SDV BBL series on Political Economy of Reform March 18, 2009

1. Approaches to political economy analysis for development effectiveness: some nuts and bolts & emerging practice Verena Fritz Governance Specialist Brian Levy Adviser Kai Kaiser Senior Economist (PRMPS) SDV BBL series on Political Economy of Reform March 18, 2009

2. What is political economy analysis? Political economy analysis is concerned with the interaction of political and economic processes in a society: the distribution of power and wealth between different groups and individuals, and the processes that create, sustain and transform these relationships over time. (OECD/DAC) Cross-cutting and complementary to technical analysis, and analysis aimed at identifying priorities PE analysis can promote development effectiveness by helping to develop approaches that take contextual factors (systematically) into account

3. Business rationale: why PE diagnostics? • Bank strategies and operations based purely on technical analysis and best-practice approaches have often proven un-implementable • Bank teams are often ‘surprisingly’ surprised by policy decisions (or non-decisions) in client countries • Monitoring and managing the risk of reputational damage requires monitoring political trends – rather than ignoring them • We need to stretch ourselves beyond a pure ‘common sense’ approach to political economy • To understand the complex motivations of stakeholders rather than relying strongly on individual ‘reform champions’ • To understand the interplay between formal and informal institutions, and the motivations of stakeholders

4. Three layers of problem-driven GPE analysis E.g. repeated failure to develop solutions to lack of results in sectors. Infrastructure is constraint to growth but is not being improved Vulnerabilities& concerns Evidence of poor outcomes to which GPE issues appear to contribute Problem driven What are the institutional arrangements & are they capable, effective & efficient? Mapping of institutions: laws, regulations; responsible public bodies; formal and de facto rules of the game; analysis of integrity/corruption challenges Institutional/ governance arrangements & capacities Why are things this way? Why are policies or inst. arrangements not being improved? Analysis of stakeholders, incentives, rents/rent-distribution, historical legacies & earlier reform experiences; social trends & forces and how they shape stakeholder actions Political economy

5. GPE can be applied tocountry, sector, or specific operations Macro: country level • Analysis of overall country context. Also as a background note for meso and micro level work Meso: thematic and sector level • Thematic problem-driven GPE analysis, e.g. on natural resource management, linking governance and growth • Sector-focused problem-driven GPE to inform CAS pillars, sector strategies & Development Policy Loans, complementing technical sector analysis Micro: specific operations or policies • Such analysis is focused on generating direct advice to a single operation or for the dialogue on a specific policy issue (e.g. Prior Action)

6. Operational value: Defining how to proceed to make reforms happen Seeking to expand reform space pro-actively Selecting operations given existing reform space Zambia telecoms: focus on local winners Mongolia Mining: TA with local think tank for public debate Philippines public procurement reform – pro-active coalition building to combat entrenched corruption networks India power: reform sequencing Paraguay & Bangladesh roads: external monitoring by stakeholders Ethiopia PBS to mitigate reputational risk: support subnational service delivery with participation

7. Existing frameworks • Multiple frameworks developed within the WB and by other donors are available for use • World Bank: • PRMPS: Good Practice Framework on PGPE (building on C & S GAC efforts/experiences) & summarizing menu of options and approaches • SDV: TIPS handbook and Report on PE of policy reforms for policy dialogue and development operations (building on PSIA experiences) • DfID DoC, Dutch SGACA, SIDA power analysis, EC draft framework for sector governance analysis, … • PE diagnostic frameworks can be combined with conflict diagnostic frameworks for fragile environments • PRMPS is currently working on a sharepoint intranet-site which will make existing frameworks and experiences easier to locate for TTLs/staff • Emerging ‘Community of Practice’ across Bank units

8. A basic structure for GPE analysis: 3 sets of variables, interactions & effects on policies & outcomes Variables Examples Influence political and public sector action and policies and their implementation Outcomes (growth, poverty reduction, human development, dealing with development challenges – pollution, (social) conflict, etc.) Historical legacies, economic base and level of development, commodity prices; population dynamics;   Structural Constitutional set up, electoral rules; policy and budget processes, Set-up of government; ministries and their roles and mandates   Informal: rules of patronage networks Institutions Political leaders; political parties, (organized) interest groups; heads of SOEs;  external stakeholders Actors/ stakeholders

9. Some key lessons • GPE diagnostics should be focused on particular challenges/questions/puzzles • Expectations (of country teams, management, etc.) and actual approach to PE diagnostic need to be well matched • Integrate PE diagnostics as closely as possible with other work & with country/sector teams • Pay attention to processes as much as to products • (i) the process of producing the analytic output – including quality management • (ii) the follow-up process of using PE diagnostics for decisions – strategy or operational design, whether to adjust these, whether and how to engage in coalition-building for reforms, etc.

10. A variety of approaches & tools … General approaches/perspectives: • Analyzing historical legacies and their impact on current configurations • Analysis of rents, rent distribution & dynamics Particular perspectives, structuring & slicing: • Analysis of policy processes and electoral incentives – and their impact on policy volatility, adaptability/on public investment planning, public-orientedness of policies & resource allocation • Value-chain approach for structuring sector focused analysis General tools: • Analysis of structural factors and their impact • Institutional mapping at different levels – from constitutional systems to detailed processes at sub-sector level; capturing formal and informal institutions • Stakeholder mapping & analysis (-- using different degrees of formalization) Specific tools: • Surveys of public opinion or of well-informed people • Quantitive analysis – e.g. using data from surveys, policy outputs, etc.

11. Evidencing political economy analysis • Political economy analysis needs to be well evidenced to be credible … • .. without falling into the trap of duplicating technical analysis • Structuring/summarizing/focusing existing analysis • Identifying data and sources – often ‘outside the box’ – surveys, electoral results, records of voting and debates in parliament, pricing, records of ownership, etc. • Interviews – with systematic approach • Triangulation!

12. Moving from analysis to follow-up • Moving from analysis to follow up is crucial to achieve impact • Timely initiation of follow up – this does not need to wait until the diagnostic output is completely polished • Dual process once the diagnostic ouptut is drafted • Review of the quality of the product • Discussions on implications and follow-up with relevant teams and management • Follow-up can take a variety of forms • Designing more feasible operations • Including innovative components into operations and pushing for increasing reform space (e.g. intensifying/broadening policy dialogue, support to think tanks, coalition-building, communications strategies, working with CSOs for procurement watch, etc.) • Informing the decision-making process with management about challenges and how to react • Communicating with other stakeholders (INGOs, media) about the strategic choices of the Bank in light of country context/context of operations

13. Recent examples of GPE diagnostics • Mongolia CGAC • Focused on managing the natural resource boom (building on earlier PE diagnostic work) • Zambia CGAC • Focused on stalled implementation in infrastructure reforms • India & Lebanon power sector reforms • Ongoing work on GPE of NRM in 8 countries (AFR and EAP) • Bangladesh roads sector • Various country level diagnostics in fragile states

14. RELEVANCE FOR ZAMBIA II: A DIFFERENT APPROACH TO WBG ENGAGEMENT FROM…. …… ”should” ………… (prescription) TO ……. ….. ”why?” ………….(seek to understand) TO… “feasible next steps” ..... (for poverty reduction) ..an approach, NOT a prescription…(more humility)

15. Resources PRMPS – http://connect.worldbank.org/units/prem/PD-GPEA/pdgpe/default.aspx Good Practice Framework for Problem-Driven Governance and Political Economy Analysis Repository for existing examples of political economy analysis (evolving) Thematic applications Growth diagnostics Resource rich countries comprehensive engagement (EITI++) Core Governance (esp. Public Sector Management) in Fragile Settings) SDV – www.worldbank.org/socialanalysis-> political economy of reforms The Political Economy of Policy Reform – Issues and Implications for Policy Dialogue and Development Operations TIPS handbook (Tools for Institutional, Political, and Social Analysis of Policy Reform) CommGAP – www.worldbank.org/commgap Communications strategies for PE analysis follow-up WBI – Watch this space DEC – Macroeconomics and Growth program

16. Operationalizing GPE • Demonstrating Value Added • Upside & Downside • Constructive, Risk Mitigation • Sector/Country Team Dialogue • Dissemination • Grey Covers… • Community of Practice • Resourcing • BB, Governance Partnership Facility, PSIA… • Skills base (staff, consultants, quality control)