One of the important lessons of the EBRD’s first 30 years was that transition is not just about building markets and the private sector. It is also about improving the quality of both state and private sector institutions and ensuring that they work well together.
This understanding has resulted in a renewed emphasis on the EBRD’s work on governance – not least by the establishment of the Investment Climate and Governance Initiative in 2014 – and also helped shape the definition of “well governed” in the context of the Transition Concept.
How we assess progress on transition qualities
There is a variety of definitions of both governance and “good governance” in academic literature and the IFI world. Most of them, however, have two key concepts in common – the institutions and processes that these institutions employ.
The Government of Ukraine - with the support of international donors, the EBRD and the EU - is strengthening its drive to #MakeReformsHappen.
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 on statewide 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 are used for the 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 the 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 been doing for many years on legal reform, public procurement, and integrity standards and corruption control.
But 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 faced by their countries.
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 digitisation 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 in 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.
So it is no surprise that economic governance is prioritised in the EBRD 2021-2025 Strategic Capital Framework (SCF) – the overarching strategy for the Bank, approved by its Board of Governors.
The SCF highlights the need to combine policy engagement with the Bank’s investment activity in order to achieve and sustain systemic transition across its regions. Throughout the SCF period, 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 in three main sectors – Financial Institutions; Industry, Commerce and Agribusiness; and Sustainable Infrastructure.
Economic governance initiatives will also contribute both directly and indirectly to delivery vis-à-vis the SCF’s three strategic themes: Supporting Transition to a Green Economy; Promoting Equality of Opportunity; and Accelerating the Digital Transition.