The MCC considers innovation a key part of its approach and a key ingredient to its success. Although MCAM is just ramping up its program activities, there are four aspects of the MCC and MCAM's approach that, if sustained, will make it innovative among other donors and aid programs in Madagascar. These are: a focus on sustainable transformation of the country's capacity to generate growth and improve the livelihoods of the poor; the courage to take on the tough reforms like land tenure and the financial system; ownership of the program by Malagasy leaders and MCAM staff; and finally serving as a catalyst for coordination among various stakeholders.
An important caveat here is the affects of the "invisible year." Unfortunately, the MCAM's potential as a source of transformation and innovation could be jeopardized by the fact that precious compact time was devoted to putting essential systems in place. The MCAM would be better positioned to meet its potential for innovation if the "invisible year" activities had occurred prior to "entry into force" of the compact.
Components of MCAM/MCC Innovation
Transformation: Many respondents argued that the MCC/MCAM is the only donor/program with a comprehensive enough approach to transform the Malagasy economy. In this case, the focus is on transformation of the rural economy from subsistence to market-oriented production. With many other donors working to increase agricultural productivity or link producers to markets, what about the MCAM gives it more potential for transformation than others? Part of the answer is in the comprehensiveness of the approach. For example:
- MCAM is investing in both the national and regional levels. Land tenure and financial sector reforms at the national level are designed to create opportunities for transformation at the regional and community level.
- MCAM has designed a coordinated program to address three interrelated barriers to poverty reduction in rural areas--land insecurity, little access to credit, and poor agricultural practices.
- MCAM targets all steps in the value chain--from increasing production capacity and quality standards of small producers, to securing the markets for their products.
Several respondents argued that the MCC/MCAM have increased their chances for jump-starting real transformation in Madagascar by selecting regions that have the most potential to benefit from their approach. This does not necessarily mean the richest regions, because the MCAM target zones represent a mix of the average incomes across the country; it means a focus on regions that exhibit both the need and the potential of the regions to experience this transformation.
So far, MCAM's beneficiaries seem to be optimistic about the potential for lasting impacts in the MCAM's approach. In the village of Betampona, the first to benefit from the MCAM's agricultural activities, farmers spoke plainly about the MCAM representing a shift away from subsidies to sustainable practices. The farmers view the MCAM as their partner in learning to engage more effectively with firms, and how to negotiate more favorable contracts and better comply with them--all skills that should stick beyond the life of the compact. While it is still very early days in terms of MCAM program implementation and impact, it is clear that the MCAM sees itself, and is seen by others, as a force for sustainable transformation.
Courage: When asked how the MCAM/MCC are different and innovative, or why expectations of the program are so high, many respondents cited the boldness and courage of the MCC/MCAM to take on the tough reforms in land tenure and the financial system.
The MCC is the biggest source of external funding for Madagascar's land tenure reform efforts. While other donors also support the establishment of community-level land tenure offices (guichet foncier), no donor comes close to the MCAM's $37 million commitment to national reforms (for example the U.N.'s International Fund for Agriculture Development has committed $5 million over the same period). According to one leading multilateral donor representative, over the years "other donors have made limited investments in land reform in the past because they have been pessimistic about the possibility of success." And their pessimism has been a self-fulfilling prophecy because the piecemeal interventions have never provided the foundation or momentum for fundamental, lasting reform. Government officials argued that MCC's major commitment to Madagascar's land reform effort has provided a much-needed base, has attracted other donors to the program, and has increased donor confidence in its potential success.
When it comes to the financial sector, the MCC is the only donor supporting major banking reform. While many donors are interested in microcredit, or supporting the creation of new financial instruments, most shy away from restructuring the formal banking system because it is so hard. But none doubt that it is important. Donors explained that the major banks are resistant to modernization and competition and that hurts the poor. A senior official of the Ministry of Finance argued, "currently banks can make money with 200 or 300 big customers, so why should they take risks on smaller borrowers and investors?" All donor and GOM officials interviewed for this report praised the MCAM/MCC's boldness for taking on these reforms in a serious way. There also seemed to be a strong consensus among NGOs (both local and international) and business leaders that the success of their own programs depended on the success of MCAM's interventions.
These bold initiatives set the MCC/MCAM apart from other donors in Madagascar, and have earned it the reputation for being courageous and innovative. The timing has been good for such boldness; the MCC's head-on approach complements that of the President, and offers crucial resources to support the increasing political will at senior levels of government to take on these tough reforms.
Ownership: The MCC is pursuing "country ownership" of development strategies in three important ways in Madagascar. First, in terms of program design, Madagascar's compact design was very much driven by national priorities, in conjunction with existing national strategies. Second, the fact that all of the MCAM staff is Malagasy is a huge source of pride and motivation, and relative to other donor missions in Madagascar, is an innovation. Third, the MCAM is fostering ownership among beneficiaries because the MCAM is a facilitator rather than a provider. For example, it will help farmers learn to leverage their land to access credit to purchase key inputs and new technologies, rather than just offering the seeds and tractors up front; and it will train microfinance institutions to develop new lending products and to reach out to underserved populations rather than just providing additional financing. In Betampona, farmers seemed to respect the "ownership" principle; in this case MCAM demands something of farmers before offering any benefits (such as preparing their land for cultivation).
There is an important caveat about "ownership" as an MCC innovation. The MCC is not the only donor to promote country ownership of development programs and financing. For example, all donors involved in land tenure reform are supporting the national land tenure program's strategy and have agreed to common M&E indicators. In Madagascar, as in all other countries featured by MCA Monitor, many donors are promoting ownership by providing increasing portions of their aid as budget support. General budget support makes up a quarter of all grant financing in Madagascar, and despite the MCC's commitment to "country ownership," it has not joined the World Bank, the EU, and the French Development Agency (and soon Norway, Switzerland and Germany) in fostering Madagascar's capacity to "own" and manage its development resources by supporting its general budget [1]. But the MCC has distinguished itself in terms of ownership at the staff and beneficiary level. On the program side, it is seen as an anchor for national "owned" programs in land tenure and financial sector reform simply because of how much money it contributes. And, what has turned out to be important is that the MCC and MCAM are vocal about their ownership approach. The "ownership" tagline is definitely a part of everyone's notion of the MCAM, and this lends the MCAM program significant political leverage, and surrounds it with enthusiasm and momentum.
Catalyst for Coordination: The MCAM is catalyzing and contributing to innovative coordination in several aspects of its work. First the MCAM is seeking coordination and collaboration with civil society organizations and firms at the programmatic level. Second, the MCAM is fostering a level of coordination between ministries that is new in Madagascar, both through the formal composition of the Steering Committee and through coordination required in its comprehensive approach on the programmatic level.
In the area of donor coordination, MCC is not so much a pioneer, as it is an enthusiastic partner in new coordination approaches. Donor coordination is less formalized at the central level in Madagascar than in other countries featured in MCA Monitor field reports. While donors nominally sign on to supporting the Madagascar Action Plan designed by the government, there are no formal central donor coordination mechanisms such as Sector-Wide Approaches (SWAps) that foster joint planning and pooled financing at the sectoral level (with the very notable exception of the multi-donor secretariat for environment which predates sectoral coordination in other countries). In the absence of centralized coordination, several regional leaders, together with donors are pioneering program coordination at the regional level. For example, at the invitation of the regional head, a number of donors recently made a joint visit to Menabe, one of the five MCA zones, to get to the nuts and bolts of coordinating programs and financing on the ground. USAID is playing a leading role among donors in this effort, and the MCAM is seen as both an anchor and a catalyst for increased coordination because it has so much money on the table.
Risks and Opportunities of Innovation
Innovation always comes with both risks and opportunities. The courage that allows the MCC to support bold reform also subjects it to the risks that many donors have chosen to avoid in the past. For example, both the land tenure and financial sector reforms are risky because of vested political interests. In addition, some of the reforms are simply daunting. For example, during a visit to the national land administration offices, an MCAM official said from behind disorderly piles of tattered land maps and titles, "We are trying to save 100 years of documents in four years!" The political and practical difficulty of MCAM's proposed reforms led several respondents to ask rhetorically, "Is the MCC courageous or is it naïve?"
A major risk to the MCC's transformational intentions is that the compact period is not long enough to achieve the types of results that MCC and MCAM have targeted. Transformation takes time, and four years may not be long enough for central-level reforms to translate into tangible results at the household, community and regional level--especially since precious time has been devoted to the "invisible year" and public expectations are increasingly hard to manage. It is no accident that donors tend to focus on investments that can be felt and seen quickly, and in the case of the USG, that can be tangible enough to bear the seal of "From the American People." The MCAM and MCC have a different approach that focuses first on creating an "enabling environment" to make the most of subsequent high-profile, tangible investments. It is less sexy, but potentially much more powerful. Unfortunately the potential of this approach is hindered by the Congress' prohibition on concurrent compacts. Under the current limitations, countries have a great incentive to either leave out the harder, longer-term reforms, or to cram them into an unruly package that necessitates hundreds of millions of dollars of planning up front. The last three MCA compacts--Ghana, Mali and El Salvador--appear to indicate countries taking the latter approach. Madagascar took a risk by being cautious in its approach. It would be a pity for it to miss out on a concurrent compact and thus serve as a lesson that MCA countries should be audacious rather than measured in their proposals.
The MCC has put a lot of emphasis on its approach being innovative. Innovation for its own sake is, of course, meaningless. The value of innovation is in the MCC and its country programs reaching better and more sustainable results than their predecessors have. There are opportunities for this in the MCC and MCAM's bold and innovative approach in Madagascar. Most importantly, the MCC/MCAM approach creates the opportunity for Madagascar to transform not only its economy but its approach to development. If the MCAM is successful, the principles of courage and ownership will help Madagascar break away from the real or perceived reliance on subsidy-based aid programs, and really take the reins on promoting its own development.
The MCAM's approach also gives it the potential to leave a legacy long beyond the life of the compact. Due to ownership at the staff level, the MCAM will produce a cohort of Malagasy professionals with capacity to plan and financially manage development strategies. Ownership, combined with funding contingent on reaching reform milestones, lends credibility to the program as it pursues tough reforms in a courageous way. And the MCAM's comprehensive approach that includes coordination between stakeholders and across program components means the MCAM, in the words of the MCC resident country director, "is sitting on a tremendous opportunity to change the face of agriculture" at the regional and community level.
These opportunities help explain the enormous expectations that surround the MCAM. The MCAM and MCC have some catch-up to do both in terms of time spent and misplaced expectations over the course of Madagascar's first invisible year. But with some strategic action on the part of the MCAM, and support from the MCC and US Congress, the MCAM can make the most of these opportunities.
Next: Part IV: Recommendations
[1] For more on the MCC and budget support, see Should the MCC Provide Financing Through Recipient Country’s Budgets? An Issues and Options Paper by Sheila Herrling and Steve Radelet.