Tuesday, December 11, 2012

A RESEARCH PAPER ON POLICY ANALYSIS AND DEVELOPMENT FINANCE


1.0 Introduction

Developing countries continue to have challenges in raising enough funding internally for their development. Subsequently, international aid and other development finance avenues offer a great potential to support their funding challenges. In addition, technical support such as expertise and technological transfer enhances their development capacities. However, several factors have constrained many of these developing countries to optimize these funding potentials and other technical support from advance countries.

Paul Wolfowitz (June 2005-June 2007) a past World Bank Director in a presentation in 2007 at the Kwame Nkrumah University of Science and Technology explained how Ghana despite her natural resources and receipts of international support, had not advanced in development like South Korea which has received fairly the same amount of support of about 20 billion US Dollars in the past 20 years.

This awareness raises some critical questions for policy analyst in development finance and experts in Ghana and most African countries. First, the need to understand the reasons for the inadequacy of raising enough funding internally and to also understand the reasons why international aid and other technical support are not being adequately optimized. In addition, project, program and plan implementation financial challenges in Ghana and Africa needs critical investigations that would help build national and local capacity in development finance. In Ghana and most developing countries including Africa, most policies have either been poorly implemented and have not been implemented because of poor financial capacity and management. As a result, the resolve for policy analysts and development finance experts as well as students of policy analysis and development finance would be to develop the requiresite capacity to understand these development finance challenges and formulate and guide the implementation of policies that would build national and local capacities to increase internal revenues and at the same time optimize the potential of external funding options. 

In this paper, the relationships between policy analysis and development finance are discussed. This is to begin a framework of dialogue and discussions leading to researches to identify the various policy options for development finance capacity enhancement in Africa. In addition, the critical issues that underpin the two concepts are presented. There are three main sections of this paper. The first section explores the concepts of policy analysis and draws implications for development finance. The second section examines the relationships between the two concepts. Here, some critical perspectives of development finance are discussed in addition to the organizational environment of development finance. Journals, advocacy groups, among others and their interest in development finance have been discussed. The last section is a summary of the main findings and conclusion from the discussions. The approach adopted in this paper is mainly a review of literature and the websites of key stakeholders in development finance and how policy analysis fits into their operations.


2.0 Delimmas in Policy Analysis

Apparently, most literature intimates the dynamics and intricacy of the policy environment. Aside the issues of quantitative and qualitative analysis which continues to underpin major discussions (Sadoulet, and Janvry 1995 and United Nations Economic and Social Commission for Asia and the Pacific [UNESCAP] 2011), the political nature of policy has also come to fore (Fisher and Forester, 1993). The former observations for instance relates to the argument that the highest quality of evidence is derived using quantitative evaluation, and meta-analyzes of existing research (Chalmers 2003).

Nonetheless, other authors, such as Hammersley (2005), maintain that some areas of knowledge on policy are not well served by quantitative research. The limitations, for instance, of cost-benefit analysis are often cited in such circumstances. Consequently, Bernheim and Rangel (2005) contend that policy analysis requires policy analysts "to set a high scientific threshold for reaching a determination, based on objective evidence; that is a given problem calls for divergent positive and normative models".

Beyond this perspectives, there are other conditions that influence policy analysis. Kingdon (1995) explains three conditions that intersect in policy analysis; "the policy stream (solutions), the politics stream (public sentiments, change in governments, and the like), and the problem stream (problem perception)." It is therefore obvious how complex the policy environment is and the challenges that policy analysts must contend with to formulate an appropriate policy that is responsive to needs, efficiently utilizes resources and produces sustainable benefits. According to Puentes-Markides (2007), "one of the most important and effective ways in which you can influence policy… is to build a good relationship with policy-makers. This includes the legislature, executive, and administration". Thus "policy analysis is a social and political activity" (Bardach, 2012). The processes adopts qualitative and quantitative analysis and integrates political, social, economic and multiple considerations in the decision making process. The term is defined differently by differently people: one, because of its application to private, non-profit and public circumstances; and two, to individuals, group of people, communities, states and nations. For instance, Patton, Sawicki and Clark (2010) defines policy analysis as "the process through which we identify and evaluate alternative policies or programs that are intended to lesson or resolve social, economic, or physical problems". In other words, policy analysis is "a means of synthesizing information, including research results to produce a format of policy decisions" (Williams, 1971). As a result, it is a process of making a "choice of the best policy among a set of alternatives with the aid of reason and evidence" (MacRae, 1979). These definitions thus suggest that policy analysis is futuristic, multidisciplinary in ideas and research methods, values and political laden and it is a guide that shapes the process for attaining a specified end.

Typically, the process entails assessing situations, defining problems, clarifying values and goals, developing and recommending options, and implementing and/or evaluating outcomes (Smith, 2003). Because policy analysis is just the framework for action, the complexities for translating the policies into actions or benefits informs my greatest interest particularly raising the needed financial and administrative capacity to ensure effective and efficient implementation. Currently, this concern is shared by many stakeholders of development primarily because of the need for efficient resource utilization and minimization of waste and reduction in corruption. Donor agencies, governments, the private sector, interest groups and the general informed public are demanding "transparency and accountability in decision-making and results and performance" (Puentes-Markides, 2007). Thus policy analysis should be able to reflect such tendencies both in the theories and methods to assess policy alternatives. Specifically for developing countries policy analysis in development finance should be able to influence the processes to "…identify, analyze, and recommend development strategies that the less developed countries could follow in order to catch up economically with the more advanced nations" (Sadoulet and Janvry, 1995). This task requires not routine thinking, but reflexivity and creativity (Torgerson, 2007).


3.0 The Connection: Policy Analysis and Development Finance

This section presents the linkages between policy analysis and development finance. The connection is informed from three main perspectives. First the conceptual basis, secondly the organizational framework and lastly the research environment that builds the relationship between the two concepts. In most of the discussions, policy analysis is perceived from the public sector; mainly because of the issue of national capacity in raising internal funds for development and optimising the potential of external financial supports such as international aid. It is subsequently defined as the processes that inform the "broad framework of ideas and values within which decisions are taken and action, or inaction, is pursued by governments in relation to some issue or problem" (Brooks, 1989).

Development finance is critical to facilitating the implementation of policies of both the private and the public sector. For instance, it "plays a critical role in financing private enterprise in Africa and should be further promoted as an important complement to overseas aid" (Dickinson, 2012). Most often, the concept is perceived "as comprising all mechanisms for raising funds for development that are complementary to official development assistance, predictable and stable, and closely linked to the idea of global public goods" (United Nations, 2012). As such it includes issues of public finance which is "a combination of the many official, professional, and economic activities that collectively provide the funding and financial management for public goods, services and facilities" (Miller 2006) and private finance which entails all the processes and mechanisms of raising funding from the private sector to support projects by "transferring the risks associated with public service projects to the private sector in part or in full" (Allen, 2001).

Policy analysis within these contexts is normally directed at coming out with the alternatives for managing the financial complexities of the private sector as well as how the two; public and private finance; can be harmonized within an efficient and effective public private partnership to support development (NAO 2001). Within public finance, the policy analysis issues have been how government can raise enough tax revenues and other internal revenues to support development by playing an important role in building effective and inclusive financial systems and policy framework to make finance work for development (Demirgüç-Kunt, 2008). In addition, the policy analyst is therefore expected to suggest "how to recreate national and global financial systems in such a way that more and cheaper finance can be channeled into productive investment in developing countries, rather than relying on excessive expenditure and speculation on developed country financial markets" (United Nations Conference on Trade and Development [UNCTAD] 2008). The UNCTAD (2006) also argue that "finance from external sources may also be necessary at a significant scale for many developing countries, but the appropriate management is also a matter of domestic policies" This thus becomes the responsibility of the policy analyst.

The organizations that a policy analyst in development finance may work with are numerous. These development finance institutions are "cost-effective for donor countries and efficiency-enhancing for countries where they are deployed. Distinct from aid agencies through their focus on profitable investment and operations according to market rules, these institutions share a common focus on fostering economic growth and sustainable development" (Dickinson 2012). According to this author their
 "mission lies in servicing the investment shortfalls of developing countries and bridging the gap between commercial investment and state development aid". Development finance institutions provide a broad range of financial services in developing countries, such as loans or guarantees to investors and entrepreneurs, equity participation in firms or investment funds and financing for public infrastructure projects." 

Nonetheless, several literature reviewed shows that national and multinational agencies are involved in development assistance (international aid) as well as this idea of development finance. From this context three main development finance institutions have been identified. They are:
  1. National Governments: E.g. Australian Agency for International Development, Austrian Development Agency, Danish International Development Agency (DANIDA), Department for International Cooperation, Federal Ministry for Economic Cooperation and Development and German Development Bank, Japan International Cooperation Agency (JICA), Department for International Development (DFID), United States Agency for International Development(USAID) and Millennium Challenge Corporation (MCC).
    • These organizations ensure foreign and economic relationships with other countries through global cooperation, export and investment promotion, trade and development policy as well as funding of poverty reduction efforts.
  2. International Development Organizations: These organization offer financial and technical support (loans and grants) in the form of training and research to support country programs. They include the: African Development Bank, Andean Development Corporation, Asian Development Bank, European Bank for Reconstruction and Development, European Investment Bank, inter-American Development Bank, International Fund for Agricultural Development, International Monetary Fund, International Organization for Migration, Organization for Economic Co-operation and Development, United Nations other organizations (e.g. United Nations Children's Fund, United Nations Conference on Trade and Development, United Nations Development Program, etc) World Bank Group, World Food Program, World Health Organization, World Trade Organization, etc.
    • In terms of finance, these international organizations are interested in the financial markets, monetary and financial issues, insurance, private pensions, economic policy and public debt management (macroeconomic management and growth, fiscal policy and debt issues), financial education and aid effectiveness.
  3. Non-governmental organizations: World Vision, Care International, Transparency International, Adventist Development and Relief Agency, Oxfam International, Save the Children, etc.
    • These organization are interested in raising funds to support community based projects and programs in poverty endemic rural and urban areas. They may coordinate with governments mostly at the local government level but often deal directly in the design and implementation of their projects and programs in beneficiary communities and with community based organizations. Research and advocacy, relief and provision of social and economic services and opportunities for the poor are their interests.
The research environments of policy analysis and development finance include the lists identified in Table 1 but not exhaustive. The review also revealed that aside these journals, the national and multinational or international development organizations publish annual reports, concepts papers, handbooks, magazines, periodicals, working paper series and conference papers on policies and best practices in development financing.


Table 1: Journals on Development Finance


Overall, the policy analyst in these organizations notably the national and international organizations relates task that includes compiling, generating and analyzing a wide range of economic, social and environmental data and information on nations which they can draw to review common problems and to take stock of policy options (United Nations 2012). For instance, a policy analyst within AfDB Group for example provide "policy advice and technical assistance to support development efforts and to institutional support projects and programs" (Kingombe et al, 2011). In a job opportunity advertised by the European Union for a ‘Eurodad Policy and Outreach Analyst’ in October 2012, the roles expected of the successful applicant were detailed as follows:



"The role involves research, monitoring and analyzing policy developments, information sharing and supporting advocacy and networking. It also involves taking an active role in developing Eurodad’s communications products, including our website, newsletter, briefings and reports, and ensuring they reach and are read by relevant targets. The successful candidate will be a strong communicator, with excellent research and policy analysis skills. They will be familiar with current debates on development finance policies and have experience of working with civil society groups or other advocacy organizations. They will need to speak and write English to a very high standard".
4.0 Summary and Conclusion

Overall, the review identifies policy analysis as multidisciplinary in nature that demands attention to innovation and creativity. As problems evolve and the challenges of society continue to change, the policy analyst is tasked with the ability to develop the skill of adaptability and flexibility. A policy analyst in development finance should also have strong quantitative skills relating to economics, accounting and financial management. In addition, the analyst must have strong written and communicative skills in addition to research in order to thrive in the discipline.
Interestingly, the field of development finance analyst holds strong opportunities for individuals interested in international and economic development. This is because most of these agencies operate in countries across all the continents and the policy analyst should be able to appreciate these realities to formulate adequate and context specific policy responses.

5.0 References

Allen. G. (2001). The Private Finance Initiative (PFI). Research Paper 01/117 18 December 2001. http://www.parliament.uk/documents/commons/lib/research/rp2001/rp01-117.pdf

Bardach, E. (2012). A Practical Guide for Policy Analysis. 4th edition, CQ Press.

Bernheim, B. D., & Rangel, A. (2005). Behavioral Public Economics: Welfare and Policy Analysis with Non-Standard Decision-Makers in Economic Institutions and Behavioral Economics. Edited by Peter Diamond and Hannu Vartiainen. Nber Working Paper Series, Working Paper 11518. http://www.nber.org/papers/w11518

Brooks, S. (1989). Public Policy in Canada: An Introduction. Toronto, Ontario: McClelland and Stewart Inc.

Chalmers, I. (2003). Trying to do more good than harm in Policy and Practice: the role of rigorous, transparent, up-to-date evaluations. Annals of the American Academy of Political and Social Science, 589:22-40.

Demirgüç-Kunt, A. (2008). Finance and Economic Development: The Role of Government. World Bank. http://siteresources.worldbank.org/DEC/Resources/Finance_and_Economic_Development.pdf

Dickinson, T. (2012). Development Finance Institutions: Profitability Promoting Development. http://www.oecd.org/dev/41302068.pdf

Fischer, F. & Forester, J. (1993). The Argumentative Turn in Policy Analysis and Planning. Durham, NC: Duke University Press,

Hammersley, M. (2005). Is the Evidence-based Practice Movement doing more good than harm? Reflections on Iain Chalmers’ case for research-based policy making and practice Evidence & Policy. The Policy Press, 1(1): 85-100.

Kingdon, J.W. (1995). Agenda, Alternatives, and Public Policies. 2nd Edition. New York: HarperCollins College Publishers.

Kingombe, C., Massa, I. and te Velde, D.W. (2011). Comparing Development Finance Institutions Literature Review. London: ODI.

MacRae, D. Jr. (1979). Concepts and Methods of Policy Analysis. Society 16, no. 6 [September/October].

Miller, G. (2006). Public Finance As A Profession. August 2006. Government Finance Review, pp. 15-20

National Audit Office (2001). Managing the relationship to secure a successful partnership in PFI projects. HC 375 Session 2001/2002, 29 November 2001, National Audit Office UK government

Patton, C., Sawicki, D. & Clark, J. (2013). Basic Methods of Policy Analysis and Planning, 3rd edition. Pearson.

Puentes-Markides, C. (2007). The Analysis of Public Problems. A Presentation on Policy Analysis and Decision Making with Emphasis on Chronic Non-communicable Diseases. Bridgetown, Barbados. PAHO-CPM/HSS/HP/07 October 15-17, 2007

Sadoulet, E. & Janvry A. (1995). Quantitative Development Policy Analysis. Baltimore and London: Johns Hopkins University Press.

Smith, B. L. (2003). Public Policy and Public Participation Engaging Citizens and Community in the Development of Public Policy. Population and Public Health Branch Atlantic Regional Office Health Canada.

Torgerson, D. (2007). Promoting the Policy Orientation: Lasswell in Context in Handbook of Public Policy Analysis Theory, Politics, and Methods. Edited by Frank Fischer, Gerald J. Miller, Mara S. Sidney. New York and London and Boca Raton: CRC Press

United Nations (2012). World Economic and Social Survey In Search Of New Development Finance. Department of Economic and Social Affairs, New York. http://www.un.org/en/development/desa/policy/wess/wess_current/2012wess_overview_en.pdf

United Nations Conference on Trade and Development (2006). Trade and Development Report, 2006 – Global Partnership and National Policies for Development., New York and Geneva: United Nations http://unctad.org/en/Docs/tdr2006_en.pdf

United Nations Conference on Trade and Development (2008). Financing For Development – Contribution by UNCTAD to the Follow-up International Conference on Financing for Development to Review the Implementation of the Monterrey Consensus November 2008, UNITED NATIONS New York and Geneva, 2008. UNCTAD/GDS/2008/1

United Nations Economic and Social Commission for Asia and the Pacific (2011). Promoting the Use of Statistical Data for Policy and Advocacy: Building on Success (Handbook). United Nations Economic and Social Commission for Asia and the Pacific [UNESCAP]. http://www.unescap.org/stat/meet/data-use-oct2011/statistical-good-practices.pdf

Williams W. (1971). Social Policy Research and Analysis: the Experience in the Federal Social Agency. New York: American Elsevier)


ACKNOWLEDGEMENTS
I would like to extend my sincerest appreciation to Prof. Beth Honadle who was the instructor for the "Policy Analysis for Planners" course for allowing me to post this paper as part of my blog articles .

1 comment: