Millennium Challenge Corporation: Progress and Challenges with	 
Compacts in Africa (28-JUN-07, GAO-07-1049T).			 
                                                                 
In January 2004, Congress established the Millennium Challenge	 
Corporation (MCC) to administer the Millennium Challenge Account 
for foreign assistance. MCC's mission is to reduce poverty by	 
supporting sustainable, transformative economic growth in	 
partnership with developing countries that create and maintain	 
sound policy environments. MCC signs compacts obligating funds	 
for such projects with countries it selects as eligible for this 
assistance, according to criteria outlined in MCC's authorizing  
legislation. Each compact has a maximum duration of 5 years.	 
After signed compacts enter into force, MCC begins to disburse	 
funds. For fiscal years 2004 to 2007, MCC received appropriations
of almost $6 billion. MCC has obligated almost $3 billion for 11 
compacts; $1.5 billion of this amount is for 5 compacts in	 
sub-Saharan Africa (Africa). This testimony examines (1) the pace
of MCC's initiation of compacts in Africa, (2) MCC projects and  
management structures in African countries with signed compacts, 
and (3) MCC's progress in disbursing compact funds. In preparing 
this testimony, GAO drew from, and updated, previous reports on  
MCC's compact development, obligations, implementation, 	 
management, and disbursements.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-1049T					        
    ACCNO:   A71707						        
  TITLE:     Millennium Challenge Corporation: Progress and Challenges
with Compacts in Africa 					 
     DATE:   06/28/2007 
  SUBJECT:   Budget obligations 				 
	     Eligibility criteria				 
	     Eligibility determinations 			 
	     Federal aid to foreign countries			 
	     Federal funds					 
	     Funds management					 
	     Program evaluation 				 
	     Program management 				 
	     Sustainable development				 
	     Program implementation				 
	     Africa						 
	     Benin						 
	     Cape Verde 					 
	     Ghana						 
	     Madagascar 					 
	     Mali						 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-07-1049T

   

     * [1]Summary
     * [2]Background
     * [3]MCC's Pace of Compact Initiation in Africa Has Varied
     * [4]MCC Projects in Africa Emphasize Transportation and Agricult
     * [5]MCC Has Not Achieved Its Planned Rate of Disbursements
     * [6]GAO Contacts and Staff Acknowledgments
     * [7]Appendix I: Objectives, Scope, and Methodology

          * [8]Order by Mail or Phone

Testimony

Before the Subcommittee on Africa and Global Health, Committee on Foreign
Affairs, House of Representatives

United States Government Accountability Office
GAO

For Release on Delivery
Expected at 2:30 p.m. EDT
Thursday, June 28, 2007

MILLENNIUM CHALLENGE CORPORATION

Progress and Challenges with Compacts in Africa

Statement of David B. Gootnick, Director
International Affairs and Trade

GAO-07-1049T

Mr. Chairman and Members of the Committee:

Thank you for the opportunity to discuss GAO's findings and observations
regarding the Millennium Challenge Corporation's (MCC) activities and
progress in sub-Saharan Africa.^1

In January 2004, Congress established MCC to administer the Millennium
Challenge Account (MCA) for foreign assistance.^2 MCC's mission is to
reduce poverty by supporting sustainable, transformative economic growth
in partnership with developing countries that create and maintain sound
policy environments. In countries where it funds projects or activities,
MCC expects to raise incomes and lift thousands out of poverty. For fiscal
years 2004 to 2007, MCC received appropriations of almost $6 billion,
about $5.1 billion of which has been set aside for compact assistance.^3
MCC is currently working with 40 countries worldwide--either providing
compact assistance or helping them become eligible for compact
assistance^4--and had obligated almost $3 billion for compacts with 11 of
these countries as of May 2007.

In 2006, we reported on MCC's implementation of its first
compacts--including compacts with Madagascar and Cape Verde--examining
MCC's process for initiating the compacts and its management structures
for implementing them.^5 Today I will discuss MCC's activities in
sub-Saharan Africa (Africa), where MCC has signed compacts with five
countries and identified another six countries as eligible for assistance.
Specifically, I will discuss (1) the pace of MCC's initiation of compacts
in Africa, (2) MCC projects and management structures in African countries
with signed compacts, and (3) MCC's progress in disbursing compact funds.

^1Sub-Saharan Africa does not include the additional MCC-eligible country
of Morocco.

^2Millennium Challenge Act of 2003, Public Law 108-199, Division D, Title
VI of the Consolidated Appropriations Act, 2004. Title II, Division D of
this act established the MCA for MCC appropriations.

^3An MCC compact is an agreement between the U.S. government, acting
through MCC, and the government of a country eligible for MCC assistance.
Other funds are used for MCC's threshold country program, administrative
expenses, due diligence, monitoring and evaluation, and other costs.

^4MCC uses criteria outlined in the Millennium Challenge Act to select
countries as eligible for compact assistance. In general, MCC selects as
eligible countries that are not barred from receiving U.S. assistance;
that meet income criteria; and that also meet criteria for ruling justly,
encouraging economic freedom, investing in people, and combating
corruption.

To address these objectives, we updated our previous reports as needed. We
updated and summarized MCC's progress in initiating and implementing
programs in Africa, using public documents available from the MCC Web site
and the results of our previous reporting. Our analysis of MCC's
obligations for compact assistance to African countries is based on a
budget analysis that we conducted in February 2007. Our analysis of MCC's
disbursements is based on a budget analysis that we conducted in May 2007,
comparing MCC data about actual and planned disbursements from July 2005
through March 2007. We conducted our work for this testimony in June 2007
in accordance with generally accepted government auditing standards. (See
app. I for further details of our scope and methodology.)

Summary

The pace at which MCC has initiated compacts with African countries has
varied. For the five signed compacts--with Madagascar, Cape Verde, Benin,
Ghana, and Mali--progressing from eligibility selection to compact
signature took between 12 and 31 months. Four of the compacts have entered
into force--on average, about 5 months after compact signature. Of the six
additional eligible African countries, none has reached compact signature,
although three have been compact eligible for more than 3 years. In
general, MCC's rate of establishing and obligating funds for new compacts
has been slower than projected, with the result that MCC currently has
more than $2 billion in unobligated funds set aside for compacts.

^5GAO, Millennium Challenge Corporation: Compact Implementation Structures
Are Being Established; Framework for Measuring Results Needs Improvement,
[9]GAO-06-805 (Washington, D.C.: July 28, 2006). Previous GAO work
summarized MCC's progress in its first year of operations and in making
awards for compact assistance. See GAO, Millennium Challenge Corporation:
Progress Made on Key Challenges in First Year of Operations,
[10]GAO-05-455T (Washington, D.C.: Apr. 26, 2005) and [11]GAO-05-625T
(Washington, D.C.: Apr. 27, 2005); Analysis of Future Millennium Challenge
Corporation Obligations, [12]GAO-06-466R (Washington, D.C.: Feb. 21,
2006).

MCC's compact projects in Africa have emphasized transportation and
agriculture and are to be implemented through country-run management
structures. Approximately three-quarters of the compact funding in Africa
has been budgeted for (1) transportation and other infrastructure projects
(37 percent) and (2) agriculture and rural development projects (39
percent). To provide oversight and accountability and facilitate
stakeholder involvement, the countries have established management
structures with common components. The countries' management structures
generally include a steering committee, responsible for compact oversight
and results; a stakeholder committee, to advise the steering committee on
compact implementation; and a management unit, principally responsible for
compact management and implementation. As we reported in July 2006,
Madagascar and Cape Verde--the first two African countries to sign
compacts--did not fill key positions in their management structures until
several months after entry into force, and this delay may limit their
achievement of compact objectives. According to MCC, key management
officials for subsequent compacts with Benin and Ghana were in place
around the time of entry into force. Key positions for Mali, whose compact
has not entered into force, have not yet been filled.

MCC has disbursed compact funds in Africa more slowly than planned and,
unless it can make future disbursements more quickly, may have large
unexpended balances and uncompleted projects when the compacts expire.
According to MCC, its unexpectedly slow rates of disbursement have
primarily reflected its high standards for program accountability and
sustainability as well as its initial overestimation of partner country
capacity to meet these standards. As of March 31, 2007, MCC had disbursed
$26 million (23 percent) of the $113.9 million it had planned to disburse
by that date. The slower-than-expected disbursement is most critical for
Madagascar and Cape Verde, both in their second year of compact
implementation.

Background

The Millennium Challenge Act of 2003 requires MCC to select countries as
eligible for MCA assistance each fiscal year.^6 Countries with per capita
income at or below a set threshold may be selected as eligible if they
meet MCC indicator criteria and are not statutorily barred from receiving
U.S. assistance.^7 MCC has signed compacts with five countries in Africa
and identified six other African countries as eligible for compact
assistance (see fig. 1).

^6The Millennium Challenge Act also authorizes a limited amount of
assistance to certain candidate countries to help them become eligible for
MCA assistance; this assistance is referred to as MCC's threshold program.
Threshold candidate countries must (1) meet the requirements for MCA
candidacy and (2) demonstrate a significant commitment to meeting the
act's eligibility criteria but fail to meet those criteria. We have not
analyzed MCC's work with threshold countries.

^7MCC uses 16 indicators divided into three categories: Ruling Justly,
Encouraging Economic Freedom, and Investing in People. To be eligible for
MCA assistance, countries must score above the median relative to their
peers on at least half of the indicators in each category and above the
median on the indicator for combating corruption.

Figure 1: African Countries Receiving or Eligible for MCC Compact
Assistance, as of June 2007

Note: On June 16, 2006, MCC suspended Gambia from eligibility for
assistance, citing a pattern of actions inconsistent with MCC's selection
criteria, including documented evidence of human rights abuses and
increased restrictions on political rights, civil liberties, and press
freedom by the government, as well as worsening economic policies and
anticorruption efforts.

After MCC selects a country as compact eligible, the country may begin a
four-phase process that can lead to a compact's entry into force (see fig.
2).

Figure 2: Summary of MCC Compact Development and Implementation Process as
of June 2007

aMCC must notify congressional appropriations committees 15 days prior to
obligating funds.

bCompact negotiations begin after the MCC investment committee approves a
consultation memorandum prepared by the MCC transaction team. The
memorandum is based on the transaction team's determination that the
country proposal has sufficient information to justify entering into
negotiations with the country. MCC must consult with and report to the
appropriate congressional committees 15 days prior to the start of compact
negotiations.

cThe MCC Board suspended Gambia's eligibility on June 16, 2006, citing a
pattern of actions inconsistent with MCC's selection criteria.

           o Country proposal development. The eligible country is invited to
           submit a compact proposal, to be developed in consultation with
           members of civil society, including the private sector and
           nongovernmental organizations.
           o MCC due diligence review. In conducting due diligence, MCC
           evaluates the eligible country's proposal against MCC criteria to
           ensure that proposed programs will be effective and funds will be
           well used.
           o Compact negotiation and MCC approval. Following due diligence,
           MCC enters into compact negotiations with the eligible country. If
           compact negotiations are successful, the MCC Board of Directors^8
           may approve the compact, and MCC and the eligible country may sign
           it. Each signed compact includes a multiyear Financial Plan
           Summary that documents MCC's planned projects and disbursements by
           project in each compact year.
           o MCC and compact country complete entry-into-force requirements.
           MCC's compact with each country identifies supplemental agreements
           that MCC and the country's accountable entity must complete before
           the compact can enter into force.

           After a compact enters into force, MCC may begin disbursements and
           the country may begin implementing projects. The Millennium
           Challenge Act stipulates that a compact may last no longer than 5
           years and that MCC may have only one compact with a country at a
           time. The compacts stipulate that, with limited exceptions, all
           funds must be spent during the term of the compact period.^9

           MCC has obligated a total of about $1.5 billion as of May 2007
           through its five compacts with African countries. The average size
           of these compacts is about $307 million, providing per capita
           assistance ranging from $6 to $222, or an average of $25 (see
           table 1).^10 Four of MCC's compacts--with Benin, Cape Verde,
           Ghana, and Madagascar--have entered into force. According to MCC,
           two additional compacts, with Lesotho and Mozambique, are being
           brought before the MCC board at its meeting on June 27, 2007.^11
           The proposed amounts of these compacts are $362 million and $507
           million, respectively.

^8MCC is a government corporation, managed by a Chief Executive Officer
(CEO) whom the President appoints with the advice and consent of the
Senate, and is overseen by a Board of Directors. The Secretary of State
serves as board chair, and the Secretary of the Treasury serves as
vice-chair. Other board members are the U.S. Trade Representative, the
Administrator of the U.S. Agency for International Development (USAID),
the CEO of MCC, and up to four Senate-confirmed public members who are
appointed by the President from lists of individuals submitted by
congressional leadership.

^9MCC compacts signed as of May 2007 contain language stipulating that all
disbursements and redisbursements shall cease upon expiration, suspension,
or termination of a compact provided that reasonable expenditures for
goods, services, and works properly incurred under or in furtherance of
these compacts before the compact term expires or is terminated may be
paid from MCC funding. In addition, signed compacts contain language
providing that when a compact expires or is terminated, any funding not
disbursed by MCC is automatically released from any obligation in
connection with that compact.

^10Overall, MCC's 11 compacts as of May 2007 provide an average of $34 per
capita.

           Table 1: MCC Compacts with African Countries, as of June 25, 2007

Country      Compact amount Compact amount per capita (2004 population) 
Madagascar   $109.8 million                                          $6 
Cape Verde   $110.1 million                                        $222 
Benin        $307.3 million                                         $38 
Ghana        $547.0 million                                         $25 
Mali         $460.8 million                                         $35 
Total      $1,535.0 million                                             
Average      $307.0 million                                         $25 

           Source: GAO analysis of MCC data.
			  
			  MCC's Pace of Compact Initiation in Africa Has Varied

           The time involved in MCC's initiation of compacts with African
           countries has varied, with three countries remaining in the
           compact development process for more than 3 years without reaching
           compact signature. For the five African countries with signed
           compacts, progressing from eligibility selection to compact
           signature took from 347 to 921 days, or about 12 to 31 months--an
           average of 633 days, or about 21 months. For the four compacts
           that have entered into force, achieving entry into force took an
           average of 158 days, or about 5 months, from compact signature.
           For all MCC compacts, the process from eligibility to compact
           signature has taken an average of 567 days, or approximately 19
           months, with an additional 167 days on average to entry into
           force. (See fig. 3.) MCC has not yet signed compacts with six
           additional African countries eligible for compact
           assistance--Burkina Faso, Lesotho, Mozambique, Namibia, Senegal,
           and Tanzania. MCC completed due diligence for Lesotho and
           Mozambique on May 24 and June 6, 2007, respectively. As of June 6,
           2007, MCC was performing due diligence for the remaining four.
           Three of these six countries--Lesotho, Mozambique, and
           Senegal--have been eligible since MCC's initial determination of
           eligible countries in May 2004.
			  
^11In February 2007, we estimated the rate of MCC's future obligations,
including those in Africa, under two scenarios. In the first scenario,
using MCC's projected amount and rate of compact awards as stated in its
2008 congressional budget justification ($485 million at 1.5 compacts per
quarter), we estimated that MCC would obligate the balance of its
2004-2007 appropriations set aside for compact assistance ($2.1 billion)
by the fourth quarter of 2007 and the $3 billion requested for 2008 by the
fourth quarter of that year. In the second scenario, using MCC's
historical amount and rate of compact awards ($271 million at about 1.2
compacts per quarter), we estimated that the corporation would obligate
the balance of its 2004-2007 appropriations by the fourth quarter of 2008
and the $3 billion requested for 2008 by the fourth quarter of 2010.

Figure 3: Duration of Compact Development Process for Eligible African
Countries with and without Signed Compacts, as of June 6, 2007

aAs of June 6, 2007, the Mali compact had been signed for 205 days without
entering into force.

bAverage time to enter into force does not include countries that have not
yet entered into force.

cTen of the 11 countries with signed compacts became eligible during the
first round of MCC country eligibility announcements in May 2004.

dAccording to MCC, it approved the Mozambique investment memo on June 6,
2007.

Compact development does not operate on a fixed timetable or schedule.
However, during 2005-2007, MCC's actual rate of establishing new compacts
was slower than the rate projected by the corporation's annual budget
requests. As a result, MCC's obligations for compact assistance have been
substantially less than projected. MCC currently has more than $2 billion
in unobligated funds set aside for compacts.

MCC Projects in Africa Emphasize Transportation and Agriculture, and Management
Structures Have Been Established

About three-quarters of MCC's compact funding in Africa supports
transportation and agriculture projects. To implement and oversee the
projects, the countries with compacts in force have established management
structures with similar components. For MCC's first two African compacts,
key management officials were not in place until months after entry into
force, but such positions were filled before, or shortly after, the two
subsequent African compacts entered into force.

Approximately 76 percent of MCC compact funding has been budgeted for (1)
transportation and other infrastructure projects and (2) agricultural and
rural development projects. (See fig. 4.) Specifically, about 37 percent
($575.2 million) of compact funding in Africa is allocated to
transportation and other infrastructure, and about 39 percent ($605.4
million) is allocated to agriculture and rural development. MCC's six
non-African compacts likewise obligate about 76 percent for these two
project categories, with 55 percent ($791.6 million) for transportation
and other infrastructure and 21 percent ($299.1 million) for agriculture
and rural development.

Figure 4: Types of MCC Compact Projects in African and Non-African
Countries (dollars in millions)

aThe Access to Markets Project in Benin is a major construction project at
the Port of Cotonou and includes associated studies and institutional
strengthening. The Mali compact includes the Bamako-Senou Airport
Improvement Project and an Industrial Park Project.

bThe Irrigated Agriculture Project in Armenia includes the repair of
irrigation infrastructure. The Alatona Irrigation Project in Mali includes
planning and infrastructure, land allocation, and resettlement activities,
among other items.

cOther programs include the Justice Program in Benin and the Human
Development Project in El Salvador. The Benin program includes
institutional strengthening and infrastructure components (construction of
new courthouses). The El Salvador program includes Education and Training,
and Community Development activities.

Examples of MCC infrastructure and agriculture projects in Africa include
the following:

           o Infrastructure projects. Reconstruction of roads and the Port of
           Praia in Cape Verde, a major construction project at the Port of
           Cotonou in Benin, and the Bamako-Senou Airport Improvement Project
           and an Industrial Park Project in Mali.
           o Agriculture projects. Agricultural business centers and
           technical assistance in Madagascar and training and institutional
           strengthening programs in Mali and Ghana.

           To implement compact projects, MCC directly hires a resident
           country director and a small staff for each country to serve as
           MCC's public face and to manage its relationship with the compact
           country. However, MCC gives the compact countries authority to
           manage and oversee their compact programs using MCC funds.^12
           Figure 5 shows the general structure that MCC's first three
           compact countries, including two in Africa, have established to
           provide oversight and management of their compact programs and to
           facilitate stakeholder input (see fig. 5).^13
			  
^12According to MCC, three of MCC's five Resident Country Director
positions in Africa are currently filled. The Benin position was filled
from March 2006 to May 2007 and MCC is currently seeking to hire a
replacement. The Ghana position has not yet been filled, but MCC expects
the selected candidate to arrive in country in August 2007.

^13The countries' oversight structures have most elements in common, but
countries have the flexibility to design the structures to fit their
needs.

           Figure 5: MCC Compact Country Oversight and Management Structure
           in the First Three Compact Countries

           Note: This figure represents a composite of the Madagascar, Cape
           Verde, and Honduras oversight and management structures. However,
           in Honduras, stakeholder input is obtained through representatives
           on the steering committee, rather than through a stakeholder
           committee.

           The three countries have generally included the following
           oversight and management entities in their structures:

           o The steering committee represents the country government and
           interfaces directly with MCC. The committee is ultimately
           responsible for the oversight and results of the MCC compact,
           oversees management unit employees, and approves and signs off on
           key decisions and reporting to MCC.
           o In Madagascar and Cape Verde, a stakeholder committee meets
           periodically to advise and inform the steering committee regarding
           compact implementation and to serve as the official liaison
           between interested parties and the steering committee.
           o The management unit is directed by the steering committee and
           has principal responsibility for overall compact management and
           implementation, including financial management and procurement.
           The financial management and procurement functions may also be
           handled by an external fiscal agent or procurement agent.
           Together, the steering committee and the management unit form the
           "accountable entity."^14

           We reported in July 2006 that key compact management positions
           remained unfilled after the Madagascar and Cape Verde compacts
           entered into force; the two countries did not hire key officials
           until several months after their compacts' entry into force in
           July and October 2005, respectively. This incomplete staffing at
           entry into force may limit the countries' ability to achieve their
           compact objectives within the fixed time period of the
           compacts.^15 According to MCC, key positions at MCC's subsequent
           compacts with Benin and Ghana were filled prior to, or shortly
           after, entry into force. Key positions for the Mali compact, which
           has not entered into force, are not yet filled, but MCC expects to
           fill these positions in August 2007.

^14MCC refers to the accountable entity by combining "MCA" and the
country's name--for example, "MCA-Madagascar."

^15In October 2005, after the signature of its first six compacts, MCC
adopted a policy implementing the authority given it by section 609(g) of
the Millennium Challenge Act of 2003 to make grants to facilitate the
development and implementation of compacts. MCC's policy includes a
provision where, if certain conditions are met, it may fund an eligible
country's request for "management support payments" for salaries, rent,
and equipment for the country's MCA technical team prior to compact
signature.

MCC Has Not Achieved Its Planned Rate of Disbursements
           MCC has disbursed compact funds in Africa more slowly than planned
           and, unless the rate of disbursements increases, may have large
           unexpended balances and uncompleted projects when the compacts
           expire.^16 To address this challenge, MCC officials report taking
           several steps to expedite program implementation and better match
           disbursements with projections.

           As of March 31, 2007, MCC had disbursed $26 million in compact
           funds to four African countries--23 percent of the $113.9 million
           that it intended to disburse by that date.^17 (See table 2.)

Table 2: MCC Disbursements to African Countries through March 31, 2007

(Dollars in millions)
              Date                                   Percentage of            
              compact                                      planned            
              entered       Prorated    Cumulative   disbursements Percentage 
              into           planned        actual        actually of compact 
Country    force    disbursements disbursements       disbursed    elapsed 
Madagascar Jul. 27,        $59.40        $14.47              24         42 
              2005                                                            
Cape Verde Oct. 17,        $30.07         $7.53              25         28 
              2005                                                            
Benin      Oct. 6,         $15.62         $3.45              22          8 
              2006                                                            
Ghana      Feb. 16,         $8.81         $0.74               8          2 
              2007                                                            
Total                     $113.90        $26.19              23            

Source: GAO analysis of MCC data.

Note: Planned disbursements are prorated on an annual basis.

As table 2 shows, MCC's actual disbursement of compact funds has fallen
substantially behind its planned disbursement, most critically for its
compacts with Madagascar and Cape Verde, both in the second year of
implementation. MCC's disbursement for Madagascar by month 20 of the
4-year implementation accounted for 24 percent of the planned
disbursement, and its disbursement for Cape Verde by month 17 of the
5-year implementation accounted for 25 percent of the planned
disbursement. Our analysis of MCC's overall compact disbursements suggests
that unless it increases the rate of compact assistance disbursements in
Africa and elsewhere, MCC could have significant obligated but undisbursed
balances when the compacts expire. This implies that some Africa projects
may not be completed by the end of the current compacts. If this occurs,
MCC will miss opportunities to achieve its mission of poverty reduction
through economic growth in compact countries.

^16MCC disbursements provide funds to the accountable entity of a compact
country. The accountable entity then redisburses funds for program
activities.

^17Overall, through March 2007, MCC had disbursed 26 percent of the $257.6
million that it had planned to disburse for the nine compacts that had
entered into force by that date.

According to MCC, its unexpectedly slow rates of disbursement have
primarily reflected two factors: the need to maintain high standards for
program accountability and sustainability, and its initial overestimation
of partner country capacity to meet these standards. The countries'
management structures are intended to ensure fiscal accountability;
however, at the time of our 2006 report, some required elements of these
procurement and fiscal accountability structures in Cape Verde and
Madagascar were not yet in place. As of May 2007, MCC did not have
mechanisms in place to address significant delays in its planned
disbursements. However, MCC reports taking a number of steps to expedite
program implementation and better match disbursements with projections,
such as providing better guidance on compact development and
implementation and improving its initial analysis of country capacity. MCC
noted that disbursement rates do not fully capture its progress to date,
in part because these rates do not reflect MCC activities such as policy
reform and capacity building.

Mr. Chairman, this concludes my statement. I will be happy to answer any
questions you or members of the subcommittee may have.

GAO Contacts and Staff Acknowledgments

For questions regarding this testimony, please contact David B. Gootnick
at (202) 512-3149. Other key contributors to this statement were Emil
Friberg (Assistant Director), Tracy Guerrero, Reid Lowe, Mike Rohrback,
Mona Sehgal, and Michael Simon. David Dornisch, C. Etana Finkler, Ernie
Jackson, Marc Molino, and Jena Sinkfield provided technical assistance.

Appendix I: Objectives, Scope, and Methodology

This testimony discusses (1) the pace of the Millennium Challenge
Corporation's (MCC) initiation of compacts in sub-Saharan Africa (Africa),
(2) MCC's projects and management structures in African countries with
signed compacts, and (3) MCC's progress in disbursing compact funds.

To determine the status of MCC's initiation of compacts in Africa, we
determined the length of the compact development process based on our
previous reporting and MCC's status reports on eligible countries, which
include the dates these countries completed key milestones in the process.
We quantified the duration of the development process for MCC's individual
compacts as well as the average length of the process for its compacts in
African and non-African countries.

To describe MCC's compact projects, we relied primarily on our previous
reporting on MCC,^1 updating it to include more recent compacts. We
identified compact project types across broad categories and calculated
total funding for each category to determine the general focus of MCC
compact assistance in African and non-African countries. In describing
MCC's management structures, we summarized our previous reporting on MCC's
first three compacts, including those for two countries in Africa. We also
summarized an MCC report on the status of its management staffing in
Africa.

To analyze the pace of MCC's disbursements for the countries with compacts
in force, we compared MCC data for actual and planned disbursements from
July 2005 through March 2007. For this analysis, we used MCC's assumption
that compact funds are disbursed evenly throughout the compact
implementation year. Because MCC's compacts are at varying stages of
implementation, we prorated planned disbursements on an annual basis for
each country based on the number of months the compact was in force.^2

MCC provided technical comments on a draft of this testimony and we have
incorporated their comments as appropriate.

We conducted our work for this testimony during June 2007 in accordance
with generally accepted government auditing standards. We also followed
generally accepted government auditing standards for the published GAO
reports on which this testimony is partly based.

^1 [13]GAO-06-805

^2In practice, MCC approves disbursements on a quarterly basis and
disburses compact funds in monthly payments according to the terms of the
quarterly approval.

(320515)

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

GAO's Mission

The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.

Obtaining Copies of GAO Reports and Testimony

The fastest and easiest way to obtain copies of GAO documents at no cost
is through GAO's Web site ( [14]www.gao.gov ). Each weekday, GAO posts
newly released reports, testimony, and correspondence on its Web site. To
have GAO e-mail you a list of newly posted products every afternoon, go to
[15]www.gao.gov and select "Subscribe to Updates."

Order by Mail or Phone

The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent. Orders should
be sent to:

U.S. Government Accountability Office 441 G Street NW, Room LM Washington,
D.C. 20548

To order by Phone: Voice: (202) 512-6000
TDD: (202) 512-2537
Fax: (202) 512-6061

To Report Fraud, Waste, and Abuse in Federal Programs

Contact:

Web site: [16]www.gao.gov/fraudnet/fraudnet.htm
E-mail: [17][email protected]
Automated answering system: (800) 424-5454 or (202) 512-7470

Congressional Relations

Gloria Jarmon, Managing Director, [18][email protected] (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125 Washington,
D.C. 20548

Public Affairs

Paul Anderson, Managing Director, [19][email protected] (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, D.C. 20548

[20]www.gao.gov/cgi-bin/getrpt?GAO-07-1049T .

To view the full product, including the scope
and methodology, click on the link above.

For more information, contact David Gootnick at 202-512-3149 or
[email protected].

Highlights of [21]GAO-07-1049T , a testimony to the Subcommittee on Africa
and Global Health, Committee on Foreign Affairs, House of Representatives

June 28, 2007

MILLENNIUM CHALLENGE CORPORATION

Progress and Challenges with Compacts in Africa

In January 2004, Congress established the Millennium Challenge Corporation
(MCC) to administer the Millennium Challenge Account for foreign
assistance. MCC's mission is to reduce poverty by supporting sustainable,
transformative economic growth in partnership with developing countries
that create and maintain sound policy environments. MCC signs compacts
obligating funds for such projects with countries it selects as eligible
for this assistance, according to criteria outlined in MCC's authorizing
legislation. Each compact has a maximum duration of 5 years. After signed
compacts enter into force, MCC begins to disburse funds. For fiscal years
2004 to 2007, MCC received appropriations of almost $6 billion. MCC has
obligated almost $3 billion for 11 compacts; $1.5 billion of this amount
is for 5 compacts in sub-Saharan Africa (Africa).

This testimony examines (1) the pace of MCC's initiation of compacts in
Africa, (2) MCC projects and management structures in African countries
with signed compacts, and (3) MCC's progress in disbursing compact funds.
In preparing this testimony, GAO drew from, and updated, previous reports
on MCC's compact development, obligations, implementation, management, and
disbursements.

For MCC's five signed African compacts--with Madagascar, Cape Verde,
Benin, Ghana, and Mali--progressing from eligibility selection to compact
signature took between 12 and 31 months. All except the compact with Mali
have entered into force--on average, about 5 months after compact
signature. Of six other African countries that MCC identified as eligible
for compact assistance, none have reached compact signature, although
three have been eligible for more than 3 years. Overall, MCC has
established, and obligated funds for, fewer compacts than projected.

MCC has budgeted about three-quarters of compact funding in Africa for
transportation and other infrastructure projects (37 percent) and
agriculture and rural development projects (39 percent). To provide
oversight and accountability and facilitate stakeholder involvement, the
countries have established management structures with several common
components. GAO reported in July 2006 that Madagascar and Cape Verde did
not fill key positions until months after entry into force and that this
may limit achievement of compact objectives. According to MCC, key
officials for subsequent compacts with Benin and Ghana were in place
around the time of entry into force; key positions for Mali have not yet
been filled.

MCC has disbursed compact funds in Africa more slowly than planned and,
unless it can increase its rate of disbursements, may have large
unexpended balances and uncompleted projects when the compacts expire. As
of March 31, 2007, MCC had disbursed about $26 million (23 percent) of
$113.9 million it planned to disburse by that date. The low rate of
disbursement is most critical for Madagascar and Cape Verde, both in their
second year of compact implementation. According to MCC, the unexpectedly
slow disbursement reflects both its high standards for accountability and
its initial overestimation of the countries' capacities to meet those
standards.

Planned vs. Actual MCC Disbursements to African Countries as of March 31,
2007

References

Visible links
9. http://www.gao.gov/cgi-bin/getrpt?GAO-06-805
  10. http://www.gao.gov/cgi-bin/getrpt?GAO-05-455T
  11. http://www.gao.gov/cgi-bin/getrpt?GAO-05-625T
  12. http://www.gao.gov/cgi-bin/getrpt?GAO-06-466R
  13. http://www.gao.gov/cgi-bin/getrpt?GAO-06-805
  14. http://www.gao.gov/
  15. http://www.gao.gov/
  16. http://www.gao.gov/fraudnet/fraudnet.htm
  17. mailto:[email protected]
  18. mailto:[email protected]
  19. mailto:[email protected]
  20. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1049T
  21. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1049T
*** End of document. ***