Sustaining the impact of investment climate reforms Syed Akhtar Mahmood, CIC, WBG November 13, 2012

Pre-mature celebration?... Reforms happen…… and we celebrate

Why we could miss the boat in terms of impact

Good on paper ….. but not on the ground In 2007, Inspections reforms in the Kyrgyz Republic stipulated the following: written inspection reports should be provided to firm inspections should be recorded on log book But, a 2009 SME Survey found

Good for some …but not for others

Good for a while … but not forever

4 reasons why reforms may not have a broad-based and sustained impact  Reforms happen on paper but not implemented well zero or little implementation non-uniform implementation  Reforms are not sustained reforms stalled or reversed  Reforms in one area offset by reversals in other areas e.g., registration reforms sustained but deteriorating tax administration discourages formalization  Reforms implemented but don’t lead to desired impact because complementary factors are absent

Reforms disturb an equilibrium Reform High Desired post-reform equilibrium Level of performance of regulatory function Low Reform reversal Pre-reform equilibrium Time

Thus, a broader approach is needed “Our work is 50% technical and 50% political economy ……….. so far, we have focused more on the first 50%” - Pierre Guislain, in a recent meeting of WBG investment climate staff

Actions to enhance reform impact and sustainability

How sustainability interventions work Interventions that enhance the sustainability of impact operate in two ways: increase the capacity of government officials to implement reforms in a sustained manner, and/or shape their incentives to do so Interventions may be: purely within government, or in the broader eco-system within which government operates

Enhancing sustainability: a two-pronged approach Capacity & Incentive to implement and sustain reforms Actions within government Actions at government- stakeholder interface

Operationalizing the sustainability agenda A diagnostic checklist to assess sustainability options

Three dimensions of sustainability Relation of agency with other actors in Government Perceived importance of the reform Oversight of the agency Inter-agency coordination Agency-level resources to sustain reforms Revenues to maintain the reformed system PPP arrangements Technical and logistical resources Capacity of staff Organizational dynamics Incentives of staff Transparency, and external feed-back mechanisms on reform priorities and implementation Adaptive abilities of agency

Scoring projects on sustainability Dimension: ownership of reform Officials in the implementing agency understand the importance of the reform and are committed to it YYYY The reform follows from a high-level development strategy of the government YYYN High level authorities in government understand the importance of the reform and own it YYNN Private sector knows about reform and owns it YNNN SCORE4321 Y= Yes N=No

Scoring projects on sustainability Dimension: availability of resources Allocations are made from the government budget for this agency YYYY Budgetary allocations are adequate to maintain the new system YYYN Budgetary allocation is linked to performance YYNN This link is sufficient to create incentives to perform better YNNN SCORE 4321 Y= Yes N=No

Experimental pilots to enhance sustainability: hypothetical examples Pilot 1 Actions Provide technical resources to implement reforms Provide financial resources to maintain the reformed system Pilot 2 Actions Do Pilot 1 actions, plus Introduce link between budgetary allocations and performance Build reform awareness and ownership in government and private sector Pilot 3 Actions Do pilot 2 actions, plus Establish feed-back loop from private sector on reform outcomes

Next steps November – December 2012  Get preliminary feedback from IC staff on the diagnostic tool  Identify some projects where this tool may be piloted January - June 2013  Pilot the tool in IC projects in WBG, DFID and USAID (and any other agency interested)  Target: 6-8 projects  Objectives: a) check the applicability of such a tool, and b) test if additional questions are required and/or existing questions need to be modified July – December 2013  Revise the tool in the light of experience with first cohort of pilots  Apply revised version to a second cohort of pilots (target: 6 projects) January 2013 – March 2014  A parallel set of pilots to test sustainability enabling actions, rather than just diagnostics. Starting with Bangladesh and then expanding to 2-3 other countries. April – June 2014  Prepare the final reform sustainability tool kit