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Good Governance

Evidence-based decisions

by Elke Kasmann, Sook-Jung Dofel

In depth

Tobacco is Malawi’s most important export good

Tobacco is Malawi’s most important export good

In Malawi, social-impact assessments will become a routine element of policymaking. The cabinet approved an administrative concept geared to this goal last year. Since 2002, the country has several times assessed policies, by taking an approach that was developed by the World Bank with support from bilateral donors and development agencies. [ By Elke Kasman and Sook-Jung Dofel ]

Poverty and Social Impact Analyses (PSIAs) serve to assess the impact of policies, programmes and projects on the well-being of different population groups. A particular focus is on the poor and vulnerable.The PSIA concept was developed by the World Bank with support from bilateral donor agencies (see box next page). It covers economic, social, political and institutional issues.

If done before decisions are taken, a PSIA can support policymakers in three important ways:
– It offers empirical evidence on the likely social consequences of a policy and its implementation on the living conditions of different social groups. Such information can help to either mitigate negative consequences or to prevent them by adjusting the policy.
– It provides an assessment of whether measures are politically feasible by considering stakeholders’ interests, formal as well as informal power relations and possible opposition coalitions.
– It can open up space for dialogue among various stakeholders, including government, sector institutions, parliament, civil-society organisations, donors and the general public.

The PSIA approach needs to be embedded in the policymaking process if it is to become really effective. This has proven to be the greatest challenge. Unless policymakers actually take the results into account, the best analysis will be useless. In Malawi, the PSIA experience has been quite diverse, providing relevant insights into the potential benefits and practical challenges.

Five times PSIA in Malawi

In 2002, one of the first ever PSIAs was initiated by the World Bank in Malawi. The goal was to help to reach a consensus in a long standing controversy between the World Bank, the International Monetary Fund (IMF) and the Government of Malawi (GoM). It concerned the privatisation of the country’s Agricultural Development and Marketing Cooperation (ADMARC).

At the time, ADMARC was a loss making parastatal with the mandate to market agricultural produce and inputs as well as to assist the development of the smallholder sector. The corporation also had a role in maintaining food security by acting as a buyer and seller of last resort. Moreover, it stored grain. As advised by the IMF and World Bank, the GoM had been progressively liberalising the agriculture sector for years. One goal was to reduce the subsidies on which ADMARC depended, and to foster private-sector growth.

The privatisation of ADMARC, however, was highly controversial. Citizens, civil-society organisations and many politicians felt it was an essential institution for providing agricultural seeds and fertiliser, stabilising maize prices and, most important, providing maize at affordable prices in the lean season.

Indeed, the PSIA showed that privatising ADMARC implied serious risks for some people. It became evident that ADMARC, in spite of its many flaws, ensured that remote rural households had access to food in times of shortage. Accordingly, the World Bank modified its structural-adjustment policy for Malawi.

The GoM, however, had felt pressed to move on with the privatisation of the corporation as not to compromise a new World Bank loan, and the parliament had passed a bill accordingly. These decisions were made before the World Bank disseminated the PSIA results. The loan was disbursed as planned. ADMARC reform, however, never made much headway. Apparently, the legislation was not implementable.

The second PSIA was conducted in the tobacco sector. Tobacco is Malawi’s principle export commodity. Improving this sector’s performance was regularly on the agenda of policy dialogue between the government and donors. The World Bank was particularly keen on this issue. There was general agreement on the objectives. Reforms were supposed to
– boost farm productivity,
– enhance the efficiency of the marketing system and
– pass a larger share of world market prices on to farmers.

The scope of reforms, however, was disputed. In 2003 the Government and the World Bank agreed on a PSIA to review the tobacco sector in order
– to find out whether producers – and smallholders in particular – were adequately represented in the governance of the various sector institutions,
– to identify inefficiencies or overly high margins at all stages of the value chain and
– to make recommendations on increasing efficiency and competitiveness in respect to marketing in order to boost farmers’ incomes and the sector’s growth.

The PSIA identified major weaknesses in the tobacco sector’s governance and capacities. Institutions were fraught with conflicts of interest. There were monopolies and oligopolies which gave scope to rent-seeking behaviour. At the same time, the technical capacities remained poor. Such shortcomings depressed the incomes of producers and smallholders in particular.

The PSIA resulted in the abolishment of various kinds of levies and the establishment of satellite auction platforms in rural areas. Moreover, smallholders were granted stronger representation on the board of Malawi’s Tobacco Control Commission (TCC). Other, longer-term recommendations, however, were never implemented.

Malawi’s third PSIA dealt with water issues. The goal was to assess how private-sector participation would impact on utility performance in low-income areas of Blantyre and Lilongwe, the country’s major cities. The key question was whether privatisation of the water boards would enhance access and quality of services to customers in general and in disadvantaged quarters in particular.

The PSIA showed that a conventional approach to privatisation would have put the livelihoods of some people at risk. For instance, jobs in the water sector would have become redundant. Moreover, the water price was likely to rise. Finally, adequate investments in low-income areas – which do not have pipe networks – would have been unlikely because private operators focus on connecting households to the already existing networks and extending those networks in well-to-do areas. Hence, the PSIA recommended not to privatise the water boards, but rather to encourage, scale-up and regulate private sector participation in water distribution at the community-level instead (private vendors, domestic reselling, water kiosks et cetera).

This PSIA was coordinated by a steering committee led by the Ministry of Economic Planning and Development and the Ministry of Irrigation and Water Development. The UNDP, the GTZ and the World Bank gave financial support. Cooperation between the ministries proved difficult, however. In the end, the water boards were not privatised. With World Bank approval, Malawi’s policy on water supply in urban low-income areas is now geared to promoting community-based management.

Malawi’s fourth PSIA dealt with regional integration. The initiative came from the National Technical Committee for SADC (Southern African Development Community). Malawi is a member of SADC, takes part in its Free Trade Area and the preparations for a customs union.

The PSIA was done to find out what consequences the tariff phase-down would have. In the end, it established that the loss of customs revenue would be lower than feared because, due to rebates, many imports were already tariff-free. Moreover, the import-tax revenue was not predicted to fall. The impact on poor households was expected to be negligible in the short term since they basically consume commodities that are produced locally. In the long run, however, the PSIA predicted that liberalisation would improve poor people’s lives by stimulating growth and economic opportunity in general.

Malawi’s fifth PSIA is underway with UNDP funding. It is again about regional integration. The GoM wants to better understand its options in regard to negotiations with the EU on an Economic Partnership Agreement. The EU is negotiating such deals with regional economic communities such as SADC. Malawi, however, is a member of several such communities, so the government needs to find out in which alliance it can maximise the country’s gains and minimise its losses.

Lessons learned

The four completed PSIA studies were debated among stakeholders from government, donors and the civil society in Malawi. They have thus been thoroughly assessed, and it is possible to make some conclusions. The most important is that PSIA ownership matters very much.

In the case of the first two PSIAs (ADMARC and tobacco), donor influence was quite high. The World Bank initiated, led and funded them, and they directly related to World Bank loans. In the ADMARC case, the MoG perceived the PSIA process as an opportunity for further dialogue on a highly contentious issue. In the end, the study’s findings supported the position held by large parts of civil society and government, strengthening the government’s position vis-à-vis the World Bank even though this PSIA was owned by the Bank.

In the second case, however, many Malawians did not appreciate World Bank ownership. This PSIA focused on sensitive political-economy issues in the tobacco sector. Its attempt to provide stakeholders in the country with a negotiating platform, which the donors had long demanded, was only partially successful. Some recommendations were implemented. But the PSIA did not facilitate the implementation of controversial medium-term measures. Parts of the government and tobacco industry opposed these reforms, and one of their arguments was that the PSIA was linked to a World Bank loan. On the other hand, the smallholders had little chance of voicing their concerns, and they would clearly have been the winners of the planned reforms.

Ownership also turned out to be a tricky issue in the water-services PSIA, which was led by two MoG ministries. However, they did not convince all key players to participate fully. Some sector institutions did not give much input, and there was disagreement over recommendations. The PSIA would have been more effective had all stakeholders joined the effort.

The water-sector PSIA also provided a lesson on timing. PSIA results should be available at an early stage of deliberation to have a strong impact. The water-sector PSIA came late, so decisions were taken on the base of interim assessment, before the final results were available.

Although the fourth PSIA (on SADC tariff reductions) was completely owned by the GoM and conducted in time, it was not openly discussed with all relevant stakeholders in civil society. Time constraints were one reason. The GoM, moreover, was not sure it wanted to publish the results in case the finding turned out unfavourable. This experience showed that it makes sense to have PSIAs conducted by independent think tanks in order to foster inclusiveness and public debate.

Towards institutionalisation

The MoG appreciates the usefulness of PSIAs. In 2006, it decided to use the PSIA approach for policymaking in general. With financial and technical support from the World Bank, the UNDP and the GTZ, a PSIA institutionalisation framework was developed. Key aspects include
– embedding PSIA in already existing government structures and procedures,
– establishing an independent research centre or think tank,
– capacity development for steering and conducting PSIAs at various levels of government and academia, and
– sensitisation of all government institutions in order to create demand for PSIA.

A team of experts from Malawi and donor agencies were given the task to prepare the framework. They proposed several options, which were widely discussed in Malawi. The result was the institutionalisation framework, which was translated into an administrative concept note. In 2009, this note was approved by the Cabinet. Now theory must be put into practice: the ongoing PSIA is operating according to the proposed institutional set-up.