Integration of BIC reforms into Poverty Reduction Strategy Papers (PRSPs)

1. Integration of BIC reforms into Poverty Reduction Strategy Papers (PRSPs) GTZ Capacity Development Workshop „Strategies and Practices Toward a More Enabling Business and Investment Climate“ May 25, 2006 Joana Henseler and Julius Spatz

2. Structure • The Concept of Pro-Poor Growth (PPG) • The Role of the BIC in PPG • The PRSP-Approach • Recommendation for 2nd Generation of PRSPs

3. Last year‘s mid-term review revealed that many countries in Sub-Sahara Africa will not meet the MDG – above all MDG 1 – unless they accelerate the rate of poverty reduction Shift of the focus from non-income dimensions of poverty (MDG 2-8) to the income-dimension of poverty (MDG 1) Achieving pro-poor growth (PPG) is seen as a key success factor for fast and sustainable poverty reduction Background

4. Large research project on “Operationalizing Pro-Poor Growth”, jointly financed by AFD, DFID, GDC, and WB Policy Paper on “Promoting Pro-Poor Growth” by OECD DAC PPG is also addressed in other high-level documents, e.g., HDR 2005, WDR 2006, Sachs Report of the UN, Report of the Global Commission for Africa National development strategies: 1st generation PRSP → 2nd generation GPRSP Pro-Poor Growth is High on the International Agenda!

5. What is PPG? • PPG is a strategy that enables poor women and men to participate in, contribute to, and benefit from growth • Multiple definitions at macro level: Growth is pro-poor … • … if the poor benefit disproportionately from growth (relative definition) • … if it maximizes the income growth of the poor (absolute definition) • … if it improves not only the incomes but also the non-income dimensions of poverty (assets, education, health, etc.) which enable the poor to earn higher incomes in the future (definition of the OECD DAC) • Multiple measurement tools • Growth incidence curve • Growth-inequality decompositions

6. 3 entry points for operationalizing PPG Enabling the poor to realize their economic potential (PSD, FSD, LRED, Infrastructure, etc) Strengthening the human capital base (education and health) Redistributing the benefits from economic growth to the poor (social safety nets) Guiding principles Orient the programs towards the current or evolving economic potentials of the poor No on-size-fits all solution. A high degree of flexibility in terms of sector selection and geographical targeting Operationalization of PPG direct participation indirect participation

7. The Role of the BIC in PPG • BIC in a narrow sense • Cost of doing business and non-commercial risks are regressive • Administrative bottlenecks exclude SMEs from the formal sector → BIC reforms create a level playing field →BIC reforms reduce insider-outsider problems and rent- seeking • BIC in a wider sense • Infrastructure to connect poor remote areas (pockets of poverty) with growth poles • Vocational training to strengthen the employability of the poor

8. The New Aid Architecture Millennium Development Goals (MDG) National Development Strategy (PRSP or other) Sector Program Sector Program Sector Program Development Cooperation Resources

9. History of the PRSP-Approach • The PRSP-process was • Initiated at the G-7 summit in Cologne in June 1999 • Adopted at the annual meeting of World Bank and IMF in 1999 • Poverty Reduction Strategy Papers are • A new Poverty Agenda • No blueprints (Structural Adjustment Programmes) • PRSPs as precondition to qualify for • HIPC II (debt relief, 1999) • Concessional lending (IMF, World Bank) • PRSPs are national implementation strategies of the Millennium Development Goals

10. Statistics • Number of PRSP countries: • 52 countries with Interim PRSP (31 in Africa) • 49 countries with Full PRSP (25 in Africa) • 32 countries with PRSP Progress Reports (18 in Africa) • Average years of implementation: 3 years

11. Core Principles of the PRSP-Approach Poverty Reduction Strategy Long-termperspective Results-oriented Country-driven Comprehensive Partnerships

12. Evaluation of the 1st Generation of PRSPs • Progress in orientation toward poverty reduction, results, aid management (coherence, convergence, harmonization) But… • Weaknesses in customizing approach; exploring policy options and alternatives; defining partnerships and accountabilities • 4 Gaps: Ownership, Participation, Prioritization & Implementation

13. Private Sector in the 1st Generation of PRSPs • Private sector active participant in drafting PRS • Private sector rethorically recognized as key actor in achieving poverty reduction in majority of PRSPs But… • PRSPs are biased towards social sectors, with little attention to growth issues, incl. role of the private sector • Several PRSPs treat the private sector as an adjunct of the public sector • Few PRSPs provide basis for monitoring PSD

14. Recommendations for the 2nd Generation of PRSPs • strengthening the focus on productive sectors • making PRS sustainable as political instruments; • enhancing linkages and coherence between the PRS, medium-term expenditure frameworks (MTEF), and budgets • further alignment and harmonization of donor policies to support PRS • PRS monitoring • participation in PRS processes • and, of crucial importance, capacity development for PRS.

15. Thank you very much for your attention.