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House Committee on Foreign Affairs
Subcommittee on Africa and Global Health
June 28, 2007
Testimony of Anthony Carroll
Vice President
Manchester Trade Ltd.

I would like to thank the Chairman and Ranking Member for inviting me to testify today on the Millennium Challenge Corporation (MCC) and Africa.

Given the brief amount of time I have here today, I would like to limit my remarks to broader observations on MCC and the role it can play in African development. I have read the GAO report on MCC and have great respect for Steve Radelet and the work of the Center for Global Development. I can add little to their commentary on eligibility or administrative aspects of MCC.

Rather, this afternoon I wish to offer the perspective of someone who is involved in the more secular world of trying to help U.S. and African businesses expedite the clearance of goods from customs to meet a delivery date for trousers in Newark New Jersey, meet quality standards for flowers of TESCO in the United Kingdom or secure a letter of credit from a Ghana bank for the purchase of an electrical generator.

MCC has the opportunity to be a legacy program for the US Government. Along with PEPFAR, it is an example of the compassion and concern of the American people and our willingness to respond boldly to Africa's challenges. In essence, MCC is not only a government-to-government but also a people-to-people initiative. As a former Peace Corps Volunteer, I believe that these programs are cut from the same inspirational cloth that drove people like Congressman Henry Reuss, Senator Hubert Humphrey and President John F. Kennedy to create the enduring Peace Corps legacy.

This afternoon, I would like to concentrate my testimony on three areas: (1) host country capacity, (2) relationship between MCC and trade, and (3) the new Real Politic of Africa.

Host Country Capacity

The last time I testified before this Committee was in the debate nearly a decade ago on AGOA and opportunities for the African Private Sector. At that time, I gave many examples of the shortcomings of technical assistance programs in Africa and the gap between intended policy reform initiatives and implementation. I also stressed, notwithstanding tens of millions of dollars of development assistance, the special difficulties of doing business in Ghana, now an MCC compact country, in terms of acquiring land, obtaining a business license, and obtaining requisite utilities. I also indicated my support for more outcome-based measures that hold recipient countries and technical assistance agencies to established performance and accountability criteria.

Happily, many of these thorny impediments to business in Africa have been greatly ameliorated, in part due to smarter and more responsible technical assistance. However, the remaining gaps are frequently due to lack of country "buy in" in terms of devotion of real human and financial resources and the creation of feed back loops that monitor performance. Perhaps the greatest strength of MCC is the requirement and support for broad country ownership and demonstrated accountability in the design and implementation of the Compact.

Yet despite this ingenuity, the capacity of host countries to fully play their part remains a barrier. In my 30 years of experience in working with African ministries, I can say without reservation that finding technical capacity below the very top levels remains a huge challenge. Moreover, donor requirements greatly tax these resources and MCC adds even deeper reporting and management requirements. At the same time, MCC also seeks to help countries be prepared to run their own programs. The appointment of consultants to assist Compact countries and give them support to tap their own skilled people has been helpful, but MCC may not yet be able to provide incentives for and encourage home grown institutional capacity development. Specific shortfalls have occurred in legal, financial and other management skills and systems.

In the future, my first recommendation would be to begin the process earlier by fronting technical assistance funds to potentially-qualifying MCC countries to enhance compliance capacity even before those countries prepare Compact documentation and respond to due diligence queries. These early efforts might help raise the capacity of MCC-eligible countries to use modern management approaches, helping them to better identify, sustain and access activities to leverage private resources to spur growth and poverty reduction. Secondly, we should find ways to help potentially-qualifying countries to learn from the experiences of those countries successfully meeting eligibility requirements.

Relationship between MCC and Trade

This Committee and its current Chairman led the fight to enact the Africa Growth and Opportunity Act. This legislation created an unprecedented preference program for Africa. In many ways, AGOA and MCC are similar in their orientation, especially as it pertains to their respective eligibility requirements.

AGOA has both created a sharp increase in African trade with the U.S. and had a demonstration effect on the implementation of complementary institutional and regulatory reforms. As proud as I am of AGOA, its impact upon Africa's trade capacity has been muted by fundamental economic and political barriers. These include physical infrastructure and administrative supply chain capacity.

MCC represents a unique opportunity to foster investment in infrastructure on a scale unprecedented for U.S. development assistance to Africa in the past 30 years. When one examines the MCC Compacts with Ghana and Benin, it is clear that investments in roads, port facilities and agricultural infrastructure can create a platform for export growth among both large and small scale producers, especially when married to complementary technical assistance. In a project that I have worked on in Ethiopia, investments in physical infrastructure for cold storage and cargo handling coupled with technical assistance in land reform and foreign exchange controls have fostered exponential growth in floriculture and horticulture exports. Although AGOA has been one of the most successful trade preference programs devised (especially its apparel provisions), it would have been more effective if accompanied at the outset by an MCC-type commitment to infrastructure development and physical capacity building. In the interest of maximizing AGOA's impact, MCC should be given broad sway to effect deep improvements in African trade capacity, and we should be prepared to await long term results.

An inherent limitation of MCC is its inability to work on a regional basis. Often, supply chain constraints do not end at a national border, and the failure of African intra-regional trade and the lack of understanding of the fundamental doctrine of comparative advantage are often the result of absent physical infrastructure. I do not believe that it would be a disservice to the accountability and transparency principles inherent in MCC to examine the execution of compacts with suitably responsible regional economic organizations such as the Common Market of Eastern and Southern Africa or the Southern Africa Development Community. Such a regional focus would complement the architecture of the USAID-supported trade hubs. A possible formula could be that at least 20 percent of MCC assistance be directed for joint projects between national governments and regional economic communities to which they belong.

Real Politic

There is a new reality that governs U.S. relations with Africa. That reality is the rapid ascent of China. At over $40 billion , China's trade relationship with Africa equals that of the United States. While the U.S. is still the dominant investor in African hydrocarbons, China is investing in physical infrastructure. Several months ago at the Forum on China and Africa, China pledged up to $10 billion in support for new investment in Africa.

What is different about such investment is that it is loan- rather than grant-based, tied to the involvement of Chinese business interests and is absolutely unconditional in terms of political or financial accountability. A recent statement by the Zambia's President Levy Mwasanagwa underscores the growing importance of China in unlocking Africa's economic potential. While accepting the value of western assistance, he pointedly observes that "It is only through increased investment in infrastructure quality that African economies are going to enhance their competitiveness on the global market. We applaud the Chinese for their pledge for continued cooperation in the area of infrastructure development in Africa."

MCC is an opportunity to maintain our presence and influence in Africa. This does not have to be a zero sum game. The Chinese presence in Africa is not an altogether bad thing as they are willing to assume longer term investment horizons than U.S. investors and can often bring more relevant models of development based on their experience as a developing country. I might add that India and even Russia are taking new interest in Africa and are motivated by the same interests in resource wealth as China. I would leave open the possibility of collaboration among these efforts. For example, China is astute in providing appropriate technological solutions for small farmers whereas MCC Compacts could address such supply chain constraints as agricultural storage.

Final Observations

I would be remiss unless I offered a few final observations on MCC that might merit further consideration by the legislative branch. While I understand the merits of the Compact and the underpinning accountability and transparency criteria, I also think that the MCC could have a greater impact if it were combined with private sector investment and know how. For example, African infrastructure still operates on a monopoly basis. MCC funds combined with technical assistance from the USAID and other donor agencies could be invested in the enabling environment and institutional capacity so as to allow private sector engagement. The Administration has offered new models of privately directed investment funds, and there may be opportunities to coordinate the deployment of these funds in conjunction with MCC Compacts.

A second concern is what I hear from the African Street. The tendency to prefer larger and more comprehensive compacts make the line for newly eligible countries longer. There is a sense that the MCC process has slowed down due to bureaucratic hesitation and concerns over future appropriations. As the attached chart shows, the rate of Compact approvals has declined steadily since 2004. This may cost us many friends who have undertaken the rigorous process of becoming MCC eligible and make the easy money of China, India or Russia all the more attractive.

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