MCC’s experience and record strongly affirm that the core features of the mission and model should not change.
MCC’s successes have been firmly rooted in the focus on poverty reduction through growth, good policy and governance, country ownership, data and analysis, strong results measurement, and transparency and accountability. Over time, MCC has found effective ways to address early challenges and make the model work in practice as well as in theory.
The focus going forward should be to reinforce and deepen the model and expand its impact and reach, rather than to change or weaken its core attributes.
This means:
- strengthening economic analysis,
- looking for better data for identifying high poverty countries,
- focusing on systemic and sustained impact,
- enhancing how the agency tracks and reports results,
- harnessing the benefits of regional integration for growth and poverty reduction,
- strengthening local governance to improve service delivery,
- forming more strategic and catalytic partnerships with the private sector and public donors,
- building in additional reform incentives,
- strengthening gender integration and social inclusion throughout analysis, design and implementation,
- investing more in learning feedback loops, and
- investing in MCC’s own capacity and staff.
Goal 1: Opportunities
Help countries choose evidence-based priorities in growth and poverty reduction strategies that reflect new learning and new opportunities.
Goal 3: Leverage
Broaden and deepen public and private partnerships for more impact and leverage.
Goal 4: Measurement
Lead on data and results measurement, learning, transparency, and development effectiveness
Goal 5: World-Class
Maximize internal efficiency and productivity. Maintain and motivate a world class, high functioning staff
Better growth and project analysis
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MCC’s support for country assessments of binding constraints on growth, root causes of constraints, and cost-benefit project analysis generates powerful analytical assets for partner countries. MCC can help increase returns on those assets by building in more beneficiary-specific data and engagement, including for women or marginalized populations; improving analysis of benefit streams; finding the best ways to analyze costs and benefits of policy and institutional reform; introducing analysis of potential benefits for growth through regional integration; helping country partners continue to deploy these methodologies after the compact has ended; and sharing the analysis as a public good with potential public and private partners.
Better identifying poor countries
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MCC works, and should continue to work, only in countries with high rates of poverty. At the moment, poor countries are defined in the MCC statute as countries with per capita income below a certain ceiling, as established by the World Bank. For the many developing countries with high income inequality and large concentrations of income in the upper quintiles, average per capita incomes can understate the extent and nature of poverty. MCC should explore with Congress whether there are alternative sources of data—consistently available across developing countries—that could be used to better assess poverty.
Achieving systemic impact
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MCC’s focus on policy and institutional reform should not stop at country selection. Increasingly, compact success itself depends on activities to strengthen governance, delivery of public services, key sectoral policies and institutions, legal and regulatory frameworks, and resilience and adaptation to climate change. These activities are needed to improve sectoral or overall economic performance and create the environments necessary for realizing the returns and development impact of MCC’s infrastructure and other investments, as well as catalyzing private investment. MCC is working with countries to build these activities more consistently into compact development to promote lasting change beyond the effects of a compact on specific beneficiaries.
In addition, MCC is exploring how other dimensions of systemic change could be targeted by MCC compacts and threshold programs. Systemic change can be judged by the extent to which new and better public or private models for governance and delivery of goods and services essential for growth and poverty reduction are sustained, replicated, or scaled post-compact.
Achieving sustained impact through better governance systems
Given the scale of MCC compacts, stakeholders expect MCC to play a role in building accountable national and local institutions and strengthening the social contract between citizens and the state. Going forward, MCC will prioritize ways to incorporate the building blocks of good governance into compacts and country systems, consistent with country interests and needs. For example, better project management and procurement systems, better domestic resource mobilization, data-driven decision-making systems, e-government platforms for accountability, robust government M&E systems, stronger local governance, and use of outcomes-based expenditure systems.
Fighting corruption: the MCC role
Accountability is at the core of the MCC model, and fighting corruption is a central part of the MCC approach to poverty reduction through growth. MCC pursues this fight in its work with partner countries in at least five ways:
- Countries must pass the Control of Corruption indicator in order to pass MCC’s annual scorecard.
- Countries must maintain their commitment to controlling corruption throughout the life of the partnership.
- MCC builds strong anti-corruption training, standards, and prevention measures into its support for country-led compact implementation.
- MCC compact and threshold programs often directly address corruption in the context of overcoming constraints to economic growth, particularly as it impacts government delivery of goods and services, infrastructure construction, and revenue systems.
- MCC has the ability to recover misused funds, or suspend or terminate a compact if fraud or corruption is discovered during implementation.
Going forward, MCC will sustain this multi-dimensional fight, and, in particular, enhance and strengthen its programmatic focus on corruption in the context of the identified constraints and root causes. Examples of current programmatic work on fighting corruption in MCC compacts and threshold programs include developing transparent systems for households to connect to electricity and water; mechanisms to reduce theft of water and electricity; systems for data-driven resource allocation; transparent, competitive procurement systems; independent utility regulation; and technically proficient project oversight and management systems, insulated from political interference.
MCC will deploy the following principles[[Adams, Gregory. “If we’re serious about anti-corruption, we need to change the way we think about it,” Devex, Dec. 11, 2015, https://www.devex.com/news/if-we-re-serious-about-anti-corruption-we-need-to-change-the-way-we-think-about-it-87468]] to pursue the fight against corruption in ways that foster systemic change and lasting impact:
- Reward accountability, rather than focus only on punishing corruption.
- Prioritize strengthening partner country systems.
- Give citizens the tools and power they need to demand and obtain greater accountability.
Enhancing the results framework
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MCC already has a robust system to capture inputs, outputs, and outcomes that directly benefit project beneficiaries and to independently evaluate impact. Adding more dimensions to this results framework will help MCC assess its broader systemic impact and its performance in achieving institutional goals.
Going forward, MCC will assess progress toward the institutional goals set as part of this strategic plan and will expand measurement of systemic impact, such as the economic benefits of policy, institutional, and governance reform; the degree to which MCC projects are sustained, scaled or replicated, or have other post-compact positive spillover effects; effectiveness in getting benefits to women, the poor, and other marginalized groups; and whether MCC activities at scale contribute to overall sectoral and economic performance.
Accelerating growth through regional integration
Regional integration has helped catalyze and sustain high growth rates. Regional investments present robust opportunities to drive higher rates of return on investments, faster growth, and larger scale reductions in poverty. As a development agency committed to fighting poverty through economic growth, MCC risks leaving development impact and investment returns on the table if it focuses solely on bilateral engagements that stop at the border.
MCC is uniquely positioned to invest regionally for the benefit of poor countries. It has the technical capacity and a successful track record of delivering large, complex infrastructure projects and can deploy that capacity for cross-border investments. Just as important, MCC has experience incentivizing and supporting difficult policy, regulatory, and institutional reforms that must accompany infrastructure investments in order to realize growth gains. Bringing together both the hardware and the software of regional integration will be essential to making dynamic regional markets function and grow.
The collective action challenges of multi-country investments should not be underestimated. MCC is developing new capacities and finding ways to overcome those challenges to ensure that coordinated regional investments will:
- help countries work together to build and grow regional markets;
- expand and link regional power, transport, and water networks to reduce costs and improve service;
- capture more economies of scale;
- facilitate increased trade and investment; and
- help generate new business and market opportunities for U.S., global, and local companies.
Decentralizing development: governance at the subnational level
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Learning from its experience in striving to reach poor populations with essential services needed to help them raise their incomes, MCC will enhance its toolkit for strengthening local governance. Effective programs often have to focus on building better municipal, district, or community-based governance systems. Local governance is frequently necessary for legitimacy, accountability, social and gender inclusion, timely decision-making, and sustained management and maintenance capacity. Whether it was land titling for small farmers in rural areas in Burkina Faso or Senegal, managing local irrigation systems in Moldova, or building community development capacity in the Philippines, helping local stakeholders organize themselves, hold local governments accountable, and acquire the skills to manage their own service delivery has been essential to both effectiveness and sustainability.
Moreover, a number of poor countries are moving toward decentralization of revenue allocation, decision-making, and public service provision. In many cases, central governments have limited ability or will to perform essential functions across the country—sometimes for capacity reasons, other times for reasons relating to ethnic and political divisions that disadvantage parts of the population. In addition, there can be large differences across cities and districts in governance performance. The ability and flexibility to work with better governed cities can create powerful demonstration effects that amplify benefits.
Embracing Urbanization
The correlation of urbanization with poverty reduction is strong. Urbanization within developing countries has accelerated over the last 20 years and provides impetus to and is reflective of the tendencies of decentralization mentioned above. Rates of urbanization are relatively low in sub-Saharan Africa but as the World Bank notes, even here half of the decline in poverty can be attributed to the process of urbanization. Among MCC's prospective partner countries, particularly in Africa but also in South Asia, the potential contribution of urbanization to growth and poverty reduction can be compromised if the process is not managed well. As an institution MCC should endeavor to incorporate, as appropriate, an understanding of the dynamics of rural-urban migration and urban growth into the root cause and sectoral analyses that follow a constraints analysis. Within the next two years MCC will develop a set of analytical and operational guidelines to assess the relevance and scope of working within an urban continuum of small towns to cities within its client countries. MCC will also identify the skills the institution requires to position itself as a responsible, effective development partner in urbanization.
Crowding in the private sector
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MCC has the capacity to help the private sector manage and mitigate three kinds of risk: country risk, sectoral/market risk, and project risk. The country selection process and scorecard identify poor countries with the right policy trajectory and MCC continues to monitor that trajectory throughout the life of the compact or threshold program. Policy, institutional, and governance reforms in compacts help make sectors investable. MCC’s extensive investment in early project preparation and due diligence expands the pipeline of bankable projects, including public-private partnerships. More broadly, MCC’s grants can and should also be used to target roadblocks to the flow of private capital, such as information failures, skill deficits, collective action problems, and first mover costs and risks.
On the investment return side, MCC-supported sectoral reforms help ensure revenue streams in infrastructure for cost recovery, sustainability, and attracting private participation. And MCC is introducing outcomes-based payments into compacts to incentivize and reward strong performance by private service providers.
Going forward, MCC will deploy this array of tools more strategically and effectively for maximum catalytic effect in mobilizing private finance and participation in compact activities.
Incentivizing reform: the MCC approach
MCC will build on the MCC Effect through strategic use of compact investments and the threshold program to incentivize reforms. Under the threshold program, MCC can gauge the appetite and capacity of a partner country to make and sustain critical reforms and to identify the reforms most necessary to unlock growth and poverty reduction. Reform-focused threshold programs test whether countries would make good compact partners. And they can offer opportunities for innovative reform pilots that can later be implemented on a larger scale if and when countries qualify for compacts.
More broadly, in both threshold programs and compacts, the reform agenda grows out of an understanding of key constraints to growth. Reform discussions are therefore tightly linked to the investment project discussions, in a way that clarifies the dependence of investment project viability on reform progress. This organic approach builds a shared understanding and interest by the partner country in pursuing reforms as essential means to the end of growth and poverty reduction.
Based on this shared commitment, governments and MCC are building compacts that tie certain program disbursement tranches to jointly established reform benchmarks. Linking upfront disbursements to achieving some of the hardest reforms is helping governments overcome internal and external resistance and building confidence, especially by the private sector, in the government’s capacity and will to reform. MCC is also moving forward with the use of outcomes-based payments as an effective way to incentivize governments to reform provision of services so that they deliver for citizens.
Putting outcomes first
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The goal of helping governments provide better, cost-efficient social services and access to basic infrastructure is at the core of much of MCC’s work. Part of that challenge requires getting the incentive structure right—helping governments focus on achievement of service and infrastructure access outcomes rather than only tracking and verifying input expenditures. MCC has long supported performance-based contracting in its infrastructure programs. Now it is helping countries introduce outcomes-based payments into service delivery projects. Paying for outcomescan be an effective way to advance the MCC mission and model:
- performance is judged by whether education, health and other outcomes are achieved rather than by how much funding is disbursed;
- governments will choose service providers with better track records, including private providers;
- there are strong incentives for service providers (public or private) to innovate and adjust over time to reach outcome goals—that is, the interventions are “owned” locally rather than micromanaged by MCC; and
- MCC and partner governments are transparently held accountable by independent evaluators for whether their funds achieved results targets.
Consistent with its core principle of country ownership, MCC helps governments take a pay-for-outcomes approach, such as in Morocco (education) and Sierra Leone (access to power and water). In these cases, MCC is funding initial pilots—with the country in the driver’s seat on coming up with outcome-based solutions, providing stronger assurance that the results will be achievable and sustainable. MCC will monitor lessons learned in these initial forays, seek to scale efforts that are successful, and deploy them in future efforts.
Strengthening environmental performance
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The pursuit of sustainable economic growth and a healthy environment are interdependent. Further, economic growth that doesn’t adequately address the associated risks of environmental degradation or adverse social impacts can leave the poor particularly vulnerable. MCC will continue to work with partner countries to manage environmental and social risks and integrate internationally accepted principles of environmental and social sustainability into the design and implementation of compacts. Moving forward, the agency will strengthen efforts to enhance sustainability of compact activities and identify opportunities to improve development outcomes.
Leading on gender and social inclusion
Gender and social inequality can be significant constraints to economic growth and poverty reduction. Poverty has many dimensions, and the nature and extent of poverty can vary based on social factors such as gender, class, ethnicity, and age. A focus on reducing gender and social inequalities is therefore essential for sustainable development and equitable distribution of growth.
Strengthening its commitment to supporting programs with high economic returns and high poverty reduction impact, MCC will sharpen its economic and social analysis tools—deepening analysis of the relationship between gender and social inequalities and economic growth in the constraints analysis at national and subnational levels; seeking evidence on benefit streams most relevant to women and excluded groups; and improving the use of data and the timing of beneficiary analysis so that projections of poverty impacts can be more effectively used in project selection and design.
MCC will further strengthen integration of gender and social analysis in program logics, and use of evidence and disaggregated data to inform project design and scaling innovation, thus building more robust pathways between activities and sustainable poverty impacts. This can be achieved through a focus on, for example, gender and social dimensions of policy and institutional reforms, behavior change, access to assets and services, and catalyzing labor market opportunities—based on evidence of what achieves sustainable results.
Building on its work on Data2X, MCC will continue to exercise global leadership in sex-disaggregation and gender data and apply best practices in gender and social inclusion in monitoring and evaluation. MCC will further pursue evidence-based initiatives in gender and social inclusion across its new strategic directions, including through building partnerships with governments, the private sector, other agencies, and research institutions.
MCC and vulnerable states
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MCC works in some of the world’s poorest countries that have been selected by the MCC Board based on a positive track record of policy performance and good governance. MCC was not designed or intended to operate in countries with ongoing internal or external conflict or with deteriorating governance. MCC is committed to working with better governed poor states, but some of its partners remain vulnerable, grappling with the aftermath of conflict, natural disasters, disease, or other shocks, or subject to spillover from conflict in neighboring countries. Learning from experience, MCC will continue to refine its approaches to working in vulnerable states and devote extra resources when needed to help build citizen-state trust or rebuild institutions and systems damaged by conflict. In these circumstances, MCC will ask questions like these as it seeks to engage productively and effectively:
- Where political instability is an underlying impediment to growth, how is this constraint being addressed or mitigated in project design and implementation?
- What assessments and interventions need to be undertaken when political and social exclusion could affect the success and sustainability of MCC programs?
- In the context of serious partner government capacity constraints, what additional resources or support are needed for successful project design and implementation to leave behind improved capabilities and durable systems?
Innovation: the MCC role
Innovation is not only about entirely new ideas and technologies. It is also about making tested innovation pilots scalable. And it is about finding innovative business models that can build and sustain markets for socially beneficial goods and services, without permanent reliance on public support.
In order to ensure continued systemic impact, MCC will focus on innovations that have already passed the proof of concept stage and have a performance track record. MCC’s role should be to help countries find innovations validated by evidence, and help governments or the private sector scale and sustain them. In some circumstances, MCC will seek to introduce new innovations on a small scale as a prelude to expanding them later if warranted by the evidence, such as in a threshold program or in early implementation of a compact which has a pilot phase followed by a replication and scaling phase.
Knowledge capture, sharing, and feedback
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MCC is a leader in capturing and sharing data on project results and evaluations. These help determine whether project interventions worked—whether they achieved their intended outputs and outcomes. But there is more learning that is less effectively captured, particularly how to design and implement interventions as distinct from what interventions work best. Implementation lessons learned during the course of compact execution are critical for helping to avoid pitfalls and improve performance in future compacts and projects.
MCC has considerable experience in this kind of “how-to” learning, such as how to train small farmers most effectively; how to manage large-scale land titling programs efficiently; how to design education curricula that help vulnerable youth get jobs; and how to improve road maintenance systems. Now it will invest more in strengthening feedback systems to harness this learning for ongoing adaptation of design and implementation, both for its own effectiveness and for the benefit of country partners and others in the development community.
Serving the broader development community
MCC is a small part of a much broader development community. It should aim to deploy its strengths in ways that benefit other actors, and it, in turn, can greatly benefit by learning from them. Forming productive and catalytic partnerships will be a regular part of MCC work, and MCC will more consistently and proactively build strategic partnerships based on shared or complementary aims. Strategic partnerships may extend beyond particular compacts or threshold programs to cross-cutting activities where collaboration can increase impact.
Going forward, MCC will seek strategic partnerships in the following four spheres which offer clear potential for mutual benefit.
- Data improvement/sharing and M&E frameworks. MCC’s strength in this area complements increasing interest in the development community in collaborating on improving data availability (particularly for poor countries), sex disaggregation of data, open data platforms, and other data concerns. MCC will intensify and extend its existing work as a leader in these efforts.
- Sharing analysis. MCC will make a consistent effort to better leverage its investment in economic analysis and project due diligence by sharing these analytical assets with donors and investors interested in funding high-impact projects.
- Sharing innovation. MCC’s role, as described, is to help countries identify and scale proven innovations to address relevant growth or poverty challenges. To ensure ongoing access to scalable solutions, MCC will collaborate more systematically with leading public and private entities that are finding and testing early stage development innovations around the world.
- Achieving scale. MCC’s focus on systemic impact, partly through scale, is well served by engaging actively with other donors with shared interests. In some cases, this will mean seeking donor partners to help fund MCC due-diligenced projects. In others, MCC will join with other donors on projects well suited to addressing identified constraints and root cause analysis.
Investing in MCC itself
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MCC’s investment in its own human capital, business and information systems, knowledge management, and organizational health has lagged its development goals and aspirations. MCC’s administrative costs are lean and efficient given the size of program delivery. While MCC remains committed to efficiency, institutional investments are needed to improve long-term productivity, service delivery to country partners, and employee engagement.
Bolstering USG soft power
MCC occupies a distinct and vital position in the context of broader U.S. foreign policy. Going forward, it will aim to enhance its role in five dimensions.
- As a vital bilateral channel for U.S. aid in support of economic growth, the strongest driver of sustained poverty reduction.
- Advancing U.S. values and the market democracy model—defined by economic freedom, investing in people, and ruling justly.
- Expanding the share of U.S. aid in the better-governed poorest countries.
- Investing in frontier markets, to help them become the next emerging markets and important U.S. economic partners, creating business opportunities for U.S. and other companies.
Reinforcing the citizen-state social contract in program countries, strengthening governance, service delivery, legitimacy, and stability, especially in vulnerable states.