Reducing poverty by promoting growth: An update on the Millennium Challenge Corporation and the role of the private sector in global development

Remarks by MCC CEO Ambassador John Danilovich

IGD Speaker Series
Indianapolis, Indiana

Friday, March 14, 2008, as prepared

Introduction

Thank you, Jim, for that kind introduction and for graciously welcoming me to Indianapolis. It’s a great pleasure and privilege to be among the members and friends of the Initiative for Global Development.

I welcome this opportunity to talk with you today about the Millennium Challenge Corporation, an

innovative,
different,
and demanding

U.S. program of development assistance.

Much of my work, by necessity, takes place in Washington, but there is nothing more exhilarating and refreshing for me than to go and see how MCC investments are improving the lives of the poor in partner countries worldwide and to share that story of progress with so many communities across this country.

I’m head of an organization that invests your money, as U.S. taxpayers. So, it’s just as relevant for me to talk with you here in Indiana about fighting global poverty as it is to do so with

a politician in Washington,
or a farmer in Central America or Africa,
or a fisherman in Morocco.

Our approach is to help poor countries with good government policies to help themselves by investing in programs that they have created as their solutions to their problems.

So, when I visited Morocco last month, Moroccan farmers explained to me how they will use MCC investments to rehabilitate irrigation systems, allowing them to increase the quality and yields of crops like

dates,
olives,
almonds,
and figs,

and, ultimately, increase their revenues. Moroccan fishermen talked to me about the landing sites and port facilities to be improved with MCC funds, which will facilitate greater market access. Whether in a place like Morocco or Indianapolis, people want a better life. They want a secure, prosperous future.

The Millennium Challenge Corporation shares IGD’s vision and commitment for tackling global poverty by championing effective solutions—like these in Morocco—that embrace both the public and private sectors. Like IGD, we understand that poverty is at the root of many of the international community’s gravest challenges and that working to eradicate it is one of the most important steps the United States can take to create a more peaceful world for all.

Poverty anywhere is a threat to prosperity everywhere, and together with partner countries worldwide, the Millennium Challenge Corporation is countering this threat by fulfilling the mission Congress tasked us with when they created us in 2004: to reduce poverty through sustainable economic growth.

We appreciate Congress’s strong bipartisan support for MCC’s mandate, including the valuable advice we continue to receive from Indiana’s own Senator Dick Lugar, who offers tremendous input as one of the earliest architects of the MCC model.

And, let there be no mistake about this: MCC recognizes that growth is the single most important factor in poverty reduction, and that the private sector is the key driver of such growth. As a result, MCC’s mission and private enterprise are inextricably linked.

MCC’s approach to development assistance can only be sustained over the long term if the

creativity,
innovation,
and entrepreneurship

of the private sector are unleashed.

I’d like to

update you on MCC’s progress to date in the pursuit of our mission and
highlight the critical role the private sector plays in this pursuit.

MCC Update

In four short years, MCC has partnered with 16 of the world’s poorest countries in

Africa,
Central America,
Eurasia,
and the Pacific

through compacts to fight poverty. These compacts total over $5.5 billion and address specific barriers to poverty reduction and economic growth.

Africa, as a whole, is the largest recipient of MCC’s development assistance, both in the number of agreements—9 to date—and in the amount of assistance provided—totaling $3.8 billion so far. Nearly 70 percent of what MCC has awarded in compacts so far benefits the people of Africa. We anticipate that our next two compacts will be in Africa as well, with Namibia and Burkina Faso.

We don’t provide funding to just anyone. MCC provides development grants—not loans—to partner countries:

willing to undertake political, economic, and social policy reforms;
willing to build their capacity to fight poverty; and
willing to deliver results where they matter most—in the lives of the poor.

If a country is unwilling to make these basic reforms so that U.S. aid can have the greatest impact, we move on to another country that will. This approach has fundamentally changed the conversation about how best to award development assistance to effectively tackle poverty.

Now, we talk about putting the right policies in place to tackle poverty. To select which countries would make the best partners in fighting poverty most effectively with your money, MCC uses 17 policy indicators to measure a country’s commitment to:

good governance,
economic freedoms,
investments in education and health,
control of corruption,
a regulatory and fiscal climate favorable to business development,
civil liberties,
the rule of law,
land rights,
and the protection of natural resources.

As a result, we are seeing partner countries enact the often difficult policy reforms necessary not just to qualify for and remain eligible for MCC aid but also, even more important, to do what is best for their citizens and to stimulate private sector activities.

In addition to good policies, we encourage and insist upon country ownership. MCC provides the funding and technical support, but we expect our partners to

develop their proposals,
implement their programs, and
benefit from leading their own development efforts.

In effect, MCC supports countries in creating their solutions to their challenges. This motivates our partners to develop their capabilities and look at what policies are critical or what institutions need to be created or strengthened to sustain their country’s long-term development.

And, thirdly, we demand

tangible,
meaningful,
sustainable results.

Our approach is bearing fruit, and we can point to some early results on the ground.

Madagascar, for example, slashed the time it takes to start a business from 67 days to one week, and reduced the minimum capital requirement by 80 percent. The impact has been tremendous. Madagascar has seen a 26 percent increase in the rate of new business registrations, bringing 200 additional firms into the formal economy where they can access credit and grow to their full potential. Additionally, MCC funded-agricultural cooperatives in Madagascar are producing greater quantities of high-value geranium oil to be used in soaps and perfumes.

Georgia completed the first round of emergency repairs to its North-South Gas Pipeline, improving the long-term security and diversification of the country’s gas supply, and providing citizens and businesses with reliable electricity and heating. This improves the standard of living for average Georgians and increases productivity among businesses so that people can earn a better living.

Nicaragua is helping farmers and rural entrepreneurs gain land security and access to markets. When I was there in January, I awarded land titles to over 700 Nicaraguan families and inaugurated a transportation project to rehabilitate a segment of the Pan-American Highway, connecting Nicaragua to Honduras. MCC funding is improving links not only between Honduras and Nicaragua but also between El Salvador and Honduras. These connected routes will help farmers more easily move their products to markets

in the region,
in the U.S.,
and beyond.

Role of private sector in development

By insisting on good policies and insisting that countries build their capacity to do more for themselves, our goal is to have our aid augmented and eventually replaced by the self-sustaining economic activity driven and spurred from within a partner country itself by the private sector. Because MCC demands performance on indicators evaluating

fiscal,
monetary,
regulatory,
and trade factors,

including the costs and days required to start a business, we foster conditions to

expand trade and commerce,
promote local entrepreneurship,
attract investment capital,
and ignite private enterprise.

MCC eligibility and selection are viewed by businesses and investors as providing each MCC partner country with a “good housekeeping seal of approval,” which sends a powerful signal to the private sector that conditions are swiftly improving for investing and doing business.

Private enterprise is the true engine of economic growth, and the only way countries can combat poverty is not to depend on development assistance alone but, rather, to use it to promote a growing private sector, in which the poor can fully participate. MCC grants to developing countries are designed to be that gateway to private investment.

Overall, 83 percent—the vast majority—of resources flowing to developing countries is from the private sector. Since global development depends on private enterprise, we continue to explore a number of ways to more closely partner with the private sector. MCC is taking a lead to make this partnership not just a theoretical exercise but rather a practical and operational reality in partner countries worldwide for the benefit of the poor.

For this reason, we have created and staffed a Private Sector Initiatives team at MCC to look closely at the intersection between

poverty reduction,
development,
and the private sector.

Many corporations are moving away from pure philanthropy toward more socially responsible investments that not only serve their corporate interests but also meet overall development objectives. MCC offers the private sector such options, and MCC’s Private Sector Initiatives team is pursuing ways to encourage private sector activity in development.

At MCC, this means weaving the private sector into the fabric of MCC compacts from the very beginning of the process. During compact development, we encourage MCC partner governments and the international and domestic private sector to work together to address constraints and opportunities for

growth,
trade,
and investment.

This early conversation is key to accelerating the

jobs,
technology,
and know-how

the private sector can bring, and will also help avoid duplications and build the lasting collaborations that will make MCC programs sustainable.

At MCC, encouraging private sector activity in development also means creating a comprehensive roadmap of private sector opportunities that are expected to surface because of MCC’s investments. We want the private sector to be aware of upcoming procurement opportunities as well as opportunities to partner with MCC countries in MCC or MCC-related investments. To do this, we are cooperating with other agencies of the U.S. government and nongovernmental organizations to proactively market potential ways for the private sector to work with MCC.

I invite members of the business community—many of you here in this room—to look closely at MCC investments in our partner countries and explore complementary or parallel investments of your own. MCC’s significant investments to

build infrastructure,
increase agricultural productivity,
and improve the business climate

create tangible ways for the private sector to grow.

I also invite foundations and companies with strategic corporate social responsibility initiatives to consider building on MCC programs in countries in which they have an interest. In conversations we have had with the Bill and Melinda Gates Foundation and the Rockefeller Foundation, for example, we have identified a number of mutual synergies in the fight against poverty worth pursuing.

It is in this spirit that MCC signed a memorandum of understanding with

Microsoft,
the United States Agency for International Development,
and the President’s Emergency Plan for AIDS Relief

to explore opportunities to collaborate on specific projects in partner countries worldwide.

To fully employ the role of the private sector in global development, MCC will continue to be a bridge between the resources of the private sector and the needs of developing communities.

Conclusion

Last year, Secretary of State Condoleezza Rice said “…the solutions to the challenges of the 21st century are not going to be met by government alone. They come from all sectors of American society working together, and that means a close and vital partnership between government and the private sector.”

MCC’s effectiveness is very much tied to effectively partnering with the private sector.

Although an innovative way for the U.S. government to award development assistance, the Millennium Challenge Corporation, alone, cannot turn back the tide of poverty.

Yes, we can help create and accelerate the right policy conditions in partner countries for growth to outpace poverty.

Yes, we can help countries build their capacity to deliver results and sustain their development.

Yet, for our efforts to make a lasting difference in the lives of the poor, the private sector’s engagement is fundamental. When we leverage and maximize MCC compact grants with contributions from private enterprise, the benefits of MCC’s investments become more sustainable and the potential development impact increases significantly.

What we start at the Millennium Challenge Corporation, the private sector will take to the finish line; and our partnership along the way is what, ultimately, will replace poverty with prosperity and give the poor a fruitful share in the economic lives of their communities.

MCC is committed to this partnership, and we welcome the continued support and input from the Initiative for Global Development as we work to reduce poverty through economic growth in close cooperation with the private sector.

Thank you, again, for your interest in the Millennium Challenge Corporation and for inviting me here today. I welcome your questions and our discussion to follow. Thank you!