Women in Madagascar who have received land certificates with the help of the MCC.

Since inception in 2004, the MCC has worked with qualifying, well-governed but poor countries, supporting them with long-term (up to 5-year funding) compacts that apply several principles of aid effectiveness, including country ownership and country implementation. To assess eligibility for these grants, countries first have to fall within certain income thresholds to qualify as either low income countries (LICs) or low-middle income countries (LMICs). Countries “compete” with their LIC and LMIC income peers in which those that qualify must score above the median on a series of selection criteria (based on independent third-party data) in three separate categories of ruling justly, investing in people, and economic freedom. Based on these scores, together with other supporting information, the MCC Board meets annually to select countries as eligible to develop their proposals for funding. The “scorecards” that rank countries on these criteria inform decisions, but ultimately the board has the final decision over which countries to choose.

The system in most cases has worked, selecting strong partners for the MCC that have developed sound proposals and made good progress on implementing compacts. In some instances countries have backslid from their reforms or made policy changes which the MCC deemed unacceptable in terms of being a good and well-governed partner. In a few cases, programs have been suspended or terminated, demonstrating that the MCC is committed to working with only well-governed, well-performing countries.
So why change the process now? According to the MCC, changes in the criteria and selection process build on the strengths of the previous system, but improve the focus on key areas like democratic and economic governance. Some highlights of the changes are:

Passing an absolute threshold for scores of democracy: Previously countries had to perform better than the median when ranked among their peers on indicators related to democracy: political rights and civil liberties. Given their importance, however, under the new system, the MCC will make it necessary for countries to pass a minimum threshold score, essentially ensuring that countries don’t pass just because other countries are performing worse. In addition, countries must pass one or the other of these indicators as a “hard hurdle” in order to qualify overall, regardless of scores in other areas. (This is in addition to the other “hard hurdle” of controlling corruption.)

Changing indicators in the “investing in people” category by replacing a natural resource management measure with new indicators on child health and natural resource protection: This would increase the number of indicators in this category to six, a number equal to what the ruling justly and economic freedom categories previously included. The new child health indicator includes a measure to assess access to water and sanitation, which was before bundled into the one indicator on natural resource management.

Adjusting two indicators for LMICs under investing in people: The immunization indicator will become a threshold pass rather than a median pass, due to the extremely high median scores before from other high performing LMICs. A girls’ secondary school enrollment indicator will replace a primary completion indicator.

Adding within the economic freedom category two new indicators on access to credit and gender in the economy: These indicators capture greater constraints to growth factors and add a gender equality indicator.

Perhaps the most notable change will be the way countries are assessed overall on the scorecards. Previously, countries were required to pass half of all indicators in each of the three categories, in addition to passing the corruption hurdle. The new changes require countries to pass half of the indicators overall, regardless of category, in addition to the two hard hurdles of corruption and either political rights or civil liberties. They also must pass at least one indicator in each category. Under the new system, individual indicators bear less weight than overall performance across all three categories. Moreover, some LICs where data is not available on a particular indicator will not be penalized to the extent previously since lack of data meant failing the indicator. On the other hand, concerns remain that countries may perform very well in two of the categories and perform abysmally in the third, yet still qualify since they pass more than half overall.

The proof will be in the scorecard results, and it remains to be seen how countries will measure up on these new indicators. One safeguard against an unfortunate scenario occurring is that the Board still holds the ultimate decision and can use its discretion to look at a country’s performance overall, not just in the numbers, when judging eligibility. We hope that the changes in selection criteria will support an improved and strengthened MCC, and lead to even better partnerships down the road. And we applaud the MCC for its willingness to learn and adapt as it matures as a successful development agency.

An MCC energy project in Tanzania. Photo credit: Morgana Wingard/ONE.

Last week, I attended a conference hosted by the Modernizing Foreign Assistance Network (MFAN) titled, “On the Cutting Edge of Aid Effectiveness: Best Practices and Lessons Learned from the Millennium Challenge Corporation.” The panel ofspeakers included Gayle Smith, the special assistant to the president and senior director of the National Security Council (you may have seen her tweets from our recent ONE-White House Twitter event), and Sheila Herrling, vice president for policy and evaluation at the MCC. This discussion was led by Jim Kolbe, who is now the co-chair of MFAN.

The MCC uses President Obama’s new Global Development Policy, which means they focus on “good-governance among country partners, a commitment to country-led plans, and high standards of managing results and transparency.” Using these principles as their guidelines, MCC has created very specific criteria for the countries and initiatives they select.

There is living proof that MCC’s development programs both reduce poverty abroad and create opportunities for American companies. In 2008, the MCC signed a $698 million compact with Tanzania that granted two American companies, Symbion Power and Pike Electric with the ability to build more than 20 power substations and install 1,000 miles of power lines in Tanzania. These roads have stimulated economic growth by improving transportation networks that connect communities with markets, schools and health care.

As the three speakers made clear, the MCC has had setbacks and challenges on their journey to discovering the most effective sustainable development methods. They have shared this lessons in a new report, “Ten Lessons: What MCC has learned putting its ‘focus on results’ principle into practice.”

Using these 10 lessons as a guideline, many are confident that the MCC will continue to have successful compacts in the future. Programs like the one in Tanzania prove the MCC’s ongoing dedication to accountability and aid effectiveness. We look forward to watching the MCC as they continue to create effective poverty-fighting programs and prove all of the “naysayers” of international development wrong. Keep tracking the work of the MCC by reading about their programs and the ongoing reports that measure the success of many of their US-sponsored development initiatives around the globe.

Earlier this year, President Obama made clear in his State of the Union address that his focus is on winning the future -– getting our economy going after the worst recession since the Great Depression, while laying the foundation for long-term economic growth and job creation.

Some might wonder how an international development agency like the Millennium Challenge Corporation (MCC) fits into this vision. America has always been a generous nation, and our moral leadership is reflected in MCC’s goal of reducing poverty through economic growth in developing countries. But MCC’s investments not only benefit poor people overseas, they are critically important to our future prosperity here at home.

That fact is illustrated in Tanzania where MCC investments are both helping to reduce poverty and providing opportunities for American companies. In 2008, MCC signed a $698 million compact with Tanzania. Two American companies, Symbion Power and Pike Electric, were awarded — after an open, competitive bidding process — contracts to build more than 20 power sub-stations and install approximately 1,000 miles of power lines in Tanzania, which will provide electricity to over 330 communities previously without power.

This weekend Secretary of State Hillary Clinton and I are visiting with these American entrepreneurs, who have used MCC-funded contracts as an opportunity to enter a new market and make their own investment in Tanzania.

While still one of the poorest countries in the world, with a gross national income of approximately $500 per capita, Tanzania is among a group of relatively well-governed African nations that are moving in the right direction. Real GDP growth has been 6 percent or higher in Tanzania in every year over the last decade – even in the midst of the global financial crisis.

In short, Tanzania is a next-generation emerging market that is a smart place to invest for American companies with an eye on the long term.

That is exactly the thinking of Symbion Power, which has just purchased a 112-megawatt power plant in Tanzania that it plans to modify and expand. Secretary Clinton and I are touring the plant with Symbion Power CEO Paul Hinks, and we are excited about this new venture and its potential to improve electrical service in Tanzania and provide an American company with a stronger foothold in Africa.

In this increasingly globalized economy, we need innovative companies like Symbion and Pike to aggressively pursue opportunities in fast-growing African markets. Their investments will help reduce poverty in Tanzania, but will also support jobs and economic growth in the United States. And the ties they forge will encourage Tanzania to look to America as a trading partner.

That is why MCC is excited to be partnering with companies like Symbion and Pike. As the progress we are making here shows, smart investment in the developing world and close partnership with the private sector can allow us to improve the lives of those who live in poverty even as we build a stronger America for our children and grandchildren.

Daniel W. Yohannes is the Chief Executive Officer of the Millenium Challenge Corporation.

Congress formed MCC in 2004 as a smarter way to deliver foreign assistance. It operates much like a business, emphasizing accountability to seek the greatest return on US investments. MCC uses 17 indicators of good governance and economic freedom to access eligibility. Those that pass the rigorous selection process are awarded four to five-year compacts for development programs. MCC engages local governments, NGOs, and private sector partners to craft a plan, focusing on economic growth, sustainability, transparency, country ownership and results.

The purpose of MCC compacts isn’t long-term aid — quite the opposite. MCC compacts are designed with a closing date in mind. They generate economic opportunities in developing nations to break the cycle of aid dependency and help them stand on their own. And the results have been encouraging.

Cape Verde is a great example. The first African nation to complete its compact, Cape Verde has shown overwhelming growth at nearly every level. The government developed an electronic service to improve access for entrepreneurs, reducing the time needed to start a business from 52 days to one hour. New bridges were completed, helping riverbeds remain passable every day during heavy rain seasons. Cape Verde has built long-term capacity from the ground up: they’ve provided technical assistance to eight microfinance institutions and are launching the nation’s first private credit bureau. And MCC won’t abandon this work as the compact closes — Cape Verde has qualified to develop a second compact to build on its success.

MCC foresees similar results from those development compacts still underway. The program’s goal of income generation is gaining ground: from the $7.9 billion committed, MCC expects $12.3 billion in increased income for 172 million people — more than a 150 percent increase. But the US can’t let these development successes pass us by. The House’s current CR cuts MCC funding by nearly 30 percent, jeopardizing the program’s ability to deliver sustainable development assistance. At a time when debts and deficits top the list of concerns, the US must ensure that each dollar is spent wisely. We hope Congress will invest in smart policies, like MCC, that encourage growth at home and abroad.

Mr. Yohannes’s full testimony is available here.

But this talk isn’t new. Throughout government, we’ve been seeing a lot of these principles put in practice by many agencies and programs, including those working on foreign assistance. The State Department, the Millennium Challenge Corporation, and the US Agency for International Development (USAID) have all put a premium on becoming more efficient, effective and transparent in their support for poor nations and are embracing innovative ideas to save money and make a bigger impact.

On reform, we saw a slew of new proposals and strategies for improving US foreign assistance this past year, from the President’s Policy Directive and the Quadrennial Diplomacy and Development Review, to USAID’s new FORWARD reforms. All of these aim to reorganize agencies, reduce redundancies and red tape, and focus on monitoring and evaluation of programs to guide future funding decisions. The Millennium Challenge Corporation, created by the Bush administration in 2004, has been a front runner in this field for its innovative and transparent assistance to countries, which includes diligent cost-benefit analyses, clear and measurable goals and time lines, and the capability to pull funding from those countries that don’t hold up their end of the bargain. As the impact evaluation results start coming in for completed grants (compacts agreements), we hope to see even more evidence of the success of this model.

But in addition to just changing the way the US government delivers assistance, real change for the developing world will likely stem from new ideas, fresh thinking and harnessing science and technology to improve lives. USAID has already started upgrading its Office of S&T and has created the Development Innovation Ventures fund that will invest in promising innovative development breakthroughs and help bring successful ventures to scale. According to USAID’s announcement last fall, their first grant recipients include projects aiming to improve rural solar access, create an affordable fuel cell-powered bicycle, and develop a new way to measure the effectiveness of a cellular SMS election monitoring platform in reducing election fraud in Afghanistan.

Throughout other programs, technological advances are receiving a lot of attention. In the Feed the Future initiative, the US approach to agricultural assistance includes technology innovations such as drought-tolerant crops that will increase food production and food security. And the Global Alliance for Vaccines and Immunization, with support from the US and others, recently incentivized the development of two new vaccines for two of the biggest killers of children, pneumonia and diarrhea. US support has also helped pave the way for research into new tools like microbicides for women to protect themselves against HIV.

While some of these innovations do require small amounts of additional investment up front, they are poised to save significant money in the future, as efficiencies are realized, private sector funds are leveraged and partner countries take ownership of these programs. Other reforms — like the new USAID Dashboard that shows where American tax dollars are being spent on foreign assistance — have already been implemented and just make good sense. As President Obama said, “we shouldn’t just give our people a government that’s more affordable. We should give them a government that’s more competent and more efficient.”

At a time when government programs are on the chopping block and every dollar needs to be justified, it’s important that we support those programs that are making real reforms and changing lives for millions of people around the world. By standing with the administration to elevate our development work, America has the opportunity to showcase not just its military might, but its vision and leadership for a more prosperous world and the advancement of core US national interests.

On Wednesday, the Millennium Challenge Corporation (MCC) board met and approved a $350 million compact with Malawi. The compact will fund infrastructure development and policy reform in the energy sector, aiming to benefit more than 6 million people in Malawi over the course of the five-year compact.

When the government of Malawi began developing their compact proposals in 2008, they performed a constraints analysis with the World Bank, the African Development Bank and the UK Department for International Development to determine impediments to growth in the country. During this analysis, energy emerged as one of the main constraints to economic growth. Just 9 percent of the country’s population currently has access to power (one of the lowest rates in sub-Saharan Africa), and that number is closer to 2 to 3 percent in rural areas.

Even with so few people accessing the power grid, the current power supply is too low to fill demand and power outages are common across the country. This leads to both losses in productivity for business, and a decrease in quality of life for Malawians. Alternative sources of power, such as diesel generators, are costly and inefficient.

By focusing solely on the power sector, the MCC compact with Malawi will allocate most of its funds to building and upgrading infrastructure of the hydropower plants and distribution network. A smaller percentage of funds will also go to reforming and building capacity in the government institutions which manage the power sector. This will allow for greater sustainability of the project and set the groundwork for its expansion in the future. MCC is also hoping that the proposed reforms and upgrades will invite greater private sector investment in the country.

As the 12th sub-Saharan African country to receive a compact from the MCC, ONE is excited about the project and looks forward to following its achievements. As MCC CEO Daniel Yohannes stated, “Success of the program will depend on the Government of Malawi’s continued commitment to good governance, accountability, and transparency.”

Photo courtesy of Eyes on Africa Foundation.

I just listened to Daniel Yohannes, CEO of the U.S. government’s Millennium Challenge Corporation (MCC), speak about the importance of connecting the private sector with international development.

Yohannes, who has a background in banking and finance, works with MCC to provide developing countries with tools, resources and information necessary to partner with the private sector. In turn, development must play a role in U.S. diplomacy and defense.

“Private enterprise has brought prosperity to the national economy, and it can do the same to economies around the world,” he said. “Economic growth can be used to reduce poverty.”

Like many of the speakers that I heard at the conference, he believes that this growth has to start with the private sector. “Foreign assistance will never be the engine of widespread economic growth,” he said. The private enterprise has the expertise to cultivate new processes, products and solutions to frontier and emerging markets — allowing African countries, communities, and producers to earn their own living.

Currently, private businesses provide 84 percent of resources to developing partnerships. Almost 64 percent of Fortune 100 companies are engaged in development. Unfortunately, 77 percent of businesses invest in other American businesses, and not nearly enough Americans are investing in heavy infrastructure businesses, which can make an impact on the developing world.

If Africa captured captured only a small percentage of global trade, it would make a big difference. In fact, in 2008, 1 percent of global trade was worth $195 billion, more than five times the development assistance sub-Saharan Africa received that same year.

Yohannes wants MCC to “be where the action is” and “maintain a “special relationship with the private sector.” To quote Secretary of State Hillary Clinton, he promised the audience of nearly 150 members of the private, public and development community, “There are business opportunities in solving the problems of the poor.”

As you may already know, the MCC threshold program works with countries to undertake target policy reforms to improve a country’s score on a particular MCC indicator. The hope is that the country will perform better on the indicator(s) that determine compact eligibility, and that if they are selected as compact-eligible the country will be prepared to successfully implement their compact. MCC CEO Daniel Yohannes said of the threshold program, “With vital support from Congress for MCC’s budget and critical legislative fixes, we will continue to have the ability to partner with reform-minded countries committed to wisely investing American taxpayer resources in sustainable development that benefits us all in our interconnected global marketplace.”

Liberia’s threshold program will improve land registration capacity, improve land administration, and assist with land rights education. It will also support a scholarship program for girls, provide schools with grants to improve the school environment, and support mentoring programs. With regard to trade policies, the funding will assist with harmonizing tariffs and strengthening regulatory capacity.

In Timor-Leste, the threshold program will focus on strengthening local community health units, improving vaccine-preventable disease monitoring and immunization systems, and training health service providers. The program will also help build effective anti-corruption institutions.

Both threshold programs are currently in their 15-day congressional notification and consultation period. Following this, USAID will assume responsibility for implementing the threshold programs while MCC will remain the primary overseer. It is encouraging to see countries continuing to move through the MCC system and making reforms in the hope of becoming compact-eligible. If you’d like to learn more, you can read the press releases about the Timor-Leste and Liberia threshold program announcements.

It’s a great, insightful piece. Give it a listen:

Now the Millennium Challenge Corporation’s CEO has weighed in on his blog, stating that the increase would allow the MCC to “pursue partnerships with Malawi, Indonesia, and Zambia, with the hope of signing compacts with each of these countries” as well as a second compact with Cape Verde.

You can read his full take here.

On a related note, Reuters has an interview with Daniel Yohannes in which he elaborates a bit more on corporate investments in developing nations. Worth a read.