May 26, 2011
MCC Successfully Completes Projects to Reduce Poverty and Promote Economic Growth in Nicaragua
Washington, D.C. — The U.S. Government’s Millennium Challenge Corporation (MCC) CEO Daniel W. Yohannes today announced the completion of MCC’s five-year compact with Nicaragua.
In July 2005, MCC signed a $175 million compact with the Government of Nicaragua to address barriers to economic growth including underdeveloped infrastructure, insecure property rights, and low-value agricultural production. MCC’s investments focused on three strategic projects to improve access to markets and reduce transportation costs, strengthen property rights, and increase incomes for farmers and rural businesses.
MCC works with countries that are committed to good governance, investments in their people, and economic freedom. MCC holds governments accountable for actions that are inconsistent with its eligibility criteria. Following contested municipal elections in 2008, public concerns were raised about a pattern of decline in political rights and civil liberties in Nicaragua. In response, MCC’s Board of Directors decided in December 2008 to suspend investments in new projects, and subsequently terminate $61.5 million of assistance from the compact. This partial termination reduced the total funding under the compact from $175 million to $113.5 million.
Despite this partial termination, the Millennium Challenge Account (MCA)-Nicaragua successfully implemented the portions of the compact that had already begun, with strong participation and commitment from civil society and the citizens of León and Chinandega, where the projects were focused.
“Since June 2009, MCC has continued to press the Government of Nicaragua to take actions that demonstrate its commitment to political freedom, civil liberties and the rule of law,” stated Mr. Yohannes. “Unfortunately, the Nicaraguan government has not taken meaningful steps to implement these reforms. Despite the government’s failure to respond to calls for reform, it is encouraging to see the success of the portions of the compact that were continued by the people of Nicaragua. These projects will continue to benefit thousands of Nicaraguans for years to come.”
Key successes of MCC’s compact with Nicaragua:
• Buy-in from business and civic leaders promotes continuity and sustainability: During compact development and design, for the first time in Nicaraguan history, the central government fully empowered the local departmental development councils to develop the components of a major development program. Support and participation by political, business and civic actors at the departmental level helped ensure continuity of implementation, despite a change in government and the partial termination.
• Gender equality and integration matter: Gender integration has been paramount to the success of the Nicaragua Compact. MCC gender engagement began with the consultation of women’s organizations during compact design, and included setting specific gender-related targets in contracts as a means to ensure widely-shared ownership and sustainable development. Thirty percent of the beneficiaries of the Rural Business Development Project are women, which exceeds original projections.
• Improved roads mean greater regional integration and improved access to markets: MCC is supporting key transportation corridors in Nicaragua, Honduras and El Salvador that are increasing access to national, regional and global markets.
o The Transportation Project is reducing transportation costs between Nicaraguan production centers and national, regional, and global markets. MCC invested $58 million to build 74 kilometers in three road sections that will benefit more than 97,000 people living within five kilometers of the three upgraded roads.
o Improved roads are expected to decrease vehicle operating costs by $3.2 million annually and significantly reduce travel time.
o MCC reinforced prior work by the World Bank and Inter-American Development Bank to secure policy changes that provide a permanent source of funding for road maintenance as part of MCC’s road investments. At MCC’s prompting, Nicaragua’s National Assembly approved a law in 2005 that created a gas tax to finance road maintenance. The Government of Nicaragua went from maintaining 500 km of road prior to 2005, to now maintaining more than 3,000 kilometers of roads annually, with more than $31 million allocated to road maintenance.
o MCC rehabilitated part of the Pan American Highway, connecting Nicaragua to the rest of Central America and promoting greater regional trade. This critical road segment is part of the network of highways that runs from Guatemala to Costa Rica and is used to transport exports from Nicaragua to the Port of Cortes on the Atlantic Coast of Honduras and to El Salvador.
o Seven out of the eight crops assisted as part of the Rural Business Development Project in Nicaragua are being exported to regional markets and the United States, making use of the MCC funded transportation corridors and taking advantage of CAFTA-DR.
• Training and technical assistance are building blocks for higher farm and non-farm wages: With the goal of increasing sales and wages for farmers and non-farm businesses by supporting high-value agriculture and business enterprises in the departments of León and Chinandega, a total of 8,638 people have received technical assistance and grants, and more than 43,000 people are expected to benefit over the life of the investment.
• Follow on investments will mean more economic activity and job opportunities: Preliminary data shows that eight private international companies have invested a total of $35.9 million in the departments of León and Chinandega. This includes U.S. companies Algaoil, Futuro Forestal, and Maya Pack.
o Hortifruti/Wal-Mart, Parmalat, DelCampo and CentroLac are some of the companies buying products from the MCA-trained farmers including milk, plantains, cassava and rice.
You may find more information on MCC’s Compact with Nicaragua here: http://www.mcc.gov/pages/countries/program/nicaragua-compact
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Millennium Challenge Corporation, a U.S. Government agency designed to work with developing countries, is based on the principle that aid is most effective when it reinforces sound political, economic, and social policies that promote poverty reduction through economic growth. For more information, please visit www.mcc.gov.
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