Competitive Economy Program (CEP) Quarterly Progress Performance Report COMPETITIVE ECONOMY PROGRAM (CEP) FY 2020 Q4 PROGRESS REPORT (July 1 – September 30, 2020) Contract No: 72012118C00002 Prepared for USAID/Ukraine c/o U.S. Embassy 4 Ihor Sikorsky St., Kyiv, Ukraine 04112 Prepared by Chemonics International 1717 H St. NW Washington, DC 20006

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Table of Contents I. ACRONYMS AND ABBREVIATIONS 3

II. EXECUTIVE SUMMARY 7

III. CONTEXT UPDATE 24

IV. KEY NARRATIVE ACHIEVEMENT 30

Increased Private Sector Competitiveness 30

A. Information Technology 30

B. Furniture 32

C. Tourism 34

D. Food Processing 35

E. Film and Creative Industries (new task) 38

Cross Cutting Private Sector Competitiveness Activities – for an Improved Business Enabling Environment and Improved Export and Trade Capacity 39

A. Improved Business Enabling Environment 39

B. Improved Export and Trade Capacity 45

Special Initiatives 53

A. eō Business Incubators and Startup Support 53

B. ProZorro.Sale Timber Auctions 55

C. Access to Finance 56

D. E-Commerce 57

E. Business Conduct Improvement 58

F. Inspections Reform 58

G. Anti-Monopoly Committee of Ukraine 59

H. Advancing National and Regional Competition Law and Policy 59

I. Investment Transaction Support (formerly, State Property Fund) 59

J. National Strategy to Increase Foreign Direct Investment in Ukraine (formally, National Investment Strategy) 61

V. PROGRESS AGAINST TARGETS 61

VI. PERFORMANCE MONITORING, EVALUATION, AND LEARNING 65

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VII. ENVIRONMENTAL MONITORING 66

VIII. PROGRESS ON LINKS TO OTHER ACTIVITIES 66

IX. PROGRESS ON LINKS TO HOST GOVERNMENT 67

X. PROGRESS ON INCLUSIVE DEVELOPMENT 68

XI. FINANCIAL INFORMATION 70

XII. SUB-AWARD DETAILS 71

XIII. ACTIVITY ADMINISTRATION 71

XIV. ATTACHMENTS 73

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I. ACRONYMS AND ABBREVIATIONS

AGRO USAID Agriculture Growing Rural Opportunities AMCU Anti-Monopoly Committee of Ukraine ANTAC Anti-Corruption Action Center APS Annual Program Statement ASEAN Association of Southeast Asian Nations ASUR Automated System of Risk Management B2B Business-to-Business BCC Business Community Club BDF Business Development Fun BEE Business Enabling Environment BIM Business Intelligence Module BRDO Better Regulatory Delivery Office BSO Business Support Organization CAP Competitive Action Plan CCA Competition Compliance Assessment CCN Cooperating Country National CEP USAID Competitive Economy Program CG Computer Graphics CGE Computable General Equilibrium CM Cabinet of Ministers of Ukraine CNC Computer Numerical Control COR USAID Contracting Officer's Representative COSME Competitiveness of Enterprises and Small- and Medium-sized Enterprises

Programme

COVID-19 Coronavirus Disease or 2019 Novel Coronavirus CPE Center for Public Expertise CRA Corruption Risks Assessment CRM Customer Relationship Management CulTouReg Culture.Tourism.Regions. Program CY Calendar Year DMO Destination Marketing Organization E&Y Ernst & Young, LLC EBRD European Bank for Reconstruction and Development EEF East Europe Foundation

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EEPA European Enterprise Promotion Awards EIB European Investment Bank EMMP Environmental Mitigation and Monitoring Plan EPO Export Promotion Office ERC Environmental Review Checklist EU European Union EU4PFM EU Public Finance Management Support Programme for Ukraine FAO Food and Agriculture Organization FDI Foreign Direct Investment FTA Food Trade Alliance FUBE Furniture of Ukraine Business Expo FY Fiscal Year GCC Gulf Cooperation Council GDP Gross Domestic Product GESI Gender Equality and Social Inclusion GIZ German Society for International Development GoU Government of Ukraine ICT Information and Communications Technology IEC International Electrotechnical Commission IEE Initial Environmental Examination IER Institute for Economic Research and Policy Consulting IMF International Monetary Fund ISO International Standard IT Information Technology ITFC Investment and Trade Facilitation Centre J2SR Journey to Self-Reliance LERP Local Effective Regulatory Platform LOE Level of Effort LOP Life of Project LRH Lviv Regulatory Hub LRP Local Regulatory Policy MBA Master of Business Administration MCI Municipal Competitiveness Index MCIP Ministry of Culture and Information Policy MDT Ministry of Digital Transformation

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MEDTA Ministry of Economic Development, Trade, and Agriculture MEL Monitoring, Evaluation, and Learning MESC Municipal Entrepreneurs Support Center MEST Municipal Economic Statistics Toolkit MoF Ministry of Finance MP Member of Parliament NABU National Anti-Corruption Bureau of Ukraine NBU National Bank of Ukraine NGO Non-Governmental Organization NIC National Investment Council NTOU National Tourism Organization of Ukraine OECD Organisation for Economic Co-operation and Development PIRS Performance Indicator Reference Sheet PMCG Policy and Management Consulting Group PPM Performance Management Plan PPR Performance Plan and Report PR Public Relations PwC PricewaterhouseCoopers RFA Request for Applications RFP Request for Proposals RIA Regulatory Impact Analysis SACCI USAID Support to Anti-Corruption Champion Institutions SBA Stand-By-Agreement SCS State Customs Service of Ukraine SE Social Enterprise SLE Single Legal Entity SME Small- and Medium-sized Enterprise SOE State-Owned Enterprise SoW Scope of Work SPF State Property Fund SRS State Regulatory Service of Ukraine STTA Short-Term Technical Assistance TCN Third Country National TCP USAID Transformation Communications Project TOR Terms of Reference

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TPN Trusted Partners Network TPO Trade Promotion Organization UAFM Ukrainian Association of Furniture Manufacturers UAWE Ukrainian Association of Woodworking Equipment UBA Ukrainian Berry Association UCCI Ukrainian Chamber of Commerce and Industry UCF Ukrainian Cultural Foundation UK United Kingdom UKRONDPROM Ukraine Confectionery Producers Association UNIC Ukrainian Network of Integrity and Compliance USAID United States Agency for International Development USF Ukrainian Startup Fund V-Trade Virtual Trade VC Venture Capital VDR Virtual Data Room VFX Visual Effects VPP Value Proposition Program VR Virtual Reality VRU Verkhovna Rada of Ukraine (Parliament) WTO World Trade Organization YEP Youth Entrepreneurship Partnership

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II. EXECUTIVE SUMMARY CEP continues to expand its reach to advance a strong, diverse, and open Ukrainian economy by supporting startup businesses and SMEs to become more competitive in domestic and international markets. CEP’s principal objectives are to foster a better business enabling environment, strengthen Ukraine’s economy and its firms, increase both foreign and domestic investment, and boost Ukraine’s trade linkages through export expansion and trade measures. Private Sector Engagement In its first year, CEP focused on two sectors: information technology (IT) and furniture and wood processing. As the second year began, CEP added film, tourism, and food processing as focus sectors. The following is a summary of activity in the five sectors in FY20 Q4. Furniture and Wood Processing CEP’s primary engagements in the furniture and wood processing sector continued to be subject to the new COVID-19 restrictions. While the furniture industry took an initial significant downturn in FY20 Q3, the sector was steadily recovering in FY20 Q4. CEP realigned its approach to the sector, recognizing the travel limitations for foreign purchasers and domestic suppliers and adapting to new forms of engagement with potential buyers. COVID-19 restrictions limited CEP’s ability to assist furniture companies in targeting export markets and attending trade events (Task B.1). The previously scheduled Furniture of Ukraine Business Expo (FUBE) was postponed in September for the second time since April 2020. Nevertheless, all of the preparatory work that was performed will facilitate attracting foreign buyers to the event in April 2021. Activities in the furniture sector to increase furniture sales through integration of companies into multinational buyer supply chains (Task B.5) were also interrupted by COVID-19, as travel restrictions prevented foreign buyers from visiting Ukraine and engaging with Ukrainian furniture manufacturers. All planned off-line training activities shifted to remote and online. CEP shifted its design-led innovations trainings (Task B.2) to online, as well, which presented difficulties as the activity required participants to work in groups and engage in intensive networking and site visits, activities that require facilitation with online conferencing software and instructional videos. Recognizing these challenges, CEP plans to make future adjustments to its online activities to better accommodate the needs of its beneficiary companies for business engagement. CEP held a training on Operations Management/Lean Manufacturing and provided grants for equipment and technology upgrades in FY20 Q4 to address low productivity in the sector

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(Task B.3). CEP trained 24 people representing 15 furniture companies in Q4 and provided four furniture manufacturing companies with new equipment and technology upgrades. The previously commissioned Furniture Sector Supply Chain Study identified some promising market segments for future technical assistance, including certain markets for import substitution. In FY20 Q4, CEP developed a grant program to support supply chain development to address some of these opportunities in FY21 Q1 (Task B.4). To facilitate access to finance and improve managerial practice among furniture manufacturing SMEs, CEP supported training on financial management (Task B.6) in FY20 Q4. Over the entire training course, CEP trained 50 people representing 36 companies, with 22 representatives from 15 companies trained in FY20. Throughout FY20, CEP identified several opportunities to support the Ukrainian Association of Furniture Manufacturers (UAFM) (Task B.7). In cooperation with UAFM, CEP developed an action plan that focused on new membership services, such as export promotion activities and trainings. In FY20 Q4, CEP co-financed a series of webinars on furniture procurement through ProZorro that the UAFM delivered for 63 individuals representing 53 furniture companies. As a result, 35 companies were registered on the ProZorro platform, and seven firms submitted bids to 25 tenders, resulting in $112,000 in new sales. CEP supported a new initiative to improve workforce skills and productivity in the furniture sector (Task B.8). CEP selected the Ukrainian Association of Woodworking Equipment (UAWE) as a grantee to deliver a pilot training for furniture factories’ computer numerical control (CNC) machine operators. At least 60 workers will be trained and at least 50 new skilled jobs will be generated through this activity. Information Technologies Continuing its work to support a stronger, more competitive IT sector in Ukraine, CEP focused its efforts on building relationships with central and regional IT industry organizations, defining key problems and solutions for sustainable tech sector growth, identifying flagship tech initiatives with strong counterparties, and building a portfolio of projects to increase market access, transformation, work force development, and startup development. CEP established or strengthened working relations with leading IT organizations, including IT clusters in Lviv, Kharkiv, Dnipro, Vinnytsia, Kyiv, Ivano-Frankivsk, and Rivne; the IT Ukraine Association; the Ukrainian Startup Fund (USF); Fintech Association; Unit.city; Ukraine Venture Capital Association; tech startup ecosystem stakeholders; and the MDT. Through continuous conversations with these institutions and IT company representatives, CEP identified three key focus areas that would support ongoing, sustainable growth:

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enhanced sales and marketing capabilities, work force development, and tech ecosystem development and internationalization. Understanding that there were immediate industry challenges in this time of global market uncertainty, CEP focused on launching and preparing a number of initiatives contributing to sales and marketing, such as the Lviv Tech Marketplace, digitalization support for Ukrainian SMEs through IT solutions, Lviv IT Arena online matchmaking, and the IT export alliance. Acknowledging the long-term nature of work force development initiatives, CEP focused on identifying the most feasible interventions for the coming years and has taken the first steps to support the local IT communities in Ivano-Frankivsk and Rivne. CEP supported a number of tech ecosystem development initiatives: Youth Entrepreneurship Partnership (YEP), grants for late stage startups, a first traction camp for product startups, seminars for angel investments, online innovations awards, and an investment summit. These initiatives have already reached hundreds of startups, with close to 100 tech startups selected for future support. CEP supported the Ukraine Innovation Awards under the Annual Program Statement (APS) 1 grant. Winners were announced in conjunction with the “42 Online Investment Summit” on July 2, 2020. The Innovation Awards aimed to promote innovations, attract capital, and boost cooperation between startups, SMEs, and corporations. Forty jury members from six countries selected winners from among the best Ukrainian startups in three nomination categories. Film and Creative Industries During FY20 Q4, CEP continued consultations with film industry stakeholders through online meetings, holding five working groups to finalize and gain consensus among stakeholders on the needs for industry development. CEP carried out a rapid skills gap analysis that identified the priority needs for the Film and Creative Industries sector and helped to shape educational programs and interventions focused on skills training. To address the identified gaps, CEP designed and announced grants program that will focus on developing a distance (online) education platform to teach the requisite skills. CEP started discussions with the Lviv Business School to explore supporting a partnership with a top U.S. university to develop a “Mini MBA” course for the film industry. CEP is currently talking to a number of U.S. institutions and should know by end of FY21 Q1 if the cost/benefits will be viable. International and local CEP experts carried out a comparative analysis of a Ukrainian cash rebate mechanism, compared to successful models used in Poland, other countries in the

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region, and the EU that have successfully attracted overseas film production, particularly from Hollywood. The experts suggested legislative changes to streamline access to the Film Rebate program. During FY20 Q4, the Ministry of Culture and Information Policy (MCIP) reached out to USAID and CEP requesting support to organize the Creative Ukraine 2020 Forum in November. CEP evaluated the request and will provide support to organize a film panel and speakers for the Forum. Food Processing CEP launched the Virtual Trade (V-Trade) Fruit and Berry initiative in collaboration with the Ukrainian Berry Association (UBA) to address COVID-19-related disruptions to sales via virtual events in domestic and global markets to promote available products through innovative online and virtual methodologies. This initiative also facilitates online business-to-business (B2B) market linkages across the sub-sector with potential domestic and international clients to ensure that sales proceed uninterrupted. Throughout Q4 CEP reviewed a concept note prepared by the Ukraine Confectionery Producers Association (UKRONDPROM) based on recommendations made by the European Bank for Reconstruction and Development (EBRD) and the Food and Agriculture Organization (FAO). The recommendations aimed to address disruptions to the confectionery sub-sector and expand exports in high-potential export markets. Once approved, both initiatives will support increasing sales through expansion and new market penetration and investment. CEP supported creating the alliance Organic Ukraine Business Hub Cereals by the reputable industry association Organic Ukraine to further assist Ukrainian manufacturers of organic food products with expansion in foreign markets. The initiative’s goal is to increase alliance members’ export sales by creating economies of scale for export activities. The alliance consists of six experienced exporters using joint synergy to reduce costs and maximize their export results. A target market has been selected and is being developed. After a deep analysis of the market and business opportunities available on the market, an Export Plan will be developed and implemented to assist companies establish long-term partnerships and secure deals on the target market. CEP opened discussions with artisan processors on an anticipated third project with craft food associations and began dialogue with the MEDTA and the EPO on an assessment of confectionery markets in the Middle East, the results of which will be presented next quarter. CEP also began discussions with partner food processing association on investment needs, including developing a draft questionnaire to assess the needs of member companies, and identified a list of regulatory and policy issues impacting operations of member companies. Tourism

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International tourism has been one of the global industries hardest hit from COVID-19. While there was an uptick in domestic travel within Ukraine’s borders in July and August, it was not enough to offset the losses of international travelers. The GoU decision to close Ukraine’s borders for September continued the pressure on the travel and tourism sector. The projected growth of COVID-19 around the world indicates that this sector will face considerable headwinds for the foreseeable future. While the number of tourists dropped, CEP focused its support by going back to the basics. Through the Culture.Tourism.Regions. (CulTouReg) program, CEP provided a grant to the National Tourism Organization of Ukraine (NTOU) to conduct training with the goal of strengthening players in the ecosystem. During Q4, the NTOU conducted three online workshops for Destination Marketing Organizations (DMOs) in the western, northern, and central oblasts of Ukraine, which focused on the fundamentals and best practices of strong DMOs. The workshops also included training and guidelines for COVID-19 from the World Travel & Tourism Counsel based in London. CEP also supported the development of promotional videos about Ukraine as a niche travel destination. The NTOU is producing three marketing videos on Rural Tourism in Ukraine, Wine and Gastro Tourism in Ukraine, and Health and Medical Tourism in Ukraine, which will be available next quarter. During Q4, CEP supported the NTOU to develop a digital data “backend” dashboard for the National Statistics System of Ukraine. Better data collection will allow for more precise tracking of tourism statistics, and the data will be shared with the State Statistic Service of Ukraine, industry partners, and others to better understand travel patterns within Ukraine. Following on work that was begun earlier in FY2020, the NTOU translated two more international standards (ISOs) from English to Ukrainian that promote the adoption of quality management practices for the tourism sector, for total of 17 ISOs. In addition, the NTOU developed two new localized standards for hotels and rural tourism. CEP finalized the selection of mentors, who have begun working with 20 Ukrainian Cultural Foundation (UCF) grantees under the CulTouReg program. The initiative is aimed at supporting tourism entrepreneurs in the pilot oblasts of Odesa and Zakarpattiya to further develop and implement their products and services within the regions. Cross Cutting Initiatives CEP made significant progress in completing its planned projects and activities in FY20 Q4. The CEP BEE team successfully presented the results of the MCI 2019/2020 survey publicly, using a combination of online (business community and media participants) and offline (CEP, government representatives, subcontractors). CEP also successfully redesigned and

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launched an online BSOs School training program that includes key thematic modules and webinars on specific topics, and mentoring support to develop selected BSOs. Workshops related to BSOs’ best practices started online. CEP experts continue to be involved supporting the preparation and implementation of the Government Program to Stimulate the Economy of Ukraine Caused by the Coronavirus Crisis, as well as drafting relevant draft laws to support Ukrainian business. Also, CEP began monitoring the implementation of The Government Program to Stimulate the Economy of Ukraine in terms of developing relevant draft laws and shares its analytics with representatives of the National Reform Council, the Council for Economic Development under the Prime Minister of Ukraine, the Ministry of Economic Development and Trade and selected MPs. The international trade team maintained support for Ukrainian businesses by developing a training on how to apply trade defense instruments effectively and by supporting the creation of a digital trade defense platform. The trade team continued work on developing the Computable General Equilibrium (CGE) model, along with coordinating datasets to compile a database and data model for the Ukrainian economy up to 2018. CEP will work with the data sets and suggest ways for wider utilization of the model by various stakeholders. Export promotion trainings continued to be delivered online and CEP successfully implemented a pilot online trade mission to the Kingdom of Netherlands for the food sector. Increased attention was given to e-commerce, encouraging Ukrainian SMEs to engage in e-export operations. Customs-related initiatives improved customs data flow and risk management system regulations and management. Following USAID guidance, support resumed and progressed on transforming the SCS into a single legal entity and improving internal procedures. Special Initiatives eō Business Incubators continued online throughout Q4. An online-only Demo Day was held on July 9, with seven startups graduating from the third cohort and over 2,000 viewers attending through live-streaming on Facebook and YouTube. The fourth cohort started in July fully on-line, and will take part in another on-line Demo Day in October. CEP continued to support various GoU initiatives and engagement with both governmental and non-governmental counterparts. CEP worked towards providing further assistance to the SPF by proposing to extend the existing Ernst & Young, LLC (E&Y) subcontract to ensure proper implementation of the small-scale privatization process matrix on the regional level and legal compliance of previously developed internal SPF processes.

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The small-scale privatization matrix was developed by E&Y in FY20 Q4 and has already been used to facilitate the privatization of over 300 state-owned assets. CEP support for the sale of the Dnipro Hotel resulted in the first “big” small privatization in Ukraine in over 15 years. The purchaser cited USAID and CEP involvement and the credibility that the organizations’ lent to the sale as the basis for the higher than anticipated purchase price. Support towards the SPF’s small-scale privatization process will continue through FY21. CEP has also been working closely with the President’s Office to support development of a national FDI strategy and issued an RFP in July 2020 for its development. E&Y was selected and will begin strategy development starting FY21 Q1. CEP continued its support for ProZorro.Sale to develop online competitive auctions in the timber industry. The pro-competitive and transparent auction module for selling unprocessed timber was completed in September 2020, and a CM decree ensuring pro-competitive electronic timber auction procedures, drafted with CEP assistance, is expected to be adopted in October 2020. CEP also continued to support inspections reform through development of amendments to the key law on inspections (Draft Law #877) in consultation with the Better Regulatory Delivery Office (BRDO). The amendments were published on the MEDTA website and are awaiting public consultation. Both initiatives seek to reduce corruption, increase SME competitiveness, and decrease the cost of doing business for Ukrainian SMEs. Women’s Business Camps continued this quarter online and virtually, with several participants garnering national press for their companies. Business Education and Capacity Building CEP successfully transitioned its training opportunities for Ukrainian entrepreneurs and businesses online so that firms can continue to expand their skills and capabilities, despite the challenges of COVID-19.

CEP supported transparent privatization of the Dnipro Hotel resulted in a higher than anticipated purchase price

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Throughout FY20 Q4, CEP education programs continued to support a wide range of sectors and target markets with online training, including:

• eō Business Incubators (incubator training and public lectures); • Export Evolution Training; • Export Bootcamp; • Specialized Territorial and Sectoral Analyses Training; • Market Analyses for export; • Webinars on access to finance for startups and developing businesses (Easy Finance); • Online incubation for student startups (by YEP); • Online business lectures about angel investments; • DMO trainings for tourism businesses; • Furniture sector marketing and business training; • ProZorro procurement training for furniture producers; • Financial management training for the furniture sector; • Operations Management/Lean Manufacturing training for furniture manufacturers; • Design-led innovations training for furniture manufacturers; • V-Trade Fruit & Berry sales trainings; • Tourism/Destination Management training; • Accelerators on creating and developing Social Enterprises (Simple SE); • Thematic modules and webinars for BSOs (BSOs School).

CEP continues to support Ukraine along the Journey to Self-Reliance. CEP continues its efforts in several key Journey to Self-Reliance (J2SR) categories.

J2SR Sectors J2SR Measurements CEP Initiatives Commitment

Economic Policy Business Environment BEE work contributes to the development and adoption of new legal and regulatory initiatives

Economic Policy Trade Freedom Trade initiatives improve customs data flow and improve risk management system regulation; Trade Defense legislation improves outdated and inefficient interaction with SMEs

Capacity Capacity of Government

Effectiveness Inspections reform contributes to transparency and ease of business inspections; Trade and Special Initiatives contribute to institutional capacity and digital transformation; support to Ukraine’s small-scale

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privatization process increases government effectiveness and efficiency; support to Ukraine’s electronic auction system increases efficiency in transparent auctions of government resources.

Capacity of Economy Gross Domestic Product (GDP)

Support of increased GDP comes from a focus on growth for SMEs to increase GDP overall; support for a national FDI Strategy also contributes to future growth of GDP.

Capacity of Economy Information and Communications Technology (ICT) Adoption

The IT sector and export promotion are both active in this category, as ICT is a key driver of productivity and of the ability to export more; the SCS digital transformation will help fight corruption and introduce a service-oriented approach.

Capacity of Economy Export Sophistication Increased export promotion capabilities provide focused training and targeting of export markets.

Inclusive Development

Economic Gender Gap Women’s Business Camps and eō Business Incubators are both strong platforms for increasing women’s participation in business.

Public Awareness of USAID CEP CEP’s public visibility continued to increase this quarter with a strong communications presence, making CEP a widely recognized player supporting various SMEs and government initiatives. The program ranked first in the August 2020 USAID/Ukraine joint local media monitoring, reaching 127 of 390 total mentions among the inclusive, sustainable, market-driven economic growth projects. CEP produced two success stories during the quarter, which were published on the USAID portal. They highlighted CEP Women Biz Camp graduates’ successes and a female entrepreneur who successfully re-oriented her enterprise during the COVID-19 crisis. CEP maintained its position in the top three of USAID/Ukraine’s most visible programs, with a strong and growing presence on Facebook (12,785 followers). To date, the CEP LinkedIn account has 1,098 followers, and Twitter has 110 followers.

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All CEP initiatives supporting Ukrainian SMEs were promoted on.Business to ensure a wider outreach for CEP activities. In particular, a campaign was widely viewed with videos describing the best global and national business association practices and the benefits entrepreneurs receive from business association membership: BSO services, financial capital, business reputation, communication, and advocacy. Information about the educational program #SimpleSE and a video campaign encouraging people to become social entrepreneurs and deepen SMEs’ social responsibility, implemented by Urban Space 500, was published on Diia.Business. In FY20 Q4, CEP provided communication support for:

• The online Annual Ukraine Investment Summit 2020 and Ukraine Innovation Research and Awards 2020, in which some of the winners were companies/startups supported by CEP;

• The start of two export alliances, Organic Ukraine Business Hub CEREALS and the first Ukrainian IT Export Alliance;

• The kick-off of the VTrade Fruit & Berry initiative that provides trade support and promotion for 150 Ukrainian fruits and berry producers, helping them to mitigate COVID-19-related constraints;

• The development and further promotion of the Factoring Hub platform, an online solution that combines tender announcements, SME tender submissions, and financial institutions’ factoring services, allowing SMEs to apply for and receive factoring offers when they bid on ProZorro;

• A series of BSOs School meetings with experts and opinion leaders on entrepreneurship support;

• The online public presentation of the MCI 2019/2020 Report and a ranking of all the participating cities;

• The Lviv Tech Marketplace announcement to promote the IT industry in the region and help IT SMEs enter global markets, and the IT Shared Space cluster initiative, a joint business space for IT companies to develop Ivano-Frankivsk’s IT sphere;

• The first Online Trade Mission to the Netherlands to expand trade opportunities for Ukrainian SMEs in the Dutch market;

• The launch of the Entrepreneurial University, an initiative to create an entrepreneurial movement in Ukraine, in particular at universities with strong business culture and startup infrastructure.

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CEP senior leadership participated in partners’ public events to increase CEP visibility and present CEP activities and plans: the online forum “Business Reputation - Modern Business Capital”, the online conference “Local business in the context of the coronacrisis: opportunities and support”, the “SME Forum. Reset 2020”, the Kyiv Investment Forum, and others. CEP also developed and disseminated three monthly newsletters and shared more than ten press releases promoting CEP ongoing initiatives.

CEP Grant Activity

CEP Grant Awards & Spending: CEP Solicitations for Grant Applications: In FY20 Q4:

• 1,025 applications received • 115 grant awards and

modifications approved by USAID

• $4.75 million awarded via approved grant awards and funded modifications

Estimated spending via grants assistance:

• Projected grant spending of $2.64 million in CY 2020

• Projected total grant spending of $3,274,000 for CY 2018-2020

Closed: APS 1 (Support to SMEs) APS 2 (Increased Transparency in GoU Procurement

Process) RFA 1 (Trade Mission for Furniture Manufacturers) RFA 2 (Best Practices for BSOs) RFA 3 (Business Camps for Women) RFA 4 (Inspection Manual/Inspections Platform for

SMEs) RFA 5 (Analysis of Draft Laws Impacting SMEs) RFA 6 (Support for Modernization of Furniture

Manufacturing Equipment) RFA 8 (Formation Export Alliances) RFA 9 (Supporting Women-owned SMEs) RFA 10 (Design-led Innovation for Furniture

Manufacturers) RFA 11 (Traction Camps for Ukrainian Startups) On-going: RFA 7 (Trade Mission Activities) RFA 12 (Late-Stage Startups) RFA 13 (Export Evolution Assistance)

Olesya Zaluska, Deputy Chief of Party talks about innovative ways CEP enables SMEs to expand their businesses at “SME Forum. Reset 2020”

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RFA 14 (Furniture Technology Training) RFA 15 (Film Industry Training) RFA 19 (Film Industry Certifications & Training)

FY20 Q4 Results within the Performance Plan and Report (PPR) Indicators:

• Sales by assisted firms (FY20 annual indicator): $3.04 billion1 • Percentage change in assisted firms’ sales (annual indicator): 10.14 percent • Number of SMEs supported: 1,370 unique SMEs • Number of firms receiving technical assistance to export: 90 firms in FY20 Q4 and

total of 325 in FY20 (FY20 annual target 513) • Full-time employment of assisted firms (FY20 annual indicator): 57,7842 • Person-hours of trainings in trade and investment: 132 person-hours captured in

FY20 Q4. The total indicator result is 5,655 in FY20 and exceeds the life of project (LOP) target of 640.

• Number of firms that have improved management practices or technologies (annual indicator): 263 SMEs (FY20 annual target 212).

Further details and information on Q4 results can be found in the attached MEL Annex. Summary of project-wide CEP results for FY20 Q4:

• Successful privatization of the first “big” small privatization for Ukraine with the sale of the Dnipro Hotel for 1.11 billion UAH (approximately $41 million).

• Completed study with a review of best practices and recommendations for Data Privacy legislation in Ukraine and presented to the MDT and VRU Committee for Data Privacy.

• Initiated pilot of the Factoring Hub to connect SMEs, ProZorro, and banks. • Capacity building project implemented to strengthen the EPO and improve

performance to enable Ukrainian businesses to increase export sales. • A law providing incentives and tax breaks for film makers was drafted and passed

with CEP input. • SPF small-scale privatization process mapped and enhanced by drafting 71 internal

regulations and procedures, half of which were adopted into regulations. • 1 new timber electronic auction system introduced on ProZorro.Sale. • One CM resolution to support all future timber sales on transparent, pro-competitive

state-owned auction systems. • Completed package of support for amendments to Draft Law #877, governing

inspections and development of a technical proposal for an inspection complaint module on the existing inspections portal.

1 Additional indicator introduced to track increased sales attributed to CEP support 2 Additional indicator introduced to track created jobs

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• Drafted and prepared documents relating to two CM resolutions adopted enabling customs transformation into a single legal entity.

• Conducted three “Market Analyses for Export” training modules for 44 experienced participants from 40 industry associations, BSOs, and private consultancies.

• Completed three lectures for V-Trade in the Fruit and Berry food processing sub-sector with a total of 80 participants.

• Conducted four sets of trainings for furniture manufacturers: design-led innovations; operations management/lean manufacturing (24 participants from 15 companies); ProZorro procurement (63 participants from 53 companies); and financial management (22 participants from 15 companies).

• Created four educational, two promotional, and one motivational video to promote local deregulation best practices at the municipal level.

• Created four educational and two promotional videos and a series of 12 infographics to promote best practices in access to finance and a relevant promotional campaign launched.

• Created five educational and three promotional videos created to promote business associations’ best practices.

• Prepared eight educational videos and one practical manual prepared to promote best practices in social entrepreneurship.

• Completed 14 student startup incubation cycles in the YEP summer cohort. • 16 tech startups (from spring and summer cohorts) participated in YEP Demo Day,

pitching their businesses to over 10 investors and mentors. • 47 participants from 10 regions attended seminars on creating DMOs. • 49 BSOs reported improved management skills and practices as a result of the BSO

School training program. • 90 applications from tech startups received in the second round of grant program for

mature startups. • 168 startups and innovation cases participated in eight Ukraine Innovation Award

category nominations, which were assessed by 40 jury members from 5 countries. • Analyzed 202 regulatory draft laws of previous VRU convocations to identify priority

initiatives for further elaboration and submitted for VRU consideration. • Analyzed 246 regulatory draft laws under VRU consideration, 44 recommendations

considered in full, 22 recommendations partially considered. • 285 participants attended 42 Online Investment Summit in July 2020, which was

organized with CEP grant support. • 438 applications from women-owned businesses received in four rounds of the grant

program; 20 women-owned businesses selected representing various businesses across Ukraine: engineering consulting in construction and energy efficiency; web design and development; laboratory diagnostics; production of furniture, clothes, knitwear; décor and home accessories; packaging products; tourist services; education; environmentally-oriented projects; production of eco-cosmetics and accessories; and food processing.

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• 3,902 students joined the new “Innovative Entrepreneurship and Startup Management” university course at 76 Ukrainian universities. The course was launched by YEP in partnership with the MDT, Ministry of Education and Science, and USF.

• Completed 5,115 interviews with businesses across the country (24 cities) for the MCI.

• 7,328 participants in 10 public and private eō Business Incubator online events. • 50,000+ viewers joined the Ukraine Innovations Awards and 42 Online Investment

Summit during two days in July.

As demonstrated above, despite rapid context changes and various quarantine restrictions, CEP continued to adapt its sector work and continues to work with online tools in its support for SMEs, government, and BSOs. See Section V for the recorded results against indicators. Activity Administration The following changes took place in the CEP staffing structure in FY20.

• In response to USAID’s technical direction letter received in FY19 Q4, the Emerging Industries/Competitiveness Team Leader Mr. Andrzej Schafernaker, hired by Chemonics’ subcontractor J.E. Austin Associates, and the World Trade Organization (WTO) Participation and Compliance Team Leader Mr. Marius Layo Bordalba concluded their assignments at the end of CY 2019.

• As no replacement was planned for the WTO Participation role, the WTO duties were divided between the remaining team members.

• In response to USAID’s technical direction, CEP expanded its private sector competitiveness team and repurposed the long-term role of WTO Participation and Compliance Team Leader to hire an Economic Special Initiatives Team Lead. As a result, CEP hired Ms. Meghan Iorianni on June 9, 2020, to serve as a Competition Attorney and Economic Special Initiatives Team Lead. She worked remotely from the U.S. until arrival in Kyiv, Ukraine, on June 18, 2020. In addition, the Economic Special Initiatives Team was reinforced with the addition of an Economic Special Initiatives Business Coordinator.

• Chemonics and J.E. Austin Associates worked to recruit a new Emerging Industries Competitiveness Team leader. CEP received approval for Mr. Karen Isahakyan to serve as Emerging Industries/Competitiveness Team Leader as an employee of subcontractor J.E. Austin Associates. He began working remotely from the U.S. on April 1, 2020. As international travel to Ukraine resumed, Mr. Isahakyan arrived in Kyiv, Ukraine, on June 30, 2020.

• The BEE team was reinforced with the addition of a BEE Advisor. • A Tourism Business Advisor joined the Emerging Industries/Competitiveness Team.

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• A new Communications Director joined the team to increase CEP’s public visibility and to coordinate overall communication team efforts. On July 24, 2020, the Communications Director resigned. CEP is currently recruiting for the position of Communications Director.

• Ms. Oleksandra Borodina, Monitoring, Evaluation, and Learning (MEL) and Gender Equality and Social Inclusion (GESI) Manager, left CEP on January 31, 2020.

• Mr. Illya Kletskovskyy joined as MEL Manager on March 23, 2020. • Due to the COVID-19 crisis, Mr. Dušan Kulka, Export Promotion Team Leader, worked

remotely from the Czech Republic March 22-May 31, 2020. • Mr. Kulka’s long-term assignment in Kyiv, Ukraine, is being extended through

September 2021. • Mr. Christopher Fellabaum, Grants Advisor and Organizational Development Expert,

worked remotely from the U.S. during most of FY20 Q3 and the beginning of FY20 Q4 due to his evacuation from Ukraine resulting from the COVID-19 crisis.

• As Mr. Christopher Fellabaum finished his CEP assignment in July 2020, Ms. Nicole Skarpness was hired for the long-term position of International Grants Advisor starting on July 27, 2020. Ms. Skarpness worked remotely from the U.S. until arrival in Kyiv, Ukraine, on August 24, 2020.

CEP Organizational Response to COVID-19 As COVID-19 began to impact Ukraine with closures and quarantine measures, CEP responded quickly with teleworking for all staff as of March 16, 2020, and continued this mode of work during FY20 Q3 and Q4. All STTA international travel scheduled during March – September 2020 was postponed or cut short until restrictions on international and domestic travel are lifted. The only international travel undertaken during the reporting period was for subcontractor J.E. Austin Associates’ short-term Sector Development and Competitiveness Expert, Mr. Andrew Vonnegut, with USAID’s approval. Pursuant to the worldwide authorized departure, conveyed by the Supervisory Contracting Officer on March 16, 2020, CEP arranged for evacuation of two expatriate and third country national (TCN) staff members and their dependents: Mr. Dusan Kulka, Export Promotion Team Leader and Mr. Christopher Fellabaum, Grants Advisor and Development Advisor. CEP provided written notification to the Contracting Officer and secured Contracting Officer’s Representative approval for place of performance change for both staff members to work remotely during the COVID-19 crisis. Upon their respective arrivals or re-entries to Ukraine, long-term professional expatriate personnel Ms. Iorianni, Mr. Kulka, Mr. Isahakyan, and Ms. Skarpness and short-term consultant Mr. Vonnegut underwent observation / self-isolation using the Дій вдома (Diy Vdoma) mobile app introduced by the GoU. All five professionals worked during self-isolation.

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CEP developed a COVID-19 Office Re-Opening Plan, in collaboration with the Chemonics home-office security management unit, to monitor indicators that will help CEP to continually assess the environment for re-opening physical offices, and the protocols and strategies required in order to do so in a safe manner. As outlined in the re-opening guidance, CEP will prioritize staff safety and empower staff to feel they have reasonable control and choice around returning to the office. With many staff now accustomed to working from home, and with expected requirements to comply with social distancing and wear face coverings, it is expected that they will have genuine concerns about the safety and sustainability of returning to office-based work. CEP management continues, as it has throughout the COVID-19 emergency, to keep staff aware of any major updates in a continuously iterative context and will maintain a transparent approach regarding re-opening offices and conducting field work. As this COVID-19 pandemic situation is still unpredictable, the plan will require ongoing updates to take into consideration new government, client, and home office recommendations, guidance, and instructions. CEP applies GoU regulations and recommendations on quarantine measures related to conducting events in Kyiv and Ukraine. These are done mostly online, partially offline (speakers in the hall, audience connects online, etc.), and only if really necessary, subject to prior CEP management approval. See Section XIV for additional administrative updates from Q4. Subsequent Reporting Period For FY21 Q1, CEP will continue to focus on its goals and initial plans, while responding to and working within the constraints of the current COVID-19 situation. This includes:

• Being responsive to USAID and GoU requests for review and/or support of plans to respond to the impact of COVID-19 or other economic development support requests, so long as these requests fall within CEP’s goals and targets;

• Working with and supporting SMEs and other partners and stakeholders by moving as much work online as possible and maintaining regular communication.

CEP will continue its private-sector engagements in the IT, furniture, tourism, film, and food processing sectors, as well as with the GoU. This will include, but is not limited to:

• Finalizing an export marketing plan for the IT export alliance, including prospects for future trade promotion activities;

• Launching a multi-stakeholder market development initiative related to unlocking the domestic IT market potential (Kharkiv project);

• Continuing progress with a number of kicked-off flagship IT initiatives, including Lviv tech marketplace and the IT export alliance;

• Online matchmaking activities during Lviv IT Arena online conference, offering 50-100 foreign buyers and 50-100 Ukrainian IT companies a platform and service to find new business partnerships;

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• Further developing the student startup ecosystem via mass university courses on startup entrepreneurship and student startup incubation with YEP;

• Kicking off the eō Business Incubator’s fifth cohort, developing more investment-capable early-stage startups;

• Continuing to deliver Women’s Business Camps online, pivoting for more sectoral and sub-sectoral engagement;

• Launching an online six-month business training curriculum for 30-45 product startups (pivoted format of two remaining traction camps);

• Wrapping-up the grants program for mature startups by awarding eight grants to previously recommended grantees and selecting 5-10 new grantees;

• Continuing to deliver online business training programs for furniture companies; • Initiating an RFP for furniture companies that seek to expand production of furniture

inputs to boost domestic production of furniture parts often obtained through imports;

• Engaging the UAWE to train furniture manufacturers on equipment used for furniture production in the EU in order to improve workforce skills and development;

• Foster UAWE partnerships with universities in western Ukraine to adopt an equipment training program for amateur furniture producers;

• Continuing the V-Trade lecture series to support market access opportunities for the newly developed Fruit and Berry Food Trade Alliance;

• Implementing a grant to UKRONDPROM to support expansion into Southeast Asia and Gulf markets via hired trade representatives;

• Working with the Craft Food Manufacturers Association to expand access to domestic markets through grant activities focused on business management, market access strategies, and access to finance mechanisms;

• Consulting and working with all food processing subsectors to establish access to finance mechanisms;

• Supporting changes to streamline the cash rebate mechanism for the Film Industry in the VRU;

• Selecting up to three companies based on the RFP announced in FY20 Q3 to provide a Trusted Partners Network (TPN) and ISO/IEC 27001 online certification programs for Ukrainian animation, virtual reality (VR), computer graphics (CG), and visual effects (VFX) for post-production companies.

• Selecting an online educational training provider, based on the issued competitive grant, for skills development in the Film Industry;

• Supporting compilation of a database of locations, skills, and businesses in the Film sector to provide information that will help international and domestic film producers make data-based decision about producing films (e.g., cost effectiveness of specific locations);

• Providing the MCIP with short-term expert support to strengthen its capacity to improve Ukraine’s Creative Economy and assist with the CREATIVE UKRAINE Forum, planned for November 19-20, 2020, by providing speakers and facilitating the online Film panel during the event;

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• Continuing support for the CulTouReg project by providing mentors to 20 grantees in Odesa and Zakarpattiya oblasts to improve the quality of regional tourism products;

• Continuing support for Ukrainian SMEs to take part in global trade and apply trade defense instruments effectively;

• Continuing support to the GoU for the FDI Strategy, ProZorro.Sale, the AMCU, the MFU, the SCS, the SRS, and the SPF.

See Section XV for additional details on activities slated for FY21 Q1.

III. CONTEXT UPDATE The Competitive Economy Program (CEP) moved past the initial shocks of COVID-19 that occurred during Q3 and settled into a ‘new normal’ during Q4. By July, the early strict quarantine measures had been lifted, businesses had reopened, and internal travel had resumed across much of Ukraine. Due to the shifting nature of the impact of the virus, countries around the world have gone through cycles of being open/closed to travelers, which has made long-term planning and new business development difficult. Travel from Ukraine to much of the European Union (EU) continued to be restricted for Q4. During September, Ukraine closed its borders to incoming travelers, with a small number of exceptions made for diplomatic and other essential workers. CEP continued predominantly with work-from-home for day-to-day business, existing engagements, and new proposed projects in Q4. CEP maintained its practice of ongoing assessment of the economic and social impact of COVID-19, evaluating current workstreams and realigning its efforts to accommodate the Ukrainian business community’s needs as they emerged. This iterative process enables CEP to respond effectively to its counterparts, adjusting the structure of certain tasks to accommodate COVID-19 restrictions, redirecting resources away from impeded tasks to meet emerging challenges, and continuing to expand its work to support Ukraine’s business environment. CEP continues with many of its key programs in online and remote engagement formats, including Export Evolution training, Women’s Business Camps, eō Business Incubators, and training for the furniture and tourism industries. Similarly, meetings with various stakeholders (private sector, the Government of Ukraine, USAID) continued in online formats. CEP continued to accept and assess new grant applications and issue new Requests for Proposals (RFPs) without interruption. Many of the private sector businesses that CEP engages continue to be impacted by COVID-19. Commerce and business development remain challenging due to the tremendous slow down across the global economy. CEP-supported trade shows and buyers’ trips remain on hold, and many businesses are still conserving cash whenever possible as a hedge against ongoing uncertainties.

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Adding to the challenges faced by individual companies have been challenges at the national level, as well. Following International Monetary Fund (IMF) approval and release in June of the first $2.1 billion tranche of the $5 billion Stand-by-Agreement (SBA) for Ukraine, early July saw the resignation of the highly respected National Bank of Ukraine (NBU) Governor, Yakiv Smoliy. Citing ‘systemic political pressure’, his resignation sent up warning flags about Ukraine’s commitment to NBU independence and continued anti-corruption efforts. Following on the heels of this was President Zelenskyy’s initiative to change the procedure for forming and appointing the leadership of anti-corruption bodies in Ukraine, as well as the intention to dismiss Artem Sytnyk, head of the National Anti-Corruption Bureau of Ukraine (NABU). Expressing concerns about perceived backsliding of NBU independence and anti-corruption measures, the IMF continues its dialogue with Ukrainian leaders but has not committed to a date for the next IMF review mission, which is a necessary next step for release of the next SBA tranche. Q4 ends with the question of future IMF disbursements still unresolved. While Ukraine can probably withstand the loss of these funds, one of the biggest impacts would be on international investors’ perceptions of Ukraine. There were several other national level developments. The Minister of Finance, Serhiy Marchenko, focused attention on transforming the State Customs Service (SCS) into a single legal entity (SLE), with effort placed on transferring staff via an integrity test procedure. A repercussion of this was that the recently appointed SCS Acting Head Ihor Muratov was dismissed in the middle of August, ostensibly to resolve delays from customs and to reiterate Ministry of Finance (MoF) intent to pursue reform and continue cooperation with the IMF. CEP customs-related initiatives were paused in Q3 but renewed in August, based on the leadership shift to MoF, and to utilize the momentum for long-awaited reform. Two new Deputy Ministers of Economic Development, Trade, and Agriculture (MEDTA), were appointed at the end of July / early August. Oleksandr Romanishyn and Iryna Novikova are responsible, respectively, for trade defense policy, export promotion, and IP rights protection; and regulatory policy, entrepreneurship development, and investments. Their appointments coincided with a significant shift in MEDTA priorities, including more attention to small- and medium-sized enterprise (SME) support, defense of national producers, and industrial policy. The institutional capacity of the Office of Trade Representative of Ukraine, headed by Taras Kachka, was significantly weakened by the transfer of two departments to the newly appointed Deputy Minister Oleksandr Romanishyn. However, this was offset by the promotion of the Export Promotion Office’s (EPO) role with a mandate for entrepreneurship development and direct supervision by the Cabinet of Ministers of Ukraine (CM) and Vice Prime Minister of Digital Transformation Mykhaylo Fedoriv. The current Government of Ukraine (GoU) is in a vulnerable political position as it failed to obtain approval from the Verkhovna Rada (VRU) for the Government’s Action Plan. Thus, the

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GoU has been operating for the last few months without a formal document that would set priorities for its activity. At the same time, the GoU, through its own efforts and in cooperation with the VRU, took a number of steps to implement the State Program of Stimulation of the Ukrainian Economy, which includes support to agriculture producers and creative industries, special tax and administrative regimes for the IT sector, stimulating industrial production, etc. In Q4, the VRU significantly reduced its activity in response to the challenges caused by the spread of COVID-19. This is partly due to the “decrease degree” on the Ukrainian economy, and partly due to the beginning of the “holidays season” in Ukraine, when activity is very low in July-August. Nevertheless, there were three laws passed in July to support the creative industries, including film making, for which CEP provided recommendations. There were also several draft laws on stimulating development of the IT sector submitted for VRU consideration, including implementation of the Diia.Business initiative. Numerous draft laws proposing various incentives and privileges (primarily tax privileges) to various sectors in Ukraine (including creative industries, agriculture, heavy industry, engineering) were a notable feature of this period. CEP continues to monitor these processes in the VRU and the GoU through monthly monitoring of regulatory draft laws submitted for VRU consideration. From the beginning of July, CEP began monitoring the compliance of regulatory draft laws with the priorities of the State Program on Stimulating the Ukrainian Economy. Monitoring results are used in the work of the Council for Economic Development under the Prime Minister of Ukraine, MEDTA, and certain Members of Parliament (MPs). During September, CEP held a series of meetings to continue cooperation between CEP and the State Regulatory Service (SRS) as one of the program’s beneficiaries. Although the SRS still does not have a permanent leader, the SRS team seeks to intensify its work and restore influence on the processes related to state regulatory policy at both the national and local levels. The main priorities for the SRS now are to disseminate knowledge at the local government level on the basic principles of public regulatory policy and the use of Regulatory Impact Analysis (RIA) to facilitate local deregulation and to involve Organization for Economic Co-operation and Development (OECD) experts in assessing government regulatory policy in Ukraine. CEP increased its engagement with the National Investment Council (NIC) during the quarter. A National Investment Strategy had been under discussion since late 2019 with the Prime Minister’s Office. However, by mid-2020, this project was moved under the Office of the President, and the NIC was tasked with leading the project. During Q4, CEP was finally able to help the NIC clarify the strategy’s scope and goals, narrowing the scope from one that started as a general investment strategy to one that focused specifically on increasing Foreign Direct Investment (FDI) into Ukraine. An RFP was issued in July and a local

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internationally-recognized company was selected in September to develop the strategy. Work on the FDI Strategy will be conducted throughout FY21 Q1, with a target date for completion in late January 2021. CEP will work closely with the NIC and other Government partners to ensure that the FDI Strategy is not only sound and well-reasoned, but that it has clearly defined and executable goals.

On September 10, CEP, InfoSapiens, and the Institute for Economic Research and Policy Consulting held an online presentation on the findings of the Municipal Competitiveness Index (MCI) 2019/2020 Report, with a ranking of all the participating cities. Six cities were identified as having the most favorable business climate and effective economic governance: Khmelnytskyi, Ivano-

Frankivsk, Lviv, Vinnytsya, Ternopil, and Chernihiv. To measure MCI 2019/2020, CEP

and InfoSapiens conducted a large-scale survey, the first wave of which covered 23 oblast capitals and Kyiv. During the survey, 5,115 interviewed businesses expressed their attitude about the business climate and local authority’s efforts to establish a business enabling environment (BEE). Local government activities increased across the country during the reporting period, both political activities related to the upcoming fall local elections and new measures to support local business during COVID-19. In fact, there is now “open conflict” between the central government and local authorities. In August-September, most regional authorities ignored the quarantine restrictions imposed by the GoU or openly called for their abolition in order to protect and preserve local businesses. The refusal to impose quarantine restrictions recommended by the GoU has, in fact, turned into a means of political struggle between city mayors and political forces led by them for “maintaining” their ratings and electoral influences. This conflict between national and local level businesses was seen in another way, as well. Protests against the requirement for microbusinesses to use cash registers, which was adopted by the VRU last fall, are becoming widespread in Ukraine. Hundreds of business associations, more than 40 city councils, and about 10 regional councils have already appealed to the Parliament and the GoU to change the relevant legislation. Numerous microbusiness protests were held in various Ukrainian cities, and several protests took place in July and September outside the Presidential Office and the VRU.

A presentation of the MCI 2019/2020 Report and ranking of participating cities in Kyiv, September 2020.

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There were positive developments within the larger business and political context of FY20 Q4.

• Despite the impact of COVID-19, CEP initiatives with the State Property Fund (SPF), ProZorro.Sale, and the Anti-Monopoly Committee (AMCU) continued uninterrupted. CEP continued its support to develop the SPF’s small scale privatization process matrix and supported the successful auction of the Dnipro Hotel in July 2020. CEP also completed its support to ProZorro.Sale for development of a transparent, competitive timber auction platform for launch in September 2020 and advised on a draft CMU resolution to use electronic auction systems for all future timber sales. Finally, CEP worked closely with the AMCU on development of two webinars to be incorporated into CEP’s Business Support Organization (BSO) School Curriculum.

• The Ministry of Digital Transformation (MDT) continued its work in several areas, particularly around the Diia projects, including a portal, mobile application, and business centers, all of which are meant to digitalize, streamline, provide transparency, and enhance interactions between Ukrainian citizens and the government. Diia.City, a proposed digital-economic-zone to boost the tech sector in Ukraine with a specialized tax regime, modified labor laws, and business protection measures continues to move forward. In Q4, momentum for Diia.City continued with the hiring of a high-profile leader from the Belarus Tech ecosystem to help guide the initiative, and a directive issued from the President for the GoU and VRU to move the initiative forward. The biggest hurdle Diia.City faces is in the passage of taxation, labor, and protection laws that underpin the Diia.city concept.

• There is an attempt to intensify the work of the National Reform Council under the President of Ukraine. In July, it was rebranded as the Office of Simple Decisions and began a series of meetings with business community representatives to identify priority reforms.

• The government’s “Affordable Loans 5-7-9%” program began to be much more active in July–September. As of the end of September, more than 3,800 Ukrainian entrepreneurs had received loans totaling more than 9.1 billion hryvnia.

• In early September, the VRU voted on, and in late September, the President of Ukraine signed the Law on State Portfolio Guarantees of SME Loans. This law should promote expanding Ukrainian commercial banks’ credit products for SMEs and expand the portfolio of the government’s “Affordable Loans 5-7-9%” program.

• Several governmental institutions and agencies involved in implementing CEP initiatives committed to continue the reforms commenced by the previous GoU, including anti-corruption efforts, economic activity deregulation, and business inspections reform.

• The GoU adopted legislation enabling transformation of the SCS into a Single Legal Entity. The SCS continued piloting a digital transformation of its data and implementing a new risk management system.

• The GoU continued to support competition law reform to reduce corruption and create more favorable conditions for SMEs.

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Challenges ahead for CEP to consider COVID-19 continues to be an ongoing and evolving challenge with significant implications for Ukraine and the rest of the world. Below is a list of the current impacts relevant to CEP.

• The accessibility of governmental institutions and the VRU remains problematic with quarantine restrictions and the GoU’s shift in focus to prevent the spread of the pandemic.

• All in-bound trade events to Ukraine have been cancelled or changed to online format. Most trade events in target export countries have been (repeatedly) postponed to late 2020 or into 2021. E-commerce, on the other hand, has experienced significant growth, including e-export of Ukrainian goods. One challenge with the growth of this sector has been the shortage of available air cargo capacity.

• Travel restrictions were lifted or eased in summer but the rising numbers of new cases and growing concerns about the impending second wave of COVID-19 leave a high level of uncertainty and will complicate international travel in upcoming three to six months.

• Educational and public events that CEP had planned for FY20 Q4 were transitioned to online, which slightly decreased the effectiveness of training in the initial stages, and preparation for these events required additional time.

• While regional and global trade started recovering in Q4 from the strict lockdown measures, the expected second COVID-19 wave may slow growth going forward. The GoU as well as the governments of Ukraine’s key trade partners do not anticipate the level of economy closure experienced in Q2-Q3; however, the virus has proven to be unpredictable and is hard to plan for.

• As predicted in Q3, disruptions are expected to be lower in IT, furniture, and food processing, and greatest in international tourism. Domestic tourism may see a growth in demand if the epidemic situation does not lead to wider, stricter lockdowns. While the furniture sector felt an initial downturn in Q3, the sector began experiencing a steady and quick recovery in Q4. While the furniture sector has not fully recovered and remains below production and revenue from FY19 Q4, the sector is seeing steady growth and recovery. Similarly, food processing saw a decrease in access to export markets in FY20 Q3; however, domestic consumption remained steady and growing, and export market access predominantly resumed in FY20 Q4.

• CEP expects markets to resume and continue recovering post-quarantine, but long-lasting impacts that have permeated almost every sector will remain well after quarantine measures are lifted. As such, CEP must reassess the timing and reasonableness of achieving project targets for certain sectors and sub-sectors.

• There is a logical shift of trade and market development events to online, and CEP expects the trend to continue further as the quarantine situation remains volatile.

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IV. KEY NARRATIVE ACHIEVEMENT During FY20 Q4, CEP continued its progress with Increased Competitiveness for Emerging Industries, Export Promotion, Cross Cutting Activities, and Special Initiatives. Increased Private Sector Competitiveness A. Information Technology PS Task A1. Sales and Investment growth fostered by extending visibility and reach on international markets PS Task A1.1. Create a mapping of Ukrainian IT industry and startup ecosystem for evidence-based policy making and project initiative launch (Updated task, formerly “Create a knowledge base on target markets for IT industry”) Completed in FY20 Q3. PS Task A1.2. Support development of the Digital Promotion and Communication plan for international and domestic markets Cancelled, formerly called “Create a knowledge base on target markets for IT industry” PS Task A1.3. Support IT industry’s development of the National IT Sector Promotional Website Postponed. CEP is re-evaluating potential grantees for this task. Since the initial FY20 work plan was developed, it emerged that the initial promotional website being considered for this task may not be the ideal platform to meet the business development and investment attraction goals. CEP is therefore reviewing other options. PS Task A1.4. Support development of a Lviv tech marketplace (Updated task, formerly “Support development of a Lviv Oblast IT cluster B2B marketplace”) CEP and the Lviv IT cluster finalized grant documentation, obtained grant approval, and signed the grant agreement. The Lviv tech marketplace will be developed in two stages by the end of FY21, and aims to facilitate companies marketing themselves globally for leads and sales generation. PS Task A1.5. Launch a pilot export alliance in the IT sector (New task) Grantee IT Ukraine increased the initial size of the IT export alliance supported by CEP to 21 companies, including two large companies with 1,000+ employees. Additionally, the following methodologies were developed:

• methodology and selection criteria of export alliance members;

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• scoring table for potential export markets; • in-depth analysis of top-three planned export markets; • draft communication strategy for IT alliance, for internal market to expand to more

companies and to external markets and to deliver clear and consistent message about the alliance.

PS Task A1.6. Support premier international IT conference in Ukraine – Lviv IT Arena 2020 (New task) By supporting national-level IT conferences in Ukraine, CEP helps to promote the Ukrainian IT industry and tech startup products to international and foreign markets. Following the decision to hold the Lviv IT Arena conference online, CEP and the Lviv IT cluster agreed to the following:

• Support the online IT Arena conference, publicly branding and acknowledging USAID and CEP role;

• Facilitate transforming an incoming buyers’ mission during IT Arena into an online matchmaking agenda, organized and facilitated by conference organizers and EPO, targeting to attract 75 potential buyers and 75 Ukrainian IT companies for matchmaking.

This pivot enabled testing of a new online matchmaking format on October 8-10, targeting to connect 75 potential foreign buyers and 75 Ukrainian IT companies. PS Task A2. Promote adoption of Ukrainian IT products to non-IT SMEs PS Task A2.1. Support digitalization of Ukrainian SMEs (Updated task, formerly “Promote Ukrainian IT products to non-IT SMEs (Digital “Demo-Days” project)”) Under this activity, CEP plans to link SMEs with advisory support services that show them how to improve their business operations through embracing digitalization solutions. Specifically, via virtual format, SMEs will receive pre-advisory support from CEP-hired consultants and participate in sessions aimed to prepare those businesses for digital upgrades. The actual installation of IT/digital solutions will be at the company’s own cost. After the initiative’s format was conceptualized, CEP conducted extra due diligence on the anticipated grantee, which was successfully completed late in FY20 Q4. CEP has focused on completing grant documentation to receive USAID approval for the initiative in the next reporting period and start activities in the second part of the next quarter. PS Task A3. Sustainable growth of the IT sector through increased availability and improved skills of IT Human Resources

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PS Task A3.1. Assess current academia – IT industry collaboration and design new collaboration models based on the best practices (Updated task, formerly “Assess successful academia-IT industry collaboration and design new collaboration model”) CEP completed first round consultations with IT industry stakeholders about education and workforce development issues and short-listed a number of initiatives for deeper exploration:

1. Attracting talent to Kharkiv’s IT industry, both as students and IT firm employees; 2. Re-qualification of experienced market professionals into IT staff, combining efforts

of the State Unemployment Fund, IT industry, and central and local authorities; 3. Decreasing time to market for young people interested in IT, who could benefit from

colleges and pre-university professional technical education. CEP included the first initiative above in its FY21 workplan. For the second initiative, the CEP ICT Sector Lead will join the MDT working group to develop the initiative and consider supporting it in future reporting periods. CEP will engage with IT clusters to develop the third project initiative. PS Task A3.2 Build capacity of small IT clusters to create new IT jobs and develop regional IT industry (New task) CEP awarded a grant to the Ivano-Frankivsk IT cluster to create a shared space that will help build capacity of local IT companies to strengthen their sales and presence on key markets. The grant was publicly announced at the end of the reporting period and activities commenced this quarter. Rivne IT cluster grant documents are being completed and are expected to be sent for USAID approval in October, with grant activities starting from November 2020. B. Furniture PS Task B1. Assist furniture companies in targeting markets and attending trade events to increase sales in existing and new markets Due to COVID-19, FUBE was rescheduled from September 15-17, 2020, to April 4-5, 2021. CEP’s grant for the Hosted Buyer Program to support buyer visits to the fair was postponed. Significant work was done at the beginning of the year to attract foreign buyers to the exhibition by conducting scout trade missions and engaging industry STTAs. With CEP grant support, UAFM representatives participated in five scouting missions to the United Kingdom (UK), Germany, Bulgaria, and Poland to establish connections with buyers (163 contacts) and attract them to participate in FUBE. This preparatory work will support FUBE’s relaunch in April 2021.

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PS Task B2. Improve competitiveness of furniture companies through Design-Led Innovation After suspension in mid-March 2020 following the introductions of COVID-19 restrictions, the training on Design-Led Innovations in the furniture sector resumed and is currently ongoing online. In FY20 Q4, training participants formed 14 research and development groups, and three CEP facilitated webinars were held. The groups are working to develop new model prototypes. The CEP Design-Led Innovation grant co-funded the following activities:

• training program on the new product development cycle for a minimum of 10 furniture SMEs accompanied by furniture/interior designers;

• learning video recorded at retail outlets and furniture factories; • Design Competition Event for products developed by training participants;

video recording of training sessions and a workshop at the furniture sector public event to disseminate the training program’s success.

PS Task B3. Improve productivity and product quality to achieve greater sales and profitability On July 17-24, CEP subcontractor Smart People delivered online sessions of the foundation-level course on Operations Management/Lean Manufacturing for the second group of 24 participants representing 15 companies. Participants visited Kyiv-based furniture manufacturer BASSA, a company that successfully adopted lean manufacturing. The training program was completed in FY20 Q4. Four furniture manufacturing SMEs received CEP grants for equipment and technology upgrades, which are expected to be delivered in FY21 Q1 and Q2, pending reviews. PS Task B4. Develop Supply Chains / New Domestic Suppliers for Import Substitution After conducting the Furniture Sector Supply Chain study and identifying promising segments of the furniture sector, CEP developed a grant program to support supply chain development. The goal of the grant is to identify two to four highly competitive companies to provide necessary technology or equipment upgrades to support production for import substitution. The RFP is set to be announced in FY21 Q1. PS Task B5. Increase furniture sales through integration of companies into multinational buyer supply chains Activities under this task were interrupted by the COVID-19 pandemic and travel restrictions on foreign buyers visiting Ukraine. CEP is currently re-evaluating entry points for this activity. PS Task B6. Increase furniture sales through improved access to finance

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During the reporting period, CEP completed its support for a financial management training program for furniture companies. In FY20 Q4, 22 participants representing 15 firms received online foundation-level training on financial management. Over the whole program, 50 people representing 36 companies were trained in two groups. PS Task B7. Build up the capacity of the UAFM to improve the competitiveness of its members On August 1-11, training on furniture procurement using the ProZorro e-procurement system was delivered as a series of webinars in collaboration with UAFM. The training was attended by 63 people representing 53 furniture companies. After the training, 35 companies registered on the ProZorro platform and seven firms submitted bids to 25 tenders for total amount of $110,000. Following identification by CEP STTA of development opportunities, an action plan was developed in cooperation with UAFM, which includes new membership services such as export promotion activities and trainings. PS Task B8. Improve workforce skills (and productivity) in modern manufacturing methods and machinery CEP has identified a grantee to deliver a pilot training for furniture factory CNC machine operators. The grant is under development and will be finalized in FY21 Q1, and is expected to train at least 60 workers, and result in at least 50 new skilled jobs, which will facilitate sales growth and additional investment in new technologies. C. Tourism PS Task C1. Contribute to the growth of tourism revenues, investment, and jobs throughout Ukraine by developing capacity in destination management This activity was implemented in tandem with and is reported under PS Task C3. PS Task C2. Stimulate the growth of tourism revenues, investment, and job-creation in two pilot oblasts through the development, promotion, and delivery of new cultural and heritage tourism products CEP finalized the selection of mentors, who began working with 20 UCF grantees in the CulTouReg program. The initiative is aimed at supporting tourism entrepreneurs in the pilot oblasts of Odesa and Zakarpattiya to further develop and implement their products and services within the regions. PS Task C3. Assist in building capacity in the national tourism organization (NTOU) (New task)

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Through the CulTouReg program, CEP provided a grant to the NTOU to conduct trainings to strengthen players in the ecosystem. During Q4, the NTOU conducted three online workshops for DMOs in the western, northern, and central oblasts of Ukraine, which focused on the fundamentals and best practices of strong DMOs. The workshops also included training and guidelines for COVID-19 from the World Travel & Tourism Counsel based in London. Participants received stamps that can be publicly displayed, indicating that they successfully completed training on COVID-19 travel safety. CEP also supported development of promotional videos about Ukraine as a niche travel destination. The NTOU is producing three marketing videos on Rural Tourism in Ukraine, Wine and Gastro Tourism in Ukraine, and Health and Medical Tourism in Ukraine, which will be available next quarter, posted on the NTOU and other websites to promote Ukraine as a destination. During Q4, CEP support to the NTOU helped develop a digital data backend dashboard for the National Statistics System of Ukraine. Better data collection will allow for more precise tracking of tourism statistics. Data to better understand travel patterns within Ukraine will be shared with the State Statistic Service of Ukraine, industry partners, and others. Following on work that began earlier in FY20, the NTOU translated two more (for a total of 17) international standards from English to Ukrainian. The standards promote adoption of quality management practices for the tourism sector. In addition, the NTOU developed two new localized standards for hotels and rural tourism. D. Food Processing PS Task D1. Increasing sales through expansion and new market penetration and investment PS Task D1.1. Identity anchor enterprises and organizations and launch initial projects During FY20 Q4, in line with the CEP FY20 work plan (PS Task D1.1. Select enterprises and producer organizations to act as anchor companies), the Food Processing Team worked closely with a number of Ukrainian processed food trade associations to identify anchor partners and reviewed concept notes for projects to develop long-term growth, expand member company exports in selected target markets, and mitigate the impact of COVID-19-related disruptions to supply chain logistics and commercial activity. In August, CEP initiated a Food Trade Alliance (FTA) grant, “V-Trade Fruit and Berry”, valued at $136,530, of which $32,820 will be met by UBA cost-share. The V-Trade project is based on a UBA concept note and addresses COVID-19 disruptions to the fruit and berry sector. In addition to meeting short-term needs, the initiative launched a platform that will act as a long-term sales and marketing channel. In FY20 Q4, the Ukrainian Fruit and Berry FTA launched the V-Trade platform and is implementing the following activities under the V-Trade grant:

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• Live monitoring and consulting on supply chain logistics solutions to enable companies to identify solutions to mitigate logistics-related disruptions to sales and trade communicated to member and non-member sub-sector companies on a weekly basis.

• Ukrainian fruit and berry promotion events in domestic and global markets to promote available products through innovative on-line and virtual methodologies. Over the course of this initiative, V-Trade is designing and implementing innovative monthly virtual and online trade fairs and other events, as conditions allow.

• Facilitation of on-line B2B market linkages across the industry with potential domestic and international clients to ensure that sales continue to proceed uninterrupted.

The V-Trade Fruit and Berry FTA targets markets in the EU (the Netherlands, Germany, the UK, France, and Scandinavian countries); China; the Middle East, including the Gulf States; and to a lesser degree, the U.S.. CEP identified the UKRONDPROM as a partner. UKRONDPROM developed and submitted a concept note to CEP to address disruptions to the confectionery sector, featuring EBRD and the FAO recommendations for trade development priorities, which identified the Gulf Cooperation Council (GCC) member countries and Association of Southeast Asian Nations (ASEAN) member countries as high potential export target markets. CEP reviewed the concept note and elected to issue a grant (currently under consideration with USAID) that will address the export expansion objectives of at least 40 lead companies and an additional 100 associated companies, supplier associations, and cooperatives to mitigate trade disruptions and expand sales in target markets and regions. UKRONDPROM will implement the following activities under this program:

• Virtual B2B Meetings: based on initial Export Action Plans facilitated between UKRONDPROM and Trade Representatives with support from CEP, the Trade Representatives will facilitate live online B2B market linkages with potential buyers in the two regional entry target markets (Philippines and Saudi Arabia) to ensure that sales growth proceeds despite COVID-19-related challenges.

• Trade Missions (Philippines and Saudi Arabia): When COVID-19 restrictions allow, Trade Representatives will facilitate UKRONDPROM-led three-day international trade missions to two regional entry target markets (Philippines and Saudi Arabia) to deepen linkages between Ukrainian companies and importers and distributors in the target markets.

In line with EBRD and FAO recommendations from previous analyses, initial target entry markets will include the Kingdom of Saudi Arabia and Kuwait (to a lesser degree) in the GCC, and the Philippines in ASEAN.

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The Food Processing Team is also engaged in advanced discussions with several additional food processing sector associations, including associations representing the craft foods and organic foods sub-sector, to launch the third FTA early in FY21 Q1. PS Task D1.2. Create and implement Food Trade Alliances around processors of high expansion potential products The CEP Food Processing Team began planning for the expansion of current grantees into enlarged FTAs through aggregation with additional sub-sector-focused entities. The team focused on expanding fruit and berry export promotion activities launched under V-Trade Fruit and Berry with oblast-level export agencies and additional sub-sector presentation associations. However, full development will be based on the success of the initial plans underway with the Fruit and Berry Association. Development of the V-Trade platform is intended for wider usage than just the UBA, and CEP estimates being able to support an additional two to four associations on the platform once it is fully operational. PS Task D1.3 Create and implement Investment Plans aimed at addressing market barriers The CEP Food Processing Team began discussions on linking Investment Plans with planned CEP Special Initiatives related to launching a blended finance fund to meet SME finance needs. Discussions are underway with initial FTA grantees on member company finance needs, and the team has drafted an interview guide to begin assessing needs. PS Task D2. Promoting visibility of Ukrainian processed food products Development of the V-Trade platforms under Task D1 addresses the objectives of working with anchor enterprises in the sector and creating a vehicle to increase the visibility of Ukrainian food products. PS Task D2.1 Promote the visibility of the high growth potential Ukrainian processed food products Planned for FY21 Q1. Discussions are already underway with initial FTA grantees on promotion strategies to improve the image of Ukraine as a source market for targeted processed foods. PS Task D3. Developing the human resource capacity of the Ukrainian food processing staff Planned for FY21 Q1. Discussions are already underway with initial FTA grantees on human resource development needs. Under PS Task D3.2. Identify and Address Regulatory Burdens on the Food Processing Industry and CEP Sub-sectors, planned for the CEP FY21 work plan, the CEP Food Processing Team has developed a list of policies and regulatory issues related to the processed food trade.

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E. Film and Creative Industries (new task) PS Task E1. Support Film Industry to create a strategy and road map for development CEP continued consultations with film industry stakeholders through online meetings and held more than five working groups to finalize and gain consensus among stakeholders on the needs for industry development. CEP carried out a rapid skills-gap analysis that identified the priority needs for the film and creative industry sector. To address the gaps identified, CEP published requests for applications (RFAs) to support this and two other programs for the Ukrainian Film industry:

1. Improve capacity and skills of Ukrainian filmmakers by developing an Excellence Training program;

2. Improve Ukraine’s visibility with online filming locations and industrial database; 3. Support technical upgrade by obtaining modern software, licensing, and certification

to be able to bid for and cooperate with top international productions. CEP international and local experts carried out a comparative analysis of the Ukrainian cash rebate mechanism, compared to models used in a number of other countries that have successfully attracted overseas film production, particularly from Hollywood. The experts suggested legislative changes to streamline access to the film rebate program, which were presented to major stakeholders (including private sector and MCIP representatives, Parliament, and relevant Government bodies) to secure their preliminary buy-in on the necessary amendments and administrative procedures. The changes will establish transparency, improve operational effectiveness, and increase Ukraine’s attractiveness as a filming destination for international producers and location managers. CEP started discussions with the Lviv Business School to explore supporting a partnership with a top U.S. university to develop a “Mini MBA” course for the film industry. CEP is currently talking to a number of U.S. institutions and should know by end of FY21 Q1 if the cost/benefits will be viable. In FY20 Q4, the MCIP reached out to USAID and CEP requesting support to organize the Creative Ukraine 2020 Forum in November. CEP evaluated the request and will provide support to organize the film panel and speakers for the Forum. MCIP has also requested support with short-term experts to increase the Ministry’s capacity to assist the creative sector. CEP will be able to provide STTA support for FY21 Q1 and Q2 for several of the positions requested. PS Task E2. Workforces and skills development (new task) CEP carried out a rapid skills gap analysis to identify industry needs for workforce and skills development.

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CEP is assisting qualified Ukrainian companies to receive necessary software and TPN and ISO/IEC 27001 certifications. CEP will provide special trainings to obtain TPN and ISO/IEC 27001 online certification for animation, VR, CG, and VFX post-production. CEP engaged with the Lviv Business School to explore partnering with a top U.S. university to deliver a “mini MBA” for the Film Industry. This is important as many managers working in the Ukrainian film sector are very creative but lack business/negotiation skills to successfully work with their foreign counterparts. Finally, CEP developed a scope of work (SoW) for an RFP to develop Health and Safety trainings for Ukrainian film production crews, including on COVID-19. PS Task E3. Promotion of Ukraine as a film destination (new task) One of the tools to promote Ukraine as a film destination is a consolidated film industry database, which will include production resources and data on filming locations, developed in collaboration with associations, location managers, and regional film commissions. During FY20 Q4, CEP selected a subcontractor via a competitive RFP, which will start developing the database during the next quarter. PS Task E4. Improved business enabling environment (new task) CEP local and international Policy and Regulatory Experts developed and proposed draft changes to the cash rebate mechanism. The experts carried out a comparative analysis of international cash rebates and Ukrainian current cash rebate process, and developed detailed proposals for improvement. CEP secured preliminary buy-in from major stakeholders (MCIP, Parliament, President’s Office, media groups, associations, etc.) this quarter. The experts will continue the assignment and will help to present draft changes to the VRU. Cross Cutting Private Sector Competitiveness Activities – for an Improved Business Enabling Environment and Improved Export and Trade Capacity A. Improved Business Enabling Environment CC Task A1. SME-friendly business laws and regulations developed CC Task A1.1. Facilitate Key, identified GoU policy and legal initiatives In coordination with the Center for Public Expertise (CPE), CEP completed an in-depth analysis of 202 previously selected regulatory draft laws registered in the VRU during 2014–2019. From 202 analyzed draft laws, CEP selected 60 most promising ones that could be updated and re-submitted for the Parliament’s consideration. In FY20 Q4, new versions of

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eight regulatory draft laws were developed and prepared for submission to the VRU: tax administration; acquiring and using residential premises for business; transfer of residential premises to non-residential premises; incentives for small agricultural producers; etc. Work on several more regulatory draft laws continues and will be completed in October – November. CEP continued on-going monitoring and commenting on draft laws registered in the IX VRU convocation. In September, CEP analyzed the status of recommendations provided by CPE experts to draft regulatory laws from November 2019 to August 2020. In total, 246 draft laws were analyzed: 44 recommendations were considered in full, 22 recommendations were partially considered, and another 137 draft laws are still under consideration by VRU committees. In FY20 Q4, CEP continued working with the GoU (including MEDTA) and selected MPs to develop anti-crisis measures supporting Ukrainian business during the COVID-19-related economic crisis. In July, CEP and CPE began monitoring implementation of “The Government Program to Stimulate the Economy of Ukraine Caused by the Coronavirus Crisis” in terms of developing relevant draft laws. CC Task A1.2. Develop and pilot user-friendly regulatory policy tools As reported in FY20 Q2, CEP contracted two qualified experts – an anti-corruption expert and corruption risk-assessment expert – to develop methodological tools on Competition Compliance Assessment (CCA) and Corruption Risks Assessment (CRA) methodologies to assess the compliance of regulatory acts with the relevant frameworks and principles. Work on both methodologies was completed in full in FY20 Q4. In FY21 Q1, CEP plans to hold pilot webinars on using the prepared methodologies for BSOs School participants and representatives of selected municipalities. Development of the RIA enhanced methodology was postponed to FY21, since the SRS (the main stakeholder) did not confirm the request for RIA development after the latest changes in top management and pandemic outbreak. CC Task A1.3. Develop informational tools on business inspections As reported in FY20 Q3, CEP, in cooperation with BRDO and Easy Business, completed and publicly presented the Business Inspections Manual and the Business Inspections Interactive Platform. BRDO and Easy Business also produced a series of videos to promote and instruct on how to use both products.

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After the instruments were presented and published,3 a series of promotional events followed. On July 7, BRDO conducted an online workshop on the practical use of the Business Inspections Interactive Platform; and on July 15, BRDO presented the instrument at the Forum of Accountants and Auditors “Through Transparency to Sustainable Development: New Fundamentals of Profession.” Easy Business also continued distributing the Business Inspections Manual and related videos, in which the grantee published a series of articles. One article, “How to defend yourself before the inspections in court?”, was published by Ukrainska Pravda on July 1. CC Task A2. Business climate best practices applied by municipalities CC Task A2.1. Develop and pilot “Local Deregulation Model” in partner municipalities No actions during this quarter due to local elections. The task will be launched by CEP after local elections as agreed in consultation with USAID. CC Task A2.2. Develop and Present Municipal Entrepreneurs Support Center Model (MESC) After a series of consultations with MEDTA and MDT, CEP finalized the draft RFA on Developing a MESC Model. MDT confirmed its interest in cooperating with CEP to develop a common standard for center operation and a training program for future staff, and agreed with the approach reflected in the draft RFA. Further steps on this task will be determined by CEP leadership in consultation with USAID. CC Task A2.3. Launch BSO capacity building program to enhance the influence of local business communities The BSO Capacity Building Program, publicly branded as “BSOs School”, aims to strengthen the role and capacity of local BSOs so they may better represent SMEs. As previously reported, CEP contracted CIVITTA to implement Component 1, Development through Cooperation, and the East Europe Foundation (EEF) to implement Component 2, On Guard for Business Interests. During July-September 2020, CEP and CIVITTA conducted five Component 1 modules and a series of webinars for representatives of 40 selected organizations, and 30 organizations reported improved management skills as a result of training. EEF conducted three Component 2 modules and organized additional webinars and “morning coffee” meetings for representatives of 30 BSOs. All 30 organizations reported improved management skills as a result of the trainings.

3 Available on the Business Inspections Portal, the SRS website, the SME State Portal, Diia.Business, and the National SME Platform.

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The selected organizations learned how to advocate for SME interests, engage local business with local authorities for local economic development, build an effective public-private dialogue, and improve the local business climate. They also acquired knowledge and skills on strategic planning for developing BSOs, BSO leadership, and fundraising for BSO activities. During the reporting period, CIVITTA started targeted mentoring support for the development of selected BSOs. CC Task A2.4 Strengthen BSO Partnership Network to support joint actions of SMEs. As previously reported, CEP awarded four grants to identify and disseminate BSO best practices to:

• Lviv Regulatory Hub (LRH) – local regulatory environment clearing practices to improve the local business climates in Ukrainian municipalities;

• Easy Business – practical algorithms to search and attract financial resources for business development;

• Prostir 500 – practical recommendations and tips to develop sustainable social enterprises;

• Business Community Club (BCC) – practical solutions to enhance institutional and advocacy capacity of local business associations.

CEP had to modify the activity schedule due to COVID-19, but, overall, the grantee SoWs were successfully managed as they adapted to the new circumstances and focused on the best possible delivery. LRH remodeled its activities for online delivery and conducted a series of online expert discussions in April and May on local deregulation and possible measures local authorities could take to support SMEs during the COVID-19 crisis. During July-September, LRH started webinars on the main approaches to local regulatory policy (LRP). The main focus of the targeted regional events was to strengthen municipalities’ capacity to apply regulatory policy instruments for improving the business climate and SME sector support. During April-September 2020, LRH conducted seven online events attended by 228 participants: two expert discussions, one workshop on best practices in local economic governance, and four (out of seven planned by November 2020) targeted regional workshops on the LRP model for Chernihiv, Poltava, Sumy, and Volyn oblasts. To raise awareness on the LRP model, LRH designed an article with built-in promotional videos published on NV.ua. Total coverage of the two videos promoted on Facebook, YouTube, and NV.ua during July-August reached over 1.1 million, including 700,000 views. In September, LRH completed production of four training videos on the Local Effective Regulatory Platform (LERP) and local deregulation instruments, which will be released and promoted in October-November 2020.

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Easy Business completed development of infographic materials (two sets of pictures and 11 slides) and videos (four educational and two promotional) describing the various tools for businesses to access finance. The videos contain practical methods to search for and attract financial resources for starting a business and/or business development. A promotional campaign to distribute the infographic materials lasted from June to August. The campaign included publishing infographic posts with a brief description of the relevant tools and opportunities on a weekly basis on the Easy Business website and Facebook page, the CEP Facebook page, Diia.Business, and the National SME Platform. Easy Business planned and prepared training materials for a series of webinars on access to financial resources, to be held from October to November as part of the #EasyFinancing initiative. Prostir 500 completed nine educational videos, including one with step-by-step recommendations on how to establish a social enterprise and one motivational video of interviews with successful Ukrainian social entrepreneurs, and a manual on social entrepreneurship, with basic knowledge and recommendations on how to establish a sustainable social enterprise. During July-September, Prostir 500 conducted three waves of the online training program “#SimpleSE: Social Entrepreneurship is easy”, with 60 participants. The curriculum is designed as an acceleration program and consists of two days of online intensive and 12 days of practical work with participants from all regions of who are already creating or improving their social enterprises in Ukraine (each of four waves captures a certain region). Participants have the opportunity to receive advice from leading experts in financial management, marketing, public relations (PR), legal issues, accounting, and fundraising, and they get mentoring from successful Ukrainian social entrepreneurs who share their personal experiences. After the last wave of training, a final national forum will be conducted in Q1 FY21 and all participants will have a chance to present their projects and successes. In September, the BCC started a promotional campaign on the best practices of global and national business associations. Promotional materials for the campaign include animated videos (up to now five of eight planned videos have been released) and a set of 12 infographics, created as part of the initiative “Effective Business Associations – Capable Business – Strong Country.” Distribution of the animated videos included weekly posts with a brief description of the relevant practices on the BCC website and Facebook page, the CEP Facebook page, and Diia.Business. All published videos are actively disseminated on business platforms and Facebook groups.

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The BCC has already conducted two regional webinars for 60 representatives of the local business community in Kremenchuk and Chernihiv, and eight additional webinars are planned for October and November. CC Task A3. Municipal Business Climates Improved CC Task A3.1. Conduct Municipal Competitiveness Index (MCI) survey As reported in FY20 Q3, CEP subcontractor Info Sapiens completed fieldwork for the MCI 2019/2020, including interviews with 5,115 entrepreneurs from 23 oblast centers and Kyiv. Based on the survey findings and statistics collected, the Institute for Economic Research and Policy Consulting (IER) prepared a ranking of participating cities. Six of Ukraine’s cities have the most favorable business climate and effective economic governance: Khmelnytskyi, Ivano-Frankivsk, Lviv, Vinnytsya, Ternopil, and Chernihiv. In Q4, the IER finalized the MCI 2019/2020 full report and slides for public presentation. In September 2020, CEP and InfoSapiens publicly presented the MCI 2019/2020 Report and the ranking of all participating cities. The MCI demonstrated more than double a difference in ranking points between the 1st and 24th places (from 72.69 to 31.62 accordingly), which indicates a significant difference in the business climate, local council policies, and competitiveness of each city. The next two waves of the survey are planned for 2021 and 2023 and will cover 45 and 60 of the largest cities in Ukraine, respectively. In order to continue disseminating the MCI 2019/2020 findings, including municipal economic governance best practices, a national online conference is planned for November for mayors of Ukrainian cities, experts, and the business community. CC Task A3.2. Improve municipal business climates based on MCI CEP finalized the RFA for partner(s) selection to develop the MCI Program, a “ready-to-go” tool that will assist the surveyed municipalities to improve the business climate locally based on the MCI 2019/2020 findings. In addition, CEP developed a questionnaire and selection criteria for the municipalities surveyed by MCI that may apply for CEP expert support and be included in MCI Program development. Since the MCI 2019/2020 results presentation took place in September, the start of the MCI Program was moved to FY21 Q1. CC Task A3.3. Develop Municipal Economic Statistics Toolkit (MEST) In FY20 Q4, the contracted STTA completed work on the guidelines for forming the Municipal Economic Statistics Toolkit (MEST).

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CC Task A3.4. Improve access to public procurement of SMEs CEP engaged with the Anti-Corruption Action Center (ANTAC) via a grant issued in February 2020 to aid SMEs in CEP priority sectors with access to procurement, assist SMEs with the procurement complaint process, and advocate for the prevention of harmful and ineffective legislative initiatives related to public procurement. The grant will be completed at the end of October 2020. ANTAC is on track to reach all targets stipulated by the grant agreement. Four legislative provisions offering significant changes to procurement legislation were identified and analyzed; one advocacy piece for prevention of dangerous legislative changes was developed; and 243 appeals against discovered procurement violations were lodged with ANTAC’s assistance. Two offline public procurement training sessions for SME representatives were cancelled due to COVID-19 and transitioned to three online webinars, two of which have been conducted, and the final webinar is scheduled for October 2020. B. Improved Export and Trade Capacity CC Task B1. Effective and cost-effective export promotion programs implemented CC Task B1.1. Deliver Export Evolution training program with special grants program In FY20 Q4, CEP closed the flagship 8-month training program Export Evolution Ukraine. In total, 105 participants from 85 companies completed PRO level and 261 participants finished START level training, with 90 percent of participants from both levels reporting they are already using or plan to use the gained knowledge and skills. More than 30 percent of the PRO level participants received new certificates and made first sales in new markets, and more than 50 percent of participants developed new products for export, improved relationships with customers, improved product/services quality, and found partnerships in a new market. Of the START level participants, 72 percent reported that they intensified their export activities and five percent started exporting or entered a new market. The Export Evolution Ukraine PRO training was complemented with a special grant program to support successful graduates in their internalization efforts and assist them with the export plans they developed in the training. An additional online “questions and answers” session was held in Q4 for 22 potential grantees to provide expert advice on preparing applications. The corresponding grant (RFA013) received over 30 applications from participant companies, and CEP anticipates awarding up to $500,000. In FY20 Q4, six export plans were reviewed and recommended for implementation, and the remaining applications are under evaluation. Execution of the export plans will start in FY21. The ultimate goal of the export plans is to enter new foreign markets or expend in existing ones.

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In FY20 Q4, the Export Evolution Ukraine Training Program was nominated for the 2020 European Enterprise Promotion Awards (EEPA)4 and chosen as the national winner in the category “Supporting the Internationalization of Business”, which recognizes initiatives that encourage enterprises and particularly SMEs to benefit more from the opportunities offered by markets, both inside and outside the EU. At the second stage of the competition, the training program was shortlisted in the same category by the Jury as a nominee for the final awards ceremony, along with two peer competitors from Belgium and Portugal5. The winners in each category and Grand Jury Prize will be announced at the final award ceremony in mid-November 2020. CC Task B1.2. Deliver a set of trainings for export consultants [Cancelled] This task was cancelled. CEP awarded a grant to the Ukrainian Chamber of Commerce and Industry (UCCI) to deliver the training; however, the grantee failed to process the grant agreement and stopped communicating. In the meantime, an almost identical training program was implemented by the EPO with Estonian donor support. Considering these circumstances, CEP decided to cancel the task. CC Task B1.3. Develop and Deliver Value Proposition Program (VPP) for exporters [Postponed] Work on this initiative was expected to begin at the end of FY20 Q2 but was put on hold due to COVID-19. Activity implementation is not envisaged in FY21 as a disjoint task and could be considered for inclusion in sectoral or other export-related grant programs, as needed. CC Task B1.4. Deliver a set of specialized trainings on territorial and sectoral market and business opportunity assessments (three trainings in different regions of Ukraine) In FY20 Q4, CEP delivered three two-day specialized training modules “Market Analyses for export” in partnership with the EPO and with an international STTA, a highly professional export practitioner and consultant. Initially, three in-person trainings were planned, but due to COVID-19, the training sessions were adapted for online delivery. The training modules focused on territorial and sectoral analyses for experienced consultants and analysts from industry associations, BSOs, and private consultancies. They were designed to enhance capacity to provide meaningful market analyses and consulting services to their clients and/or members and help them expand and perform better in international markets. The program also covered topics related to effective sales of consulting services and delivery efforts to match client expectations, which is essential for a

4 EEPA rewards those who promote entrepreneurship and small business at the national, regional, and local level. Initiatives from all EU and COSME countries can take part in the competition. In 2020, 185 National EEPA entries were submitted for consideration from 27 participating countries. The EEPA National Coordinators then selected 49 of these projects for the EEPA 2020 Jury to evaluate and compose the European shortlist. 5 https://bit.ly/2SbDRAd

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successful consultancy practice. In total, 44 analysts and consultants from 40 organizations (associations, BSOs, private consultancies) benefited from the trainings. Training modules incorporated analyses and discussion sessions to give feedback regarding the homework submitted by participants, and a special session for one EPO experts was dedicated to better outcomes and effective time management for market analyses projects. CC Task B1.5. Deliver a set of short-term intensive export readiness trainings (four trainings in different regions of Ukraine) Responding to the limits COVID-19 imposed on large gatherings, CEP developed a concept for organizing a virtual, short-term, intensive export readiness training. The first set of virtual trainings were delivered in late July 2020. CEP started negotiations with BSOs in Khmelnytskyi and Ivano-Frankivsk to support the initiative by inviting local business communities to participate in the trainings. CEP also reached out to the EPO to determine if it would like to act as co-organizer of the training. CEP will be able to quickly revert to in-person training once COVID-19 restrictions are lifted. CC Task B1.6. Support EPO’s Sectoral Specialization. Embed a sectoral expert, develop a framework of a sector specific approach, pilot at least 1 sectoral program. The EPO, along with other government institutions, was hit with a substantial budget cut due to the GoU’s COVID-19 response, which significantly reduced its operational capacity. CEP responded with assistance to the EPO by embedding four Sectoral and Export Promotion Experts to work alongside relevant EPO personnel. The experts are currently working on CEP priority industries (IT, furniture, food, film/video production) and provide direct technical assistance to Ukrainian companies by leveraging practical experience from the private sector. The experts’ assistance includes, but is not limited to, evaluating companies’ export readiness, diagnosing weak points, and recommending ways to address them; advising businesses on export strategy and growth plans; identifying needs for additional niche expertise; and supporting the identification and development of networking opportunities and linkages with foreign customers. CC Task B1.7. Reinforce EPO’s strategic focus through quarterly strategic sessions CEP continues to reinforce the EPO’s strategic focus and periodically facilitates introductions between EPO leadership and other technical assistance projects. In particular, CEP conducted several meetings with the leadership of the German Society for International Development (GIZ) in order to coordinate assistance provided to the EPO. CC Task B1.8. Support professional development of EPO staff In FY20 Q4, CEP implemented a capacity-building program for the EPO to enhance its institutional capacity and improve services provided to exporters, which will ultimately result in improved EPO performance to enable Ukrainian businesses to increase export sales.

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The project involved an international STTA who provided guidance, mentorship, and consulting to the EPO in structuring delivery models and shaping services to achieve better results. Two brainstorming workshops were developed and held with EPO management and department heads to discuss and agree on EPO service delivery options. A survey of 30 trade promotion organizations (TPOs) provided a benchmark for the EPO to global TPOs and examined the scope and depth of export services delivered. As a result, 12 services were selected and agreed on for development (six current and six new) as standard services that could be provided for greater impact, e.g. improved effect of support, increased numbers supported, etc. A standardized approach will ensure quality service equally delivered to each client, minimize experts’ time inputs, and make service delivery efficient. To assist the EPO to strengthen procedures for efficient service delivery and smoothly update its services, CEP elaborated a pack of manuals, standard terms of reference (TORs), and templates for all selected services. Based on services agreed on with the EPO, CEP developed a concept for an EPO service delivery model, outlining how to embed and ensure EPO sustainability and quality of services, maximize the impact of provided services, assist with specifying training programs and mentoring practice for the staff, and implement a quality control system and monitoring and evaluation across departments and units. A service model was presented as a recommendation and an Excel tool was developed to allow the EPO to change and adapt the model to aid in future planning. A fee-based policy model and possible approaches were also designed to help the EPO introduce paid services into its business strategy, which could have a significant impact on raising EPO sustainability, competitiveness, and results. CC Task B1.9. Support trade missions, trade shows, Incoming buyer Missions Restrictions caused by COVID-19 forced CEP to seek new approaches to supporting trade events. CEP adapted to the new realities, incorporating new ways of sales lead generation and B2B matchmaking meetings, which were at the core of every trade event CEP has supported. CEP introduced an approach where most sales lead generation activities remain unchanged, and B2B matchmaking meetings are held virtually starting in Q4. CEP will continue to support sales lead generation activities through trade events. The effectiveness of this approach is justified by the results of a survey CEP and the EPO conducted in June 2020, which found that 88 percent of surveyed companies in the IT, furniture manufacturing, and food processing sectors are planning to participate in trade events in late 2020 and early 2021. At present, CEP is planning the following trade events in FY21 Q1:

• Trade Mission for seven Ukrainian IT companies to the UK; • Trade Mission of Ukrainian fresh fruit producers to the Middle East (represented by

USPA Fruit aggregation platform).

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CC Task B1.11. Facilitate formation of Export Alliances through special grants program CEP started RFA010 implementation with an award to the non-governmental organization (NGO) Organic Ukraine. Grant activities include coordination sessions with the alliance’s member companies to fine-tune export promotion plans, finalize cooperation agreements with each alliance member, and initiate a broad market study in order to longlist potential markets for expansion. Two additional export alliances are in the final stages of negotiations for grant awards under RFA010: the IT Export Alliance, led by the IT Ukraine Association, and the Film Production Export Alliance, led by Postmodern LLC. The delivery schedule of tasks under these alliances was delayed due to COVID-19 challenges to the organizations’ operational capacity. CC Task B2. Market-driven trade facilitation and customs support provided CC Task B2a. Market-driven trade facilitation CC Task B2.1. Support to CEP’s beneficiaries (BSOs and firms) on trade policy issues CEP developed two analytical notes for the UAFM with information on access to trade policy reviews and trade defense instruments. The analytical notes along with consultations provided to UAFM addressed market access issues related to trade policy reviews and developments of ongoing furniture-related trade defense actions in the United States. Information outlined in the notes also included product, importer, and price-related details. The goal is to create an opportunity to use the market niche to export products to the U.S. CC Task B2.2. Foster private sector’s capacity building and effective engagement with GoU and VRU on trade policy issues Following various requests by stakeholders, CEP and subcontractor IER conducted an impact assessment of trade barriers for the potential free trade agreement between Ukraine and Turkey. CEP delivered to the MEDTA for comments the Non-Technical Summary Report “Impact Assessment of a Successfully Implemented Potential Free Trade Agreement between Ukraine and Turkey.” CEP expects will receive and incorporate comments during October 2020 and start widely presenting the data to the GoU, business associations, and private companies. A technical workshop to explain the impact assessment methodology and the developed CGE Model is planned for FY21 Q1. CEP and Ukraine’s National Post UkrPoshta successfully completed initial interventions related to e-commerce. In particular, CEP developed and widely promoted two products: 1) The step-by-step guide “E-Export: starting a business from Ukraine: legal, taxation, and

customs aspects”, which gives practical tips on filling in customs declarations,

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documenting shipments, receiving payments from abroad, financial monitoring of incoming transactions, and administering income tax;

2) A series of five videos about successful exporters, users of e-commerce tools who started their business without large investments, and for whom e-export has become a driver of their own business.

The videos complemented the educational effort of the e-export step-by-step guide and are available online: Handbook: www.ukrposhta.ua/doc/shipping-outside-ukraine/dovidnyk-export-18052020.pdf Episode 1 KGU Brass: www.facebook.com/usaidcep.ua/videos/866744147140695/ Episode 2 Sanati Factory: www.facebook.com/usaidcep.ua/videos/250483869721217/ Episode 3 EcoWallnut: www.facebook.com/usaidcep.ua/videos/560978814603239/ Episode 4 LeoSklo: www.facebook.com/watch/?v=258807828731009 Episode 5 Bark&Go: www.facebook.com/watch/?v=216350539333023 CEP initiated an intervention to create educational and instructional videos on e-export promotion and selected one for award. The video series will motivate learning about e-commerce basics, including starting and/or expanding a business; and teach best practices for using online trading platforms/marketplaces, e.g. Amazon, Etsy, eBay, and Shopify. The set of videos will explain market analysis and trend watching, visual communication, social media work, marketing strategy and promotion, and feedback assessment and implementation. The videos will also include information about payment systems and logistics providers (e.g. UkrPoshta); and entertain by providing the viewer with, for example, simple tips, effective life-hacks, interesting examples of successful and failed projects in Ukraine and throughout the world, and other educational and entertaining content to disseminate on social networks. CEP expects to receive the first set of videos in November 2020. CC Task B2.3. Support Trade Defense Instruments CEP continued raising companies’ and associations’ awareness on using trade defense instruments. CEP developed the Trade Defense Instrument Brochure on how to use trade defense instruments for private sector capacity building, with case studies demonstrating SMEs’ successful use of trade defense instruments. CEP completed an awareness campaign about international trade instruments, which is based on the Trade Defense Instruments Brochure and explains trade remedies in simple words for private sector domestic producers. Ukrainian producers can also learn what to do if they face a trade defense investigation against them. CEP awarded a subcontract to develop an IT platform for trade defense investigations. The ІТ Platform “Trade Defense of Ukraine” was developed and submitted for internal testing with the MEDTA. The platform allows data sharing and electronic document submission between the MEDTA and trade investigation participants and constitutes part of the GoU’s digitalization agenda. During October-November 2020, MEDTA personnel responsible for

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maintaining the platform will be trained on using the digital tool. Once internal testing with MEDTA is completed, CEP will engage the private sector to test the platform, then will provide feedback about utilization and support using the platform. CEP revised a draft legislative package for MEDTA and continued monitoring inter-Ministerial and other state agencies’ coordination and amendments to draft legislation. To elevate the necessity of adopting the legislative package, CEP made a presentation on June 23 in cooperation with the legal community during the expert discussion of top priority legislative initiatives for SMEs, “Lost in the Parliament: Return of Useful Initiatives. Series 2. International Trade” at the Ukraine Crisis Media Center. In August 2020, MEDTA announced that the legislative package had been prepared and coordinated for submission to the CM for approval and subsequent submission to the VRU. If the legislation passes, an increase in trade defense investigations and protection of domestic production is expected, which would result in unlocking domestic sales and greater ability to compete in foreign markets. CC Task B2b. Customs reform and alignment with best practices CC Task B2.4. Facilitate creation of Business Intelligence Module (BIM) for Customs and improve the Customs Risk Analysis System CC Task B2.4.1 CEP through partner Policy and Management Consulting Group (PMCG) completed an assessment of the available data sources and initial data load, prepared data quality, and secured the required SCS decisions for BIM application. CC Task B2.4.2 After successful delivery of the public and internal SCS BIM parts6, the SCS and CEP received positive feedback from local and foreign businesses and national media that used the BIM for post preparation. Businesses are grateful for the ability to review market structure, logistic channels, and trends to adapt to market realities and, moreover, find new niches for business. After the successful release, local and foreign businesses and government representatives requested further development of analytic tools and new applications in the BIM, a second stage to support equal rules for market participants. Consequently, CEP developed a SoW, but further support was put on hold. CC Task B2.4.3

6 bi.customs.gov.ua

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During FY20, CEP via PMCG finalized revision of the Automated System of Risk Management (ASUR 2.0), based on global best practices; an ASUR legislation gap analysis; modifications to legal documents that regulate SCS risk management; and an ASUR 2.0 technical prototype to validate the ability to process 300-400 requests per second with 100 previously filtered active rules. The core concept of risk management on the visual prototype7 was designed and validated, and a set of user stories was prepared in the SoW for the new ASUR 2.0. Further development will be supported by the EU Public Finance Management Support Program for Ukraine (EU4PFM). CC Task B2.6. Structuring the new State Customs Service into a Single Legal Entity CC Task B2.6.1 CEP subcontracted PricewaterhouseCoopers Ukraine (PwC) to provide technical advisory support, analyze existing legal and reform contexts, and define the transformation path for the SCS in its restructuring into a SLE. Restructuring will reduce time and costs for businesses to comply with customs procedures, contributing to the digitalization of customs processes and the introduction of an effective organizational structure built on functional principles. Under the subcontract, PwC conducted a diagnostic review of the existing operating model and defined the transformation path. Based on the analysis, a detailed roadmap was developed, which includes 23 project proposals and 61 recommendations. Each project proposal includes a detailed description of defined goals, key steps, and expected results, and a proposed mechanism for creating and building the necessary organizational capacity and competencies to ensure roadmap implementation. A list of recommendations on amendments to existing regulations is included in the roadmap in order to improve the transformation’s efficiency itself and processes in the target operational model. After receiving comments and suggestions from the SCS and the MoF, in August 2020, PwC finalized the report of functional diagnostics results, analysis of the existing legal framework, and the context for reforming the SCS. CC Task B2.6.2 Starting from September 2020, CEP continued providing support to transform the SCS and its territorial customs authorities into a SLE based on the results of functional diagnostics, analysis of the existing legal framework, and the context for reforming the SCS prepared by PwC.

CEP, with the help of an external legal expert, prepared and transmitted to the MoF:

7 bit.ly/2VEPOk4

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1) A draft detailed short-term Action Plan (until the end of 2020) for transforming the SCS and its territorial customs authorities into a SLE and a step-by-step calendar of actions based on the Action Plan;

2) The first five priority legal act drafts for starting transformation processes; 3) Three analytical documents on transforming the SCS and its territorial customs

authorities into a SLE; 4) A draft licensing agreement between the SCS and the National Civil Service Agency

for the right to use intellectual property, i.e. a system of integrity tests in order to test civil servants on current customs services.

One of first practical results of these activities is that the first two necessary legal acts were adopted at the GoU meeting on September 30, 2020.

1. CM Resolution “About amendments to the Charter of the State Customs Service of Ukraine”, which creates the legal conditions for transforming the SCS and its territorial customs authorities into a SLE based on the Action Plan and report results.

2. CM Resolution “Some issues of territorial bodies of the State Customs Service of Ukraine”, which creates the legal conditions for starting the transformation by liquidating current territorial customs and creating new SCS territorial customs departments as separate subdivisions without legal entity status based on the Action Plan and report results.

In FY21, CEP plans to increase support for the GoU to adopt the remaining drafts acts. CEP plans to prepare drafts of other legal documents (agreements, charters, etc.) necessary for transforming the SCS and its territorial customs authorities into a SLE. C. IV. Tracking of Export Promotion Marketing Expenses CEP has not incurred export promotion marketing expenses as of this reporting period. Special Initiatives A. eō Business Incubators and Startup Support SI Task A1.1. Support continuous incubation and strategic development of eō Business Incubators On July 9, eō Business Incubators held its first fully online Demo Day for the third cohort, with seven teams graduating. Demo Day was live-streamed on Facebook and YouTube to an audience of over 2,000. eō Business Incubators continued work with the seven teams of the fourth cohort fully online throughout Q4. In addition to carrying out the normal training schedule, which includes trainings three nights a week and the mid-program sprint weekend, eō also held 10 public

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lectures streamed and recorded online. It is anticipated that the fourth cohort Demo Day will again be held online. In late September, eō Business Incubators began recruiting for the fifth cohort, slated to start in November 2020. SI Task A2. Provide transactional support for promising early-stage innovative and tech enterprises CEP continued to approach this task on several fronts: short-term acceleration-style traction camps for product-level startups; identification of relevant foreign trade opportunities for Ukrainian tech companies; and a dedicated grant program to support mature startups to increase their revenues. CEP moved forward with all three approaches, achieving several results in FY20 Q4.

• After selecting the implementing organization for traction camps, CEP pivoted the format, turning the first of three planned camps online and leaving the second and third camps to be conducted in person, with a target date of Autumn 2020. When it became clear that it would not be possible to hold offline gatherings in autumn 2020 and beyond, CEP worked with the grantee to identify a feasible online format for traction camps, agreeing on a 6-month curriculum for 25-35 product startups, consisting of 8-12 interactive lectures by international mentors and experts, to commence in the next reporting period.

• CEP continued to explore foreign trade opportunities for the Ukrainian IT sector and partnered with Lviv IT Arena 2020 organizers to support the well-known conference in an online format and strengthen its business outcomes by adding an online matchmaking activity for 75 foreign buyers and 75 Ukrainian IT companies to develop business partnerships. The online conference is scheduled for October 8-10, 2020, and will offer foreign buyers and Ukrainian IT companies a platform and a service to get acquainted, with information and tools to conduct negotiations on new contracts, such as company catalogues, introductions, online meeting rooms, reminders, matching recommendations, etc.

• CEP launched its grant program for late-stage startups, with a total planned budget of $375,000. Review of 40 phase one applications resulted in eight recommended grant recipients, most of which will be in a position to become grantees and kick-off grant activities in the next reporting period. CEP received 90 phase two applications and will evaluate them in the next reporting period, selecting the best ones for grant awards.

SI Task A3. Support transformational initiatives focused on innovations and education CEP continues its support for development of student entrepreneurship in partnership with YEP.

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In Q4, YEP continued to manage its training and development activities fully online and focused on:

• Completing incubation of its summer cohort of 14 student startups, inviting the best eight to join the September Demo Day;

• Holding an online Demo Day for 16 startups (eight from the spring semester that did not have a Demo Day due to the COVID-19 quarantine, and eight from the summer semester); startups pitched their businesses to 10 mentors and venture capitals (VCs), including from Ukraine and the Baltic states;

• Developing and launching the university course “Innovative Entrepreneurship and Startup Management”, which debuted as a pilot at 76 universities and quickly had over 3,900 students enrolled in the course that is managed in partnership with the MDT, Ministry of Education, and the USF.

CEP continued to delay the Angel Investment Summit in Lviv due to COVID-19, ongoing restrictions on large gatherings, and limited investor interest. The Lviv IT industry, key stakeholders of the planned Angel Investment Summit and Angel Network activities, currently operate under an informal “work from home, stay safe” policy at least until the end of 2020. B. ProZorro.Sale Timber Auctions SI Task B1. Support ProZorro.Sale – Electronic Timber Auction Platform CEP continued to advance development of an electronic timber auction platform with a grant to ProZorro.Sale to design and develop a timber auction module. The grant consists of three software development phases (prototyping, testing, and user interface optimization), and a legal phase. ProZorro.Sale completed user interface optimization on September 3, 2020, which concluded the technology development component of the current engagement with the state entity. The legal component includes development of a CM decree on the sale of unprocessed timber via electronic auctions, which was drafted by the ProZorro.Sale legal team in consultation with CEP in August 2020 and is currently under review by the Ministry of Environmental Protection and National Resources. If adopted as drafted by CEP and the ProZorro.Sale legal team, the decree will require all unprocessed timber to be sold via electronic auctions, with 50 percent of sales passing through the ProZorro.Sale system and 50 percent through the existing Forestry Innovation and Analytical Center system. The decree prevents further use of direct contracts for the sale of unprocessed timber and accounts for several pro-competitive, inclusive measures, such as the ability to purchase portions of lots and limitations on the restrictions placed on potential bidders. ProZorro.Sale continues to operate a pilot program for timber auctions, with 25 percent of all timber sales required to take place on the ProZorro.Sale platform. The pilot program will be completed by April 2021. Starting September 10, 2020, all new auctions for unprocessed timber via ProZorro.Sale are conducted via the new auction module and procedure developed with CEP assistance. ProZorro.Sale entered into a memorandum of understanding

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with the governor of Zakarpattya Oblast to support a regional pilot program for transparent timber sales in the region. CEP expects to learn more details as this program develops in FY21 Q1. Several reports of illegal logging surfaced in FY20 Q3, prompting a series of discussions focused on forestry industry reform. CEP is coordinating with numerous counterparts, including ProZorro.Sale, to discuss government efforts towards developing comprehensive forestry industry legislation, including legislation that would govern timber auction sales, timber exports, and timber asset management. If the CM decree is adopted in the form that CEP and ProZorro.Sale proposed, it will serve as a key milestone and prompt further fundamental changes in the timber sector. C. Access to Finance SI Task C1. Evaluate opportunities to support new investment vehicles to increase new foreign investment into Ukraine or provide greater access to capital for SMEs (Formerly, “Evaluate opportunities in sectors and products to identify (and potentially support) new investment vehicles that will directly increase new foreign investments into Ukraine or provide greater access to capital for SMEs”). CEP is currently supporting the pilot phase of Factoring Hub to provide factoring from banks to SMEs that wish to bid on government procurement projects on ProZorro. The factoring initiative will increase SMEs’ access to capital as it will allow more SMEs to be able to bid on ProZorro projects, thus increasing their sales, economic activity, and growth. A press release was issued in late July announcing the Factoring Hub, and work was done behind the scenes in August and September to prepare the pilot for official launch in early October. The Factoring Hub team set up the SME service center, began registering SMEs on the Factoring Hub, worked with Government Contracting Authorities who utilize ProZorro, and continued conversations with banks to enlist more to join the platform, which will increase the competitiveness of offers for the Factoring Hub’s non-recourse factoring. Once the pilot project ends in late 2020, CEP will evaluate opportunities to further expand and enhance the project. In August, CEP met with the head of the Export Credit Insurance Agency, which is connected with the EPO and is a new initiative with potential to support the growth of SME exports to existing and new markets. CEP is exploring ways to help expand resources and marketing/raising awareness of the Export Credit Insurance Agency as an important tool in export development. SI Task C2. Develop and launch a VC Fund. In July, CEP received the results of a study commissioned in April to gauge investor sentiment about investing in a new tech-focused VC Fund in Ukraine. In light of the COVID-19 crisis, the negative news in the international press about frequent changes in the Ukrainian Government, and the IMF’s hesitancy to release the next SBA tranche, the study found that if

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the eō Fund were to try to raise funds on its original timeline, it would be very unlikely to raise even a portion of its $25 million goal. In light of this information, a decision was made to temporarily suspend the development of, and fund raising for, the VC Fund until such time when there is stronger clear investor interest. CEP continues to explore other options for an investment fund that could both bring new investments in Ukraine and potentially cooperate with eō, as well. Conversations have been initiated with the European Investment Bank (EIB), as it indicated an interest in a broader VC fund that would include Ukraine. FY21 Q1 should bring more clarity as to whether this will be a viable project for CEP to support. D. E-Commerce SI Task D1. Conduct E-commerce study SI Task D1.1. CEP prepared a draft RFP for a study on e-commerce that incorporates sections of domestic trade, export elements of e-commerce, regulatory frameworks, best practices, and e-commerce platforms. Based on a GIZ study that focuses on the narrow legal aspects of harmonizing legislation towards the EU and on consumer protection, introducing e-receipts, personal data protection, intellectual property rights, and dispute resolution in e-commerce, CEP suggested focusing on economic and regulatory aspects as well as e-export elements of e-commerce, with particular attention to best practices in digital trade. CEP released the RFP on September 21, 2020. SI Task D1.2. Once the scope for the study (referenced above) is clarified/confirmed, CEP expects to complete this task during FY21 Q1. SI Task D1.3. CEP initiated creating educational and instructional videos on e-export promotion and selected one proposal for award. The video series will motivate learning about e-commerce basics, including starting and/or expanding a business and teach best practices for using online trading platforms/marketplaces, e.g. Etsy, Amazon, eBay, and Shopify. The videos explain market analysis and trend watching, visual communication, social media work, marketing strategy and promotion, and feedback assessment and implementation. The videos will also include information about payment systems and logistics providers (e.g. UkrPoshta), and entertain by providing the viewer with, for example, simple tips, effective life-hacks, interesting examples of successful and failed projects in Ukraine and throughout the world, and other educational and entertaining content to disseminate on social networks. CEP expects to receive the first set of videos in November 2020.

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E. Business Conduct Improvement SI Task E1. Develop and Roll Out Code of Business Conduct Due to COVID-19, CEP modified the grant agreement, SoW, and timeline with grantee Ukrainian Network of Integrity and Compliance (UNIC), seeking the most efficient way to conduct the training online and/or to postpone offline events. UNIC successfully transferred planned offline regional workshops to an online format and conducted four open webinars (April-September) on “Introduction of the Business Code of Conduct for SMEs”, which gathered 150 SME representatives. For those who completed the introductory webinar and expressed interest in the Code of Conduct, UNIC organized two question-and-answer sessions for about 30 successful graduates of the Entrepreneurial Ethics for Small and Medium Business Training Program. The session brought together SME representatives who steadfastly decided to implement the Code of Conduct but had some questions about its implementation. The speakers explained how to adopt the Code of Conduct at their enterprises and explain the Code in the future. To date, 31 SMEs have confirmed introducing the Code for their businesses and 12 have expressed the intention to introduce it in the nearest future. In parallel, UNIC produced a video training course on introducing the Code of Conduct and filmed two success stories from SMEs that benefited from the Code, which will be released and publicly presented in FY21 Q1. F. Inspections Reform SI Task F1. Inspections Reform CEP continued support to grantee BRDO to enhance and expand its work on comprehensive reforms for inspection processes. Work under the initial grant, which was issued in FY20 Q2, continued with the development of amendments to Law of Ukraine #877 that will optimize inspections planning and implementation measures and incorporate an inspections complaints mechanism on the online platform. Inspections systems upgrades have been completed, including upgrades that allow for some inspection procedures to be done remotely. In FY20 Q4, BRDO completed its obligations properly and in a timely manner. CEP engaged with BRDO’s legislative drafting team to finalize amendments to Law of Ukraine #877, and the amendments were submitted to the MEDTA in August 2020. The draft amendments were published on the MEDTA website in September 2020 and are now awaiting public consultation. BRDO and MEDTA conducted a joint online presentation in September 2020 to discuss the key amendments proposed, and BRDO supplemented the presentation with social media posts and a press release. Under the grant’s communications component, BRDO

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issued a total of three articles and 15 Facebook posts, resulting in 13 mentions of inspections reform and BRDO by media outlets. BRDO anticipates that the amendments will be registered with the VRU in FY21 Q1. G. Anti-Monopoly Committee of Ukraine SI Task G1. Support Anti-Monopoly Committee of Ukraine (AMCU) in Anti-Monopoly Education and Advocacy Efforts CEP continues coordinating with the AMCU to incorporate several training modules in the BSOs School curriculum to support competition advocacy at regional and local levels: AMCU overview, AMCU recourses to violations of Ukraine’s competition laws, and overview of State Aid proceedings. In addition to incorporating this material into the BSOs School curriculum, CEP provided SMEs with links to AMCU resources, including in-depth tutorials on reportable anti-competitive business conduct, how to engage the enforcement agency, and how to notify both CEP and the AMCU of regional and local legislation that provides certain economic entities with unjustified competitive advantages. The first training module will be conducted on October 2, 2020, and will focus on an overview of the AMCU and competition law and policy. CEP will continue support to the AMCU through FY21 Q1 with a second module on State Aid. H. Advancing National and Regional Competition Law and Policy SI Task H1. Supporting Development of Competition Law and Policy at National and Regional Level There are no updates to report at this time. The reform bill to Ukraine’s competition law is being revised to incorporate substantive amendments based on recommendations from the EU Delegation and the AMCU. The amendments bring Ukraine’s competition law more in accordance with EU competition legislation and provide the AMCU with investigative and remedial powers and the authority to bring enforcement actions challenging anti-competitive conduct across all industries in Ukraine. I. Investment Transaction Support (formerly, State Property Fund) SI Task I1. Supporting Privatization efforts with the State Property Fund SI Task I1.1. Provide Transaction Support for the Sale of 1 to 3 State Owned Enterprises In FY20 Q3, at the request of the Presidential Administration, CEP agreed to provide transactional support for the sale of the Dnipro Hotel, which was expected to be the largest, small-scale privatization in Ukraine in 15 years. This expectation was justified, and the asset was successfully privatized in FY20 Q4 for approximately $41 million, well above the initial starting price of slightly below $3 million. CEP sponsored a press conference prior to the sale

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that highlighted USAID support and CEP engagement with the SPF, featuring the U.S. Embassy’s Acting Deputy Chief of Mission Joseph Pennington, SPF Head Dmytro Sennychenko, and SFP Head of Privatization Taras Yeleyko. The auction was conducted via the ProZorro.Sale electronic auction system on July 15, 2020. The sale closed on September 14, following comprehensive background checks, including a financial review to ensure no Russian financing. The purchaser continuously cited USAID and CEP support and the due diligence that CEP sponsored as the basis for the company’s willingness to bid at the elevated price. CEP and the SPF currently are in discussions on other potential “big” small privatizations for FY21. SI Task I1.2. Provide Process and Transaction Support to Assist the GoU in its Goal to Privatize 300-500 Assets by the End of the Year In FY20 Q3, CEP executed a 5-month subcontract to E&Y to develop a process map and management system for privatization and to assist the SPF with the successful privatization of at least two batches of 5-15 companies each. E&Y was tasked with redesigning and standardizing the SPF’s privatization process, taking into consideration the current privatization governance structure, and with providing transactional support to the SPF for the privatization of two sets of proposed assets. In FY20 Q4, E&Y completed development of the small-scale privatization process matrix, which is currently being integrated at the SPF. E&Y presented its final deliverables for stages 3 and 4 of the subcontract to the SPF, CEP, and USAID on September 30, 2020, which marked the completion of all tasks under the current subcontract. In FY20 Q4, SPF requested additional support for the small-scale privatization process, including support to implement the new process at the SPF regional office level and legal review and confirmation that the newly developed internal processes comply with existing Ukrainian legislation. CEP responded with an extension of the E&Y subcontract to address these additional requirements and will issue the extension to E&Y in FY21 Q1. E&Y expects to complete the tasks under this extension by FY21 Q1. SI Task I1.3. Establish a Virtual Data Room (VDR) to Facilitate Transactions In April, CEP signed a grant agreement to assist the SPF with three tasks: (1) establish a Virtual Data Room (VDR) to facilitate transaction; (2) provide a 2-year Microsoft Project license for 15 SPF users; and (3) launch a promotion campaign for the grant-related activities. VDR development was completed and the Microsoft Project license was procured. A contract has been signed with the production studio that CEP procured for the promotional campaign, and CEP is awaiting approval from the SPF, pending the agency’s internal procedures.

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The SPF used the VDR for over 500 successfully privatized assets. CEP will provide financing for the current VDR through FY21. SI Task I1.4. Integrate a CRM system for the SPFU In FY20 Q4, CEP advanced modifications to the existing SPF grant to develop the SPF’s customer relationship management (CRM) and to support dissemination of SPF promotional content. The grant extension is under review with USAID, and CEP expects to issue the extension in FY21 Q1. J. National Strategy to Increase Foreign Direct Investment in Ukraine (formally, National Investment Strategy) SI Task J1. National Strategy to Increase Foreign Direct Investment in Ukraine (formally, National Investment Strategy) SI Task J1.1. RFP for Development of National Strategy to Increase Foreign Direct Investment in Ukraine Following final consultations with the President’s Office, the National Investment Council, and USAID, CEP issued an RFP for development of a National Strategy to Increase Foreign Direct Investment in Ukraine on July 9, 2020. The CEP selection committee reviewed proposals from three firms (McKinsey, E&Y, and KPMG) in August 2020 and issued an award to E&Y in September 2020. E&Y presented the strongest approach to strategy development and demonstrated the capability to develop an approach to implement key recommendations. CEP expects to finalize a subcontract with E&Y and for E&Y to begin strategy development in FY21 Q1. SI Task J1.2. Development of the GoU Capacity to Attract and Engage Foreign Direct Investment Opportunities At the end of FY20 Q4, CEP held a kickoff meeting with E&Y to introduce the CEP team and to discuss contracting, timeline, GoU involvement, and next steps. The strategy timeline for development is 16 weeks and will conclude in FY21 Q2.

V. PROGRESS AGAINST TARGETS CEP implements a comprehensive monitoring system to ensure that ongoing activities are contributing to achievement in an effective and efficient way, and that relevant standards for the set indicators are met. Given the context challenges related to COVID-19 risks and relevant restrictive measures, the MEL team refrained from monitoring visits in FY20 Q2 and adopted monitoring

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mechanisms to operate remotely. Examples of the changes are transferring of greater monitoring responsibilities to implementing partners, taking advantage of video conferencing and virtual (video) monitoring visits, and using various verification checks. In FY20 Q4, MEL had meetings with all departments to discuss the challenges and opportunities of remote activities and is in the process of drafting a more detailed guidance for FY21 MEL actions. In mid-FY20, the CEP MEL Plan and MEL framework were submitted to USAID for revision. While the revised MEL Plan is pending USAID approval, there have been a few important agreements that allowed CEP to better expand its reporting. The PPR and Performance Management Plan (PMP) indicators USD sales of firms and full-time employment are now reported on as intended and described in the Performance Indicator Reference Sheet (PIRS). To track CEP contractual obligations and direct effect on increased sales and new jobs, supporting indicators have been introduced: USD value of incremental sales indicator and new jobs filled. Another update has been made for relevant MCI indicators: Percentage of SMEs compliance cost and Percentage of informal payments. Besides reporting as agreed in the respective PIRSs, CEP proposes to revise PMP indicators to better mimic MCI methodology. Hereby, CEP also reports in FY20 on the proposed context indicators:

• MCI sub-index 6 Informal Payments and Corruption Index • MCI sub-index 4 Compliance Cost Index

The current CEP MEL Framework has 14 indicators (from 18, four indicators that are linked to the inactive WTO sector are archived). In FY20 Q4, CEP reports on 12 indicators, while an additional two indicators are only to be reported on in FY21-FY23:

• Number of municipalities that adopt best practices in local economic governance with the assistance of the project;

• Average total improvement in MCI across assisted municipalities. Besides the framework’s 12 indicators, CEP reports on four more indicators that were proposed in the mid-FY20 revision package, and an additional two indicators as per the USAID request:8

• Number of small and medium-sized enterprises supported by USG assistance • Percentage change in sales of firms receiving USG-funded assistance

Below are the summary high-level results that CEP achieved in FY20 Q4 and FY20 total.

• New indicators: Number of SMEs supported (added standard EG (economic growth) indicator in September 2020).

o Progress: 1,370 in FY20

8 Changes to EG standard indicators occurred in late September; two of the updated indicators are tracked by CEP and one is a PMP indicator for Ukraine.

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• Percentage change in sales of the assisted firms (added standard EG indicator in September 2020).

o Progress: 10.14 percent in FY209 • #4: Value of new investment in selected USAID-assisted industries (annual target: $9

million). o Progress: $44.73 million reported in FY20 Q4; privatization efforts resulted

in $41.75 million and investment received by assisted companies is $3 million; FY20 result is $46 million

• #5: USD sales of the assisted firms. o Progress: $3.046 billion in FY2010

• #5.1: USD value of incremental sales attributed to CEP (annual target: $9.5 million). o Progress: $10.41 million in FY20 Q4 and $13.91 million for FY20

• #7: Full-time employment of the assisted firms. o Progress: 57,784

• #7.1: New jobs filled in supported industries (annual target: 440). o Progress: 459 in Q4, 488 for FY20

Results under specific indicators:

• #6: Number of firms receiving technical assistance to export (annual target: 513). o Progress: 90 firms in FY20 Q4, 325 for FY20

• #12: Person-hours of trainings in trade and investment (annual target: 120). o Progress: 120 in Q4; the indicator result has been significantly overachieved

for both FY20 and LOP targets • #8. Number of firms that have improved management practices or technologies

(annual target: 163). o Progress: 263 in FY20

• #8 Number of firms that expand export market (annual target: 199). o Progress: 56 in FY20 Q4 and 103 in FY20

• #1 Number of SME-related laws and regulations (annual target: 44). o Progress: 14 in FY20 Q4 and 22 for FY20

• #16: Number of assisted companies joining the Code of Business Conduct (annual target: 35).

o Progress: 16 companies that engaged in Code of Business Conduct trainings submitted official letters recording incorporation of the document into statutes in Q4, 22 for FY20

• #17: Percentage of SME representatives who report high levels of informal payments and corruption in annual gross revenue.

o Progress: 0.6% of SMEs reported high level of informal payments • #18: Percentage of compliance costs for SMEs.

o Progress: 6.1% of revenue is reported to be spent on legal compliance • C9: Informal Payments and Corruption Index.

9 The sample of 1,370 companies assisted has been taken from reported tax authority data in 2018 and 2019. 10 Ibid.

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o Progress: 6.78 is an average index score across 24 regional centers of Ukraine • C10: Compliance Cost Index.

o Progress: 5.19 is an average index score across 24 regional centers of Ukraine

See Annex C Performance Data Table MEL for the detailed breakdown of FY 20 Q4 progress. Context Indicators CEP tracks eight external context indicators to better understand the environment and its changes. In FY20, two context indicators were updated. Both indicators showed positive improvements in comparison to previous years.

1. OECD SME Policy Index - Institutional and Regulatory Framework for SME Policy Making11: Score 3.5

Since the last Small Business Act assessment in 2016, Ukraine has taken important steps to build an institutional and regulatory framework for SME policy. Policy changes have been driven by a combination of institutional reforms and substantial financial and technical support from international and bilateral donors. All those policy changes are reflected in the relevant increase in the score relative to the previous assessment in 2016 (Score 2.45). However, a few important SME policy building blocks should be further improved (i.e. policy coordination mechanisms), while decisions on the structure of implementing institutions will have to be taken before the end of the current SME development strategy and re-negotiations of donor support in 2020-2021.

2. World Bank Doing Business Score12: Score 70.2

Ukraine has improved seven positions and is ranked #64 in the annual World Bank Doing Business 2020 Report (previous score 68.25)

According to the World Bank, Ukraine has improved six out of 10 indicators that the World Bank ranking is based on. Protecting minority investors achieved through requiring greater disclosure of transactions with interested parties contributed most (27 positions), followed by dealing with construction permits achieved through eliminating the requirement to hire an external supervisor and introducing an online notification system, as well as through reducing the contribution fee to the Kyiv City Council (+10 positions).

Other indicators that have added to improving the positions are:

11 https://read.oecd-ilibrary.org/development/sme-policy-index-scores-for-ukraine_13fc7407-en#page1 12 http://documents1.worldbank.org/curated/en/536181575376303049/pdf/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies-Economy-Profile-of-Ukraine.pdf

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– Getting electricity. Ukraine made getting electricity easier by streamlining issuance of technical conditions and by implementing a geographic information system.

– Registering property. Ukraine made registering property easier by increasing the transparency of the land administration system.

– Getting credit. Ukraine improved access to credit information by establishing a new public credit registry in the National Bank of Ukraine.

– Trading across borders. Ukraine reduced the time to import by simplifying conformity certification requirements.

VI. PERFORMANCE MONITORING, EVALUATION, AND LEARNING

In response to the ongoing COVID-19 pandemic, CEP continued to shift most of its planned in-person activities – including events, trainings, and networking opportunities – to virtual, online platforms. CEP worked closely with grantees, partners, and stakeholders to review activities for feasibility in light of the challenges posed by the COVID-19 restrictions within Ukraine and on the global community, including restructuring activity SoWs, realigning and/or decreasing budgets, and extending the performance period for grants and subcontracts due to delays in implementation, procurement, and logistics, and postponement of events. CEP is also working to support its partners as they transition to online initiatives, including education and training opportunities, so that digital outputs are as effective as the previously-planned in-person activities. In addition to modifications to grant and subcontract SoWs due to COVID-19 quarantine, travel, and gathering restrictions, CEP has seen shifts in business operations for some of its private sector partners, including overall reductions in production outputs and sales. In some sectors, including furniture and food processing, this has resulted in the cancellation of previously planned activities. Despite the challenges, most CEP activities have seamlessly shifted online utilizing digital platforms for collaboration, training, B2B engagement, trade events, and conferences. In FY20 Q4, CEP continued interaction with MDT leadership and launched the new Entrepreneurship University YEP initiative. At MDT’s request, CEP supported important research to provide the VRU Digital Privacy Committee with information about best practices and international standards for Digital and Data Privacy. This information is helping the VRU to develop new legislation that will ensure Ukraine is

Entrepreneurial University initiative presentation, Club of Ministers of Ukraine, September 2020

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legislatively compatible and economically competitive with other countries in the Tech and Data Privacy spheres. Dismissal of the SCS leadership as of April 24, 2020, resulted in a slow-down of developments and led to postponing further initiatives with the SCS, including the second SLE phase, but activities resumed in August 2020 and shifted to closer cooperation with the MoF as the state institution responsible for elaborating customs policy. CEP continued cooperation with the EPO to prepare and deliver export promotion activities under the new COVID-19 circumstances. CEP continued supporting the EPO via embedment of four sectoral experts to reduce pressure on the EPO budget and delivered a consulting assignment to improve EPO services to exporters, including preparation to launch paid services.

VII. ENVIRONMENTAL MONITORING In FY20 Q4, USAID approved 11 Environmental Mitigation and Monitoring Plans (EMMPs), and CEP submitted seven new Environmental Review Checklists (ERCs) to USAID. As of the end of the reporting period, one ERC/EMMP is pending USAID approval. During the reporting period, CEP worked with grantees to implement required mitigation measures and monitoring for the approved ERCs/EMMPs. CEP did not encounter any specific environmental issues related to approved ERCs/EMMPs in Q4.

VIII. PROGRESS ON LINKS TO OTHER ACTIVITIES In FY20 Q4, CEP interacted with other USAID and other donor activities in the following events and initiatives.

• CEP held several conversations with the new USAID Cyber project. While it is still in the ramp-up phase, CEP continues to support the Cyber project as possible (providing research material for a recent project) and looks forward to projects they can collaborate in the future.

• CEP took part in a multi-program call coordinated by USAID Office of Economic Growth to identify ways that USAID can provide support to the MDT and/or Diia.City. The task is ongoing, with recommendations being gathered and coordinated at this time.

• In support of the Dnipro Hotel privatization, CEP and the SPFU hosted a press conference in early July. In attendance was the SPFU Head Dymtro Sennychenko and Head of Privatization Taras Yeleyko. U.S. Embassy Acting Deputy Chief of Mission Joseph Pennington spoke at the press conference. Attendees were limited but included USAID, CEP, and SPFU staff.

• CEP coordinated its assistance to the EPO with the GIZ project Promotion of Supportive Framework for Trade in Ukraine, which continued supporting development of the National Export Portal as one of the EPO’s key initiatives.

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• CEP has been coordinating its efforts with the USAID Transformation Communications Project (TCP) and the GIZ Sustainable Economic Development program to support MCIP during the Creative Ukraine Forum, November 19-20, 2020.

IX. PROGRESS ON LINKS TO HOST GOVERNMENT

FY20 Q4 saw a continuation of requests for support from across the GoU. Economic development is a large part of the GoU’s platform, and it considers CEP a major partner for developing and implementing economic development and legislative measures. CEP carefully considered links to competitiveness and economic development when selecting which of the many activities proposed by the GoU it would undertake.

Counterpart Initiative Office of the President • Ukraine FDI Strategy to drive FDI

• Support for comprehensive reform program Office of the Prime Minister

• Ukrainian Economy Stimulation Program • Monitoring of implementation of the GoU Economy

Stimulation Program in part of the relevant draft laws MEDTA; MDT; MCIP • IT platform for trade defense investigations

• Monitoring of implementation of the GoU Economy Stimulation Program in part of the relevant draft laws

• Launch of the Factoring Hub (SME.DO, Reform Support Team, ProZorro, MEDTA)

• Data Privacy study to inform drafting of new Data Privacy laws in Ukraine

• Requests for STTA support • Support for Creative Ukraine Forum

SRS • Business Inspections Practical Manual • Business Inspections Interactive Platform • CCA Methodology • CRA Methodology

BRDO • Transform the SME-crippling inspections process • Educate SMEs on inspections processes • Support complaints module to reduce opportunities for

corruption in business inspections • Draft amendments to Law of Ukraine #877 to support a

complaint’s process for unplanned inspections

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• Support technological development of the existing inspections portal

Customs • Business intelligence model/improved risk analysis capabilities

• SLE formation mandated by legislation ProZorro.Sale • Timber auction platform to improve SME competitiveness

and reduce corruption • CM Decree on timber sales to increase competitiveness and

transparency SPF • Support privatization efforts by implementing a VDR to

facilitate sale of state-owned enterprises (SOEs) • Process-mapping of SPF functions and steps for privatization

of SOEs under 2018 privatization legislation • Press conference to support SPF privatization efforts,

including Dnipro Hotel and small-scale privatization • Support for Dnipro Hotel privatization

o Legal Due Diligence o Feasibility Study o Technical Due Diligence o Environmental Review o Financial Review

AMCU • Strengthen SME understanding of AMCU’s role in protecting their rights against anti-competitive conduct and anti-competitive state aid

EPO • Support EPO sectoral specialization and institutional development

• Enhance EPO institutional capacity through strengthening existing services, procedures, and synergy between operational departments to ensure high-quality support in export promotion

Local Authorities (Lviv City Council)

• Lviv City Economic Recovery Program

X. PROGRESS ON INCLUSIVE DEVELOPMENT

In FY20 Q1-Q3, USAID CEP via grantee the Investment and Trade Facilitation Center (ITFC) organized seven WomenBizCamps, an intensive entrepreneurship training program to

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accelerate skills and expertise for women entrepreneurs and change attitudes towards gender stereotypes in Ukraine’s business environment. Initially, the camps took place offline and gathered participants from across the country in a single location for five days: in Kyiv on December 9-13, 2019; January 20-24, 2020; and February 10-14, 2020; and in Mykolaiv on February 24-28, 2020. The January camp focused on IT sector development and was organized in cooperation with the MDT. Due to COVID-19, the training programs in Q3 transferred to VR and online formats, and became three days long and even more intense. The first camp was held on May 14-16, the second on May 28-30, and the third on June 11-13. The camps gathered a total of 25 women entrepreneurs in Q1, 70 in Q2, and 75 in Q3. Participants were selected through a highly competitive process and came from all parts of Ukraine, including Kyiv, Donetsk, Luhansk, Kharkiv, Dnipropetrovsk, Zaporizhya, Ivano-Frankivsk, Kherson, Mykolaiv, Odesa, and Lviv oblasts. Camp attendees advanced their knowledge and skills in legal, operational, and financial business aspects, as well as management, public communication, design-thinking, and soft skills. The trainings that received the highest positive feedback included Social Media Management for Business, Communication for an Effective Brand, and Steps for Effective Finance Management in Business. There were no WomenBizCamps conducted in FY20 Q4. CEP plans to continue the initiative in FY21, tailoring the camp program to CEP’s prioritized sectors. CEP also supported women-owned and women-managed businesses through a targeted grants program (RFA09) restricted to women-owned SMEs. Grant support focused on improving management practices, sales and investment, and job creation. CEP received 438 grant applications representing Kyiv and Kyivska Oblast (41 percent), Lviv and Lviv Oblast (18 percent), and Dnipropetrovsk, Kharkiv, Poltava, Vinnytsia, Cherkasy, Zhytomyr, and Volyn oblasts (41 percent, combined). CEP held four selection committees rounds and selected 20 companies representing various businesses:

- engineering consulting in construction and energy efficiency; - web design and development; - laboratory diagnostics; - production of furniture, clothes, knitwear;

A women-owned SME grantee, Sanimed-M Company, August 2020

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- décor and home accessories; - packaging products; - tourist services; - education; - environmentally-oriented projects, production of eco-cosmetics and accessories; - food processing.

The total estimated value of all grant awards under RFA09 is approximately $320,000. Three grants are in the implementation stage, one is awaiting ERC approval, 11 are in the late pre-award stage, and five in the initial pre-award stage. CEP expects to finalize all grant approval requests by December 2020 for selected grantees.

XI. FINANCIAL INFORMATION CEP has spent 36 percent of the total contract as of the end of FY20 Q4. Please note this percentage only includes costs invoiced to USAID, and therefore does not include costs for September 2020. Per the technical direction letter received from USAID on October 16, 2019, CEP has been restructuring the allocation of technical resources, both long-term and short-term, to emphasize engagement with the private sector. This has resulted in ongoing recruitment for an economic special initiatives team lead; the team lead was approved via CEP approval request #167 on May 6, 2020 and began working with CEP on June 9, 2020. As the CEP grants program continues to ramp-up and requires efficient collaboration between technical, grants and procurement teams, in Q4 CEP completed the recruitment for the position of grants advisor and extended it through Q1 of Year 4 of the project. The grants advisor was approved via CEP approval request #178 on July 8, 2020 and began working with CEP on July 27, 2020. As mentioned in this report, CEP has moved forward with supporting government initiatives including a national investment strategy, SOE privatization, competitive public procurement, SME’s access to finance and technical assistance related to custom’s SLE. Though these activities boosted FY20 spending, the increase has been partially offset by decreased spending as many activities shifted to an online format and major trade missions were postponed due to COVID-19. CEP is actively analyzing and repurposing cancelled activities, as possible, to transition them to a virtual format. However, repurposed activities will in most cases have lower costs, and postponed activities may occur in Year 3. The attached financial report lists the figures for areas laid out below. 1. Obligations (the funds authorized to date for expenditure for the activity; this is NOT

the Total Estimated Cost but amount already obligated up to the time of the writing of this report).

2. Actual expenditures through the current reporting period.

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3. Pipeline projection (expenditures expected, by quarter, for the coming three quarters,

based on planned activity hiring, procurements, expansions, etc.). Note: the financial data provided in this section is an estimate of the financial condition and does not constitute the contractually required financial reporting as defined in the Award Notice.

XII. SUB-AWARD DETAILS

In Year 2, CEP continued to build up the scope and depth of its grants program with 70 new grants awarded, 34 cost-modifications to active grants, and a total of $2.48 million spent on grants over the course of the year. CEP promoted grant opportunities across the country and in new sectors, releasing nine RFAs and one APS in Year 2, culminating in more than 670 grant applicants. While most grant awards and funded-modifications fell under the competitiveness sector (43 percent), there was also a good number of activities focused on export promotion (29 percent), the business enabling environment (12 percent), and a renewed focus on special initiatives (16 percent). Of noted success in Year 2, CEP was able to quickly initiate and execute grants with government entities resulting in key strategic partnerships, as with the SPFU and the sale of the Dnipro Hotel. CEP also saw success in improving the timeline around COR and other USAID approvals from Year 1 to Year 2, including significant strides with ERC approval timelines and greater clarity on requirements around IT approval requirements. The CEP Grants and Subcontracts team hired three short-term ERC specialists to support reviews and approval requests, which has significantly improved the team’s approach and increased efficiencies, resulting in faster grant awards and implementation timeframes as well as fewer questions and clarifications in the award approval process with USAID. CEP also expanded its awards to more socially-oriented activities focused on women-owned businesses, with more than 437 applicants and 25 awards in the amount of $350,000 to this targeted recipient group. The greatest challenge for CEP’s grants program during Year 2 was the impacts to the scope and timeline of activities due to the COVID-19 global pandemic. Complications in holding in-person events, delays in the procurement and global supply chain processes, and the general economic impacts to grantees resulted in grant implementation delays, a significant number of grant agreement modifications (scope, budget, and timeline), delayed results in terms of indicator tracking, and, at times, grant cancellations as private sector companies were shut down indefinitely. Additionally, with staffing changes at the leadership and technical level, there were challenges with technical team ownership of grant activities and tracking of results. CEP has worked to add new staff at the technical and leadership levels and is on track to ensure stronger collaboration and ownership of activities in Year 3.

XIII. ACTIVITY ADMINISTRATION

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A. Constraints and Critical Issues

• Submission of an updated work plan to incorporate additional special initiatives, highlighting restructuring of project tasks. (submitted on April 22; re-submitted on May 26; approved on June 10)

• Submission of revised indicators and new recommended annual and life of project targets. Recommendation of new indicators to capture impact of transformational GoU special initiatives. (submitted on April 22; re-submitted on June 16; awaiting approval)

• Grants manual revision still pending USAID approval from FY20 Q3. (submitted on April 2; resubmitted on June 23; awaiting approval)

• The website review process has been protracted; CEP submitted a request for Website Governance Board Approval in February 2019. As of September 2020, CEP is awaiting results from USAID on the Third-Party Website Private Impact Analysis before proceeding to complete the System Owners Product Accessibility Template and security testing, and final approval for go-live from the Website Governance Board. Web presence is essential for modern marketing, and delays and restrictions in engaging in web design and marketing activities have hampered CEP export development work.

B. Personnel

• Complete information is included in the report submission to COR. С. Contract, Award, or Cooperative Agreement Modifications and Amendments No contract modifications or amendments took place during the reporting period. Additional information is included in the report submission to COR. B. Status of Deliverables/Milestones CEP completed, in process, and planned deliverables are presented below.

Deliverable no.

Deliverable Name Status

1 Methodology for Municipal Competitiveness Index developed

Complete

2 Analysis conducted and the initial two industries proposed for support to USAID for approval

Complete

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3 A third industry for support proposed to USAID and a competitiveness program launched

Complete

4 Branding Implementation Plan and Marking Plan

Complete

5 Annual Implementation Plans (Work Plan or AIP)

Complete for Years 1 and 2.

6 Monitoring, Evaluation, and Learning (MEL) Plan

Complete

7 Quarterly Progress Reports Complete for Y2Q3 and all previous quarters

8 Quarterly Financial and Accrual Reports

Complete for Y2Q3 and all previous quarters

9 Monthly LOE Report Complete for September 2020 and all previous months. October 2020 Report in process.

10 Grants Under Contract Manual Complete 11 Demobilization Plan Planned for submission 90 days

before contract completion date 12 Final Report Planned for 30 days before

contract completion date C. Coordination and Partnerships

Partner Initiative

USAID new Cyber Security Project, led by DAI

Coordination on support for MDT, particularly Diia.City, and also in connecting them to other ecosystem players

USAID Agriculture Growing Rural Opportunities (AGRO)

Consultation on development of Food Processing Sector

USAID Support to Anti-Corruption Champion Institutions (SACCI)

Provision of insight into SPF Corporate Governance Structure and Objectives

D. Geographic Information [MEL] Data submitted in June 2020 per fiscal year through Web App.

XIV. ATTACHMENTS A. List of Deliverables

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Separately attached is a list of the “products” that were produced during the reporting period, such as Deliverables, Surveys, Training Designs, Trip Reports, Third Country Visit Reports, etc. These include:

a. Quarterly Financial and Accrual Report b. LOE Reports c. Training Design

B. Public Outreach Communication Documents Separately attached is a list of documents requiring USAID branding and public outreach formats. They are:

a. CEP Monthly Newsletters (July-September); b. CEP text and video success stories developed during the quarter c. Press releases developed during the quarter

C. Performance Data Table MEL (attached separately) D. Sub-Awards Table (attached separately) E. Future Activities Table (attached separately)