The challenges of economic development in conflict-affected areas

Peace & Security,Sahel Watch03 Nov 2014Ruud van Soelen

Getting the economy back on track in the post-conflict environment of Mali is not an easy task. However, with the increased sense of security, individuals are exploring new opportunities to venture into economic activity.

Trade in an economic sense can be described as interactions between humans that are based on rational free will and reciprocity with transparency of information. Economic development can be a useful means to mitigate social disruption of the rule of law because it offers an alternative way of getting what conflicting sides are striving for in a way that causes less destruction of lives and property. Promoting economic development in conflict-affected areas is not an easy task. However, the challenge of achieving the transition from conflict to economic development for peace is a much debated and researched issue.

The playing field of a healthy economic environment, where all stakeholders can play the ‘game’ requires three pillars. The first is security. An entrepreneur or company must be assured that potential investments will be secure financially and free from the risks of being destroyed physically. Employees and customers need security to become loyal counterparts in the economic transaction. The second pillar is trust. Economic development is about interactions between individuals that need to cooperate and is facilitated by institutions that control the game, such as governmental bodies, property registration and financial arrangements. Trust between individuals is the basis for cooperation and transactions are facilitated by trust in the governing institutions. The third and last pillar is predictability. Choices made by individuals are based on their expectations of the outcome of such choices. The expected result of one’s actions determines the choice an individual is likely to make, not only in an economic sense, but in all aspects of daily life. To achieve some sense of predictability, there must be transparency of information, and clear ‘rules of the game’, or at least a predictable interpretation of those rules.

Promoting economic development in a nation affected by conflict is not an easy task. In the context of Mali, there are numerous difficulties. Interventions to promote private sector development (PSD) should not only be focused on creating enterprises but should include action aimed at creating an optimal business environment. Mali is striving to create a secure environment in the long term where enterprises can flourish and individuals can take action on the basis of viable predictions of expected outcomes, which are based on trust.

Mali currently lacks most of these important aspects, but improvements are on the horizon. The northern parts of the country are highly unstable and insecure. Due to the conflict, property is being destroyed, financial arrangements are cancelled, poverty has increased and crime rates have amplified. Travelling the long distances between cities has become less safe, due to increased robberies and other criminal activities. Corruption is rising and confidence in the ruling institutions is extremely low. Mutual trust between individuals is lacking, the predictability of the outcome of an individual’s action is open to wide interpretation and is not something to rely upon. The behaviour of individuals is directed by risk aversion and social cohesion at family or ethnic group level provides some degree of trust between individuals. This is not really an environment where economic development can flourish. However, as said, improvements are on the horizon.

The UN-led intervention MINUSMA provides security, mainly in the north, and strives to positively influence stability throughout Mali. With an increased sense of safety and stability, individuals are more likely to shift their attention from short-term survival mode, where nothing is taken for granted, towards a longer-term perspective of securing their livelihood and exploring new economic opportunities. For example, the totally disrupted tourism industry has left many out of work. With improved security, tourists are slowly finding their way back to Mali, providing renewed opportunities for the Malian tourist industry. In exploring economic opportunities, individuals must actively seek cooperation with others. By bringing the various groups in Mali into dialogue, the restoration of mutual trust can be facilitated. This creates an enabling environment for establishing new partnerships and other forms of cooperation. Institutions that coordinate the playing field are required to deliver and therefore development actors should not only focus on businesses ‘on the ground’, but also on capacity building and improving governance skills in the relevant institutions. With functioning institutions, transparency and predictability will increase. The result of a choice taken by an individual can be better predicted, alleviating the risk. By mapping these risks, entrepreneurs are thus able to make a reliable forecast of the potential impact and potential result of an investment.

Getting the economy back on track in the post-conflict environment of Mali is not an easy task. However, with the increased sense of security, individuals are exploring new opportunities to venture into economic activity. Regaining trust is a long and sensitive issue, but improvements are being made. State and other institutions are becoming less ambiguous, and although corruption levels are high, we see a change of attitude and a restoration of trust. Individuals throughout the country are interacting more and more and refugees are slowly returning to their homes. The rule of law is being reinstated in most areas in Mali, making rules less open for various and different interpretations. This increases the predictability of actions, which is crucial for any form of economic development.

About this Expert Opinion

The analysis presented in this expert opinion is based on the experiences of SPARK, a Dutch-based NGO on Private Sector Development and Entrepreneurship. SPARK is active in around 16 post-conflict zones throughout the world. They encounter huge challenges in bringing back an enabling environment that is necessary for start-ups of new entrepreneurs or to scale-up of existing companies in an economic environment with rational economic trade-offs. SPARK not only focuses on training entrepreneurs, but tries to facilitate an environment where entrepreneurs can fully exploit opportunities, calculate risks and make rational choices.