Annex 1 Contract no Terms of Reference

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1 Programme: Private Sector Development South Caucasus (PSD SC): EU-Co-financing Support to SME Development in Armenia (SMEDA) PN: AV: TL: Activity: Marita Riedel Eva Maria Näher Sector study of Precision Engineering in Armenia Period: 14 th of November 2016 to 31 st of January Brief Introduction The private sector in Armenia faces several challenges such as the lack of cohesion and coordination of different small and medium-sized enterprises (SME) support programmes, inefficient steering mechanisms for the SME development process, a fragmented landscape of stakeholders, and an inefficient public private dialogue as well as an inefficient decisionmaking process. The donor coordination process in different intervention areas is currently not government-driven. The involvement of the private sector in SME development strategies is not effective and interests of SMEs are in fact not reflected in decision-making processes. Supporting services are insufficiently available both in quality and quantity. Underdeveloped capacities within the organised private sector are main obstacles and barriers to the envisaged development. Innovative ideas are hardly developed and are rarely transferred into business cases. Research and development are limited, in particular in the SME sector with hardly any cooperation of businesses and research entities. The innovative and creative potential of young specialists is not employed. Access to finance is another major challenge for SMEs. Due to high debts accrued during the global financial crisis and an associated decline in GDP (estimated 14% in 2009) many Armenian SMEs have only limited access to further credits and loans. In general, lending policies of most banks and financial institutions do not encourage investments in SMEs. With this situation for the private sector in Armenia, the EU-co-financed, GIZ-implemented project Support to SME Development in Armenia (SMEDA) was initiated in The project is in line with the EU Single Support Framework for Armenia. It is furthermore consistent with the strategic framework documents of Armenia (Armenia Development Strategy and SME State Support Strategy) in order to facilitate their implementation. The objective of the project is to improve the national business and investment climate and support the creation and development of SMEs to enable broad based growth. The SMEDA-Project is part of the Regional Private Sector Development in South Caucasus Programme, which is operating in the three countries of the South Caucasus, Armenia, Azerbaijan, and Georgia. This umbrella programme faces the challenge of generating broad based inclusive growth to reduce the urban-rural gap and poverty above all in rural regions. In view of the small domestic markets with low purchasing power, the primary aim is to strengthen private sector development. 1

2 The PSD SC Programme has a total budget of EUR Mio EURO, which is divided as follows: - PSD SC Programme: EUR Mio EURO for four years ( ). - Project Economic Integration of Syrian Refugees in Armenia : EUR 2.5 Mio EURO for two years ( ). - EU-co-funded Project DCFTA and SME Development in Georgia: EUR 5 Mio EURO for four years ( ). - EU-co-funded Project Support to SME Development in Armenia : 6.4 Mio EURO for four years ( ). The Support to SME Development in Armenia (SMEDA) Project is focusing on the following result areas: (1) Improved policy making process and coordination of supports to SME development for a conducive business development framework, (2) Strengthened private sector organisations to implement SME policies, (3) Improved process of commercialization of ideas linking research institutions and businesses via cooperation networks, (4) Improved design and management of economic clusters (business incubators, techno parks, and Free Economic Zones), (5) Diversified access to finance for innovative start-ups and small businesses. The project is co-funded by the European Union and implemented by the GIZ Programme Private Sector Development South Caucasus (PSD SC) and its country component in Armenia. The PSDSC-Programme is commissioned by the German Federal Ministry for Economic Cooperation and Development (BMZ). The SMEDA-Project is designed for four years from 2016 to 2019 with a total budget of EUR SMEDA Overall Objective Create employment opportunities by enhancing private sector development in Armenia. SMEDA Specific Objective The specific objective is to improve the national business and investment climate and support the creation and development of SMEs to enable broad based growth. SMEDA Indicators 1. Increase the proportion of SME within the overall economy: increase the share of SME from 7% to 15% in overall number of micro, small and medium enterprises in Armenia. 2. Increase share of SME in employment from 25% to 30%. 3. Increase share of SME in GDP from 27% to 35%. 4. Increase of added value created by SMEs. Partner structure: executing agencies and intermediaries The project is guided in its implementation by a Technical Project Steering Committee (PSC), 2

3 which is co-chaired by representatives of the EU Delegation and the Ministry of Economy (MoE). Target Group and Implementing Partners The target group is composed of all relevant stakeholders involved in the development of SMEs in Armenia. This includes the political lead partner, the Ministry of Economy in Armenia, and the Small and Medium Entrepreneurship Development National Centre (SMEDNC), related sector associations, the Armenian Chambers of Commerce and designated SME support organisations. An important project partner is the Armenian Enterprise Incubator Foundation (EIF), which implements parts of the project activities related to managing and monitoring of funds for start-ups and small businesses. Another important target group is females and males, owners and employees of SMEs. Planned Activities of SMEDA-Project Support to policy making by assisting the Armenian government to implement the SME strategy and to introduce a review mechanism for the SME development strategy and its action plans Support to policy implementation by strengthening the institutional capacities of the Ministry of Economy and the SMEDNC in terms of coordinating the implementation of the SME strategy and related action plans as well as developing an information portal to support business performance on foreign trade transactions Support to Public-Private Dialogue (PPD) by strengthening the capacities of the Ministry of Economy to manage the PPD process as well as to assess and recommend on dispute settlement mechanisms and platforms Provide technical assistance to private sector organisations to improve and expand services and to increase their network with European businesses Strengthening the capacities of private sector organisations to participate in PPD platforms and to utilize the opportunities of technology transfer as well as to promote entrepreneurial skills, clusters and value chain development Support to linking research institutions and the private sector to foster innovation Support to state bodies and the private sector to access EU innovation support resources and platforms such as the new EU Framework Programme for Research and Innovation (Horizon 2020) Strengthening capacities of the Ministry of Economy to design, implement and promote clusters Support to improving cluster management, linking clusters to European networks as well as developing and promoting new areas for business incubation Supporting the provision of grants to support technology start-ups and SMEs promoting new services/products Support to EIF and SMEDNC to design and implement business acceleration and coaching programmes for entrepreneurs and grant recipients 3

4 2. Context and current situation in the field of assignment The newly commissioned SMEDA-Project embraces 5 result areas and a team headed by a team leader and composed of 3 project experts, a communication expert, and a financial and administrative manager. The government of RA in the Strategy of Export-Led Industrial Policy of Armenia identified 11 sectors that have significant export potential, from which one is Precision Engineering. The sector of precision engineering is defined to include optical, electronic, mechanical and machinery production, characterized by high level of precision and/or knowledge content 1. The SMEDA-Project organized a Roundtable Discussion on Precision Engineering on 19 th of July. The purpose of the event was to bring companies, service providers, and institutions active in the Precision Engineering sector in Armenia together and to discuss the current situation of cooperation, challenges of communication and commercialization and the possible next steps. Although there are many available capacities (e.g. rich Soviet scientifictechnical heritage; underutilized industrial complexes with developed infrastructure (i.e. RAO Mars); technological, standards and cultural commonality and close relations with the former Soviet countries; presence of global technological companies in Armenia, etc.), still there seem to be big challenges/gaps in the field of Precision Engineering: According to Precision Engineering Sector Strategy : - Minor resource allocation for R&D by local companies; - Poor marketing and managerial skills of local companies; - Shortage of graduates with knowledge and practical skills, meeting the requirements of the companies. According to the results of the Roundtable discussion on PE: - Lack of modern technologies, laboratories and critical mass of expertise; - Weak cooperation with science; - Market actors are not aware of the market trends / opportunities; - Lack of connection and experience exchange within the Armenian community; - Difficulties connected with applying to big projects; - Difficulties with customs clearance. In order to understand all these challenges in depth, have a broad picture of the sector and find out the potential development directions of the field, the SMEDA-Project will organise a sector study of Precision Engineering sector. 1 Precision Engineering Sector Strategy , 4

5 3. Conditions of the assignment 3.1 Objective and tasks The SMEDA-Project seeks to contract a company/expert to conduct a sector study of Precision Engineering (PE) in Armenia. The assignment starts from November 14 th 2016 and lasts until January 31 st With the aim of more transparency and to identify cooperation potential within the PE sector in Armenia the Contractor provide a mapping of all relevant stakeholders in the field (I). He/she should identify e.g. Business Support Infrastructure, the existing companies and start-ups, research institutes, etc. and their main activity directions. For thorough understanding of the sector study the Contractor should review and analyse the PE sector (II). Here the Contractor should focus on the relevant subsectors in the PE for Armenia, challenges and barriers for economic activities in the field and existing support approaches. In addition, the study should highlight Export Activities, the Government Strategy, company approaches towards Human Capital and Finance as well as on Innovation and R&D activities. In the last section of the study recommendation should be made for particular activities, interventions and Technical Assistance, to facilitate the development of the sector (III). The sector study should provide an appropriate information about the following sections: I. Sector Mapping - In this section a database with profound information should be provided about: a. Relevant Business Support Infrastructure, e.g. Science Parks, Incubator, Free Economic Zone, Industrial zone and the available Services, as well as infrastructure incl. machinery; b. Existing Companies and Start-ups in the field of PE with information like: contacts, number of employees, field of activities, revenue, used technology, woman involvement, Infrastructure, etc.; c. Existing Research Institutes and Centres with information on main research fields, number of employees, offers for applied research, existing technology, labs, etc.; d. Existing Education programs in the field of formal and academic education and technical vocational education as well as non-formal education offered by universities, colleges, NGOs, etc. All mentioned actors should be related to the Sub-Industries covered in section II. 5 II. Analysis of the PE sector - In this section a profound analysis of the following points should be provided: a. Analysis of Sub-Industries: The Contractor should identify the most relevant Sub-Industries of PE for Armenia and present an overview of them. This should contain the current status of the sub-sectors including a brief analysis of their economic and R&D activities. In addition, this section

6 should give an appropriate understanding about the Value Chains of sub- Industries. It should identify value chains which have more potential for Armenia. b. Analysis of existing challenges for PE sector: The Contractor should identify the main challenges (min. 6) and barriers for the development of economic activities in the PE field (under consideration of the points mentioned above). He/she should analyse those challenges and point out existing strategies, structures, instruments and offers, which support companies and start-ups to overcome challenges. Furthermore, he/she should briefly review those and made suggestion for improvement of the existing approaches and suggest new ones. c. Export analysis: In this section the Contractor should particularly show the current status of the export activities in the field. He/she should identify what are the main relevant value chains and the exported products and services. As well as which companies are involved or mainly involved in exporting activities. In addition, he/she should point out the directions of the export, and give suggestions about potential new markets. d. Government Strategy analysis: The Contractor should go through the Sector Development Strategy approved by the Government and the relevant action plan and interview appropriate State officials responsible for the sector to identify: i. the priorities of the Government related to the sector and expectations for the future development of this field ii. which activities and strategies were implemented in the past, what is still pending and what actions have been planned by the Government iii. who were considered as main players and implementers e. Analysis of the access to Human Capital: The Contractor should focus here on PE relevant professional education (vocational education and training, higher education, post-graduate) and human resource management and development (HRMD). He/she should analyse what kind of HRMD practices exist in the sector companies (What are the key skills shortages they face within their enterprises, what kind of solutions or means do they use for recruitment and for staff development? Do the companies give importance to existence of HRMD personnel in their companies and what is their role within the companies? If they do not have HRMD then who performs those tasks, do they also consider outsourcing as a solution? and etc.); 6

7 f. Analysis of Innovation and R&D activities: The Contractor should point out the most relevant PE related R&D activities in universities and research institutes. Moreover, he/she should spotlight the amount of R&D activities (investment & direction) in existing companies as well as in new start-ups. In addition, the Contractor should examine the relevance of Science to Business cooperation in the field and highlight the most important cooperation mechanisms. g. Analysis of the access to Finance: The Contractor should present the current status of investment activities of PE companies and an overview of typically relevant financing schemes for PE companies. Furthermore, the Contractor should briefly examine the investment potential in the field. III. Recommendations - In this section the Contractor should present recommendations on SME and start-ups strengthening and development opportunities in this field. At least the following questions should be covered: Which are the main perspective value chains that may be focused on and which particular activities (Interventions, Technical Assistance, etc.) should be organized to facilitate a cluster development. How can the cooperation between actors in the field be improved and how this could be organized? What are the most promising approaches to address the different challenges in the PE industry? How export activities in the field could be improved? What Human Capital Development and Education interventions pathways can improve the development of the sector? How could the R&D activities within the companies be increased? In which way the cooperation between Science and PE Industry could be fostered? What kind of financial instruments are there to fit to the demand of PE companies and start-ups? The above mentioned sections do not define the entire structure of the sector study, but only point out its main components. The Contractor in his proposal may suggest additional topics for study, which will be determined by the SMEDA team. The contactor should examine all the existing studies in this field of PE to avoid duplication. Data should be gathered through both secondary research and meetings/interviews for communicative validation conducted with existing SMEs, Start-ups, relevant business support organizations, existing research Institutes, universities, appropriate state officials and other stakeholders. The sector study has to be provided in British English in electronic version on 18 th January

8 3.2 Deliverables and resources The following deliverables are to be submitted during the assignment period: Tasks & Deliverables Timeline Man days (max) Draft concept for the study design, structure, contents and research (part I & II): to be discussed with SMEDA team 21 November Deliverable: Draft written description (3-4 pages) to be discussed with SMEDA team Conduct the study & mapping (The effort of the work should be directed as following Part I: 35%; Part II 55%; Part III 10%) Deliverables: Database of Sector Mapping, Interim Report Draft Final Report to be discussed with SMEDA team 22 Nov Jan December January Deliverable: Final Report, including SMEDA comments 18 January Total Conditions and payment terms The Contractor s offer must include: 8 The Financial offer requires the Contractor to submit for consideration a summary of costs with respect to the above sections The Technical offer requires the Contractor to submit details pertaining to the Contractor s organization; the Contractors experience; comments/suggestions on the, description of approach, methodology and work. The technical offer also suggests a format of presentation for the mapping. The description of approach, methodology and work plan must include activities and deliverables as indicated in above table

9 Payment terms: Interim payment; Final payment upon fulfilment of the contract. 3.4 Coordination and communication The Contractor reports to the Team Leader of the EU SMEDA-Project, Ms. Eva Maria Näher and closely collaborates with the responsible Project Experts, Mr. Peer Priewich and Mr. Davit Kartashyan, as well as with the administrative support team in Armenia. 3.5 Submission Requirements The Contractor must fulfil the following requirements: - Strong proven expertise in the area of assignment, (proven by references attached to the offer) - Proficiency in English and Armenian languages (written and spoken) Excellent understanding of how to approach and communicate with businesses/start-ups, institutions, international organizations, government. 3.6 Additional Documentation - Description of Action - Log Frame for SMEDA-Project - Other study reports in the field of PE 9