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Strengthening Private Sector Resilience under Conflict: Lessons Learned

and the Way Forward11-12 November 2008

Beirut, Lebanon

Mr. Tarik AlamiChief, Unit for Emerging

and Conflict Related Issues (ECRI)

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Patterns and Dynamics of Conflict and Instability in the

ESCWA Region

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– Major Wars (average of every 10 years major regional conflict with long term repercussions) • Arab Israeli Conflicts and occupation by Israel of Palestine and

Arab lands, including 2006 Israeli-Lebanese • Three Gulf Wars

– Political Instability and Numerous Flash Points• Threats of civil wars/internal strife

– Terrorism – Religious Extremism/Ethno-Sectarianism

A Region Beset by Conflict and Political Instability A Region Beset by Conflict and Political Instability

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The Vicious Cycle The Vicious Cycle Crisis Afflicted Countries: The Local DimensionCrisis Afflicted Countries: The Local Dimension

International/Regional/Local International/Regional/Local Competing InterestsCompeting Interests

Deficient Local Socio-Deficient Local Socio-Economic Economic Performance and Performance and Reform ProcessesReform Processes

Weak National Political Weak National Political and Socio-Economic and Socio-Economic

SystemsSystems

Conflict patterns in region replacing classical wars with local

protracted internal conflicts

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Common Patterns in Crisis Afflicted CountriesCommon Patterns in Crisis Afflicted Countries

– Centralization of decision making – political and security considerations overriding – Patronage, corruption and clientalisim– Inefficient state institutions/services and outdated administrative practices – Monopolization of wealth and resources by a few – Widening gap between rich and poor

Political-Economic System Unable to Address Political Discord or Economic Grievances

Instability Dysfunctional relationship between Government and Vital

Stakeholders, including Private Sector

Poverty Unemployment

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Political Instability, War and Development:Political Instability, War and Development:The Regional Dimension The Regional Dimension

Loss of JobsClosure of Schools Social Services &

State Institutions Weakened

CONFLICT/VIOLENCE

INCREASE POVERTY

UNEMPLOYMENT& OTHER NEGATIVE

INDICATORS

Mushrooming of ethno-sectarian tensions

IDPs & Refugees,

burden on host governments

Brain Drain

*Regional Spill-over effects

Illegal Migration

POLITICAL INSTABILITY

Negative Economic Growth

Religious Extremism

Terrorism

Capital Flight

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Impact of Conflict/Instability on Socio-Economic Development

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Incidence of Poverty in the Arab Region

17.9

11.2

46.3

23.019.0

9.0

44.8

22.6

0.05.0

10.015.020.025.030.035.040.045.050.0

Mashreq countries Maghreb countries Arab LDCs Arab region

1995-1999 2000-2005

Extreme Poverty/Hunger Conflict/Instability

Arab region as a whole has not made significant progress in reducing income poverty

Source: MDG in the Arab Region: A Youth Lens 2007

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Proportion of Underweight Children Under Five Years of Age

(%)

12.7

27.4

7.5

9.1

17.3

37.6

13.2

8.4

10.8

0 5 10 15 20 25 30 35 40

Arab Countries

LDC Countries

Maghreb Countries

Mashreq Countries

1990

1995

2000

Despite notable progress, malnutrition in Arab LDCs remains severe

Source: MDG in the Arab Region: A Youth Lens 2007

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Other Obvious Repercussions of Conflict and Instability

• Low Economic Growth • Scarce resources spent on military and security items rather development • Decrease confidence of local and foreign investors• Increase in countries risk premia on capital market borrowings resulting in high interest rates• Decrease in foreign direct investment• Decline in output, including manufacturing and tourism • Constriction of trade• High debt service costs• Decline in fiscal revenues as a result of lower incomes

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Need for Development in-spite of Conflict and Political Tension

Conflict distorts development priorities: • Tendency to focus on humanitarian relief/emergency aid instead of long-term sustainable development• Long-term development and socio-economic needs neglected

leading causes of conflict/political tensions not addressed

HUMANITARIAN AID

LONG-TERM SUSTAINABLE

DEVELOPMENT STRATEGY

HUMAN SECURITY

• Assistance in protracted conflicts should be tied to development efforts and should empower local stakeholders to ensure sustainability• Linkages between peace, security and socio-economic development should be explicitly addressed with an effort to combat the root causes of conflict

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Security, Development and Human Rights are Inter-related and Mutually Reinforcing, One Cannot Last Without the Other

2005 Outcome Document

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Private Sector: Vehicle for Development in Crisis

Afflicted Countries ?

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Impact of Conflict on the Private Sector in the Region

• It is more difficult to do business in conflict afflicted countries due to the added external risks

• Enterprises face relatively higher costs of start up

• Commercial lending to enterprises is very low in conflict afflicted countries except for Lebanon

Ease of Doing Business Index in the ESCWA Region, 2007

020406080

100120140160

Egypt

, Ara

b Rep

.Ira

q

Jord

an

Kuwait

Leba

non

Om

an

Saudi

Arabi

a

Syrian

Ara

b Rep

ublic

Unite

d Ara

b Em

irate

s

West

Bank a

nd Gaz

a

Sudan

Yemen

, Rep

.

(1 =

mo

st

bu

sin

es

s f

rie

nd

ly r

eg

ula

tio

n)

Cost of Business Start-up Procedures as a percenentage of GNI per Capita in the ESCWA Region, 2007

0

50

100

150

200

250

300

Egypt

, Ara

b Rep

.Ira

q

Jord

an

Kuwait

Leba

non

Om

an

Qat

ar

Saudi

Arabi

a

Syrian

Ara

b Rep

ublic

Unite

d Ara

b Em

irate

s

West

Bank a

nd Gaz

a

Sudan

Yemen

, Rep

.

High

incom

e: O

ECD

Low &

midd

le in

com

e

(per

cen

tag

e)

Domestic Lending to the Private Sector as a percentage of GDP in the ESCWA Region, 2005

0

3060

90

120150

180

Bahra

in

Egypt

, Ara

b Rep

.Ira

q

Jord

an

Kuwait

Leba

non

Om

an

Qat

ar

Saudi

Arabi

a

Syrian

Ara

b Rep

ublic

Unite

d Ara

b Em

irate

s

West

Bank a

nd Gaz

a

Yemen

, Rep

.

Sudan

High

incom

e: O

ECD

Low &

midd

le in

com

e

(pe

rce

nta

ge

)

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• A real and viable vehicle for local development – Promote productivity and economic growth create jobs

reduce poverty and improve economic security– Retains a vested interest in administrative efficiency of state

institutions– An able resource for development actors

• A strong local peace building and conflict mitigation catalyst– Retains a vested interest in economic recovery and political/security

stability– Economic influence, political contacts, financial resources, skilled

workforce and connection with all levels of society is ideally poised to be a positive actor in conflict mitigation

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Negative Role of Business in Conflict Settings

• Corruption and rent seeking • Inequality and deepening poverty • Economic distortion and sidelining labor-intensive industries • Preventing transparency, accountability and other good governance

practices from taking root • Derailing state building and socio-economic development efforts • Financing the sustenance of conflict

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How to Maximize the Potential and Positive Role of the Private Sector in Crisis Afflicted Countries: The Objective of the EGM

– Strengthen positive role of the private sector in development and ways to mitigate it’s negative influence

“UN Global Compact where corporate signatories committed to a set of ten basic principles concerning human rights, labor, environment and transparency”

– Strengthen capacities of civil servants to facilitate the affairs of the private sector

– Examine national insurance schemes and access to risk pooling funds

– Study potential of incubators and SME support schemes

Study the Challenges, Build on Success Stories and Design Responses

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Thank You.