10  Understanding the Operating Context of Municipal Partnerships 10

Chris Heymans and Janelle Plummer

The capacity of a municipality to develop an effective, focused partnership is often strongly shaped by a sound external operating context. Municipalities do not operate in a vacuum. In most situations a number of the factors determining this context will be outside municipal control, and as with other municipal actions decision-makers must adapt their approach to respond to the opportunities and constraints of the broader context. Politics, economic realities, policy and regulatory frameworks, and the political and administrative relationships between local government and other levels of government all play important roles.

It is not possible to describe a perfect operating environment. The factors making up the environment and influencing the development of a service partnership in developing countries are mostly in a state of flux. Even where effective institutions and instruments are developed, the social, economic and political realities are changing. However, experiences in diverse contexts have highlighted a range of issues affecting the operating environments of local governments - issues that may severely affect their capacity to develop a partnership, and will help to determine the approach they adopt.

The general political and economic conditions normally set the scene for private sector participation (PSP), and can make or break it at the outset. It becomes difficult, for instance, to establish partnerships if public sector decision-makers are sceptical of the private sector, or if resistant trade unions have a strong influence on political decision-making. In a weak investment environment, the private capital or operational skills to engage in partnerships may simply be lacking. Coherent private sector participation policy fosters general public sector commitment to partnerships, and helps ensure that the general thrust of legislation and regulation works to streamline partnerships.

Regulation and legislation shape standards, incentives and processes for private sector participation and thus affect the form it might take. Procedures and pricing frameworks influence private sector interest, and the local government's power of decision-making is often an important factor, because potential partners may be reluctant to enter into contracts with an entity that can be over-ruled by higher authority. On the other hand, some investors want guarantees from higher-level authorities, to provide them with more security about their contracts with municipalities. This chapter discusses how these factors - factors over which the municipality may have no control - obstruct, encourage or generally influence partnerships. All factors fundamentally influence the capacity of a municipality to enter into a partnership and to target its efforts to the benefit of the poor.