Governance

from words to deeds

Learning Lunch with Miguel Schloss

1818 Society Water Group, May 13, 2011

2

Agenda

• Governance: why and what for

• The approach: how to go about it

• Efforts to-date: from diagnosis to action

• Implications and lessons for the future

“There is no such thing as a free lunch”

Milton Freedman

3

Controlling Bribery and Civil Liberties

AGO

ARG

AUS

AUT

BEL

BFA

BRA

CAN

CHECHL

CHN

CIV

CMR

COL

CRI

CZE

DEU

DNK

EGY

ESP

ETH

FIN

FRA

GBR

GHA

GRC

GTM HND

HUN

IDN

IND

IRL

ISL

ISR

ITA

JOR

JPN

KEN

KOR

LSO

LUX

MAR

MEX

MOZ

MUS

MWI MYS

NAM

NGA NIC

NLD

NOR

NZL

PER

PHL

POL

PRT

RUS

SGP

SVK

SWE

SWZ

THA

TUN

TUR

TWN

TZA UGA UKR

USA

VENVNM

ZAF

ZMB

ZWE

r=0.67

Civil Liberties

Bri

ber

y(G

CS

97+

)

LOWBRIBERY

LOW HIGH

Source: Kaufmann and Sachs

(Freedom House)

HIGHBRIBERY

D

4

Bribery vs. Civil Service Professionalism

BGR

CZESVK

KAZ

BRA

CAN

CHE

CHL

CHN

COL

CRI

CZE

DEU

DNK

ESP

FIN

FRA

GBR

GRC

GTM

HKG

HND

HUN

IDN

IND

IRL

ISL

ISR

ITA

JOR

JPN

KOR

LUX

MEX

MYS

NIC

NLD

NOR

NZL

PER

PHL

POL

PRT

RUS

SGP

SLV

SVK

SWE

THA

TUR

TWN

UKR

USA

VENVNM

ZAF

ZWE

r=0.86

Civil Service Professionalism

Brib

ery

HIGHLOW

LOW

HIGH

D

5

Corruption and Regulatory Discretion

ARG

AUS

AUT

BEL

BRA

CAN

CHE

CHL

CHN

COL

CRI

CZE

DEU

DNK

ESP

FIN

FRA

GBR

GRC

HKG

HUN

IDNIND

IRLISR

ITA

JPN

KOR

LUX

MEX

MYS

NGA

NLDNOR

NZL

PHL

POL

PRT

RUS

SGP

SWE

THATUR

TWN

USA

VEN

VNM

ZAF

r=0.76

Regulatory discretion (GCS)

Corr

up

tio

n

High corruption

Low corruption

Low High

D

6

Corruption and Rule of Law

ZWEZMB

ZAR

ZAF

VNM

VEN

USA

URY

UGA

TZA

TWN

TUR

TUN

THA

SYR

SWE

SVK

SGP

SAU

RUS

ROM

QAT

PRT

POL

PHLPER

PAN

PAK

OMN

NZL

NOR

NLD

NGA

MYS

MMR

MEX

MAR

LKA

LBY

KWTKOR

KEN

JPN

JOR

ITA

ISR

IRQ

IRN

IRL

IND

IDN

HUN

HKG

GRC

GHA

GBR

FRAFIN

ESP

EGY

ECUDZA

DNKDEU

CZE

CRI

COLCMR

CIV

CHN

CHL

CHE

CAN

BWA

BRA

BOL

BHR

BGR

BGD

BEL

AUT

AUS

ARG

ARE

AGO

r=0.82

Rule of Law (ICRG)

S&

P-D

RI

Corr

up

tion

In

dex

LOW

HIGH

LOW HIGH

D

7

Unofficial Economy and Corruption Index

VEN

URY

PER

PAN

MEX

HND

GTM

ECU

CRI

COL

CHL

BRA

BOL

ARG

USASWE

PRT

NOR

NLD

JPN

ITA

IRL

GRC

GBR

FRA

ESP

DNK

DEU

CHE

CAN

BEL

AUT

UKR

SVK

RUS

ROM

POL

LVA

HUN

ESTCZE

BLR

BGR

r = 0.79

0%

20%

40%

60%

Corruption

Unofficial economy as percent of GDP

Low corruption

High corruption

D

8

Time Management Spent with Bureaucrats and Frequency of Bribery

ARM

AUT

AZE

BEN BGR

BLRBOL

CAN

CHE

CIV

CMR

COG

COL

CRI

CZEDEU

ECU

ESP

EST

FJI

FRA

GBR

GEO

GHA

GIN

GNB

HKG

HUN

IND

IRL

ITA

JAM

JOR

KAZ

KENKGZ

KOR

LTULVA

MAR

MDA

MDGMEX

MKD

MLI

MOZ

MUS

MWI

MYS

NGA

POL

PRT

RUSSEN

SGP

SVK

TCD

TGO

THA

TUR

TZA

UGA

UKR

USA

UZB

VEN

ZAF

ZMB

ZWE

R =.77

0

10%

20%

30%

Frequency of bribery (WDR)

% Management Time

with bureaucrats

Low High

Source: Kaufmann and Wei (1998) Data analysis based on survey conducted under the World Bank’s World Development

Report 1997.

11

D

9

Corruption Perception By Regions

0 10 20 30 40 50 60 70 80 90 100

OECD

East Asia

Middle East and North Africa

South Asia

Latin America and Caribbean

Former Soviet Union

Sub-Saharan Africa

%

D

10

Legal-Judicial:

•Independence

•Judicial Strengthening

•ADR Mechanisms

Corruption

Economic Policy:

•Deregulation

•Tax SimplificationFinancial Controls:

•Audit

•Procurement

Civil Service:

•Pay

•Meritocracy

Public Oversight:

•Parliamentary Oversight

•Civil society and media

•“Power of data”/Surveys

• Independent agency/NGO

Multipronged Strategy for

Combating Corruption

D

11

Public Oversight and Civil Society:

•Ombudsman in Albania and Bolivia• Private Sector Coalition in Bolivia

• Diagnostic Surveys and NGOmonitoring in Ecuador and others

Corruption

The ResponseD

12

Bribers Payers Index

S

1

YEARYYY

YEAR 2

YEAR 1

13

Bribery in Business Sectors

0 10 20 30 40 50 60 70 80 90 100

Public works/construction

Arms and defense

Oil and gas

Real estate/property

Telecoms

Power generation/transmission

Mining

Transportation/storage

Pharmaceuticals/medical care

Heavy manufacturing

Banking and finance

Civilian aerospace

Forestry

IT

Fishery

Light manufacturing

Agriculture

S

14

Role of governance – weak governance contributes to a number of policy

distortions, resulting in poor economic performance

• More costly public investments

• Lower government revenues

• Lower operations & maintenance

expenditures

• Lower resource surpluses

• Foreign exchange overvaluation

• Loss of competitiveness of non-

extractive sectors

• “Please effect” – incremental

recurrent expenditures

• Diminishing human capital

formation

Weak governance normally

associated with:

Policy distortions normally

involve:

Poor economic performance

S

15

Governance: why and what for

Efforts to-date: from diagnosis to action

Implications and lessons for the future

Agenda

The approach: how to go about it

“You cannot fish with a tennis racket”

Fernando Eyzaguirre

16

Phases and objectives – the current effort involved developing a

systematic framework & conducting two pilot projects, in Ghana and Mali

Development objectives:

(i) Develop and test Governance Framework for Extractive Industries;

(ii)Provide governments with practical, operational measures to support sustainable mineral resource development;

(iii)Develop, mainstream actions for transparency, accountability, information-sharing & scrutiny mechanisms.

Key expected outputs/ results:

• Taxonomy of countries and types of governance issues;

• How well issues can be addressed with instruments & tools;

• Types of implementation issues to address for success; and,

• Capacity building to support application of framework by governments in countries.

BNPP Grant

•In-depth diagnosis of governance vulnerabilities; mapping institutional vulnerabilities:

—Ghana

—Mali

—PNG

•Designing action plan and implementation implications

•Development systematic approach to governance assessment, remediation, and evaluation in extractive industries, including:

—Demand as well as supply;

—A systemic view, rather than purely sectoral;

—An emphasis on fact-finding; and,

—A customized approach.

2 Phase 2: Pilot Phase

1Phase 1: Framework Development

17

Framework and guidance – the approach entails a high-level analysis,

detailed country diagnostics, and designs for action plans

Tools providedRelevant fact baseObjectiveStage of Bank

involvement

Strategic approachFull description of

governance

vulnerabilities and

dynamics among

institutions, and key

participants

Create a customized approach to meet

governance goals

Action Plan

14 Diagnostic Guides• First hand

meetings with

institution staff

• Field visits

Provide the necessary information about a

corrupt system to prioritize and plan interventions

at the outset of a Bank program in a specific

country and in the context of a specific

investment

Detailed Diagnostic

• Governance

Typology

• Prioritization matrix

• Institutional forces

framework

• In-house

expertise

• WBI Statistical

database

• Compare countries and chart progress against

peers

• Segment countries according to stage of

governance, and type of vulnerability. This

enables the development of segment-oriented

product portfolios

• Provide task teams initial guidelines to

diagnose, analyze and develop strategies to

address areas vulnerable to corruption

• Outline a detailed work plan to carry out the full

initiative

First Cut Analysis

Tools providedRelevant fact baseObjectiveStage of Bank

involvement

Strategic approachFull description of

governance

vulnerabilities and

dynamics among

institutions, and key

participants

Create a customized approach to meet

governance goals

Action Plan

14 Diagnostic Guides• First hand

meetings with

institution staff

• Field visits

Provide the necessary information about a

corrupt system to prioritize and plan interventions

at the outset of a Bank program in a specific

country and in the context of a specific

investment

Detailed Diagnostic

• Governance

Typology

• Prioritization matrix

• Institutional forces

framework

• In-house

expertise

• WBI Statistical

database

• Compare countries and chart progress against

peers

• Segment countries according to stage of

governance, and type of vulnerability. This

enables the development of segment-oriented

product portfolios

• Provide task teams initial guidelines to

diagnose, analyze and develop strategies to

address areas vulnerable to corruption

• Outline a detailed work plan to carry out the full

initiative

First Cut Analysis

18

Governance: why and what for

The approach: how to go about it

Implications and lessons for the future

Agenda

Efforts to-date: from diagnosis to action

“Sunlight is the best disinfectant”

– U.S. Supreme Court Justice

Louis Brandeis

19

Role of governance – countries with significant extractive industries tend

to have low rankings in governance indicators

Rule of Law - 2006G

UIN

EA

BO

LIV

IAN

IGE

R

BO

TS

WA

NA

NO

RW

AY

CH

ILE

SO

UT

H A

FR

ICA

GA

BO

N

ZA

MB

IA

MO

ZA

MB

IQU

E

IND

ON

ES

IAIR

AN

AZ

ER

BA

IJA

N

KA

ZA

KH

ST

AN

EC

UA

DO

RP

AP

UA

NE

W G

UIN

EA

TO

GO

CA

ME

RO

ON

TA

JIK

IST

AN

SIE

RR

A L

EO

NE

NIG

ER

IAC

ON

GO

VE

NE

ZU

EL

AC

HA

D

AN

GO

LA

Co

ng

o, D

em

. R

ep

.IR

AQ

-3

-2

-1

0

1

2

3

211 Countries

No

rmali

zed

Ru

le o

f L

aw

In

dex

HIGH

LOW

(Chosen comparator also shown for selected countries)

Note: Blue dots represent estimates

for the 2006 governance indicators.

The thin vertical lines represent

standard errors around these

estimates for each country in world-

wide sample. Black dot represents the

chosen year comparator (if any). To

add or delete countries from the chart,

click on the "Country Selection" tab

below.Source: "Governance Matters VI: Governance Indicators for 1996-2006 " by Daniel Kaufmann, Aart Kraay and Massimo Mastruzzi.

Disclaimer: The governance indicators presented here reflect the statistical compilation of responses on the quality of governance given by a large

number of enterprise, citizen and expert survey respondents in industrial and developing countries, as reported by a number of survey institutes,

think tanks, non-governmental organizations, and international organizations. The aggregate indicators in no way reflect the official position of the

World Bank, its Executive Directors, or the countries they represent. As discussed in detail in the accompanying papers, countries' relative positions

on these indicators are subject to margins of error that are clearly indicated. Consequently, precise country rankings should not be inferred from this

90th – 100th percentile 75th – 90th percentile 50th – 75th percentile 25th -50th percentile 10th – 25th percentile 0th – 10th percentile

20

High-level analysis – countries analyzed in terms of current and potential

impact of improvements to mining sector governance

Countries selection:

•Potential impact

•Ability to absorb assistance

•Country willingness to engage

•Integration with strategic objectives teams’ willingness to engage

0%

5%

10%

15%

20%

25%

30%

0 10 20 30 40 50 60 70 80

Congo-DRC

Botswana

South Africa

Namibia

Ghana

Mauritania

Tanzania

Mozambique

Zambia

Niger

Cameroon

Guinea

Togo

Angola

Level of impact [Desirability]

•% of GDP from ore/ metals exports

Country ability to absorb assistance [Feasibility]

• Government effectiveness• Rule of law• Regulatory quality• Control of corruption• Voice and accountability• Political stability / no violence

Primary focus

Difficult to engage

Fewer challenges

Madagascar

Moderate number of contracts

Highest number of exploration contracts

Ethiopia

Mali

No or low number of contracts

21

Country-level analysis – pilots considered key perspectives of mining

sector, demand-side, supply-side, & revenue flows

• Emphasize collection

& redistribution of

mining sector

revenues & royalties

• E.g., Ministries of

Finance, etc.

• Highlight mechanisms

for accountability and

demand for good

governance

• E.g., civil society, small

scale miners, media,

local populations

• Concentrate on the

most vulnerable

institutions in terms

of capacity

• E.g., Ministries of

Mines, etc.

• Build on specific

findings of previous

efforts (e.g. EITI, etc.)

• Largely missing in

existing efforts

• Vital to long term

development objectives

& sustainability

• Strategic

prioritization of

capacity &

institutional issues

beyond financial

corruption

Key objectives:

Value added by effort:

“Revenue Flows”“Demand” side “Supply” side

22

Sector-level analysis – key demand- and supply-side mining sector

stakeholders evaluated across project cycle to rank issues

Project Phases

Institution Preparation Investment Operations Closure

Department of Mines (Licensing Agency)

X X X

Environmental Authority X X X

Social Services(Education and Health)

X X

Taxation Authorities X X

Central Bank / Investment Board Agency

X X

Ministry of Finance X

Local Business Partner(State or private)

X X X

Regional / Local Authorities and Stakeholders

X X X

Customs X X

Inspection Agencies (Mines, Health and Safety)

X X X

Infrastructure Providers (State or Private)

X

Trusts X

Oversight Institution (Supreme Audit Authority)

X X

Budget Finance and Surplus Management

X

Political Authorities (President, Cabinet, etc…)

X X X

• Where are the most

critical governance

vulnerabilities?

• Where are

governance

interventions most

likely to foster

improvements?

• Which institutions

should be

prioritized?

• How can the

“demand” side

best be addressed,

in conjunction with

“supply” side

institutional

issues?

Institutions with a focus broader than mining

23

Institutional-level analysis – for selected institutions, the approach looked

at six key areas of potential governance vulnerabilities

Organizational

structure

• Is authority properly

delegated and limited?

• Are appropriate

reporting relationships

in place among the

organizational units?

Policies and processes

• Are financial and

management controls

well established &

safeguarded?

• Are budgeting and

reporting procedures well

specified & effectively

implemented?

Leadership & authority

• To what degree is management

committed to strong internal

control?

• Is authority properly delegated &

limited?

Culture and incentives

• To what degree are staff of the

organization sufficiently compensated

to ensure competence and integrity?

Transparency

• Are policies and procedures clear

to employees?

• Can outside stakeholders view

and react to internal processes?

2

3

4

56

Resources & capacity• Does the organization

have sufficient

resources?

• Can it maintain

adequate capacity?

1

24

Governance: why and what for

The approach: how to go about it

Efforts to-date: from diagnosis to action

Agenda

Implications and lessons for the future

“Everything is in the execution”

– Napoleon Bonaparte

25

This approach differs in key ways from others, by providing

comprehensive & customized methodology

Focus on demand as well as supply – not just government

effectiveness in the areas of laws, policies and institutional

development, but also indigenous civil society and private sector

Not limited to the sector – inclusive of institutions and parties

peripherally involved in extractive industries activities who play

critical and often leading roles in permitting corruption in the sector

Emphasis on fact finding and not symptoms – focus on ground-

level, inside-out analysis to diagnose problems and develop

solutions

A customized and adaptable approach – fit and adapt to unique

corruption challenges in country, and able to evolve as conditions

change

26

Constraints – the approach requires continuous iterations to

arrive at “good fit” recommendations

This is work in progress – the best approach will be adaptive and

iterative, with continued improvements

This would require a shift of emphasis from replicating “good

practices” towards designing “good fits”

These are guidelines not questionnaires – the emphasis is on

probing, figuring out how specific institutions work, identifying critical

vulnerabilities, and crafting a strategy from the ground-up

This demands interactive approach to address problems –

corruption, governance, etc. is unwieldy, often times pervasive, and

dynamic – involves continuing adaptive approaches, emphasis on

systemic issues and cross-sector teams, new skills/competencies.

27

Implications – integrating this approach may enhance sustainability and

impact to foster mining-sector led development

EITI discloses and tracks royalties, taxes and associated payments of extractives

• BUT, does not address the development impact of the resources

Some institutions rightly focus on the latter

• BUT, caution is needed in extending tracking locally, due to intensive

information- and institutional- needs, & potential entitlements culture

Efforts needed to build vehicles of transparency, feedback, contestation, checks and

balances, that provide incentives for locally-driven accountability

• Demand side improvements effectively complement institution-building efforts

The approach systematically analyzed issues around leadership & authority,

policies & processes, culture & incentives, organizational structure and

transparency

The effectiveness of this approach may be enhanced if:

• “Mainstreamed" into normal policy, sector and project work

• Properly integrated governance dimensions into operational work

The result could help reduce claims on scarce government capabilities and

time by approaching institutional issues with a common framework