US picks Zambia for massive MCC grant, suspends Ethiopia

By Julian Pecquet
Posted on Thursday, 16 December 2021 09:04

U.S. Vice President Kamala Harris delivers remarks beside Zambia’s President Hakainde Hichilema inside the Eisenhower Executive Office Building at the White House in Washington, U.S., September 22, 2021. REUTERS/Tom Brenner

The Joe Biden administration is rewarding Zambia’s good governance and peaceful transition of power with hundreds of millions of dollars in potential development grant money while penalising Benin and Ethiopia for their democratic backsliding.

The Millennium Challenge Corporation, an independent agency that invests in low-income and lower-middle-income countries, has selected Zambia and Belize as eligible for its five-year grants in the fiscal year that started 1 October. The so-called MCC compacts are worth around $400m to $500m and must be negotiated with the US government to go into effect.

“I am excited to announce MCC’s new partnerships with Belize and Zambia,” Mahmoud Bah, the corporation’s acting chief executive officer, said in a press release on Wednesday following the previous day’s closed-door meeting of the Board, which is chaired by Secretary of State Antony Blinken. “These governments have demonstrated a clear commitment to democratic governance, investing in people, and pursuing economic freedom. We look forward to working together to develop programs that reduce poverty and enable sustainable and inclusive economic growth.”

At the same board meeting, the MCC discontinued Ethiopia’s previously approved participation in the corporation’s so-called threshold program “while welcoming the opportunity to renew engagement with Ethiopia in the future if conditions permit”, the press release said.

Threshold programs are shorter-term engagements that are often an entryway into a compact. In September, MCC determined that Ethiopia was ineligible for new funding “due to its human rights record”.

The board also decided to “significantly reduce” Benin’s portion of a planned regional investment grant due to the country’s “overall multi-year decline in its commitment to MCC’s eligibility criteria and the principles of democratic governance” under President Patrice Talon. In 2018, Benin was chosen as a recipient of the MCC regional compact along with Niger to rehabilitate the transport corridor between Cotonou and Niamey.

Zambia rides high

This is the second time that Zambia has been selected for a compact. The Southern African country was already chosen for a $355m compact in 2012.

In its press statement, the MCC pointed out that the country earns high marks on the agency’s scorecard indicators, which measure performance in such areas as control of corruption, democratic rights and economic freedom. Only 16 countries (Benin, Burkina Faso, Cabo Verde, The Gambia, Ghana, Kenya, Lesotho, Malawi, Mozambique, Niger, Sao Tome and Principe, Senegal, Sierra Leone, Togo, Tunisia and Zambia) were deemed eligible for MCC grants for FY 2022 according to their income level and scorecard results.

The idea is that they become more attractive to donor money and private sector money if they’re actually a good performer.

A second compact for Zambia, the agency determined, “will support the Government of Zambia’s efforts to address the country’s pressing development challenges and pursue critical economic and democratic governance reforms following its recent democratic transition.”

The compact also represents a further US investment in Hakainde Hichilema’s leadership following his defeat of President Edgar Lundu in August. Vice-President Kamala Harris hosted President Hichilema in September, making him the first Zambian president to visit the White House since 1992.

“The two leaders affirmed shared values that unite the US and Zambia, and the vice president and President Hichilema agreed to deepen collaboration on a number of important issues including health and pandemic preparedness and response,” the White House said in a readout of the meeting. “They also discussed measures to advance good governance and the rule of law in order to build strong institutions.”

Seal of approval

The announcement comes at a crucial moment for Zambia, which became the first African nation to default on its debt during the Covid-19 pandemic.

That’s because the MCC was created in 2004 under President George W. Bush with the idea of providing large grants to good-performing poor countries, operating more like an investor than a traditional donor. This in turn can attract attention from other government institutions, such as the European Union and World Bank, as well as private investors.

“Countries want to be seen as getting that good housekeeping seal of approval,” says Matthew McLean, a former chief of staff and vice president for congressional and public affairs at the MCC. “The idea is that they become more attractive to donor money and private sector money if they’re actually a good performer.”

McLean now serves as a consultant for countries that hope to improve their scores on MCC metrics. His firm, Endsight Consulting, signed a $415,000 contract (including almost $60,000 in Congolese taxes) with the Democratic Republic of Congo’s ministry of finance last month.

Sarah Rose, a policy fellow at the Center for Global Development who tracks the MCC closely and foresaw Zambia’s selection, says the MCC is unique in its focus on country-driven priorities negotiated jointly with the US government.

“This financing has often been put to use financing things like infrastructure and energy,” she says, “for which there is not a lot of grant money coming from other US sources for those kinds of investments”.

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