Speech

September 20, 2007

As Prepared by John J. Danilovich, Chief Executive Officer

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Panel Presentation by MCC CEO Ambassador John Danilovich at the Business Civic Leadership Center 2007 Global Corporate Citizenship Conference: The Role of Corporate Citizenship in Emerging Market Development

Introduction

Thank you for the kind introduction, Arthur. It’s a pleasure to be here, and I wish to thank the U.S. Chamber of Commerce Business Civic Leadership Center for organizing this conference.

The Millennium Challenge Corporation is committed to reducing poverty and stimulating growth in developing countries around the world.  It is no surprise that we want our assistance to play a role in addressing the challenges of investing and increasing business activity in emerging markets.

MCC assistance

  • can improve the conditions necessary for sustainable economic development

and

  • can help build a foundation to stimulate, attract, and leverage what is essential for generating transformative growth: namely, private enterprise

MCC looks forward to the day when our aid can be replaced by the self-sustaining economic activity driven and generated from within a partner country itself by the private sector. We believe that the private sector fuels economic growth, and that countries experiencing such growth will see the number of their citizens living in poverty decrease.

Stories from the field

As I visit MCC partner countries worldwide, I see not just the severity of poverty but also the strength of the entrepreneurial spirit. MCC investments are helping to alleviate such poverty by fueling that spirit.

  • I’ve visited with farmers in the fields of Madagascar and Honduras,  who are learning new techniques and securing new buyers to make a successful transition to higher-profit crops.
  • I’ve handed out land titles in Nicaragua and Madagascar,  many to women.  In Nicaragua alone over 460 land titles out of an expected 43,000 have been awarded. With clear title to their land, the poor are able to use their property as collateral for credit to expand their farming operations.
  • I’ve toured infrastructure projects in Georgia and Benin,  which are enabling the flow of energy to homes and businesses and the flow of goods to markets.

From securing land tenure to improving infrastructure, these early results demonstrate how MCC investments are creating the conditions for development and growth and encouraging private enterprise.

MCC overview

These results also demonstrate our model at work, a model established by an Act of Congress in 2004 as an innovative way to deliver development assistance. MCC provides grants—not loans—to:

  • countries that practice sound policies supporting
    • good governance,
    • investments in the health and education of their citizens,
    • and economic freedom;
  • countries that are pursuing their own development by designing and implementing homegrown strategies for poverty reduction through economic growth; and
  • countries that demand measurable and tangible results in the lives of the poor.  

By applying these core values—

  • policy performance,
  • country ownership, and
  • tangible results—

we achieve our mission to reduce poverty through sustainable economic growth in the world’s poorest countries. And, only with Congress’s support for sufficient funding will MCC be able to continue to fulfill that mission throughout the world.

In the short space of three and a half years, MCC has signed 14 compacts with partners in

  • Africa,
  • Central America,
  • Eurasia, and
  • the Pacific,

totaling nearly $4.6 billion.  In the past week, our Board approved two more compacts: one with Mongolia for nearly $285 million and one with Tanzania for $698 million.   We hope to sign both in coming months. Over $360 million has been awarded to another 17 countries in our threshold program to help them address policy weaknesses and push them over the “threshold” toward compact eligibility.

How MCC addresses the challenges of investing and assisting in emerging markets

MCC helps partner countries transition from dependence on assistance to the independence of sustainable, investment-driven development, so as to have a meaningful and lasting impact on the lives of the poor.  MCC’s work in partner countries demonstrates how we can and are addressing the challenges for investing in emerging markets. We do this by:

  • creating attractive business conditions,
  • fighting corruption, and
  • forging partnerships.

Let me briefly discuss these three ways.

First, business conditions.   MCC’s performance-based approach to assistance motivates countries to practice sound

  • social,
  • political, and
  • economic

policies and to make ongoing and necessary reforms to continue doing so.  This includes policies that create the right conditions for doing business.

  • To remain MCC-eligible, Madagascar,  for example, reduced the minimum capital requirement for new businesses by 80 percent in 2006 and saw a 26 percent increase in new business registrations.
  • El Salvador as well, inspired by MCC, reduced the number of days it takes to start a business from 115 to 26 days, leading to a 500 percent increase in business registrations and an increase in customer satisfaction from 32 to 87 percent. 

Because MCC demands performance on indicators evaluating

  • fiscal,
  • monetary,
  • regulatory, and
  • trade conditions—

including the costs and days required to start a business—we create a powerful incentive for countries to foster a business climate where the private sector can flourish and do business.  These indicators are taken from independent,  third-party sources like the

  • IMF,
  • Heritage Foundation,
  • the World Bank, and
  • the International Finance Corporation

The indicators we use emphasize

  • the rule of law,
  • predictability in regulatory and legal procedures,
  • the enforceability of contracts, and
  • the protection of intellectual property rights

—all vital tools in creating and protecting a business- and investment-friendly environment in MCC partner countries.  This stimulates

  • homegrown entrepreneurship,
  • small business development,
  • increased trade, and, of course,
  • investor opportunities, both domestically and for international companies.
  • MCC’s compact with Benin is improving the capacity of small rural enterprises to respond to new business opportunities by reducing the cost of credit and improving access to financial services. Within 5 years, we expect that this will generate substantial new investment—
    • creating jobs,
    • raising incomes, and
    • lifting lives out of poverty.
  • Through compacts with
    • Honduras,
    • Nicaragua, and
    • El Salvador,

which are not only partners with MCC but also partners in trade through CAFTA-DR, we areaccelerating the pace of domestic market-led growth, while building greater trading capacity and maximizing the benefits of regional free trade arrangements already in place.  For example, MCC-sponsored workshops held in Honduras and Miami are leading to over $3 million in new private sector commitments in agricultural exports.

The Finance Minister of Indonesia,  where we have one of our largest threshold programs, says the real draw of MCC’s eligibility and selection process is not necessarily the money.  It is the MCC “good housekeeping seal of approval,” which sends a powerful signal to private investors that conditions are right in MCC countries for investing and doing business.

Second, corruption.   MCC’s approach to aid further reinforces accountability and good governance by linking eligibility to performance on a transparent and public Control of Corruption indicator. Passing this corruption indicator is the only hard hurdle to qualify for MCC funding. This creates a powerful incentive for reform and capacity building to fight corruption, which stifles entrepreneurship and private investment.  Countries are

  • adopting tough anticorruption laws,
  • strengthening oversight institutions,
  • opening up the public policymaking process to greater scrutiny, and
  • stepping up corruption-related investigations and prosecutions.
  • Georgia—as just one example—adopted dramatic anticorruption reforms leading to a significant improvement in its control of corruption indicator from the 36th percentile in 2004 to the 78th in 2005.  The percentage of firms in Georgia reporting that bribes are necessary to get things done plummeted from 37 to 7 percent. Georgia has
    • arrested scores of corrupt public officials,
    • made legislative changes that facilitate the prosecution of corruption cases,
    • fired 15,000 corrupt members of the police force, and
    • increased the salaries of 10,000 public servants to counter the lure of petty corruption. 

We shouldn’t be surprised that the World Bank’s 2006 and 2007 Doing Business reports identified Georgia as one of the world’s most aggressive reformers.

MCC’s development assistance is motivating countries to root out corruption, and that’s good for business.

Third, partnerships.  We want to provide the private sector with a favorable point of entry to initiate or expand its own commercial activities.  Our MCC investments will succeed only to the extent that they foster continuing economic activity—whether by a farmer in her field who now invests because she has title to her land or by a local or international company who invests because of the improved business climate, created by MCC-incentivized reforms. 

Just the way MCC partners with countries to help them help themselves achieve their development objectives, MCC welcomes partnering with others in the private sector who want to take advantage of emerging opportunities in these countries.  I encourage and invite members of the business community to leverage MCC investments and use them as a springboard for parallel or complementary investments of their own. 

  • Grupo Beta, a textile manufacturing firm, made a $6 million investment in Nicaragua,  attracted by the favorable business conditions MCC helped create there. 

Foundations and companies with compassionate corporate social responsibility initiatives are welcome to look carefully at MCC programs in countries in which they have an interest.  In conversations we have had with

  • the Gates Foundation,
  • the Rockefeller Foundation, and
  • private sector companies,

we have identified a number of mutual synergies worth exploring further. We are committed to working with

  • foundations,
  • businesses, and
  • country partners

to pursue these opportunities.

Conclusion

By creating pro-business conditions and rejecting corruption in partner countries, MCC becomes the gateway to private sector engagement.

I created a new Private Sector Initiatives unit at MCC to increase private sector activity and investment in MCC-eligible countries and to explore working more with business associations and foundations.

This team is moving forward with new initiatives, including opening a communication channel between MCC eligible countries and the international private sector during proposal development and seeking ways to leverage MCC funding with private sector financing and investment.

Such private sector linkages to MCC programs will ensure sustainable economic growth, which is the best hope for lifting the poor out of poverty.

And, we can be much more effective in reducing poverty and addressing the challenges of investing and assisting in emerging markets when we work together rather than when we work alone.

Thank you very much for your interest in the Millennium Challenge Corporation, and I would be happy to take your questions.