Deputy CEO Alexia Latortue's Remarks at CGD's Mobilizing External Financing for Africa Event

Introduction

Good morning, good afternoon.  Thank you, Mark, Matthieu and of course Daouda for your presentation.

It is clear that there is a need for increased engagement, partnership and solidarity with Africa. We just heard the stark fact that 20 years of poverty reduction has been reversed.

If there is one thing that we have learned this past year with COVID-19, it is that our world is interconnected and that we are only as strong as our weakest link.

I will take a different approach with my remarks and tackle the question of external financing, effective impact and practical action from the “grounded” perspective of a bilateral development agency working closely with countries. Though we were not mentioned in Daouda’s presentation – bilateral agencies do play a strong role in the development ecosystem.

What is MCC and how do we work?

As you all know, the US has a robust development architecture, both through its active participation in many of the international financial institutions and through not just one, but three, bilateral development agencies. The Millennium Challenge Corporation (MCC), that I represent today, is one of them. 
MCC was specifically designed to strike at the heart of what holds a country back from growing its economy. Our mission is poverty reduction through economic growth. 

And I am heartened that there is an increasing consensus that it is not just growth that we care about, but high-quality growth – this means growth that is sustainable and inclusive, and job rich.

MCC uses data and evidence in all that we do.  We have rigorous analytical tools and work with countries to identify the binding constraints to growth. We then focus on some of the most stubborn constraints and policy reforms.

We do a lot of big infrastructure investments, though that is by no means all that we do.  I believe it is critical to focus on green infrastructure. There is so much infrastructure to be built – and to build back better – in the countries we work with, and there should be a premium in baking in a low carbon trajectory now.

MCC partners with governments in all that we do. Fundamental to MCC’s programs is the principle of country ownership—we work hand in hand with governments, the private sector, and civil society to identify the problem, design the solutions, and implement the investments.

During this session, we have talked about different types of financing – MCC’s type of financing is grants. I call this high-quality money – it is flexible, predictable, and multi-year.  And our grants can be large, very large, up to 500 million for one country over five years.  And obviously these grants do not add to a country’s debt burden.

Where does MCC work?

MCC has investments around the world, and more than two-thirds of our investments are in Africa. This is also why I am so pleased to be on this panel.

In Africa, we have developed programs – we call them Compacts — in Benin, Burkina Faso, Cabo Verde, Cote d’Ivoire, Ghana, Kenya, Lesotho, Liberia, Malawi, Mozambique, Namibia, Niger, Senegal, Tanzania, and Zambia with more in the pipeline.

We only work with countries that prioritize governance, transparency and accountability, which we believe is key to effective implementation, because using financing well needs to be part of the discussion. Specifically, we partner with low and lower-middle income countries that have demonstrated a commitment to economic freedom, investing in their people and ruling justly. We also place a high premium on anti-corruption efforts.

MCC compacts typically take the form of large investments in infrastructure like power, transport, or water, sanitation and hygiene, combined with institutional and policy reforms that help ensure those investments can have a sustainable impact.
We are now also working on our first regional compacts that cover selected country pairs which is critical for advancing opportunities for cross-border investments and trade.

More than Financing, Particularly from the Development Community

It is clear that we need to see more decisive action from the international community to partner with Africa as the impacts of COVID-19 – both health and economic – are still unfolding.  The May Summit is welcome in this regard.

We know from the IMF and from the countries themselves that the financing gap is huge, we know that debt is a concern for many countries, and we know that vaccine deployment is frankly still in a shameful state.  These are significant challenges. 

But we have also learned about some of the keys to success. And these lessons suggest that we need to also focus on issues beyond external financing from development actors. I have two points here.

First, policy and institutional reforms are key to laying the foundations to unlock far greater flows of finance – flows from the private sector that are so much more plentiful.

MCC takes the approach that policy reforms are necessary not only to attract private capital, but also to build a business-friendly enabling environment that will ensure the sustainability of investments.

Policy and institutional reform is tough work and is often politically fraught. MCC wants to support bold and courageous reform minded policymakers in the countries where we work. We can use grant funds to support needed policy and institutional reforms. And we’ve gotten much better at making sure we have the reform piece at the front and center of investments and discussions with countries —it cannot be an afterthought or a nice to have. In fact, it is often a must have if we care about long-term impact.

Secondly, this brings me to private sector engagement.

Mobilizing additional sources of financing for development from outside the development community has never been more essential.  In both advanced and emerging markets, the private sector will have to be key to economic recovery.

MCC engages with the private sector in three different ways. One, creating an enabling environment for private investment – I just spoke about this; two, employing blended finance tools; and three, building partnerships.

Let me provide a few examples.

On the enabling environment, in Malawi MCC helped introduce a new policy and legal framework to stimulate additional investment in new power generation and expand access to electricity. This led to the development of the country’s first Independent Power Producer deals, providing Malawians with affordable and sustainable energy access.  One of these power producer deals, the African Trade Insurance Agency (ACA) guaranteed $67 million in investments in the Nkhotakota solar photovoltaic project in central Malawi.  It is now being developed by a consortium formed by Responsibility Renewable Energy Holding (RAREH) and Phanes Group and is expected to have a capacity of 37 megawatts and will be able to provide electricity to 150,000 Malawian households.

We are also looking to make more strategic use of MCC’s kind of funding – grant funding –through blended finance. In this respect, MCC can act as a dealmaker, builder, and catalyst for blended finance.

As a dealmaker, MCC brings transactions and PPPs to market that meet international standards. As a builder, MCC strategically invests in public infrastructure. And as a catalyst, MCC provides strategic, financial and technical advice, training, and knowledge management to build a pipeline of investable opportunities.
We have an exciting year ahead of us at MCC with respect to stepping up our work on blended finance – it is not always easy to know how to link up with other parts of the system, but we are working hard at it.

We have a new blended finance strategy. And we recently adopted new institutional investment criterion to encourage thinking about blended finance opportunities early in the compact development process. 

To give some examples of what we have in the pipeline. Last October, MCC signed an MOU with Africa50 on the Millennium Impact for Infrastructure Accelerator (MIIA) Development Partnership. The goal is to spur and attract impact investments in Africa by developing bankable infrastructure deals with measurable social and economic impacts.

We also have proposed a new blended finance mechanism with USDFC called the American Catalyst Facility for Development (ACFD) to catalyze and enable investments by DFC in MCC partner countries that would not otherwise be viable for DFC and that are consistent with the objectives and missions of both MCC and DFC.  
We also recognize that many of the private sector businesses we work with have specific skills that we do not have, as development actors.  So, collaborating with them more intensely is important.  Just one small example is MCC’s partnership with Bechtel in Cote d’Ivoire which focused on national infrastructure master planning and built on MCC’s deep infrastructure experience on the continent and Bechtel’s global expertise in integrated master plan development and implementation.

Conclusion

A fundamental part of any dialogue is listening and transparency by all parties. This session today is important.  It is critical that African Governments come to the table with prioritized needs recognizing that funding may be limited from some traditional partners.

But there are also opportunities to build on. We need innovative thinking and solutions that are responsive to Africa’s needs in both short-term and long-term.  And the short-term solutions cannot bankrupt or harm the long-term solutions.

There is a need to leverage more private and institutional financing to invest into frontier markets to support long-term development plans.  But this will, I suspect, require us as MCC, but perhaps all of us collectively, to adapt and evolve our perspectives and approaches to truly make it work.