Once preliminary analyses and stakeholder consultations are complete, the Compact Development Team will identify the root causes of the constraints to economic growth, and assess alternatives for addressing those constraints. Following this assessment, the Compact Development Team will present MCC with projects it proposes for compact funding.
Root Cause and Alternatives Assessment
The Compact Development Team should assess the root causes of the constraints to economic growth identified in the Constraints to Economic Growth Analysis. Compact Development Teams may find the Asia Development Bank’s Results-Focused Project Design and Logical Framework to be a useful tool for working with stakeholders and subject matter experts to understand the widest possible range of root causes. The Compact Development Team’s assessment of root causes analysis should include:
- An assessment of policy and institutional issues relevant to the constraint to growth. Areas of investigation should include the formulation and implementation of policies, laws, regulations, administrative procedures, along with the capacity of public institutions to carry out those functions.
- A consideration of social, economic, and political inequalities and de jure and de facto discrimination as root causes of the constraints to growth, as determined by the findings of the Social and Gender Constraints to Poverty Reduction Analysis.
- A consideration of private sector and other public views of the root causes of the constraints to economic growth, as informed by the Investment Opportunity Assessment and consultations.
Once Compact Development Teams have analyzed the root causes of the country’s constraints to economic growth, they should assess alternative courses of action to address those constraints. For example, if insufficient availability of electrical power is identified as a constraint to growth, and the Compact Development Team identifies low tariffs, high losses, and poor planning as root causes behind the constraint, the Compact Development Team would assess different ways of addressing root causes, such as revised tariff-setting policy and process, the installation of automatic meters, criminal prosecution to collect arrears, service shut-off for non-payment, improved transmission, distribution, and sub-station infrastructure, or select power generation opportunities.
This analytical process will generate an economic theory of change for the Compact Development Team, and provide an early analytical foundation for the programmatic logic that will underlie the initial investments proposed to MCC – the Concept Notes.
Project Concept Notes
Compact Development Teams will provide MCC with preliminary project proposals (“Concept Notes”) that provide basic information about proposed projects. Project proposals should be based on the analytical process outlined above, and include information drawn from the preliminary analyses and public consultations conducted during Phase I (Constraints to Economic Growth Analysis, Investment Opportunity Process, and Social and Gender Constraints to Poverty Reduction Analysis). MCC will review the project proposals and may refine or reject the proposals. Those project proposals that MCC accepts for further refinement will be more fully defined in Project Concept Papers.
Project Concept Papers
Once the Compact Development Team has received MCC’s responses to the Concept Notes, it will develop more detailed project proposals – Project Concept Papers. For each proposed project the Concept Papers describe: (i) project rationale, activities, and costs, (ii) sector context and policy, institutional, legal and regulatory environment, (iii) existing preparatory work, such as feasibility and design studies, (iv) analysis of expected costs and benefits, and beneficiaries, (v) environmental, social and gender opportunities and risks, (vi) mechanisms in place or contemplated to ensure financial and technical sustainability, and (vii) proposed implementation arrangements.
Project Concept Papers are intended to:
- Provide countries an opportunity to clarify, organize, and prioritize their own investment ideas in written form, as well as to establish the programmatic logic that underlies them, before substantial time and resources are invested into full project development;
- Inform detailed discussions between MCC and the candidate country on the rationale, feasibility, costs and benefits, evaluability, and risks of projects still at the conceptual stage, and agreement on which projects merit resources for further development;
- Give MCC an opportunity to provide guidance to countries on the structure, approach, activities, and other aspects of project concepts before they are fully developed; and
- Help MCC and partner countries reach agreement on outstanding issues that need to be addressed before detailed investment proposals are developed; related assessments, studies, and data that will be required; and the funding and timing of this work.
When MCC receives the Concept Papers, it will undertake an initial assessment, conduct an internal and external peer review, and draft a memorandum summarizing its assessment of the Concept Papers.
Initial Assessment: MCC conducts an initial assessment of the Project Concept Papers, and provides a recommendation to proceed to full project development, postpone a decision pending receipt of further information from the country or further investigation by MCC staff, or reject the project concept outright. MCC’s assessment will focus on a range of project questions:
- Rationale: Is the project rationale sound? Does the project address a key constraint to growth? Will it lead to poverty reduction through a set of clearly defined project outcomes resulting from project outputs generated through investments in specific activities? Will the project displace or crowd out private investment? Does the project complement rather than duplicate other donor activities?
- Expected Impact: Do the benefits sufficiently outweigh the costs? Does the preliminary economic analysis provide a rate of return above ten percent? Do substantial benefits flow to the poor?
- Sustainability: Is the project sustainable? Is the project concept supported by national policies, institutions and practices that will ensure the financial sustainability of investments? Will the legal and regulatory framework allow the project to continue to provide benefits in the future? Does the government have the technical capacity to operate and maintain the project after the conclusion of the compact?
- Environmental, Social and Gender Issues: Does the project enhance environmental or social benefits, or enhance the sustainable use of natural resources? Does the project contribute to or remove barriers to social and gender equality? Does the investment pose serious risk to the natural and human environment that must be mitigated, or require significant land acquisition, resettlement and other forms of compensation?
- Implementation Risk: Can the project be implemented in five years? Do the institutions that are proposed to implement each project have the demonstrated capacity to manage the project? Can the scope and complexity of work be completed within five years using MCC implementation procedures, and based on relevant local and international experience?
- Level of Preparation: What additional studies are needed to develop the project concept into an investment proposal suitable for consideration by MCC senior management and Board of Directors?
Peer Review: MCC will share its initial analysis within MCC and with outside experts to ensure its analysis is sound and technically accurate.
Recommendation: Following internal and external peer reviews, MCC prepares a Concept Paper Assessment Memorandum for approval by MCC senior management. Upon approval, MCC will prepare a letter to the Compact Development Team outlining MCC’s decisions and next steps. A decision by MCC to support further project development does not constitute a commitment to finance proposed projects.