Speech

June 22, 2005

As Prepared by Paul V. Applegarth, Chief Executive Officer

Corporate Council on Africa’s US-Africa Business Summit

Paul V. Applegarth remarks to Corporate Council on Africa’s US-Africa Business Summit

Thank you, and I thank the Corporate Council on Africa, Steve Hayes and Ambassador Perry. CCA’s relationship with MCC has been a long one, at least by MCC standards (I should admit that long by MCC standards is about 17 months, since that’s how long we’ve been around). The Corporate Council has really taken initiative to spread the word about us to its members and beyond.

This is an optimistic time for Africa . MCC is known for looking at results and achievements. Africa’s real GDP growth in 2004 was the highest in almost a decade, and that is worth noting. The United States has nearly tripled its assistance to Africa, another achievement worth noting. And a consensus is building about the need to lift barriers to trade with African countries, in the way the United States has done with African Growth and Opportunity Act.

And we at MCC see ourselves as having an important role to play in Africa . Our mission at Millennium Challenge is to reduce poverty in the poorest countries of the world through sustained economic growth.

Today there is broad consensus as to the strong link between sustainable poverty reduction and sustained economic growth. I won’t bore you tonight with the detailed facts and figures, but the conclusions are clear: if you want to reduce poverty, you must have growth. Redistribution will not solve the problem, the pie must be larger.

Our money is grant money, but we act as investors. We invest in poverty reduction; we invest not for a financial return, but for a growth return. MCC provides grant funding to help countries find ways to spur sustainable economic growth, and to ensure that this growth translates into real improvements in the lives of the poor. Our focus is therefore not just on the amount of aid we give, but its effectiveness. Results are what matter.

Central to the effective use of aid is good governance. As President Bush stated when launching Millennium Challenge, "We expect nations to adopt the reforms and policies that make development effective and lasting.”

And if you look at the recommendations of the Commission for Africa on how to improve the effectiveness of aid, you will see that MCC meets or exceeds every one of those recommendations.

Our first step is to identify good potential partners. Countries compete to be eligible for our assistance. By selecting countries that are putting in place good policies that are empirically linked to reducing poverty and promoting growth, we are identifying the countries where our U.S. taxpayer funds will be used well.

In our first two rounds of selections, we chose a total of 17 countries to apply for MCC assistance- over half (9) of them are in Africa, and 8 are Sub-Saharan African.

This has surprised many observers who argued that Africa could not compete on a global scale, and that special rules- a dispensation- would be needed for Africa . The governments and leaders of the countries that were selected to apply for MCA have proven them wrong. These countries include: Benin, Cape Verde, Ghana, Lesotho, Madagascar, Mali, Mozambique, Senegal, and Morocco .

I name them because I believe that the people and the governments of these 9 eligible countries should be recognized for taking the sometimes difficult, but essential steps, toward building a policy environment that provides the most benefits to all citizens.

For example, President Ravalamanana has initiated reforms that made Madagascar the country with the largest increase in its economic freedom in the rankings last year. In Ghana, President Kufour is taking active steps to combat corruption, and is encouraging others in NEPAD to do the same through the peer review process. Senegal, where we will be traveling next month to participate in the AGOA forum, has taken some significant steps as well. I encourage you to take a look at our website, and see how these countries their leaders are performing compared with countries with similar resources all over the world, but who have not shown the same commitment to helping their own people, reducing poverty, or promoting growth.

MCC’s "Threshold Program” offers assistance to thirteen additional countries that did not qualify for the MCA to address the areas in which they fell short and improve their chances of qualifying in the future. Again, Africa has performed well—seven out of the thirteen Threshold countries we’ve selected are sub-Saharan. We did not so much choose these countries as they picked themselves through their efforts toward poverty reduction and policy reform.

At its heart, MCC is about aid effectiveness. MCC believes that country ownership, accountability, taking the time to consult and get it right at the front end are absolutely critical to long term success of development—and have the potential to yield better results than many past approaches.  And at the end of the day, country ownership is about institution building. We need people to work with on the other side of the table.

We are happy to report that we and our partner countries are making great progress in achieving our mission. We began to receive proposals in August of last year, and in the 10 months since, it may surprise you to learn that MCC has in total approved over $600 million in Compact and in pre-compact agreements with at least eight different countries. We have signed Compacts with Madagascar and Honduras, and our Board has just approved two more: Cape Verde and Nicaragua . We have pre-Compact agreements with Ghana, Lesotho, Georgia, and others to help these countries with Compact development, policy reforms, and measuring results, and just this afternoon we internally approved our first Threshold program, and it will be considered at the Board next week. I am proud to say before this audience that, just like our first Compact country, our first Threshold country, if the Board approves, will be African.

This track record is a tribute to our partner countries, because it is the countries that drive this process, and this is the first time many of them have designed their own programs. L ooking at what our partner countries put together, perhaps some who are of the old mindset where donors came to a country to say "you need this, and we’ll design it, and give it to you,” might be surprised by the degree of sophistication, the comprehensiveness, and the overall quality of these countries’ programs.

Our first compact with Madagascar is a great example. The Government of Madagascar and MCC signed a four year nearly $110 million dollar Compact to support a program designed to raise incomes in rural areas by enabling better land use, expanding the financial sector, and increasing investment in farms and other rural businesses. The key is — this is not our program, not MCC’s program. As President Ravalomanana says, it is Madagascar’s program. The Malagasy decided how they would use MCC’s money. This is not just a change in language, this is a change in country ownership and responsibility.

And just last week MCC’s Board approved a Compact of over $110 million with Cape Verde . The Compact will help Cape Verde meet its national development goal to move from being an aid-dependent economy to a self sustaining, private-sector led economy. It addresses now some of the immediate needs of the poor in the country, by improving agricultural productivity, replenishing the water table, and raising the standard of living in rural areas. In the medium term, it will improve infrastructure, and over the long term, it will make the private sector more competitive, attract more investment, and create jobs.

I won’t talk about it in detail tonight, but also take a look at our agreement with Lesotho . The commitments Prime Minister Mosisili and his colleagues are making to open the economy are noteworthy. Part of the funding under our pre-Compact agreement will help the government draw up and implement policy reforms needed to improve the business and investment climate, such as enhancing property rights, improving commercial law, and developing the skills of small business owners. These reforms will have a positive effect on most sectors of the economy, but they will have a particularly positive effect on women who own the majority of small businesses.

As proud as we are of the Compacts and other funding we have approved, I think it’s important to point out that you should not measure MCC merely by the old yardstick of dollars obligated and disbursed.  The policy reforms we are encouraging and rewarding are at least as important as the money we provide. As you know, MCC is a different and new approach to development assistance in that it is focused on building local capacity to ensure that countries break the cycle of dependency on aid.

And while it’s easy to get distracted by discussions about policies, development, and growth, we never forget that it is real people we are ultimately talking about, people living with the all of the burdens that abject poverty brings.

Poverty is a long-term problem and the solutions are not easy. Finding sustainable solutions takes effort and hard work. And we are proving that both MCC and our partner countries are willing to make the effort.

And those of you who are here representing American companies might be asking, "So what?” Why is this important for you, and for your businesses?

The answer is that MCC is helping to improve the climate for business in Africa- and companies are already taking notice.

At least two multinationals have told us that they are looking at using MCC country selections as a criterion in evaluating where they may expand next. One of the major credit agencies visited us to review our criteria, to examine whether they should incorporate them in their analysis of country creditworthiness. For those of you who are financial investors, a money management firm has already demonstrated a link between a country’s policy environment and the relative performance of its public equity markets. We believe that there may be a similar link between our country ratings and the performance of investments in the countries we are rating. Good policy environments should be good investment environments.

With the support of MCC, our partner countries will build new markets, enhance the environment for private sector investment, and remove barriers to growth. As they do, they will become better partners for trade, opportunities for investment will multiply, and, most importantly, each MCC partner country will become better partners for you as well.