| (in millions of $) | FY 2018 Enacted | FY 2019 Enacted | FY 2020 President's Budget |
|---|---|---|---|
| Total Appropriation/Request | 905.0 | 905.0 | 800.0 |
| Total Compact Assistance | 680.0 | 631.5 | 529.0 |
| Threshold Programs | 29.8 | 45.0 | 26.5 |
| Compact Development/Oversight: | 85.7 | 119.0 | 131.0 |
| 609(g) | 26.6 | 30.0 | 36.0 |
| Due Diligence | 59.1 | 89.0 | 95.0 |
| Administrative Expenses | 105.0 | 105.0 | 109.0 |
| Office of the Inspector General | 4.5 | 4.5 | 4.5 |
MCC’s operations are guided by the same core principles the agency was founded on 15 years ago and reflect the Administration’s focus on evidence-based decision-making, evaluation, and partnership with the private sector. With a goal of advancing developing countries from aid partners to trade partners, MCC’s mission of reducing poverty and spurring economic growth has been demonstrated to be one of the most effective ways to achieve widespread and lasting reductions in poverty in the developing world. MCC’s competitive selection system, which rewards political and economic policy advances, directly supports the President’s priority of incentivizing reforms, as outlined in the National Security Strategy. With cost-effective projects, a dedicated staff, and an evidence-based approach, MCC is a good investment for the American people.
The agency’s focus on transparency and accountability for results continues to be recognized. In November 2018, Results for America released the 2018 Invest in What Works Federal Standard of Excellence Report, an annual scorecard of how federal agencies are using evidence and data to achieve better results. For the third consecutive year, MCC received the highest score of all federal agencies featured in the report for having built the infrastructure necessary to be able to use data, evidence, and evaluation in budget, policy, and management decisions.
The FY 2020 budget will support the following:
- Provide funding for compacts with Timor-Leste, Lesotho, Kosovo, and Burkina Faso, all targeted to be negotiated in FY 2020.
- Support development towards new country selections made by MCC’s Board of Directors in December 2018 including Indonesia and Malawi and continue development progression on previously selected countries of Sri Lanka and Tunisia.
- Continue development of compact assistance programs in Tunisia, Burkina Faso, Lesotho, and Timor-Leste, all targeted to be negotiated in FY 2020, as well as development support towards new country selections made by MCC’s Board of Directors in December 2018 including Kosovo, Indonesia and Malawi.
- Continue development of a threshold program in The Gambia, as well as the development of new threshold program selections made by MCC’s Board of Directors in December 2018 in Ethiopia and Solomon Islands. Funds would also support development of new country selections to be made by the Board in December 2019.
- Operationalize MCC’s new concurrent compact authority for regional programs by exploring regional integration opportunities in West Africa with five of our current country partners: Benin, Burkina Faso, Côte d’Ivoire, Ghana, and Niger. The Concurrent Compact Authority and Regional Programs section discusses the benefits of the new authority and our commitment to maintain core MCC principles as we move towards implementing regional programs.
- Establish a new accountable entity audit program (“Accountable Entity Audit Program”) to oversee functions previously supported by USAID, Office of the Inspector General (OIG).
- Maintain MCC’s rigorous oversight model, including review of compact and threshold programs and adjusting plans, modifying activities, or eliminating activities when deemed appropriate via regular monitoring mechanisms and oversight by MCC’s Board of Directors.
- Manage the annual country eligibility process for compact and threshold programs. MCC’s competitive selection process is a data-driven, transparent method for determining where the agency allocates its development dollars. To be considered for MCC funding, countries must first pass MCC’s scorecard—a collection of 20 independent, third-party indicators that measure a country’s policy performance in the areas of economic freedom, investing in its people, and ruling justly. The MCC scorecard represents one of the many ways MCC is distinctive in how it works to reduce poverty through economic growth around the world.
- Continue streamlining and improving the compact development process to leverage efficiencies and reduce timelines while ensuring and improving the quality of MCC’s programs.
- Utilize the unique constraints analysis approach to identify the most severe, or binding, constraints to economic growth in a partner country. The MCC and the International Development Finance Corporation section identifies opportunities for MCC to share this model with the other development agencies.
- Uphold the successful implementation of the Star Report, a business process developed to streamline burdensome reporting requirements by MCC’s country teams and consolidate existing programmatic information into a single comprehensive document. The Star Report collects critical information throughout a program’s lifecycle in areas like performance, sustainability and lessons learned, serving as a core document of record for the agency, and a go-to resource for Congress and external stakeholders after a program is completed.
- Establish and implement a strong and dynamic knowledge management system, business practices, and tools to systematically share and deploy learning and results internally, externally, and with our partner countries, with the goal of improving efficiency in the development and implementation of country programs and increasing MCC’s impact.
- Capitalize on blended finance strategies to leverage private and public resources to bring a greater development impact to the partner countries. In particular, MCC will continue to create an enabling environment for private investment and enterprise in MCC partner countries through critical public policy reforms and institutional capacity building. MCC will collaborate with the private sector in the design, implementation, and sustainability of compact and threshold program activities and seek co-investment opportunities and follow-on investments that leverage host country government and MCC resources for potential public-private partnerships. The Blended Finance section outlines some examples of potential opportunities that may exist within MCC’s current portfolio of programs.
Concurrent Compact Authority and Regional Programs
On April 23, 2018, the President signed the African Growth and Opportunity Act (AGOA) and Millennium Challenge Act Modernization Act into law, which authorizes MCC to enter into one additional compact with a country if one or both of the compacts with the country are for the purpose of regional economic integration, increased regional trade, or cross-border collaborations.At its December 2018 meeting, the MCC Board of Directors directed MCC to explore opportunities for regional programs in West Africa with five of its country partners currently implementing or developing compact programs: Benin, Burkina Faso, Côte d’Ivoire, Ghana, and Niger. The Board decision allows MCC to work with each of the countries to determine if there are regional project opportunities that meet MCC’s strict investment criteria as well as evaluate the countries’ ability to work with MCC and another partner country on a regional integration program. There is no guarantee a country selected as eligible to develop such a compact will be granted one. Not only must these eligible countries continue to demonstrate their commitment to MCC’s eligibility criteria and scorecard performance, but they must also work with MCC to identify regional projects with a sound economic rationale and commit to timely, high-quality compact development. MCC will conduct initial engagement missions to eligible countries in FY 2019 to explore possible projects that meet MCC’s strict investment criteria.
After over 15 years of successfully delivering large, complex infrastructure projects and supporting difficult policy reforms in its partner countries, MCC is now poised to tap into economies of scale to achieve greater impact through regional integration programs. Many of the world’s most compelling opportunities for economic growth and development are regional in scope, and MCC provides assistance at a scale and magnitude that affects significant, sustainable change.
Developing countries can grow faster, create more jobs, and attract more investment when they are part of dynamic regional markets. Enhanced regional integration can connect countries to export opportunities and the resources they need to drive economic activity, such as power, water, and roads. Implementing this expanded authority allows MCC to broaden its proven successes to engage in cross-border, multi-country programs, leveraging regional investments that will spur economic growth, free trade, and open markets across strategic regional areas.
This new authority allows MCC to expand our impact while maintaining a singular focus on reducing poverty through economic growth, using a fully transparent business model underpinned with rigorous analysis, data-based decisions, and corporate accountability through public sharing of all program funding decisions and outcomes. MCC remains committed to maintaining MCC’s principles while operationalizing the new authority, including maintaining competitive country selections, ensuring country ownership, continuing commitment for policy performance, sustaining MCC’s high program approval criteria, preserving evidence-based decision-making, focusing on results including monitoring and evaluating throughout the program life-cycle. MCC will continue to hold its partner countries accountable for results and good governance, advancing greater stability and prosperity at home and abroad.
In order to be most impactful and incentivize the greatest policy and institutional reforms in MCC’s partner countries, it is important that MCC begin building the resources necessary to finance these projects vital to regional integration.
Women’s Economic Empowerment
Strengthening economic opportunities for women is fundamental to MCC achieving its mission to reduce poverty through economic growth. As part of its data-driven model, MCC consistently works with partner countries to unlock the economic potential of women and break down financial, legal, and cultural barriers that prevent women from fully engaging in their countries’ economies.This work supports and aligns with pillar three of the Administration’s Women’s Global Development and Prosperity (W-GDP) initiative. MCC supports the W-GDP initiative’s ambitious, integrated framework to align the experience, commitment, and expertise of the U.S. government’s international development agencies to advance women’s economic progress around the world.
Since its inception, MCC has prioritized the incorporation of gender-inclusive initiatives into its country programs. Gender analysis and a rigorous evidence base informs all aspects of MCC’s work, from selecting country partners to identifying gender-responsive binding constraints to economic growth to assisting partner governments to enact policy change. Each MCC compact and threshold program requires a Social and Gender Integration Plan, which provides a comprehensive roadmap for social inclusion and gender integration throughout compact and threshold programs. By design, MCC projects maximize opportunities to support women entrepreneurs, expand income-generating activities and employment opportunities for women, and increase women’s access to land, education and skills development.
Through compact and threshold programs, which include significant assistance for policy and institutional reform as well as infrastructure, MCC lifts up the U.S. government’s ability to change the landscape of women’s economic empowerment around the world.
MCC and the International Development Finance Corporation
The Better Utilization of Investments Leading to Development (BUILD) Act was signed into law by President Trump on October 5, 2018, establishing the United States International Development Finance Corporation (DFC) to facilitate the participation of private sector capital and skills in developing countries, extending the impact of U.S. foreign assistance and contributing to foreign policy objectives. The new DFC will promote lasting economic growth in developing countries, which is key to continued U.S. prosperity and national security.The DFC aims to incentivize and leverage private sector investment in developing countries, making it easier for U.S. businesses and institutional investors to work abroad in developing economies. The DFC will modernize U.S. development finance tools so that they work more effectively with private sector counterparts by granting authority to make equity investments and offer loans and guarantees, including in instruments denominated in foreign currencies.
Since the enactment of the BUILD Act, MCC staff has been involved with the Development Finance Working Group to enhance interagency collaboration and facilitate the establishment of the DFC. Under the BUILD Act, the DFC must coordinate its development policies and implementation efforts with MCC and should consult MCC’s constraints analysis on the binding constraints to economic growth as a source of data to help inform DFC’s decisions. MCC will be a strategic development partner to the DFC, which will provide the United States with development finance capabilities that match those now employed by other donors, allowing the U.S. to maintain global leadership. MCC programmatic activities, such as infrastructure grants tied to investor-friendly policy reform, will provide the DFC with a competitive development advantage as there is no global development player that offers a toolkit with such important synergies.
MCC’s expertise in basing decisions on evidence and economic analysis, leveraging private sector investment, and incentivizing policy and institutional reforms position the agency to make significant contributions to the overall impact of the DFC and the ability of U.S. assistance to create jobs, expand markets, and reduce poverty through economic growth.
Blended Finance
Blended Finance is an approach that combines structured investments from public and private resources with various actors, including private firms, governmental, state, or local agencies, or nongovernmental organizations, during different stages of a development project. MCC’s approach to blended finance creates the right circumstances for businesses to invest in partner countries. MCC catalyzes private and commercial finance for development by helping partner countries design, strengthen and harness financial markets for sustainable development and growth. Because strategic, long-term capital support is key to achieving lasting results from programs, MCC will continue to attract private and commercial finance in and around our compacts, while also improving leverage ratios. The current MCC blended finance portfolio offers examples of how MCC employs grant facilities, public-private partnerships and catalytic investment strategies to increase the impact and sustainability of programs.Grant Facilities
Indonesia: The Green Prosperity project catalyzed greater private sector investment in low-carbon growth strategies for Indonesia, effectively jumpstarting the renewable energy market while achieving an almost 1:2 leverage ratio for commercial renewable energy projects.Morocco: The Industrial Land Activity optimizes the way the government brings industrial land to market, shifting from a state- to a market-driven approach. A $30 million grant facility launched in October 2018 will partially cover the development cost of zones with high economic, social and environmental performance. In addition, three sustainable industrial zone public-private partnerships (PPPs) in the region of Casablanca-Settat will come to market in 2019.
Benin: The Off-Grid Clean Energy Facility (OCEF) has attracted the interest of U.S. companies with innovative business models and technologies by providing competitive, matching grants to fund critical off-grid energy projects and energy efficiency measures. The OCEF has concluded a letter of agreement with a blended finance debt facility anchored by the African Development Bank, further attracting capital in and around MCC’s work in Benin.
Public-Private Partnerships
Côte d’Ivoire: MCC is supporting the development of a logistics center PPP for cargo movements through the Port of Abidjan. The center will provide truck parking facilities, a logistics platform, and ancillary services to help reduce congestion in Abidjan and increase efficiency of container traffic through the port. The project is expected to have spillover benefits for U.S. truck manufacturers.Benin: MCC’s largest solar generation project to date has attracted the interest of U.S. companies in PPPs that will be structured for four solar generation plants totaling 45 megawatts (MW). An independent power producer (IPP) transaction advisor has been contracted to develop the IPP framework and help structure the transactions. The projects are expected to be on the market in 2019.
Catalytic and Co-Financing Programs
Kosovo: MCC is pursuing an agreement to fund technical assistance to the Kosovo Credit Guarantee Fund and build its capacity to catalyze project-based lending by Kosovo commercial banks while spurring investment in Kosovo’s energy sector. MCC funding will unlock project financing and deliver 25 MW of renewable energy projects to Kosovo, addressing the lack of reliable electricity.El Salvador: MCC’s Investment Compact is helping the Government of El Salvador develop and bring to market up to five PPPs. In addition, the El Salvador Investment Challenge has catalyzed a potential pipeline of $244 million in private investment from $65 million of funding—a leverage ratio of almost 1:4.
Use of these blended finance models helps attract private investments and introduces a multitude of actors into the development space, catalyzing new investments and promoting greater impact and longevity of MCC projects.