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Contributions from
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Monitor
Tsunami relief: Too much of a good thing
Merits and limts of contract farming
EU sugar regime: Double-edged pledge
Afghanistan’s drug cultivation at a record high
US government agency assesses Millenium Challenge Account
More votes for emerging nations at IMF
Oil: World Bank and Chad reach agreement
Slow progress in fight against desertification
Private sector: Making money in peace
10/2006
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[ Private sector ]
Making money in peace
Where violence and war reign, it is difficult to make money by honest means. Most business people rely on a modicum of security and political stability. Some time ago, development policy therefore discovered the private sector to be a natural ally for work in crisis regions. War not only destroys the infrastructure that is essential for the economy, such as roads and power supply. The destruction of social capital and trust in a society and of norms and institutions – the intangible preconditions for successful business – is an even graver consequence, according to Rob Mills from the World Bank. For Mills, it is obvious: a development policy that focuses on improving the investment climate in crisis-torn countries – by reducing arbitrariness and distrust and helping to build reliable institutions – naturally contributes to peacebuilding.
War does not mean, however, that the economy comes to a standstill. In Somalia, the mobile telephony market has exploded since the government collapsed and the country sank into anarchy in 1991. There were 17,000 telephones there back then; today, according to figures by Hilary Sunman from the British Department for International Development (DfID), the country has 131,000 fixed and 98,000 mobile phone connections. Observers say that this growth was actually made possible through the absence of a government in Somalia because resourceful entrepreneurs could put their business acumen into practice, unhindered by political regulation.
Africa scholar Gérard Prunier points out, however, that a number of Somali warlords also made a lot of money from the telephone boom. This comes as no surprise to Tony Addison, Professor of Development Studies in Manchester: According to Addison, war does not only prevent investments but also distorts them: capital flows into different sectors and regions than during times of peace; the line between legal and illegal business becomes blurred. Like Mills and Sunman, Addison presented his findings at an international conference of the DfID, the German Technical Cooperation (GTZ), the German Development Ministry (BMZ) and the British organisation International Alert in mid-September in Berlin.
Development policy must study the economy and its actors in a conflict region carefully before getting involved. Otherwise, maintains Sabine Becker from GTZ, there is a risk that private sector promotion will intensify conflicts – for instance by unwittingly strengthening war profiteers or aggravating regional imbalances. Paul Collier, formerly with the World Bank and now Professor of Economics at Oxford University, warns against setting up large-scale micro credit programmes in post-conflict countries: this often gives rise to windfall gains and greed associated with war, and encourages unwise investments. When rebuilding the economy, capital flight is usually more of a problem than a lack of liquidity. In such cases, development policy should not contribute money from the outside, but should try to lure back capital that had been diverted out of the country. Local or foreign investments are not the only alternatives, said Collier: investments by the diaspora are the most important.
A further challenge for development policy is, on the one hand, to provide effective assistance to revive the private sector as quickly as possible once a conflict has come to an end. On the other hand, however, early development interventions must not steer the economic development of a country too much in one particular direction. Past experience has shown that the economic structure changes dramatically during the first five years after a conflict has ended. The Afghanistan Investment Support Agency (AISA), which is supported by Germany, is an example of a measure that had an immediate impact and at the same time supports local capacities without restricting the further development path. According to the GTZ, the agency has supported more than 6,000 business start-ups with a total investment volume of $2.4 billion since it was founded three years ago; in many cases, the money came from the Afghan diaspora. (ell)
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