Thank you very much for inviting me to join you this afternoon – and many thanks to the Rotary Club of Washington and Rotary Club of Paris Academies for hosting this important summit on water, an issue of global significance and one intrinsically connected to the work that we do at the Millennium Challenge Corporation (MCC).
I am also really pleased to meet Rotary International’s new CEO, John Hewko. It so happens that I have taken the position that John first held at the Millennium Challenge Corporation. Let me start my comments by sharing a piece of management advice – never succeed a legend!
We are here today to raise awareness of the importance of water. When you think about how fundamental water is to life and how integral it is to existence – after all, even our bodies are made up mostly of water – every society has organized itself around ensuring access to water supplies. Even the ancient Greeks recognized it as one of the three basic elements – isn’t it ironic that in America and other affluent countries in the 21st century there is a need to organize to raise awareness and advocate for people to have access to water? Is there anything we take more for granted than water? Air maybe.
But consider this: About 1 billion out of the approximate 7 billion people in the world today do not have access to potable drinking water—and 2.6 billion people, almost 40 percent of our global population lack adequate sanitation. Two billion is such a huge number; I wonder how many thousands of football stadiums that would be? Can someone here do a quick calculation?
I think for those of us who are fortunate enough to live in water-rich environments we tend to think of our world as being abundant in water. And in fact, our daily reality is one of clean, cheap, plentiful water. But our reality isn’t typical. Only 3 percent of all the earth’s water is fresh water. And more than half of this small 3 percent fraction is locked in ice (although I guess that is changing). So, this leaves only about 1 percent, which represents the freshwater available in subsurface aquifers and surface water. As the population grows, access to this 1 percent of fresh water will inevitably become increasingly costly and more difficult for the poor.
I was reminded of the gap between our world of plentiful water and the experience of those for whom water is a luxury last week when I visited the rural African homestead in Swaziland where I lived as a Peace Corps volunteer 30 years ago. (Peace Corps and Rotary have the distinction of being two of America’s great voluntary organizations.)
Swaziland is blessed by a number of rivers and good rainfall, so it is not a water short country like many of the places where the MCC works, such as Mali, Senegal and Jordan. I lived in a community on the banks of Lake Mjoli, a large lake in the center of the country. When I lived on the homestead my Swazi mother and sisters would walk about a mile every morning and evening and draw the homestead’s water for drinking and bathing directly from the lake. The water was unfiltered and brown, the color of tea – which I found a little off-putting – but it tasted good.
Now, being a freshly minted Peace Corps volunteer, I felt it my responsibility to get the homestead to boil its drinking water and my sisters would obligingly boil a special kettle for me. But it didn’t take me very long to figure out that boiling water for about 20 people amounts to a lot of extra work to gather firewood, make a fire and boil large buckets of water. I didn’t want to be treated differently from everyone else so within a few weeks I came to terms with the sweet tasting brown water. I also came to terms with repeated cases of giardia – a common form of diarrheal disease. Unlike many of the poor, I knew how to treat this and had access to the right medication. I got to the point where I just kept a supply of Flagyl to treat myself.
Years later, I saw a dramatic, terrifying example of the power of water-borne disease when I was working on the relief efforts in Rwanda in August 1994, just after the genocide. In a camp in the eastern Congo, 50,000 people died from cholera in a week’s time as a result of being crammed into an area with no access to clean water or sanitation. I think the death rate reached 12,000 people per day. And then … when the U.S. Army Corps of Engineers put in a water system, the death rate fell, literally overnight, to something like 10 people per day!
Water is not just a humanitarian issue. It is fundamentally an economic issue, which is why it is of such interest to the MCC and to our partner countries. Whether we are talking about the opportunity costs that women in poor countries pay to collect, boil or filter water or the large-scale infrastructure needed to provide water to urban populations or industry, no country will overcome poverty unless it solves the natural resource, environmental, logistical and financing issues around water management.
I know I am preaching to the choir, and I’m sure you’ve heard more compelling presentations about the challenges and opportunities posed by tackling the issue of access to water, so let me tell you about the MCC, our non-traditional approach to development assistance, and a little about the work that we do with developing countries in the water sector.
The MCC is an independent U.S. Government agency established by Congress in 2004, with bipartisan support. Our structure is modeled on a private corporation, so we have a 9-person board of directors that is chaired by the U.S. Secretary of State with 4 directors from the private sector. Our mission is to “reduce poverty through economic growth” – and we work in poor but well-governed countries. We quite deliberately operate like a business. We invest in programs that yield an economic return. We encourage policy and governance reforms necessary to sustain the investments in physical infrastructure. And we look for ways to leverage deeper return and sustainability gains by partnering with the private sector.
Unlike a lot of traditional development assistance, our mandate is to promote economic growth and increased incomes, not to finance social safety nets or other worthy programs that don’t have a direct economic payoff. That’s not to say these programs shouldn’t be financed – just not by the MCC. Organizationally, we are a small outfit of fewer than 300 professionals, including our 2- to 3-person in-country teams.
Our business model is substantially different from traditional foreign assistance in a number of ways:
First, we have a laser focus on economic growth: this means that we invest in projects that yield an economic return.
Second, MCC is selective. We only work with countries selected using publicly available, third-party indicators related to ruling justly, investing in people and economic freedom.
Third, our grants have a 5-year time limit. This creates a sense of urgency – as well as a need for good management – that is often missing in more traditional programs. We are seeking authority from congress to extend this time limit in limited circumstances where a particular project cannot be done in five years.
Fourth, because our funds are committed up front and are untied we are able to allow our partner countries to take responsibility for implementation.
Finally, we focus on results, monitoring our progress systematically through empirical indicators established upfront.
My description of the MCC model would not be complete if I did not mention a core principle that we live and breathe: “country ownership.” Once a country is selected and decides to pursue a grant, it is responsible for conceptualizing the programs, projects or activities that will be financed. Country ownership also applies during implementation: while we guide countries through diligent oversight, they are the ones that actually implement compacts.
Taken together, these factors create an amazingly powerful set of incentives for good policy performance. We have seen this effect cause governments to undertake reforms both to become eligible for MCC and to retain already-agreed programs.
Given our emphasis on country ownership, what I find interesting and particularly pertinent to this gathering is that we’ve found that more than half of the countries we work with have identified water as one of the main constraints to economic growth. In fact, to date, of about $8 billion that MCC has committed to investing in developing countries, approximately $1.3 billion are water-related projects. One of our most recent compacts, Jordan, valued at about $275 million, is focused entirely on water.
Of our total water portfolio, about 30 percent is for water supply, sanitation, and hygiene. Sixty percent is for water productivity and irrigation. And about 10 percent is for capacity building, institutional strengthening, and water resource management – so critical for the sustainability of MCC’s investment specifically, and water more generally.
The bottom line is that MCC’s portfolio of investments in the developing world provides a crystal clear indicator of the priority that developing countries put on access to water, for both household and agriculture uses - and perhaps more importantly, its role not just as a social investment but as an essential economic investment. I think this is important because it gets at how we justify resource allocations for water. I fear that if we justify water investments solely on social merit – which is mostly what I’ve seen in my time working overseas – we leave them more vulnerable to budget cutting in austere times. If we are talking about investments that are integral to economic growth and building economies we may find more traction.
And while I’m on the topic of budget cutting, let me say a word about the situation in our own country since it is the talk of the town. Yesterday, Congress passed a compromise bill that funds the federal government, including the MCC and other foreign assistance programs, through September. The State Department and foreign assistance lost about $8 billion – there was a great chart in the Washington Post a couple of days ago that showed how much is being cut from each department and foreign affairs took by far the largest cut. MCC was cut by about 20 percent. The budget outlook for FY 2012 also looks difficult.
President Obama has made clear the need to reduce the size of the federal deficit and for someone like me who has spent years talking to ministers of finance about civil service reform, containing public service payrolls, structural reform, and other budget issues, I fully appreciate the importance of good economic management.
There are many people who think we need to make a choice between investing at home and investing abroad. I think this is a false choice. The reality is that we live in a highly interconnected, globalized world where the prosperity and security of one country impacts others. Foreign assistance helps to advance U.S. security, economic and humanitarian interests and is a much less expensive investment than military action that can be required in places where lack of attention to development gives rise to extremism. That said, even in the area of foreign assistance, we need to constantly push ourselves to find effectiveness and cost-efficiency gains.
Our selectivity and focus means that we will always be working with a minority of poor countries. But when you look at MCC’s track record in terms of results that benefit the poor, in terms of the incentives our model creates for good policy performance, and in terms of MCC’s ability to reinforce business-friendly environments that allow countries to increasingly finance their own needs, you’ll see this is taxpayer money well-spent.
Since this is Rotary, let me close by reiterating the priority that the MCC places on the role of the private sector in development in general and in MCC’s programs in particular. There are numerous ways in which the MCC works with the private sector both during the design and the implementation of our compacts – and we are increasingly reaching out to the private sector to explore ways in which we partner more explicitly so as to induce synergy in our respective contributions to creating opportunities for growth.
This is also one reason why I am so pleased to be talking to you. In my experience working with Rotary in the past, for example in Uganda in the 1990s, Rotary was a reliable partner that not only helped mobilize resources for public-private partnerships, but brought real world business acumen, innovation and experience to the table.
In closing, I would like to go back to the beginning: “water is life” and our water programs highlight a basic truth: no society or community will see their vision for a secure and prosperous future fulfilled until they secure clean – and sustainable - sources of water and sanitation.
We are excited about the progress we see our partner countries making – and as I look around this room, it is so encouraging to see so many businessmen and women who care about an issue that seldom makes the headlines.
I once again salute Rotary International for hosting this summit, which along with World Water Day on March 22 puts “water” in the spotlight, and most appropriately leads up to Earth Day on April 22. Your support for work in the water sector will help to change lives by delivering health, opportunity and a more sustainable future for everyone.
Thank you for your work, and thank you for the opportunity to speak with you today.