Speech

June 26, 2008

As Prepared by John J. Danilovich, Chief Executive Officer

Chicago, Illinois

‘Infrastructure Networks: New Investments to Build Markets’

Keynote Remarks by MCC CEO Ambassador John Danilovich

Introduction

Thank you, Steve, for that kind introduction, and for this opportunity to discuss the Millennium Challenge Corporation’s role in agribusiness development throughout Africa

I would like to congratulate the Corporate Council on Africa for bringing together the private and public sectors for this timely discussion on agriculture in Africa, and we appreciate being part of the conversation. 

African countries continue to convert their great promise into an engine for sustained socio-economic growth.  It is exciting to see

  • positive change,
  • innovation,
  • and the entrepreneurial spirit

at work whenever I visit MCC partner countries in Africa—from Ghana to Madagascar, from Morocco to Mozambique.  It is exciting to see dramatic reforms taking root and new opportunities for investment and growth in so many sectors surfacing.

The Millennium Challenge Corporation is very proud of our work in strengthening and expanding the African agribusiness marketplace.  Like you, we firmly believe in Africa and in the continent’s tremendous potential.Since our establishment by an act of Congress in 2004—and with the announcement just last week of our latest partnership with Burkina Faso—MCC now has partnered with 17 countries worldwide to reduce poverty through sustainable economic growth, providing a total of nearly $6 billion in grants we call compacts. 

More than 70 percent of our funding—some $4.2 billion—benefits ten countries in sub-Sahara Africa.  This makes the continent the largest recipient of MCC grants. Our commitment to Africa deepens this summer as we sign the recently-approved MCC compact with Burkina Faso, and expect the approval of a compact with Namibia.

Making agriculture more productive by improving linkages

  • upstream,
  • downstream,
  • and throughout the entire rural economy

—as well as building reliable infrastructure that will support agriculture development—are fundamental to catalyzing economic growth and reducing poverty. And, the evidence supports this.

  • One study reported that for every one percent increase in per capita agricultural output, incomes increased by more than 1.6 percent for the poorest 20 percent.   
  • The rural poor regularly face higher costs that limit their access to
      • employment,
      • markets,
      • trade,
      • schools,
      • and health clinics. 

Building reliable infrastructure lowers these costs and improves access in ways that lead to

  • better jobs,
  • better education,
  • and better health care.

That’s why investing in both agricultural growth and rural infrastructure directly benefits Africa’s poor, creating an anchor for continued economic growth across the continent.

MCC in Africa

As a different and demanding approach to development, MCC asks a partner country to identify their constraints to development, and then follows through on those answers.  For decades, many donors have ignored investments in agriculture and infrastructure, yet this is exactly what many of our partners have asked for

The current food crisis seems to suggest that our partners have been right to flag constraints that affect agribusiness development.  MCC is very proud to already be supporting their responsible solutions to long-term food and agriculture development issues. We see our partners select and prioritize investments in agriculture as vital for their fight against poverty. 

  • We see Benin, whose economy is driven by foreign trade, dedicate its $307 million MCC compact toward improving the operations and infrastructure of the Port of Cotonou.  Port upgrades will benefit
    • importers,
    • exporters,
    • consumers,
    • and businesses. 
  • We see Cape Verde use its $110 million MCC compact to upgrade
      • roads,
      • bridges,
      • and the Port of Praia.

The compact is increasing agriculture productivity by

  • improving water management and soil conservation,
  • enhancing agribusiness development and marketing services,
  • and increasing access to credit.

Farm households—many headed by women—are the main beneficiaries, together with cooperatives and small agribusinesses involved in input supply and value-adding activities.

  • We see Ghana apply its $547 million compact to
    • upgrade the National Highway,
    • expand main roads,
    • and improve the Lake Volta ferry system.

Improved infrastructure facilitates access to markets and social services.  The compact

    • provides training in commercial agriculture,
    • enhances land tenure security and credit services,
    •  promotes irrigation development,
    • and improves post-harvest handling and value chain services.
  • We see Lesotho use its $363 million compact toward infrastructure upgrades that will improve the reliability of water supply and sanitation for industrial and residential uses.
  • We see Mali use it $461 million compact to renovate the Bamako Airport to facilitate the movement of passengers and freight.  The compact also expands irrigation infrastructure in the Alatona region by modernizing irrigated production systems and introducing innovative
    • agricultural,
    • land tenure,
    • and water management practices. 

As agricultural production rises, the region will serve as an engine for rural growth; and

  • farm owners,
  • agricultural laborers,
  • suppliers,
  • transporters,
  • processors,
  • and traders

will see their incomes increase.

  • We see Mozambique’s $507 million compact focus on rehabilitating roads and on expanding the municipal water supply and sanitation systems in small towns. The Mozambique compact is equipping farmers to contain the spread of the Coconut Lethal Yellowing Disease that is decimating their industry. Through technical support, coconut farmers will be able to increase their crop yields and adopt new cropping systems that will improve productivity and encourage diversification into other cash crops.
  • We see Tanzania’s nearly $700 million compact, which President Bush signed with President Kikwete in Dar es Salaam this past February, invest in
    • transportation,
    • energy,
    • and water.

  • We see Madagascar’s $110 million compact, our first, open six agricultural business centers to provide farmers with information on
    • agribusiness technology,
    • management skills,
    • and access to finance.   

Already, more than 14,000 farmers have received technical assistance; and farmer groups have secured over half a million dollars in microloans.

  • We see Morocco’s $698 million compact stimulate growth among
    • olive,
    • almond,
    • date,
    • and fig producers

through technical assistance and improved irrigation infrastructure. The goal is to move small farms from high-water-use, low-value cereal grains to low-water-use, high-value and drought-resistant commercial tree crops. The compact will also transform Morocco’s small-scale fisheries sector by modernizing the means of

      • catching,
      • storing,
      • and marketing fish.

To build on these investments, former UN Secretary-General Kofi Annan joined me in Washington earlier this month to sign a memorandum of understanding between MCC and the nonprofit organization he now chairs: The Alliance for a Green Revolution in Africa.  This MCC-AGRA MOU creates a deeper framework for joint cooperation to promote broad-based agricultural growth and poverty reduction in specific African countries.

These investments are proof of MCC’s partnerships throughout Africa and reflect a shared commitment to agriculture and infrastructure development.  They are improving the efficiency of agricultural value chains throughout Africa.They are impacting the lives of the poor in meaningful, concrete ways. 

New Thinking about Development

Yet, these programs tell only half the story.  What is as powerful as improved irrigation systems or farmer training programs in these countries, is how their mindsets and expectations about their roles and responsibilities toward economic development are shifting and evolving.  MCC’s approach is rooted in the belief that what it actually takes to make poverty reduction through economic growth attainable and development sustainable is not the right kind of leadership from a particular donor, but something

  • much more fundamental,
  • much more domestic,
  • much more country-driven.   

The rest of MCC’s story of progress is grounded in this—in three critical and interconnected ingredients which we—and our partners—increasingly view as building blocks for development:

  • First, it takes the right policies.
  • Second, it takes local commitment and responsibility.
  • Third, it takes the private sector.

 Let me explain what we mean by each of these.

First, policies matter; and we award MCC grants based on a country’s policy performance. This is truly innovative, and what makes MCC remarkably different in the field of foreign aid.  We have found that even the poorest countries can be champions of reform—and bold reforms by poor countries can have a huge and immediate impact.  It is those countries that are actively

  • reforming,
  • fighting corruption,
  • investing in the health and education of their people,
  • protecting the environment,
  • and encouraging economic freedom

that are able to participate in our program.  We look at a country’s

  • regulatory,
  • monetary,
  • and fiscal policies

to determine if they promote business development.

To select who would make our best partners, we create a summary of performance—a scorecard—for every poor country in the world, using 17 policy indicators that measure a country’s policy performance. These indicators come from non-U.S. Government sources—like the

  • World Bank,
  • the IMF, 
  • the World Health Organization,
  • UNESCO,
  • and Freedom House.

Using these results, only those countries that pass our scorecard are invited to join our program.  In this way, we create a competition among countries for MCC funding based on sound policy performance.  We think it’s only appropriate that countries receiving American taxpayer dollars should be countries that practice good policies.  A sound policy environment creates the best possible climate for the most effective use of our aid. 

And, we know this performance-based approach to aid works because we see country after country make policy reforms to qualify for our program.  Many have called this phenomenon the "MCC Effect,” where the promise of qualifying for our aid and maintaining eligibility for it motivates continuous policy improvements. 

MCC’s resident county director in Morocco recently conveyed a story to me that illustrates this  point.  She was chatting with a senior Moroccan government official who thinks that the compact has already accomplished a great deal, though it hasn’t yet officially started its implementation.  When she asked why, the Moroccan official said it’s because various private sector representatives are already visiting his office to explore Morocco as a good place in which to invest, drawn to the country by the fact that it passes MCC’s selection criteria.

That is the power of the MCC model, and why our emphasis on good policies is also good for business development.

Second, sustainable development is a function not only of good policy performance but also of a country’s willingness to take the lead in its own development.  Our approach seeks to empower countries to drive their own development.

That is why we ask each partner country to examine its own constraints to poverty reduction and economic growth and design its own solutions—country-driven solutions to country-determined challenges

We ask countries to consult extensively with their citizens and outline their own priorities for eliminating barriers to poverty reduction and growth. And, once a country’s proposal for funding is approved by MCC, we ask that it continue taking the lead.  We put countries in charge of implementing their own programs to deliver tangible results in the lives of their poor. We believe it is essential for countries to take the responsibility for—to buy into—not only the creation but also the implementation of their own program. 

We say to countries: You can do it for yourself; we’ll give you the money, but you take the responsibility for the success of your own development.  This is not easy.  Capacity is often lacking.  But, MCC is not a handout; it is a hand up and a remarkable opportunity to empower countries to sustain their own development efforts.

And, our African partner countries are seizing this opportunity.

One of Ghana’s ministers described this best when he said, "Unlike other traditional development assistance programs where the donor proposes how funds are used, countries selected under the Millennium Challenge Account propose programs to receive funding.  Thus, the MCA is designed to allow developing countries to take ownership and responsibility for funds provided by the Millennium Challenge Corporation.”

While our partners in Africa are using MCC grants to invest in their agricultural infrastructure, they are also building their capacity by looking at the underlying policies and institutions that need to be changed to sustain those investments.  They are paying just as much attention to

  • establishing transparent procurement systems,
  • investing in business management training,
  • establishing road maintenance funds,
  • reducing tariffs,
  • slashing the amount of time and money required to open a business,
  • improving food safety,
  • and expanding access to capital.

As Thomas Barnett wrote in the Washington Times recently, "Millennium Challenge…is such a brilliant innovation. By luring near-emerging market economies in the direction of much-needed reforms by the promise of significant rewards, we encourage governments to decide for themselves whether they’re serious about change.”

MCC partner countries in Africa demonstrate that they are committed to change.  They are advancing the

  • physical,
  • human,
  • and financial

infrastructure, fundamental to creating local jobs and improving the lives of their citizens for the better.  They are also promoting a free-market environment that builds a solid foundation for the efficiencies and competitiveness businesses need to perform and be profitable.  The culture of reform that is sweeping our partner countries as they embrace a new outlook on development assistance creates a win-win outcome for all.

And, by insisting on good policies and insisting that countries build their capacity to do more for themselves, our aid—to make my third point—becomes a magnet for private sector activities, the true engine of real growth.  MCC African partner countries are open for business.  The World Bank’s Doing Business 2007 report places Africa among the top three regions committed to private-sector reform.  Of the 175 economies surveyed, Ghana and Tanzania—both MCC partner countries—ranked ninth and tenth in terms of breadth and depth of reform.

MCC’s process for selecting partner countries sends a powerful signal to the private sector that conditions in MCC countries are swiftly improving for investing and doing business.  In other words, MCC’s decision to invest in a country because the policy environment is sound is the private sector’s "green light” to follow.

I invite those of you here today from the business community to look closely and carefully at MCC investments in Africa—the more than $4.2 billion in investments we have already made, for example, to build infrastructure and increase agricultural productivity—to see what opportunities are being created for complementary or parallel investments of your own.  For this reason, I created our Private Sector Initiatives team at MCC to explore ways

  • to weave the private sector into the fabric of MCC compacts from the very beginning of the process and
  • to inform businesses of how they can benefit from
    • trade,
    • investment,
    • and procurement opportunities

resulting from MCC partnerships.

The characteristics we look for to determine who would make our best partners are the same ones the private sector evaluates to determine where to invest.  Our scorecards give companies a valid gauge of how serious a country is about improving its

  • business,
  • trade,
  • and investment

environment compared to its peers.  

Conclusion

The specific investments in agribusiness development and infrastructure networks unfolding in Africa—as critical for development as they are in and of themselves—can only be sustained if we take the next, even more important, step and create a framework for sustainable growth—a framework for opening and building new markets.

  • That is why we work only with partners that create and accelerate the right policy conditions for growth to outpace poverty. 
  • That is why we ask partner countries to lead their own compact development and implementation to deliver results.
  • And, that is why we further the private sector’s engagement.  When we leverage and maximize MCC compact grants with contributions from private enterprise, the benefits of MCC’s investments become more sustainable and the potential development impact increases significantly.

MCC’s partner countries are committed to good governance and private sector-led growth, and we are proud to support them by investing in their future.  Ultimately, however, their future lies not in our hands but in yours

Sustained economic growth that produces prosperity and reduces poverty will be driven by private investors, like so many of you here this afternoon.  What we start at the Millennium Challenge Corporation, the private sector will take to the finish line. 

Let us join together today and recommit to this great effort.  This is good for the agriculture sector.  This is good for business. This is good for the people of Africa.  

Thank you very much.