Executive Summary

(in millions of $)	FY 2020 Enacted	FY 2021 Enacted	FY 2022 Request
Total Appropriation/Request	905.0	912.0	912.0
Total Compact Assistance	634.5	651.0	647.5
Threshold Programs	30.0	31.0	31.0
Compact Development/Oversight:	129.0	113.5	114.0
Compact Development Funding	36.0	30.0	30.0
Due Diligence	93.0	83.5	84.0
Administrative Expenses	107.0	112.0	115.0
Office of the Inspector General	4.5	4.5	4.5

Introduction

The Millennium Challenge Corporation (MCC) is requesting $912 million for fiscal year (FY) 2022 to deliver on its singular mission to reduce poverty through economic growth, including responding to opportunities in countries in the strategic areas of climate, inclusion and gender, and catalyzing private sector investment. With cost-effective projects, a dedicated staff of experts, and an evidence-based approach, MCC is a good investment for the American people.

Specifically, MCC is requesting $912 million for FY 2022 to support the following:

Programmatic work:

Ongoing and projected compact implementations across 10 countries including Benin, Burkina Faso, Côte d’Ivoire, Ghana, Mongolia, Morocco, Nepal, Niger, Senegal, and Tunisia, as well as the development of seven compacts in Indonesia, Kosovo, Lesotho, Malawi, Mozambique, Sierra Leone, and Timor Leste;
Two projected concurrent regional compact programs focused on trade facilitation across borders: (1) the Benin - Niger Regional Transport Integration Program and (2) the Côte d’Ivoire - Burkina Faso Regional Energy Interconnection Program;
Ongoing threshold program implementation in Guatemala, Kosovo, and Togo, as well as the development of threshold programs in Ethiopia, The Gambia, Kenya, Kiribati, and Solomon Islands; and
Development of any new compact or threshold program selections made in December 2021.

Administration, monitoring, and evaluation:

Delivering on MCC’s rigorous oversight model, including progress review of compact and threshold programs for any course corrections, adjustments of plans to leverage new opportunities, modification of activities, or to eliminate programs or activities when deemed appropriate. Required changes could be identified by regular internal control systems, monitoring mechanisms, and oversight by MCC’s Board of Directors;
Managing MCC’s competitive selection process—a data-driven, transparent method for determining where the agency uses its development dollars. For consideration, countries must first pass MCC’s scorecard of 20 independent, third-party indicators that measure a country’s policy performance in the areas of ruling justly, economic freedoms, investing in people; and
Maintaining the unique evidence-based and rigorous approach to developing projects and assessing their impacts, including publishing MCC Evaluation Briefs and Star Reports, which consolidate critical programmatic information throughout the lifecycle of each compact and threshold program in areas such as performance, sustainability, and lessons learned.

MCC’s operations are guided by its founding principles that remain as relevant today as at the time of the agency’s inception 17 years ago. These principles are centered on a competitive selection process that reflect American values and the conditions for economic growth; a business-like approach with bedrock commitments to data, accountability, cost-benefit analysis and evidence-based decisions; and a laser-focus on creating the right circumstances for private investment. In short, MCC focuses on “what works.” In addition, MCC is fully aligned with the Administration’s priorities and has ambitious plans to advance and accelerate work on climate, inclusion and gender, and catalyzing the private sector.

MCC’s mandate and business model of reducing poverty through economic growth is in line with a partnership model whereby the United States evolves the relationship with partner countries from aid to trade and investment. Since its inception in 2004, MCC has deployed $15 billion in compact and threshold grants across six continents. MCC’s investments have successfully delivered over 180 projects in seven key sectors ranging from transportation and energy to agriculture and health, education, and community services. These projects are improving the lives of an estimated 188 million people in 29 low income and low middle-income countries.

MCC’s financing is in the form of high-quality grants—grants that are predictable, multi-year and flexible, and do not add to a country’s debt burden. The agency is able to make large grants which have ranged up to $700 million for five-year compacts and $50 million for threshold programs. These grants typically include substantial infrastructure investments complemented by critical institutional and policy reforms, which create an enabling environment for private investment and ensure that infrastructure investments have a sustainable impact. This approach allows MCC to effect systemic and long-lasting results.

Country ownership is a core MCC principle. MCC's engagement with a partner country often stands as a cornerstone of the U.S. economic relationship in that country—visible proof that U.S. economic assistance leads to tangible results—and helps to create a more attractive environment for private sector-led growth. Partner countries generally also make a financial and/or in-kind contribution, a signal of their commitment and ownership of the programs. In an increasingly globalized economy, these investments are a down payment on poverty reduction, increased growth, and stability as well as market opportunities for American businesses.

MCC’s competitive selection process, using a “scorecard” with externally available metrics, assesses candidate countries in the three categories of Ruling Justly, Economic Freedoms, and Investing in People. MCC thus works in countries that are committed to democratic governance, and rewards transparency and accountability. MCC directly supports the President’s priority of incentivizing democratic values and reforms across the globe. Specifically, MCC’s rigorous selection process creates an incentive for countries to improve their policy performance, while also targeting MCC’s funding to those countries most likely to use it well. 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.

To achieve maximum impact and value for money, MCC holds itself and its partners to a high standard of accountability for achieving results. MCC’s focus on transparency and accountability for results has been consistently recognized. In December 2020, Results for America released the 2020 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 fifth 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.

COVID-19

The health and economic impacts of the COVID-19 pandemic have been devastating globally. MCC has prioritized the health and safety of its staff and partners, consistent with the President’s Executive Order on January 20 and OMB guidance. At the same time, MCC remains steadfast in its commitment to deliver on its mission and programs. MCC staff operates in maximum telework and work has progressed on all fronts despite the travel constraints and the extremely challenging situation around the world that has created stress and delays.

Throughout the pandemic, it has been clear that health and the economy are inextricably linked. MCC’s investments have enabled many of its partner countries to better address the impacts of COVID-19, and they will be vital to countries’ recoveries. Some MCC programs include strengthening a country’s health system. More generally, programs tend to have indirect—but critical—impacts by tackling the underlying systems that are fundamental and complementary to direct health interventions. For example, MCC’s work in the power sector and in water and sanitation indirectly improve a country’s health outcomes.

MCC is also operationalizing the authority granted by Congress to extend compacts currently in force that have been adversely impacted and delayed by the COVID-19 pandemic. This welcome flexibility provides MCC and partner countries the ability to complete critical compact activities and to ensure the sustainability of MCC’s investments. Specifically, MCC is working to extend compacts in five countries—Benin, Côte d’Ivoire, Ghana, Morocco, and Niger. MCC’s country-led programs are structured to build capacity and invest in long-term, sustainable development—which generates the necessary conditions to promote economic revitalization and job creation once the COVID-19 pandemic subsides.

Diversity, Equity, and Inclusion

In FY 2022, MCC intends to continue to deepen its commitment to diversity, equity, and inclusion, which is key to having an engaged and productive workforce to deliver on programming. To do so, MCC recently established a new Office of Equal Opportunity, Diversity, and Inclusion within MCC’s Office of the Chief Executive Officer (OCEO), which reports directly to the CEO. By placing the office in the OCEO, MCC will further elevate these efforts within the agency, clarify reporting, and improve information flow. MCC is moving quickly to fill the lead position for this office. The agency also recently launched a new Executive Diversity Council, designed to institutionalize and empower employee feedback and input on diversity issues. The new council is sponsored by senior management, with interested staff given the opportunity to join through an open application process.

The following sections highlight the key programming priorities for MCC.

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 to 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 sector(s) considered for investment. As individual investments are explored, MCC considers potential risks facing the programs and develops measures to avoid or mitigate those risks. Key sectors of relevance often include energy, transportation, agriculture, and water.

Between FY15-FY20, MCC devoted $1.7 billion, or about 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 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 ambition, 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 towards climate-related activities over the next five years.

To achieve this, 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 to partner country sectoral, master, and investment planning to advance climate-resilient, lower emissions development as well as helping 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 USG entities, funders and donors, finance institutions, industry, civil society, and academic institutions; and
Align MCC’s internal operations with its climate aspirations, looking at 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.

With respect to MCC compact and threshold programs, in FY 2022, MCC will reinforce its data-driven model by enhancing its analytical and diagnostic tools to better assess and ensure that the needs of, and potential impact on, the poor, women, youth, and other marginalized groups are incorporated into the assessment, selection, design, and implementation of MCC programs. These efforts will help such groups overcome financial, legal, and cultural barriers that prevent them from fully engaging in their countries’ economies. In doing so, MCC programs will better ensure that growth is broad-based, reinforcing the sustainability of growth and contributing to regional stability.

An example of this priority, and an area where MCC intends to deepen its commitment in FY 2022, is gender inclusion.

Building on its track record of prioritizing the incorporation of gender inclusion into its programming, MCC recently added gender-specific investment criteria to further advance and institutionalize how MCC prioritizes women’s economic empowerment. MCC is also working to strengthen and expand its diagnostic tools to better account for gender inequities and gender-specific constraints to growth during early program development, which will allow an even greater focus on developing and implementing projects that advance women’s economic empowerment.

Below are several examples of MCC’s programs addressing inclusion and gender:

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.
In September 2020, MCC concluded the El Salvador Investment Compact, which strengthened the adoption of inclusive teaching practices and other measures to eliminate inequalities and discrimination in schools. The compact supported the development of the Ministry of Education’s Gender Policy and trained more than 1200 teachers and principals on gender equality.
The Mongolia Water Compact, which entered into force in April 2021, 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.
Entering into force this year, the Senegal Power Compact will support 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 is also working with partners inside and outside the U.S. Government to enhance learning and accelerate progress on women’s economic empowerment. MCC signed an inter-agency agreement with the U.S. Agency for International Development (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. MCC is currently seeking a local partner to design and implement the activity and is collaborating with Microsoft to support a virtual network of digitally enabled female entrepreneurs within the country. Another partnership with the World Bank’s Gender Innovation Lab will enhance MCC’s capacity to integrate women’s economic empowerment into program logics, project designs, and monitoring and evaluation plans. MCC has also partnered with Innovations for Poverty Action to leverage global expertise in identifying solutions for women’s financial inclusion in upcoming programs in Lesotho and Indonesia.

Catalyzing Private Investment

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 towards development uses. This imperative is at the heart of MCC’s blended finance work.

MCC has been practicing blended finance since its founding, through public-private partnerships (PPPs), grant facilities, and catalyzing private sector investment. The agency supported PPPs like the port of Benin and the wastewater treatment facility in Jordan. MCC also developed an innovative grant facility in Indonesia and has catalyzed private sector investment around programs in Ghana and El Salvador. Leveraging private sector investment to further MCC’s mission has been consistently integrated into the agency’s work.

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 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 towards development outcomes. MCC strives to catalyze private investment without subsidizing companies or crowding out private finance.

In FY 2022, MCC will work to expand and deepen its blended finance capacity, portfolio, and leverage by continuing to develop three new innovative blended finance initiatives:

American Catalyst Facility for Development, in collaboration with DFC: The BUILD Act charges the U.S. International Development Finance Corporation (DFC) with increased coordination and collaboration among U.S. development agencies, including USAID and MCC. MCC and DFC (and previously OPIC) 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 are working on a new MCC-funded blended finance mechanism, the American Catalyst Facility for Development (ACFD). The ACFD is being designed to leverage the strengths of both agencies and to enable 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. MCC and DFC intend to initiate the ACFD in at least six of MCC’s country programs currently in development: Indonesia, Tunisia, Malawi, Kosovo, Lesotho, and Solomon Islands. As MCC and DFC gain experience in the initial countries, the agencies will assess the results and continue to refine the approach and mechanisms to maximize the impact of the ACFD as new countries are added.

Millennium Impact for Infrastructure Accelerator (MIIA): MCC is collaborating with Africa50 to develop MIIA, with the goal of attracting impact capital by developing bankable infrastructure deals with measurable social and economic impacts. MIIA 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 linking impact investors to bankable deals that meet their impact criteria.

Innovation Technology Program, in collaboration with SBA: MCC is collaborating with the U.S. Small Business Administration (SBA) to create the Innovation Technology Program (ITP). ITP will strengthen the role of innovation and technology in MCC compacts, while promoting more business-centric, market-based solutions. MCC and SBA, in partnership with other U.S. federal agencies participating in the Small Business Innovation Research/Small Business Technology Transfer programs, intend to deliver technologies with the potential for commercialization and developmental impact for inclusion in MCC compacts. ITP focuses on sourcing and adapting U.S. innovations and technologies to opportunities that have the potential to support growth in MCC partner countries.

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.