March 3, 2016

Strengthening MCC for the Future

By John Glenn

As Congress prepares its blueprint for the International Affairs Budget for next year, the Millennium Challenge Corporation (MCC) released a five-year strategic plan that highlights the “single mission” that inspired its creation: reducing poverty through economic growth.

The plan points a way forward for MCC amid unprecedented global crises and tremendous opportunities. It reinforces its core tenets that have garnered so much support on Capitol Hill and across administrations: selectivity based on countries’ good governance, freedom, and investment in people; partnering with countries that make policy reforms and “own” the implementation of the compact; and data-driven monitoring and evaluation, alongside rigorous transparency.

A new world of poverty and global development

The landscape of global poverty has shifted since 2004. In recent years, many of the fastest growing economies have been in the developing world, and some of the countries MCC first partnered with are no longer eligible for compacts because their incomes have risen. Extreme poverty today is often concentrated in marginalized pockets within middle-income countries, while also growing in fragile and conflict-affected states.

Official development assistance continues to shrink as a share of capital flows into the developing world, while the demands for financing for development as countries grow far exceed the capacity of governments.

Non-traditional donors like the Bill and Melinda Gates Foundation and new donors like impact investors are bringing significant resources to development challenges, at the same time that new technologies are making it possible to reach the poor in innovative ways.

MCC’s comparative advantage

How does MCC fit into this landscape? The strategic plan offers a number of smart recommendations for how it should build on its successes and adapt for the challenges of global poverty today. Here are three key areas:

How will MCC be part of the fight against extreme poverty? USAID is better equipped to operate in conflict-affected states (not minimizing the challenges of development in insecure environments), but the MCC already works in “better governed poor states” that remain vulnerable in the aftermath of conflict, natural disasters, disease, or are subject to the effects of conflict in neighboring states such as Liberia and Sierra Leone.

What is MCC’s role in innovation? While USAID’s Global Development Lab is surely better to take the lead on developing and testing new technologies and innovations in fighting poverty and reaching the poor, the MCC is well positioned to scale up innovations with proof of concept and a strong evidence base. This is especially true where innovations can make infrastructure projects more efficient.

What is MCC’s advantage in engaging the private sector? While the MCC has proven it can incentivize good policy and complete large-scale infrastructure projects in five years, the demands for infrastructure financing far exceed its capacity and will require significant private sector investments. MCC can and should continue to catalyze private sector investment through its ability to manage risk through its unique rigorous selection criteria and to ensure strong revenue streams in its projects. Its core tenet of country ownership creates incentives for policy reforms that improve the enabling environment for private investment and fight corruption. MCC’s work in Ghana is just one example.

Renewing and engaging champions

The strategic plan’s release in a presidential election year allows it to lay out a vision publicly for the next administration to consider. Regardless of who is elected, however, MCC needs to renew and build champions in Congress.

It is sometimes said that MCC has many friends but few champions on Capitol Hill these days. Many of those who led the charge for its creation in 2004 are no longer in public service – Howard Berman, Mark Green, Henry Hyde, Jim Kolbe, Tom Lantos, and Dick Lugar. The original goals for a budget of $5 billion have never been met, with annual budgets closer to $900 million, and new champions are vital in an era of sequestration and budget controls.

The new strategic plan is also timely because the MCC model may no longer seem as unique as it was in 2004. While the “MCC effect” originally meant the effect on candidate countries incentivized to undertake reforms to qualify for assistance, there has been another MCC effect: on U.S. development policy and agencies which have adopted many of its tenets. USAID’s reform agenda embodies many of the principles of focusing on results, monitoring and evaluation, and engaging the private sector, as do the Obama administration’s signature initiatives like Feed the Future and Power Africa.

MCC has sought to extend the model in recent years while keeping its commitment to data-driven results. While it has a record of successful country compacts, constraints to economic growth are often regional. The strategic plan calls on MCC to integrate its work with regional markets and invest its own resources with a regional perspective, such as in countries like Benin, Sierra Leone, and Ghana.

Proposed legislation to give MCC authority to develop additional compacts with countries taking a regional focus – sponsored by Senator Cardin and Representatives Royce, Engel, Smith, Crenshaw, and Bass – highlight an opportunity to strengthen MCC’s impact and engage Congress.

Let’s hope the strategic plan keeps MCC at the cutting edge of development policy and also can be an opportunity to build new champions on Capitol Hill and with the next administration.

Photo Source: Flickr / CC