Report No: ACS3695



Federal Democratic Republic of Ethiopia
Ethiopia Public Sector Reform Approach
Building the Developmental State – A Review and Assessment of the
Ethiopian Approach to Public Sector Reform


April 26, 2013




AFTP2
AFRICA




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         CURRENCY EQUIVALENTS
        (Exchange Rate Effective May, 2012)

                Currency Unit = Birr

                 US$1 = EBr.17.63




                   Fiscal Year
               July 7 – September 7



 LIST OF ABBREVIATIONS AND ACRONYMS
APRM         African Peer Review Mechanism

BCB          Bureau of Capacity Building

BDA          Budget Disbursement and Accounts

BIS          Budget Information system

BOFED        Bureau of Capacity Building

BPR          Business Process Reengineering

BSC          Balanced Score Card

CAS          Country Assistance Strategy

CBG          Capacity Building Grants

CBDSD        Capacity Building for Decentralized Service Delivery

CSO          Civil Society Organization

CSRP         Civil Service Reform (Sub) Program

DIP          Democratic Institution Program

DLDP         District Level Decentralization (Sub) Program

DP           Development Partners
EMCP    Expenditure Management and Control (Sub) Program

EPRDF   Ethiopian People Democratic Front

ERCA    Ethiopian Revenue and Customs Authority

ESW     Economic Sector Work

FEACC   Federal Ethics and Anti-corruption Commission

FTAP    Financial Transparency and Accountability project

FY      Fiscal Year

GGP     Good Governance Package

GTP     Growth and Transformation Plan

GoE     Government of Ethiopia

HR      Human Resources

IBEX    Integrated Financial Management and Information System

ICT     Information and Communication Technology (Sub Program)

IDA     International Development Agency

IFMIS   Integrated Budget and Expenditure management system

JBAR    Joint Budget and Aid Review

JRIS    Joint Review and Implementation Support

JSRP    Justice System Reform (Sub) Program

LIG     Local Investment Grant

M&E     Monitoring and Evaluation

MCB     Ministry of Capacity Building

MoCS    Ministry of Civil Service

MDG     Millennium Development Goals

MSEs    Micro and Small Scale Enterprise

NCBP    National Capacity Building Program

PBS     Protection of Basic Services

PRSC    Poverty Reduction Support Credits

PS      Professional Science

PSCAP   Public Sector Capacity Building Program
    PSR           Public Sector Reform

    SDPRP         Sustainable Development and Poverty Reduction Program

    SIGTAS        Standard Integrated Government Tax Administration System

    SWAP          Sector Wide Approach

    TSRP          Tax Systems Reform (Sub) Program

    ULGDP         Urban Local Government Development Program

    UMCBP         Urban Management Capacity Building (Sub) Program

    UN            United Nations

    UNDP          United Nations Development Program

    WCBS          Woreda and City Benchmarking Survey




Country Director: Guang Zhe Chen

Sector Manager:    Anand Rajaram

Cluster Leader:    George Addo Larbi

Team Leader:       Berhanu Legesse

Team Members:      Elsa Araya, Rupert Bladon
CONTENTS



ACKNOWLEDGEMENTS .......................................................................................................... 2
Executive summary ................................................................................................................ i
1.    introduction ................................................................................................................... 1
      1.1 Country context ..................................................................................................................1
      1.2 Objective of the study and methodology .............................................................................5
2.    Features of Ethiopia’s public sector reform approach ...................................................... 6
      2.1 Governance, public sector reform and forces of change........................................................6
      2.2 PSR as policy Initiative .........................................................................................................7
      2.3 Learning-by-doing orientation .............................................................................................7
      2.4 Decentralization and PSR architecture .................................................................................8
3.    Major achievements of public sector reform ................................................................. 12
      3.1 Decentralization ................................................................................................................ 12
      3.2 Service delivery ................................................................................................................. 14
      3.3 Good governance, accountability and transparency ........................................................... 18
4.    Analysis of Ethiopia’s approach to public sector reform ................................................. 21
      4.1 Indicators .......................................................................................................................... 21
      4.2 Effectiveness of the intervention: governance indicators .................................................... 21
      4.3 Effectiveness in reform content areas ................................................................................ 25
      4.3.1     Decentralization/fiscal federalism ......................................................................................................... 25
      4.3.1.1     Features of Decentralization ............................................................................................................... 25
      4.3.1.2     Analysis of the effect and outcomes of decentralization ................................................................... 32
      4.3.2     Budget implementation and expenditure management ....................................................................... 35
      4.3.3     Revenue generation ............................................................................................................................... 38
      4.3.4     Human resource management, wages and incentives .......................................................................... 39
      4.3.5     Restructuring and improving service delivery ....................................................................................... 43
      4.3.6     Accountability and transparency ........................................................................................................... 43
      4.3.7     Local planning, participation and social accountability ......................................................................... 44
      4.4 Efficiency of delivery of interventions ................................................................................ 45
      4.4.1     Efficiency of operational modality/management .................................................................................. 45
      4.4.2     Quality of tracking, M&E and communication strategy ......................................................................... 46
      4.5 Relevance/appropriateness of the PSR approach ............................................................... 47
      4.5.1     The reform program design, contents and instruments ........................................................................ 47
      4.5.2    Program design issues ........................................................................................................................... 51

      4.6 Country ownership/ commitment, institutional setting, leadership and sustainability......... 55
      4.6.1    Ownership and political commitment ................................................................................................... 55
      4.6.2    Appropriateness to institutional setting ................................................................................................ 57

5.    Major findings and lessons of Ethiopian approach to PSR .............................................. 59
      5.1 major findings of the Ethiopia’s PSR ................................................................................... 59
      5.2 Lessons Learned from Ethiopia’s PSR ................................................................................. 62
6.    Making it better: the second generation PSR in Ethiopia ............................................... 64
ANNEX 1: PSCAP’s result matrix as at December 2011 .......................................................... 70
ANNEX 2: Division of major powers and functions in Ethiopia’s federal system .................... 84
References .......................................................................................................................... 87
TABLES
Table 1: WCBS results for selected metrics in 2005 and 2011 ............................................................. 14

Table 2: Sample public service processing steps and times (before BPR, design after BPR and actual
        implementation after BPR) ...................................................................................................... 16

Table 3: Ethiopia’s estimated scores on governance indicators (estimates range from
      approximately -2.5 (weak) to 2.5 (strong governance performance) ..................................... 22

Table 4 Governance effectiveness indicator percentile ranking for Ethiopia in comparison to other
        selected sub-Saharan African countries .................................................................................. 23

Table 5: Vertical fiscal imbalance: Own revenue to government expenditure (%) .............................. 30

Table 6: Percentage share of fiscal transfers to localities in two regional governments ..................... 31

Table 7 : Service coverage before and after decentralization .............................................................. 34

Table 8: Budget utilization rate (%) ...................................................................................................... 35

Table 9: Percentage of government domestic revenue to GDP and to recurrent expenditure--------38

Table 10: Civil servant statistics by level of government, 2010 ............................................................ 40

Table 11: Comparison between Ethiopian civil service pay and other institutions .............................. 40

Table 12: Civil service employment growth rate in the public sector in federal and regional
      governments.............................................................................................................................. 42

Table 13: International experiences with different PSR designs .......................................................... 51



FIGURES

Figure 1: The role of PRCS, PSCAP, and LIG in the 2003-2005 CAS ....................................................... 10

Figure 2: Ethiopia’s governance effectiveness compared to five other countries (1996-2010) .......... 24

Figure 3: Ethiopia’s regulatory quality compared to the average of five other countries ................... 25

Figure 4: Indices of real salaries for six job classifications in the Ethiopian civil service, 2004 – 2011
         (2004 = 100) ........................................................................................................................... 41
ACKNOWLEDGEMENTS

This Economic Sector Work (ESW) report was prepared by the World Bank team consisting of
Berhanu Legesse WB, AFTP2 (TTL and principal author); Elsa Araya WB, AFTP2 (wrote chapter two
and provided overall input,); Rupert Bladon WB, AFTP2 (contributed to part of chapter four); Local
consultants (collected basic information); Robert W. Reinecke (consultant, supporting in editorial
work) and Siele Shiferaw WB (provided administrative support).

We benefited from the valuable inputs of the peer reviewers and cluster leader, George Addo Larbi
(Cluster Leader, AFTP2); Navin Girishankar (Lead Evaluation Officer, IEG); Serdar Yilmaz (Senior
Economist, AFTPR); Jonas Frank (Senior Public Sector Specialist, PREM); Michele Boario (Deputy
Director and Senior Economic Advisor, Italian Development Corporation, Ethiopian Country Office);
and Sanjeev S. Ahluwalia (Senior Public Sector Specialist, AFTPR). We also appreciate the comments
we get from Lars Christian (cluster leader, AFTP2).

Finally, we would like to acknowledge the overall guidance and leadership of Guang Zhe Chen
(Country Director, Ethiopia) and Anand Rajaram (Sector Manager of AFTPR).

We would like to thank government counterparts: Ministry of Civil Service (MoCS); all heads of
Regional Civil Service Bureaux and Directors and heads of other institutions involved in public sector
reform implementation at Federal and regional for their support in providing the necessary
information during the preparation of the report.
EXECUTIVE SUMMARY
Key messages:

Ethiopia’s indicator for government effectiveness has shown trends of improvement in the last seven years as a result of
Public Sector Reform (PSR) efforts. However, in the future, this and other critical aspects of governance and democratization
indicators should be enhanced through PSR, for realizing sustained economic and social development and transformation.

The government of Ethiopia has implemented a homegrown Public Sector Reform initiative (PSR) .The approach and an
instrument of the PSR is characterized as “big push� (comprehensive and integrated). The approach, although more supply
driven, has been relevant in meeting the Country’s Developmental State transformation agenda of the first generation as it
enabled to fulfill the critical mass questions of institutional and governance changes. For example, creating timely relevant
and interrelated reform areas, critical mass of individual and organizational skills, and enabling legal and policy
environment that will help to initiate and sustain the agenda of development and good governance. A refined, more
integrated, coordinated, and harmonized orientation of implementation across reform is vital for addressing the needs of
the second generation and hence translating into action the good governance and public sector capacity building strategic
pillar of the GTP.

The design of Ethiopian PSR has been politically motivated but the successes result from a combination of its approach and
content. The approach has been effective and efficient in providing homegrown solutions, as the political ownership and
commitment was high. However, setting up and agreeing on a common comprehensive framework on complementarities
among different PSR programs/projects implemented by various stakeholders is important as it supports in strengthening
linkages and harmonizing process.

In the large-scale PSR, the learning-by-doing what works best locally has helped to implement reform activities in a number
of institutions, regions, and localities. Together with this, it is important to scale up the relatively independent large-scale
M&E tools, such as the benchmarking survey (WCBS) and tracking mechanisms like SAFE, FTAPS, carrying out M&E through
JARIS and JBAR in the PBS, independent annual performance evaluation of ULGDP.

The second generation PSR needs to focus on strengthening decentralization and decision-making power. It can do this by
enhancing environments for decentralized sub-national level anchored solutions and narrowing capacity differences,
placing effective top-down performance disciplines and bottom-up accountability mechanisms, as well as aligning the
reform areas to the value chain of sector developments, employment opportunities and competitiveness. Aligning the
reform areas envisages giving attention to more linked reform projects/activities in key domestic sectors that support
competitiveness and employment. This places emphasis on downstream sectors (that focus on direct service delivery)
parallel to upstream public sector (that focus on institutional change) in the way that influences chains of outputs,
outcomes and overall goals. This is in addition to linking reforms and solving bottlenecks in value chains in service delivery.
It also means linking reforms to the result framework of building and strengthening the country systems across disciplines
rather than dealing on stand-alone, ring-fenced investment projects. Moreover, as the reform areas are not yet regular
functions in the public sector, allocation of sufficient resources for the continuity of the PSR is mandatory.

Ethiopia’s system of decentralization process has been credible in devolving powe r, improving governance and service
delivery, as well as narrowing the per capita differences among Regional governments and districts. The second phase of
decentralization was “Big Bang� and brought some gaps on addressing administrative and fiscal decentralization issues
associated with a) detailed clarity of expenditure and revenue assignments, b) shortage of skilled manpower and lack of
incentive in remote areas and inadequate budget for recruitment, c) building local government specific purpose fiscal
transfer, d) local government mandate on PSR/capacity building, e) transfers, and f) decentralizing more decision making
power to regional states on deciding financial resource for PSR/capacity building implementation.

In an effort to link the incentive and pay mechanisms to performance in the civil service, the MoCS has prepared a draft
incentive guideline and is waiting for its approval by the Council of Ministers; it is an important step to the way forward. In
the future, the guideline has to reflect a systematic and comprehensive incentive/pay reform and performance mechanism
and rolled out as it is a prerequisite to the PSR.




                                                               i
  Background and context
1.    Ethiopia emerged in the early 1990s from two decades of civil wars, famine, ethnic conflicts,
and military dictatorship. As a result, the country was at the lowest level of development by all
standards and the state itself was a weak construct. The country faced drought, poverty,
unemployment, very poor human development indicators, a political ideology that was hostile to
markets and private enterprise, a deteriorating economy, and a government without adequate
financial resources to provide essential public services. In 1991, the Ethiopian People’s Revolutionary
Democratic Front (EPRDF) overthrew the Mengistu military regime and took over the reins of
government. The new government inherited a weak public administration and poorly functioning state
agencies. One of the first priorities of the new government was to restore the capacity of the state and
shape its structure and functions to ensure political stability and promote economic growth.

 2.    The new government of Ethiopia embarked upon a long term strategy of state transformation
that ultimately found expression in the political leadership’s vision of a “Developmental State�
(Meles Zenawi, the Prime Minister of Ethiopia, extracted from Master’s dissertation)1. In contrast to
what was termed “the neo-liberal preference for a non-interventionist state,� Ethiopia’s political
leaders argued the case for the state to actively lead the development process (A. de Waal, Review
Article “The Theory and Practice of Meles Zenawi�, African Affairs, 2012). In line with this view, public
sector reform and institutional capacity building were seen to be critical to the success of Ethiopia’s
long- term development objective of poverty reduction and democratization. In the last two decades,
Ethiopia has pursued multiple structural and institutional reforms to build a developmental state. The
scope and ambition of these reforms offers an important and unique case study of an attempt to
modernize the state and adopt modern practices of public sector management and is all the more
unusual given the context of what was initially a fragile state in Africa.

3.     State transformation in the first decade focused on the political essentials, including
constitutional reforms that defined the state as a federation. Initial efforts to restructure the state
focused on politically salient prerogatives: decentralization, which was essential to hold the political
coalition together, and on restoring the capacity of the civil service to implement policy. The process of
decentralization unfolded in two distinct phases: the public sector management reform started with
the Civil Service Reform Program (CSRP) in 1996, parallel to the first phase of decentralization to the
regional governments.

4.     The “Big Push� approach used for Public Sector Reform (PSR) evolved from the strategy and
program of comprehensive National Capacity Building Program (NCBP). In 2001, the government
initiated a comprehensive NCBP, consisting of fourteen specific programs (clustered around public,
private and civil society sectors) coordinated by a “super ministry� for capacity building. The second
phase of decentralization was followed by a multiplicity of reform programs to improve the capacities
and functioning of the public sector. Following the NCBP, a broad list of governance and public sector
reforms were initiated and these programs covered: civil service and performance improvement
(including business process reengineering and balanced score card); public financial management;
inter-governmental finance; revenue mobilization; justice and court system; urban management
decentralized service delivery and building capacity; strengthening democratic institutions; rural and


  1
   The extracts of draft dissertation by the late Prime Minister, Meles Zenawi, entitled ‘’African Development:
  Dead Ends And New Beginnings’’ (in Erasmus University, Rotterdam) was constructed in 19 chapters dealing
  about the methods of achieving the political and economic renaissance of Africa and the introductory chapters
  and summaries on theoretical arguments provide the characteristics of developmental state in Africa, a model
  being practiced in Ethiopia.

                                                       ii
pastoral management; information communication; other broad initiatives to improve transparency
and accountability; as well as governance capacity across many levels of government. 2

5.     The objective of this ESW report is to conduct a review and assessment of the Ethiopian
approach to PSR in building the ‘Developmental State ’. The report assesses the approach relative to
other reform experiences, and provides advice and guidance to the government and Executive
institutions on the future generation of the PSR. It is increasingly recognized that the PSR played a
crucial role in state transformation. However, beyond this broad fact, specific questions arise: What is
the approach of Ethiopia’s public sector reform- or the specific characteristics/orientations of the “Big
Push� approach- that contributed to the goals of state transformation? What works well and what
doesn’t in Ethiopia’s reform approach, compared with other countries? What are the lessons of
experience that could be drawn? This report attempts to draw some conclusions from the approach,
experience, and evidence of Ethiopia to inform future reforms in both Ethiopia and other reform
programs elsewhere.

6.     The federal system of government in Ethiopia gives substantial political, administrative and
fiscal powers and autonomy to sub-national governments. Ethiopia became a federal state in
1994.The constitution of Ethiopia is the foundation of the ongoing efforts in building a democratic
good governance system. During the past decade, Ethiopia has made significant progress on political,
administrative, and fiscal decentralization to sub-national government level. Decentralization
(devolution), first to the regional level in the 1990s, and then from 2001 onwards to the district
(woreda), is the centerpiece of Ethiopia’s strategy to deepen decentralization and good governance,
increase local participation and democratic decision-making, and improve service delivery.

7.     Ethiopia has made progress on various fronts since 2002. The economy grew at an average
annual rate of 10.6 percent from 2003/04 to 2010/11 (11.4 percent according to government figures)
(WB, Ethiopian Economic Update, 2012). This makes Ethiopia one of the fastest growing economies in
Africa. Following the pro-poor spending strategy of implementation, good results have been recorded
in meeting the goals of MDGs in the provision of education and health, and in expansion of road
infrastructure. In relative terms, fiscal discipline has improved and federal revenue collection has also
increased following the reform. Currently, the real per capita growth has risen marginally per annum;
income disparity is not high. Despite these economic improvements, GDP per capita is still amongst
the lowest in the world, and poverty (urban and rural) remains a problem; further structural
transformation is needed and the challenge of high inflation needs to be brought fully under control,
which is a big challenge. The rise of inflation has become one of the contravening factors that could
potentially undermine economic progress.

8.    Ethiopia is an emerging democracy and has adopted a developmental approach to reforms,
driven by the top-down vision of a “developmental state�. The developmental state model in
Ethiopia specifically takes into account measures to enhance the role of the state in economic and
structural transformation, mobilization of domestic resources, controlling the environment of
unproductive and threatening rent seeking and corruption, and ensuring equitable development.

  2
   The PSR support projects and programs include the Public Sector Capacity Building Program (PSCAP, FY 2004-
  FY 2012), Protection of Basic Services (PBS, FY 2006-FY 2012) Capacity Building for Decentralized Service
  Delivery (CBDSD, 2002-2008) Democratic Institution Program (DIP) in five institutions namely Institute of
  Ombudsman, Ethiopian Human Rights Commission, Anti-corruption and Ethics Commission, House of Peoples
  Representatives, and House of Federation, Urban Local government Development program (ULGDP, starting FY
  2009), municipal services and infrastructure.



                                                      iii
 9.    The approach to creating the developmental state and resolve the challenges of public sector
 performance involves holistic and multiple reform interventions not confined to direct public sector
 restructuring and management. Like many developing countries, the challenges of public sector
 governance or public sector management in Ethiopia range from broader institutional and structural
 deficiencies to specific issues such as ineffectiveness, inefficiency, lack of capacity, corruption, rent
 seeking, paternalism etc. Although overall implementation modalities for tackling the changes of
 public sector management are referred from the broad framework and theories of the New Public
 Management, the specific approaches and contents deployed to enhance the institutional quality or
 make the public sector more effective vary from country to country.

10.    In Ethiopia, PSR is interpreted or recognized as the broad initiatives of public sector capacity
 building, service delivery and accountability for governance issues in their interrelationships. Despite
 the different terminologies used interchangeably, such as public sector reform, public sector
 management, public administration, and public sector capacity-building, the PSR has a broader
 perspective in content and is aimed at addressing deep institutional constraints on basic functions
 such as policymaking, service delivery, and regulation.

   Features and lessons of the “Big Push� approach’ in Ethiopian PSR
11.    The Ethiopian public sector reform in general, and in particular the design of specific reform
 areas, followed specific orientations that provided important lessons of experience as the first
 generation initiative for state transformation in the last eight years (2005-2012).

12.     The design and implementation of PSR is supported by a high degree of government
 ownership of policies and programs as well as political commitment, including enabling policy and
 legal environment. The PSR design was politically motivated but also supported with suitable
 techniques. In other words, political and technical reforms were not separately treated to avoid
 failures. One of the lessons is that political commitment of the government, leaders, and the balance
 given to political and technical considerations are the determinant factors for the success of PSR. In
 the Ethiopian case, PSR is home- grown and owned by the government but assisted with international
 donor partner institutions. This is in contrast to what happens in other developing and transitional
 countries, where reforms tend to be driven by donor advocacy and lending conditions.

13.    Contrary to the established wisdom of pilot based and incremental reform approach, Ethiopia
 approach was against orthodox thinking by adopting a comprehensive, integrated and centrally
 coordinated approach to the design and implementation of a PSR program. Ethiopia successfully
 followed a holistic approach, developed from a combination of an integrated approach and multiple
 reform areas. It adopted a holistic approach to reforms, integrating human resources, and
 organizational and system reforms, along with cross-sector issues, to improve service delivery and
 governance.

14.    The reforms in Ethiopia were driven by a legitimate and capable lead Ministry and
 accompanied by counterpart regional institutions. The existence of powerful focal institutions
 (Ministry in charge of Capacity Building) and matrix institutional arrangement both at federal and
 regional levels has been a relevant factor for the success of the public sector reform and capacity
 building efforts. It helped to draw visionary ideas, drive the change, and maintain consistency of
 implementation nationally. The coordination has enabled the government to embrace the
 transformation agenda and the vision of the country. The focal institution has roles in coordinating
 lead cabinet ministries and regions and overseeing the overall implementation of PSCAP; it ensures
 rule based allocation and reallocation, facilitates budgetary approvals and executions for the

                                                     iv
 beneficiary institutions, approves PSCAP plans for the federal and the regional components, approves
 midyear and annual allocation and reallocation of PSCAP ‘rights’, executes its own plans, and conducts
 periodical evaluations. The arrangement has helped to drive changes and ensure Institutional
 sustainability by strengthening implementation capabilities, installing overseeing mechanisms, and
 providing flexible arrangements of financing. It has also helped by reducing administrative and
 operational costs for scale economies and harmonizing donors, and drawing funds through pool
 arrangement. Especially it was important in gauging, scaling up, mentoring, and keeping the
 consistency of the overall implementation.

15.     Apart from drawing valuable practices from abroad, locally generated learning-by-doing
 exercises have been relevant to sustain reform interventions. Learning-by-doing what works best
 locally has helped to scale up reform activities in institutions, regions, and localities. To this end, the
 initiatives worth mentioning are: developing prototypes for regions; creating capacities in training and
 management institutions (sometimes termed as ‘creating capacity for capacity building’); developing
 minimum mandatory capacity-building implementation activities; formulating performance based
 reallocation mechanisms based on implementation level and competitions; and introducing simplified
 templates for transparency at local level.

16.    The PSR has sub-national orientation, ownership, and gives priority to sub-national
 governments supported with a politically driven decentralization process. By and large, this enabled
 the sub-national governments to adapt national policies, determine their own priorities, and sequence
 implementation (despite some gaps of empowerment to PSR policy decisions). Aligning PSR with
 decentralization efforts helped to reach the grassroots. The alignment helped to strengthen powers
 and responsibilities of regional states, woreda, and city administrations, and this in turn enhanced
 accountability and service delivery.

17.    Harmonization and alignment of the PSR, as in SWAP pooled-fund arrangement, brought cost
 saving benefits. The PSR implementation was harmonized and aligned with the fiscal, fiduciary, and
 reporting requirements of various donors, and also aligned closely with Ethiopia’s public financial
 management, intergovernmental transfers, and planning system.

18.    The PSR homegrown initiative was backed up by a large scale monitoring and evaluation
 system in the form of annual or two years Woreda and City Benchmarking Survey (WCBS) as well as
 bi-annual joint supervision mission that builds an element of accountability and responsiveness. The
 survey integrates structured feedback from both the supply and demand side to enable sustainable
 monitoring of impacts of development programs on institutional capacity and service delivery
 performances across local governments, and to identify gaps in the implementation of the reforms.

19.    The provision for “the minimum mandatory capacity “has been valuable in meeting the
 sequence of activities, utilizing financial resources effectively and enhancing performances. The
 enforcement of sequencing arrangement through provision of a fund for completion of “the minimum
 mandatory� capacity building (defined across subprograms) allowed sub-national units to rapidly build
 up the basic capacities needed to effectively manage and implement reform activities. This is one of
 the lessons from implementation of PSCAP that would be relevant to other African countries, where
 there will be variations in the capacity to implement reforms.

20.    The introduction of financial transparency and accountability templates created awareness at
 the local level despite the need for continuous improvement. These mechanisms include the design
 of budget, expenditure, and service delivery templates that can be used to display and post budgets
 and service delivery standards for the public. The templates are designed for those who are not
 experts in such matters, and are easy to understand and apply. More than 90 percent of the woredas
                                                       v
 post their budget and, in a number of cases, post and report expenditure for the public. This creates
 the potential for citizen awareness and feedback, both administratively and through the political
 process.

21.     The creation of an environment for competition, reward and learning local practices were
 important for performance improvement, mobilization and enhancing growth. For instance, under
 ULGDP, local governments compete with one another for better performance based on standard
 criteria contained in an independent annual assessment. In a similar way, criteria have been
 established in rural areas for creating or identifying model farmers, as well as model villages, to
 motivate and reward good performance at local (woreda and village) level.

   Findings
   Government effectiveness

22.    The programs and projects supporting Public Sector Reform have contributed to improving
 governance effectiveness and hence to the agenda of state transformation in Ethiopia. Over the last
 two decades, Ethiopia has been implementing major reform programs to empower citizens and
 enhance public sector efficiency, effectiveness, transparency, and accountability. As a result of the
 development of the reforms, public sector governance has measurably improved. As the World Wide
 Governance Indicator (2011) measurements depicts, from 1996 to 2010, Ethiopia’s government
 effectiveness has shown trends of improvement in the last seven years, from -1.28 in 1996 to -0.35 in
 2010 (generally scores of governance effectiveness range from approximately -2.5 for weak
 performance to 2.5 for strong performance). There is a strong positive trend, which shows Ethiopia
 progressing faster than the other countries, consistent with the within-country time series evidence of
 percentile ranking government effectiveness. The results are also confirmed by the Mo Ibrahim’s Index
 of African Governance (Mo Ibrahim 2012). According to the Index, the overall governance score for
 Ethiopia was 46 percent in 2006, and reached to 47 percent in 2012. The score was close to the
 continental average score of 51 percent but very far below the highest score of 83 percent, and
 showed marginal increase.

23.     According to the international comparative studies/surveys, Ethiopia is a laggard in one
 aspect of government performance – namely, regulatory quality. Ethiopia’s performance is
 considerably lower than other countries in the region, although the trends are positive. Other
 indicators, namely control of corruption, voice and accountability, political stability/absence of
 violence, and the rule of law are stagnant or deteriorating. The results are also confirmed by the Mo
 Ibrahim Index of African Governance (Mo Ibrahim 2012). The ability of the government to formulate
 and implement sound policies and the low quality of regulatory institutions and governance affect the
 adequate provision of public service, weaken incentives for good performance, and undermine the
 delivery of results.

24.     On the other hand, some in-country based studies reflect positive developments on the
 ground although the data or values of indicators in the different local studies have not been
 assembled to provide generic measurements and make comparisons with other countries.
 Accordingly, the government has credence in reducing corruption by establishing an anti-corruption
 watchdog; persecution and sentencing of very many high-profile corruption cases; and initiating the
 registration of the incomes and property of high-level politicians and senior public servants.
 Improvements have been made on the voice and accountability indicator, as democratic process are in
 place for citizen participation; existence of transparent, predictable and credible government
 economic policies; and proclamations and regulations for effective and transparent management.
 There is political stability in the country and the government has reduced violence by participating

                                                    vi
 people in the democratization process, securing conflict resolution and increasing security. The
 prevalence of the rule of law is substantially better than what it was during the years preceding the
 present government. According to African Peer Review Mechanism (APRM, 2009), the practice
 matches what are in the law despite incidents over some years. Some of the reference studies/surveys
 are the Corruption Perception Survey of the Federal Ethics & Anti-Corruption Commission (FEACC),
 study on independence, transparency & accountability in Ethiopian judiciary, the PSCAP reform sub -
 programs result indicators etc. In general, the Ethiopian first generation PSR (2005-2012) has made
 significant strides in state transformation, ensuring good governance, improving efficiency of service
 delivery, poverty reduction, and sustained economic growth. However there are still challenges,
 unmet needs, and new areas of interventions that remain to be considered to produce visible effects
 on the overall institutional and governance results.


   Political and administrative decentralization
25.     Ethiopia’s system of decentralization touches all dimensions -political, administrative and
 fiscal decentralization. Political efficiency of decentralization is demonstrated in many respects but
 party discipline and top-down management could substitute upward accountability for the desired
 downward accountability, in terms of political and administrative decentralization. Under the two
 regimes prior to the EPRDF, decentralization was seen more as a threat than as an opportunity. The
 first and second phase of decentralization under the EPRDF provided substantial power, and helped to
 decentralize power to woreda administrations and in bring local governments closer to the population.
 Sub-national governments are able to strategically plan and implement social and economic
 development activities, carry out a number of small-scale social and economic infrastructure projects
 within a short period, and are able to provide basic services. The party structure in the Ethiopian case
 has allowed implementing fiscal, administrative, and political decentralization simultaneously, as there
 are no differences of interests between the national and sub-national based parties (in the inter- party
 dynamics) regarding enhancing or delaying the implementation of specific dimensions of
 decentralization.

26.     With respect to administrative decentralization, the allocative efficiency of local level
 decentralization is achieved partly by setting- up local government institutional structures for basic
 service delivery. Local governments are able to manage the administrative functions of the five basic
 service delivery functions in at least 21 sector offices per woreda, compared to the very limited
 structures and functions prior to decentralization. While administrative authority has been devolved to
 local levels (de jure and de facto), serious constraints on capacity and legislative frameworks (in some
 regional states) hinder the achievement of full-fledged decentralization. The main constraints on
 administrative decentralization are associated with the lack of detailed clarity of expenditure and
 revenue assignments at local governments, shortages of skilled manpower, inadequate budgets for
 recruitment by local governments, and a lack of incentive for critical professional staff (especially in
 remote areas).

27.    The production efficiency of decentralization (delivery of services and satisfactions by citizens)
 has also been largely attained. Decentralization has contributed to significant improvement in
 accessing services such as education and health services and (moderate) improvement of water
 services. The comparison of service delivery coverage before and after decentralization has been
 encouraging. Compared to the level of the services when the local devolution just started in 2002, net
 primary school enrollment has increased from 52.2 percent (before decentralization) to 85.3 percent
 after a decade; safe drinking water coverage within a 1.5 km radius increased from 28.4 percent to
 73.3 percent over the same period; and the defective water supplies decreased from 30 percent in
 2005 (during the start of the PSR) to 20 percent in 2011. Under Five Mortality Rate was reduced to
 88/1000 population in 2011, from 167/1000 population in 2002.The number of Health Extension
                                                    vii
 Workers (HEW), which was 2,737 in 2003, increased to 24,571 in 2008 (PBS PAD II, 2009) thereby
 increasing the ratio of health workers per population. The average distance to reach an all-weather
 road decreased to 3.5 hours in 2011 (from 7 hours in 2002). Road density increased from 22km/1000
 km2 in 1996 to 40.3 km/1000 km2 by the end of 2008. The proportion of roads in good condition
 increased from 18 percent in 1995 to 73 percent by the end of 2008. The number of Agricultural
 Development Agents, which was 9,434 in 2003, increased to 49,435 in 2007, and reached 55,500 in
 2011.

   Fiscal decentralization
28.     In order to fill the gaps of the vertical fiscal imbalances (defined by the difference between the
 expenditure requirement and revenue raising capacity of level of governments as per the expenditure
 and revenue assignment), the general-purpose grant transfer from federal to regional states and from
 regional state to woreda have continuously increased. The transfer from the federal government to
 regions between 2005 and 2012 has increased by an annual average of 9.2 percent in real terms. The
 transfer pool to regional states has been 9.9 billion Birr in 2006/7 and increased to 30.6 billion Birr in
 2011/12 .The transfer has narrowed the fiscal imbalances over time. Similarly, the Federal- Regional
 government level general purpose transfer formulas that have been deployed have narrowed the per
 capita allocation among regions and districts respectively, especially favoring the emerging regional
 governments. However, there are still three concerns for improvement. These are issues related to a)
 local government specific purpose fiscal transfer issue, b) local government mandate on PSR/capacity
 building transfers, and c) decentralizing more decision making power to regional states on deciding
 financial resource for PSR/capacity building implementation.

29.    Specific purpose grant system is not well built-up in the fiscal federalism landscaped. Although
 resources flowing through the block grant system are increasing, on average 80 percent of these
 resources are used to fund salary costs, while resources for capital expenditures are limited. The
 affordability and sustainability of financing local governments has to be carefully analyzed.

30.    Local governments lack their own finance for PSR/capacity building. Given the existing revenue
 assignment structures and low level of local revenue, there has not been a sustainable and reliable
 means of financing other than providing adequate specific purpose grants for development or
 PSR/capacity building.

31.     Proportionately more financial support and decentralized power of decisions making is
 needed on the use of PSR/capacity building resources by regional states. Despite the need for further
 improvement on decision-making, the decentralized regional states have been the major target
 beneficiaries of the PSR. They have now accumulated experiences to initiate, adapt, and implement
 reforms in line with the principle of devolution of power, and there is an opportunity to strengthen the
 regional governments and incentivize their performances to carry out reforms. The experience of
 Ethiopia shows that the success of PSR depends on the extent of devolution of power (or ensuring
 local autonomy) at regional and local levels, and on empowering citizens at the grassroots level. The
 PSR gave priority to capacitating regional institutions and to promoting reforms in woredas and urban
 local governments.

   Budget implementation and expenditure management
32.    The objectives of budget implementation and expenditure management have been partially
 achieved and brought better results in the areas that operate well with the related capacity building
 mechanisms more or less in place. The expenditure management achieved better results in areas
 where there was a strong, receptive, and sustained demand and capacity for support. Progress is
 harder in areas where the capacity and financial support were inadequate (e.g. IFMIS). Significant
 changes in grafting legislative and policy frameworks have enabled the public finance to be
                                                     viii
 administrated comprehensively. Predictability and control of public expenditure budget outturn has
 improved substantially at federal level, but less at the regional level (though still relatively substantial).
 As a result of introducing IBEX supported budgeting and accounting systems, reporting has improved-
 in 2007, the backlog account has been eventually eliminated. An accurate and reliable cash
 management and control system has been established. It is a zero-balance system based on cash flow
 and drawing limits, introducing key cash flow sheets, disbursement, and approval forms. More actions
 are needed on implementation of program budgeting, IFMIS, FTAPs, procurement system, external
 scrutiny, and auditing.

33.    Ethiopian public sector pay structure, pay practices, incentives and financing situation have
 not improved to a level necessary to sustain productivity and availability of manpower and have
 restraining effect on the implementation of broader structural reforms. Between 1996 and 2011, real
 average pay in the Ethiopian public sector declined continuously and drastically. Basic pay was
 adjusted by 20 percent (on average) in 2002 and by an average of 38 percent in 2004, 2006, and 2011.
 Before the most recent salary adjustments in January 2011, real pay for all salary groups had declined
 to about half of their 2004 level. Even with the salary adjustment in 2011 (nominal pay increase
 ranging between 36 percent and 40 percent), real public service pay still remains at only about 60
 percent of its 2004 level. At best, the adjustments in pay have only partially compensated public
 servants for the loss of purchasing power. According to the Economic Update Report (2012), inflation
 reached a peak of 33 percent in 2011, and then slightly declined to 20.2 percent in August 2012. In
 2010, food consumer prices had already experienced higher growth rates than in several African
 countries and this gap has further widened since the beginning of 2011.

   Revenue generation
34.     The nationwide revenue generation effort was generally on track but the ratio of revenue to
 GDP is very low compared to other developing countries. Nationwide tax collection increased
 fivefold, from 12.4 billion birr in 2005 to 58.9 billion birr in 2011, and these figures in real terms
 doubled within this period. However, the ratio of revenue to GDP is very low (around 12.43 percent in
 FY 2010/11) compared to the average for sub-Saharan African countries of 26 percent, and calls for the
 need to scale up the reform by tapping the potential, and reducing the cost of, collection.

   Performance evaluation
35.     Despite the introduction of modern management tools such as BSC, performance
 management system is not strengthened and performance evaluation is more subjective and not yet
 aligned to incentive system. The government introduced tools such as BPR and BSC with the aim of
 instituting a businesslike approach in the civil service. However, BSC is not yet systematically rolled out
 to all government institutions at federal, regional and local levels. Attention is given to support
 institutions likely to be effective in fostering strong incentives for performance, especially in state
 organizations and those charged with managing and delivering services. The attitude of civil servants
 has also changed over time, and they (and their leadership) now show signs of efficiency and
 accountability. However, the performance management system, especially the cascaded BSC
 performance measurement system designed for individual performers, is not credibly developed and
 reinforced with enhanced basic pay, performance incentive training, and career paths. In an effort to
 link the incentive and pay mechanisms to performance in the civil service, the MoCS has prepared a draft
 incentive guideline and submitted it for approval by the Council of Ministers.

   Restructuring and improving service delivery
36.    In the last two decades, the Ethiopian public service institutions have been deeply
 restructured and this in turn has improved performance and service delivery. Improvements in
 service delivery were achieved by implementing various performance improvements and restructuring
 instruments including the BPR at federal, regional, and woreda government levels in almost all public
                                                        ix
 institutions. The BPR was instrumental in clarifying organizations’ strategic visions, missions,
 mandates, and products, and enhancing their top leadership’s appreciation of strong institutions;
 simplifying work processes and requirements, which resulted in substantially shorter transaction times
 for most services; developing service standards establishing important flat structures and offices as
 well as decentralizing tasks to lower levels of government, establishing one-stop shops; and enhancing
 customer orientation in public services.

37.     As a result of introducing BPR, processing steps and processing times for service delivery have
 decreased in priority sector institutions but the effectiveness and sustainability of the reform tool
 needs to be assessed. BPR has improved access to services, staff responsiveness, and cost efficiency in
 priority sectors. For example, investment licensing and after care service provision by the Investment
 Commission of Ethiopia took 10.5 days and was planned to be reduced by half to 5.5 days but now it is
 actually reduced to hours (5.5 hours). The 20 steps used to get the service have been reduced to one
 step window-shopping as planned. Table 2 in the main part of the document shows how processing
 times changed for a variety of government services after BPR. Parallel to the BPR implementation, the
 increased use of information and communication technologies has modernized working systems and
 improved government’s performance in selected institutions at federal, regional, and local levels.

   Local planning, participation, accountability and transparency
38.     Voluntarism allowing contrary views to be aired in unedited manner is a major approach in
 citizen participation and upholding accountability. Instituting the democratic participation of
 membership-based civil society organizations in the kebele and woreda councils (but the CSOs have no
 voting rights). The WCBS Supply Side survey indicated that out of the 74 sample jurisdictions, about 87
 percent of the sample city governments; 78 percent of sample municipalities; and 84 percent of
 sample woredas employed participatory planning in the last three years.

39.    Based on the same survey, for instance, in Amhara and Tigray Regional states, 70 percent and
 51 percent of women occupied seats in their councils respectively, while the rest of the regions/states
 provided only 20 percent to 34 percent of council seats for women. The local councils at woreda and
 kebele level have been broadened from a minimum of 150 constituents to 300. The participation of
 women in the council has reached 30 percent and even up to 50 percent in some localities. Social
 ‘shengo’ consisting of 8 to 15 members have been organized to reconcile disputes and minor illegal
 matters at localities. Structures are being established for citizen/community participation, planning,
 and local service delivery (including assigning of a professional local manager at each kebele).

40.    PSR has improved the combination of bottom-up and top-down grassroots participation
 system but sometimes top-down disciplines dominate and stifle local planning, participation, and
 social accountability. The top-down approach to delivery sometimes stifles local initiative and
 creativity; areas that need continuous support are the promotion of civil society participation,
 enhancing the free engagement of the citizens, voluntarism in participation (e.g. in policy making),
 improving the livelihoods of citizens, and enhancing demands for participation and accountability in
 service delivery. The approach must be systematically strengthened for sustainability.

   Efficiency of PSR
41.     The efficiency of the delivery of PSR intervention was high, indicating the proper functioning
 of the delivery system. For instance, the PSCAP support project used more than 80 percent of the
 total budget allocation to finance project cost in the specified time, compared to the PSR programs in
 other developing countries that used 55-60 percent of their budget. Management costs account for
 less than 10 percent of the program’s total cost, attesting to administrative efficiency. According to the
 Project Appraisal Document of PSCAP (2004), operating cost is planned at 5 percent of the total
 estimated project cost, and this has been closely achieved. Management efficiency is also gained as a
                                                      x
 result of the program’s integration, alignment with existing government systems, pooling of the
 required funds from different sources, and by building technical staff capacities at the regional level in
 the early stages.

   Ownership and sustainability of PSR
42.     Some developing countries face donor incentives to initiate or sustain public sector reforms, but
 there is little reform ownership by the government. At the implementation stage, the perception
 grows that the political costs of reform may outweigh potential gains; hence reforms are abandoned
 or left to wither. In the Ethiopian case, the evidence shows that there was strong ownership and
 design and coordination of the reform driven by the political interest in establishing the capacity for
 the developmental state. Nevertheless, though Ethiopia has experienced some of the factors that
 cause on and off situation in reform momentum this doesn’t show an entire loss of commitment from
 the government side. The government has continued its commitment as a result of the new
 developments, including the assignment of three Deputy Prime ministers for governance and capacity
 building, economic and social clusters at federal level. It is also following up reforms by holding
 monthly regular meetings with reform leading or beneficiary government institutions, and the
 government's commitment for sustaining the reforms as demonstrated by the strategies and different
 political forum.

43.     How should stakeholders respond to a situation of weakening commitment to public sector
 reform? In such cases, it is advisable to identify country contexts, and to differentiate expectations and
 approaches to reforms with a clear plan of engagement with stakeholder incentives. Some
 environments with very challenging issues may yet offer windows of opportunity, and these could be
 approached with a very clear view of the constraints and limited opportunities (and approaches that
 match such contexts). Donor support to public sector reform needs to reflect key dimensions of
 country context more explicitly in operational design. In such less propitious situations, it is important
 to address issues of operational feasibility, “ground truthing,� and monitoring the impact of reform
 activities as a short-term response. Analytical work to understand the political disincentives for
 reform, along with engagement with citizens on the demand side, may help to catalyze particular
 reforms that may be incentive-compatible once coordination and information failures are addressed.

44.    The Ethiopian PSR approach has been relevant in many aspects. The support was aligned to
 the transformation goal of the country and met the needs of first generation efficiently. However,
 the approach has to consider complementarities among reforms and reflect systematically on the
 needs of the second-generation reforms (specifically the good governance and capacity building pillar
 indicated in the Growth and Transformation Plan of Ethiopia). Furthermore, it is necessary to enhance
 environments for sub-national level anchored solutions, and decentralize/deepen the role of regions
 and local governments to carry out reforms. Among other things, the PRS approach needs to reflect a
 coherent vision of reform policies. It should consider features that are geared, or at least relevant, to
 answering typical governance and democratic questions, and strengthen state capacities. The
 approach has to place effective, top-down performance disciplines or bottom-up accountability
 mechanisms, and expand the scope of engagement of civil societies and private sector. It is advisable
 to link the priorities of PSR to the value chains of sector developments aimed at creating
 competitiveness and employment opportunities. To this end, the World Bank approach to Public
 Sector Management (2011-2020) and Africa’s Future and the World Bank’s Support to It (2011A)
 indicate the new approach and future strategies to public sector capacity and governance. The
 approach is related to pillar strategies and foundation, alignment of reform areas to value chain of
 sector developments (placing emphasis on downstream sectors that focus on direct service delivery),
 solving bottlenecks in value chains in service delivery, and linking reforms to building and
 strengthening the country systems across disciplines rather than dealing on stand-alone, ring-fenced
 investment projects.
                                                      xi
1. INTRODUCTION
1.1     COUNTRY CONTEXT
1. Ethiopia emerged from two decades of civil wars, famine, ethnic conflicts, and military
dictatorship in the 1970s and 1980s. In 1991 The Ethiopian People’s Revolutionary Democratic
Front (EPRDF) overthrew the military regime headed by Mengistu. A Transitional government was
set up under the decree of the Transitional Charter. This was followed in 1994 by the Constitution
of the Federal Democratic Republic of Ethiopia (FDRE), which replaced the Transitional Charter.
This provided the legal basis for establishing Ethiopia’s federal system based on nine ethnically
based regional states and two city administrations. Ethiopia has four tiers of government: federal,
state, district (woreda) and kebele. Each tier has legislative, judiciary, and executive organs of
government. The country has a bicameral parliament consisting of the House of Federation-
responsible for interpreting the Constitution and for federal-regional issues, and the House of
People's Representatives that passes legislation.

2. The federal system of government in Ethiopia gives substantial political, administrative and
fiscal powers and autonomy to sub-national governments. The regional states consist of 815
woredas and 133 urban administrations, which are the main units of local government. The local
governments decide how to spend their revenue for providing basic services. Based on the
principles of fiscal federalism, transfers are made from the federal to the regional government
and from the regional government to woredas, through a system of non-earmarked block grants.
Regional states obtain most of their financial resources from these transfers. The regions and
woredas decide how to allocate and use the funds in their jurisdictions. Each regional state has its
own constitution, and resident constituents elect members of the legislative council, from which
the regional state president is appointed. Council members are elected at federal, regional,
woreda/city, and kebele levels.

3. The FDRE Constitution stipulates the division of powers and functions between the federal
government and regional states, as well as the concurrent functions. Matters of nationwide
concern and those which go beyond the jurisdiction of a single regional state are left to the
central government, while a great deal of responsibility for local economic development
(including infrastructure and public services) is assigned to regional states. Similarly, the revised
constitutions of regional states and the subsequent decentralization process indicate the powers
and functions of governments at the regional state, woreda, and kebele levels. (For details about
this division of powers and functions, refer to Annex 2).

4. In the last two decades, the Ethiopian public service institutions have been deeply
restructured. The major tool for restructuring and performance improvement was the
introduction of BPR in almost all public institutions at federal, regional and woreda administrative
levels. Ministries, Agencies, and Bureaus (MABs) and Sectorial Offices have been established and
restructured at federal, regional, and woreda/city administration levels. The total numbers of
public institutions are around 145 at federal level, 404 in 11 regional states/two city
administration level, and over 19,635 at woreda level. Civil service employment has increased
substantially, and has grown at an average rate of 5.6 percent per annum from the 1960s up to
1992. Between fiscal the years of 1992 and 2005, the average annual employment growth rate
accelerated, reaching 6.3 percent per annum. The average annual employment growth rate
between 2005 and 2010 increased to 13.8 percent. In 1990, public service employment was
236,410 (MoCS, 2010). Between the years of 2003 and 2010, the level of employment more than
doubled (from 389,563 to 871,400 personnel). This growth rate was exceptionally high by Sub-
                                                    1
Saharan Africa and international standards. The majority of employees (about 93 percent) work at
sub-national level. About 41 percent of the country’s civil servants have a college diploma or
higher. The level of skills of the civil service has been significantly improved. Relative to its GDP
and the size of the civil service, Ethiopia’s public sector wage bill is low compared to other Sub-
Saharan countries. Lesotho, Swaziland, Namibia, South Africa, and Botswana have the highest
wage bill to GDP ratios. The wage bill to GDP ratio between the period 2005 and 2009 was 14-16
percent for Lesotho, Swaziland; 8-10 percent for Namibia, South Africa, Botswana; and 4-6
percent for Ethiopia. On the other hand, the public sector wage bill as a percentage of recurrent
expenditure is 57.3 percent, which is the second highest in Sub-Saharan Africa, where the average
is 30-35 percent. Increase in public expenditure is accompanied with an increase in recurrent
expenditure, as the public wage bill is raised to accommodate the increase in the number of
personnel assigned in priority sectors such as health, education, and agriculture. The Ethiopian
public sector wage bill as a percentage of government domestic revenue is in the upper middle
range, compared to other Sub-Saharan similar countries. The Wage Bill to Gross Domestic
Revenue ratio for the three-comparator countries is nearly at or above 50 percent (Zambia at 52.2
percent, Ghana at 49.8 percent, and Mozambique at 49.7 percent); and for Gambia the ratio is
30.5 percent. For Ethiopia it is 39.2 percent and this places it among the upper middle level range
of the comparator countries. In the case of Ethiopia, US$ 39.20 out of each US$ 100.00 collected
in domestic revenue pays compensation for public sector employees. Botswana’s wage bill to
revenue is twice that of Ethiopia (PSCAP, Theodore R. Valentine, 2012).

5. Ethiopia is an emerging democracy and has adopted a developmental approach to reforms,
driven by the top-down vision of a “developmental state�. Four elections have taken place since
1995, with the dominant party (EPRDF) winning all four. A number of reform measures were
introduced following the first two elections (1995 and 2000) to build the state. Starting in 2002,
the government initiated programs to build capacity, improve governance, and decentralize
power in an effort to sustainably develop the country and its economy. During the 2005 election
campaign, the public raised some pertinent questions regarding good governance, which led to
further reform.

6. The model of “developmental state� in Ethiopia focuses on enhance the role of the state,
mobilization of domestic resources, controlling the environment of unproductive and
threatening rent-seeking and corruption and ensuring equitable and sustainable development.
Government has a vision to attain the Millennium Development Goals (MDGs) by 2015 and to
transform Ethiopia into a middle-income country by 2020. Following the 2010 election, the
government launched the ambitious five-year Growth and Transformation Plan (GTP) to create a
strong developmental state, strengthen public institutions, mobilize domestic resources, and fight
corruption—specifically corruption in land and revenue administrations. Hence, the government’s
long-term strategy of state transformation is expressed in the political leadership’s vision of a
“Developmental State� (Meles Zenawi, the Prime Minister of Ethiopia, extracted from Master’s
dissertation). The extracts of a draft dissertation by the late Prime Minister Meles Zenawi entitled
‘’African Development: Dead Ends and New Beginnings’’ consists of 19 chapters, and deals with
the methods of achieving the political and economic renaissance of Africa, differently from the
proposed variations of the dominant neo-liberal paradigm of development. The argument is that
the neo-liberal paradigm is a dead end, is incapable of bringing about the African renaissance, and
that a fundamental shift in paradigm is required to bring about the African renaissance. The
government in Ethiopia has an approach that aims to achieve transformation, equity, and
fairness. It has a deep concern to fight corruption and rent-seeking behavior that may follow from
their policy of protected, market-led economic growth. Thus, the state has an important role in
the developmental process. In contrast to what was termed the neo-liberal preference for a non-
interventionist state, Ethiopia’s political leaders argued the case for the state to actively lead the

                                                   2
development process (A. de Waal, “The Theory and Practice of Meles Zenawi�, African Affairs,
2012).

7. The developmental state in Ethiopia has at least the following features: the developmental
state is created driven by the prevailing political economy of Ethiopia, and in turn, it (the
developmental state itself) created the social environment and bureaucracy for shared growth
and accelerated development. The developmental state is believed to be not socially wasteful or
rent seeking by itself, and fights behavior of client patronage and rent seeking. It is not large in
size but is filled with activism in fulfilling social capital, incentivizing rewarding, and penalizing the
private sector, rather than being a night watchman state. It is a developmental state with high
intervention in agriculture, marketing, transport, technology accumulation, and adoption, etc. The
nature of the current developmental state in Ethiopia differs from the developmental state of
some of the Asian countries in some respects. These differences include a) the degree of the
expanded intervention role of the Ethiopian developmental state in view of the contextual root
causes of dependency and building renaissance; b). the largest role of the state is on public
investment; c) the dependence on limited domestic resource or saving- which is different from
the geopolitical based foreign investment support offered for Taiwan and Korea; d) the emphasis
given first to the advancement of political economy of developmental state (an activist role); and
e) the special features such as the existence of dominant outlook for sustaining vision, rather than
fulfilling the needs for short term election (ensuring equity alongside growth than waiting for the
repining of benefits after growth generated by a few).

8. Ethiopia has shown progress on various fronts since 2002. The country’s GDP has been
growing well (an annual average more than 10 percent as per the recently published economic
update report of Ethiopia, 2012) over the past decade, making it one of the fastest growing
economies in Africa. Good results have been recorded in the provision of education, health, and
in expansion of road infrastructure. Despite these economic improvements, the structure of the
economy needs to change (shift to industrialization), which is a big challenge. GDP per capita is
still among the lowest in the world and poverty (urban and rural) remains a problem. In the mid-
1990s, as part of the conventional New Public Management approach, Ethiopia attempted to
apply the Structural Adjustment Policy (SAP). Hence, between 1994 and 1996, public sector
reform/capacity-building in Ethiopia was constructed on an isolated, project-based approach,
focusing on a very limited area. Its implementation was ad hoc and fragmented. This included
isolated donor supported projects and government led initiatives, such as the Civil Service Reform
and the Expenditure Management and Control under the Ministry of Finance and Economic
Development (MOFED). As was the case in many other developing countries, this approach failed
to realize any substantial benefits, and was short lived.

9. Public Sector Reform (PSR) started with the launch of the Civil Service Reform Program
(CSRP) in 1996, driven by the Prime Minister’s office. I t coincided with the first phase of
decentralization to regional governments, continued its implementation at large scale in 2001
and during the “Big Push� interventions by the National Capacity Building Program (NCBP). The
plans drawn up as part of this program developed the future vision of the civil service, and were
committed to reversing bureaucratic arrangements that hindered reform, outdated management,
unethical practices, and rising corruption, embezzlement, and fraud. At the time, implementation
of the CSRP proved cumbersome, partly due to the attempt to plan the entire process and “get it
right the first time,� and partly because the executing office was understaffed and over-controlled
(World Bank, 2005). Little progress was made; this initial experience, combined with the capacity
problems experienced in the sector development programs in health and education, changed the
government’s approach to public sector reform (World Bank, 2005). In 2001 the government
initiated a comprehensive NCBP. It consisted of fourteen programs (clustered as public, private,

                                                     3
 and civil society sectors) accompanying the second and last phase (thus far) of decentralization to
 the woredas. Thus, the NCBP was the basis for the consecutive “Big Push� of interventions in
 Ethiopia.

10. In the course of time, the government introduced various governance and PSR project
 components such as CBDSD, PSCAP, DIP, PBS and ULGDP. Following the trend of the reform
 programs, the World Bank’s support for capacity-building has been shaped by three factors: (i) a
 high degree of government ownership of policies and programs, (ii) a politically driven
 decentralization process, and (iii) the coordination of donor support through Sector Development
 Programs (SDPs) in three of the four sectors: education, health, and agriculture (World Bank,
 2005). This is also linked to the broad thrust of Ethiopia’s medium term Sustainable Development
 and Poverty Reduction Program (SDPRP, 2002-2004) to strengthen the on-going capacity-building
 effort and thereby improve the capacity to implement development programs. The SDPRP also
 deepened and strengthened the decentralization that shifted decision-making to the grassroots
 level, in an effort to improve responsiveness and service delivery (MOFED, 2001). The broad list of
 governance and Public Sector Reform (PSR) initiatives, as indicated in the 2008 Ethiopia CAS and
 other project documents, are:

     ï‚·   The Public Sector Capacity Building Program (PSCAP, FY 2004- FY 2012), which covers a
         broad range of governance and public sector reform initiatives and contains six large sub-
         programs; namely, the Civil Service Reform Program (CSRP)— which included the
         Expenditure Management Reform Program (EMCP), although EMCP has increasingly been
         treated as a separate sub program; Justice System Reform Program (JSRP), including court
         reform and parliamentary support; Information & Communications Technologies (ICT); Tax
         System & Customs Reform Program (TSRP); Urban Management Capacity Building Program
         (UMCBP); and District Level Decentralization Program (DLDP).
     ï‚·   Protection of Basic Services (PBS, FY 2006-FY 2012), which focuses on protecting basic
         services, transparency, and accountability. It contains four sub programs: support to delivery
         of basic services, health MDG support facility, transparency and accountability, and
         monitoring and evaluation (M&E). It also includes Local Investment Grant (LIG), a specific-
         purpose grant for capital investments in rural areas.
     ï‚·   Capacity Building for Decentralized Service Delivery (CBDSD, 2002-2008), which deepened
         decentralization in urban local governments.
     ï‚·   Urban Local government Development program (ULGDP, starting FY 2009), which supports
         improved performance in the planning, delivery, and sustained provision of priority
         municipal services and infrastructure.
     ï‚·   Democratic Institution Program (DIP) in five institutions: namely Institute of Ombudsman,
         Ethiopian Human Rights Commission, Anti-corruption and Ethics Commission, House of
         Peoples Representatives, and House of Federation.


11. Other, more sector-specific capacity-building projects are carried out under the Rural
 Capacity-Building Project, Pastoral Community Development Project (World Bank, 2008). PSCAP,
 PBS, ULGDP, and DIP have governance related projects that complement each other.




                                                   4
 1.2     OBJECTIVE OF THE STUDY AND METHODOLOGY
12. The objective of this report is to review and recommend improvements to Ethiopia’s
 approach to public sector reform, in order to advise the government and executive institutions on
 the future of its public sector reform. The report also serves as a think piece for the World Bank,
 other partners, and policy makers. The report provides important basic information about the
 features of Ethiopia’s public sector reform approach, and reviews what worked well and what did
 not. It draws lessons from other countries’ experience to help develop ideas and instruments of
 future public sector reforms in Ethiopia.

13. The intended readers are government institutions (coordinating, overseeing, and executing
 institutions) at both federal and regional levels that would be involved in the design and
 execution of the second-generation of public sector reform in Ethiopia. World Bank country
 managers, as well as other donor partners in Ethiopia, could also use the report to inform possible
 future interventions, and to find lessons for better public sector reform projects. Other
 practitioners can use the report for comparative analyses of PSR approaches.

 The study addresses the following questions:

         a. What is the approach of Ethiopian public sector reform? This helps to understand the
            features and peculiarities of reform programs in Ethiopia. This document reviews reform
            with regard to areas affected, as well as the approach taken.

         b. What works well and what doesn’t work well in the reform approach? This will provide
            lessons from Ethiopia’s experience and indicate how it compares with other countries.

         c. What are the recommendations for improving the second-generation of public sector
            reform programs for the GTP in Ethiopia?

14. The general approach of the study was consultative, involving key institutions and
 stakeholders at different government levels. The process consisted of conducting informant
 interviews, giving questionnaires to staff at selected implementing agencies (at federal and sub-
 national level), and analyzing the strengths and weaknesses of the programs. The study used an
 analytical framework to analyze the PSR approach, find its deficiencies and lessons, and formulate
 recommendations. The study also reviewed other international development case studies, in
 order to compare those experiences in public sector reform with that of Ethiopia’s and extract
 lessons learned from others’ experiences.

15. The data for the analysis of the PSR approach were obtained from interviews, questionnaires,
 and literature review. The literature review included Country Assistance Strategy (CAS)
 documents, other assessment documents, PSCAP review reports, and strategy documents from
 the World Bank and the government of Ethiopia. Initial consultations with stakeholders were
 followed by a desk review of documents and secondary data collected from field visits.




                                                   5
 2. FEATURES OF ETHIOPIA’S PUBLIC SECTOR REFORM APPROACH
16. This chapter looks at some broad characteristics of the PSR initiatives in Ethiopia. It will
 provide important design features of the public sector reform approach, such as the underlying
 theoretical basis, interpretations, relationship, and drive for the reform. It also highlights the
 policy stance and the specific orientations of the PSR, including the instruments linked to
 decentralization and the architects and roles of program portfolios.

 2.1     GOVERNANCE, PUBLIC SECTOR REFORM AND FORCES OF CHANGE
17. The general rubric of governance addresses interrelated and overlapping issues, such as
 institution building, anti-corruption activities, government accountability, transparency, and legal
 reform. Good governance is not just one more priority; it is a crucial factor in the developmental
 landscape and to a large extent determines the public sector’s performance. Therefore, public
 sector reform leads to good governance.

18. There is no universally accepted definition or interpretation of the term “good governance,�
 and there are no clear parameters for its scope. The term tends to be used with a degree of
 flexibility depending on context, purpose, ownership, and management structures. Nevertheless,
 there is a fair degree of agreement around its core constituent elements. The World Bank (World
 Bank, 2000) argues that governance is primarily about economic policy-making and
 implementation, service delivery, and accountable use of public resources and regulatory power.

19. Governance indicators are organized into three clusters corresponding to the basic aspects of
 governance:

     ï‚·   Process by which those in authority are selected and replaced:
             o Voice and accountability
             o Political instability and violence
     ï‚·   Ability of the government to formulate and implement sound policies:
             o Direction
             o Strategic vision
             o Government effectiveness and efficiency
             o Regulatory burden
     ï‚·   Respect for institutions that govern state-society interactions:
             o Rule of law
             o Graft (control of corruption)
             o Oversight and financial accountability


20. The terms public sector management, public administration, public sector reform, and public
 sector capacity building are often used interchangeably. The World Bank’s approach broadly
 defines public sector reform as the art and science of making the public sector machinery work
 (World Bank, 2011b). It is about deliberately changing the interlocking structures and processes in
 this sector. It includes changing the de facto behaviors of agents in the public sector and how
 money, people, and physical resources are deployed and accounted for (World Bank, 2011b). In
 Ethiopia, PSR is used to understand the initiatives of public capacity building, management,
 administration, and governance issues in their interrelationships as mentioned above.

21. Governance and capacity building should go hand in hand as they are both necessary to
 achieve democracy and development. The World Bank concluded that governance and public
 sector capacity should be, instead of a pillar, the foundation for its strategy for Africa (World
                                                   6
 Bank, 2011a). The Bank’s experience with implementing the Governance and Anticorruption
 Strategy contains three important lessons:

     a. Governance reforms are deeply political, and attempts to treat them as technical solutions
        are bound to fail.
     b. An intimate relationship exists between weak governance and poor public sector capacity in
        Africa.
     c. The traditional instruments of finance and knowledge assistance, usually delivered through
        individual sectors, may not be conducive to fostering change for politically charged issues
        such as governance.


22. A growing number of developing countries embarked on democratization and decentralization
 policies in the last quarter of the twentieth century. The forces behind this worldwide trend are
 multifaceted. Ongoing popular demands for democratization and a greater voice for the people are
 the drivers in many countries. In Ethiopia, PSR is central to the government’s objectives of poverty
 eradication, growth, and democratization, and is part of a clear federalist and decentralized change
 agenda. The reforms were implemented in a wholesale manner, and aimed to address the deep
 institutional constraints on basic functions such as policymaking, service delivery, and regulation.

 2.2       PSR AS POLICY INITIATIVE
23. The roots of the public sector reforms lie in the government’s long-term strategy of state
 transformation articulated since the early 90s. The broader national capacity-building framework, in
 which the public sector capacity-building program takes a major share, is central to the government
 of Ethiopia’s objectives of poverty eradication, growth, and democratization. PSCAP is the largest
 part of Ethiopia’s PSR. The efforts to define its reform areas were initiated in different ministries
 during the late 1990s, and were consolidated in 2001 with the establishment of a Ministry of
 Capacity Building (MCB). The MCB was given important reform leading functions, such as popular
 mobilization and coordinating the capacity building programs, alongside its state functions. The
 public sector reform was considered as a critical policy instrument in the drive for state
 transformation, and for the modernization of the public service and the country at large. Given the
 close relationship between party and state responsibility of the lead officials in the MCB and its
 counterparts at sub-national level, this policy has been pursued purposefully across Ethiopia
 through well-developed political, executive, and administrative systems.

 2.3       LEARNING-BY-DOING ORIENTATION
24. The most important aspect of the public sector reform in Ethiopia was the orientation of the
 learning-by-doing approach. This has the following features:

     i)       A homegrown initiative with heavy investment was made by putting in place a
              monitoring and evaluation system, in the form of the bi-annual Woreda and City
              Benchmarking Survey (WCBS). The survey integrates structured feedback from both the
              supply and demand side, to enable sustainable monitoring of impacts of development
              programs on institutional capacity and service delivery performances across local
              governments, and to identify the gaps in implementation of the reforms;

     ii)      The enforcement of sequencing arrangements, through provision of a fund for
              completion of “the minimum mandatory� capacity building (defined across
              subprograms), is required to rapidly build up the basic capacities needed to effectively
              manage the fiscal additionally generated. This is one of the lessons learned in

                                                   7
               implementing PSCAP that would be relevant to other African countries, where there will
               be variations in the capacity to implement reforms.

     iii)      Putting in place financial transparency and accountability mechanisms at the local level,
               which is initiated both by PSCAP and PBS programs. These mechanisms include the
               design of budget, expenditure, and service delivery templates that can be used to
               display and post budgets and service delivery standards for the public. The templates are
               designed so that those who are not experts in such matters and can easily understand
               and apply them.

     iv)       Creation of an environment for competition, reward, and learning of local practices was
               important for performance improvement, mobilization, and enhancing growth. For
               instance, under ULGDP, local governments compete with one another for better
               performance, which is based on standard criteria contained in an independent annual
               assessment. In a similar way, criteria have been established in rural areas for creating or
               identifying model farmers as well as model villages, to motivate and reward good
               performance at local (woreda and village) level.

 2.4        DECENTRALIZATION AND PSR ARCHITECTURE
25. The public sector reform in Ethiopia is strongly related to the democratic decentralization that
 was carried out in two main phases. In the first phase, the government put in place critical
 elements that are required to ensure that the decentralization in Ethiopia creates accountable
 sub-national governments that improve service delivery. Thousands of civil servants were
 deployed from the center to regions. Based on the revised 1994 Constitution, the government
 formally established an inter-governmental fiscal system, and annually transferred a formula-
 driven general-purpose grant to regions, consistent with its policy of “balanced regional
 progresses.� The second phase of decentralization started in 2001/02 by devolving power to
 woredas, with pilots in the four largest regions. This involved series of legal, fiscal, and
 administrative reforms.

26. Functional Assignment: The two phases of decentralization devolved expenditure and
 revenue responsibilities to regional and woreda levels. The public offices at the regional and local
 levels were restructured to be able to fulfill their new roles. The structures and functional
 assignments evolved with time, and local governments continued to be responsible for more
 basic services as the years went by. The Woreda and City Benchmarking Citizens Report Card
 confirms that 88 percent of the local jurisdictions in practice are now providing all basic services,
 compared to only 25 percent in 2005. This suggests that more and more jurisdictions are
 responsible for services that are considered basic.

27. Ethiopia’s fiscal decentralization is of special interest to this review because it provides the
 framework against which the different public sector reform instruments used to support
 decentralization will be assessed. The fiscal decentralization in Ethiopia evolved over time and
 was consistent with good practices in that it provides both general- and specific-purpose grants
 for financing service delivery, cross-sectorial capacity-building, and infrastructure development
 through decentralized fiscal support. It also complements the inter-governmental fiscal system
 with sectorial operations that address sector-specific capacity-building issues. The types of
 transfers are described below.

28. General-purpose grant: Ethiopia’s intergovernmental system was initiated with general-
 purpose transfers that are made from the federal to the regional government, and from the
 regional government to woredas, through a system of non-earmarked block grants. This is a

                                                     8
predictable and transparent transfer to regions and woredas. The general-purpose grant is not
explicitly regarded as supporting only recurrent expenditures, but practice shows that over 90
percent is spent on recurrent expenditure, particularly at the local level. The Bank and other
cooperating partners were providing budget support to the government’s overall pool of
resources, and through that to the federal-regional general-purpose grant. PRSC and its
continuation through PBS contributed to increasing the pool of funds for the government’s equity
based general-purpose grant to regional and local governments. The PBS introduced the SAFE
approach (Sustainability in Additionality, Accountability and Fairness, Fiduciary Standards, and
Effectiveness) to ensure the pool of financial resources is transferred to regional governments.
The program also includes performance-based local investment grants (LIGs) to improve basic
service delivery (in PBS I/II). The program is monitored through semi-annual government and DP
Joint Review and Implementation Support (JRIS) missions. To allow for informed discussions of
the government and Development Partners’ contributions to the PBS program through its fiscal
system, these missions include Joint Budget and Aid Review (JBAR) sessions. In these sessions all
stakeholders review fiscal data from all sectors and levels of government. PBS helped in recruiting
teachers, health workers, agriculture extension workers, etc. However, the availability of an ever-
increasing pool has made it very easy to split local governments, and to increase staffing at the
local level, at times beyond what is needed. Although increasing the number of frontline workers
is very important, it should be managed to a size that can be sustained even if donor support
were to be stopped. In addition, the transition to PBS, while weakening the dialogue on macro
and structural policy measures, introduced elements of transparency and accountability on
specific aspects as a safeguard. Some of the capacity-building activities to safeguard the fund have
expanded over time, and overlap with other public sector capacity-building programs. This will
eventually undermine Ethiopia’s good design, which currently separates different instruments of
transfers for recurrent, capacity, and infrastructure.

29. Before continuation through PBS, budget support was channeled as PRSCs. The following
 figure shows the architecture and roles of PRSC, PSCAP and LIG in the 2003-2005 CAS.




                                                  9
 FIGURE 1: THE ROLE OF PRCS, PSCAP, AND LIG IN THE 2003-2005 CAS




                                 Poverty Reduction Support Credits
                                 • Provides predictable budget support through serial credits
                                 • Finances inter alia the federal-regional revenue shares including the
                                 recurrent service delivery needs of regional and sub-regional authorities




        Public Sector Capacity Building Program




                                                                                                             SDPRP
       • Specific-purpose program to improve institutional
       quality of federal, regional, and local levels
       • Follows Sector-Wide Approach to public sector
       capacity building across key reform subprograms
       • Scales up ongoing implementation
       • Supports inter alia implementation of CFAA and CPAR
       Action Plans, local government capacity building, as well
       as performance and service delivery improvement
       activities across sectors and tiers of government




                                      Local Investment Grant Program
                                      • Provides performance oriented transfers for multisectoral service
                                      delivery investment needs at the local level
                                      • Based on successful PSCAP implementation




30. A performance-based capacity-building grant: The decentralization efforts required the
 government to embark upon a number of institutional reforms, to help establish a durable federal
 state system and further its democratic transition. The Capacity Building for Decentralized Service
 Delivery project (CBDSD) piloted demand-based financing for civil service reform and urban
 management. The crosscutting capacity-building and public sector reforms were scaled up under
 PSCAP. The public sector capacity-building program was designated as a federal, specific-purpose
 transfer program, appropriated at the federal level, with vertical division of resources between
 federal and regional (20/80) and the use of the same grant formula for horizontal division of time-
 bound drawing rights to resources across regions, followed by performance based disbursements
 as well as mid-year reallocation of a share of drawing rights to performers. Sub-programs and
 regions report on the resources on an annual basis. The Minister of Capacity Building, as the
 overall coordinator, reports to Parliament on the utilization and results of the project, which
 shows the relation to the formal systems of accountability.

31. The establishment of this program marked an important step forward in the evolution of
 Ethiopia’s intergovernmental fiscal system. As a federal specific-purpose program, it provided the
                                                                  10
 legal basis for PSCAP transfers to be appropriated federally, and therefore, enabled regions to
 draw down external assistance without being subject to “offsets� in their general-purpose
 transfers. In addition, the original PSCAP design provided for in-year and annual reallocations,
 between sub-programs and regions, based on performance. However, PSCAP’s intention to
 complement the largely equity-oriented general purpose grant transfers to regions with a
 performance-oriented capacity building transfer to help sub-national authorities achieve their
 institutional transformation goals were not materialized and as a result there have been no in-
 year reallocations. Some argue that there is a legitimate reason for not implementing the
 performance based-reallocation at this time. This is because a performance-based grant will
 actually penalize the underperformers, which are the institutions with the least capacity and that
 the program intends to assist. Going forward, in line with the government’s orientation on
 performance, the intergovernmental system needs to evolve to higher parameters of
 performance, while at the same time ensuring level playing field for both the relatively advanced
 regions and the developing regions.

32. The reforms under PSCAP were implemented in a wholesale manner consistent with the
 policy of “balanced regional progress,� to address the deep institutional constraints on basic
 functions such as policymaking, service delivery, and regulation. These programs created an
 enabling legal environment by enacting proclamations, and establishing and strengthening
 structures, systems, and skills. All of these were needed to enhance service delivery, empower
 citizens, and enhance accountability. Ethiopia has succeeded in creating a certain level of capacity
 using its wholesale and top-down approach, which assured equity among regions. This fact, along
 with Ethiopia’s goal to become a middle-income country in the next decade, requires the federal
 government to operate at even higher levels so that regions can identify and maximize their
 competitive advantages, using regional development strategies that promote specialization and
 growth corridors.

33. Performance based investment grant: Financing of infrastructure in rural woredas was done
 as a pilot through the PBS, while in urban areas it was accomplished through the Capacity Building
 for Decentralized Service Delivery project (CBDSD) up to 2006 and through Urban Local
 government Development Program (ULGDP) at present. As a Specific Purpose Grant, LIG
 performed well in financing small-scale capital investment projects at local level when compared
 with the capital investments done through the share of capital expenditure under the Federal
 Block Grant. It has empowered the woredas by not only giving them additional resources for
 undertaking capital investments, but also by enabling them further to undertake planning and
 budgeting at their own disposal and be more accountable to people in the processes. LIG has not
 been scaled up and has suffered from a shortage of funds, as well as a complex compliance
 system. LIG has been canceled from PBS, which is the right decision to ensure clear separation
 between instruments. However, it is important that this is continued as a specific-purpose grant
 to improve service delivery and bring meaningful participation to citizens.

34. In urban areas, the CBDSD focused on structural reforms and building capacities in key urban
 local governments (18 regional cities, plus Addis Ababa) to systematically build capacity and to
 design, implement, operate, and maintain priority services in urban local governments. The
 specific development objective of the ULGDP is to support improved performance in the planning,
 delivery, and sustained provision of priority municipal services and infrastructure by urban local
 governments. This support for the urban local governments needs to be scaled up to cover a
 larger number of cities.




                                                   11
 3. MAJOR ACHIEVEMENTS OF PUBLIC SECTOR REFORM
35. This chapter describes the major achievements of the PSR with respect to the broader
 elements of decentralization, service delivery and governance, accountability, transparency, and
 overall performance on public sector management and capacity-building in general.

 3.1       DECENTRALIZATION
36. A singular strength of PSR in Ethiopia is that it is grounded in the federal and decentralized
 system of government, in line with the constitution. Government has effectively established an
 institutional grid at all levels, and incorporated regions and woredas into the transformation
 process. It is thus inclusive and participatory.

37. With regard to deepening decentralization and public administration, the District Level
 Decentralization Program (part of PSCAP) supported the second phase of decentralization to
 districts. The major achievements include:

       ï‚·   Developing a prototype legal framework and manuals on the framework and on policy;
       ï‚·   Determining a region-to-woreda fiscal transfer formula;
       ï‚·   Restructuring woreda offices, human resource planning, and woreda personnel
           administration;
       ï‚·   Establishing a grassroots participation framework; and
       ï‚·   Setting minimum standards for service.

38. To meet the urgent need of local governments to start their work, basic IT equipment such as
 computers, fax machines, and photocopiers were procured and dispatched to all woreda pool
 offices. On-the-job training was given on planning, budgeting, accounting, and reporting. Apart
 from this, training was offered through regional governments on policies, strategies, and on how
 to prepare strategic plans by woredas. These activities created the initial structure and a critical
 mass of people to achieve their missions. The prototypes were rolled out through regional
 governments. The system of grassroots participation has been especially well established, and it
 has responded to the needs of the citizens.

39. At regional, woreda/city, and kebele level, the Good Governance Package (GGP) (part of the
 DLDP) created or strengthened pertinent structures to ensure institutional preparedness to make
 governance more inclusive.

40. In relation to the achievements on fiscal decentralization, the program has actively
 decentralized resource management to sub-national levels of government. Fiscal transfers are
 made on credible formulas despite lack of financial resources for capital investment at the local
 level. The local fiscal autonomy expressed in terms of ratio of own revenue to expenditure is low
 (20 percent). However, in order to narrow the vertical fiscal gap, grant transfers to regions have
 been increasing. The PSCAP Mid-Term Review found a positive trend in relation to the size and
 predictability of financial flows in both Federal to Region and Region to Woreda levels of
 administration. From 2003/04 to 2007/08, the federal-to-regional transfers increased annually by
 approximately EBr.2 billion and increased further by EBr.3.5 billion in FY 08/09. Federal-to-
 regional transfers increased by an annual average of 24 percent for the last four years. At the
 regional level, transfers to woredas proportionally increased with a bulk of the transfer pool (on
 the average more than 70 percent) allocated to woredas in the respective region in order to
 minimize the fiscal gap. The variance between the planned and actual capital expenditure has
 been progressively minimized both at federal and regional level.

                                                  12
41. Since 1995, the general-purpose grant distribution from federal to regional level has been
 effective based on objective indicators reviewed and approved by the House of Federation.
 Although frequent modifications have been made, the indicators basically measure expenditure
 requirements and revenue raising capacity. Similarly, the woreda block grant provided legitimacy
 for the devolution of power. The formula has been adapted from the federal basic needs formula
 and improved to take into account expenditure needs and unit costs, as well as to use a weighting
 approach.

42. The financial source of the Local Investment Grant (LIG) is the federal government’s PBS fund
 and it was used in selected pilot woredas. The regional allocation was based on the federal
 general-purpose grant formula. Pilot woredas received funds amounting to 30 percent of their
 previous year’s budget. However, there were not sufficient funds to replicate the pilots
 nationwide, so the government canceled the LIG.

43. The federal government has now brought in an alternative financing arrangement to be
 administered by regional states that replaces the LIG. This new MDG fund for additional finance
 was introduced as a performance-based, specific-purpose grant in 2012, to support capital
 investments to help achieve the MDGs in the same five basic service sectors that were addressed
 by the PBS Project. The fund is allocated from the Treasury to regions using the federal block
 grant formula. Regions decide on how to spend the funds in consultation with the federal
 government. The projects implemented using this fund requires maintenance cost from another
 source.

44. The allocation of resources to the ULGDP participating cities is based on performance, which
 is evaluated independently each year, as well as based on condition of full allocation,
 acceleration, and suspension. Each region and the participating city should contribute 20 percent
 each, so as to complement the 60 percent resource allocated by International Development
 Agency (IDA). The ULGDP project has helped to introduce a new and systematic way for citizens to
 participate in development activities, which significantly empowered CSOs in all the participating
 cities. It has also enabled the participating cities to mainstream their city investment plans,
 disseminate key information to the public, prepare revenue enhancement plans, prepare asset
 management plans, and introduce city government auditing. The PBS enhanced the budget for
 basic services and their equitable use, direct system effectiveness, improved decision-making, and
 donor participation.

45. USAID published a comparative study of decentralization in ten African countries (USAID,
 2010) that describes experiences, good practices, and possibilities for learning. The study
 compared three federal countries (Ethiopia, Nigeria, and South Africa), four strongly centralized
 countries (Botswana, Burkina Faso, Mali, and Mozambique) and three countries (Ghana, Tanzania,
 and Uganda) that are in-between centralized and decentralized.

46. In general, the three federal countries all have significant legacies of identity politics that
 shaped the choice for decentralization and all have faced the prospect of civic unrest or instability
 as a result. Some of the success stories in these countries include: institutionalizing legal
 authority, building administrative capacity (with variation in countries), promoting fiscal
 autonomy, and decentralizing political accountability. Decentralization was intended, at least in
 part, to manage political rifts and to promote stability. These countries have decentralized their
 politics to multiple levels of sub-national governments, along with considerable fiscal devolution.
 Consistent with the existence of federalism, these countries exhibit higher levels of authority and
 autonomy in sub-national governments than the other countries in the study. Institutional
 frameworks for intergovernmental relations are also better developed.

                                                   13
 3.2      SERVICE DELIVERY
47. The PSR has driven a series of reform initiatives across the public service that focuses on
 improving efficiency in service delivery, in addition to building accountability and responsiveness
 to citizens for meeting service standards. Through PSCAP, tangible results have been seen to
 enhance the scale, efficiency and responsiveness of public service delivery at federal, regional,
 and local levels. PBS is the major aid instrument for providing finances to local level government
 to basic services. Health, primary school, water, agriculture, and—to some extent—rural road
 services have improved, although it is difficult to attribute all the improvements to PSCAP, PBS, or
 ULGDP. In most cities, the improved infrastructure and services have brought additional
 opportunities to communities. People are encouraged to improve their housing conditions, to
 start small businesses and to try to diversify their sources of livelihoods following the construction
 of cobblestone roads. The construction of markets and the development of micro and small
 enterprises in some of the cities have also improved the livelihoods of poorer communities and
 assisted the mitigation of urban poverty.

48. As noted before, the WCBS confirms that 88 percent of the local jurisdictions are now
 providing all basic services compared to only 25 percent in 2005, which suggests that in more and
 more jurisdictions, the public is having better access to services considered basic. Similarly,
 satisfaction with basic services is also improving. Citizens using government health facilities in
 2011 have increased compared to the 2008 level, from 50 percent to 84 percent in urban areas,
 and from 77 percent to 94 percent in rural areas. Overall satisfaction with the health services
 increased from 62 percent to 70 percent, while households satisfied with the waiting time,
 availability of drugs, and attitudes of the medical staff increased from 66, 53, and 66 percent
 respectively in 2008 to 81, 54, and 74 percent in 2011 respectively. The overall satisfaction on
 primary education service increased from 84 percent to 94 percent; on solid waste from 70
 percent to 74 percent; and on agricultural extension service from 90 percent to 94 percent over
 the same period. However, there is no clear evidence of growing satisfaction for water supply (61
 percent in 2008 to 58 percent in 2011), there has been a 16 percent fall (from 26 percent to 10
 percent) in the proportion reliant on unprotected water sources over the past three years.
 Revenue Administration services and tax collection by federal and regional revenue offices has
 also increased.

 TABLE 1: WCBS RESULTS FOR SELECTED METRICS IN 2005 AND 2011

 Metric                                                                        WCBS WCBS
                                                                               2005 2011

 Percentage urban jurisdictions that provide all basic services                    25       88

 Percentage rural jurisdictions that provide all basic services                    77       94

 Overall percent satisfaction with healthcare services                             62       70

 Percentage households satisfied with waiting time in health care facilities       66       81

 Percentage households satisfied with healthcare staff attitudes                   66       74

 Percentage households satisfied with drug availability                            53       54

 Overall percent satisfaction with primary education                               84       94

                                                    14
 Metric                                                                       WCBS WCBS
                                                                              2005 2011

 Overall percent satisfaction with solid waste services                           70      74

 Overall percent satisfaction with agricultural extension services                90      94

 Source: WCBS I & WCBS IV, PSCAP, Addis Ababa

49. Restructuring and performance improvement was achieved with BPR at federal, regional, and
 woreda government levels in almost all public institutions. The BPR was instrumental in:

         Clarifying organizations’ strategic vision, mission, mandates, and products, in addition to
          enhancing their top leadership’s appreciation of strong institutions;
     ï‚·    Simplifying work processes and requirements, which resulted in substantially shorter
          transaction times for most services;
         Developing service standards that are now the foundation for developing the citizens’
          charter;
     ï‚·    Establishing important structures and offices, as well as decentralizing tasks to lower levels
          of government, which lowers the cost of government services while giving citizens better
          access to them;
     ï‚·    Bringing together related services to establish one-stop shops;
     ï‚·    Enhancing customer orientation in public services, which is still the central focus of the
          reform; and
     ï‚·    Bringing performance orientation to the public service through the balanced score card
          performance management system.
50. Long-term training has significantly increased the number of qualified civil servants at the
 sub-national level. In an assessment on the training aspects of PSCAP, 87 percent of the
 respondents were positive and found the training courses they had taken useful.

51. Together with the BPR, the training has improved access to services, staff responsiveness, and
 cost efficiency in priority sectors. Unit costs and processing times in service delivery have also
 decreased. For example, based on reviews conducted, investment licensing and after care service
 provision by the Investment Commission of Ethiopia took 10.5 days and it was planned to be
 reduced by half to 5.5 days, but now it is reduced to hours (5.5 hours). The 20 steps used to get
 the service are reduced to one step window-shopping as planned. The table below shows how
 processing times changed for a variety of government services after BPR.




                                                   15
TABLE 2: SAMPLE PUBLIC SERVICE PROCESSING STEPS AND TIMES (BEFORE BPR, DESIGN AFTER BPR, AND ACTUAL
IMPLEMENTATION AFTER BPR)

Sector/institution   Service            Average processing time
                                        Before BPR      Design After BPR Actual
                                        # of    Time # of        Time    # of    Time
                                        steps           steps            steps
Tax Office           Tax collection           8 4.5 ha        1 51 minb        1 15 min

Investment           Investment            20 10.5d           1       5.5 h        1    2.5 h
                                                c
Commission           licensing and
                     aftercare

Trade and            Organizing MSEs       11 134.5           4     34.5 d         3     27 d
Industry Bureau                               d
                     Licensing              7 17.5d           1        2h          1   51 min
                     Credit facility       13   146 d         5       34 d         5    27 d
                     Market linkage        28   429 d         5       51 d         4    40 d
                     Consoling             35    37.5         1       4.5h         1    2.5 h
                                                    d
Supreme Court        File opening           6     1d          1     41 min         1   24 min

Justice              Information            5        6d       1       1.5 h        1   27 min

                     Receiving a            8       23.5      1        1h          1   27 min
                     complaint                         d
                     Preparing              7       26 d      3        4d          2      3d
                     charges
                     Trial                 11   374 d         3        8d          4      6d
                     proceedings
                     Appeal                12   163 d         4       13 d         4     12 d
                     proceedings
                     Cassation             14   333 d         5       15 d         5     17 d
                     proceedings
Civil Service        Restructuring &       14   115 d         6       35 d         6     34 d
Commission           job grading

                     Research and          12   200 d         6       47 d         5     38 d
                     prepare HRU
                     guidelines
                     Supervise             12       79 d      5       23 d         4     20 d
                     implementation
                     of Civil Service
                     laws
                     Adjudicating          11   104 d         4       16 d         4     12 d
                     system



                                                16
 Sector/institution    Service             Average processing time
                                           Before BPR      Design After BPR   Actual
                                           # of    Time # of        Time      # of    Time
                                           steps           steps              steps
                       Human                    21 286 d         6       92 d       5   82 d
                       Resource (HR)
                       statistics
                       HR planning             14   120 d          5       38 d          4     32 d
                       HR development          10   140 d          4       39 d          4     32 d
 Education Bureau      Teacher                 17   105 d          5       17 d          6     13 d
                       recruitment

                       Teacher transfer        10     90 d         4       23 d          4     20 d
                       Prepare, publish        22   648 d          8      120 d          7    119 d
                       & distribute
                       textbooks
 Agricultural and      Agricultural            16     75 d         4       12 d          4      8d
 Rural                 extension
 Development           service delivery
 Bureau
                       Natural resource        31   261 d          8       35 d          6     38 d
                       development,
                       conservation
                       and utilization
 Notes:
 a
   h = hours
 b
   min = minutes
 c
   d = days

52. Parallel to the BPR implementation, the increased use of information and communication
 technologies has modernized working systems and improved government’s performance, as the
 UN e-Government index confirms. Ethiopia’s ranking for online services improved from 126 in
 2005 to 80 in 2012, out of 174 countries surveyed.

53. Major IT infrastructure investments were made to strengthen the existing national data
 center, the 11 regional centers, and the 560 woreda data centers, as well as to expand the same
 infrastructure to an additional 175 woredas. Moreover, the federal network master plan is now
 fully operational in 32 federal ministries and agencies, and is being procured for an additional 15
 institutions. This infrastructure was initially used for video conferencing (VC), file sharing, email,
 and voice communications. Its use has now expanded to hosting eight web portals, 28 federal
 websites, and 10 applications, including the Integrated Budget and Expenditure (IBEX)
 management system and VC-assisted court proceedings. Since 2009, over 21,680 court cases
 were heard using the VC facility, which enhances access to justice services and reduces their
 costs. Furthermore, WoredaNet is now used for 127,715 remote training sessions per year,
 thereby significantly reducing the cost of training. Networked government offices at regional level
 increased to 162 in 2012 from only 17 in 2005.

54. Following the IT infrastructure development, the Ministry of Information and Communication
 Technology (ICT) identified 210 services that are suitable for delivery as e-services. Applications

                                                    17
 for online trade registration and licensing, as well as online exam registration and college
 placement recently became operational as pilots. Three informational services, namely e-billing
 for the Ethiopian Electric Power Corporation, foreign currency for the National Bank of Ethiopia,
 and examination results for the Ministry of Education were implemented as pilots using mobile
 text messaging. Over 35,000 people access these services monthly. The Ministry of Labor and
 Social Affairs offers twenty transactional services online. Following these pilots, the first phase of
 e-service expansion (33 new service areas for six ministries) is in the final stage of development.
 The second phase for 31 online services and 54 informational services through mobile devices and
 the Internet is being procured.

55. Furthermore, a number of sectors developed Management Information Systems (MISs) to
 increase their effectiveness in sharing information at federal and regional level. At federal level,
 the ICT sub-component has helped to develop an MIS for the Ministry of Transport, the
 Environment Protection Authority, and the National Archive and Library Agency. At regional level,
 new MISs are in six sector bureaus in Oromia, used for land and transportation management in
 Tigray, land and food security Bureau in Amhara, and in Benishangul for health and education.
 The Urban sub-program at federal level also procured the hardware and software to start
 preparing base maps for 175 cities. Satellite imagery for 94 towns has been received and will be
 used to create base maps of these towns.

56. As a result of enhanced forensic laboratory facilities, crime-free fingerprint certification now
 takes one day, compared to 30-90 days before. The laboratory now serves 2,000 people daily
 (compared to 100 before), drug analysis takes four hours compared to 15-20 days, and the
 number of cases resolved yearly increased from 500 to 1300. Document examination, including
 signature analysis, is done in five days compared to one to six months, and the number of cases
 handled increased from 340 to over 1,000 per year. This system, in addition to reducing
 processing times, has enhanced the quality and accuracy of evidence and so improves the justice
 service, while those who are personally consulted on development issues increased from 17
 percent to 20 percent over the same period. Citizens who know what taxes and fees they are
 legally required to pay increased from 60 percent in 2008 to 81 percent in 2011. PBS program
 supports financial transparency and accountability in the use of public financial resources.

57. The administration and efficiency of the justice system and redress mechanism for citizens
 has improved. Court clearance rates are above 80 percent and the numbers of cases that have
 been pending for more than a year have reduced significantly reduced under the Justice System
 Reform Program (part of PSCAP). Access to case information has also improved significantly
 through a better filing and recording system, the use of information counters, toll-free calling
 centers, touch screens, and other improvements. The court reform program has strengthened
 and standardized the court management system, and improved accessibility to courts by using
 mobile divisions and visiting benches. Other components of the criminal justice system have been
 improved. The police reforms have strengthened community policing and reduced crime. The
 prison administration has improved the human rights condition of prisoners and reduced
 recidivism.

 3.3     GOOD GOVERNANCE , ACCOUNTABILITY AND TRANSPARENCY
58. Transparency and accountability have also improved since PSR started. Under PBS, PSCAP and
 ULGDP important steps have been taken to disclose information and increase citizens’
 participation in, and interactions with, government. Those who know their woreda budget and
 strategic plan increased from 13 percent and 17 percent in 2008 to 20 percent and 19 percent in
 2011 respectively. Citizens who know council meetings are open to the public increased from 11
 percent in 2008 to 32 percent in 2011. Citizens who think an ordinary person can do something to
                                                    18
 hold local government leaders to account if they fail to keep their promises increased slightly
 from 47 percent to 49 percent in the last 18 months. Confidence that concerns raised regarding
 local government’s service quality will be addressed seems to have recovered slightly after a
 considerable loss between 2008 and 2010. Confidence that local government will address
 concerns raised in relation to quality of service in health care increased from 56 percent to 58
 percent, and in relation to water from eight percent to 14 percent.

59. The institutionalizing of the GGP, with standardized regulations, templates, and manuals for
 sedentary and pastoralist regions is a major achievement. In cities, citizen groups now participate
 more in the capital investment planning process. City governments are better at disseminating
 information to the public on budget, expenditure, investments, results of bid evaluations and
 contracts awarded (Bekele and Mebrate, 2012). The alignment of capital investment planning
 with citizens’ priorities is well above 50 percent in cities (Bekele and Mebrate, 2012). Guidelines
 to safeguard citywide investments have also been initiated.

60. PBS program supports financial transparency and accountability in the use of public
 resources. This includes transparency around public budget procedures (planning, budget
 preparation, expenditure, and audits) and public service delivery. This support includes budget
 literacy and media dissemination.

61. ICT has enabled the improvement of access to information and transparency. Ethiopia’s
 ranking in the UN e-Government index for e-participation improved from 170 in 2008 to 19 in
 2012 out of 174 countries surveyed.

62. Expenditure management reform was instrumental in updating outdated public finance laws
 and eliminating account backlogs. Currently no accounts are in arrears, compared to a backlog of
 at least two years in 2005. Significant improvements have been made in the use of double entry
 and ICT-assisted accounting, regularly reconciling fiscal and bank records, and internal and
 external auditing. These measures improved the timeliness and quality of financial reporting.
 Performance-based budgeting was introduced using the Budget Information System, the Budget
 Disbursement and Accounts system, and the Integrated Budget and Expenditure Management
 system. The Woreda and City Benchmarking Supply Side Survey results of the 2008 revealed that
 83 percent of jurisdictions had implemented the double entry accounting system, Additionally,
 the survey showed that only 30 percent of jurisdictions were rated good performers in 2005.

63. Horizontal accountability mechanisms were established to enhance transparency and
 accountability. A review of the GGP by independent consultants found that new institutional
 arrangements at kebele level expedite inclusion, transparency, and accountability. These
 arrangements include:

     ï‚·   Deploying over 10,400 trained kebele managers who are fulltime local government
         employees to serve as the secretariat for the Kebele Council, which is the main point of
         contact to provide citizens with information and to handle complaints;

     ï‚·   Establishing complaint handling focal points at woreda and regional level; and

     ï‚·   Establishing or revamping 8,248 social courts across the nation to handle small claims and
         mediations.

64. Overall achievements on public sector management and capacity building have been
 encouraging. Prior to 2005 Ethiopia had some initiatives to improve public sector management,
 with good results compared to some other African countries. For instance, in the government’s

                                                  19
 four-year plan for Ethiopian civil service reform (1997-2000) had developed the future vision of
 the civil service and was committed to reversing the challenges of bureaucratic arrangements that
 hindered reform and democracy, outdated management, unethical practices, rising incidence of
 corruption, and embezzlement and fraud, as well as the effects of Ethiopia’s ranking of having the
 lowest level of recurrent expenditure in the world (PMO Task Force, 1997). Similarly, an
 independent review of World Bank support to capacity-building in Africa in four countries in
 specific reform areas revealed that the overall effectiveness assessment rate for Ethiopia was
 marginally satisfactory, which reflects enhanced attention to capacity constraints since the late
 1990s with variation in attention across the four service sectors. In comparison, Mozambique was
 rated as moderately satisfactory, Benin as moderately unsatisfactory, and Ghana as marginally
 unsatisfactory (PSCAP, 2005).

65. Post-2005 records also show that improvements have been recorded on six of PSCAP’s
 outcome indicators: (1) Increased Predictability and Adequacy of Financial Resource Flows (In-
 Year and Across Years); (2) Greater Inclusiveness and Transparency of Planning and Prioritization
 Processes; (3) Enhanced Fiscal Autonomy and Improved Revenue Administration at all Levels; (4)
 Enhanced Incentive Environment for Public Servants; (5) Improved Quality and Efficiency of
 Operations, (6) Improved Transparency and Accountability.

66. In conclusion, the various PSR programs have contributed much to decentralize government,
 improve service delivery, and enhance governance at all levels in Ethiopia.




                                                  20
 4. ANALYSIS OF ETHIOPIA’S APPROACH TO PUBLIC SECTOR REFORM
 4.1     INDICATORS
67. This section analyzes Ethiopia’s PSR approach to program, institutional, and content levels,
 using indicators of effectiveness, efficiency, relevance and ownership/commitment. The relevance
 of the PSR design is assessed with regard to its objectives and in light of the effectiveness and
 efficiency of interventions. These analytical indicators have been selected based on theoretical
 foundations and from commonly applied review experiences of countries. For instance, in
 developing some fundamentals of measurement for The African Capacity Building Foundation,
 Ogiogio (2005) identified six generic indicators to assess capacity-building interventions at macro,
 program, institution, and project levels. These indicators measure the effectiveness, relevance,
 ownership, efficiency, impact, and sustainability of an intervention. Furthermore, most
 conventional assessments use intermediate output and outcome-related measurements to
 analyze reforms. Drawing on these experiences, this ESW uses the following four primary
 indicators to review Ethiopia’s PSR approach:

         1) Effectiveness of the public sector reform interventions as measured by:
                 ï‚· Governance indicators
                 ï‚· Effectiveness in the following reform content areas:
                          a) Decentralization/Fiscal federalism
                          b) Budget implementation and expenditure management
                          c) Revenue generation
                          d) Human resource management, wages, and incentives
                          e) Restructuring and improving service delivery
                          f)    Accountability and transparency
                          g) Local planning, participation, and social accountability
         2) Efficiency of delivering the interventions as measured by:
                 ï‚· Efficiency of operational modality management
                 ï‚· Quality of tracking, M&E mechanisms, and communication strategy
         3) Relevance/appropriateness of the public sector reform approach in terms of:
                  The reform program’s “Big Push� design, contents, and instruments
         4) Country ownership/commitment and institutional leadership and sustainability


 4.2     EFFECTIVENESS OF THE INTERVENTION: GOVERNANCE INDICATORS
68. The broader analytical tool for measuring PSR effectiveness is using governance indicators.
 The Ethiopian first generation PSR (2005-2012) has made significant strides in state
 transformation, ensuring good governance, improving efficiency of service delivery, poverty
 reduction, and sustained economic growth. However, there are still challenges, unmet needs, and
 new areas of interventions that remain to be considered. An effective PSR program will have
 visible effects on the overall institutional and governance results.

69. One measure of governance is the Worldwide Governance Indicators, published annually by
 the World Bank for more than 200 countries. It measures governance using six indicators. One of
 the indicators—government effectiveness—reflects perceptions of the quality of public services
 and the civil service, its degree of independence from political pressures, the quality of policy
 formulation and implementation, and the credibility of the government's commitment to such
 policies. The table below (Table 3) shows Ethiopia’s scores for the six governance indicators from
 1996 to 2010. Accordingly, two of the indicators, government effectiveness and regulatory quality

                                                   21
 improved over the whole period, while control of corruption did improve slightly. Voice and
 accountability, political stability/absence of violence, and the rule of law indicators became
 worse. As indicated in Table 3 below, Ethiopia’s government effectiveness has shown trends of
 improvement in the last seven years, as expressed in scores from -1.28 in 1996 to -0.35 in 2010
 (generally scores of governance effectiveness range from approximately -2.5 for weak
 performance to 2.5 for strong performance). The scores indicate tendencies and appropriate
 interpretation for an emerging democracy and a developmental state like Ethiopia require further
 complementary assessments.

 TABLE 3: ETHIOPIA’S ESTIMATED SCORES ON GOVERNANCE INDICATORS (ESTIMATES RANGE FROM
 APPROXIMATELY -2.5 (WEAK) TO 2.5 (STRONG GOVERNANCE PERFORMANCE)

                                                                                             Score1
     Indicator
                                                                               1996       2002      2004       2010
 Government Effectiveness                                                      -1.28      -0.93     -0.71      -0.35

 Regulatory Quality                                                            -1.34      -1.23     -0.96      -0.88

 Political Stability and Absence of Violence/Terrorism                         -1.05      -1.30     -1.26      -1.71

 Voice and Accountability                                                      -1.10      -1.24     -1.11      -1.31

 Control of Corruption                                                         -1.16      -0.73     -0.70      -0.70

 Rule of Law                                                                   -0.84      -0.87     -0.73      -0.76

 Source: Worldwide Governance Indicator (2011).
 1
  Note: These scores are estimates based on a number of underlying data sources that may differ from one another. The
 error margins are specified with the estimates.

70. While Table 3 shows Ethiopia’s performance over time, how does it rate relative to other
 countries in the region? Table 4, as well as Figure 2 and Figure 3 show Ethiopia’s percentile ranking
 on the governance effectiveness and regulatory quality indicators compared to five other countries
 (Kenya, Uganda, Ghana, Nigeria, and South Africa). In government effectiveness, Ethiopia started off
 during the mid-1990s in the lowest rank, but there is a strong positive trend that shows Ethiopia
 progressing faster than the other countries, consistent with the within-country time series evidence
 indicated in Table 3. Other indicators of governance effectiveness strengthen this evidence of
 progress.

71. According to the international comparative studies/surveys, for instance, based on the Joint
 Governance Assessment and Measurement Initiative (J-GAM, 2008), Ethiopia’s score for overall
 governance effectiveness was 37 percent in 2007, compared with the regional average of 20.8
 percent. Similarly, the Mo Ibrahim Index of African Governance was created in recognition of the
 need for a more objective and quantifiable method of measuring governance in the countries of sub-
 Saharan Africa. According to Mo Ibrahim Index of African Governance, the overall score for Ethiopia
 was 46 percent in 2006 and reached 47 percent in 2012. This score is close to the continental
 average score of 51 percent in 2012, but far to the highest country score, in Mauritius, at 83 percent.
 The highest regional average score is for Southern Africa (59 percent) and the lowest regional
 average score is for Central Africa (40 percent). This is compared to the country level lowest score is
 recorded for Somalia (seven percent). Ethiopia ranked 33rd out of 52 countries (Ibrahim Index of
 African Governance, 2012).
                                                         22
72. On the other hand, some in-country based studies reflect positive developments on the ground,
 although the data or values of indicators in the different local studies have not been assembled to
 provide generic measurements and make comparisons with other countries. Accordingly, regarding
 the indicator of control of corruption, Ethiopia’s Country Self-Assessment Report of the African Peer
 Review Mechanism (APRM, 2009) describes that the government has credence in reducing
 corruption by establishing an anti-corruption watchdog. This helps the persecution and sentencing
 of many high-profile corruption cases, as well as initiating the registration of the incomes and
 property of high-level politicians and senior public servants. The Ethiopian Second Corruption
 Perception Survey (FEACC, 2012) also indicates corruption has not yet become endemic and deep-
 rooted. There is a danger that this could increasingly grow into a serious menace to the social fabric
 of Ethiopia. Much of the corruption that takes place is petty and not among the topmost problems
 faced by the citizens.

73. Improvements are made on voice and accountability indicators, as democratic processes are
 put in place for citizen participation. Additionally, improvements are made to government economic
 policies, making them more transparent, predictable and credible. Further improvements are made
 to proclamations and regulations for effective and transparent management, such as effective
 operational procedures for public financial management, as well as internal and external audits
 (Ethiopia Country Self-Assessment Report of the African Peer Review Mechanism/ APRM, 2009).
 However, opaqueness and lack of transparency are especially seen in the manner in which public
 institutions interact with business enterprises in areas such as customs clearance, taxes and revenue
 collection, application and interpretation of regulations, as well as in government procurement
 (FEACC, 2012).

74. There is political stability in the country and the government has reduced violence by people
 participating in the democratization process, conflict resolution, and security. The rule of law
 prevails and is substantially better than what it was during the years preceding the present
 government. Federal Constitution and other laws of the country contain more than adequate
 provisions that seek to ensure that the government, officials, and all citizens are subject to the law
 and should conduct themselves accordingly. According to APRM (2009), the practice matches the
 dictates of the law despite incidents over some years. Courts have reduced the cost of litigation and
 improved access to justice significantly. The study on independence, transparency, and
 accountability in Ethiopian judiciary indicates that the independence of courts is adequately
 recognized and protected in the Ethiopian Constitution and the various laws. Judicial independence
 has improved in practice, but progress remains to be made.

75. The local studies/surveys data, or values of indicators related to governance, have not been
 assembled to provide generic measurements and make comparisons with other countries. The major
 studies/surveys conducted are the Corruption Perception Survey of the Federal Ethics & Anti-
 Corruption Commission (FEACC), Ethiopia - Country, Self-Assessment Report (2009) of African Peer
 Review Mechanism/APRM, study on independence, transparency, and accountability in Ethiopian
 judiciary, among other things.




                                                  23
 TABLE 4: GOVERNANCE EFFECTIVENESS INDICATOR PERCENTILE RANKING FOR ETHIOPIA IN COMPARISON TO OTHER
 SELECTED SUB-SAHARAN AFRICAN COUNTRIES (0 IS LOWEST, 100 IS HIGHEST RANKING FOR 112 COUNTRIES)

 Country         1996   1998   2000   2002   2003   2004   2005   2006   2007   2008      2009   2010   Avg.       Av.
                                                                                                               growth
                                                                                                                  rate
 Ethiopia          6     16     16     16     17     24     20     32     43      42       42     43     26    24.9%

 Kenya            43     34     35     27     28     32     25     29     32      34       34     36     33     -0.8%

 Uganda           25     41     41     34     35     35     32     34     39      35       33     34     35     4.8%

 Ghana            53     50     58     49     48     48     48     55     52      57       56     56     52     0.8%

 Nigeria          15     10     15     12     18     20     22     20     16      16        8     11     15     1.5%

 South Africa     79     75     76     74     75     74     72     71     72      69       66     65     72     -1.7%

 Source: Worldwide Governance Indicator (2011), calculated averages and growth rate



 FIGURE 2: ETHIOPIA’S GOVERNANCE EFFECTIVENESS COMPARED TO FIVE OTHER COUNTRIES (1996-2010)

  90
  80
  70
  60                                                                            Ethiopia
                                                                                Kenya
  50
                                                                                Uganda
  40
                                                                                Ghana
  30
                                                                                Nigeria
  20
                                                                                South Africa
  10
    0




            Source: Worldwide Governance Indicator (2011).

76. Ethiopia is a laggard in one aspect of government performance. Namely, regulatory quality,
 where its performance is considerably below other countries in the region. However, the trends are
 positive.




                                                           24
 FIGURE 3: ETHIOPIA’S REGULATORY QUALITY COMPARED TO THE AVERAGE OF FIVE OTHER COUNTRIES

           50
           45
                                                                42                 43
           40                                41
                           38
           35
           30
           25
           20                                                                      21
           15                                                   14
                                             13
           10              9
            5
            0
                      1996               2000               2005               2010

                     ETHIOPIA
                     Average of five countries(Kenya,Uganda,Ghana,Nigeria,South Africa)


     Source: Worldwide Governance Indicator (2011 update)



 4.3     EFFECTIVENESS IN REFORM CONTENT AREAS
77. The next part of the paper deals about the second measurement of effectiveness of the PSR
 interventions, namely, effectiveness of specific reform areas.

 4.3.1   DECENTRALIZATION / FISCAL FEDERALISM

 4.3.1.1 FEATURES OF DECENTRALIZATION
78. During the Imperial Regime (1941-1974), strategies and approaches of government structure
 were characterized by the prevalence of adamant centralization of power, unbalanced regional
 development, and little participation of citizens. The Imperial Government formed provinces with
 centrally appointed governors. Local government evolved amid the monarchical political structure
 for the motive of keeping hereditary rule, central power, and interest in the lower order of
 government. This allowed for maintenance of law and order, tax collection and security (Daniel
 Gemechu 1994-1996). During the military regime, 1975-1991, sub-national governments (provinces)
 were not stable. In a similar way, the military regime gave attention to regionalization using criteria
 of river boundaries and areas, rather than ethnic identities. Administrators were centrally appointed
 and not elected. Under the past two regimes, decentralization was, therefore, seen as more of a
 threat than an opportunity. Regional and local administrations lacked clear power and were
 complete servants to the regime at the center. Local governments/district levels of administration
 were mainly concerned with maintenance of law and order and collection of taxes.

79. First phase of decentralization: The first phase of decentralization is a politically decided de
 facto process of forming federalism after long period civil war and ethnic conflict. The proclamations
 (Proclamation 1/1991) during the Transitional Charter, and after the Constitution of FDRE in 1995,
 were the legal and policy basis for the formation of federal states, and hence for the implementation
                                                   25
 of the first phase of decentralization. During the FDRE (as of 1991), the political, administrative, and
 fiscal structures were changed following the federal arrangement, which allowed nations,
 nationalities, and people based National Regional self-governments to manage their own affairs. The
 constitution of the FDRE (Art.51 and 52) defines the divisions of the powers and functions of the
 Federal and Regional governments. It reveals the separation of state power, check and balance,
 transparency, and accountability among different government organs. The Federal constitution is
 also an umbrella that gives the broader framework for policy formulation. Macroeconomic policies
 are formulated by the Federal government with the principle of cooperative federalism and creation
 of one economic and political space across the country. Policies are initiated in tandem with
 decentralized governments, and through feedbacks from the public, which are then discussed and
 approved by the constituents.

80. The transition to decentralization started with the regionalization of nine autonomous regional
 states along ethnic criteria. The proclamation during the transitional period gave details on the
 division of assignments. At that time, the Regional Affairs Office under the Prime Minister’s Office
 played a leading role in the transference of power and the shaping of regional government
 structures. Committees selected from different ministerial offices were temporarily assigned to hand
 over centrally owned projects and programs to the respective regional states. At the time, projects
 centrally owned by the Imperial and Military regimes were inventoried and transferred to the
 respective regions. The central government was remotely monitored the projects in the regions.
 Manpower was also transferred from the federal level ministries to regional level. The federal
 ministries were temporarily delegated for the operation of a few selected projects and services. In
 the regions, there were no large number of visible services and projects. After the devolution of
 power to regional governments, a number of small scale social and economic infrastructure projects
 including office construction were carried out at the regional level, within a two-year period. With
 some small exceptions, each of the regional government handled at least 50 developmental projects
 in the first year compared to a limited number handled by the central government for these areas
 prior to regionalization.

81. Second phase of decentralization: The Federal constitution of 1994 has provision for further
 decentralization to the lowest units. In article 50 of the FDRE constitution, it is enacted that
 "adequate powers shall be granted to the lowest units of government to enable the people to
 participate directly in the administration of such units." The government, especially the EPRDF party,
 after reviewing the ten-year inroads to local development found it necessary to reorganize and build
 capacities at a local level. The drive for launching district level decentralization was to substitute the
 weak administrative capacity at the local level. The regional states also have a responsibility to
 effectively interact with the citizens at the grassroots level. The regional states have already
 established hierarchies at the local level. Thus, by regional laws, the district administrative structure
 was strong, however it was weak compared to the national goals. Districts were thought of as
 development centers for production, distribution, the exchange of goods and services, and market
 for labor. These districts were especially viewed as developmental centers for the activism of
 agricultural and rural development objectives. The move to decentralize power from regional state
 to woreda administrations and make the government closer to the population was seen as a crucial
 goal by the government.

82. The theoretical and fundamental idea on decentralization/devolution from regional
 government to local level was not fully captured until the National Capacity Building Program
 brought it to the forefront in 2002. Fiscal decentralization and decision making power on financial
 resources was essential to the devolution process. This was backed up by institutional restructuring,
 development of system, and staffing.



                                                    26
83. Based on the FDRE constitution, each of the regional states promulgated its constitution by
 taking into account the objective reality of the region; by achieving rapid economic development,
 enhanced democracy, lasting peace, and security; by refining and strengthening the powers of
 government organs; by revealing accountability and effective government structure; and by ensuring
 popular participation at regional district and sub-district levels. The four national regional
 governments (Regional States) have revised the EFY 1987 regional constitutions in 1994. To this end,
 Tigray, Amhara, Oromia and SNNP National Regional Governments enacted proclamations No.
 45/94, No. 59/94, No. 16/94, and No. 35/94 respectively. The constitutions of regional states give
 insight for deepening decentralization and recognizing substantial power for the lower level of
 government. They additionally clarified overall responsibilities, duties and accountabilities at the
 regional, zonal, and district level.

84. Local level decentralization and good governance is anchored under the PSR. In 2001, the FDRE
 launched a comprehensive National Capacity Building Program (NCBP). In May 2003, the
 government of Ethiopia (GoE) announced its intention to rapidly scale up the implementation of its
 core reform and capacity building interventions under PSCAP. The program constituted the two
 spatial base reform programs, namely, District Level Decentralization and Urban Management
 Capacity Building aimed at deepening decentralization, local government empowerment, promoting
 good governance, grassroots participation in order to improve service delivery and contribute to
 poverty reduction, and economic development. Most of the design issues of the decentralization
 reform have been incorporated. As a result of connecting together the top-down and bottom-up
 policy making and planning practices, it has been possible to link national development goals to the
 local environment. There were nation and region specific frameworks for overseeing consistent
 interventions. The implementation was guided by a “learning-by-doing� outlook, and by the
 development of prototypes.

85. One of the important issues to be raised in relation to the design process of decentralization is
 as to how far “Big Bang� decentralization is addressing the reform intervention effectively and in a
 sustainable way. The “Big Bang� approach, despite its advantage, has also brought with it the threat
 of reverting to recentralization. Sometimes, the local governments are not seen as reliable channels
 for meeting MDGs. Despite commitments, some of the local level political, fiscal, and administrative
 implementations of the designed approach are far from being complete. In order to bridge the gaps,
 the results of decentralization have to be measured and acted upon it. Like many of the developing
 countries, the criteria and mechanism to measure the impact of decentralization is not well
 established. The other missing gap and challenging issue is the growing implementation gaps of PSR
 between the first reforming regions and the emerging regions/the peripheries, as well as the long
 time delay of implementation.

86. Despite implementation capacity differences among regional states, the “Big Bang� approach to
 decentralization was not able to fully yield the intended results of effectiveness and sustainability.
 Capacity is related to exercising autonomy, influencing service delivery, advancing democratization
 and governance, and effectiveness of downward accountability. Based on the assessments made by
 USAID (2010), evidence from studies of Ethiopia is perhaps most consistent in regards to the
 capacity question, which is a discouraging statistic. At the sub-national levels (especially at the
 woredas and below), capacity for critical tasks such as management, planning, administration, and
 service delivery are constrained by low levels of preparedness among many staff and officials. Lack
 of financial resources for capital investment and turnover of manpower are the major influencing
 factors.



                                                  27
 Political decentralization

87. In Ethiopia, decentralization has been effective both as a reform agenda and as an instrument
 for pursuing complementary reforms. The constitution has specified the provisions on the formation
 of regional states, election rules at hierarchies of administration divisions of powers, and the
 transfer of financial resources. Furthermore, the constitution has set forward the goal of one
 economic space with a diverse nation, nationalities, and peoples. The PSR has actively worked with,
 and sought to consolidate such provisions, institutional arrangements, legal frameworks and policies
 supporting federalism, decentralization, and public sector reform in key pro-poor sectors.

88. The experience of Ethiopia shows the success of PSR depends on the extent of devolving power
 or ensuring local autonomy at regional and local levels, and empowering citizens at the grassroots
 level. The PSR gave priority to capacitating regional institutions and to promoting reforms in
 woredas and urban local governments. Despite the need for further improvement on decision-
 making, the decentralized regional states have been the major target beneficiaries of the PSR. They
 have now developed the experience to initiate, adapt, and implement reforms in line with the
 principle of devolution of power. Additionally, there is an opportunity to strengthen the regional
 governments and incentivize their performances to carry out reforms. But gaps remain in realizing
 the advantages of decentralization.

89. Ethiopia’s system of decentralization touches all dimensions: political, administrative, and fiscal.
 The political process gives emphasis to regionalization and devolution of power on ethnic basis. This
 is differentiated based on nation, nationality and people. Ethiopia’s successful emergence from civil
 conflict and stable management of the ethnic federal system is a critical case to consider (USAID
 2012). A leading example is the post-conflict reconstruction of state authority in Ethiopia, since the
 processes of creation and demarcation of boundaries that have been flexible, albeit politically
 motivated. The government showed willingness to ally ethnic, geographic, and territorial claims with
 autonomous governance. This has been extremely limited in Africa, which has many countries
 fearing that recognition of such claims would further push the country into disintegration.

90. In Ethiopia, the principal form of decentralization is devolution. Devolution is the transfer of
 substantial political, fiscal, economic, and administrative power to regional states in order to reach
 the grassroots, which is in accordance to the agreed functional assignments as provided by the
 constitution of each regional state. The substantial power given to regional states is articulated in
 various articles. Article 50, No. 8 on structure of Federal and State powers defines that the States
 shall respect the powers of the Federal Government and that the Federal Government shall likewise
 respect the powers of the States. However, despite the devolution of power, woreda is an echelon of
 the regional state and functions within this political environment. In this regard, article 47 No. 2
 provides that nations, nationalities and peoples within the States the right to establish, at any time,
 their own states.

91. Local governments are administered by election rule and have council structure. Election is
 carried out at the urban centers, rural woredas, and kebeles every five years, subsequent to the
 national and regional state level of multiparty elections. This is despite the dominance of one party
 rule throughout the last decades. Mayors for urban cities and administrators for districts are
 nominated from the constituent/electorate. Electorates are accountable to the people who elect
 them, as well as to the regional and constitutional law. They have roles on enhancing participation
 and interactions of the community.

92. Usually inter-party dynamics show that politicians will view decentralization through its likely
 impact on their own electoral futures. In Ethiopia, the political decentralization and the incentives
 for initiation and enhancement of decentralization have been dominated by one party. As a result of
 dominance of a single party, there are no differences in views and interests of the national and sub-
                                                  28
 national based parties for enhancing or delaying the implementation of specific dimension of
 decentralization. Kent Eaton, Kai Kaiser and Paul Smoke (2010) argue that more recent political
 science literature has begun to explore the logical possibility that the three forms of decentralization
 do not necessarily need to be adopted at the same time, or in the same measure. The authors
 further argue that given the institutional incentives faced by national politicians, there are good
 reasons to expect non-simultaneous approaches. Contrary to this situation, the party structure in
 the Ethiopian case has allowed the implementing of fiscal, administrative and political
 decentralization simultaneously.

93. The same study suggest where ethnic cleavages overlap closely with territorial divides, the
 decision to decentralize is likely to have far more to do with the negotiation of inter-ethnic coalitions
 than with service delivery, poverty reduction, or administrative efficiency. Ethnic conflict has
 encouraged politicians to introduce decentralizing measures in such disparate cases of post-conflict
 negotiation and constitution writing, such as in Afghanistan, Angola, Bosnia, Cyprus, Ethiopia, Iraq,
 Mozambique, Nigeria, South Africa, Sudan, and Sri Lanka. In the Ethiopian case, regional, ethnic,
 national, and sub-national based parties support the design and improvement of the
 decentralization reform as a means to meeting macroeconomic and local needs, rather than for only
 resolving post conflict ethnic situations. However, sometimes, customary authorities with in regional
 alliance parties have not taken into account incentives for modern management.

94. The implementation of decentralization and local governance reform is sometime viewed as a
 short time process and not sustained and scaled up overtime. Some may prefer to maintain the
 status quo in how they approach decentralization support and collaboration. These people see the
 approach to be challenging and potentially onerous (Simone Bunse, Verena Fritz, 2012). Many
 stakeholders have the perception that decentralization reform is completed in Ethiopia. Broader-
 based and more careful analysis underlying decisions about whether to and how to engage on
 decentralization reform is worth the effort for development partners and the countries they
 support.

95. The success with political decentralization is related to political commitments for initiating self-
 rule and institutionalizing the process, local autonomy, initiation and implementation of
 decentralization and local governance reforms as well as harmonizing bottom-up and top-down
 planning.


 Administrative decentralization

96. Ethiopia has made advances in institutionalizing and enhancing legal authority for regional level
 decentralization. The expenditure and revenue assignments of regional governments have been
 clarified. Powers and responsibilities were provided to the sub-national governments by the Federal
 constitution, regional constitutions, and the subsequent proclamations.3 Article 52, which is focused
 on the powers and the functions of States, places regional states at the highest level. It does this so
 that all powers are not given expressly to the Federal government alone, or concurrently to the
 Federal Government and the States, and are reserved for the States. Similar but challenging efforts
 were also made for devolving power to local governments. There was transfer of manpower from
 regions and zone to woredas. Some of the successful undertakings of decentralization include the
 setting up of institutional structures for basic service delivery and the placement of critical mass
 (manpower and training, as well as procedures) at local level.



 3
     For further details refer Annex 2.

                                                    29
 97. While administrative authority has been devolved to sub-national levels (de jure and de facto),
  serious constraints on capacity hinder the achievement of full-fledged decentralization.
  Administrative decentralization constraints are associated with lack of refined expenditure and
  revenue assignment at local governments, shortage of skilled manpower and pressing budget for
  recruitment of the same by local governments, and lack of incentive for critical professional staff
  especially in remote areas.

  Fiscal decentralization

 98. The other most important aspect of the reform is the focus on fiscal decentralization along with
  the growth of political decentralization. The fiscal decentralization strategy of 2004 stipulates on the
  availability financial transfers, how to narrows fiscal imbalance, and makes the allocations fair
  efficient and predictable (MOFED, 2004). Regional and local governments have their own assigned
  revenue. Like any Federal system, the aggregate revenue raising capacity and the aggregate
  expenditure obligation between levels of governments do not match in Ethiopia. This vertical fiscal
  imbalance among the tiers of government is huge. The total regional states’ own revenue collection
  would only be able to cover less than 20 percent of their expenditure. Thus, more than 80 percent of
  the expenditure was covered from the Federal transfer. A woreda is allowed to use the revenue that
  it has collected (being offset from the total entitlement of transfers) in most of the regional states.
  Even this share of woreda revenue can only cover about 30 percent of the federal expenditures. The
  following table (Table 5) indicates the vertical fiscal imbalances.

  TABLE 5: VERTICAL FISCAL IMBALANCE: OWN REVENUE TO GOVERNMENT EXPENDITURE (%)

  Tier of Government                  Expenditure %                                  Revenue %
                            2005/06   2006/07   2007/08    Average    2005/06   2006/07   2007/08   Average
                                                           2005-08                                  2005-08


  Federal Government          59.7      60.2      56.5         58.8     77.5      79.9      81.6         79.9

  Regional                    15.8      18.2      21.1         18.4     12.4       7.5       6.2          8.3
  Government

  Woreda                      24.5      21.7      22.4         22.9     10.2      12.6      12.3         11.8
  Administration

  Source: MOFED, 2010, Addis Ababa

 99. Thus, due to the existence of this imbalance, fiscal transfers are made on explicit formulas
  agreed on by the Hose of Federation at the Federal level, as well as by the Regional council at the
  state level. The formula types deployed range from basic needs/expenditure needs approach (1995-
  2006) to a per capita approach that is relativity based on expenditure need and fiscal capacity
  formula (2007 -2012). These formulas have narrowed the per capita allocation among regions, but at
  the same time favored the emerging regional governments.

100. The transfer has been reinforced by significant fiscal decentralization and decentralized
  resource management to sub-national levels of government and has also shown a positive trend in
  the size and predictability of financial flows from federal government to regional government and
  from regional government to woreda levels of administration. A general purpose grant transfer from
  the federal government to regions between the periods of 2005-2012 has increased by an annual
  average of 28.8 percent in nominal terms. The average annual increment in real terms (taking 2005
  as a base year) is 9.2 percent. Although the absolute increment of the regional pool is increasing, its
                                                          30
  relative position in terms of the overall national budget is decreasing because of the growing
  demand for large infrastructure at the Federal level that requires large investments. For instance,
  the transfer pool to regional states was 9.9 billion EBr out of the national budget of 35.4 billion in
  2006/7 (38.6 percent). This increased to 45.4 billion EBr out of the pool of 117.8 billion in 2011/12
  (27.9. percent).

101. The comparison of fiscal decentralization and expenditure assignment in 12 African countries
  showed that the percentage of sub-national governments expenditure to national expenditure is
  high for Ethiopia, Nigeria, South Africa, and Uganda (USAID, 2010). This provided the basis for fiscal
  autonomy. Other data revealed that the share of budget to woredas has increased from year to year
  (World Bank, AFTH3, 2006). Regional governments’ on the average transferred more than 60
  percent of the grant received from the Federal government to their respective local governments.
  The transfer has narrowed fiscal imbalances overtime. Table 6 below depicts the percentage of
  transfer between 2003 and 2011.

  TABLE 6: PERCENTAGE SHARE OF FISCAL TRANSFERS TO LOCALITIES IN TWO REGIONAL GOVERNMENTS

                                        2003                       2005                      2011
  Regional state               Budget in          %        Budget in         %       Budget in        %
                               Million EBr                 Million EBr               Million EBr
  Oromiya Regional State
  Woredas                            1,045       46.1%            1384     51.1%           5,221    62.9%
  Regional Bureau                    1,219       53.8%            1323     47.0%         3,071.2    47.0%
  Total budget                       2,264        100%            2707     100%          8,292.2     100%
  SNNP Regional State
  Woredas                              901       72.7%             931     64.0%            3540    61.0%
  Regional Bureau                      338       27.2%             583     36.0%         1,542.6    39.0%
  Total budget                      1,239        100%         1514    100%          5082.6   100%
  Source: MOFED and World Bank, AFTH3, 2006. Ethiopia enhancing human development outcomes
         through decentralized service delivery, Human development department, Africa region

102. The existence of mandated intergovernmental fiscal transfer to finance capacity building
  implies a considerable autonomy to the sub-national governments. Almost 80 percent of the
  resource is allocated to capacity building needs of the sub-national government compared to the 20
  percent allocated to the capacity building needs of the federal executives agencies. However, given
  the existing revenue assignment structures and low level of local revenue, there has not been
  sustainable and reliable means of financing local governments other than providing adequate
  specific purpose grants for development or PSR/capacity building. In Tanzania for instance, Capacity
  Building Grants (CBG) are provided under the Local Government Reform Program to local
  government authorities with minimum conditions, such as presenting acceptable capacity building
  plans and accounting satisfactorily for previous disbursements. The local government authorities use
  the CBG to fund a wide variety of activities, such as the “eleven standardized courses,� prioritized
  on-the-job trainings, technical assistance, and the study of other government authorities’ best
  practices and working tools. A minimum of 40 percent of the grant is used at a sub-district level.
  Similar examples exist in Uganda, India, and Mexico. In Australia and Canada, apart from financing
  essential elements of national development programs, specific purpose grants are provided to
  equalize public expenditures in localities with differing needs and capacities; to stimulate local fiscal
  efforts; and as a technical assistance to permit them develop plans, manage and operate facilities in
  the most efficient way.

                                                      31
  4.3.1.2 ANALYSIS OF THE EFFECT AND OUTCOMES OF DECENTRALIZATION

103. Ethiopia’s system of decentralization touches all dimensions of decentralization: political,
  administrative, and fiscal decentralization simultaneously, which is contrary to the situation in other
  countries. The first phase of decentralization is a politically decided de facto process for federalism
  after long term civil war and ethnic conflict. The second phase of decentralization further to the
  lowest units was “Big Bang� which was backed up by wide range activities of institutional
  restructuring, development of system and staffing. The “Big Bang� approach, howe ver, brought gaps
  on addressing the reform in a sustainable way. This was expressed by low levels of capacity pressure
  put on service delivery. Furthermore, the implementation gap of PSR between the first reforming
  regions and the emerging regions/the peripheries is growing and has not been narrowed.

  a) Political efficiency of decentralization:

104. Political autonomy is explained in terms of the application of multiparty election rules,
  existence of elected structural body, participation of the grassroots in political decision making, and
  the devolution of decision making power specifically fiscal autonomy. Among others, political
  decentralization efficiency indicates improvements in the autonomy, voicing, and disparities. It
  considers subjectively issues such as: the fulfillment of constitutional or statutory reforms, the
  degree of citizens or their electorates power in decision-making, the level of democratization that
  influences the formulation and implementation of policies, the extent of informed decision making
  by diverse interests in society rather than those made only by national political authorities, and the
  creation of local political units. This is in addition to the adoption of politically motivated transfers as
  part of the intergovernmental relations.

105. With regard to political decentralization, Ethiopia successfully emerged from civil conflict and
  unstable management of the ethnic system to the processes of creation and demarcation of
  boundaries that have been flexible, albeit politically motivated. Ethiopia was an example of the post-
  conflict reconstruction of state authority. Local governments are administered by election rule and
  have council structure despite the dominance of one party rule throughout the last decades. As a
  result of dominance of a one party system, there are no differences of interests in the national and
  sub-national based party structures.

106. Political decentralization is affected by the behavior of political parties. Some consider ethnic
  difference as a threat and a few others, like Ethiopia, as an opportunity to reverse conflict. In
  Ethiopia, the ethnic differences at a regional government level have witnessed self-rule and created
  unity with diversity than leading to fragmentation. The differences have not been highly signalized at
  local government level.

107. On the other hand, a principal political decentralization constraining factor in Ethiopia is the
  predominance of a single dominant party, which enables a degree of continued central government
  control over sub-national elected officials. Authority is well established de jure for local
  governments, but insufficient alone to ensure successful decentralization, as it can be undermined
  de facto through the party system. The centralization of power in the dominant party suggests that
  party discipline and top-down management can substitute upward accountability for the desired
  downward accountability of sub-national officials and civil servants to the citizens.

108. Decentralizing political accountability, devolving adequate power and empowering citizens are
  important facets of political decentralization. The system of decentralization in Ethiopia has brought
  important political consequences and implications, as it has increased local participation in political
  decision-making, which again brought social benefits. Also it was able to promote democracy for
  electorates at large as they have been better informed and discuss on the choices offered or on
  locally generated ideas. However, local governments are fiscally constrained due to lack of own-
                                                     32
  source revenues (weak tax bases), which constrains local governments in their ability to set their
  own capital spending priorities and exercise their autonomy, as well as intergovernmental transfers
  (block grants) that are linked to recurring costs.

  b) Economic efficiency of decentralization:

109. The economic efficiency of decentralization is classified and interpreted both as allocative
  efficiency and productive efficiency. The allocative efficiency analyzes how satisfied citizens are with
  the allocation of mix of goods and services. Production efficiency also looks at the reduction of cost
  of production of a given service or product. The allocative efficiency is achieved partly by
  establishing local government institutional structures for basic service delivery. Local governments
  are able to manage the administrative functions of the five basic service delivery functions in at least
  21 sector offices per woreda, compared to the limited structures and functions prior to
  decentralization. Despite the overall limitations, the capacity of leaders to prepare strategic plan and
  utilize budget to selected basic service delivery outcomes indicate promising trends.

110. One way of measuring the reduction of cost is to examine the positive relationships of
  institutional capacity to the outcomes of service delivery. The allocative efficiency (expressed as
  citizens’ satisfaction from the allocation of mix of goods and services) as a result of devolving
  expenditure assignments and setting up local government institutional structures for basic service
  delivery, has been a good example to look at. As a result of deepening the decentralization process
  in 2001-02, district administrations and selected major city governments (133 jurisdictions) in
  regional governments have now established an improved local government structure that enabled
  them to better exercise their powers and to carry out their missions to a higher quality. The WCBS
  survey indicated the highest satisfaction of people is from the allocation of mix of basic public
  services. It is clear that decentralization has benefited the allocative efficiency, as the local
  governments are able to manage the administrative functions of the five basic service delivery and
  related functions in at least 21 sector offices, as compared to limited structures and functions prior
  to decentralization. At the initial phase, the cost of decentralization was high for a “Big Push�
  approach, as capacity building measures were not taken concurrent to the assignment of
  responsibilities. Efficiency is later gained as local governments carry out services with less economies
  of scale that could be accomplished. This is in addition to small scale, labor intensive and mobilized
  activities such as primary education, primary health care, and agricultural extension.

111. As a result, the production efficiency of decentralization has also been largely attained. The
  comparison of service delivery before and after decentralization shows that the coverage of service
  delivery has improved although quality provision still remains a challenge. Ethiopia has advanced to
  achieve the major MDGS indicators in service delivery. The devolution of power and resources from
  the federal and regional government to woreda has improved the delivery of basic services.
  Improvements took place in a short period during the massive decentralization of fiscal resources, to
  regional governments in 1994 and then to woredas in 2002-03. The analysis of increased service
  coverage and spending made after decentralization in the country is endorsed by the high
  satisfactions of perception of beneficiaries. The effect of decentralization on service delivery can be
  examined by considering the progress of MDG targets and related performances. The following table
  (Table 7) shows the attribution of decentralization to the significant improvement of education and
  health services, and the moderate improvement of water services. This is verified by comparing the
  level of the services when the local devolution was just started in 2002, when the major PSR
  activities started in 2005, and the current achievements in 2011.




                                                    33
  TABLE 7: SERVICE COVERAGE BEFORE AND AFTER DECENTRALIZATION

                       Service                             2002           2005             2011
  Net Primary School Enrollment                             52.2 %           68.5%            85.3%
  Safe Drinking Water Coverage                               28.4%             35%            73.3%
  Under Five Mortality Rate                               167/1000        123/1000          88/1000
  Potential Health service coverage                            61%          76.9 %            92.1%
  Average distance to reach an all-weather road,                7.0             4.5              3.5
  in hours
  Source: UNDP, Ethiopia –MDG Progress Report

112. Net primary school enrollment has increased from 52.2 percent (before decentralization) to
  85.3 percent after a decade. Safe drinking water coverage within a 1.5 km radius increased
  moderately from 28.4 percent to 73.3 percent in the same years. Additionally, the number of
  defective water supplies decreased from 30 percent in 2005 to 20 percent in 2011. Under Five
  Mortality Rate was reduced to 88/1000 population in 2011 from 167/1000 population in 2002. The
  number of Health Extension Workers (HEW), which was 2,737 in 2003, increased to 24,571 in 2008
  (PBS PAD II, 2009) thereby increasing the ratios of health workers per population. About 82 percent
  of the targeted primary health care extension workers have been trained for additional one-year
  course and deployed. The average distance to reach an all-weather road decreased to 3.5 hours in
  2011 from seven hours in 2002, as indicated in the Ethiopian Country Self-Assessment Report of the
  African Peer Review Mechanism (APRM in 2009) as well as JRIS of PBS Program, Phase II (2011).
  Road density increased from 22km/1000 square km in 1996 to 40.3 km /1000 square km by the end
  of 2008 whereas the Sub-Saharan Africa average is estimated at 54 km/1000 square kilometer. The
  proportion of roads in good condition increased from 18 percent in 1995 to 73 percent by the end of
  2008. Accelerated investments in road network reduced the number of underserved areas and
  improved the accessibility of rural roads. The number of Agricultural Development Agents, which
  was 9,434 in 2003, increased to 49,435 in 2007; the number on the ground has more than doubled
  from 20,000 in 2005 to 55,500 in 2011; and similarly the number of households that received
  agricultural extension services has increased rapidly over the past few years, from 5 million in 2007
  to 8.85 million in 2011.


113. Regarding the approach and link to the PSR, the Ethiopian decentralization reform has been
  effective both as a reform agenda and as an instrument for motivating and guiding complementary
  reforms. The PSR has actively worked with and sought to consolidate institutional arrangements,
  legal frameworks, and policies supporting federalism and decentralization. This was reinforced by
  significant fiscal decentralization and decentralized resource management to sub-national levels of
  government.

114. Experience shows that the success of PSR depends on the extent to which power is devolved to
  regional and local levels, and how much the citizens are empowered at the grassroots level. The
  Ethiopian approach to PSR gave priority to capacitate reform-leading regional institutions and to
  promote reforms at districts and ULGs. The decentralized regional states have been the major target
  beneficiaries of the PSR. After relying on federal counterpart institutions in the initial reform period,
  the regions have now developed the experience to initiate, adapt, and implement reforms. In line
  with the principle of devolution of power, there is an opportunity to strengthen regional
  governments and incentivize their performances to carry out reforms. However, there are still gaps
  in realizing the advantages of decentralization. The implementation of decentralization and local
  governance reform is sometime viewed as a short time process but has to be sustained and scaled
  up overtime.

                                                     34
  4.3.2 BUDGET IMPLEMENTATION AND EXPENDITURE MANAGEMENT
115. The public sector and financial management reform have been on-going through the
  Expenditure Management Control sub-program (EMCP) of the Public Sector Capacity Building
  Program (PSCAP), PBS, and other donor support. Although specific processes had been underway to
  strengthen the accounting and financial information systems by the Decentralization Support Project
  (DSA) of USAID and other donors, it has been fully implemented and scaled up by PSCAP and PBS.
  The sub program has been in operational by MOFED and its allied agencies.

  The reform has concentrated on the overall operations of budget preparation, revenue
  administration, budget and accounts execution, internal and external controls, procurement, cash
  management, accounting and reporting, and legislative overseeing. The major strategic outcomes,
  which have been given due attention, include: in revenue and expenditure management,
  strengthening human resource capacity, governance through greater transparency, and
  accountability. In these regards, it has been possible to scale up legislations, working systems
  (supported with IT at its preliminary stage), and structures and human resource needs, while
  activities surrounding integrated financial management information and reporting is at its initial
  stage. In hindsight, the expenditure management achieved better results in areas where there was a
  strong, receptive and sustained demand and capacity for support, Progress is harder in areas where
  either the capacity or financial support were inadequate (e.g. IFMIS).

116. Predictability and budget outturn: The preparation of medium term plan framework, the fiscal
  calendar and strategic plans contributed to the predictability and administration of budget and pro-
  poor spending across the level of government. Lately, program budgeting manual was finalized,
  piloted, and implemented at the federal level. Public Expenditure and Financial Accountability (PEFA)
  assessments done in 2007 and 2010 have showed improvement in 14 of the 28 indicators.
  Accordingly, predictability and control of public expenditure improved at the federal level, but was
  less evident at the sub-national level between 2008 and 2010.

117. At the federal level, the deviation between budget and budget outturn was low: the
  implementation was more than 90 percent on average for three years. However, for all regions,
  budget utilization rate was relatively low at 82 percent for capital and 98 percent for recurrent on
  the average (see Table 8). Accordingly the budget utilization, as per the WCBS 2008 survey, indicates
  that the number of jurisdictions that closely match their planned and actual expenditure increased
  from 55 percent in 2005 to 66 percent in 2011.

  TABLE 8: BUDGET UTILIZATION RATE (%)

  Level of Government/Expenditure type                              2009         20010           2011

  Federal Government

     Recurrent expenditures                                          93.1          94.2           92.0

     Capital expenditure                                             98.7          96.5           88.6

  Regional states

     Recurrent expenditures                                           100           100           95.6

     Capital expenditures                                            98.0          77.0           69.6

  Source: MOFED, JBAR 2012 and PEFA assessment report 2010, Addis Ababa

                                                   35
118. Legal and policy framework: Significant changes in grafting legislative and policy frameworks
  have enabled the public finance to be administrated comprehensively. New and revised
  proclamations, directives, and guidelines have been issued and rolled out or adapted in all regional
  governments. Extensive training was provided to the staff of federal and regional finance public
  agencies on all rules, regulations, directives, and reforms.

119. Budgeting and accounting systems: A uniform and simplified budget design manual with a new
  cost-centered budget structure has been put in place along with the initial budget information
  system. As part of the accounts reform, double-entry bookkeeping has been introduced, new ledger
  cards were created for use by accountants, clearly defining the use of expense accounts. According
  to the Fiduciary Assessment (FA) for Ethiopia (in 2002), a new chart of accounts was commenced at
  federal level and in five of the eleven regions. Double entry bookkeeping and single pool/treasury
  accounting systems were also commenced in nine of the eleven regions (MOFED and DIFID, EU
  funded task team, 2004). As a result of the placement of the systems and improvements, the backlog
  in the consolidation of accounts and audited accounts has been reduced. In 2003, there was a two-
  year account backlog and in at most 60 percent of the public institutions that were not able to
  submit their accounts, with acute problems in emerging regional governments. In 2007, the backlog
  had been eliminated. As a result, the quality and timeliness of budget preparation and accounting, as
  well as the accuracy and timeliness of financial reports have significantly improved. The reform has
  brought prudent budget system, standard reporting and cleared backlogs of accounts and the
  audited accounts (by more than 50 percent).

120. Cash Management: A cash management directive was implemented at all levels—federal,
  regional, zonal, as well as all woredas. The directive facilitated the identification and closure of many
  inactive and unnecessary bank accounts; introduced a zero-balance system based on cash flow and
  drawing limits; and introduced key cash flow sheets, disbursement, and approval forms. As a result,
  an accurate and reliable cash management and control system has been established.

121. Financial information system: The task of updating the financial information system for
  efficiency of operation and transparency began with Budget Information System (BIS) and Budget
  Disbursement and Accounts (BDA). Later, Integrated Budget and Expenditure Management System
  (IBEX) replaced both the BIS and BDA systems. IBEX has been implemented in federal institutions
  and regions, and was supported by PSCAP until 2009. In terms of the large scale Integrated Financial
  Management and Information System (IFMIS), there was a challenge due to lack of minimum
  condition for success, such as a lack of strong institutional capacity, the availability of private sector
  IT infrastructure, and the need for the revision of accounts and other transitional arrangements from
  bespoke IBEX system. The World Bank reports on the practice of IFMIS installation suggest that
  success rate in Africa is less than ten percent (MOFED and DIFID, EU funded task team, 2004).

122. Another area of support has been ensuring financial transparency and accountability. CSRP,
  DLDP, and the good governance package under PSCAP created procedures, established structures,
  and introduced a number of templates. These templates are for service delivery, complaint handling,
  notification, and receipt of public contributions, which improve information disclosure to the public.
  Under PBS, Financial Transparency and Accountability Perception (FTAP) tools such as a laypersons
  budget template, a budget and expenditure template, and a service delivery template were
  implemented at federal and regional levels. These contributed to improvement of public awareness
  of budgets (MOFED, 2011). According to reviews and surveys carried out at different periods, more
  than 90 percent of the woredas post their budgets, and in a number of cases they post and report
  expenditure for the public. This has created the potential for citizen awareness and feedback on
  budgetary allocation and utilization.



                                                     36
123. Procurement system: Since more than 65 percent of the country’s annual budget, which is
  currently over US$5 billion, is spent through procurement, the government of Ethiopia believes that
  an effective functioning of public resource management system in the areas of procurement and
  financial management is important and central for the success of the GTP (MOFED, 2010). The
  reform supported the procurement administration and management system. The Procurement Act
  and directive were issued in 2005, and all regions adopted them. The Ethiopian Government enacted
  a new Public Procurement Proclamation in 2005, issuing a revised procurement directive. With this,
  a Public Procurement Agency (PPA) was established. The law has increased the level of
  accountability and control for public resources in public organizations.

124. External scrutiny and audit: PBS channel aid funds through the Federal Block Grant (FBG); the
  regions and woredas have discretion in allocating their block grant, but the allocation decision is
  linked to common national strategies and targets and financial management systems, which differ
  among regions only in detail (Delegation of the European Union to Ethiopia, 2012). The system
  monitors the implementation of agreed targets in five basic service delivery sectors. Similarly, the
  federal government has the right to audit the FBG, as well as any donor funds. In 2010, the scope of
  audits performed by the Office of the Federal Auditor General (OFAG) remained at about 50 percent
  of the total expenditure, but audited financial statements are presented timely to the Parliament
  (MOFED A Repeat Assessment, 2010). The relationship and areas of cooperation or information
  exchange between the Federal and Regional Auditor General remains unclear. Overall performance
  has improved between 2007 and 2010. The parliamentary scrutiny of the budget had not improved
  in 2010 when compared to the 2007 level. As far as the integrity of fiscal information is concerned
  there is no change in performance to be observed between 2007 and 2010. The trajectory change is
  low on external scrutiny and follows up on external audit reports and legislative scrutiny of the
  annual budget. However, improvements are needed on predictability in the availability of funds for
  commitment of expenditures and public access to key fiscal information.

125. The reform objectives have been partially achieved in the areas that operate well with the
  related capacity building mechanisms in place (although the degree to which it is in place varies).
  The assessment of the past showed that reform supports were fragmented and not timely. An
  integrated capacity building approach to the public financial management initiatives and
  sustainability of implementations are important for the success. The need to improve performances
  and bring more efficient operation, budget utilization in the sectors which require institutionalizing
  of the working systems, incentives, training of manpower in reform areas, replacing manual paper
  work of the financial management system with IT and ensuring its continued maintenance, and
  investing in more financial resources. Some areas of activity that have been given emphasis are: the
  introduction and rollout the IFMIS project countrywide, the connection of all public bodies with
  WoredaNet, and the establishment of LAN within the public bodies. This is in addition to IT supports,
  internal control, and performance budgeting and procurement. One of the challenges recognized by
  the government includes enhancing the budget process based on policies (programming/
  performance budgeting framework). This linkage between public expenditure and policy objectives,
  strategies and the budget process will make the budget more efficient and strengthen transparency
  and accountability (MOFED a repeat assessment, 2010). More refined work is needed to link the
  program budgeting exercise to the GTP, medium term expenditure framework, BPR, and BSC.
  Expenditure management and control reform have also shown potential to cover major activities on
  fiscal decentralization, local governance, and accountability. Some of the major activities have not
  been rolled out at sub-national government levels. The efficiency of the financial management pool
  arrangement system in delivery of service at the local level has to be assessed for further support.



                                                   37
  4.3.3 REVENUE GENERATION
126. The comprehensive tax and customs reform was implemented since early 2000s and included:
  1) The enacting of a number of tax proclamations and directives that overhauled the tax system legal
  and policy framework; this includes the income tax, turn-over tax, agricultural income tax, VAT,
  presumptive taxation, and a number of other taxes. 2) The restructuring of the revenue bodies at
  federal and regional levels. 3) The overhauling of the tax assessment, collection, audit, and
  administration manuals. 4) The using of better technology was introduced or strengthened, such as
  the introduction of standard integrated government tax administration system (SIGTAS), Biometric
  Technologies for tax payer information registration, and systems such as enforcing the use of cash
  registers IT-assisted systems. The SIGTAS was operational only at federal level in 2005. The system
  has now been rolled out to all regions for VAT purpose. Regions are also at different levels in
  adopting the system for all types of taxes. The automation for customs through the adoption of
  ASYCUDA++ automated 28 sites across the nation to provide import/export information for customs
  duty and tax assessment. 5) The extensive and continuous taxpayer education.

127. Significant progress has been made to overhaul the tax system and strengthen the operational
  capacity of the Ethiopian Revenue and Customs Authority (ERCA), as a result of PSCAP support. The
  reform of the tax administration has benefited from synergies and spillovers from reforms
  undertaken in other areas of government, such as civil service reform. Significant efforts have been
  made to strengthen and make operational Human Resource Management (HRM) rules and
  regulations. Revenue management and organizational technical support were provided to the
  Revenue Authority. Restructuring and performance improvements were implemented through
  Business Process Reengineering (BPR) at federal, regional, and woreda offices. This BPR exercise has
  been instrumental in changing public service culture and introducing concepts such as performance,
  customer orientation, accountability, and good governance. The BPR brought about organizational
  transformation by merging the three federal tax and customs related organizations in 2008, creating
  a unitary organization with the ERCA. Regional tax administration offices were also separately
  organized to incorporate nationally similar functions.

128. The expected impact on institutional quality, with regard to the Tax System Reform component,
  is enhanced revenue performance and fiscal autonomy. It is expected that this component
  contributes to increased tax effort at all levels, to increased own revenues, and to unconditional
  transfers as a share of total expenditures at a sub-national levels.

129. Nationwide tax collection increased five times, from EBr.12.4 billion in 2005 to EBr.58.9 billion
  in 2011. Federal tax revenues increased an impressive 263 percent in nominal terms between FY
  2010/11 and FY 2007/08. Tax collection nationwide doubled in real terms between 2005 and 2011
  (although the increase in nominal terms was 4.4 times). Within the same years, the annual average
  increment of revenue collection was 10.3 percent in real terms. Federal and regional revenue
  bureaus have exceeded their annual collection targets. As a result, the coverage of recurrent
  expenditure through domestic revenue source grew. The percentage share of government domestic
  revenue to recurrent expenditure reached to 108.2 percent in 2011.

130. The success of the GTP depends on mobilizing local revenues and reforms. This will, however,
  require a significant increase in revenue per capita and revenue as a share of GDP. Ethiopia’s tax-to-
  GDP ratio (around 12.43 in FY 2010/11) does not fare well with those of other sub-Sahara African
  countries. According to International Monetary Fund, World Economic, and Financial Surveys for
  Sub-Saharan Africa (2011), Ethiopia’s government revenue (excluding grants), as a percentage of
  GDP, was 13.6 percent in 2011. This is lower than the comparators for Sub-Saharan Africa (26.0
  percent), low-income countries (17.1 percent), and middle-income countries (28.5 percent). In the
  case of Ethiopia, a lower tax-to-GDP ratio, as compared to its neighboring countries may reflect a
  lightly taxed agricultural sector that account for a big chunk of the GDP. Some estimates indicate
                                                   38
  that revenue relative to non-agricultural GDP could be close to 20 percent. As a result, an analysis of
  contribution to revenue of different sectors is required. In light of this, it is recommended to have
  detailed estimates of the tax compliance gap in Ethiopia in order to know the real potential of its tax
  system to generate revenue. The following table (Table 9) depicts the contribution of revenue and
  the ratio of the wage bill to GDP.

  TABLE 9: PERCENTAGE SHARE OF GOVERNMENT DOMESTIC REVENUE TO GDP AND TO RECURRENT EXPENDITURE

     Description          2003    2004      2005      2006      2007       2008      2009     2010     2011
  GDP at Current          73.4    86.7      106.5     131.6     172.0      248.3     335.4    382.9    511.2
  Market Prices in
  Billion Birr
  Government               11.1     13.9     15.6      19.5      21.8        29.8     40.2     53.9      69.1
  domestic
  revenue in
  Billion Birr
  Recurrent                13.5     12.0     13.4      15.3      17.2        22.8     27.2     32.5      40.5
  expenditure in
  Billion Birr
  Total (federal +          5.4      5.5       7.1        8.5      9.7       13.6     15.8     17.7      23.3
  regional) wage
  bill in Billion Birr
  Percent share of       121.6%   86.3%     85.9%    78.5%      78.9%      76.5%    67.7%     60.3%    58.6%
  recurrent
  expenditure to
  government
  domestic
  revenue
  Percent share of        15.2%   16.1%     14.6%    14.8%      12.7%      12.0%    12.0%     14.1%    13.5%
  government
  domestic
  revenue to GDP
  wage bill to GDP         7.4%    6.3%      6.7%     6.5%       5.6%       5.5%      4.7%     4.6%     4.6%
  ratio (in
  percent)
  Source: MOFED, 2012.Addis Ababa

  4.3.4 HUMAN RESOURCE MANAGEMENT, WAGES AND INCENTIVES
131. The attitude of civil servants has changed over time and they (and their leadership) show signs
  of efficiency, responsiveness and accountability. These changes are significant and reflect the
  political priority attached to a stronger performance oriented management culture in government.
  However, a critical factors that affect the productivity of civil servants, the retention of the existing
  skilled and experienced staff, and the attraction of new talent includes are such considerations as
  basic pay, performance pay, and turnover. These have not been examined and effectively answered.
  Recently, the MoCS has drafted an incentive guideline and submitted for approval to the Council of
  Ministers. This initiation by the government could respond to and benefit from some of the issues
  discussed below.

132. The total staff turnover rate for the public service in Ethiopia is 1.2 percent, which seems low
  compared to other Sub-Saharan countries’ rates that are between 2.0 percent to 2.2 percent.
  However, when the turnover rate is disaggregated by level of government, the 4.4 percent rate at

                                                     39
  the federal level is quite high and should be of a concern to policy makers (see Table 10). It is quite
  difficult to develop capacity and sustain performance gains in any organization with such a high staff
  turnover.

  TABLE 10: CIVIL SERVANT STATISTICS BY LEVEL OF GOVERNMENT, 2010

  Category                                            Federal civil Regional states/city           Total
                                                          service administrations civil
                                                                    service
  Total number of staff                                    69,662                  801,738      871,400

  Total number of resignations                               2,865                     7,615      10,480

  Staff turnover rate                                        4.1%                       1.0%        1.2%

  Source: Ministry of Civil Service, Human Resource Statistics, 2010.

133. Since 1996, the government has practiced nominal pay restraint in pursuit of a low pay scale for
  civil servants. Nominal pay has only been adjusted occasionally, when some event such as inflation
  drastically eroded real pay in the public sector. The government’s response on such occasions was
  reactive rather than proactive by awarding adjustments in nominal pay in the public sector, only to
  have inflation erode real pay further. At present, in 2012, the minimum nominal salary is EBr.420 per
  month (equivalent to the US$24 at the exchange rate on May 2012 stated in this document) and the
  maximum is EBr.4343 (US$247) for a Professional Science (PS) staff member. This is low compared to
  other developing countries. The country has more than 800,000 civil servants and a large proportion
  of them (about 60 percent) get less than EBr.1000 (US$56.8) per month.

134. At similar grades, the nominal salary of NGOs, the private sector and donor agencies in Ethiopia
  is much higher than the payment in public service institutions. For instance, a senior secretary (in
  Ethiopian civil service scale) gets two to three times less than a similar secretary in the NGOs or
  private sector, and 11 times less than one in a donor agency (see Table 11).

    Table 11: Comparison between Ethiopian civil service pay and other institutions

  Institution                           Senior/executive secretary       Ratio to Ethiopian civil service

                                   remuneration per annum (EBr.)
  Ethiopia civil service salary                              19,404                                  1:1

  UN Ethiopia country office                                210,033                                 1:11

  NGO - CRDA Ethiopia                                        49,390                                  1:3

  Private service providers                                  36,000                                  1:2

  Source: Data collected, Ministry of Civil Service, UN Ethiopian Country Office, CRDA, Sheraton Hotel,
          2012

135. Between 1996 and 2011, real average pay in the Ethiopian public sector declined continuously
  and drastically. Basic pay was adjusted by 20 percent on average in 2002 and by an average of 38
  percent in 2004, 2006 and 2011. At best, the adjustments in pay have only partially compensated
  public servants for the loss of purchasing power. As a result, over the period, real average monetary

                                                    40
  compensation in the public service declined. Before the most recent salary adjustments in January
  2011, real pay for all salary groups had declined to about half of their 2004 level. Even with the
  salary adjustment in 2011 (nominal pay increase ranging between 36 percent and 40 percent), real
  public service salary still remains at only about 60 percent of its 2004 level. This has impact on
  productivity, turnover, retention, and recruitment of manpower. Ethiopian public sector pay
  structure, pay practices, and incentives and financing situation are not yet improved to sustain the
  productivity and availability of manpower. Therefore, nominal pay in the Ethiopian public sector is
  quite low. Nominal wage increases have not kept the purchasing power of government employees
  constant due to inflation. According to the Economic Update Report (2012), inflation reached a high
  of 33 percent in 2011 and slightly declined to 20.2 percent in August 2012. In 2010, food consumer
  prices had already experienced higher growth rates than in several African countries and this gap has
  further widened since the beginning of 2011.

136. While real pay for all groups has declined, the salary adjustment practices tend to be more
  favorable to groups in the lower salary grades, and least favorable to those in the middle salary
  grades (SP6 and AD6). In 2011, the government preferred to give high increments to the higher pay
  scales and lower increments to the lower pay scales, due to the high cost of increments for the
  latter. Figure 4 shows the trends in real average salaries for job classifications in the civil service from
  2004 to 2011. In general, the adjustment practices are likely to compress the pay structure; in
  particular, the structure is likely to be even more compressed between the bottom and middle of
  the salary structure.

  FIGURE 4: INDICES OF REAL SALARIES FOR SIX JOB CLASSIFICATIONS IN THE ETHIOPIAN CIVIL SERVICE, 2004 – 2011
  (2004 = 100)




  SOURCE: CALCULATED, HUMAN RESOURCE STATISTICS, MINISTRY OF CIVIL SERVICE, 2010

  Notes:
  In the figure above, the trend of the indices of real salaries is shown for six major profession jobs and levels 5 or 6 namely
  GL3, MC5 (Manual and Custodial), CAL6, SP6 (Sub Professional), ADS (Administrative Science), and ProfS (Professional
  Science). Classifications of jobs in the Ethiopian system are known as Professional Science (PS), Administrative (AD), Sub
  Professional (SP), Clerical and Fiscal (CF), Trades and Crafts (TC), Custodial and Manual (CM), as well as classifications
  related to Teachers, Health Professionals, Appointment, Special Classification, and category for those not stated.
                                                               41
137. While the size of the civil servant is increasing the overall government wage bill, as a ratio GDP
  is low because of the decline in real salary levels. Additionally, because Ethiopia spends a relatively
  high share of expenditure on capital investment, the wage bill as a percentage of recurrent
  expenditure is high (PSCAP, Theodore R. Valentine, 2012). Given the government’s limited fiscal
  space and the wage bill implications of implementing various capacity enhancing measures,
  tradeoffs will emerge between implicit pay policy objectives and capacity building in the short to
  medium term. The wage bill to GDP ratio significantly declined from 7.4 percent in 2002/03 to 4.6
  percent in 2010/11 indicating the lowest ratio in sub-Sahara Africa, while high growth in the public
  service employment. The major determinant of the size and growth of the wage bill in Ethiopia has
  been the growth of employment in the civil service.

  TABLE 12: CIVIL SERVICE EMPLOYMENT GROWTH RATE IN THE PUBLIC SECTOR IN FEDERAL AND REGIONAL
  GOVERNMENTS

  Year          Federal        % growth Regional              % growth rate     Total        % growth
                Government     rate     Government                                           rate


  2004          49,419                       354,668                            404,087
  2005          51,764         4.75%         378,533          6.73%             430,297      6.49%
  2006          60,038         15.98%        438,767          15.91%            498,805      15.92%
  2007          60,911         1.45%         489,398          11.54%            550,309      10.33%
  2008          60,758         -0.25%        571,721          16.82%            632,479      14.93%
  2009          63,027         3.73%         731,398          27.93%            794,425      25.60%
  2010          69,662         10.53%        801,738          9.62%             871,400      9.69%
  Source: MoCS, Human Resource statistics, Addis Ababa, Ethiopia, 2010

138. The Wage Bill to Gross Domestic Revenue ratio for three comparator countries is nearly at or
  above 50 percent (Zambia at 52.2 percent, Ghana at 49.8 percent, and Mozambique at 49.7 percent)
  and quite high by international or sub-Sahara Africa standards. It implies that about half of all
  domestic revenue collections go towards the payment of public sector wages and the remainder for
  operation and maintenance and development expenditures. The Gambia’s Wage Bill to Gross
  Domestic Revenue ratio (at 30.5 percent) is in the lower level range of the comparator countries. At
  39.2 percent, Ethiopia’s Wage Bill to Gross Domestic Revenue ratio is among the upper middle level
  range of the comparator countries. The Ethiopian experience shows that while the wage to GDP
  ratio is generally in the upper middle range and low, the wage bill as a percentage of recurrent
  expenditure is high due to increased need of manpower for meeting development needs. Public
  service employment has increased substantially and at a sustained rate of average 5.6 percent per
  annum on average since the 1960s. Between fiscal year 2004 and 2010 the average annual
  employment growth rate actual accelerated, reaching 13.8 percent per annum. This reflects the
  implicit pay policy of the government to trade increased real wages for higher levels of employment.
  Ensuring that the remuneration package is sufficient to cover the basic needs of civil servants and
  that it provides sufficient compensation to attract and retain competent and efficient civil servants
  will limit the rate of growth in civil service employment.

139. External financing earmarked for sub-national governments have spurred employment growth
  at those levels of government. An emerging concern is the continuous increase in civil service
  recruitment using PBS support at the woreda level. Since PBS finance is used for recurrent
  expenditure, the government will need to find a way to finance these increased costs when PBS
  comes to an end. This problem of the sustainability of current levels of employment adds to the

                                                    42
  concerns identified earlier about the trends in real wages in government. Pay enhancement in the
  public service is not supported with comprehensive, affordable and sustainable approach.

  4.3.5 RESTRUCTURING AND IMPROVING SERVICE DELIVERY
140. Flat institutional structures have been designed and introduced in almost all public institutions
  at federal and sub-national levels as part of the BPR. As described in the afore mentioned Table 2,
  public service processing steps and time for the delivery of services have drastically improved after
  implementation of BPR.

141. The civil service reform is owned and executed through vertical and horizontal integration, and
  encompasses institutions beyond the civil service. The government introduced tools such as BPR and
  BSC with the aim of instituting a businesslike approach in the civil service. However, BSC is not yet
  systematically rolled out to all government institutions at federal, regional, and local levels. The
  performance management system, especially the cascaded BSC performance measurement system
  designed for individual performers, is not credibly developed and reinforced with enhanced basic
  pay, performance incentives, training, and career paths.

142. The civil service reform has manifested on-and-off implementation and recycling or fatigue
  problems during its reform design, planning, and implementation. This risks the sustainability of
  service delivery to the citizens. Planned and systematic surveys or tracking mechanisms are not
  carried out on the provision of services to customers or on the implementation of reform tools by
  institutions. Establishing mechanisms are not properly placed to evaluate intermediate and final
  outcomes and outputs of the reform programs. Such evaluation of the CSRP implementation
  provides feedback and reduces the risks of sustainable implementation. It will also help to review
  the status quo of the program and its attributes.

143. The reform has to be carried out in packages by incorporating all related tools of the reform,
  standard procedures and information technology. The initiatives and tools of CSRP were not
  executed with proper sequencing and packaging and parallel to the expected change management
  methodologies. Hence, the early introduction of results-oriented performance evaluation,
  Performance Improvement and Restructuring System, and the continued actions such as the
  refinement and execution of BPR, performance management system, and BSC took longer periods
  and repetitions. In general, the public sector reform road map is not updated and implemented in a
  way that properly sequences changes in systems, structures, skills, and attitudes.

  4.3.6 ACCOUNTABILITY AND TRANSPARENCY
144. While transparency works have been encouraging, downward accountability and interactions
  with the Civil Society Organizations (CSOs) is less effective. Some of the outcome indicators for
  improved transparency and accountability include: reduced incidence of corruption and arbitrariness
  in rule enforcement (as judged by economic agents); increased access to justice, recourse and
  redress; enhanced independence of the judiciary; increased access to government information; and
  local level downward accountability of electorates leaders, civil servants, and front line workers.

145. The study on independence, transparency, and accountability in Ethiopian judiciary revealed
  that the judicial independence has improved, but progress remains to be made in the understanding
  of, and respect for, the principles of judicial independence both by judges and by executives. In
  combating corruption, Ethiopia has put in place the necessary legal and institutional framework.
  According to the Federal Ethics and Anti-Corruption Commission (FEACC), the challenge of
  combating corruption that remains is to ensure that the problem does not grow beyond what it is
  today (FEACC, 2012). Towards this, efforts have been made to strengthen transparency, to enhance
  oversight, and the implementation of sanctions to improve accountability. There are two opposing
  views regarding the scale and incidence of corruption in Ethiopia today. One view is that corruption

                                                   43
  has become endemic and systemic, while the contrasting view holds that, despite the growing trend,
  corruption has not yet become deep rooted and systemic. The causes of corruption in Ethiopia are
  not different from those experienced in other African countries. FEACC (2008) stated that poor
  governance, lack of accountability and transparency, low level of democratic culture and tradition,
  lack of citizen participation, lack of clear regulations and authorization, low level of institutional
  control, extreme poverty and inequity, and centralization of authority and resources are the major
  causes of corruption in Ethiopia. Moreover, family and ethnic loyalties and obligations, blurred
  distinction between private and public interests, privatization, weak financial management,
  inadequate accounting and auditing, weak legal and judicial system, over regulated bureaucracy,
  deterioration of acceptable moral and ethical values, unsound policies and inefficient civil service
  system are other causes of corruption in Ethiopia. The perception of the public on these causes of
  corruption is reflected in different ways. For example, the WCBS (Citizen’s Report Card) showed that,
  at a local level, households who reported making extra payments outside the legal requirement for
  any government services in the last year decreased from 4.3 percent in 2008 to 4.1 percent in 2010
  and then increased to 6.5 percent in 2011.

146. The degree to which Ethiopia is “developmental� depends on how well functioning institutions
  are, bottom-up and incentivized accountability mechanisms besides the existing top-down
  disciplines, implementations that would encourage better performance as well as on how it pursues
  the development or nation-building objectives rather than serving private, and rent-seeking
  opportunities. Hence, downward accountability is an area that needs further improvement.

147. The accountability of officials and civil servants to the authorities who appoint them is easily
  discernible. The state of accountability of officials and civil servants to citizens with regard to their
  performance in service delivery is not easily identifiable. To this end, knowledge on service
  standards and budgetary allocation is vital for citizens holding officials accountable. Financial
  transparency and accountability mechanisms are largely at work in many regions. The WCBS Supply
  Side Survey, using the 74 sample jurisdictions, confirmed that majority (more than 70 percent) of the
  sample city governments, municipalities and woredas allowed their citizens and stakeholders to
  access their written information in their budget, annual report, strategic plan, tax assessment,
  services provided by the local government, agenda of the council meetings, and decisions taken by
  the council.

148. The approach to implementation of transparency accountability (social accountability)
  initiatives involved varied approaches and actors. The components of decentralized capacity
  building, local governance, accountability, transparency initiatives under the CSRP and DLDP
  (including the issues of local level investment planning and participation, social accountability
  through PBS and ULGDP), and other related reforms have not been scaled up as a major
  transformation agenda as it has not been sustained and addressed in an integrated and
  complementary ways at the grassroots. More work is needed for enhancing downward
  accountability; sustaining the implementation of good governance systems and institutions; and
  integrating implementation of different reforms and different stakeholder institutions directly
  involved on accountability and transparency.

  4.3.7 LOCAL PLANNING , PARTICIPATION AND SOCIAL ACCOUNTABILITY
149. PSR has improved the combination of bottom up and top-down grassroots participation
  systems, but sometimes top-down disciplines that dominate stifle participation. The assessment
  conducted on implementation of good governance package and participation system (PSCAP, 2011)
  found that citizens demanded rights or voice, even when expressing idea that are contrary or critical
  of the government. This was one of the indicators for the quality of governance in Ethiopia.
  According to the assessment, all interviewed officials and cabinet members in the study jurisdictions
  concurred that the participation process is open in terms of accommodating contrarian views and no
                                                     44
  one will be implicated because of his or her opinions. Voluntarism is a major approach in citizen
  participation and upholding accountability. While allowing contrarian views to be aired in an
  unedited manner is an important step in its own right. The assessment found two critical issues that
  need serious attention. The first is the presence of a favorable environment that provides safeguard
  mechanisms for promoting contrarian views. Second, there is a need to properly handle such
  contrarian views, since it is only when such ideas receive proper treatment that people will be
  encouraged to freely share their opinions and ideas (PSCAP, 2011).

150. Prior to the implementation of the good governance package, the Ministry of Capacity Building
  of FDRE (GGP report, 2009) affirmed that there was no forum for civil society actors and the
  government to partake in dialogue on how to engage and check and balance with each other. This is
  realized by instituting the democratic participation of membership-based civil society organizations
  in the kebele and woreda councils (but the CSOs have no voting rights).

151. The main dimensions of participation are planning and implementation of communal and self-
  development activities, local affairs such as arbitrations in social tribunals and maintenance of peace
  and security at local level, representations of CSOs in Councils, and in M&E activities (PSCAP, 2011).
  The WCBS Supply Side survey indicated that out of the 74 sample jurisdictions, about 87 percent of
  the sample city governments, 78 percent of sample municipalities, and 84 percent of sample
  woredas employed participatory planning in the last three years. Based on the same survey, in
  Amhara and Tigray, 70 percent and 51 percent of women occupied seats in their councils
  respectively, while the rest of the regions and states provided only 20 percent to 34 percent of
  council seats for women. The local councils at woreda and kebele level have been broadened from a
  minimum of 150 constituents to 300. The participation of women in the council has reached 30
  percent to 50 percent. It is possible to mobilize financial, material, and labor resources to
  supplement the shortage of capital budget for construction of basic services. Social shengo
  consisting of eight to 15 members have been organized to reconcile disputes and minor illegal
  matters at localities. Areas that need continuous support are the promotion of civil society
  participation, the enhancement of the engagement of the citizens and voluntarism in government,
  the participation in policy making, the improvement of the livelihoods of citizens, and the
  enhancement of demands for participation and accountability in service delivery.

152. Structures are being established for citizen and community participation, planning, and local
  service delivery. This increased community participation in local planning, budgeting, and
  administration created an environment for enhancing employment opportunities. The approach
  must be systematically strengthened for sustainability. But the top down approach to delivery
  sometimes stifles local initiative and creativity.

  4.4      EFFICIENCY OF DELIVERY OF INTERVENTIONS
153.    The following two measurements are used to assess how efficiently PSR is delivered:

       ï‚·   Efficiency of operational modality/management
       ï‚·   Quality of tracking, M&E, and communication strategy

  4.4.1 EFFICIENCY OF OPERATIONAL MODALITY /MANAGEMENT
154. Operational aspects of PSR programs that bring efficiency include processes such as application
  of rules, planning, priority setting, and procurement that may incur administrative speed delays and
  increase the cost of the programs. Another facet of the operational aspect of a program considers
  whether or not the program is properly included in the government’s budget and calendar and
  activities are implemented according to the planned sequence and priorities based on the rules of
  the game. Furthermore, decision makers should not keep changing activities, and the PSR should not
  impose too much of a burden on implementing institutions.
                                                    45
155. In general, PSR programs (specifically PSCAP project support) have been efficiently
  implemented and designed, despite marginal gaps in incentives, manpower, and further
  strengthening the capacity of implementations at regional level. The PSCAP program performed well
  on most of these indicators. Management is efficient in a PSR program as the program cost is
  relatively low. Management costs account for less than ten percent of the program’s total cost.
  According to the Project Appraisal Document of PSCAP (2004), operating cost is planned five percent
  of the total estimated project cost. Of these funds, most are used for supportive and facilitation
  studies by consultants, as well as improvement to planning, procurement, and M&E. Management
  costs are low because the federal system helps to share the processing time burden across sectors
  and institutions. Management efficiency is also gained as a result of the program’s integration,
  alignment with existing government systems, pooling of the required funds from different sources,
  and by building technical staff capacities at the regional level in the early stages. The program is
  aligned with the existing government system and it has managed to effectively pool funds from
  different sources.

156. Efficient use of funds for the project indirectly depicts the proper functioning of the delivery
  system. It can be measured by the proportion of the budget that is used and the extent to which the
  spent budget helped to meet program objectives. On average, PSR programs in other developing
  countries use 55-60 percent of their budget, while the share for Ethiopia is more than 70 percent.
  Some projects are cancelled before completion, while others take longer than planned to complete.
  In rare cases, projects cost less than planned or are completed ahead of schedule.

157. The PSR initiative does, however, need to pay more attention to institutional structures and
  incentives for decentralizing decision making power effectively and put in place systems for building
  the capacities of executives.

  4.4.2 QUALITY OF TRACKING , M&E AND COMMUNICATION STRATEGY
158. In most developing countries, large-scale survey and evaluation (M&E) initiatives are rare and,
  if used, may not cover all aspects of the program. They are usually conducted over short periods.
  Developing countries rarely monitor and evaluate their PSR programs adequately. Quality tracking
  mechanisms depend on a country’s capacity to deploy a credible M&E system. If implemented,
  ownership shifts from the donor to the country, and leads to a partnership between the two. Donors
  help countries to develop the right tools to manage development. Partner countries are responsible
  for evaluating and reporting on their progress and for using the lessons learned to continuously
  improve their performance (Morra-Imas and Rist, 2006). In Ethiopia, surveys or reviews of PSR on
  larger size have been tried rarely. Attempts include PSCAP or PBS overall reviews and area specific
  surveys, such as the Survey for African Peer Review, CSA Survey, Anticorruption survey and WCBS.
  Thus, the approach in Ethiopia could be improved by considering the following points:

      ï‚·   The Woreda and City Benchmarking Survey were initially designed as a large-scale survey to
          track the performance of PSCAP using demand and supply side instruments. Government
          and donors have recommended it to be used as an M&E tool to track the ongoing
          performance of the whole PSR at local level.

      ï‚·   An institutionalized and common mechanism, which would be owned by the government,
          should be created to carry out surveys and evaluations on the PSR’s specific reform areas.
          There is a need to scale up or create forums and arrangements that would help use the
          inputs of the survey and evaluate results. The institutional arrangement could be used for
          addressing the varying needs of regional states.

159. For a proper PSR program design, a comprehensive communication strategy is crucial. It will
  communicate the program and its results to decision makers and the public at large. One of the

                                                   46
  constraints of the Ethiopian PSR is poor implementation of its communication strategy. This can be
  demonstrated by the fact that although there are successful areas of reforms, it has not been
  communicated to the higher decision makers at the country level, to researchers and also by
  international organs.

  4.5     RELEVANCE/APPROPRIATENESS OF THE PSR APPROACH
160. This measurement refers to the appropriateness of an intervention relative to the objective set
  out (the reform and capacity needs it is expected to address) and in light of the assessment of
  effectiveness and efficiency discussed so far. The relevance of the PSR design is assessed with regard
  to the following specific measurements:
       The reform program’s “Big Push� design, objectives, contents, and instruments
      ï‚· Country ownership/commitment and institutional setting/leadership and sustainability
161. The design of a reform approach is given more weight than the content and composition of the
  reform areas. Often the success of a PSR program depends as much on how it is done compared to
  what is being done (Polidano, 2001). In Ethiopia, both aspects (the approach and content areas to a
  lesser degree) are important concerns. The following sections discuss PSR’s relevance and
  appropriateness with regard to the indicators identified, and compares Ethiopia’s experience with
  those of other countries.

  4.5.1 THE REFORM PROGRAM DESIGN, CONTENTS AND INSTRUMENTS
  4.5.1.1 OVERLAPS AND COMPLEMENTARITIES BETWEEN PROGRAMS

162. Public sector reform in Ethiopia has consisted of multiple instruments: PSCAP, PBS, ULGDP, the
  earlier budget-support programs, and sector-specific capacity-building initiatives or reforms.
  Multilateral or bilateral donor agencies also support some programs or projects. The links between
  these instruments and how they complement each other are essential and could affect the support
  of donors to the government's GTP. According to the government, state transformation entails
  institutional transformation and behavioral and attitudinal change in the public sector. Wide arrays
  of intermediate level indicators and targets have been formulated to express the degree of
  achievement under the various intervention modalities in the last two decades.

163. PSCAP invests in sector-wide approaches in capacity-building and sector-specific reform areas
  such as the Civil Service Reform (Sub) Program, Urban Management Capacity Building (Sub)
  Program, DLDP, and Information and Communication Technology (sub-program). PBS on the other
  hand focuses on MDG-related, sector-specific capacity-building issues, macroeconomic and fiscal
  issues, local investment, and social accountability. These two instruments are complementary, but
  also overlap in some areas. PBS, PSCAP and ULGDP should complement each other. For instance,
  ULGDP and PSCAP already complement each other in grants for investment and capacity building,
  and in responding to the priorities at the local level. Further complementarities could be achieved on
  the following issues:

      a) PSR work areas are identified to achieve the basic principles of public sector management.
         This should be explicit and be communicated. Reform consists of activities for improvements
         or changes that are different from regular operation activities, although the former could be
         eventually streamlined with the latter.
      b) The PSCAP or PBS programs should not be overloaded. It may be possible to redefine
         projects’ objective indicators and intermediate outcome indicators in such a way that their
         initiatives will support each other toward a common goal.
      c) It is necessary to avoid overlaps within a reform and between reforms by placing it to its
         appropriate cluster area and institution. Some overlaps exist, for example between GGP,
         CSRP, and PBS’s social accountability components.
                                                  47
164. While PSCAP was introduced to meet medium-term goals, PBS focuses on annual developments
  and changing circumstances. The dimensions of the two could not be easily identified. The
  government’s commitment to the two programs has been variable. Nevertheless, both the
  government and its partners acknowledge that the Ethiopian public sector reform is a state
  transformation agenda.

165. At the design stage of PSCAP, the major specific-purpose grant provided to regional states was
  only for food security, and then afterward for a productivity safety net, a complementary program to
  ensure food security. At the time, there was no sector–wide, specific-purpose grant in existence
  other than the productive safety net. The financial resources were earmarked based on a formula
  that considered the number of beneficiaries and the food security situation. The specific sector
  grants for the education and health sector development programs were financed through the
  equity-based block grant to the regional states and city administrations.

  4.5.1.2 PSCAP’S “BIG PUSH� APPROACH

166. The question of whether the “Big Push� approach of public sector reform in Ethiopia is useful
  has to be answered. How and when was the “Big Push� approach to PSR designed and
  implemented? What were the enabling environments that supported the approach; what were the
  risks and risk mitigation measures? The “Big Push� approach (comprehensive and integrated) was
  suitable to Ethiopian conditions for the following reasons:

      a) It was supported with visionary ideas and political commitments. It was initiated at a time of
         high demand for state transformation by the political leadership, which aimed to bring about
         ambitious, all-round and rapid economic, social, and political changes in the country. This
         was supported with coordination, leadership, oversight and adequate government
         counterpart funds. However, the state transformation agenda is not yet complete and
         further deepening and consolidation of reforms is necessary.

      b) Due to the need for wide scale reform measures across the tiers of the government, the
         approach has been massive in scale and rapid. Two systems of capacity building for regional
         states and the federal government were created. These are:

             i.    Federal component supports across priorities, which focus on scale and network
                   economies and that require prototyping; and

             ii.   Regional component supports across priorities and bulk initiatives to empower
                   regions to adapt and implement national reform priorities. This is in addition to
                   completing their activities in a manner that is efficient, accountable and sustainable.

      c) The financing was both supply and demand driven: the reform addressed the needs of a
         number of institutions and lagging regional states. This was, however, supported with
         feasible implementation arrangements, creating capacities, introducing prototypes, and
         performance-based disbursements or windows of financing.

      d) As the financial requirement for cross cutting PSR was covered, there were more
         opportunities to expedite resources for development.

      e) The PRS also safeguarded the diversion/leakage of financial resources by putting in place the
         necessary institutional capacity and accountability reforms for development. For example,
         the financial control, fiscal decentralization, fiduciary, auditing and reporting systems.

      f)   The “Big Push� approach has advantages in meeting the outcomes expected by specific
           reforms, creating synergies, addressing crosscutting reform areas, and building experiences.
                                                    48
      g) The modalities of the PSR approach were efficient and relevant.

167. Nevertheless, a “Big Push� approach has associated problems and risks. The sustainability of
  the reform approach is affected by risk factors as follows:

      a) The “Big Push� approach, as a first generation of reforms, built up critical mass requirements
         and now it is accompanied by scaled up qualitative demands. Specifically, there is unmet
         latent demand for executives at regional and federal levels.

      b) The “Big Push� approach is not linked to the country’s macro level revenue growth.
         Currently, the reform requires a competitive financial resources and government matching
         funds parallel to the financial requirements for the ambitious GTP’s and environs of
         influence from economic and social infrastructure development. A “Big Push� approach is
         not linked to alternative financing, which in turn entails an unsustainable situation for state
         transformation

      c) Local revenue and grants are inadequate for capital development and capacity building,
         which downgrades the incentive for reforms.

      d) The PSR now depends on expanding a poorly paid civil service.

      h) Some reforms lack complementarities or overlap with each other; and thus PSR require an
         overall framework for coordination and synergies both on the government and donor sides.

      i)   Informally, the financial decision-making power of regional governments is taking over that
           of local governments.

168. In the future, the PSR should be adjusted to avert the risks of financial requirements, scale of
  needs, and poorly paid and less incentivized civil servants. The following three alternatives could be
  considered in choosing the system of PSR for the second generation.

      1. Decentralize/deepen and enhance the PSR role of regions and local governments by
         legitimizing their decision-making power and providing financial resources to carry out
         reforms. Parallel to this, there is a need to subsequently downstream the PSR
         implementation responsibility to the local level.

      2. Continue with the existing “whole government approach� of the PSR that is carried out by
         regions and federal government, but modify the approach to fit the existing changes (e.g.
         with a sequenced and incremental type of system within reform areas). However, this might
         limit the progress and the way to reforms at the regional level because it necessitates the
         clearance of the coordinating federal level supervising bodies.

      3. The third—and contrary—alternative is to recentralize some of the reform elements at
         federal level and/or focus on a few regions at a time to avoid the “Big Push� approach. But
         this might have adverse impact on the effectiveness and pace of the implementation of the
         reform.

  4.5.1.3 IMPROVING SERVICE DELIVERY AND ACHIEVING THE MDGS - THE PBS APPROACH

169. Since 2006, the PBS program has been the main multi-donor channel (large scale supported
  with 12 donors) that supported the improvement of basic services in education, health, agriculture,
  water supply and sanitation, and rural roads delivered by sub-national governments, while
  deepening transparency and local accountability in service delivery. It has been governed by the
  implementation of agreed conditions and tests related to fairness, accountability, transparency, and
  effectiveness of expenditures. Additionally, ensuring the supplementation of donor funds to the
                                                  49
  government's own financing of the block grant. The overall expenditure to basic services was high.
  Between 2005 and 2010, the annual average growth rate of basic service regional expenditure per
  capita was 5.7 percent parallel to the growth rate of the total government expenditure of 6.1
  percent. Between 2006 and 2011, real per capita expenditure in education and health was four
  percent and six percent respectively (Delegation of the European Union to Ethiopia, 2012). Hence,
  BPS supported the improvement of basic service delivery and achievement of MDGs (for the sample
  achievements of MDG, please see Table 7).

170. Protection of Basic Services (PBS) is designed as a sector investment and maintenance loan. It
  ensures that a pool of financial resources is directly transferred to regional governments to improve
  basic service delivery. Before PBS, PRSCs were used until 2005, but not during the Ethiopia-Eritrea
  conflict. The government believes that PBS financing for recurrent budget expenditures is more or
  less equivalent to budget support. However, a shift to budget support could increase the flexibility of
  the application of the funds and accountability by the government. The partners could add anchors
  and accountability measures, which could ensure—in a more convincing way than dealing with a
  number of overseeing interventions—that the transformation or reform agenda goes forth.

171. Financing recurrent expenditures from the PBS donor fund indefinitely could lead to
  dependency. As mentioned earlier, the ratio of domestic revenue to recurrent expenditure has
  steadily increased, posing questions on the sustainability and impact of financing recurrent budget
  through PBS. LIG conditions were not simplified and were not adequately earmarked. One way of
  averting such a situation is to fund expenditures through specific grants that have fewer conditions
  than LIG had. The capital financing transferred through such a grant should be more competitive and
  attractive than the prevailing government transfer arrangements. It should also be complemented
  by specific purpose grants for public sector reform and capacity building. The fiscal transfer practices
  other countries use to allocate large shares of funding through specific purpose grants and not
  untied grants.

172. Credible and relatively large share specific purpose grants are not provided to local
  governments through regional governments, or from federal government to regional governments
  for the purpose of local governments. Despite these assumptions, the specific purpose grants
  transfer also affects the pattern of the transfer of block grant and local autonomy. The devolution of
  power is related to local autonomy and building trust by local people, which entails a larger share of
  transfer proportional to expenditure assignments of a local government through the disposal of local
  governments than by regional governments.

  4.5.1.4 THE ROLE OF REGIONS

173. There are several regional implications in view of the previously discussed options for the
  second generation of reform. The whole government approach for public sector reform should
  change to a differentiated or selective approach. The government needs to evaluate its revenue
  capacity to finance the PSR and get maximum returns in achieving the state transformation agenda.
  The regional states are the major actors in achieving the agenda. The responsiveness of the regional
  governments would be higher, as they are closer to the grassroots.

174. The Ethiopian Constitution made regional and woreda self-governance possible. In spite of
  legitimizing self-rule, remnants of the old order follow a top-down approach in formulating and
  implementing government policy. In addition, regions depend heavily on central governments for
  resources and woredas do the same with regional governments. This leaves little room for genuine
  or meaningful democratic decentralization that can be expected to improve service delivery, as well
  as enhance empowerment at the grassroots level.


                                                    50
  4.5.2 PROGRAM DESIGN ISSUES
  a) Theories and Countries Practices on Program Design

175. Among others, program design should consider a) refining the purpose, objective or strategy of
  the intervention, b) the consistency or synergy of a reform project or program, and c) the acceptable
  scope for a program or project. The final point is especially important to determine the depth of
  involvement by the private sector, informal sector, civil society, and geographical regions. These
  issues impact strategic alignment, consistency, and sustainability of the value that reform initiatives
  add. Theories and lessons on public sector reform and governance suggest crosscutting lessons for
  further improvement. The Oxford Policy Management’s Evaluation of Public Sector Governance
  Reforms 2001-2011, a Literature Review by Zoë Scott, pointed out the generic lessons about Public
  Sector Governance Reforms listed below. Ethiopia’s experience has verified these lessons.

      ï‚·   Incremental approaches taken within reforms may be more sustainable and politically
          feasible.
      ï‚·   Timing and sequencing of reforms should be major considerations when designing and
          planning the implementation of PSR.
      ï‚·   Change donor behavior and systems so that support is more long-term, predictable, and not
          entangled with perverse incentives.
      ï‚·   Donors should consider how they could support citizens in creating public pressure for
          reform.
      ï‚·   Pay attention to politics in both the design and the implementation of reforms.
      ï‚·   Reforms require strong domestic leadership to be successful.
      ï‚·   Poor public sector performance must be addressed, although there is no consensus on how
          to do this. Suggestions include: increasing staffing levels, focusing on pay reform, introducing
          more performance management, and supporting organizational change.

176. The following table (Table 13) provides the experiences of eight countries (Ethiopia, Australia,
  New Zealand, Tanzania, South Africa, Nigeria, Ghana, and Mozambique) with some comments on
  program design issues, especially the purpose of the program and its scope and whether the private
  sector and civil society is involved.

  TABLE 13: INTERNATIONAL EXPERIENCES WITH DIFFERENT PSR DESIGNS

  Country             Measure              Reform design approach          Comments
  Ethiopia            Strategy             Good governance and             Integrated, cross-sectorial
                                           capacity building is a pillar   sub-programs at federal and
                                           of the GTP.                     regional levels. Decentralized
                                           Government believes             arrangement of
                                           national programs, policies     implementation. Synergy for
                                           and strategies that             scaling up or enhancing
                                           strengthen and sustain the      implementation. Across the
                                           country’s capacity are vital    board implementation,
                                           to the ongoing process of       strategic formulation,
                                           democratization                 decision-making on resource
                                                                           transfer, reporting, and
                                                                           accountability.
                                                                           Capacity needs should be
                                                                           linked more to value chains.



                                                    51
Country           Measure            Reform design approach           Comments
1. Australia      Strategy           Development of blue print        A well planned
                  framework for      for reforms as a guiding         framework/strategies for
                  reform             framework.                       implementation. Have nine
                                                                      signature reforms, grouped
                                                                      as four core components for
                                                                      a high-performing Australian
                                                                      public service.
2. New Zealand    Strategy for       Third generation reforms         Focus on policy problems and
                  public             were put in place to restore     the quality of services as a
                  management as      coherence to government          whole rather than on
                                     and attention switched to        narrower reforms.
                  third-generation
                                     horizontal coordination and
                  comprehensive      integration
                  reforms
3. Tanzania       Scope and          Reform programs                  Comprehensive reform and
                  incorporation      consisting of independent        synergies from simultaneous
                                     reforms. I.e. public service     reforms.
                                     reform, local government
                                     reform, legal sector reform.
                                     Overcome the challenges of
                                     coordination, finding
                                     overlaps, conflicts, areas of
                                     synergy, and monitoring
                                     and evaluating in the
                                     various programs.
4. South Africa   Programmatic –     Reform design based on           Programmatic design for
                  comprehensive      broader issues and demand        specific reforms
                  scope              driven, but implemented
                                     on limited scale in specific
                                     institutions.
5. Nigeria        Programmatic –     Reform design based on           Comprehensive design,
                  comprehensive      broader issues and demand        applying diagnostic methods
                  scope              driven, but implemented          to broader issues.
                                     on a limited scale in specific
                                     institutions.
6. Mozambique     Programmatic       Focus on mainstreaming           Capacity building failed
                                     capacity in development          mostly due to a lack of
                                     sectors within poverty           coherent strategy and
                                     reduction or macro strategy      problems with the design
                                     and coordination of donor        and implementation.
                                     support.




                                              52
  Country             Measure              Reform design approach         Comments
                      Strategy             Strategies mostly paid         PSR project not
                      coordination         attention to improving         implemented. Contradictory
                      focuses on           sector management and          views for the reasons:
                                           coordinating donor             commitment, design or
                      technical
                                           support.                       implementation problems,
                      assistance and                                      question of donors’
                      fragmentation.                                      sustainability and focus on
                                                                          technical assistance for
                                                                          sectors.
                      Specific sectors     The 2004 Public Sector         Linking sector specific
                                           Reform project was an          reforms to performance
                                           attempt to take a more         incentives.
                                           integrated, cross-sector
                                           approach to the issue of
                                           performance incentives and
                                           a sector-wide health sector
                                           reform program.
  7. Ghana            Overall strategy     No overall strategy for        Less integration among
                                           capacity building was          projects. Privatization,
                                           articulated and the            decentralization, public
                                           interrelationships between     service reforms have been on
                                           public sector reform and       the agenda with limited
                                           sector programs were not       results. Least successful
                                           explicitly managed.            capacity support has been in
                                                                          public sector reform. Failure
                                                                          in such areas as public
                                                                          service reform and the
                                                                          computerization of public
                                                                          expenditure management.
  Source: extracted from literature review of countries, 2004-2010, Australia, New Zealand, Tanzania,
          South Africa, Nigeria, Mozambique, Ghana and Ethiopia

      b) Refining the purpose, objective or strategy and consistency of the Ethiopian PSR reform

177. A few Sub-Saharan Africa countries applied a cross-sectorial and integrated PSR approach
  aligned with the goals of democratization or development, and Ethiopia is one of them. The quality
  of a reform program depends on the existence of a coherent reform strategy and adherence to it,
  the alignment of a standalone or an integrated reform project/program to national strategies and
  policies, and the synergies or value chains sought. Ethiopia’s strategy has focused relatively more on
  strengthening sectorial capacity bottlenecks in service delivery chains than in strengthening sectorial
  value chains, as well as the supply side of intervention than the demand side of intervention. The
  World Bank’s Support to It, Africa’s Future (2011A), and the World Bank approach to Public Sector
  Management (2011B) indicate the new approach and future strategies to public sector capacity and
  governance. The World Bank strategy for a New Approach to Capacity Development concludes that
  capacity development and governance are central to the new Africa strategy because they are keys
  to attaining the strategic pillars. The new approach links capacity development to the growth and
  poverty reduction agenda. It emphasizes on solving capacity bottlenecks in value chains and in
  service delivery chains, and focuses to be given on demand and supply. These are relevant to filing
  the gaps in Ethiopia. It is necessary to align reform areas to the value chain of sector developments,

                                                    53
  competitiveness and employment opportunities; placing emphasis on downstream sectors, building
  the country systems across disciplines, rather than dealing on stand-alone, ring-fenced investment
  projects. Under the new capacity development approach, the World Bank will mainstream capacity
  issues in CAS and monitor progress on the basis of agreed upon benchmarks. One critical lesson is
  that despite the understanding that reform is a long-term undertaking. In actuality, short-term
  measures are often deployed. Reforms that are considered largely as donor-supported projects with
  a timeline tend to fade away with time.

178. The purpose and objective of the next PSR phase in line with the GTP’s current governance and
  capacity-building agenda could be redefined as:

          ï‚·   Strengthening the capacity of the state,

          ï‚·   Building transparency and accountability, combating corruption, and

          ï‚·   Strengthening democracy and public participation

          ï‚·   Giving emphasis to value chains, focusing on demand and supply while aligning the
              approach with national strategies and policies

      c) Scope of the program or project design of Ethiopia’s PSR

179. Most developing countries have moved away from the isolated and fragmented approach of
  the 1990s. Even so, a number of countries still have standalone, sector-specific PSR programs for
  poverty reduction. In most African countries, the modern-day PSR programs started from structural
  adjustment programs, moved to civil service (administrative) reforms and then to sector-wide
  (public sector) management reforms. Subsequently, the emphasis started moving back towards sub-
  sector reforms, with specific sectors receiving special emphasis (Obong'o, 2011). The types of reform
  programs could be classified as follows:

         Specific Sector-Wide Program – contained in a sector or sectors as is the case in most
          developed and developing countries.

         “Big Push�/Bang Sector-Wide Program – comprehensive and highly integrated, or whole
          government reform program, like the one in Ethiopia.

         “Big Push�/Bang, but marginally integrated Sector-Wide Program – less comprehensive, such
          as the reform programs in Tanzania and South Africa.

      ï‚·   Stand-alone projects.

180. Ethiopia adopted a “Big Push�/Bang Sector-Wide Comprehensive Program to correct the wide
  scale institutional deficiencies. In this regard, Dia (in Polidano, 2001) argues that countries with a
  high level of patrimonialism in government, there is a need for a comprehensive institutional reform
  program to “correct patrimonial distortions in the institutional environment.� Uganda found this to
  be the case—they needed a wide-ranging, holistic approach because government’s administrative
  failures there stemmed from more than technical incompetence. However, such holistic programs
  are prone to attempting too much. Because of this, they then fail since they are unable to
  implement (Polidano, 2001).

181. The Ethiopian PSCAP integrates projects across public institutions, spatial units, pillars or
  elements of reform, and for pooling investment. However, it lacks reliable phasing and should
  consider an incremental approach within reforms. Experience is lacking on finding an acceptable mix
  and all round level of integration, and this should be explored further for Ethiopia. The types of
                                                   54
  vertical or horizontal integrations in different countries could be classified as integration of broader
  perspectives or policy issues, integration of sectors, integration across public institutions, integration
  across spatial units, integration of pillars or elements of reform, integration of operational modality,
  and integration for pooling investment. The Australian public service reform integrates strategies,
  the Tanzanian comprehensive reform integrates programs on operational modalities, and the New
  Zealand cyclical horizontal and vertical reform integrates operational modalities with broader policy
  issues.

182. In Ethiopia, the reform crosses a number of public sector institutions including the legislatures
  and judiciary branches of government. Despite this fact, some government institutions and systems
  are still not aligned with the PSR approach, and where the transformation agenda has reached in
  these institutions, it often exists at the level of planning and awareness rather than implementation.
  Non-state actors are not yet fully aligned. Most developing countries limit their PSRs to institutions
  in the public sector but the newer approaches include non-state actors and extended reform
  implementation to legislatures and judiciary branches of government. The approach can extend to
  non-state actors such as civil society and to the private sector (in the areas of corporate
  governance), as was practiced in the European Union. For instance, changing the working conditions
  (and expectations) for public sector workers to align more closely with those in the private sector is
  another approach that the European Union has followed.

  4.6     COUNTRY OWNERSHIP / COMMITMENT, INSTITUTIONAL SETTING, LEADERSHIP AND
          SUSTAINABILITY
183. This indicator measures whether the intervention is locally owned and sustainable. It consists of
  macro and institution level design and operational implementation measures. The indicator has the
  following specific measurements:

      ï‚·   Ownership and political commitment
      ï‚·   Appropriateness of fit to institutional setting

  4.6.1 OWNERSHIP AND POLITICAL COMMITMENT
184. Understanding the incentives for initiation and execution of PSR program in Ethiopia is an
  important issue for sustainability. Simone Bunse and Verena Fritz (2012) assessed the political
  driving factors of countries that can trigger or facilitate public sector reforms, and those that tend to
  work against successful reforms by investigating the experience of World Bank public sector
  operations from 2000 to 2010. Similar to the Ethiopian situation, real breakthroughs have been
  achieved in countries experiencing major structural shifts and those having political leadership
  committed to higher-level goals. On the other side, in many developing countries, political costs for
  incentives to initiate public sector reforms frequently outweigh potential gains; and hence reforms
  are abandoned or left to wither. In this regard, factors which can trigger or induce initiation of PSR in
  many countries are found to be the need for global economic integration and in some countries, the
  triggers are happenings of fiscal pressures or influences recent democratization. Conditions that
  strongly or possibly favor PSR in a few countries are the existence of rapid and sustained growth
  while many countries favor PSR for seeking government legitimacy. Thus, investing in understanding
  political economy drivers has been associated with better project performance and sustained
  growth. On the other hand, the disincentive for PSR in many of the countries is the fear that benefit
  of PSR might not be reaped during the tenure of the government. Other disincentive factors are the
  bureaucratic resistance that increases the political cost of implementation.

185. Considering the above findings, in Ethiopia, the incentive that triggers or sustains PSR programs
  are linked to: political leadership commitment to higher-level goals, the nature of responsiveness of
  stakeholders, the bureaucratic resistance, the need for enhancing the legitimacy of government, and
                                                     55
  the influences of democratization. Concurrent to the findings is the existence of rapid and sustained
  growth. Correspondingly, the need for the reform has been the major drive. The government was
  committed to ensuring the sustainability of the capacity development activities because it was a
  primary means of ensuring continued social and economic development, as well as contributing to
  the continuing legitimacy of Ethiopia as a Federal State. The government’s initial political
  commitment to PSR (PSCAP, PBS) was high. Donors found Ethiopia’s commitment to PSR convincing
  enough to support it over the past seven years. Donors, the World Bank, and the government
  preferred budget-support modalities because: i) such modalities are easy ways to disburse money
  quickly on issues that are considered equitable, justifiable, and critical for the development of a
  country; and ii) for the government, this method is relatively free of policy conditionality and other
  “strings,� giving them much needed foreign exchange quickly (as it was meant to do).

186. However, as the project of PSR draws closer to its end, the strategy for sustaining reforms that
  are in their early stages is not clear, which increases the risk of sustainability. The views on sustaining
  reforms were inconsistent either in reform components as whole or on specific contents of reform.
  Regional and federal beneficiary agencies are now interested in the significance of the sustainability
  of the PSR. There were several possible reasons behind this change in attitude about the
  sustainability of PSR. This could be due to:

      ï‚·   Conflicts of interest such as the focus given to the alternative financial requirement for
          infrastructure rather than spending on reforms.
      ï‚· Easy spending or tradeoffs in other priorities than reforms.
      ï‚· The avoidance of specific conditionality.
      ï‚· Lack of understanding regarding the relative importance of PSR as a global public sector
          management issue; some stakeholders show less attention in carrying forward integrated
          and packaged public sector reform.
      ï‚· Lack of strong leadership and capacity, and lack of proper communication among the
          leadership.
187. Thus, different views are forwarded regarding ownership of the PSR and any specifics that are
  not binding by all actors involved in the reform. The government has continued its commitment as a
  result of the new developments including: the assignment of three Deputy Prime Ministers for
  governance and capacity building, economic and social clusters at federal level; following up reforms
  by holding monthly regular meetings with reform leading or beneficiary government institutions;
  and the government's commitment for sustaining the reforms as demonstrated by the strategies
  and different political fora It is a fact that the goal of state’s transformation agenda is unfulfilled. A
  number of reform areas are not yet regular functions in the public sector. This might give room for
  reconsideration.

188. Experience shows that the important factors for ownership and sustainability are the political
  agenda of the reform program, quality of commitment to the program, focus on more than technical
  aspects alone, sustainability of institutional power, and flexibility to adapt to changing
  circumstances. Observers who have followed recent reforms in countries such as Britain, New
  Zealand, and Australia see political commitment as a significant factor. These countries’ PSRs were
  vigorously implemented because they had an exceptionally high degree of political backing. Finland
  has had a similar experience over the past twenty years (Koivurinta, 2006). In most of the other
  countries mentioned in this document, PSRs have failed because they never get past the
  implementation stage. Political forces block them outright or implement them only in a tokenistic,
  half-hearted fashion (Polidano, 2001). Mexico’s New Public Management (NPM) is another case in
  point. The dramatic changes in the Mexican public sector since 1997 result from democratization,
  political commitment, and decisions in the congress, rather than from deliberate reforms inspired by
  NPM alone (Cejudo, 2008).

                                                      56
189. The other issue related to reform support by donors is the socio-political situation affecting the
  reform. It is only when these reforms become overt political party (establishing or maintaining
  networks of patronage or overtly stifling political opposition for example) that donor partners have
  valid cause for concern. Some mention distortions and inconsistencies in pursuing BPR, BSC, and
  mass training. Evidence to support this view with regard to Ethiopia is, to say the least, thin or
  fragmented in time. It is necessary to allow for some “ground truthing� ensuring that any issues
  raised around the use of reform programs for party political ends can be tested, either proving or
  disproving it. The reform is clearly a political program in its nature. It is, quite overtly, a means of
  implementing a political vision of democratization.

  4.6.2 APPROPRIATENESS TO INSTITUTIONAL SETTING
190. One way to determine how well PSR fits its institutional setting is to evaluate the following
  aspects of coordinating and executing institutions: commitment, ownership, quality of leadership,
  mandate, capacity, competence and experience in the field, management flexibility, decentralization
  of the interventions, and organizational cost effectiveness. For example, PSCAP has been properly
  managed through a matrix management arrangement and coordinated by one competent body
  (MOCB) at federal level and 12 counterpart bureaus at the regional level. It has also one financial
  resource disbursement and management body at federal level, and 12 financial resource
  disbursement and management bodies at regional level. The program is implemented using one
  common medium-term framework at all level. Currently, the Ministry of Civil Service (previously the
  MCB) coordinates PSCAP. MoCS could have taken initiatives for coordinating reform areas effectively
  with a support of parallel line agencies or overseeing body.

191. The focal institution for capacity building has roles in coordinating lead cabinet ministries and
  regions and overseeing the overall implementation of PSCAP; it ensures rule based allocation and
  reallocation, facilitates budgetary approvals and executions for the beneficiary institutions; approves
  PSCAP plans for the federal and the regional components, approves midyear and annual allocation
  and reallocation of PSCAP ‘rights’; executes its own plans; and conducts periodical evaluations. The
  arrangement has helped to drive changes and ensure institutional sustainability by strengthening
  implementation capabilities, installing overseeing mechanisms, and creating flexible arrangements
  of financing. This is in addition to reducing administrative and operational costs for scale economies,
  for harmonizing donors, and for drawing fund through pool arrangement. It was especially important
  in gauging, scaling up, mentoring, and keeping the consistently of the overall implementation.

192. Experience shows that commitment and leadership are critical factors for reform programs and
  that they depend on the mandate of the driving institution, its power to ensure compliance, the
  balancing of the decentralizing management system, and the existence of a support or supervising
  body for the institution at a higher level. In Ghana, the presidential office is mandated to oversee its
  PSR with technical support from subordinate agencies and ministries. Tanzania formed coordinating
  institutions to identify overlaps and conflicts in the components of its PSR and to monitor and
  evaluate its success. However, subordinate coordinating agencies lacked the power to summon
  parallel agencies and were not successful. South Africa gave this role to its Department of Public
  Service and Administration and the South African Management Development Institute. Malawi
  drafted its program for execution by different departments. Most developed countries use a specific
  institution, supported by supervisory bodies consisting of officials and professionals, in order to lead
  their PSRs.

193. Ethiopia can learn a lesson from Australia, which created the Australian Public Service
  Commission to drive its PSR. The Commission provides strategic planning, expertise, guidance, and
  performance monitoring for the implementation of agencies. The Advisory Group’s Secretaries
  Board supports the Commission and reports to the Prime Minister. Partnerships exist between
  specific public institutions and consulting or research institutions in the private sector to receive
                                                    57
  technical assistance (Advisory Group on Reform of Australian Government Administration, 2010).
  Lead agencies were identified for each reform and they must develop more detailed implementation
  plans in consultation with other agencies and, in some cases, external organizations. Their Blueprint
  for the Reform of Australian Government Administration proposes the creation of a Secretaries
  Board and a Senior Executive Service group to strengthen leadership in the Public Service
  Commission. These leadership groups were to drive reform in areas such as strategic policy, citizen-
  centered service delivery, and collaboration across the program.

194. Another way to determine how well a PSR fits its institutional setting is by evaluating to what
  extent interventions have increased decentralization. Currently developing countries like Ethiopia
  are experiencing a demand from their citizens for better capacity, service delivery, good governance,
  and accountability at national and sub-national government level. PSRs in such situations should,
  therefore, decentralize decision-making powers to execute reforms. Countries usually tend to
  establish executive bodies at central and local levels rather than at intermediate (regional) levels.
  Ethiopia implemented PSR more in a decentralized way. Sub-national governments including woreda
  administrations and urban local governments, however, need to have full autonomy on deciding the
  financing and prioritization of their reform activities.




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  5. MAJOR FINDINGS AND LESSONS OF ETHIOPIAN APPROACH TO PSR
195. This chapter provides some major findings and lessons learned from the PSR approach in
  Ethiopia. It gives insight to Ethiopia’s evolving reform approach. During the past two decades,
  Ethiopian public sector reform has transformed the state by improving the government structure at
  federal, regional, and local levels, improving policymaking and service delivery, and strengthening
  decentralization and decision-making power. This transformation has also improved resource
  mobilization and management and strengthened oversight and accountability functions.

  5.1     MAJOR FINDINGS OF THE ETHIOPIA ’S PSR
196.    The following are the major observations and findings of the assessment:

  1) The PSR “Big Push� approach has been relevant as it met the intended reform/capacity building
     objective in fulfilling the supply driven critical mass questions of institutional and governance
     changes in the first generation. As described earlier, the approach has been effective and
     efficient in provided homegrown solutions. The approach was relevant as it is owned and
     created institutional capacities for implementation despite on and off situations in the course of
     implementation. The government has continued its commitment as a result of the new
     developments.

  2) Ethiopia’s indicator for government effectiveness has shown trends of improvement in the last
     seven years as a result of reform efforts. Some of the local studies conducted show that there
     are improvements in most areas. There are, however, some indications of lagging in certain
     situations. International based comparative studies and surveys show that some of the
     indicators, such as regulatory quality, as well as stagnant or deteriorating trends on control of
     corruption, voice and accountability, political stability/absence of violence, and the rule of law.
     However, the data and value of indicators of these local studies have not been assembled to
     provide generic results and comparisons across countries. Therefore, PSRs should enable more
     assessment of the gaps and should suggest measures for enhancing the lagging and critical
     aspects of governance and democratization indicators in the country.

  3) The government has indicated this as good governance and capacity building strategic pillar in its
     ongoing GTP. To this end, there are a number of reform areas that should be continued with
     adequate financial support. These reform areas are not yet regular functions in the public sector.
     These areas impact the governance and democratization process of the country, especially by
     changing the life styles of the people. In this regard, it is worth to mention some of the
     influencing areas: good governance, decentralized capacity building, Information
     Communication Technology, Civil Service Reform, resource management, justice, and rule of
     law, among other things.

  4) The government’s initial political commitment to PSR was high. Assessments on consultations of
     stakeholders showed that, although high demand exists for carrying out an integrated PSR
     across ministries and among regional leaders, some institutions have shown less ownership for
     PSR. This could be due to a lack of understanding of the relative importance of PSR as a global
     public sector management issue, lack of communication within the leadership, or factors related
     to tradeoffs of using financial resource to infrastructure.

  5)    The design of Ethiopian PSR has been politically motivated, but the successes resulted from a
       combination of its approach and content. The PSR considered both the approaches on how to do
       and the mix of reform content areas that are feasible. Both of these factors received
       considerable attention in the design and execution of the PSR in Ethiopia. The government also

                                                   59
    believed that PSR program is both political and technical in nature and separate political and
    technical reforms are bound to fail.

6) There was institutional leadership/coordination capacity that was highly important for effective
   implementation of PSR. For a large-scale public sector reform, the creation of a legitimate focal
   institution and a matrix management structure has been an important institutional arrangement
   to drive the change. But such institutions need to be sustainable, empowered, and capacitated,
   in addition to being supported with a decentralized technical body. The existence of powerful
   focal institutions (Ministry in charge of Capacity Building) and matrix institutional arrangement
   both at federal and regional levels have been relevant factor for the success of the public sector
   reform and capacity building efforts. It helped to draw visionary ideas, drive the change, and
   maintain consistency of implementation nationally. The coordination has been relevant to
   embrace the transformation agenda and the vision of the country.

7) Integrated and holistic orientation and complementarities between PSR instruments is vital for
   translating the GTP of Ethiopia into action. PSR has an integrated and holistic orientation,
   evident in its combined support for capacity building (human resources, organizations, and
   systems) across sectors that integrate all aspects of service delivery. Furthermore, a sector-wide
   approach prevented the costs of separately designed and implemented programs, which would
   each need to seek donor and government resources on their own. It gave lessons that reform
   agendas should not revert to models that use one or a few reform area or focus on short-term
   goals. Moreover, the PSR in Ethiopia consisted of multiple instruments (PSCAP, PBS, and ULGDP)
   following the earlier budget-support programs and sector-specific capacity building initiatives or
   reforms. With some gaps, complementarities exist between PSR instruments and this is essential
   for translating the government's transformation agenda into action.

8) The design of a “Big Bang� approach against the established wisdom has been relevant in the
   Ethiopian context, but improvements are not yet made parallel to the changing demands and
   modalities. Ethiopia used a “Big Bang� like PSR approach that went against the established
   wisdom. For political reasons, Ethiopia is dedicated to tackling reform holistically; it is
   ideologically against the idea of pilots, attempting to address a broad agenda across all
   jurisdictions. However, as the country improves in the future, incremental approaches within
   reform areas may be more sustainable and feasible for management.

9) PSR interventions have placed efficient management system and have been accompanied by
   varied capacity. The Ethiopian PSR programs performed well based on the management
   efficiency indicators. The PSR projects used their funds in a much better proportion. Improving
   the operational modalities and focuses of interventions could enhance the efficiency of
   management.

10) In the design of PSR, alignment with decentralization and government systems has been an
    important support feature for the government and donors. Aligning PSR to decentralization
    efforts helped to reach the grassroots. It distributed powers and responsibilities to regional
    states and city administrations, which enhanced accountability and service delivery. All PSR
    programs are harmonized and aligned with the fiscal, fiduciary and reporting requirements of
    the government, as well as various donors. The approach aligned PSR closely with Ethiopia’s
    public financial management, intergovernmental transfer and planning system. Similarly, the
    structure of fiscal decentralization in Ethiopia has been an important entry point for the PSR
    while at the same time the PSR has supported the functioning of fiscal federalism.

11) Continuous efforts have been made to narrow regional/local differentiations. However, there is
    a need to enhance the rate of growth the lagging regions and localities in order to minimize the
    growing differences with the better of regions and localities. In other words, as relatively better
                                                 60
    regions and localities grow at a faster rate than the lagging regions and localities, the latter ones
    have to grow at a much faster rate. The differences could be manifested in their capacities (e.g.
    in the implementation of reforms qualitatively and timely by regions/localities) and
    development levels (e.g. in the contribution to MDG or GTP goals by regions/localities). The
    situation has to be improved by giving special emphasis in lagging regions and localities and with
    steady progress of PSR implementation. These enhanced reform works have to be sustained and
    supported by decentralizing the bulk of reform decision making responsibilities to regions and
    local levels parallel to building up their implementation capacities.

12) Local orientation and learning-by-doing practice of the approach and M&E have been highly
    important in the implementation of large-scale reforms. In the large-scale reform, learning-by-
    doing what works best locally has helped to implement reform activities in a number of
    institutions, regions, and localities. As a result of the PSR, progress has been made in the federal
    system and decentralization process, moving the access and efficiency of service delivery and
    ensuring good governance and accountability. The public sector reform has an inbuilt large scale
    benchmarking survey as an M&E tool, which helps to reassure donors about the efficacy of
    disbursing resources for extensive reforms that cater to eleven regional states/city
    administrations and more than 800 local governments. Other important features and lessons are
    initiating SAFE mechanism, LIG, and FTAPS, carrying out M&E through JARIS and JBAR in the PBS.
    The independent annual performance evaluation under ULGDP is also another lesson worth
    sharing.

13) The government’s objectives of supporting democratization through decentralizing decision
    making on political, administrative, and fiscal decentralization dimensions have been an
    important step forward. The image of the decentralization is quite robust de jure (especially
    compared to the rest of African countries), but somewhat more limited de facto in specific areas,
    which should be examined for further intervention. Notable among the constraints to
    decentralization are: limited own-source revenues and tax bases for local governments; lack of a
    specific-purpose grant for financing investments; a degree of excessive top-down control on
    certain planning and policy issues; and low capacity at sub-national levels and lack of downward
    accountability.

14) The specific-purpose fiscal transfers/grants have not been systematically improved consistent to
    the fiscal and expenditure situations of regional and local governments. Sub-national
    governments (regions, woredas, towns, and city administrations) are at different levels of
    capacity to sustainably implement development activities. To reduce the disparity, a clear rule
    exists for allocating resources from the federal government to sub-national governments in the
    general-purpose grant. However, with due consideration of capacities at sub-national level, a
    well-functioning specific-purpose grant system has not been established, except for attempts in
    programs such as PSCAP, ULGDP, including LIG (which will be terminated after 2012).

15) One of the highlighted achievements is the introduction of business-like approaches, such as the
    BPR and BSC in the Ethiopian public sector, over the last four years with significant number of
    public institutions improving their efficiency in service delivery. However, the government is still
    undertaking actions to build effective institutions. BPR and BSC led to restructuring, strategic
    planning, and performance improvement. All institutions at all levels of government have
    implemented BPR, and this has improved the efficiency of government institutions. To this end,
    however, an enforcing and evaluation mechanism is not properly established to reverse the
    threats of inefficient service delivery and deteriorating accountability.

16) Civil servants in Ethiopia receive low basic pay and few incentives. This has impact on
    productivity, turnover, retention, and recruitment of manpower. Ethiopian public sector pay

                                                   61
       structure, pay practices, incentives, and financing situation are not yet improved to sustain the
       productivity and availability of manpower. The reforms have demanded many changes from civil
       servants, and there are many examples of individuals making enormous efforts to implement
       the new focus on service delivery. This type of commitment is not sustainable without
       improvement in the annual basic pay of civil servants and a system of recognition, as well as
       reward. The wage ratios between civil servants, NGOs, the private sector, and donor agencies
       are high. The end result has been a high staff turnover for most sectors of the public service. In
       addition, an appropriate performance management system is still evolving and not yet linked to
       performance incentives.

  17) Relative changes have been made in some of the outcome indicators of transparency and
      accountability specially on increased access to government information; reduced incidence of
      corruption and arbitrariness in rule enforcement (as judged by economic agents); increased
      access to justice, recourse and redress; enhanced independence of the judiciary; and some
      degree of local level accountability of front line workers by the citizens. The implementation of
      transparency and accountability initiatives involved varied approaches and actors. Such reform
      area has to be sustained and addressed in an integrated and complementary ways at the
      grassroots. More work is needed for enhancing downward accountability, sustaining the
      implementation of good governance systems and related facilitating institutions, streamlining
      the implementation of different reforms, and integrating different stakeholder institutions. For
      example: PBS focused social accountability/transparency and accountability initiative; good
      governance package focused activities; CSRP focused activities and other democratic institutions
      activities directly dealing on accountability and transparency, such as DIP; sector specific
      governance activities; and the Auditor General activities.

  18) Despite the need for financing the ambitious GTP, revenue as a share of GDP has stayed static
      and at times declined marginally. In spite of the improvements in revenue collection, domestic
      revenue as a share of GDP has stayed static and at times declined marginally. The potential
      revenue study is lagging. In order to sustain the growth and development of the country, a
      quantum change in revenue collection efforts is required.

  19) With regard to financial management, important results have been achieved on putting in place
      the Legal and policy frameworks, transparency, accountability, improving the efficiency of the
      services, enhancing the control in financial management, external scrutiny, and audit. Actions
      have been taken to improve the budgeting and accounting systems and procurement systems in
      order to improve efficiency, predictability budget and budget outturns and maintain prudence in
      financial transactions. Financial information system have been improved progressively by
      introducing tools such as Budget Information System (BIS), Budget Disbursement and Accounts
      (BDA), and later Integrated Budget and Expenditure Management System (IBEX) replacing both
      the BIS system and the BDA system. Additionally, they introduced templates of financial
      transparency and accountability at local levels. Some of the areas of activities that have been
      given emphasis are the introduction and rollout of IFMIS projects countrywide, the connection
      of all public bodies with WoredaNet, the establishment of LAN within the public bodies, the
      creation of IT supports, internal control and performance budgeting, and procurement. One of
      the challenges as recognized by the government includes enhancing the budget process based
      on policies (programming/performance budgeting framework).

  5.2      LESSONS LEARNED FROM ETHIOPIA’S PSR
197.    The major lessons that could be drawn from Ethiopian PSR are the following.

  1) Most countries follow an incremental and standalone PSR approach. Contrary to the established
     wisdom, Ethiopia’s experience is that its “Big Push� approach has been successful due to political
                                                    62
    commitments, the existence of a decentralized federal system, and resulting from a combination
    of its approach and content. Both of these factors, the approach and content, received
    considerable attention in the design and execution of the PSR in Ethiopia. Ethiopia successfully
    followed a holistic approach that developed human resources, organizations, and systems
    together across sectors to integrate all aspects of service delivery. The approach is characterized
    by large-scale PSR, which it requires for its decentralized implementation. An independent, large
    scale, and long term M&E tool is necessary to reassure donors about the efficiency of disbursing
    resources to a large-scale reform like Ethiopia.

2) In the Ethiopian experience, the PSR design was politically motivated, but supported with
   suitable techniques. Political and technical reforms were not separately treated to avoid failures.

3) As a federal country, Ethiopia’s PSR focus was on sub-national levels of governments. This
   enabled these governments to adapt national policies, determine their own priorities and
   sequence implementation despite some gaps on empowerment to policy decisions. They are
   able to tailor implementations to local needs and so increase the program’s success. Aligning
   PSR with decentralization efforts helped to reach the grassroots. It helped to strengthen powers
   and responsibilities to regional states, woreda, and city administrations, and this enhanced
   accountability and service delivery.

4) A large-scale public sector reform requires a legitimate focal institution and a matrix
   management structure to drive the change.

5) PSR approach brought cost saving benefits as it was harmonized and aligned with the fiscal,
   fiduciary, and reporting requirements of various donors. It also aligned closely with Ethiopia’s
   public financial management, intergovernmental transfers, and planning system.

6) The fact that performance-based inter-regional reallocation of PSCAP resources was not largely
   implemented resulted in a supply rather than a demand driven financing of reform components.
   This in turn called the implementation of financing system that was flexible and adaptable to
   changes.

7) Learning-by-doing what works best locally has helped to scale up reform activities in institutions,
   regions, and localities. To this end, initiatives such as developing minimum mandatory capacity
   building implementation activities, prototypes for regions, formulating performance based
   reallocation mechanisms based on competitions, establishing monitoring mechanisms (supply
   and demand side survey), and simplifying templates for transparency at local level are some
   lessons of learning-by-doing exercise.




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  6. MAKING IT BETTER: THE SECOND GENERATION PSR IN ETHIOPIA
198. This section considers options for improving the approach to PSR in Ethiopia. It takes as its
  starting points the key observations and lessons that emerged from the descriptions and analysis. It
  then identifies alternatives or options on the approach, the pros and cons of the alternatives, as well
  as emerging issues for further studies to improve the PSR in Ethiopia. The recommendations along
  these lines are essential for the second generation of PSR and are needed in the short run to achieve
  the goals of the GTP.

  1) The design of the PSR “Big Push� approach has been relevant in addressing the reform in the
     first generation but it has to be improved. This necessitates refining the objectives and
     instruments of financing in the design, aligning the reform areas to the value chain of sector
     development, employment opportunities, and competitiveness. The reform initiative should also
     expand its scope to the engagement of civil societies and private sector, as well as consider
     incremental design approaches within reforms.

  2) Specifically, the purpose/objective of the next PSR phase, in line with the GTP’s current
     governance and capacity-building agenda, and there after needs to be a refined taking into
     account of the basic strategic issues such as: strengthening the capacity of the state, building
     transparency and accountability, combating corruption, and strengthening democracy and
     public participation.

  3) From the technical point of view, the approach to PSR, which is in built in PSCAP, is a model
     that can be carried forward into the next generation of reform. Any recommendation on
     whether or not to continue with the approach is dependent on the answer to the question on
     how the integrated PSCAP approach has worked or not. While some see PSCAP’s approach as
     unwieldy, in practice it has proved effective, flexible, and relatively efficient. So on balance, the
     pattern of PSR development in Ethiopia has been promising for continuity.

  4) It is necessary to ensure that the government has continued political ownership to implement
     reforms in packages, and solicit pooled donor support for the PSR. The government must
     express its interest to implement reforms in packages and sequences rather than focusing on
     specific areas too long. In Ethiopia, after the initial stages of a PSR, leaders need to propose ways
     to sustain and continue reform implementations. Some of the actions to create an environment
     for ownership by stakeholders could be: consultation and negotiation through institutionalized
     arrangement, communication, regaining support to buy-in ideas when enthusiasm starts to
     wane, considering the demands of the stakeholders at the grassroots, and showing the benefit
     and detriment of the approach in meeting governance goals effectively. One of the mechanisms
     the government and donors could mutually use to verify outcomes of governance is through an
     integrated reform implementation approach. Ethiopia’s PSR is likely to be facilitated parallel to
     the existence of rapid and sustained growth, democratization in a developmental state, and
     overturning fiscal crisis and in the processes of growing global economic integration.

      PSR projects require a certain level of political stability and continuity, and sustained
      commitment over periods from the cabinet, the Prime Minister and MOFED. If the ministry
      charged with implementing the reforms comes across as being inert or having lack of
      cooperation from parallel counterpart agencies, the situation will often require cabinet or the
      specified minster to demonstrate the importance of the reform, and to guarantee consequences
      for hindering the PSR.

  5) In supporting PSR, little change is needed to donor behavior, assuming that support to the
     next generation of reform continues in a similar way with modification. Hence, donors need to

                                                    64
    continue their engagement in the next generation of reforms, in an integrated program designed
    in partnership with the government of Ethiopia. Donors have used pooled funding arrangements
    with government bodies and executing agents over the relatively long time span of the program
    (some eight years). This recognizes that the reforms being attempted take time. Rolling out
    reform interventions should be consistent and aligned with government long-term
    implementation strategy and urgency.

    Regarding the socio-political situation, the recommendation for the next generation of reform, is
    to continue to align with the vision of government, but to allow for some “ground truthing� to
    ensure that any issues raised around the use of reform programs for party political ends can be
    tested, and either proved or disproved. The reform is clearly a political program in its nature. It
    is, quite overtly, a means of implementing a political vision of democratization. It is only when
    these reforms become an overt political party (establishing or maintaining networks of
    patronage or overtly stifling political opposition) that donor partners have valid cause for
    concern. Some mention distortions and inconsistencies in pursuing BPR, BSC, and mass training.
    Evidence to support this view with regard to Ethiopia is, to say the least, thin or fragmented in
    time.

6) The “Big Push� approach of the PSR has greatly advanced transformation, ensured a
   uniformity of vision across the country and attempted to address a broad agenda than the
   fragmented/stand-alone approaches that would not have raised the demand for the reform. It
   has rapidly entrenched institutional arrangements, laws, systems, structures, and also brought a
   unified structure that regions can adapt to fit their own emerging needs. The reform has
   capacitated staff; however, it was more supply driven in order to fulfill the critical mass capacity
   gaps. At present, public institutions lacked skilled staff due to turnover staff/lack of incentives in
   all agencies and this puts the sustainability of the reform at risk.

    Therefore, considering the opportunities and challenges, is necessary to reconsider the following
    three alternatives when selecting a system of PSRs for the next generation:

       i.   Decentralize, deepen, and enhance the role of regions and local governments by
            legitimizing their decision making power and providing financial resources to carry out
            reforms. Responsibility for implementation should also fall upon local governments.
            Down streaming issues could be entertained, for example, through piloting financial
            transfers to local levels or by capturing local needs through contractual agreement with a
            region or higher order hierarchical city.

      ii.   Continue with the existing whole government approach of the PSR, but modify it. For
            example, with a sequenced and incremental type system within reform areas. However
            this might limit the progress at regional level because it requires the clearance from
            federal supervising bodies.

     iii.   The third—and contrary—alternative is to recentralize some of the reform elements at
            federal level and/or focus on a few regions at a time to avoid the “Big Push� approach.
            But this might have negative impact on the effectiveness and pace of the implementation
            of the reform.

7) The Ethiopian Constitution mandates regional and woreda self-governance. In spite of
   legitimizing self-rule, remnants of the old order remain in a top-down approach to formulating
   and implementing government policy reforms. The Constitution is only one dimension and sub-
   national governments need to decide reform grants to ensure decentralization measures live up
   the officially stated objectives. Regions depend heavily on federal government at the central for
   the release of resources, and woredas do the same with regional governments. This leaves very
                                                   65
    little room for genuine or meaningful democratic decentralization that can be expected to
    improve service delivery as well as enhance empowerment at the grassroots level. There is the
    need for constitutional status for local governments for long-term viability.

8) Ethiopia has built a certain level of capacity through its wholesale and top-down approach to
   attain equity among regions. Ethiopia’s goal to become a middle-income country in the next
   decade requires the federal government to operate at even higher levels for balanced regional
   development and overall growth in economic space. The regions can identify and maximize their
   competitive advantages, using regional development strategies that promote specialization and
   growth corridors. Hence, the PSR should be aimed at growth and balanced development,
   especially to the value chains and the goals of creating competitiveness and employment
   opportunities in the regions.

9) Performance-based grants should be established alongside the equity-based grants. Most
   countries allocate most funds through specific-purpose grants rather than a general-purpose
   grant. Performance-based grants should be considered an important part of the reform agenda.
   As a system the sustainability of decentralization has not been given due attention until now
   because of equity consideration for federal states. The Fiscal Federalism Strategy of Ethiopia
   indicates the relevance of the specific purpose transfer in the fiscal federalism landscape and the
   need for further studies. LIG was not scaled up in a timely fashion and suffered from shortage of
   funds, unclear grant arrangement and formula, as well as complex compliance system. Because
   LIG is (assumedly) abolished, local governments are left without support in exercising their
   autonomy and participatory planning process due to a shortage in resources for capital
   investment. The ULGDP grant is provided only to a few cities, although regions have started to
   support other cities. Therefore, developing a conditional grant system by enhancing utilization
   capacities of local governments is a requirement for competitive and performance-based
   development.

10) There should be complementarities among PSR programs (PSCAP, PBS, ULGDP etc.). For
    instance, ULGDP and PSCAP already complement each other in grants for investment and
    capacity building, and responding to the priorities at the local level. Among others,
    complementarities of reform instruments help to maximize impacts on service delivery,
    governance and democratization, as well as increase cost effectiveness. Specifying shared
    measurements and establishing platforms for consultation are also helpful for partnering.
    Further complementarities could be achieved on the following issues:

        a) PSR work areas are identified to achieve the basic principles of public sector
           management and consist of high-level components for improvements or changes that
           are different from regular operations or activities. Although the former could eventually
           be streamlined to the latter. This should be explicit and be communicated within
           projects and programs. Some projects, for instance, may consider providing routine
           training, regular reporting, and providing specific service regularly as reform
           components.

        b) It is possible to redefine projects’ objective indicators and intermediate outcome
           indicators for each PSR component (for instance PSCAP and PBS) in such a way that their
           initiatives will support each other towards a common goal. In such a situation, the PSCAP
           or PBS project could not be overloaded with a wide and unmanageable range of
           activities.

        c) The government or donor partners should look into the existing, unnecessarily
           repetitive, reform projects or components. It is essential to avoid overlaps within a
           reform and between reforms by placing it in an appropriate cluster of reform and
                                              66
               institutions. Some overlaps exist, for example between GGP, CSRP, and PBS on social
               accountability components.

          d) A comprehensive framework could be developed for identifying complementarities,
             linkages, harmonization, sequencing and phasing of reforms, as well as for getting the
             maximum value from crosscutting PSR components. It is helpful to specify shared
             measurements and establish platforms for consultation.

11) The decentralization reform should be examined by comparing the de jure and de facto
    situations. While the institutional structure and the principles are in place, the reality on the
    ground and the continuity of decentralization requires further assessment.

12) The basic pay must be improved and a reward system, which is now drafted (the incentive
    guideline), should be approved and executed for smooth implementation of PSR. Drawing
    from the pay-reform experience of countries that managed to reverse trends of declining real
    pay in the public service, in drafting the guideline, it is believed to include following points and is
    also worth considering for consecutive works in the future:

          ï‚·    As pay and incentives problems facing the public sector had persisted over a long period
               of time, these problems could not be solved all at once, with a singular instance of salary
               adjustment. Addressing these problems required a program to adjust pay in an
               affordable, sustainable, and systematic manner over a period of time.
          ï‚·    Adopting consistent and comprehensive pay reforms that systematically raised pay for
               the core professional, technical, and management personnel in public service, which is a
               prerequisite for improving public service performance.
          ï‚·    Given tight national budgets, creating adequate fiscal space to enhance pay in an
               affordable and sustain manner is required to finance the pay reform effort.
          ï‚·    Rationalizing the compensation structure, through the consolidation of remunerative
               allowances into basic salaries, resulting in a salary structure where allowances do not
               feature prominently.
          ï‚·    Rationalizing the job grade structure to remove anomalies, resulting in improved links
               between pay and performance.

13) An integrated capacity building approach to the public financial management initiatives and
    sustainability of implementations are important factors for success. The need to improve
    performances and bring more efficient operation, budget utilization in the sector requires
    institutionalizing the working systems, incentives, training of manpower in reform area,
    replacing manual paper work with IT and ensuring its continued maintenance, and investing
    more financial resources. Among others, more refined work is needed to roll out IFMIS, as well
    as to link the program budgeting exercise to the GTP, medium term expenditure framework,
    BPR, BSC etc.

14) The following risks associated with PSR needs attention in the future implementation process.
    They are:

      ï‚·       Low basic pay with growing inflation, delay of implementing individual employee
              performance measurement, lack of incentives and high staff turnover, low productivity,
              and underperformance.
      ï‚·       Financing of recurrent budget through PBS could maximize dependency and creates
              problem of sustainability.
      ï‚·       Sustainability of PSR will require actions for serving the public and maintaining or
              improving service standards, as well as discharging missions. Sustainability of specific

                                                     67
             reforms implementation such as BPR and service delivery improvement is equally
             important for sustainability of PSR as a whole. The citizens will have a growing demand for
             efficient and responsive service delivery. The service delivery could deteriorate unless
             reform activities such as legal, institutional frameworks, manuals, guidelines, the
             structure, and the human element (including inputs such as IT equipment and software)
             are well placed and enhanced.
        ï‚·    Slow progress in rolling out reform activities, resulting dissatisfaction by some of the
             beneficiaries.
        ï‚·    Macro level revenue limitations for financing governance/reform initiatives, due to
             ambitious plans and priorities for infrastructure and economic development

  15) Issues that emerged from the analysis and that need further study are the following:

         ï‚·   Stocktaking of the extent of the progress of state transformation.
         ï‚·   Assessing critical aspects of governance indicators.
         ï‚·   Macro fiscal implications of pay and incentive mechanisms.
         ï‚·   Assessment of the realities of the decentralization efforts.
         ï‚·   A specific-purpose grants system.
         ï‚·   Attribution of reforms and assessment of complementary/overlapping of reforms.
         ï‚·   A framework of integrated regional development planning.

199. In conclusion, the Ethiopian public sector reform, in general, and the design of specific reform
  areas, in particular, followed specific orientations that provided important lessons of experience
  as the first generation initiative for state transformation in the last eight years (2005-2012). Most
  of the reform priorities and approaches were relevant in the context of their temporal and spatial
  dimensions. In some areas, the integrated reform components are much better designed and
  performed compared to the approaches in some developing countries. The government
  commitments and the learning-by-doing exercises, as well as the alignment and harmonization
  process were major factors for sustaining the reform. Moreover, the existence of powerful focal
  institutions (Ministry in charge of Capacity Building) and matrix institutional arrangement both at
  federal and regional levels have been relevant factor for the success of the public sector reform and
  capacity building efforts. As a result, promising achievements are recorded in a number of reform
  areas that contributed to improved service delivery, governance and accountability. On the other
  hand, some reform undertakings such as governance effectiveness, decentralization, performance
  and pay, revenue generations, financing of recurrent expenditure, and reform programs, as well as
  rolling out reforms demand priori attention and strategies.

200. However, considering the existing situations, there is a need to build-up amenable and
  coherent system for carrying out public sector or governance reform effectively. The government,
  with its intent of commitment, could modify and deepen the existing approach to the needs of the
  second generation in Ethiopia by taking into account the design and process features, including
  those that emerge during implementation such as redefinitions and sequencing of the design. The
  second generation should place emphasis on complementarities of reforms, and sub-national
  government capacities, as well as demand and supply side link chains. Donor supports to PSR needs
  to reflect key dimensions of country context more explicitly in operational design, but in
  intermediate and more challenging contexts. Further analysis provides a feasible sketch in using
  limited windows of opportunities, such as citizen demand for public sector and governance reforms.
  In such less propitious situations, it is important to address issues of operational feasibility, “ground
  truthing� and monitoring reform impact activities as a short- term response.



                                                     68
201. Supported with this ESW analysis and further research works mentioned, the World Bank, other
  donor partners and policy makers could develop ideas and instruments for revitalizing future PSR.
  Based on the experiences in the report, the approach to PSR contains features that are geared, or at
  least relevant, to answering typical governance and democratic process constraints, state capacities;
  reflecting a coherent vision of reform policies and institutional set-ups; placing effective top-down
  performance disciplines or bottom-up accountability mechanisms; encouraging incentives for
  performance; as well as enhancing the enabling environments for sub-national level anchored
  solutions and capacities. It also implies enhancing partnership actions with stakeholders on factors
  that improve the developmental state-governance, democratization, quality and accessibility
  modalities of service delivery and infrastructure development. It is advisable to expand the scope of
  engagement of civil societies and private sector and link the priorities of PSR to the value chains of
  sector developments aimed at creating competitiveness and employment opportunities.




                                                   69
ANNEX 1: PSCAP’S RESULT MATRIX AS AT DECEMBER 2011
PSCAP Overall Outputs                                      PSCAP Overall Outcomes
Output Indicators and Status                               Outcome Indicators and Status

Output Number 1—Strengthened Legal and Policy              Outcome Number 1—Increased Predictability and
Framework                                                  Adequacy of Financial Resource Flows (In-Year
OUTPUT INDICATORS                                          and Across Years)
    1.   Law reform and revision undertaken and adopted    OUTCOME INDICATORS
         at federal level                                      1. Reduced budget variance
    2.   Number of regions adopting enabling legislation       2. Reduced federal-regional and regional-local
         for local authorities                                      fiscal gaps
    3.   Number of regions adopting various tax            CONTRIBUTING SUB-PROGRAMS— Civil Service
         proclamations (income, excise, turnover tax)      Reform Sub-Program (CSRP) and Tax System
CONTRIBUTION OF EACH SUB-PROGRAM TO OUTPUT                 Reform Sub-Program (TSRP)
NUMBER 1                                                   The Woreda and City Benchmarking Supply Side
Justice System Reform Sub-Program (JSRP)                   Survey showed that the jurisdictions that are best
                                                           performers in having a close match between the
A larger number of laws were drafted and enacted
                                                           planned budget and actual expenditure increased
including: i) regional family laws adopted by Somali,
                                                           from 55 percent in 2005 to 63 percent in 2008 and
Gambella, Benishangul-Gumuz, Oromia and SNNPR; ii)
                                                           to 65 percent in 2010.
amendments to regional constitutions by Amhara,
Gambella, Benishangul-Gumuz and Oromia; iii) over 20       Overall, the federal to regional transfer has shown
establishment or reestablishment of executive organs in    annual increment of 22 percent in 08/09, 20
all regions; iv) over five proclamations on the            percent in 09/10, 20.4 percent in 2010/11 and 25
establishment of urban and rural centers and their         percent in 2011/12 Fiscal years.
powers in Amhara, Somali, Dire Dawa; v) over 10            The nationwide TSRP has contributed by
establishment of judiciary administrations including       increasing the predictability and adequacy of
kebele social courts in Amhara, Somali, Dire Dawa,         financial resources for service delivery. Tax
Gambella, Oromia and SNNPR; vi) over 20 proclamations      collection nationwide increased five times
to define legislative procedures for the legislative       between the project’s first year and 2011. The
organs; vii) code of conduct for civil servants,           total tax collection in 2005, 2008, and 2009 is 12.4
prosecutors, appointed officials or council members; and   billion, 24 billion and 29 billion respectively. In FY
viii) the proclamation for vital events registration and   2010 tax revenue collected increased to EBr. 37.5
the criminal procedure laws are drafted (2011).            billion and in FY 2011 to 58.9 billion.
Urban Management Capacity Building Sub-Program             Outcome Number 2—Greater Inclusiveness and
(UMCBP)                                                    Transparency of Planning and Prioritization
ï‚·   All 11 regions adopted the city/municipal              Processes
    proclamation from a baseline of six regions at the     OUTCOME INDICATORS
    beginning of the PSCAP.
                                                               1. Established practice of participatory
ï‚·   Regulations were issued in land, finance, human                 budgeting and public reporting on
    resources, and a large number of municipals                     budgets and performance at all levels
    services.                                                  2. Regular involvement of civil society in
ï‚·   National and regional urban development strategy                planning and policymaking, budgeting,
    and housing policies were developed by federal                  and review processes
    government and implemented in Amhara, Oromia,          CONTRIBUTING SUB-PROGRAMS— District Level
    SNNPR and Tigray.                                      Decentralization Sub-Program (DLDP), Civil
ï‚·    Regional Housing Strategies completed and being       Service Reform Sub-Program (CSRP), Urban
    implemented in the four major regions                  Management Capacity Building Sub-Program
ï‚·   Study for the 4 Emerging Regions and Harari. Draft     (UMCBP), and Tax System Reform Sub-Program
    Proclamations completed and given to the regions       (TSRP)
    to review and implement.                               The key result achieved in implementing the
ï‚·   Infrastructure Delivery and Financing Strategies and   good governance package is the establishment

                                                     70
PSCAP Overall Outputs                                      PSCAP Overall Outcomes
Output Indicators and Status                               Outcome Indicators and Status

    Implementation Plans completed for the four major      of key institutional focal points such as the
    regions.                                               expanded Kebele Council, Kebele Manager and
ï‚·   The property registration proclamation was enacted     Planning and Inspection Teams who will ensure
    (2011),                                                participation, inclusion, effective service delivery
                                                           and accountability.
ï‚·    The urban land development and management
    policy, along with its capacity development            The 2010 Woreda and City Benchmarking Survey
    framework, 16 legal frameworks and 19 standards        (Citizen’s Report Card) showed that 53 percent
    and manuals were developed (2011).                     of the respondents are consulted in
                                                           prioritization of development needs and 48
District Level Decentralization Sub-Program (DLDP)
                                                           percent on quality of public service. However
ï‚·   The Ministry of Capacity Building developed the        these proportions show decline of five percent
    model local government legislative framework.          related to consultation on development needs
    However, only Tigray (Numbers 99/98 and 199/99)        and two percent on quality of public service
    and Harari proclaimed the act that determines          since the 2008 survey. On the other hand,
    powers and duties of woredas. Six regions (Amhara,     citizens who are personally consulted on
    Oromia, Benishangul-Gumuz, SNNPR, Somali and           development issues increased from 17 percent
    Gambella) completed the draft act and are awaiting     to 20 percent.
    approval of the regional council. Afar prepared a
    manual to determine the functional assignment          47 percent of the civil society organizations
    between region and woredas.                            responded in the affirmative on being consulted.
Civil Service Reform Sub-Program (CSRP)                    In addition, the proportion of people who know
ï‚·   The revised civil service proclamation was enacted     that Council Meetings are open to the public
    and adopted by all regions. A gender-responsive        increased from 11 percent in 2008 to 32 percent
    recruitment mechanism is one of the features           in 2011.
    included in the revised civil servants proclamation    Outcome Number 3—Enhanced Fiscal Autonomy
    and provides for affirmative action toward females     and Improved Revenue Administration at all
    to join the civil service.                             Levels
ï‚·   The financial laws, regulations, and manuals were      OUTCOME INDICATORS
    rolled out at the federal level and to all regions.        1. Increased own revenue and unconditional
ï‚·   The cash management directive and procurement                   transfers as a share of total expenditures
    law were implemented at all levels—federal,                     at sub-national levels
    regional, zonal, and woreda.                               2. Increased tax efforts at all levels
   The business process reengineering (BPR) guideline     CONTRIBUTING SUB-PROGRAMS— District Level
    was approved by the Council of Ministers and has       Decentralization Sub-Program (DLDP), Urban
    become operational at all levels of government to      Management Capacity Building Sub-Program
    streamline work processes.                             (UMCBP), Tax System Reform Sub-Program
Tax System Reform Sub-Program (TSRP)                       (TSRP), and Information and Communication
                                                           Technology (ICT)
ï‚·   All regions adopted the federal income tax and
    turnover tax proclamation.                             Tax collection by federal and regional revenue
                                                           offices has increased five times between the
   Agricultural income tax was issued in ten regions.     project’s first year and 2011. Tax to GDP ratio
    Afar put land policy as a pre-requisite because land   has increased to 11.3 and 11.5 in 2010 and 2011
    is communal property and the draft land policy was     after consecutive reduction for three years.
    submitted to parliament.
                                                           Outcome Number 4—Enhanced Incentive
ï‚·   A large number of tax laws were issued by both         Environment for Public Servant
    federal and regional governments.
                                                           OUTCOME INDICATORS
Information and Communication Technology (ICT)
                                                               1. The extent to which performance
Development/production of:                                          evaluation and reward has been
ï‚·   The e-Government strategy document;                             introduced across the civil service
ï‚·   ICT community development strategy;                        2. A comparison between consolidated civil

                                                     71
PSCAP Overall Outputs                                            PSCAP Overall Outcomes
Output Indicators and Status                                     Outcome Indicators and Status

ï‚·   The architectural framework for e-Government;                         service employment packages (pay, terms
ï‚·   ICT human resource development strategy;                              and conditions, leave entitlement,
                                                                          allowances, etc.) and those in other
ï‚·   Guidelines for public key infrastructure;                             sectors
ï‚·   ICT research and development guideline;                          3. Recruitment and retention of categories of
ï‚·   Enterprise architecture framework                                     staff with specific skills and experience
                                                                 CONTRIBUTING SUB-PROGRAMS— Civil Service
                                                                 Reform Sub-Program (CSRP), District Level
                                                                 Decentralization Sub-Program (DLDP), and Urban
                                                                 Management Capacity Building Sub-Program
                                                                 (UMCBP)
                                                                 The performance management system known as
                                                                 the Balanced Score Card (BSC) is being
                                                                 implemented in more and more offices in the
                                                                 last five months. At federal level, the full use of
                                                                 the system has increased from 17 to 22 offices
                                                                 and Tigray is now at an advanced stage of
                                                                 preparation, in addition to the three big regions
                                                                 and A.A. that are already using the system. The
                                                                 others are at different stages of preparation.
                                                                 The 2010 Woreda and City Benchmarking Survey
                                                                 showed that after considerable decline between
                                                                 2005 and 2008, local jurisdictions made
                                                                 improvements in efforts to modernize their
Output Number 2—Restructuring and Performance                    human resource management and adequacy of
Improvements                                                     staffing in the past two-year period. The
OUTPUT INDICATORS                                                jurisdictions that are issuing job descriptions or
                                                                 regularly evaluating the performance of their
    1. Percentage of ministries, agencies and bureaus
                                                                 employees increased from 46 percent in 2008 to
        (MABs), at federal level and in each region,
                                                                 78 percent in 2010. Similarly, the percentage of
        initiating restructuring   and    performance
                                                                 jurisdictions not affected by vacant approved
        improvement
                                                                 posts increased from 20 percent in 2008 to 71
    2.   Percentage of woredas         and      municipalities   percent in 2010. The BPR has actually increased
         undergoing restructuring                                the number of staff at the Woreda level.
    3. Percentage of courts at each level initiating             Outcome Number 5—Improved Quality and
        performance improvement                                  Efficiency of Operations
    4. Number of regions adopting sector-specific                OUTCOME INDICATORS
       automated IT solutions
                                                                     1. Improved service levels in terms of access,
CONTRIBUTION OF EACH SUB-PROGRAM TO OUTPUT                                responsiveness and cost efficiency in
NUMBER 2                                                                  priority sectors
Civil Service Reform Sub-Program (CSRP), District Level              2. Reduced unit costs and processing time for
Decentralization Sub-Program (DLDP),                                      essential rural, urban, social, and legal
The Business process reengineering (BPR) guideline was                    services in priority sectors
approved by the Council of Ministers. The BPR report from        CONTRIBUTING SUB-PROGRAMS— Civil Service
each institution documents the service standard for each         Reform Sub-Program (CSRP), District Level
core service and shows significant reduction in processing       Decentralization Sub-Program (DLDP), Urban
time. Virtually all offices at all level of government           Management Capacity Building Sub-Program
(Federal, Regional, and Local) are conducting BPR and are        (UMCBP), Tax System Reform Sub-Program
at different stages of implementation. Processing time for       (TSRP), Justice System Reform Sub-Program
tax decreased from 11 minutes to 7 and for opening case          (JSRP), and Information and Communication
files in Supreme Courts from 15 to 7 minutes.

                                                         72
PSCAP Overall Outputs                                         PSCAP Overall Outcomes
Output Indicators and Status                                  Outcome Indicators and Status

Tax System Reform Sub-Program                                 Technology (ICT)
The Ministry of Revenue, Federal Inland Revenue               The Woreda and City Benchmarking Supply Side
Authority (FIRA) and the Ethiopia Customs Authority           Survey revealed that the level of access to basic
(ECUA) conducted a comprehensive BPR that looked              services improved immensely when compared
thoroughly at the three organizations to create one           to the survey done in 2005. The jurisdictions
seamless organization and bring about institutional           that were graded as best performers in 2005
transformation. FIRA, ECUA and Ministry of Revenue            was only 25 percent compared to 88 percent in
were merged into one office (Ethiopian Revenue and            2011, and the overall results suggest that in
Customs Authority) in June 2008. Regional tax                 more and more jurisdictions the public is having
administration offices were separately organized to           better access to services considered basic. The
incorporate nationally similar functions except in Tigray     Citizen’s Report Card also shows the following:
and Afar regions where they still function under the          ï‚·   Citizens using government health facilities
Ministry of Finance and Economic Development                      increased from 50 percent to 84 percent in
Bureaus. BPR has resulted in significant reduction in             urban and from 77 percent to 94 percent in
processing of tax and customs-related services.                   rural areas in 2008 vs. 2011. Overall
Urban Management Capacity Building Sub-Program                    satisfaction with the health services
(UMCBP)                                                           increased from 62 percent to 70 percent
ï‚·   Situation Analysis completed in 18 towns.                     while households satisfied with the waiting
                                                                  time, attitudes of the medical staff, and
ï‚·   Restructuring and Performance Improvement Plans
                                                                  availability of drugs increased from 66
    prepared for 18 towns and some being implemented
                                                                  percent, 66 percent, and 53 percent in 2008
    through PSCAP as from EFY1999.
                                                                  to 81 percent, 74 percent and 54 percent in
ï‚·   Organizational structures established in 19 towns in          2011 respectively.
    the four major regions, Harar, Dire Dawa and Addis
                                                              ï‚·   Overall satisfaction with primary education
    Ababa.
                                                                  service increased from 84 percent in 2008
ï‚·   Personnel management manuals and systems                      to 94 percent in 2011.
    developed and implemented in the four major
                                                              ï‚·   Satisfaction with the agricultural extension
    regions, Addis Ababa and Dire Dawa.
                                                                  increased from 90 percent in 2008 to 94
ï‚·   Computerized Financial Management and Accounting              percent in 2011.
    System developed and implemented in Addis Ababa
                                                              ï‚·   Although, there is no clear evidence of
    and Dire Dawa
                                                                  growing satisfaction for water supply (61
ï‚·   Prototype Computerized Financial Management and               percent in 2008 to 58 percent in 2011),
    Accounting System developed for other towns and to            there has been a 16 percent fall (from 26
    be implemented through PSCAP.                                 percent to 10 percent) in the proportion
ï‚·   Sixteen service delivery manuals prepared and other           reliant on unprotected water sources over
    operational manuals/handbooks prepared, ready for             the past 18 months.
    publication, dissemination, and implementation at         ï‚·   Based on the core indicators for processing
    city level.                                                   time, the time for tax is reduced from11
ï‚·   Infrastructure  Assessment      and      Infrastructure       minutes to 7 and for opening case files in
    Inventories completed in 18 towns.                            Supreme courts from 15 to 7 minutes.
   Five year municipal infrastructure investment plans       Outcome Number 6—Improved Transparency
    (MIIPs) prepared for 18 towns                             and Accountability
Justice System Reform Sub-Program (JSRP)                      OUTCOME INDICATORS
ï‚·   The court reform program was rolled out to all the            1. Reduced incidence of corruption and
    courts at all tiers of government. As a result, the                arbitrariness in rule enforcement (as
    clearance rate of cases rose and continued to stay                 judged by economic agents)
    above 80 percent in federal and sub-national courts.          2. Increased access to justice, recourse and
    At the Supreme Court level, Harari, Gambella and                   redress
    Tigray have no backlog; Amhara and Benishangul-               3. Enhanced independence of the judiciary
    Gumuz have only one case pending. Oromia and the
                                                                  4. Increased access to government
    federal Supreme Court have still backlogs. At the
                                                      73
PSCAP Overall Outputs                                           PSCAP Overall Outcomes
Output Indicators and Status                                    Outcome Indicators and Status

    high court and first instance court level, Tigray,                   information improved
    Benishangul-Gumuz and Amhara had no cases                   CONTRIBUTING SUB-PROGRAMS— Civil Service
    pending for more than one year. “Real-time                  Reform Sub-Program (CSRP), District Level
    dispatch� has been put in place, thus allowing the          Decentralization Sub-Program (DLDP), Urban
    sentences to be rendered within one day, in cases of        Management Capacity Building Sub-Program
    clear identification of the crime and culprit in petty      (UMCBP), Tax System Reform Sub-Program
    crimes. The introduction of one-step/one-counter to         (TSRP), Justice System Reform Sub-Program
    file a case and the introduction of web-based               (JSRP), and Information and Communication
    services for opening a file at the Federal Supreme          Technology (ICT)
    Court have reduced the cost of litigation and
                                                                The Woreda and City Benchmarking Survey
    improved access to justice significantly.
                                                                (Citizen’s Report Card) shows that households
   The House of People’s Representatives adopted               who reported making extra payments outside
    new parliamentary procedures and code of conduct            the legal requirement for any government
    for its members. A revised proclamation for law-            services in the last year decreased from 4.3
    making procedures, including the process of three-          percent in 2008 to 4.1 percent in 2010 and has
    step reading and public hearings, was introduced in         increased to 6.5 percent in 2011.
    Oromia, Tigray, and Benishangul-Gumuz.
                                                                The recent study on independence,
Civil Service vice Reform Sub-Program (CSRP)                    transparency & accountability in Ethiopian
All budgetary institutions, regions and city                    judiciary reports that the independence of
administrations have adopted the integrated budget and          courts is adequately recognized and protected in
expenditure management system (IBEX). The baseline              the Ethiopian Constitution and the various laws
for adoption of IBEX was only one region (Amhara) at            concerning the judiciary. In practice, judicial
the start of the project and now all regions adopted the        independence has improved but progress
system. In the advanced regions (Amhara, Tigray, SNNPR          remains to be made in the understanding of,
and Oromia), Addis Ababa, and Afar the system is in             and respect for, the principles of judicial
place at regional levels, zonal levels and selected             independence both by all judges and by
woredas. In the other three developing regions (Somali,         executives.
Gambella and Benishangul Gumuz), the system was                 The Woreda and City Benchmarking Supply Side
implemented only at the Bureau of Finance and                   Survey also confirmed that public access to basic
Economic Development Office. IBEX was preceded by               information in written form such as budgets,
Budget Information System (BIS) and Budget,                     audit reports, strategic plans, tax assessment,
Disbursement and Accounts (BDA) in many of the                  and services provided by the jurisdiction has also
regions. The system has improved the preparation of             improved. The demand side citizen’s report card
accurate and timely financial reports, enhanced the             showed that the proportion of people who know
reliability of the financial management, and minimized          about what taxes and fees they are legally
the manual work.                                                required to pay has increased from 60 percent in
Information and Communication Technology (ICT),                 2008 to 81 percent in 2011. Citizens who have
ï‚·   The biggest investment in local jurisdictions was           information on the budget increased from 13
    WoredaNet. WoredaNet, initiated by the                      percent in 2008 to 20 percent in 2011 and those
    government, is currently operational in 600                 who know about the strategic plan also
    woredas, with an additional 178 newly established           increased from 17 percent in 2008 to 19 percent
    woredas being supported by PSCAP to obtain the              in 2011.
    necessary infrastructure and training to make them
    operational. The use of WoredaNet has been
    instrumental in tackling the problem of information
    exchange vertically and horizontally throughout the
    different levels of administrative structures. It is also
    serving as a video conferencing facility for public
    institutions, a mechanism to conduct court
    proceedings, training centers, and sometimes as
    Internet cafés.
ï‚·   A number of information systems and application
                                                         74
PSCAP Overall Outputs                                       PSCAP Overall Outcomes
Output Indicators and Status                                Outcome Indicators and Status

    were      developed.   Common      administrative
    applications are also being developed for human
    resources management information systems,
    property management, records management,
    transport      fleet   management,      purchase
    management, digital documentation and payroll
    systems.
ï‚·   A network master plan for 32 federal institutions is
    completed.
ï‚·   Online applications (for example online trade
    registration and licensing, online exam registration
    and placement) are implemented.
ï‚·   Provision of information on currency exchange,
                        th     th
    electric bill and 10 and 12 grade results and
    placement through the mobile phone is launched
    (8181)
ï‚·   Management information system (MIS) software for
    different institutions such as Ministry of Transport,
    National Library and Achieve, and Environment
    Protection Authority is operational
ï‚·   Connecting offices through Networking is used in
    more and more regional offices. For instance, in
    SNNPR 78 percent of the offices are networked,
    Amhara networked 6 offices, Oromia is signing an
    agreement to maintain the network for 20 offices—
    of these 6 were supported by PSCAP, and in Addis
    Ababa, fax automation is being used in 86 out of
    150 office to reduce the cost and time to exchange
    information      between     different  levels  of
    government. Somali is conducting the study to
    network its offices as well.
Urban Management Capacity Building Sub-Program
(UMCBP)
The urban land information system is used in many
regions.
Tax System Reform Sub-Program (TSRP)
Computerized tax identification number (TIN) was
implemented in all regions. TIN is now complemented
with biometric technology that fingerprints taxpayers. As
of June 2011, 1. 7 million taxpayers’ information was
collected and registered through the biometric system.
The Standard Integrated government Tax Administration
System (SIGTAS) was implemented in all federal
branches and is being rolled out to regions. The tax file
management system has been completed in all
advanced regions and the two city administrations;
ASYCUDA++ was implemented in 20 sites across the
nation.
Justice System Reform Sub-Program (JSRP)
ï‚·   A modern case management system was introduced

                                                      75
PSCAP Overall Outputs                                         PSCAP Overall Outcomes
Output Indicators and Status                                  Outcome Indicators and Status

    at all levels of court (Supreme Court, high court and
    first instance court) at the federal level, Dire Dawa,
    SNNPR, and Harari. Amhara, Oromia and
    Benishangul-Gumuz introduced it at the regional
    Supreme Court and all their high courts.
    Benishangul-Gumuz has also introduced it in most
    of their first instance courts (14/20). Tigray has
    introduced it at the regional Supreme Court.
    Gambella hasn’t introduced it and there is no
    information on Addis Ababa.
ï‚·   Somali reported improvement in the justice
    organization’s filing and recording system for their
    personnel, prisoners’ records and case flow. Afar
    put in place an information management system for
    the justice/prosecutor’s office.
Output Number 3—Reforms of Expenditure Management
System
OUTPUT INDICATORS
    1. Percentage of budgetary institutions at each level
        implementing medium-term and strategic
        planning
    2. Number of regions adopting new budget structure
        at all levels
    3. Number of regions adopting double-entry, modified
        cash systems at all levels
    4. Percentage of budgetary institutions at each level
        adopting cash management directives
    5. Percentage of budgetary institutions at each level
        rolling out automated financial systems
    6. Procurement legislation adopted and directives
        issued
    7. Accounts and audits backlog reduced at federal and
         regional levels
    8. Percentage of budgetary institutions preparing
        standardized internal audit reports
CONTRIBUTION OF EACH SUB-PROGRAM TO OUTPUT
NUMBER 3
Civil Service Reform Sub-Program (CSRP)
ï‚·   The budget reform, cash management directive and
    procurement law was implemented at all levels—
    federal, regional, zonal, and all woredas. Accounts
    reform was implemented at all levels—federal,
    regional, zonal, and all woredas of the four relatively
    advanced regions, Addis Ababa, and Harari. The
    developing regions also implemented accounts
    reform at the regional level and in a selected
    number of woredas. The integrated budget and
    expenditure management system (IBEX) was
    implemented in federal institutions and selected
    woredas of the four relatively advanced regions,
                                                       76
PSCAP Overall Outputs                                      PSCAP Overall Outcomes
Output Indicators and Status                               Outcome Indicators and Status

    Addis Ababa, Afar and Harari. The other three
    developing regions implemented it only at regional
    Finance and Economic and Development Bureaus.
    Currently, there are no accounts backlog compared
    to at least 1-2 years backlog at the beginning of
    PSCAP. The information on external and internal
    audit preparation is not complete. Oromia has no
    audit backlog while federal MoFED, Addis Ababa,
    SNNPR and Harari have a two-year backlog.
    Similarly, SNNPR, Tigray and Benishangul-Gumuz
    reported preparation of the internal audit report at
    all levels and Gambella in limited offices.
ï‚·   In 2010/11, a number of revisions were made to the
    systems that were in place: i) revision was made to
    the accounts manual based on the new public
    finance management, property and program
    management systems; ii) the procurement manual
    and training module were amended and a prototype
    procurement directive was also sent to regions for
    adoption; and iii) the property management and
    budget module were also integrated with
    information management system.
ï‚·   The stock management manual and the training
    module were also finalized and distributed to
    federal and regional counterparts for adoption.
ï‚·   The prototype public finance management
    regulation and directive are sent for adoption by
    regional governments.
ï‚·   Program budgeting manual was finalized and
    advanced from pilot testing to full implementation
    of the system at the federal level. The
    implementation of the program budgeting at the
    federal level has now increased from 10 percent to
    100 percent in the 2011/12 (2004 EC) budget.
ï‚·   The Woreda and City Benchmarking Supply Side
    Survey also showed significant improvement. In the
    survey conducted in 2005, only 30 percent of
    jurisdictions were rated best performers while the
    results of the 2010 survey revealed that 85 percent
    of the jurisdictions have efficiency and
    comprehensiveness in their accounting and auditing
    procedures.
Output Number 4—Improved Personnel Management
Systems in Practice
OUTPUT INDICATORS
    1. Medium-term remuneration policy developed and
        adopted at all levels
    2. Results-Oriented Performance Appraisal System
        (ROPAS) rolled out at all levels and human
        resource (HR) guidelines in woredas and
        municipalities developed and adopted
                                                     77
PSCAP Overall Outputs                                        PSCAP Overall Outcomes
Output Indicators and Status                                 Outcome Indicators and Status

    3. Percentage of budgetary institutions at each level
        implementing IT based human resource
        management (HRM) systems
CONTRIBUTION OF EACH SUB-PROGRAM TO OUTPUT
NUMBER 4
Civil Service Reform Sub-Program (CSRP)
The human resources management systems are slowly
progressing:
ï‚·   The performance management system known as
    the Balanced Score Card (BSC) is being implemented
    in more and more offices in the last five months. At
    federal level, the full use of the system has
    increased from 17 to 22 offices and Tigray is now at
    advanced stage of preparation in addition to the
    three big regions and A.A. that are already using the
    system. The others are at different stages of
    preparation.
ï‚·   The study report on the job evaluation and grading
    (JEG) is being drafted to be submitted to the top
    management by February 2012;
ï‚·   The Bank has commented on the TOR for the HRMIS
ï‚·   The performance related incentive system
    document was reviewed in light of the performance
    management system (BSC) and is sent to Council of
    Ministers for comments.
Output Number 5—Intergovernmental             Fiscal   and
Revenue Mobilization Mechanisms in Place
OUTPUT INDICATORS
    1. Number of regions adopting fiscal decentralization
        strategies including capital funding mechanisms
    2. Number of regions implementing TIN
    3. Guidelines developed and implemented for
       implementing withholding taxes, assessing
       presumptive tax bases
    4. Strengthening and performance improvement of
        Federal Inland Revenue Authority (FIRA) and
        Customs
CONTRIBUTION OF EACH SUB-PROGRAM TO OUTPUT
NUMBER 5
Tax System Reform Sub-Program (TSRP)
ï‚·   All regions are implementing computerized tax
    identification numbers (TINs). Based on 2009 data,
    434,551 (i.e. 407,584 individuals 13,611 businesses,
    and 13,356 unidentified) taxpayers were issued TIN
    certificates. In 2010/11, the computerized tax
    identification number (TIN) is now complemented
    with the biometric technologies that use the
    fingerprint to collect and register taxpayers’
    information. A total of 1.7 taxpayers’ information

                                                       78
PSCAP Overall Outputs                                       PSCAP Overall Outcomes
Output Indicators and Status                                Outcome Indicators and Status

    has been collected nationwide using the biometric
    system.
ï‚·   Presumptive taxation guidelines for implementing
    withholding taxes and assessing presumptive tax
    bases were developed. A national profitability rate
    was issued for all types of small businesses as a
    model for adaptation by all regional states. The
    standard assessment replaced the estimated
    assessment, which was prone to corrupt practices.
ï‚·   The Ministry of Revenue, Federal Inland Revenue
    Authority (FIRA) and the Ethiopia Customs Authority
    (ECUA) conducted a comprehensive business
    process reengineering (BPR) that looked thoroughly
    at the three organizations to create one seamless
    organization and bring about institutional
    transformation. FIRA, ECUA and the Ministry of
    Revenue were merged into one office (Customs and
    Revenue Authority) in June 2008. Regional tax
    administration offices were separately organized to
    incorporate nationally similar functions, except in
    Tigray and Afar, where they still function under the
    Ministry of Finance and Economic Development
    Bureaus. The BPR has resulted in significant
    reduction in processing of tax and customs related
    services. For instance, collection/receiving of taxes
    is now done in less than half an hour compared to
    several hours before the BPR.
Urban Management Capacity Building Sub-Program
(UMCBP)
Five-year municipal capital investment plans were
prepared with the participation of stakeholders. In
addition, 19 reforming cities produced a three-year
investment plan.
District Level Decentralization Sub-Program (DLDP)
ï‚·   Specific purpose grants for capital investments were
    introduced from the federal level to 51 pilot
    woredas in the four relatively advanced regions and
    Benishangul–Gumuz.
ï‚·   The model fiscal transfer formula for both sedentary
    and pastoral-based regions was developed by the
    Ministry of Capacity Building. Six regions (Amhara,
    SNNPR, Benishangul-Gumuz, Somali, Oromia and
    Afar) are using the transfer formula developed by
    in-house experts.
Output Number 6–Vertical Accountability Mechanisms
Established
OUTPUT INDICATOR
    1. Service standards for urban and other essential
        services developed and established at all levels
CONTRIBUTION OF EACH SUB-PROGRAM TO OUTPUT

                                                      79
PSCAP Overall Outputs                                          PSCAP Overall Outcomes
Output Indicators and Status                                   Outcome Indicators and Status

NUMBER 6
District Level Decentralization Sub-Program (DLDP)
The woreda minimum standard service indicators and
reporting mechanism was developed by the Ministry of
Capacity Building for adoption by regions. Tigray
implemented at regional sector bureaus and service
institutions and SNNPR in 134 woredas and 13 zones.
Amhara, Somali and Oromia completed the study. The
four relatively advanced regions are using BPR to also set
service standards.
Civil Service Reform Sub-Program (CSRP)
ï‚·   All offices implementing the BPR have set service
    standards and required documentation for each
    service and these are posted in all offices. For
    instance, in 2011, SNNPR, 88 percent of the court
    cases are disposed within the two months standard
    set by the courts. Similarly, the quality of justice has
    also improved with 92 percent of the cases not
    requiring reversal of the lower courts judgment.
    Similarly, Amhara has reported disposing 90 percent
    of the cases in three months.
ï‚·   Consultation / validation workshop was conducted
    on the draft Citizens and Civil Service Charter with
    sectors and training on the development and
    implementation of citizen’s charter is also included
    in the action plan for 2011/12.
Output Number 7–Horizontal Accountability Mechanisms
(or Checks and Balances) Established
OUTPUT INDICATORS
    1. Number of regions implementing guidelines for
        citizen participation at the woreda and municipal
        levels
    2. Percentage of courts at each level undergoing
        performance improvement
    3. Enhanced independence and efficiency of judiciary
    4. Judges and lawyers trained
CONTRIBUTION OF EACH SUB-PROGRAM TO OUTPUT
NUMBER 7
District Level Decentralization Sub-Program (DLDP)
ï‚·   Most regions adopted the framework for grassroots
    participation.
ï‚·   All regions implementing the good governance
    package have strengthened participation by
    establishing the following key institutional focal
    points for participation. i) Kebele Managers: These
    are lower level professionals hired to coordinate
    and mobilize resources for effective service delivery.
    They provide a one stop shop service to citizens,
    address requests and complaints, present issues and
    complaints beyond his capacity to the Kebele
                                                        80
PSCAP Overall Outputs                                        PSCAP Overall Outcomes
Output Indicators and Status                                 Outcome Indicators and Status

    Council or administration for decision, compiles and
    makes available kebele data, consolidates kebele
    plan in collaboration with plan experts, and
    mobilizes people and resources as needed. ii) Kebele
    Supervision and Inspection Team: The team report
    to the Kebele Council and has 9 members consisting
    2 members from youth, 2 members from women
    associations and the other 5 from voting and non-
    voting Kebele Council members. The team is
    required to review and report whether plans are
    prepared in a participatory manner and activities
    are implemented according to plan using the right
    procedures and in a fair and transparent manners.
    Iii) Woreda Planning, Supervision and Inspection
    Team: The team reports to the Bureau of Finance
    and Economic Development and has 5 members – 2
    senior experts, 2 experts and secretary. The two
    main responsibilities are to prepare the woreda’s
    own plan and supervise its implementation as well
    as support the Kebele Supervision and Inspection
    teams within the Woreda.
Urban Management Capacity Building Sub-Program
(UMCBP)
The Ministry of Urban Management developed the
framework for public participation.
Justice System Reform Sub-Program (JSRP)
ï‚·   The court reform program is rolled out to the three
    levels of courts at federal, regional and woreda first
    instance courts. The reforms include improving the
    records and case flow management systems, the
    transcribing and recording systems, and access to
    case information. The courts are using different
    mechanisms to enhance access to justice
    information. Information Counters are established
    in Supreme and high courts and are also rolled out
    to Woreda Courts to provide case related
    information; a wide range of information about the
    courts is provided including court judgments and
    proclamations on websites, touch screens and toll
    free numbers (992), legal awareness to the public
    are provided in different media; Ethiopian journal of
    legal education is disseminated to government, non-
    government and universities to encourage legal
    research and exchange of good ideas.
ï‚·   The recent study on independence, transparency
    and accountability in the Ethiopian judiciary reports
    that the independence of courts is adequately
    recognized and protected in the Ethiopian
    Constitution and the various laws concerning the
    judiciary. Significant efforts are exerted through
    short- and long-term training to address gaps in
    understanding and respect for the principles of

                                                       81
PSCAP Overall Outputs                                         PSCAP Overall Outcomes
Output Indicators and Status                                  Outcome Indicators and Status

    judicial independence. This year the justice system
    reform focused on reforming the legal education to
    produce qualified legal professionals. Assessment
    was performed on the entire curriculum and 16 out
    of 67 courses were found to be below standard. Of
    these, five, namely, the Law of Criminal Procedure,
    Interdisciplinary II, Law of Non-profit Association,
    Electoral Law and Administrative Contracts were
    upgraded and their textbooks will be ready for next
    year. The others are also at different stages of
    revision and are expected to be completed in the
    next few months. Manuals to administer the
    mandatory exit exams and apprenticeship were
    developed and are being enforced for all legal
    students.
ï‚·   The legal education reform is complemented
    through focused short-term training of both judges
    and court supporting staff. The training aspect of
    the judicial reform has moved forward significantly.
    Over 22,000 judges were trained during short- and
    long-term professional training and over 2,000
    support staff was trained for both professional skill
    upgrading and on-the-job training.
ï‚·   The independent review of the good governance
    package (GGP) has established that the rolling out of
    GGP was accompanied by creating and/or
    strengthening pertinent structures to ensure
    institutional preparedness notable among which are
    various kebele and woreda level institutional
    arrangements that include establishing woreda
    planning and supervision offices, expanding the
    number of kebele council members to at least 200 in
    order to ensure wider representation in the
    grassroots assemblies, reorganizing grassroots
    executive councils that are replaced by cabinets
    spearheading kebele administrations, downsizing the
    number of the previous dozens of kebele level
    committees to four major committees charged with
    the task of dealing with such fields of engagement as
    development, education and training, health, and
    justice and administration affairs. New institutional
    set-ups that did not previously exist were also created
    for expediting the scheme. These included the
    deployment of trained kebele Managers/focal persons
    designated as fulltime local government employees,
    kebele inspection and supervision teams charged with
    the responsibility of monitoring and evaluation,
    kebele social courts, and complaint handling units.
   ICT is increasingly being used to enhance citizen’s
    access to government information and services.
    Community centers (68) are established by the
    federal ICT sub-program as future access points to
    government services, toll free call centers (888)
                                                      82
PSCAP Overall Outputs                                        PSCAP Overall Outcomes
Output Indicators and Status                                 Outcome Indicators and Status

    increased from 10 to 12 at federal and Oromia
    offices in the last 6 months and this is being
    expanded to other regions. Users of the toll free call
    center increased in the last two quarters from 35K
    to 76K. Similarly, the National government portal is
    also providing information to internal and external
    users.
ï‚·   The proclamation for asset and income sources
    disclosure and registration for public officials was
    enacted in 2010 and implementation has started at
    the federal level. An international firm conducted
    the second corruption survey and a draft report was
    presented at a workshop. This expected to provide
    information about corruption hotspots, which will
    require attention from government.




                                                       83
ANNEX 2: DIVISION OF MAJOR POWERS AND FUNCTIONS IN ETHIOPIA’S
FEDERAL SYSTEM

Powers and Functions of the Federal                   Powers and Functions of Regional States:

ï‚·   Protect and defend the Constitution;              ï‚·   Establish a state administration that best
ï‚·   Formulate and implement the country's                 advances self-government, a democratic
    policies, strategies and plans in respect to          order based on the rule of law; to protect
    overall economic, social and development              and defend the federal constitution;
    matters;                                     ï‚·        Enact and execute the state constitution and
ï‚·   Establish and implement national standards            other laws;
    and basic policy criteria for public health, ï‚·        Formulate and execute economic, social and
    education, science, and technology as well as         development policies, strategies and plans of
    for the protection and preservation of                the state;
    cultural and historical legacies;             ï‚·       Administer land and other natural resources
ï‚·   Formulate and execute the country's                   in accordance with federal laws;
    financial, monetary, and foreign investment ï‚·         Levy and collect taxes and duties on revenue
    policies and strategies;                              sources reserved to the states and to draw
ï‚·   Enact laws for the utilization and                    up and administer the state budget;
    conservation of land and other natural ï‚·              Enact and enforce laws on the state civil
    resources, historical sites, and objects;             service and their condition of work; in the
ï‚·   Establish and administer national defense             implementation of this responsibility it shall
    and public security forces as well as a federal       ensure that educational, training, and
    police force;                                         experience requirements for any job, title, or
ï‚·   Administer the national bank, print and               position approximate national standards;
    borrow money, mint coins, regulate foreign ï‚·          Establish and administer a state police force,
    exchange and money in circulation; it shall           and to maintain public order and peace
    determine by law the conditions and terms             within the state.
    under which states can borrow money from
    internal sources;
ï‚·   Formulate and implement foreign policy; it
    shall negotiate and ratify international
    agreements;
ï‚·   Be responsible for the development,
    administration and regulation of air, rail,
    waterways and sea transport and major
    roads linking two or more states, as well as
    for postal and telecommunication services;
ï‚·   Levy taxes and collect duties on revenue
    sources reserved to the federal government;
    shall draw up, approve, and administer the
    federal government's budget;
ï‚·   Determine and administer the utilization of
    the waters or rivers and lakes linking two or
    more states or crossing the boundaries of
    the national territorial jurisdiction;
                                                  84
ï‚·   Regulate interstate and foreign commerce;
ï‚·   Administer and expand all federally funded
    institutions that provide services to two or
    more states;
ï‚·   Deploy, at the request of a state
    administration, federal defense forces to
    arrest a deteriorating security situation
    within the requesting state when its
    authorities are unable to control it;
ï‚·   Enact, in order to give practical effect to
    political rights provided for in this
    Constitution, all necessary laws governing
    political parties and elections;
ï‚·   Has the power to declare and to lift national
    state of emergency and states of
    emergencies limited to certain parts of the
    country;
ï‚·   Determine matters relating to nationality;
ï‚·   Determine and administer all matters
    relating to immigration, the granting of
    passports, entry into and exit from the
    country, refugees and asylum;
ï‚·   Patent inventions and protect copyrights;
ï‚·   Establish uniform standards of measurement
    and calendar;
ï‚·   Enact laws regulating the possession and
    bearing of arms.
Source: the Constitution of the Federal Republic of Ethiopia

Powers and functions of woreda (district) Powers and functions of kebele (sub district)
administrations include:                  administrations include:
ï‚·   Prepare and implement development ï‚·               Prepare approve kebele plan
    plans and programs;               ï‚·               Follow up execution of kebele plan
ï‚·   Provide public services           ï‚·               Carry out plans and directives issued by the
ï‚·   Maintain law and order;                           woreda council and its executive committee;
ï‚·   Prepare and administer budget ï‚·                   Make additional plans of benefit to the kebele
    including transfers from the regional             residents;
    government that come in the form of ï‚·             Mobilize kebele residents for development and
    block grants;                                     for protection of natural resources;
ï‚·   Assess and collect local taxes;              ï‚·    Prepare detailed implementation programs for
ï‚·   Maintain lower-grade rural roads;                 social and economic programs issued by higher-
ï‚·   Direct      agricultural    development           level authorities;
    activities;                                  ï‚·    Issue social regulations specifically applicable to
ï‚·   Administer     and     protect    natural         the kebele, which do not contradict those drawn
    resources;                                        up by higher councils and their executive
                                                      committees;
ï‚·   Administer the woreda civil service
                                                     85
Powers and functions of woreda (district) Powers and functions of kebele (sub district)
administrations include:                  administrations include:
                                                   ï‚·    Elect its cabinet, chairperson, and secretary of the
                                                        kebele administration;
                                                   ï‚·    Appoint/elect judges or arbitration bodies, who
                                                        are selected by the executive committee, to the
                                                        social courts;
                                                   ï‚·    Determine the work of the executive and other
                                                        committees; and
                                                   ï‚·    Safeguard public safety and law and order.
Source: Revised constitutions of regional states




                                                       86
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