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

The World Bank 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

The World Bank 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

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

The World Bank GPE can be applied to country, sector, or specific operations Macro: country level Analysis of overall country context. Also as a background note for meso and micro level work 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 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 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) 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)

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

The World Bank 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

The World Bank 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 Political leaders; political parties, (organized) interest groups; heads of SOEs; external stakeholders Examples Historical legacies, economic base and level of development, commodity prices; population dynamics; Institutions Variables Actors/ stakeholders 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.) A basic structure for GPE analysis: 3 sets of variables, interactions & effects on policies & outcomes

The World Bank 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.

The World Bank A variety of approaches & tools … General approaches/perspectives: Analyzing historical legacies and their impact on current configurations Analyzing historical legacies and their impact on current configurations Analysis of rents, rent distribution & dynamics 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 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 Value-chain approach for structuring sector focused analysis General tools: Analysis of structural factors and their impact 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 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) Stakeholder mapping & analysis (-- using different degrees of formalization) Specific tools: Surveys of public opinion or of well-informed people Surveys of public opinion or of well-informed people Quantitive analysis – e.g. using data from surveys, policy outputs, etc. Quantitive analysis – e.g. using data from surveys, policy outputs, etc.

The World Bank Evidencing political economy analysis Political economy analysis needs to be well evidenced to be credible … Political economy analysis needs to be well evidenced to be credible ….. without falling into the trap of duplicating technical analysis.. without falling into the trap of duplicating technical analysis Structuring/summarizing/focusing existing 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. 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 Interviews – with systematic approach Triangulation! Triangulation!

The World Bank 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

The World Bank 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

The World Bank 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)

The World Bank Resources PRMPS – GPEA/pdgpe/default.aspx PRMPS – GPEA/pdgpe/default.aspxhttp://connect.worldbank.org/units/prem/PD- GPEA/pdgpe/default.aspxhttp://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 Growth diagnostics Resource rich countries comprehensive engagement (EITI++) Resource rich countries comprehensive engagement (EITI++) Core Governance (esp. Public Sector Management) in Fragile Settings) Core Governance (esp. Public Sector Management) in Fragile Settings) SDV – -> political economy of reforms SDV – -> political economy of reformswww.worldbank.org/socialanalysis –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 – CommGAP – –Communications strategies for PE analysis follow-up WBI – Watch this space WBI – Watch this space DEC – Macroeconomics and Growth program DEC – Macroeconomics and Growth program

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