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Can industries take flight in conflict situations?

Can industrial interventions in conflict areas, such as the West Bank,  improve prospects for future generations? (Credit: delayedgratification, Flickr Creative Commons)The World Bank is actively expanding its portfolio in the world’s most troubled conflict zones. This invites the question: What can the Bank accomplish in countries riven by conflict? I would flip this question around and ask: What steps are needed by the country to rebuild itself?

Whenever I have asked in-country practitioners (whether Bank staff or local NGOs or journalists) what the country really needs, the answer I have heard most often has been: “Jobs.” Get them good jobs, higher incomes, and break the vicious trap of poverty and violence, is the common refrain.


That is easier said than done. So many variables go into a conflict situation that identifying a single root cause –the binding constraint, if you will – is often almost impossible. Conflict situations are more complicated than what formulas and frameworks can represent. Intangible variables, like psychology and mindsets, often accompany the rational factors of economics. Weak policies, corrupt institutions, broken value chains, and negative perceptions do not help.

Cross-cutting, economy-wide interventions are always required, but these are hard to monitor, and cannot easily be ‘felt’ by the entrepreneur – in a context where the entrepreneur’s psychology is most important. They are also often not adequate by themselves. Indeed, I am yet to see conclusive evidence that such interventions have by themselves turned around a conflict-affected country. At the other end of the spectrum, individual firms and entrepreneurs are very widely dispersed, and the Bank’s mandate and resources simply do not permit us to work too closely with each of them.

So where does that leave us? How about a mid-way solution, instead? One that focuses on the middle layer: industries.

There are some clear advantages to such a focus. Much economic development happens with industries at the center – just ask the Asian Tiger countries. Issues ranging from infrastructure to correcting market distortions typically require industry specific interventions. The reality at the end of the day is that governments do not have unlimited wealth, which is why they almost invariably end up prioritizing industries. The question is how to do so in a smart and pragmatic way.

First off, industrial interventions are not a new idea. Moreover, they have shown some successes, starting from the grassroots level upwards. While preparing a World Bank credit in Niger, for example, I met with butchers operating in the Niamey abattoir. They explained how their small businesses would benefit if we upgraded the abattoir and then linked it with improved feeder roads to marketplaces in Nigeria. I have heard similar messages of hope when talking to ICT entrepreneurs in Gaza, young tour guides in Sri Lanka, and women who run handloom tailoring shops around Kabul. These experiences have made it amply clear to me how a properly designed industrial intervention can be of direct help to those who need us most.

Conflict-affected countries realize this. In recent months, there has been demand from many of them for exactly such assistance. The dialogue with them is not about what as much as how.

The ‘how’ is all-important. New approaches should be tested with caution. Conflict-affected countries are not laboratories: They do not have the capacity to absorb failed experiments. I have heard of matching-grant schemes and risk-sharing facilities where applicants were intent on gaming the system rather than expanding their businesses. In general, if there is uncertain demand, a “build it and they will come” mentality is unlikely to work.  One would also not want communities to become over-reliant on handouts and market-distorting subsidies. Clarity on topics like moral hazard, strong implementation, honest monitoring and evaluation would be essential.

As the Bank continues increasing its expertise in the industrial competitiveness space, and as it applies this new-found knowledge in the world’s most troubled conflict zones, a healthy debate around successes and failures would help. Sure, many East Asian countries made it work, but what about  Africa? To this, my answer is: There’s hope. We look with optimism at fisheries clusters in Somaliland, cashews in Guinea-Bissau, tea in Rwanda and cotton in Chad. If we can help the Democratic Republic of Congo overcome the “resource curse,” could they use diamonds to grow, in the way that some Arab countries have used oil?

Every region has its successes and failures. The challenge is to increase the likelihood of success in the most challenging of environments: conflict-affected countries.

I welcome other practitioners’ experiences and thoughts as we continue on this exciting journey.
 

Comments

Submitted by ivan on
Yes there is hope in conflict affected countries. But one size does not fit all and what matters most is quick impact on the ground. How does this translate to operational reality ? To my mind, Governments and donors need faster targeted actions to get the private sector running again. This is about creating market distortions in the short term. Yes... I said it. Why is it justified ? Because creating these distortions, when they generate productive activity, will help create jobs and keep people away from guns and conflict. In a conflict or conflict-affected country, time is short. there is never a right or wrong solution. It is about action and hope. Only short term economic growth can provide it. So let us donors not be shy about it and be bold in our interventions.

Submitted by chamil on
Most governments concentrate on building up foreign reserves after a conflict and think its important to do so but is Sri Lanka there is a lot of spending on infrastructure building which drains the country of foreign exchange. With a small population the private sector and agriculture sector has to export to maximise profits. Identify the right markets, international marketing or branding is important. Decreasing government administration costs ex Sri Lanka has 2 provincial government systems per province as per the devolution package introduced by India and parliamentary system that does not have people participation in the decision making process.

Submitted by Varatha on
Governments in post conflict zones, as likely stated, need to encourage industries which employ local people to create jobs and bring growth to the economy. Industries thrive in diversity given creative destruction will build stronger and experienced entrepreneurs. However, people prefer stable conditions like every day job, food at reasonable prices, good education for the next generation so that they will also get good jobs, etc. It is highly important to ensure education otherwise it will or.may lead to inequality of wealth distribution in the near future.

Submitted by Robert Peters on
1. Start small -- encourage private business -- build up from the bottom -- let the successful succeed 2. Government's job is to settle disagreements, and keep the peace -- not try to plan growth 3. Government needs to think small -- do as little a possible -- encourage business -- allow people to live their own lives -- pay for one room school houses 4. Don't worry about fancy accoutrements the will come in time -- don't follow the European model follow the post Colonial American model 5. Follow the KISS principal - too much is destructive. 6. no royalty, no supreme leaded. Local power 7, Mistakes are a good thing, they are how everyone learns 8. Perfection is the enemy --- start out solving the small problems and get them into action as soon a possible, the big things are easy as will take care of themselves 9. honor the beliefs of others 10. keep taxes very low the people need the wealth far more than the government

Submitted by Oliver J. Haas on
Thanks for the inspiring and well thought through article. I would like to introduce one idea on which I'm working in relation to the power sector and rural electrification. The experience of working for about 4 years in rural Afghanistan has shown me that the lack of cooperation, mistrust and negative (unregulated) competition is a major obstacle to go ahead in rebuilding the country. There are no efficient state structures in place in rural areas and building up profitable enterprises is often only possible for strongmen and powerbrokers. Businessmen would be forced to give substantial parts of their profit to such strongmen. I think that these adverse incentives prevent many from growing micro businesses larger and to remain under the radar of power brokers. But how to solve it if the state will not be able to do it for its citizens or if the state just represents actual power structures and does not guarantee individuals the right to develop economically? Of course there is again no 'one size fits all' solution, but the observation of rural electrification with local power producers was insightful. There are commons such as electricity which virtually all people want to access and use. In their provision social dilemmas occur as there is only little regulation from the government (some people refuse to pay or any other obligations…). To counter freerider problems collective action is required. Forming up utilities and linking them to stakeholders creates strong alliances for the supply of commons. This can be organized as a business (like in our example the rural mini hydro power stations) which serve vital needs of other businesses and households. The strong interests of all stakeholders’ will help to sustain such services and avoid their harmful exploitation. Communties lack technical expertise and require financing by the state. There will be a debate about the role of the government, the entrepreneur, the users etc. and stakeholders will give only little or no room for oppressing the entrepreneur in a way that he will not be able to sustain its supply. This process can lead to the evolution of norms and civil arbitration mechanisms as well as to a reinforcement of eroded links to the central government bodies. I'm certain my example is not well described but I have found empirical evidence that the development of supply systems which can only be maintained and sustained if provider (financing, planning, implementation) producer (utility) and arbitrator (clients / users) act cooperatively. The question of my current PhD research is therefore how public policies (and global public policy) can efficiently interact at these different levels and thus improve both, local governance mechanisms and economic development.

Submitted by David Dodd on
In many ways, rebuilding after conflict is similar to long-term post-disaster economic recovery. Similar economic disruptions, infrastructure damage, and business interruptions occur, and people are likewise demoralized and frightened. Of course, there are differences, the primary being that after conflict, in addition to economic rebuilding, most conflict-ridden nations must also rebuild political structures. However, if political stability can be achieved, economic recovery would follow the same process as disaster recovery, namely: 1) Assessing the current state of the economy; 2) Developing a vision for a new economy based on realistic principles; 3) Creating strategies to link the current state with the economic vision; 4) Transforming the strategies into Simple, Measurable, Attainable, Realistic, and Time-sensitive goals; and 5) Breaking each goal into actionable steps—who will do what, by when, what resources are needed, and how those resources will be secured. The final, and most important ingredient in either endeavor is the same: Leadership. Leaders are able to induce others to act, based on their own values and motivations, to put the common good ahead of their own selfish interests. Unfortunately, of all resources, true Leadership is by far the scarcest. Therefore, building leadership is a necessary prerequisite to building new, better, fairer, and more resilient economies, and by extension, freer, more prosperous, and more peaceful, nations.

Ivan, that's great - and bold - insight. One key challenge would be to figure out ways to shield short-term market distortions from spilling over into the long-term. Chamil, thanks for sharing these observations. Every post-conflict country shows mixed successes during the recovery phase. Sri Lanka seems to me to be doing it right more often than wrong. Varatha, you are right. Primary (and higher) education is a fundamental necessity for long term stability. This often needs to be complemented with technical and vocational skill building during the post-conflict phase. Robert, your 10-step process is interesting. I wonder about the small government model in such contexts though. Aren't governments by default the biggest players in the game? And if they don't plan for growth, who will? Oliver, thanks for sharing your research. Collective action for economic development is an ideal every conflict-affected community should aspire towards. Unfortunately, this ideal is often not met due to perverse incentives. Hopefully your research will throw up some workable and replicable models. David, I like - and agree with - the analogy with disaster recovery. And your point about leadership resonates strongly with my experiences. Both in the public and private sector, strong and honest champions for economic change can make a real difference in post-conflict zones.

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