Promoting economic development is much harder in fragile and conflict situations (FCS), as poverty rates are around 20 per cent higher, economic performance is weak, there are high rates of criminal violence, and international issues such as drugs, arms and trafficking are more likely to be present (Peschka, 2011). Fundamentally, normal market conditions do not exist due to a combination of factors that make programming extremely complex and expensive. Factors include that:
- the private sector comprises of formal, informal and illegal actors, and displaced communities;
- workforce and skills are diminished due to death, injury, displacement and unemployment;
- macroeconomic conditions are volatile due to inflation, currency weakness and fiscal investment;
- illegal activities and corruption are prevalent;
- there is limited access to basic services and infrastructure (especially connectivity and IT);
- legal and regulatory frameworks and institutions have become fragile;
- there is limited access to finance as investors leave or become risk adverse;
- market distortions (availability of goods and services) and suspicion of the private sector exit;
- there is rent-seeking behaviour and ownerships rights has become uncertain; and
- the government is weakened and its legitimacy is questionable (Peschka, 2011; Rossignol, 2016).
Despite these significant challenges, private sector activity continues and to some extent, remains resilient to volatility. Thus the development community believe that the economic development, especially via private sector development (PSD), has a crucial role to play in economic recovery and achieving peace. This is because only the private sector is capable of growing new enterprises, opening investment opportunities, and providing employment and economic security.
In FCS, the private sector play a vital role in maintaining community structures by providing over 90 per cent of jobs generating income for families, preserving workforce skills and generating sources of tax and export revenues (Arvis, 2016; Peschka, 2011). The private sector are also motivated to support development as they are typically interested in economic and political stability, tend to be SMEs, are labour intensive, less dependent on imports, linked to other enterprises and innovative in their approaches. Individually, firms represent less economic power but they are an easier vehicle for the development community to work. The private sector is also likely to be a first mover in investing in people and economy, thereby making them a powerful force in “reconstruction and regeneration (Peschk 2011)”.
It is recommended that international donors (including NGO providers) and the respective governments work with the private sector and citizens to identify appropriate packages of interventions and enable implementation ownership. PSD interventions may include: access to finance, market access, infrastructure, investment attraction, workforce development, value chain, private-public partnerships, industrial zones, and inclusive growth projects (Arvis, 2016; Peschka, 2011; Jepsen, 2016; Rossignol, 2016).
In addition to generating jobs, creating economic opportunities and filling gaps in delivering basic services, the private sector can help lift business confidence, create legitimacy of the government and apply pressure for more systemic reforms (OECD, 2008). Development efforts should therefore also be coupled with reforms to “establish or strengthen transparency, trust, effectiveness, and legitimacy in the government institutions”, which provides an institutional framework to reinforce PSD and peace (Peschka, 2011).