David Lawrence, a consultant for the International Finance Corporation’s Public-Private Partnership (PPP) Department, wrote an article summarizing how to promote a favorable business environment in post-conflict countries. Lawrence cites from the April 2013 issue of Handshake, IFC’s quarterly journal on PPPs. This issue explores a number of ways governments and international donors can revive the private sector and attract investments in post-conflict countries.
- Work on the Business Environment: Governments in post-conflict countries are under pressure to put things right, not only from their own citizens, but also the international community. Pierre Guslain, Director of the World Bank Group’s Investment Climate Department, says that this “creates an environment in which the political context for change is favorable—allowing governments a window of opportunity for implementing important investment climate reforms.” Reforms can improve overall business climate, but also remove obstacles to private investment in infrastructure, especially those which are relatively easy to build, like telecommunications.
- Partner with Donors to Get Things Started: International donor agencies have made post-conflict countries a priority. That’s good thinking — today, 50 percent of the world’s poor live in post-conflict countries. The private sector needs to have a place at the table in post-conflict recovery. Donors are well-positioned to lay the groundwork for private-sector engagement in post-conflict countries, providing not only funding, but also expertise, advice, and playing a coordination role. A good example is USAID’s crucial role in restoring power to Liberia after its brutal, 14-year civil war, during which the power generation and distribution system was completely destroyed. USAID restored power on a basic level with imported emergency diesel generators, followed by a 10 MW diesel generation plant. It also provided support to improve power regulations. This was enough to get the private sector involved in rebuilding the power distribution system, and more recently, a $230 million PPP to rebuild the Mount Coffee Hydro Power plant.
- Take Advantage of Political Risk Insurance: International institutions such as the Multilateral Investment Guarantee Agency (MIGA) or OPIC, the U.S. government’s development finance institution, can insure foreign investors from political risk and even conflict. While risks may not be entirely eliminated, it may bring a potential project into the investor’s comfort zone. Examples where political risk insurance have made a difference abound. In Ivory Coast, insurance provided by MIGA led to the construction of a toll bridge. The project had been on hold for a decade before MIGA provided coverage of $145 million.
- Leverage Public-Private Partnerships to Mobilize Private Investment: Infrastructure is necessary to restore basic services that communities and businesses need, including water, power, transportation and communications. PPPs have the potential to bring in private sector funding and expertise that governments lack to build and deliver infrastructure – what is sometimes referred to as “infra-vention”. Although it can be problematic to set up a long-term PPP contracts in a post-conflict environment, there are some sectors, notably telecommunications and natural resources that are often attractive even in post-conflict environments. A well-structured PPP can gradually shift the benefits of a PPP towards government after the country has stabilized.
Attracting investments in post-conflict countries will never be easy. But it is being done and governments, especially in partnership with the international donor community, can create conditions that encourage private sector investment.
– Maria Caluag
Source: Business Fights Poverty,IFC
Photo: Africa.com