Seizing Opportunities under Extreme Risks: Fragile and Conflict-Affected States

Fragile and conflict-affected countries confront some of the most extreme risks and constraints to their management that, if unaddressed, could create a vicious cycle of poverty, fragility, and conflict with far-reaching implications beyond these states. A well-balanced and collective approach to risk and opportunity can build on the progress made toward better development results going forward.

One thing that fragile and conflict-affected states (FCSs) have in abundance is the extreme risks facing their people. In these environments, consequences of risks materializing are often a matter of life and death. People living in such states make up only 15 percent of the world population, but represent nearly one-third of all people in extreme poverty, one-third of the HIV-related deaths in poor countries, one-third of people lacking access to clean water, one-third of children who do not complete primary education, and half of children dying before reaching their fifth birthday. Only eight of the 36 FCSs have so far met the Millennium Development Goal (MDG) of halving extreme poverty, according to a new World Bank analysis, and the upward trend in the number of poor in FCSs (figure) is expected to take their share in the global poor population to 50 percent by 2015, according to an OECD report. The majority of MDGs in fragile states will not be met by 2015.

The incidence of extreme risks in FCSs is matched by the prevalence of severe constraints on the ability of people to manage risk. Characterized typically by high levels of corruption, weak governance and institutional capacity, an unfavourable environment for doing business and low competitiveness (figure), these states offer limited access to functioning market mechanisms, communities, or governments that provide an enabling environment for managing risk. Three quarters of the limited foreign investment in fragile states go to only seven (resource-rich) states.

As a result, FCSs depend heavily on external support. Sixteen out of twenty most aid-dependent countries are in fact FCSs. But while official development assistance has been increasing since 2000, it has been highly concentrated, both for donors and recipients (half of the assistance goes to only seven FCSs, according to OECD, and some recipients depend only on a few donors). Moreover, aid remains highly volatile and unpredictable, reflecting highly risk-averse aid processes, both in where and how donors engage.

Granted, international engagement in FCSs poses considerable risks from the perspective of donors and implementing partners. Weak political and institutional environments and the failure of basic state functions that characterize them undermine the social and economic systems through which the international community channels its support. In a fast-changing environment, outcomes are hard to predict and return to conflict is always a possibility. So are the prospects of wasting scarce donor resources.

But the glass is not always half empty. Two years ago, the 2011 WDR on Conflict reported that no low-income FCS had achieved a MDG. Today, 20 FCSs have been found to have met one or more MDGs and an additional six to be on track with individual targets ahead of the 2015 deadline. These signs of progress reflect accelerated development in a few countries and better quality data for monitoring progress in FCS, but are also fragile against the backdrop of a risk of relapse into violent conflict that can reverse the progress.

This vulnerability underscores the need for sustained donor support, not only to limit the risk of reversal, but also to allow FCSs seize new opportunities that can pull them out of a vicious cycle of poverty, fragility, despair, and conflict. Given the low starting point, effective international assistance can achieve more in these transitional contexts than in most other situations. Sustained and well-targeted global engagement can lower the risk of conflict through better incomes and prospects, improved security, health, education, and better environment.

The risks of nonengagement can indeed outweigh those of engagement, if lacking international assistance leaves severe risks to people unaddressed. The estimated average cost of a civil war in a low income FCS can be as high as $54 billion—including direct costs of military spending and lives lost and indirect costs of economic growth forgone. Preventing states from falling into conflict is more cost effective than responding once they have failed: each £1 spent on conflict prevention can generate, on average, savings of £4 to the international community, according to a 2004 study. Delayed response can be hugely costly in terms of human lives. A recent report by Chatham House shows that in Somalia, the famine that took many lives during 2010-11 arrived after 11 months of repeated early warning, with failed early intervention attributed to perceived political risk and fears that help would strengthen the position of the militia in the affected areas.

Moreover, in an increasingly interconnected world, the cost of failure to engage can cross national borders, with far-reaching implications—increasing refugee populations, disease, and conflict, and reduced economic prospects. Sharing a border with a fragile state was estimated to reduce a country’s economic growth by 0.4 percent annually in a 2004 study. The ongoing events in the Middle East and Africa demonstrate how contagious conflict and fragility can be. 

Fortunately, positive changes are underway. FCSs and development partners now see appropriate risk-taking as essential to improving outcomes and agree on the need to strike a better balance between risk and opportunity. The New Deal for Engagement in Fragile States adopted in Busan, Korea, in 2011 and the 2011 WDR stress the importance of stepping up support to build national capacities and systems, risk and opportunity assessments, and making aid in itself a risk-mitigation measure through its impact on local capacities and proactive planning for contingencies. Balancing risks and opportunities requires collective approaches to risk management, receptive states, and a supportive, responsive international community (with its global media, multilateral institutions, and civil society) that builds on the domestic efforts and achievements, and works with the people and donors to identify and assess contextual FCS risks, strengthen governance and capacity for contingency planning, early warning, and crisis management, pool risks, and provide financial support with appropriate, context-specific designs that reward preparation.

The above post is a part of a series that discusses 'managing risk for development,' the theme of the World Bank’s upcoming World Development Report 2014.