Compact Development and Oversight: 609(g) and Due Diligence
|(in $ millions)||
For FY 2015, MCC plans to use $19 million for assistance under section 609(g) of MCC’s authorizing statute and $75 million for due diligence to support programmatic oversight, quality control and other support for compacts in development and implementation, as well as post-completion work, such as data and evaluation.
MCC has found that a detailed focus on pre-compact planning, oversight and post-compact evaluation is critical to the success of compacts and ensuring that MCC, our partner countries and the development community are able to take advantage of the learning opportunities inherent in MCC programs.
The $94 million in funding will help the compacts in development with Liberia, Morocco, Niger, and Tanzania to reach Board approval by the end of FY 2015, MCC’s oversight for the compacts in implementation during FY 2015, the close-out of compacts with Senegal and Moldova at the end of FY 2015, and compact development with any new partners selected in December 2014.
The funding will also support threshold programs with Guatemala, Honduras and Nepal, and up to two new threshold program partners selected in December 2014.
Although assistance provided under section 609(g) of MCC’s authorizing statute only represents 2 percent of MCC’s overall base request, this assistance is critical for compacts to succeed. MCC uses 609(g) assistance for key project preparation work such as feasibility and environmental impact studies, engineering designs, baseline surveys, financial management and procurement technical assistance, and other specialized analysis to help MCC determine the final suitability and scope of investments, costs, implementation risks, and mitigation measures. Such analysis also ensures that partner countries develop projects that will provide returns on MCC’s investment and can be implemented within the fixed five-year timeframe.
Due diligence funds allow MCC to obtain sufficient information to evaluate, assess and appraise projects during compact development, effectively oversee and monitor compact implementation, conduct quality assurance, and then evaluate the results of a compact project once complete.
Due diligence funds enable MCC to operate on a lean administrative budget relative to the size and diversity of its investment portfolio. Rather than permanently hiring technical experts whose services might be underutilized in the long term, MCC uses due diligence funds to procure technical expertise when strictly necessary to support compacts in development and implementation.
Due diligence funds also enable MCC to continue to operate on a lean administrative budget relative to the size and diversity of its investment portfolio. Rather than permanently hiring technical experts whose services might be underutilized depending on the mix of projects MCC oversees at a given time, MCC uses due diligence funds to procure technical expertise when strictly necessary to support compacts in development and implementation.
Due diligence funds supported MCC’s first set of independent impact evaluations, released in FY 2013, which were designed to use rigorous statistical methods to measure changes in beneficiary income related to farmer training activities. The impact evaluations provided encouraging news about program successes:
- The average completion rates for output and outcome targets were: 103 percent for Ghana, 103 percent for Armenia, 112 percent for Nicaragua, 131 percent for El Salvador, and 158 percent for Honduras.
- In El Salvador, the evaluators found that dairy farmers doubled their farm incomes.
- In Ghana, northern region farmers’ annual crop income increased significantly relative to the control group above any impacts recorded in the other zones.
- In Nicaragua, project participants’ farm incomes went up 15 percent to 30 percent after two-to-three years of project support.
The impact evaluations also offered valuable lessons on how MCC can improve by underscoring the challenges associated with producing and measuring changes in household income.
Due diligence funds also support the data and some of the technical expertise for calculating economic rates of return for compact investments. Economic modeling done after compact closeout helps to demonstrate that MCC is making cost effective investments. Through pre-investment economic modeling of expected economic rates of return, MCC chooses which investments are most likely to pay off in terms of generating benefits (increased income for program beneficiaries). MCC also estimates at project closeout final expected return rates.
MCC has completed closeout expected rates-of-return models for 16 projects so far, and in 13 of these the expected rates of return were greater than 10 percent. This means that for every dollar invested, the expected value of the returns is at least $1.10 and may be as high as $2.60.