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Governance StrategicDirections and ActionPlan G A P 2 0 0 8 - 2 0 1 2

African Development Bank Group

Governance, Economic& Financial ManagementDepartment

17 April 2008

Governance StrategicDirections and ActionPlan G A P 2 0 0 8 - 2 0 1 2

African Development Bank Group

Governance, Economic& Financial ManagementDepartment

This paper outlines the strategic orientations for the African

Development Bank’s contribution to good governance and

anti-corruption in Africa for 2008-2012. It was prepared by

the Governance, Economic and Financial Management

Department (OSGE) following internal reviews and external

consultations.

Governance Strategic Directions and Action Plan Gap 2008-2012

FOR MORE INFORMATION

Gabriel Negatu

E-mail: [email protected]

Telephone: +216 71 102 077

Web Site: www.afdb.org

Executive summary 13

I Introduction 15

II Governance Opportunities and Challenges 19

III Bank Experience a nd Lessons Learned 23

Governance lending activities 24Governance non-lending activities 25Lessons from the consultations 26

IV Strategies of Development Partners 29

V Focus areas and levels of intervention 31

Guiding principles 31Core objective 32Levels of intervention 32Level I Country level 32Level II Sector level 36Level III Regional level 37

VI Operational implications 41

Sequencing priorities 41Operational and institutional arrangements 41Bank instruments 42Delivering results 44Measuring performance 44Resource implications 46Monitoring and evaluation 47

ANNEXES

Annex I Rolling Action Plan and Results Framework 49Annex II Summary of Development Partners Strategies 54Annex II Indicative Menu of Options for Governance Operations 55

LIST OF FIGURES

Figure 1 Key Governance Challenges in Africa 19Figure 2 Governance Trends (1998-2006) 19Figure 3 Quality of Financial Governance in Africa (PEFA 2007) 20

LIST OF TABLES

Table 1 Bank Lending Operations in Support of Governance (2002-2006) 23Table 2 Guiding Principles 31Table 3 Indicators of Development Effectiveness 44Table 4 Typology of Governance Indicators 45

Table of Contents3


LIST OF BOXES

Box 1 Bank Support to Supreme Audit Institutions 24Box 2 G8 Action Plan for Good Financial Governance in Africa 26Box 3 Extractive Industries Transparency Initiative (EITI) 35Box 4 Africa Peer Review Mechanism (APRM) 38Box 5 Anti-Money Laundering and Asset Recovery 39

4

Listof abbreviations5


ACRACBFADBADFAFROSAIAFGOAGRALSFAPRMAsDBAUBOPCEMACCFAACGPCOMESACPARCPIACSOsCSPsDACDBDBSLDFIDEADIECAECOWASEITIECESAAMLGEUFAPAFSGFGABACGIABAHIPCHLPIBRDICFIMFISPLICMDBsMFW4AMICNEPADMTEFNGOsNTFNTFGOECDOHADAOSGEPBL

African Competitiveness ReportAfrican Capacity Building FundAfrican Development BankAfrican Development FundAfrican Organization of Supreme Audit InstitutionsAfrican Financial Governance OutlookAfrican Governance ReportAfrica Legal Support FacilityAfrican Peer Review MechanismAsian Development BankAfrican UnionBalance of PaymentsCommunauté économique et monétaire de l’Afrique centraleCountry Financial Accountability AssessmentCountry Governance ProfileCommon Market of East and Southern AfricaCountry Procurement Assessment and ReviewCountry Policy and Institutional AssessmentsCivil Society OrganizationsCountry Strategy PapersDevelopment Assistance CommitteeDoing BusinessDirect Budget Support LoanDepartment for International DevelopmentAfrican Development InstituteEconomic Commission for AfricaEconomic Community of West African StatesExtractive Industries Transparency InitiativeEuropean CommissionEast and South African Anti Money Laundering GroupEuropean UnionFund for African Private Sector AssistanceFragile StatesGovernance FactorGroupe d’Action contre le Blanchiment d’Argent en Afrique CentraleGroupe Intergouvernmental d’Action contre le Blanchiment de l’Argent en AfriqueHighly Indebted Poor CountryHigh Level PanelInternational Bank for Reconstruction and DevelopmentInvesting in Climate Change for AfricaInternational Monetary FundInstitution Support ProjectLow Income CountryMultilateral Development BanksMaking Finance Work for Africa PartnershipMiddle Income CountryNew Partnership for African DevelopmentMedium Term Expenditure FrameworkNon-Governmental OrganizationsNigeria Trust FundNordic Trust Fund for GovernanceOrganization of Economic Co-operation and DevelopmentOrganisation pour l’harmonisation en Afrique du droit des affairesGovernance, Economic and Financial Management DepartmentPolicy Based Lending

6

PEFAPERsPETSPRSPPSDPSIARBCSPRMCsSADCSAPSPATAUAUEMOAUNDPUNECAUNODCUNDP-RBAUSAIDWAEMUWBWBIWEFWGI

Public Expenditure Finance Accountability FrameworkPublic Expenditure ReviewsPublic Expenditure Tracking SurveyPoverty Reduction Strategy PaperPrivate Sector DevelopmentPoverty and Social Impact AnalysisResults Based Country Strategy PaperRegional Member CountriesSouthern Africa Development CommunityStructural Adjustment ProgramStrategic Partnership for AfricaTechnical AssistanceUnits of AccountsUnion économique et monétaire ouest-africaineUnited Nations Development ProgramUnited Nations Economic Commission for AfricaUnited Nations Office on Drugs and CrimeUnited Nations Development Programme – Regional Bureau for AfricaUnited States Agency for International DevelopmentWest African Economic and Monetary UnionWorld BankWorld Bank InstituteWorld Economic ForumWorld Governance Indicators

“Early this decade, African leaders came forward with a home grownblueprint for the continent. A realization that, come 2030, Africa will beas populous as China and India today. We want such an Africato be prosperous, stable, integrated and taking its proper placein the global community of nations. It is clear that to get to that point,there are preconditions – good governance, removing causes of instability,building capable states, and integrating Africa’s fragmented markets.These are issues which only Africans can put in place, and indeed haveagreed to “own” and to “fix”.Donald Kaberuka, ADB President, 2008.

Foreword9


The Governance Strategic Directions andAction Plan (GAP) for 2008-2012 is the

African Development Bank’s guide for oursupport to regional member countries’ ef-forts to improve governance and fight cor-ruption. Today the linkages between goodgovernance and growth are better under-stood; as the GAP makes clear, “good gov-ernance is crucial for inclusive and sustainedeconomic growth.” Research findings indi-cate that countries that improve their gover-nance receive a 300 percent dividend– three times more income per capita in thelong term. That is a huge return on invest-ment and one we work to help countriescapitalize on.

Few things that the ADB does have thepower to harness and promote growth inAfrica like the work on governance. To thiseffect, between 2000 and 2006, the BankGroup invested 2.5 billion US dollars tostrengthen African governance structuresand institutional capacity. Further, the Boardof Governors of the African DevelopmentFund recently identified governance as one

of the key strategic priorities of the Bank, asthey renewed their confidence in the institu-tion by approving a large increase in re-sources over the ADF 10 Period. Likewise,the Independent High Level Panel in 2008also highlighted the strategic importance ofgovernance in the Bank’s work.

The effort to strengthen governance is com-plex as the challenges are broad: enhancedleadership, effective institutions andstrengthened capacity. As such, governanceand the fight against corruption is a sharedpriority – a challenge that can only beachieved by all stakeholders working to-gether. This is particularly important in fragilestates that show decisive commitment tomove forward on required reforms. TheBank, using the GAP as a guideline, will playa catalytic role in crystallising African’s voiceon governance. In particular, the Bank will fo-cus on developing an African-owned and ledagenda for good financial governance. AsAfrica makes progress in improving its gov-ernance standards and practices, develop-ment partners also have a shared responsi-bility to deliver on their commitments. This isessential for mutual accountability.

Improvement in governance systems is keyto helping African countries meet their po-tential. With 53 countries facing varied chal-lenges in Africa, progress will not be easy –changes of such nature never are. But I haveconfidence – based on experience - thatAfrica can and will rise to these challengesand meet its potential.

President of the African Development

Bank Group

Donald Kaberuka

©AfDB2008

“From the Bank’s point of view, the defining governance challenges facingAfrica today are: visionary leadership, effective institutions, and local capa-city. Leadership is central because governance, above all, is about a credi-ble and inclusive vision of the long-term horizon; pursued with patience,perseverance and pragmatism. Effective institutions are equally crucialbecause they underpin the contract between state and society and providethe checks and balances required to modulate excesses on all sides. Localcapacity is vital because enlightened policies and effective institutionsrequire faithful implementation and administration by a cadre of talentedand professional civil servants at all levels. Addressing these challenges,in their prioritized and differentiated country context, promises to unlockAfrica’s latent potential — and the Bank is here to help.”Gabriel Negatu, ADB Director of the Governance, Economic and FinancialManagement Department, 2008.

Preface11


The Strategic Directions and GovernanceAction Plan 2008-2012 (GAP) you hold in

your hands is the result of a process that in-volved stakeholders and partners fromacross Africa and around the world. It setsclear goals and ambitious milestones for ourwork, and most of all, it defines the Bank’score contributions to the African governanceagenda.

The Governance, Economic and FinancialManagement Department (OSGE)was created in 2006 with a mandateto strengthen the capacity of the Bankto support regional member countries’efforts to improve governance and achieveresults. Our early engagements havefocused on building capacity, mappingthe terrain and working togetherwith African countries on a widerange of governance-based initiativesand projects.

Upon reading the GAP you will note thatwe have a great many things in store for thefuture. Also notable is our choice to work ona decidedly more focused area of gover-nance; Economic and Financial Governance.While governance is much broader than this,those who work in, or with, governmentsknow that economic and financial manage-ment is at the core of what a capable statedoes. It provides the foundations upon whichto build effective, capable and accountablestates, able to fulfil their responsibilitiesand deliver basic services to the poor.

As the premier African developmentfinance institution, the Bank has beenmandated to play the lead role in promotingand supporting the development of moreeffective systems of accountabilityand transparency in the use of publicresources, including those we provide.

OSGE is committed to deepen and expandthe Bank’s engagement in governanceand to work closely with our country partnersto realize their potential; but we cannotdo this alone. In this regard, I implore you,please read this GAP not as the OSGEbusiness plan, but as a call to action for allthe Bank’s partners and staff, and RegionalMember Countries to collaborate with theADB in its efforts to ensure that better gover-nance leads to a better tomorrow in Africa.

Director, Governance, Economic

and Financial Management Department

Gabriel Negatu

©AfDB2008

12


“ADB intends to become the partner of choice in economic and financialgovernance for regional member countries. To achieve this, the ADB seeksa more focused engagement with its clients.”

This paper outlines the strategic orienta-tions for the African Development Bank’s

contribution to good governance and anti-corruption in Africa for 2008-2012. It was ap-proved is prepared for by the Board of Direc-tors at the Board Meeting on May 7, 2008.

It is an appropriate time for the Bank tosharpen its strategic focus and to carve outa distinctive role for itself in the global aid ar-chitecture in the area of governance andanti-corruption. The Governance Strategic Di-rections and Action Plan for 2008-2012 isbased on the Bank Policy on Good Gover-nance of 2000 and the lessons learned ascaptured in the Bank Review of GovernanceActivities of 2006. It also takes account of re-cent developments in aid policies and of guid-ance by Member States on future directions ofthe Bank’s work in governance, most notablythrough the Eleventh Replenishment of theAfrican Development Fund (ADF-11). It also re-flects the recommendations of the independ-ent High Level Panel (HLP) of January 2008.Lastly, it is informed by inputs received in inter-nal and external consultations, and by globaldebates on development results, aid effective-ness and donor harmonization.

The Governance Strategic Directions andAction Plan will strengthen the implementa-tion of the Bank’s governance work by pro-viding the basis for greater strategic selectiv-ity, defining guiding principles for deliveringresults and achieving impact. The ambition ofthe Bank is to become a partner of choice forRMCs to strengthen economic and financialgovernance by 2012. The criteria for theBank’s focus in governance are: (i) selectivityand results based on the Bank’s mandate,track record, and internal capacity; (ii) countryfocus and ownership, tailoring Bank’s supportto countries’ governance challenges, reformpriorities and potential for progress, (iii) synergyand relevance, based on the need to createpositive interactions with the rest of the Bank’sportfolio; and (iv) complementarity and partner-ship, based on the Bank’s comparative advan-tage and its ability to complement otherdonors.

The Bank’s central objective in governance isto assist African countries build capable andresponsive states by strengthening trans-parency and accountability in the manage-ment of public resources. African countrieshave achieved significant progress in improvinggovernance practices, but considerable chal-lenges remain to strengthen institutions of gov-ernance. Stronger public sector institutionsand improved country systems for managingpublic resources will contribute to capablestates, engaged civil societies and improvedaccountability and transparency. This is thefoundation for growth and a better businessenvironment. The choice of aid instruments todeliver the Bank’s support in governance willbe tailored to the countries’ governance chal-lenges and environment.

The Bank’s governance activities will be de-ployed at three levels: the country, sector, andregional levels.

Level I: At the country level, the Bank will fo-cus on helping RMCs strengthen country sys-tems for managing public resources, with anemphasis on oversight institutions and ac-countability systems. Special attention will bepaid to:

• Fragile states, where there is a need to em-phasize building of state institutions andstrengthening capacity in financial gover-nance and natural resource management.

• Middle-income countries, where there is aspecial need improve economic governanceand to enhance the enabling environment forprivate sector development.

Level II: At the sector level, the Bank will con-centrate on improving governance and pro-moting integrity, particularly in high-risk sectorssuch as infrastructure. This includes increasedsupport to country procurement systems.

Level III: At the regional level, the Bank willencourage and support regional and sub-re-gional initiatives that promote standards andcodes of good economic and financial gover-nance.

Executivesummary13


14


“Good governance is perhaps the single most important factorin eradicating poverty and promoting development.”Kofi Annan, Secretary General of the United Nations, 2005.

1.1 Good governance is crucial for inclu-sive and sustained economic growth and

its promotion is a key element in the BankGroup’s strategy to alleviate poverty in re-gional member countries (RMCs). Africancountries have achieved significant progress inimproving governance practices, but consider-able challenges remain to anchor good gover-nance and eliminate corruption.1 From the mid-1990s up to the present, several countries inAfrica have substantially improved on variousdimensions of governance, but wide variationsacross countries persist.

1.2 The Bank has embarked on a newphase of institutional reform to consolidateits role as Africa’s premier development fi-nance institution. This is the appropriate timefor the Bank to sharpen its focus on gover-nance and to carve out a distinctive role in theglobal aid architecture in the area of gover-nance and anti-corruption. The Bank has a keyrole to play to promote an African perspectiveand voice in the international debates on gov-ernance and development. These Strategic Di-rections are based on the Bank’s Policy onGood Governance of 2000 and on the lessonspresented in the Bank Review of GovernanceActivities of 2006.2 They take into account de-velopments in aid policy and practice and theguidance of member states on future direc-tions of governance work, most notablythrough the Eleventh Replenishment of theAfrican Development Fund (ADF-11) in 2007. Italso reflects the recommendations of the re-port of the independent High Level Panel (HLP)of 2008.

1.3 The Strategic Directions and ActionPlan provide a rationale for greater strategicselectivity and focus in the Bank’s gover-nance work. Their implementation will thus be

undertaken in a progressive and sequentialmanner. They provide guidance for deliveringresults and achieving impact by focusing on anarrower set of governance priorities in whichthe Bank has potential to deliver results, buildexcellence, and add value. It is based on theviewpoint that the Bank’s credibility hinges onits capacity to deliver results and demonstrateimpact. To leave a “footprint” of its involve-ment, the Bank needs to operate based onclearly defined objectives, grounded in itscomparative advantage as an African institu-tion trusted by its members. This requiresmatching ambitions with resources and con-centrating on those areas in which the Bankcan make a distinctive contribution. TheStrategic Directions require the re-alignment ofBank resources to match the strategic priori-ties, by rationalizing the lending portfolio, byadjusting the human resources capabilities andby improving the knowledge base.

1.4 The Bank has an established mandateto help African countries strengthen gover-nance and combat corruption and it enjoysthe support of development partners to doso. In 2000, the Bank adopted the Good Gov-ernance Policy to support RMCs’ governancereform in a more pro-active and purposefulmanner. Under ADF-10, the Bank committedto scale up its governance work3 and, in 2006,established the Governance, Economic and Fi-nancial Management Department (OSGE) asthe anchor and catalyst for the Bank’s work ongovernance. Governance, as a crosscuttingtheme was reflected as a resource priority inthe Bank’s Strategic Plan for 2003-2007.4 TheADF Deputies have endorsed governance asone of the three core operational priorities ofthe Bank, built on sharper strategic focus, areinforced mandate and a strengthened em-phasis on results.5

Introduction15


1 Good governance is defined in several ways. According to the 2000 Bank Group Policy on Good Governance, governance

is “a process referring to the manner in which power is exercised in the management of the affairs of a nation, and its rela-

tions with other nations.” p.2. The policy identifies the key elements of good governance as: accountability, transparency,

participation, combating corruption, and the promotion of an enabling legal and judicial framework.2 The 2006 Review of Governance Activities took stock of the Bank’s support to governance in RMCs through institutional

strengthening projects and non-lending activities based on the pre-2006 institutional set-up of the Bank. These strategy

and action plan are also informed by reviews of Bank’s budget support and institutional strengthening projects portfolios

(October 2007 and March 2008, respectively) and a review of gender mainstreaming in governance activities (February

2008).3 ADF, Report on the Tenth Replenishment of Resources of the ADF, ADF/BD/WP/2005/06, 2005.4 The Strategic Plan delineated a division of labour with other international development finance institutions, where the Bank

would concentrate its contribution on improving economic and financial governance.5 ADF, ADF-11 Deputies Report, London, United Kingdom, 11 December 2007.

I.

1.5 This paper is divided in six sections.Following the introductory section, Section IIlooks at the main challenges and trendsin governance in Africa. Section III reviewsthe Bank’s recent experience. Section IVprovides the rationale for strategic selectivity

and focus in the Bank’s governance work.Section V identifies the institutionalreforms needed to support the deliveryof the Bank’s governance priorities. Section VIpresents the steps to implement the strategicdirections.

16

List of acronyms18List of acronyms


“African governments have made great progress, yet an enormouschallenge lies ahead - how to build systems and institutions that providefor sustainable and equitable management of the public resources.If we get this right, everything is possible, if we get this wrong, nothingelse will help.”Z. El-Bakri, ADB Vice President, 2008.

II.2.1. There is consensus in Africa that gov-

ernance underpins sustainable develop-ment and poverty reduction. The defininggovernance challenges in Africa are: visionaryleadership, effective institutions, and indige-nous capacity development (Figure 1). Improv-ing governance and tackling corruption are dif-ficult tasks, but empowered Africans are at theforefront of demanding better governance.African leaders are committed to strengtheninggovernance and combating corruption. TheNew Partnership for African Development(NEPAD) identifies good governance as a re-quirement for peace, security and sustainablegrowth and development. For this reasonNEPAD has set up the African Peer ReviewMechanism (APRM) as a home-grown tool forimproving governance through peer review.

2.2. Refuting notions of Afro-pessimism,significant progress has occurred, but it isnot homogeneous. The Worldwide Gover-nance Indicators and others all suggest that inrecent years several countries in Africa havesubstantially improved on various dimensionsof governance.6 There remain pockets of insta-bility and arbitrary rule, but democratic changeis becoming the norm in the region, andAfrican-led efforts have succeeded to reducethe scope and duration of conflicts.

2.3. Change has nevertheless not been uni-form, giving a more nuanced picture (Figure2). Initial conditions vary and RMCs have differ-ent sets of governance strengths and weak-nesses, as well as varying levels of fragility andvulnerability. Furthermore, the trajectory ofchange is not uniform across countries; nor is

it linear. On aggregate, available data indicatesthat in Sub-Saharan Africa there have beenpositive trends in voice and accountability andin political stability, but a consistent decline

since 1998 in government effectiveness andregulatory quality. These two dimensions ofgovernance are, therefore, central to the ob-jectives of the Bank’s strategy.

2.4. Weak governance institutions representkey impediments to equitable growth, eco-nomic competitiveness and private sectordevelopment. Strengthening the public sec-tor’s enabling environment for private sectordevelopment is critical to unleash the growthpotential of many African countries. The GlobalCompetitiveness Report 2007/08 indicatesthat prime problematic factors for doing busi-ness include inefficient government bureau-cracy; limited access to financing; and cum-bersome and unreliable tax regulations or highand volatile tax rates.

2.5 Reforms to improve the investment cli-mate and business environment are under-way. The Doing Business Survey of 2008 indi-cates that some African countries havereformed, led by Ghana and Kenya. In South-ern Africa, Madagascar, Mauritius and Mozam-bique have taken the lead. Improved businessenvironments are the result of changes inproperty registration, and regulations to openbusiness and trading across borders.

2.6 The quality of financial governance iskey to government effectiveness. The abilityof the public sector to deliver quality publicservices is limited. In recent years, developingcountries have recognized the centrality of

Governanceopportunitiesand challenges

19


6 The World Bank’s Worldwide Governance Indicators capture the political, economic, and institutional dimensions of gover-

nance in six aggregate indicators: (i) voice and accountability; (ii) political stability; (iii) government effectiveness; (iv) regula-

tory quality; (v) rule of law and (vi) control of corruption.

sound public financial management (PFM) forachieving economic growth, reducing povertyand providing an enabling business environ-ment. In this regard, the budget process is crit-ical in determining the allocation and use ofpublic resources. The capacity to direct, man-

age and track public spending allows govern-ments to pursue their national objectives andaccount for the use of public resources anddonor funds. It also allows non-state actors to

monitor and hold government to account forits actions.

2.7 Financial accountability and budgetoversight are the weakest and riskiest links inpublic financial management. Country PFMsystems in Africa remain weak and need sub-stantial improvement. According to the IMF, in2005, out of the 26 HIPC countries, 24 requiresome or substantial upgrading in PFM sys-tems.7 While overall performance generally im-proved, there was variation among countriesand between components of PFM. Budget for-mulation and reporting are improving butchecks and balances, especially integrity sys-tems and oversight institutions, remain particu-larly weak, hampered by the dominance of theexecutive branch of government. Financialcontrol, public procurement and external audit-ing are the weakest PFM components, whichare also the most important to minimize fiduci-ary risks and corruption. Figure 3 illustrates thismixed picture based on the 28 indicators ofthe Public Expenditure and Financial Account-ability (PEFA) framework.8

20

7 IMF. Update on the Assessment and Implementation of Actions Plans to Strengthen Capacity of HIPCs to Track Poverty-

Reduction Public Spending. IMF, 2005.8 The PEFA initiative is a partnership of eight entities which developed a PFM performance assessment framework that has

been used in more than 50 countries since its launch in June 2005. It is based on a set of 28 high-level indicators measur-

ing PFM systems performance along six dimensions: (a) credibility of the budget; (b) comprehensiveness and trans-

parency; (c) policy-based budgeting; (d) predictability and control in budget execution; (e) accounting, recording and re-

porting; and (f) external scrutiny and audit.



“Governance and the issue of functioning institutions is possiblythe toughest issue we are facing.”Joe Eichenberger, ADB Vice President, 2008.

III.3.1A first general lesson of past experi-

ence is that the Bank has a central role inpromoting better governance in Africa, as re-flected in increased demands and expecta-tions. Governance is critical to improve the ef-fectiveness of Bank operations beyond thegovernance “sector” per se; it affects every-thing the Bank does. An independent evalua-tion of ADF 7-9 in 2004 concluded that theBank potentially has a substantial role in sup-port to good governance in Africa.9 The BankGroup’s Good Governance Policy of 2000 andthe implementation guidelines of 2001 providethe basis for addressing governance chal-lenges facing RMCs. There is a strong demandfrom RMCs for support in governance, re-flected for example in the priority given to gov-ernance in the Bank’s country strategy papers(RBCSP). Furthermore, the quality of gover-nance is an important determinant for the allo-cation of Bank concessionary resourcesthrough the performance based allocationframework.10 The Bank uses governance indi-

cators to assess country performance and al-locate ADF resources, through the Gover-nance Factor (GF) based on cluster D of theCPIA.11

3.2 A second general lesson is that, whilethe governance mandate of the Bank is wellestablished, implementation is not focusedenough. To leave a “footprint”, the Bank’s ag-gregate contribution must be more than thesum of its parts. A 2006 review found that itsgovernance activities lacked strategic thrustand have not been sufficiently mainstreamedthorough the organization.12 More recent stud-ies on the Bank’s governance portfolio in 2007indicate that its portfolio is too diverse, withsmall scale interventions, in particular ISPs.Because of their size, the impact of these ac-tivities is limited. The high transaction costsalso are a constraint to operational effective-ness. The 2008 independent HLP thereforerecommends the Bank to sharpen the focus ofits governance work.13

Bank experienceand lessonslearned

23


9 ADB, Stepping up to the Future: Independent Evaluation of ADF VII-IX, ADB OPEV, July 2004.10 Governance influences the Bank’s allocation formula (PBA) through the Governance Factor (GF) made up Cluster D of the

Country Policy and Institutional Assessment (CPIA) and introduced in 2002 in the adjusted country performance assess-

ment (CPA*). Changes were introduced in the PBA framework under ADF-11. ADF, ADF-11 Deputies Report, London, 11

December 2007, Annex VIII.11 Including fiscal policy, debt policy, quality of budgetary and financial management, efficiency of revenue mobilization, and

transparency, accountability and corruption in the public sector.12 ADB, Final Report of the Review of Governance Activities of the African Development Bank, April 2006. A 2007 analysis of

ongoing ISPs shows that the range of activities supported by this instrument is disparate, with substantial attention to civil

service reform, legal and judiciary, and transparency and corruption, but also participation in PRSPs and the demand side

of governance.13 The HLP noted that “the Bank, currently, is involved in a disparate range of governance-related activities, needs more fo-

cus in its governance work. Its portfolio of governance is small and lacks clear direction. As an African institution and with

an elected African president, the Bank should play a privileged and distinctive role. For that, it needs a coherent, more fo-

cused strategy.” HLP, Investing in Africa’s Future: The ADB in the 21st Century, 2008. The HLP’s assessment should nev-

ertheless be nuanced because it does not take full account of the Bank’s emphasis on governance in policy-based opera-

tions.

Table 1: Bank lending operations in support of governance (2002- 2006)

Type of operationOperations Amount

Number % UA million %

Policy Based Operations 24 33.8 504.12 31.9

Budget Support Operations 16 22.5 980.03 61.9

Institutional Support Projects 31 43.7 97.47 6.2

Total 71 100 1581.62 100

Governance lending activities

3.3 In terms of lending instruments, the re-view of Bank’s ongoing portfolio shows thata significant proportion of the Bank’s multi-sector operations are aimed at improvinggovernance. Multi-sector operations representa growing share of the Bank’s portfolio (15.4%of cumulative loans and grants approved be-tween 1967 and 2006.) In 2006, they repre-sented the third largest share of approvals(UA708.6 million). 75% of these operations re-lated to governance (budget support, 27.8%;institutional support and capacity building,13.8%; public sector management 33.4%).

3.4 Between 2002 and 2006, a total of 71operations were financed by the Bank for a to-tal amount of UA 1.6 billion. These operationscovered 34 RMCs, including 31 out of 39ADF-only countries. Economic and financialgovernance reforms were also supported in 3ADB borrowing member countries. 31 of theseoperations were institutional support projects(ISPs), while 30 were policy-based (PBLs) andbudget support programs (DBSLs). In terms ofamount, PBLs accounted for about UA 1.5 bil-lion and ISPs for approximately UA 0.1 billion.The majority of governance operations includecomponents addressing economic and finan-cial governance.14

3.5 Reviews of the Bank’s lending portfolioindicate that the Bank has an establishedtrack record in promoting good economic andfinancial governance. Economic and financialgovernance reform has featured prominently inthe Bank’s governance portfolio, both throughpolicy-based operations and institutional sup-port projects. Both instruments are complemen-tary: policy-based and budget support opera-tions (grants and loans) are designed toencourage policy and institutional reforms, whileinstitutional support operations enhance institu-tional and human capacities. A key finding of re-

cent reviews is the emphasis on specific as-pects of PFM, in particular public procurement,government auditing and financial control.

• The review of PBLs shows that there is al-ready significant focus on PFM conditions inDBSLs. During ADF-8 to ADF-10, over 60%of the Bank’s budget support conditions re-lated to governance, of which over 75% arelinked to PFM (particularly budget planning,external auditing, public procurement).15 Asshown in a 2006 multi-donor evaluation ofbudget support, by using country PFM sys-tems, budget support contributes tostrengthen those.16 The policy dialogue andconditions of budget support typically focuson transparency and accountability in themanagement of public resources.

• The analysis of ISPs shows that the range ofactivities is much more disparate, althoughISPs are being increasingly focused in recentyears. About 60% of ongoing ISPs in 2007

promote economic and financial governance,including macroeconomic and debt manage-ment, public procurement, internal controlsand external auditing (Box 1).17

24

14 These include, inter alia, the enabling environment for private sector development, economic competitiveness, debt man-

agement, public expenditure management (budget preparation, execution and control, aggregate fiscal discipline, aggre-

gate expenditure), revenue reforms, public procurement, audit and financial control, debt management, anti-corruption re-

forms, intergovernmental fiscal relations, fiscal decentralization and legislative budget oversight.15 ADB, Retrospective of ADB Budget Support, draft 2007. Moreover, the review showed that the specific focus on external

auditing and public procurement indicates complementarity with other development partners. The World Bank too has a

strong focus on PFM conditions, but its conditions tend to be much more related to the front end of the public finance cy-

cle. The focus of the Bank on the back end of the cycle is therefore appropriate.16 OECD DAC, Joint Evaluation of General Budget Support (1994-2004), 2006.17 ADB, Review of ADB Institutional Strengthening Projects, draft 2007.

Box 1: Bank Support to Supreme Audit

Institutions

The Bank supports more than 25 RMCs to im-

prove financial control and audit systems and

standards. In Uganda, the Institutional Support

Project for Good Governance provides rein-

forcement of the Offices of the Auditor General

and the Inspector General. The Poverty Reduc-

tion Budget Support Loan (PRSL) to Mozam-

bique of UA 60 million approved in 2006 in-

cludes strengthening PFM through the external

auditing function of the Administrative Tribunal.

The program also supports the internal audit

function in all ministries.

3.6 There is a clear need to re-align thePBL, ISP and the ESW portfolio to maximizeimpact and to focus future projects on eco-nomic and financial governance. PBLs, ISPsand ESW are complementary instruments. Thiscomplementarity needs to be exploited further.It is essential that the Bank deploys the fullmenu of operations in governance so that re-search and analysis, capacity developmentand institution reform and direct budget sup-port are all aligned and enable the Bank toachieve the best possible results. That in-cludes the need for sequencing and combiningthe instruments in a strategic manner.18

Governance non-lending activities

3.7 Another important lesson is the needfor the Bank to consolidate and scale-up itsupstream diagnostic work in governance.This will contribute to policy-relevant knowl-edge, inform country dialogue, guide Bankgovernance interventions, and more ade-quately respond to demand for high qualitypolicy advice. Analytical work must be coordi-nated with other development partners and isparticularly important in the dialogue withRMCs around governance reforms linked tojoint donor budget support.

3.8 Non-lending activities, including analyticaland advisory work, are an important part ofBank assistance to foster governance reformsin RMCs. These activities are an integral part ofthe menu of options to foster good gover-nance in RMCs:

• Integrated into the RBCSP process, CountryGovernance Profiles (CGPs) contribute tomainstream governance into Bank opera-tions and inform policy dialogue.

• The Bank, with other partners, contributes tothe preparation of fiduciary reviews and PFM

diagnostics.19 These reviews assess the de-gree to which RMCs’ financial managementpolicies and practices comply with interna-tionally accepted standards. They also serveas a basis for assessing the fiduciary envi-ronment and the eligibility to budget support.

• Research activities and reports are an instru-ment of the Bank to disseminate informationand raise awareness about governance is-sues.20

3.9 Another avenue for the Bank Group tosupport financial governance activities inRMCs is through bilateral and multilateraltrust funds it manages on behalf of donorpartners. There is nevertheless scope for scal-ing-up and redeploying bilateral grant re-sources to strengthen Bank capacity to imple-ment this strategy. The Nordic Trust Fund forGovernance (NTFG) has been instrumental inpursuing innovative governance initiatives, ex-ploring frontier areas and responding to imme-diate demands from RMCs. The DFID Gover-nance Trust Fund is contributing to enhanceBank capacity in governance.

3.10 The Bank works closely with other multi-lateral and bilateral partners, through projectco-financing, information sharing and coordi-nation. However, the Bank has to be more selec-tive in the strategic partnerships and platforms itdecides to pursue in order to influence them ef-fectively and leverage additional resources.

3.11 Another critical lesson is that good fi-nancial governance is critical to improve de-velopment and aid effectiveness, and man-age risks. The international community iscommitted to supporting African countries fur-ther good financial governance; as reaffirmedin the G-8 Summits of Gleneagles (2005) andHeiligendamm (2007), as well as the ParisDeclaration.21 In 2007, the G-8, in cooperation

25

18 Evaluations of the implementation of governance projects and activities over the past decade shows that the selection,

sequencing and combination of the aid instrument and the way they are deployed in a specific environment has a direct

effect on the effectiveness of governance interventions. World Bank, Independent Evaluation Group, Evaluation of World

Bank Support for Public Sector Reform, Washington, DC, World Bank, draft 2008.19 Public Expenditure and Financial Accountability (PEFA), Country Financial Accountability Assessment (CFAAs), Country

Procurement Assessment Reviews (CPARs), Public Expenditure Reviews (PERs), Public Expenditure Tracking Surveys

(PETS).20 The 2005 African Development Report dealt with public sector management, while the 2007 African Development Report

focused on the management of natural resources, including extractive industries. The 2009 African Development Report

will address the development challenges of fragile states.21 The first clause of the Paris Declaration underscores the need to increase aid to support developing countries’ efforts to

strengthen governance and improve development effectiveness.

with African countries, outlined an Action Planfor Good Financial Governance in Africa.

Lessons from the consultations

3.12 The Bank has made an extensive effortto consult externally and internally about theStrategic Directions and Action Plan. Thecomments received indicate a high level ofsupport to the role the Bank envisages to playregarding governance in Africa. External part-ners appreciate the effort to focus the Bank’sgovernance orientation on economic and fi-nancial governance. The focus on fragile statesand on regional initiatives is regarded positiveand analytical work in these areas is welcome.Partners stressed that the Bank has to be veryselective at country level. Development part-ners stressed the need for sustained selectivityand upgraded capacity, recognizing the Bank’s

26

Box 2: G8 Action Plan for Good Financial

Governance in Africa

- Contributing to good financial governance

through bilateral and multilateral development

assistance;

- Strengthening African tax systems;

- Establishing transparent and comprehensive

budgetary procedures;

- Promoting accountability and transparency

and enhancing budgetary control;

- Increasing accountability for revenues from

extractive industries;

- Securing public debt sustainability;

- Supporting fiscal decentralisation;

- Promoting donor harmonisation through

knowledge management;

- Enhancing capacities for governance in fragile

states and situations;

- Developing local bond markets in emerging

market economies.

limited capacities and the real danger ofspreading these too thinly.

3.13 The internal consultations echothe need for selectivity, while there is strongdemand for more support with governancework. Governance is central to the newdirections of the Bank, as reflected in theMedium Term Strategy for 2008-2012.Regional departments regard governanceas key element in the dialogue with the RMCs.Fragile states need specific analytical workon financial governance to develop bettertargeted interventions and more intense policydialogue. MICs demand an increase in thequality of financial governance work. The Sec-tor Departments recognize the need to ad-dress governance issues more vigorously toeffectively influence sector policies and institu-tions.

27



“Governance is a multifaceted issue that demands the engagementof a whole host of societal actors - no one can go it alone. The Bankis committed to play its role together with others to support regionalmember countries in reaching their potential, by fostering better gover-nance as a means to accelerate economic growth and reduce povertyon the continent.”Marlene Kanga, Manager, ADB, Economic and Financial ManagementDivision, 2008.

IV.4.1 Governance is a broad “sector” in

which many development partners are in-volved. No development partner is able tocover the complete array of governance activi-ties. Each partner provides a distinctive contri-bution and comparative advantage. Annex IIprovides a brief overview of the governancestrategies of several development partners andregional institutions.

4.2. The Bank will continue to align its gover-nance activities with others to complement ap-proaches to governance and anticorruption.The broad scope of governance makes donorcoordination and harmonization imperative. Im-portant changes have occurred in aid policiesand governance strategies of key developmentpartners since the Bank adopted its own gov-ernance policy in 2000. The role of governanceas a central condition for growth and develop-

ment is well recognized. There is also a realiza-tion that development efforts often fail due tolack of appreciation of governance obstacles.

4.2 The Bank will continue to coordinateand cooperate with other bilateral and multi-lateral institutions and partners supportinggovernance reforms in Africa to harmonizesupport and forge strong partnerships.The Bank is part of various donor coordinationand harmonization efforts, including variousMDB Working Groups (financial harmonization)and OECD-DAC Working Parties (aideffectiveness, governance, public financialmanagement, public procurementand managing for development results).The Bank also works with the Strategic Part-nership for Africa (SPA), as a key forumfor dialogue on aid effectiveness, includingin governance.

Strategiesof DevelopmentPartners

29




“Good financial governance is the foundation upon which effectivestates and open societies can be built; it grows from within, emergingfrom citizen’s demands for more transparency and accountability.”Carlos Santiso, ADB Sector Manager, Governance, 2008.

V.Guiding principles

5.1 These strategic directions are guidedby the following nine principles, consistent

with the commitments of the Paris Declaration

(based on the principles of ownership, align-ment, harmonization, mutual accountability,and managing for results).

Focus areasand levelsof intervention

31


Table 2: Guiding principles

1. African countries have the primary responsibilityfor improving their own governance to acceleratethe fight against poverty.

Institutions cannot be imported or exported; they need togrow from within. Where there is country ownership andcommitment to reform, improvements in governance cantake place relatively quickly. The Bank’s work on gover-nance will be guided by a country focus, working withgovernments, civil society and the private sector to fur-ther good governance and fight corruption.

2. Bank activities in governance will be sequenced andtailored to country circumstances.

The Bank will tailor its support to countries’ governancechallenges, reform priorities and potential for progress.Every RMC has a unique combination of governance fea-tures, strengths and vulnerabilities; not one size fits all.The Bank’s approach will therefore be tailored andsequenced to meet the specific developmental needs andgovernance challenges of fragile, middle and low-incomeRMCs.

3. The Bank considers corruption as a symptom ofbroader governance challenges.

Therefore, the Bank’s approach to fighting corruption willfocus on deterrence by strengthening country systems offinancial integrity, especially financial accountability andbudget oversight.

4. The Bank will pursue a strategy of constructiveand systemic engagement, including in high-riskenvironments.

The approach will be predictable and consistent, so as toavoid punishing the poor twice and creating “aid orphans.”Potential for progress, rather than initial conditions, willguide its engagement in governance, based on countries’commitment to reform and direction of change.22

5. The Bank will strengthen country systems, ratherthan bypass them.

To optimize development objectives, the Bank will endea-vor to strengthen and use country systems, in particularpublic financial management and accountability systems,consistent with Bank’s strategy.

6. Internally, the Bank will strengthen transparency in itsown operations.

To address its fiduciary concerns, the Bank will enhanceits safeguards and integrity mechanisms, including finan-cial management and procurement systems,23 to ensurethat the funds it provides are used for the purposes inten-ded and are properly accounted for.24

7. Bank activities in governance must be focused ondelivering results, demonstrating impact and addingvalue compared to other partners.

Bank governance operations will be selective, based onthe Bank’s mandate, track record, and internal capacity.Delivering results will require enhancing strategic ali-gnment, upstream analytical work, improving quality-at-entry, and a results framework for measuring progress.The Bank is committed to mainstreaming genderconcerns, strengthening social cohesion and encouragingdomestic accountability.

8. Bank governance activities will develop synergiesand improve relevance.

Bank governance operations will be selective also basedon the need to create positive interactions with the rest ofthe Bank’s portfolio and corporate priorities.

9. The Bank will work with others to achieve commonobjectives.

This approach will be based on the Bank’s comparativeadvantage and its ability to complement other develop-ment partners, consistent with the Paris Declaration com-mitments on aid effectiveness.

22 A typology of country situations will guide the choice and mix of aid instruments deployed by the Bank A four-category

classification has been developed in terms of quality of policies (good, bad) and corruption risk (high, low) to guide the de-

ployment of Bank instruments. ADB, Engaging Constructively in High-Risk Governance Environments, 2006.23 ADB, Restructuring Procurement and Financial Management Services, ADB, ORPU, draft August 2007.24 In 2006, the Bank established an anti-corruption and fraud investigation function and an Anti-corruption and Fraud Divi-

sion was set-up in the Office of the Auditor-General (OAGL).

Core objective

5.2 The Bank’s core objective in gover-nance is to assist African countries to buildcapable and responsive states by strength-ening transparency and accountability in themanagement of public resources, with anemphasis on oversight institutions and ac-countability systems. Reinforced public sectorgovernance and enhanced country systemsfor managing public resources will contributeto open governments, engaged societies andan improved business environment. TheBank’s governance work will focus on publicsector governance to improve the effective useof public resources for poverty reduction andthe enabling environment for private sector de-velopment.

5.3 Operationally, the Bank’s strategic fo-cus in governance will be deployed at threelevels; the country, sector, and regional lev-els. The Bank will focus on certain dimensionsof governance most relevant to its mandateand core objectives. The Bank’s approach willbe tailored to client countries’ governance pri-orities and commitment to reform, differentiat-ing the special needs of fragile states (FS), per-forming low-income countries (LICs) andmiddle-income countries (MICs). It will seek tobalance alignment with country priorities withthe Bank’s need to focus its contribution whereit can add value. This approach will inform thechoice, mix and sequencing of Bank instru-ments.

Levels of intervention

Level I: Country level

5.4 At the country level, the Bank will focuson helping RMCs strengthen country sys-tems and institutions for managing public re-sources, with an emphasis on oversight insti-tutions and accountability systems. Tocomplement the work of other partners, theBank will focus on areas of the budget processin which it can have a distinctive contribution

and the greatest impact. This approach will al-low for synergies and complementarities withother African institutions (AU, UNECA), as wellas the World Bank,25 the IMF, the EC and bilat-eral partners.

5.5 Key elements underpinning this objectiveinclude:

• Improving transparency and accountability inthe budget process as a key driver of pro-poor change. This is critical for ensuring thatpublic resources are managed for the benefitof the poor, in the context of rising aid flowsand high commodity prices. The Bank rec-ognizes that the budget is inherently a politi-cal process, as it reflects delicate political ar-bitrages between competing priorities, andthat reforms require sustained political com-mitment.

• African leaders have demonstrated politicalwill to address these issues. In May 2006,the African Finance Ministers stated their in-tention to redouble their efforts to developtransparent, accountable and reliable budg-etary systems, as stated in the Abuja Com-mitment to Action.

• Sound public financial management is alsocentral for improving the effectiveness of allBank operations. The Bank’s internal auditshave recommended a greater focus oncountry systems in public financial manage-ment as a way to minimize fiduciary risks.26

5.6 This strategy focuses on the following ar-eas:

• At the central government level, the Bankwill support government institutions taskedwith managing public resources in an ef-fective, transparent and accountable man-ner. Specific areas of enhanced engagementcenter on the ministries of planning and fi-nance and include: revenue and resourcemanagement, debt management, budgetpolicy and planning, accounting, financialcontrol and internal auditing, and aid coordi-nation.27

32

25 The World Bank Governance and Anticorruption Strategy indicates that the World Bank will work with others to “more

systematically help legislatures, supreme audit institutions and other formal oversight institutions develop the capacity to

oversee public expenditures” (p.14).26 ADB, Internal Audit Department, Annual Report to the Board, 2004.27 Government agencies of particular relevance to this stream of work include Finance and Planning Ministries (including

central budget and debt management offices), Accountant Generals, Procurement Tender Boards, Tax and Customs Ad-

ministrations, Regulatory Agencies, and Aid Coordination Offices.

o Macroeconomic management. The Bankwill support stronger macroeconomic andaid management frameworks and greateralignment between policy and budget priori-ties (PRSPs & MTEFs) to ensure that publicresources, including those of the Bank, areput to the best use in the fight againstpoverty.

o Revenue management. In the context of in-creased domestic revenues and aid flows inmany RMCs. Efficient, transparent and equi-table taxation matters for building capableand accountable states and creating an en-abling business environment. The Bank willprogressively scale up its assistance tostrengthen the policy, regulatory and institu-tional framework for domestic revenue mobi-lization (tax and customs).28

o Debt management. In the context of debtrelief, Bank interventions will continue to pro-

mote debt sustainability. They will help de-velop appropriate debt management policiesand strategies; restructure and strengthenthe capacity of debt management units; and

develop effective legal and regulatory debtmanagement frameworks.

o Results management. The Bank will step-upits support to countries’ capacities for moni-toring public expenditure and managing fordevelopment results.

• Beyond government, the Bank will scale-up its support to independent oversight in-stitutions that hold government to account.It will increase its assistance to RMCs to de-velop adequate regulatory financial controland audit frameworks and strengthen thetechnical and human capacity of institutionsinvolved in control and audit of public funds,such as Inspector Generals, Internal Audi-tors, and External Auditors, and Anticorrup-tion bodies.

o Demand for better governance. In themedium-term, the Bank will gradually en-hance its support to parliaments29 and civil

society’s tracking and oversight of public re-sources and, more generally, to the “demandside” for better financial governance.

o Gender budgeting. Gender budgeting is a

33

28 Including through, modernization and simplification, broadening the tax base, strengthening transparency, and encourag-

ing greater demand for accountability as part of the social contract and fiscal pact between the state and citizens. Al-

though there have been improvements in revenue raising efforts over the last few years, half of sub Saharan African coun-

tries still mobilize less than 15% of their GDP in tax revenues.29 Through support to parliamentary budget, finance and public accounts committees, and parliamentary budget offices.

powerful tool for mainstreaming gender in acore area of public policy. The Bank willgradually steps-up work on gender-respon-sive budgets and gender auditing, in particu-lar in the context of the Bank’s policy dia-logue around budget support.30

• The Bank will also strengthen good finan-cial governance at the local level. TheBank’s contribution in this area will focus onfiscal decentralization and municipal fi-nances. Support to financial transparencyand accountability at the local level will alsobe pursued gradually (report cards, participa-tory budgeting).

Fragile states

5.7 In fragile states, the Bank’s enhancedengagement will focus on building institu-tions and strengthening capacity in financialgovernance and, where relevant, in naturalresources management. Support to fragilestates is an integral part of the Strategic Direc-tions. Efforts have been made to harmonizethe governance and fragile states strategies.31

In fragile states, good financial governance isboth a condition and an objective of the Bank’sengagement, according to the 2008 strategyfor Bank Enhanced Engagement in FragileStates.32 Fragile and post-conflict states pres-ent special development challenges. At thesame time, post-conflict contexts and “turn-around” countries provide great potential forprogress. Restoring basic systems for soundmanagement of public resources is essentialfor rebuilding government capacities, deliveringessential services and restoring public confi-dence in the state. Effective engagement infragile states nevertheless requires continuouspolicy dialogue in the field, which will be drivenby the Bank’s field offices.

5.8 In resource-rich states, special atten-tion will be paid to the effective managementof natural resources, in particular in extrac-tive industries. The Bank will gradually scale-

34

30 This will include encouraging gender-disaggregated Public Expenditure Reviews (PERs) and Poverty and Social Impact

Assessments (PSIA), and gender-sensitive Public Expenditure Tracking Surveys (PETS).31 The strategy for Enhanced Engagement in Fragile States (2008) focuses on two thematic pillars: reconstruction of basic infra-

structure and good economic and financial governance. The strategy further stipulates that: “specific attention will be paid to

the challenges of resource-rich fragile states, lack of transparency, and corruption as contributors to state fragility” (p.9).32 The strategy establishes a country’s commitment to sound financial management practices and transparency of public

accounts as a criterion for increased Bank support. The Bank will “assess this commitment based on progress made by a

country to reforming its public expenditure management system, minimising corruption and reviving or strengthening its

revenue mobilisation institutions” (p.5).

up its involvement in this sub-sector, primarilyin fragile states but also in unequal low- andmiddle-income countries. Improving the man-agement of natural resource revenues providesa unique opportunity to tackle poverty, in acontext of the commodity boom. It is also criti-cal to avoid the “resource curse” and relapseinto resource-driven conflicts.

5.9 The Bank endorsed the Extractive Indus-tries Transparency Initiative (EITI) in 2006 andcollaborates closely with the World Bank andother partners in this area (Box 3). An expan-sion of the program, called EITI++, is currentlybeing tested in pilot countries. Adherence tothe EITI principles sends an important signal toinvestors and reflects the countries’ commit-ment to manage extractive resources for sus-tainable development and equitable growth.

• The ADF-11 Results Framework adoptedEITI as one of the key results indicators forthe Bank in the area of governance andtransparency.

• The Bank shall mainstream EITI principles in

its own natural resource operations (energy,water, forestry). At the policy level, a 2007Bank-wide Task Force on Extractive Indus-tries made recommendations on how best tomainstream transparency in the extractivesector, through stronger safeguards and duediligence clauses in Bank’s private sector op-erations.

• The Bank Policy on Environment (2004) un-derscores the governance dimensions ofnatural resources management, particularlyin the mining sector.

5.10 Consistent with its Medium Term Strat-egy for 2008-2012, the Bank will gradually ex-pand its internal capacity and expertise in therelevant disciplines.33 The Bank is working toestablish an African Legal Support Facility(ALSF) to provide assistance to African coun-tries on legal matters related to concessionand contract negotiation.

Middle-income countries

5.11 In middle-income countries, the Bank’sapproach will emphasize improved economicgovernance and promotion of the enablingenvironment for private sector development,in line with the Middle-Income CountriesStrategy (2007).34 The Bank will progressivelyscale-up its support to economic competitive-ness and the investment climate, in line withthe Private Sector Development strategy(2007). It will do so through support to corepublic sector governance reforms as well asactivities targeting the enabling environment forprivate investment in key economic sectors.

5.12 The Bank will enhance its role in this areasequentially, building on existing initiatives andvery gradually expanding the remit of thiswork-stream in the medium term, as it buildscapacity and gains expertise.

• It will continue to support the business cli-mate and economic competitiveness in MICsand, increasingly, in LICs, as part of a re-newed focus on pro-growth strategies, prin-cipally through policy-based loans.

• It will contribute to improve the business en-vironment through better public sector gov-

35

Box 3: Extractive Industries Transparency

Initiative (EITI)

Following its endorsement of EITI in 2006, the

Bank supports the implementation of EITI in a

selected number of RMCs, in close coordina-

tion with other partners, based on the Bank’s

added value and comparative advantage.

Bank’s operational support started in mid-2007

following a two-pronged approach:

(i) Encouraging resource-rich countries to ad-

here to the EITI mechanism through advo-

cacy and outreach and;

(ii) Providing technical assistance to RMCs that

have subscribed to the EITI but lack imple-

mentation capacity.

The Bank is currently supporting the implemen-

tation of EITI in five countries (Chad, Liberia,

Botswana, Central African Republic and Mada-

gascar). As internal capacity is being built, the

Bank expects to respond to increasing demand

for support from two new resources rich RMCs

a year.

33 Such as legal and regulatory frameworks, contract negotiation, fiscal regimes, sector anti-corruption, revenue manage-

ment, social and environmental impact.34 ADB, Strategy Update for the Bank’s Private Sector Operations. Tunis: ADB/BD/WP/2007/149, December 2007. ADB, A

Strategic Framework for Enhancing Bank Support to Middle Income Countries, Tunis: ADB, November 2007.

ernance through, inter alia, administrativesimplification, tax and customs moderniza-tion, public procurement reform, as well asanti-corruption and anti-bribery measures.

• The enabling environment for private sectordevelopment will also be promoted throughregional initiatives and programs.

• The Bank will continue to tailor its knowledgeproducts, including through the African Com-petitiveness Report, in collaboration with theWorld Bank and the WEF.

Level II: Sector level

5.13 The Bank will focus its governance ac-tivities at the sector level to strengthen theaccountability and transparency in the man-agement of public resources in key sectorsof Bank operations, in particular in infrastruc-ture. Improving sector governance is critical todeliver results and improve service delivery.The Bank will enhance its support to promot-ing transparency, integrity and accountability atthe sector level, in particular in high-risk sec-tors of direct relevance to the Bank’s broadermandate. By addressing governance dimen-sions and corruption risks in key sectors, theBank’s governance work will help improve theefficiency of sector spending and the effective-ness of sector operations in RMCs.

5.14 Governance is a transversal concerncutting across sectors. In addition to the workof OSGE, sector departments will mainstreamgovernance as a key element of their sectorstrategies to address the institutional, policyand regulatory dimensions of their respectivesectors, consistent with the Bank’s gover-nance strategic directions. The relevant sectordepartments, in partnership with OSGE, shalltake the lead in addressing the governancechallenge in their respective sectors.

5.15 The Bank is committed to improvingAfrican infrastructure.35 Infrastructure is thelargest sector in the Bank’s portfolio (52% inADF-10 and 62% projected in ADF-11). How-ever, it is also highly vulnerable to corruption.36

Consistent with its corporate focus on infra-

structure, the Bank’s work on sector gover-nance shall concentrate on infrastructure (en-ergy, roads and transportation) and natural re-source management (water, extractiveindustries, forestry).

5.16 Bank engagement in sector governancewill entail, inter alia:

• Enhancing governance in sectors throughimproved policy, planning, and budgeting bysector ministries and effective interactionwith planning and finance ministries;

• Promoting an enabling environment for serv-

36

35 The Bank has received a mandate to lead on infrastruc-

ture development (APRM) and it hosts the Infrastructure

Consortium for Africa (ICA) and the African Water Facility

(AWF).36 Transparency International (TI), Preventing Corruption in

Construction Projects, 2004.

ice providers through robust regulatoryframeworks allowing efficient public-privatepartnerships for the delivery of public serv-ices;

• Mitigating risks in Bank-financed sector proj-ects by assessing corruption risk and de-signing corresponding mitigating measures(sector governance risk mapping), includingthrough more and better diagnostic work,improved project design and targeted techni-cal assistance.37

5.17 The work on sector governance willparticularly focus on enhancing integrity

through enhanced public procurement sys-tems. Given the Bank’s zero tolerance policyon corruption in its own projects, enhancedsupport to country procurement systems willcontribute to maximizing development impactin RMCs and mitigating fiduciary risk to theBank.

5.18 The Bank will continue to strengthenprocurement systems, both at the countryand regional (through regional economiccommunities) levels. As per the Paris Declara-tion on aid effectiveness (2005) and consistentwith its rules and procedures, the Bank iscommitted to using and strengthening countrypublic procurement systems. In this regard, itwill provide assistance:

• Directly to countries to develop adequateregulatory frameworks and strengthen thecapacity of procurement agencies and na-tional tender boards;

• Indirectly through regional economic com-munities such as ECOWAS, COMESA, andWAEMU; consistent with the Bank’s focus onregional integration and the promotion of re-gional public goods;

• Building knowledge and promoting interna-tional standards of integrity in public procure-ment, through cooperation with relevantbodies. In collaboration with other donors,the Bank will develop diagnostic tools to as-sess sector governance and sector integritysystems.

5.19 As part of this engagement, the Bankwill further strengthen the transparency of itsown operations through greater disclosure ofinformation, providing accessible informationon its operations, including disbursement data,and implementing the Bank Group Policy onDisclosure of Information,38 including through amore effective use of the web.

Level III: Regional level

5.20 At the regional level, Bank will supportregional initiatives to deepen good economicand financial governance. The Bank will pur-sue a regional approach in selected areas

37

37 These also include existing tools such as sector-focused

Public Expenditure Tracking Surveys (PETS) or Poverty

and Social Impact Analysis (PSIA).38 ADB, The Bank Group Policy on Disclosure of Informa-

tion, 2004.

through targeted purpose initiatives, platformsand facilities, in line with its support to regionalintegration and the promotion of regional publicgoods.39 It will use principally multinational proj-ects and specific-purpose grants. By proactivelyengaging in a limited number of such initiatives,the Bank will be able to influence and leverageadditional resources. Examples include:

• Support to the promotion of good corporategovernance, principally focusing on theAPRM.

• Support to international standards and re-gional harmonization in government auditing(AFROSAI), payment systems (ECOWAS,COMESA), public procurement (UMEOA,COMESA), business law (OHADA), and anti-money laundering (GIABA, GABAC,ESAAMLG).

• Support to the investment climate throughthe Investment Climate Facility for Africa (ICF)and the Fund for African Private Sector As-sistance (FAPA).

• Support to financial sector reform principallythrough the Bank’s Making Finance Work forAfrica Partnership (MFW4A).

5.21 The Bank will encourage the adoptionand implementation of regional and interna-tional standards and codes that contribute togreater transparency and accountability in themanagement of public resources, including innatural resources. International charters, stan-dards and codes are cost-effective mechanismsto build incentives for better governance anddeeper regional integration. They are largely vol-untary and enforced by peer pressure. They of-ten involve partnerships not only with govern-ments, but also with the private sector and civilsociety across national borders.

5.22 The Bank will develop the capacities ofregional networks and institutions to anchorregional standards and codes of good eco-nomic and financial governance. The Bankwill form strong internal and external partner-ships to work in support of initiatives such asthe Extractive Industries Transparency Initiative(EITI) in the extractive industries sector (seeabove) and the Construction Sector Trans-

parency Initiative (CoST) in the infrastructuresector. The Bank will also consider supportingsimilar transparency and certificationinitiatives.40

5.23 Examples of such support in the areas ofconcentration of the Bank include:

• Support to the crafting of an African Agendafor Good Financial Governance, in coopera-tion with key African partner institutions suchas the UNECA and the AU.

• Support to regional networks of seniorbudget officers, accountants-general and au-ditor-generals, for example the CollaborativeAfrica Budget Reform Initiative (CABRI), andstrengthen the accounting and auditing pro-fession in Africa.

5.24 The Bank will continue and expandits role of supporting the African Peer ReviewMechanism (APRM). The APRM processis an African-led regional charter-typemechanism that aims to strengthen gover-nance standards and practices through peerreview. In countries that have completedthe review, the APRM provides a frameworkfor alignment with country priorities reflectedin the National Plans of Action (NPoA).41

38

39 ADB, Strategic and Operational Framework for Regional Operations, Tunis, ADB, January 2008.40 Such as the Forest Law Enforcement and Governance (FLEG) initiative in the forestry sector or the Kimberley Process

Certification Scheme in the diamond industry.41 ADB, Corporate Governance Strategy, 2005; ADB, Bank Group Financial Sector Policy, 2003; ADB, Corporate Gover-

nance Implementation Framework, draft, 2007.

Box 4: African Peer Review Mechanism

(APRM)

The Bank was mandated by NEPAD Heads of

States & Governments to be the APRM’s lead

partner in the areas of economic and corporate

governance, in close coordination with the

other strategic partners (UNDP, ECA). The

Bank’s support to the APRM includes the provi-

sion of technical and financial assistance to the

undertaking of country reviews and the

strengthening of the review process. It has to

date participated in the review of 8 RMCs,

(Rwanda, Ghana, South Africa, Algeria, Benin,

Burkina Faso, Uganda, and Nigeria). Following

recommendations of the Sixth Africa Gover-

nance Forum in Kigali in 2006, the Bank will

provide assistance to the streamlining and sim-

plification of the APRM process.

Where applicable, the Bank’s RBCSP will bealigned to the APRM and support the imple-mentation of the NPoAs.

5.25 The fight against corruption is a globaleffort requiring international cooperation.Regional codes in support of governanceinclude the AU Convention on Preventingand Combating Corruption (AUCPCC) and theUN Convention against Corruption (UNCAC).African states have committed themselvesto these conventions, which include provisionsfor enhanced international cooperationin support of integrity reforms, anti-moneylaundering and the recovery of stolen assets.Going forward, the Bank will support integrityreforms and institutions in countries and,at the regional level, international standardsand codes in specific areas of relevanceto the Bank’s overall mandate, suchas the ADB-OECD Anti-bribery and BusinessIntegrity Initiative.

39

Box 5: Anti-money laundering

and asset recovery

The Board approved the Bank’s strategy on

anti-money laundering in October 2007. The

strategy defines two key objectives: strengthen-

ing internal safeguards against money launder-

ing in particular in financial sector operations

and; supporting the efforts of RMCs in combat-

ing corruption and money-laundering, espe-

cially at the regional level. Bank’s support to

anti-money laundering and asset recovery will

be part of the Bank’s broader governance and

anticorruption agenda supporting integrity insti-

tutions and transparency reforms. Bank’s sup-

port to anti-money laundering and asset recov-

ery will be focused at the regional level (through

support to FATF-style regional bodies), under-

taken in close partnership with specialized or-

ganizations (AU, UNODC) and as part of

broader international efforts, such as the Stolen

Asset Recovery (StAR) Initiative.



“The issue of good governance and capacity-building is what we believelies at the core of all of Africa’s problems.”Commission for Africa, 2005.

VI.6.1 This section outlines how the Bank will

deliver the governance strategic orienta-tions in 2008-2012. A detailed description ofactions is included in Annex I, presented as arolling action plan to be adjusted as resourcesbecome available. The results-framework tomonitor implementation and results is providedbelow. The emphasis on results will provide theBank with a renewed sense of purpose and di-rection to guide its governance work. It shouldnevertheless be noted that implementation of anumber of measures is already under way.

Sequencing priorities

6.2 Deeper engagement in support ofstrengthening economic and financial gover-nance in RMCs will require careful sequencing,calibrated to the Bank’s institutional capacitiesand organizational reforms, including its plansfor decentralization. The Bank wants toachieve excellence in a limited set of gover-nance activities. That requires re-alignment ofthe skills-mix and a progressive increase in in-stitutional capacity, at headquarters and in fieldoffices.

6.3 The strategy adopts a two phased ap-proach:

(i) Short-term: Focus on existing engagementsin a narrow set of governance areas. Aim todemonstrate results and add value. In theshort-term (2008-2010), the Bank will focuson aligning its ongoing work with the strate-gic focus on the country (Level I) and the re-gional levels (Level III). Within Level I theBank will increase its work in fragile statesthrough the establishment of the FragileStates Facility and Unit.

(ii) Medium-term: In the medium term (2010-2012), the Bank will gradually engage innew governance priorities as it builds excel-lence and capacity, in particular at the sec-tor level (Level II). Within Level I, the work onthe enabling business environment will begradually scaled-up, as Bank develops itscapacity in this area.

Operational and institutional arrangements

6.4 Implementing the Strategic Directionsand Action Plan will require adaptations in themanagement of the Bank’s governance opera-tions:

• Mainstreaming of governance requires Bank-wide involvement and accountability for im-plementing the Strategic Directions and Ac-tion Plan. This strategy will be activelydisseminated to ensure buy-in and align-ment.

• Governance projects (ISPs), policy-basedlending (DBSLs) and upstream analyticalwork (ESW) will be further aligned to ensuregreater synergies at the country level. FutureBank ISPs will focus on institutional develop-ment and capacity building in public financialmanagement and accountability, in particularin external auditing and public procurement.

• Mainstreaming governance requires astronger role for governance in sector opera-tions (by including governance and anticor-ruption as a pillar of sector strategies) and incountry plans (by including governance andcorruption more prominently in RBCSPs).

• New knowledge about governance will beshared Bank-wide to improve institutionallearning capacities, knowledge generation,peer-learning and sharing of lessons learnedfrom independent evaluations.

• The visibility of the Bank’s governance workwill be enhanced through effective communi-cation and disclosure of information, notablythrough its website.

• The Bank’s capacities in economic and fi-nancial governance will be managed throughthe establishment of a cross-departmentalnetwork of governance experts. This willeventually lead a professional cadre, for pro-fessional development, technical supportand quality assurance, based on a skill gapanalysis and a feasibility review.

6.5 Governance is a cross cutting concern.Relevant Departments/Units in the Bank shareresponsibility for implementing and main-streaming the Strategic Directions and ActionPlan. The Bank’s governance work also has ahorizontal dimension, contributing to theachievement of the Bank’s broader goals. Thisentails:

• Delineating the roles and responsibilities ofthe Bank’s departments to deliver economicand financial governance activities in RMCs.This includes sector departments, countrydepartments and field offices. OSGE will an-chor the Bank’s support to economic and fi-nancial governance at the country and at re-gional levels (levels I and III).

OperationalImplications41


• Strengthening of governance capabilities insector departments, in particular in theBank’s priority sectors, to effectively imple-ment the work on sector governance underLevel II; strengthening governance inputs intokey corporate processes, such as countrystrategies, quality review and risk assess-ment.

• Furthering the contribution of the Research,Legal, Audit and Procurement and FinancialManagement Departments in the Bank’swork on economic and financialgovernance.42

• Strengthening the role of Field Offices in theconduct of policy dialogue and the manage-ment of country programs in governance.The decentralization process will contributeto a better understanding and mitigation ofgovernance risks at country and sector lev-els, and promote Bank’s voice in donorsgroups at country level.

Bank instruments

6.6 The Bank will deploy a range of instru-ments for economic and financial governanceoperations in RMCs. The operational portfoliowill be aligned with the Strategic Directions.The 2006 restructuring of the Bank and the es-tablishment of OSGE are bringing greater co-herence and consistency in the use of instru-ments. Policy-based lending, institutionalstrengthening projects, non-lending activitiesand analytical and advisory work will be bettercoordinated to maximize impact and leave a“footprint”. Enhanced collaboration with otherpartners will also be strengthened to ensuresynergies and complementarities.

6.7 Policy dialogue: The Bank’s activities ingovernance will be guided by a careful assess-ment of country needs, governance risks, andpotential for success. Regional Departmentswill ensure that RBCSPs are based on a thor-ough assessment of governance opportunitiesand risks. The Bank’s second-generationcountry governance profiles and other diag-nostics will be deployed to inform such as-sessment. The Bank’s participation in theAPRM provides an additional entry point tostrengthen Bank understanding of governancein RMCs. Field Offices will also play a pivotal

role in the Bank’s dialogue on governance atthe country level.

6.8 Operational support: The Bank will usea combination of policy-based lending, institu-tional grants, non-lending initiatives, and ana-lytical work to support economic and financialgovernance. The choice and mix of aid modali-ties will be guided by the objectives set in theRBCSPs and strength of country systems.

• Menu of options: The Bank will align its ap-proach to country priorities and sector focusbased on a “menu of options” that it candraw upon to choose the type and combina-tion of instruments tailored to country cir-cumstances [see Annex III]. Such a menu ofoptions will be refined and adjusted byCountry Teams (CTs), as circumstancesevolve.

• Sequencing and packaging: Synergy andcomplementarity between product lines ofthe Bank are critical to enhance the impactof its interventions. The sequencing andcombination of aid instruments will be furtherstrengthened to respond to client needs andcountry circumstances. The Bank will usebudget support as its instrument of choice toencourage institutional reform and deepenpolicy dialogue on governance, only whenconditions are appropriate and fiduciary con-ditions have been met.43 Use of budget sup-port to promote governance is consistentwith the Paris Declaration targets on pro-gram-based approaches and use of countrysystems. ISPs will complement budget sup-port operations to strengthen institutional ca-pacity, especially in those areas of high fidu-ciary risk. In addition, analytical work willensure that Bank projects are addressing theappropriate priorities and meet fiduciary re-quirements.

• Governance budget support: The Bankviews budget support as an instrument, notas an end in its itself. OSGE’s contribution toBank budget support operations will concen-trate on implementing governance policy-based loans.44 This includes budget supportoperations whose main purpose is to im-prove economic and financial governanceand the governance components of multi-sector budget support operations. Relevant

42

42 ADB, Restructuring Procurement and Financial Management Services, ADB, ORPU, 200743 ADB, Guidelines on Development Budget Support Lending, ADB/BD/WP/2003/145/Rev.2, 2004.44 ADB, Guidelines for Policy-Based Lending on Governance, ADF/BD/WP/2003/193/Rev.1, 2004.

Bank department will handle multi-sectorbudget support operations, based on themain objectives such operations seek toachieve. In all cases, Country Teams andCountry Economist will continue to play acritical role in this process.

6.9 Knowledge development: Understandingthe political economy of governance reform iscritical to improve Bank effectiveness. Further-more, the Bank has a key role to play in crystal-lizing and advocating for an African perspectiveon governance. Providing high quality adviceand analytical support to RMCs requires a signif-icant increase in the quality and quantity of up-stream analytical and advisory work. This willalso contribute to improving the quality at entryof the Bank’s own operations and the depth ofpolicy dialogue. The analytical activities will in-clude enhanced governance assessments,45

public financial management reviews,46 and pub-lic procurement reviews.47 Together with otherdevelopment partners the Bank will continue tosupport African think tanks and policy researchinstitutions focused on the governance priorityareas, as provided for in the Bank strategy forsupporting research in Africa.48 These activitiesinclude, inter alia:

• Country dialogue and programming: Thenewly designed second-generation CountryGovernance Profiles (CGP) are better alignedwith the APRM framework and focused on fi-nancial governance.49

• Crystallizing Africa’s voice on governance:The Bank will develop a flagship report, theAfrica Financial Governance Outlook, in closecooperation with key African partners and fo-cusing on good financial governance.50

• Monitoring for results: Aggregate, actionableindicators will be used to assess governancetrends, monitor reform progress, and supportmutual accountability.

43

45 Joint Governance Assessments (JGA), Country Governance Profiles (CGPs), and Institutional and Governance Reviews

(IGRs).46 Public Expenditure and Financial Accountability (PEFA) assessments, Country Financial Accountability Assessments

(CFAAs), and Public Expenditure Reviews (PERs).47 Country Procurement Assessment Review (CPARs).48 ADB, Bank Group Strategy and Framework for Support to Research and Capacity Building Institutions in Africa, ADB

ORPC, 17 October 2006, ADB/BD/WP/2006/110 and ADF/BD/WP/2006/128.49 ADB, Review of Country Governance Profiles 2002-2006, ADB, ORPC, 2006.50 Through the proposed AFGO, the Bank will have a more robust and consistent approach to the assessment and monitor-

ing of governance performance based on an analytical framework and a battery of indicators (both aggregate and action-

able) drawn from available sources such as the WGI and the GII. This will inform the Bank’s country allocation system

(PBA), through the governance factor (GF), the CPIA, and adjusted CPA.

6.10 Enhanced partnerships: The Bank willfocus on selected strategic partnerships com-plementing its focus areas to pursue commonobjectives, enhance its influence, and leverageadditional resources.

• At the international level, the Bank will en-hance its engagement in donor harmoniza-tion, such as the OECD-DAC and the SPA,to better align its efforts, influence aid agen-das and bring an African perspective onthose. Key strategic partners include theWorld Bank, the IMF, the EC, the UN, andkey bilateral partners.

• At the regional level, the Bank will work withkey institutions such as AU, NEPAD-APRM,UNECA, ACBF, and UNDP-RBA to improvesynergies and strengthen African institutions.

• At the country level, the Bank will enhance itsengagement in donor coordination in thearea of governance, especially aroundbudget support.

6.11 The Bank’s focus on economic and fi-nancial governance adds value to work byother development partners. At the countrylevel, a strategic focus on good economic andfinancial governance will enhance the capabil-ity of the Bank to engage in policy dialogue as

part of multi-donor budget support groups.The Bank’s work on financial management,public procurement, and external auditing willcomplement the IMF and the World Bank’s fo-cus on building capacity of the executive.51 Forexample, the Bank is working with the WorldBank to develop a joint strategy and initiativesto support Auditors-General.

Delivering results

6.12 Implementing the Strategic Directions re-quires a robust and realistic framework for

monitoring results (country level outcomes)and measuring performance (institutional). Akey challenge is that in governance it is difficultto demonstrate impact explicitly in the shortterm. Unlike other sectors the impact of gover-nance work is intrinsically difficult to measure,because of the effects of time lags and prob-lems of attribution. Measuring impact is alsocontingent on a corporate culture that usesevaluation to improve performance and to fine-tune approaches.

6.13 The Bank will monitor progress in con-forming to this results-framework and adjust itaccordingly. The Bank will assess results andimpact at country level in the context of inter-national standards of economic and financialgovernance, e.g. the monitoring framework ofthe Paris Declaration (based on the 2007Baseline Survey) and the Public Expenditureand Financial Accountability (PEFA) framework(based on the 2007 PEFA assessments).

Measuring performance

6.14 Development effectiveness: The Bankwill monitor impact using a battery of proxy in-dicators for performance. These are summa-rized in Table 3 below.

6.15 Caution is warranted in the use of per-formance indicators to measure impact be-cause of measurement and attribution prob-lems. Governance is broad and multidimensional. It includes a wide variety ofprocesses, systems, organizations, and rulesof the game, all together frequently capturedby the broad term “institutions”. Given this vari-ety, there are also a large number of indicatorsthat can be applied to governance. The issueof how to measure governance is a topic thatattracts intense debate. Several attempts have

44

51 World Bank, Development Policy Lending Retrospective, 2006; IMF, Update on the Assessment and Implementation of

Action Plans to Strengthen the Capacity of HIPCs to Track Poverty Reducing Public Spending, 2005.

Table 3: Indicators of development effectivenessDevelopment Effectiveness (country outcomes) Frequency Scale BaselineGovernance and TransparencyPublic Expenditure and Financial Assessment every 3 years (0 -- 7) 3.12 (2007)

Worldwide Governance Indicators Average every 2 years (-2.5 -- 2.5) -0.80 (2006)

Extractive Industries Transparency Index every year (% compliance) 20.5 (2007)

Private Sector Development and Investment ClimateCost Required for Business Start-up every year (% of GNI per capita) 190 (2006)

Time Required for Business Start-up every year (days) 58 (2006)

Global Competitiveness Index Ranking every year (1 to 7) 3.1 (2007)

been made to define indicators of governanceperformance in an objective fashion and thatproduce results that can be monitored overtime and allow for comparisons betweencountries.

6.16 The most common classification is todistinguish between “broad” and “specific” in-dicators. The first category looks at the generaloutcomes of governance systems. The secondcategory looks at specific aspects or subsys-tems of governance. As these indicators gofurther down in detail they become “actionableindicators”, enabling policy makers to decideon specific actions to address deficiencies.The typology of governance indicators in Table4 provides a menu of governance indicatorsand enables selection of the appropriate indi-cator for specific circumstances.

6.17 Despite the growth in the number ofgovernance indicators, there remain underlyingproblems with causality and attribution. Thus,in measuring its contribution to better gover-nance in Africa, the Bank will monitor resultsby using proxy indicators:

• Development effectiveness of Bankinterventions (country level outcomes) willbe monitored on a yearly basis withthe relevant Country Policy and InstitutionalAssessment (CPIA) criteria for economicand financial governance, principallyCPIA-13 (Quality of Budgetary and FinancialManagement). Other yearly resultsindicators to be considered include CPIA-1(macroeconomic management), CPIA-2(debt policy), CPIA-6 (business regulatory en-vironment), and CPIA-16 (transparency, ac-

countability and corruption control in thepublic sector).

• Relevant Paris Declaration performance indi-cators: Indicator 2a (reliable public financialmanagement systems), 2b (reliable publicprocurement systems), and 10b (joint coun-try analytical work).

• PEFA Performance Indicators: Aggregateperformance and specific performance indi-cators (PI 2: composition of budget expendi-ture out-turn compared to the original ap-proved budget; PI-26: scope and nature ofexternal audit, and PI-27: follow up of auditreports by the executive or audited entity).The Bank has adopted PEFA as one of theinstitutional performance indicators of theADF-11’s Results Framework. PEFA assess-ments are regularly updated, every 2-3years.

6.18 Institutional effectiveness: The ActionPlan that is included in Annex I provides spe-cific indicators for each action that the Bankwill undertake. These measures are specific,and are mostly measured at the country level.The Bank’s performance in delivering resultswill be measured through the standard KeyPerformance Indicators (KPIs) and by tailoredperformance indicators.

• Tracking governance work internally: TheBank will reclassify “governance” as a dis-tinctive sector category (adjusting the exist-ing “multi-sector category) to better track,monitor and report on its support to gover-nance.

• Aligning portfolio with strategy: The align-ment of the Bank’s governance operationswith the Strategic Directions will be assessed

45

Table 4: Typology of governance indicators

Measuring quality of process and rules Measuring quality of outcomes

Specific measures PEFA indicatorsCPIA sub group indicatorsGlobal Integrity IndicatorsOpen Budget IndicatorsOECD Procurement IndexDoing Business indicators

Investment Climate AssessmentsBusiness Environment & EnterpriseSurveys (BEEPS)Worldwide Governance Indicators (WGI)sub groupsAfrican Governance Report (AGR)sub groupsAfrica Competitiveness Report (ACR)sub groups

Broad Measures Overall CPIA ratingsOverall GII ratingsOverall OB ratingsOverall DB indicatorsOverall ACR governance indicatorsTransparency International Corruption

IndicatorsOverall WBI scoreFreedom HousePolity IVAfrican Governance Report (AGR)Indicators

using the proxy indicators which have beenincluded in the rolling Action Plan in Annex I.

• Managing the Governance Action Plan: TheBank will implement a number of actions toensure that governance is mainstreamed inthe organization and that capacities are de-veloped in those departments and units thatrequire strengthening for implementing theaction plan.

Resource implications

6.19 Implementation of the Strategic Direc-tions and Action Plan will have considerableresource implications, including on staff num-bers, professional competencies and skill mix.An analysis of existing skills and gaps in 2008will guide decisions on future staffing levelsBank-wide. This will be incorporated into the2008-2012 Medium Term Strategy (MTS)which foresees an increase in OSVP staff lev-els. This analysis will be informed by a Bank-wide assessment of capacity needs in the ar-eas of economic and financial governance.

6.20 Staff capacities will be realigned progres-sively, in terms of skill mix and re-deployment,within the existing constraints. Specific actionsinclude:

• In the short term (2008-2010), priority will begiven to equipping OSGE with the necessarystaff and required skills, through staff rede-ployment and net increases.

• In the medium-term (2010-2012), gover-nance experts will be deployed (i) at the re-gional level to enhance policy dialogue, qual-ity at entry and supervision, (ii) in sectordepartments to help mainstream governancein sectors and (iii) in country offices throughlocal recruitment.

• A network of governance specialists will beestablished, anchored in OSGE and includ-ing governance experts in sector and re-gional departments. This network will be de-veloped as communities of practice, with astrong emphasis on professional develop-ment, peer learning, knowledge sharing. TheBank will also undertake a governance train-ing program, which will serve the dual pur-pose of strengthening the knowledge base ofgovernance specialists and mainstreamingunderstanding of governance throughout theBank.

• The Bank will seek to leverage specialized

expertise through technical assistance andsecondments, aligned with the priorities ofthe strategy. It will mobilize bilateral trustfunds and technical assistance to supportthe implementation of the strategy and out-source sector expertise through partnershipsand platforms. It will work to consolidate ex-isting governance trust funds in a multi-

46

donor governance trust fund to strengthenBank governance capacity, building on thelessons learned from the NTFG.

Monitoring and evaluation

6.21 The implementation of the action plan inAnnex I is contingent on the availability of re-

sources and, therefore, is presented as arolling action plan. The strategy will be moni-tored annually to gauge its effectiveness andadjusted accordingly. In 2010, the Bank willundertake a mid-term review. It is further pro-posed that OPEV undertakes an evaluation ofBank governance work to inform the 2010mid-term review.

47



Annexe

s“We believe that Africa can transform itself into a stable, integrated,and prospering continent of competitive, diversified, and growing econo-mies. Taking its rightful place in the world, it will be a continent with strong,integrated domestic markets, participating fully in global tradeand investment. Peace and democracy will have taken hold in many morecountries, underpinned by transparent and accountable governance.”Investing in Africa’s Future. The Report of the High Level Panel. 2008

Annex I49Rolling Governance

Action Plan and Results

Framework – 2008-2012


Purpose Action Sequencing(start date)

Responsible(lead & support)

Results Indicators52

Level 1: Improving core governance systems and institutions at the country level

Improve efficiency,transparency,and accountabilityin the managementof public resourcesand mitigate risksby strengtheningcountry systemsin RMCs

Strengthen financialgovernance componentsin RBCSP

2008 ORVP,53

with OSGEImproved Bank’s understan-ding or financial governancechallenges and mitigation ofcorruption risk

• % of RBCSP includinggeneral governance analysis& corruption risk assessments

Enhance strategicalignment of Bankgovernance portfolio

2008 OSGE,with ORVP

Bank support to governancefocused on economic andfinancial governance (strate-gic alignment);Enhanced use of governancePBLs and stronger gover-nance focus of DBSL

• Number of new gover-nance-focused PBLs

• % of new OSGE operationsfocused on economic andfinancial governance (inclu-ding components of ISPsand PBLs)

• % of new OSGE operationsin fragile states focused oneconomic and financialgovernance (including com-ponents of ISPs and PBLs)

Improve quality of Bankgovernance portfolio anddevelop positive linkagesbetween aid instruments

2008 OSGE,with ORVP

Economic and financialgovernance in RMCsis improved by the deploy-ment

• Bank KPIs and projectratings for governance ope-rations

• Number of RMCs with com-plementary ESW,DBSL/BOP, and ISPs

Increase Bank supportto country audit systems

2008 OSGE,with OAGL,ORVP

Strengthened integrity andtransparency in the manage-ment of public resources andmitigation of risk to the Bank

• Number of new OSGE ope-rations with audit compo-nent (ISPs and DBSLs)

• Improvement in relevantPEFA & GII scores

Increase Bank supportto country procurementsystems

2008 OSGE,with ORPU,ORVP

Strengthened country procu-rement systems in RMCs andmitigation of risk to the Bank

• Number of new OSGE ope-rations with procurementcomponent (ISPs andDBSLs)

• Improvement in relevantPEFA and OECD DACscores

Increase Bank support tocountry revenue systems

2010 OSGE,with ORVP

Strengthened country revenuesystems in RMCs leadingto more efficient revenuemobilization

• Number of new OSGE ope-rations with revenue com-ponent (ISPs and DBSLs)

• Improvement in relevantPEFA scores

Increase Bank supportto country debt manage-ment systems

2010 OSGE,with ORVP

Strengthened debt manage-ment in RMCs and improveddebt sustainability

• Number of new operationswith debt managementcomponent (ISPs andDBSLs)

• Improvement in relevantPEFA scores

52 Unless otherwise indicated, all indicators measure against the available 2007 based line.

53 Mention of ORVP denotes involvement of Regional Departments and Country Offices.

50




Increase Bank supportto the demand for bettereconomic and financialgovernance

2010 OSGE,with OSHD

Improved scrutiny, oversightand accountability for themanagement of publicresources

• Number of new operationswith components aimed atstrengthening the “demandside” of financial gover-nance (legislative budgetoversight, civil society bud-get scrutiny)

Increase Bank support togender-based budgetingand auditing

2010 OSHD,with OSGE

Strengthened gender sensi-tive budgets in RMCs

• Number of Country GenderProfiles and operations(ISPs and DBSLs) integra-ting gender sensitive bud-geting and auditing

Increase Bank supportto economic competiti-veness and the enablingenvironment for privatesector development

2010 OSGE,with OPSM

Economic competitivenessand growth prospects promo-ted through improvedenabling environment for pri-vate sector development

• Support economic competi-tiveness and growth throughsupport to the businessenvironment

• Number of new operationswith competitiveness andenabling environment com-ponents (ISPs and DBSLs)

• Improvement in relevant DB& ACR scores

Enhance policydialogue on gover-nance throughadvisory and ana-lytical work

Strengthen governancethrough peer pressure,review and learning

2008 OSGE,with ONRI

Improved assessmentof governance qualityand support to national plansof actions (NPoAs)

• Number of country APRMreviews with Bank support

• Improved APRM frameworkand review process withBank support

• Number of APRM countrieswith Bank support to theimplementation of theNPoAs

Enhance knowledgeand evidence on econo-mic and financial gover-nance

2009 ECON (EDRE& ESTA), withOSGE, ORVP

Improved understandingof key challenges in econo-mic and financial governance,including governance statis-tics

• Number of thematic ESWfocusing on economic andfinancial governance issues

• Publication of the 2009African Development Reporton fragile states

Increase involvement inupstream diagnostic andadvisory work on coun-try PFM systems (prioritygiven to RMCs withongoing or potential forDBSL and upcomingCSP)

2009 OSGE & ORPU,with EDRE,OAGL, OSVP

Improve depth and qualityof Bank governance activitiesthrough enhanced knowledgeof PFM country systems androbust assessment of fidu-ciary environment informingdecisions on DBSL eligibility

• Number of RMCs withPEFA-CFAA assessmentsundertaken with Bank parti-cipation

• Number of CPAR & OECDDAC procurement assess-ments undertaken withBank participation

Enhance assessmentand monitoring of gover-nance in RMCs, inclu-ding:

• Revise CGP analyticalframework

• Complete feasibilitystudy of AFGO

• Prepare report onGood FinancialGovernance in Africa )

2008

2009

2009

2010 OSGE,with EDRE,ESTA, ORPC

Enhanced evidence of gover-nance trends and patterns inRMCs, improved policy dia-logue and mutual accountabi-lity between RMCs and Bankin country

• Number of second-genera-tion, evidence-based coun-try governance profiles

• Publication of Bank flagshipreport on financial gover-nance in Africa (AfricanFinancial GovernanceOutlook)

Enhance assessmentand monitoring of eco-nomic competitivenessand the business climate

2009 ECON (EDRE),with OPSM,OSGE

Enhanced enabling environ-ment for private sector deve-lopment

• Number of Africa EconomicOutlooks and AfricaCompetitiveness Reportspublished by the Bank

51




Level 2: Mainstreaming and strengthening governance at the sector level

Improve Bankability to engagein sector policyand governance;enhance qualityat entry in keysectors, andimprove risk miti-gation

Mainstream governanceand anticorruptionconcerns in Bank sectorstrategies

2010 Relevant sectordepartments(OIVP, OSVP),with OSGE,ORPU

Better understanding ofgovernance challenges insectors and strengthenedsector strategies

• Number of sector strategiesintegrating governanceissues

Design sector gover-nance and risk assess-ment tools

2009 OSGE,with OIVPand ORPC

Strengthened sector riskmanagement strategies

• Sector governance and riskassessment framework des-igned and piloted in theinfrastructure sector

• Guidance note on sectorgovernance published

Implement a governanceprogram in the infra-structure sector toenhance transparencyand accountability

2010 ONIF,with OSGE,OPSM, ORPC,ORPU

Strengthened quality at entryand reduced risk exposure ininfrastructure operations

• Individual project ratings• Number of infrastructuresector operations wheregovernance and corruptionrisks are assessed andaddressed

• Number of Bank supportedCoST country initiatives

Strengthen public finan-cial management andaccountability in infra-structure projects(energy, electricity, trans-portation)

2010 ONIF,with OSGE,ORPC, ORPU

Enhanced assessment andmitigation of fiduciary risk insector operations

• Number of infrastructuresector operations addres-sing PFM challenges (inclu-ding public procurement)

Support RMCs toenhance efficiency,transparency andaccountability in themanagement of naturalresource and extractiveindustries (EITI andEITI++)

2008 OSGE,with OSAN,OPSM

Improved governanceand transparency of naturalresource management inRMCsß Number of countriesstrengthening NR and EIgovernance with Bank sup-port

• Number of RMCs imple-menting EITI & EITI++ withBank support

• Number of countries rea-ching EITI validation pointwith Bank support

• Number of Bank’s NRMinvestment operations incountries committed totransparency and accounta-bility in NRM

Level 3: Promoting regional integration and harmonization in governance

Strengthen regionalintegration throughimproved gover-nance

Strengthen standardsand codes of good eco-nomic and financialgovernance

2008 OSGE,with ONRI,ORPU

Increased interregional tradeand investments throughgreater harmonization of eco-nomic and financial gover-nance standards

• Economic and investmentstatistics

• Number of countries com-pliant with international andregional standards andcodes

Help crystallize theAfrican agenda for goodfinancial governance

2008 OSGE,with ORPU,ORPC, OAGL

Good financial governanceagenda and action plan deve-loped and endorsed by RMCs

• Indicators used in the goodfinancial governanceagenda and action plan

Support to the Africancorporate governancestandards through theAPRM

2008 OSGE,with ONRI

Improved corporate gover-nance practices in RMCs

• Number of APRM countryreviews undertaken withBank support

Strengthen regionalauditing and accountingstandards

2008 OSGE,with OAGL,ONRI

Improved regional auditingstandards and practices

• Number of initiatives furthe-ring regional standards ingovernment auditing andaccounting with Bank sup-port

Strengthen regional pro-curement standards

2008 OSGE,with ORPU,ONRI

Improved and harmonizedregional procurement stan-dards and practices

• Number of initiatives furthe-ring regional standards inpublic procurement withBank support

Support to regionalCommunities of Practice(CoP) in the area of eco-nomic and financialgovernance

2009 OSGE,with ORRU

Strengthened Pan-Africanfinancial governance net-works through increased useof peer learning and bench-marking

• Number of CoPs supportedby the Bank (e.g. CABRI)and frequency and qualityof activities

52




Strengthen RMCs’ability to improvethe enabling envi-ronment for privatesector develop-ment

Improve the regionalinvestment climatethrough regional plat-forms

2009 OSGE,with OPSM,ECON

Increased leveraging ofresources to support theinvestment climate

• Number of activities underthe ICF

• Number of activities sup-ported by FAPA

Stimulate regional part-nerships to support fis-cal reform

2008 OSGE Improvements in fiscal trans-parency and responsibility

• Number of RMCs benefitingfrom AFRITAC assistance

Support regional stan-dards in anticorruptionand anti-bribery

2008 OSGE,with OAGL,GECL

Improvements of anti-briberystandards and practices

• Establishment of ADB-OECD anti-bribery initiative

• Number and quality of acti-vities

Support African legalcapacities in complexbusiness transactionsin NRM and EI sectors

2010 GECL,with OSGE,OPSM

Improvements of RMCs legalcapacities to negotiate andlitigate in the NR & EI sectors

• Establishment of the AfricanLegal Support Facility(ALSF)

• Number of request for sup-port to the ALSF

Stimulate regionalpartnerships to supportto financial and bankingsector reforms

2008 OSGE,with OPSM

Increased leveragingof resources to supportfinancial sector reform

• Establishment of MFW4Ainitiative

• Performance indicatorsagreed by MFW4A

Improve regional integritystandards and practices

2010 OSGE Increased support to pro-inte-grity reforms through peerlearning and knowledge sha-ring

• Establishment of AfricanIntegrity Initiative

• Number and quality of acti-vities

Managing the implementation of the Governance Action Plan

Mainstreaminggovernance inBank operations

Establish a Bank-wideGovernance WorkingGroup

2008 OSGE,with relevantdivisions anddepartmentsin OSVP, OIVP,ORVP, ORRU,CHRM, OAGL

Bank governance work coor-dinated and consolidated andgovernance concerns mains-treamed in regions and sec-tors

• Establishment and fre-quency of meetings tomonitor implementation ofGAP 2008-2012

Establish a governancenetwork

2009 OSGE,with ECON,CHRM

Enhanced disseminationof governance knowledgewithin the Bank

• Intensity of knowledge sha-ring activities

• Membership of governancenetwork

Disseminate governancestrategy and actionplan inside and outsidethe Bank

2008 ERCU,with OSGE,EDRE

Increased awareness and visi-bility of the Bank’s gover-nance work

• Number of disseminationand awareness raising acti-vities

Invest in Africanpartnerships anddonor harmoniza-tion in governance

Influence internationaldebates on governanceby bringing African pers-pective

2008 PRDT,with ECON,OSVP (OSGE),ORVP

Global governance agendainformed and improved byAfrican perspective

• Number of key internationaland regional events ongovernance with seniorBank participation

Develop African partner-ships for governance

2009 OSGE Better coordinated gover-nance interventions at regio-nal level

• Number of strategic part-nerships with key Africaninstitutions (AU, UNECA,ACBF)

Influence donor harmoni-zation on governance bybringing African pers-pective

2008 ORPC,with OSGE

African voice in donor harmo-nization efforts strengthened

• Number of donor coordina-tion and harmonization forain governance with Bankparticipation (number ofmeetings attended)

• Number of OECD DAC &MDB WG joint position andpolicy papers with Bankcontribution

Improve coordinationand complementarity ofthe Bank’s governanceoperations in RMCs withDevelopment Partners

2008 ORVP,with OSGE

Improved effectivenessof governance supportto RMCs

• Number of governance acti-vities undertake jointly / co-funded with other develop-ment partners increased

53




Equip the Bankto implement theGAP 2008-2012

Undertake a skill gapanalysis and preparea HR plan for gover-nance (as part of HRplan under MTS2008-2012)

2008 CHRM,with OSGE

Governance expertise scopedand gaps identified

• Bank-wide governancecapacity, needs and gapsassessed

• Governance HR action plandrafted and approved

Implement GovernanceHR action plan

2009 CHRM,with OSGE,OIVP, ORVP

Governance work adequatelyresourced

• Governance HR action planimplemented

Realign OSGE 2009 OSGE Adjusted organizationof OSGE to balancecountry/regional focus andsector/technical focus

ß Realignment and realloca-tion plan drafted, approvedand implemented

Explore the establish-ment of a professionalcadre of governancespecialists

2009 CHRM,with OSGE,ORPU, OAGL

Strengthen Bank governancecompetencies and technicalskills

• Feasibility study completed• Competency frameworkdeveloped and accreditationsystem adopted

• Number of accredited staffin central, regional andcountry units

Decentralize governanceexpertise in regional andsector departments,including field offices

2010 CHRM,with OSGE,OIVP, ORVP

Increased governance capa-bilities in sector units, countryteams and regional depart-ments

• Number of governance spe-cialists deployed in sectorunits and regional depart-ments (including regionalfield offices)

• Pilots agreed in selectedsectors and regional depart-ments

Develop and undertakegovernance training planfor Bank staff

2009 CHRM,with OSGE

Increased governance capa-bility of the Bank and re-skil-ling and re-alignment ofgovernance expertise

• Number of governance trai-ning events

Develop and implementa Governance Weekand related capacitybuilding activities

2010 EADI/JAI,with OSGE

Increased access to state-of-the-art knowledge on gover-nance for RMCs and enhan-ced governance capabilitiesof Bank staff

• Number of governance trai-ning activities by EADI/JAIfocused on PFM

Develop arrangementsto mobilize specializedexpertise, as required

2010 OSGE,with ORPU,ORRU

Bank can leverage “just intime” specialized expertise

• Number of networks andarrangements established(e.g. panels of accreditedconsultants, resource cen-ter)

Leverage dedicatedresources to support theimplementation of theBank GAP 2008-2012

2009 ORRU,with OSGE

Bank can mobilize resourcesand skills through TF-TA toimplement the GAP 2008-2012 and support catalyticgovernance initiatives inRMCs

• Establishment of a multi-donor trust fund (GAPMDTF) with significant com-mitment capacity to supportthe implementation of theGAP, in particular for non-lending work, and to deve-lop Bank capacity

Annex II54Strategies

of Development

PartnersAfricanUnion

Several African institutions have a mandate over different dimensions of governance. The AfricanUnion has a political mandate to promote regional unity and integration through the support to peaceand security, democratic principles and institutions, as well as sustainable development at the econo-mic, social and cultural levels.

UnitedNations sys-tem

• UNECA has focused its governance activities on public administration with the establishment of theGovernance and Public Administration Division (GPAD), including support to private sector develop-ment, civil society and social development through policy analysis, research and technical assis-tance in support to the APRM.

• UNDP focuses on political governance helping countries manage electoral processes and parlia-mentary functions, strengthen justice systems, promote human rights, decentralize governmentfunctions and strengthen local governments. UNDP also supports the APRM and works on conflictprevention and recovery and the investment climate.

World Bank In 2007, the World Bank adopted the Governance and Anti Corruption (GAC) strategy as central to allits operations. Governance is also a pillar of its Africa Action Plan (AAP). Half of the new FY2006 len-ding operations were designed to strengthen governance. The focus of the GAC is at the countrylevel, where the World Bank will increase efforts to reform core government systems, mainstreamgovernance in sector work, engage with private sector and civil society and strengthen the “demandside”.

RegionalDevelop-ment Banks

Regional Development Banks have also developed a strong focus on governance. Governance isone of the three pillars of the Asian Development Bank’s poverty reduction strategy. In 2006, it adop-ted its Second Governance and Anti-Corruption Action Plan. The Modernisation of the State has beenone of the four priority areas of the Inter-American Development Bank since 2003.

EuropeanUnion

The European Union’s strategy on governance of 2006 has a broad remit, including a strong focuson promoting democracy and human rights, including gender equality, and the rights of children, indi-genous peoples and ethnic minorities. The EU backs efforts to reinforce the rule of law and adminis-tration of justice; to enhance the role of civil society and non-state actors. It also helps to reformpublic administration, civil services and local governments. EU-funded programmes contribute to figh-ting corruption and prevent conflict.

Bilateralpartners

Bilateral partners, such as the United Kingdom (2007), France (2006), and the United States (2005)have revisited their governance and anticorruption strategies. The UK White Paper on Development of2006 focuses on “Making governance work for poor people”, complemented by a strategy paper in2007 on building capable, accountable and responsive states. France’s new governance policy has abroad remit and adopts an integrated approach to the promotion of democratic governance, includingthrough support to state reform, judicial reform, decentralization, local governance, and financialgovernance. Promoting democracy and good governance is a central aim of USAID, including throughsupport to the rule of law and judicial reform, electoral and political party assistance, civil society andanticorruption.

Types of countries

1. A key challenge for the Bank is to balance the align-

ment with country priorities and the need for greater

selectivity in its contribution to governance. It needs

to tailor its services accordingly. Broadly, the RMCs

can be categorized as54:

• Fragile States (FS)

• Low Income Countries (LICs)

• Middle Income Countries (MICs)

2. Due to its mandate, the Bank needs to remain en-

gaged in all these countries, but the demands for

support in governance vary widely.

• In Fragile States, which include a wide range of

countries in state of vulnerability and post-conflict

situations, the emphasis will be on rebuilding institu-

tions of state as soon as basic requirements of peace

and security have been met. There is a large need for

capacity development, aimed at safeguarding the es-

sential institutions of state. Frequently this needs to

be combined with provision of additional financial re-

sources. Analytical work is needed to build up knowl-

edge of the underlying political economy trends and

processes.

• In LICs the institution development efforts (ISPs) are

needed to help the institutions in these countries to

become stronger so that they are able to prevent a de-

cline. Additional resources (budget support) are

needed to enable these countries to meet the de-

mands of all segments of society. Analytical work is

needed to assist these countries in moving to the next

level in quality of governance systems and institutions.

• MICs continue to need access to capacity building

(ISPs) and to analytical work (ESW) in order to move

their economies up to higher levels of productivity.

Their PFM systems can be seen by potential investors

as an indicator of its attractiveness for investment and

market building.

Types of instruments

3. In these different operating environments the Bank

has a range of aid instruments at its disposal. Evalu-

ation of the implementation of governance projects

and activities over the past decade shows that the

selection, sequencing and combination of the aid in-

strument and the way it is used in a specific environ-

ment has a direct effect on the effectiveness of gover-

nance interventions55.

4. The aid instruments available to the Bank include:

• Balance of Payments (BOP) Support

• Direct Budget Support Lending (DBSL)

• Institution Support Projects (ISP)

• Economic Sector Work (ESW)

5. BOP, DBSL, ISPs and ESW are complementary instru-

ments. This needs to be exploited further. That in-

cludes the need for proper sequencing of the instru-

ments (ESW to precede DBSL and ISP interventions).

It is essential that the Bank deploys the full menu of

operations in governance so that research and analy-

sis, capacity development and institution reform and

direct budget support are all aligned and enable the

Bank to achieve the best possible results.

Menu of options

6. MICs require more flexible responses, including DB-

SLs. There may be more demand for DBSLs in the

middle category of countries, but this is also the cate-

gory of countries in which there is a higher volume of

Development Partners, and therefore more variety in

available options for these RMCs.

7. The use of ISPs and ESW is not yet in line the de-

mands of these different market segments for the

Bank. The analysis of current ISPs shows that the

range of activities supported by this instrument is

much more disparate. As noted by the HLP, this dis-

parate portfolio produces very little results and cause

that the Bank does too little in any of these activities

to leave any significant impact.

8. There is a clear need to re-align the ISP and the ESW

portfolio and to focus future projects on economic

and financial governance. The ISP and ESW work

also needs to be aligned more closely with the needs

of the countries.

• MICs demand flexible DBSL and more high quality

ISPs and ESW activities. This requires that the Bank is

able to provide knowledge and expertise at the level of

OECD countries in order to help these countries to

achieve a real transformation of their economy and

state performance.

Annex III55Indicative Menu

of Options for Governance

Operations

54 A more exhaustive discussion of the strengths of states and the implications for development is included in State Building, Governance and World Or-

der in the 21st Century, Francis Fukuyama; Ithaca, 2004

55 World Bank, Independent Evaluation Group, Evaluation of World Bank Support for Public Sector Reform, Washington, DC, World Bank, draft 2008.

• In FS countries, there is a need for more analytical

work, followed later by more ISPs. A better under-

standing of the real causes of the failures of institu-

tions in these countries is needed to be effective in the

reconstruction work in post conflict states, or in reduc-

ing the risks of decline.

56

Table: Use of governance aid instruments in types of countriesTypology Governance DBSL/BOP Governance ISP Governance ESW

FS Subject to mitigation of fiduciary risk.

Requires up-front analytical work andemphasis on ISP undertaken in parallel.

Only in collaboration with other DPs.

Focused on strengthening core govern-ment systems and prevent risk of relapse.

Essential in case of BOP/DBSL.

Aimed at understanding risks and identi-fying opportunities for interventions andsupport to demand side of governance.

LIC In demand.

Standard fiduciary risk assessmentsneeded.

Collaborate with other DPs.

In demand. Strengthening of institutions,and improvements in standards and per-formance.

In demand. Aimed at stronger understan-ding of drivers for change and growth.

MIC Demand for more flexibility by countriesthat have access to multiple sources ofcapital.

In demand, if assistance is of high qualityand provided with short lead time.

In demand, if analytical work is of highquality and provided with short lead time.

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African Development Bank GroupGovernance, Economic & Financial ManagementDepartment (OSGE)Angle de l’avenue du Ghana et des ruesPierre de Coubertin et Hedi NouiraBP 323 –1002 Tunis Belvédère (Tunisia)Tel.: +216 71 333 511 – Fax: +216 71 351 933E-mail: [email protected] – Internet: www.afdb.org

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