Closed Compact Report: Vanuatu Closed Compact | October 2020

Country Context

MCC’s Board of Directors selected Vanuatu to develop a compact in 2004. Vanuatu is a small island nation comprised of 83 separate islands in the South Pacific. At the time of compact signing, approximately half of the population lived in poverty and agriculture and tourism were central to Vanuatu’s growth. These two sectors together employed 70 percent of Vanuatu’s working population and represented almost one-third of the country’s GDP. However, under-developed, substandard, and poorly maintained transportation infrastructure was a critical constraint to formal economic activity and private sector investment in the agriculture and tourism sectors. 

As one of MCC’s first partnerships, the Vanuatu Compact predates MCC’s use of the constraints analysis in the compact development process. 1 Thus, to identify proposed projects the GoV initiated a comprehensive consultative process consisting of public forums and meetings with the council of chiefs, women’s group leaders, the private sector, donor partners, NGOs, religious leaders, and government officials from Vanuatu’s provinces. The lack of adequate transport infrastructure repeatedly surfaced as a priority—and even served as a barrier to meeting attendance. As a result of these consultations, the GoV chose to target its compact proposal toward improving the country’s transportation infrastructure. Additional analyses were completed to determine which proposed investments would yield the greatest economic returns.

The Vanuatu Compact, its concepts, project and activity designs, and monitoring & evaluation (M&E) plans were developed prior to the full operationalization of MCC’s gender and social inclusion (GSI) guidance and evidence-based approaches to compact development, as well as its current institutional commitments. It is possible that MCC’s subsequent GSI and M&E processes would have resulted in a different design, especially with regards to delivering benefits to women and disadvantaged groups, as well as more robust tracking and analysis of gender and inclusion-oriented disaggregated data, indicators, and outcomes. Consequently, MCC is unable to provide an analysis or more fulsome discussion of the distributional impact of the investments and differentiated socio-economic outcomes of this compact. Read the description of MCC’s current approach to gender and social inclusion.

Under MCC’s country ownership model, MCC’s country counterparts are responsible for implementing MCC-funded programs. Partner governments establish accountable entities typically known as Millennium Challenge Accounts (MCAs) to manage the implementation of compact projects. In Vanuatu, MCA-Vanuatu (MCA-V) was created to implement the country’s program.

From the beginning, the level of staffing and lack of relevant prior staff experience at MCA-V was a concern. When the compact entered into force, none of the original staff had prior management experience with large projects. The implementation phase from mid-2008 to early 2009 proved a challenge, as several staff departures meant the MCA-V staff was reduced to a team of four, with officers acting in several positions. As a small unit, it was difficult for MCA-V to take advantage of the capacity building programs offered by MCC. In 2009, an international engineer was recruited as a project manager to replace the vacant local engineer position.  MCA-V only achieved full staffing in the fourth year of implementation. It would have been beneficial if the MCA-V had been fully staffed with experienced staff before entry into force. The difficulty of sourcing persons to come in at different times and with the right set of skills caused delays and problems. To some degree, this was mitigated by outsourcing to private consultants.

The compact was governed by a Steering Committee, which served the function of a board of directors. The Steering Committee included 12 voting members and three non-voting observers. The biggest challenge to effective governance of the compact was that the Steering Committee was initially too large and made up of senior government officers who were often dealing with competing priorities. As such, committee meetings often started late or were postponed due to lack of quorum and major decisions were often hastily made. This proved unwieldy, and in the third year of implementation, the committee was reduced to seven voting members and two observers.

Ultimately, MCA-V completed the compact and served as a model and the basis for the successor entity, the Vanuatu Project Management Unit (VPMU), established by the GoV on August 29, 2011. The VPMU represented a significant transitional initiative undertaken by the GoV. It managed the defects liability period for the roads constructed under the compact, and continues to manage projects funded by other development partners, such as the Asian Development Bank, New Zealand AID, the Japan International Cooperation Agency (JICA), and Australian AID, using similar contract and project management standards.

At a Glance

  • Original Amount at Compact Signing:
  • Amount spent:
  • Signed:
    March 2, 2006
  • Entry Into Force:
    April 28, 2006
  • Closed:
    April 28, 2011
  • 14,783 2 Estimated beneficiaries over 20 years
    MCC considers beneficiaries of projects to be those individuals who realize improved standards of living, primarily through higher incomes, as a result of economic gains generated by MCC-funded projects.
  • $83,500,000 3 Estimated net benefits over 20 years
    “Estimated Net Benefits” is the sum of all projected net benefits accruing over the life of the project, typically 20 years, evaluated at a 10% discount rate. Estimates are reported in millions of US dollars in the year that the ERR analysis was completed.

  • 1. Beginning in 2009, MCC began undertaking constraints analyses based on the Hausmann, Rodrik, and Velasco diagnostic method in the preliminary analysis phase of each compact.
  • 2. The number of beneficiaries was revised downwards from 65,227 following the re-scoping of the compact in 2008. The revised calculation was based on a catchment area of 5 km, while the original calculation included beneficiaries that lived beyond the 5 km catchment area. At compact closure, no other beneficiary analysis was reported.
  • 3. MCC did not estimate closeout ERRs for this compact. The reported number corresponds to a 2009 re-scoping ERR analysis. The validation of this ERR is limited considerably due to a lack of documentation on the cost-benefit analysis model and supporting materials.