Efforts to Advance Global Development

Section 4: Efforts to Advance Global Development

MCC actively engages with the private sector throughout the development and implementation of its threshold programs and compacts 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 an 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 inspires a sense of pride, sending 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 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 FY2021, MCC continued to take action to advance racial and gender equity and to promote diversity, equity and inclusion. 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. Further, there is momentum around what more can be done as part of long-term strategic planning so that the agency can reach those most in need and fully deliver on its mission to reduce poverty through sustainable and inclusive economic growth. In the immediate term MCC has:

Appointed a member of the leadership team as the senior champion for diversity, equity and inclusion;
Established a Diversity and Equal Employment Opportunity division within the Office of the Chief Executive Officer and hired the agency’s first chief diversity officer reporting directly to the CEO;
Formalized a new Executive Inclusion and Diversity Council for MCC employees, which increases training opportunities for staff and makes available resources and data on MCC demographic and workforce trends to promote transparency with staff and continue identifying areas for improvement; and
Launched a leadership conversation series and implemented a new signature block challenge to reaffirm MCC’s CLEAR values (Collaboration, Learning, Excellence, Accountability and Respect) and to help create a safe and inclusive environment by encouraging staff to add pronouns to their signature block.
Increased awareness through internal communication with staff around key events linked to anti-discrimination and racism, helping to create an environment where open dialogue, tolerance and empathy are prioritized.

Moving forward, with the onboarding of a new chief diversity officer, MCC will continue building on its comprehensive approach to DEIA and identify additional ways to further integrate DEIA into the agency’s human capital plan. MCC is currently crafting its DEIA Strategic Plan in accordance with Executive Order 14035 to Advance DEIA in the Federal Workforce.

Climate

The impacts of climate change directly affect MCC’s mission to reduce poverty through sustainable economic growth. Despite being the least responsible for global carbon emissions, developing countries are the most at risk from climate change and the least able to afford its consequences. Without significant interventions, climate change—combined with the economic fallout from the COVID-19 pandemic—will reverse significant development gains made in these countries and exacerbate global poverty and inequality. Indeed, reversal of development gains is already a reality, with the first increase in global poverty in 20 years. Investing in climate-smart development and sustainable infrastructure is critical to respond to countries’ interest in enhancing their resilience in future crises, adapting to new climate realities, reducing emissions and stimulating growth.

MCC was an early mover in addressing climate change and has a strong track record of integrating climate change resilience, adaptation and mitigation considerations throughout its investment cycle. In the earliest stages, MCC considers how climate change affects the countries where it works and what risks climate change poses to the sectors considered for investment. As MCC explores specific investments, MCC considers potential environmental risks the programs could face and develops measures to avoid or mitigate those risks. MCC often assesses such risks in key sectors such as energy, transportation, agriculture and water.

Between FY2015 and FY2020, MCC devoted $1.7 billion, or roughly 40 percent of the agency’s program funds, to climate-related activities. The Benin Power Compact, for example, has the potential to leverage $100 million in private investment and increase utility-scale and off-grid solar power generation, creating an enabling environment for independent power producers. This potential could deliver electricity to nearly 630,000 people in the poorest areas of Benin for the first time. In Indonesia, MCC’s compact reduced reliance on fossil fuels by expanding renewable energy, reduced land-based greenhouse gas emissions by improving land use practices and management of natural resources, and supported policy improvements through participatory land use planning.

Consistent with the Biden-Harris administration policy that “climate considerations shall be an essential element of United States foreign policy and national security,” and to further elevate its climate strategy, MCC will expand and deepen the emphasis on climate change across its investment portfolio and business operations. MCC has committed that more than 50 percent of its program funds will go toward climate-related activities over the next five years.

To achieve this goal, MCC will work with partner countries to promote climate-smart development and sustainable infrastructure through its well-established model. Specifically, MCC has developed an agency-wide climate strategy to support climate-smart development and sustainable infrastructure with the following core objectives:

Strengthen the integration of climate and environmental considerations in the agency’s suite of analytical tools and decision-making important to program development, design and implementation;
Fully integrate climate and related environmental considerations into all stages of program development and implementation to support countries’ transition away from fossil fuels. Maintain a coal-free policy across the investment portfolio and align programs with countries’ nationally determined contributions (NDCs);
Support policy and institutional reforms to broaden the impact of investments, including support for partner-country sectoral, master and investment planning to advance development of climate-resilient, lower emissions and to help countries implement their NDCs;
Leverage blended finance to catalyze private capital for climate adaptation, resilience and mitigation;
Expand and deepen partnerships to further climate objectives with other U.S. Government entities, funders and donors, finance institutions, industry, civil society and academic institutions; and
Align MCC’s internal operations with its climate aspirations, investigating ways to reduce the agency’s carbon footprint and strengthen its climate efficiency and resilience.

Inclusion and Gender

Promoting inclusion and addressing gender inequities is a key priority for MCC and is fundamental to achieving the agency’s mission to reduce poverty through sustainable and inclusive economic growth. In FY2021, MCC identified inclusion and gender as one of three crosscutting strategic priorities for the agency, alongside climate change and catalyzing the private sector. To reflect this increased ambition, MCC is identifying specific approaches to achieving greater gender and poverty impact from our investments, including expanding our economic models and diagnostic tools to improve the distributional impact of projects and ensuring pro-poor approaches are incorporated in MCC programs. For example, the agency organized a series of workshops with outside experts in June and July 2021 to analyze underlying barriers to equity and inclusion and approaches to achieving inclusive growth.
Building on its track record of prioritizing the incorporation of gender into its programming, MCC added investment criteria to further advance and institutionalize how MCC prioritizes women’s economic empowerment. In 2021, MCC continued to focus on developing and implementing projects that better reach the poor, promote inclusive growth and advance women’s economic empowerment:

The Kosovo Threshold Program’s Reliable Energy Landscape Project is providing technical assistance and matching grants for female entrepreneurs to upgrade their enterprises through energy efficiency measures and other energy solutions.
The Mongolia Water Compact is supporting the government to undertake tariff reform that addresses water affordability and the possible need to develop a customer assistance program, while also ensuring the municipal water utility’s financial sustainability.
The Senegal Power Compact is supporting the construction of electrical grid infrastructure in rural areas—including one of the country’s poorest regions—and will facilitate access for women and youth to labor-saving devices and productive use of equipment.
MCC began implementing an interagency agreement with USAID to establish a women’s data lab in Côte d’Ivoire to support female entrepreneurs with technology, training and assistance in growing their companies.

Finally, MCC made reforms to two of the indicators—access to credit and land rights and access—on the agency’s FY2022 scorecard, infusing its commitment to equity and inclusion more deeply in this critical tool. The changes will incentivize low and lower middle income countries to broaden access to financial services in poor and rural communities and to strengthen property rights, both in practice and in law.

Catalyzing Private Investment

MCC has practiced blended finance since its founding. Whether leveraging public-private partnerships in projects like the Benin Port and the Jordan wastewater treatment facility; designing and managing grant facilities to bring additional funding to programs, as in Indonesia; or catalyzing private sector investment around our programs, as in Ghana, Malawi and El Salvador—leveraging private sector investment to further MCC’s mission has been at the heart of what MCC does.

Private sector investment is essential for sustainable poverty-reducing economic growth. The United Nations estimates that the annual financing gap to achieve the Sustainable Development Goals by 2030 currently sits at $2.5 trillion. While Official Development Assistance continues to play a key role, closing this gap will require development agencies to help unlock and direct finance from other sources.

MCC is well 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 risk mitigation tools, including capital structure grants, grant facilities, parallel investments, co-investments, public-private partnerships and catalytic investment strategies that increase the impact and sustainability of MCC programs. 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 toward development outcomes. Most low and lower middle income countries have below-investment-grade or no credit rating, making it impossible in many instances to raise commercial capital.

Recognizing shifts in the global development landscape and the opportunity to scale up impact, in FY2021 MCC expanded and deepened blended finance capacity, portfolio and leverage by continuing to develop three new innovative blended finance initiatives:

American Catalyst Facility for Development (ACFD), in collaboration with the DFC: The BUILD Act charges the DFC with increased coordination and collaboration among U.S. development agencies, including USAID and MCC. MCC and DFC (and 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 ACFD. It creates a formal platform to optimize and organize MCC–DFC collaboration and leverage the strengths of both agencies to catalyze and enable DFC investments that would not otherwise be viable and that are consistent with the objectives and missions of both MCC and DFC. ACFD enables coordinated catalytic investments in MCC’s portfolio by providing strategic grants aimed at crowding-in the private sector and maximizing the overall impact of U.S. Government development efforts.

Millennium Impact for Infrastructure Accelerator (MIIA): MIIA is 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 and by 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: MIIA Africa. Because MIIA is envisioned as an independent entity, MCC chose to initially explore and perform due diligence on the concept in partnership with Africa50, an infrastructure investment platform that contributes to Africa’s growth by developing and investing in bankable projects and by 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.

Innovation Technology Program (ITP), in collaboration with the U.S. Small Business Administration: In 2021, MCC signed a Memorandum of Understanding with the U.S. Small Business Administration to create the ITP. ITP unlocks American technologies for MCC partner countries by sourcing innovations validated by evidence and helping partner country governments and the private sector to scale and sustain them. MCC is positioned to take smart risk with proven high-impact technologies; leverage our experience with grants and MCC’s global development role to create innovation platforms; promote U.S. best practices, innovations and technological developments by providing a pathway to commercialization and scale for proven solutions; and provide early-stage grant funding to ventures that want to adapt proven innovations and business models with the potential to reduce poverty.

Through this work, MCC seeks to contribute to an expanded and enhanced capacity among U.S. Government agencies to create jobs, expand markets and reduce poverty through economic growth, and to support the effective transition of countries in the developing world from aid to trade and private sector–led economic growth.

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.