Contracting Authority: European Commission

Description of the Action

EUTF05 – HoA – ETH – 42.01

Reference:

EuropeAid/

Dossier No

(for official use only)

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UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION

Project of Government of the Federal Democratic Republic of Ethiopia

Project number: SAP160086Project title: Leather Initiative for Sustainable Employment Creation (LISEC)

Thematic area code Poverty reduction through productive activities

Starting date: April 2018

Duration: 4 years (48 months)

Project site:

Addis Ababa (Capital of the Federal Democratic Republic of Ethiopia)Modjo CityOther relevant areas located in Oromia Regional State

GovernmentCo-ordinating agency: Ethiopian Ministry of Industry (MoI)

Counterparts:

Ethiopian Ministry of IndustryEthiopian Ministry of LivestockOromia Regional StateModjo City AdministrationLeather Industry Development Institute (LIDI)Federal Small and Medium Manufacturing Industry Development Agency (FSMMIDA)Industrial Park Development Corporation (IPDC)EU Delegation in Ethiopia

Executing agency/ cooperating agency:

United Nations Industrial Development Organization (UNIDO)

Project Inputs: € 7,336,449 EUR

- Support costs (7 %): € 513,551 EUR

- Counterpart inputs: - in kind

- Grand Total: EUR 7,850,000Donor contribution: by the European Union 7,750,000 EURUNIDO contribution:100,000 EUR

Brief Description: The present proposal is inserted within the EU Action Fiche “Leather Initiative for Sustainable Employment Creation (LISEC) in Ethiopia”1. The overall objective of the action is to create greater economic

1Action Fiche for the implementation of the Horn of Africa Window T05-EUTF-HOA-ET-42.The total amount drawn from the European Union emergency trust fund for stability and addressing the root causes of irregular migration and displaced persons in

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and decent employment opportunities, especially for young men and women through the development of the Ethiopian leather industry and the Modjo leather industrial park. LISEC's intervention logic is to contribute to the reduction of irregular migration from Ethiopia by creating greater economic and decent employment opportunities for young men and women through the development of Modjo leather city industrial park and Ethiopian leather industry value chain, one of the sectors identified in the Ethiopian's Growth and Transformation Plan II (GTP II) as having the potential to boost the growth of the economy. As such, this programme proposes a new vision towards inclusive and sustainable industrial development that protects the environment and supports social inclusion. In order to achieve the main programme goal, LISEC has been structured following a comprehensive approach with three main components aiming at: (1) Advancing economic competitiveness by strengthening the leather value chain; (2) Protecting the environment by facilitating financial investments towards the establishment of an eco-friendly leather industrial park in Modjo; and (3) Strengthening social cohesion by supporting local economic and social development initiatives, especially for women and youth living in Modjo area; and enhancing industrial and labor relations in the MLC . These 3 interlinked components will be coordinated and monitored closely by the EUD under a centralized management approach. UNIDO in close collaboration with the MoI and the Leather Industry Development Institute (LIDI) will implement component 1. UNIDO has been selected to implement this component due to its large experience in supporting the Ethiopian leather and leather products industry, its knowledge of national and regional leather institutions and its successful results on the sector.The specific objective of the project is to enhance the economic competitiveness by strengthening an inclusive and sustainable development of the Ethiopian leather value chain. In this context, concrete actions will be undertaken in order to: i) Improve quality and quantity of hides and skins (H&S - including grading system, training, awareness raising) by supporting the leather value chain from slaughter houses to tanneries; ii) Support tanneries (processing and producing finished leather) towards integration into the leather global value chain through competitiveness gains/environmental compliance, including the creation of a LIDI Regional centre. Iii) Promote investments in/around Modjo Leather City (including MSMEs clusters) for both domestic and foreign companies.This project initiative is totally in line with the Ethiopian National Development Strategy and specifically with the GTP II supporting the transformation of the Ethiopian agriculture-based economy into an industrialized one, thus becoming a middle-income country by 2025. Furthermore, this project proposal has been articulated by in-taking some of the Valletta Action Plan (elaborated by EU in November 2015) priority areas, mainly:i) Launch projects to enhance employment opportunities and revenue-generating activities in regions of origin and transit of migrants in East, North and West Africa to enhance the professional skills and employability of young people, including the AU/NEPAD skills initiative, access to digital technologies, support to micro, small- and medium-sized enterprises in the formal and informal sectors and increased access to finance.ii) Facilitate responsible private investment in African agriculture, agri-business and agro-industries and boost intra-African trade and exports of agricultural products through agricultural finance initiatives and by working with like-minded organizations, with immediate effect, with a view to contributing to rural economic transformation, taking due note of the African Union's Malabo Declaration on Accelerated Agricultural Growth and Transformation for Shared Prosperity and Improved Livelihoods.

Approved:Signature: Date: Name and title:

On behalf of: ___________________ __________ __________________

On behalf ofUNIDO: ___________________ __________ __________________

Africa is 15,000,000 EUR.

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Table of ContentsA.1 Baseline Scenario.......................................................................................................................................8

A.2.The Ethiopian Economic Context...............................................................................................................8

A.3.Origin of the project...................................................................................................................................9

A.3.Leather Industry in Ethiopia.....................................................................................................................10

A.4.The Ethiopian Leather Industry Value Chain............................................................................................11

A.4.1.Raw material: Hides and Skins.......................................................................................................11

A.4.2. Slaughtering, Trading and Transportation of raw hides and skins................................................11

A.4.3.Tanneries.......................................................................................................................................11

A.4.4.Footwear and other leather products (MSMEs)............................................................................12

A.4.5. Marketing for Ethiopian Leather and Leather products...............................................................12

A.4.6 Institutions and actors involved....................................................................................................13

A.5 Target Beneficiaries..................................................................................................................................16

A.5.1 Program for Country Partnership-Ethiopia....................................................................................17

A.5.2 Ethiopian Growth and Transformation Plan..................................................................................17

B.REASON OF UNIDO ASSISTANCE..................................................................................................................18

B.1.Lessons learnt...........................................................................................................................................19

C. THE PROJECT..............................................................................................................................................21

C.1.Objective of the Project............................................................................................................................23

C.2 UNIDO approach......................................................................................................................................23

C.2.1. Project Phases..............................................................................................................................24

C.2.2 Project management.....................................................................................................................29

C.3. Thematic area and code..........................................................................................................................33

C.4. Impact.....................................................................................................................................................33

C.4.1 Expected outcome and Outputs....................................................................................................34

C.4.2 Outputs, Activities and Timeline....................................................................................................35

C.5. Risks.........................................................................................................................................................35

C.6. Sustainability...........................................................................................................................................35

C.7 Gender Mainstreaming............................................................................................................................36

C.8 Communication and visibility...................................................................................................................37

D. BUDGET......................................................................................................................................................37

D.1 Counterpart inputs...................................................................................................................................37

D.2. UNIDO Inputs..........................................................................................................................................37

D.2.1 Sub-Contracts................................................................................................................................38

D.2.2Training..........................................................................................................................................39

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D.2.3 Equipment and supplies................................................................................................................39

D.3Preliminary Budget....................................................................................................................................39

E. MONITORING, REPORTING AND EVALUATION...........................................................................................39

E.1. Reporting.................................................................................................................................................39

E.2. Monitoring...............................................................................................................................................40

E.3. Evaluation................................................................................................................................................41

F. PRIOR OBLIGATIONS AND PREREQUISITES.................................................................................................41

G. LEGAL CONTEXT.........................................................................................................................................41

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ACRONYMS

AA Addis AbabaAALF All African Leather FairAGOA African Growth and Opportunity ActBDS Business Development ServicesCAMM Common Agenda on Migration and MobilityCBE Commercial Bank of EthiopiaCBI Centre for the Promotion of Imports from developing countriesCGB Cluster Government BodyCOMESA Common Market for Eastern and Southern AfricaCDA Cluster Development AgentCDP Cluster Development ProgramCOMESA LLPI COMESA Leather and Leather Products InstituteCPA Cooperative Promotion AgencyCSCCSR

City Steering CommitteeCorporate Social Responsibility

CTC Cluster Technical CommitteeDBE Development Bank of EthiopiaDFID Department for International DevelopmentEBA Everything but ArmsEC European CommissionEDC Entrepreneurship Development CenterEIB European Investment BankEIFCCOS Ethio- International Footwear Cluster Cooperative SocietyELIA Ethiopian Leather Industry AssociationELICO Ethio- Leather Industry Private Limited CompanyEMPEA Ethiopian Meat Producers-Exporters AssociationEP Enterprise PartnersERP Enterprise Resource PlanningETB Ethiopian BirrFDIs Foreign Direct InvestmentsFEMSEDA Federal Micro and Small Enterprises Development AgencyFTCs Farmer Training CentersGDP Gross Domestic ProductGoE Government of EthiopiaGTP Growth and Transformation PlanHACCP Hazard analysis and critical control pointsICMPD International Centre for Migration Policy DevelopmentIDPs Internally Displaced PersonsIDSP Industrial Development Strategic PlanIFC International Finance CorporationILRI International Livestock Research InstituteIMF International Monetary FundIOM International Organization for Migration

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ISID Inclusive and Sustainable Industrial DevelopmentKPIs Key Project IndicatorsLIDI Leather Industry Development InstituteLMP Livestock Master PlanLSA Livestock Sector AnalysisMDGs Millennium Development GoalsM&E Monitoring and EvaluationMFI Micro Finance InstitutionsMLC Modjo Leather CityMoI Ministry of IndustryMoFEC Ministry of Finance and Economic CooperationMoLaF Ministry of Livestock and FisheriesMoT Ministry of TradeMSEs Micro and Small EnterprisesMSMEs Micro, Small and Medium EnterprisesMoFeC Ministry of Finance and Economic CooperationNPC National Project CoordinatorNSC National Steering CommitteePCP Programme for Country PartnershipPEPE Private Enterprise Programme for EthiopiaPIC Productivity Improvement CenterPIU Project Implementation UnitPPP Public Private PartnershipPSC Project Steering CommitteePTC Project Technical CommitteePTU Project Technical UnitREMSEDASCP

Regional Micro and Small Enterprises Development AgencySustainable Consumption and Production

SDGs Sustainable Development GoalsSFF Static Flaying FrameSWOT Strength, Weakness, Opportunities and Threats AnalysisTC Technical CommitteeToT Training of TrainersEU TTF European Union Transformation Triggering FacilityTVET Technical and Vocational Education and TrainingQSAE Quality and Standards Authority of EthiopiaUNDP United Nations Development ProgrammeUNIDO United Nations Industrial Development OrganizationUNODC United Nations Office on Drugs and CrimeVCVTC

Value ChainVocational Training Centers

WB World BankWEDP Women Entrepreneurship Development Programme

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A. CONTEXT

A.1 Baseline Scenario

In November 2015, the European Union (EU) pledged €1.8 billion, at the Valletta Summit, for the “Emergency Trust Fund for stability and for addressing root causes of irregular migration and displaced persons in Africa2” of which Ethiopia is no exception. Lack of economic opportunities, marginalization, natural disasters, and food insecurity drive migrants (and displaced populations) to move from rural to urban areas in seek for jobs. As a consequence, Ethiopia’s urban centers, such as Addis Ababa, have high unemployment rates where employment is strongly limited to the low waged informal sector while girls and women get trapped in the sex industry. The non-met livelihood and work expectations, leads to a perpetuated dream for international migration and better life opportunities as 2 million youth try to enter the labor market every year. Job creation is essential and this is where this Project Initiative fits in.

A.2.The Ethiopian Economic Context

Ethiopia is increasingly being recognized as a major investment destination because of its fast-paced economic progress, its unique location, cheap labor and a huge market potential. The Government, through the Growth and Transformation Plan (GTP II) continues to work on physical infrastructures through public/private investment projects, and transform Ethiopia into a manufacturing hub for exports and job creation. Besides the construction of infrastructure, one of the core strategies of the GTP II is the establishment of industrial parks (strengthening of Medium and Large Scale manufacturing enterprises and industries to bring about accelerated growth through development of industrial parks including Small and Medium Enterprises - SMEs clusters and Agro-parks). The industrial park strategy of the country, introduced by the Industrial Parks proclamation 886/2015, is expected to give a considerable boost of the development of the economy and transform Ethiopia into a light manufacturing hub with an expected growth of the sector by 25% per year for the next decade. The goal is that the manufacturing sector would contribute 20 % of Ethiopia’s GDP and 50 % of the export volume by 2025. Growth targets are in line with the manufacturing strategy and among the list of priority sectors is the leather and leather products which holds the potential to boost growth and contribute to the industrial transformation towards light manufacturing. "Building a leather sector with the leading manufacturing capability in Africa which is diversified, globally competitive, environmentally friendly, and capable of achieving a tenfold global market share by the year 2025” is in fact a direct expression of the GTP II on this sector. The Small Enterprises Development Strategy of Ethiopia, re-aligned with the GTP II, also emphasizes the strategic importance of clustering SMEs as a transformation process needed to develop a manufacturing hub and strategically set the clusters within the Industrial Parks3. To support the Government of Ethiopia's strong commitment to realize these transformative goals indicated in GTP II, UNIDO is providing its support to contribute to the diversification of industrialization and organizational capacity development efforts to enable accelerated industrial growth by building linkages amongst Modjo Leather City Industrial Park and the leather SMEs modern cluster through this project.

2 Valletta Action Plan, 11-12 November 2015.3Ministry of Industry Investment Opportunity in Manufacturing Industry - Investment Research, Monitoring and Support Directorate, August 2017.

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A.3.Origin of the project

The Modjo Leather City (MLC) has been indicated by the Government of Ethiopia (GoE) as a priority for transforming the national economy, create jobs and reduce migration patterns (besides being inserted in the Programme for Country Partnership - PCP). In addition the GoE considers this sector as a lead component for an inclusive and sustainable industrial development of the Ethiopian Industry as the leather value chain: (i) is labor intensive; (ii) is one of the main drivers of economic growth contributing to the GoE development strategy; and, (iii) enjoys international comparative advantages due to the abundance of raw materials and workforce.

Given the priority of the sector, the Ministry of Industry (MoI) delegated UNIDO and the Leather Industry Development Institute (LIDI) to prepare a proposal for the establishment of a leather industrial district to mitigate the pollution, create job opportunities and facilitate FDIs as well as identifying the technical assistance needed to upgrade Modjo district urban planning. A technical Feasibility Study was produced (April 2015) and supported by LIDI’s Clean Development Mechanism (CDM) project to reduce GHG emission by 142,602 tons of CO2e/year and by an Environmental and Social Impact Assessment (ESIA) also developed by LIDI. In this context, this project proposal originates from the Official Request brought forward to UNIDO from the EU Delegation in Ethiopia to provide with the necessary technical assistance for the implementation of the leather initiative for sustainable employment creation in Ethiopia, in order to increase employment opportunities in the country and mitigate irregular migration. Anchored to the MLC Industrial Park and in harmonization with the GTP II specific strategy directed towards job creation through the strengthening of the leather sector, PCP Ethiopia, and the pursue of Sustainable Development Goals (8) “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all” and (9) “Build resilient infrastructures, promote inclusive and sustainable industrialization and foster innovation”, this project proposal intends to assist the MoI, LIDI, and local stakeholders to enhance the leather sector in Ethiopia, create job opportunities and reduce pollution from the tanning industry. Through its immediate objective “to support an inclusive and sustainable development of the Ethiopian leather value chain as well as of the SMEs which are operating in the area as a driving force for creating job opportunities and income generation” the action specifically contributes to the broader EU objective (1) “to create greater economic and employment opportunities, especially for young men and women” and (4) “to improve governance and conflict prevention of the EU Trust Fund”, as well as to the Valetta Action Plan Priority Domain 1:“Development benefits of migration and addressing root causes of irregular migration and forced displacement by boosting socio-economic development, particularly by creating job opportunities, especially for young men and women”.

Situated 70km south east of Addis Ababa, and connected by the Addis Ababa – Djibouti rail network, Modjo (25.412 males & 27.534 females) relies on 12 operating tanneries (while 3 are under construction and 6 other will be relocated from Addis Ababa), a large number of workshops, stores, slaughter houses, farmers, etc. Given the great leather cluster development potential in the area, this project proposal intends to: provide technical assistance for Micro, Small and Medium Enterprises (MSMEs) Network development around Modjo (by linking the footwear and leather products sector with the tanneries and organize a Modjo leather modern cluster linked with Modjo City Industrial Park); promote Local and Foreign Investments (involvement of European Investment Bank - EIB); create job opportunities; expand market access (including compliance with international quality and phyto-sanitary standards); increase the transformation of local leather in exportable finished leather products (e.g. footwear, leather goods, garments, gloves, etc.); provide CDMs and environmentally friendly solutions to tanneries’ pollution (i.e. by providing a CETP - Common Effluent treatment Plant) and reduce the environmental impact of the leather

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processing; train and upgrade manpower skills (including managing levels); strengthen (through LIDI) Technical and Vocational Education and Training (TVETs) capacity in preparing training programmes tailored to local tanneries’ specific needs (i.e. regular and short-term trainings) and addressed to unemployed and needy youth; & strengthen Institutional (MoI) capacities through Capacity building activities also oriented to establish a coordination mechanism to best follow up the project.

From an environmental perspective, the relocation of tanneries and the construction of a common waste water treatment plant (envisaged as zero liquid discharge facility) shall be prioritized if the environmental impact of the leather processing is to be reduced, while in parallel, large population movements coupled with unplanned urbanization could pose additional threats to the area if not managed properly 4. Socially, the main challenge for inclusive and sustainable industrial development is to ensure that the population in Modjo area (Mojo city and nearby communities) benefit from industrial growth, and that prosperity is shared among all society segments in order to address local needs. With almost half (49.2%) of Oromia’s population aging between 15 & 64 years of age, and with an unemployment rate of 28% and 16.5% for females and males (in the 15-29 age gap) respectively educational and professional opportunities to women and youth in the region are on high demand. As such MLC represents the concrete shot to create job opportunities, facilitate foreign and local direct investments, transfer of technology and building of skilled labor capacities. Furthermore, the park will act as a catalyst for the MSMEs operating in the leather sector (e.g. footwear, leather products manufacturers etc.) by providing extension services, trainings, raw materials, components etc. needed for an inclusive and sustainable development of the sector.

A.3.Leather Industry in Ethiopia5

With About 2.700 enterprises, 42.000 employees, 18.500 self-employed persons and artisans, 12 million farmers’ and pastoralists’ households, the Government of Ethiopia6 has made of the leather and leather products value chain among the top four most promising industries in the country due to its strong linkages with the rural economy; potential for poverty reduction; belonging to the light industries; high value addition and export orientation; high employment generation; competitive and comparative advantages; multiplying effects for other sector related industries and abundance of raw materials. Owing to these potentials, the GoE and the EU Delegation are strongly strategizing on the support to this sector and as such this project proposal.

The GoE is committed to tackle the sector challenges7 and has requested support to sustainably improve the Ethiopian leather and leather products industry, with a view to: (i) shift leather production from wet-blue stage to crust, and then to finished leather; (ii) raise domestic value addition in the leather sector by increasing the volume of hides and skins that are processed to domestically finished leather; (iii) attract significant export-oriented Domestic and Foreign Investments and improve linkages in the industry.

4 Negotiations are ongoing amongst Regional Authorities and farmers for a sustainable relocation planning (RAP). As report will be concluded it will be made available to this project initiative to ensure a full harmonization with the process.5Among the five sectors identified in the GTP as having the potential to boost the growth of the economy (i.e. agro processing, textile and garments, leather and leather products, chemicals and metal industries), the leather sector has been the only one so far with a positive trade balance.6See Master Plan prepared by UNIDO in 2005 under the title: “A Strategic Action Plan for the Development of the Ethiopian Leather and Leather Products Industry” in two volumes that sets the goals for the overall leather industry included in both GTP Plans (I-II)7 Please refer to Annex IX “General problems, affecting the hides and Skins, leather and leather products industry and recommendations” for a detailed description of the problems and possible recommendations on how to solve them throughout the value chain.

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A.4.The Ethiopian Leather Industry Value Chain

A.4.1.Raw material: Hides and Skins

With 52 million cattle population the average off-take rates are: (i) cowhides - 13.87%, (ii) goatskins - 27.34% and, (iii) sheepskins - 40.29%. According to a study from Addis Ababa University 8 as many as one-quarter to one third of all skins processed in tanneries present various defects rendering them unsuitable for export purposes. More than 300 different kinds of physical or mechanical damages can be identified on skin and hides including those caused during ante-mortem (on the farm, during transport, at markets/abattoir) and post-slaughter (at the abattoir/hide market, during storage, preservation).

A.4.2. Slaughtering, Trading and Transportation of raw hides and skins

The major defects observed on hides and skins (due to unsustainable slaughtering techniques carried out at individual households; rural slaughter slabs; municipal slaughterhouses; & export abattoirs) are those related to improper flaying and poor bleeding. Both causes are the consequence of lack of knowledge and experience of sector related professionals and of the use of improper/obsolete tools. The main observed flaying defects are: accidental cuts, improper ripping and incorrect shape (caused by improper ripping pattern processes before flaying). Adding to this, the trade chain, low quality transportation and handling, delays, cleaning and curing, incorrect preservation methods, no grading techniques nor price incentives, also impact on hides and skins quality. To this end the Raw Hides and Skins Marketing Proclamation9” (n. 814/2013) has introduced supportive trade mechanisms though adequate slaughtering facilities with trained personnel are needed to further reduce processing defects.

A.4.3.Tanneries

Finished leather represents the largest share of Ethiopia’s output and leather export (75%) 10. However, the amount, the mix and quality of finished leather does not match international customers’ demand due to the lack of conducive FDI platforms, R&D,and technology transfer and the limited skills in leather finishing necessary for value addition. LIDI and the GoE have set the target of 555 million sq.ft of finished leather production at the end of GTP-II (2019/2020) in order to achieve the export target of 800 million USD at the

8 “Skin Defects in Small Ruminates and Their Nature and Economic Importance: The Case of Ethiopia”. Department of Pathology and Parassitology, College of Veterinary medicine and Agriculture, Addis Ababa University, 20139 The Proclamation, its Regulation (n. 339/2015) and a relevant Directive from MoT (n. 30/2007 EC) have substantially changed the trade chain. The main features are the following:a) The elimination of the figure of the small collector.b) The establishment of Primary Markets, where only fresh or air-dried skins and hides can be supplied and where marketing can

be conducted only between: individual producers and suppliers, individual producers and traditional tanners and small abattoirs and suppliers.

c) The price of raw hides and skins shall always be determined by their quality.d) Any person, other than producer, participating in primary marketing shall have a valid business license.e) The establishment of Secondary Marketing, where fresh, air-dried or salted skins and hides can be supplied and where

marketing can be conducted only between: suppliers and tanneries, big abattoirs and tanneries and export abattoirs and tanneries.

f) Introduction of mandatory transport permits for transport of raw hides and skin at all market levels.g) Introduction of a “Raw Hides and Skins Quality Control System”. The verification and control of quality standards shall be

conducted at any level, starting from first level marketing.h) The introduction of Quality Controllers that shall conduct the verification and control of the quality standards at all marketing

levels. The Quality Controllers shall be assigned by MoA (now MoLaF) and its regional bureau and shall be selected among trained professionals.

i) Introduction of obligations for suppliers and tanneries to not store raw hides and skins beyond the permitted period of time.10 Tanneries produce leather for the local market and export, mainly to China, India and Italy.

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end of the fiscal year and this project proposal looks into supporting this achievement though finished leather products are actually roofing 115 Ml. USD at the end of 201711

With 15 out of 29 existing tanneries in Ethiopia operating in Oromia region (given the abundance of raw materials, water supply, and skilled manpower), the impact of pollution caused by tanning operations created several environmental and social complications and disagreements in Modjo and its nearby communities. This has lead the Government of Ethiopia (GoE) to recently strengthen its commitment towards the establishment of an eco-friendly leather park in Modjo (Modjo Leather City) and for this project initiative to undertake a considerable ECO approach in order to best preserve the environment and deliver a leather cluster in full respect of environmental and social rights.

A.4.4.Footwear and other leather products (MSMEs)

Currently there are 23 medium and large scale footwear manufacturers which have a capacity of 10.5 million pairs/year12; and more than 90 micro and small footwear manufacturers which contribute for 90% of local market and provide jobs to 8000 workers. Through the implementation of GTP II, It is planned to reach the full potential of 35 million pairs of production by the end of this year out of which 21 million pairs are for export. Almost 95% of the factories are located in and around the capital city 13 producing men’s and children’s leather casual shoes and shoe-uppers. In addition, the factories directly sell to overseas importers/wholesalers or to buying offices that facilitate the production and export of footwear under the labels of private department stores, boutiques, shoe retail chains and mail-order houses. All of them tend to source out from Ethiopia (and other nations in East Africa) and re-export. The footwear industry produces shoes that are globally competitive both in quality and price. The sector provides also with great opportunities (which this project looks into maximizing) for women and youth self-employment along the leather industry value chain. In fact, the leather products sub-sectors (which include leather goods, garments, bags, belts, gloves, wallet and others) is women owned by 50%14.

A.4.5. Marketing for Ethiopian Leather and Leather products15

In order to reach the leather value chain sustainable development, an improvement of local marketing capacity is needed. Existing domestic manufacturing companies and potential new entrants are often not well informed on the global markets demand and supply trends, nor on the international lead sourcing firms roles, production networks and distribution channels, nor they know how to access them. As such, marketing players need support to develop their knowledge on international markets and on how to set-up and forge links with key actors of the global value chain and international production networks. The Ethiopian leather sector also lacks of sustainability standards and needs studies of selected target markets and linkages with international production, distribution networks and brand creation mechanisms in order to setup a comprehensive leather production channel. UNIDO, through this project, will support in establishing these marketing & markets linkages through targeted markets analysis and correspondent appropriate FDIs promotion.

11 LIDI 2016/2017 export database.12 LIDI 2016/2017 footware database data.13AIGA Forum: The performance of the Manufacturing Sector over the past decade - 201714 Most of the women entrepreneurs in the sectors are designers with very good designing skills that are useful to make the sector competitive in the local as well as in the global market.15Please refer to Annex X for a detailed description of marketing requirements.

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A.4.6 Institutions and actors involved

A detailed list of actors involved in the project implementation will be provided through the Plan of Actions that will be defined under each project output. Nevertheless, considering the project intervention within the Ethiopian leather value chain and the GoE strategy, the following local Institutions, among others, are expected to participate in the project initiative:

Ministry of Industry (MoI) The Regional Government of Oromia and related offices including Modjo City Administration Ministry of Livestock and Fisheries (MoLaF) The Ethiopian Industrial Parks Development Corporation (IPDC) Ethiopian Investment Commission (EIC) The Leather Industries Development Institute (LIDI) Federal Small and Medium Manufacturing Industry Development Agency (FSMMIDA) The Ethiopian Meat Producers/Exporters Association (EMPEA) The Ethiopian Leather Industries Association (ELIA) Ethiopian Raw Hides and Skins Suppliers Association (ERHSSA) Micro finance Institutions

Moreover, the coordination with the following stakeholders is expected among:

The European Union Delegation in Ethiopia The DAG Technical Working Group including the private sector development group on leather The Centre for the Promotion of Imports from developing countries (CBI), The Netherlands Enterprise

Agency (RVO.nl) LLPI/COMESA and others as it may be identified during the project implementation.

In Ethiopia, achieving effective coordination, alignments, synergies and harmonization among various partners entails enormous challenges. To address them, and in order to achieve the GTP II targets for the leather sector, the Ministry of Industry in collaboration with sector key stakeholders16 established a leather sector coordination group (including DFID, ILO, UNIDO, JICA, ITCA alongside relevant Ethiopian partners such as ELIA and LIDI). The first Leather Technical Working Group (TWG) meeting took place on the 3rd of February 2017 with the objective to set-up an industry specific regular coordination platform to improve collaboration and information sharing amongst participating leather actors and key stakeholders.

16Key stakeholders in the leather sector attending this meeting are: DFID, EU, UNIDO, ILO, Private sector (Enterprise Partners, Made by Ethiopia), LIDI, and MoI. EU member states currently working in the leather sector but not present on that first meeting are the French Agency for Development (AFD) and the Italian Agency for Development Cooperation (AIDC)

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Adding to the TWG is the setup of a Project Steering Committee herewith below depicted:

EU Programme

Project Steering Committee (PSC)DAG Leather

Technical Working Group for updating

development partners on project

activities and results as we as for coordination

purposes

Technical Committee at Federal and Regional

Level: Improve quality and quantity of hides

and skins

Technical Committee at Federal and Regional

Level: Support tanneries towards integration into the leather global value

chain

Technical Committee at Federal and Regional

Level : Promote investments in/around MLC for both domestic and foreign companies

The full idea and expected result of both the TWGs and PSC, is that the project is expected to be regularly reported within these platforms to ensure a higher degree of project effectiveness and coordination with other main ongoing initiatives implemented by different development partners.

To this end, the following collaborations with development partners have been already explored to facilitate this process:

Coordination with the Italian Agency for Development Cooperation (AICS) funded project titled “Technical assistance for upgrading the Ethiopian leather and leather products industry” and implemented by UNIDO. The project focuses on supporting MSEs throughout the cluster development methodology17.

Coordination with the Programme “Stemming Irregular Migration In Northern & Central Ethiopia (SINCE)” funded by the EUTF for stability and addressing the root causes of irregular migration and displaced persons in Africa. This Programme is implemented by the Italian Embassy in Ethiopia with the involvement of ILO and UNIDO.

Coordination with the DFID financed Enterprise Partners (EP)18 programme, which is implementing the PEPE initiative. Contacts have been already been made with DFID and a possible strategy for coordinating both initiatives is under discussion.

Coordination with CBI (Centre for the Promotion of Imports from developing countries at the Netherlands Ministry of Foreign Affairs). This opportunity has already been explored to jointly conduct the analysis of the Ethiopian leather value chain and implement selected activities focusing on the leather and leather products marketing and market connections. Coordination with Women Entrepreneurship Development Project (WEDP) for Ethiopia financed by the World Bank aiming at increasing the earnings and employment opportunities of Micro and Small Enterprises (MSEs) owned or

17UNIDO ongoing project extended for additional 3 years.18The Private Enterprise Programme for Ethiopia (PEPE) is a wealth creation initiative of DFID, where Enterprise Partners is the largest component of PEPE focusing on 3 agro-industrial sectors i.e. Cotton/textile/apparels, Livestock and Leather, Fruits and vegetables. EP is also working to achieve systemic change in the financial sector (Savings, Debt and Equity) to generate investment in Ethiopia. EP’s ultimate goal is to create jobs and increase income of poor in the mentioned agro-industrial sectors by improving the competitiveness of the sector. EP is not restricted within any geography; therefore is mandated to work all over Ethiopia.

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partly owned by participating female entrepreneurs. This will create synergies with financial tools already setup within the programme for Ethiopian MSMEs19.

Coordination with different EU stakeholders for promoting strategic partnerships with the public and private sectors aimed at reinforcing market access, Ethiopian leather and leather products visibility, institutional twinning arrangements (e.g. the Italian Association ASSOMAC which is already promoting twinning arrangements with LIDI; CSR Netherlands20 etc.).

Coordination with UNDP's Entrepreneurship Development Program. UNDP has established an Entrepreneurship Development Centre (EDC) which focuses on four areas: institutions and capacity building for EDC; skills development for entrepreneurs, new college graduates, etc.; business development services for start-ups; and partnership & resource mobilization for private sector development. UNDP is also providing institutional support to Mol in policy implementation and the development of an industrial road map.

Coordination with COMESA LLPI to facilitate and connect member States, partners, enterprises, institutions for value addition and competitiveness in the leather sector through sharing of knowledge, adaptation and adoption of innovations at various levels of the leather value chain. COMESA role is particularly important for linking Ethiopian companies with the Regional markets and opening new opportunities for large and MSMEs.

Continuous coordination with EIB, WB and other investment/development Banks, for facilitating access to loans, as well as for scouting bankable private/public projects linkable with the current initiative.

This project proposal is also taking in consideration different initiatives, some EU funded, such as the Triggering Transformation Facility21. The EU Transformation Triggering Facility (TTF) aims to trigger transformation by building capacities of public and private institutes, introducing new skills and knowledge to strengthen competitiveness, and supporting policy reforms required to attain economic growth, employment creation and a better environment to conduct businesses. Within the TTF four main priority

19This will be achieved by: i) tailoring financial instruments to the needs of the participants and ensuring availability of finance; and ii)developing the entrepreneurial and technical skills of the target group and supporting cluster, technology and product development for their businesses. There are three components to the project, the first component being access to microfinance. The aim of the component is to facilitate access to financial services for female growth-oriented entrepreneurs by providing working capital and investment finance through a dedicated line of credit. At the same time, the component aims at improving the capacity of existing Micro-Finance Institutions, or MFIs to serve female growth-oriented entrepreneurs with tailored financial products. The second component is the entrepreneurial skills, technology and cluster development. The aim of this component is to develop growth-oriented women entrepreneurs' skills, facilitate their access to more productive technologies that can raise their incomes, and help unleash synergies from clustering. Access to finance and leasing tools remain a priority component of all the technical assistance project proposals. For this reason, this project has to take in consideration not only WEDP (specifically addressed to women) but also the SMEs financing scheme developed by WB aimed at extending loans to the Development Bank of Ethiopia (DBE) for supporting leasing financing plus the 20% of working capital of SMEs.20 CSR Netherlands is a foundation in that works basically as a network of sustainable companies. They are partly funded by the Dutch government and partly by the companies themselves, who pay an annual membership-fee. In this network, there is a group of Dutch leather companies (ranging from brands and wholesalers to chemical suppliers) that are interested in the Ethiopian leather industry. Their interest involves two things: sourcing and investing.21 The overall objective of the Transformation Triggering Facility (TTF) is to accelerate Ethiopia's economic transformation, and through this attain economic growth, skill development and employment creation in the manufacturing sector and contribute to the country's goal to achieve middle-income status by 2020-23. The specific objectives of the TTF are to strengthen the Government of Ethiopia’s ability to reach the above objective by: i)Strengthening the competitiveness of small and medium-sized industries in the priority industrial sectors through investment and export promotion, market development, knowledge transfer and skills development; ii) Enhance the capacity of Ethiopia’s frontline ministries, government institutions, business organizations and manufacturing companies to facilitate and/or manage economic transformation and to fine tune related policies, iii) Developing the medium to long term vision and providing seed funding for the establishment of Ethiopia as a medical and aviation hub.It has also to be noted that TTF is composed by four main components: i) SME and markets development; ii) Business Development Skills and Innovation; iii) Hubs' development; iv) Capacity Building and Policy Fine Tuning for Economic Transformation. Considering TTF sectors of intervention as well as its components, the current project proposal will be easily aligned with the TTF.

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sectors, have been selected by the Government of Ethiopia among which the leather and leather products, including chemicals as part of the leather value chain.

This project proposal should be considered as part of this comprehensive approach established by the EU and other development partners in Ethiopia, avoiding any duplication of activities. Thus, the project will complement not only with the EU funded programmes/projects but also with other ongoing initiatives. Finally, the project will participate in the DAG Technical Working Group (TWG) on Private Sector Development and Trade22for updating development partners on project activities and results as we as for coordination purposes.

A.5 Target Beneficiaries

The ultimate beneficiaries will be youth and women in the targeted project area, small enterprises, local entrepreneurs, informal sectors and local communities. During project implementation, beneficiaries (youth and women particularly) will be defined through a mapping and identification exercise amongst slaughtering houses (urban and rural), tanneries and MSMEs, TVETs, and specific target groups active in the leather value chain.

A.6 Relevance of the Project In Relation to National and International Frameworks

To ensure better integration of National and International policies, this Project also harmonizes with the 2015 proclamation for the prevention and suppression of trafficking in person as well as smuggling of migrants adopted by the GoE and with the Common Agenda on Migration and Mobility (CAMM) whereby the EU and the GoE agree to cooperate on issues of international protection, refugees' needs, legal migration and mobility, irregular migration, smuggling and trafficking of human beings and development policy23 and with the socio-economic measures put in place by the GoE24to actively support the reintegration of returnees. From a more specific development perspective, this project initiative mainstreams the new Country Strategy outlined in the Ethiopian Growth and Transformation Plan II (GTP II), which makes of youth and employment a high priority to be addressed by creating job opportunities through manufacturing development, and the opening of industrial parks around the Country with the goal to promote industrial development, FDIs and employment generation. This project proposal is also taking in consideration the Triggering Transformation Facility which promotes the leather and leather products, including chemicals as part of the leather value chain; the Agricultural Marketing and Livestock Development projects; The Sector Working Group (SWG) on Private Sector Development and Trade . The 22 The Development Partners have set up a Development Assistance Group (DAG). The Development Assistance Group (DAG) was established in 2001 and is composed of 28 bilateral and multilateral partners. The DAG was established to foster and catalyze policy dialogue and to coordinate and harmonize development partners' support in the Government of Ethiopia's preparation, implementation and monitoring and evaluation of the national development plan and the SDGs. Four technical working groups operate directly under the umbrella of the DAG: (i) the GTP Working Group, which consists of Monitoring and Evaluation, Macro-economic, and Public Financial Management subgroups; (ii) Governance Technical Working Group which consists of the Civil Society and Justice, Safety, and Conflict subgroups; (iii) Donor Group on Gender Equality (DGGE); and (iv) the Private Sector Development and Trade Working Group. In addition to these four groups, the aid coordination architecture includes a few donor working groups as well as ten sector working groups.23Funding will be made available for implementation of concrete activities, notably through the EU Emergency Trust Fund for Africa, for which the EU has already mobilized €1.8 billion.24Ethiopia has an open door policy to migrants and refugees fleeing war, famine and hunger. In this context, it is often difficult to clearly distinguish irregular migrants from refugees. The concept of mixed migration has thus appeared to describe these complex population movements including refugees and asylum seekers, unaccompanied minors, victims of trafficking, economic migrants and others often travelling in an irregular manner. Ethiopia is increasingly becoming a transit country for mixed migration flows, mainly from Eritrea and Somalia using primarily the Western route, as well as a country of departure for migrants mainly using the Eastern route and to a lesser extent the Southern and Northern routes.

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project proposal also further fits in UNIDO’s broader strategy, known as Inclusive Sustainable Industrial Development (ISID), and the Programme for Country Partnership (PCP) for a sustained and sustainable industrial development in Ethiopia and job creation.

A.5.1 Program for Country Partnership-Ethiopia

The PCP for Ethiopia is supporting the Government in the establishment of a leather industry cluster on the basis of an existing concentration of tanneries in the town of Modjo. UNIDO is finalizing a Modjo Leather City feasibility study and will support the Government in mobilizing resources for its establishment.The PCP will also help set up four footwear and leather goods clusters, and strengthen the fashion design and training capabilities of the Leather Industry Development Institute (LIDI).

This sector was chosen due to its potentials for job creation, strong linkages with the agricultural sector, high export and capacity to attract private sector investments. In particular, this sector will act as a springboard for the transformation of Ethiopia's economy from being agriculture based to one driven primarily by light industries.

A.5.2 Ethiopian Growth and Transformation Plan

The Growth and Transformation Plan (GTPs)25is a national vision and a comprehensive strategic plan of Ethiopia to end poverty. Under this framework is the leather products industry, whose main objective is to expand the production of locally produced products (both in variety and quality), increase foreign exchange earnings, and strengthen the technological capability of the industry. To this extent, the project is totally in line with the priorities stated by GTP II and contributes to create a responsive environment for the development of MSMEs in order to: Facilitate economic growth (by streamlining and strengthening the leather industry value chain); Stimulate equitable growth; Create employment long-term opportunities (limiting the migration flows); Promote gender equality and women empowerment; Strengthening capabilities for entrepreneurship, skills and business management; Strengthen cooperation among MSMEs; Provide the basis for scaling-up; Promote export opportunities; Encourage strategic partnerships.

A.6.3 UNIDO Agri-Business Development Department Programme and Technical Cooperation - Strategic Plan for 2016

The current project proposal will contribute to operationalize UNIDO’s four Agri-Business Development Department management priorities set for 2016, in particular:

1. Effectively accomplishing UNIDO’s strategic objectives in relation to the 2030 Agenda for Sustainable Development;2. Operationalizing the Sustainable Development Goals (SDG) implementation by developing new and strengthening existing partnerships with stakeholders;3. Exploring and securing new avenues of financing for UNIDO’s programmatic implementation and operations;4. Strengthening UNIDO’s internal management structures and processes.

25 The Federal Democratic Republic of Ethiopia: Poverty Reduction Strategy Paper: Growth and Transformation Plan 2010/11–2014/15 and Growth and Transformation Plan 2015/16 - 2019/20.

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B.REASON OF UNIDO ASSISTANCE

UNIDO can count on its professional expertise in supporting the Ethiopian leather and leather products industry, learning from the previous experience gained throughout the implementation of a large number of technical assistance projects implemented over two decades in ten eastern and southern Africa countries26 from 1989 to 2002, amongst which also Ethiopia.

In light of the above, the Ethiopian Government (through the Ministry of Industry) recognizes UNIDO’s competence and experience in:

Developing and upgrading the Ethiopian leather and leather products industry; Aligning the project activities to the relevant policy strategies of the government; Considering international best practices and engaging with relevant stakeholders.

UNIDO, through its projects, has been supporting GoE and other local institutions in the development of the leather industry value chain. In particular this is & was done by putting emphasis on technological capacity-building initiatives, preparing specific strategies aimed at supporting regional governments developmental goals, sharing knowledge and best practices to promote tanneries and MSMEs/private sector development in manufacturing industries as well as improving the competitiveness of enterprises that leads to mobilizing investments, and facilitating access to appropriate technologies.

The present project capitalizes on previous UNIDO leather sector initiatives/programmes developed and implemented in the country. In particular, UNIDO has also contributed to create the leather sector National strategy27 and supported LIDI in becoming a lead leather institution in Ethiopia along with the development of a vast number of MSMEs active in leather and leather products. The Leather Initiative for Sustainable Employment Creation (LISEC) will also benefit of some specific interventions that have been already performed by UNIDO in the recent years such as the Modjo Leather City feasibility study, the Environmental and Social Impact Assessment (ESIA) study conducted by LIDI, the linkages established with relevant financing institutions and development partners, the Public-Private Partnerships (PPP) linkages established in Addis Ababa for supporting the clustering of MSMEs operating in the leather and footwear sector.

The Project will take advantage from UNIDO’s experience in technical assistance to developing countries such as. In particular UNIDO will make available:

1. Technology transfer : Modules and packages successfully implemented in previous projects.2. Innovation (unique new solutions) : Tailor made packages/components/new packages in support of

SMEs innovation gaps. ELearning for pattern making, ETPs Design software, developed for SMEs and local consultants enabling them to prepare equipment specification for SMEs including investment, operational cost estimates, land requirements, energy/infrastructure requirements etc.

3. Replication /dissemination/ campaign : Multiplication and dissemination is a crucial task as reaching hundreds of smaller enterprises and trickling down positive project effects could poses a challenge. To this extent and as a mitigation measure, dissemination campaigns will be carried out by trained

26 Botswana, Ethiopia, Kenya, Malawi, Namibia, Sudan, Tanzania, Uganda, Zambia and Zimbabwe27“A Strategic Action Plan for the Development of the Ethiopian Leather and Leather Products Industry” in two volumes is considered the Master Plan for the development of the Ethiopian leather industry and fully integrated in the two GTPs.

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consultants, local institutions, LIDI, and specialized associations offices in order to ascertain the best dissemination possible of best practices.

4. Cooperation with well-established training institutions and twinning arrangements : Twinning arrangements with leading technical/training institutions, backing-stopping from institutions with required training/technical capability will reduce time needed to establish local capacity and will create synergies amongst targeted institutions.

5. Investment Promotion : Investment promotion among UNIDO networks and partnerships to facilitate investments within Modjo Leather City.

Moreover, LISEC project hooks on to the Programme for Country Partnership (PCP),recently developed by UNIDO to bring together investors and specialists to support Ethiopia’s progress in becoming a middle-income country by 2025 thanks to a value-add approach in industrial production. The project will contribute in reaching the Ethiopian GTPII, and Ethiopia’s long-term strategy in terms of relevant thematic policies (In particular poverty reduction, job creation and MSMEs development).

B.1.Lessons learnt

In terms of lessons learnt, the project intends to upscale and upgrade successful initiatives and pilot cases developed both by UNIDO and other development partners, such as:

1. The UNIDO ongoing AICS funded leather project, which is supporting MSEs networks through the cluster development approach. The project delivered some success cases to be easily replicated within this project proposal. In particular direct supplying of raw materials, facilitation of leasing tools for MSEs, renovation of workshops and common facilities, etc... Furthermore, bottlenecks for the development of the Ethiopian private leather sector have been already identified and thanks to the comprehensive approach of this project initiative they could be solved (e.g. leasing tools have to be simplified and up-scaled, linkages between MSEs and MLEs need to be reinforced, direct supplying of raw materials and components for the private sector have to be facilitated, etc.).

2. Thanks to the good synergy established with PEPE programme, LISEC project intends not only to establish a good coordination but also to take advantage of PEPE programme results. Constraints of the leather value chain, with particular reference to the lack of capacities of Ethiopian tanneries in providing good quality leather for the internal and international markets have been already discussed with the leather programme manager. Lack of skills, both at technical and management levels, lack of appropriate technologies and financial instruments for supporting the leather private sector have been identified as the major constraints by PEPE analysts and ad hoc interventions will be planned in the next months.

3. The World Bank WEDP, a multi-donor Women Entrepreneurship Development Programme of US$50 million co-funded jointly with other development partners, represents a successful experience to be up-scaled and promoted among the female business community. More than 3,000 women in Ethiopia have benefited from a special credit line for female entrepreneurs. Lack of credit facilities represents in fact a serious constraint for the private sector development and, consequently, for the development of the entire value chain. Other programmes such as the above mentioned SMEs financing scheme developed by WB paved the way for financing private business and facilitating leasing arrangements.

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4. EU TTF is a pioneer program with a total budget of €35 million for supporting economic transformation and increasing private sector involvement in Ethiopia. Its innovative approach (working simultaneously at the level of policies, capacity building for key frontline institutions and enhancing the competitiveness of individual SMEs) is complementing other sector support and represents a point of reference for LISEC project intervention. Following this multi-dimensional approach and through targeted interventions in the leather sector and related Institutions, TTF and LISEC project will contribute to a transformative and poverty reducing growth by creating jobs and improving productivity contributing to the overall country’s goal to achieve a middle-income status by 2020-23.

5. Another potential collaboration could be established with SWITCH Africa Green project whose objective is to achieve sustainable development by engaging a transition towards an inclusive green economy, based on sustainable consumption and production patterns, while generating growth, creating decent jobs and reducing poverty. This will be achieved through the support to the private sector led inclusive green growth and by creating awareness and capacity building for M&SMEs to apply Sustainable Consumption and Production (SCP) practices particularly in sectors that have a higher potential of job creation such as manufacturing.

6. The project initiative also integrates with Solidaridad 3-years EU Commission funded “Green Tanning Initiative” which aims at promoting technologies that reduce the environmental impact of leather processing and at the same time creates sustainable employment in the Ethiopian Leather Industry. Through this Initiative, Solidaridad aims to contribute towards green and inclusive business growth of the leather industry and connect new buyers from Europe to start sourcing more sustainable leather from Ethiopia. Backward linkages in the supply chain with collection points, slaughterhouses and the livestock industry are also part of this initiative.

7. UNDP has established an Entrepreneurship Development Centre (EDC) which focuses on four areas: institutions and capacity building for EDC; skills development for entrepreneurs, new college graduates, etc.; business development services for start-ups; and partnership & resource mobilization for private sector development. UNDP is also providing institutional support to Mol in policy implementation and the development of an industrial road map. The services of the centre have already been used by the on-going UNIDO leather project for developing entrepreneurial skills of the project beneficiaries.

8. The project is also inspired by the work carried out by Japanese International Cooperation Agency JICA in Ethiopia. LIFE will learn from JICA's experience related to the introduction of the kaizen techniques in some factories, as already did within the on-going UNIDO project on leather (Kaizen methodology has been implemented in synergy with the local sub-city administration in the leather clusters supported by UNIDO).

9. UNIDO team also established a good synergy with LIDI (which is operating under the MoI). The project took in consideration all the needs and constraints that have been communicated by the Institute as well as its project proposals aimed at developing the Ethiopian leather and leather products. In this context, more than 20 project’ concept notes provided by LIDI have been analysed and strategic interventions have been inserted in the LISEC project document.

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10. UNIDO can take advantage of its experience gained working for more than 25 years in the Ethiopian leather sector, with tanneries, MSMEs and local Institutions (e.g. MoI, LIDI, etc.) while a number of other bilateral projects (USAID, AICS, Spanish cooperation, Canadian International Development Agency -CIDA, etc.) provide direct support to companies in specific sectors through provision of skills, expertise, equipment, know-how and support to participate in trades and fairs. Continued dialogue is ensured by the project through the PTC, the participation in the DAG-sectoral working group as well as at bilateral level to share analytical work and complement efforts on the ground.

11. This project will setup networking linkages with the Ethiopian Leather Industries Association (ELIA) who is a non-profit trade association of the leather industries businesses. Specifically linkages and coordination with ELIA will work to enhance and improve the leather industries business climate by promoting export of leather, shoes and leather goods and garment, protecting the rights of members, and assisting businesses to improve

C. THE PROJECT

The present proposal is inserted within the EU Action Fiche “Leather Initiative for Sustainable Employment Creation (LISEC) in Ethiopia”28. The overall objective of the action is to create greater economic and decent employment opportunities, especially for young men and women through the development of the Ethiopian leather industry and the Modjo leather industrial park and Ethiopian leather industry value chain (one of the sectors identified in the Ethiopian's Growth and Transformation Plan II - GTP II as having the potential to boost the growth of the economy). Within this intervention logic, this programme proposes a new vision towards inclusive and sustainable industrial development that protects the environment and supports social inclusion.

In order to achieve the main programme goal, LISEC has been structured following a comprehensive approach with three main components aiming at: (i) Advancing economic competitiveness by strengthening the leather value chain; (ii) Protecting the environment by facilitating financial investments towards the establishment of an eco-friendly leather industrial park in Modjo; and (iii) Strengthening social cohesion by supporting local economic and social development initiatives, especially for women and youth living in Modjo area; and enhancing industrial and labor relations in the MLC. These 3 interlinked components will be coordinated and monitored closely by the EUD under centralized management in coordination with the project PSC.

The geographical coverage of the action focuses on Modjo Leather City and nearby communities in Oromia Regional State. However it is expected that the leather value chain will have a multiplier effect reaching upstream actors like slaughtering houses, as well as tanneries and MSMEs located in other regions across the country.

28Action Fiche for the implementation of the Horn of Africa Window T05-EUTF-HOA-ET-42.The total amount drawn from the European union emergency trust fund for stability and addressing the root causes of irregular migration and displaced persons in Africa is 15,000,000 EUR

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The overall EU LISEC budget has been macro-divided as follows herewith below:

Specific Objectives/ Components Amount in EUR

Component 1: Advanced economic competitiveness by strengthening the leather value chainDelegation Agreement with UNIDO

7,750,000

Component 2: Environmental protection by facilitating financial investments towards the establishment of an eco-friendly leather industrial park in ModjoDirect Grant with IPDC

1,500,000

Component 3: Strengthened social cohesion by supporting economic and social development initiatives, especially for women and youth living in Modjo area, and enhancing industrial and labor relations in the MLCGrant award following negotiated procedure or open call

4,250,000

Monitoring, Audit & Evaluation 500,000Communication and visibility 100,000Contingencies 900,000Total 15,000,000

The United Nations Industrial Development Organization (UNIDO) in close collaboration with the MoI and LIDI will implement component 1. UNIDO has been selected to implement this component due to its large experience in supporting the Ethiopian leather and leather products industry, its knowledge of national and regional leather institutions and its successful results in the sector.

The Industrial Parks Development Corporation (IPDC) will implement component 2. The IPDC is a public enterprise created in 2015 to develop and administer industrial parks, prepare detailed national industrial parks master plans, ensure that necessary infrastructure is accessible to IP developers, etc. For its specific mandate, and for being the public body in charge of the development of industrial parks, this corporation will be in charge of implementing component 2 of LISEC.

Component 3 will be implemented by a partnership of national and international Non-Governmental Organizations (NGOs) present in the country and with relevant experience on social cohesion and socio-economic empowerment. Knowledge and experience from the International Labor Organization (ILO) and UNIDO will be used to ensure that all activities related to industrial and labor relations in component 3 are in line with international standard practices. Partnership of national and international non-governmental organizations will be selected through a grant award to develop economic and social initiatives to strengthen social cohesion in the targeted areas.

Under the EU Direct Management mode, all selected partners will be responsible for managing and implementing their respective components. A technical working group will be created per component and will report to the Project Steering Committee (PSC).

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C.1.Objective of the Project

The overall objective of the action is to create greater economic and decent employment opportunities, especially for young men and women through the development of the Ethiopian leather industry and the Modjo leather industrial park (MLC).The specific objective of the project is to enhance the economic competitiveness by strengthening an inclusive and sustainable development of the Ethiopian leather value chain.

C.2 UNIDO approach

The proposed UNIDO action will follow an integrated approach all across the leather industry value chain 29(figure below), that will result in increased vertical integration of the value chain, creation of value addition, new job opportunities in the leather, footwear and leather products sectors and an increased attention to the environment and water resources.The project will ensure and follow participatory methods, which will accommodate all stakeholders and seek close partnership with relevant government institutions at local, woreda, regional and federal level. Target beneficiary communities and direct Programme clients –women and youth- will drive their own development agenda guided by the program’s implementing partners. The foreseen overall project duration is 4 years and will be developed under the following steps:

29For more than four decades of the UNIDO leather-based industry development programme has been providing assistance to small- and medium-scale enterprises in close cooperation with associations in evaluating business opportunities, finding or establishing markets (niches), building product ranges, improving production methods and product quality, enhancing productivity, and developing labor and managerial skills. In providing technical assistance to counterparts, UNIDO engages in using best available practices while adopting sustainable means to ensuring that the organization renders services that are precisely tailored to the development of specific industrial sectors as in this case the leather and leather products industry of Ethiopia. These services do not to only address current sectorial and societal challenges but they also assist member states to achieving their set developmental goals and at same time meeting the expectations of donors, partners and targeted beneficiaries. As it would concern leather and leather products industry, UNIDO has a longstanding experience in the processing hide and skin into leather, value addition, diversification of finished leather footwear, bags, gloves and related products. UNIDO also has a track record in the implementation projects aimed at either establishing new and competitive leather sector in countries or revitalizing/upgrading existing industries in countries such as Ethiopia, Nigeria, Iran, Uganda and Rwanda, Bangladesh, China, Pakistan, India and Tanzania, Morocco, Egypt just to mention a few. In relation to the technological upgrading of the footwear and leather products sub-sector in Ethiopia, UNIDO will replicate previous regional projects that do have successful outcomes and with lessons learned, and facilitate activities that would act as catalysts to introducing appropriate technologies/measures that will assist artisans to improving their performances. These strategies will provide the envisaged target groups with the much needed skills and competences and position them on the path towards mastering best practices and value addition and thus creating competitive leather product designs and shoemaking.

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PRE-TANNING

Ad hoc interventions and coordination with development partners in the livestock sub-sector;Technical assistance on slauthering and backward and forward linkages establishment;Improve quality and quantity of hides and skins (H&S - including grading system, training, awareness raising).

TANNING

Technical assistance to Ethiopian tanneries;Establishment of a LIDI Regional center;

POST-TANNING

Support to MSMEs is provided throughout the development of enterprises networks and clusters;Reinforce linkages beteen clusters and the leather district;Promotion of investments within the MLC;Capacity building for MoI, EIC and ELIA.

C.2.1. Project Phases

1) Project kick off (months 1-3). The following actions are related with Output 4 (Project management is established):

Output 4. Project management is established.

4.1 Set up Project Implementation Unit Prepare JD for Project staff Recruitment process of project staff

4.2 Set up project office Identification of project office

4.3 Procure project vehicles and office utilities

4.4 Define a project Monitoring and management system (in coordination with the EU)

4.5 Ensure stakeholders’ coordination. Preparation of the Project Steering Committee (PSC) ToRs Organize the first PSC meeting Preparation of the ToRs for the TWGs Organize the first TWGs meetings for each output Officially launch the project Present the project within the DAG TWG Mapping and strategize the coordination with existing initiatives implemented by other national

and international stakeholders

4.6. Ensure a coordination mechanism with the EU Delegation in Ethiopia Participate in EU LISEC PSC and other EUTF coordination events

2) Implementation30 (months 4 - 42).

The UNIDO Project Implementation Unit (PIU) will undertake missions, site visits for reviews, interviews and analyse information and data for mapping out of current needs in line with the envisaged Action, and for overall profiling of targeted beneficiaries, preparation of the detailed implementation plans and Key Performance Indicators(KPIs).The assessments foreseen will also ensure the collection of background knowledge and data needed to provide information and evaluation baselines for the project, identify actual and potential resources, and develop detailed project implementation plans for each output, both overall and for the first year. The following actions are related with Outputs1, 2 and 3:

Output 1.Quality and quantity of hides and skins is improved.

30The implementation phase will focus on delivery technical assistance to the identified beneficiaries (both public and private sectors) and all the stakeholders involved in the leather value chain in order to upgrade local capacities, enhance investments, enhance job opportunities and income generation. In this regard, the strategy requires a continuous and holistic approach able to implement all the strategic interventions continuously and in close cooperation with the local stakeholders, in order to ensure project’s sustainability. Furthermore, as already successfully did in other projects developed by UNIDO in Ethiopia, the activities will be developed as much as possible following a cost-sharing scheme, for increasing local ownership of the activities as well as project sustainability.

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Activities

1.1 Prepare a detailed Action-Plan for the overall Output 1 (4 months) including synergies with relevant national programs and coordination with other development partners. This will be done through: Mapping, analysis, baseline data collection and identification of targeted beneficiaries such as

woreda, slaughtering houses (urban and rural connected to or in the area of Modjo)+ FTCs as per indications received by the TWG and PSC + setting up of Plan of Actions including the preparation of detailed KPIs.

1.2 Support the development and operationalization of Hides and Skins' regulatory framework (primary/secondary).

1.3 Support the improvement of infrastructure and marketing system quality control (technical capacity building/equipment provision/subsidized mechanism for grading system/awareness rising). This will be done through: The implementation of the plan of action in strong synergy with the local counterparts; The procurement of services and equipment + staff recruitment (if needed) necessary for the

project activities; Trainings (yearly programme based) identified and selected by the TWG and validated by the

PSC. Trainings will include the recommendation received by the Project Technical Committee in order to ensure a better Coordination with other Development Partners;

The set-up of a quality infrastructure and monitoring tools.

1.4 Elaborate an H&S Marketing Scheme based on the quality control grading system that includes a price structure based on a reward scheme. This will be done through: The Promotion of Commercial Practices in Livestock rearing. + Awareness raising on H&S value

among slaughtering facilities and stakeholders; The promotion of H&S standards and grades and Grades/fees in abattoirs according to

performance; The preparation of technical Guidelines for Hides and Skins Grading by Quality.

1.5 Provide the required equipment, tools and training material for demonstration purposes to selected Farmer Training Centers (FTCs). This will be done through: The procurement of services and equipment / staff recruitment (if needed); The distribution of the equipment and trainings; The preparation of all training material.

1.6 Train selected FTCs in the appropriate hides and skins collection, handling and preservation practices.

1.7 Support the improvement of Hides and Skins' extension services (Training material preparation/emphasis on cattle handling and slaughtering techniques/collection and preservation of raw materials/ equipment provision/Training of Trainers (ToT) provision, e.g. to extension agents), as well as the development of the private products and service markets. This will be done through: The preparation of all training material; Awareness rising on cattle handling and slaughtering techniques through Workshops and the

direct involvement of local institutions.

1.8 Support local authorities (from selected woreda) in conducting Quality Controllers ToTs.

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1.9 Train managers and staff in management, slaughtering, flaying/ripping and proper raw hides and skins handling in selected slaughterhouses.

1.10 Reinforce linkages among different stakeholders (e.g. farmers, hides and skins traders, tanneries, FTCs among others). This will be done through: The promotion of joint ventures in commercial rearing, abattoirs, & meat processing; The promotion of MoUs and sub contracts for reinforcing strategic linkages among abattoirs,

tanneries etc.

1.11 Create awareness on H&S value (awareness rising). This will be done through: The organization and rolling of workshops.

Output 2. The capacity of tanneries towards integration into the leather global value chain (competitive gains/environmental compliance) is strengthened

Activities

2.1 Prepare a detailed Action-Plan for the overall Output 2 (4 months) including synergies with relevant national programs and coordination with other development partners. This will be done through: Mapping, analysis, baseline data collection, KPIs and identification of targeted beneficiaries.

2.2 Support LIDI in conducting a Study on productivity, competitiveness and diversification in/of the leather sector (as requested by the MoI). This will be done through: The definition of ToRs for sub-contract; The Launching the procurement and selection of the contractor; Activity implementation.

2.3 Support local tanneries in Modjo area in gaining competitiveness through environmental compliance requirements. This will be done through: Based on the result of the study (activity 2.2), the preparation of a Plan of Action to implement

the highlighted recommendations to each targeted tannery.

2.4 Support the reduction of the environmental footprint of tanneries in Modjo by facilitating their relocation into the MLC. This will be done through: The development of a technical study on the 6 tanneries located in Addis Ababa that need to be

re- or partly - relocated in the MLC.

2.5 Facilitate technology transfer and establishment of strategic partnerships. This will be done through: The support to ELIA in the organization of the All African Leather Fair (AALF) and other strategic

initiatives.

2.6 Reinforce linkages among different local stakeholders (e.g. ELIA, LIDI, FTCs) as well as with global value chain/international buyers. This will be done through: The organization of strategic Study Tours for facilitating Joint Ventures (JV), technology

transfers, participation to trade fairs, business forums etc…; The facilitation of MoUs with national and international tanners’ associations.

2.7 Define ToRs for procurement purposes for the establishment of LIDI’s Regional Centre within the MLC.

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2.8 Establish and equip the LIDI Regional Centre (i.e. training pilot line for product finishing, development and quality labs).

2.9 Perform ToTs to LIDI Regional Centre staff.

2.10 Define and conduct a TA programme for leather processing and finishing to be provided by LIDI to the selected tanneries.

2.11 Reinforce linkages between the LIDI Regional Centre and the existing TVETs.

2.12 Promote labor compliance, OHS, industrial relations at tannery level (e.g. in coordination with ILO)

2.13 Promote gender equality in labor relations in tanneries and women inclusion in MLC services.

Output3. Investments (including MSMEs clusters) in/around Modjo Leather City for both domestic and foreign companies (including EU investors) are promoted

Activities

3.1 Prepare a detailed Action-Plan for the overall Output 3 (4 months) including synergies with relevant national programs and coordination with other development partners. This will be done through: Mapping, analysis, baseline data collection, KPIs and identification of targeted beneficiaries

(MSMEs enterprises and service providers).

3.2 Establish shoes and leather products producers’ sectoral association/networks (with an attention to support target groups disaggregated by sex).

3.3 Link local Institution (e.g. service providers, LIDI, TVETs) and networks.

3.4 Organize workshops on networking methodologies and experiences.

3.5 Facilitate joint actions undertaken by the cluster members.

3.6 Set up direct backward linkages between tanneries (e.g. MLC district), shoes sole producers and component importers and distributors and MSMEs networks.

3.7 Support forward linkages creation and strengthening supply chain linkages between small and large firms to benefit small companies.

3.8 Link operators to local machinery leasing company or other financial mechanisms (e.g. facilitate connections with WEDP, access to finance).

3.9 Organize technology visits in LIDI and other big shoes industries.

3.10 Facilitate the purchasing of common machineries for improving the quality and quantity of MSMEs production. This will be done through: The identification of an area for the establishment of common facilities for SMEs in synergy with

local institutions. The clusters assessment and definition and selection of footwear models;

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The definition and preparation of the ToRs for the SMEs equipment; Set up pilot production lines within the MSEs networks and facilitate technology transfer; The supplying of models and semi-finished materials (lasts, uppers, soles, accessories); The organization and rolling of trainings on upper and lasting methodologies;

3.11 Implement capacity building initiatives (incl. on-job trainings) in: design and pattern development; upper and insole preparation, cutting and stitching; lasting and sole attaching techniques; materials wastage reduction and quality and productivity improvement.

3.12 Perform trainings in Business management, specifically in Entrepreneurship; Leadership; Finance and product costing.

3.13 Develop brochures and promotional material for promoting MSMEs networks.

3.14 Participate in exhibition and trade fairs at local, regional or international level.

3.15 Facilitate the establishment of common showrooms and sales premises.

3.16 In cooperation with MoI, LIDI, IPDC, ELIA and EIC define a Programme for promoting MLC (at national, regional and international levels) and develop a communication strategy for promoting MLC within local and foreign investors.

3.17 FDI promotion (including EU investors) through organization of trade missions, study tours, support to leather fair organization/participation.

3.18 Conduct an Institutional Capacity Building assessment for MoI and ELIA and prepare recommendations and support in building capacities at sectoral association level (ELIA), Ethiopian Investment Commission and MoI levels.

Output 4. Project management is established (activities already inserted in Project kick off phase C.2.1 )

Output 5. A system of monitoring and communication is in place.

Activities

5.1 Project Monitoring is performed

5.2 Project factsheets, videos and other promotional material (including media campaigns in Ethiopia etc) are developed.

3) Phasing-out & closure phase (between 42nd and 48th month of project implementation):

Exit Strategy: Handing over and disseminate results. This will be done by developing exit criteria through which design the exit strategy and in particular ensure the sustainability for the continuation of the project beyond the original timeframe, evaluate its upscale and planning of new initiative potentials.

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C.2.2 Project management

To ensure a full project ownership and a comprehensive participatory process, a Project Governance Structure is developed (herewith below) to identify the various layers of management and decision making structures:

Specifically:

The Project Steering Committee (to be organized every 6 months) will have the task of decision-making, supervision and general guidance of the project.

The Technical Working Groups (TWGs) will ensure project effectiveness and sustainability. These TWGs are called on regular basis during the entire project implementation to ensure proper coordination and monitoring.

One Technical working Group will be established for ensuring the coordination between UNIDO and the EUD in Ethiopia.

MoI, LIDI and UNIDO will represent the project within the EU & LISEC PSC.

In particular, in developing the PSC Terms of Reference the project looks to: A. Provide the Project with a strategic direction in terms of implementation of project activities;B. Ensure the effective coordination and cooperation between all involved stakeholders;

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C. Review and approve the documents containing relevant Action Plan, ToRs for subcontracts etc. prepared by the PIU;

D. Monitor the progress of project activities towards achieving the planned outputs, in line with the EU LISEC PSC directions; and

E. Review and approve the annual work plans prepared by the PIU. Members of the PSC will be representatives of the involved counterparts.

The Project Steering Committee will meet regularly (6 months basis) and have the main task to monitor the implementation of the project as defined in the work plan, provide relevant inputs and also to offer the opportunity of coordination between stakeholders. Regular meetings of the steering committee will in fact enhance the synchronization of activities as well as the coordination with the EU, the Government and local stakeholders. Core members of the PSC will be the UNIDO project team, representatives of the GoE/Ministries, and the EU delegation. TWGs will be established for each project output to ensure a smooth cooperation with local institutions and line coordination with actors engaged in the leather value chain.

The Project Implementation Unit will ensure the necessary coordination with the EU focal point in Addis Ababa and the relevant Ethiopian Government representatives. A technical meeting between UNIDO and EU is suggested to be organized every 3 months (at least), for presenting project’s activities and results, discussing about eventual bottlenecks and define a common project strategy for ensuring a smooth project implementation. Finally, the PIU shall serve as the secretariat of the PSC.

PIU Structure:

In line with the PSC, UNIDO will setup a management unit (PIU) that will be structured as follow, in order to ensure a full management coordination of all project activities.

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In particular the organizational and operational structure of the project will ensure that the project management has the autonomy and the capacity to conduct day-to-day operations and to make any amendments to its implementation plan which may be found necessary to ensure conclusive impact and consistent progress in the implementation. In this respect, the PIU will be composed by long-term personnel (a total number of 10 people as per list here below). The majority of PIU’s services and inputs will be provided through technical assistance based in Ethiopia, fully supported by UNIDO-HQ. Assistance will be obtained from the PSC and regular stakeholder meetings (e.g. TWGs, EU PSC, DAG TWG etc.).

The PIU will work closely and in full coordination with the Project Manager (PM). The PIU will be responsible for the overall day-to-day coordination, monitoring and supervision of field activities and will establish a good working relationship between the project, the beneficiaries, the counterparts and other on-going projects and programmes.

The main project office will be set up in Addis Ababa in order to ensure project’s implementation and monitoring as well as coordination with the EU delegation in Ethiopia, local Ministries and counterparts involved. Furthermore, a second office will be located in Modjo for the day to day operations in the area.

Long term personnel:

1 Chief Technical Advisor (CTA)The CTA will be an internationally recruited technical professional with profound international experience and perfect knowledge of the Ethiopia socio-economic context. Overall, he/she, as an impartial UNIDO Professional, has the direct responsibility for technically managing the implementation to achieve the expected project results, providing technical inputs and taking initiatives to fulfil the project strategy and methodology as well as HR needs to sustain project outputs and impact.

Moreover, the CTA should have built up during his or her career an international professional and technical network to link the Project at its different stages with other relevant programmes/project/institutions/agencies and entities within and outside the Country. He/she will be responsible for coordination activities with the EU delegation in Ethiopia, development partners and Government Institutions. He/she will be also responsible for monitoring activities (supported by ad hoc temporary experts), in particular for the preparation of reports and monitoring requirements as requested by the Project Manager.

Amongst his/her competencies will be leadership team building, supervision, translating policy development, creative innovations and entrepreneurial thinking, implementation planning, applications, sound communication, reporting and monitoring. The CTA will provide on-the-job training to local national staff working in his/her team and other professionals i.e. at the Vocational Training Centers (VTC), including stakeholders. The CTA, acting as the Technical Manager on location for directing project management in all its aspects with the Unit(PMU/PIU,) will be the international contact person or interlocutor for meetings with EUD and other development partners, the Project Manager at UNIDO HQ, the private sector and Government counterparts at Ministerial level.

1 National Project Coordinator (NPC)The services of a full time experienced Ethiopian NPC, a senior technical professional with excellent knowledge of key institutional stakeholders involved in the project, who understands the implementation

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requirements and its management implications of the project is essential for the following: He/She will closely work with the CTA and all other team members to provide details for 6-monthly planning exercises which need to be updated, technical inputs within his/her Terms of Reference (TOR) and to oversee/manage the project implementation logistics. In the absence of the CTA, the NPC is also expected to manage the Project Team. The NPC is to link up with different stakeholders and local project partners at several levels during day-to-day project implementation, in line with the planned outputs/results.

1 SecretaryHe/She will support the PIU personnel from the administrative point of view, ensuring proper record of project expenditures, facilitating meetings’ organization, collecting the supporting documents necessary for project expenditures, ensuring a constant coordination and provision of administrative information to the Administrative Assistant at the UNIDO HQs. He/she will support the CTA and the NPC in their daily operations, including facilitation of the logistic (e.g. drivers’ allocation to the staff).

1 Administrative Assistant At UNIDO HQs level a specific unit will be set up to guarantee a smooth project implementation. In particular, the Project Manager (UNIDO Management and supervision) will be responsible for the overall project supervision and she will be assisted by an Administrative assistant who will be fully addressed to LISEC project. He/she will support the Project Manager in managing and monitoring all project’s financial expenditures and administrative issues such as contracts, DSAs, procurement etc. ensuring a proper record of them in order to facilitate transparency and correct project management and reporting to EU.

1 National Expert responsible for Output 1He/Shewill support the project in implementing activities related with the updating of the hides and skins regulatory framework as well as in its operationalization. He/she will be able to provide technical support to quality control grading system (technical capacity building, equipment provision, subsidized mechanism for grading system) for improving H&S extension services and skins collection.

1 National Expert responsible for Output 2He/She will support the project in implementing activities related with the support to tanneries both in terms of capacity building and improving of economic competitiveness. He/she will be responsible to collect and monitor the specific needs of the tanneries in the MLC area and to support the project staff in implementing the project plan of actions. Furthermore, he will monitor the establishment of the LIDI regional Centre.

1 National Expert responsible for Output 3He/She will support the project in implementing activities related with the establishment of MSMEs cluster, MSMEs support in terms of access to finance, capacity building, technology transfer etc. He/she will also facilitate the establishment of backward and forward linkages aimed at supporting the MSMEs that are operating in the footwear and leather product sectors. He/she will collaborate closely with the Institutions (e.g. EIC, MoI, IPDC) and ELIA for promoting investments within the Modjo Leather City industrial park. He/she will support the project team in organizing trade missions, study tours and promotional events in cooperation with local institutions/associations.

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1 Gender ExpertA local gender analyst will be recruited for collecting baseline data and develop a gender analysis for the leather value chain and job market and who will orient the interventions to be planned with a gender approach. Specific networks/groups of beneficiary women will be identified and ad hoc activities will be organized. A careful gender analysis of the labor market is a necessary step. He/she will be responsible for indicating and applying gender-sensitive approaches and integrating specific gender-orientated initiatives during the project implementation. Furthermore, he/she will seek to ensure balanced access and participation of women and men in project activities, with particular attention to capacity building and related support activities to the women network. To this end, the gender expert will develop specific actions to ensure gender balance and activities taking into consideration special needs of women groups for income generating activities and business management.

1 National C&V ExpertHe/She will ensure that the Communication and Visibility plan (Annex VI) is finalized and successfully implemented. He/She will be also responsible for the preparation of promotional material, project factsheets, newsletters, web-site, reports as well as the organization of promotional events.

2 DriversThey (he/she) will be responsible for the project vehicles maintenance and all logistics of project staff and needs. Selected drivers will need to be: professional drivers with professional experience of a minimum of 5 years.

Furthermore, UNIDO will recruit, as necessary for the implementation of this project, technical experts (national and internationals) who will provide short and medium term technical assistance as required by the different project activities in order to address specific tasks31. Profiles, allocation and duration of mission of those technical consultants will be identified during the project implementation, as the exact description of profiles can only be defined once the necessary in-depth assessment are finalized and the pan of actions validated by the PSC.

C.3. Thematic area and code

• Results Based Management (RBM) code : GC 1 - Creating shared prosperity• UNIDO thematic code : Poverty Reduction through Productive Activities

C.4. Impact

The project will contribute to the reduction of irregular migration from Ethiopia by creating greater economic and employment opportunities for young women and men through an inclusive and sustainable development of the Ethiopian Leather Industry Value Chain. The project will considerably contribute to support local stakeholders and Institutions in achieving the targets set in the GTP II.

31Such as: H&S improvement, leather processing (incl. tanning process optimization and finishing), MSMEs development (incl. footwear and leather products development, marketing and business management), socio economic, Institutional capacity building, marketing and investment promotion, monitoring and evaluation, etc.

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Particular added-value elements:

The project intends to create a strong sense of partnership between the private sector and particularly the named public entities. Gender equality will also be addressed, especially in the MSMEs leather processing. The project will involve professional local institutions and staff in order to establish a strong dialogue structure between all target groups and to ensure the sustainability of the action. Some of the added-value elements of this project dealing with technical skills development, environmental issues, innovation will be a synergy among training and technical institutions, tailor made and up to date training programmes for the leather industry, MSMEs in the leather sector, introduction of cleaner technologies, more efficient production and innovation. The project also aims at creating and improving the quality of already existing jobs. Because the leather industry involves men and also women, this project will also pay particular attention to opportunities for women within the field. Another added-value element is that the project is designed to have multiplier/replication effects so that the concepts and techniques can be applied in other countries in the region with similar issues and opportunities.

C.4.1 Expected outcome and Outputs

The immediate outcome of the project is to support an inclusive and sustainable development of the Ethiopian Leather Value Chain as a driving force for creating job opportunities and income generation.

Specifically, this outcome is achieved through 3 specific outputs:

Output 1: Quality and quantity of hides and skins is improved.

Larger quantities of better quality raw material (then processed by the local tanneries into leather), will contribute to the strengthening of the leather sector and create additional employment opportunities. Hides and skins regulatory framework will be updated and operationalized. Technical support to quality control grading system (technical capacity building, equipment provision, subsidized mechanism for grading system) will be provided and H&S extension services improved. This output will be achieved through the activities detailed in paragraph C.2.1.

Output 2: Support to tanneries (processing and producing finished leather) towards integration into the leather global value chain through competitiveness gains/environmental compliance is provided.

Tanneries will be supported in terms of capacity building and competitiveness. A particular role will be played by LIDI that will be supported by the project in establishing a LIDI regional center in the area of Modjo for providing technical support to local tanneries. This output will be achieved through the activities detailed in paragraph C.2.1.

Output 3: Promote investments (including MSMEs clusters) in/around Modjo Leather City for both domestic and foreign companies.

The realization of MLC (Modjo Leather City) with a Common Effluent treatment Plant is an opportunity to setup an environmentally friendly leather tanning district driven by a network of tanneries (which are already located or in the process of being re-located in the selected area) open to value chain integration, FDIs, and jobs creation. In this context, Modjo Leather City (as a leather industrial park clustering leather MSMEs) will offer an opportunity to different investors, both local and foreign. In particular, chemicals, machineries and input producers and sellers, tanneries, leather products and footwear makers, service

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providers, etc. will be attracted to (through market linkages and FDI promotion) invest in MLC. The project will play a strategic role in promoting local and FDIs (including EU investors) in/around the MLC through the organization of trade missions, study tours, participation in international trade fairs, and support to the Ethiopian leather fair. In addition, MoI, ELIA and EIC will be supported in improving their institutional, promotional and coordination capacities (in the leather sector).

Another particular attention will be given to the creation of organized MSMEs’ networks in order to increase small production units’ income, the quantity and quality of their productions and their capacity to create job opportunities. This will result in a positive effect on their ability to take advantage of scale economy as well as to accessing to services provided by local institutions and MLC stakeholders. This output will be achieved through the activities detailed in paragraph C.2.1.

Output 4: Project management is established.

The Project implementation Unit is set up, the project office established, and the coordination and monitoring mechanisms are established. For more detailed information please refer to paragraph C.2.2.

Output 5: A system of monitoring and communication is in place.

Monitoring of project is performed through regular PSC and TWG meetings. In addition the PIU develops an internal monitoring system to ensure that Donor Compliance is fully reflected into activities planning. Quarter and annual reports will be developed and disseminated amongst PSC members in order to highlight project ups and lows and intervene, in a participatory process, where re-tracking of activities is needed. Project indicators will be constantly monitored by the CTA and PM both during activity planning and implementation process. This will allow a result based methodology and higher levels of project impact. For detailed Monitoring aspects please refer to chapter “E”.

All the activities related with the C&V Plan (Annex VI) are performed.

C.4.2 Outputs, Activities and Timeline

A comprehensive LOGframe of the project can be found in Annex II. A tentative Timeline of the Activities (for the first year) has been included as Annex V and will be updated/detailed within the plan of actions prepared for each output during the project implementation and validated by the PSC. Project Phases have been described in Chapter C.2.1.

C.5. Risks

A Risk Management Matrix can be found in Annex IV. The Government of Ethiopia and all the institutions involved have to be fully committed in the project implementation.

C.6. Sustainability

The project approach is needs-based and sustainability will be assured by integrating the technical assistance into the institutional local framework and by maximizing the Ethiopian leather value chain development and organization’s networks, for increasing job opportunities and income generation. The plan of actions and the KPIs for each output will be submitted and validated by the TWG where GoE, UE, UNIDO and all the relevant stakeholders will be represented. Furthermore, specific technical committees

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will be established both with local stakeholders and development partners, to ensuring the necessary coordination of the project activities and their effectiveness.

The project will make sure to maximize the benefits for the involved beneficiaries by continuing to involve local stakeholders (a relevant role will be played by MoI and LIDI). Furthermore, to ensure higher levels of project ownership the activities will be implemented, as much as possible, on a cost-sharing base (e.g. as UNIDO is doing in other ongoing projects in Ethiopia). Furthermore, local institutions and actors will be organized in technical groups (at Federal and Regional levels), in order to organize their activities and to provide ad hoc services (in a co-ordinated manner) for the leather value chain development. Moreover, the project intends to promote the involvement of the private sector, facilitating the establishment of strategic partnerships at national, regional and international levels.

Finally, the project will contribute to environmental sustainability through increasing the awareness of waste management related with the leather and leather products industry.

C.7 Gender MainstreamingA particular attention has been given to gender since the project’s inception32. A local gender analyst will be recruited collect baseline data and develop a gender analysis aimed at detailing a gender based plan of action. The gender analysis will take in consideration also women migration patterns in order to best address, through the project activities, women integration in the project. Specific women networks/groups of beneficiary will be identified and ad hoc activities will be detailed in the project action plan. In this context, actions for promoting gender equality/labour relations in tanneries as well as women empowerment will be performed. This will be done through the organization of specific trainings, the promotion of improved working conditions and working environment (through up-gradation and modernization of certain processes), the promotion of the women role especially in the business services, that will be developed within the MLC (e.g. logistic, business promotion, etc.).

The gender expert will seek to ensure a balanced access and participation of women and men in all project activities, with particular attention to capacity building and related support activities to women network. To this end, the gender expert will develop specific actions to ensure gender balance and activities taking into consideration special needs of women working within the leather industry value chain. All the project’s activities will be equally provided to women and men, but a particular attention has been reserved to women and youth. In particular, ad hoc linkages will be created with other initiatives currently implemented in Ethiopia by national or international stakeholders and development partners (i.e. Women Entrepreneurship Development Programme -WB Program, NGOs, etc.) Regarding project staff, gender balance in the recruitment of project management and staff will be emphasized, and efforts will be made to ensure that recruited staff either has existing knowledge on integrating a gender perspective or their capacity will be built in this area, or will be trained.

Please find the Gender Matrix in Annex VII.

32 A Success story has been also published on the UNIDO official Web page http://www.unido.org/news/press/women-leather-produc.html- “Women leather product entrepreneurs in Ethiopia benefit from UNIDO support”. It is also worth mentioning that the current JPTC already demonstrated, during the ongoing project, to be sensitized to the gender issue has already accomplished some of the training courses available on https://trainingcentre.unwomen.org.

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C.8 Communication and visibility

The project will communicate the results of is UNIDO/EC partnership to beneficiaries and external stakeholders in the interest of transparency in the use of public funds, and as a mean to foster global solidarity. The funding relation between the United Nations and the EU is governed by the 2003 Financial and Administrative Framework Agreement (FAFA). In particular, the project will follow the general Conditions for PAGoDA 2 (Article 8: communication and visibility) and EUTF Visibility and Communication requirements as specified in the Contract's Specific Conditions.

Visibility activities will focus on outputs and the impact of the action’s results. EUD shall be informed and invited to all key project events to ensure V&C of UNIDO's EU partnership is ensured. A communication and visibility plan will be detailed (following the Communication and Visibility Manual for European Union External Actions), discussed and agreed between UNIDO and the EU focal point in Addis Ababa at the inception phase of the project. An appropriate financial allocation has been included in the project budget proposal.

C&V reference material and templates developed by UNIDO LISEC project initiative could be made available to the EUD for the C&V activities related with the other LISEC components so that overall LISEC C&V is harmonized.

For more information please refer to the Annex VI.

D. BUDGET

For the implementation of this project a budget of 7,850,000.00 € (EU contribution 7,750,000 €+ UNIDO contribution of 100,000 €) has been considered. For its details, please refer to Annex III. Please note that UNIDO works under the principle of output achievements, as such the budget is developed according to output costs rather than detailed activities cost. For this reason, the budget annex does not directly detail activities costs (activities which are indicated in paragraph C.2.1 of this project proposal) as these are already incorporated in the reported Output costs.

D.1 Counterpart inputs

UNIDO will facilitate the involvement of relevant local Institutional counterparts in the project, in order to ensure project effectiveness and sustainability. Federal and Regional Institutions will be requested to provide relevant inputs and to participate in the project’s activities for ensuring an effective project implementation. As stated above, the project will make sure to maximize the benefits for the involved beneficiaries, continuing to involve local institutions and developing activities as much as possible under a cost-sharing base framework.

D.2. UNIDO Inputs

In close cooperation with MoI and LIDI, UNIDO will be responsible for:

Maintaining the project management unit, recruiting national and international experts33 and consultants required for the project. The project will strive to achieve a gender balanced structure.

Organizing and implementing all the activities planned in the validated action plan in close synergy with LIDI and other local institutions and with the private sector for assuring project sustainability.

33It should be noted that for international experts also expertise from Asian countries (e.g. India) will be taken into consideration in close cooperation with LIDI to minimize costs in this regard.

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Managing the overall implementation of the project in line with UNIDO and EU rules and regulations, making sure priority is given to national expertise whenever applicable, insuring the gender balance through the entire project cycle.

D.2.1 Sub-Contracts

Description of the Sub-Contracts components on Outputs 1, 2 and 3

Based on the experience gathered by UNIDO during the implementation of similar programs for the development of the leather value chain, a number of sub-contracting services have been forecasted to facilitate the smooth implementation of the project. The Sub-contracts will be confirmed during the Project implementation and detailed Terms of Reference (ToRs) will be prepared to be endorsed by the Project Steering Committee. All sub-contracts will be awarded following UNIDO rules and regulation for procurement of equipment and services.34

The rationale utilized to arrive to the estimated amounts is based on a rough calculation of € 1,000 per day35 of consultancy work (including DSA) to provide the following services within the three main outputs:

Output 1: Quality and quantity of hides and skins is improved. €150,000

- Technical Study on Slaughter houses restructuring according to international standards (Estimated cost: 80,000 i.e. 4 w/m) ;

- Study on slaughter houses by-products utilization and treatment with relative feasibility study to be linked to Output 3 (Estimated costs: 70,000€ i.e. 3.5 w/m).

Output 2: Support to tanneries (processing and producing finished leather) towards integration into the leather global value chain through competitiveness gains/environmental compliance is provided. € 290,000

- A productivity, competitiveness and product development and diversification in the leather sector study that will generate Feasibility Studies to be promoted as part of Output 3 (Estimated cost: 120,000 i.e. 6 w/m);

- In-depth assessment on the establishment of LIDI branch including technical specifications, layout, personnel requirements etc. (Estimated cost: 60,000 i.e. 3 w/m);

- Specific studies will be subcontracted to international stakeholders active in the Ethiopian Leather VC particularly on tannery waste, efficient use of chemicals and application of cleaner technologies (Estimated costs: 110,000€ i.e. 5 w/m).

- Labour law, industrial relations , OHS,… in tanneries in coordination with ILO

Output 3: Investments (including MSMEs clusters) in/around Modjo Leather City for both domestic and foreign companies are promoted. €470,000

34 Specifications for sub-contracting services will be included in a document, i.e. the Terms of Reference (ToRs) that will be published on UNIDO WEB site and offers will be collected within a set deadline. The offers received will be evaluated and the most technically and economically offer will be selected as winner and awarded the sub-contract.35 1 w/m=20 w/d

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- Sub-contract on the physical establishment of the MSMEs cluster within Modjo Leather District including common processing lines (Estimated costs: 120,000€ i.e. 6 months);

- Sub-contract to local or international stakeholders, especially for facilitating access to markets, trade missions, developing capacities of selected MSMEs networks (Estimated costs: 240,000 € over a period of 4 years);

- Sub-Contract to ELIA and/or other partners for the organization of investment fora and trade fairs such as AALF and participation to COMESA LLPI activities /Regional Fairs (Estimated costs: 110,000€ over a period of 4 years).

Output 5: A system of monitoring and communication is in place.. €40,000

- Sub-contract for local media campaigns to try to reach out our target population and for promoting project activities and results.

D.2.2Training

• Project team members, especially regional ones, participate in special training programmes and will arrange training workshops for counterpart's staff members to share knowledge and experiences and build a common background in terms of intervention approach and techniques.

• All project team members will undergo gender-sensitization and M&E trainings.• Training programmes for target beneficiaries will be designed based on the plan of actions produced.• Other specific training on employment oriented sector development will be implemented as required.

D.2.3 Equipment and supplies

The necessary equipment will be procured immediately by the project. In particular, two (2) cars will be procured to facilitate the movements of the local project team. Required equipment will be identified through specific studies that will include the ToRs for ensuring UNIDO procurement procedures. Office utilities, laptops and desktops computers will be procured for equipping National and International experts that will work on a long term basis. Additional Office utilities and printers will be procured by the project for equipping office facilities.

D.3Preliminary Budget

Summary of the estimated budget including explanatory note have been detailed in Annex III.

E. MONITORING, REPORTING AND EVALUATION

E.1. Reporting

The Plan of Actions will be developed in synergy with the local stakeholders and will be submitted to the TWG. A continuous reporting activity will be guaranteed by UNIDO to the donor and local counterparts involved. In general, the following reports will be prepared by the PIU:

a) Three-monthly progress reports: they will be prepared by the PIU to be submitted to the technical committees to ensure that the Action-Plan in its different components is followed.

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b) Semi-annual reports : They will be prepared twice a year: no later than 30 calendar days after the end of each six-month period.The six-monthly progress reports will provide an assessment of progress for all outcomes and outputs as stated in the LOGframe, and measured by the corresponding KIPs.

c) Final report . It will be prepared once, no later than 45 calendar days after the end of the project.

Reports will be in line with EU requirements as spelled out in the United Nations Financial and Administrative Framework Agreement signed on 29 April 2003 and as stated in Annex II of the signed financing agreement.

The project will be implemented following the new SAP software (operational at UNIDO as of January 2012) where the project LOGFrame will be the main reference for the project management, monitoring and reporting.

The SAP system will have the possibility to generate additional reports/statements as it may be required. Annual narrative and certified financial reports will also be issued by UNIDO to the EU following UNIDO’s financial reporting methodology.

E.2. Monitoring

A monitoring system36 will be set up and presented to the PSC and to the EUD.

The PSC will meet on a semester basis, and more frequently if required by its members, to review progress against the work-plan and shall approve the presented six-monthly reports submitted by the Project Manager.

A yearly Programme review exercise will be organized to (internally) evaluate the results of the Project, and agree on any revisions required in the work-plans and implementation modalities. Project activities shall be constantly monitored and supervised by UNIDO project team and a specific budget has been allocated for this purpose.

Generally, monitoring and evaluation will be carried out using key performance indicators on the level of project outcomes and outputs respectively. The indicators and their means of verification are included in the LOGframe and they could be specified after the preparation of the project plan of actions (for each output).

The PIU will be expected to liaise regularly with the external (Altai Consulting) team in charge of implementing the EUTF Horn of Africa Monitoring and Learning System (MLS)37 and provide them with, inter alia, the following interactions and information:

At the start of the implementation of the action, the PIU will hand the MLS team the data sets – including list of activities, expected outputs and outcomes – that are summarised in the logical framework;

As soon as the project and M&E plans are relatively defined, the PIU will be expected to interact with the MLS team in order to review their M&E frameworks and tools, confirm the selected EUTF output indicators that the projects will report on and give target values for these indicators (Annex XI);

At least on a quarterly basis, the PIU will provide disaggregated values on progress made along the indicators identified above.

36Furthermore M&E will be linked to EUTF Single Monitoring Framework.37https://ec.europa.eu/trustfundforafrica/content/monitoring-and-learning-system-eutf-horn-africa-0_en

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The MLS team will do its utmost to make the interactions as short and efficient as possible and, when possible, to travel to Addis Ababa in order to meet in person and answer any question. A more detailed standard procedure will be developed and made available to the PIU by the MLS team.

E.3. Evaluation

The European Union Delegation (EUD) in Ethiopia, Addis Ababa, is responsible for the project’s evaluation as per their request during the project formulation. In this context, baseline survey, mid-term and final evaluation will be conducted by the EUD for the whole programme, to comprehensively assess the results achieved. EUD will cover the costs for conducting the project evaluation and no funds will be required from UNIDO from this project.

Considering UNIDO obligation to report to its Member States and Donors’ community as well as for data support required by the Organization, UNIDO and EUD will jointly prepare the Evaluation TORs. Furthermore, EUD will keep UNIDO informed about the evaluation processes that will include:

a mid-term review; a final evaluation.

The conclusions and recommendations of the mid-term review will lead to follow-up actions and corrective measures to be taken including, if recommended, the re-orientation of project components.

The counterparts and beneficiaries will be informed well in advance of the dates foreseen for the field missions. The counterparts and beneficiaries shall collaborate efficiently and effectively with the monitoring and/or evaluation experts, and inter alia provide them with all necessary information and documentation, as well as access to the project premises and activities.

F. PRIOR OBLIGATIONS AND PREREQUISITES

The most important pre-requisite is the official endorsement of the Government of the FDR of Ethiopia of this document. In this regard, this prerequisite has been achieved during the formulation of this project.

G. LEGAL CONTEXT

The Government of the Federal Democratic Republic of Ethiopia agrees to apply to the present project, mutatis mutandis, the provisions of the Standard Basic Assistance Agreement between the United Nations Development Programme and the Government, signed on 26 February 1981 and entered into force on 5 November 1984.

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