In September 2005, the Millennium Challenge Corporation (MCC) and the Government of Georgia (GoG) signed a five-year, $295.3 million compact, which was later increased to a $395.3 million compact. The compact aimed to improve the lives of the poor in regions outside the capital city, Tbilisi, by helping them integrate economically through improved access to jobs and markets, more reliable access to basic services, and access to capital for enterprise development. The compact consisted of two projects:
- The Regional Infrastructure Rehabilitation Project ($310.7 million) aimed to rehabilitate key regional infrastructure by improving transportation for regional trade, increasing reliability of the energy supply, and improving municipal services. This project included three activities: (i) Samtskhe-Javakheti Road Rehabilitation (SJRR), (ii) Energy Rehabilitation, and (iii) Regional Infrastructure Development.
- The Enterprise Development Project ($47.5 million) aimed to increase profitable investments in small and medium enterprises (SMEs) and improve the economic performance of agribusinesses. This project included two activities: (i) Agribusiness Development and (ii) Georgia Regional Development Fund (GRDF).
At the time of compact signing, the GoG and MCC expected 4,591,582 people would benefit from the investment over 20 years.
MCC’s Board of Directors (Board) selected Georgia as eligible to develop a compact in May 2004. The compact was signed on September 12, 2005, and entered into force on April 7, 2006. Several months after the Russia – Georgia conflict in November 2008, and as part of a larger USG assistance package to Georgia, MCC increased the funds available through the Georgia Compact to $395.3 million. The additional funds allowed MCC and the GoG to complete works in the SJRR, Regional Infrastructure Development, and Energy Rehabilitation Activities, as well as covered additional costs resulting from the dramatic, global rise in oil, increased construction prices and the fall of the dollar.
Under MCC’s country ownership model, MCC’s country counterparts are responsible for implementing MCC-funded programs. Partner governments establish accountable entities known as Millennium Challenge Accounts (MCA) to manage implementation for compact projects. As a part of compact development, MCC and the GoG created the Millennium Challenge Account Georgia (MCA-Georgia) to implement the country’s program.
Upon compact completion on April 7, 2011, the GoG had spent 98 percent of the revised compact budget.
Through the Regional Infrastructure Rehabilitation Project, 220 kilometers (approx. 137 miles) of roads were rehabilitated, reducing travel time along the length of the Samtskhe-Javakheti road from 8 hours and 13 minutes to a mere 2 hours and 42 minutes. As a result of this project, overall savings in both time and vehicle operating costs were over $13 million. Additionally, more than 67,000 people received improved water services, and 22 key sections of the main trans-shipment pipeline for natural gas through Georgia, between Russia and Armenia, were rehabilitated, resulting in safe, improved regional and municipal gas delivery service. Three independent evaluations were commissioned for this project, one measuring the impact of the SJRR Activity, the second independently assessing the cost-benefit analysis of the Energy Rehabilitation Activity, and the third assessing the Regional Infrastructure Development Activity. The impact evaluation for the SJRR Activity found strong evidence that the road rehabilitation increased the number of vehicles using the roads and the speed of those vehicles. The independent cost-benefit analysis that reviewed the Energy Rehabilitation Activity after its completion found the projected economic rate of return, originally estimated at 11.7 percent, actually resulted in a rate closer to 7.7 to 9.2 percent. The third proposed evaluation for the Regional Infrastructure Development Activity was cancelled due to limited ability to detect impact , challenges in structuring the evaluation, and changes in project plans.
The Enterprise Development Project supported 290 agribusiness projects and farm service centers created 3,472 jobs, and improved data reporting as of July 2011. Businesses reported a total increase in wages of almost $4.9 million, an increase in firm income of over $3.8 million, and gross revenues of companies in the portfolio increased by over $16.8 million. Two evaluations were conducted—one assessed the Agribusiness Development Activity, while the other evaluation appraised the performance of the Georgia Regional Development Fund. An independent performance evaluation was completed for the Agribusiness Development Activity and found grant recipients reported increased investment, especially in agricultural equipment and machinery, and quantitative data confirmed greater ownership of agricultural equipment and machinery. An independent performance evaluation of the Georgia Regional Development Fund found that investments’ performance was mixed, with performance ranging in terms of improved local economic growth and employment across the portfolio of firms. The evaluation found the investment fund manager was unable to exit many investments within the five-year wind-down window, and several investments underperformed despite being operationally sound or having improved underlying companies. As of the end of 2016, the independent evaluator estimated the economic rate of return to be -6.1 percent due mostly to the number of companies delaying or not achieving loan repayment.
This report provides a summary of the tangible outputs of the compact program, document changes in compact activities and the reasons behind those changes, detailed information on performance against targets in the monitoring plan and a summary of the results of the independent evaluations.