What role does business play in post-conflict recovery? How can policymakers ensure private sector actors play a positive, rather than a negative, role? This article from Conflict, Security and Development argues that it is essential to differentiate between different types of business. Each type will play a different role depending on how it assesses risk and opportunity in the aftermath of conflict.
The links between economic development and conflict are complex. All private sector actors operating in the immediate aftermath of conflict tend to look for opportunities which combine relatively small capital investments with fast returns. However, the role such actors play in post-conflict recovery differs depending on business type. Businesses can be differentiated both by their location and by their sector:
- Local entrepreneurs have strong motivations to start trading, but will not put their own funds at risk unless they are reasonably confident of receiving a return.
- Diaspora investors are strongly motivated and may have considerable funds to invest, but their local knowledge can lead to a willingness to compromise business standards.
- Major transnational companies are unlikely to take the risk of investing in a small and dangerous market unless they see commensurate opportunities.
- Businesses will play a different role in post-conflict recovery depending on the scale of investment needed, the means of getting paid and the speed of return in their sector.
- The mobile phone sector, for example, is typically among the first to invest. This is because the scale of investment for a mobile network is relatively low and the returns are fast.
- Retail banks, by contrast, are less likely to invest until they are confident of a degree of political and regulatory stability.
Countries need healthy private sectors if they are to achieve lasting peace and stability. As a result, policymakers need to factor private sector concerns into their calculations at every stage of post-conflict recovery. While there are no precise formulae, certain elements are important:
- The state has a key role to play in creating an enabling environment for the private sector, particularly by fostering security, anti-corruption measures and the rule of law.
- Timing of reforms is important. Legal and regulatory reforms must be undertaken sooner rather than later.
- In addition to legal and regulatory reform, tax incentives and political risk insurance (PRI) can be used to attract foreign direct investment (FDI).
- PRI is most useful in cases where the post-conflict environment has improved, and investors have already identified attractive opportunities.
- Businesses should ensure their activities reduce the risk of further conflict. For example, recruitment policies should be designed so that they do not favour one group over another.
- Businesses’ lobbying activities are most effective in assisting recovery when they point to the economic costs of further conflict and the dividends of achieving lasting peace.