Private sector engagement in fragile and conflict-affected settings

Question

Review literature on the role of private sector engagement in supporting efforts to address fragility and conflict and review lessons learned from the approaches to private sector engagement in fragile states by different donors

Summary

The private sector and private sector development (PSD) are considered to have a crucial role to play in contributing to economic recovery and addressing a number of drivers of fragility.

Key findings of the review include:

  • Fragile and conflict-affected settings pose challenges for engaging with the private sector. Significant internal and external imbalances are present, including large fiscal and trade deficits and debt arrears.
  • Despite these challenges, private sector activity continues, changing shape and direction. Given this resilience, the private sector can be a powerful vehicle for reconstruction and regeneration. The private sector can play a role in several areas including:
    • supporting stabilisation
    • spurring long-term economic growth
    • improving transparency
    • fostering trade.
  • The local private sector is considered to have a range of motivations for wanting to address fragility and conflict, and when engaged appropriately, to deliver benefits:
    • local private sector actors are more interested than large enterprises in supporting peacebuilding and stabilisation as they suffer more from conflict
    • they tend to be more labour-intensive than large firms, depend less on imports and maintain more links with other local enterprises
    • they are more likely to have subnational urban centres as their base, stimulating regional development
    • Individually they represent less economic power and are easier for national and local governments to deal with
    • the local private sector is more likely to invest and expand locally.
  • Support from international financial institutions, bilateral donors and other actors can make a significant contribution to the private sector by ensuring ongoing access to finance, imports, and exports. These efforts work best if they are coupled with reforms to re-establish or strengthen transparency, trust, effectiveness, and legitimacy in government institutions, which provide the framework within which the private sector operates.
  • Research suggests that a balanced strategy is necessary to support more durable economic growth and enhance the private sector’s impact. This will combine emergency employment, income generating activities (including private sector development), and legal and regulatory reforms to develop an enabling environment.

Suggested citation

Avis, W. (2016). Private sector engagement in fragile and conflict-affected settings (GSDRC Helpdesk Research Report 1331). Birmingham, UK: GSDRC, University of Birmingham.