Congressional Budget Justification (CBJ): Congressional Budget Justification, FY 2018 | May 2017

Proposed Legislative Changes

Using Concurrent MCC Compacts to Advance Regional Economic Integration

MCC is seeking to change the Millennium Challenge Act of 2003, as amended, to allow for concurrent compact authority in order to maximize the economic impact of its work through regional investments. After more than 13 years of successfully delivering large, complex infrastructure projects coupled with supporting difficult policy reforms in partner countries, MCC is well-positioned to increase the impact of its investments by focusing regionally in some cases.

Concurrent compacts would allow MCC to complement its proven country-focused model with the ability to develop regionally oriented investments. MCC will be able to simultaneously research and work with multiple eligible countries in a region to identify, negotiate, and eventually fund investments that would have a positive economic impact for each country involved as well as the region. By making coordinated investments across multiple countries to expand existing infrastructure, MCC will be able to help partners work together to build and grow regional markets, facilitate trade, and foster greater impact through economies of scale. This, in turn, will help generate new business and market opportunities for U.S. and other companies by making it cheaper, easier, and faster for businesses to get their products to new, emerging regional markets.

At present, MCC has the authority to sign and implement only one compact at a time with any given partner country. As a result, MCC cannot move forward on multi-country investments to advance regional economic integration. This is especially true in places where MCC is heavily invested, such as Africa—with its 54 countries, no economies of scale—and in sectors such as infrastructure, where MCC has invested 70 percent of its more than $11 billion dollar portfolio. For instance, in December 2015, MCC selected Côte d’Ivoire as eligible to develop a compact. Several existing MCC compact partners are neighbors of Côte d’Ivoire, including Burkina Faso, Ghana, and Liberia. The ability to sign concurrent compacts would enable MCC to improve trade and investment between and among these MCC partner countries by promoting cross-border engagement, and thereby economic growth.

The authority MCC is seeking would allow the agency to maintain its focused, data-driven model for country and project selection. Projects will still be required to undergo a rigorous economic analysis and have an economic rate of return that ensures the program logic is geared toward a measurable impact on poverty. Regional investments will employ MCC’s local implementation and accountability, allowing for multiple bilateral compacts to be knitted together into a regional project. Concurrent compact authority will allow MCC to develop regional projects while still adhering to the agency’s important country-owned processes that demand accountability and the core elements of MCC’s operational model to produce high returns on investments. In any regional investment, MCC would continue its:

  • Transparent process for selecting the best-governed poor countries. Selection of regional investments would be based upon the existing country selection system; countries selected by the Board as eligible for bilateral compacts would also be eligible for regional investments.
  • Use of economic analysis to choose investments. Regional investments would be selected based on economic analysis of project returns. The preliminary economic rates of return (ERRs) will need to show returns above MCC’s hurdle rate, five-year timeline feasibility, manageable environmental and social risks, implementation of policy and institutional reforms, private sector engagement, and sustainability.
  • Commitment to suspend or terminate investments when appropriate. MCC recognizes that one of the risks inherent in regional investments is that one or more of the countries involved in the partnership may not perform well or may suffer governance declines inconsistent with continued MCC engagement. MCC is committed to suspend or terminate regional investments as appropriate, just as it is with bilateral investments.

The text of the proposed statutory change is as follows:

SEC. X. MILLENNIUM CHALLENGE COMPACT

  1. IN GENERAL.—Section 609 of the Millennium Challenge Act of 2003 (22 U.S.C. 7708) is amended—
    1. in subsection (k), by striking the first sentence;
    2. by redesignating subsection (k) as subsection (l); and
    3. (3) by inserting after subsection (j) the following:
      “(k) CONCURRENT COMPACTS.—An eligible country that has entered into and has in effect a Compact under this section may enter into and have in effect at the same time not more than one additional Compact in accordance with the requirements under this title if—

      1. one or both of the Compacts are or will be for the purposes of regional economic integration, increased regional trade, or cross-border collaborations; and
      2. the Board determines that the country is making considerable and demonstrable progress in implementing the terms of the existing Compact and supplementary agreements thereto.”.
  2. CONFORMING AMENDMENT.—Section 613(b)(2)(a) of such Act (22 U.S.C. 7712(b)(2)(A)) is amended by striking “the” before “Compact” and inserting “any”.
  3. APPLICABILITY.—The amendments made by this section shall apply with respect to Compacts entered into between the United States and an eligible country under the Millennium Challenge Act of 2003 before, on, or after the date of the enactment of this Act.