The MCC and why Tanzania lost 1trillion

• The Millennium Challenge Corporation (MCC) is an independent U.S. foreign assistance agency that has the goal of reducing poverty in developing countries through supporting economic growth.

MCC has a unique approach among U.S. foreign assistance agencies in that it works only with countries that are deemed “eligible” after meeting certain benchmark measures for good governance, economic freedom, and investing in people, and it provides assistance through formal bilateral agreements negotiated and developed in a “country-led” process.

Created by the U.S. Congress in January 2004 with strong bipartisan support, MCC is changing the conversation on how best to deliver smart U.S. foreign assistance by focusing on good policies, country ownership, and results.

Since its creation, by the Millennium Challenge Act of 2003, MCC has supported development programs in almost 40 low- and lower-middle-income countries.MCC uses quantitative benchmarks to determine eligibility, places heavy emphasis on country-led planning and implementation of assistance agreements, and relies on robust and transparent monitoring and evaluation of progress and impact of its assistance.

The agency has also been seen as early champion of gender dimensions of development, having adopted its first gender policy in 2006 and long recognizing gender inequality as “a significant constraint” to achieving its mission.
Country Selection Process

The MCC Board carries out a multi-tiered country selection process, by first identifying candidate countries and then assessing their eligibility to apply for assistance:

• Candidate countries are identified based on per capita income. Only low- and lower-middle-income countries, according to World Bank income classifications, are considered candidates.

• Eligible countries are selected from these candidates based on their demonstrated commitment to policies related to MCC’s three key areas of “Ruling Justly”, which includes good governance and fighting corruption; “Economic Freedom”; and “Investing in People”, which incorporates several measures of population well-being including some related to health.

To determine eligibility and gauge country commitment to key principles, MCC relies on more than 20 quantitative indicators of policy and performance. Three of these eligibility indicators are health-focused: public expenditure on health; immunization rates; and “child health” (a composite indicator that includes child mortality rate, percent with access to water, and percent with access to sanitation).

How a country performs against all indicators (known as a “country scorecard”) helps determine whether they are eligible for MCC assistance.

The MCC Board can also consider two other factors in its decision: the opportunity to reduce poverty and generate economic growth within a country, and the availability of MCC funds.

Deciding factors for funding

• Competitive selection: Before a country can become eligible to receive assistance, MCC’s Board examines its performance on independent and transparent policy indicators and selects compact-eligible countries based on policy performance.

• Country-led solutions: MCC requires selected countries to identify their priorities for achieving sustainable economic growth and poverty reduction. Countries develop their MCC proposals in broad consultation within their society. MCC teams then work in close partnership to help countries refine a program.

• Country-led implementation: When a country is awarded a compact, it sets up its own local MCA accountable entity to manage and oversee all aspects of implementation. Monitoring of funds is rigorous and transparent, often through independent fiscal agents.

MCC forms partnerships with some of the world’s poorest countries, but only those committed to:
• good governance,
• economic freedom,
• and investments in their citizens.

MCC provides these well-performing countries with large-scale grants to fund country-led solutions for reducing poverty through sustainable economic growth. MCC grants complement other U.S. and international development programs. There are two primary types of MCC grants: compacts and threshold programs.

• Compacts are large, five-year grants for countries that pass MCC’s eligibility criteria.
• Threshold Programs are smaller grants awarded to countries that come close to passing

Types of Assistance
MCC assistance is provided through two types of agreements: compacts and thresholds.

• Compacts are larger agreements that can span multiple sectors and which typically last five years. To be eligible for compact funding, a candidate country must score above the median compared to other countries in its income group (e.g., other low-income countries) with regard to at least 10 of the eligibility indicators, including two required indicators: above median performance on “corruption” and meeting a minimum standard for either the “civil liberties” or “political rights” indicators (or both). Through March 2015, MCC has signed 29 compacts with 25 countries (some countries have signed a second compact after the first ended), for amounts ranging from $66 million to $698 million.

• Thresholds are smaller, targeted, shorter-term grants designed to help countries become compact-eligible.

A candidate country not meeting the criteria for a compact but demonstrating commitment to improving its performance may be eligible for threshold funding. MCC has signed 25 threshold agreements with 23 countries (some countries signed a second threshold agreements after the first ended), for amounts ranging from $6.7 million to $55 million.

Eight countries have successfully transitioned from receiving threshold funding to subsequently signing a compact.

U.S. Government Funding

First funded by Congress at $994 million in FY 2004, MCC appropriations reached a peak of $1.75 billion in FY 2006 and FY 2007. Since then, appropriated funding for MCC has fluctuated somewhat.

In FY 2015 Congress appropriated $900 million for MCC. The administration requested an increase for MCC in the President’s FY 2016 budget request, to $1.25 billion, though Congress has typically appropriated less than the President’s request each year.

Since 2004, MCC has committed $10.4 billion in assistance through its compact and threshold agreements. Most MCC funding has been provided through compacts (95%), with a smaller proportion provided through thresholds (5%).

Why Tanzania lost: Zanzibar re-election and the Cybercrimes Act

In 2012, MCC's Board of Directors selected Tanzania to develop a compact. On March 28, 2016, MCC’s Board of Directors voted to suspend MCC’s partnership with Tanzania.

This was the result of the December 2015, deferred a vote by the MCC Board of Directors on the reselection of Tanzania for compact eligibility, citing the nullification of election results in Zanzibar and the need for a prompt, fair and peaceful conclusion of the electoral process.

The Board also sought assurances from the Government of Tanzania that the Cybercrimes Act would not be used to limit freedom of expression and association, in light of arrests made during the elections.

On March 20, 2016, Tanzania moved forward with a new election in Zanzibar that was neither inclusive nor representative, despite the repeated concerns of the U.S. Government and the international community.

The Government of Tanzania has also not taken measures to ensure freedom of expression and association are respected in the implementation of the Cybercrimes Act.

MCC’s model has a partner country’s commitment to democracy and free and fair elections at its core. The elections in Zanzibar and application of the Cybercrimes Act run counter to this commitment.

As a result, while the United States and Tanzania continue to share many priorities, the MCC Board of Directors determined that the Government of Tanzania has engaged in a pattern of actions inconsistent with MCC’s eligibility criteria, and voted to suspend the agency’s partnership with the Government of Tanzania. MCC will therefore cease all activities related to the development of a second compact with Tanzania.

Source: mcc.gov