Trade, Aid & Development in Indonesia. Structural Transformation Delivery Unit. A Strategic Issues Paper

Transcription

1 Trade, Aid & Development in Indonesia Structural Transformation Delivery Unit A Strategic Issues Paper Prepared for the Government of Pakistan October 2010

2 Economic Development Services Pty Ltd PO Box 125, Unley BC 5061, South Australia +61 (0) (mobile) (office) petervandiermen@edsfirst.com 1

3 Structural Transformation Delivery Unit Table of Contents Page Table of Contents Abbreviations & Glossary ii iii Introduction 1 Problem analysis 3 Description of the STDU 5 The Structural Transformation Program 5 Ministry or Agency s Work Program 7 The Structural Transformation Delivery Unit (STDU) 9 The organisational structure of the Program 11 Initial sequencing 13 Risks and their mitigation 15 Figure 1: The Structural Transformation Program 6 Figure 2: Ministry or Agency s Work Program 8 Figure 3: The Structural Transformation Delivery Unit (STDU) 10 Figure 4: Possible organisational structure for the STDU 12 Attachment 1: TA and Financing requirements for the AETP 18 ii

4 Abbreviations & Glossary ADB AETP AGOP BSF Dep. Pl. DFID GoP MINFA MINTEX MoC MoF MOIP STDU TA WPDU Asian Development Bank Accelerating Economic Transformation Program Auditor General Office of Pakistan Business Support Fund (Ministry of Finance) Department of Planning Department For International Development Government of Pakistan Ministry of Food and Agriculture Ministry of Textile Ministry of Commerce Ministry of Finance Ministry of Industry and Production Structural Transformation Delivery Unit Technical Assistance Work Program Delivery Unit iii

5 Introduction 1. The purpose of this paper is to provide an outline of how the Structural Transformation Delivery Unit (STDU) might work and what issues need to be considered to make sure that it can achieve the desired outcome. 1 As will be argued and elaborated in this document, the STDU is seen as the key to making the Structural Transformation Program work. This document builds on and is consistent with the work that DFID and ADB have already done on the Technical Assistance and Financing requirements for the Accelerating Economic Transformation Program (AETP), Subprogram 3 (see Attachment 1). 2. This paper is targeted at three different audiences who may benefit from the ideas presented here. Either through stimulating thinking and debate, or hopefully, by providing a how to do guide for starting implementation of the Structural Transformation Program and more specifically, establishing the STDU. The three groups and why they might gain from this paper, are: i. Ministry of Finance and Prime Minister s Secretariat. This paper will help in thinking through where the STDU should be located and how it should function. ii. ADB and DFID. As financers and thought leaders, it should help them clarify their discussion with Government of Pakistan (GoP) on how to begin implementation; iii. Head of the STDU. When the STDU head is appointed, this paper should help in working through some of the issues they will need to consider in starting up. 3. The Structural Transformation Program is at the crucial stage of shifting from a policy dialogue to operationalizing the reforms. While the policy dialogue with various Ministries and Agencies needs further refining, this should occur during the process of operationalizing and developing the Work Programs. More policy dialogue without operationalizing the already discussed reforms is likely to be counterproductive. This is because the discussions have raised expectations, and without actual reforms taking place, it creates a sense of inertia. While we might bemoan the fact that the reforms discussed are not being carried out by Ministries and Agencies independent of support from donors, the reality is that because of prevailing bureaucratic structures and pervasive culture within Ministries and Agencies, the reforms are unlikely to happen without support and the catalyst created by donors support for the STDU. 4. The primary focus of this paper is on the STDU. However, to provide a context for the STDU, other components of the Structural Transformation Program are also mentioned and discussed. The content and the precise nature of each reform component are not debated here, as these have been the focus of numerous discussions between the GoP and the ADB. Suffice to say, that 1 The views expressed in this report are those of the author and do not necessarily represent those of the Government of Pakistan or the ADB. 1

6 the precise nature of each structural transformation component will be worked out in detail as the relevant Ministry or Agency develops with help from the STDU, its Work Program. 5. The description and identification of functions and issues related to the STDU are drawn from three key areas; First, they draw on historical knowledge of the discussion that have previously been held between the GoP and the ADB related to the issue of structural transformation; Second, they draw on the substantial and relevant organisational change management literature; and third, it draws on the experience of other countries in improving the delivery of services. From these three areas there are a number of salient lessons to be learned that can help to improve the success of the STDU and more generally the Structural Transformation Program. 6. Overall, the paper identifies a number of strategic issues that need to be considered in operationalizing the Structural Transformation Program. At best, if the reader accepts the assertions made in this paper, it provides a process for setting up of the STDU. Following this introduction, the rest of the paper is divided into three parts. The next part presents a short analysis of why this paper is necessary and presents the rationale for setting up the STDU. This is followed by the largest part of the paper which describes the setting up, function and operation of the STDU and the related components. This is the central theme of the paper and is divided into several subheadings. Finally, by way of conclusion, the paper identifies a number of risks to the success of the Structural Transformation Program and possible ways to mitigate these. 2

7 Problem analysis 7. There are at least two problems that underpin the need for a structured and well thought out approach to change management and more specifically, to lead this process, the establishment of the STDU. Without getting involved in a long and protracted discussion on what is wrong with Pakistan today, the two problems are briefly discussed here as context and rationale for the STDU and how it will work. 8. First, economic policy making and implementation by a number of relevant government Ministries has been ineffective in enabling the economy to grow at a sufficiently rapid rate to achieve its Millennium Development Goals. While a discussion of why this is so can come up with a long list of reasons - from terrorism, a lack of leadership to natural disasters - it is sufficient to say for the purpose of this paper, that for Pakistan to improve its economic performance it will require better economic policies, and more importantly, better and more effective implementation of those policies. 9. Second, and related to the first, from the ongoing discussion between the GoP and the ADB (as well as between the GoP and other donors) on what better policies and implementation might look like, it is clear that a range of Ministries and Agencies will need help in formulating a set of reforms and in implementing them. The entrenchment of existing practices and the lack of incentives to change mean that the identification of problematic policies, poor implementation and even poorer service delivery are not in themselves sufficient motivation to lead change. 10. To achieve sustainable change that deliver better economic policies and outcomes, Ministries and Agencies will need help. First and foremost, they need help to create a policy space where they can develop the details of the reforms necessary. Second and as essential, they need help with the technical details of implementing reforms. 11. The Ministries and Agencies in Pakistan working on economic policies are almost all large organisations that have well entrenched bureaucracies and cultures that serve them well in day to day functions. However, large organisations tend to have a certain amount of natural inertia to change and it can be difficult to overcome the bureaucracy and entrenched culture to implement changes. The literature on managing change in large organisations highlights that change is often resisted. Common forms of resistance to change include: i. Wait out the desire for change; ii. Make only small temporary changes; iii. Do not see the urgency for change and therefore do little to help; iv. Find fault with the leadership for change and therefore resist the changes; v. Create diversionary tactics (often related to the timing for change is not right or there are unexpected technical problems preventing implementation). 3

8 12. Therefore, to drive change and make sure it becomes embedded there is a need to overcome the initial inertia inherent in most large organisations. The work by John Kotter 2 has identified and popularised eight stages in the process for leading change. These eight stages, or a variation of them, can be found in a wide range of the literature on change management and it is worth repeating them here as part of the rationale for the STDU. The eight stages in the process for change are: i. Establish a sense of urgency; ii. Create the guiding coalition; iii. Develop a vision and strategy; iv. Communicate the change vision; v. Empower employees for broad based action; vi. Generate short term wins; vii. Consolidate gains and produce more change; and viii. Anchor new approach in the culture. 2 John Kotter, Leading Change, Harvard Business School Press, Boston. 4

9 Description of the STDU 13. The following is a description of the structure and function of the proposed STDU and the related parts necessary to deliver the Economic Transformation Program. In doing so it provides a guide to how the reform program will work. For simplicity sake, and clarity of purpose, this section presents the program in four diagrams which are explained and elaborated on in the following paragraphs. 14. The Economic Transformation Program will attempt to simultaneously shift the policy debate and method of delivery. In doing so it is important to recognise what is proposed is a shift from just trying harder with the same policies to a transformational approach that attempts to both shift the policy debate and the process of implementation. The approach is more complex and difficult than working on improving either the policy or delivery by itself. The challenge should not be underestimated. 15. Because the challenge is significant and organisational inertia and prevailing culture are likely to present significant barriers, it is necessary for the transformation program to have high level political support. Ideally, and experience from other countries (UK, Australia, Canada, to name a few), shows that such support should come from the highest level the Prime Minister (PM). Moreover, such support should not be passive but the STDU should be championed by the PM as the reform process that will deliver significant benefits to the country. In the case of the UK, the Delivery Unit was seen as an instrument of the PM and directly working for the PM to deliver improved outcomes. The Structural Transformation Program 16. Figure 1 set s out the overall program and its components. Briefly, the overall objective of the Structural Transformation Program is to deliver significant improvements in investment and exports. Moreover, it envisages this will be achieved through the implementation of best practice and bench marking for policies, institutional, legal and regulatory reforms. That is, the improvements in investments and exports will be achieved through a structural transformation of the economy rather than business as usual or just doing more of the same. 17. As Figure 1 shows, the Structural Transformation Program can be divided into two main parts. These are the Structural Transformation Delivery Unit (STDU) and the components of the reform program. The components in turn can be divided into: a) the Auditor s General Office of Pakistan (AGOP) developing leading edge Performance Auditing to measure the impact and outcomes of reforms; and b) the reform programs of the various Ministries and Agencies. 5

10 Figure 1: The Structural Transformation Program Objective: Deliver significant improvements in investment and exports through the implementation of best practice and bench marking for policies, institutional, legal and regulatory reforms. Overall responsibility for delivery of program Work closely with MoF Report regularly to PM MINTEX R&D Cell Translate the National Textile Policy into a clear set of deliverables using best practice industrial policy. Evaluate existing interventions and, where necessary, identify and recommend reforms essential for improving outcomes. MINTEX Increase exports by making the McKinsey s recommendations for apparel into a Work Program and implementing them. BSF Diversify exports through establishing the EDF to work on a matching grant facility and initiate and implement the Pilot Dialogues. Objective: Develop and implement best practice Performance Auditing MOIP Develop for the new Industrial Policy an implementation plan that is based on best practice. Develop bench mark and tools and processes for monitoring and evaluating outcomes of policies. Review capabilities of MOIP to deliver change in policy focus. MINFA Increase exports by making the McKinsey s recommendations for horticulture into a Work Program and implementing them. MoC Increase exports by making the McKinsey s recommendations for pharmaceuticals into a Work Program and implementing them. Dep. Pl. PC1 s for industrial development PSDP to be benchmarked against best practices. 6

11 18. The AGOP s role will be two fold. First as a recipient of the Structural Transformation Program it will receive assistance to develop and improve its capacity to carry out Performance Auditing. Second, these enhanced capabilities will be used to measure and assess the progress of the various reforms within the components of the Economic Transformation Program. This will require a close working relationship between the AGOP and the STDU (the STDU s role is discussed later in the paper). Together they can provide a powerful force for changing and improving the delivery of services. Ministry or Agency s Work Program 19. Each Ministry or Agency responsible for a component will develop a Work Program. The Work Program, as shown in Figure 2, provides an outline of the agreed reforms and what improvements it will deliver. Within the Work Program, emphasis is on the contribution it will make to improving investment and exports. The reforms are the process by which these improvements will be achieved but are not in themselves an end. The significance of this is that the focus should remain on the outcomes, and the reforms seen as a means to achieve these, and overtime may be adjusted as necessary. Whereas, overtime the targeted outcomes should change relatively little, if at all. 20. With help and support from the STDU the Work Program s need to be developed into formal agreements that can be monitored and measured against progress. The STDU can help through the provision of technical assistance and the development of appropriate tools. The GoP and the ADB have already had extensive discussion on the broad outline of reforms that form the basis of the individual Work Programs for each Ministry or Agency. Figure 2 outlines how these Work Programs can be developed in cooperation between the STDU and the relevant Ministry or Agency, and include the following aspects: i. Identify clearly key deliverables (outcomes): It is essential that Work Programs identify what it is that they want to achieve. Such outcomes need to be well thought out and make real improvements to the economy. For example, it is not enough to identify better service delivery per se, rather, the focus should be on the improvements in investment or exports that result from better service delivery. ii. Introduce benchmarking and best practices: It is important to learn from others what has worked and what hasn t, and apply these lessons appropriately to Pakistan s conditions. Similarly, benchmarking allows comparison and measurement against expected achievement. iii. Produce an implementation plan that sets out: a) Goals, using a series of targets: Plans and goals are an essential part of project management and for achieving outcomes. Plans need to be realistic and doable. Goals or targets must be appropriate for what the GoP wants to achieve. Goals should avoid measuring the outputs produced by government. Rather the focus needs to be on the impact or change the GoP wants to create in the economy. 7

12 b) Who is responsible for delivering the reforms: For goals and targets to be achieved someone must take a leadership role and be accountable. This is particularly so in large bureaucracies, where it is easy for everyone to agree but no one take responsibility for the delivery. c) Identify the steps and who is accountable for each step in the delivery chain : Delivery chains identify the process and steps from the instructions to deliver to the actual achievement of the desired outcome. For the outcome to be delivered successfully it s important to know each step in the process and who is responsible for that part of the delivery chain. Figure 2: Ministry or Agency s Work Program What the Work Program does: a) A statement of the improvements in investment and exports it will deliver b) Provide an outline of the agreed reforms c) A strategy for implementing and delivering the reforms and achieving the improvements How will the Work Program do this? d) Identify clearly key deliverables (outcomes) e) Introduce benchmarking and best practices f) Produce an implementation plan that sets out: a. Goals, using a series of targets b. Who is responsible for delivering the reforms c. Identify the steps and who is accountable for each step in the delivery chain. d. Actions necessary to achieve the desired outcomes e. Data necessary for measuring performance g) Review Ministry or Agencies capabilities and structure necessary to deliver Who will be responsible? h) Each Ministry or Agency responsible for a component of the Structural Transformation Program will form a Work Program Delivery Unity (WPDU), headed by a senior civil servant responsible for implementation. i) The STDU and WPDU will work in close cooperation, with the STDU providing overall leadership and technical support. When will reforms be delivered? h) The STDU and WPDU will agree on and include in the Work Program dates for deliverables and these will be regularly reported on to the concerned Minister and the PM. 8

13 d) Actions necessary to achieve the desired outcomes: In the delivery of the reforms and outcome it s important to think through and identify the series of actions needed to be taken to achieve success. e) Data necessary for measuring performance: Data is essential for decision making. Without frequent, correct and timely data it is impossible to make informed decisions or even know whether we are achieving our goals. Therefore, the Work Program will need to generate frequent and reliable data. iv. Review Ministry or Agency s capabilities and structure necessary to deliver: Plans and goals provide direction in terms of what we want to achieve. But this alone is not enough; we need to know that the bureaucracy has the right structure and capability to deliver. If the structure and capability of the bureaucracy are not aligned with the goals and plans, then it becomes inherently difficult to achieve the results. 21. In order to make sure that there is leadership and accountability for the proposed Work Program, each Ministry or Agency will need to identify the people responsible for their Work Program. These civil servants will form the Delivery Unit for that Ministry or Agency s Work Program. That is, they will form the Ministry or Agency s Work Program Delivery Unit (WPDU) which will report to their relevant Secretary. While each WPDU will provide a focal point for the STDU to work with, these should not be the only point of entry into the Ministry or Agency. Given the difficulty of managing organisational change in Pakistan, the STDU should create guiding coalitions within and across Ministries to drive change and communicate the vision and strategy of change. The Structural Transformation Delivery Unit (STDU) 22. Figure 3 outlines the responsibilities and deliverables of the STDU. Primarily, the STDU serves to provide leadership, support and drive for the entire structural transformation agenda. Ideally it would be seen as the PM s unit to drive better results in investment and exports through the implementation of best practice and bench marking for policies, institutional, legal and regulatory reforms. In executing this responsibility the STDU will need to consider the following: i. Ensure the development and implementation of Work Programs by relevant Ministries and agencies: The STDU will need to provide support, direction and TA as necessary, for the WPDU and more generally for the Ministry or Agency to develop the Work Program and implement them. Such cross ministerial cooperation between the STDU and the WPDU is likely to be of a sensitive nature and may be resisted by the bureaucracy. In this respect, it is worth emphasising the supportive aspect of the STDU and the high political support it has, as well as, draw on the Deputy Secretary level officials in the STDU. ii. Drive the delivery of commitments within the Work Programs: The STDU will need to drive delivery where it is weak and or needs more support. By being a driver for change it provides a sense of urgency and external pressure that will be required to prevent the reform process being consumed by the bureaucracy and dominant culture of the various Ministries or Agencies. The STDU will also provide an overview on progress that will regularly reported to the PM and the public. 9

14 iii. iv. Build institutional capacity required to enable implementation of Work Programs: Most government Ministries are less focused on results and more on the delivery and execution of its day to day functions. For a Work program that is focused on the delivery of improved results in investment and exports, Ministries and Agencies are likely to need help. Such help will range from planning through to the implementation stage. Regular reports to the PM on progress against each agreed Work Program: Political buy in is crucial for the transformation program to work. Regular reporting provides information for making decisions and informs the PM on progress. Progress and early wins will also help with public support and building guiding coalitions. It also accentuates the responsibility and creates a sense of urgency for those implementing Work Programs. Ideally information on progress (or lack of it) should be made public. v. Develop a set of indicators to measure improvements for the commitments in each Work Program: The STDU and WPDU need to agree and develop appropriate indicators to measure the improvements achieved. Such indicators are important as they will influence actions taken and provide benchmarks against which Ministries and Agencies can measure themselves and compare achievements. Figure 3: The Structural Transformation Delivery Unit (STDU) Overall responsibility for delivery of program Work closely with MoF and the AGOP Report regularly to PM Provide leadership, direction and coherence for the entire structural transformation agenda. Ensure the development and implementation of Work Programs by relevant Ministries and agencies. Drive the delivery of commitments within the Work Programs. Build institutional capacity required to enable implementation of Work Programs. Regular reports to the PM on progress against each agreed Work Program. Develop a set of indicators to measure improvements for the commitments in each Work Program. Regular collection and reporting of data measuring impact of reforms. Set of tools to assist the implementation of Work Programs. vi. Regular collection and reporting of data measuring impact of reforms: Critical to the ability to manage and adjust Work Programs is the availability of good, appropriate and timely information. Good data is a necessary tool to drive decision making and adjust programs in a timely manner. 10

15 vii. Set of tools to assist the implementation of Work Programs: For the purpose of improving delivery of results a range of other tools will need to be developed or strengthened within the various Ministries and Agencies. The tools will include the use of performance auditing, best practice industrial policies, delivery chains, monitoring and evaluation frameworks, plans, benchmarks, as well as a range of other relevant tools. Such tools need to become standardised and familiar to civil servants in the practice of delivering better outcomes. The organisational structure of the Program 23. The organisational structure has already been discussed between the ADB and DFID and has resulted in a Technical Assistance and Financing Requirements document setting out the staffing requirements for the STDU (see Attachment 1 for the entire ADB/DFID document). The relevant section has been reproduced below: The STDU may be physically located in the Prime Minister's Secretariat, or in the Ministry of Finance. A senior Civil Servant (serving or retired), or a senior professional from the private sector will head the STDU. S/he will have a deep understanding of the main problems that Pakistan's economy faces to transform, and a good knowledge of: (i) public administration system and structure; (ii) economic management; and (iii) private sector development. The Head of STDU will be supported by a team comprising: a senior advisor on the structural transformation process (recruited from the market); a senior advisor on program execution and delivery and results monitoring (recruited from the market); and Deputy Secretary level officials nominated from the respective ministries to serve for a period of at least two years, representing their line of business. 24. Within these parameters the question becomes how to organise the workload? While to some extend this is the prerogative of the STDU Head when he or she is appointed, it is worth canvassing some of the relevant lessons from other countries and experience in managing organisational change. A key decision will be whether to organise the unit around functions or policy areas. There are arguments to be made for both and from the evidence there is not a clear recommendation as to one or the other. 25. Using Figure 3 which sets out the responsibilities and deliverables, it is possible to suggest an organisational structure that divides the work into functional and thematic structures. Below, Figure 4 sets out what such an organisational structure might look like. As expected, the STDU head would have overall responsibility for delivering the program of reforms, as well as, keeping the PM informed of progress and managing key relationships with the Ministry of Finance, other senior civil servants and political leaders. 26. Below the STDU head, the two Senior Advisers would take responsibility for developing the capacity of the various Ministries or Agencies and delivery of the Work Program for each component. While the Deputy Secretary level positions from each of the Ministries would be responsible for the specific deliverables within their Work Program. All the positions would be located together in the STDU (but not the TA consultant who would be in the respective 11

16 Ministries). A key question would be how the functional and thematic groups would work together. Ideally this would be in a collegial manner focused around specific thematic issues related to delivering the program and would be identified and discussed at regularly weekly meetings chaired by the Unit Head. This would facilitate team building and learning between Deputy Secretary level officials, the Senior Advisers and TA consultants. Such meetings would be attended by the relevant TA consultants as and when thematic issues related to their work was being discussed. Figure 4: Possible organisational structure for the STDU Leadership Functional Thematic Resources Role Responsibility Responsibility Provide leadership, direction and coherence for the entire structural transformation agenda. Regular reports to the PM on progress Ensure the development and implementation of Work Programs by relevant Ministries and agencies. Build institutional capacity required to enable implementation of Work Programs. Drive the delivery of commitments within the Work Programs. Regularly collection and report data measuring impact of reforms. Develop a set of indicators to measure improvements for the commitments in each Work Program. Develop tools to assist the implementation of Work Programs. Senior Adviser for change management Dep. Secretary responsible for component A Auditor General s Office of Pakistan Performance Audits Senior Adviser for program delivery & monitoring Dep. Secretary responsible for component B TA from the market short and long term. DFID/ADB funded STDU Head Dep. Secretary responsible for component C Dep. Secretary responsible for component D 27. In Figure 4 the identified resources provide the technical and monitoring function of the program. The TA resource would be a mixture of long term consultants located in the various Ministries and Agencies supplemented as necessary with short term specialist consultants. It is important that the Ministries and Agencies perceive these as their resources but at the same 12

17 time it will be necessary for the Unit Head to have some oversight and coordinating function related to the use of TA s and their outputs. 28. The AGOP has been discussed earlier in the paper. As mentioned before, they should function as an independent arm of government. Nevertheless, as a resource, it is important for the STDU unit to develop a close working relationship with them so as to assist in enhancing their capabilities for performance auditing and provide a monitoring function for the performance of various components. However, such monitoring is more likely to provide periodic overviews for reporting to the PM but will not be sufficient and timely for regular decision making. Therefore, the work by the AGOP will need to be supplemented by more specific targeted data collection. Initial sequencing 29. As the GoP shifts from a policy dialogue to operationalizing the reforms, attention needs to be given to the sequencing of implementation. Sequencing remains a key but often neglected issue. It is essential to get the sequence of actions right as they can be crucial in setting the overall tone and direction, and if done badly, is difficult to fix later. The following sets out a number of sequential steps required to operationalize the Structural Transformation Program: i. Agree with the GoP on the primary function and where to locate (physically and functionally) the STDU (PM Secretariat or MoF). Agree on the STDU s reporting process to the PM. ii. iii. iv. Recruit the head of the STDU and the two Senior Advisers and provide them with their ToRs (include recruitment of administrative support staff). STDU Head and Senior Advisors to lead discussions with Ministries and Agencies on a proposed Work Program and the required TA to support for such a program. On a rolling bases recruit the Deputy Secretary level officials for each agreed Ministries or Agencies Work Program. v. In response to the STDU discussion, the relevant Ministries and Agencies to setup the WPDU with reporting lines to the Secretary. vi. vii. viii. ix. STDU Head in consultation with ADB and in accordance with ADB s Guidelines on the Use of Consultants (February 2007) to recruit consulting firm(s) to provide the bulk of the TA as agreed with Ministries and Agencies. Senior Advisers, Deputy Secretary level staff and TA consultants to finalise and agree formally with the Ministry or Agency on the details of the Work Program (as outlined in Figure 2). STDU Head to report to the PM (through the MoF) on the initial agreed Structural Transformation Program (the sum of the Work Programs). Senior Advisers, Deputy Secretary level staff and TA consultants in a coordinated approach work with the WPDU and assist the Ministry or Agency in the implementation of reforms and delivery and monitoring of results. Note, consultants should be located within their respective Ministry or Agency, whereas the Senior Advisers and Deputy 13

18 Secretary level staff will work out of the STDU (but may for short periods, as necessary, work from the location of the relevant Ministry or Agency). x. As required, STDU in consultation with WPDU, to use short term consultants for additional support to deliver Work Program results. xi. STDU report on a regular basis to the PM, Ministers, Secretaires and public on progress in terms of the actual outcomes (as opposed to outputs). 14

19 Risks and their mitigation 30. As the experience of other countries shows, the attempt to implement structural transformation to deliver better outcomes is not without risks and success cannot be assumed, particularly in a difficult environment such as Pakistan. Some of the most obvious and more significant risks are identified below with recommendations of what can be done to mitigate them. Risk Level of risk Mitigation strategy Resistance by civil servants High Important to sell vision to staff. within Ministry or Agency s Emphasise PM or high level support. claiming they are already doing the necessary changes or they Make staff directly accountable for specific deliverables. are not needed. Require documented and verifiable proof of reforms and outcomes. Create incentives for successful outcomes. Create guiding coalitions. Ensure the achievement of, and demonstrate, early wins. Components of the program become delayed, subsumed or neglected because of other more immediate issues. Lack of political leadership or high enough prioritisation by leaders. Reforms are ephemeral and behaviour and policies quickly revert to previous patterns. High Focus on development of Work Program as a contract to deliver. Hold senior civil servants accountable for delivery. Use reporting to PM and public disclosure of progress as a motivating tool. Medium Present concept to and get buy in from the PM and relevant Ministers and Secretaries. Follow up with presentation of the agreed Work Program s. Ensure the STDU reports to the PM. Ensure the WPDU reports to the relevant Ministers and Secretaries. High Make sure to embed changes into the organisational structure and culture. Carry out reviews of capability to deliver and align structures within a Ministry to their delivery functions. 15

20 Risk Level of risk Mitigation strategy STDU unable to manage or implement reforms. Medium Keep focus on a small number of high priority deliverables. Keep structural reform program well focused on a few key deliverables. STDU s own Work Program to include a mixture of difficult and less difficult reforms and include some early wins. Continuously review STDU performance and make sure the structure is aligned with deliverables. Create guiding coalitions that can help push the reform agenda. Don t underestimate the importance of selling the vision of what it wants to achieve. STDU staff do not understand or unable to implement reforms. Lack of ownership of the reform Program by Ministry or Agency. Low Recruit high calibre staff. Have trail period employment. Use ongoing regular and formal feedback mechanisms. Have a training plan that provides regular and relevant training. Promote the vision to STDU staff and create an ethos of can do success. Support STDU staff with relevant short term TA. Low Focus on empowering the WPDU to take ownership and implement reforms. Credit relevant Secretary s and their WPDU with success. On a day to day basis, have TA consultants located with and report to WPDU staff. Special interest groups lobby against reforms. Medium to high Develop an ongoing dialogue and communicate vision to lobby groups. Include lobby groups in creating guiding coalitions. Demonstrate and promote short terms wins. Publicise the common good of reforms. Key counterparts in a Ministry or Agency move to other areas. Medium STDU to develop relationship and support across a range of civil servants within and outside of the WPDU. Deliver seminars and presentation to wider audiences. Create paper trial for reforms and agreed to actions. 16

21 Risk Level of risk Mitigation strategy Civil servants in a Ministry or Agency unwilling to enter into Low Secure initial and in principle agreement at Secretary or Ministerial level. discussion or unable to agree to a Work Program. Use if necessary the STDU position with MoF and PM as leverage. Frequent, correct and timely data needed for reporting and decision making is not available. Work Programs do not show anticipated results. The WPDU team unable to implement the agreed reforms. High Include in Work Program s agreement on what data the Ministry or Agency will generate and provide to the STDU. Provide TA support for developing indicators and data collection systems. Medium Make sure Work Program s focus on delivering better outcomes with regular data collection and reviews. Where unanticipated results occur, make changes to Work Program based on analysis and review of data (but keep targets the same). Medium In designing the Work Program, make sure that capacity to deliver is considered. Provide assistance to the WPDU in planning and mapping the delivery chain. In setting up the WPDU assist the Ministry or Agency to identify and recruit from within their ranks senior and capable civil servants. Assess jointly (STDU & WPDU) the TA support needed to deliver the Work Program. Include in Work Program a mixture of ambitious targets and more achievable outcomes. 17

22 Attachment 1: TA and Financing requirements for the AETP Pakistan: Accelerating Economic Transformation Program Subprogram 3 Technical Assistance Scope and Financing Requirements Supporting Structural Transformation in Pakistan I. INTRODUCTION 1. Pakistan needs to transform its economy, and in particular its industry, to create employment outside farming and to sustain economic growth. Structural transformation (ST) is a longterm process that entails: (i) increasing diversification of the production and export structures; (ii) the production and export of a range of products with higher value added; and (iii) a shift in the country's employment structure, with a decline in the share of agriculture. Inter- country comparisons show fairly clearly that economic development cannot occur without ST and that ST has to be policy-induced with a high level of public-private partnership. 2. Transforming Pakistan's economy is a challenging task. A clear vision needs to guide the process, and set the tone and to guide reforms in the short, medium, and long-term. The Accelerating Economic Transformation Program (AETP) will support this process through: (i) changes in the policy framework; (ii) changes in the legal and regulatory framework; (iii) the development of an enabling institutional framework; and (iv) programs to guide subsidies and investments, product design, and promotion and training. At the request of the Government of Pakistan (the Government), the Asian Development Bank (ADB) plans to design Subprogram 4 of AETP in Fiscal Year As part of this design process, it is envisaged that the Prime Minister (PM) of Pakistan will set and adopt a vision on ST, supported by the Economic Advisory Council under the overall chairmanship of the Minister of Finance, Economic Affairs, Planning and Statistics. II. THE PROPOSED TECHNICAL ASSISTANCE A. Impact and Outcome 3. The purpose of the proposed technical assistance (TA) is to mobilize quality expertise and share international experience to help the Government in a range of reform areas crucial to the agenda described above. The impact of the TA is the facilitation of economic transformation in Pakistan. The TA outcome is the actual implementation of the reform agenda. B. Methodology and Key Activities 4. The TA outputs will provide necessary technical support to the reform agenda defined by the AETP and assist in developing greater consensus amongst policy makers and relevant stakeholders on the need for, and approaches to, reforms. The implementation of the TA will start in July 2010, and may be continued until August The Government and ADB have identified TA needs along five areas of reform, discussed below, which will be further elaborated prior to or during the implementation of the TA. 1. Area 1 - Coordination of Structural Transformation 18

23 6. It is proposed that a dedicated Structural Transformation Delivery Unit (STDU) be set up for this purpose. The examples studied include: the Prime Minister's Delivery Unit of the UK; the President's Delivery Unit of South Korea; the High Level Growth Panel of South Africa; and the Enterprise Development Board of Singapore. As the vision will be set by the PM, the proposed STDU will report to the Prime Minister of Pakistan through the Minister of Finance of Pakistan, who in turn chairs the Economic Advisory Council (EAC) of the Government. The EAC comprises various ministers and private sector representatives. 7. The STDU may be physically located in the Prime Minister's Secretariat, or in the Ministry of Finance. A senior Civil Servant (serving or retired), or a senior professional form the private sector will head the STDU. S/he will have a deep understanding of the main problems that Pakistan's economy faces to transform, and a good knowledge of: (i) public administration system and structure; (ii) economic management; and (iii) private sector development. The Head of STDU will be supported by a team comprising: a senior advisor on the structural transformation process (recruited from the market); a senior advisor on program execution and delivery and results monitoring (recruited from the market); and Deputy Secretary level officials nominated from the respective ministries to serve for a period of at least two years, representing their line of business. 8. The STDU will (i) coordinate and facilitate policy formulation and its execution; (ii) seek highlevel advice and intervention, as required to execute the reform agenda; and (iii) deliver the reform agenda, with results expected in the form of: (a) policy, institutional, legal and regulatory reforms; (b) adoption and dissemination of quality standards (for example, for agriculture or textile products); and (c) a significant increase in investments, brought about through public- private transactions. 9. STDU will work closely with each concerned line ministry/agency who will also establish a corresponding Delivery Unit reporting to the Secretary concerned. 2. Area 2 - Best Principles for Industrial Support. 10. A key pillar of the AETP is the implementation of best principles of industrial support. Public sector support to the private sector in many cases is provided despite there being no market failure. Design and execution of reform measures in this area will require an expert on modern industrial policy with experience and knowledge of how public support is provided in other countries. 3. Area 3 - Textile Sector Upgrading 11. Transformation of Pakistan's economy will require special attention to the textile sector. Expertise will be required to advise the Ministry of Textile Industry in the implementation of the Textile Policy and to help set up a "National Round Table" for textiles that will produce a long-term vision for the sector. The Round Table is expected to include representatives from the public sector, the industry, labor groups or employees, and the financial sector. 4. Area 4 - Horticulture and Livestock Sector Upgrading 12. Horticulture and Livestock have been identified as a key sector with a large export potential. Experts will be needed to help with i) developing Pakistan Good Agriculture Practice (PAKGAP) standards, ii) develop a contract farming policy, and iii) marketing campaigns. 19

24 Livestock has both large employment and export impacts. One expert will be needed to recommend policies to modernize the sector, especially the dairy and meat subsectors. 5. Area 5 - Export Diversification Support 13. The Government will set up an Export Diversification Facility (EOF) within the Business Support Fund (BSF), which was established in 2006 under an earlier ADB program on small and medium enterprise and reports to the Ministry of Finance. The EDF will address two principal constraints to export diversification and demonstrate how policy can enable exports of new and more sophisticated products. The observed challenges include: (i) Constraint 1 - Pakistani firms generally do not try to penetrate new export markets, and because of this, the overall economy does not benefit from the significant learning spillovers that could otherwise occur; and (ii) Constraint 2 - Inadequate mechanisms within the Government to effectively design and coordinate strategies with firms that can take export-discovery risks. 14. To address constraint 1, an effective and efficient variable matching-grant facility (MGF) will be designed to support Pakistan firms' export-discovery attempts, while for constraint 2, a new form of public-private dialogue will be initiated to support Pakistani firms' efforts for export- discovery by identifying missing public inputs. C. Cost and Financing 15. It is estimated that approximately 150 international and 300 national person months of consulting services will be required (Table 13.1), with expertise in the areas identified above. Their terms of reference are shown below. However, depending on the emerging requirements the number and person-month allocations can change as other industries (such as Pharmaceuticals etc.) may also be identified and included for advisory services. Table 13.1: Advisory Needs for Design and Implementation of Reforms (Indicative person-months requirements per area) Key area International National A. Best Principles for Industrial Support Review "Section 42 companies" under the Company Law 2 8 Capacity development for introducing performance auditing - 5 B. Textile Sector Upgrading Advisory Services Branding and Promotional 4 8 Structuring/Design of Hub; Others C. Horticulture and Livestock Sector Upgrading Advisory Services Dissemination of Standards 5 30 Structuring of Buyer Agreements; Roadshows D. Export Diversification Support Advisory Services 2 12 Overall Project Management E. Demand-Driven Support /STDU F. Impact Evaluation 5 10 Total (person months) It is envisaged that the advisory services will be procured through one or more consulting firms, to be engaged by ADB. Preference will be given to the selection of a firm over individual consultants. However some advisory needs may be best met through the services of 20

25 individual consultants. Both firms and individuals will be recruited in accordance with ADB's Guidelines on the Use of Consultants (February 2007) as amended from time to time. D. Implementation Arrangements 17. The Ministry of Finance (MOF) will be the executing agency (EA) for the TA. The MOF, together with the STDU will facilitate and coordinate the work under all components, and help the consultants in following-up on technical work with any of the concerned departments and agencies. The TA will also organize workshops or special events/sessions targeted for selected industries. Table 13.2 presents the cost estimates and financing plan for the TA. Table 13.2: Cost Estimates and Financing Plan ($'000) Item Total Cost A. Finance provided by the Government of the United Kingdom a 1. Consultants a. Remuneration and Per Diem i. International Consultants 2,250.0 ii. National Consultants 1,200.0 b. International and Local Travel c. Reports and Communications Equipment Training, Seminars, Workshops and Conferences a. Facilitators b. Training Program Surveys Miscellaneous Administration and Support Costs Representative for Contract Negotiations Contingencies Subtotal (A) 5,000.0 B. Finance provided by the Government 1. Office Space and Logistics Remuneration and Per Diem of Counterpart Staff Subtotal (B) 1,000.0 Total 6,000.0 a Administered by the Asian Development Bank - Source: Asian Development Bank estimates. III. Outline Terms of Reference for the AETP Design and Implementation TA 18. The following terms of reference (TORs) have been formulated on the basis of the TA needs assessment during the TA appraisal process in the first half of Changes - both in coverage and expertise - may be necessary during implementation. A. Best Principles for Industrial Support 19. The consultants will: (i) review the practices of those companies incorporated under Section 42 of the Company Law against best principles of industry support; (ii) support capacity development for introducing performance auditing of industry support projects; and (iii) support reform objectives of AETP subprogram 4 and present performance audit reports to Parliament. 21

26 B. Textile Sector Upgrading 20. The consultants will support the Ministry of Textile Industry and the Research, Development and Analysis Cell (the Cell) to (i) develop initiatives under the Textile Policy in line with best principles including special incentive programs for high value products, in collaboration with the Pilot Dialogues for Structural Transformation (POST) (ii) develop a restructuring plan to convert three textile training institutes into centers of excellence (iii) work with Ministry of Textile Industry to facilitate the implementation of the textile policy and assist in setting up and supporting with analytical work the "National Round Table". The consultants will also support all the objectives relating to textiles sector reforms under AETP subprogram 4 including abolition of all untargeted cash subsidies by 30 June 2011 and a campaign for marketing and branding of apparel and made ups and setting up of a apparel marketing hub in the region by December C. Horticulture and Livestock Sector Upgrading 21. The consultants will assist the Ministry of Food and Agriculture and other relevant stakeholders to; (i) develop, and adopt PAKGAP standards; (ii) develop draft model law on contract farming; (iii) adopt of implementation arrangements for export grading; and (iv) develop a strategy for the livestock sector. D. Export Diversification Support 22. The consultants will (i) assist in drafting the first EDF Annual Business Plan, and operating manuals; (ii) assist in the overall management of the EDF, consistent with EDF Business Plan, and in coordination with BSF Board and management; (iii) help administer the MGF, in accordance with modified standard operating procedures; (iv) support the implementation of the PDSTs. 23. The consultants will support the following objectives under AETP subprogram 4: (i) By September 2010, establish the EDF within BSF; (ii) by December 2010, the BSF starts PDSTs for (at least) 4 products, followed by approval and coordination of implementation of the Action Plans produced by the PDSTs; and (iii) PDSTs will be expanded to 20 additional products. E. Demand Driven Support/Coordination of Structural Transformation 24. The consultants will help develop a coordination mechanism to implement AETP initiatives; and will work with TDAP and MINFA to prepare and assist in conducting road shows of horticulture products from Pakistan. Working with the STDU, they will support all the objectives under AETP subprogram 4 including (i) tangible results in promotion of textile and horticulture products, including concrete operations with private investors and identification of products/industries for structural transformation, including Pharmaceuticals, high value added chemicals, dairy and livestock; (ii) exploring application of best principles of industrial support to the entire public sector development program; (iii) coordinating implementation of the Action Plans developed under PDSTs; and facilitating investment forums and projects in horticulture F. Impact Evaluation 25. Under this component, the policy actions and implementation of AETP measures will be evaluated. The evaluation framework will be presented to the STDU and to ADB by December 2010 and, once approved, implemented with the financial support of the TA. 22