1. Deepening governance and political economy analysis Sector Operations: The EC Governance Analysis Framework Contribution to the GTZ Forum: ‘Political Economy of health and social protection’ (Bonn January 2011) by J. Bossuyt (ECDPM) 1

2. 1. Why do we need to improve overall context/sector analyis?
Too much focus on input, spending and technicalities and less on results;
Aid and the cost of corruption
Critical importance of political economy analysis in new aid modalities (fiduciary and development risks)
Governance is crucial for sector development and outcomes and thus for efficient service delivery.
Governance already at the heart of our cooperation strategies
Governance as a recurrent subject in our political and policy dialogue with partner countries
Challenge lies now with implementation …
Why this change?
First of all: the EC, like the rest of the donor community, has focused too much on input, spending and technicalities and less on results and the overall settings in which our development assistance is taking place .
External aid has gone from being technical support to becoming an accompanying process to the partner country' own development efforts. Consequently, we need to focus more on governance and political economy (PE) analysis to avoid being taken by surprise by reality and having to face unwanted, unintended consequences – and to ensure sustainable results.
The cost of corruption globally is estimated to $2,6 trillion/year (5 % of the world's total GDP); only the cost of bribery is estimated to $ 1 trillion per year(GDP for the African continent).
Governance is also crucial for sector development and outcomes and thus for efficient service delivery: while poor governance is not the only reason for weaknesses at sector level (education, roads, health etc) there is strong evidence that poor governance tends to be a serious obstacle and poses a risk to the opportunities for sustainable sector development. Simply increasing the spending at sector level does not work; the way public functions are carried out, public resources managed and spent and how regulatory powers are exercised strongly influence a sector.
Governance is placed at the heart of our cooperation strategies with third countries and figures as a recurrent subject in our political and policy dialogue with partner countries (i.e. Governance Facility established within the European Neighbourhood Policy and the Governance Initiative implemented within the ACP region as well as the Partnership on Democratic Governance and Human Rights within the framework of the Joint EU-Africa Strategy).
Some EC sector specialists claim that 70% of what they are doing is actually related to governance. Aim is to offer guidance on how to address governance in a more systematic and comprehensive way. 2

3. Disbursements in social infrastructure
2007 (million euros)
2007
Education 440
Health 380
Reproductive issues 90
Water supply, sanitation
Government, civil society
Other social infrastructure
Total
- Again: EC invests a considerable amount of aid in “traditional sectors” - Getting results in these policy areas is critical for making progress towards the Millennium Development Goals. Adequate governance conditions are key to increased and improved service delivery.
EuropeAid ODA spending, per OECD/DAC subsector of social infrastructure and services

4. Governance for better procurement procedures....
Another illustration…
Doctor’s surgery
in DR Congo

5. 2. The three dimensions of governance
Governance clusters
Governance principles
The EC adopted a broad definition of governance in its 2003 Communication on Governance and Development (6):
“Governance concerns the state’s ability to serve the citizens. It refers to the rules, processes and behavior by which interests are articulated, resources are managed, and power is exercised in society. The way public functions are carried out, public resources are managed and public regulatory powers are exercised is the major issue to be addressed in that context.”
From this Communication and other EC policy documents published later, it is possible to identify the three main dimensions of the EC governance concept. These dimensions are also considered in the Draft Handbook on promoting good governance in EC Development and Cooperation.
(1) In essence, governance is about rules, interests, resources and power. These core governance issues largely determine how power is used and on whose behalf institutions function in a particular country; how the relations between rulers and organized groups in society or citizens operate; and how sectors are governed.
(2) The second dimension refers to a set of known governance principles: participation; inclusion; transparency and accountability.
(3) The third dimension highlights that governance is a multi-dimensional concept, encompassing several themes or governance clusters:
support to democratization;
Promotion and protection of human rights;
Reinforcement of the rule of law and the administration of justice;
(iv) enhancement of the role of civil society;
(v) public administration reform, management of public finances and civil service reform; and
(vi) decentralization and local government reform.
OPENING THE
“BLACK BOX”
Core
governance
issues 5 5 5

6. AVOID DENIAL OF REALITIES

7. MAKING THE ICEBERG VISIBLE : POWER, INTERESTS, RESOURCES, INCENTIVES

8. 3. Sector Governance Analysis Framework
THREE STEPS APPROACH: 1. CONTEXT 2. ACTORS 3. GOVERNANCE AND ACCOUNTABILITY RELATIONS
Political system/government
Rule making and executive actors at different levels
Non-state actors
Citizens, voters, consumers, user groups economic agents, elites, media…
Checks and balances organisations
Supervise sector organisations or handle complaints (auditors, judiciary, ombudsmen,…)
Frontline service providers
Public and private providers delivering services
Core public agencies
Sector ministries, agencies with regulatory or supporting roles, …
Context
Donors, international organisations
Influence on sector governance and accountability relations
Governance
Accountability
1. Context :
How does the wider context affect governance in particular sector? Are there local features or global dimensions that affect governance in sectors
What is the degree of political attention a particular sector receives?
Are there ongoing public sector reforms – and do these affect a particular sector?
Is there a strong judiciary at national level? This will have an impact across sectors.
What are the features of public service performance and management?
What is the nature/legal framework vs. implementation of decentralisation ?
Are there international obstacles that affect sector governance negatively?
2. Actors
WHO ARE THE KEY PLAYERS/STAKEHOLDERS IN A PARTICULAR SECTOR
WHO IS EXCLUDED – WHO DOMINATES –
WHAT ARE THEIR INTERESTS, THE POWER THEY EXERCISE, THE INCENTIVES FOR MAINTAINING A STATUS QUO OR PROMOTING A CHANGE AGENDA
Look “behind the façade” (there might be a difference between what is formally presented and what is the reality).
3 GOVERNANCE AND ACCOUNTABILITY RELATIONS:
Mix of governance mechanisms:
Hierarchy – Patrimonialism- Market – Networks:
Need to understand the power and functioning of informal (less visible) governance mechanisms (underneath the formal bureaucratic systems) that often hamper the chances of reforms.
Accountability set up : Do accountability systems have any impact on the behaviour of duty holders?
Qui in case of underperformance ?
What governance set-up would be a good driver of sector effectiveness ?
How much public, how much private?
How much rules and control, how much room for managerial discretion?
How much driven by results (performance contracts, objective-based budgets)?
Which accountability mechanisms? 8 8 8 8 8

9. Governance mechanisms
Patrimonial
Hierarchies
Markets
Networks
Basis of relationships
Loyalty
Employment relationship
Contracts and property rights
Resource exchange
Degree of dependence
Dependence
Dependent
Independent
Interdependent
Type of Accountability
Informal between patron and client
Formal financial and administrative accountability
Horizontal through market mechanism
Complex and blurred accountability
Medium of exchange
Patronage
Authority
Prices
Trust
Means of conflict resolution & coordination
Submission or Exit
Rules & commands
Haggling, courts
Diplomacy
Culture
Custom
Subordination
Competition
Reciprocity
Limitations of governance
Bound only by other persons; arbitrariness
Bound by institutions, predictability
Bound by efficiency
Bound by degree of consensus achieved
Politician may command loyalty (exert power) – by delivering benefits to clients – excluding those who are not loyal
refers to the traditional role of a patricarch – the head of a clan
high degree of dependence: patron depends on the client for support and loyalty – client depends on the patron for resources
strong asymmetrical relations
based on informality – larger room for discretion –
if the resources the client gets as reward for loyalty were formally guaranteed, then it would seriously weakne the incentives of the client to stay loyal
example: replacing supporters from a power base for incompetency may destroy power base in a patrimonial governance set-up 9 9

10. Four steps to analyse sector governance: the methodology
Assessing the Context of Sector Governance
Step 2:
Mapping the Actors – Their Interests, Power and Incentives
Step 3:
Assessing Governance and Accountability Relations
Step 4:
Summing up: analysing governance reform readiness
Will and initiative to improve GG must come from within. W/O political will no sustainable progress.
For the EC: build capacity to understand the nature an dynamics of political and societal transformation processes and play the role of change agent As development, to be able to support home grown governance agenda and define long term strategy based on a mulitatcors approach, move towards capacity development rather than technical assistance and adopt mutli donor approaches- Finally to become an more efficient organisation ( procedures) increase the expertise of statf- become a learning organisation
Indicators; no internationally agreed common indicators on governance but work has developed at different levels . 10 10

11. 4. WRAP UP: what’s the added value of such analyses
4. WRAP UP: what’s the added value of such analyses? What can you not expect….?
Helps identify domestic drivers, understand incentives and target obstacles to change
Cannot push through externally driven political agendas
Assess feasibility of reforms and levels of ambition (good enough governance, next best institutions, etc.)
Cannot generate quick fixes or short cuts
Analyse risks in a more comprehensive way, including the risks of doing business as usual, or stopping aid
Cannot take away these risks
Calibrate response strategies over demand and supply side actors
And improve the timing and sequencing of such interventions 11

12. 5. EMERGING LESSONS FROM PRACTICE (1)
Attempts to socialise the Framework in specific sectors
Integration in sector manuals/policy docs
Pilot experiences in applying scheme (Philippines, sector “trade facilitation”; Kenya, water sector) 12

13. 5. EMERGING LESSONS FROM PRACTICE (2)
Major implementation challenges:
- effective “take up” of political economy analysis by EC Delegations (complexity, time, costs)
- methodological and process issues
- relation partner country
- difficult jump from analysis to action
- ending with capacity development as solution?
- link with other donors
- capacities and incentives 13

14. 6. SOME QUESTIONS TO THE FLOOR
HAVE YOU WORKED WITH POLITICAL ECONOMY ANALYSIS TOOLS? IF SO, DID THEY MAKE A DIFFERENCE?
WHAT ARE THE MAIN CHALLENGES/LIMITATIONS ENCOUNTERED IN APPLYING THIS APPROACH, PARTICULARLY WITH PARTNER GOVERNMENTS?
OPERATIONAL TOOLS? WHAT SUPPORT DO YOU NEED, IN WHICH FIELDS ?
WHAT INCENTIVES WITHIN THE ORGANISATION NEED TO BE ADAPTED TO EFFECTIVELY ENGAGE IN SUPPORT OF SECTOR GOVERNANCE? 14 14 14

15. THANK YOU FOR
YOUR ATTENTION !!! 15 15 15