1 Political economy analysis & financial sector reform in sub-Saharan AfricaStephen Spratt, IDS ESRC Reference: ES/N013344/1: Delivering Inclusive Financial Development & Growth Research Project Workshop SOAS University of London 3rd – 4th March, 2017
2 Structure What is political economy analysis (PEA) and why is it necessary? Some common challenges and circumstances for LICs and countries in sub-Saharan Africa From political economy to PEA Modern PEA and international development Proposed framework What this entails in practice Discussion
3 What is political economy analysis (PEA) and why is it needed?Finance crucial for growth and development but can also foster instability and crises FSD needs to find a balance between growth and stability that aligns with country context and priorities The potential of finance is far from being fulfilled in many/most developing countries – why? Many reform attempts have been inappropriately designed and/or partially or poorly implemented The purpose of PEA is to address this, and so increase the chances that reforms (of whatever type) will be appropriately designed and implemented Inherently context-specific activity that takes place at the level of reform (national/local) But countries also face some similar challenges, suggesting benefits from collaboration among researchers working on different financial issues
4 Some common FSD challenges and circumstances for LICsNeed for rapid, inclusive growth Financial sectors too small and exclusive Available finance expensive and short-term Finance not allocated enough to key sectors Hard to manage external sector Circumstances Unified regulator (central bank) Range of microprudential tools (still) available Macroprudential tools key (but in infancy) Tendency to risk aversion
5 Common challenges and circumstances for reform in SS AfricaPolitical and/or security risk high in some countries but not others – shared perception of high risk though Rapid population growth Abundant natural resources (including renewable energy resources) in many countries Uneven institutional capacity Colonial legacy has influenced institutional structures. Important to take this into account when considering how to successfully design and implement policies
6 From political economy to PEAPE originally ascribed to work of classical economists Today economics, political scientists and sociologist agree concerns the interaction of politics & economics When applied to reform. PE: how ‘political factors’ influence reform choice, design and implementation; how successful these reforms are; and for whom Two main schools: rational choice vs power/politics Rational choice/cost-benefit: how reforms affect individual incentives and implications for optimal design Power/politics: institutions affect how policies are designed and impact upon different groups, but institutions often structured in interests of elites Power analyses focus on the ‘hidden’ or informal aspects of these processes Most modern PEA combine these approaches
7 Modern PEA and international developmentEmerged in response to ‘good governance’ agenda, which had been used to explain why ‘best practice’ policy not worked as hoped. Key research findings Governance needs to be ‘good enough’ not perfect (Grindle, 2010) ‘Best practice’ is inevitably context-specific (Levy, 2011) Reforms should ‘go with the grain’ of local norms (Booth, 2011) Thinking ‘politically’ necessary (Hudson and Leftwich, 2014) What this means for PEA Reform design should be shaped by national/sector context Essential to understand key stakeholders interests & relations Also need to understand informal and formal aspects of this Coalitions crucial to outcomes (+ & -) Key question: how to mobilise reform coalition?
8 Approaches to PEA PEAs take place at one of three levels: NationalSector Policy * Or at all three: multi-level A national-level PEA can support national reforms, or provide context for sector- and policy-level reforms Provides broad understanding of how geopolitics, history, geography have shaped institutional structures & the pattern of stakeholders in the country. Focus on relationships between foundational issues (geography, ethnic and social structures, resource endowments, history), institutions (political systems, law, economics, accountability/participation), and the behaviour of agents/stakeholders.
9 Some influential national-level PEA frameworksMoore (2001) Basic Country Analysis (provides background) OPM, 2003, Drivers of pro-poor change in Nigeria: report to DFID Nigeria. DFID’s Drivers of Change framework (DFID 2004) SIDA Power Analysis (SIDA 2013) Moncrieffe, J. & Luttrell, C., (2005) An analytical framework for understanding the political economy of sectors and policy arenas The Netherlands – Strategic Governance and Corruption Assessment (SGACA) (CRU 2008)
10 Sector-level PEA Similar to country-level in considering: a) institutional context; b) stakeholders’ motivations & relationships with each other; and c) how reforms actually happen and what is needed to facilitate this. Main difference between national and sector PEA is that many key stakeholders are sector-specific Some PEA sector examples. Mcloughlin and Harris (2013) WASH in Colombia Booth (2009) road reform in Uganda. Mcloughlin (2013) extractives sector reform Booth (2014) agricultural sector in Africa Bueran et al. (2011) infrastructure reform in Zambia. Political economy of reforms for economic growth: Ghana (Keefer, 2007) and Nigeria (Utomi., 2007) (Surprisingly) No PEA of financial sector reform Problem-level PEA more specific again, but still takes context (country/sector) into account (if less so)
11 Problem-level PEA: Example of (quite complex) 3-stage framework - problem (1) identification, (2) diagnosis (role of structure and agency) and (3) prescription (Harris, 2013)
12 Choosing the right PEA approachAgencies from the World Bank to local NGOs have been convinced that what they need is applied political economy analysis. One upshot…has been a proliferation of acronyms and labels…This has created the appearance of a complex and highly diverse field of activity…However, this is largely a false impression. Organisations naturally seek brand recognition for their particular approaches. In reality, however, the differences among the frameworks are limited to small variations around a common analytical core that guides users to investigate how power is exercised, how decisions are made, and how incentives and disincentives are brought to bear on specific organisations and individuals (Harris and Booth, 2013: 1). All PEA tries to understand why people act (and don’t) as they do, and how this is affected by institutional factors (structure and agency). Precise details of how this is done may be less important than ensuring it is done consistently and well
13 Proposed framework What does matter is choosing the right level for PEA We are interested in finance, ruling out national-level Importance of history in shaping institutions suggests national-level influences need to be addressed though Sector level approach makes sense because of overlapping challenges (FSD) and context (SSA) Our interventions are at the policy-level, however Recommendation: use multi-level framework, adapted for the financial sector in SSA with weight given to each level depending on particular context Most complete/flexible = Moncrieffe & Luttrell (2005), but weak on policy implementation Recommendation: adapt M&L approach for country and sector-levels, and augment with World Bank’s (2008) ‘reform process’ for policy implementation
14 Moncrieffe & Luttrell (2008) Multi-Level FrameworkThree levels: country; sector; policy
15 Stage 1: country analysis1. Moore’s (2001) country analysis foundation for M&L macro stage
16 2. Proposed national context categories and information to be gathered
17 Sector-level analysis (3 steps)Define the sector of interest and identify main actors Specify the formal and informal roles of actors, and influences upon these – including macro-level features identified Map the relationships between the actors and how policy is influenced.
18 Step 2: Defining the sector and identifying key stakeholdersGeneric Finance Questions: what are the right categories? Who are the key stakeholders in each?
19 Step 2: Stakeholder’s roles/interests: cost/benefit and institutional influences
20 Step 3(a): Map relationships between stakeholders
21 Step 3(b): Map the policymaking process
22 Rationale and summary of PEA methodologyRationales: a) increase the likelihood of reforms arising from research being implemented and working; b) contribute to literature on PEA; c) start an important new strand of literature on finance and PEA Summary: Determine data sources and methods (see below) Undertake country context analysis (see categories and questions), or obtain recent existing analysis (i.e. for national or non-finance sector PEA) Define sector and stakeholders (headings and specific actors) Specify stakeholders’ role, interests and influences Map relationships between stakeholders Map policymaking process Final stage. In light of the above = design policy (which ‘go with the grain’) and implement through ‘action framework’:
23 Reform process. World Bank (2008)
24 Data and methodological issuesSome options straightforward and necessary (reviews/interviews) Some more complicated and complementary (surveys/focus groups) Some additional and resource intensive (policy network analysis) Criteria: research design; data availability; resource availability
25 Going Forward: Outstanding questionsHow much country context is needed? To what extent can we piggy-back on existing research (country/sector context)? How much overlap do we have by country? What data sources and methods (e.g. desk-based research; key informant interviews; surveys)? What stakeholder categories are most relevant for finance? How can we get beneath the surface to understand informal as well as formal power relations (without alienating everyone…)? How can this best be embedded into research strands (streamlined templates)?
26 END Questions & Comments are welcome!