review of dfid activities in the ... - business environment

REVIEW OF DFID ACTIVITIES IN THE ENABLING

ENVIRONMENT

Final Report

Investment, Competition and Enabling Environment Team Policy Division

with

Simon White and Peter Fortune

December 2004

ICEE Team, Policy Division, DFID 1

Review of DFID Activities in the Enabling Environment

Table of Contents Executive Summary ............................................................................................................ 4 I Background ........................................................................................................ 8 II DFID Support for Enabling Environment Reforms ......................................... 10

Importance of the enabling environment...........................................................10 Creating an enabling environment for private sector development ..........................................................................................11 Creating an enabling environment for investment ................................13 Creating an enabling environment for financial services ......................13 Creating an enabling environment for the provision and maintenance of infrastructure ................................................................14 Creating an enabling environment for trade ..........................................14 Creating an enabling environment for agriculture and rural development ..........................................................................................15 Creating a demand for better governance through a more enabling environment ............................................................................15

The rationale for supporting enabling environment reforms.............................15 III Trends and Patterns of Support ........................................................................ 19

The volume and distribution of DFID’s enabling environment reform programmes .......................................................................................................20 Areas of focus in enabling environment reform................................................23 Type of reform activities ...................................................................................26 Models used in the design and delivery of enabling environment reform services ..............................................................................................................30

Direct programme interventions............................................................30 Participation in joint programmes .........................................................31 Participation in multi-donor facilities....................................................31 Establishment of specialised funding and programme facilities ...........33

IV DFID’s Competencies and Challenges............................................................. 35 DFID's comparative advantage in enabling environment work ........................35

High investment in 'intellectual capital' within DFID ...........................35 Commitment to working in collaboration with other development partners.............................................................................36 Working within a specialised niche.......................................................37 Credibility on the ground.......................................................................38 Strong history in the field ......................................................................38

Challenges for DFID in the enabling environment ...........................................39 Assessing impact and gathering evidence of reform outcomes.............39 Knowledge management in a decentralized structure ...........................43 Developing an interdisciplinary approach to enabling environment reform ...............................................................................44



Practice of enabling environment reform ..............................................44 Multi-disciplinary approaches to enabling environment reform ...........46

What has worked less well? ..............................................................................47 Difficulty moving from analysis to implementation .............................47 Difficulties of project focus...................................................................49 Weaknesses of evaluation and lesson learning......................................49

V Recommendations ............................................................................................ 50 Continue to support enabling environment reforms with incremental, demand-based expansion at the country level ...................................................50

Continue DFID’s proactive approach to working with multi-donor structures .....................................................................................51 Build a culture for reform......................................................................51 Strengthen headquarter and country office linkages .............................52 Integrate enabling environment reform with broader growth agendas ..................................................................................................52

Continue policy research in key areas of the enabling environment.................52 Improve knowledge management and dissemination .......................................53 Improve the monitoring and assessment of enabling environment reform programmes and projects.......................................................................53 Improve the measurement of impact of DFID-support enabling environment reforms .........................................................................................53

List of references............................................................................................................... 55 Annex 1: Terms of reference............................................................................................ 59 Annex 2: Inventory of DFID Enabling Environment Activities....................................... 61

List of tables Table 1: Total new budgetary commitment by DFID on enabling environment

programmes and projects during the period 1996-2004................................... 20 Table 2: Areas of focus in DFID’s enabling environment work by frequency of

funded activities/projects.................................................................................. 25 Table 3: Activities and instruments used in DFID’s enabling environment work by

frequency of occurrence in funded projects ..................................................... 27

List of text boxes Box 1: DFID’s work on competition policy ................................................................ 12 Box 2: Regulatory Investment Systems for Enterprise Growth................................... 30 Box 3: Public Private Infrastructure Advisory Facility................................................ 31 Box 4: Policy messages and issues .............................................................................. 46 Box 5: A selection of reform outcomes ....................................................................... 42



Executive Summary 1 The World Development Report 20051 emphasises that a good investment

climate is central to growth and poverty reduction, by providing opportunities and incentives for firms – from micro enterprises to multinationals – to invest productively and create jobs. The report provides numerous examples - Uganda, India, China and Ukraine – where private investment as a share of GDP has increased markedly, and the proportion of people living in poverty declined, as a result of investment climate improvements.

2 The Investment, Competition and Enabling Environment (ICEE) Team of the Department for International Development (DFID) has undertaken a review of the contribution DFID makes to improving the enabling environment (a term more or less synonymous with ‘investment climate’) for private sector development and pro-poor growth developing countries. This is a summary overview of the main report, outlining the broad findings of the review.

3 The objectives of the review were to compile an inventory of DFID activities in the enabling environment; examine DFID experience in supporting reforms of the enabling environment; identify models of enabling environment support that work; and make suggestions on what DFID should do in this area in the future.

4 The environment in which economic development occurs has come under greater scrutiny in the last two decades. Following a trend that began in the 1980s, many developing countries have taken steps to reform the conditions within which their economy operates, through policies and processes that liberalise privatise and otherwise open their economies to new investment and international markets.

5 International development efforts have also undergone a transition in the last decade, principally by an elevation of the role of the private sector in development. International development assistance has encouraged and supported the amendment of public policies to reposition governments in relation to the private sector, which, by providing more than 90 percent of jobs worldwide, is at the heart of the development process. It is within this context that DFID has expanded its work in recent years to reform the business-enabling environment.

6 The enabling environment is a broad concept and on the widest definition can comprise all factors external to firms, including the policy, legal and regulatory framework; external trade policy; governance and institutions; physical security; the social and cultural context of business; macroeconomic policies; access of firms to financial and business services; and the availability of physical and social infrastructure services. This review adopted a narrower, but commonly held, definition, which focused on the extent to which government policies, laws and regulations set the rules of the game for business and influence, positively or negatively, the performance of markets,

1 World Development Report 2005, A Better Investment Climate for Everyone, The World

Bank, Washington DC. 2004



the incentives to invest, and the cost of business operations. Thus the review did not include DFID support to increase the supply of financial and business development services, for example, except insofar as projects in these areas addressed government policy and regulatory frameworks. Neither did it include DFID’s support to improve health, to combat HIV/AIDS, to reduce crime, to help develop the supply of educated and skilled labour, or to build infrastructure, though these aspects are clearly important for the broader environment within which firms operate.

7 DFID’s involvement in the enabling environment has grown in recent years to an estimated spend of £435 million since 1996. Some £175 million of work is currently planned. The review has found that enabling environment reform is highly complex and multidimensional and that DFID’s support in this area takes many forms, in terms of scale of project, area of focus, and type of activity. There are very large projects containing many elements, only one of which might focus directly on the enabling environment, and there are smaller projects that address specific enabling environment issues or concerns. The larger projects typically deal with a broad range of issues and tend to operate over a longer period of time, for example 5 years or more.

8 The report identifies sixteen broad areas of focus in DFID’s enabling environment work: support for privatisation and parastatal reform; investment and competition; general enabling environment and pro-poor growth promotion (including making markets work); and regulation-related projects, have been found to be the most common areas of focus.

9 There are at least nine broad sets of activities that DFID commonly undertakes to promote reform in its areas of focus. These include capacity building, technical assistance, policy research, and, increasingly, the promotion of policy reform dialogue between the public and private sectors.

10 The range of areas and activities contained in enabling environment reform initiatives appears to have evolved over time. In some cases, for example, country offices initiated projects that focused mainly on business regulation, but subsequently these projects have been expanded to deal with a broader set of systemic policy issues.

11 DFID’s work on the enabling environment has also covered new fields of interest in recent years, for example competition policy and law, infrastructure policy and agriculture.

12 There are significant regional variations in the Department’s enabling environment work. Asia is the region where most funds have been spent, due in part to a relatively small number of large multidisciplinary ‘mega-projects’, which contain enabling environment reform components. In contrast, Africa has a relatively high number of enabling environment projects, possibly reflecting a different economic, institutional and demographic context as compared with Asia. To some extent, regional variations also reflect varying demands as support for reforms to the enabling environment can only occur when developing-country governments recognise the need for and prioritise reform.

13 Both the present DFID review and the WDR 2005 have attempted to measure both the impact of enabling environment work and to identify which kinds of reform programmes (i.e., areas of focus, activities, models) work better than others. There are some clear examples of economic growth and poverty



reduction following enabling environment reforms. In China, the proportion of those living on less than $1 a day decreased from 64% in 1981 to 17% in 2001; in India, from 54% to 35%; and in Uganda, 56% to 35% (between 1993 and 2002). Ukraine’s GDP has been growing by at least 8% per annum since 2000, and has reached 14%, following initial reforms. The Investment Climate Assessment of India shows that better regulations and laws for private sector development, as well as better infrastructure, can increase the GDP growth rates of Indian states by up two percentage points per annum.

14 Much of DFID’s work has focused on technical assistance and budget support. The review emphasises that whilst reform requires changes to laws and policies, there are gaps between the existence of formal policies and rules and what happens in practice on the ground. In this regard, technical assistance can be a powerful ways of assisting governments in their reform efforts, but, as with all assistance, it is the quality, not the volume, that determines effectiveness.

15 While there has been significant anecdotal information to draw on regarding approaches to the enabling environment, and country office experience is a rich source of information in this area, it is difficult at this stage to claim that one approach is more effective than another. Reform interventions are designed to suit the specific economic, political and institutional circumstances of a country or region. Thus, comparing projects across countries or regions is not necessarily a plausible basis for determining the success or failure of a particular kind of activity. Having said this, it has to be noted that there is a lack of systematic evaluation information on the results and outcomes of projects and it is clear that DFID needs to develop better processes and information regarding the impact of its work in the enabling environment.

16 The report examines the capacity of the Department to undertake enabling environment work and the challenges such work brings. Drawing from staff views in London and selected country offices, and the opinions of a number of external agencies, it is clear that the Department has considerable value to apply to this work. DFID is an agency that invests in its ‘intellectual capital’ and has contributed to a number of significant debates on the enabling environment. It is renowned for its contribution to developing new concepts and looking for innovative solutions to development problems and has access to a number of experienced practitioners in this field.

17 DFID also displays a commitment to working with other agencies internationally, as well as on specific country-level projects. DFID’s experience and track record in enabling environment work has given it a strong reputation among other agencies, and its decentralised structure has ensured that it remains closely in touch with issues on the ground, an essential condition for effective enabling environment work. Thus, DFID has much to offer development partners, including developing-country governments and international development agencies, in the support of enabling environment reforms.

18 However, there are a number of challenges that work on the enabling environment encounters, particularly at the country level. These include the challenges of determining appropriate points of entry in an inherently complex field; gaining the trust and confidence of partners over a lengthy period of



time; designing interventions responsive to country needs, circumstances and political context; translating research into policy and policy into action on the ground; and identifying the role of DFID in relation to that of its partners, including other donors.

19 Similarly, improving the practice at country level of supporting reforms in the enabling environment is a concern for many. The Department has already built up significant experience in this field that merits synthesis and wider dissemination, both to DFID country offices and to development partners. The work carried out by DFID in developing case studies of enabling environment activities as input to the WDR, now the definitive work internationally on evidence for enabling environment reform and a source of best practice for the practical implementation enabling environment reform, is an example of what can be done by DFID in this area.

20 Although the preparation of project case studies has contributed useful partial information on outcomes of selected DFID interventions in the enabling environment, the systematic and in-depth assessment of impact, particularly at the country level, is clearly a challenge for DFID (and other donors). Current evaluation and progress reports offer scant information to determine impact and there is a clear need to strengthen monitoring and impact tracking aspects of enabling environment work.

21 Work on the enabling environment is a multidisciplinary task, requiring the inputs of various specialists, particularly enterprise advisers, economists, and governance advisers, both at country and central levels. While some new initiatives have been taken recently, notably the creation of Growth Teams in country offices, many respondents considered that much remained to be done to develop DFID’s capabilities in multidisciplinary working.

22 The review concludes with several recommendations that need to be discussed by staff in central and country offices. In line with the key messages from WDR 2005, the report calls for the strengthening of policy support to DFID country offices in the implementation of reform of the business-enabling environment across key sectors, including enterprise, agriculture, infrastructure and finance. This could include the preparation of How To Notes and training workshops to guide staff in their programme planning and design. Recommendations are also made for further research on enabling environment issues, the improvement of knowledge management systems, and the development of a monitoring and evaluation framework that can be used for projects in the enabling environment.

23 DFID staff should continue to look for creative ways to support reforms of the enabling environment, building on the strengths of the Department in this area. Staff can draw from accumulated DFID-wide experiences in enabling environment work in adapting approaches, models and activities to meet the particular policy reform demands that face them.



I Background

The idea for a review of DFID’S work in the enabling environment emerged from a meeting called by Masood Ahmed, Director General, Policy and International, in the early part of 2004 to discuss DFID’s work in promoting private sector development. The meeting agreed that more needed to be done to improve DFID’s information base and to clarify its comparative advantage and strategic position in private sector development work, particularly in areas related to public private partnerships, the private sector’s role in service delivery and the business-enabling environment.

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Policy Division’s Investment, Competition and Enabling Environment (ICEE) Team agreed to conduct a review of DFID’s work in the business-enabling environment. The Team drafted a Terms of Reference (Annex 1) and convened a small cross-departmental Working Group, which included representatives from DFID Country Offices and HQ departments. Two consultants, Simon White and Peter Fortune, were contracted to assist with the review. The report was a joint product of the ICEE Team and the consultants. The review consisted of a desk study drawing upon existing materials and supplemented by meetings between the consultants and selected informants, including telephone and email contact with DFID country offices engaged in enabling environment work and discussions with a number of DFID’s bilateral and multilateral development partners. The review drew upon existing DFID documents, including evaluation reports and project memoranda relating to activities in the enabling environment, both in London and at country level; case study material prepared by the ICEE Team for the World Development Report 2005 on the investment climate; recent studies from the SME Donors Committee; and recent work conducted internally summarising DFID projects in private sector development and estimates and analysis conducted for the 2004 Treasury Spending Review. A major and time consuming part of the review was the compilation of an inventory of DFID enabling environment activities by the ICEE Team (see Annex 2), a process which took several months due to the highly fragmented nature of the data and the need to investigate multiple sources. This provided the basis for the analysis of trends and patterns of DFID activities in the enabling environment (Chapter III). Given the short timeframe and limited resources available, emphasis was given to the analysis of a small sample of projects in each geographical area where DFID has a major ongoing presence or has plans to provide support (i.e., Africa and Asia), as well as relevant policy work at headquarters in London (i.e., Policy Division, International Division, Regional Divisions). The review considered DFID’s work on the enabling environment for domestic and foreign enterprises, including work at both national and international levels. It also touched on enabling environment aspects of DFID projects in particular sectors of private sector development, including pro-poor financial systems development, agricultural development and infrastructure investment, as well as SME development more broadly. The enabling environment is a broad concept and on the widest definition can comprise all factors external to firms, including the policy, legal, and



regulatory framework; governance and institutions; physical security, the social and cultural context of business, macroeconomic policies, access of firms to financial and business services, and the availability of physical and social infrastructure services.2 A narrower definition, which is the focus of this review, refers to the extent to which government policies and practices set the rules of the game for business and influence, positively or negatively, the performance of markets, the incentives to invest, and the cost of business operations. Annex 1 contains the terms of reference for the review.

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The review considered those DFID activities relating to the following core elements of the enabling environment: (i) Legal and regulatory framework for business generally and small

business in particular, including the rule of law and access of businesses to commercial justice;

(ii) Policy framework for business development, including competition policy; and

(iii) Institutional and organisational framework concerned with the design, implementation or compliance of policies and programmes for the regulation, promotion and representation of business.

The review report is structured in the following way. The next chapter, Chapter II, describes the relevance of DFID’s efforts to support reforms of the enabling environment across a number of different sectors. The rationale for reforming the enabling environment is also presented. Chapter III describes DFID’s work on the enabling environment. Drawing on an inventory of DFID’s work in this field, which can be found in Annex 2, this chapter assesses the range of enabling environment interventions supported by DFID; it assesses the funding commitment to enabling environment reforms, the range of development sectors that are addressed in this work, and the activities and models used. The various competencies DFID brings to supporting reforms in the enabling environment and the challenges of working ‘upstream’ at a more systemic, policy level are examined in Chapter IV. The final chapter, Chapter V, presents a series of tentative recommendations. These recommendations draw from the findings of the review and, in particular, the challenges presented in the previous chapter.

2 There are a number of synonyms for the term ‘enabling environment’ that are used by

different donor agencies. These include ‘business environment’, ‘investment climate’, and ‘business climate’. However, White (2004) has found that when unpacking these terms there can be different interpretations of the elements referred to by these terms.



II DFID Support for Enabling Environment Reforms 12.

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This chapter examines the pathways that have led DFID to expand and diversify its work in the enabling environment. It does this by describing some of the trends toward enabling environment work found in specific development sectors. Following this, a general rationale for DFID’s work on the enabling environment is presented.

Importance of the enabling environment The enabling environment is now widely recognised within DFID as a mechanism through which greater development outcomes can be achieved. The World Development Report 2005, which is based on an extensive array of data sources including Investment Climate Surveys3 and the Bank’s Doing Business reports, defines a sound enabling environment for private sector led growth as “critical”. The importance of the enabling environment has also been highlighted in the emerging findings of DFID’s Africa Commission. The WDR 2005 (which contains a number of specific case-study contributions from DFID) establishes that, while private firms are at the heart of the development process, their contribution to these processes is largely determined by the investment climate. The investment climate shapes the costs and risks of doing business, as well as barriers to competition, all of which strongly influence the role of the private sector in social and economic development. The Investment Climate Assessment of India, for example, shows that better regulations and laws for private sector development, as well as better infrastructure, can increase the GDP growth rates by up two percentage points per annum. The relevance of the enabling environment has also been emphasised within the OECD Development Assistance Committee, which agrees that an enabling environment for the private sector can contribute to rapid and sustained pro-poor growth. This requires the creation of strong incentives for domestic and foreign private investment; the fostering of international economic linkages; access to new assets and markets; and the need for competition to spur innovation and raise productivity. Research into the enabling environment and country investment climate assessments have invariably found that developing countries are challenged by poor public governance, weak infrastructure, and policy and legal frameworks that are inconsistent, unstable, and unpredictable. While many fields of DFID’s development work were previously seen as relatively independent from one another, the cross-cutting nature of the enabling environment has led to an increasing awareness of the interrelationships between different aspects of the Department’s work The review has found this in the following sectors:4 private sector development

3 Several of these were produced with funding support from DFID 4 In addition to the development fields listed, it is likely that there are other fields that

DFID works in that directly or indirectly engage with elements of the enabling environment. However, given the scope of this review, it has not been possible to cover all fields of DFID’s work.



generally; financial services; the provision and maintenance of infrastructure; trade and investment; and agriculture and rural development.

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The increasing relevance of the enabling environment to each of these fields of development is described below.

Creating an enabling environment for private sector development DFID has recognised for some time that sustained economic growth is needed for developing countries to reach the Millennium Development Goals and that this growth must come from the private sector. While the development of financial and business development services has been quite strongly supported by DFID in the past to promote private sector development, and small enterprise development in particular, attention has increasingly been given to the wider business environment in which the private sector operates.5 DFID has prioritised in its Public Service Agreement ‘sustained improvements in the climate for foreign direct investment, local private sector development and market access for the poor’. This has required work both on the private sector, (i.e., strengthening government policies towards business, market supervision and regulation) and with the private sector (i.e., directly promoting business partnerships and capacity building) (DFID 2003b, 2004a). DFID’s private sector development work is increasingly adopting a multidisciplinary approach involving enterprise, economic, governance, livelihoods and infrastructure perspectives.6 Private sector development, therefore, has become part of a wider policy agenda; supported by a variety of instruments including technical assistance, project aid and policy research. Thus, private sector development work has come to include the following broad areas of focus: (i) Policy development and implementation: DFID assists developing-

country governments to adopt and implement policy frameworks to promote the private sector. DFID also supports productive dialogue and the development of trust between government and business.

(ii) Legal and regulatory reform: because over-regulation of business stifles enterprises, reducing incentives to invest and grow, DFID supports the simplification and improvement of business laws and regulations and the development of more accessible commercial justice systems.

(iii) Privatisation: DFID supports the reform and privatisation of state-owned enterprise and banks to reduce the fiscal pressure on governments and to facilitate private sector development by unblocking sectors of economy dominated by inefficient public enterprise.

5 This is consistent with many other donor agencies that have come to focus their

efforts on the business environment for private sector development (see White 2004; White & Chacaltana 2002).

6 The establishment of Growth Teams in various country offices (e.g., Bangladesh, Bolivia, Kenya, Nigeria and Tanzania) in recent years is indicative of the growing awareness for a more interdisciplinary approach to the pursuit of economic development and pro-poor growth (DFID 2003b).



(iv) Investment climate analysis: DFID supports analysis of the investment environment to pinpoint and sequence critical reforms.7

(v) Making markets work for the poor: since private sector development revolves around access to markets and the capacity of potential entrepreneurs to identify and pursue new market opportunities, this area of work is extremely relevant to pro-poor development approaches (see DFID 2000).8

(vi) Competition policy: because markets are recognised as powerful mechanisms that drive development and pro-poor growth, DFID supports the establishment, improvement and implementation of appropriate competition policy regimes to maximise the benefits of competition and guard against anti-competitive practices such as cartels and the misuse of market power, which are some of the causes of market failure (see DFID 2003h).9 See Box 1.

Box 1: DFID’s work on competition policy

Markets are powerful mechanisms that can be shaped by policy to work to society’s advantage. Competitive markets put pressure on suppliers to offer goods and services to consumers at the lowest possible prices. Competition also encourages innovation and the use of the most effective methods of production, and thus boosts growth. DFID, both centrally and through its country offices, encourages the adoption of appropriate competition law regimes. Project implemented by country offices include the revision of Tanzania’s competition law, a peer review of South Africa’s competition law regime and a current study of competition in Nepal. The development of an effective competition law regime in Bangladesh will form a key part of the Regulatory and Investment Systems Improvement for Enterprise Growth (RISE) initiative, a major enabling environment project to be undertaken by DFID Bangladesh in association with the World Bank. (See Box 2). Noteworthy among projects supported centrally is ‘7-Up’, a comparative study of the competition regimes of seven developing countries, four in sub-Saharan Africa and three in south Asia. This two-year project was undertaken through a combination of in-country research, case studies and national and regional meetings. It has helped build national capacity and promoted awareness of the role of competition law and policy in national economic strategies. It highlighted the need for policy changes, and created an international network of competition experts who have contributed to ongoing discussions on international competition issues.

7 DFID’s ICEE Team has supported country investment climate studies by the World

Bank in China, India and Pakistan and Business Environment Surveys by the Commonwealth Business Council covering countries of the Commonwealth.

8 DFID’s support to the OECD DAC’s PovNet programme improves understanding of the impact of agricultural markets, infrastructure and financial services on the poor. At country level, DFID’s efforts to make markets work better for the poor include the FinMark Programme, in which the Banking Council of South Africa is helping to deepen financial markets; an Asia Development Bank / DFID programme in Vietnam; and a new programme to extend rural market development and agricultural supply chains in Nigeria.

9 The note entitled 'How to promote competition law and policy' outlines the value to developing countries of a national competition law, and the role of regional competition law in assisting regional economic integration (DFID 2003h).



Creating an enabling environment for investment DFID implements a range of activities and programmes at both central and country levels aimed at promoting a more conducive enabling environment for both domestic and foreign investment.

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DFID’s ICEE Team has collaborated with the World Bank Group on various investment issues. These include country investment climate studies; the World Development Report 2005 on the topic of the investment climate; and work with the Foreign Investment Advisory Service (FIAS) in several countries and at regional levels, highlighting the policies, regulatory frameworks and institutions that businesses need to grow. The Team has also supported the Commonwealth Business Council’s biannual Business Environment Surveys covering 30 countries. DFID has also supported the OECD in its study of the benefits and costs of foreign direct investment (FDI), and UNCTAD, NGOs and others to improve international understanding of the roles of both FDI and of effective competition laws and policies. In Zambia, DFID has helped to identify barriers to foreign and domestic investment, and the potential for supply chain linkages in commercial agriculture from big business to smallholders. DFID’s ICEE Team, in collaboration with DFID Southern Africa, is currently undertaking studies of the impact of country credit ratings and taxation regimes on private investment in Africa.

Creating an enabling environment for financial services DFID's approach to financial services for the poor has traditionally focused on the design, creation and development of specialised institutions (e.g., microfinance institutions) to deliver financial services. In recent years, however, the approach has become more systemic. While support for financial services delivery has traditionally been considered important in the overall suite of interventions required to promote growth, the emphasis now is on how improvements to the policy, legal and institutional framework for financial systems development can widen and deepen access to financial markets generally, thereby benefiting larger numbers of the poor and contributing more substantially to poverty reduction. The thrust of DFID’s work in the financial sector, therefore, is to promote the development of the financial sector as a whole. This means that identification of barriers to financial sector development––such as inadequate legal and regulatory frameworks––must be addressed, so that the financial sector can more effectively mobilize savings, manage risks, reduce the costs of acquiring information about investment opportunities, improve the monitoring and control of financial intermediaries, and improve the exchange of goods and services. Much of this work involves bridging the gap between formal and informal financial services (i.e., mainstreaming poor people into the formal financial sector rather than setting up parallel schemes). Thus, the legal and regulatory aspects of financial services is particularly important (DFID 2003d, 2003f). In Nigeria, for example, the proposed ProFinS (Promoting Pro-Poor Financial Services) Programme will endeavour to facilitate private sector access to financial services to enhance its ability to effectively take advantage of new market opportunities, and enhance poor people's access to financial services



by improving their participation in the formal financial sector (DFID Nigeria 2004). DFID has also supported the development of micro-finance legislation in Kenya, Tanzania and Uganda; and programmes that take a sectoral approach to reforming financial markets, such as in South Africa through the FinMark Trust.

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Creating an enabling environment for the provision and maintenance of infrastructure Weak infrastructure has consistently been identified in investment climate surveys as one of the most significant impediments to private investment. Infrastructure has traditionally been addressed by donor agencies through development loan programmes (e.g., provided by multilateral development banks) or by the direct provision of grants to developing countries. However, in recent years the private sector has become more engaged in infrastructure provision. Promoting private sector involvement is a major thrust of DFID's work in this area, and the creation of an enabling environment that will encourage private sector investment is now regarded as fundamental. A flagship programme of DFID, for example, is the Public Private Infrastructure Advisory Facility (PPIAF), which provides technical assistance to developing-country governments to develop and implement appropriate policies, laws, regulations and institutions that will enable and encourage greater private investment in infrastructure. (See Box 3.)

Creating an enabling environment for trade In a globalised world a facilitative trade regime is vital for private investment. Trade-related capacity building (TRCB) has moved from trade-related technical assistance (TRTA), which focussed on export marketing and trade liberalisation, to trade facilitation (i.e., reducing transaction costs) and promoting awareness and knowledge amongst national institutions of the rules, procedures and institutions of the international trading system. A part of this shift in focus has been the move from a sectoral focus (i.e., working in sectors that showed the most promise for export promotion), to a broader environmental approach and the facilitation of trade. A consequence of this shift has been a change in development partners. Another consequence has been the scaling up of the fields of intervention. DFID programmes in this area go beyond the country level - the regional and global concerns of trade have become more prominent - and the International Trade Department focuses more on working with multilateral agencies (e.g., UNCTAD, ITC, WTO) than it has in the past (North-South Institute 2004). The number of enabling environment-related activities carried out by DFID in the trade field has grown dramatically in recent years: from around five trade-related projects in the period 1990-1993, to over ten projects in the period 1993-1995, to a very broad trade programme currently. The influence of the Government's White Paper on Globalisation has contributed significantly to the increase of DFID’s activities in this area (Rabb & Maur 2004).



Creating an enabling environment for agriculture and rural development Approaches to agriculture and rural development have changed over the years. In recent years, there has been less emphasis on the Green Revolution style of development that sought to increase productivity in the agriculture sector, and greater interest in creating stronger linkages between rural and urban economies. Compelling evidence regarding the significance of non-farm incomes in rural economies and pro-poor growth has led development programmes toward a better understanding of how rural economies work. Analytical tools such as the Sustainable Livelihoods Approach have provided much better insights into these issues.

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Agriculture has been recognised by DFID as ‘primarily a private sector activity’ that is ‘subject to external influences’ and ‘a particularly wide range of distortions and influences that have limited its potential contribution to poverty reduction’ (DFID 2002a, p. 16). DFID's work in this sector has focussed more closely on the broader conditions that shape agriculture and rural economies. The Secretary of State for International Development, Hilary Benn MP, has highlighted this shift: ‘We must find practical, replicable ways that connect poor people with the market opportunities that agriculture offers; tackle their vulnerability to risk; and enable their voice to be heard in policies and institutions’ (Benn 2004). Key issues include: the role of markets and increasing agricultural trade and investment; agriculture, land and rural development policies and institutions; pro-poor growth; service markets for agriculture; and advocacy (DFID 2003a). Within this scenario, DFID is concerned with the two-fold issue of economic growth in rural areas and social inclusion.

Creating a demand for better governance through a more enabling environment Within DFID the 'good governance agenda is overwhelming' and there is a need to establish priority-starting points in this field. While improving the enabling environment for investment, growth and poverty reduction is only one aspect of the governance agenda it appears to be growing in importance. Governance is recognised by many as an essential element in the reform of enabling environments (Everest-Phillips 2004; Scott 2004). The enabling environment is relevant to the governance agenda in two main ways. Firstly, key element of enabling environment programmes comprise reforms that improve governance in the public sector, that is, improvements in the ways governments’ manage the business enabling environment, such as by becoming more transparent and accountable (DFID 2002b). Secondly, DFID supports better corporate governance and social responsibility (DFID 2003c, 2003i). For example, DFID’s work in Bangladesh has shown how poor corporate governance accommodates government corruption and lessens the demand of the private sector for improvements in private sector governance (Alamgir, Allcorn et al. 2004). Thus, those working in the field of governance have increasingly become concerned with both the role of the State and the private sector in the business environment.

The rationale for supporting enabling environment reforms From a policy perspective, the Government's Second White Paper on International Development (Government of the United Kingdom 2000) sets the scene for much of DFID's work in the enabling environment. Enabling



environment issues are cited on a number of occasions throughout the White Paper and the Government clearly commits itself to helping 'developing countries build the effective government systems needed to reform their economic management, make markets work for poor people... meet the challenge of globalisation... reduce corruption... [and] ensure respect for human rights and a greater voice for poor people....' (p. 10). This issue is taken further by the Target Strategy Paper on Growth, Equity and Security and the recent series of How To Notes on various aspects of private sector development (DFID 2003d, 2003f, 2003g, 2003h, 2003i, 2003j), including the investment climate (DFID 2003e).

39.

40.

41.

The DTI’s recent White Paper, Making Globalisation a Force for Good (2004), re-emphasises the importance of trade and investment for development, and the need to improve the investment climate in developing countries to enable them to benefit fully from globalisation. It highlights a number of things DFID is doing to help improve the enabling environment in developing countries, such as support for the World Bank and Commonwealth Business Council’s investment climate surveys, and the provision of technical assistance through the Public-Private Infrastructure Advisory Facility (PPIAF) to improve the enabling environment for private sector investment in infrastructure (p. 95). The WDR 2005 – produced with considerable support from DFID - provides the clearest statement to date of the central role of investment climate reform to growth and poverty reduction, including research and background assessments of the positive impact of reform and a detailed analysis of the transmission mechanisms from the investment climate to growth and poverty reduction. Supporting the efforts of developing-country governments to reform the enabling environment to promote economic development and pro-poor growth has brought new challenges to DFID at both headquarter and country levels. The most significant of these are identified later in this report. However, there are also valuable benefits that DFID has found from working in the enabling environment. Some of the reasons for a more systemic, enabling environment approach to work included the following: (i) Increases the scale of impact: By working to reform the policy

environment in which development occurs, DFID aims to increase the scale of impact of its interventions. The financial sector development briefing note, for example, indicates this is one of the prime reasons for dealing with broader enabling environment issues, in preference to focussing on specific micro-finance projects (DFID 2004c). Indeed, Policy Division’s ICEE Team claims that one of the main benefits of improving the enabling environment is that ‘enabling environment interventions generate a much wider impact on private sector development generally by alleviating policy and regulatory constraints to business establishment and growth’.10

(ii) Leverages a broader range of influential elements: Many development policy makers and practitioners are aware that specific projects at the micro level, and narrowly defined programmes, are

10 Comment by the ICEE Team, DFID London (Polatajko 2004).



insufficient to cause the systemic change required to meet international development goals. There are important crosscutting influences that affect the potential for change in a given field or sector and these can only be addressed when working at the level of the enabling environment. For example, the shift from trade-related technical assistance to trade-related capacity building involves a broader range of actors and trade rules, systems and institutions, each of which have a significant influence on trade (North-South Institute 2004).

(iii) Promotes better integration of DFID development efforts: Working on the enabling environment provides DFID with the opportunity to integrate its efforts across a range of development portfolios. This can help DFID present a consistent focus in its work across multiple fields. While some of the opportunities for integration have not always been maximised in the past (as described later in this review), work on the enabling environment can be very useful in this regard. The concept of pro-poor growth, for example, 'builds coalitions between developing-country governments, the private sector and donors' (DFID 2004d). Thus, pro-poor growth requires macro-level interventions that holistically address the range of economic and social policy frameworks. This can be summarised as interventions to promote reforms to the enabling environment.

(iv) Creates sustainable change: By improving the enabling environment for private investment and pro-poor growth DFID is creating sustainable change. Department supported reform efforts create systemic change that has a lasting effect. Unlike micro-level development programmes that are often challenged by the need to address the long-term issues of sustainability, ‘upstream’ reforms at the macro and meso levels change the broader conditions in which development occurs. Thus, reforms that improve policies, laws and institutions can have a prolonged influence on development prospects (particularly for private investment) and, while improvements can continue to be made, these efforts also enhance the targeting, impact and sustainability of micro-level programmes.

42.

A number of DFID country office staff have highlighted the importance of DFID’s work in the enabling environment. The DFID Private Sector Adviser in Bolivia, for example, says that work on the enabling environment promotes structural reform processes, addresses broader policy issues, provides opportunity to engage with overall institutional set ups and promote pro poor reforms at high level, and encourages greater country ownership.11 Staff in the DFID Kenya Office have indicated that it is ‘more productive to address the meso and macro level’12. Thus, while micro-level DFID interventions are considered to be useful for gaining an appreciation of the experiences enterprises face on the ground, meso and macro level interventions have a greater and more lasting effect. Enabling environments are seen as ‘fundamental to unlocking the growth potential of developing economies’13,

11 DFID Country Office respondent (Zeballos 2004) 12 DFID Country Office respondent (Masinde 2004) 13 DFID Country Office respondent (Ferrand 2004)



indicating that the removal of domestic constraints and obstacles to private sector development is of key importance when fostering pro-poor growth and economic development. The Department’s work on ways to accelerate pro-poor growth also highlights the importance of enabling environment reform. This includes the creation of strong incentives for private investment––both domestic and foreign––by reducing the costs and risks of doing business, promoting economic and political stability, and a consistent policy and legal framework. Also important is the fostering of international links in an effort to integrate the national economy with the world economy. This offers new opportunities for developing countries, as new markets, business partners, jobs, goods and services become available. Access to new assets and markets and reducing the vulnerability of the poor are also elements of the pro-poor growth agenda that require the reform of the enabling environment.

43.

44.

In summary, the scope and relevance of the enabling environment to the work of the Department is growing. However, while there are many expectations attached to enabling environment work, it is important that lessons are learnt from the experiences DFID has accumulated in this area. It is also important to ensure the expectations surrounding enabling environment reform are realistic and to find ways to improve the impact of enabling environment reforms on overall development targets. Indeed, this review is a timely opportunity to reflect on many of these issues.



III Trends and Patterns of Support

Recognising the benefits of promoting a better enabling environment for private sector development, DFID has undertaken an increasing number of programmes at both central and country levels that support reform of the enabling environment. Annex 2 presents an inventory of many of these programmes and provides an opportunity to examine and classify the specific ways DFID promotes reform.

45.

46.

47.

48.

49.

This chapter examines the kinds of support the Department provides to enabling environment reforms in four ways. Firstly, it summarises the financial contribution DFID provides to enabling environment reforms. While the commitment of funds is only one indicator of DFID’s support––and not necessarily the most meaningful indicator––it does provide useful comparative data. Secondly, the areas of DFID’s interest in enabling environment reforms are described, illustrating those areas which DFID sees as greatest priority or where there is greater demand, or where DFID has a comparative advantage among the broad range of possible enabling environment areas. Thirdly, the ways DFID supports enabling environment reforms is examined. Finally, the various models for enabling environment reform are reviewed. Annex 2 comprises an inventory of DFID’s enabling environment work across four regions, plus those programmes that have been financed by DFID headquarters. This inventory has been compiled on the basis of an intensive search of PRISM; a detailed examination of the Development Resource Centres, Central Research Department and Challenge Funds databases; a review of the work programmes of Policy Division; and a description of former professional Department work programmes (e.g., PSPD, EDD). It shows the wide variety of work, including policy and research, undertaken since the late 1990’s on the enabling environment. These databases have been supplemented by the contribution of many DFID country staff, who have added their institutional memory to fill gaps in the information systems. This inventory includes those programmes, projects and activities that are directly relevant to the policy, regulatory or legal dimensions of the enabling environment. In other words, the focus is on the public policy framework governing, or ‘enabling’, business establishment and growth. This excludes many areas of DFID activity, such as the provision of business development services, health and education, while recognising that these may be an important part of the broader environment in which business operates. It contains information on DFID’s enabling environment programmes and projects that are either recently completed, are ongoing, or are planned for the near future and already in the design stage. There are a number of limitations to the data presented in the inventory. First, there were practical problems in retrieving data from PRISM as ‘enabling environment’ is not a key word used in the database. Plus many gaps were discovered in the existing database. Also, in mega, composite projects, total project expenditure does not usually reflect a sole, or even primary, focus on enabling environment aspects, which are often difficult to separate out and attribute costs to. Second, where possible, PRISM database information has been supplemented by DFID’s ‘institutional memory’ and checks by country



offices, but gaps may remain. Third, expenditure figures comprise programme costs only, not administration costs.

The volume and distribution of DFID’s enabling environment reform programmes Table 1 below compares the approximate budgetary commitment by DFID on enabling environment programmes and projects by region, and those programmes and projects funded by DFID headquarters in the UK.14

50.

Table 1: Total budgetary commitments by DFID on enabling environment programmes, projects and activities during the period 1997-2004

Region Number of

projects/activities Amount (£000)

Africa 45 (24%) 125,171 (29%)

Asia 36 (19.5%) 278,385 (65%)

Europe 12 (6.5%) 15,813 (3.5%)

Latin America 12 (6.5%) 9,121 (1.2%)

Central (DFID HQ) 75 (40.5%) 7,384 (1%)

Central (Challenge Funds) 5 (3%) 1,548 (0.3%)

Total 185 (100%) 435,845 (100%)

59.

60.

61.

As the above table shows, the activities included in the inventory total almost £436million over a seven-year period, 1997-2004. This works out to an average new commitment on enabling environment support of about £62 million per annum over the period, though the new funding commitments are in fact quite irregular from year to year. In addition, some £175 million worth of projects are in the planning stage at the time of writing. The largest absolute number of activities has been undertaken at central level, whereas the largest expenditure, almost three quarters of total expenditure, has taken place in Asia. This distribution of budgetary commitments is analysed in the following paragraphs. Activities financed by DFID headquarters in the UK are considerably smaller than those of country offices. Some of the programmes cited as Central are conducted globally, while a few, notably the Challenge Fund projects, occur in specific countries and regions (see the inventory for more details). Most of the central work in the enabling environment is, however, more properly classified as ‘activities’ rather than ‘projects’ as it usually represent small, discrete pieces of policy research, knowledge dissemination, or advice aimed at supporting country level programming and projects. The expenditure tabled above includes a handful of what can be called ‘mega-projects’ that cover a wide range of activities, including enabling environment

14 Budgetary commitment figures were used as a proxy indicator for expenditure as

extracting and collating data on actual expenditure would have been an extremely time and resource consuming task.



components, over a 3-5 year period, many involving funds of £20 million or more (e.g., the Vietnam Poverty Reduction Support Credit is a £60 million project). This review has attempted to isolate the enabling environment reform components of these composite projects. Annex 2 contains a table summarizing these large-scale country-led programmes, both existing and planned. It is interesting to note that when projects of £20 million or more are collated, only four of these are in Africa, while 13 of these are in Asia. Interestingly, five of the 13 Asian projects are in Bangladesh, including the planned RISE project (see Box 2).

62.

63.

64.

The regional distribution of expenditure may partly reflect the different contexts and demands for donor support that are found around the world. Some countries regard the enabling environment as a more pressing concern than others. For example, it is striking when reviewing the inventory that little work has been done in Russia, which suffers from the same bureaucratic hurdles as Ukraine, where much work is being done (although it has to be said that Russia has recently reformed its regulatory structures for business). India, Uganda, Bangladesh, Kenya, Southern Africa and Viet Nam are other areas of considerable DFID activity, often in collaboration with, or support of multilaterals. DFID has participated in many projects that are co-funded by other donor agencies. Thus the expenditure figures in Table 1 does not fully reflect the total cost of projects supported by the Department.15 The chart below compares DFID’s expenditure on enabling environment work by region with the number of people living in poverty in these regions.16 This reveals a rather striking correlation between the levels of DFID expenditure on enabling environment reform and the levels of poverty in each region. This may reflect, at least to some degree, DFID’s focus on private sector development and economic growth as a key strategy to reduce income poverty in poorer countries, and the increasing focus on the enabling environment in implementing this strategy.

15 It was not feasible to estimate this figure in the time available for the review 16 The poverty numbers are for the year 2000 from the World Bank's Global Economic

Prospects 2004: Africa (includes Sub-Saharan Africa, 323 million; Middle East and North Africa, 8 million): 331 million; Asia (includes South Asia, 432 million; East Asia and Pacific, including China, 261 million): 693 million; Europe (includes Central Asia): 20 million; and Latin America (and the Caribbean): 56 million.



DFID EE Expenditure Compared with Number of People In Poverty by Region

0

200

400

600

800

Africa Asia Europe Latin AmericaPeop

le a

nd E

E Ex

pend

iture

(Mill

ions

)

DFID EE Expenditure in (£m) People Living in Poverty (Millions)

The graph shows a clear correlation between absolute expenditure and the number of people living in poverty across the separate regions. To examine this correlation further the graph below shows the amount DFID spends on EE activities per person in poverty in each of the regions:

65.

£ Spent on EE by DFID per Person in Poverty

0.163

0.529

0.878 0.941

0.0

0.2

0.4

0.6

0.8

1.0

Africa Asia Europe Latin America£ Sp

ent o

n EE

by

DFI

D p

er P

erso

n in

Pov

erty

The comparison between Asia and Africa is of particular interest because these two regions together account for 95.5% of DFID’s enabling environment expenditure. As can be seen, Asia’s poor receive more money per head than Africa’s. As Asia’s poor population is more than twice that of Africa’s one would expect absolute spending to be higher in the former, as indeed it is. But this graph shows that spending per head is also higher in Asia, and could be cited as evidence of a stronger focus by DFID on enabling environment activities in Asia. However, this result is partly explained by considering the nature of the projects in each region. In Asia, DFID has a number of very large

66.



expenditure nationally oriented “mega-projects”, in areas such as state owned enterprise reform in India and national policy reform in Vietnam, which heavily weight the overall figures. The ratios for both Europe and Latin America are striking but one should be wary of drawing firm conclusions from them for two reasons. Firstly, both regions have only a small amount of both poor people and expenditure. Secondly, the geographical definition of Europe is different for the expenditure figures compared with the poverty figures – the latter including a wider selection of countries. Hence there are definitional, methodological and attribution problems that necessitate the use of caution before drawing conclusions from these ratios about DFID’s regional focus.

67.

68. DFID’s focus can also be measured using the number of people in poverty per project implemented in the region as shown in the following diagram.

People in Poverty per DFID Project (m) by Region

7.356

4.667

19.250

1.667

0

4

8

12

16

20

Africa Asia Europe Latin America

Peop

le in

Pov

erty

per

DFI

D P

roje

ct (m

)

There are less people in poverty per project in Africa than in Asia, showing that in the latter DFID’s activities are spread more thinly over the poorest in the region. The differing nature of DFID’s projects across regions (i.e. a large number of relatively small projects in Africa and a small number of very large projects in Asia) and the difference in absolute poverty figures (693 million in Asia compared with 331 million in Africa) drive this result.

69.

70. Areas of focus in enabling environment reform

Earlier in this report it was recognised that there are many components to the enabling environment. Work on enabling environments is a multifaceted activity that requires a systemic understanding of how policies, laws, regulations and institutions interact to create the conditions that can enhance or constrain private sector development. While this is a compelling argument for work at this level it also presents challenges for programme and project design in incorporating and co-ordinating several inter-related fields. As discussed later in this report, there is a need for careful sequencing of reform activities.



71.

The following table draws from the inventory of projects cited in Annex 2 and provides frequencies for areas of focus. Care should be taken to avoid reading too much into this table since some projects contain more than one area of focus and are therefore scored in more than one category. The table shows that the areas of focus in DFID’s enabling environment work vary across regions.17 The table identifies 16 specific areas of focus, though it should be borne in mind that these areas do not represent mutually exclusive categories, but in fact may overlap with each other. However, the categories are useful analytically in identifying the main thrust or focus of an enabling environment intervention.

17 While this is a useful indicator of the areas of programme activity it is only an

indicator and does not, for example, show those areas where more funds have been spent.



Table 2: Areas of focus in DFID’s enabling environment work by frequency of funded activities/projects

Areas of focus

Africa

Asia

Europe

Latin America

Central Total % of total

General Enabling Environment

10 10 6 3 21 50 19.2

Regulation 8 8 3 3 7 9 10.7

Private Sector Advocacy and Dialogue

5 4 1 3 1 14 5.4

Governnment Analysis & Response

5 6 0 0 1 12 4.6

Commercial Justice 4 0 0 0 0 4 1.5

PSD Policies and Strategies

5 4 6 4 4 23 8.8

Trade Facilitation 7 6 0 0 4 17 5.8

Investment Flows 2 3 0 0 6 11 4.2

Privatisation and Parastatal Reform

7 10 0 0 1 18 6.9

Financial Sector Reform 16 12 1 2 11 42 16.1

Labour Laws and Standards

1 3 0 0 0 4 1.5

Tax Reform 2 2 0 0 3 7 2.7

Competition Policy 3 2 0 3 10 18 5.4

Infrastructure Conditions 0 2 0 0 5 7 2.7

SME Development 0 0 0 0 4 4 1.5

Corporate Governance and Corporate Social Responsibility

0 1 0 0 7 8 3.1

LEGEND: General Enabling Environment: projects that support a broad review of the enabling environment and include investment climate assessments, the establishment of investment climate facilities, the informal economy, and enabling environment reforms related to specific sectors, such as agriculture and mineral extraction. Regulation: deregulation projects or interventions that endeavour to simplify business registration procedures. Private Sector Advocacy and Dialogue: projects that support private sector involvement in enabling environment reforms and the promotion of a better dialogue between the public and private sectors. Government Analysis and Response: projects that endeavour to help governments better understand the enabling environment and respond to the problems that have been identified. This includes governance projects that endeavour to improve governance of the enabling environment (i.e., public sector governance). Commercial Justice: projects that deal with commercial law and courts. PSD Policies and Strategies: projects that support the design and implementation of private sector development policies and strategies. Trade Facilitation: projects that improve the trade regime and the facilitation of trade opportunities. Investment Flows: projects that endeavour to create an environment that is conducive to



increases in domestic and foreign private sector investment. Privatisation and Parastatal Reform: projects that support the privatisation of State-owned enterprises and the restructuring of State institutions, including projects dealing with the privatisation of utilities. Financial Sector Reform: projects that deal with informal and formal finance institutions, laws and regulations and improve the range of financial services (e.g., financial services for the poor). Labour Laws and Standards: projects that deal with labour law and the promotion of labour standards. Tax Reform: projects that improve the tax regime (e.g., policies, laws, regulations, and institutions). Competition Policy: projects that support the establishment of competition policies and laws, as well as competition authorities. Infrastructure Conditions: projects that promote and facilitate private sector support for the provision and maintenance of infrastructure. SME Development: projects that focus on addressing the barriers to growth for small- and medium-sized enterprises. Corporate Governance and Corporate Social Responsibility: governance within the private sector (i.e., of private firms), and includes issues such as social responsibility and business standards.

The above table shows that the General Enabling Environment is the single most common area of focus when the full range of programmes and projects are considered, including those funded by DFID centrally. However, there are regional variations that are interesting to note. In Africa and Asia, for example, Financial Sector Reform programmes and projects are the most common, followed by General Enabling Environment and Regulation in Africa, and Privatisation and Parastatal Reform in Asia.

90.

91.

92.

93.

In Latin America and Europe, Private Sector Development Policies and Strategies and General Enabling Environment projects are more common. This appears to reflect the most common starting points in these regions for enabling environment work. DFID London headquarters has focussed most of its work on General Enabling Environment policies and programmes, followed by Financial Sector Reforms, Regulation, and Private Sector Development Policies and Strategies. Competition Policy has also become an important issue in the DFID enabling environment reform agenda.

Type of reform activities Within the areas described in the section above, DFID promotes reforms of the enabling environment through the use of a number of specific activities or instruments. Table 3, below, draws from the inventory presented in Annex 2 and shows the range of activities and instruments used by DFID in its enabling environment work. Again, regional variations display differing needs and demands for reform work across the regions.



Table 3: Activities and instruments used in DFID’s enabling environment work by frequency of occurrence in funded projects

Activities and instruments used

Africa

Asia Europe Latin America

Central Office

Totals % of total

Capacity Building 24 25 9 8 7 73 29.3

Policy Development and Analysis

5 10 4 3 9 31 12

Policy Research 5 1 0 0 31 37 14.9

Technical Assistance 11 12 4 0 10 37 14.9

Budget and Financial Support

5 6 0 3 5 19 7.6

Advocacy 0 0 0 0 4 4 1.6

Monitoring and Evaluation

1 1 0 0 8 10 4.0

Facilitating Dialogue 3 4 0 4 8 19 6.8

Raising Awareness and Exchanging Information

0 0 0 0 22 22 8.9

TOTAL 54 59 17 18 104 262 100

LEGEND Capacity Building: activities that improve the ability of key organizations (e.g., government ministries, regulatory authorities) to carry out reforms or to manage the enabling environment more effectively. This includes training programmes and management development programmes. Policy Development and Analysis: activities that lead to the design and analysis of new policies. Policy Research: activities that focus on better understanding the problems or constraints of the enabling environment. Technical Assistance: the provision of technical information and advice (e.g., drafting policies and laws, advising on strategies and implementation arrangements). Budget and Financial Support: Budget Support refers to the provision of funds for countries that adopt a poverty reduction strategy that include enabling environment reforms, which are integrated into government budgetary processes, while Financial Support refers to funds provided to government for more specific programmes. Facilitating dialogue: activities that bring the public and private sectors together, or assist in negotiations between national governments and international agencies. Advocacy: activities that help certain actors (e.g., the private sector) create a demand for reform of the enabling environment. Monitoring and Evaluation: activities that help reform partners monitor and evaluation the impact of their efforts on the enabling environment. Raising Awareness and Exchanging Information: activities that make government, the private sector, and other stakeholders more aware of the importance of the enabling environment, as well as activities that facilitate the sharing of information on how to improve the enabling environment.

The above table clearly shows the dominance of Capacity Building programmes within DFID’s enabling environment reform work. This dominates in all regions, while DFID Headquarters in the UK clearly focuses

106.



more on Policy Research and Technical Assistance (the latter including TA to Country Offices on request). Raising Awareness and Exchanging Information is also an activity that features in much of the work initiated by Headquarters. DFID has invested a great deal into understanding better the social, economic and cultural context for reform and identifying the priorities for reform of the enabling environment (see, for example, Alamgir, Allcorn et al. 2004; Bannock 2002; Christianson 2004; Fortune 2004b; Manuel 2002; Small Business Project 2003). Many Country Office staff consulted for this review suggested that DFID Country Offices should expand their work in capacity building in preference to providing technical assistance in direct support for policy, legal or regulatory reform (e.g., drafting new policies, laws or regulations). While policy and legal reforms are required, many people indicated that this creates little meaningful change unless support is given to helping the relevant institutions implement and monitor these changes. However, the above table indicates that DFID is already investing substantial resources into capacity building.

107.

108.

109.

110.

111.

A review of the inventory shows that most DFID-supported reform programmes operate on the national enabling environment. However, in recent times there have been some programmes formulated to deal with local environments (e.g., Ukraine, the RISE project in Bangladesh––see Box 2) and others that focus on regional environments (e.g., Africa, South Asia, Caribbean). In its review of donor-supported enabling environment reforms in 2002, the Donor Committee for Small Enterprise Development found that the advantages of a regional approach to reform are that, in some small states, there is limited public sector capacity at the national level, but the presence of some regional bodies or authorities with a greater potential to manage donor funds. Regional strategies were found to reduce transaction costs and help to overcome some constraints that are essentially regional, such as trade barriers, competition, etc. The main disadvantage of a regional approach is that local political agendas might not match regional interests and priorities (White & Chacaltana 2002). The other finding of the Donor Committee that is relevant here concerns the role of reform management and leadership. It is clear that donor agencies cannot drive reform processes. Instead, they must recognise the necessity for national ownership of reform processes and encourage this. Domestic stakeholders––governments, civil society, and others––are the key drivers of the reform process. It is only through the efforts of these constituents that reform efforts can be legitimised, sustained, and fulfilled. Thus, agencies such as DFID are limited in their work by the vision, capacities and commitment (including political commitment) of their partners. While capacity building, research and awareness raising activities are applied to address this problem, the reality remains in which the Department can only undertake reform activities that are acceptable to host governments and other development partners (e.g., the private sector). This summary of DFID-supported reform activities displays a wide range of programmes and projects supporting enabling environment reforms. Many country offices have expressed an interest in expanding and diversifying their



work on enabling environments. For example, DFID Kenya plans to ‘expand the agenda of our enabling environment programme (which focuses on regulatory reform and evidence based private sector-government dialogue) to include Investment Climate work more generally. This should include, in time, areas such as privatisation, competition, and aspects of trade’ (Masinde 2004). DFID Kenya is also developing a joint programme on enabling environment for the financial sector with the World Bank (Financial and Legal Sector Technical Assistance programme) to tackle constraints in a number of areas including policy, financial sector regulation, privatisations, commercial justice and debt management (Ferrand 2004). DFID has also recently begun supporting a better investment climate in Africa through its work with NEPAD (NEPAD Business Group, Small Business Project et al. 2004) and has been supporting comparative reviews of the enabling environments in a number of African countries (Small Business Project 2003).

112.

113.

114.

DFID’s enabling environment work in South Asia appears set to expand in the coming years. DFID Bangladesh also illustrates the increased interest in new enabling environment projects through the design of the largest proposed project DFID has supported in this field: Regulatory and Investment Systems for Enterprise Growth (RISE). See Box 2. In early 2005, DFID will support a South Asia Regional Roundtable on Good Practice in Implementing Regulatory Reform in collaboration with FIAS and OECD (DFID 2004b). In Bolivia, a new focus of enabling environment reform is a three-year making markets work programme; while in Bosnia DFID will continue its support for improvements of the business registration system to create a ‘single economic space’ for the enterprises (Wersun 2004). And in the Ukraine, DFID has three major projects that will run to at least 2007. This involves work at the national level, as well as in specific oblasts (Fortune 2004a).



Box 2: Regulatory Investment Systems for Enterprise Growth (RISE), Bangladesh

The Regulatory Investment Systems for Enterprise Growth programme (RISE) is a multi-donor programme that aims to reduce the burden of regulation on businesses, and increase the flow of FDI to Bangladesh. DFID will work closely with the World Bank and a consortium of donors on the programme that moves the thrust of the programme towards an enabling environment sector wide approach. The total size of the programme will be around $270m over five years, 2004-09. The programme is being jointly designed with the World Bank, and aims to focus on: • The facilitation of a regulatory reform unit in Government, with allied line-ministry

reform targeting customs procedures, commercial justice, competition policy and land registration. The programme will aim to increase the adoption of e-governance to regulation where possible, and will link up with Governance reforms to public administration and budgeting, as well as civil service capacity building;

• Strengthening of FDI institutions in Bangladesh; • Support to the adoption of socially responsible standards in Bangladesh and improved

corporate governance; and • Support to the development of two special economic zones (SEZs) and industrial parks

mainly through infrastructure and policy reforms. The ethos of the programme is to link national level regulatory reform to local level development within the SEZ and industrial parks networks. DFID has commissioned the initial phase of design, with second design phase due to start in September, the final design being completed by the first quarter of 2005. DFID Bangladesh’s approach has been to include a multi-disciplinary team on guiding the process, and much of the programme aims to build on the successful implementation of a number of public sector reform programmes. The design also incorporates a political analysis and strategy, as these are key to an improved enabling environment approach. The RISE programme is an instructive example of close collaboration between a DFID country office, other bilateral and multilateral donors, and DFID’s central policy departments in enabling environment work.

Models used in the design and delivery of enabling environment reform services One of the objectives of this review has been to examine models of enabling environment support that have been used by DFID. There is a range of models used as outlined below. However, it is extremely difficult to determine which of these models are better than others. This is mainly because of the problem of evaluation and assessment, which are addressed in Chapter IV. Furthermore, because different models have been used in response to variations in particular country circumstances and institutional environments, it is difficult to determine whether another model would have worked better, or whether a model that worked well in one country would work equally well elsewhere. Where possible, this review has sought to comment on the successes or problems found with the following models.

117.

118. Direct programme interventions

This refers to a typical donor-supported activity in which a single donor agency provides direct support to a development partner. Where DFID, for instance, provides assistance to the Government of A to undertake reform B.



This is clearly a DFID programme conducted with the host government of a developing country. DFID may also provide assistance directly to other development partners, such as a private sector representative organization, a private sector firm (e.g., to undertake research), or a non-government organization.

Participation in joint programmes Programme Collaboration with other donors is considered positively; there being less concern over programme ownership than may be found in other agencies. There are many examples where DFID has worked with other donor agencies on specific programmes:

119.

120.

(i) With the International Trade Centre18 in India on a programme dealing with trade-related capacity building

(ii) With a number of multilateral and bilateral donors on the Business Environment Strengthening for Tanzania (BEST) Programme

(iii) The Extractive Industries Transparency Initiative (EITI) works with developing-country governments, donor agencies, regional economic groups (e.g., NEPAD), trans-national corporations, investors, civil society organizations, and international financial institutions to increase transparency and accountability in the extractives sector in developing countries

Participation in multi-donor facilities A good example of the multi-donor facility model is the Public Private Infrastructure Advisory Facility (PPIAF) – (see Box 3). By working with the World Bank, DFID is able to build on the resources of other multilateral and bilateral donors supporting the facility; and the technical assistance provided by PPIAF complements the loan programmes of agencies such as the World Bank (Lutyens 2004).19

Box 3: Public Private Infrastructure Advisory Facility

The Public Private Infrastructure Advisory Facility (PPIAF) includes some 15 multilateral and bilateral donor agencies and provides technical assistance to developing-country governments to improve the enabling environment for private sector involvement in infrastructure (i.e., water, sanitation, electricity, telecommunications, gas transmission and distribution, and transport). It funds a range of activities across all developing countries and at the end of March 2004, the PPIAF portfolio covered 310 activities in more than 84 countries (Public Private Infrastructure Advisory Facility 2004). DFID's commitment to the PPIAF has been around £6million per annum; since 1999, DFID has contributed £38.8m. DFID is the largest financial contributor to this facility providing around 50 per cent of total funds. PPIAF is governed by a Program Council of contributing donors, including DFID, which meets once a year and is chaired by the World Bank's vice president for infrastructure. PPIAF also has a Technical Advisory Panel, a Program Management Unit (located in the World Bank in Washington D.C.) and three Regional Coordination Offices (located in Kenya, Singapore, and South Africa)

18 The International Trade Centre is an agency of UNCTAD and the World Trade

Organization based in Geneva. 19 The PPIAF web-site is www.ppiaf.org



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The Private Infrastructure Development Group (PIDG) is a group of donor agencies, presently comprising DGIS (Holland), SIDA (Sweden), SECO (Switzerland), DFID and the World Bank, in which DFID plays a very active role. PIDG members share a common interest in terms of designing approaches that promote private sector involvement in infrastructure development and this has led to the design of a number of donor-supported infrastructure programmes. DFID has provided a strong intellectual contribution to this group. The group shares a common view on the issue of untied aid. DFID participates in the Financial Sector Reform and Strengthening (FIRST) initiative. FIRST is a large technical assistance facility, located within the World Bank and funded by a number of multilateral and bilateral donor agencies. It supports capacity building and policy reforms to the financial sector in developing countries.20 The management unit is located in London, while the coordination unit is in Washington D.C. FIRST has up until now focussed on regulation, stability, and security. There is a need for facilities such as FIRST to be more closely linked to country offices so that country-level programming can draw more effectively from the resource that this facility offers. DFID participates in multi-donor advisory and coordination structures for various purposes. The Integrated Framework, for example, is a multi-donor structure supporting trade capacity building, while the Committee of Donor Agencies for Small Enterprise Development promotes donor collaboration on policies and approaches for SME development. DFID also plays an active role in the Development Assistance Committee (DAC). This is the principal body through which the OECD promotes donor collaboration and consensus on co-operation with developing countries. The DAC has produced guidelines for donor support for private sector development.21 It appears that DFID has expanded its involvement in multi-donor facilities in recent years. Indeed, the Department has taken a very pro-active role in both the formation and strategic directions of a number of these facilities.

20 FIRST provides technical assistance grants for short and medium-term projects in the

areas of financial sector regulation, supervision and development. FIRST supports activities and interventions mainly in the public sector, principally by providing technical assistance grants to policy makers and regulatory bodies. It also supports private sector activities when organised through recognised institutions. Source: http://www.firstinitiative.org

21 The ‘DAC PSD Orientations’ are a significant step toward fostering more coherent and effective international co-operation to help developing countries achieve the benefits of more open and dynamic market-based economies. They address the fundamentals of privatisation, financial sector reform and enterprise development and also consider a host of related issues such as the importance of appropriate economic policies and an enabling environment that encourages private initiative, promoting dialogue and co-operation between the public and private sectors, and supporting environmentally sustainable methods and technologies (OECD 2004).



Establishment of specialised funding and programme facilities 128.

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DFID has developed a specific mechanism for engaging the private sector more strongly in development cooperation. Challenge Funds were designed in the late 1990s to find creative ways for DFID to collaborate with the private sector and overcome the unsuitability of conventional grant-making processes to private companies. In general, Challenge Funds aim to stimulate innovative approaches to development challenges; encourage the private sector to engage in commercially viable business activities that particularly benefit the poor, provide a simpler, less costly funding mechanism to build new partnerships between donors and private agencies undertaking such initiatives; and lever management and financial resources from the private sector. Two Challenge Funds have been established, each with a specific purpose. These are:22 (1) The Financial Deepening Challenge Fund (FDCF), a £18.5m fund designed to encourage banks and other commercial institutions such as insurance and leasing companies to develop innovative financial services that benefit the poor. The FDCF covers 15 countries, 12 twelve in Sub-Saharan Africa, plus India, Pakistan and the United Kingdom.23 (2) Business Linkages Challenge Fund (BLCF), a £18m fund designed to stimulate business linkages between enterprises that generate employment and other benefits for the poor. Challenge Funds have been found to provide a valuable mechanism for DFID to strengthen its relationship with private sector players. They help keep DFID programs grounded in delivering results that both promote private sector development and impact on poverty. They also create a mechanism for learning from the practical experiences of the private sector, including experiences related to macro and meso policy reform. Although their application in developing countries is still relatively new, there is evidence that Challenge Funds have successfully stimulated investment in innovative business development services and financial products that benefit the poor. They have also leveraged substantial volumes of private funds. However, few of the projects supported by the Challenge Funds have addressed issues concerning the business environment. In response to this situation the Challenge Funds guidelines were revised in 2002 so that projects of this nature could feature more fully and an enabling environment window has been created in both funds specifically to encourage more applications from the private sector in this area (Deloitte Emerging Markets Group 2004). Four BLCF-supported projects and two FDCF-supported projects have recently been established that support improvements in the enabling environment. In Southern Africa, DFID has established the FinMark Trust to help develop the financial sector.24 The FinMark Trust contributes to coordination of financial market development activities by working with a wide range of organizations active in promoting access to retail financial services––from government departments and regulators to banks, non-bank finance companies, NGOs and donors (FinMark Trust 2004). Enabling environment

22 More details on the Challenge Funds can be found at: www.challengefunds.com 23 A private firm, Enterplan Limited, along with Deloitte and Touche, and Project North

East manage the FDCF. 24 FinMark Trust: http://www.finmarktrust.org.za


http://www.challengefunds.com/

http://www.finmarktrust.org.za/


issues related to financial sector development are an explicit focus of the Trust.

This chapter has shown that a wide range of programmes and projects have been supported by DFID in recent years to promote reforms in the enabling environment. DFID has broadened its role in the General Enabling Environment, Financial Sector Reform, Private Sector Development Policies and Strategies, and Regulation, to embrace areas such as Competition Policy and Law, Privatisation, Tax and Private Sector Advocacy and Dialogue.

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Evidence from both country offices and headquarters indicates that there are plans to expand this portfolio of work and, indeed, enabling environment reforms are recognised as relevant to a wide range of DFID interests. Furthermore, DFID has established a range of models for the design and delivery of enabling environment reform interventions that foster collaboration with other development partners, including the private sector and other donor agencies. Before making recommendations regarding DFID’s future support for enabling environment reform (Chapter V), the following chapter examines the competencies DFID brings to this work, and also reviews the challenges that work at the policy reform level brings to the Department.



IV DFID’s Competencies and Challenges

This chapter examines the major features that have emerged from DFID’s support for improvements to the business-enabling environment. It does this firstly by describing the comparative advantages DFID brings to its work on the enabling environment, in order to specify the value the Department can provide to developing countries and the international development community in this field. Following this, the challenges to DFID in supporting enabling environment reform creates are described.

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DFID’S comparative advantage in enabling environment work Later sections in this report indicate that DFID’s work in the enabling environment is having real impact (see Box 5). This section focuses on the unique strengths DFID brings to bear in supporting reforms to the enabling environment.

High investment in 'intellectual capital' within DFID DFID has applied significant resources (i.e., funds, time, research, information production and dissemination) to the formulation of concepts and models to improve the understanding and practice of development work. Concepts such as 'sustainable livelihoods' and 'pro-poor growth' have their roots in DFID. While other agencies, academics and researchers have contributed to these, DFID has been a major institutional actor. The Department has a significant number of people located in London whose job it is to develop new and innovative approaches to development issues related to the enabling environment, based on country needs and priorities, while thinking programmatically about how these can be implemented (Pearce & Parkin 2004). DFID is considered to be one of the leading bilateral donors and good at getting into the details and unpacking trends and slogans. The Department was one of the first donor agencies to stop tied aid and has played an active role in contributing new ideas, models and approaches to working on the enabling environment. For example DFID has been very active in the Private Infrastructure Development Group and has contributed to new programmes and new ways of promoting private sector involvement in infrastructure development (Lutyens 2004). Other donor agencies consulted for this study have confirmed this view. Martin Clemensson from the International Labour Office in Geneva, for example, claims that DFID's contribution to better understanding the need for, and process of, reform has been very helpful. The ‘Hearts and Minds’ approach as used in Uganda and the ten-country study commissioned by DFID and undertaken by Bannock Consulting were cited as examples of this. ‘DFID staff seem open to new ideas’ says Clemensson, ‘and are always searching for better ways of doing things rather than repeating what they have always done’ (Clemensson 2004). While DFID works with agencies such as the World Bank that are known for holding strong views on strategies for development in general and the role of the investment climate, it has brought new views and approaches to this work.



Thus, DFID is not a quiet or subservient partner (Pearce & Parkin 2004). Axel Peuker, Executive Secretary, Private Sector Development Board and Manager, Investment Climate Department in the World Bank says that 'at the central level, DFID staff are very aware of the importance of enabling environment issues, and brings to bear its experience… DFID's policy- and results-orientation helps in enabling environment work' (Peuker 2004).

Commitment to working in collaboration with other development partners DFID displays a strong commitment to working with other development partners, such as other bilateral and multilateral donor agencies, UK government departments (e.g., the Department of Trade and Industry, the Office of Fair Trading), multi-donor facilities and committees, academic and research institutions, and regional organisations (e.g., NEPAD, COMESA). DFID also works with a number of international NGOs, including CUTS and Consumers International. Collaboration is extensive both in the international arena, where DFID London takes the lead, as well as at the country level driven by DFID country offices.

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There are a number of advantages that collaboration brings, including: (i) Leverage: DFID's involvement with other development partners helps

it to lever greater resources for use in enabling environment reform programmes. For example, DFID’s work in multi-donor facilities such as PPIAF allows it to contribute to a broader scope of infrastructure development programmes than it could with its own funds.

(ii) Influencing debates and programming: DFID brings its own concerns, fields of interest, and development objectives to its collaboration with other partners and can influence the approaches that are taken through such ventures. In some cases, other donor agencies participating in these ventures are not as clear as DFID on their approaches to enabling environment reform and are open to the suggestions DFID makes in this field.

Key development partners have stressed the value they obtain through their association with DFID in the field of enabling environment reform. The Consumer Unity and Trade Society (CUTS) of India, for example, has commended DFID’s ‘non-intrusive’ support with developing and negotiating proposals, as well as project implementation: ‘we have also found the subtle advocacy by DFID with other agencies… has helped us to enlarge our donor basket’ (Consumer Unity and Trade Society of India 2004). DFID’s participation in joint programmes has been commended by a number of other donor agencies. DFID has played a ‘very collaborative and constructive’ role in the Working Group on Enabling Environment in the Committee of Donor Agencies for Small Enterprise Development, says Clemensson (2004). Axel Peuker also describes DFID’s ‘positive’ collaboration with the World Bank through the provision of case studies on DFID interventions in the enabling environment for the World Development Report 2005 and it’s co-funding of Investment Climate Surveys. DFID’s has also been ‘an important voice in the DAC PSD discussions' (Peuker 2004). These views are supported at the country office level, where a number of DFID staff have referred to a ‘strong degree of complementarity with the



World Bank whose focus can be on formal approaches to enabling environment work which may ignore the pro-poor dimension’ (Ferrand 2004).

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DFID is a participant of the Integrated Framework that was inaugurated in October 1997 at the WTO High Level Meeting on Integrated Initiatives for Least-Developed Countries' Trade Development.25 DFID’s Trade Matters programme has been referred to as a good example of mainstreaming trade into development programmes (Government of the Netherlands 2003). Many other donor agencies suggest that DFID is a good partner to collaborate with. 'DFID brings a certain amount of leadership and ability to translate ideas into action' says Johan de Waard from the Ministry of Foreign Affairs in the Government of the Netherlands (Waard 2004).

Working within a specialised niche DFID has developed a focus in its work in the enabling environment that distinguishes it from other agencies. While work on the enabling environment can be very broad, DFID has generally found a sphere of activity that distinguishes it from others. One of the ways it has done this is to provide technical assistance to larger development programmes. In the financial sector, for example, DFID's role has been to focus on the access poor people have to financial markets. While large development agencies such as the World Bank undertake large reform programmes that address the formal financial sector, DFID's contribution has been more focussed: it has sought to complement these larger reform programmes with efforts that deal more specifically with linking formal and informal financial markets. It is reported that the Canadian International Development Agency (CIDA) viewed DFID as the lead donor on competition policy. CIDA sent officials to London to discuss with DFID’s competition staff its ideas for developing international programmes, and how CIDA might draw on DFID’s experience. Representatives of some African countries have expressed appreciation informally for DFID's work on competition policy. For example, at the conference organised by the World Bank in Dar es Salaam in May 2004, Godfrey Mkocha, head of Tanzania's competition authority, noted the positive contribution made by DFID's International Round Table on Competition Policy in 2000, chaired by the then Secretary of State. At the same conference, the Director of the Zambian competition authority, George Lipimile, expressed appreciation also. It is rare for such a one-day event still to be remembered and discussed four years later. Mr Mkocha spoke also of his appreciation for the assistance provided by DFID Tanzania in funding the review of Tanzania's competition law. The revision had removed several defects that had substantially hampered the usefulness of the earlier law.

25 Launched by six multilateral institutions (IMF, ITC, UNCTAD, UNDP, World Bank

and the WTO), DFID is one of a number of bilateral agencies participating in this programme. The Integrated Framework has two objectives: (1) to "mainstream" (integrated) trade into the national development plans such as the Poverty Reduction Strategy Papers (PRSPs) of least-developed countries; and (2) to assist in the co-ordinated delivery of trade-related technical assistance in response to needs identified by the LDC (IMF, ITC et al. 2004).


http://www.worldbank.org/

http://www.wto.org/

http://www.worldbank.org/poverty/strategies/

http://www.worldbank.org/poverty/strategies/


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It was reported that DFID has significant expertise and experience to offer in the field of international trade. DFID works with many of the other agencies in this field, but staff believes that DFID has a significant and unique contribution to make through its technical assistance. The Department's strength in this field is its familiarity with the details of trade-related capacity building––good policies and concepts are not enough. DFID is able to work with multilateral agencies in a clear and strategic manner. While bilateral donor agencies are not always trusted by developing-country governments,26 DFID's cooperation with multilateral agencies such as UNCTAD provide the opportunity for UNCTAD to steer reform processes in partnership with developing-country governments, while DFID remains an active participant (e.g., in India). DFID also brings a strong pro-poor agenda to the issue of trade facilitation; this is an agenda that is not always shared by other development agencies or easily forgotten by others. The operationalising of new and significant concepts in the development field is an important feature of DFID's work. The promotion of Sustainable Livelihoods and reforms that lead to pro-poor reforms within trade-related capacity building programmes are two examples of the ways DFID has sought to dig into the details of turning a conceptual model into a practical programme.

Credibility on the ground DFID has a strong and high profile presence at the country level through its decentralised office structure. A number of other bilateral agencies working at the macro level have a weaker field structure and are often considered to be not as in touch with domestic issues. DFID has also supported the work of other agencies at country level (e.g., DFID has supported the ITC to undertake trade facilitation at the country level). Many DFID staff hold the view that DFID has a good reputation for facilitating between different stakeholders (Ellis & Culverwell 2004; Ferrand 2004; Pearce & Parkin 2004; Wersun 2004). A number of enterprise advisers in country offices stressed the importance of their experience with addressing specific business development challenges (e.g., financial and business development services), indicating that this has given DFID credibility with governments and the private sector. Indeed, to a large extent, it has been the Department’s work on financial and business development services that has led it to the enabling environment arena and to increased recognition of the importance of addressing external, systemic issues related to enterprise development.

Strong history in the field DFID has been working in the enabling environment field for some years and has demonstrated its capacity to know enabling environment issues in detail

26 White and Chacaltana (2002) found that developing country governments are often

suspicious of bilateral donor agencies’ advice with regard to macroeconomic and trade-related policies and strategies, fearing that bilateral agencies will protect their own interests (e.g., trade interests) in preference to the interests of the developing-country government.



and to take a flexible approach to its work (Masinde 2004; Wersun 2004; Zeballos 2004). In fields such as financial sector reforms, DFID has a good reputation and considerable experience (Pearce & Parkin 2004) DFID is also well known for its work in the field of governance in public and private arenas. Most of DFID’s work on the enabling environment has necessarily been with public sector agencies due to the policy-oriented nature of this work, but increased attention has been given more recently to the need to stimulate greater private sector engagement and dialogue in policy reform processes.

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While DFID has also contributed considerable support in the past to improvements in corporate governance, the UK Department for Trade and Industry currently takes the lead on corporate governance issues (e.g., transparency and accountability) rather than DFID (Ellis & Culverwell 2004). Clemensson (2004), from the ILO, highlights the 'accumulated experience’ of DFID as a major advantage to its work in enabling environments. Thus, it is the Department’s extensive experience in the field that is broadly recognised.

In summary, DFID brings a substantial body of knowledge and practical experience to the work of reforming enabling environments. It has a strong country-level presence and a good understanding of local conditions, which gives it credibility when working with governments and the private sector. It also has a strong international reputation in this field, which aids its work with other departments and international development agencies.

Challenges for DFID in the enabling environment Supporting reforms to the enabling environment in developing countries brings a new set of challenges to DFID. Some of these challenges stem from the nature of this work (i.e., the processes, objectives and modalities of reforming the enabling environment), while others come from the interests, character and structure of DFID. The following challenges emerged during the consultations and reviews undertaken for this study.

Assessing impact and gathering evidence of reform outcomes Assessing the impact of reform programmes on the enabling environment is difficult. White (2004) has found that some of the major problems donor agencies experience in their efforts to monitor and evaluate enabling environment reform programmes include: (i) Isolating reform measures in embedded programs: because donor

agencies are packaging their reform efforts within a broader programme of development cooperation, enabling environment reform measures are bundled into development loans, or included in an integrated programme of support that make monitoring and assessment of specific reform efforts (i.e., reform components) very difficult.

(ii) Dealing with attribution and the counter-factual: Attributing a specific reform program to changes in the business environment can be extremely difficult. The real impact of donor effort often lies



somewhere between the extremes of attribution and the counter-factual.27

(iii) The problem of timeframes: Reforms to the business environment take time. While individual interventions can create short-term outcomes, the impact of these outcomes takes a longer period of time to eventuate.

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The World Bank Group is currently undertaking an assessment of its work in reforming the business environment over the last ten years. This involves a review of project assessments undertaken for all projects. While the results of this assessment are still to be finalised and released, the problems of assessment described above are common. Many reform interventions have been found to produce fewer tangible outcomes than other project functions. This is largely because the timeframes required for assessment were too short (i.e., assessing impact directly after the completion of a project is too soon) and because reform activities have often been bundled into broader programs, which makes reform efforts more difficult to isolate and assess (Hallberg 2004). Within DFID there are three instruments used to monitor and assess programmes: the Project Completion Report, the Quarterly/Annual Monitoring Report, and the Output-to-Purpose Report (including the Mid-Term Evaluation Report).28 While the Quarterly/Annual Monitoring and Output-to-Purpose Reports are mainly used for the purposes of evaluation and assessment, Project Completion Reports also address the issue of project impact. A review of a number of Project Completion Reports shows that these provide very little information that can be used to assess the final impact a programme has had on the enabling environment. These reports appear to have a more forensic purpose, perhaps because they are carried out too soon after the project has ended or because they are not undertaken independently of the project officer involved. The most valuable monitoring instrument appears to be the Output-to-Purpose Report. Output-to-Purpose Reports encourage DFID programmes to ensure they remain on track for achieving their stated objectives and offer the opportunity to address issues of outcome and impact during the project lifetime.

27 Attributing a specific reform program to changes in the business environment can be

extremely difficult. A donor-supported effort to reduce red tape, for example, can show measurable outcomes (e.g., less red tape), but it is not always possible to show a clear link between this outcome and improvements in the business environment. In addition to the challenge of attribution is the counter-factual. This refers to the following hypothetical question: What would have happened if the donor activity had not taken place? The real impact of donor effort often lies somewhere between the extremes of attribution and the counter-factual. A reduction in red tape is very likely to have contributed to an improvement in the business environment, but it is unlikely to have been the only reason for this improvement; there are other factors that this improvement can be attributed to. Similarly, without a reduction of red tape, it is very likely that the business environment may not have improved so much, but exactly how much less this improvement might have been is very difficult to determine.

28 Some of these are only required for projects of one million pounds or more.



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DFID has also produced several in-depth case studies case studies of county based enabling environment reform, including one in Bangladesh and one in Ukraine (Alamgir, Allcorn et al. 2004; Fortune 2004b). These reveal that enabling environment interventions can make a significant impact in the medium term (see Box 4). It is arguable that enabling environment reform projects require more systematic monitoring and evaluation frameworks. At present the degree of monitoring and impact tracking applied to smaller projects appears to be left to the discretion and interests of the project officer concerned. However, care should be taken to avoid saddling smaller projects with cumbersome evaluation requirements. Indeed, all projects––especially smaller projects––require appropriate evaluation frameworks that succinctly focus on the performance of projects (i.e., the attainment of key outcomes), while also measuring the broader impact of reform efforts on the enabling environment as well as the attainment of key development outcomes (e.g., poverty reduction, pro-poor growth). DFID set up the Enterprise Development Impact Assessment and Information Service (EDIAIS) several years ago, which has carried out commendable impact assessment work in many areas of enterprise development, including developing impact assessment tools and case studies and organising training workshops for DFID country offices. However, relatively little attention has yet been given to enabling environment issues, possibly reflecting lack of demand at the country level for support in this area. However, EDIAIS could clearly be utilised as a readily available instrument to help strengthen DFID’s impact assessment procedures in enabling environment work.29 The field of governance, transparency and accountability is complex for many reasons, not least for the problems that arise in the field of evaluation and assessment. Is it possible, for example, to compare governance in different States and declare that one is better than the other without referring to the social, economic, cultural and historical influences that have shaped governance? However, this is a very real challenge for agencies such as DFID that are supporting improvements in governance. The Extractive Industries Transparency Initiative is currently attempting to identify indicators for success in its work, which should include technical indicators as well as indicators that demonstrate a political will for reform. In addition, these indicators would need to cover corporations that meet EITI requirements, as well as indicators of government acceptance of EITI standards (Ellis & Culverwell 2004).

29 EDIAIS website: http://www.enterprise-impact.org.uk


http://www.enterprise-impact.org.uk/


Charles Lutyens (2004) suggests that there are no clear yardsticks for measuring performance and outcomes in the enabling environment for infrastructure development. Currently, indicators are used on an arbitrary basis

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Most donor agencies undertake some type of monitoring and evaluation procedure. For example, most donor agencies record program inputs and activities; this kind of information is commonly used by donor agencies, but is of little use in the search for objective impact assessment (White & Chacaltana 2002). Some donor agencies record outputs based on donor interventions (e.g., drafting and adoption of a policy or law, removal of unnecessary regulations), while others undertake regular stakeholder perception surveys before and after donor intervention (e.g., GTZ). While anecdotal information is a poor substitute for ‘hard’ monitoring and evaluation data, many donor agencies have indicated that good anecdotal information on the contribution of donor efforts to reform and the benefits these reforms have wrought upon the target group is very useful. In some cases, this kind of information meets the evaluation demands of taxpayers and other constituents very well (White 2004).

Box 4: A selection of reform outcomes

Occasionally, DFID commissions evaluation studies of enabling environment reform programmes and these have produced some very interesting and useful findings. Results include: • The Kenya deregulation programme’s support

for removing import and export licensing requirements, dismantling price and exchange rate controls, and introducing a convertible Kenyan shilling led to the following estimated annual savings: £22m due to the Registration of Business Names Act; £38m due to the Trade Licensing Act (i.e., around one per cent of GDP at the time); and £4m due to the implementation of the Singe Business Permit. In the 32 local authorities that were using the single business permit, business transaction costs had reduced by up to 70 per cent.

• The Uganda ‘Streamlined Business Registration Pilot’ resulted in: 75 per cent lower compliance costs (reduction of registration time to 30 minutes); 43 per cent higher compliance levels (four times more businesses registered than in the previous year); 40 per cent higher revenue collection and a more steady revenue flow; 25 per cent savings in staff time; and a ten per cent saving in financial resources (DFID 2004a) (also see Gamser 2003; Scott & Darroll 2003).

• In Ukraine the simplification of procedures has reduced the time taken to register a business by 50 per cent, and reductions of taxes at the local level (e.g., for permits for kiosks in markets, and for permits for taxi drivers) have led to increases in revenue of at least six times the reduction in taxes. Reductions of 25 per cent in taxes have led to increases in the number of businesses of 250 per cent.

DFID has played a leading role in getting legislation for financial institutions in place in Uganda and Tanzania, though the impact of this can only be fully assessed after this legislation is fully enacted.

• In South Africa, the FinMark Trust has performed a significant role in establishing the Banking Charter, while FinScope has improved banking practices and the policies of the South African Reserve Bank (Pearce & Parkin 2004).



Ultimately, very little of DFID’s evaluation efforts in the enabling environment appear to connect enabling environment reforms with poverty reduction and pro-poor growth. A better environment for business may make legal and regulatory compliance easier for business, but has this led to economic growth or a reduction of poverty? These questions knit the brows of many donor agencies, but they have a specific character in DFID. As DFID promote concepts such as ‘pro-poor growth’ and ‘making markets work’, it should be able to demonstrate how enabling environment reforms contribute to these and, ultimately, to the achievement of the Millennium Development Goals. This not only requires a clear theoretical framework (showing causal linkages), but a framework for impact assessment that can also be used to quantify changes in these fields.

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Knowledge management in a decentralized structure DFID approaches to improving the enabling environment can vary within its highly decentralised structure. Thus, there are challenges to find effective ways to share information and experiences across country offices and with headquarters. Here again, the multidisciplinary demands of work on the enabling environment heighten the need to address this challenge. Many respondents to this review indicated that there are lessons to be shared within DFID in the practice of reforming the enabling environment. The Joint Governance, Enterprise and Economists Retreats held in 2003 and 2004 have been cited by many as very useful events for sharing information and experiences, and working toward a common multi-disciplinary approach to work in the enabling environment. It was through these events that a number of participants recognised the significance of governance as an element in private sector development and improvements to the enabling environment. Similarly, the Africa Investment Workshop, organised in March 2004 by the ICEE Team, was a valuable opportunity for country office and HQ advisers to share experience and views on topical investment climate issues. A number of respondents indicated their desire for more retreats and workshops, but then indicated that budget constraints reduce the opportunities for such fora. Country office respondents indicated that knowledge management should be the responsibility of headquarters. Some country office staff have expressed the view that the series of restructures of the Department have undermined the importance of knowledge management. While many in the London Office contest this, it is clear that greater attention should be given to knowledge management across all levels of the Department. The ICEE Team recognises it has a key role to play in improving the exchange of information and knowledge regarding best practices in enabling environment reforms from and across the regions. DFID is implementing a major transformation and upgrade of its IT based corporate systems through the Catalyst programme, replacing existing systems such as PRISM, which should lead to substantial improvements in electronic document management, knowledge sharing and collaborative working together. This offers a significant opportunity to facilitate work on the enabling environment, as in other fields, at both country and London levels. No opportunity should be lost in the design of the new system to address the



inadequacies hitherto of systems such as Prism in categorising and recording DFID’s enabling environment interventions.

Developing an interdisciplinary approach to enabling environment reform 184.

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188.

A number of recent internal reports have identified the need for a more interdisciplinary approach to enabling environment reform (e.g., DFID 2003b). Indeed, applying a single approach to this work (e.g., a purely legal approach) can undermine the overall effectiveness in enabling environment reforms. However, a number of DFID staff indicated that DFID’s ‘compartmentalised’ approach and structure often undermines its efforts in this field. The enabling environment is still sometimes seen as an ‘Enterprise’ domain, while more specific issues––corruption, for example––are seen as the domain of ‘Governance’. This issue has been identified as a concern for some time. However, the Department has taken a number of recent initiatives to address these concerns. Indeed, in some cases, it has been in the transition towards new processes and mechanisms that some of these concerns have been raised. Thus, while this review has unearthed a number of concerns, it also recognises new initiatives that are being taken within the Department to address these. Some departments or teams appear to work in a more integrated fashion than others. This can depend on the nature of their work as well as on the partners they deal with. The International Trade Department (ITD), for example, has recognised that it should work more closely with other departments within DFID. Many departments are not familiar with trade-related capacity building and, in some cases, fail to see the connections between this field of work and their own. Even beyond UK headquarters, country offices have often been unconnected to the work of the International Trade Department. The ITD has taken steps to address this through the formulation of a new trade strategy in close consultation with other units and offices. A different example is the Extractive Industries Transparency Initiative (EITI), which supports improvements in governance (i.e., accountability and transparency) within a specific sector. While this programme––which is an initiative announced by the Prime Minister at the World Summit on Sustainable Development in Johannesburg in September 2002––is very specific, it appears to be unconnected to other DFID enabling environment reform efforts. Programmes such as EITI contribute significantly to the broader DFID enabling environment portfolio.

Practice of enabling environment reform There is a need for the Department to continually invest in understanding the processes, tools and skills required to effectively bring about reforms in the enabling environment, including how enabling environment reforms should be promoted in specific sectors. DFID promotes a range of principles and practices that encourage economic development and pro-poor growth (see for example DFID 2004d). However, these fall short of specific recommendations regarding the process and content of reforms.30 To date, most specific recommendations for reform emerge from

30 This is because processes and content issues will vary across countries and other

circumstances.



the country level, where the practice of defining and managing reform programmes has led to a growing body of DFID experience. DFID Southern Africa, for example, has described some key approaches to support better dialogue between government and the private sector (Scott 2004).31

189.

190.

191.

192.

The DFID Nigeria ‘Promoting Pro-Poor Financial Service, Assessment and Pre-Design Mission’ indicated that for DFID to promote financial markets that work for growth and greater access by the poor to financial services, it must facilitate an integrated and systemic development of a working infrastructure; broadly understood and respected rules, policies, and norms affecting the sector and the capacity to make and enforce them; adequate information and knowledge to make decisions as regulators and providers; and sufficient numbers of capable players who can and will innovate (DFID Nigeria 2004). Within the proposed ProFinS programme, each project or sub-component is required to yield systemic leverage, crowd-in other resources (e.g., bringing new players into the sector), align with the basic growth and access objectives of programme, fill gaps in information, markets, and other dynamics, and be locally driven to ensure acceptance of the institution and its work. Gamser (2004) indicates that when practising reform work ‘the key is to determine what should be done at a given time… sequencing is often where things break down, as in pushing privatisation before there is an open and competitive market environment for the privatised firm or firms to operate in’. In addition, he says, it is important ‘to establish the right sort of change process, involving public and private sector players’. A number of country office respondents suggested the Department should be flexible in its approach to enabling environment reform work, recognising the challenges raised by the diverse and political nature of development work in this field and the need to adopt a process approach to programme design and implementation . DFID has a number of highly skilled and competent staff in London and in the field who can be considered leaders in enabling environment reform. The challenge is to ensure that the whole Department––and its development partners––understand how business environments can be made

31 Hugh Scott described three kinds of focus for DFID’s work in this regard: (i)

Working with the private sector: To help the private sector advocate for reforms and participate in development processes. This can include the representation of the private sector (i.e., whose voice is represented?) (ii) Working with developing-country governments: To help them listen to the private sector and to lead and manage the reform process (i.e., changing the ‘hearts and minds’ of government toward the need for reform). (iii) Working to promote better dialogue between the private sector and governments and to deal more effectively with the debates this creates.



more enabling and conducive to greater development outcomes.

Multi-disciplinary approaches to enabling environment reform DFID’s support for reform of the enabling environment has sought to accommodate a number of specific issues of concern to the Department. The concept of pro-poor development, for example, is cited as a particularly useful approach to development; one that hedges the simplistic notion that economic growth will lead to poverty reduction, with the qualification that poverty reduction requires a different set of policy interventions that ensure poor people benefit more directly from these changes. Thus, the reform of the enabling environment requires more than a dogged commitment to economic liberalisation. Instead, a more sophisticated and nuanced approach to reform is necessary.

195.

196. The Government’s 2000 White Paper highlights the importance of balancing competing concerns within this broad agenda.

'The process of opening up––to both trade and financial flows––has to be carefully managed, to dovetail with the development of efficient and flexible markets, a strong domestic financial sector, and supportive policies for private investment. But the benefits will not automatically reach poor people, who face many barriers to participating in the market economy. While policies at the national and the international level play a vital role, the way in which government, institutions and markets function at the local level is of great importance too. Policy needs to work at all these levels if the potential benefits of globalisation are to reach the poor' (Government of the United Kingdom 2000, pp 31-32).

Box 5: DFID policy messages and issues

The following policy messages and issues have been drawn from case studies DFID’s ICEE Team contributed to the World Bank’s World Development Report 2005 on the Investment Climate as part of its knowledge-sharing programme. 1 Improvements to the investment climate can

make a real difference to economic performance

2 Creating a positive enabling environment for business operations in-country should take priority over special incentives for foreign investors

3 Policy reform should focus on removing obstacles to investment and growth, helping the private sector to help itself

4 Maintaining competitive business conditions should be a priority

5 Smaller firms are more vulnerable to biases and constraints in the business environment, and need special attention in reform efforts

6 Process and leadership are critical to successful implementation of reforms

7 Local government is as important as central government

8 Business perception is as important as reality – as is public servant attitude

9 The international donor community can support reform, but it cannot drive reform

10 There is a need for greater empirical understanding of the investment climate

These key principles, promoted and discussed at the ICEE Team’s investment workshop for Africa advisers in March 2004, underlie much of DFID’s recent enabling environment work. Source: ICEE Team and Bannock Consulting Ltd. (2004)



197.

198.

199.

200.

201.

It is encouraging to see how many parts of DFID have become more engaged in work on the enabling environment. The challenge that results from this is to ensure that all aspects of the Department’s work in this field are closely integrated and complementary. Thus, there is a need for a deeper understanding of the connection between a more 'enabling environment', private sector development and pro-poor growth. DFID, and especially its Policy Division Teams, has undertaken a number of initiatives to promote this connection with other agencies (e.g., collaborating with the World Bank in the preparation of the World Development Report 2005 on the Investment Climate). There is the need for a better understanding of how specific fields of the Department’s work contribute to this. There are two fields where this is essential. First, a better understanding of the relationship between governance and the enabling environment is needed. This topic has come under significant scrutiny in the past year. It was the subject of two retreats and an Africa investment workshop conducted by DFID, which brought together field and headquarter specialists dealing with governance, enterprise and economic development, as well as academics and consultants working in these fields. The relevance of governance in enabling environment reforms is recognised and accepted, but the current debates revolve around the aspects of governance that are most important and how to ensure a multi-disciplinary approach is taken (see DFID 2003k; Grindle 2002).32 A Senior Governance Adviser has now joined the Growth and Investment Group in DFID’s Policy Division, which should help bring about a better integration of governance issues in enabling environment work. Second, there is need for a better understanding of how the enabling environment relates to social inclusion. Issues such as social inclusion can sometimes be seen as a counter-balance to the thrust toward economic growth, but DFID needs to look more closely at these issues, particularly in relation to the enabling environment for rural development and development of the informal business sector. DFID should develop a stronger economic rationale for the promotion of equity, so that concepts such as equitable growth or pro-poor development are concretised and operationalised (Foy 2004).

What has worked less well?

Difficulty moving from analysis to implementation Some of the projects examined for this review have found, or are finding, implementation more difficult than planned. For example, it is proving to be more challenging, in practice, to engage with Governments, at all levels, on both the whole principle of deregulation and on detailed implementation than originally thought. One reason for this is the sheer workload of any reforming

32 Max Everest-Phillips suggests that markets ‘are the consequence of policy decisions

and informal as well as formal institutional structures, so what role does government see for itself in creating growth?’ Promoting competition and acting as a referee in a market economy? How much of a priority is that? Thus, there are many questions to be addressed concerning the political economy of reform in the enabling environment and the role of DFID in this (Everest-Phillips 2004).



government and the lack of cabinet time (for example, the 2003 OPR of the Uganda Deregulation Project indicates that a ‘well considered cabinet information memorandum on regulatory best practice has yet to be discussed by cabinet”), and “legislative overload at all levels’.33

202.

203.

204.

205.

206.

207.

Projects have also encountered embedded opposition from individual civil servants, sometimes at junior levels, well after agreement on action has been reached with their superiors.34 Often such opposition is based on opinions which can be summarised as ‘fighting bureaucracy vs. fighting crime’;35 the tension between facilitating business registration––and thus economic growth––and assisting law enforcement. An equally difficult tension on the ground can stem from the important source of revenue that business regulation provides for local authorities, and the very real difficulties that will result from any reduction, at least during the lag until the increases in taxation that flow from increased economic growth are received. The OPR for the Umbrella Project to Improve the Enabling Environment in Kenya (June 2003) indicates that it has been difficult to get project managers to move from research, albeit high quality, to implementation. Others report that actually moving from agreement about the nature and effects of the problems to actual implementation on the ground can be challenging. The same project also highlights the widely reported point that getting the private sector engaged in policy dialogue with government is a slow process and requires ‘carefully targeted inputs to ensure that their self interest is recognised adequately at all levels. It is less of a resource intensive activity as a process and time intensive one’.36 The work of the two DFID country case studies (Bangladesh and Ukraine) indicates that successful reform of the enabling environment requires donors and the implementers of donor projects to engage politically and to understand what motivates and hinders political actions: ‘Political will determines the pace of reform in this most politically sensitive of sectors’.37 Also, given that the work inevitably links in with the political processes, on some occasions the wrong people are recruited locally. On one project (in Bosnia) two local lawyers chosen to work on legislative drafting were from different political backgrounds and they could not agree to work together. Enabling environment work requires some new skills, especially in what many call the ‘hearts and minds agenda’: ensuring that successful enabling environment implementation ensures all key policy makers and policy implementers are fully involved in the development of, and fully agree with, regulatory best practice. This can also be time consuming.

33 Bosnia Business Registration Project (MIS 315 540 021) OPR December 2003 34 See especially Social & Economic Regeneration in the Donbass (Ukraine) MIS 283-

559-020 35 Bosnia Business Registration Project OPR, December 2003 36 Umbrella project to improve the enabling environment for the private sector in Kenya

(MIS 031-540-033) OPR, June 2003 37 Legal sector reform programme, Kenya (MIS 031-542-088) OPR September 2002



Difficulties of project focus 208.

209.

210.

211.

212.

213.

214.

It is now widely accepted that enabling environment reform in any country is an enormous task. The enabling environment agenda, particularly the need for deregulation, is very broad and the initial focus of interventions can easily be lost. Many projects start with the complex problem of over-regulated business registration procedures, but have found their attentions diverted as other regulatory issues are put on the table for attention, especially when the business community has been consulted. In Kenya, for example ‘the original focus of the project was deregulation which later extended to broader enabling environment concerns’.38 As Gamser (2004) suggests, it is essential to determine exactly what should be done at any given time, and clear sequencing of project actions being very important. Priorities in enabling environment work must be carefully identified and there must be a sharp focus on specific reforms that are manageable and capable of implementation. Quick wins are often important in cementing local goodwill. Projects can also get bogged down in local debate on what determines the enabling environment for business, which can provide ample opportunity for those seeking to delay change; the Ukraine Case Study gives examples of the State Tax Administration using every opportunity to frustrating many attempts to reform tax legislation. Implementation difficulties can also be caused by sheer lack of experience on the part of policy makers, difficulties in finding local project staff who are apolitical and the limited influence of donors and donor projects on certain governments. DFID experience to date emphasises that enabling environment is a long-term process, and requires interventions, which are much more intensive, detailed and lengthy than previously––something that the RISE project recognises, possibly for the first time (see Box 2).

Weaknesses of evaluation and lesson learning Although indications are that DFID’s support for enabling environment reform does have positive outcomes and impact (see Box 4), the monitoring and evaluation of the Department’s enabling environment work to date has not generated clear or comprehensive results. This is not a problem confined to DFID: a joint evaluation of enterprise growth initiatives by USAID and the consultancy company DAI states that ‘the lack of systematic monitoring and evaluation in existing programmes makes it much harder than it should be to assess and construct these initiatives’ (Snodgrass & Winkler 2004). Many enabling environment interventions are included within much larger and broader projects, which makes them difficult to measure. However, better evaluation would have resulted from clearer definition of measurable achievement indicators in some projects in the past, which may also have helped to focus project activity.

38 Umbrella project to improve the enabling environment for the private sector in Kenya

(MIS 031-540-033) OPR, June 2003



V Recommendations 215.

•

•

•

•

•

216.

•

•

•

217.

218.

219.

This has been the first review of DFID’s work in the enabling environment, and, despite the difficulties of data collection and the likelihood of some gaps remaining, it has produced a number of interesting and useful findings. Because the intention of the review has been forward looking (i.e., to learn from past and current efforts and consider how these affect future practice), a series of broad recommendations are presented, which are, in summary:

To continue to support enabling environment reforms through demand-based expansion at the country level; To continue policy research in key areas of the enabling environment; To improve knowledge management and dissemination; To improve the monitoring and assessment of enabling environment reform programmes and projects; To improve the measurement of impact of DFID supported enabling environment reforms.

These recommendations are consistent with the key recommendations contained in the WDR 2005on how donors can help improve investment climate reform, namely:

Provide more, and more effective assistance to the design and implementation of investment climate improvements; Remove policy distortions in developed countries; Tackle the substantial knowledge agenda.

The diverse range of fields, activities and models that are used to support reform represent a significant resource that DFID staff can draw on when required. The adage that says, ‘If the only tool you have is a hammer, then every problem will look like a nail,’ is relevant in this regard. Access to many tools is important for a good craftsperson, just as a broad range of approaches and models is important for reform. Some will work better than others depending on the circumstances. Judicious selection of appropriate tools requires careful diagnosis of need and opportunity in particular country contexts. DFID staff should continue to be encouraged to look for creative ways to approach this topic. They should be able to draw from Department-wide experiences in this field in an effort to adapt these experiences, models, and activities to meet the demands that face them.

Continue to support enabling environment reforms through demand-based expansion The overwhelming consensus of respondents to this review, both internal and external, was that DFID should continue its work in the enabling environment at both country and central levels. Indeed, many respondents described their plans to expand their work in this field, while others spoke positively of the enabling environment as an exciting and growing body of work. Many of



these respondents presented the case for further work on the enabling environment with qualifications about the kind and style of this work.

220.

221.

222.

223.

224.

Some of these qualifications were as follows: DFID’s work in this field should become more strategic and focussed:

enabling environment work is more than simple deregulation. It requires careful analysis and design processes that are sensitive to social, economic and political influences.

DFID’s work should concentrate on the practical implementation of reforms, and should recognise that technical assistance and the transference of best practice – particularly the lessons and messages of WDR 2005 – are potent ways of helping governments.

(ii) DFID should be committed to country-specific processes: which means that DFID should continue to support reform processes that may lead to areas of reform that were initially unexpected.

(iii) DFID should intensify efforts to integrate country office programming and central policy work in its support for enabling environment reforms.

Both headquarter and country office staff also indicated that while the enabling environment is an extremely important field of work, other areas of DFID’s private sector development work should not be forgotten. The Department’s work in areas such as financial services to the poor, are closely connected and inter-related with broader enabling environment issues. Indeed, many respondents from the field indicated that it was their field experience with private sector development at the project or microeconomic level that informed and enriched their work at the policy level.39 Four areas of DFID’s work in the enabling environment should be given special attention in its future efforts:

Continue DFID’s proactive approach to working with multi-donor structures The Department has proved to be an important partner in a range of multi-donor structures; it has influenced debates, guided programme development, and generally added value to the broader work of donor agencies in the enabling environment. This work should be continued and strengthened where appropriate. At the same time, the practical problems of donor harmonisation on the ground should be recognised and support offered on an as-needed basis.

Build a culture for reform DFID experience in the field of enabling environment reform has highlighted the importance of the demand for reform. As a donor agency that supports reform efforts, DFID is required to work with government and other

39 This could be called a ‘practitioner’s perspective’. Such a perspective can be very

useful, but care should be taken when translating practical experiences into macro policy advice. Work on the enabling environment can certainly benefit from ‘grass roots’ experience, but it also requires a new set of skills that require advisers to take a broader view on the economy and the society in general. For example, it is common to see small enterprise development practitioners move to working at the policy level and advocating for special treatment for small enterprises, when an economy-wide perspective might not necessarily justify this position.



development partners. However, it cannot lead reform efforts; leadership must come from domestic partners. Thus, efforts to change the ‘Hearts and Minds’ of government officials, as well as NGOs and civil society, along with other measures to improve the demand for reform, are a pre-requisite for all DFID’s future enabling environment work.

Strengthen headquarters and country office linkages 225.

226.

227.

228.

229.

The Department should continue to take every effort to ensure that its work on enabling environment reform is integrated from headquarter to country office level. While reforms are country specific, the Department’s broader programme of work should keep on building upon emerging good practices from the field along with up-to-date international research and globally accepted concepts and principles. Country offices should benefit from the multi-donor efforts that are most commonly led by the Department’s headquarters.

Integrate enabling environment reform with broader growth agendas The Department should continue to look for ways to integrate its work on reform of the enabling environment with broader growth and development programmes, including PRSPs and other poverty reduction, pro-poor growth programmes.

Continue policy research in key areas of the enabling environment As this review has made clear, and as WDR 2005 emphasises, “a huge knowledge agenda lies ahead and warrants priority attention as an integral part of efforts to accelerate and broaden improvements to the enabling environment.”40 DFID’s commitment to the development of ‘intellectual capital’ is a major feature and asset of the organisation and one that should be continued. Chapter III has noted the strong investment the Department has made to policy research for private sector development and it is proposed that investment in this area should continue. There is a wide range of issues within the enabling environment that deserve investigation. Some of the most relevant issues that deserve further attention include: (i) Governance of the enabling environment (including the notion of ‘good

enough governance’) (ii) The role of public private dialogue in enabling environment reform

processes (iii) The contribution of competition policy regimes to poverty reduction (iv) Defining an enabling environment for pro-poor growth, with particular

reference to informal economy issues (v) Making markets work through enabling environment reforms (vi) The specific problems of small enterprises in the enabling environment (vii) Ensuring social inclusion in enabling environment reforms Obviously, the commissioning of research is connected with the other recommendations made in this chapter (i.e., expanding work in the enabling

40 WDR 2005 page 195



environment; knowledge management; and a framework for monitoring and evaluation). Thus, the Department should ensure that all aspects of the enabling environment portfolio are well managed and integrated.

Improve knowledge management and dissemination The enabling environment is a field of work that has been changing rapidly. There is a growing body of information, knowledge and experience being generated by the work of DFID and other donor agencies. Thus, knowledge management in the enabling environment should be given further attention.

230.

231.

232.

233.

234.

235.

The Department should develop a strategy to effectively collate and disseminate international knowledge and best practices on enabling environment reform. This should cover all levels of the organization (i.e., central and country). In addition, a knowledge management strategy should be consistent and integrated with the development of the Department’s new central information system in ways that enable it to record, classify and analyse programmes and projects falling within the different areas of private sector development, particularly the enabling environment. Knowledge dissemination and experience sharing could be further improved by organising short training workshops for DFID advisers and their partners at the country level in enabling environment policies, approaches and methodologies, and impact assessment approaches for the enabling environment. There should continue to be cross-cutting professional retreats and workshops at the international and regional levels, such as the Africa Investment Workshop in 2004, which focused on investment climate issues, and the DFID/FIAS regional workshop on regulatory reform in South Asia planned for 2005.

Improve the monitoring and assessment of enabling environment reform programmes and projects DFID should develop a monitoring and evaluation framework that can be used in the design and implementation of enabling environment programmes. This could assist in the design of programmes as well as in reviews and final assessments. A framework such as this could also provide a range of indicators and tools that can be used to measure change in the enabling environment. It could guide country offices in the design of processes for monitoring and evaluation that are programme and country specific.

Improve the measurement of impact of DFID-support enabling environment reforms One of the major difficulties experienced in this review has been to identify which kinds of reform programmes (i.e., areas of focus, activities, models) work better than others. This is in large part because there is insufficient information to draw on regarding the impact of these programmes. DFID’s work in the enabling environment should continue to be grounded in its experience of evidence-based revision and research. This requires the development of impact assessment frameworks that can be used to measure success, so that more objective criteria can be applied for this purpose. Without such criteria it is difficult to make assessments regarding the impact of reform programmes or whether certain programmes work better than others.



A framework for impact assessment should describe causal links between reform interventions and improvements in the enabling environment, as well as between improvements in the enabling environment and economic development and pro-poor growth.

236.

237. While impact assessment frameworks are required to cover all the Department’s work on the enabling environment, special attention should be given to larger DFID projects exceeding £20 million. As noted previously in this report, the bundling of enabling environment reforms within large DFID projects has made it very difficult to isolate these reform interventions for assessment purposes. Thus, these projects should make provision for longitudinal impact assessments. Where possible, these assessments should also be incorporated into broader monitoring and assessment procedures, such as PRSP monitoring systems.



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OECD (2004) Development Co-operation Directorate, OECD. 2004. http://www.oecd.org/department/0,2688,en_2649_33721_1_1_1_1_1,00.html

Pearce, D. and S. Parkin (2004) Personal interview with Doug Pearce and Suzanne Parkin, DFID Financial Sector Team. S. White. 7 June. London.

Peuker, A. (2004) Email correspondence from Axel Peuker, Executive Secretary, PSD Sector Board, Manager, Investment Climate Unit, World Bank. S. White. 21 June. Washington.

Polatajko, T. (2004) Email response from the Investment, Competition and Enabling Environment Team provided by Mr Tony Polatajko, Senior Enterprise Development Adviser. S. White. 16 July. London.

Public Private Infrastructure Advisory Facility (2004) Public Private Infrastructure Advisory Facility (PPIAF). 2004. www.ppiaf.org/sections/activitiesandoutputs.htm

Rabb, H. and J.-C. Maur (2004) Personal interview with Mr Habib Rabb and Ms Jean-Christophe Maur, International Trade Department. S. White. 8 June. London.

Scott, H. (2004) Personal interview with Hugh Scott, Private Sector Advisor, DFID Pretoria Office. Personal interview with Hugh Scott, Private Sector Advisor, DFID Pretoria Office Pretoria,

Scott, H. and C. Darroll (2003) Umbrella project; improving the enabling environment for the private sector. Output to Purpose Review Nairobi, DFID Kenya

Small Business Project (2003) The state of regulatory best practice initiatives in Africa. The state of regulatory best practice initiatives in Africa Johannesburg, UK Department for International Development

Snodgrass, D. R. and J. P. Winkler (2004) Enterprise Growth Initiatives : Where Now? What Next? Enterprise Growth Initiatives : Where Now? What Next? Bethesda, MD, USA, Development Alternatives International

Waard, J. d. (2004) Email correspondence from Johan de Waard, Ministry of Foreign Affairs, Government of the Netherlands. S. White. 21 June. The Hague.

Wersun, A. (2004) Email correspondence with Alec Wersun, Private Sector Development, Field Manager, DFID Balkans. S. White. 23 June.

White, S. (2004) Donor approaches to improving the business environment for small enterprises. Donor approaches to improving the business environment for small enterprises Washington, Committee of Donors for Small Enterprise Development, Working Group on Enabling Environment

White, S. and J. Chacaltana (2002) Enabling small enterprise development through a better business environment. Donor experiences in supporting reforms in the business environment. Washington, Committee of Donor Agencies for Small Enterprise Development, Working Group on Enabling Environment.

World Bank (2004) Consultation Document on the World Development Report 2005, World Bank, Washington

Zeballos, E. J. (2004) Email correspondence with Erick J. Zeballos, Livelihoods and Private Sector Adviser, DFID Bolivia. S. White. 25 June.


http://www.oecd.org/department/0,2688,en_2649_33721_1_1_1_1_1,00.html

http://www.ppiaf.org/sections/activitiesandoutputs.htm


Annex 1: Terms of reference 1. Context At a meeting called by Masood Ahmed, Director General, Policy and International, in January 2004 to discuss DFID’s activities in private sector development, Masood outlined several areas in private sector development where he suggested DFID needed to develop a better information base and articulate more clearly its comparative advantage and strategic position. These areas included three components: partnerships with the private sector; the private sector’s role in service delivery e.g. in health and education; and the business enabling environment. The Chief Enterprise Development Adviser has initiated work on the first area, namely, partnerships with the private sector. The Services Delivery Team will carry out work on private sector service delivery later in 2004. This review deals with the third area i.e. DFID’s enabling environment work, and is being led by Policy Division’s Investment, Competition and Enabling Environment Team (ICEE).

2. Objectives The objectives of the proposed review are to examine DFID experience to date in the area of the enabling environment, identify models of enabling environment support that work, and provide guidance on what DFID should and should not do in this area in the future. 3. Scope of Work The business enabling environment is a broad concept and on the widest definition can comprise all factors external to the firm, including the policy, legal, and regulatory framework; governance and institutions; physical security, the social and cultural context of business, macroeconomic policies, access of firms to financial and business services, and the availability of physical and social infrastructure services. A narrower definition, which is the focus of this review, refers to the extent to which government policies and practices set the rules of the game for business and influence, positively or negatively, the performance of markets, the incentives to invest, and the cost of business operations. The review will consider those DFID activities relating to the following core elements of the business environment:

1. Legal and regulatory framework for business generally and small business in particular, including the rule of law and access of businesses to commercial justice

2. Policy framework for business development, including competition policy 3. The Institutional/organisational framework concerned with the design,

implementation or compliance of policies and programmes for the regulation, promotion and representation of business

The review will include an inventory of DFID’s enabling environment related projects but, given time and resource constraints, will focus analysis on small samples of projects in each geographical area where DFID has a major ongoing presence or has plans to provide support (Africa and Asia), as well as relevant policy work at HQ (Policy Division, International Division, Regional Divisions).



The review will focus primarily on DFID’s work on the enabling environment for domestic and foreign enterprises, including work at both national and international levels, but will also touch on enabling environment aspects of DFID projects in particular sectors of private sector development, including pro-poor financial systems development, agricultural development and infrastructure investment. The review will draw upon existing research and evaluation studies, including for SMEs the work of the SME Donors Committee (on which DFID is an active participant), and examine the effectiveness of the approaches and tools/instruments DFID uses in its enabling environment work such as: diagnostic studies (e.g. investment climate, business environment studies); consultancy advice; training; consultation processes; organising stakeholder workshops and cross-sector dialogues; supporting business associations with advocacy work; capacity building for Government agencies, departments, institutions and civil society organisations; and collaboration with other donors. The review will seek to identify as far as is practicable:

• What DFID is doing in the enabling environment field • DFID’s comparative advantage in enabling environment work • Where DFID can best add value in this area • Models of support that have worked at the country level and may be

recommended for good practice guidance for future work • The outcome/impact of DFID’s work in the enabling environment • How much expenditure is directed to enabling environment work within

DFID • Whether DFID should be doing less or more in the enabling environment • What the main gaps are in relation to demand/needs (in terms of both

policy work and also implementation - tools, approaches, coordination etc) where further enabling environment work is desirable

• The scope for improving collaboration and coordination with other donors and multilaterals in enabling environment work

• The international agencies and donor agencies (and especially which parts of the World Bank Group) DFID should engage with on work on the enabling environment

4. Methodology Policy Division’s Investment, Competition and Enabling Environment (ICEE) Team will lead the review. The Team will be supported by a consultant with wide experience in enabling environment work with donor agencies and who is already familiar with much of DFID’s enabling environment work at the country level. A cross departmental Working Group, comprising representatives from Policy Division’s Financial Sector Team, Renewable Natural Resources & Agriculture Team, Business Alliances Team, Pro-Poor Growth Team, relevant Heads of Profession or their nominees (Economics, Enterprise, and Governance), PSI-CDC Department, regional departments, and selected country offices, will be established to work with ICEE in carrying out the review and help finalise the review report. The review will consist of a desk study drawing upon existing materials and supplemented by meetings with selected informants, including telephone and email



contact with DFID country offices engaged in enabling environment work. The review will draw upon:

• Existing DFID paper and intranet documents, including evaluation reports and Project Memoranda relating to activities in the enabling environment, both in London and at country level

• Case study material prepared by the ICB Team for the WDR report on the investment climate, the Bannock ten-country study, and recent studies from the SME Donors Committee

• Recent work conducted internally summarising DFID projects in private sector development and estimates and analysis conducted for the Treasury Spending Review



Annex 2: Inventory of DFID Enabling Environment Activities



Table of Contents for Annex 2 Country Programs 64

Africa 64 Kenya 64 Tanzania 65

Uganda 66 South Africa 67 Lesotho 68 Botswana / Namibia 68 Malawi 69 Mozambique 70 Ghana 70 Nigeria 71 Ethiopia 71 Zambia 71 Zimbabwe 72

Asia 73 China and Vietnam 73 India 74 Bangladesh 78 Pakistan 80 Nepal 81

Eastern Europe and Russia 81 Balkans 81

Russia 83 Ukraine 83 Armenia 84

Latin America 85 Caribbean 85

OTS 86 Central America 86 Bolivia 87

Central Programs 88 Challenge Funds 88 Financial Deepening Challenge Fund 89 Ex-Private Sector Policy Departments 91

Central Research Department Projects 95 Policy Division Teams Environment 96 Development Research Centres 104

Summary of Large-Scale Country-Led Programmes (Over £20 Million) 109



Notes To The Inventory This inventory has been compiled by an intensive search of PRISM, detailed examination of the Development Resources Centres, Central Research Department and Challenge Funds databases, a review of the work programmes of Policy Division and description of former Professional Department work programmes (for example, PSPD). It shows the wide variety of work, both research and practical, that has been done since 1997 on the enabling (policy, legal and regulatory) environment for business across the world. These databases have been supplemented by the contribution of many DFID country staff, who have added their “institutional memory” to the more formal information systems. The inventory includes those programmes, projects and activities that are directly relevant to the policy, regulatory or legal dimensions of the Business Enabling Environment. In other words, the focus is on the public policy framework governing, or ‘enabling’, business establishment and growth. This excludes many areas of DFID activity, such as the provision of Business Development Services, health and education, while recognising that these may be an important part of the broader environment in which business operates. The inventory contains programmes/projects that are either recently completed, are on-going, or are planned for the near future and already in the design stage. The databases do have some significant weaknesses within them, based largely on the sometimes limited quality and quantity of the information being entered onto PRISM – in a small but important number of cases the team involved have identified differences between their detailed understanding of the realities on the ground from the information held on the system. The following data limitations should be noted: • There were practical problems in retrieving data on Enabling Environment activities from PRISM: (1) In mega, composite projects, total project spend

may not reflect a sole, or even primary, focus on enabling environment aspects, which are often difficult to separate out and attribute costs to; and, (2) Many gaps were discovered in PRISM’s existing database;

• Where possible, PRISM database information has been supplemented by “institutional memory” and checks by country offices, but gaps may remain; and

• Expenditure figures do not reflect administration costs, which vary from project to project and from department to department

64


Country Programmes

AFRICA

Name of project Type of activity or instrument

Area of focus Timeframe Total Funds (000s)

Annual Funds (000s)

Implementing Partners

Target Groups

Kenya

Enabling Environment Umbrella Project (Simplifying the Enabling Environment in Kenya) (031-540-046)

Capacity building Regulation Private sector advocacy, Governance

10/2001 10/2004

11,370 (Umbrella Project - £2.9 m)

2,900

KIPPRA, GoK and Kenya Private Sector Alliance (KEPSA

Private Sector (MSMEs, Corporates, etc).

Removing Administrative Barriers to Investment

Policy research Regulation

Commercial Justice Sector Reform Programme (031-542-088)

Capacity building Commercial justice 08/2001 07/200541

3,000 783 Ministry ofJustice and Constitutional Development, Attorney General’s Office, Commercial Courts

Private Sector including MSMEs

41 These figures relate to the Legal Sector Reform Programme SWAP.

65


Support for Private Sector Development (031-540-048)

Policy development and analysis

PSD policies and strategies

11/2003 09/2005

400 218 Ministry ofTrade and Industry, Ministry of Labour and Human Resource Development, Research Institutions (KIPPRA, IEA)

Private Sector

FLSTAC Financial and Legal Sector Technical Assistance Project (031-540-XXX )

Capacity building Financial sector reform Privatisation

Sept. 04 – Dec. 09.

$28,000 (DFID - contribution£6,000)

World Bank,GoK (Ministry of Finance)

Financial Sector

Financial Sector Development Programme

(031-540-040)

Capacity Building

Financial sector reform

Sept 2001 - August 2006

11,370

2,274

SMEs and poor households

Tanzania



Annual Funds (000s)


Target Groups

Enabling Environment for Business in Tanzania (063-540-048)

Capacity Building Competition policy Regulation Commercial justice Investment flows Governance Private sector advocacy

02/2001 05/2002

800 640 Five otherfunding donors

MSMEs

66


Parastatal Reform Project (063-542-015)

Capacity Building Privatisation 06/1997 05/2002

1,700 340

Private Sector Strategy (063-540-030)


PSD policies and strategy 08/1997 01/2002

125 0.21

Financial Services to the Poor

(063-540-046)

Capacity Building Financial sector reform March 2000 - Aug 2006

7,085 1,180

Uganda

Name and purpose of project

Type of Activity Focus Timeframe Total Funds (000s)

Annual Funds (000s)


Target Groups

Deregulation in Uganda (067-540-020)

Capacity Building Regulation 12/2000 12/2005

1,916 390 Unit locatedwithin GoU Ministry of Finance

MSMEs

Commercial Justice Reform Pilot Programme (067-540-034)

Technical assistance

Commercial justice 01/2000 03/2005

920 216 TCOs locatedwithin Commercial Court and Ministry of Justice

SMEs

Support to Privatisation & Utilities Reform (SPUR) (067-540-036)

Technical Assistance Privatisation and parastatal reform

06/2002 06/2004?42

640 640 WB and GoUPrivatisation Unit.

Users of utility services

42 Planned end date Jun 2003 may not have been met since start date was delayed by 1 year.

67


Uganda Private Sector National Strategy (067-540-027)

Capacity Building PSD policies and strategy 09/1997 12/1997

34 136 GoU, PrivateSector Foundation

GoU

Financial Sector Deepening (067-540-037)

Capacity Building Financial sector reform Aug 2001 - May 2006

7,135 1,427 SMEs

South Africa



Annual Funds (000s)


Target Groups

Support to Economic Reform II (SERP) (059-542-092)

Technical assistance Privatisation and parastatal reform

05/2001 04/2004

3,000 1,000 SA DTI,Treasury and DPE

FINMARK (059-540-011)

Capacity Building for the Financial Sector

Financial sector reform March 2002 - Sept 2006

5,000 1,250 Banking Councilof South Africa

SMEs and the poor

Small Business Project (059-964-008)

Monitoring and Evaluation

Regulation 02/1999 07/2003

42 Smallenterprises, Human Resources

Bannock 10-country study of Enabling Environment

Policy Research General enabling environment Regulation

2002 90 Donors &Governments

68


SOER Support to Restructuring of State Enterprises (059-542-101)

Capacity Building Privatisation and parastatal reform Regulation Competition

01/2003 08/2005

6,800 2,632 Governmentand NGO stakeholders

Investment Climate Facility for Africa43

Capacity Building Investment flows Currently in design stage

30 NEPADBusiness Group, Commonwealth Business Council

Commark (059-540-012)

Capacity Building General enabling environment

02/2004 01/2009

15,000 3,000

Lesotho



Annual Funds (000s)


Target Groups

Lesotho Revenue Authority (032-542-036)

Capacity building Technical assistance

Tax reform May 2002 - Jan 2006

4,050 1013

Botswana/Namibia

Enterprise Namibia (046-540-001)

Financial support Capacity building Policy research

General enabling environment

04/02 – 04/05 735 SMEs

43 This facility might amount to $50m in total over 5 years, partly funded by private sector and partly by donors including DFID.

69


Malawi



Annual Funds (000s)


Target Groups

Gemini Survey (037-540-012)


PSD policies and strategies General enabling environment

10/2000 02/2001

340 680 Micro and smallenterprises

Micro and small enterprises

Private Sector Partnership PSPM (037-540-013)

Facilitation of dialogue Private sector advocacy and dialogue Governance

10/2000 08/2001

367.5 367.5 WB Co-financier, Private Sector Donor Forum, Government of Malawi, Civil society in Malawi

Support to the National Action Group (037-540-015)

Facilitation of dialogue Private sector advocacy and dialogue Governance

Jan 2004 - Dec 2006

504 252

Malawi Trade Policy Programme (MTPP) (037-522-002)

Capacity building Trade facilitation Jun 2000 - Jul 2002

520 260 Government ofMalawi

Malawi Trade and Poverty Programme 2 (MTPP 2)

Capacity building Trade facilitation Aug 2002 - Jul 2005

662 221 Government ofMalawi

Malawi Trade and Enabling Environment Programme (in design stage)

Capacity building General EE Trade facilitation

Projected timeframe 3 years

2,000 667 Government ofMalawi

70


Mozambique



Annual Funds (000s)


Target Groups

Labour Code of Practice Technical assistance Labour laws and standards

2002 - 2004

700 350

Customs Department Reform: Phase 2 (044-024-001 financial aid) (044-542-043 technical assistance)

Financial support Technical assistance

Trade facilitation Jul 2000 - Dec 2002

4,800 (financial aid) + 700 (TC funds) = 5,500

2,200 Government ofMozambique

Mozambique Customs Department

Integration of Reformed Customs Department into Revenue Authority (044-039-001 financial aid) (044-542-018 technical assistance)

Technical assistance Financial support

Trade facilitation Tax reform

Sep 2003 - Sep 2005

2,220 (financial aid) + 300 (technical assistance) = 2,520

1,260

Ghana

Support to Private Sector Development (025-540-007, and 024-043-001))



Oct 2002 - Sept 2004

515 + 235 = 750

257.5 + 117.5 = 375

USAID, GTZ, WB, DANIDA, GoG Ministry of PSD

71


Nigeria


Type of Activity/Instrument

Area of Focus Timeframe Total Funds (000s)

Annual Funds (000s)


Target Groups

Security, Justice and Growth Programme (048-542-035)44

Technical assistance Budget and financial support

Commercial justice reforms General enabling environment

2002 – 2007 4,376 + 4,920 = 9,296

Ethiopia

Firm-level Survey on Enabling Environment (020-516-001)

Policy research General enabling environment

Nov 2001 - Sep 2002

185 185 World BankRegional Programme on Enterprise Development (RPED)

Zambia

Zambia National Commercial Bank Privatisation (072-540-025)

Technical assistance Policy analysis and development

Privatisation and parastatal reform

03/2001 02/2005

965 246

ZCCM Consolidated Copper Mines (072-035-001)

Budget and financial support


08/2000 12/2005

56,500 13,000 CDC/IFC Co-financiers, WB/IFC Implementing Partners

44 This programme has a total budget of £30million, of which two components (listed here) relate closely to the policy, legal and regulatory dimensions

of enabling environment activity, and account for just under a third of the total budget.

72


Improving the Enabling Environment for Business in Zambia (Particularly for Agricultural Enterprises) (072-500-002)

Capacity building General enabling environment

09/2004 09/2009

5 000

1 000

World Bank as part of DTIS work and SIDA, Government of Zambia (GRZ)

Private sector, civil society and emergent smallholder farmers.

Administrative Barriers to Investment study (072 540 027)

Policy research Capacity building

General enabling environment Regulation

09/2002 05/2003

85 85 World Bank withFIAS co -financing

Business community and Government

Support to the Zambia Business Forum (072-540-030)

Capacity building Facilitation of dialogue

Private sector advocacy and dialogue

07/2004 07/2006

82 41 SIDA, Dutchand USAID are co financing

Private sector associations

Support to the Financial Sector Development Programme (Phase 1) (072-540-029)


Financial sector reform Regulation

06/2004 06/2005

1,200 600 Bank ofZambia. IMF and World Bank

All Zambian financial institutions and regulatory bodies

Fast track Support for Trade Policy (072-522-001)

Technical assistance Trade facilitation Governance

05/2004 03/2005.

100 100 Government ofZambia

Government of Zambia and private sector

Zimbabwe




Annual Funds (000s)


Target Groups

Trade Policy Capacity Project (073-522-004)

Capacity building Trade facilitation General enabling environment

Sep 2000 - Sep 2002

516 258 Government ofZimbabwe

Government of Zimbabwe

73


ASIA




Annual Funds (000s)


Target Groups

China

IFC China Project Development Facility (145-540-008)


Governance Financial sector reform Investment flows

Oct 2001 - Oct 2004

2,114 705 SichuanInvestment Promotion Board, IFC, and other bilaterals: Governments of Switzerland and Australia

SMEs in interior of China, initial focus on Sichuan province

Vietnam

Vietnam Poverty Reduction Support Credits 2004-2006 (186-004)

Budget and financial support

Privatisation and parastatal reform Trade facilitation PSD policies and strategies Governance Financial sector reform

Aug 2004 - Aug 2007

60,000 20,000 World Bank;Coordination with IMF and ADB. Other donors: Denmark, Netherlands, Sweden

Government of Vietnam

State-owned Enterprise Reform (186-542-009)



Jan 2002 - Jun 2004

4,820 1,928 Government ofVietnam

Markets for the Poor (186-540-001)

Technical assistance Policy analysis and development

General enabling environment Private sector advocacy and dialogue Governance

Sep 2003 - Dec 2006

1,300 400 AsianDevelopment Bank

74


State-owned Enterprise Reform Specialist (186-542-012)

Technical assistance Capacity building

Privatisation and parastatal reform Governance

Jan 2002 - Dec 2004

850 283 Specialistenhances WB’s in-country capacity

Mekong Private Sector Development Facility (MPDF)



1997 - 2003 1,40045 233 SMEs

IFC, several donors co-financing

Mekong Private Sector Development Facility II (MPDF II) (135-541-001)

Technical Assistance Capacity building


Jan 2003 - Dec 2007

3,000 750 SMEs IFC, severaldonors co-financing

India



Annual Funds (000s)


Target Groups

Kolkata Urban Services Programme (149-119-001, 149546040)

Capacity building Policy development and analysis

General enabling environment Infrastructure Governance

Jan 2004 - Mar 2011

102,700 12,673 Government ofWest Bengal, Government of India

Urban households in Kolkata Metropolitan Area

SME Project (149-540-019)

Technical assistance General enabling environment Financial sector reform

Jul 2004 - Jun 2011

25,000 3,571 World Bank, IFC and GTZ, public sector Indian banks

SMEs

45 Based on a conversion of US$2.32 million reported in the IFC Donor Report 2003 using the June 2003 exchange rate of $1.66 to £1 (Bloomberg).

75


SME-SPI (149-540-017)

Technical assistance Financial sector reform Private sector advocacy and dialogue Labour standards

Jul 2002 - Jul 2009

250 36 SIDBI (SmallIndustries Development Bank of India)

Public Sector Enterprises Restructuring Prelude Phase46 (149-125-001, 149-542-077)

Capacity building, Financial support

Privatisation and parastatal reform Private sector advocacy and dialogue PSD policies and strategies

Sep 2003 - Dec 2006

23,100 + 1,000 = 24,100

8,033 Government ofWest Bengal

GOWB Public Sector Enterprises

AP Power Sector Reform Programme Phase II (149-518-069)

Capacity building Privatisation and parastatal reform

Aug 2003 - Jul 2006

15,000 5,000 Government ofAndhra Pradesh

Technical Assistance for AP Economic Restructuring (149-542-031)

Technical assistance Tax reform Privatisation and parastatal reform

Nov 1998 - Sept 2006

11,400 1,440 Government ofAndhra Pradesh

AP Economic and Public Sector Reform47 (149-116-001, 149-542-063)

Financial support, Capacity building

General EE (one component of a larger programme)

Mar 2002 - Mar 2003

65,500 + 500 = 66,000

66,000 Government ofAndhra Pradesh

46 It is difficult to judge how much of this project’s large sum relates directly enabling environment activities. 47 Only a small part of this project is concerned with the enabling environment

76


Orissa Industrial Policy Resolution 2001 (149-516-006)

Capacity building Facilitation of dialogue Policy analysis

Regulation Investment flows Private sector advocacy and dialogue

Feb 2003 - Jan 2008

7,500 1,500 UNIDO, UNDP,Government of Orissa

Orissa GRIDCO Restructuring Project (149-518-064)

Technical assistance Privatisation and parastatal reform

Jul 2000 - Jul 2004

6,000 1,500 World Bank,Government of Orissa

Madhya Pradesh Technical Assistance for Power Sector Reform (149-542-066)

Technical assistance Privatisation and parastatal reform Regulation

Sep 2002 - Jul 2004

10,000 5,000 Government ofMadhya Pradesh, ADB, CIDA

Government of Madhya Pradesh

Madhya Pradesh PSU Reform (proposed and awaiting approval)

Technical assistance Privatisation and parastatal reform PSD policies and strategies

- 1,000 Government ofMadhya Pradesh

Government of Madhya Pradesh

Pilot Private Sector Partnership Project (149-559-019)

Capacity building Financial support


Jun 2004 - May 2009

7,000 1,400

UNCTAD Globalisation Trust Fund (149-542-065)


Build capacity in stakeholders to influence trade rules and assess impacts and opportunities from globalisation

Jan 2003 - Jan 2008

5,500 1,100 UNCTAD, UNDP,Government of India

77


Child Labour Survey (149-559-017)


Labour laws and standards Regulation

Jan 2004 - Jun 2006

4,300 2,150 ILO, NationalSample Survey Organisation (NSSO), Government of India

CARE: Credit and Savings for Household Enterprises (CASHE)48

(149-546-039)

Capacity building, Financial support

Financial sector reform General enabling environment

Jun 1998 - Dec 2005

9,852 1,516 CARE Poor Women

Micro Finance Support Project (MFSP)49 (149-540-010)

Capacity building Financial sector reform Dec 1999 - Mar 2007

16,585 2,073 SIDBI

48 Enabling environment activities constitute one component of this programme. 49 Enabling environment activities constitute one component of this programme.

78


Bangladesh



Annual Funds (000s)


Target Groups

Regulatory & Investment Systems for Enterprise Growth (RISE - now at design stage) (139-540-011)

Policy development and analysis Capacity building

Regulation Trade facilitation

Due to commence 2005

60,000 over 5 years, with budget support planned

Potential: WorldBank, CIDA, EU, JICA

Financial Services for the Poor Programme (FSP – in design)

Capacity building Financial sector reform Regulation

Due to commence 2005

50,000 over 5 years

Potential: WorldBank, CIDA, EC, and Government of Japan, GTZ. Government of Bangladesh

79


Bangladesh – Enterprise Growth & Bank Modernisation

(139-540-014)

Financial support Capacity building


Sept 2003 - Mar 2007

50,150

12,538 World Bank

Developing Business Service Markets (DBSM) programme (branded as Katalyst) (139-540-010)


October 2003 – June 2007 (to be extended)

15,00050 (to possibly be expanded to 40,000 in 2005)

CIDA, SDC, Sida, Government of Bangladesh

SMEs

Managing at the Top 2 (MATT2 – in final stages of design)

Technical assistance Governance To commence in 2005

15,000 Government ofBangladesh

Reforms in Revenue Administration (RIRA) programme (139-452-051)

Capacity building Tax reform Feb 2002 - Jan 2007

5,500 1,100 Government ofBangladesh, World Bank

South Asia Enterprise Development Facilities (SEDF) (139-540-009)

Policy development Capacity building

General enabling environment Regulation Financial sector reform

Jan 2002 - Jan 2007

3,795 759 SMEsGov of Bangladesh

50 This may be expanded to £40,000,000 in 2005

80


Corporate Governance Programme

Capacity building Monitoring and evaluation

Corporate Governance 2003 - 2004

500 Global Form on CG, Commonwealth Secretariat, Dutch Government

Worst Forms of Child Labour Time bound initiative

Policy research Labour laws and standards 2003 - 2005

5,000 ILO (implementer)& NORAD

CARE INCOME

(139-542-011)

Capacity building Financial sector reform Aug 1994 - Dec 2006

6,111 509 CARE

Private Sector Infrastructure Development Project (PSIDP) (139-540-006)

Capacity Building Facilitation of Dialogue

Infrastructure PSD policies and strategies

Sep 1998 - Dec 2003

5,800 1,160 World Bank,CIDA

Pakistan




Annual Funds (000s)


Target Groups

Pakistan Microfinance Network (171-540-004-CA)

Policy analysis and development Capacity building

General enabling environment Financial sector reform

2001 - 2004

300 80 Aga Khan RSP, GoP

MFIs, GoP

Pakistan Microfinance Network, Phase 2

Policy analysis and development Capacity building

Financial sector reform 2005 - 2009

1,000 200 GoP MFIs,GoP

81


Nepal

Financial Sector Technical Assistance Project

(167-540-003)

Technical Assistance Financial sector reform Regulation

Feb 2003 - June 2007

7,500 1,875 IDA, NRB

Trade and Competitiveness Study(167-522-002)

Capacity Building Trade facilitation Investment flows Competition policy

Sep 2002 - Feb 2003

23

South Asia Watch on Trade, Economy and Environment (SAWTEE)

35

82


Eastern Europe and Russia


Type of Activity/ Instrument

Areas of Focus Timeframe Total Funds (000s)

Annual Funds (000s)


Target Groups

Balkans

Bosnia Support for Reform of Business Registration System (310-540-021)


Regulation

Sep 2002 - Jun 2004

680 340 National andlocal Government

Reform of Barriers to SMEs in Bulgaria (265-542-114)


PSD policies and strategies Regulation

Mar 2000 - Mar 2002

450 225 SMEs

IFC SEED Project Development Facility


IFC SMEs

Bosnia Privatisation and Capital Markets Project (310-540-013)

Technical assistance Financial sector reform Jul 1999 - May 2002

2,320 773 British KnowHow Fund,

Government of Bosnia

Study on Administrative Barriers to Investment in Bulgaria (265-540-043)

Policy analysis and development Technical Assistance

PSD policies and strategies Regulation

Feb 2002 - Dec 2002

90 90 FIAS WorldBank Co-financiers, Bulgarian Foreign Investment Bank

Government of Bulgaria

83


Russia51



Annual Funds (000s)


Target Groups

Administrative Barriers to Investment

Policy analysis and development


Sept 2000 - Sept 2002

400 200 WorldBank/IFC

Ukraine

Regeneration in the Donbass (283-559-020)

Capacity building General enabling environment PSD policies and strategies

Apr 2002 - Mar 2007

6,105 1,221 ActionDonbass

regional and local administrations in the Donbass Region and SMEs

Economic and Social Development of Lviv Oblast (283-541-038)

Capacity building PSD policies and strategies

Sep 03 to July 07

1,461 350 BirminghamUniversity

Regional administration

Chamber of Commerce (283-541-032)


Apr 2001 - Mar 2004

602 201 Enterplan Ltd SMEs

WB PSD Loan Support (283-541-036)


May 2003 - May 2007

1,240 310 World Bank,Emerging Market Economies (consultancy)

SMEs

51 PRISM had virtually none of this information on Russia, project titles lifted from the CO tables.

84


Support to the State Committee for Regulatory Policy & Enterprise (283-541-024)

Capacity Building and Policy Development


Apr 1999 – Oct 2002

965 £350,000 SQW NationalGovernment and Regional Administrations (Oblasts) Business

Armenia




Annual Funds (000s)


Target Groups

Armenia Regional Development Programme (274-542-037)

Capacity Building Policy analysis and development


J Jun 02 to Sep 07 JJ

4,500

1,000

Regional Government

85


LATIN AMERICA Name and purpose of project



Annual Funds (000s)


Target Groups

DFID-Caribbean

CARICOM Single Market and Economy (232-542-053)


General enabling environment Competition policy

Feb 2002 - May 2002

153 612

Support for establishment of securities market in Guyana

Financial support Financial sector reform Sep 2003 - Dec 2004

63 63

Support to Guyana Association of Securities Companies and Intermediaries

Financial support Financial sector reform Sep 2003 - Mar 2005

43 20

Support to Private Sector Commission (umbrella private sector organisation) in Guyana

Capacity building Private sector advocacy and dialogue

Sep 2000 - Dec 2004

110 20

Jamaica Cluster Competitiveness Programme (111-540-002)

Capacity building Facilitation of dialogue

Competition policy Sep 2002 - Sep 2004

572 290

Dominica Public Sector Reform Programme

Capacity building Regulation PSD policies and strategies

2003 - 2005

200 100

86


Grenada Public Sector Reform Programme

Capacity building Regulation PSD policies and strategies

2003 - 2006

100 50

OTs

Support to PSD Phase II Montserrat52

Capacity building PSD strategies and policies

May 2002 - Feb 2004

1,500 750

DFID-Central America

Public-private dialogue on business enabling environment in Nicaragua and Honduras (235-542-018-CA-001)

Facilitation of dialogue Private sector advocacy and dialogue

May 2002 - May 2003

240 240

Promoting Equity Through Economic Growth in Nicaragua (235-540-001-BW-001)

Capacity building, Policy development and analysis Facilitation of dialogue

General enabling environment Competition policy Regulations

Dec 2002 - Oct 2007

2,500 500 GovernmentInstitutions, business associations of micro, small and medium enterprises, producers organisations IFIs (WB and IADB)

52 The CO highlights phase I of the Montserrat PSD work – hiring a consultant, but PRISM only provides info on phase II that is ongoing. I have

therefore include phase II here.

87


Pro-Poor Economic Growth in Nicaragua (235-540-001-BW-001)

Capacity building Facilitation of Dialogue

General enabling environment Private sector advocacy and dialogue PSD policies and strategy

Dec 2002 - Oct 2007

2,500 500 Urban andrural SMEs

DFID – Bolivia




Annual Funds (000s)


Target Groups

Making Markets Work for the Poor: Support to the development of an enabling environment to facilitate the entry of poor economic actors into the market economy (086-990-001)

Financial support Capacity building Policy analysis and development

General enabling environment Regulation PSD policies and strategies

April 2002 – April 2007

1,140 500 Ministry ofEconomic Development and Comite de Enlace

Government institutions; small producers and medium/large enterprises

88


CENTRAL PROGRAMMES CHALLENGE FUNDS Business Linkage Challenge Fund (BLCF) Within the definition of the Enabling Environment included in the TORs for this review, there are 3 projects within the BLCF:

Title Description GrantAmount

Aims Timescale Activity orInstrument

Area of Focus

Small Business Project (SBP)

SBP are working with a range of private sector partners in Southern Africa to provide evidence-based research to advocate for the improvement of the regulatory environment for business in the region. A fundamental aspect of this is promoting the use of regulatory impact assessment tools. SBP work closely with the Commonwealth Business Council project also funded under the BLCF.

£384,520

To provide evidence based research to advocate for the improvement of the enabling environment for all business in South Africa. To promote the establishment of regulatory impact assessments in law making in South Africa as a fundamental element in regulatory best practice

10/03 to 09/05

Policy research Raising awareness and disseminating knowledge

Regulation

Commonwealth Business Council

The Commonwealth Business Council (CBC) is working with a range of private sector business associations and other partners across Sub Saharan Africa to address issues around poor and cumbersome regulations that impacts on the business environment. CBC work closely with the SBP project also funded under the BLCF (see above)

£278,000 To raise awareness of the need for regulatory impact assessment (RIA) processes at senior government and policy maker levels in Africa. To spread RIA best practice working in coordination with country base RIA initiatives.

10/03 to 09/05

Policy research Regulation

89



Aims Timescale Activity orInstrument

Area of Focus

Commonwealth Business Council

Strategies Against Corruption £179,265 Focus on Africa Sept 2004 - Sept 2006

Policy development and analysis Policy research

Governance

Bees for Development

Bees for Development are working with honey producers in Zambia and Mozambique to promote exports to the European Union (EU). Approved residue monitoring schemes are required for export to the EU, which have already been established in Zambia and will be replicated in Mozambique.

£172,100 To build the capacity of African honey producer organisations to develop the Residue Monitoring Schemes that will enable their products to meet EU import criteria.

10/03 to 09/06

Capacity building Regulation Trade facilitation

Financial Deepening Challenge Fund (FDCF) There are 2 projects within the FDCF EE Window, established in 2003


Aims Start Date Activity or Instrument Area of Focus

JSE Securities Exchange, South Africa: Socially Responsible Investment (“SRI”) Index

This project will contribute to the development of a pro-poor enabling environment for the financial sector in South Africa by launching a Sustainability Index that provides a mechanism through which companies in South Africa that adopt

£503,620 To motivate private sector companies to adopt social responsibility programmes that have direct impact on the poor; To facilitate broad-based black economic empowerment

September 2003

Advocacy Technical assistance

Financial sector reform Corporate governance

90


South Africa that adopt appropriate commercial/social objectives and policies can be recognized by the market ultimately and rewarded through share values.

Women’s World Banking

To enhance the Enabling Environment (EE) for pro-poor finance: • In India through a programme to enhance outreach of commercial bank • And in East Africa through a programme that seeks to improve the emerging legislative and regulatory framework for MFIs that contributes positively to their growth and development as financial institutions.

£210,500 In India to engage large commercial banks in the provision of retail and wholesale micro finance. In East Africa, a modified and improved legal framework for micro finance in Uganda; Sound micro finance sector legislation introduced in Kenya; Adoption of performance monitoring processes by MFIs in the region and more widely in Africa.

June 2004 Capacity building Policy development and analysis Technical assistance

Regulation Financial sector reform

91


Ex - PRIVATE SECTOR POLICY DEPARTMENT PROJECTS Some of these Projects were transferred to new PD teams (PMU, ICEE, FST, BA) under the PD reorganisation in April 2003

Title Aims of Project Cost and Timescale Activity or Instrument Area of Focus

UNCTAD TA project on competition policy for developing countries (790-637-028)

(a) To provide enhanced support to developing countries for the formulation and enhancement of competition policy; (b) To develop human resources and institutional capacity on key competition issues

Phase I 2001/02 Phase II 2002/03: £300,000 Phase III 2003/04 (?) £250,000

Capacity building Policy development and analysis Technical assistance

Global Competition policy

UNCTAD TA project on investment and support for World Investment Report 2003

To enhance developing countries’ capacity on investment issues and to negotiate investment agreements To support the WIR 2003

3 phases over 3 years from 2000/01 to 2002/03 with a total budget of £330,000

Capacity building Policy development and analysis Raising awareness and disseminating knowledge

Global Investment flows

Trade Policy Dialogues – Commonwealth Business Council (790-637-049)

To enhance effectiveness of developing country participation in WTO negotiating processes by facilitating progress on the discussions on investment, competition and services

2002/04 £78,000

Facilitation of dialogue Global Investment flows Competition policy

World Bank Investment Climate Assessments (790-637-031)

ICAs in China, Pakistan and Bangladesh aimed at enhancing understanding of the regulatory, administrative, legal, human resource, financial and infrastructure constraints to productivity and income growth.

2002/03 £100,000 2003/04 £100,000


Asia General enabling environment

92



CBC Business Environment Survey 2003 (790 637 050)

To help target countries improve their investment climate by providing an in-depth assessment of the private sector’s evaluation of the enabling environment for business and investment

2002/04 £120,000 Policy research Raising awareness and disseminating knowledge

Global (30 Commonwealth countries) General enabling environment

CUTS IFD: Comparative study on FDI in developing and transitional economies (790-637-027)

To assist selected countries (India, Bangladesh, Brazil, Hungary, South Africa, Tanzania and Zambia) to attract and sustain investment flows by: (a) Identifying factors that encourage or inhibit investment; (b) Identifying the problems or deficiencies that exist at the national level; (c) Designing and implementing solutions.

2001/04 £587,444 Policy research Policy development and analysis Technical assistance

Asia, Africa, Eastern Europe, Latin America General enabling environment Investment flows

CUTS 7-UP Project: Comparative study of competition regimes in 7 African and Asian countries

To examine the application of competition policy regimes in 7 countries To undertake case studies of anti-competitive behaviour To help build a culture of competition

3 phases over 3 years 2000/01 to 2002/03 with a total budget of £450,000


Africa and Asia Competition policy

COMESA regional competition policy (790-637-044)

To co-fund a competition policy workshop and implement a regional competition policy

2002/04 £270,000 Facilitation of dialogue

Africa Competition policy

93



An empirical examination of competition issues in selected CARICOM countries: towards policy formulation (790-637-051)

An empirical examination of competition issues in 6 CARICOM countries to help shape national and regional competition policies

2002/04 £74,451 Policy research Policy development and analysis

Caribbean Competition policy

Title Project Description Cost and Timescale Activity or Instrument Area of Focus

Consumers International – Consumer Movement and Competition Policy Post-Doha (790-637-043)

(a) To develop a global consumer view on the type of WTO negotiations and modalities into the future; (b) To develop expertise, experience and knowledge, and capacity, to work on consumer issues; (c) To support the role of consumer organisations in developing countries to promote and shape competition laws

2002/03 £97,740 Raising awareness and disseminating knowledge Capacity building Facilitation of dialogue Advocacy

Global Competition policy

World Bank Project to strengthen the capacity of developing country governments to engage in CSR (790-637-035)

To improve the enabling environment for CSR, in Vietnam (footwear industry), Angola (oil sector), Philippines (mining), Ivory Coast and Ghana (cocoa) and in El Salvador.

May 2002 – December 2003 £352,000

Capacity building

Africa, Asia, Latin America Corporate governance

Business Links Asia (790-637-010)

To transfer knowledge and skills on ethical business practices to SMEs in Vietnam and Indonesia

1999-2003 £294,000 Capacity building Raising awareness and disseminating knowledge

Asia Corporate governance

94


CBC/NEPAD Business Group (790-637-054)

To bring African and international business perspectives into NEPAD and to produce policy analyses and action plans which map out the constraints and opportunities for the private sector to influence the NEPAD process.

2002/04 £117,000 Policy development and analysis Facilitation of dialogue Advocacy

Africa Private sector advocacy and dialogue PSD policies and strategies

Title Project Description Cost and Timescale Activity or Instrument Area of Focus

Global Corporate Governance Fund (GCGF)

To promote the adoption of better corporate governance in developing countries

2000-04 £500,000

Budget and financial support Raising awareness and disseminating knowledge

Global Corporate governance

Corporate Governance in South Asia

To promote the adoption of better corporate governance in developing countries

2000-04 £200,000

Raising awareness and disseminating knowledge

Global Corporate governance

95


CENTRAL RESEARCH DEPARTMENT PROJECTS

Title Project Description Cost and Timescale

Activity or instrument Area of focus

Centre for Research on regulation & competition in developing countries

Undertakes policy research into regulation and competition issues in developing countries with the aim of contributing to an increased understanding of the ways in which regulation and competitive processes can work in support of economic growth and poverty reduction.

Manchester University 10/00 to 03/06 £2.572 m


Regulation Competition policy

The Indian Informal Economy: the Impact of Trade Liberalisation on income distribution and poor households

The research examines the impact of trade policy changes on the informal sector. Trade policy includes international such as the reduction in import tariffs and removal of quantitative restrictions and domestic such as de-reserving and re-reserving small-scale industries, de- and re-regulating many commodities hitherto deemed essential and so on.

QEH 09/01 to 03/04 £114,999

Policy research Trade facilitation Regulation

Competition & Coordination in Cotton Market Systems

Facilitate information sharing and discussion between policy makers and other stakeholders in the cotton systems concerned, and will also contribute to wider international debates on appropriate institutional and governance structures for the efficient functioning of markets

Imperial College 01/02 to 05/05 £329,113


Trade facilitation General enabling environment

Enabled Environments: Reducing Barriers for Low-income Disabled People

To explore the ways in which people with disabilities living in low-income urban areas are prevented from fully participating in the socio-economic development of their community, and to propose practical policy solutions to the removal of such barriers.

Newcastle University 01/01 to 03/03 £148,221

Policy research


96


ACTIVITIES OF POLICY DIVISION TEAMS RELATED TO THE ENABLING ENVIRONMENT

Team Work Objectives relevant to Enabling Environment

Activities relevant to Enabling Environment Activity or Instrument Area of Focus

Investment, Competition & Enabling Environment

1. Promote a better understanding of enabling environment and investment issues throughout DFID and support appropriate investment climate reform interventions

Review of DFID’s work on the enabling environment. Coordinated an ‘Investment Environment for Africa’ workshop Contribute to Growth and Investment Group work on ‘Making Markets Work for the Poor’. Study on ratings and private investment in Africa. Study on impact of tax administrations on investment in Africa. Support to the World Bank to WDR2005 on the investment climate. Synthesis of investment climate surveys and indices Participation in work of SME Donors Committee on enabling environment issues. Support for regulatory reform in Asia. Support to CBC Business Environment Survey 2005.

Raising awareness and disseminating knowledge Facilitation of dialogue Policy research Policy research Policy research Raising awareness and disseminating knowledge Policy research Raising awareness and disseminating knowledge Raising awareness and disseminating knowledge Raising awareness and disseminating knowledge

General EE General EE General EE Investment flows Tax reform General EE General EE General EE Regulation General EE

97


2. Promote a better understanding of Competition Policy Issues throughout DFID and internationally ________________________ In the current FY, the ICEE’s team budget is £500,000 programme costs and £421,000 administration costs.

Consideration of proposal for the establishment of a South Asia Trade and Investment Network (SATIN) Reviewing evidence on links between competition policy and poverty reduction Engaging with Whitehall and international stakeholders on competition policy work Advice to RPUs and PMU on competition policy proposals/issues Support to DFID Country Offices on enabling environment work – Bangladesh, Sierra Leone, Kenya, South Africa, Nigeria and Vietnam.

Policy research Facilitation of dialogue Policy research Facilitation of dialogue Technical assistance Technical assistance

Trade facilitation and investment flows Competition policy Competition policy Competition policy General EE

98



Activities relevant to Enabling Environment

Activity or Instrument Area of Focus

Financial Sector

To identify, collate and disseminate evidence on pro-poor financial sector policy development 2. To provide policymakers with a means of assessing the financial sector contribution to the MDGs and to development more broadly, and to track progress across countries and time. The multi-donor FIRST programme of financial sector technical assistance has received £20 million over the period 2002-06 from DFID.

Regulatory and other policies which impact on broad based access to financial services -entry and competition, interest rate caps, and money laundering legislation Mainstreaming the provision of financial services to poor people through formal financial institutions Develop Indicators for measuring Access to Financial Services Support to DFID Country Offices on enabling environment work. Policy review on financial exclusion (729-632-002) FIRST programme53 (411-765-001 / 411 763-001)

Policy research Raising awareness and disseminating knowledge Policy research Technical assistance Policy research Technical assistance

Financial sector reform Financial sector reform Financial sector reform Financial sector reform Financial sector reform Financial sector reform

53 The FIRST Programme was initiated in PSPD, transferred to IFID under the PD reorganisation in April 2003, and then transferred to PD’s Financial

Sector Team in 2004/05.

99





Renewable Natural Resources & Agriculture

To increase the contribution of natural resources and agriculture to growth poverty and reduction

Improving the context for investment in renewable natural resources and agricultural markets and improving the quality of that investment to generate benefits for the poor Support to DFID Country Offices on enabling environment work. Review of the relevance of current concepts of making markets work for the poor in agriculture Investigation into mechanisms to ensure land markets work and support poor people’s participation in the growth process Improving access to financial services in rural areas with Financial Sector team Regulatory impediments to the poor’s access to technology

Policy research Technical assistance Policy research Policy research Policy research Policy research

General EE General EE General EE General EE Financial sector reform Regulation

100





Pro- Poor Growth To provide strategic thinking on the links between economic growth and poverty reduction and how to accelerate the rate of pro-poor growth

Briefing Notes on what pro-poor growth is and a policy framework to increase the pro-poor growth rate Coordinating the ‘Making Markets Work for the Poor’ work programme Conceptual framework on ‘Accelerating Pro-Poor Growth through Private Sector Development’

Policy research Policy research Policy research

General EE General EE PSD policies and strategies

Business Alliances

1.To identify and develop new business models and initiatives that have a more sustainable impact on poverty reduction 2.To increase the transparency over payments made by companies operating in the extractive industries

Standards of transparency EITI pilots in Central & SE Asia and Africa Engagement with MNEs Corporate Social Responsibility /SRB

Raising awareness and disseminating knowledge Policy development and analysis Advocacy

Regulation Corporate governance

Public Financial Management & Accountability

To build effective and transparent public financial management accountability at the country level

Efficiency and effectiveness of revenue collection

Policy research Policy development and analysis

Tax reform Governance

101


Department Work Objectives relevant to Enabling Environment

Policy Areas relevant to Enabling Environment


Africa Policy Department Work through and support others, sharing information across country programmes Agricultural Investment report on sources of finance for agribusinesses

Raising awareness and disseminating knowledge Policy research

Africa Investment flows

Asia Policy Unit Asia Regional Poverty Fund support to CUTS 7-Up Mark II to promote better competition regimes in South Asia. Annual Investment Roundtables on administrative and regulatory barriers to investment. Support for regional initiatives on regulatory reform in Asia. Research study on SME development in Asia Two roundtables to promote regional trade in South Asia Improvement of trade facilitation infrastructure

Raising awareness and disseminating knowledge Facilitation of dialogue Policy research Policy research Facilitation of dialogue Policy development and analysis

Competition policy Regulation Regulation SME development Trade facilitation Trade facilitation

MENAD To increase the effectiveness of EC aid programming and EIB investments in promoting private sector development in the MENA region

Provision of HMG’s (shareholder and board member) line on European Investment Bank’s (EIB) Facility for Euro-Mediterranean Investment and Partnership (FEMIP) investments in the MENA region. FEMIP is a euro 2 billion p.a. lending facility designed to facilitate small and medium sized enterprises, employment creation and private sector

Financial support

Financial sector reform SME development

102


development in the MENA region. Funding the provision of an annual reporting system on progress on the various legal and institutional reforms required in MENA countries to implement the Euro-Med Association Agreements. The Association Agreements are intended to open the Mediterranean Markets to external competition through the establishment of a Free Trade Zone. This is expected to boost competitiveness, investment, & economic growth. Funding a report appraising various policy options for a revised approach and strategy to EC support of private sector development in the MENA region.

Monitoring and evaluation Policy development and analysis

Trade facilitation PSD policies and strategies

Evaluation Department Evaluation studies to examine the effectiveness of DFID projects

Kenya Enterprise Initiative Kenya Jehudi Credit Scheme Bangladesh BRAC Russian Agency Planning Skills Russia KHF Privatisation Programme Synthesis DFID SME Projects Evaluation of Revenue Projects

M&E M&E M&E M&E M&E M&E M&E

General EE Financial sector reform Financial sector reform PSD policies and strategies Privatisation SME development Tax reform

103


Department Work Objectives relevant to Enabling Environment

Policy Areas relevant to Enabling Environment


PSI-CDC Department Public Private Infrastructure Advisory Facility (PPIAF) to advise governments on improving the enabling environment (policies, laws, regulations and institutions) for private sector participation in infrastructure. £38.3 million from Apr 2002 – Mar 2005. www.ppiaf.org Public-Private Partnership for the Urban Environment (PPPUE) with the UNDP for urban environmental management. £3.9 million from July 1999-Dec 2004. www.undp.org/pppue

Policy development and analysis Technical assistance Raising awareness and disseminating knowledge Capacity building Financial support Disseminating knowledge

Infrastructure conditions Infrastructure conditions

Ex-Enterprise Development Department

Participation in SME Donor Committee Support to CGAP for global microfinance Designed and centrally managed Challenge Funds

Raising awareness and disseminating knowledge Budget and financial support Budget and financial support

SME development Financial sector reform General EE

104

http://www.ppiaf.org/

http://www.undp.org/pppue


DEVELOPMENT RESOURCE CENTRES Centre on Regulation and Competition (CRC) Reports of the CRC of specific relevance to the Enabling Environment include: Title Synopsis Authors & Publication Details

Regulatory Impact Assessment: Developing its Potential for Use in Developing Countries

Assesses the nature and scope of RIA and challenges that will be faced in introducing the concept more widely across developing economies. Results from a survey of a small number of middle-income countries suggest that a number have some form of regulatory assessment, but that the methods adopted are partial in their application and are certainly not systematically applied across government. The paper concludes by proposing a framework, drawing on the OECD guidelines, which can be applied in low and middle-income countries to improve regulatory decision-making and outcomes.

Colin Kirkpatrick, University of Manchester and David Parker, Aston University July 2003, ISBN 1-904056-55-5

Regulatory Impact Assessment in Developing Countries: Research Issues

Explores the history of using regulation as a policy instrument for improving economic performance in developing countries. The term ‘regulation’ has been defined differently (either more narrowly or more broadly) in different contexts and at different times, but can be broadly defined as “any government measure or intervention that seeks to change the behaviour of individuals or groups” (Cabinet Office, 2000a).

Colin Kirkpatrick, University of Manchester October 2001, ISBN 1-904056-04-0

105


Title Synopsis Authors & Publication Details

Governance-based Analysis of Regulation Examines briefly what we mean by regulation; what the current literature tells us about the developing nature of regulatory systems and regulatory reform; to attempt to place such arrangements in the context provided by public policy processes and institutions; and to argue that an explanation of the ‘governance of regulation’ is crucial to an understanding of the strengths and weaknesses of regulatory policy and practice.

Martin Minogue, University of Manchester October 2001, ISBN 1-904056-02-4

Priority Research Issues Relating to Regulation and Competition in Ghana

Explores issues related to how Governments can support SME development and contradictions between policy intentions and the difficulties that Governments have in achieving this support, using Ghana as a case study.

Ernest Aryeetey, University of Ghana October 2001, ISBN 1-904056-08-3

Regulation, Competition and Small and Medium Enterprises in Developing Countries

The main focus of this paper is to trace the channels or processes through which regulation and competition affect small and medium enterprises (SMEs) in developing countries.

Peter Quartey, University of Manchester October 2001, ISBN 1-904056-09-1

Regulation and Competition in South Africa In general, good regulatory frameworks protect public interest and support essential services. Fair competition and accurate pricing result in increased efficiency, while standard setting serves customers’ interests and prevents infrastructure from threatening the sustainability of natural resources. International best practice emphasises the importance of separating the regulatory function from the functions of policy making and implementation.

Erwin Schwella, University of Stellenbosch February 2002, ISBN 1-904056-17-2

106



Developing and Applying Regulatory Impact Assessment Methodologies in Low and Middle Income Countries

Regulatory Impact Assessment (RIA) is used to assess the likely consequences of proposed regulations, and the actual consequences of existing regulations. It is currently used, to a varying extent, by approximately two-thirds of OECD Member countries but its adoption in low and middle-income countries is more recent and limited. This paper helps clarify RIA issues such as: the nature and principal characteristics of the RIA methodology to be followed; the scope of its subsequent practical application; and other RIA-related, supporting activities to be undertaken, such as awareness raising and capacity strengthening.

Norman Lee, University of Manchester October 2002, ISBN 1-904056-29-6

Creating the conditions for International Business Expansion: The Impact of Regulation on Economic Growth in Developing Countries - A Cross-Country Analysis

The role of an effective regulatory regime in promoting economic growth and development has generated considerable interest among researchers and practitioners in recent years. This paper assesses through econometric modelling the impact of variations in the quality of regulatory governance on economic growth. The results suggest a strong causal link between regulatory quality and economic performance and confirm that “good” regulation is associated with higher economic growth, which in turn is conducive to the expansion of international business.

Hossein Jalilian, University of Bradford, Colin Kirkpatrick, University of Manchester and David Parker, Aston University July 2003, ISBN 1-904056-53-9

107



Comparing Regulatory Systems: Institutions, Processes and Legal Forms in Industrialised Countries

This paper identifies and compares the key features of regulatory systems in industrialised countries. Topics covered include institutional frameworks, regulatory procedures and management, and legal instruments. Traditional “command and control” methods are compared and contrasted with approaches relying on financial incentives and other economic instruments.

Anthony Ogus, University of Manchester December 2002, ISBN 1-904056-34-2

108

Summary of Large-Scale Country-Led Programmes (over £20 million)

Country Name Amount (£) Purpose and Timing Comments

Bangladesh Regulatory and Investment Systems for Enterprise Growth (RISE) (139-540-011)

50,150,000 Business regulation,competition, trade facilitation. 2005 – 2011(planned)

Currently in advanced design stage, this amount reflects activities focused on the enabling environment and could rise to £100 million in the future.

Global PPIAF 38,300,000 Enabling environment (policies, laws, regulations and institutions) for private sector participation in infrastructure 2002 - 2005

Advisory facility for governments on improving the enabling environment for private sector participation in infrastructure

Global FIRST(411-765-001 / 411 763-001)

20,000,000 Financial sector 2002-2006

Multi-donor programme of financial sector technical assistance

Vietnam Poverty Reduction Support Credits (186-004)

60,000,000 Pro-Poor Structural Reforms 2004-2007

Several activities included in this programme including reforms of SOEs, trade policy, and banking sector for private sector development.

India SME Project(149-540-019)

25,000,000 Enabling environment and financial infrastructure for SMEs2004 – 2011

Some activities included in this project relate to BDS for SMEs.

India Kolkata Urban Services Programme (149-119-001, 149-546-040)

102,700,000 Range of issues in Kolkata metropolitan area 2004 - 2011

All three components of KUSP (governance reforms, improved planning & service delivery and economic development) are interlocked; making it difficult to attribute specific expenditure amounts to the enabling environment component.



Country Name Amount (£) Purpose and Timing Comments

India AP Economic and Public Sector Reform (149-116-001, 149-542-063)

65,500,000 Support Government of Andhra Pradesh to undertake pro-poor reforms 2002-2003

Only a small component of total cost relates directly to enabling environment activities.

Zambia Zambia Consolidated Copper Mines (ZCCM) (072-035-001)

56,500,000 ZCCM Privatisation 2000 - 2005

TOTAL 418,150,000

110

review of dfid activities in the ... - business environment

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