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 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 has been expended, something 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 in order 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 compacts and threshold 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 continue with other reforms to improve the operating and policy environment during implementation. These policy reforms ultimately support the conditions necessary for continued growth and investments.
An important demonstration of how MCC’s model works to incentivize meaningful change, even in politically challenging environments, occurred in September 2018. The Ghanaian cabinet approved, and parliament ratified, a landmark transaction with a respected international consortium that passed the reforms necessary to improve the financial and operational health of the power sector, triggering the release of the remaining $190 million in grant funding from MCC. These reforms are a testament to the commitment of the Ghanaian government to improve its power sector in an effort to bring better critical services to its people and meet the increasing demand from businesses and other consumers for reliable energy.
Creating New Opportunities for Economic Growth
Women’s Economic Empowerment
Women’s economic empowerment is fundamental to achieving MCC’s mission to reduce poverty through economic growth. Empowering women leads to healthier economies, increases in household incomes, and higher profits for businesses. The World Bank estimates that if barriers that prevent women from entering the workforce were eliminated, overall economic productivity would increase by as much as 25 percent in sub-Saharan Africa alone.
MCC found early on that to have lasting impact, we must integrate gender inclusion into everything we do. This is true not just in sectors like education and health, where the importance of girls and women is obvious and well established, but also in sectors such as roads, water, and power. Nearly 70 percent of MCC’s program funding is in infrastructure. Women’s participation in these sectors—as workers, business owners, and productive beneficiaries—is essential to economic growth.
Gender and social inequality are known constraints to sustained economic growth at the national level. Since its inception, MCC has prioritized the incorporation of gender-inclusive initiatives into its country programs through our requirement of a Social and Gender Integration Plan, and, therefore, MCC is well positioned to be a leader in advancing the U.S. Government’s efforts to unlock the potential of women around the world in a holistic, sustainable, and impactful way.
Blended Finance
Central to MCC’s work is a continued focus on how to mobilize the capital, expertise, and efficiency of the private sector to help partner country governments deliver faster, better, affordable services and generate sustainable development outcomes. MCC is uniquely positioned within the U.S. Government, finance sector and wider development community to play a more catalytic role in the strategic use of development finance to mobilize private capital flows to our partner countries.
MCC’s efforts have already leveraged more than $6 billion in additional investments and commitments from the private sector and other development partners. By financing foundational work, including support for institutional and policy reforms, MCC is enabling partner country governments to better deliver critical goods and services to their people.
Powering Africa
To fulfill the agency’s goal of removing constraints to economic growth, MCC is undertaking major programs in sub-Saharan Africa to reduce energy poverty. The agency has completed implementing power projects in Malawi and is implementing approximately $1.8 billion worth of power projects, together with our partner countries, that will improve the quality and reliability of electricity in Benin, Ghana, Liberia, Senegal, and Sierra Leone, while also developing power projects in Burkina Faso and The Gambia. These projects focus not only on building physical infrastructure but also on improving the enabling environment to attract private sector investment. Examples include the concession of the electricity distribution company in the southern part of Ghana to a private operator; financing a photovoltaic solar power project in Benin with independent power producers and project finance lenders; and improving the financial position and operations of the utility in Liberia.
Regional Partnerships
On April 23, 2018, President Trump signed the African Growth and Opportunity Act and Millennium Challenge Modernization Act into law, giving MCC the authority to enter into one additional concurrent 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 collaboration.
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 compacts that support regional economic integration. 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.
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 decisions and outcomes. MCC remains committed to maintaining MCC’s principles while we operationalize the new authority. That includes maintaining competitive country selections, ensuring country ownership, continuing commitment for policy performance, sustaining MCC’s strict program approval criteria, preserving evidence-based decision-making, focusing on results—including monitoring, and evaluating throughout the program lifecycle—and acting in accordance with the five-year limit on compact duration. MCC will continue to hold its partner countries accountable for results and good governance, advancing greater stability and prosperity at home and abroad.