“Well governed”: the EBRD’s transition concept

This understanding has resulted in a renewed emphasis on the EBRD’s work on governance – not least through the establishment of the Investment Climate and Governance Initiative in 2014 – and has helped shape the definition of “well governed” in the context of the Bank's transition concept. 

There is a variety of definitions of both governance and “good governance” in academic literature and among international financial institutions. Most of them, however, have two key concepts in common – the institutions and the processes that these institutions employ.

The EBRD’s concept of “well governed” fully reflects this: “Governance concerns authority, decision-making and accountability in all domains. At its core, governance is about the quality of institutions and the processes that they support.”

To ensure that the concept aligns with the EBRD’s mandate, two key pillars are introduced. One is the notion of national or subnational economic governance, which refers to the institutions and processes that support economic activity and economic transactions at state-wide or subnational levels.

The other is corporate-level governance, which relates to the system of rules, practices and processes by which companies are directed and controlled. While the latter has already been mainstreamed into the EBRD’s work, the former still offers considerable potential to be further developed in future project and policy work.

The concept is translated into a set of indicators that the EBRD uses for its assessment of transition qualities (ATQ), measuring the status of transition in our countries, country strategies, country diagnostics and results management.

For national and subnational governance, the key indicators centre on the quality of political and economic institutions, integrity standards and the control of corruption as well as the rule of law.

At corporate level, the focus is on the key concepts of corporate governance as well as other integrity, transparency and governance-related frameworks and practices relevant for corporates.

The combination of these two dimensions makes it possible to build on the good work the EBRD has done for many years on legal reform, public procurement, integrity standards and corruption control. It also allows us to do more to help shape the agenda for private-sector development in our countries of operation, by encouraging public-private dialogue and helping governments develop and implement relevant reforms aimed at addressing institutional and structural challenges.

To this end, a lot of effort has been invested in supporting governments to develop and implement transparent, predictable and business-friendly policies and initiatives that enable the private sector to grow and investment to thrive.

We have also supported the establishment and operation of institutions – ranging from investment councils and business ombudsmen to investment promotion agencies and chambers of commerce.

More recently, we have helped governments to develop and implement digitalisation strategies to provide fast and safe access to e-public services for businesses and individuals, thereby enhancing the ease and transparency of doing business, reducing operating costs and building resilience in the economy.

Recognising that poor governance can contribute to countries being “stuck in transition” is essential to finding ways to assess challenges and incentivise a combination of projects and policy dialogue that can help countries back onto the path of success. Good governance – whether political, economic or corporate – is central to the successful transition process towards sustainable, well-governed market economies.

The EBRD's Strategic and Capital Framework highlights the need to combine policy engagement with the Bank’s investment activity in order to achieve and sustain systemic transition across its regions. Efforts to strengthen economic governance and improve the investment climate in countries where the EBRD works will therefore go hand in hand with the Bank’s investments.