Data can help channel private-sector investment and incentivize reforms, creating a positive cycle for development.
A small American energy company is looking to expand into the developing world. It has limited resources to scope out the relative risk of foreign markets, so it relies in part on a trove of indices gathered by the international community. In the emerging and developing markets of the 21st century, that kind of easily available data can help drive critical foreign investment decisions.
As the head of the U.S. government’s Millennium Challenge Corporation, I am acutely aware of how data on the policy and institutional environment can shape investment decisions. At MCC, a small federal agency committed to reducing poverty through economic growth, we are highly selective about where we work. Each year, MCC produces a scorecard on low and lower-middle income countries worldwide using third-party indicators that measure a country’s commitment to democracy, open markets and investing in its people. These scorecards largely determine where hundreds of millions of federal dollars will be spent each year.
At the dawn of the 4th Industrial Revolution — the theme of the recent World Economic Forum in Davos — the world is producing and curating vast amounts of information. Harnessing that data and applying it in new ways could have tremendous implications for the future of businesses and people across the developing world. While the challenge and opportunity of harnessing Big Data is dizzying, there are a number of low-hanging fruits to support development.
Rankings and indices compiled by leading NGOs and multilateral organizations like the World Bank, the Brookings Institution and Freedom House have already become a key resource for some global investors. But more businesses could take advantage of this type of existing data to help shape and influence decision making.
Just as MCC uses these indicators to direct aid toward countries with the highest potential to use it effectively, small and medium-sized businesses could reference these straightforward indicators as measures of risks and opportunities that factor into their market entry decisions. At the same time, as more businesses turn to this type of data, governments in the developing world will be more likely to use them as a roadmap for guiding their legislative and policy agendas —recognizing that performing better across these categories not only improves the lives of their people, but is also critical for attracting private investment.
Consider Cote d’Ivoire. The country was failing 15 of 20 indicators on MCC’s scorecard only three years ago, including control of corruption. The government came to us and set its sights on passing the MCC scorecard through a concerted effort to improve its performance in specific policy areas. Cote d’Ivoire now passes 13 indicators and was recently approved to receive MCC funding. Over roughly the same period of time — between 2012 and 2014 — foreign direct investment jumped 40 percent.
By incentivizing these data-driven reforms, MCC in turn helps open new windows for private-sector investment. In fact, companies tell us they follow MCC and its scorecard because our presence in a developing country helps lower their risk while creating direct procurement opportunities. In 2010, Pike Electric, a North Carolina energy provider, submitted a bid and won an MCC contract for $17.9 million as part of our compact with Tanzania. This was Pike’s first MCC contract and its first time working in Africa. They are now considering a contract in Ghana, where MCC is seeking to help reform and revitalize the energy sector.
Within a specific national market, the right data can also help governments — and investors — assess the most promising sectors. Before supporting any project, MCC conducts an analysis that pinpoints the most binding constraints to growth, such as public health, poor transportation infrastructure or the lack of energy access. This in-depth analysis helps MCC, other donors and national governments determine where their investments can unleash the greatest enablers of growth. And it helps private investors know where the biggest opportunities lie.
For example, time and again MCC’s constraints analysis identifies the lack of access to electricity as one of the most binding constraint to growth in countries across Africa. That is why MCC is a leading contributor to the U.S. government’s Power Africa effort, with a particular focus on supporting countries willing to undertake difficult reforms to their power sectors. Such a commitment is at the heart of MCC’s partnership with Ghana, which will receive $500 million in grant assistance over five years to transform its power sector and put it on a path to solvency and sustainability. These reforms are building a more attractive environment for private investment: we expect our Ghana compact to catalyze about $4 billion in new private investment and economic activity in the coming years, including a major investment from GE and Endeavor Energy.
More than ever before, private investment in developing countries will drive growth and help lift millions of people out of poverty. The right data can help identify opportunities and reduce risk for businesses and also incentivize the types of reforms governments need to make to unlock their economies.
(Image credits: Getty Images)
Dana J. Hyde is CEO of the U.S Government’s Millennium Challenge Corporation. A former State Department and White House official, she has more than 20 years of experience in law and public policy, with expertise in economic growth and resource management in the United States and around the globe.