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Using insights on governance reform to achieve economic transformation: lessons from Nepal and Nigeria

Written by Aoife McCullough

DFID is planning to launch a new economic strategy and the focus of its support for economic reform is likely to be on jobs – ‘development is all about jobs’, as Minister for International Development Desmond Swayne said at a recent ODI event.

He is right – there is a huge youth bulge across the developing world and without creating jobs, the consequences of a generation with no prospects for employment will be devastating.

The minister also emphasised the need to bring together governance and economic reform so that governance research informs support for economic transformation. As there are problems inherent in applying insights from both disciplines, he acknowledged the need to change how we approach both.

What might this change look like?

Recently, there has been a push to design development programmes which allow for politically smart, adaptive and flexible approaches. This push for change is based on a collection of case studies showing that this type of approach is more likely to produce results in areas which need political reform, than purely technical and hyper-planned approaches.

A new report on two DFID-funded programmes in Nepal and Nigeria demonstrates that this approach is particularly relevant in programmes supporting economic reform.

The case study in Nepal showed that a politically smart and flexible approach was crucial to brokering hydropower deals, including deals for two power plants, which if built will quadruple Nepal’s current electricity production. Along with providing electricity, the deals stand to generate both export revenues and inward investment, and create thousands of jobs.

To put this achievement in perspective – Nepal has never negotiated a complex infrastructure project as a credible partner to a large international corporation and has never delivered a commercial agreement on a project of this size. The DFID-funded intervention helped facilitate the brokering of these deals (though it should be noted that political developments between now and the completion of the project could easily delay or even obstruct the realisation of the hydropower plants).

Meanwhile in Nigeria, adaptive and flexible programming allowed the implementing team to respond to opportunities to increase transparency and accountability in the oil sector. Through their politically informed support for different actors working to carry out forensic audits in the oil sector, the programme contributed to recouping £364 million of Nigeria public revenues which had been siphoned off. They were also able to support efforts to amend legislation and strengthen the role of the National Oil Spill Detection and Response Agency.

If the hydro-power deals negotiated in Nepal result in the construction of two power plants, this development could facilitate the kind of economic transformation that can create jobs.

In contrast, the Nigeria programme is unlikely to significantly increase the number of jobs available in the oil sector nor kickstart economic transformation. This is because the objective of the Nigeria programme is to promote transparency and accountability in the oil sector. As David Booth has previously argued, governance ideals such as increased transparency and accountability tend to be realised ‘on the back of economic progress, not the other way around’.

In the excitement around the possibilities for these new approaches to produce better results, development agencies should not lose sight of the theory which informs how they will achieve their objectives.

Based on the case studies from Nepal and Nigeria, it looks as though working politically and using adaptive and flexible programming is a productive way to achieve economic reform. But if DFID and other donors are aiming to support the type of economic reform which creates jobs and kickstarts economies, simply thinking and working politically will not be enough.

The feasibility of economic transformation has been demonstrated in many parts of the developing world. This experience does not point to a single pathway of institutional change; the research suggests that a small number of governance-related conditions that need to be in place. These include the ability of the state to make credible commitments to potential investors, the provision of public goods to make private enterprise profitable and ability to overcome coordination failures in relation to investment.

In designing programmes which aim to support economic transformation and create jobs, both the approach and the theory underpinning how a programme will achieve this need to draw on the latest findings on governance reform. The research indicates that support for economic reform should be focused on facilitating the basic governance conditions rather than aiming for ‘good governance’ conditions such as increased transparency, fair elections etc.

Thinking and working politically will help in working towards achieving those basic governance conditions but without getting the underlying theory right, many programmes could end up thinking and working politically in the wrong direction.