A Political Economy Approach to Country and Sector Analysis Analytical tool as part of revised PPCM Structures, legitimises existing knowledge Draws on DOC, SGACA, WB guidance Focus on informal institutions, processes Can be used at country, sector, thematic, problem levels Challenges assumptions, changes thinking

Theoretical underpinning State-society bargaining central to creating effective institutions, progressive change Identify shared interests and negotiate positive sum outcomes E.g. political settlement between elites; bargaining between rulers and taxpayers; deals between politicians and investors; collective action by service users Context shapes these processes, and is shaped by them

Three main areas of analysis Foundational factors: fundamentally shape nature of state and political system, change slowly Rules of the game: formal, informal rules and norms that shape incentives, behaviour of key actors. Can change m/t Here and now: - Games within the rules: how day to day politics works - Events

Foundational factors Government controls territory? History of state formation Sources of revenue Social and economic structures Geo-strategic position Geography, demography

Rules of the game Distribution of power (formal, informal) Political competition - nature, extent Institutionalisation of government, civil society, private sector: public, transparent, known rules or personalised, arbitrary process? Key trends (might change ROG)

Here and now i) Games within the rules - Strategies for winning, retaining power - Key relationships eg politicians/ investors - Bargaining over tax, public expenditure? - Collective action by NSAs? ii) Events (the stuff of political reporting) - Key public appointments, events (financial crisis, natural disaster, election, Olympics) - Windows of opportunity?

PEA at country level (1) Context (FF, ROG) Characteristics of state, political system (collapsed, personalised, institutionalised? Legitimacy? Social contract?) Fundamental challenges for governance, development (oil, social exclusion, ethnic cleavages, land, water, drugs, neighbours)

PEA at country level (2) Actors (ROG, GwR) Interests / incentives of political elites (revenue, political competition, distribution of power, time horizons) Interests / incentives and capacity of NSAs including business Potential areas of overlap with a development agenda Perceptions about donors?

PEA at country level (3) Drivers of change (especially key trends) What could shift elite incentives in more progressive directions? EG business faces regional / global competition, regulation; government fears youth unemployment; improved education, communication, urbanisation facilitates collective action; pressure from taxpayers; reputational pressure Potential for productive bargaining?

Bring together PEA and EC agenda Iterate between PEA and EC principles, policies, development objectives, lessons learned, other donor action to inform choice of focal sectors. PEA informs macro-economic, PFM and development policy assessments (and so influence aid modalities). PEA informs country risk assessment (including cumulative impact of aid dependency) PEA informs approaches to policy / political dialogue

Using PEA at sector level KIV nature of state / fundamental challenges. Map historical legacies (highlights PE constraints; whats working and why?). Map ROG: revenue flows, sources of rents (VCA); political significance; institutional landscape (distribution of power, institutionalisation, budget and policy processes). Map actors: main stakeholders, interests, networks, capacity to act. DOC: potential to shift incentives, negotiate common interests.

Bring together PEA and sector knowledge Iterate between PEA and sector expertise (systems, policies, critical constraints). Overlap between reform priorities and incentives / capacity of key stakeholders? PEA informs entry points, approaches, design, partner choice, risks, timescales. PEA improves facilitation, policy dialogue. But beware hubris!