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Public Governance

Public governance refers to the formal and informal arrangements that  determine how public decisions are made and how public actions are carried out, from the perspective of maintaining a country’s constitutional values when
facing changing problems and environments. The principal elements of good governance refer to accountability, transparency, efficiency, effectiveness, responsiveness and rule of law. There are clear links between good public governance, investment and development. The greatest current challenge is to adapt public governance to social change in the global economy. Thus the evolving role of the State needs a flexible approach in the design and
implementation of public governance. Public governance is important for investors and their businesses. It helps build trust and provides rules and stability needed for planning investment in the medium and long term. It facilitates a smooth and productive interaction between the State and the general public, no longer based on rigid traditional“ control and command” approaches, but on flexibility, guidance, communication and persuasion. Public governance is currently more participative and transparent. Regulatory clarity and certainty are valued by businesses and citizens. Innovative mechanisms to monitor and evaluate public management are commonly used to improve transparency and build credibility, important determinants of investment. This chapter addresses two key dimensions of the public governance agenda relevant to investment and maxi missing its benefits: i) regulatory governance and the rule of law; and ii) public sector integrity, including the contribution of international co operation. These topics are linked to others in the PFI. This chapter offers a more focused perspective on the core elements in the backdrop of performing public governance. From an OECD policy-experience perspective, the main goal is to support the assessment and analysis of policy making systems, capacities for fair compliance and their interaction with investors and economic agents. The challenge is to adapt these elements to some given policy
specificities, resources availability and investment needs.
The 9 key PFI questions on Public Governance relate to:
Regulatory governance and the rule of law:
1.Regulatory reform framework
2.Coordination across government
3.Regulatory impact analysis (RIA)
4. Public consultation
5.Simplifying the administrative burden

Regulatory reform framework
1. Has the government established and implemented a coherent and comprehensive regulatory reform framework, consistent with its broader development and investment strategy?
Rationale for the question
Regulatory policy is about the process by which regulations are drafted, updated, implemented and enforced. Regulations which encourage market dynamism, innovation and competitiveness improve economic performance.
The aim of regulatory reform is to increase efficiency and effectiveness and to have a better balance in delivering social and economic policies over time. Regulations which are poorly designed or weakly applied can slow business
responsiveness, divert resources away from productive investments, hamper entry into markets, reduce job creation and generally discourage entrepreneurship. Nothing contributes more to investor confidence about regulation than predictability and the recognition that rules achieve their objectives. The quality of public services, which is shaped by regulation inside government as well as regulation for private sector providers, significantly influences the investment climate. From an investor’s perspective, regulatory policy should provide strong guidance and benchmarks for action by officials and set out what investors can expect from government regarding regulation.

Co-ordination across government
2. What mechanisms are in place for managing and co-ordinating regulatory reform across different levels of government to ensure consistency and a transparent application of regulations and clear standards for regulatory quality? Rationale for the question
Multi-level regulatory governance is becoming a priority in many countries. High quality regulation at a certain level of government can be compromised by poor regulatory policies and practices at other levels, adversely affecting business investment and economic performance. The most common problems that affect the relationship between the public and the private sectors are duplication, overlapping responsibility and low quality. These affect public service delivery, public perceptions, business services and activities, as well as investment and trade. Following certain principles and good practices for high quality regulation in a coherent way as well as facilitating co ordination among regulatory institutions at different levels of government can bring improvements to the regulatory system as a whole.

Regulatory impact analysis (RIA)
3. To what extent are regulatory impact assessments used to evaluate the consequences of economic regulations on the investment environment? Are the results of these assessments made public on a timely basis?

Rationale for the question

Regulatory Impact Analysis (RIA) is a policy tool widely used in OECD countries. RIA examines and measures the likely benefits, costs and effects of new or changed regulations. It provides decision-makers with valuable empirical data and a comprehensive framework to assess options and the possible economic, social and environmental consequences of their decisions. RIA is used to define problems and to ensure that government action is justified and appropriate. A poor understanding of the problems at hand, or of the side effects of government action, can undermine regulatory efforts and result in regulatory failures. Many countries rely on RIAs to avoid regulations that impose unnecessary restrictions on investment. In the absence of a requirement to assess the impacts of a proposed regulation on market openness (or indeed an explicit requirement to select a regulatory approach based on market openness considerations), RIAs offer a potentially useful tool for considering the impactsof regulation on investment decisions.

Public consultation
4. What public consultation mechanisms and procedures, including prior notification, have been established to improve regulatory quality, thereby enhancing the investment environment? Are the consultation mechanisms open to all concerned stakeholders?

Rationale for the question
Laws and regulations should be developed in an open and transparent fashion, with appropriate parliamentary control and procedures for effective and timely inputs from interested national and foreign parties. This should include potential domestic and foreign investors as well as affected business, trade unions, other civil society, wider interest groups and other levels of government. Public consultation helps to identify a problem, assess the need for government action and select the best option available. It enhances regulatory quality, and indirectly, improves the investment environment by

i) bringing into the discussion the expertise, perspectives and ideas of those directly affected;

ii) helping regulators to balance opposing interests;

iii) identifying unintended effects and practical problems;

iv) providing a quality check on the administration’s assessment of costs and benefits; and v) identifying interactions
between regulations from various parts of government.

On the one hand, consultation helps to ensure that the affected parties understand the nature of regulation, why it is needed and what is expected from them. On the other hand, it also offers the possibility to the public to affect the
regulatory process. Both elements make consultation a tool to enhance voluntary compliance and reduce reliance on enforcement and sanctions. Regulatory stability and rationality help create accessible markets for investors.

Simplifying the administrative burden
5. To what extent are the administrative burdens on investors measured and quantified? What government procedures exist to identify and to reduce unnecessary administrative burdens, including those on investors? How widely are information and communication technologies used to promote administrative simplification, quality services, transparency and accountability?

Rationale for the question
Administrative simplification is the most commonly used regulatory reform tool. It aims at reducing and streamlining government formalities and paperwork –the most visible component of which is often permits and licences. Evidence from many countries suggests that the administrative burden imposed on businesses is significant, with small- to medium-sized enterprises (SMEs) particularly affected. The informal economy often reflects administrative burdens that businesses, especially SMEs, cannot meet. The right level of regulation, including attention to compliance costs when regulations are designed (through the RIA process), can help remove incentives for informal economic activity, with benefits for government, workers, and investors. It is also important to consider the cumulative effect of all the regulations to which enterprises are subject, not just those that have been introduced recently. Increasingly, governments are making use of information and communication technologies as a means of reducing administrative burdens. Excessive red tape adds to business costs, can impede market entry and lower competitive pressures (also see the chapter on Competition Policy) and reduces the incentive to innovate. In addition, it creates uncertainty that can disrupt business planning and hinder the ability of businesses to respond quickly to new market opportunities. Ultimately, this discourages new investment by both domestic and foreign firms and weakens economic performance.

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