Governance & Anti-corruption Approach for the MNA Region Guenter Heidenhof, Sector Manager MNSPS November 2010

MENA and Governance Indicators (2009) 2 MENA AverageGlobal Average Source: Global Integrity Note: The Global Integrity Index groups countries into five performance "tiers" according to a country's overall aggregated score: Very strong (90+) Strong (80+) Moderate (70+ )Weak (60+) Very Weak (< 60)

What is governance? 3 Governance Is mainly about fiduciary issues Governance is mainly a problem for the government Governance has to focus on fraud and corruption issues Governance is about political economy analysis There is nothing we can do about governance Governance is about addressing the underlying systemic issues Governance is like a safeguard issue – you need to “tick it off” Governance is about applying the value- chain-analysis approach

4 Governance & Corruption Not the same thing! State The manner in which the State acquires and exercises its authority to provide public goods and services public Using public office for private private gain Corruption is an outcome – a consequence of ‘break downs’ in the governance system Governance Corruption

5 Good Governance has many dimensions Political Accountability  Political competition, broad-based political parties  Transparency & regulation of party financing  Disclosure of parliamentary votes Checks & Balances  Independent, effective judiciary  Legislative oversight (Parliament)  Independent oversight institutions (SAI)  Global initiatives: UN, OECD Convention, anti-money laundering Decentralization and Local Participation  Decentralization with accountability  Community Driven Development (CDD)  Oversight by parent-teacher associations & user groups  Beneficiary participation Civil Society & Media  Freedom of press, RTI  Civil society watchdogs  Report cards, client surveys Private Sector Interface  Streamlined regulation  Public-private dialogue  Extractive Industry Transparency  Corporate governance  Collective business associations Effective Public Sector Management  Ethical leadership: asset declaration, conflict of interest rules  Cross-cutting public management systems: meritocracy, public finance, procurement  Service delivery and regulatory agencies in sectors

66 Breakdowns in Governance Political Accountability  Political competition, broad-based political parties  Transparency & regulation of party financing  Disclosure of parliamentary votes Checks & Balances  Independent, effective judiciary  Legislative oversight (Parliament)  Independent oversight institutions (SAI)  Global initiatives: UN, OECD Convention, anti-money laundering Decentralization and Local Participation  Decentralization with accountability  Community Driven Development (CDD)  Oversight by parent-teacher associations & user groups  Beneficiary participation Civil Society & Media  Freedom of press, RTI  Civil society watchdogs  Report cards, client surveys Private Sector Interface  Streamlined regulation  Public-private dialogue  Corporate governance  Collective business associations Effective Public Sector Management  Ethical leadership: asset declaration, conflict of interest rules  Cross-cutting public management systems: meritocracy, public finance, procurement  Service delivery and regulatory agencies in sectors State Capture Patronage & nepotism administrative corruption Little implication of outside world Lack of performance & quality Political corruption Weak institutions & procedures Low capacity

7 The ‘Dividend’ of Good Governance Infant Mortality and Corruption WeakAverageGood Control of Corruption x Development Dividend 0 2,000 4,000 6,000 8,000 10,000 12,000 WeakAverageGood Regulatory Burden x Development Dividend Per Capita Income and Regulatory Burden Literacy and Rule of Law WeakAverageGood Rule of Law x Development Dividend Per Capita Income and Voice and Accountability WeakAverageStrong Voice and Accountability x Development Dividend Source: World Development Report 2004

8 MNA - Approach to Public Sector and Governance Three main pillars I.Improve value for money of public spending II.Maximize development impact and improve delivery of public services III.Create an enabling environment for private sector-led growth =Aligned with Government strategies and World Bank CAS/CPS

9 MNA - Approach to Public Sector and Governance Pillar I  Improve value for money of public spending Strengthening of government system(s) of expenditure accountability (e.g. public finance and procurement reforms, related administrative reforms) Increased transparency (e.g. public disclosure and access to information, reform of the institutions of accountability)

10 MNA - Approach to Public Sector and Governance Pillar II  Maximize development impact and improve delivery of public services Effective public sector management (e.g. strengthening administrative systems and institutions, ethical standards and leadership) Participatory governance (e.g. decentralization, local participation, independent third party monitoring, pro-active implication of beneficiaries and stakeholders in design, implementation and monitoring)

11 MNA - Approach to Public Sector and Governance Pillar III  Create an enabling environment for private sector-led growth Strengthening government support system (e.g. regulatory & institutional reforms, customs & tax administration reforms) Increased transparency (e.g. corporate governance standards, access to information)

12 Public Sector & Governance Challenges and Mitigation Strategy Governance Challenges are multi-dimensional Policy Unclear policies and objectives, inconsistent strategies, little implication of the “outside world” Institutions Weak institutions with overlapping roles and responsibilities Procedures Outdated regulatory framework and overly bureaucratic procedures, few participatory elements Human resource capacity Lack of knowledge, skills & capacity to implement reforms; no systematic capacity building

13 India – Governance and Accountability Activities  CGAC and DIR action plans  Sector risk assessments  Indian state risk assessments  Sector competitiveness studies  Reducing project pipeline  Project COSO workshops  GAAPs for all new projects  Supervision factored into project design stage  Independent info sources built into project design  Gov Adviser support on project design  Formal reviews of GAAPs at PCN, QER, PAD  Risk mitigation screening  Political economy inputs into decision process  Increased supervision budgets  Portfolio risk retro-fitting  Revised procurement methods  Enhanced red flag list  Joint performance reviews  100% post reviews & post review strategy  Audit ToR´s expanded to incl. performance  New draft protocol w/ INT on complaints  Portfolio reviews of GAAPs  New disclosure guidelines Re-Engineering the Project Cycle

14 India Transport Sector Sector Level Vulnerabilities Poor planning - alternatives not considered, poor or no economic evaluation, bias in project selection or toward new works, misrepresentation of costs or benefits Poor planning - alternatives not considered, poor or no economic evaluation, bias in project selection or toward new works, misrepresentation of costs or benefits Poor quality of Detailed Project Reports, indicating ineffective review and quality control, lack of professional accountability Poor quality of Detailed Project Reports, indicating ineffective review and quality control, lack of professional accountability PWD cost estimation methodologies dysfunctional, schedule of rates not market based, not updated PWD cost estimation methodologies dysfunctional, schedule of rates not market based, not updated Verification of bidders credentials, JV arrangements, capacity assessment weak Verification of bidders credentials, JV arrangements, capacity assessment weak Lack of accountability of Design Consultants, Construction Supervision Consultants, Project Directors, Contractors Lack of accountability of Design Consultants, Construction Supervision Consultants, Project Directors, Contractors Contract management, sub-contracting, enforcement of contract clauses, dispute resolution weak Contract management, sub-contracting, enforcement of contract clauses, dispute resolution weak

15 Bias toward a particular design or for the most expensive design by project officials Bias toward a particular design or for the most expensive design by project officials Large errors in surveys and investigations create opportunities for large variations, extensions of time Large errors in surveys and investigations create opportunities for large variations, extensions of time Delays in removing encumbrances (R&R, Tree cutting) create perverse incentives Delays in removing encumbrances (R&R, Tree cutting) create perverse incentives Bid evaluation and opening creates opportunities for corrupt practices, particularly for smaller contracts in remote districts Bid evaluation and opening creates opportunities for corrupt practices, particularly for smaller contracts in remote districts Incentives to delay payments, approvals, extensions of time, sub-contracting arrangements Incentives to delay payments, approvals, extensions of time, sub-contracting arrangements Bias in site inspection or falsification of inspection certificates/ quality tests Bias in site inspection or falsification of inspection certificates/ quality tests India Transport Sector Project Level Vulnerabilities

16 Improve survey infrastructure and introduce modern survey technologies Improve survey infrastructure and introduce modern survey technologies Establish a comprehensive and up- to-date set of design and construction standards, system of third party quality assurance Establish a comprehensive and up- to-date set of design and construction standards, system of third party quality assurance Improve coordination mechanisms between agencies for removing encumbrances Improve coordination mechanisms between agencies for removing encumbrances Centralized registry of contractors and consultants with data on performance, bidding history, contractor performance rating Centralized registry of contractors and consultants with data on performance, bidding history, contractor performance rating Time-bound releases of partial (75%) payments to contractors Time-bound releases of partial (75%) payments to contractors India Transport Sector Interventions Design reviews by independent firms, local institutions Design reviews by independent firms, local institutions Bank no objections only upon 50% site handover Bank no objections only upon 50% site handover Consultations on site with stakeholders and design consultants Consultations on site with stakeholders and design consultants Code of conduct, e.g. “Integrity Pact”, strengthen disclosure, complaints handling, civil society implication Code of conduct, e.g. “Integrity Pact”, strengthen disclosure, complaints handling, civil society implication Develop standard list of newspapers for advertisements, bid documents available for electronic download Develop standard list of newspapers for advertisements, bid documents available for electronic download Strengthen contract management through audits, including social audits, by independent agencies Strengthen contract management through audits, including social audits, by independent agencies National/Sector Level Project Level

Guenter Heidenhof, Sector Manager, MNSPS Questions?