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Development Process of the Second
Compact Agreement between
Government of Mongolia and the USA
Millennium Challenge Corporation
SODONTOGOS Erdenetsogt
Chief, National Secretariat for GoM-MCC Second
Compact Agreement
January 25, 2016
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The MCC - Mongolia
Compact Agreement
Goal: Reducing poverty through economic growth
Approach:
Country Ownership
Policies Matter
Evidence Based Approach
Focus on Results and Transparency
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MCC’s compact development process has changed
significantly since Mongolia’s first compact
• Well defined compact development process
— Economic constraints analysis up front
— Early assessment of social and gender issues and identification of beneficiaries
— Heavy focus on program logic
• Measured timeline for developing and appraising proposed project
— Early reaction to concept notes
— Strong focus on laws and institutions
— Requirement that preparatory studies completed
• Constrained funding environment
• Requirement that partner countries make significant contributions
New process
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Other functional criteria:
Core criteria:
The compact development process is geared to identify
projects that meet MCC’s investment criteria
Fundamental criteria:
Long term sustainability designed so that results can be
sustained over time
High economic impact estimated rate of return (ERR)
well above 10 percent
Strong program logic clear explanation of how project will
produce expected results
Full implement ability design, procurement and
implementation within five years
Impact on poor distribution of benefits favors
poorest households
Defined benefits project participants and benefits
clearly identified
Policy & Institutions projects tackle weaknesses in
policies, regulations and institutions
Alleviates key constraints projects comprehensively
address a binding constraint
Country ownership supports country’s development
plans and strategies
Promotes investment generates substantial
complementary private investment
Proper problem diagnosis linked to binding constraint through strong evidence
Manageable risk profile compliance with MCC’s social,
gender, environmental standards
Measureable metrics includes clear metrics for
measuring progress, results
Implementation-Ready structures, risks and mitigants
rigorously defined
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IMPLEMENTATION PREPARATION
NEGOTIATION PROJECT
DEVELOPMENT PROJECT
DEFINITION PRELIMINARY
ANALYSIS
MCC’s revised compact development process
takes place over five distinct phases
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• 609(g) Agreement
• Country Analysis reports (MCC: Memo on Findings)
Ac
tivit
ies
• Concept Notes (MCC: Opportunity Memo)
• Concept Papers (MCC: Concept Paper Assessment Memo)
• 609(g) Agreement
• Feasibility studies
• MCC: Investment Memo
• Compact
• Program Implementation Agreement
Do
cu
me
nts
• Compact development team created
• Data collected
• Economic, social and gender and business issues assessed
• Public consultations launched
• Compact development team expanded
• Root causes of critical problems identified
• Project concepts defined
• Projects selected and proposed
• Projects defined and TORs finalized
• Public procurements launched, consultants hired
• Feasibility and other studies undertaken
• MCC appraisal of projects finalized
• Technical, financial and legal terms of compact negotiated
• Implementation unit created, recruitment started
• MCC’s Board of Directors reviews
• Compact signed
MCC aims to reach a signed compact with each partner country within 24-27 months
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Constraints Analysis: Overview
• The CA identifies the key constraints to growth and
poverty reduction, which will help identify the focus of
MCC’s investment
• All countries have limited capacity and resources to
address constraints
• Focus on most binding constraints
• Uses Growth Diagnostics HRV methodology developed at
Harvard in 2005
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Summary of Binding Constraints
1. A weak and unstable macroeconomic environment
2. Inconsistent laws and policies, resulting in an unpredictable
business environment
3. Health impacts of air pollution in Ulaanbaatar
4. Costly access to water and sanitation in productive sectors
and poor communities
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Concept Notes
The Concept Note is the general outline of Government’s proposed
program that identifies the problem, summarizes the underlying issues or
conditions that cause the problem, describes efforts addressing the problems
that are linked to the goals of long-term economic growth and poverty
alleviation, establishes a range of potential, alternative approaches to
address the problem, and explains ongoing efforts to address the problem by
the eligible country.
• Based on the Constraints Analysis and additional feedback from relevant
Ministries, UB City government, and the Water Supply and Sewage
Authority of Mongolia.
• Reflects the results from the Root Cause Analysis Workshop (September
21-23, 2015)
• Created with partnership with MCC
• MCC’s Investment and Management Committee will review the Concept
Notes and give approval within 1-2 months
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Concept Note on UB’s Water Shortage and Treatment
• Problem Statement - Ulaanbaatar faces imminent water supply and
treatment shortages
• The proposed projects will allow Ulaanbaatar residents to receive clean,
reliable, affordable water and water treatment services.
• Theory of Changes - If the project can, in the long term, meet water
demand from industries and households, then water supply and treatment
shortages will no longer be a binding constraint
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Concept Note on Wastewater Collection and
Treatment in Ger Areas
• Problem Statement – Wastewater collection and treatment in the ger
districts is insufficient.
• About 60% of households in the ger areas are not connected to the central
systems. This has negative societal and health impacts.
- Needs to be resolved in tie with the city’s redevelopment strategy
• Theory of Change - By improving the quality and network of wastewater
systems and treatment facilities, the living environment in the ger areas will
improve.
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Concept Note on
Economic Diversification
• Problem Statement - The Mongolian economy depends on a narrow economic base and is
vulnerable to external shocks.
— Export concentrated in minerals
— Trade with a single partner
— Over-investment in domestic real estate
— Product space performance and low level of innovation
• The constraints will persist unless Mongolia reduces its dependence on the mineral sector
with strong determination to develop non-mining sectors that can produce competitive and
innovative export products.
• Theory of changes: Promote export oriented, more competitive economic activities under free
market principle by: (i) improving policy and regulatory environment, (ii) developing human
capital, and (iii) fueling capital investment to enhance weak infrastructure
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What Comes After the Project
Definition?
• National Secretariat /Core Team/ developed the Concept Notes to
submit to MCC in December, 2015 which outlines the central ideas
and themes for the areas and sectors where MCC’s funding would be
desirable.
• Once project proposals are finalized and accepted by MCC, the MCC
and the GoM shall start project identification and development stage,
which involves conduction of FSs. At the same time, the two parties
are envisaging organizing trade and investment roadshows to
promote FDI to Mongolia.
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IMPLEMENTATION PREPARATION
NEGOTIATION PROJECT
DEVELOPMENT PROJECT
DEFINITION PRELIMINARY
ANALYSIS
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