MCC actively engages with the private sector throughout the development and implementation of its threshold and compact programs to spur economic growth in partner countries. By holding its partner countries accountable to high standards of good governance and by capitalizing on private investment and expertise, MCC is delivering development results and creating new opportunities for U.S. firms in frontier markets.
Driving Reforms
MCC’s strict standards for countries to receive aid have created an incentive for countries to make reforms before even a dollar of MCC assistance is expended, a phenomenon called the “MCC Effect.” A country understands that becoming eligible for a MCC compact means more than just grant funding—it is a signal to the world that the country is on a positive track. It also sends a message that the United States believes it has the political, social, and economic potential for long-term progress. MCC’s selection criteria encourage countries to reform policies, strengthen institutions, and improve data quality to boost their performance in the areas of economic freedom, ruling justly, and investing in their people, as measured by the MCC scorecard.
MCC programs seek to address barriers to growth and sustain significantly increased levels of income for beneficiaries long after compact programs end. To achieve this goal, a compact is implemented in tandem with a broader development strategy. During the compact development process, MCC and the partner country examine conditions surrounding the proposed compact program and develop a plan for policy reform that will maximize the compact’s impact and sustainability. The partner government must succeed in making crucial policy changes before funding is released and must continue to improve the operating and policy environment during implementation. These policy reforms ultimately support the conditions necessary for continued growth and investments.
Creating New Opportunities for Economic Growth
Diversity, Equity, Inclusion, and Accessibility (DEIA)
In FY2022, MCC continued to take action to advance racial and gender equity and to promote diversity, equity and inclusion. This included the publication of its DEIA Strategic Plan in accordance with Executive Order 14035 to advance DEIA in the federal workforce. The agency’s approach combines immediate and short-term actions to build capacity and promote a culture of inclusion with opportunities in the medium term that come with identifying inclusion and gender as one of the three crosscutting strategic priorities for MCC. MCC’s DEIA Strategy cultivates and sustains a global, inclusive culture where our differences are leveraged to produce innovative solutions to meet the needs of our employees, global partners, and the international development community.
MCC’s integrated approach to promoting DEIA focuses on:
- Achieving a workforce that is representative of people from diverse backgrounds at all levels of the agency, in all divisions and practice groups;
- Creating a culture that encourages collaboration, learning from differences, flexibility, fairness, and equal opportunity, and where workplace structures, policies, and practices enhance organization effectiveness; and
- Employing a diverse talent in an increasingly changing marketplace to meet the agency’s needs effectively and efficiently.
Moving forward, MCC will continue to utilize its DEIA Strategy to cultivate and sustain a global, inclusive culture by developing a new agency-wide inclusion and gender strategy to address the links between gender, inclusion, and the agency’s mission of poverty reduction through economic growth. MCC is also working to update its analytical tools to consider intergenerational equity issues and is looking to identify areas where the nature, location, and sources of vulnerability to poverty have evolved in preparation for MCC’s 20th anniversary in 2024.
Climate
MCC recognizes that climate change, poverty, and economic growth are inextricably linked, and that climate change poses the greatest risk to developing countries, whose people, economies, and institutions are less able to adapt to its consequences. Climate-resilient and otherwise sustainable investments have been a core MCC competency for years. MCC is working with partner countries to develop innovative climate-resilient solutions to combat poverty and help build climate-resilient economies that promote sustainable and inclusive growth, enhance resilience to future crises, reduce greenhouse gas emissions, and adapt to new climate realities.
With more than $4 billion in total anticipated, country-led investments between 2021-2025, MCC is well-positioned to make a significant impact in advancing sustainable, inclusive climate-resilient economic growth in partner countries around the world. In FY2022, the agency focused on implementing its climate change strategy and ensuring that its investments supported climate-related commitments. Specifically, the agency:
- Strengthened integration of climate adaptation considerations in analytical tools. In FY2022, MCC continued to refine analytical tools for economic analysis to better reflect climate and environmental considerations. This includes the development of new guidance for environmental externalities (including greenhouse gases) in cost-benefit analysis (CBA). New approaches to CBA were piloted in several different compacts, including for a transportation (roads) analysis in Malawi, an assessment of the health impacts of greenhouse gas emissions in Kosovo, and for ecosystem service valuation in Mozambique.
- Integrated climate adaptation and related environmental considerations into all stages of program development and implementation. MCC is working to help partner countries adapt to the negative consequences of climate change. For example, the coastal climate resilience program under development with Mozambique is designed to reduce the country’s susceptibility to climate shocks. The program will work with a range of local and international organizations to restore and protect critical coastal areas which are vital to ensuring food security and protecting natural resources to reduce impacts of flooding. Another example includes MCC’s $350 million compact with Mongolia. In August 2022, MCC and the Government of Mongolia broke ground on the water recycling plant that, once operational, will help alleviate the strain on groundwater aquifers along the Tuul River, which has been exacerbated by climate change, and provide the critical water resources needed to support the everyday wellness and economic growth of Mongolians.
- Support policy and institutional reforms in adaptation to strengthen the resilience of MCC investments. MCC continues to be a key partner and reliable donor for our country partners to meet their Nationally Determined Contributions and climate ambitions. In FY2022, MCC signed a $25 million dollar threshold program with The Gambia to support institutional and policy reforms in the energy sector that are geared towards a transition to low-carbon energy, meeting conditional emissions goals in the Nationally Determined Contributions, and blended finance tools to mobilize private capital into climate-smart activities. Another example includes MCC’s $202 million compact with Kosovo which seeks to transform Kosovo’s energy sector to be more sustainable, inclusive, reliable, and affordable. The compact supports the country’s long-term energy strategy and energy climate plan and includes policy institutional reform support related to battery storage and renewables, as well as the Just and Equitable Transition Acceleration Project.
- Leverage blended finance to catalyze private capital for climate activities: MCC is working with partner countries, other U.S. Government entities, finance institutions, civil society, and other organizations to expand private finance for climate adaptation. MCC, together with USAID, launched Climate Finance +, a collaborative government approach to strategically use public finance to unlock billions in private investment. MCC will work with country partners in Indonesia, Mozambique, and Zambia to explore opportunities to leverage greater levels of financing for green infrastructure by providing technical assistance required to enable use of green bonds or other blended finance tools.
- Continue to expand and deepen partnerships to further climate objectives: MCC contributed to interagency and external partnerships on climate adaption. For example, in FY2022, MCC played a key leadership role in support of the President’s Emergency Plan for Adaptation and Resilience (PREPARE), a whole-of-government initiative that serves as the cornerstone of the U.S. Government response to addressing the increasing impacts of the global climate crises to enhance global stability. MCC co-chaired a working group for the infrastructure component of PREPARE together with the United States Trade and Development Agency (USTDA), State and USAID. Additionally, MCC and the University of Massachusetts are partnering to enhance the benefits of MCC’s programs by incorporating deep uncertainties into the existing economic analysis process. This modeling will more fully integrate the impact, CBA, and externalities (both positive and negative) of the environment and climate change. The University of Massachusetts is testing this new framework and principles in select MCC partner countries including Lesotho.
- Integrate adaptation and resilience considerations into MCC’s facilities management and internal operations. The agency is following the framework outlined in the US Climate Resilience Toolkit to assess risks due to heat, flooding, and vector-borne diseases brought about by climate change and to define solutions to reduce the potential impacts to its domestic operations.
To learn more about MCC’s role in climate-smart development, visit https://www.mcc.gov/about/priority/climate.
Inclusion and Gender
Advancing inclusion and gender equity and equality is fundamental to MCC’s mission to reduce poverty through economic growth. MCC recognizes that growth alone will not meet its poverty reduction mandate if its programs are not inclusive and sustainable. In response to this recognition, MCC has developed a new Inclusion and Gender Strategy that aims to significantly deepen its commitment to inclusion and gender equity and equality to increase the ability of poor people, women, and other marginalized groups to access, participate in or derive benefits from its investments. For this to happen, MCC must routinely and systematically identify and address exclusion at all phases of program development, starting from early analysis. The goal is to significantly increase the amount of MCC investments that are designed to be more inclusive.
The strategy has the following five key objectives:
- To strengthen the integration of inclusion and gender considerations in its analytical tools;
- To fully integrate inclusion and gender considerations into all stages of program development and implementation;
- To support policy and institutional reforms to enhance the inclusion and gender impacts of MCC investments;
- To catalyze private capital for investments that promote inclusion and gender to help achieve MCC project objectives; and
- To leverage partnerships to support MCC’s inclusion and gender objectives.
In FY2022, MCC continued its efforts to refine its approach to early analysis to include a more systematic look at constraints to inclusive growth in Belize and Zambia. The new process identifies structurally excluded groups and the likelihood that alleviation of specific constraints to economic growth will positively impact those populations. This has allowed for the prioritization of the constraints factoring in inclusion and gender inequalities in these countries.
MCC has committed to refine methods for cost-benefit analysis and beneficiary analysis to more consistently account for benefit streams that emerge from greater inclusion of women, poor people, and other disadvantaged groups. In the Lesotho compact development process, MCC piloted a modified economic rate of return approach to capture the “gender premia” benefits from including more women in the agricultural sector.
MCC is also developing a new Inclusion and Gender Guidance Tool, to guide teams to proactively consider inclusion and gender at every stage of compact development, with the aim to pilot the tool with the newly selected country partners in FY2023.
Some of our more recent country programs, such as those in Indonesia, Senegal, Kosovo, and Lesotho, have already advanced aspects of the new strategy’s inclusion and gender objectives, demonstrating what is possible, and paving the way for undertaking these approaches across our portfolio.
Finally, MCC’s Board of Directors endorsed a new indicator for MCC’s FY2023 scorecard: Employment Opportunity. This new indicator measures disability rights, forced labor, workplace discrimination, and the ability of civil society organizations to start-up. MCC made this change in recognition of the importance of including all segments of the adult population in the workforce and of broadening opportunities for historically marginalized groups. The Employment Opportunity Indicator replaces the Business Start-Up Indicator, which MCC discontinued due to the cancellation of the World Bank’s Doing Business Report.
Catalyzing Private Investment
MCC has integrated blended finance into program design through its inclusion as an institutional criterion for program development. Within the U.S. Government development toolkit, MCC is uniquely positioned to catalyze private investment through the strategic use of public funds to mobilize private resources in ways that support sustainable, long-term, economic development in developing countries. MCC has honed its ability to help its partner countries design, strengthen, and harness private financial markets through a range of tools, including capital structure grants, grant facilities, parallel investments, co-investments, PPPs, and catalytic investment strategies that increase the impact and sustainability of MCC programs by harnessing private capital. MCC’s blended finance tools also improve investor confidence and help overcome some of the impediments to private sector investment in challenging markets in its partner countries. MCC seeks to target its resources where commercial financing is not available for deployment towards development outcomes. Most lower income countries and lower middle-income countries have below investment grade or no credit rating, making it impossible in many instances to attract foreign direct investment. MCC will continue to leverage its grant capital through blended finance to advance partner countries climate goals and aspirations by attracting strategic capital towards achieving global climate goals.
In FY2022, MCC expanded and deepened its blended finance capacity, portfolio, and leverage by continuing to pursue the following innovative blended finance initiatives:
American Catalyst Facility for Development, in collaboration with DFC
The BUILD Act charges the DFC with increased coordination and collaboration among U.S. development agencies, including USAID and MCC. MCC and DFC (previously the Overseas Private Investment Corporation) have collaborated in the past, but opportunities were constrained by significant limitations on investment timing and alignment of business models. To overcome these limitations, MCC and DFC developed a new MCC-funded blended finance mechanism, the American Catalyst Facility for Development (ACFD). The ACFD creates a formal platform to optimize MCC-DFC collaboration, leveraging the strengths of both agencies to catalyze and enable DFC investments that would not otherwise be viable, and which are consistent with the objectives and missions of both MCC and DFC. The ACFD enables coordinated catalytic investments by providing strategic grants aimed at crowding-in the private sector and maximizing the overall impact of U.S. Government development efforts. Funds have been included in the compacts for Malawi, Lesotho, and Kosovo to facilitate the use of the ACFD mechanism. MCC and DFC are also exploring the applicability of ACFD in other MCC country programs currently in development such as Belize and Zambia. As MCC and DFC gain experience in the initial countries, the agencies will assess the results and continue to refine the approach and mechanisms to maximize the impact of the ACFD as new partner countries are added to MCC’s portfolio.
Millennium Impact Infrastructure Accelerator
The Millennium Impact Infrastructure Accelerator (MIIA) will be an independent project preparation facility that seeks to mobilize much-needed private capital to the most impactful infrastructure projects in the power, water, sanitation, health, education, and transport sectors. MIIA will attract impact capital by supporting tailored project preparation to develop innovative financing and project structures for bankable infrastructure projects, as well as linking impact investors to bankable deals that meet their impact criteria.
In October 2020, MCC signed a memorandum of understanding with Africa50 to jointly explore development of a regional MIIA for Africa. Because MIIA is envisioned as an independent entity, MCC chose to initially explore and assess the concept in partnership with Africa50, an infrastructure investment platform that contributes to Africa’s growth by developing and investing in bankable projects and leveraging public sector capital to mobilize private sector funding, with differentiated financial returns and impact. Africa50’s investor base is currently composed of 28 African countries, the African Development Bank, the Central Bank of West African States, and Bank Al-Maghrib. MCC and Africa50 have a defined pipeline of 8 projects for which MCC is currently carrying out due diligence for prefeasibility support.
Prosper Africa
Prosper Africa is a U.S. Government initiative that unlocks opportunities to do business in Africa—benefiting companies, investors, and workers in Africa and the United States. Prosper Africa brings together the resources of more than 15 U.S. Government agencies to connect U.S. and African businesses with new buyers, suppliers, and investment opportunities, making it easier for companies to access U.S. Government trade and investment support services.
Catalyzing private investment for development has been fundamental to MCC’s work since its founding, and MCC’s support of economic growth in Africa delivers mutual benefits to the United States and our partners on the continent. Each U.S. Government agency provides a unique contribution to Prosper Africa, and MCC’s compacts are effective in promoting long-term growth through infrastructure investments and a focus on improving the business climate.
Digital Transformation – MCC’s Digital Collaborative for Local Impact
MCC’s Digital Collaboratives for Local Impact (DCLI) builds MCC’s digital expertise, working to enable more inclusive, future-ready growth. DCLI works across departments, divisions, and practices to surface digitalization opportunities in MCC investments, contribute to transforming the digital space by making it work for the underserved, and position MCC at the forefront of locally-led development through data use, digital innovation and civic technology.
DCLI was initially funded through a $21.8 million interagency partnership with the President’s Emergency Plan for AIDS Relief, working on innovative ways to develop the data and digital ecosystem in partner countries. This partnership concluded in 2021; and DCLI has since been advancing MCC’s approach to digital development.
The current value of MCC’s digital portfolio is about $100M – and it is expected to grow as digitalization becomes increasingly integral to development objectives and important to the economies of partner countries. In FY2022, DCLI advanced MCC’s contributions to digitalization through the following investments:
- Launched the $5.3 million DigiFemmes program, funded through a partnership between USAID, Microsoft, and the Government of Côte d’Ivoire to empower existing and new W-SMEs with the data and digital literacy and skills they need to grow their businesses.
- Finalized design of the $22.5 million Digital Health component of the Lesotho Health Systems Strengthening Project of the $300 million Lesotho Compact signed in May 2022.
- Assessed the digital and innovation environments in Kenya and Malawi.
- Contributed to the design of the Biden-Harris Administration’s Digital Transformation with Africa initiative for launch at the African Leaders’ Summit in FY2023.
An essential part of DCLI’s work is outreach. In FY2022, DCLI and the MCC Office of Strategic Partnerships met and continue to have ongoing conversations with 40+ private sector companies, foundations, and funding organizations to extend the agency’s reach and knowledge.