212 agribusinesses, and 588 businesses in the manufacturing and services sectors. EPI also engaged 92 agricultural service providers (in turn reaching another 32,600 farmers and 6,208 agribusinesses), and 42 business service providers (reaching another 877 businesses).

At the same time, EPI created a solid foundation from where additional targeted assistance by EPI can build from during Year 3 of the project. EPI’s world-class apparel industry vocational program will be a key factor for attracting new foreign investment and positioning Georgian apparel factories to expand their exports and create much needed jobs. Further investments in workforce to increase customer service skills and wine knowledge have created ripple effects in the tourism sector to offer higher quality services to incoming floods of tourists. Other trainings, such as large-scale agricultural producer programs created double-digit productivity increases for the agricultural value chains that were previously dismissed as non-commercial sectors as they are dominated by smallholder subsistence farmers. EPI is now working with these farmers to create sustainable commercial linkages between lead farmer groups and higher value markets to generate revenue increases for large communities in Western Georgia.

EPI’s targeted investment promotion function has heightened the Georgian government’s interest to adopt best practices in investment promotion and thereby create sustainability. Not only that, it has also built up a pipeline of actual and committed investments and new investment leads that will bring the needed know-how, market linkages and finance to Georgian productive industries, creating new jobs and opportunities for Georgians, especially in the rural areas.

EPI was able to achieve such results through its “open-source” approach to development. EPI continues to look for opportunities to partner with others who have similar objectives as EPI. Whether it is transitioning its resources to US Treasury team at the Revenue Service, providing training to beneficiaries of USAID New Economic Opportunities (NEO) and USAID Azerbaijan Competitiveness and Trade (ACT) projects or partnering with GIZ to improve the quality of infrastructure, EPI’s top consideration is how to multiply the project impact and effectively use available resources in the country. The focus of EPI activities is first and foremost commercial – the feasibility studies and business plans fully justify any investment that EPI makes in terms of its resources or consulting services. Only when viable, and often tested through small-scale pilots, EPI proceeds with activities, aligning other stakeholders’ objectives and securing and leveraging additional funds and resources to achieve common goals.

In the hazelnut sector, EPI helped USAID establish its first Global Development Alliance (GDA) for the USAID Georgia Mission, leveraging around USD 1.5 million of private funds from Ferrero International to improve the competitiveness of the hazelnut industry. EPI also identified an opportunity to facilitate trade and truly position Georgia closer to its aspiration of becoming a regional trade and cargo hub. Specifically, EPI garnered the support and resources of global shipping lines and port operators, Georgian railways, freight forwarders and Customs to jointly implement a port community system similar to those of the most developed ports, such as Rotterdam and Singapore, to achieve further trade efficiencies for the sector. The new GDA is expected to follow in Year 3.

EPI’s focus remains the same: living up to its principle of “Georgians for Georgia”, building local capacity and ensuring sustainability of all the activities. Starting with trainings and leadership development of its own staff with all the components now fully transitioned to leading Georgian experts, EPI has created a lasting impact for talent development long after EPI ends. EPI’s highly coveted internship program is creating buzz among students as it ensures high job placement rates after only a brief yet challenging internship program with EPI. Over 134 business development service providers, financial advisors, and agricultural service providers are all enhancing their capabilities, with EPI assistance, to provide high value services to its clients. EPI’s focus on women entrepreneurs and fully embedded women-focused community outreach specialists in EPI’s agricultural sector are creating new opportunities and development impact for women that were often excluded from participating in business or other leadership roles.

By now, EPI has fully established itself as the connector, bringing diverse audiences to the table to engage in informed debates and promote participatory and transparent policy-making. While not always easy to quantify its immediate impact, such an eco-system of trust and multi-stakeholder engagement will enable Georgia in the long run to achieve the ultimate goal of EPI – increase competitiveness and bring prosperity for Georgians.

This annual report documents the results and progress made in the Economic Prosperity Initiative (EPI) in Georgia, covering the first year of operations, from September 30, 2010 to September 30, 2011. It starts by documenting EPI’s achievements in Year 1 and progress against high-level results and sub-component benchmarks. A detailed summary of completion of outputs and progress against the Year 1 work plan follows. Annexes illustrate the utilization of resources and cooperation with other U.S. government (USG) agencies, local partners and interns and include a table of the performance indicators from the Year 1 PMP.

During Year 1, EPI built the foundation for its value-chain (VC) driven activities and related business enabling environment and policy reforms. Starting with the first phase of the project (October 2010 – March 2011), EPI focused on identifying sectors and VCs in the economy with the greatest probable development impact by conducting macro-level and enterprise-level data analysis, focus group interviews, and surveys. During the second phase (April – September, 2011), EPI engaged with numerous VC groups and ent erprises to develop specific VC action plans. Similarly, during the first phase and continuously during the second phase, EPI analyzed and then prioritized addressable constraints in the business enabling and pol icy environment, creating and sharing several policy action plans with its key GoG counterparts.

While EPI’s focus during the first year has been in the area of analysis and action plan development, EPI also achieved several early successes across supported VCs, the business enabling environment, and crosscutting areas, some of which are highlighted below:

Greenhouse and Cold Storage Investment

• Through its investment promotion activities, EPI stimulated demand and interest among investors resulting in investments and pl anned commitments of USD 21.04 million in greenhouse operations and USD 21 million in cold storage facilities. EPI was instrumental in expediting the decisions by investors to examine Georgian greenhouses and cold storage solutions, instead of other investment plans under consideration. Recognizing that the returns on these investments are relatively risky given the rudimentary knowledge of greenhouse and c old storage facility management in Georgia, EPI is providing targeted technical assistance, such as technology,
  managerial practices and modern agricultural techniques, so that greenhouse and cold storage operators sustain these investments over the long-term period and achieve desired increases in revenues and exports.

Apparel, Wine and MICE Tourism Sectors

• EPI’s strategic activities in the apparel, wine and MICE tourism sectors have catalyzed these areas into focus sectors by public and private sector in Georgia.
  • EPI’s assistance to the apparel industry has already resulted in increased sales for local apparel companies to foreign markets and emergence of first foreign investors to avail their resources, technology, managerial practices and market linkages to Georgian apparel sector.
  • An EPI-funded study tour to the U.S. (New York State and California) for wine and tourism private sector stakeholders resulted in an emergence of a new partnership between the Georgian Wine Association (GWA) and Georgian Incoming Tour Operator Association (GITOA) to share resources and jointly promote development of Georgian wine tourism. As EPI enters Year 2, it will work closely with both associations, who recently entered into a Memorandum of Understanding (MoU) to confirm their commitment to focus on wine tourism
    initiatives.
  • EPI’s analysis of the MICE tourism VC received attention by multiple stakeholders in the tourism and hos pitality industry to start developing and promoting Georgian MICE tourism products, both in the public and private sector. The term “MICE tourism” is used for the first time in business and media communications, differentiating this market segment.

VAT Reforms in the Apparel and Transport and Logistics VCs

• EPI successfully advocated a business-friendly solution for customs treatment of wastage left over
  from imported textiles used in the manufacture of apparel in Georgia, freeing wastage materials from being subject to import VAT. This removes an unnecessary burden from Georgian production. EPI successfully advocated a tax code amendment removing Georgian VAT over international cargo transportation and related services. This brings Georgia in line with international practice.

Implementation of Generalized System of Preferences (GSP+) for Turkish Materials Used in Georgian Manufacturing

• EPI helped the Ministry of Economy and Sustainable Development (MoESD) establish certification rules for bilateral accumulation of origin, allowing goods made jointly in Georgia and Turkey to benefit from the GSP+ program for duty free entry into the European Union (EU).

Best Practices in Business Process Reengineering (BPR)

• EPI conducted a comprehensive BPR assessment in preparation for an intellectual property rights
  (IPR) e-filing system and delivered trainings on BPR methodology to the Ministry of Justice’s (MoJ) Data Exchange Agency (DEA) and other relevant government offices on BPR. This is building capacity of the GoG to plan and i mplement additional egovernment projects.

Customs Warehouse Regulations

• The Parliament of Georgia passed legislation in the fall of 2011, which streamlines customs supervision over customs warehouses providing temporary storage of imported goods. Facilitated by EPI recommendations, the new law provisions allow for simplified technical and s ecurity requirements for customs warehouses, creating a favorable logistics environment for foreign goods.

Investment Promotion Network

• By establishing the Georgia Investment Promotion Partnership (GIPP), EPI has brought together public and private sector players to coordinate to achieve their common goal of promoting investment in Georgia among targeted sectors. EPI is increasing overall capacity of the Georgian National Investment Agency (GNIA) and other government agencies engaged in investment promotion, while also creating the foundation to achieve tangible results in attracting investments into EPI VC sectors, starting with the apparel sector.

Leasing Reform

• The GoG has approved and submitted to Parliament proposed amendments to leasing regulation, which resulted from EPI’s technical guidance among a broad group of public and private sector stakeholders.

The Tanzania SERA Project will assist both the Government of the Republic of Tanzania (GoT) and the private sector in enabling a broad‐based, sustainable transformation of the agricultural sector through policy reform.  The project will focus on current policy and the regulatory environment for agriculture—from the transactional “hot” topics to the needed strategic foundational changes— building capacity of local institutions to lead informed dialogue on policy and regulatory issues in the agriculture sector and advocate for the necessary changes.

The vision for this project is twofold: to improve the policy and regulatory environment for agriculture growth and to build a group of public sector institutions, advocacy organizations, and individuals capable of performing rigorous policy analysis in support of evidence‐based advocacy and policy reform. At the conclusion of the project, we expect USAID will leave behind sustainable capacity within the GoT to initiate, develop, and utilize evidence‐based research in policy decisions and implementation, empowering local research and private sector advocacy groups to more effectively use analysis and strategic communications to lobby for change, and building national partnerships that create consensus around agriculture policy and monitor the impacts of policy. The SERA project will focus all activities around priorities identified in collaboration with the Southern Agriculture Growth Corridor of Tanzania (SAGCOT) initiative.

Quarterly Highlights

The Feed the Future Initiative (FtF) in Tanzania began in late May with an Implementing Partners meeting in Kilombero that was attended by the SERA COP, Don Mitchell. The entire Tanzania SERA team was brought together in late June for a work planning meeting and began working full time in July. The Tanzania SERA team included, Don Mitchell as COP, Alex Mkindi as Senior Policy Advisor, Jack Meena as Communications Specialist, and Mary Kabatanga as Office Manager. Implementing Partner Diligent was represented at the work planning meeting by Andy Temu and Rose Mushi. Booz Allen Headquarters staff, Nate Kline, participated in the Implementing Partners meeting and Emily Friedberg participated in the work planning meeting. Violane Konar‐Leacy from Booz Allen HQ became the program manager in September. Jack Meena resigned in September and a replacement is being recruited.

Work Plan for October 2011 – September 2012 Completed – The work plan for the fiscal year beginning October 1, 2011 was completed and submitted to USAID in September. The work plan details work in three areas, policy analysis and reform, communications, and capacity building. The policy analysis and reform identified seven policy areas of focus to be taken up over the next several years and four of these are to be taken up in the first fiscal year. The first year activities will focus on food security, trade policy, credit and inputs. Substantial work has been completed on all of these focus topics, but much remains to be done before the analytical case can be effectively made to the GoT for policy reform. The remaining topics (land policy, business environment, improving markets, and nutrition) will be taken up as resources are available and opportunities to engage the GoT arise. The SERA team will familiarize themselves with the issues in these focus topics in the interim. The communications strategy was being developed by local consultant Jack Meena with support from the SERA team, but Jack resigned in mid‐September. The activity will be taken up again in October when an international expert will work with the SERA team and identify a local candidate to develop and implement the communications strategy for SERA and work with the FtF and SAGCOT communications team. The capacity building activity has been concentrated on improving research capacity, but will broaden to include other topics once the capacity building expert joins the team in January.

Export Ban Analysis – The GoT announced an export ban on food crops in early July and he SERA team immediately began to monitor maize prices in the Dar es Salaam Tandale maize market to determine the impact on wholesale prices. This led to two important conclusions, first that maize prices declined temporarily but quickly returned to the levels prior to the export ban and secondly, that the weekly data provided by the Ministry of Agriculture did not accurately reflect these changes. This was followed by a trip to Arusha by Don Mitchell and Alex Mkindi from August 3‐5 to interview farmers, traders, processors and exporters on the effects of the export ban and these interviews showed that the impact of the ban was much larger than in the Dar market, with farm‐gate maize prices falling by approximately 25% and not recovering quickly as was the case in Dar es Salaam. The interviews also showed that the export ban did not stop exports (but it may have slowed them) and resulted in illegal exports and bribing of government officials and police. This information contributed to a better understanding of the food security issue and the realization that the export ban was ineffective, but used primarily because it was the only policy instrument available to government. The Back‐to‐Office report is attached as Annex 1 and details the information learned and tentative policy conclusions. The trip also resulted in useful information and improved understanding on the seed and agri‐chemical markets.

Food Security – In response to the knowledge gained from the monitoring of maize prices in Dar es Salaam and interviews with stakeholders in Arusha, a one‐page proposal for a Comprehensive Food Security Program was prepared by the COP (Annex 2) as a way to engage the GoT on the need for an alternative to the export ban. This was discussed by the senior management of FtF with P.S. Lyimo in the Prime Minister’s Office and met with a favourable response and a request for a more complete Concept Note. A Draft Concept Note was prepared by the SERA team and discussed with key partners including the World Bank and research group REPOA. Comments were incorporated and a second draft was prepared and is attached as Annex 3. The SERA team is now prepared to work with REPOA to complete a program of work to evaluate the impact of existing polices, estimate the potential market for maize exports in the region, evaluate the food security need and capacity for delivering, and propose alternative policies to deal with food security.

Data Quality Analysis – The SERA team undertook several analyses to check maize price and quantity data to determine its usefulness in evaluating the food security need and current situation. The first check was to compare maize prices obtained from traders in the Dar es Salaam Tandale market with prices collected by the Ministry of Agriculture. The prices obtained from the GoT showed large variability and no clear trend while the maize price data collected from Tandale traders showed less variability, a clear trend, and price movements that appear more consistent with the impacts of the export ban. The second analysis was to compare maize consumption data from the GoT with estimates derived from household surveys and simulation exercises based on macroeconomic and demographic data. Based on this analysis, maize consumption data from the GoT appears to substantially underestimate actual consumption (and by implication production since the balance sheet approach is used to estimate consumption from production, stocks and trade). Household consumption surveys and simulated estimates suggest that consumption and production probably grew at 4% per annum compared to the 1.4% per annum rate estimated by the GoT. The final check was to compare maize wholesale prices obtained from a maize processor in Arusha with price data obtained from the East Africa Grains Council and these two sources were very similar and appear reliable. The analysis of maize prices and consumption and data is included as Annex 4.

Secured Transactions Financing Reform – Improving access to credit is a high priority for economic growth and the commercialization of the agricultural sector, and the Secured Transaction activity is directed at improving the use of moveable assets, such as machinery or vehicles, as collateral. The Secured Transactions activity, when fully implemented, will allow lenders to register their claim to collateral used to secure loans. The activity has three pillars, the legislation that allows the secured financing to operate within the larger legal framework, the registry that will be a secure record of lenders claims against collateral, and capacity building to increase awareness and encourage use of Secured Transaction Financing. The activity was started under the umbrella activity BizClir funded by USAID and implemented by Booz Allen Hamilton in 2010 but was halted in early 2011. The primary consultant, Yair Baranes, who did the initial work on the activity, was brought back from September 2‐19, under SERA to gauge interest in continuing the work and to further explore the parallel activity being undertaken in Zanzibar. The conclusion of the consultant’s visit was that there is substantial interest among the working group formed in the Bank of Tanzania to restart the work and that the separate system being developed for Zanzibar has not progressed and will not be operational in the near term. It was decided by the consultant and SERA team to continue the work on the activity without including Zanzibar. However, it would still be possible for Zanzibar to join the system being developed for the mainland if they chose to at a later stage. Following the departure of the consultant, a letter was drafted by the SERA team and consultant to the Governor of the Bank of Tanzania and sent under the name of the Mission Director of USAID in Tanzania requesting a meeting to introduce the Secured Transactions Financing Reform and answer questions about its benefit and operation. The SERA team is waiting for a response from the Governor of the Bank of Tanzania. The consultant’s trip report is attached as Annex 5.

Seed Policy – The work on reforming seed policy has mostly focused on familiarization with issues by attending a stakeholder’s workshop in June and meeting with seed companies and experts. A value chain analysis is being considered and a draft TOR has been prepared for discussions with the Seed Unit of the Ministry of Agriculture. A meeting with the P.S. Ministry of Agriculture is being requested and will provide an opportunity to assess the GoT’s interest in seed policy reform.

Developing Partnerships – The SERA team has met with a number of groups to build relationships and partnerships to analyze agricultural policies and advocate for policy changes. These groups include ACT, agra‐alliance, East Africa Grains Council, the Policy Working Group, REPOA, and World Bank. These organizations have similar policy objectives to SERA and provide leverage to the advocacy for policy reform. The SERA team is prepared to work with all of these groups to further efforts for policy reform and working relationships have been established with several. The Policy Working Group is focusing on broad agricultural policy reform, but initially it seeks to engage the GoT on the export ban and the Cereals and Other Produce Board. SERA is supporting this effort with analysis and is prepared to provide limited resources to accomplish critical elements to further the policy reform effort. SERA was also requested by the GoT to work with REPOA to develop the Concept Note on Food Security and is doing so. SERA is also working with other implementing partners of FtF to leverage resources and coordinate activities. These activities include co‐sponsoring a policy research seminar series with iAgra at Sokoine University, and collaborating with NAFAKA on a regional study of the potential demand for maize in East Africa. SERA is also monitoring efforts by the Market Based Solutions (MBS) implementing partner of FtF to support passage and implementation of legislations to establish standards and mandates on food fortification to improve nutrition.

Policy Seminar Series at Sokoine University – As part of its capacity building activity, SERA intends to co‐sponsoring a research seminar series at Sokoine University with iAgra which is the FtF implementing partner focusing on education and research. The SERA COP visited Sokoine University on September 23 to meet with David Kraybill the COP of iAgra and several faculty members of the department of agricultural economics to discuss the seminar series. Don Mitchell and David Kraybill also met with the Director of Research and Post‐Graduate Studies, Professor Muhikambele, to inform him of the interest in sponsoring a research seminar series and ask for his support. Professor Muhikambele welcomed the activity and the follow up activity will be to formally request University support and then meet with interested faculty to discuss launching the seminar series. In addition to the seminar series SERA is also interested in sponsoring interns in agricultural policy and other areas as part of its capacity building activity and a promising candidate was identified.

Office Space and Operations – The SERA team was temporarily located in the Coco Plaza Building from July to September in offices leased from TechnoServe while negotiating for permanent space in the Peninsula Building immediately adjacent. Mary Kabatanga, the office manager of SERA, was able to negotiate a favourable lease rate and additional services including secure parking and the SERA team vacated their temporary offices at the end of September and moved to the new offices. The budget for SERA is limited and the team is struggling to fit the large work agenda into the budget space by co‐sponsor activities with other FtF implementing partners and other groups and organizations.

The SERA project has two main objectives: i) to improve agricultural policies and ii) to build the capacity of individuals and organizations to undertake policy research and advocate for policy change. During the January – March 2012 quarter, the primary focus of efforts to improve agricultural policies were directed at understanding the impacts of the export ban and at identifying alternative policies to deal with food security. In order to accomplish this, three research teams from highly respected organizations travelled to Tanzania in March to collaborate on methodology, capture data, and begin analysis. Their preliminary reports are scheduled to be presented to the GoT in late‐May and a policy options paper will be prepared for the GoT in June. Other policy activities included examining the appropriate role for the COPB and subsequent discussions with MAFC officials; meeting with seed industry stakeholders to develop the case for reduced taxes and duties on seeds and seed packaging; and working with the BOT and MF to develop the collateral registry system. The SERA team also started initial efforts to analyse rice policy in Zanzibar and to better understand the implications for food security in Zanzibar.

In support of SERA’s second main objective, to build capacity of individuals and organizations to undertake policy research and advocate for policy change, SERA focused its activities on continuing efforts to launch the Policy Seminar Series at Sokoine University, and at identifying suitable organizations to begin developing capacity building programs for them. In addition to these activities, our advocacy and communications activities included conducting a stakeholder survey of approximately 100 individuals and institutions involved in the agricultural sector to better understand client perceptions and interests, and initial planning of a SERA website with guidance from FtF Tanzania. As a way of leveraging resources and extending the impact of our expertise, SERA collaborated with other FtF partners and provided leadership in policy analysis.

The Tanzania SERA Policy Project (SERA) of the United States Agency for International Development (USAID) Feed the Future (FtF) Initiative is implemented by Booz Allen Hamilton. The SERA Project is focused on improving the policy environment for agriculture, and developing individual and institutional capacity to undertake policy analysis and advocate effectively for policy reforms. SERA began in April 2011, and completed the fourth full year of operation on September 30, 2015. This Quarterly Report, Quarter 2 (Q2) of Project Year 5 (Y5), covers the period from January 1, 2016 to March 31, 2016. SERA Project’s period of performance was originally set to end on April 7, 2016. However, a request for a no-cost extension has been approved by USAID which extends the period of performance through August 30, 2016. The SERA Chief-of-Party (COP), Marialyce Mutchler, was on leave during Q2 and the Senior Advisor, Don Mitchell, was the Interim Chief-of-Party and was resident in Tanzania from January 9 to March 12. The Ministry of Agriculture, Food Security and Cooperatives (MAFC) was reorganized in Q1 and the Ministries of Agriculture, Livestock and Fisheries were combined into a single ministry called the Ministry of Agriculture, Livestock and Fisheries (MALF). This Quarterly Report will refer to the reorganized Ministry and distinguish between activities undertaken with MAFC and MALF.

The following activities were completed during Q2:

• The study tour to Mozambique for the Agriculture Business Environment Study was undertaken from January 17-23.
• The draft Maize Gender Report was completed on January 31 and additional data analysis was requested of Taylor Nelson Sofres (TNS).
• Don Mitchell attended the USAID Partner’s Meeting in Morogoro from February 8-10.
• Alex Mkindi participated in a workshop in Dodoma from February 15-19 on Agricultural Investment Incentives and the Agricultural Business Environment.
• Nancy Cochrane from the United States Department of Agriculture (USDA) delivered training on the construction of a Healthy Food Basket to staff of the Department of Food Security and Nutrition in Zanzibar during February 16-18 and was assisted by Aneth Kayombo of SERA.
• Don Mitchell conducted training on Economic Principles for Food Basket Methodology (FBM) in Zanzibar on February 18.
• Nancy Cochran and Aneth Kayombo met with the Department of Food Security of MALF on February 22 to discuss piloting the FBM in four districts and introduced the concept of a Healthy Food Basket.
• The Food Basket Costs Policy Brief was launched at a workshop on February 19 by Don Mitchell, and Nancy Cochran made a presentation on the Healthy Food Basket.
• The No-Cost Extension Modification Proposal was submitted on February 25.
• Presentations and Chairing of Session at the Agriculture Policy Conference February 23-25 included:
  • Policy Options for Food Security by Don Mitchell
  • Agriculture Business Environment and Incentives by Don Mitchell
  • Land Compensation and Valuation Schemes by Don Mitchell
  • Secured Transactions/Collateral Registry by Dale Furnish
  • Chairing of Session on Inputs by Alex Mkindi
• Don Mitchell and Dale Furnish met with the Bank of Tanzania (BOT) staff to discuss the Secured Transactions/Collateral Registry activity on February 26.
• Professor Chen Zhen from the University of Georgia traveled to Tanzania to work with Edith Lazaro of SERA on the Food Demand Study from March 7-12.

The Mozambique study tour for the Agriculture Business Environment and Incentives study was conducted from January 17-23 and led by Don Mitchell. The team included James Ngwira from the President’s Delivery Bureau (PDB) and Martin Marsalu from the Tanzania Investment Center (TIC) as well Edith Lazaro of SERA. A local facilitator (Calisto Bias) was hired to arrange meetings and translate as necessary. The trip was very successful and provided the information needed to compare the agriculture business environment of Mozambique with that of Tanzania. The trip report (Annex 1) was circulated to the study team for comments and then revised and sent to the manager in each of the participating organizations.

Don Mitchell attended the USAID Partner’s Meeting from February 8-10 in Morogoro and renewed contacts with Feed the Future implementing partners and others involved with the USAID Economic Growth Agenda. Of particular note were discussions with David Kraybill and Isaac Minde of the iAGRI project, Geoffrey Kirenga and Jennifer Baarnes of Southern Agricultural Growth Corridor of Tanzania (SAGCOT), Julie Harrison from Michigan State University (MSU), Tom Carr of the NAFAKA, and the team from Dalbert that is providing support for SAGCOT Centre. Jennifer Baarnes, deputy Chief Executive Officer (CEO) of the SAGCOT Centre, was briefed on the status of the Agriculture Business Environment study and was provided with a preliminary draft of the PowerPoint to be delivered at the Agriculture Policy Conference. Geoffrey Kirenga, CEO of the SAGCOT Centre, delivered a presentation on the challenges faced by SAGCOT in attracting investors and said that SAGCOT has only delivered one land title of eight hectares (to Unilever for a new tea factory) in the entire five years that SAGCOT Centre has operated. Tom Carr, COP of NAFAKA, expressed interest in meeting to discuss SERA policy activities and was especially interested in our maize gender study. The Dalbert Group requested a meeting to compare our work on policy with their support of SAGCOT Centre. Julie Harrison of Michigan State University, who is involved in a review of SAGCOT, was very interested in SERA’s views of SAGCOT’s successes that were reported by Geoffrey Kiringa.

The draft Maize Gender Report (Annex 2) was completed and circulated to our World Bank (WB)/International Finance Corporation (IFC) collaborators for comments and to SERA staff and selected others. It was also sent to TNS consultants for data corrections and completions.

Alex Mkindi traveled to Dodoma to participate in a workshop on the business environment and incentives for agricultural investors from February 15-20. The trip report is attached (Annex 3).

Training on basic economic principles needed for analysis of food security and implementation of the FBM (Annex 4) was provided to the Department of Food Security and Nutrition in Zanzibar on February 18 by Don Mitchell. The three-hour training covered the basics of demand, supply, price determination, inflation, exchange rates, import dependence, gross domestic product (GDP), and monitoring of regional and global food markets and food prices. The training was well received and should have improved the team’s ability to understand economic principles needed to implement the Food Basket Methodology.

The Food Basket Costs Policy Brief (Annex 5) was launched in Dar es Salaam on February 19 at a half-day workshop at the Protea Courtyard Hotel to about 20 people from various organizations. The Ministry of Agriculture, Livestock and Fisheries was represented by Caroline Kilembe from the Department of Food Security and she is emerging as a strong supporter of the Food Basket Methodology. She will feature strongly in our future efforts to anchor the Methodology in the MALF. Nancy Cochrane presented her work (done in collaboration with (SERA) on the development of a Healthy Food Basket. Nancy plans to return in April to continue work on the FBM and Healthy Food Basket with the MALF.

The 2nd Annual Agricultural Policy Conference was held during February 23-25 at the Serena Hotel in Dar es Salaam. SERA provided financial support for the conference, assisted in the planning of the conference, and was very visible by contributing to four presentations and chairing one session. The conference brought together key decision makers, including the Deputy Minister of Agriculture, the Permanent Secretary (PS) of Food Security in MALF, a member of parliament who is on the agriculture committee, the CEO of SAGCOT, and elder statesmen including Peniel Lyimo a former PS in both the Prime Minister’s Office (PMO) and MAFC. The new PS of the MALF requested that the presentations and reports be sent to him. Don Mitchell presented the Policy Options for Food Security which was updated from an earlier version with new material on Food Basket Costs and the Business Environment. Don Mitchell also presented the draft of an Agriculture Business Environment Study that showed that Tanzania is not competitive on taxes, fees, and operating costs compared to Mozambique and Zambia, and that access to land is the single most important constraint to attracting large investors into the agricultural sector. The results make it easier to understand why SAGCOT has not been successful in attracting foreign investors into the sector. Conference participants encouraged SERA to try and use the results to lobby the Government of Tanzania (GOT) to improve Tanzanian competitiveness in corporate agriculture. Don Mitchell also made a presentation on Land Compensation Schemes and Valuation Models from the study completed by Landesa for SERA. Professor Dale Furnish, the SERA consultant working on Secured Transactions/Collateral Registry made a presentation showing how the Secured Transactions Law needs to be changed and what the subsequent benefits of making such changes would be. Finally, Alex Mkindi chaired a session on Agricultural Inputs. The program for the conference and all PowerPoint presentations are attached as Annex 6.

Don Mitchell and Dale Furnish met with the Bank of Tanzania staff on February 26 to follow-up on the progress on the implementation of the Secured Transactions/Collateral Registry. Augustino Hotay, the BOT lead on this activity, and Nkawna Magina, presented SERA with a work plan for fast tracking the activity and requested support for a workshop and consultants to present the activity to BOT management. We suggested they submit a formal request and advised BOT that our availability and funds to support the activity were limited by the upcoming closing of the SERA Project. No request had been received by the end of Q2.

Nancy Cochran of the Economic Research Service (ERS) of USDA visited Tanzania from February 15-26 to provide training to the Department of Food Security and Nutrition in Zanzibar on the construction of a Healthy Food Basket and to meet with the Department of Food Security of the MALF to discuss continued work on the implementation of the Food Basket Methodology. The training in Zanzibar was conducted from February 16-18 and is attached in Annex 7. The discussions with the MALF included planning of a desk study prior to conducting a pilot in four districts (Bahi, Kilosa, Masai, and Longido).

Professor Chen Zhen of the University of Georgia in Atlanta, Georgia traveled to Tanzania from March 7-12 to work with Edith Lazaro and Don Mitchell of SERA on the Tanzania Food Demand Study. Professor Zhen is an expert on the econometric estimation of food demand systems and was able to provide technical leadership and guidance on the activity and substantial progress was made on the estimation of a theoretically sound demand system. The results will be completed by July and are expected to provide a better understanding of the economic parameters of food demand and provide the basis for estimation of future demand trends. The trip report is attached as Annex 8.

The first draft of the Agriculture Business Environment and Incentives study was completed by Don Mitchell and Edith Lazaro in March 2016 and circulated to team members for review and comments. The findings from the study show that Tanzania is not competitive with Mozambique and Zambia at attracting large foreign investors into the sector. Tanzania does not offer special corporate tax incentives to agriculture while Mozambique and Zambia do, and Tanzania has significantly higher local taxes and operating costs than Mozambique or Zambia. Access to land is also a constraint to foreign investors and the Tanzania Land Act (1999) precludes the sale of a land title by a foreign investor which prevents an investor from benefiting from land value appreciation. The preliminary findings were presented at the Agricultural Policy Conference and the final report will be submitted to key stakeholders and decision makers in April.

The SERA project made substantial progress during the quarter on all of its primary focus areas; Policy Research and Reform; Individual and Institutional Capacity Building; and Advocacy, Communications and Alliances. Within the Policy and Research Reform Areas, the primary policy research activity was to propose a program of research to support better understanding of food security needs in Tanzania and explore policy alternatives to the use of export bans. The proposed program of work was strongly endorsed by the government and suitable partner institutions were identified to conduct research with guidance from SERA. The development of the collateral registry system which will make it easier for lending institutions to secure financial transactions and borrowers to obtain credit on moveable assets was restarted with support of the Bank of Tanzania. The Cereals and Other Product Act of 2009 was analysed and the implications described in a briefing note prepared for the ANSAF Policy Working Group and widely disseminated. Efforts to support reforms of seed policy continued and discussions with TASTA, the private sector industry association, were undertaken. Policy discussions were begun with the GoT in Zanzibar and initial efforts will focus on food security and agricultural policies. SERA’s effort to build local capacity to conduct policy research was supported by agreement to sponsor an agricultural policy seminar series in the Department of Agricultural Economics at Sokoine University to be jointly funded with iAGRI. A communications officer was added in December following an extensive search for the best candidate with the assistance of a communications expert from Booz Allen headquarters. A capacity building specialist was identified and hired to begin in January. Close collaboration with other partners and stakeholders was maintained and resources were leveraged by working with other FtF implementing partners, IFPRI, and USDA. An active policy dialogue was maintained and leadership provided to policy activities among the FtF Implementing Partners. Alliances with important stakeholders continued to be developed to build a network of capable institutions and organizations to advocate for policy change.

The primary focus of the SERA Policy Project during the quarter was on institutional capacity building, continuing activities related to food security, preparing statement of works (SOWs) and selecting consultant teams for studies and activities to be undertaken in Q3, and providing support to development partners such as Gates Foundation and Tanzania Seed Traders Association (TASTA). Our institutional capacity building activities included completing a draft assessment of the Zanzibar Department of Food Security and Nutrition (ZDFSN) Program, and completing the Agriculture Council of Tanzania (ACT) Second Strategic Plan. Food security activities included a field trip to the northern border area with Ministry of Agriculture, Food Security and Cooperatives (MAFC) and local government staff to assess the food security and trade situation following the lifting of the maize export ban, and a field trip to Mbeya and Musoma with United States Department of Agriculture (USDA) and MAFC to estimate the cost of a typical food basket. In addition, consultations were held with the Ministry of Industry and Trade on food price data, the Tanzania Social Action Fund (TASAF) on their social safety net activities, and the Zanzibar Ministry of Agriculture and Natural Resources on ongoing and planned SERA work activities. The Concept Note and Scope of Work for the Land Compensation and Benefits Sharing study for the Ministry of Lands was completed and the consulting firm Landesa was selected to undertake the study. Meetings were held with the Director of Coordination of Government Actions in the Prime Minister’s Office (PMO) and the Director of Food Security in MAFC to discuss ongoing food security studies and to plan a workshop to disseminate findings in Q3. Communications and advocacy activities included video recording of meetings with traders and farmers during field trips and completion of the draft SERA website.

Going forward, the SERA Project will be very active in Q3 with a consulting team arriving in May to evaluate the capacity and activities of the National Food Reserve Agency, and a second consulting team arriving in June to begin the Land Compensation and Benefits Sharing study. Discussions are underway to engage an expert to prepare an impact study on the use of export and import permits. A report prepared by SERA staff on the impacts of zero‐duty on rice imports on the mainland will be completed and discussed at a subsequent stakeholders meeting. The initial draft of the rice market study for Zanzibar will be completed and presented to the Revolutionary Government of Zanzibar (RGoZ). Depending on stakeholder availability, a workshop on food security on the mainland is planned for Q3 or Q4 where we will present the food security work started in Q2 and scheduled for completion in Q3. Capacity building activities in Zanzibar will include the presentation of the Food Security and Nutrition Program Review and additional activities to support the development of an operational strategic plan. Communications and advocacy will continue to document the impact of the lifting of the export in Arusha and Kilimanjaro, and finalization of the SERA website.

The Tanzania SERA Policy Project (SERA Project) of the United States Agency for International Development (USAID) Feed the Future Initiative (FtF) completed its second full year of operation on September 30, 2013. There were substantial successes on the policy research and reform, and capacity building activities. There was a setback on the advocacy and communications activities due to the unexpected departure of the Communications Officer in mid‐August. That left several important activities, including the web site and other communications products, unfinished. The focus and scope of the advocacy and communications activities will now be re‐evaluated and staffing re‐considered.

New research and policy analysis activities undertaken by the SERA Project this past year included a study of land compensation and benefits sharing, research on rice policy on both Zanzibar and the mainland, further research on food security in Zanzibar and the mainland, and a critical review of the cost and optimal size of the strategic grain reserve held by the National Food Reserve Agency (NFRA). A food basket approach to measuring access to food at the regional level was piloted and approved for implementation by the Ministry of Agriculture, Food Security and Cooperatives (MAFC) Department of Food Security (DFS). After two years of discussion with the Bank of Tanzania (BoT) and the Ministry of Finance (MoF), the BoT gave its approval to develop and implement the collateral registry system in June.

Institutional capacity building activities continued to focus on the Agricultural Council of Tanzania (ACT), and the Department of Food Security on both the mainland and Zanzibar. Individual capacity building activities included continued joint sponsorship of the policy seminar series at Sokoine University with FtF implementing partner iAGRI, and the teaching of an eight week policy analysis course to 20 staff of various ministries in Zanzibar by the SERA Project’s Chief of Party (COP) and Junior Policy Analyst. The SERA Project also continued to develop its database of agricultural and economic regional and national data.

The USAID Feed the Future Initiative seeks to improve food security in Tanzania by increasing agricultural production and nutrition, while the SERA Policy Project is primarily focused on improving the policy environment for agricultural production. The SERA Project is not involved in analyzing policies on nutrition because of its limited resources to undertake analysis of both agricultural and nutrition policies and because other FtF implementing partners and organizations such as the World Bank have provided strong leadership in this area. However, SERA activities contribute to improving nutrition by increase rural incomes through its policy reform and capacity building activities. Increasing incomes then contribute to improved nutrition by enabling households to purchase increased quantities and more nutritious foods.

The Tanzania SERA project has two primary objectives: i) to improve agricultural policies and ii) to build the capacity of individuals and organizations to undertake policy research and advocate for policy change. In support of these two objectives, a number of activities were undertaken in the project’s third quarter (Q3) from April 1 to June 30, 2012 of the second year. These included:

• Concluding a major research activity on the impacts of the food crops export ban and disseminating the results at two workshops.
• Continued efforts to improve the tax treatment of the seed industry by supporting two workshops for seed stakeholders to discuss industry concerns and begin to develop a strategy to pursue policy changes.
• Discussions with the Ministry of Finance and the Bank of Tanzania on the introduction of a collateral registry system.
• Support to the Agriculture Council of Tanzania (ACT) for a study tour to inform their second five‐year strategic planning process.
• Discussions with the Ministry of Agriculture of Zanzibar to develop their food security and nutrition analysis and work program.
• Creation of a policy seminar series at Sokoine University jointly sponsored with Feed the Future (FtF) implementing partner, iAGRI.
• Conducting a stakeholder’s perception survey to deepen understanding of policies issues and knowledge gaps.
• Development of an agricultural database to assist performance monitoring and support more detailed research on agricultural policies.

The major research activity on the impacts of the food crop export bans begun in Q2 was successfully concluded in Q3. Three research teams were brought to Tanzania in March 2012 to conduct interviews and undertake field trips, and they completed their research in Q3. A workshop was presented to high‐level invited Government officials in Dodoma on June 16th and a second workshop for all stakeholders was presented at the Kunduchi Beach Hotel in Dar es Salaam on June 19th. Both workshops were well attended and presented new and detailed evidence on the impacts of the export ban and food security. The research agenda was designed and coordinated by the SERA project and was prepared by teams from the Associates for International Resources and Development (AIRD), the International Food Policy Research Institute (IFPRI), and the U.S. Department of Agriculture (USDA). An additional study, done by the World Bank, on the impacts of climate change on Tanzanian export crops was undertaken independently and also presented at the workshop. The main findings of the research were: i) that the regional market for food crop exports from Tanzania, especially maize and rice, will remain in deficit for at least the next decade and offer good opportunities for Tanzanian exports, ii) that Tanzania will need to increase production in order to take advantage of this opportunity, iii) that the food crops export bans reduce incentives to producers, iv) that the export bans are not effective at controlling food price inflation or exports and harm the rural poor while generally benefiting the wealthier urban consumers, and v) that new approaches to food security are needed to more effectively reach the poorest. In addition to these main findings, the research provided greater understanding of diets of rural and urban Tanzanians, and identified weaknesses in the agricultural data systems that raise questions about the reliability of data for policy decision making.

Institutional capacity building efforts in Q3 were directed primarily at ACT which was identified as an important Tanzanian organization with broad stakeholder involvement and an ongoing policy dialogue with Government. A study tour for nine ACT board members and stakeholders to Zambia and Malawi was sponsored by the SERA project from June 19th to July 2nd to inform ACT’s strategic planning activities. An evaluation of ACT’s existing Strategic Plan will be undertaken in Q4. New opportunities for capacity building were also identified in the Department of Food Security of the mainland, Ministry of Agriculture, Food Security and Cooperatives (MAFC) and the Department of Food Security and Nutrition of the Ministry of Agriculture of Zanzibar (MAZ). Both have requested capacity building support from the SERA project and these will become major activities in Q4. Individual capacity building efforts have focused primarily on establishing the Policy Seminar Series at Sokoine University jointly with Feed the Future (FtF) implementing partner, iAGRI. A Policy Seminar Series organizing committee was established and a call for research proposals was released during Q3. Four proposals were accepted by the committee and will be supported by SERA and iAGRI with small grants to conduct the research.

In support of the primary objectives of improving policies and developing capacity, a database has been developed to assist SERA and other organizations to monitor agricultural performance and conduct policy analysis. Regional data has been obtained from the National Bureau of Statistics (NBS), Ministry of Industry and Trade (MIT), and MAFC on regional production of major food crops and wholesale prices at major markets. Macroeconomic and demographic data obtained includes regional GDP, population and measures of nutrition. Efforts to obtain district level data have not yet been successful, but will continue.

The SERA project has collaborated with other FtF implementing partners and other development partners, provided leadership on important policy issues, and leveraged its resources by jointly sponsoring activities. The SERA project provided strong support to defining the policy agenda for agricultural policy reform for the G8 and GoT.