Washington, DC — The Millennium Challenge Corporation's board of directors announced mid-March that Madagascar will receive the first funding from the Millennium Challenge Account, a new aid initiative first proposed by President Bush three years ago. Madagascar is slated to get $110 million over the next four years. Countries are evaluated on 16 criteria to determine eligibility for funding. Paul Applegarth, head of the MCC, spoke with AllAfrica's Margaret McElligott about the significance of the first compact and his hopes for the MCC's future.
The MCC has come under some criticism for not moving quickly enough, although Congress approved funding just more than one year ago and you have personally been on the job for less than a year. What is the significance of this first MCA compact and do you think you're moving with appropriate speed?
We can do only so much. The MCC was set up very quickly to get the list of country candidates out, get the criteria out, hold the first selection of eligible countries on the first possible day we could - the legislation said we had to wait 90 days. But then the ball really shifts to the country to establish their priorities and run the consultative process and present us their ideas for the plan.
Through the competition, countries compete to tell us what their priorities are for poverty reduction and growth, and we really only ask that if they're selected, they take some time to have a good consultative process to determine what their priorities are going to be. We started to get proposals or concept papers in the middle of August, and in our first group of 16 countries picked in May, we received 15 of the 16 by the end of November. We still haven't received one of them.
Once we got to proposals or concept papers, then we sit down with the countries and really help them think about what they want to achieve in their priority areas. How are they going to measure the results in terms of outcomes? How are you going to get their development implementation plans?
I think Madagascar has done an extraordinary job in this process. Their proposal came in October 4 and we internally approved it by the end of February, which was less than five months from the time the ideas were first received here. Then it goes to the board for approval - I sit on the board, so we had to consider it - and notified the Congress and hopefully we can sign it in late March, early April.
But this is really an extraordinarily short period of time for a proposal that was basically a couple of ideas and priorities at the beginning of October. It's gone from those ideas to the establishment of measurable results, benchmarks, detailed implementation plans, etc. The Malagasy drove all that. We helped. We actively helped, but they really did it. It just shows you what country ownership can do.
Even private sector standards would have trouble getting it done this quickly and in the private sector, you're talking about people who've done it before, on both sides of the table, knowing in advance what your measures of outcomes are.
In our case, we have to look at the country and figure out how are we going to measure success in terms of outcomes? In the private sector, when you get a proposal, you've already got a management team in place and an implementation plan and they're basically telling the private sector to finance something that is already well specified. The Malagasy did all this with our help, not having a management team at the beginning, no implementation plan, and really the first time through for everybody. I think it's an extraordinary testament to their commitment.
How much do you work with countries in choosing their priorities?
We don't pick the priorities. We will evaluate the priorities in two principal ways: one, will they help achieve our mission? Our mission is poverty reduction in the poorest countries in the world. We want to see in the country proposal that ultimately the objective will be achieved, which is poverty reduction. That means, first, is it a good idea? Is it really focused in areas that will reduce poverty and promote growth in the country and then does the plan for achieving the results make sense? The second part of choosing the priorities is was it chosen through a consultative process, so we know it was really, truly a national priority and there's national buy-in - it's not simply the idea of one or two people in the country, in the government.
Even though this is grant money, we talk about it being an investment and our partner countries talk about it as an investment. They realize this is a resource that they can get a return on and that's rare for them, because it is a lot of money and is not tied to U.S. procurement. We have not focused on any particular sector. Under our rules, they can decide where it goes. It's a rare opportunity for them.
Madagascar chose to focus on rural development - land reform, banking reform and access to credit and agricultural development. Why did they choose those priorities?
Madagascar, like many of our other proposals, is focused on rural areas. In Madagascar, 80 percent of the people that are poor are in rural areas. Average income in rural areas is 41 cents a day. These are very poor people. And the Malagasy said, `If we really want to achieve our goal of poverty reduction and the MCC's objective of poverty reduction, let's focus it on where the poor people are, and where we can really have a significant impact on them in terms of offering them opportunities for growth and opportunities for them to become self-sustaining, and help move our economy from a dependence on foreign assistance.' That's where the growth comes from and that's why they've targeted the rural areas.
In addition, they've chosen agriculture because that's the most logical way to have a significant impact on the lives and well being of poor people in rural Madagascar. I think the Malagasy were very smart in focusing earlier on what are the principle obstacles to doing this and really talk about a phased proposal. The first phase is, let's deal with what they see as the critical things that have to be dealt with before you do the second phase.
Madagascar's agricultural yields in terms of productivity per hectare, are among the lowest in the world and as Madagascar looked at it, they said, `Well, there's two principle reasons for that. One is there's no security of title.' Farmers are afraid to make investment in their area, because they think that if they make an investment and increase the value [of their land], they have no protection against somebody coming in and taking their land away from them. Since there happens to be excess land in Madagascar, they go in and farm an area using very primitive techniques and then they move to another area. Tou end up in the process, first, [with] low agricultural yields, and in addition, because Madagascar really is a very unique ecosystem, having disastrous environmental consequences. So a side benefit of this is the protection of the rare ecosystem in Madagascar.
If I put it in very simple terms, right now the land titling system in Madagascar is really broken. Even at the current level of processing land titles it would take over 100 years to eliminate the existing backlog. And that's for applications for people they've received. How many people do you think don't even bother because it'll be 100 years before they even get a title! So this will clearly help a lot to give some farmers the confidence to invest.
Secondly, even if they have the confidence, do they have the resources to invest? Maybe a few do, but the reality is they need access to credit. Security of title helps you get access to credit, but you also have to have a functioning banking system. It really isn't [functioning] in Madagascar. It takes 45 days for a check to clear. The government has set a target of bringing it down to three days, which I think is a very ambitious target. Can you imagine if you're a farmer, you actually get better yields for your crops, and you want to take it to somebody to sell? How do you get paid if there's no functioning banking system? You either have to get a pile of cash and you're subject to getting it stolen, or you only deal with friends or neighbors in the local area and you don't allow them to maximize the return on their investment or on their efforts. If you're going to have an impact, you have to give farmers the opportunity to get paid for their services. In addition, if they need fertilizers, if they want to put in simple drip irrigation systems, it'll still cost a lot of money relative to what they earn, so they want some access to credit, By helping the banking system function better in a very rudimentary way, you're helping them do that.
The third part of this first phase in Madagascar is to do some core research to help the farmers, when they're ready, identify higher-value products that it is worth making the investments in and to identify things in which Madagascar will have a competitive advantage. [When those products are identified] the farmers can - when they're ready - make the investment to diversify into these crops.
Then, when you get to phase two, you can have meaningful agricultural extension. You can have real microcredit programs. You can have support for irrigation systems directly. Right now, if you tried to do that, it would fail, because the preconditions, which are access to security of title and access to credit - aren't there. Is there anything in Madagascar's initial proposal that wasn't included in the final compact?
I'm not sure. I would be somewhat surprised if there wasn't. Madagascar's unusual in that regard because most of our other proposals have had things that really, on balance, wouldn't survive the priority-setting, due diligence process by the country. But Madagascar was very thoughtful in their initial proposal to us.
With more than $2.5 billion appropriated by Congress during 2004 and 2005, this $110 million compact with Madagascar is just a drop in the bucket in terms of your total budget. Do you anticipate future compacts will be larger than this one and you begin spending more of the money?
We have $1 billion from 2004 and $1.5 billion for 2005. That's essentially how much we have to invest now with our partner countries. We don't talk about spending, we talk about investing. I think it refers to the kind of discipline that they apply and that we apply. They want to get a growth return for this investment and so do we, and if you talk about spending it, you lose some of that. You want to think about results and outcomes, and getting something for the money you put out. Though we have roughly $2.5 billion, the money doesn't go away at the end of each fiscal year, unlike a lot of government programs. That's part of the wisdom of MCC. There's no rush to throw money at the problem or to rush it out the door. You want and the countries want to use the money well, so we want to have a chance to plan and make sure it's thoughtfully done and not put under artificial pressure to disburse it.
The four-year contract [with Madagascar], the $110 million, comes out of the $2.5 billion. When we sign the contract, Madagascar will have assurance that as long as their program continues to perform the way we planned it with them, that $110 million is available to them, and it's available to them when they need it. It's not subject to the uncertainties of the appropriations process, either in terms of timing or amount. They can plan on it. We can plan on it, and I think that's a very important lesson in the design of the Millennium Challenge - the certainty of funding so you can really design a good, efficient program.
The [rest of the] $2.5 billion - some we're reserving for the threshold program, some, but not very much, is being used for administrative expenses. The rest will be used to fund the compact [with] the essentially 17 countries chosen in fiscal year 2004 and 2005. Now, not all of those countries may get funding. If we don't get a good proposal, then those countries, unfortunately, won't benefit from MCC. But that's really up to them because it's up to them to develop the proposal - again, with our help, but to do it. We can't do it for them. We won't do it for them. That's not what country ownership is about. We can help them, though, to help themselves.
Which countries, especially African countries, do you think will get approved next? What can we expect in the near future?
All I can do is tell you right now is what we've told Congress. Madagascar is first and it's African. We think that's very important. In our first group [of 16 eligible countries], eight were sub-Saharan African. We added one new country in November, which is Morocco, which is not sub-Saharan African, but it is African. Of our 13 threshold countries, seven are African. We operate globally, but Africa is very important. I think the key thing here that people sometimes miss, is that we don't have any special rules for Africa. Our partner countries in Africa have shown that they can have good leadership and they can compete in terms of their commitment to poverty reduction and to growth, and put good policies in place on equal terms with the rest of the world and do well. There are nine governments in Africa that have absolutely helped their countries win the MCC competition and been named eligible. That's a great story.
With Madagascar focusing on rural development, can you give us a preview of the areas of focus other countries have chosen in the proposals you have received so far? One of the goals of the MCC was to be flexible and allow countries to choose what's best for them.
Well, that's the goal and that's the design. We're seeing a range of proposals. I can't talk specifics because of the Foreign Government Information Act, which means the proposals remain the property of the government. Some of them have put the proposals on their web sites or released them, in which case you can talk about them, but in general we can't until they do.
Overall, we're seeing a lot of proposals that focus on rural areas, either agricultural production or water and sanitation management. It varies. Countries differ. We're seeing a fair amount of land titling. We're seeing a lot of integrated rural development. But some countries are different. They have different needs. The [proposals] that are most well-developed at this point clearly have a link to their mission and our mission, which is poverty reduction.
On Jan. 1, World Trade Organisation rules changed, removing quotas on textiles. African countries, including MCC-eligible Lesotho, have lost thousands of jobs due to factories shifting their production back to Asia. Many African trade promotion officials have called for aid to improve transport and support infrastructure, to lower the cost of water and electricity, and to improve worker productivity, which they say would help African countries compete. Have any eligible countries proposed using MCC funds to build this infrastructure for trade?
The answer is yes. I think some are looking at the textile industry as competitors, but others are looking at alternatives. A lot did respond to Agoa and it's clear that the extension of Agoa last year by the U.S. government was important to a number of countries. But, unfortunately, for a lot of them the most immediate opportunity was textiles and the Multifibre Agreement and the WTO - it's impacting not only sub-Saharan Africa. Lesotho is a good example because they moved most aggressively to create a lot of new jobs in response to Agoa and some of those jobs are being lost now since January 1. It's also not just Africa - some of our other partner countries around the world have been impacted the same way.
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But we are seeing some thought in the proposals to those who want to focus on job creation in the private sector [who say], `What makes the most sense for us in terms of how do you get sustainable job creation and sustainable growth that will benefit the economy?'
How large is your staff and how do you coordinate with other U.S. aid agencies? How do you work together to make sure you're making the most of the money?
When the MCC was set up, it didn't have any permanent staff. We now have between 110-120 staff, here and abroad. We're on plan or slightly ahead of plan to get to 200 by the end of the calendar year, which is our ceiling. With the mission we have, and the way I personally think we should operate, anything that is not absolutely relevant to our mission, we subcontract it out to somebody else who can do it as least as well as we can or better and doesn't use up our head count. People here work on our mission.
But to achieve it, it's absolutely essential to us that we coordinate with other donors and work best with them. We ask [that when] countries tell us their priorities, they tell us how it fits in with what other donors are doing. We don't want to be redundant to what other donors are doing. We work closely with other donors in trying to minimize the burden on countries in terms of potentially conflicting requirements. We've had good support from other donors, from the World Bank, IMF, others, in terms of country briefings and talking about situations in the country report. Teams went out initially and would try to make it an interactive dialogue.
I think the model for cooperation is with AID (U.S. Agency for International Development). Not only is Andrew Natsios on the board, but I think virtually every day they've been very helpful at the senior levels. Through our start-up period, we actively discussed a lot of solutions and ideas and they're implementing the threshold program for us. We're working closely with them, but those resources have been very valuable for us.
What else should people know about this new compact with Madagascar? What direction is the MCC going in the next few years?
There is now one [compact] done. The fact that it's in Africa, I think, is important. There's one done that becomes a model that other people can look to. Everybody will do it different, still, but at least it will help speed up some of the others. We already have lessons learned from the countries [that are more] advanced in terms of their proposals, which we can share with countries that haven't been moving as fast.
We have discussions in the countries about that, so we tell them about the lessons learned. We use our U.S. embassies in the countries to communicate in addition to what we're using directly. We also use the countries' ambassadors here. And using the country's ambassadors here in Washington as part of this is actually a symbol of what's going on. I've had two different meetings today alone - I think we had three or four today across MCC, with local ambassadors in the country, talking about lessons learned, things they should think about how they can accelerate the process in their countries. They don't have to do it. We don't tell them at all what to do, but if something works for them - it's consistent with their culture and works for their political norms and values - that example is there now.
Once the Madagascar compact is signed, it's going to go up on the internet, and everybody can look at it and see it. I think as we get more of them, everybody will learn how to do this faster and better.
