KAMPALA PRINCIPLE 5:DPs_SUBP 5.D

Sub-principle 5.D

Establish provisions to mitigate and manage risks

 

Why is it important?

 

It is important to effectively identify, manage and mitigate potential risks on a systematic level. Regular risk assessments with all programme partners can provide an effective means towards ensuring that PSE projects produce both development outcomes and shared benefits for businesses. By conducting risk assessments, instances of harm or risks to business operations or vulnerable groups and sectors can be discovered, thereby enabling project partners to correct course and pursue a more appropriate trajectory. 

Self-reflection questions
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Policy Level Project Level
  • Does your government’s or organisation’s PSE strategy explicitly acknowledge the potentially risky nature of PSE projects? Do you offer options for identifying and addressing these risks as well as financial mechanisms that spread risks and facilitate building trust?
  • Does your PSE strategy and/or country programmes propose dialogue with other stakeholders and potential partners to identify and mitigate risks involved in country contexts? 
  • Have you considered a role for national and local civil society organisations in ex ante risk assessment and monitoring of risks across all PSE projects and policies?
  • Does your PSE strategy specify acceptable levels of risk and offer strategies for when projects fail?
  • Does your government or organisation have sufficient capacity and expertise in risk mitigation and management for private sector projects? Or does this capacity need to be developed further or complemented by external support?
  • For your PSE project, does your risk management process acknowledge the specific risks that emerge from your project’s sector of intervention and those that emerge from the country-specific context?
  • Will you conduct regular risk assessments along with all project partners prior to, during and following the completion of each PSE project? How will you manage and mitigate risks as they emerge and evolve over the project life cycle?
  • Have risks been allocated to those stakeholders the best suited to managing such risks? For instance, public sector actors are best placed to address political, macroeconomic and regulatory risk while the private sector is best suited to manage market, commercial and business risks.  
  • Have you established a clear risk mitigation strategy for your project in consultation with the government (national or local)? Is this strategy in the public domain and open to continual revision?  
  • Do all project partners have at least a minimum risk management capacity, i.e. the ability to reduce, mitigate or adapt to project-related risks?

Actions to consider
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Policy Level Project Level
  • Support partner country governments in developing their national risk assessments, ensuring that this information is tailored to private sector engagement and investment.
  • Support internal efforts to centralise knowledge and international efforts on effective risk mitigation by building up strong management structures and collating best practices and data on effective private sector investment and engagement. 
  • Regularly update and monitor your own and partner countries’ risk assessment frameworks.
  • Use project evaluations to consolidate lessons learnt for policy adjustments and future projects.
  • Start small. Conduct initial pilot studies to scope out potential risks, provide initial adjustments, and offer more confidence to private sector and other partners through the demonstration effect. 
  • Initiate risk identification in the design phase of your project and continue to monitor these during implementation.
  • Consider the range of financial (guarantees, risk capital, insurance products) and non-financial tools (consultations, regular assessments) at your disposal to mitigate risk and use them appropriately depending on the scale and nature of your project intervention.

Pitfalls to avoid
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Policy Level Project Level

      DON’T...

  • Rely entirely on standard due diligence frameworks developed for public sector projects that do not incorporate the specific nature of, and risks associated with, PSE.
  • Withhold CSOs’ contribution and undermine their role in assessing risk at both at the strategic, policy or local level.
  • Produce risk mitigation strategies that do not recognise risks for all partners involved, most notably for those furthest behind.

      DON’T...

  • Overlook or not fulfil transparency requirements when managing risk. 
  • Employ one-size-fits-all approaches to risk analysis and mitigation without differentiating between each project’s specificities like the sector, geography or stage in a project’s life cycle.
  • Use too many approaches to risk management and mitigation by disconnecting from other project partners when developing shared risk assessment, management and mitigation processes.
  • Rely on top-down approaches to risk identification, analysis and mitigation without leveraging local partners’ better understanding of local and national risks.

COUNTRY-LEVEL EXAMPLES

The Swiss Agency for Development and Cooperation has developed a PSE Risk Management Process that is integrated into its overall risk management framework and set up to systematically prevent and mitigate contextual, programmatic and institutional risks along the entire partnership with a private sector actor. The four-phase process starts with an assessment of the PSE prospects. This includes an assessment of exclusion criteria; environmental, social and governance risks; and due diligence of the potential partner. Second, a joint project risk assessment is conducted before coming to a partnership agreement. The third phase includes regular reviews and monitoring of project risks as well as adaptation in operations, management and governance, if needed. The final stage is a planned exit. Through this process, risk can be systematically managed and mitigated, thus contributing to more effective delivery of development solutions for those furthest behind.

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