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Political Economy Why good PE analysis is central to effective PSD strategies, PPD and Investment Climate Reform PPD Workshop, March 2014 Albena Melin.

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Presentation on theme: "Political Economy Why good PE analysis is central to effective PSD strategies, PPD and Investment Climate Reform PPD Workshop, March 2014 Albena Melin."— Presentation transcript:

1 Political Economy Why good PE analysis is central to effective PSD strategies, PPD and Investment Climate Reform PPD Workshop, March 2014 Albena Melin and Dr. Peter Davis

2 What is Political Economy (PE)? How political institutions, the political environment and the economic system influence each other. Includes: Power: who has it and why? Ethnic, religious, tribal and other power structures The structure of a country’s governmental institutions The character of, and relationships between key political figures How past events and structures impact on current policy making 2

3 Why is it important? Markets and their development cannot be disentangled from political structures, ethnicity, societal norms and other PE issues. Especially relevant for M4P (a specific approach)  Need to understand the system that needs to be changed  PE is the system that needs to be changed Country strategies, programmes and specific approaches all need to be designed  With a clear understanding of the PE context  With a clear understanding of how to use a PE analysis, e. g. for better advocacy or public exposure of issues or to build coalitions, etc. 3

4 Market System and Political Economy SUPPORTING FUNCTIONS RULES CORE MARKET (Value-Chain) Informal Formal GenderConflict Culture Laws Policies “Governance” Structures, Institutions & Agents: “Political Economy” Influence Market players, trading relationships, bargaining power, “governance”

5 It’s not just about avoiding problems... PE analysis needs to look for opportunities as well as risks Constraints What might get in the way of reforms happening and being sustained? Can the analysis performed be freely used? Drivers of change What existing activities/ trends might reform build on to make it more effective? 5

6 PE System is Key to Change Interventions 1. Direct impact of activities. Results captured through robust DCED Standard-based M&E framework Systemic change Attitude change 2. Systemic impact of reform action. Results captured through intermediate perception data at activity level. Qual and Quant 3. Dynamic impact of the approach used. Exploring evaluation processes. Qual as well as quant eg ODI Results at scale. Jobs and incomes beyond immediate interventions resulting from systemic change Quantifiable results: jobs and incomes

7 Azerbaijan The challenge of elite control Key industrial sectors under suzerainty of key clans No real opposition or civil society as counter-balance The challenge of resource wealth Can throw cash at problems that arise No urgency for comprehensive reform Can ignore advice and external pressure Demonstrating that change can occur Corruption is endemic Yet local chapter of EITI first to be formally validated 7

8 Click to edit Master title style PE – Tools for Analysis LevelTool Macro-level country analysis Drivers of Change (DFID) Strategic Governance and Corruption Analysis (SGACA, Netherlands) Power Analysis (SIDA) Sectoral Analysis Analytical framework for Understanding the Political economy of Sectors and Policy Arenas (DFID/ODI) Addressing Governance in Sector Operations (EC) Problem driven analysis Political Economy of Policy Reform (World Bank SDD/OPM) Policymaking Process Framework (IDB) Problem-driven Governance and Political Economy Analysis (World Bank)

9 Designing PE into Activity /Programme Planning Integrating PE 1: Stakeholder mapping and analysis 2: Map PE – People and structures 5: PE dashboard 4: Selection and use of appropriate tools 3: Map PE – contextual pressures

10 Stakeholder Mapping © Green Lion Management 2012 Government, politicians and parties Private sector companies and BMOs Functionaries and technocrats Media/ Commentators Wider public and others CSOs

11 PE – people and structures Political leadership Who is in charge and why? What are their interests and power relationships? Technocrats What are their vested interests in the status quo? Are they capable and competent? Civil society How to build demand for reform? 11

12 PE – Contextual pressures Proximate/ trigger causes What immediate factors are there that might trigger or stymie reform? External pressure How can pressure for reform be brought to bear; by whom and on whom? Reform synergy How can reforms be timed to overcome resistance? How to win friends and influence people 12

13 PE tactics and approaches Generating and sustaining political will: What arguments and reasons will persuade a wide group of those in power to support and enact reforms? Widening the groups of reformers Building coalitions for reform: Mobilise different groups to provide unified pressure for reform Looking at public sector reforms: What public sector reform may be needed? Prioritising reforms: Plan reforms to marginalise potential critics Stakeholder management: Manage stakeholders and their expectations 13

14 Fieldcraft Talk to specialists in other disciplines Use the business environment itself as a diagnostic Observe and listen The need for continual evaluation Develop a network Remember the art of the possible The problems of staff rotation and need for proper hand-overs 14

15 Click to edit Master title style PE Dashboard IssuesActions Political leadership Constraints Drivers TechnocratsConstraints Drivers Civil societyConstraints Drivers Proximate/ trigger causes Constraints Drivers External pressure Constraints Drivers Reform synergyConstraints Drivers

16 Click to edit Master title style Land Formalisation in Kano IssuesActions Political leadership Governor and Commissioner of Lands both strong advocates Willingness to use proportion of registration revenues to provide specific community benefits Maintain strong engagement to ensure their continued support Ensure that these benefits are delivered – leverage media and other pressure if required Technocrats The core Land Ministry staff are the major potential obstacle. Ensure swift delivery on the registration intervention in order to keep these people marginalised. Civil society Current links with CSOs are weak and need to be strengthened We lack clear understanding of what would drive formalisation Build good relationships with CSOs and BMOs to better understand the drivers for registration Crisis / proximate drivers  Need for IGR not seen by all as requiring an improvement in delivery of services Delivery, delivery, delivery Reform synergies Success in initial locations could drive demand in others Ensure success is widely publicised, for example in the media External pressure The rivalry with Jigawa and Lagos means that reform developments here are likely to be an incentive in Kano Willingness to learn from reform programmes in other countries Ensure that progress in these states is monitored and used as leverage in Kano Identify suitable examples from other countries that could be used in Kano

17 EXERCISE: Tax Reform in Cross River State, Nigeria

18 Click to edit Master title style IssuesActions Political leadership Constraints Behaviours of LGA councillors Engage with them to understand their position better Seek ways in which their capabilities and ability to do their job might be improved Drivers Head of BIR and LGA Chairman both strong advocates Maintain strong engagement to ensure their continued support CrisisConstraints Need for increased IGR leads to greater use of nuisance taxes Understand better the distorting effect of tax complexity through a detailed study of taxes/ charges currently levied, their adverse impact, and the potential for growth if the situation changes Reform synergies Drivers Example of flat tax in Lagos Undertake a detailed study of what services people would most welcome, and therefore the provision of which would be popular Tax reform in Cross River

19 Click to edit Master title style Tax reform in Cross River IssuesActions Civil societyConstraints Currently civil society is weak and therefore not a great force for reform Work with Enable to establish and grow good CSOs Drivers New arrangement for CSO management may change things Monitor new arrangements to understand actual impact. External pressure Drivers Need for IGR Comparison with Lagos Ensure that increased IGR is not leading to increased use of coercion Use Lagos example as basis for comparison TechnocratsConstraints Potential for rent-seeking behaviour Are revenue collectors properly trained and skilled for their job? Use of ‘heavies’ accompanying revenue collectors Need to regularise taxes and levies in by-laws Explore training for revenue collectors?


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