1. The Sector Approach - Overview and lessons from experience 1 The Sector Approach Overview and lessons from experience Presented by Andrew Lawson Team Leader PCM-SWAP-BA Helpdesk European Commission - AidCo 03

2. The Sector Approach - Overview and lessons from experience 2 The Sector Approach: Overview and lessons from experience  What is a Sector Programme: definitions, key principles and components  What are the main lessons of experience?  What is EC policy on Sector Programmes?  What is the new role for projects?

3. The Sector Approach - Overview and lessons from experience 3 Many projects, little lasting capacity Aid agencies have a history of trying to ‘cocoon’ their projects using free-standing technical assistance, independent project implementation units, and foreign experts - rather than trying to improve the institutional environment for service provision……..They have neither improved services in the short run nor led to institutional changes in the long run. (World Bank, Assessing Aid: what works, what doesn’t and why. OUP, 1998) Aid agencies have a history of trying to ‘cocoon’ their projects using free-standing technical assistance, independent project implementation units, and foreign experts - rather than trying to improve the institutional environment for service provision……..They have neither improved services in the short run nor led to institutional changes in the long run. (World Bank, Assessing Aid: what works, what doesn’t and why. OUP, 1998)

4. The Sector Approach - Overview and lessons from experience 4 Issues with Projects  Undermine effectiveness of govt systems –Parallel structures, off-budget expenditures and special staffing arrangements  Corrode normal structures of accountability –Reporting to donors rather than government institutions  Inefficient allocation decisions –Tied aid and “pet projects”  Proliferation of disbursement conditions & implementation requirements –High transaction costs and lack of predictability in funding

5. The Sector Approach - Overview and lessons from experience 5 Sector Approaches & Programmes: definitions Sector (Wide) Approach  A way of working between Government and Donor partners.  Involves progressive development of a sector policy, of a unified public expenditure framework & a common management, planning & reporting system. Sector Programme  The product of the Sector Approach  Largely synonymous with SDPs, SIPs, etc By following a Sector Approach, Governments with Donors & other stakeholders may develop an updated sector action plan. This is defined as a Sector Programme where it includes: 1) An approved sectoral policy document and overall strategic framework; 2) a sectoral mtef; and 3) a government-led Donor co- ordination process.

6. The Sector Approach - Overview and lessons from experience 6 What are the objectives of a Sector Approach? Broaden ownership by partner Governments over decision-making on sector policy, strategy and spending. Increase coherence between policy, spending and actual results, through a comprehensive view of the sector. Minimise transaction costs of external financing either by using government systems or by harmonisation of donor systems.

7. The Sector Approach - Overview and lessons from experience 7 Sector Programmes Government-led process of Donor Coordination Clear &agreed sector policy and strategy Systematic client consultation mechanism Sectoral mtef (all local and external resources) Common performance monitoring/ reporting Agreed process for harmonization of systems The typical components of a Sector Programme

8. The Sector Approach - Overview and lessons from experience 8 Bringing the sector budget back to the centre of policy-making a)

9. The Sector Approach - Overview and lessons from experience 9 Bringing the sector budget back to the centre of policy-making b)

10. The Sector Approach - Overview and lessons from experience 10 Pre-conditions for Sector Programmes Consensus between Govt & Donors over key sector issues Strong & effective leadership at sector level Reasonable degree of macroeconomic and political stability Sector Programmes Commitment in MoF and at political level

11. The Sector Approach - Overview and lessons from experience 11 4 Big lessons of experience  Respect need for Govt leadership and ownership –otherwise quickly becomes donor led.  Avoid establishing parallel systems and processes –No special secretariats or “SWAP Coordination Units”  Ensure close involvement of Ministry of Finance –Remember it is MoF that sets the budget envelope.  Ensure high-level political support –Sector policies must be consistent with political concerns –Sector officials must brief Minister, Cabinet and Parliament.

12. The Sector Approach - Overview and lessons from experience 12 4 important tactical issues  Plan for some quick wins –tangible gains for service users, eg better road maintenance. –improvements for sector staff & managers.  Control demands on management, planning and policy skills while building capacity –limit numbers of meetings; keep systems simple  Move cautiously on developing pooled funding arrangements. –Takes time and money and may not be necessary –Put emphasis on common review processes and timetables.  Give attention to procurement issues.

13. The Sector Approach - Overview and lessons from experience 13 EC Policy on Sector Programmes  Whenever possible,focus on individual projects should be replaced by a sector programme or policy based approach  Guidelines for European Commission Support to Sector Programmes –Being considered by AidCo management –Will be supported by a programme of training.  Joint statement on Development Policy, Nov 2000  DG Dev/ Relex Programming Guidelines

14. The Sector Approach - Overview and lessons from experience 14 Guidelines on EC Support to Sector Programmes  How best to support a Sector Approach  How to assess a sector programme to judge whether and how to provide EC financial support –Seven key assessment areas  How to manage the cycle of operations  How to choose the appropriate financing modality to use in each context –Sectoral Budgetary Aid –A Commission contribution to a Pooled Fund –Specific procedures (EC Budget or EDF)

15. The Sector Approach - Overview and lessons from experience 15 The case for different public sector projects TypeCharacteristicsJustification Investment projects with high transactions costs for Govt Donors may be better placed to manage these transaction costs than Govt. If maintenance costs will be covered, good investment for Donors. Environmental projects or international public goods Govt discount rates too high and resource constraints too sharp to justify. Legitimate donor project investment, if Govt provides policy framework. TA projects or “piloting” projects to build capacity Govt not well placed to source TA; cannot afford potential failure of pilots. Legitimate Donor input, if there is demand from Govt.

16. The Sector Approach - Overview and lessons from experience 16 The case for fewer public sector projects Conditions mixed but Government moving in right direction Projects will undermine strengthening of Govt systems + accountability May be greater need for non-govt projects, “piloting projects” and TA. ContextCase against projectsActions? Conditions for Budgetary Aid/ Sector Programmes are good Projects could also work but would create distortions + transaction costs Reduce projects + focus on TA & non- govt projects Environment unsuitable for Budgetary Aid or Sector Programmes Projects equally unlikely to be effective and will distort environment Focus on non-govt projects; possible case for ‘hanging in’ to engage govt

17. The Sector Approach - Overview and lessons from experience 17 The future of projects: tentative conclusions  Always, there is room for imaginative projects with private sector, CBOs and NGOs  Conditions for BA/ SWAps reasonable to good –Public spending should use Govt systems not donor projects –A case remains for certain project types  Conditions for BA/ SWAP are not good –best to minimise projects but possible case for ‘hanging in’, to maintain an engagement with Government and protect key services