From Paris to Practice: MCC’s Strategy to Stretch Aid Dollars

Posted on December 2, 2011 by Franck Wiebe, Chief Economist, MCC

This blog entry was first posted on Devex.com.

Six years after the signing of the Paris Declaration on Aid Effectiveness, the question of how to enhance aid impact remains highly relevant as most of the largest donors reconvene in Busan.

The Millennium Challenge Corp. is a relative newcomer to the foreign assistance community. Described in principle at Monterrey in 2002 and established by U.S. legislation in 2004, MCC was designed to embody many of the Paris Declaration principles. MCC’s experience of putting these principles into practice suggests three ideas that deserve continued attention: better focus of aid dollars within countries, better assessment of the rationale for aid programs, and stronger commitment to evaluating the impact of aid programs.

Better focus of aid programs within countries

Donors have improved coordination amongst themselves in many countries, reducing overlap and competition, but the pattern of assistance remains scattered and diffused. In most countries, the array of donor activities may be consistent with broad national development plans, but the aggregation of efforts by development agencies only rarely reflects anything close to a strategy.

This approach misses the opportunity to focus on the most important development challenges that need to be tackled first while unintentionally imposing a greater burden on partner country governance structures. The right strategy for any country cannot be to invest in public sector capacity building in every office; rather, a better strategy is for country governments to work with development agencies on a more limited set of well-defined priorities.

Identifying the appropriate priorities remains a challenge, given that country development plans are broad and far-reaching. MCC has found the data-driven “growth diagnostics” framework to be extremely helpful for sifting through the national development plans to laser in on the most critical challenges facing a country. MCC collaborates with country counterparts to ensure that the results are understood and accepted by both parties, and has found that some countries embrace these analyses, using them to prioritize their own strategies well beyond the scope of the MCC compact and to frame their engagement with other donors.

By now, all agree that country partners need to own and drive this prioritization process. Indeed, aid dollars can be successful only when supporting the reform of domestic institutions and policies undertaken by choice by country partners. Consequently, aid programs need to be connected to explicit, public commitments made and owned by our partner governments.

These pieces come together to build a strategy for more effective and more focused aid: Partner countries identify a small set of development priorities (addressing the binding constraint to economic growth usually needs to be one – in most contexts, serious poverty reduction requires growth); partner countries identify a series of commitments to policy and institutional changes to address the existing problem; and only then can aid programs be aligned in a meaningful way in support of these reforms.

Assess cost-effectiveness before funding

“Stretching aid dollars” requires a new level of discipline from development agencies and country partners. The practice of benefit-cost analysis fell out of favor – it takes time, data, and technical competence, and unfortunately is vulnerable to political interference (both local counterparts and aid agencies often have agendas of their own) – but needs to be reinstated as an essential tool for assessing trade-offs and opportunity costs. We need to start with the recognition that any good idea has a price at which it is no longer a good idea. Partners should not enter into programs before conducting an objective comparison of the value of benefits to the total cost of delivering them.

MCC has found that such analyses are possible for the vast majority of programs proposed to us by our partner countries. Not surprisingly, we find that some proposed investments cannot be justified given the estimated costs and projected benefits. Such information usually leads to further work on the program design, but sometimes leads to the search for alternative approaches to the same problem or to other priorities that can be tackled in a cost-effective manner. In this way, we have found at MCC that the technical discipline imposed by benefit-cost analysis improves the quality of the portfolio, where quality is explicitly described as delivering measurable results. The principal idea is inescapable: If we wish to enhance aid impact, we need to be willing to scrutinize every significant effort, asking the same fundamental question, is this proposed activity worth the money and effort being invested?

Some may object that such an approach stifles innovation – it need not. Where ideas have never been tried before, development partners can enter into small-scale pilots and rigorous experiments designed to generate information that can be used to assess the potential for scale-up. MCC has built such experimentation into several of its country programs, and the U.S. Agency for International Development’s new Development Innovation Ventures is another promising mechanism. But the current clamor for increased innovation should not serve as an excuse for not conducting proper due diligence, using logic and evidence, to assess whether the new idea has any prior basis for expecting cost-effective results.

Invest in more, and more rigorous, impact evaluations

Just as more analysis is needed before development activities are funded, more analysis is required after they are completed to determine what was accomplished and what was not. MCC has found that establishing high expectations and budgeting appropriately – often in the range of 2-4 percent of the total program budget – creates an environment within which independent evaluations of impact can be conducted as part of the core implementation plan. Collecting baseline data that covers expected beneficiaries and the appropriate control population is possible when it is required.

The cost and effort is substantial, but so is the value. Credible and rigorous impact evaluations – including but not limited to randomized control trials – serve three important functions:

First, they impose a discipline on the program development side. The benefit-cost analysis may describe the anticipated program impacts, but when evaluation is seen as part of the design process, program planners are given the opportunity to assess whether the planned intervention can plausibly be expected to deliver as promised, and if not, what modifications are needed to improve the chances for success.

Second, they are an essential element of a learning agenda that seeks to inform not only future donor programs, but also – and more importantly – future public expenditures and practices by our developing country partners. Moreover, the increasing availability of results from impact evaluations pushes donor agencies and country partners to establish mechanisms that reinforce the learning process.

Third, such evaluations are a necessary part of the transparent accountability process through which all relevant parties assess whether they used scarce resources appropriately. MCC has embraced this responsibility to its funders – the U.S. Congress and American taxpayers – and expects its country partners to commit to the same level of transparency locally. In this way, the evaluation of aid projects can help strengthen the processes through which government actors can inform their citizens about accomplishments and citizens can hold their government officials accountable for prudential use of public resources.

Already a backlash is occurring in some circles, with the term “randomista” sometimes used as a term of criticism. Some critics have written that this “fad” has gone too far. This negative characterization is both untrue and unfortunate. Although MCC funds rigorous independent impact evaluations for close to half of the projects in our portfolio, many other agencies still have few or none. Clearly, there is still room in the development community for greater investments in rigorous evaluations. MCC has found, too, that such “impact evaluation thinking” can inform our less rigorous performance evaluations; we hire credible independent evaluators and ask them to consider the counterfactual and recognize that not all change can be attributed to our programs.

Conclusion

The Paris Declaration created a useful starting framework that describes the processes related to program effectiveness that donors should adopt. But even as we adopt these processes, we need to ensure that we are delivering effective programs – the two are not necessarily synonymous. Busan provides us an opportunity to develop an improved results-focused agenda explicitly aimed at shifting resources from ineffective programs toward the problems that matter most using the most cost-effective delivery mechanisms. Such an agenda goes well beyond “managing for results” rhetoric and establishes a new standard of actually delivering results.

The tools described above are known and available to donors and their country counterparts, and their use could dramatically improve our performance. Developing countries should demand that donors increasingly apply these tools; we should demand no less of ourselves.

Heavy equipment donation means hands-on training for Mongolian students

Posted on November 22, 2011 by Robert Reid, Mongolia Resident Country Director

Earlier this month, seven technical and vocational schools in Mongolia received donations of more than $1.7 million in heavy equipment from the Department of Defense. In return, the students will be trained on usage, maintenance and repair to better prepare them to find jobs. This was the first time Mongolia has received equipment through the program.

MCC’s five-year compact with Mongolia includes $47 million to improve the country’s vocational education system. To leverage these investments, MCA-Mongolia signed a memorandum of understanding in March with the U.S. Department of Defense Excess Property Program, which allows for the donation of non-lethal, excess property to countries that contribute to the U.S. Government’s efforts to promote democratic development and regional stability.

The schools, which often cannot afford to purchase expensive machinery, received 18 pieces of donated machinery frequently used in the mining, road, construction, and agriculture industries.

Donated items include cranes, graders, tractors and scoop loaders. Hands-on training will better prepare students to find jobs after school.

MCC is helping improve Mongolia’s technical and vocational education system through policy reforms, professional development for instructors, the establishment of a labor market information system, and the provision of essential equipment. An estimated 170,000 people are expected to benefit from the project over the next 20 years.

MCC Puts Aid Effectiveness Principles into Practice: Lessons on Country Ownership

Posted on November 18, 2011 by Sheila Herrling, Vice President, Department of Policy and Evaluation

As the development community looks outward to the upcoming Fourth High Level Forum on Aid Effectiveness in Busan, South Korea, MCC looks inward at its own experience putting two key Busan agenda items into practice: country ownership and development results.

MCC was founded at a time when country ownership and accountability for results were emerging as central to the global dialogue on aid effectiveness. In creating MCC, Congress explicitly built into its model authorities and approaches to enhance these principles. In the run-up to Busan, and in the context of the United States Global Development Policy, MCC’s Principles into Practice series takes stock of what MCC has learned putting these principles of aid effectiveness into practice over the last seven years.

The starting point for MCC’s approach to country ownership is that development investments are more effective and sustainable when they reflect countries’ own priories and strengthen governments’ accountability to their citizens. MCC’s newly released Country Ownership paper draws on its experience in 22 partner countries to synthesize six key lessons in applying the country ownership principle.

Top among these lessons is that country “ownership” is actually too simple a term; rather, MCC pursues “partnerships” based on mutual accountability. Pursuing ownership requires a delicate balancing act with other principles of effectiveness—but despite the challenges, country ownership pays off in achieving development results.

Oxfam America’s review of the Country Ownership paper recognizes that “if local people don’t feel the investment serves their interests, it won’t actually deliver its full promised potential,” and calls on MCC to continue its practice of learning and applying lessons learned to even further enhance its best-practice procedures in broad-based consultation and transparency.

As the development community gathers November 29 in Busan to forge a global consensus on measuring results that matter for people, MCC’s Principles into Practice Focus on Results paper, published in February 2011, offers ten lessons about the benefits, challenges and tradeoffs associated with applying a transparent and rigorous approach to a continuum of results.

MCC received particularly high praise from the OECD’s Development Assistance Committee this summer. In the “peer review” report, the OECD identified MCC as a leader in the effort to measure the results of development assistance. The Center for Global Development’s review of the Focus on Results paper and blog about MCC’s results approach gives MCC kudos for “candidly capturing real lessons—the kind that are learned when things don’t work.” We at MCC are exceedingly proud of the many positive results our partner countries are delivering, and we are committed to learning lessons from the results that didn’t meet our expectations. 

Transparency is at the heart of both country ownership and accountability for results. MCC provides partner country governments and citizens information ongoing activities by publishing economic analyses that inform investment decisions, five-year budgets, expected results, data on program benchmarks and progress, and findings of independent impact evaluations as programs complete.

We expect our partner countries to embrace transparency as well, which empowers their citizens to hold governments and donors accountable for how development resources are used and what results they achieve.

MCC operates at the forefront of transparency to advance development effectiveness and contributes to the principles of open government—a fact recognized just this week by the 2011 Publish What You Fund aid transparency report, in which MCC ranks seventh out of 58 donors worldwide, and as the most transparent U.S. Government donor.

We hope that these lessons from MCC’s experience feed into rich discussion at Busan. Your input on the Principles into Practice papers are welcome and encouraged—MCC Puts Aid Effectiveness Principles into Practice: Lessons on Country Ownershipplease leave your comments below.

Deepening MCC’s Commitment to Gender Equality

Posted on November 18, 2011 by Cassandra Butts, MCC Senior Advisor

When the Millennium Challenge Corporation released its hallmark policy scorecards last week, the occasion marked several firsts for us. In addition to transitioning to a new scorecard system, gender equality is elevated now as a key indicator in determining country eligibility and selection for MCC investments.

MCC remains at the forefront of prioritizing gender equality as key to effective development. Our success to date has been in first recognizing gender inequality as a constraint to economic growth and then integrating and operationalizing gender analyses in our work to maximize the effectiveness and sustainability of our investments to reduce poverty through growth. The new “Gender in the Economy” indicator takes this work to another level.

The “Gender in the Economy” indicator, one of eight indicators on the MCC scorecard measuring economic freedom, assesses a government’s commitment to promoting gender equality by providing women and men with the same legal ability to interact with the private and public sectors. Specifically, the indicator measures the legal capacity of married and unmarried women to execute 10 economic activities: get a job, register a business, sign a contract, open a bank account, choose where to live, get passports, travel domestically and abroad, pass citizenship on to their children, and become heads of households. The International Finance Corporation’s Women, Business and the Law report is the source for the information included in this indicator.

MCC’s own work in advancing gender equality provides a striking example of the progress that can be made by linking a similar set of rights to our compact process. In 2006, MCC worked with the Government of Lesotho to ensure that the minority legal status of women, which had created similar economic inequalities, was removed in law before compact signing. As a result of the government’s embrace of this policy reform and other efforts, Lesotho now ranks in the world’s top ten in closing its economic gender gap according to the World Economic Forum’s most recent Global Gender Gap Index. 

The “Gender in the Economy” indicator builds on MCC’s groundbreaking Gender Policy by recognizing the relationship among growth, poverty reduction and gender equality. Quite simply, the indicator identifies legally sanctioned gender inequality as negatively impacting a country’s economic growth because it prevents a large portion of the population from fully participating in the economy. What is exciting about the indicator is its potential to generate greater awareness of this critical issue while creating a powerful incentive for improved policy performance in partner countries and other developing countries seeking MCC investment. 

As the U.S. Government continues to further its commitment to gender equality and to improving the economic rights of women and men around the world, we at MCC are proud to deepen our efforts through this emphasis on gender equality in our country selection process. And with this focus, we look forward to realizing even greater development achievements. 

Take a second look at this year’s scorecards

Posted on November 9, 2011 by Sheila Herrling, Vice President for Policy and Evaluation

The Millennium Challenge Corporation just posted its hallmark policy scorecards for the world’s low- and low-middle-income countries – and for the first time, MCC is publishing two scorecards for each country.

After more than a year of research and consultation, the MCC Board recently approved the transition to a new, updated scorecard. MCC is publishing both scorecards this year to make the change as transparent as possible.

The heart of the new scorecard remains the same: independent data, a control of corruption hurdle and policy measures to evaluate a country’s commitment to ruling justly, investing in people and economic freedom. The changes we made are consistent with MCC’s work and approach: We have added a democratic rights hurdle and indicators that measure gender in the economy and access to credit.

What may not be obvious—but what I am most proud of—is how the new scorecard shines a spotlight on MCC’s ability to innovate and stay current. For years, the foreign assistance community has recognized our scorecards as a leading mechanism to help drive evidence-based decision-making. The incorporation of emerging policy areas and new data—like the data on Internet filtering in the freedom of information indicator—show that MCC is nimble enough to adapt to a rapidly changing global world.

We often say challenge is our middle name at MCC. This is one of many challenges the agency takes on that I have been thrilled to be a part of.