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  • Closed Compact Report:  Closed Compact Report: El Salvador Compact
  • April 2018

Lessons Learned

Fairly early on in the implementation of the compact, MCC and the Government of El Salvador had to redesign the Connectivity Project, eliminating all funding for the Network of Connecting Roads Activity. The change was necessary due to the inaccuracy of the cost estimates completed during the development and due diligence of the project (see above). Changes to cost estimates, which are often made years before contracts are signed, are a common problem for infrastructure projects. In the case of El Salvador, much of the variation can be attributed to changes in international oil prices, to which the costs of building roads with asphalt pavement are highly sensitive. In July 2006 when the project proposals for the compact were reviewed, the price of a barrel of oil was at $73. However, in July 2008, when the feasibility study was completed and the estimated costs were adjusted, a barrel of oil was selling for $144.

There is no way to completely eliminate the risk associated with cost estimation; however, MCC has learned from the El Salvador Connectivity Project and others that faced similar situations, and adapted to reduce the impact that cost increases can have on compact outcomes as much as possible. When possible, MCC projects are designed to be easily modified by dropping or adding components based on final costs without bringing the economic rate of return for a project below the threshold of 10 percent or changing project objectives. Additionally, when cost data is particularly unreliable or unavailable, MCC increases the contingencies for a project to allow for some cost escalation to occur while remaining within the budget envelope. If the contingencies are not needed, they can be reallocated to other compact projects or activities.

Another lesson learned from the El Salvador Compact is that linkages between activities will not happen on their own. The design of the Productive Development Project included three activities. In particular, it was envisioned that the Production and Business Services Activity and the Investment Support Activity would work together. Producers receiving technical assistance and training under the Production and Business Services Activity were to receive help developing business plans to access credit under the Investment Support Activity. By July 2011, at least 15 of the Production and Business Services Activity participants were approved for loans out of a total of 44 approved loans (34 percent); however, it was originally anticipated that the level of interaction between the two activities would be much greater. Incentives or requirements could have been included in implementer contracts to ensure that the two activities worked together. In addition, the targeted beneficiaries of each activity could have been aligned so there was more overlap. The minimum loan amount of $50,000 under the Investment Support Activity may have been the primary reason for the lack of integration between the Production and Business Services Activity, which generally served small, poor producers, and the Investment Support Activity, which generally served small- and medium-scale business owners.