What are the key determinants of pro-poor decentralisation? This briefing note from the OECD’s Development Centre discusses theoretical and actual links between decentralisation and poverty and highlights lessons for donors. The implementation of a coherent decentralisation strategy, along with indicators to monitor progress, is a promising tool to improve capacities and institutional quality at the local level. However, the link between decentralisation and poverty reduction is not straightforward and outcomes are significantly influenced by country specificities and process design. Donors should improve policy coherence and coordination and be more aware of the political economy of decentralisation as a change process.
In theory, decentralisation should have a positive impact on poverty, as it is likely to: i) make the voice of the poor heard more clearly; ii) improve access to and the quality of public services; and iii) reduce vulnerability. The reality looks less promising, however. Based on a review of experiences in 19 countries, an OECD Development Centre study found that in only one third of the analysed cases did decentralisation actually lead to poverty reduction. In the majority of cases, decentralisation had no impact at all. In countries where the state cannot fulfil its basic functions and in environments of high inequality, decentralisation can increase poverty.
Key factors in achieving pro-poor decentralisation relate to the design and implementation of the decentralisation reform. They involve four policy domains:
- Political: Commitment of the elites/central government as well as the establishment of a transparent and participative process is crucial. A good information flow between local governments and the population enables citizens to participate in decision making.
- Administrative: A clear division of functions between different actors is needed, and time for capacity building at local/regional level should be allowed. The devolution of powers can generate ‘learning by doing’ processes which help local governments to build capacity through practice.
- Fiscal: A secure resource flow to local governments is crucial. Resources should come from both the central government and local taxes.
- Role of local governments: Local governments provide entry points for establishing and improving pro-poor policies, but the central state has a strong role to play, especially in environments of high inequalities based on traditional social institutions. To have pro-poor impact, decentralisation must be accompanied by complementary measures such as investments in education or promotion of land reform. Following decentralisation, it is important to monitor progress in targeting, participation, service delivery and administrative procedures.
National governments should own decentralisation reforms. To achieve pro-poor decentralisation, commitment from the national elite and the support of the population is fundamental, and sound donor support can substantially assist. Key lessons for donors include the following:
- Policies should be more coherent and action better co-ordinated. Donors have simultaneously supported decentralisation and favoured sectoral wide approaches (SWAPs) that tended to recentralise power. Furthermore, the large focus of aid policies on community-driven projects has frequently led donors to support parallel administrative structures that in some cases have undermined the authority and capacity of local governments.
- Decentralisation is a political process that will create winners and losers. Winners should be made reform champions and losers should have a forum where their complaints are dealt with. Donors should promote reforms on several levels within government – including the intermediate levels that have an administrative and political role – otherwise reforms will not produce sustainable results.
- Donors should promote decentralisation as an instrument for poverty reduction, not as an end in itself.
- Donors should encourage transfer systems with incentives for improved effectiveness as well as help in building sustainable local revenue generating powers.
