Local businesses can create jobs in Pakistan's conflict areas (Credit: Zerega, Flickr)
How can you effectively support areas shaken by years of regional instability? The Western border areas of Pakistan are one such region, where a 2009 insurgency and subsequent military operations in the Khyber Pakhtunkhwa (KP) and Federally Administered Tribal Areas (FATA) led to one of the worst crises in the country's history. More than 2 million people were forced to leave their homes and considerable damage was caused to physical and social infrastructure. The unprecedented floods of 2010 only made the situation worse.
High unemployment and chronic socioeconomic woes intensified instability in the region and were amplified by the crisis. Most of the unemployed were young men – some of whom were offered financial incentives to exacerbate the crisis.The Post Crisis Needs Assessment (PCNA) conducted in the aftermath of the crisis identified ‘stimulating employment and livelihood opportunities’ as a critical pre-requisite for promoting regional stability. At the request of the Government of Pakistan, the Multi Donor Trust Fund  (MDTF) for KP, FATA and Balochistan was launched in 2010 to provide funding for reconstruction, rehabilitation and reforms needed to restore peace and create the conditions for sustainable development.Our Pakistan-based team of Private Sector Development specialists was charged with administering one of the key components of these efforts: an “Economic Revitalization” of KP and FATA to rehabilitate crisis-affected small and medium-sized enterprises, mobilize investment from the diaspora, and build capacity in both KP and FATA governments to improve the investment climate.
The objectives were ambitious, but this was exactly the kind of approach that we had been favoring in such a fragile context: a focus on quickly recreating activity and competitiveness from existing strengths – in this case, local small businesses, while taking a cross-cutting approach that could promote sustainability.
Supporting local businesses to quickly create jobs and restore livelihoods
US$20 million was allocated to this economic revitalization project. US$14 million of this was set aside for matching grants to rebuild and expand small and medium businesses that could employ many – thereby having a multiplier effect on employment and livelihoods. It was important to ensure government ownership of the process: The project is implemented by a dedicated government authority in Peshawar, the capital of KP Province. The efficiency of the grant program is ensured by well-defined criteria for the selection of businesses receiving assistance, including the existence of a sound business plan and financial history.
Our confidence in the relevance of the program quickly rose with each story that we heard in the field. “The transformer and roof of my factory was hit by a shell and badly damaged,” lamented Iftikhar Ali, who lives in the city of Mingora in KP. Iftikhar has owned and run a marble factory since 2005, but increasing acts of violence and shelling in 2009 forced him to close shop for six months. “I took the form and submitted a claim of PKR 1.8 million (US$18,000) toward the end of 2011”, Iftikhar said. After verifying the claim, a grant of PKR 0.52 million (US $ 5,200) was approved, which Iftikhar received in June 2012. The grant had a quick impact on employment: Iftikhar had employed 16 workers who became jobless when the factory shut down – but now, thanks to the grant, nine workers joined his shop.
Iftikhar’s story is not an isolated example. As of May 2013, the revitalization project has already approved 376 matching grants for small and medium enterprises (SMEs) in KP and FATA, and has disbursed PKR 139 million (US$1.39 million). Meanwhile, a specific web tool for attracting diaspora investments is being designed, and the government’s capacity to actively pursue further investments is being increased with the commencement of a pre-feasibility study for a Diaspora Bond.
Building on ‘Competitive Industries’ to maximize and sustain impact
Quickly bringing back growth and jobs on the ground was essential, especially in a conflict-affected region, but we were not satisfied with just these results. Inducing and sustaining transformational impact required interventions that can build on the initial results to drive structural change and create job opportunities on a broad scale. That means boosting competitiveness in key sectors of potential comparative advantage, so that they can become engines of long-term growth, jobs and stability.
This is what we are starting in KP through the Competitive Industries Practice. Using the Practice’s methodology, we will focus on strengthening the province’s critical value chains in two high-potential sectors – the mining of dimension stones (especially marble) and food processing – given their strong comparative advantage in access to raw materials and market positioning.
These promising sectors were especially affected by the recent crises, which uprooted major parts of the region’s infrastructure and destroyed the linkages along their value chains. The project will improve the competitiveness of the sectors by supporting investments in shared infrastructure and skills development along the marble sector’s value chain, and by addressing the information gaps and coordination flaws along the food-processing sector’s value chain.
Building on the strengths of their local economy to create jobs and improve competitiveness, the Western border areas of Pakistan can not only restore the livelihoods of their people, but gain the opportunity to engage on a sustainable path out of the crisis.