MCC Compacts in Cape Verde and Honduras

The Cape Verde and Honduras compacts were among the first countries  that MCC selected as eligible for assistance and the first to reach the end  of the 5-year implementation period. Performance Targets and Sustainability Issues

MCC met some key original targets and many of its final targets for the  Cape Verde and Honduras compacts. Additionally, MCC took steps to  provide for the sustainability of the projects, but the governments of both  Cape Verde and Honduras may have difficulty maintaining the  infrastructure projects in the long term due to the lack of funding, among  other challenges. Cape Verde: MCC Altered the Scope of Its Three Projects, Meeting Some Key Original Targets and Many Final Targets

MCC rescoped each of the three projects under the Cape Verde compact,  reducing some key targets. MCC met a key original target for the Honduras  compact, and met or exceeded most of its final targets by the compact’s  end. MCC Took Steps to Enhance Project Sustainability, but Cape Verde and Honduras Face Long-Term Challenges in Maintaining Infrastructure Projects

MCC took steps to provide for the sustainability of compact projects, but  certain activities in Cape Verde and Honduras face challenges to long- term sustainability.   MCC included privatization of port operations as a condition of the  compact. Watershed management and agricultural support project. Transportation project. However, updated ERRs  were not always well-documented or linked to revised targets. MCC Impact Evaluations Are Ongoing, and MCC Has Taken Steps to Revise Designs in Response to Implementation Challenges and Delays

Cape Verde. As a result, MCC added a supplemental  design to enhance the methodology. Updated ERR analyses were not well-documented or supported for  projects constituting almost 50 percent of compact funds in Cape Verde  and more than 65 percent of compact funds in Honduras. However, documentation for the underlying quantitative analysis  supporting the updated ERR is not available. However, the updated ERR  analysis does not reflect the values or numerical ranges of key  updated targets in the monitoring and evaluation plan. For example, the original ERR analysis for the farmer  training and development activity of the rural development project is  based on 14,400 hectares of high-value crops at the end of the  compact. MCC Has Not Issued Guidance for Re- estimating ERRs Following Compact Completion but, If Estimated, ERRs Are Likely to Be Lower Than Predicted

MCC has not developed guidance for re-estimating project ERRs at  compact completion or in subsequent years. To enhance the accuracy of MCC’s ERR projections,    ensure, during compact implementation, that updated ERR  analyses are well-documented and supported and that key revised  indicators and targets are reflected in updated ERR analyses; and    develop guidance for re-estimating ERRs at compact completion  and during the long-term period when compact benefits are  realized to ensure that updated estimates reflect the most recent  and reliable information available for MCC’s compact investments  and outcomes. We specifically focused on the port  activity and roads and bridges activity in Cape Verde, and the CA-5  highway and secondary roads activities in Honduras. To assess the extent to which MCC achieved expected performance  targets and longer-term sustainability for compacts in Cape Verde and  Honduras, we analyzed MCC documents, interviewed MCC officials and  stakeholders, and observed project results in both countries. To examine the extent to which MCC assessed progress toward the  compacts’ goals of income growth and poverty reduction, we reviewed  MCC’s monitoring and evaluation guidance, Guidelines for Economic and  Beneficiary Analysis, three versions of the monitoring and evaluation  plans for each country, monitoring information MCC and MCA collected,  data quality reviews, final reports prepared by contractors and grantees,  documents related to impact evaluation contracts, impact evaluation  design reports, final impact evaluations, and original and revised  economic rate of return (ERR) analyses. Activities include  upgrading and expanding a major port and rehabilitating five roads  and constructing four bridges.   Phase 1.   Phase 2. Inaccurate early planning of the port activity led to cost increases and  implementation delays. Uncertainty over Honduras government funding for road maintenance  calls into question the likely sustainability of the MCC-funded roads. Although MCC officials worked with the Honduras government to increase  its funding of road maintenance from a precompact amount of $37 million  in 2005 to $64 million in 2010, this funding is for maintenance of all roads  on the official Honduran road network and not specifically for compact- funded roads. Millennium Challenge Corporation: Progress and Challenges with  Compacts in Africa. Washington, D.C.: June 28, 2007.
Why GAO Did This Study

The Millennium Challenge Corporation (MCC) was established in 2004 to help developing countries reduce poverty and stimulate economic growth through multiyear compact agreements. As of June 2011, MCC had signed compacts with 23 countries totaling approximately $8.2 billion in assistance. MCC asks countries to develop compacts with a focus on results and effective monitoring and evaluation. MCC sets targets, which may be revised, to measure the compact results. In late 2010, the Cape Verde and Honduras compacts reached the end of the 5-year implementation period. This report, prepared in response to a congressional mandate to review compact results, examines the extent to which MCC has (1) achieved performance targets and sustainability for projects in Cape Verde and Honduras and (2) assessed progress toward the goal of income growth and poverty reduction. GAO analyzed MCC documents and interviewed MCC officials and stakeholders in Washington, D.C., Cape Verde, and Honduras.

What GAO Found

In its first two completed compacts, Cape Verde and Honduras, MCC met some key original targets and many final targets, but the sustainability of some activities is uncertain. In Cape Verde, MCC altered the scope of its three projects, meeting some key original targets and many final targets by the compact's end. For example, an activity to upgrade and expand a major port in Cape Verde, which represented almost 50 percent of the $110.1 million compact at signature, faced inaccurate early planning assumptions and increased costs. As a result, MCC split the port activity into two phases, funding the completion of the first phase--which covered about one-third of total expected costs for the port activity. In Honduras, MCC met a key original target and most final targets by the end of the $205 million compact. For example, MCC constructed approximately half of the planned highway and all rescoped secondary roads. In addition, several compact activities in Cape Verde and Honduras face challenges to long-term sustainability. Although MCC took steps to provide for sustainability, the governments of both Cape Verde and Honduras may have difficulty maintaining the infrastructure projects in the long term due to lack of funding, among other challenges. For example, MCC included privatization of port operations and road maintenance funding as conditions of the Cape Verde compact. However, the government has had difficulty meeting these requirements, calling into question the long-term sustainability of some projects. In Honduras, both uncertain government funding for road maintenance and design decisions on construction projects may jeopardize the sustainability of MCC-funded roads. MCC impact evaluations for the Cape Verde and Honduras compacts are ongoing but delayed, and updated economic rate of return (ERR) analyses of the largest compact projects have not been well documented or linked to revised targets. MCC has taken steps to modify impact evaluation designs in response to implementation challenges and delays. For example, challenges in implementing the original evaluation design for the farmer training and development activity in Honduras led MCC to enhance the methodology by adding a supplemental design. Furthermore, updated ERR analyses of projects representing over 50 percent of compact funds have not been well documented or supported. For example, MCC updated its ERR analysis for the Honduras transportation project, but documentation for the underlying quantitative analysis supporting the updated ERR is not available. Additionally, ERR analyses updated in response to rescoping compact activities were not consistently linked to revised targets and indicators. For example, MCC updated the ERR analysis for the watershed management and agricultural support project in Cape Verde, but the analysis does not reflect the values and numerical ranges of key revised targets. In addition, although original ERRs are estimated for a 20-year period, MCC has not developed guidance for updating ERRs following compact completion. Re-estimated end-of-compact ERRs will likely be lower than predicted at compact signature.

What GAO Recommends

GAO recommends that MCC (1) work with countries to make decisions that reduce long-term maintenance needs, (2) ensure updated economic analyses are documented and consistent with monitoring targets, and (3) develop guidance for updating economic analyses following compact completion. MCC agreed with the intent of all three recommendations.