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This blog is one in a series by experts across the Center for Global Development ahead of the 2022 US-Africa Leaders Summit. These posts aim to re-examine US-Africa policy and put forward recommendations to deliver on a more resilient, deeper, and mutually beneficial partnership between the United States and the nations of Africa.
As African and US Leaders meet in the Washington Summit this week, we decided to ask the leader of a key agency, with a long track record on the continent, how it is contributing to more effective and expanded US engagement. We asked Millennium Challenge Corporation (MCC) CEO Alice Albright a series of questions: Can MCC increase investments in Africa, including regional investments, at a time when challenges to democratic progress have intensified? How does MCC choose where and how to invest? What does country ownership mean to MCC? Can it use grant finance more catalytically to crowd in private investment? Does MCC have transformative or systemic impact? Here are her answers.
Q: The US strategy for engagement with Africa includes priorities squarely at the center of MCC’s work: supporting democratic progress, sustainable infrastructure and a just energy transition, and economic opportunity. But how can MCC really expand its role and impact at a time of democratic backsliding in many countries?
The Biden-Harris administration’s Africa Strategy acknowledges there are ongoing development challenges on the African continent, but more importantly, there are also tremendous opportunities. In line with the administration’s approach, MCC is looking to deepen our relationships and expand our partnerships in pursuit of shared interests with our African partners in the areas that you mentioned and more. As the US reframes our strategic approach to Africa around mutual respect and engagement, MCC provides a powerful example of what this looks like and how it works.
MCC’s model was made for this moment. MCC puts resources behind the US recognition—articulated in the US Africa Strategy as well the recent National Security Strategy— that for democracies to survive, they have to deliver. They need to secure progress for their citizens by providing economic infrastructure, basic services, and public goods. We work hand in hand with our partner countries to help them do just that.
MCC has been delivering on this model since its creation in 2004 with a geographic focus in Africa. We have invested nearly $9.5 billion with 24 partner countries in Africa with nearly $2.5 billion active grant programs in 14 African countries and another $2.5 billion in the pipeline. MCC is clearly well-positioned to do more in Africa.
With MCC’s 20th anniversary approaching, it is time to ask how MCC can lean into its model and deliver more. The nature of need in the world is shifting as pandemics, climate shocks, and global economic effects of Russia’s war in Ukraine negatively affect our African partners. After significant deliberation, MCC is seeking to expand the set of countries to which we can apply our selectivity model.
As we move ahead, this will take support from the US Congress to provide MCC the adjusted legislative authority and necessary resources to bring our effective model to more places. We are extremely grateful the House of Representatives passed the Millennium Challenge Corporation Eligibility Expansion Act in September 2022. This legislation would allow us to consider a broader range of countries, including a number of African countries, and we hope to see it become law.
Q: While we know China is a big player in infrastructure in Africa, infrastructure also comprises the vast majority of MCC’s programs. What makes MCC able to make large-scale infrastructure investments in Africa successfully, especially within the five-year compact timeframe? Can MCC significantly expand its infrastructure finance in Africa while remaining true to its core model?
We know our country partners face critical choices and trade-offs when it comes to development finance. But at a time when we have seen the Belt and Road Initiative draw down its investments in Africa in recent years, the US has doubled down on infrastructure investments.
Earlier this year at the G7 Leaders’ Summit in Germany, President Biden formally launched the Partnership for Global Infrastructure and Investment (PGII) to mobilize $600 billion to deliver high-quality, sustainable infrastructure that makes a difference in people’s lives. The US aims to mobilize $200 billion over the next five years, and MCC will play a critical role in bringing grant financing for priority infrastructure projects in Africa.
As PGII illustrates, MCC is a critical tool in the USG's development toolkit when it comes to infrastructure. MCC exclusively provides predictable, long-term, and transparent grant financing—not market-rate loans with opaque terms. MCC investments respond to the needs identified by our country partners that produce measurable returns on investment. The way we work supports accountable governments delivering for their people.
And it's not just how much infrastructure financing we bring to the table—it's also how we go about deploying it. MCC programs build local human capital, ensure infrastructure investments meet technical standards and provide a foundation for sustainability through institutional capacity building.
Q: Many are focused on how to bring together donors in effective country platforms led by the recipient country itself, especially for pursuing climate-related objectives. But country ownership has been one of the distinguishing features of MCC compacts from the start. What are MCC’s lessons that others could usefully put into practice in platforms in Africa? How have compacts changed over time to incorporate lessons learned?
From the outset, MCC has prioritized country ownership of all programs—it is our country partners that determine what MCC funds based on what can drive their economies forward and the needs of their citizens. The reality is that our partners have dramatically experienced how climate change affects their economies—from prolonged drought to cataclysmic storms—so they continue to request investments that respond to and prevent, adverse economic effects. That’s why 42 percent of our investments since 2015 have been climate-related, and we are confident that proportion will continue to grow in response to our growing partner country needs.
Whether focused on sustainable irrigation or typhoon-resilient roads, MCC is continuing to evolve its approach to country ownership in response to learning and experience. In MCC’s early years, we asked countries to propose priority projects, but that sometimes resulted in programs spanning may sectors without a coherent, integrated vision linking them together. MCC needed to devise a more disciplined process to determine the highest return with our partners. In response, MCC championed the use of data-driven analysis to identify a country’s most binding constraints to economic growth using the novel growth diagnostics approach proposed by Hausman, Rodrik, and Velasco.
If you compare MCC’s programs now with those from our early history, you can see our evolution. We now typically pursue only one or two sectors—instead of up to five—in earlier compacts. This refined approach recognized the value of taking a holistic approach to a sector, rather than sprinkling financing across a larger number of focus areas. Now, we look to aggressively link our big-ticket infrastructure investments to tough but necessary reforms. This approach enables MCC to incentivize difficult policy and institutional reforms that are critical to lay the foundation for systemic, sector-wide impact and ensure sustainable results.
We also realize the importance of fostering country ownership to promote good governance, especially in our Threshold Programs which focus solely on pursuing reforms with partner countries. You can see this approach in action in The Gambia where, following the Jammeh regime, the country stepped onto a democratic path. Today, MCC is working with The Gambia on access to electricity. We are currently working with both with the executive and the legislative branches on the institutional environment needed to build a sustainable power sector and we look forward to continuing and deepening our relationship with The Gambia.
Q: MCC has scarce grant resources that could be highly catalytic in mobilizing private finance in infrastructure and other investments. Is MCC giving greater priority to mobilizing private finance? Are there data and examples that demonstrate growing mobilization performance in Africa?
Yes! Take the MCC – Malawi Compact, where we leveraged public and private investment to upgrade the country’s power infrastructure. The compact helped introduce a new legal framework to stimulate investment in power generation and expand access to electricity, which led directly to the development of the country’s first independent power producer deals.
More broadly, MCC’s approach is to catalyze private sector investment without subsidizing private companies. We work with countries to reform the regulatory environment alongside infrastructure investments. This leads to coordinated investments that crowd-in the private sector to maximize the impact of our investments. MCC engages with the private sector in three ways. First, businesses help shape our investments by participating in private sector stakeholder consultations when we are identifying the constraints to growth and developing programs with our partners. Second, businesses invest alongside us, as MCC compacts aim to incentivize reforms that create an investment climate that is welcoming for private sector capital. Third, businesses compete for contracts, grants, and public-private partnerships under MCC investments.
MCC is also working in partnership with our interagency colleagues in efforts like the American Catalyst Facility for Development (ACFD), in which MCC and the US Development Finance Corporation (DFC) have created a more formalized mechanism for collaboration between our two agencies to support catalytic investments in MCC partner countries. The ACFD is designed to leverage the strengths of both agencies to enable coordinated investments aimed at crowding-in the private sector and maximizing the overall impact of US Government development efforts. AFCD activities are included in our recently signed compacts with Lesotho and Malawi.
Q: MCC’s regional compact authority gives it critical a tool in a region where integration is essential for building attractive markets. But launching regional compacts has been difficult. Would you give us an update and an assessment of the potential for such compacts in Africa?
Taking a regional approach is more complicated than traditional bilateral investment. But we know that when countries are part of dynamic regional markets, they grow faster, create more jobs, and attract greater investment. MCC is working to unlock that potential by promoting regional integration on the continent, and I am excited to share that MCC will sign the first of its concurrent regional integration compacts at the Africa Leaders’ Summit this week
Once signed, the combined $504 million regional transport investment with the Governments of Benin and Niger aims to reduce transport costs and improve efficiency along the Cotonou-Niamey transport corridor. The program will rehabilitate portions of the existing transport corridor and address some of the institutional and market constraints that raise the financial and time costs of transporting goods. The corridor is one of the most heavily traveled north-south corridors in West Africa, and improving it has the potential to provide substantial economic benefits to both countries. The investment also has a clear link to MCC’s work at the Port of Cotonou in Benin’s first bilateral compact as well as the current MCC compact in Niger focused on roads and agriculture.
Looking ahead, MCC continues to work with Cote d’Ivoire and the West African Power Pool to support the development of a regional energy market that will strengthen the power sector in the region. The development of this new energy market will facilitate commercial transactions in power trade that could reduce the average costs of power for consumers in the region. Elsewhere in the region, we are working with Sierra Leone to invest in strengthening their power generation, transmission, and distribution systems that could also result in cheaper, more reliable electricity for consumers.
We are very excited that our new concurrent regional authority is becoming real, and we look forward to pursuing additional investments on the continent that promote regional integration in new ways.
Q: MCC’s compacts can bring gains that extend beyond the direct beneficiaries of particular projects. Would you tell us how you think about those broader systemic gains and give us some examples in Africa?
MCC’s investments have three key features that extend our impact beyond those benefitting directly. They include targeting key reforms, targeting the binding constraints to growth, and aligning with our partner country’s development priorities. Taken together, MCC’s approach can unlock systemic impact that is difficult to measure but keenly felt in the economy beyond the direct project participants.
First, we work hard with our partners to get the business enabling environment right. This is critical for the sustainability of our investment as it can boost a country’s ability to attract private capital. This is why MCC works with partner countries to determine what policy and institutional reforms will best support our infrastructure investments and catalyze private investment.
Second, we target our investments to address the root causes of binding constraints to economic growth in a way that complements and catalyzes investment by others. For example, large, focused grants that provide backbone infrastructure investments can support utilities as they move towards more sustainable operations and credit-worthiness. This type of progress can unlock a key economic constraint in the eyes of the private sector that can catalyze significant private investment. In MCC’s current $391 million Benin Power Compact, we are working to expand energy access, particularly in Cotonou. This includes attracting private investment to Benin’s energy sector that could generate 50 MW of solar energy –one-third of Benin’s demand. This would turn on the lights for over 600,000 people.
Last, we have a focus on country ownership and aligning with country priorities and national development strategies to boost the effectiveness and sustainability of our investments. A good example includes our $332 million compact with Zambia focused on intensive water infrastructure investment and institutional strengthening. We worked with the Government to chart a 25-year strategy and more than $2.7 billion in investments to meet the Lusaka population’s water needs.
By addressing the enabling environment for the private sector through reforms, targeting the most critical economic constraints, and aligning investments with country priorities, MCC is unlocking economic gains that extend well beyond the life of our investments.
In conclusion, MCC’s model was made for this moment—to address complex challenges, support geographical regions, and help democracies deliver—MCC is fit for the future.
Stay tuned for more analysis on the summit in the coming days, and sign up for our US development policy newsletter to get updates in your inbox.
Disclaimer
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
