1. The OECD Instrument on the Governance of Public Investment across levels of Government Joaquim OLIVEIRA MARTINS Head, OECD Regional Development Policy Division Local Finance Management (LFM) 7-8 MAY 2015, Lombok, Indonesia

2. OECD countries spend on average approx. 3% of GDP on public investment 2 OECD countries spend over USD 1.3 trillion in public investment 15% of total investment There is a large variation across and within countries

3. 3 SNGs seek to diversify sources of financing but in practice they remain limited  Increased use of bonds  Externalisation through PPPs – but in Europe decline in the value and number of PPP since 2006  New actors financing investment like local government funding agencies (France, NZ, on the model of Nordic countries)

4. 4 Governance challenges of Public Investment are typically under-estimated  No straightforward link between interest rates and investment – many parameters come into play: fiscal rules, trust, currently “wait & see” mode, regulatory challenges that hinder investment  We saw this morning that Public investment is intrinsically a very fragmented activity done essentially by SNGs (mostly municipalities)  Thus, greater focus on governance is needed (not just financing)  Investment challenges go well beyond the financing dimension of investment  Not a problem of supply of capital, but a problem on the demand side  Under-estimation of governance challenges and capacity, notably at the sub-national level

5. Invest using an integrated strategy tailored to different places Adopt effective co-ordination instruments across levels of government Co-ordinate across SNGs to invest at the relevant scale ** Pillar 1 Co-ordinate across governments and policy areas Assess upfront long term impacts and risks Encourage stakeholder involvement throughout investment cycle Mobilise private actors and financing institutions Reinforce the expertise of public officials & institutions Focus on results and promote learning Pillar 2 Strengthen capacities and promote policy learning across levels of government Develop a fiscal framework adapted to the objectives pursued Require sound, transparent financial management Promote transparency and strategic use of procurement Strive for quality and consistency in regulatory systems across levels of government Pillar 3 Ensure sound framework conditions at all levels of government 5 A Recommendation on the Governance of Public Investment was adopted in 2014 by the OECD Council

6. Principle 3: Co-ordinate across sub-national governments to invest at the relevant scale Indicators Higher levels of government (or supra-national organisations) provide rules, incentives, and/or support for cross-jurisdictional co-ordination at the sub-national level – generally and for targeted areas (metropolitan areas, rural areas, clusters, cross-border regions, etc.) Rationale: The small scale of sub-national governments and the potential mismatch with functional areas raises concerns for investment (e.g. insufficient scale, lower returns, competing investments, investments not adapted to the functional area) Sub-national governments are often fragmented and don’t match functional areas

7. POSSIBLE INDICATORS Share of public tenders for public investment competitively awarded; participation rates for tenders Procurement information from the full procurement cycle is publicly available at the national and sub- national levels of government Procurement review and remedy mechanisms are in place at the national and sub-national levels Strategies have been implemented to boost the capacity of sub-national procurement systems, including but not limited to use of e-procurement tools and professionalization of the procurement function through training and competitive pay Principle 11. Promote transparency and strategic use of procurement RATIONALE: On average, 55% of public procurement spending occurs sub-nationally. Procurement is integral to public investment and can help achieve more than just procurement goals....but it also the government activity most vulnerable to waste, fraud and corruption. GOOD PRACTICES IN OECD COUNTRIES AND REGIONS National level (ex. Slovenia: simplification of administrative procedures and technical assistance to municipalities) Regional level (Galicia: web platform w/one-stop shop for procurement for all public entities, including municipalities; e-procurement system in the Flanders; collaborative procurement in the health sector (Skane) Within the EU, corruption is estimated to cost EUR 120 billion per year 41% of quantifiable errors for absorption of EU funds in 2006-09 are associated with procurement Within the EU, corruption is estimated to cost EUR 120 billion per year 41% of quantifiable errors for absorption of EU funds in 2006-09 are associated with procurement

8. 8 Principle 12. Strive for quality and consistency in regulatory systems across levels of government. POSSIBLE INDICATORS The presence of formal co-ordination mechanisms between levels of government that impose specific obligations in relation to regulatory practice The use of regulatory harmonisation mechanisms, such as mutual recognition, regulatory harmonisation agreements, and/or strict regulatory uniformity agreements Share of draft regulations for which RIA was undertaken A methodology for assessing quality of RIA exists and indications of quality are available RATIONALE: Regulatory quality and coherence are important for sub-national public investment. In many OECD countries, SNGs face inflationary regulation, overlapping/contradictory regulation across levels of gov’t Example: more than 55% of regulation applying to SNGs in France modified in <10 years GOOD PRACTICES IN OECD COUNTRIES AND REGIONS Australia, Council of Australian Governments: common framework for benchmarking, measuring, and reporting regulatory burden across levels of government, and to set quantifiable targets for reducing red tape; Canada) Canada: A Federal, Provincial and Territorial Working Group on Regulatory Reform has been created as a forum to help build a shared approach to regulatory reform. Its work includes developing common regulatory principles, developing a consistent approach to regulatory impact analysis and sharing best practices.

9. 9 The OECD is now developing tools to implement the Recommendation and support peer-learning Recent development s and good practices in countries Country profiles with data & indicators Practical guidance Checklist and self assessment tools In-depth case studies or chapters in reviews Peer learning: Disseminate examples of good practices Capacity building: help all levels of government diagnose capacity challenges for investment Monitoring: Provide comprehensive picture of multi- level governance of public investment in countries and follow reforms in this area A web platform with: What are the objectives? Challenges: labelling “good” practices

10. 10 Trends in sub-national investment in Italy (1995-2013) Note: In real terms, base 100 in 2000. Source: OECD National Accounts Source: own elaboration from OECD National Accounts Breakdown of sub-national investment per sector Sub-national share of investment (2013) Indicators of sub-national revenues Examples of data disseminated through the web Toolkit Source: OECD National Accounts Source: OECD 2015 Key data on sub-national governments based on SNA 2008

11. 11 Examples of good practices and recent developments disseminated through the web Toolkit

12. 12 Development of Governance indicators  A more comprehensive compilation of indicators is underway Selected examples from the Toolkit on MLG arrangements for public investment in OECD countries

13. 13 Evaluation tools to measure the implementation of the Recommendation on Public Investment Initial indicators developed as a follow-up of the Recommendation  Over 70 indicators  20 for Pillar I, 24 for Pillar II and 27 for Pillar III  Comprehensive multi-disciplinary approach (multi-level governance, public finances, regional policy, public management)  Mix between factual indicators and qualitative indicators based on judgement (2/3; 1/3)

14. 14 A case study for the Slovak Republic Indicators on MLG of public investment, Eastern Slovakia OECD (2015)  Identify that most challenges are related to Principles 1, 2, 3 and 6 (place-based approaches, coordination across sectors, levels of government, jurisdictions; engagement of private actors)

15. 15 World Bank Group (Rajaram et al, 2010)  IMF & WB have indexes of Public Investment Management Efficiency at the national level  Recognition that unless Public Investment Management System are in a good condition, much of investment spending can be wasted  Renewed interest in 2014/15 – New report from WB and forthcoming report from IMF  Approach rather oriented towards public finances/budgetary practices  WB has a diagnostic tool to assess public investment management systems with eight “must-have” features of sound management.  However, less focus on the local/Multi-level governance challenges The IMF and The World Bank are also undertaking extensive work on the efficiency of public management

16. 16  IMF PIMI Index (17 sub-components) [Dabla-Nourris et al, 2010] 1. Strategic Guidance and Project Appraisal 2. Project Selection and Budgeting 3. Project Implementation 4. Project Evaluation and Audit  Limited focus on the sub-national/MLG dimension in the 2010 version  BUT growing interest in the 2015 update (3 indicators used, mainly fiscal)  Improved central-local coordination mentioned as a top priority for both developed and developing economies The example of the IMF PIMI Index

17. 17 What value-added?  Crucial to better measure Multi-level coordination, which is recognised to have an impact on Public Investment outcomes  Such measures do not exist today – focus on central management  Critical in the current context of increasing global focus on investment/infrastructure Challenges and Open questions  Hard to assess their effectiveness of coordination  How to measure informal coordination?  Scope/definitions Medium-term deliverables  Methodological note with an updated battery of indicators (based on case study experience OECD’s countries feedback/inputs)  A set of 15-20 indicators to measure vertical coordination Next steps

18. Contact OCDE: dorothee.allain-dupre@oecd.org joaquim.oliveira@oecd.org www.oecd.org/effective-public-investment-toolkit Thank you!