33080 Capacity Enhancement b r i e f s S H A R I N G B E S T P R A C T I C E S A N D L E S S O N S L E A R N E D NURTURING CAPACITY IN DEVELOPING COUNTRIES From Consensus to Practice Govindan G. Nair, Lead Economist, The World Bank Institute There is an emerging consensus that capacity building in developing countries must shift from supply- side, donor-driven to demand-led approaches. Three areas in which this is critical are evaluation capacity, the availability of skilled individuals, and aid management. An effective demand-led approach requires fostering a transparent evaluation culture, focused on poverty impacts and involving participatory approaches. The approach to skilled resources must move from skills acquisition to the retention and use of skills, using the resources of the diaspora, tackling incentives and addressing issues that discourage retention of skills. Recipient countries need to be placed in the "driver's seat" to manage and coordinate external assistance. There is no single clear path to achievement of these goals. With vigorous political commitment and conducive recipient country circumstances it can take time, and even significant institutional capacity will wither if the governance environment is weak. Prevailing development rhetoric exhorts aid agencies Emerging Global Consensus on and recipient countries to reorient development prac- Capacity for Development tices around a new concept of capacity. A significant Capacity can be distinguished from related concepts, literature has emerged on this distinct idea, broadly 1 such as institution building and technical assistance, articulated as the abilities of individuals, institutions, by considering its origins in three related develop- and societies to perform functions, solve problems, as ments in the 1990s: well as set and achieve a country's development goals · Perception of traditional technical assistance falling in an effective, participatory, and sustainable short of expectations, despite some clear achieve- manner. Breaking with past practices to translate its 2 ments, leading to a consensus that technical elements into effective new development practice assistance has tended to transfer skills and know- remains an ongoing challenge for governments, civil how without significantly tapping local expertise society organizations, development agencies, and and institutions and creating enduring capacity. training institutions. This is increasingly acknowl- · Increasing influence of institutional economics edged in recent international fora. 3 within development thinking and recognition that This paper seeks to clarify the dynamics of this neither good policies nor good investments are overall challenge by unbundling it within a frame- likely to emerge and be sustainable with dysfunc- work of distinct demand- and supply-side factors. To tional institutions and poor governance. 4 set the challenge of nurturing capacity in context and Research has suggested that institutional factors distinguish it from a broader set of development chal- and capacity building can explain growth differ- lenges, the paper reviews the underpinnings of an entials across countries not attributable to classi- emerging global consensus on capacity. N O V E M B E R 2 0 0 3 NUMBER 1 cal variables such as capital accumulation, techni- was previously often regarded by donors and recipient cal progress, and increases in labor. 5 countries as largely technical issues of training and · Emergence of comprehensive approaches to devel- transferring skills, and strengthening particular organi- opment encompassing not only macroeconomic zations: and structural reforms, but institutional, social, · The demand-led approach to nurturing capacity and process issues. Originating in 1999, the "com- shifts the focus of evaluation capacity from sim- prehensive development framework" was later ply building monitoring and evaluation (M & E) embodied in the poverty reduction strategy paper skills on recording inputs, activities, or immediate (PRSP) and followed in 2000 by the Millennium outputs to fostering a transparent evaluation cul- Development Goals; these frameworks collectively ture focused on poverty outcomes, impacts, and emphasize how critical it is for individuals, organi- goals and on participatory approaches--including zations, and institutions in developing countries to citizen rights to demand results and govern- embed capacities to formulate and "own" local and ment's ability to respond. Capacity to generate national development goals and processes within a and use high-quality and timely data, although country-driven strategy focused on achieving clear, critical, does not in itself ensure impact on devel- monitorable targets and outcomes. opment results. Recent literature on evaluation The global development community has reached capacity building emphasizes this demand-led broad consensus on how development assistance can approach. Uganda's experience on internalizing most effectively increase capacity, encapsulated in the approach within its PRSP is illustrative. No7 three strands of positive and normative concepts: easy route exists to strengthening a government's · skills become embedded in organizations and performance culture and thus its demand for individuals, but institutional incentives M&E, although internal and external accountabil- ("rules of the game") shape utilization and reten- ity pressures are important. tion of skills and determine scalability and sus- · Demand-led approaches to nurturing capacity empha- tainability of efforts to nurture capacity nation- size skill retention and utilization, not simply wide. All three levels of capacity should be acquisition. Some countries, such as El Salvador, considered jointly in designing capacity-support which emerged from extended civil strife in the interventions. early 1990s, and Armenia have succeeded in tap- · supply-driven approaches--often a modus operandi ping their diaspora as part of a national portfolio of among donor agencies--cannot sustainably nur- knowledge and financial assets. Other countries ture capacity and must give way to approaches face serious impediments to long-term capacity owned by the recipient country and based on building with growing emigration of scarce skilled broad local participation. nationals. Long-term capacity-building efforts 8 · Design of interventions to nurture capacity must be must consider incentive structures for skill reten- results oriented and focus on "capacity for what tion and their impact; otherwise, further efforts at and whom" for national capacity to contribute to acquiring skills may have little or no sustainable development. Capacity also takes time to nurture, impact. Rights to participate effectively in civic, usually emerging in the medium term.6 political, and economic life may provide nonmone- By emphasizing demand-led approaches to nurtur- tary incentives for skilled nationals to stay in, not ing capacity, this consensus also underscores the flee, the home country. prime importance of transformational processes · Putting the recipient country in the "driver's seat" within recipient countries: giving voice to various to manage and coordinate external assis- local stakeholders, creating transparent governance, tance is intrinsic to country-owned development and developing a culture of evidence-based policy for- strategies, but not a straightforward shift. It mulation and execution. Donor practices can, at best, requires, on the demand side, country leadership facilitate and, at worst, hamper the emergence of and aid management capacity--including the national capacity. ability to refuse aid or projects deemed irrelevant From Consensus to Practice: or even detrimental--and greater demands on Demand-Side Challenges staff and institutional capacities of recipient countries. Examples of important shifts toward Three issues illustrate how translating new concepts of country-led partnerships with donors include capacity into practice requires going well beyond what Vietnam's recent legal system reforms, with N O V E M B E R 2 0 0 3 NUMBER 1 assistance from more than thirty international capacity is inadequate, development partnerships may donors; Ghana's health sector-wide approach, require joint strategies with donors rather than being which brought government and donors together fully country led. Inadequate governance due to civil in annual review exercises; and Tanzania's exper- strife or fragile accountability structures, and weak iment with independent monitoring and evalua- institutional capacity among national and subnational tion of donor and country performance. service providers may mean continuing domination of From Consensus to Practice: donor-driven strategies (see diagram). Supply-Side Challenge On the supply side, capacity is nurtured by the portfo- Institutional capacity lio of human, institutional, financial, and physical assets of a country, including its nonresident nation- Joint donor/country Country-driven HIGH agreed strategy strategy als, and can be positively or negatively influenced by donor practices, as illustrated by the same issues as above: · Donor support to nurturing evaluation capacity has Donor-driven Joint donor/country historically focused heavily on donor needs to strategy agreed strategy Country LOW commitment/ track disbursements and outputs of donor-funded LOW HIGH governance projects, rather than building overall national evaluation capacity. · Practices relying on international technical assis- The magnitude of demand-side shifts implied by a tance and project implementation units have his- country-driven process of nurturing capacity cannot torically undercut utilization and retention of be underestimated. Even with vigorous political com- national skills. mitment and conducive recipient-country circum- · Findings of OECD's Development Assistance stances, transformational processes, especially the Committee suggest that donor practices and proce- 9 building of sound institutions, can take time--from dures represent significant obstacles to nurturing several years to a decade or more. Even significant recipient country capacity for leading and managing institutional capacity will wither under weak gover- aid partnerships. Recent donor harmonization nance. Nurturing capacity across multiple areas efforts to reduce transaction costs and administra- (including sector-specific areas not illustrated above) tive burdens on recipient countries indicate can help move a country toward full ownership of its progress, but actual implementation at country lev- development strategy; the necessary shifts on demand els is highly uneven and infrequent. and supply sides will emerge, more often than not, These and other donor-driven practices may also incrementally and interactively. depend on demand-side shifts as well as creation of national capacity to manage aid programs on a pro- Peer Reviewers: Michael Sarris, Director, grammatic, rather than project, basis. Regional Capacity Enhancement Team (RCET), Managing the Shift: A Clearer Destination with and Mei Wang, Sr. Economist, Operations Policy Diverse Pathways and Country Services (OPCS) The emerging global consensus on capacity does not suggest a clear or single path for how national institu- References tions and capabilities and country-specific donor Amis, P. and L. Green. 2002. Survey on Partners' Priorities, assistance should evolve to achieve these goals. and Perspectives on Harmonizing Donor Practices. Birmingham, U.K.: University of Birmingham. Political, not simply technical, processes will deter- Hauge, Arild. 2001. Strengthening Capacity for Monitoring mine specific pathways of interaction between and Evaluation in Uganda: A Results-Based Management demand and supply sides of nurturing capacity. Perspective. ECD Working Paper Series No. 8. Operations Particularly important is how asymmetric power rela- Evaluation Department. Washington, D.C.: World Bank. tionships within recipient countries and between them International Labour Organization (ILO). 2001. Migration of Highly Skilled Persons from Developing Countries: Impact and and donor agencies are mediated to align better with a Policy Responses. Geneva. broadly based, country-owned, and results-oriented Rodrik, Dani. 1997. TFPG Controversies, Institutions, and strategy of nurturing capacity to achieve development Economic Performance in East Asia. National Bureau of results. Where governance is weak or institutional 10 Economic Research Working Paper No. 5914. Cambridge, Mass.: NBER. Schacter, Mark. 2000. "Capacity Building": A New Way of 2. Broadly similar to definitions developed and used by sev- Doing Business for Development Assistance Organizations. eral agencies, notably the United Nations Development Policy Brief No. 6 (January). Ottawa: Institute on Policy Programme. Documents explicitly referring to the key role of Governance. . capacity include World Bank and IMF (2000 and 2002) and World Bank. 2000a. CDF Framework Mid-Term Progress World Bank (2000a). Report. Washington, D.C. 3. This paper draws especially on recent global fora cospon- ------. 2000b. Reforming Public Institutions and sored by the World Bank Institute and other partners in Manila Strengthening Governance: A World Bank Strategy. Public (January 2003) and Berlin (March 2003). See Sector Group, Poverty Reduction and Economic Management and (PREM) Network. Washington, D.C. . ------. 2002. Annual Report on Capacity Evaluation 4. See World Bank (2000b). Development. Operations Evaluation Department. 5. See, for example, Rodrik (1997). Washington, D.C. 6. Despite widespread acceptance that results and outcomes ------. 2003. Toward Country-Led Development: A Multi- are important, the approach has its critics. See World Bank Partner Evaluation of the Comprehensive Development (2003). Framework. Operations Evaluation Department, 7. See World Bank (2002) for discussion of evaluation Washington, D.C. capacity development as a systemic approach to improving . country institutions concerned with M&E and reform of public World Bank and International Monetary Fund. 2000. World sector activities and programs. On Uganda, see Hauge (2001). Bank/IMF PRSP Progress Report. Washington, D.C. 8. Examples of literature on the multiple impacts of skilled ------. 2002. The Progress Report on Implementing the emigration include ILO (2001). Monterrey Consensus. Washington, D.C. 9. See Amis and Green (2002). 10. For further discussion on power asymmetries, see World Bank (2003). 1. See, for example, Schacter (2000). 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