CONDUCTING POLITICAL ECONOMY ANALYSIS Mrs. Asiyati Lorraine Chiweza (PhD, MPA, BsocSc) Senior Lecturer Chancellor College, University of Malawi Department of Political and Administrative Studies P.O Box 280, ZOMBA E-mail: achiweza2001@yahoo.co.uk 27 February, 2013, Wamkulu Palace, LILONGWE

Outline of the Presentation Levels of Political Economy Analysis (PEA) Different Frameworks for Country level PEA Conducting Problem/project level PEA Group work

Levels of Political Economy Analysis Global level Country level Sector level Problem driven/ Project level

PEA can be done at various levels Country level Approaches that aim to analyse and influence the structures, institutions, processes and actors at the country-level e.g. Drivers of Change. to enhance general sensitivity to country context and understanding of the broad political-economy environment. This can be useful to inform country planning processes but also an overview to specific projects Sector level- What are the political, economic and social forces that drive or block policy change in specific sectors? e.g. water, agriculture, education, health The aim is to better understand and more effectively influence the political, economic and social structures, institutions, processes and actors determining the dynamics of sector reforms. to identify specific barriers and opportunities within particular sectors Project level geared to understanding a particular problem at the project level, or in relation to specific policy issue so that appropriate strategies can be taken.

Frameworks for PEA There are many frameworks for PEA These include DFID’s Drivers of Change (DoC) and Politics of Development (PoD) framework; SIDA’s Power Analysis (PA); the Dutch government’s Strategic Governance and Corruption Analysis (SGACA); and the World Bank’s Problem Driven Governance and Political Economy Analysis (PDGPEA) All these frameworks except PDGPEA focus predominantly at macro-level PEA These frameworks focus essentially on a similar set of issues although they have different areas of emphasis Structural factors Conditions that influence the state and political system, including geographic, historical, economic, social and characteristics of the community in question Not readily influenced, either because of the time scale needed, or because they are determined outside the country Provide the foundational elements of the context in which analysis must be grounded and often include systematic constraints on what is possible in a given context

Institutions Actors/stakeholders Incentives Rules of the game which include both formal and informal rules that govern behaviour Tend to be more susceptible to change in the medium term than structural factors Actors/stakeholders Individuals or organizations that are most relevant to the issue in question Include individuals or organizations that support reform as well as those who oppose it; individuals or organizations that engage with the issue as well as those who ignore it; and individuals or organizations who benefit from potential reforms and those whom it cost Vary in the ability to exercise agency, in large part due to the power (economic, social and political) they hold Incentives Rewards and punishments that are perceived by individuals to be related to their actions and those of others Incentive structures may be affected by the way specific events unfold within processes of change

Frameworks for PEA Cont’d Here and now events Examines the conduct of day-to-day politics, and the way this is shaped by the rules of the game as well as more contingent events. These areas of common interest help to assess opportunities for change by distinguishing between foundational factors that are very slow to change, rules of the game which may be sticky but more susceptible to change over the medium term, and short term factors that may offer opportunities for change

How to do PEA? Cont’d Variable/Concept Description Structural variables Features that affect the political economy of the country, tend to change slowly overtime and are beyond the direct control of stakeholders Institutional variables Related to the rules of the game including formal and informal institutions Actors/stakeholders Identifying and mapping stakeholders (both individuals and organized groups) and their relative influences, power relations, and plans Winners and losers and veto players Mapping stakeholders and their influence and positions in proposed reforms Identifying who stands to win or lose from reforms; how they can impede, block or promote reforms; and what means they might use

How to do PEA? Cont’d Variable/Concept Description Historical legacies Because historical legacies can shape current dynamics profoundly, summarize key trends, processes and policies, especially in relation to the project/problem being assessed History is also linked to path dependency, that is, how previous policy choices and investments in organizational capabilities have lasting effects on subsequent situations and the range of policy options available Rents How economic rents emerge and how they shape the incentives for stakeholders/actors; and how the sources and allocation of rents evolve and shift over time Patronage networks, clientelism and neopatrimonialism Terms used to describe situations in which formal and informal institutions strongly diverge, and informal rules are subversive of formal rules These concepts matter in multiple ways including mapping the existence of patterns of personal loyalty and rent distribution

How to do PEA? Given the nature of Tilitonse, the WB PEA framework appears to offer a great deal of utility in linking PEA to concrete practical action. It offers quite elaborate steps for conducting PEA summarized in the table below, and it is applicable at both sector and problem levels of analysis

WB PEA Framework Steps Diagnosis Status/Action What are the challenges? Problem definition: that is evidence of poor outcomes to which PE issues appear to contribute e. g. Repeated failure to implement sector reforms Institutional/governance arrangements and capacities What are the key institutional arrangements? Are they capable, effective and efficient? Mapping of: Relevant institutions Laws and regulations Policy processes (formal and informal rules of the game) Analysis of corruption Political economy drivers Why are things this way? Why are policies or institutional arrangements not being improved? Analysis of: Stakeholders, incentives Rents and rent distribution Historical legacies and earlier reform experiences What can be done? What actions can be proposed? Is the project going to work within the existing reform space and/or seek to expand it Recommendations on: Timing, tailoring and sequencing of project and sector work Communication and dissemination strategies

Institutional Arrangements How to do PEA? Regardless of the level at which PEA is conducted, the following questions, grouped thematically, are critical: Institutional Arrangements What are the laws, policies driving the problem identified. What are the informal institutions and how do they interact to produce the given problem. What are the gaps and challenges related to the laws, policy, and institutional frameworks? What change is required to address the challenges identified?

Reform Drivers Stakeholder Analysis: Identification of stakeholders and their roles and Responsibilities Who are the key stakeholders? What are the formal/informal roles and mandates of different players? What is the balance between central/local authorities in the provision of services Power Relations To what extent is power vested in the hands of specific individuals, groups or organizations? How do different interest groups outside government seek to influence policy? Historical Legacies What is the history of the sector, including previous reform initiatives? How does this influence current stakeholders?

Implementation Issues Are decisions implemented once made or are decisions made at all? What is the institutional framework for implementation? What are the key implementation bottlenecks in the system? Is failure to implement due to lack of capacity or other political economy reasons? What is the potential for reform regarding the selected issue Who are likely to be the winners and losers from particular reforms? Are there any key reform champions within the sector? Who is likely to resist reforms and why? Are there ‘second best’ reforms which might overcome this opposition?

Strategies for PEA Analysis Accurate identification of what the potential obstacles might be Assessment of commitment to reform by different stakeholders particularly government since it is the prime mover of policy and institutional change Identification of potential institutional champions within the public, CSO, and private sectors that can drive and manage the reform process Understanding of institutional drivers, incentive structures, legal tradition, history of policy making, cultural factors and other local conditions that are to have a bearing on the reform effort Identifying winners and losers under reforms which is important for purposes of gauging how successful the reform process might be

Strategies for PEA Cont’d Building Coalitions Reforms can only succeed if major actors are able to work together in order to overcome collective action problems Positive inducements include bringing together key players such as the government, the donor community, the private sector and civil society so that they can appreciate the benefits of working together Working closely with key players to understand their reluctance to change and to persuade them of the wider benefits of economic development Shared interests have to be identified and written into a common agenda such as the improvement of the economy, better taxation, education or security issues Every society has its own dynamics and the challenge is to support those that stimulate positive change

Strategies for PEA Cont’d Stakeholder Management and Dialogue Imperative because reforms (institutional and policy change) are primarily a very political matter Critical since the management of different stakeholder groups is a vital tool to increase momentum for reform Aim is not to build broad consensus for including both winners and losers but to build pro-reform coalitions that can move the process forward. Timing and Phasing of Reforms Sequencing of reforms can be critical to the chances of success Getting the timing and phasing of reforms correctly can help building support for the reform process and to win over potential opponents PEA should be tailored to the budget as well as time constraints

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