Congressional Budget Justification (CBJ): Congressional Budget Justification, FY 2016 | January 2015

Compacts in Development

(in $ millions) FY 2014 Enacted FY 2015 Enacted FY 2016 Request
Total Appropriation 898.2 899.5 1,250.0
Compact Assistance 676.2 665.5 987.3
Sec 605     947.3
Sec 609(g) Compact Implementation Funding (CIF)*     40.0

*CIF amounts are estimated using MCC’s recent historical average of approximately 4 percent of total compact assistance.

In order to support U.S. global development priorities and maximize the investments available in its candidate pool of poor but relatively well-governed countries, MCC will invest $987.3 million in new compact programs in FY 2016.  

This level reflects an analysis of MCC’s opportunities to increase long-term, sustainable economic growth, thus promoting stability and security, demonstrating continued commitment to evidence and rigorous evaluation, and supporting U.S. Government public diplomacy through effective global engagement.

To support these goals, MCC launched an internal examination of its compact development process in September 2014 to ensure that MCC is developing compacts in an efficient and rigorous manner with respect to cost, time, and quality. This examination yielded several recommendations, including refining the compact development process, providing greater predictability and accountability among staff and management, defining substantive expectations at key process milestones, and facilitating signing of high-quality compacts more rapidly following selection by MCC’s board.

Key recommendations include:

  • Early and phased mobilization of compact development, or 609(g), funding to support initial engagement with new partner countries, thereby ensuring prompt start-up and incentivizing completion of critical preliminary analyses;
  • Streamlined initial economic constraints analysis to more quickly identify core areas of focus for compact development;
  • Well-defined and earlier milestones for MCC’s management to provide direction on critical project decisions such as scope and size;
  • Development of new operational guidance for MCC country teams and country partners to build shared expectations throughout the compact development process;
  • Defined technical assessments to establish technical quality standards (including earlier access to specialized sector expertise and due diligence funding) and provide an earlier opportunity to focus on, and resolve, critical path technical issues; and
  • Enhanced transparency to enable closer coordination with relevant U.S. Government agencies and departments, as well as non-governmental organizations and the private sector (both domestically and within MCC’s partner countries).

In connection with MCC’s shift to earlier deployment of 609(g) resources, as well as the recommendation to enhance transparency, MCC will also require its compact development teams to provide Congress designated briefings at key milestones, typically when initial project concepts have been received and later when the MCC team has assessed a country’s full project proposal.

Compact Pipeline and Updates

The chart below and following pages provide compact size estimates and programmatic updates for all compacts currently in development.  Program and sector data for countries already in implementation can be found in the appendix and online at www.mcc.gov/results.

Country Prior Years FY 2016 Future Years Total
Benin 300     300
Lesotho   360   360
Liberia 33 267   300
Mongolia 260   To be determined
Morocco 480     480
Nepal     To be determined
Niger   360   360
Philippines     To be determined
Tanzania 527     527

Estimates (in $ millions)

Benin

Estimated $300 million, Board consideration in FY 2015

Benin’s compact is expected to be considered by the board in FY 2015 after having been selected as eligible in December 2011. Benin conducted an integrated analysis of constraints to growth, drawing upon consultations with over 1,000 representatives of civil society, businesses and local government, which found that the business environment and access to energy were the principal constraints to growth. In September 2014, Benin’s compact proposal was re-oriented to focus exclusively on the power sector given the significance of energy as a constraint to economic growth. Key pre-feasibility and feasibility studies looking at energy generation, distribution, and sector reforms are currently underway.

Leveraging the Private Sector: MCC’s $188 million port expansion project from the 2006 compact included the private concession of the south wharf. This concession has resulted in fees of $233 million and a minimum of $256 million follow-on capital investment during the concession period. Additionally, the concessionaire for the north wharf has increased their planned capital spending by $16 million during the compact period.

Results of Benin’s 2006 Compact

Benin successfully implemented a $307 million compact from 2006 to 2011 with four projects:

  • The Access to Markets Project expanded the Port of Cotonou, a key transit point for Benin, Burkina Faso and Nigeria. MCC’s investment was conditioned on Benin competitively awarding management of the wharf to a private operator, expected to generate $1.5 billion in economic benefits for the country through this award-winning project 1 . Shipping volume has more than doubled since the 2004 baseline year of 4.1 million metric tons, increasing to 8.3 million metric tons in 2013 (and from 6.3 million in 2011). Circulation time for trucks at the port went from 68 hours to 7.33 hours.
  • The Access to Land Project had mixed results. While certificates of rural landholding and title numbers fell significantly short of compact targets, the government continued titling after the compact ended, made significant progress in rural areas, and passed the Land Code supported by the compact in January 2013.
  • The Access to Financial Services Project finished in a largely satisfactory manner, including strengthening supervision of microfinance institutions and providing cost-sharing grants to support microfinance and entrepreneurship. The value of savings collected by microfinance institutions at the national level grew from a baseline of 38.27 billion CFA to 72.02 billion CFA by December 2013.
  • The Access to Justice Project made improvements to Benin’s legal and judicial environment through reformed court processes and a new code of administrative procedure, construction of five courts, training of judges and clerks, establishment of a public legal information center, and establishment of additional one-stop-shops for business registration. As of September 2013, the average time to register a business fell from 37 days before the project began to 7.8 days at the compact’s end  and finally to under two days. In one quarter, 6,119 enterprises registered through the business registration centers, up from 1,822 during the baseline quarter.

Lesotho

Estimated $360 million, Board consideration in FY 2016

MCC’s board selected Lesotho as eligible to develop a compact in December 2013. Since that time the Government of Lesotho (GOL) has been an active and committed partner completing foundational studies to identify the most binding constraints to growth. MCC and the Basotho are working to validate the findings through consultations with government, civil society, and private sector.

Leveraging the Private Sector: MCC supported Lesotho’s health sector reform efforts, which included working with other development partners to enhance the sustainability and impact of the compact investments, including helping the government structure several health sector public-private partnerships.

In parallel, Lesotho’s government is analyzing the root causes to key economic problems in order to develop and submit project concepts to MCC in spring 2015. Once project concepts have been agreed to between MCC and the GOL, the proposed projects will go through the due diligence process during the remainder of FY 2015.

Results of Lesotho’s 2007 Compact

MCC’s $362.6 million compact with Lesotho, which ended September 17, 2013, improved the water supply for industrial and domestic needs, increased access to essential health services, and stimulated investment by improving access to credit for both men and women.

  • The Water Project upgraded and expanded water systems to increase water supply to domestic and industrial consumers in selected urban and rural areas, including the completion of 250 rural water systems. Currently, the MCC-funded Metolong Dam System is complete, and while testing of the compact-funded Water Treatment Works started in 2014, commissioning is expected in early 2015 due to delays in construction outside the compact’s control.
  • The Health Project was designed to mitigate the negative economic impacts of poor maternal health, HIV/AIDS, tuberculosis, and other diseases by strengthening health care infrastructure and human resources. All 14 planned outpatient departments at district hospitals are complete. The national reference laboratory and blood processing center and the health college dorms are complete. All 138 health centers are complete. Contractors continue to address minor defects at the health centers, but the health centers are providing services to citizens, and the GOL is implementing a plan to ensure the proper maintenance of these facilities.
  • The Private Sector Development Project aimed to increase access to credit, reduce transaction costs and enhance participation of women in the formal economy. The project supported the GOL’s major policy reforms in gender equality, land, and credit reporting, as well as the establishment of a commercial court and small claims process. Passage of the Legal Capacity of Married Persons Act removed the minority status of married women, giving them the legal right to enter into contracts, register property, and act as a director of a company. The land project registered nearly 50,000 parcels out of a targeted 55,000, and the newly established Land Administration Authority is providing improved land administration services.

Lesotho funded the remaining compact activities that were not completed by the compact end date through a $150 million contribution.

Liberia

Estimated $300 million, Board consideration in FY 2016

Liberia passed the MCC scorecard in FY 2013, after years of improving its economic governance and strengthening its democratic institutions. Liberia’s efforts to combat corruption are widely recognized and the country has made significant macroeconomic management improvements in recent years.

Given the recent outbreak of Ebola Virus Disease (EVD), MCC travel to Liberia has been suspended and the Liberians have since had limited capacity to engage in compact development activities.

MCC has developed a plan in coordination with Liberia’s compact development team to focus an initial tranche of compact development funding assistance on studies of the electricity sector that will not require travel by MCC team members to Liberia. This first tranche of funding also will be used to pay critical administrative costs like core team salaries, reinforcing the government’s capacity to continue concept note preparation and other compact development activities without detracting from EVD response and recovery efforts.

In September 2013, Liberia’s compact development team completed its initial analyses on constraints to economic growth, private sector investment opportunities, and social and gender inequality. These analyses suggested access to electricity and road transportation infrastructure as binding constraints to economic growth. These are the sectors that the Government of Liberia (GOL) and MCC have agreed to prioritize for compact proposals, consistent with the priorities in Liberia’s recent Poverty Reduction Strategy, the Agenda for Transformation.

Liberia’s power and road infrastructure were significantly damaged during the country’s 14-year civil war. Liberia has one of the lowest rates of access to electricity in the world with just 1.7 percent of the population having access, while those with access pay more per kilowatt hour than users in any other country due to reliance on expensive diesel generation.

With support from donor partners, Liberia is investing in new power generation capacity and is working to reform the legal and regulatory environment. Nonetheless, significant gaps remain to meet pre-war generation levels and assure transmission and distribution to the two-thirds of the population who live outside of the capital. MCC’s engagement is aligned with other U.S. Government agencies, and compact development will focus on supporting a strong policy, institutional, and regulatory environment in the electricity sector to lay the necessary foundation for private sector investments.

Additionally, Liberia has the least dense road network of any country in West Africa and very high road transport costs relative to neighboring countries. Lack of access to markets hinders economic activity, connection to social services, and development of the agriculture sector. Many areas of the country are inaccessible during the annual rainy season. Recent completion of a comprehensive roads master plan has attracted donor investment and will allow MCC to consider investing in priority segments.

Mongolia

Selected in December 2014, compact size not yet estimated

MCC’s board selected Mongolia as compact eligible in FY 2015 after the country had met the MCC scorecard criteria for two consecutive years despite graduating to Lower Middle Income Country status in FY 2013. The robust recent economic growth is forecasted to soften as the country confronts a weakened macroeconomic position and investment climate. Poverty remains endemic and the government must tackle the challenge of delivering more diversified and inclusive growth that reduces poverty for its citizens.

Results of the Completed 2007 Compact

Leveraging the Private Sector: The education project provided grants to vocational institutions that partner with local businesses to leverage private resources and know-how to improve skills development, and the health program benefited from a free vaccine distribution and education program funded by Merck.

Mongolia successfully implemented a $284.9 million compact that focused on investments in land tenure, health, vocational education, transportation, and energy and environment.

  • The $88.4 million North-South Road Project constructed a 176-kilometer all-weather road that serves as a critical economic corridor to connect Mongolian markets to key trading partners and provide Mongolians with access to social services. Over the next 20 years, this project is expected to benefit 168,900 people.  
  • The $27.8 million Property Rights Project focused on increasing security and capitalization of land assets held by lower-income Mongolians. It increased peri-urban herders’ incomes by facilitating the leasing of pastureland near cities and investing in infrastructure and training to improve livestock productivity. The project formalized 18,000 plots and mapped more than 67,000 urban parcels. This project is expected to increase household income by $13.9 million and benefit 112,760 people over 20 years.
  • The $38.97 million Health Project addressed Mongolia’s rapidly increasing rates of non-communicable diseases and injuries by strengthening the national program for prevention, early diagnosis, and disease management. The project vaccinated over 9,000 girls against the Human Papillomavirus Virus and established the first 24-hour, state-of-the-art rehabilitation units for stroke and heart attack patients. The project is expected to benefit more than 1.7 million people over 20 years.
  • The $47.3 million Vocational Education Project helped reform, improve, and modernize Mongolia’s vocational education system by supporting reforms to technical vocational education and aligning training to market demands. Additionally, the project trained or certified 1,300 instructors and rehabilitated 18 training facilities. Over 1.7 million people are expected to benefit from this project over the next 20 years.
  • The $45.3 million Energy and Environment Project was designed to reduce high levels of air pollution in Ulaanbaatar through financial incentives for residents to adopt energy-efficient and lower-emission technologies. The project provided upgrades to the electrical network and support for the country’s first on-grid commercial wind farm. It also supported the installation of more than 97,000 energy-efficient stoves. The project is expected to benefit 343,570 people over the next 20 years.

Morocco

Estimated $480 million, Board consideration in FY 2015

Morocco was selected as compact eligible in FY 2013 and has completed an economic growth constraints analysis that identified binding constraints as education quality, land policy, and implementation and governance issues, notably labor market regulations, taxes, and the judiciary system. The Moroccans completed complementary and extensive initial social/gender and private sector analyses and reports. Combined preliminary consultations were held with targeted representatives from the private sector and civil society.

MCC is now pursuing full due diligence and project design for projects addressing education quality and rural and industrial land. For education, the private sector’s demand for foundational knowledge and skills (from literacy and numeracy to creative thinking and problem solving), coupled with a need for increasingly sophisticated technical and professional skills, is currently unmet. The proposal under development focuses on developing innovative public-private partnerships to improve professional training relevance and efficiency at both the technical/vocational and secondary levels.

Rural and industrial land problems have a significant economic impact due to the central roles of industrial activity and agriculture in Morocco’s economy. The proposal seeks to address this constraint by (1) supporting the creation of a land sector reform agenda, with a strategy and accompanying action plans for implementation; (2) developing and piloting a streamlined and cost-effective collective lands privatization procedure; and (3) supporting development of a new legal, regulatory, and management model for industrial land provision to meet dynamic private sector demand.  

Results of the 2008 Compact

From 2008 to 2013, Morocco successfully implemented a $698 million compact that invested in the following projects.

  • The $338 million Fruit Tree Productivity Project assisted 110,500 farm households in shifting to more productive, profitable tree crops of olives, almonds, dates, sustainably managed soil and water resources, improved product quality, increased access to water, and strengthened links to national and international markets. Over 55,000 hectares of trees have been planted for 40,000 beneficiaries, beginning production in new areas and preventing soil erosion. Over 660 kilometers of a new irrigation network have been constructed or rehabilitated, and 60 irrigation diversion works have been constructed, improving water and soil conservation for over 27,000 hectares.
  • The $123 million Small Scale Fisheries Project is beginning to improve the quality of this value chain for 15,000 small-scale fishers and for consumers. The quality of the fish moving through domestic channels is improving, and the project is ensuring the sustainable use of fishing resources at several coastal sites.
  • The $96 million Artisan and Fez Medina Project sought to stimulate economic growth by improving linkages between handicrafts, tourism, and the rich cultural, historic, and architectural traditions of the Fez Medina. While some activities under this project have faced significant implementation challenges, the Functional Literacy and Vocational Training Activity has been highly successful, training nearly 70,000 farmers, artisans, and fishers in functional literacy.
  • The $44 million Financial Services Project has increased access to financing by providing subordinated debt through the Jaïda Fund, a non-banking financial institution launched in 2006 to provide loans for the micro-credit sector.
  • The $15 million Enterprise Support Project provided training and technical assistance to 588 small businesses and other income-generating activities newly created through existing government programs.

Nepal

Selected in December 2014, compact size not yet estimated

MCC has been working with Nepal to develop a threshold program since FY 2012, even though Nepal has passed the MCC policy scorecard criteria for four consecutive years. During this period, Nepal has made slow but steady progress in further institutionalizing democratic governance, and the MCC Board selected it as eligible for compact assistance in FY 2015.

During the threshold program development process (which is now supplanted by compact development), MCC and the Government of Nepal (GON) jointly completed a constraints analysis that identified the inadequate supply of electricity and the high cost of transport as binding constraints to economic growth. Sector analyses and threshold program design in the power and transport sectors benefited from extensive consultations throughout the GON and with the private sector, development partners, and civil society. A compact investment will build on the economic analysis and development work completed during eligibility for the threshold program.

These analyses demonstrated that the low availability of electricity has resulted in daily power load-shedding, which creates significant costs for businesses because they are forced to invest in expensive alternative sources of power to meet their needs. The high cost of transportation in Nepal is driven by the country’s rugged terrain and landlocked geography, along with the poor quality and quantity of roads, a lack of competitiveness in the trucking sector, and by costly customs procedures, resulting in the expensive and unreliable transport of goods within Nepal and to international markets.

Given the work already completed during the threshold program process, MCC expects Nepal to develop concept papers in FY 2015 that respond to the binding constraints described above.

Niger

Estimated $360 million, Board consideration in FY 2016

Niger is one of the poorest countries in the world, though it has relatively strong policy performance as indicated by two consecutive years of passing the MCC scorecard. In 2011, Niger was the first country to demonstrate that, with sufficient political will, countries can restore their MCC eligibility following suspension. Since that time, Niger has pursued reforms to enhance democratic and economic governance and contributed to efforts to promote stability in the region. Niger was a strong MCC partner in its threshold program, operating a dedicated program and policy analysis unit through both elected governments and even during its period of suspension.

Officials from the Government of Niger (GON), including President Mahamadou Issoufou, cabinet ministers, and the president’s chief of staff, are engaged in the compact development process and are strongly committed to maintaining and improving performance on MCC’s indicators. In addition to the investment opportunities analysis, and the social and gender constraints to poverty reduction analyses, Niger has completed an analysis of constraints to economic growth and found that binding constraints included: access to water resources for agriculture and livestock production, government regulation of business and regulatory trade barriers. Preliminary stakeholder consultations designed to define specific projects, locations, and beneficiaries are underway and will be supplemented with more in-depth studies as due diligence starts.

The GON and other stakeholders have indicated their desire to see MCC engage in the “Nigeriens Nourishing Nigeriens” (3N) Initiative, which aims to sustainably mitigate the negative impacts of climatic variability on Nigerien food security.

The instability in the surrounding region as well as Nigerien active support of regional counter-terrorism efforts put the country at risk for security threats that could hamper MCC’s ability to develop and implement a compact. To ensure that MCC’s investments are as effective as possible, the illustrative activities described above could be rolled out in a modular fashion and be scaled up or down to attain optimal value notwithstanding adverse security developments. Moreover, targeted activities in filling key data gaps and developing local data capabilities would enhance optimal targeting and execution of these investments. These types of investments, which provide opportunities for Niger’s poor, could help stabilize the country and contribute to enhanced regional security.

The Philippines

Selected December 2014, compact size not yet estimated

MCC’s Board selected the Philippines as eligible to develop a compact in December 2014. Despite recently graduating from the low income country category to lower-middle income, the Philippines has, through continued policy reforms, successfully met the tougher criteria. This has especially been the case for controlling corruption, where the private sector has noted significant improvements over the years. The Philippines was identified as a top 10 reformer in Doing Business in 2014, after improving processes for obtaining construction permits, accessing credit, resolving insolvency, and paying taxes. The IMF also noted recent improvements in fiscal transparency and public financial management.  

Before a second compact proposal will be considered by the Board of Directors, the Philippines must maintain, or improve, its performance on the MCC scorecard and must successfully complete its current compact, currently on track to closeout in May 2016.

Results of the Ongoing 2010 Compact

  • The $120 million Kalahi-CIDSS Community Development Project is helping improve responsiveness of local governments to enhance economic self-reliance in rural areas by targeting poor communities for small-scale, community-driven development projects. It is empowering and strengthening the capacity of communities by helping them prioritize, design, and implement their own development projects. More than 1,500 sub-projects (day care centers, small bridges, and rice-field foot paths) have been completed. These sub-projects effectively weathered the devastating Typhoon Haiyan of 2013, and many were used as shelters from the storm. The project is on track to surpass the target for completed sub-projects, and is expected to benefit more than 5 million Filipinos over the next 20 years.
  • The $214 million Secondary National Roads Development Project is using climate resilient design and techniques to rehabilitate an existing 222 kilometer road segment on the island of Samar. This road will reduce transportation costs and improve access to markets and social services. Over 280,000 Filipinos are due to benefit from the new road, and it is expected to generate over $205 million in increased household income over 20 years. Despite the devastation across Samar, the MCC-funded roads weathered Typhoon Haiyan and are on track for completion by the compact’s end.
  • The $54 million Revenue Administration Reform Project is modernizing revenue administration and mitigating corruption risks in the Bureau of Internal Revenue and Finance Department. In coordination with the IMF, the project is helping address the need to raise tax revenues and reduce tax evasion and revenue agent-related corruption by increasing the efficiency and sustainability of revenue collection. An increase in revenue collection in 2014 indicates the project and the government’s efforts are bearing fruit. Some 125 million Filipinos are due to benefit from this project by an increase of over $160 million in household income over 20 years.

Tanzania

Estimated $527 million, Board consideration in FY 2015

After showing strong commitment to policy reform and implementation in its first compact, Tanzania was selected by MCC’s board to develop a compact in December 2012. Tanzania passes 16 of the 20 indicators with a strong showing in the ruling justly category measuring democratic governance, including political rights and civil liberties. Nonetheless, the board noted in December 2014 that Tanzania has experienced a significant decline on the indicator measuring efforts to control corruption and stated its expectation that they take concrete steps to combat corruption before a compact is approved.

Tanzania completed an economic analysis in FY 2012 highlighting constraints stemming from the lack of reliable electricity and the limited network of market access roads, among other concerns. Tanzania has begun to address these constraints in the power sector by formulating a roadmap of reform and has asked for MCC support in the implementation of those reforms as well as the expansion of access to power in underserved areas. The Tanzanians have proposed four projects: power sector reform; turnaround of the mainland’s electric utility; preparation of Zanzibar electric utility for private-sector participation; and expanding access to electricity. The design and assessment of these concepts are ongoing.

Results of Tanzania’s 2008 Compact

From 2008 to 2013, Tanzania successfully implemented a $698 million compact that invested in the following projects:

  • The Transportation Project upgraded more than 465 kilometers of primary roads throughout the mainland and rural roads in Zanzibar to connect communities with schools and health clinics and reduce transportation costs. By the close of the compact, 150 kilometers had been fully completed and the remaining construction largely finished, with the Tanzanians finalizing outstanding works post-compact. Additionally, the Mafia Island Airport was upgraded in order to increase its tourism potential.
  • The Energy Project improved electricity coverage, primarily through new power transmission and distribution. Specifically, MCC funded a new 100 megawatt submarine power cable from the mainland to Zanzibar, approximately 2,900 kilometers of new or rehabilitated transmission and distribution lines (2,595 kilometers of which were completed by Tanzania after compact closeout), 25 substations, and other infrastructure in seven underserved regions.
  • To address serious shortfalls in access to clean water impacting health and productivity, the Water Project helped rehabilitate water intake and treatment plants and improved the existing distribution network in both Dar es Salaam and Morogoro. This resulted in an increase in treated water from 180 million liters per day to 270 million liters per day in the capital and from 18 million liters per day to 33 million liters per day in Morogoro, potentially benefiting 2.8 million people.

Throughout implementation, Tanzania fulfilled its policy reform commitments and demonstrated country ownership through its use of $132 million of its own funds to cover any cost escalation and to complete construction work that was not finished when the compact was completed in September 2013.  All first compact activities are now complete.

Footnotes
  • 1. The International Finance Corporation and Infrastructure Journal recognized the MCC– funded concession of the South Wharf as a “top 40 public-private partnership” and the International Association of Ports and Harbors awarded its Information Technology gold prize in 2013.