DFIDReviewEnablingdec04 IV by nMYFuu3


									              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.

       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).
1. 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
2.  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.
3. 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
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).

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.1 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.
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

       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).

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,2
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
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 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

       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

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.
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
4.   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.3

        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

       (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.
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).4 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.
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

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

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. 5
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).

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

Charles Lutyens (2004) suggests that      Box 4: A selection of reform outcomes
there are no clear yardsticks for
measuring performance and outcomes        Occasionally, DFID commissions evaluation
in the enabling environment for           studies of enabling environment reform
infrastructure development. Currently,    programmes and these have produced some very
indicators are used on an arbitrary       interesting and useful findings. Results include:
basis                                     • The Kenya deregulation programme’s support
Most donor agencies undertake some            for removing import and export licensing
type of monitoring and evaluation             requirements, dismantling price and exchange
procedure. For example, most donor            rate controls, and introducing a convertible
                                              Kenyan shilling led to the following estimated
agencies record program inputs and
                                              annual savings: £22m due to the Registration of
activities; this kind of information is       Business Names Act; £38m due to the Trade
commonly used by donor agencies, but          Licensing Act (i.e., around one per cent of GDP
is of little use in the search for            at the time); and £4m due to the implementation
objective impact assessment (White &          of the Singe Business Permit. In the 32 local
Chacaltana 2002).                             authorities that were using the single business
Some donor agencies record outputs            permit, business transaction costs had reduced
based on donor interventions (e.g.,           by up to 70 per cent.
drafting and adoption of a policy or      • The Uganda ‘Streamlined Business Registration
law, removal of unnecessary                   Pilot’ resulted in: 75 per cent lower compliance
regulations), while others undertake          costs (reduction of registration time to 30
regular stakeholder perception surveys        minutes); 43 per cent higher compliance levels
before and after donor intervention           (four times more businesses registered than in
(e.g., GTZ). While anecdotal                  the previous year); 40 per cent higher revenue
                                              collection and a more steady revenue flow; 25
information is a poor substitute for
                                              per cent savings in staff time; and a ten per cent
‘hard’ monitoring and evaluation data,        saving in financial resources (DFID 2004a)
many donor agencies have indicated            (also see Gamser 2003; Scott & Darroll 2003).
that good anecdotal information on the    • In Ukraine the simplification of procedures has
contribution of donor efforts to reform       reduced the time taken to register a business by
and the benefits these reforms have           50 per cent, and reductions of taxes at the local
wrought upon the target group is very         level (e.g., for permits for kiosks in markets, and
useful. In some cases, this kind of           for permits for taxi drivers) have led to increases
information meets the evaluation              in revenue of at least six times the reduction in
demands of taxpayers and other                taxes. Reductions of 25 per cent in taxes have
constituents very well (White 2004).          led to increases in the number of businesses of
Ultimately, very little of DFID’s             250 per cent.
evaluation efforts in the enabling           DFID has played a leading role in getting
environment appear to connect                 legislation for financial institutions in place in
enabling environment reforms with             Uganda and Tanzania, though the impact of this
poverty reduction and pro-poor                can only be fully assessed after this legislation is
                                              fully enacted.
growth. A better environment for
business may make legal and               • In South Africa, the FinMark Trust has
regulatory compliance easier for              performed a significant role in establishing the
                                              Banking Charter, while FinScope has improved
business, but has this led to economic        banking practices and the policies of the South
growth or a reduction of poverty?             African Reserve Bank (Pearce & Parkin 2004).
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.

       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
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.6 To date,
        most specific recommendations for reform emerge from 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).7

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

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

        promote better dialogue between the private sector and governments and to deal more
        effectively with the debates this creates.

       more enabling and conducive to     Box 5: DFID policy messages and issues
       greater development outcomes.
                                          The following policy messages and issues have
       Multi-disciplinary approaches to   been drawn from case studies DFID’s ICEE Team
       enabling environment reform        contributed to the World Bank’s World
DFID’s support for reform of the          Development Report 2005 on the Investment
enabling environment has sought to        Climate as part of its knowledge-sharing
accommodate a number of specific          programme.
issues of concern to the Department.      1 Improvements to the investment climate can
The concept of pro-poor development,           make a real difference to economic
for example, is cited as a particularly        performance
useful approach to development; one       2 Creating a positive enabling environment for
that hedges the simplistic notion that         business operations in-country should take
economic growth will lead to poverty           priority over special incentives for foreign
reduction, with the qualification that         investors
poverty reduction requires a different    3 Policy reform should focus on removing
set of policy interventions that ensure        obstacles to investment and growth, helping
poor people benefit more directly from         the private sector to help itself
these changes. Thus, the reform of the    4 Maintaining competitive business conditions
enabling environment requires more             should be a priority
than a dogged commitment to economic      5 Smaller firms are more vulnerable to biases
liberalisation. Instead, a more                and constraints in the business environment,
sophisticated and nuanced approach to          and need special attention in reform efforts
reform is necessary.                      6 Process and leadership are critical to
The Government’s 2000 White Paper              successful implementation of reforms
highlights the importance of balancing    7 Local government is as important as central
competing concerns within this broad           government
agenda.                                   8 Business perception is as important as reality
              'The process of opening          – as is public servant attitude
              up––to both trade and       9 The international donor community can
              financial flows––has to be       support reform, but it cannot drive reform
              carefully managed,         to
              dovetail       with         10 There is a need for greater empirical
              development of efficient         understanding of the investment climate
              and flexible markets, a     These key principles, promoted and discussed at
              strong domestic financial   the ICEE Team’s investment workshop for Africa
              sector, and supportive      advisers in March 2004, underlie much of DFID’s
              policies      for           recent enabling environment work.
              investment. But the benefits
              will not automatically reach Source: ICEE Team and Bannock Consulting Ltd.
              poor people, who face (2004)
              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).

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).8 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 government and the lack of cabinet time (for
example, the 2003 OPR of the Uganda Deregulation Project indicates that a ‘well

       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).

considered cabinet information memorandum on regulatory best practice has yet to be
discussed by cabinet”), and “legislative overload at all levels’.9
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.10 Often such opposition is based on opinions which can be summarised as
‘fighting bureaucracy vs. fighting crime’;11 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’.12
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’.13
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.

        Difficulties of project focus
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,

        Bosnia Business Registration Project (MIS 315 540 021) OPR December 2003
        See especially Social & Economic Regeneration in the Donbass (Ukraine) MIS 283-559-
        Bosnia Business Registration Project OPR, December 2003
        Umbrella project to improve the enabling environment for the private sector in Kenya
        (MIS 031-540-033) OPR, June 2003
        Legal sector reform programme, Kenya (MIS 031-542-088) OPR September 2002

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’.14
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
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.

       Umbrella project to improve the enabling environment for the private sector in Kenya
       (MIS 031-540-033) OPR, June 2003


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