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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 and Dr. Peter Davis

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 countrys governmental institutions
The character of, and relationships between key political figures
How past events and structures impact on current policy making

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.

Market System and Political Economy

SUPPORTING
FUNCTIONS

Influence

CORE MARKET

(Value-Chain)

Gender
Formal

Market players, trading relationships, bargaining


power, governance

Conflict
Policies

Laws
Informal
Culture Governanc
RULES e
Structures, Institutions & Agents:
Political Economy

Its 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?

PE System is Key to Change


Results at scale. Jobs and incomes beyond immediate interventions
resulting from systemic change

Quantifiable results: jobs and


incomes

1. Direct impact of
activities. Results
captured through robust
DCED Standard-based M&E
framework

3. Dynamic impact of
the approach used.
Exploring evaluation
processes. Qual as well
as quant eg ODI

Systemic change

Attitude change

Interventions

2. Systemic impact
of reform action.
Results captured
through
intermediate
perception data at
activity level. Qual
and Quant

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

PE edit
Tools
for Analysis
Click to
Master
title style
Level

Macro-level country
analysis

Sectoral Analysis

Problem driven analysis

Tool

Drivers of Change (DFID)


Strategic
Governance
and
Analysis (SGACA, Netherlands)
Power Analysis (SIDA)

Corruption

Analytical framework for Understanding the


Political economy of Sectors and Policy
Arenas (DFID/ODI)
Addressing Governance in Sector Operations
(EC)
Political Economy of Policy Reform (World
Bank SDD/OPM)
Policymaking Process Framework (IDB)
Problem-driven Governance and Political
Economy Analysis (World Bank)

Designing PE into Activity /Programme Planning


1: Stakeholder mapping and
analysis

5: PE dashboard

2: Map PE

Integrating

People and structures

PE

4: Selection and use of appropriate


tools

3: Map PE contextual pressures

Stakeholder Mapping
Government,
politicians and
parties
CSOs

Functionaries
and
technocrats
Private sector
companies and
BMOs

Wider public
and others

Media/
Commentators

Green Lion Management 2012

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

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

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

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

PE Dashboard
Click to edit
Master title style
Issues
Political
leadership

Constraints

Technocrats

Constraints

Drivers

Drivers
Civil society

Constraints
Drivers

Proximate/
trigger causes

Constraints

External
pressure

Constraints

Reform synergy

Constraints

Drivers

Drivers

Actions

Formalisation
Kano
ClickLand
to edit
Master in
title
style
Issues
Political
leadership

Actions

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

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

Crisis
proximate
drivers

Tax Reform in Cross River State, Nigeria

EXERCISE:

reform
in Crosstitle
River style
Click to Tax
edit
Master
Issues
Political
leadersh
ip

Crisis

Constraint
s

Actions

Behaviours of LGA
councillors

Drivers

Head of BIR and


LGA Chairman both
strong advocates

Maintain strong engagement


ensure their continued support

Constraint
s

Need for increased

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

Undertake a detailed study of what


services
people
would
most
welcome,
and
therefore
the
provision of which would be popular

IGR
greater

leads
use

to
of

nuisance taxes
Reform
synergie
s

Engage with them to understand


their position better
Seek ways in which their capabilities
and ability to do their job might be
improved

Drivers

Example of flat tax


in Lagos

to

reform
in Cross River
Click toTaxedit
Master
title style
Issues
Civil
society

External
pressure

Actions

Constrain
ts

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.

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

Technocrat
s

Constrain
ts

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?