How do you kick-start a government to design and execute a successful infrastructure program when there are no systems, people or processes in place to leverage? When starting from scratch, what is the best approach?
In this article, we examine some important lessons learned from a recent engagement, during which we provided support to design, implement and monitor a donor-funded program. This program, the first of its kind in the beneficiary country in decades, focused on the implementation of small-scale infrastructure projects across the country. It was unique in that it was using government systems and processes.
Lesson #1 Don’t over-design.
Initial program design considerations should focus on minimal functional requirements and critical actions. It is not realistic to develop detailed design requirements up front, particularly in fragile states where much about the future is uncertain. Rather, an iterative approach to program design and planning should be employed. Make design decisions along the way, as data is gathered, and focus first on what is needed to get the program off the ground and running.
In the case of this program, the design supported a quick start-up. Overarching objectives were well defined, yet broad. The main objective was clear: to serve a political agenda by delivering visible projects and increasing the presence and thus credibility of the beneficiary client. The initial scope was “civil works and employment creation” projects. However, the design details and requirements remained open, leaving much room for flexibility to identify and scope specific projects. Although prerequisites for engagement were established in terms of political and security requirements, the details of the intervention and project criteria were not specified up front.
Lesson #2 Implementing under uncertainty: if you waited until you knew all the facts, you’d still be waiting.
As in the design phase, in implementation there will always be uncertainty about the future. There are significant trade-offs to weigh and the chances of success may be unclear. To have an impact, donors need to be willing to accept a higher level of uncertainty and make decisions without knowing all the facts. To mitigate the risks of uncertainty, an iterative, minimal pathway approach is recommended. Such an approach enables regular decision-making and performance re-assessment. It is important to focus on what is truly required to achieve the program objectives while accepting uncertainty about the less critical elements as well as remaining flexible to make changes as needed.
During our engagement, the initial list of program risks was high and potentially crippling. The key risk was that the impact on the beneficiary’s credibility would be damaging, the reverse of what was intended. The factors underlying this risk included potential delays in project implementation, possibility of poor quality of delivered projects, lack of linkages to relevant ministries, insufficient regional knowledge, little support to local administrations where projects were being planned, lack of transparency and accountability, a potentially flawed participatory process and poor targeting of needs with regards to project identification and prioritization. It was a long and daunting list of risks, which could easily lead to paralysis in the decision-making process.
However, the program followed an iterative, minimal pathway approach to decision-making. In addition, both government and the donor had the appropriate mindset and tolerance level towards uncertainty and risk, perhaps higher than others would have accepted. This facilitated decision-making and made things happen. They also managed uncertainty by deferring to their beneficiary counterparts for advice and local expertise on the way forward. Their ability to see past the individual risks and focus on what was needed to achieve the overall program goals, while relying on their implementing partners to successfully mitigate those they could control, was a true enabler of the program.
Lesson #3 A bilateral arrangement: with all the glory comes all the pain
A bilateral agreement between one donor and one beneficiary country may be the best way to get things done, and in certain situations, it may be the only way. Again, this is due to the existence of greater uncertainty, as described above. When more decision-makers are involved, the group naturally gravitates toward the least common denominator, which tend to be less risky solutions. Each stakeholder’s conditions must be satisfied and each viewpoint considered. Furthermore, with a bilateral agreement the headaches of donor coordination can be avoided, thus speeding up the delivery time and allowing more time to focus on program execution and results instead of program and fund administration. However, there is a downside to such an arrangement. Being the sole funder means that all the risks, financial and reputational, fall on one entity. Administratively, this typically means that one donor must be responsible for managing all aspects of the program, regardless of whether or not they possess the capabilities to do so.
In this project, without other funders in the mix, the donor retained much decision-making power. However, this power was coupled with significant responsibility and risk. The donor bore all the risks and took on all of the required administrative work. This was not an easy task for a small team not accustomed to dealing with ongoing program management tasks as well as program design issues on a regular basis. To add to this, the program administration proved particularly difficult, as there was no pre-existing structure in place to securely transfer funds to the beneficiary.
Conversely, the donor was able to design a program fully aligned with their objectives and ensure their funds were used accordingly. They were limited only by their own internal requirements and constraints. Had they been limited by other donors’ requirements, it is not clear that such a program would have succeeded, particularly because this was the first time such a program was being executed in the country. Furthermore, a bilateral agreement made the decision-making process more straightforward and thus agile. With fewer actors to consult, the donor had only to rely on itself to push the program forward, and they leveraged a small team with clear decision-making authority to do just this.
Lesson #4 Emergency funding: it’s called emergency for a reason
Donors may provide direct budget support to a beneficiary through a cost reimbursement scheme. In a fragile state, this may need to be coupled with emergency funding, often in the form of an advance, in cases where the beneficiary faces liquidity constraints. In such situations, the donor should consider the consequences to the program should their funding source be at risk. Does the beneficiary have the funds internally to cover the necessary project costs? Is the beneficiary willing or able to prioritize spending on the project? Many times, the answers to these questions are no. Thus, it is critical for the donor to keep in mind that they bear the responsibility for ensuring a reliable funding source. There may be no other options to keeping the program alive.
This responsibility could however come in conflict with a donor’s duty to mitigate financial risk through its right to delay or withhold funds as needed. It is hence critical to get the balancing act right between funding continuity and financial risk management.
With this program, the beneficiary client faced significant liquidity constraints and uncertainty regarding the timing of future financing flows. i.e. government revenues. To cope with overall liquidity constraints they defined spending priorities on a yearly basis. Spending on infrastructure projects was low on this list, coming after a number of other priorities such as paying salaries for soldiers and civil servants. Thus, the government relied on an initial advance made by the donor, and then subsequent cost reimbursements, to drive the program forward. Inevitably, there were some glitches along the way. Delays in reimbursement in turn caused delays in project implementation.
With infrastructure projects, the consequences of delays are as tangible as it gets: a local government sign next to a deserted and half-constructed administration building is the perfect symbol of a government’s lack of capability in delivery. However, this project was ultimately a success story. Although delays did slow implementation and cause uncertainty and frustration for the beneficiary and the contractors who awaited payment, this was mitigated by proper assurance regarding the availability of funds. The donor was able to manage fiduciary risk while providing assurance regarding funding availability. Project management and fund administration issues were overcome and both the donor and beneficiary teams persevered to ensure progress was made.
Looking back, the program was and continues to be a success. Projects have been delivered across the country, and more importantly, the national systems needed to execute capital projects have been kick-started. A foundation is now built that is capable of expanding. With the right kind of nudging along the way, this may turn out to have been the starting point.
Stina Haerum is a Senior Associate with Abyrint.