Issue #9 76546 IFC’s quarterly journal on public-private partnerships investment: Postwar promises In this issue infrastructure: Rebuilding seaports services: Telecom’s triumph economics: The cost of conflict interview: Former U.S. Ambassador Melanne Verveer RECONSTRUCTION ppps IN PARTNERSHIP WITH Australia • Austria • Brazil • Canada • Catalonia (Spain) • Flanders (Belgium) • France • Ireland • Italy • Japan • Kuwait • Netherlands • Norway • Sweden • Switzerland • United Kingdom • United States • Public-Private Infrastructure Advisory Facility (PPIAF) • Global Partnership for Output-Based Aid (GPOBA) • Private Infrastructure Development Group (PIDG) • African Development Bank • Asian Development Bank • Brazilian Development Bank (BNDES) • Caribbean Development Bank • Central American Bank for Economic Integration • European Investment Bank • European Bank for Reconstruction and Development • Inter-American Development Bank • Infrastructure Consortium for Africa • Islamic Development Bank Issue #9 – April 2013 IFC Advisory Services in Public-Private Partnerships 2121 Pennsylvania Avenue, NW • Washington, D.C. 20433, USA +1 (202) 458 5326/7 • ifc.org/ppp • handshake@ifc.org Editorial Tanya Scobie Oliveira • Alison Buckholtz Art & Design Jeanine Delay • Victoria Adams-Kotsch Disclaimer This journal was commissioned by IFC, a member of the World Bank Group, through its Advisory Services in Public-Private Partnerships department, which helps governments improve access to basic public services through public-private partnerships in infrastructure, health and education. The conclusions and judgments contained in this report should not be attributed to, and do not necessarily represent the views of, IFC or its Board of Directors or the World Bank or its Executive Directors, or the countries they represent. IFC and the World Bank do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequences of their use. Cover photo © Jonathan Ernst/World Bank Letter from IFC In countries undergoing reconstruction, “Humanitarian goals are important; relief is important—but it’s the economic piece that matters,� as Melanne Verveer, former U.S. Ambassador- at-Large for Global Women’s Issues, told Handshake editors. “You’ve got to start reconstruction by creating the mecha- nisms to have sustainable economic opportunity.� But what to fix first? How to avoid “navigating by need,� as economist Paul Collier says, or by idealism? Which regulatory issues demand priority? Are there proven methods to ensure money is spent as its intended? By what process can offers of support be coordinated? Is it possible to avoid the relapse into violence? For countries rebuilding after turmoil, there may always be more questions than answers. This issue of Handshake offers lessons from countries that have successfully coordinated the agendas of early relief, economic recovery and reconstruction, and longer-term development. Experts from international organizations, government, academe, and the World Bank Group talk about the importance of early investment in criti- cal infrastructure and the growing role of public-private part- nerships. Handshake authors and interviewees also consider the practical steps needed to create the right environment for investment and growth, the importance of donor coordina- tion, job training, and education, and the role of women in creating the social contract between a state and its people. We welcome your own answers to the difficult questions posed in the following pages. Write to us at handshake@ifc.org. Laurence Carter, Director Tanya Scobie Oliveira, Editor IFC Advisory Services in Public-Private Partnerships Photo © Brasil2/istockphoto IFC | 1 Features Investment Climate Open for business | 14 Insuring progress | 18 Doing good & doing it well | 24 A “Hippocratic Oath� for donors? | 28 Economics The cost of conflict | 30 58 TED Talk: Paul Collier’s new rules for rebuilding a broken nation | 34 Infrastructure 28 Risky businesses | 42 Powering up Liberia | 48 USAID lends support | 52 Small-scale services, large-scale purpose | 54 Waiting for water | 58 Cooperation amid conflict | 60 Full steam ahead | 66 Dialing up reconstruction | 70 In this issue 2 | IFC.ORG/HANDSHAKE Columns Reintegration A second chance | 76 PERSPECTIVE Insights & opinions Public works at work | 77 Partnerships for peace | 06 Putting businesswomen on the map | 78 Education under (re)construction | 80 MONEY TALKS Surveying the PPP landscape Which post-conflict PPP? | 10 82 LEGALEASE Law & legislation, decoded Teachable moments | 38 Interviews Francis Cooper: Liberia lights up | 49 Claude Kayitenkore: Meet the mediator | 61 Melanne Verveer: Ambassador of opportunity | 82 IFC | 3 Contributors 24 30 Melina Heinrich 49 Anke Hoeffler 14 Francis Cooper Pierre Guislain Gonzalo Araya John D. Crothers is an economist in the Sustainable Develop- is a partner in the international law firm of ment Department of the World Bank, based Gide Loyrette Nouel, specializing in PPPs in Washington, D.C. and project finance. Pierre Bernheim Jeff Delmon is an associate in the international law firm of is a Senior PPP Specialist for East Africa Finance Gide Loyrette Nouel, specializing in PPPs and and Private Sector Development, based in Dar es project finance. Salaam, and on the Global Expert Team on PPPs at the World Bank. Peter Buckland is an education consultant on education policy Carrie Farley in fragile and conflict affected societies. is a Senior Investment Officer for IFC Advisory Services in Public-Private Partnerships, based in Ananda Covindassamy Dubai, UAE. is Managing Director of Sequoia Energy Markets Finance. 4 | IFC.ORG/HANDSHAKE Pierre Guislain Mary Porter Peschka is Director of the Investment Climate Depart- is IFC’s Senior Manager for Advisory Services in ment of the World Bank Group, and co-leads Latin America and the Caribbean. IFC’s Fragile and Conflict Situations program. Jordan Schwartz Melina Heinrich is Manager for Infrastructure Policy at the is Assistant Coordinator of the Donor World Bank. Committee for Enterprise Development, based in Cambridge, U.K. INTERVIEWEES Jane Jamieson Francis Cooper is a Senior Water Specialist for IFC Advisory is Chairman of the Board of Directors of the Services in Public-Private Partnerships, based Liberia Electricity Corporation. in Washington, D.C. Anke Hoeffler Andrew Jones is a research officer at the Centre for the Study is an Operations Analyst for IFC Advisory of African Economies and a research fellow at St. Services in Public-Private Partnerships, based Antony’s College, University of Oxford. in Dubai, UAE. Claude Kayitenkore Ryan T. Ketchum is Energy Director of CEPGL Organization for is a Partner in the Energy and Infrastructure Energy in the Great Lakes Countries, based in team at Hunton & Williams LLP, based in Burundi. London. Melanne Verveer Marie Marconnet is Director of Georgetown University’s George- is a manager at Castalia Strategic Advisors town Institute for Women, Peace and Security, in Washington, D.C. and was the U.S. Ambassador-at-Large for Mike Mundy Global Women’s Issues until early 2013. is President of Mike Mundy Associates, a management consulting firm for senior port executives, based in London. Carmen Niethammer is responsible for Strategy and Knowledge in IFC’s Women in Business Program. IFC | 5 PERSPECTIVE peace Partnerships for In his March 1996 inauguration speech in Freetown, Sierra Leone, President Ahmad Tejan Beyond the horrors of conflict itself, its lingering impact on economic growth is unsurprisingly Kabbah acknowledged the challenge of spurring and overwhelmingly negative. The 2011 World economic growth in a country afflicted by con- Development Report highlights that no conflict- flict: “The tasks ahead are monumental… our affected state has achieved a single Millennium country stands virtually in ruins, with thousands Development Goal, while Paul Collier’s analysis slaughtered, soldiers and civilians alike, tens of indicates that states suffering from conflict thousands maimed and mutilated, and hundreds experience a reduction in economic growth of thousands displaced, traumatized, living in of 2 to 3 percent per year of conflict. poverty, diminished in spirit and body, and the In addition, the link between conflict and pov- country’s moral, physical, and social infrastruc- erty is growing more pronounced, demonstrating ture destroyed.� that poverty is both a symptom and a cause of By Carrie Farley & Andrew Jones conflict growth & The relationship between con- flict and economic growth is not a one-way street. According to research from Paul Collier and Anke Hoeffler, low-income states at the tenth percentile of per capita income are approxi- mately twice as likely to suffer conflict as those at the fiftieth percentile. In addition, states that have experienced conflict, and its associated economic impacts, are nearly three times more likely to return to conflict within five years than states previously unaffected by conflict. This cyclical relation- ship can trap states in a vicious Photo © Graham Crouch/World Bank spiral of economic regression and further conflict. IFC | 7 national fragility. While states that successfully and destroyed infrastructure, and a lack of capi- break the conflict cycle grow quickly, those that tal funding, technology, and skilled management do not are mired in increasingly bleak circum- to turn plans and strategies into power plants stances. In 1990, 20 percent of the global poor and roads. Increasing access and transforming lived in conflict-affected states. By 2011, it rose infrastructure service delivery amid fiscal and to 50 percent. By 2025, the Overseas Develop- capacity constraints can lead states to move ment Institute expects that over 80 percent of beyond traditional public provision of infrastruc- the global poor will live in conflict-affected ture to consider other service delivery models. states. As a result, conflict-affected states have Many developed and developing countries have become a key focus for international donors, leveraged private sector expertise in the provision consuming more than one-third of total develop- of infrastructure services through public-private ment aid. partnerships (PPPs). Appropriately designed Creating economic opportunity after conflict PPPs can help governments in conflict-affected reduces the risk of resurgent conflict and states increase the availability and efficiency promotes state-building. However, selecting of service delivery, and in some cases mobilize and implementing the right policies to enable private capital for infrastructure investment. By economic growth is a task that has eluded most capturing the innovation and efficiency that pri- developed countries for the last several years. vate sector involvement can bring, PPPs can help After months, years, or decades of inter- or intra- overcome the cycle of low investment and low state violence and conflict, creating such condi- productivity that may contribute to resurgent tions is even more challenging—yet it is all the conflict. Most critically, PPPs focus on providing more vital, given the far-reaching repercussions access to basic services (power and water), access of being trapped in the conflict cycle. to markets (transport and logistics), and access to finance (telecommunications), all essential elements in helping post-conflict economies to Conflict-affected states have start moving again. become a key focus for inter- Sustainable PPPs, however, require careful struc- turing to delicately balance national develop- national donors, consuming ment and infrastructure needs with the ability more than one-third of total to attract and incentivize experienced private development aid. sector partners. Such PPPs recognize the need for flexibility in rapidly changing circumstances and focus on the unique challenges that different states face. One particular PPP model that has THE NEED FOR AN INFRA-VENTION demonstrated replicable success in post-conflict Basic infrastructure services create opportunity environments involves an innovative use of and spur economic development. But conflict- donor funds to develop projects that can be affected states are often hindered by damaged attractive to the private sector, as with Liberia’s 8 | IFC.ORG/HANDSHAKE quest to restore power to its citizens. By leveraging donor where do I sign? funding to enhance transaction viability in challenging cir- REVIEWING THE cumstances, PPPs can provide SOCIAL CONTRACT an output-based mechanism Underlying any possibility for economic growth is a well- for donors to support infra- functioning state that, at its most basic level, safeguards structure development and the its citizens’ well-being. The Organization for Economic broader state-building process. Cooperation and Development outlines four interrelated An efficient public sector objectives of a functioning state: is a prerequisite for a well- • Providing security and justice. functioning state. However, • Raising and managing revenues effectively. developed country experience has shown that the private • Encouraging economic development and sector is sometimes better employment. positioned to deliver neces- • Delivering basic services such as health and education. sary infrastructure services. In addition, the expertise and The tacit agreement to deliver upon these expectations innovation that can be gained forms the basis for a social contract between the state (the from well-designed private government) and society (the people) that underlies stable sector participation is perhaps institutions. In conflict-affected states, the government’s even more valuable in a fiscally repeated failure to deliver on these expectations may and capacity-constrained post- erode society’s belief that the state will ever be willing or conflict environment. able to fulfill its side of the bargain. When the social con- tract is broken, there are broad implications for a state’s Working together, the public economic performance and stability. Disaffected citizens and private sectors can deliver may choose to relocate for better employment opportuni- basic infrastructure services ties (“brain drain�), while businesses may choose to invest to meet critical public needs, elsewhere, causing capital flight. Those who stay may feel resulting in increased opportu- less bound by laws and societal conventions, potentially nities for economic growth. By resorting to activities ranging from tax evasion to violence assisting conflict-affected states to provide for themselves or their families. in delivering on their promises, the private sector can play a Reestablishing the social contract requires a state to leading role in helping states deliver upon the expectations of its citizens. The provi- remain on the road to peace. sion of basic infrastructure services, including through PPPs, is a key condition for economic development, and a critical step towards mending the social contract and promoting stability and growth in post-conflict states. IFC | 9 ? Which post-conflict ppp By Jeff Delmon “The test of success is not what you do when • Even if it had the money, it couldn’t spend it you are on top,� as U.S. Army General George well or fast enough, and/or S. Patton Jr. famously said. “Success is how high • Even if it could invest the money, any follow- you bounce when you hit the bottom.� up would be insufficient (see first bullet). In the context of countries that need rebuilding, But once investors come to the table, operat- public-private partnerships (PPPs) can lend extra ing in post-conflict countries still poses unique oomph to the bounce, boosting post-conflict challenges. For example, laws and regulations countries in cases where: are often weak or not enforced, leaving investors • Government doesn’t have the money, skills, or unprotected; and in most cases, if government people to deliver good services; or can’t afford to pay for services, neither can the people. 10 | IFC.ORG/HANDSHAKE MONEY TALKS WANTED: CRYSTAL BALL WALK FIRST, THEN RUN Investors and lenders assess projects based on In most cases it is prudent for the post-conflict the current condition of the country in ques- country to achieve stability before entering into tion. We all want those investors and lenders to the sort of long-term arrangement embodied believe in the prospects of the country, to bring in classic approaches to PPP. There are excep- skills and money to add bounce—that is, unless tions, however. Telecommunications, natural we are shareholders in the investor or lender resource concessions, ports, and airports may companies, or if they are using our pensions provide foreign currency revenues and present or savings to make these investments. In that business models that are either lucrative enough case, we want them to be conservative, cautious or insulated enough from the government and investors. the domestic economy to justify long-term PPP investments. They may also facilitate revenue/ refinancing gain sharing structures that will help tilt the benefits in the direction of the govern- The perfect may be the ment later, when the country is no longer such a enemy of the good; the long- risky place to do business. term may be the enemy of Another approach is shorter-term PPP arrange- ments that are focused on improving capacity. the now. For example, private expertise can be brought in through management contracts, to reinforce domestic utility capacity. Then, once the utility Classic approaches to PPPs result in investors is in a stronger position, a more comprehensive pricing risk over the 20 to 30 year life of the PPP can be considered. There are a variety of project. Wishful thinking aside, the current such PPP structures focused on capacity devel- condition of the country is the only real basis for opment, but without much private investment. such long-term analysis and the price of the risk When a post-conflict country needs large capital will be accordingly high. But does anyone really investments, PPPs can be viable in cases where want to lock a post-conflict nation into a 30-year revenues are based on availability payments PPP project that is priced based on its current (bulk payments for services from—or guaranteed troubles? by—a creditworthy entity). For example, pay- ments might come from a company that receives IFC | 11 foreign currency revenues from natural resource skills and a focus on efficiency and sustain- exploitation; from the government (backed by ability, then other complaints will be raised— a guarantee from a donor or IFI); or from a cred- namely, that the NGO is squeezing out private itworthy foreign government (that promises to competition. pay for the services for a period of time until the country gets back on its feet). After all, wouldn’t aid be better spent through PPP structures THAT’S ALL, FOLKS where the recipient government would be It’s important not to get tangled up in defini- assured of service delivery and not just aid spent? tions of what is PPP and what is not, especially in post-conflict countries. It may be more effec- tive to use short term or more market responsive P(NGO)Ps? PPP structures, rather than a classic long-term NGOs will often agree to provide services to the PPP. Big may not be better; instead, create legal government under a form of PPP. I say “a form� and regulatory space and provide seed funding since NGOs are rarely run like private compa- for small scale solutions provided by the private nies. If they are not run like private companies, sector. A good example would be mini-electricity then they may look for much lower rates of grids funded by communities or linked to large return and may provide grant funding. This can off-takers, such as in Cambodia, which allows be an attractive option, and in many cases the tariffs based on local cost of delivery rather NGO has the technical and social skills needed than a national fixed rate. to deliver services in a post-conflict country— Community water schemes are another skills that the private sector might not have. good model, such as those in Tanzania, However, sustainability may be an issue. NGOs, which empower local communities like development partners, tend to focus on a when negotiating with private problem, then move to the next problem when companies providing boreholes, constituents’ attention shifts (when CNN broad- pumps, and pipes. The perfect casts the next big issue). Also, NGOs may not may be the enemy of the good; have the skills to enter into a PPP arrangement, and the long-term may be to understand the obligations, or negotiate the the enemy of the now. It’s details. While they may have technical skills, all about the bounce. their commercial/financial credentials may be lacking. If an NGO is run commercially, and can approach a problem with the right technical 12 | IFC.ORG/HANDSHAKE CODE OF CONDUCT Principles for responsible investment Donors aren’t the only international players who can help post-conflict countries recover—there’s plenty of room for the private sector. Beside providing financing, technology, and skills, businesses can help protect human rights, labor standards, and the environment while reducing corruption through responsible business practices. The United Nations Global Compact, a strategic policy initiative that provides a voluntary code of conduct for businesses, provides a frame- work for supporting socially responsible business practices. A recent meeting on the UN Global Compact, produced in partnership with Principles for Responsible Investment, focused specifically on the challenges of implementing responsible business practices in fragile environments. One of the outcomes was agreement that the private sector will be formally included in the development agenda after 2015, when the Millennium Development Goals expire. This will help business play a more active role in sustainable develop- ment in post-conflict settings, not only in terms of trade or job creation but also in promoting transparency and good governance. Photo © miggslives 13 IFC || 13 IFC OPEN FOR BUSINESS A favorable investment climate speeds post-conflict recovery By Pierre Guislain One of the key challenges for governments in because the threat of relapse into conflict creates post-conflict countries is to provide employment a sense of urgency requiring critical economic opportunities to establish stability and lift people decisions. Typically there is also broad consensus out of poverty. As the private sector is the key engine in society that “things are broken.� of job creation, accounting for 90 percent of all jobs This creates a political environment favorable in the developing world, it is critical for policymak- to change—allowing governments a window ers in these countries to encourage entrepreneurship. of opportunity for implementing important The best way to do this is through a regulatory investment climate reforms. Such reforms—if environment conducive to the growth of businesses accompanied by broader policies that promote and employment creation—an environment that good governance and security—can bring large promotes the rule of law, competition, predictabil- pay-offs in terms of economic growth and stabil- ity, and transparency. ity. They can encourage businesses to transition The urgent needs and competing priorities of a from the informal to the formal sector, generat- post-conflict period present major challenges to ing additional tax revenues and reducing oppor- governments. But this phase also offers unique tunities for corruption. opportunities for broad, fundamental reform 14 | IFC.ORG/HANDSHAKE INVESTMENT CLIMATE Supporting reconstruction of reducing access to finance constraints through the creation of property and collateral registries infrastructure and credit bureaus, restoring commercial justice, The physical destruction of infrastructure is one and improving trade logistics. Because the ways of the most visible effects of conflict. But to of the pre-conflict regime have become obsolete grow, the private sector needs a minimum level and a new framework must be articulated, there of infrastructure. Access to power is the number is potential for a less corrupt and more private one obstacle for firms in most post-conflict sector-friendly regime. countries, according to Enterprise Surveys For each country the priorities will be different, conducted by the World Bank Group. Without and governments need to face tradeoffs between reliable sources of energy, along with essential what is desirable and what is absolutely neces- trade-related infrastructure such as roads and sary. To judge what is most critical, governments ports, economic growth potential will be stifled. should examine the constraints on restoring The private sector also fills in the gap by suppling investments and production, rather than attempt basic infrastructure such as power generation to replicate institutions from the past or from capacity or operating a port terminal. To facili- best practice economies. In addition, an early tate this, governments should create a conducive emphasis on simplification of business regula- legal and regulatory framework for private tion has proved effective in post-conflict envi- participation in provision of infrastructure and ronments (characterized by weak government help eliminate constraints to the development capacity) and can help create investor confi- of private service providers. These can play a key dence. Finally, some areas—such as commercial role in the absence of fully functioning states, justice—will inevitably require longer-term, established public utilities, and major private comprehensive reforms, but alternative methods investments. of dispute resolution, such as arbitration or mediation, can play an important role in the Economy-wide investment interim. climate reforms Following a period of conflict, the legal and Doing Business indicators regulatory framework for business operation For many post-conflict states, the Doing Busi- typically becomes outdated, requiring a com- ness (DB) indicators have proven a particularly plete overhaul. The needs range from creating powerful reform tool. The DB indicators provide or improving investment laws, re-establishing a broad overview of business regulations and or improving business registration process, help governments identify reform opportunities, addressing excessive licensing requirements, some of which can be implemented quickly. The and simplifying tax codes and tax collection, to report is updated annually, allowing progress to IFC | 15 be monitored. Successful early reforms can set ment and the private sector. Bringing the issues the stage for longer-term, broader reforms. for discussion in a public forum also increases transparency, limits the potential of back room Enabling investment in key sectors deals that benefit a select few and erode public confidence, and helps identify constraints to Governments in post-conflict countries need to private investment. find the right balance between economy-wide and sector-specific reforms. They need to focus on enabling the sectors that tend to attract early Attracting reputable investors investment in post-conflict countries, such as Post-conflict countries often have a poor image telecommunications, construction (including the with investors. It is therefore essential to signal cement industry and business hotels), banking, to them—through business-friendly and trans- and agribusiness. To attract investments in these parent regulation—that the country is open for sectors, the government may need to adopt business. Foreign investors typically value stable conducive sectoral policies, laws, and regulations, policies and clarity of laws and regulations—and and an interim framework may be the best way their consistent implementation—over tax to combine legal security with speed of reform. incentives or special privileges. This was the experience of the telecommunica- Attracting one reputable investor sends a signal tions sector in Afghanistan (see following page). to the broader investor community, increas- ing business confidence and generating further investment, ultimately creating a virtuous Foreign investors typically value stable cycle of new private sector policies and clarity of laws and regulations— investment and activity. The presence of new investors and their consistent implementation—over also can enhance confidence tax incentives or special privileges. in regulatory institutions and processes, resulting in greater legitimacy, confidence, and trust. Generating reform ownership Business owners are typically best suited to Photo copyrights for page 14 identify what investment climate reforms are (from left to right, top to bottom) most needed. Public-private dialogue helps these Arne Hoel/World Bank voices translate into policies. This dialogue is also Georgina Goodwin/World Bank Joanna Kata-Blackman/IFC particularly relevant in post-conflict states, where Curt Carnemark/World Bank it can help to rebuild trust between govern- Miso Lisanin/World Bank 16 | IFC.ORG/HANDSHAKE POST-CONFLICT PRAGMATISM In 2002, Afghanistan’s telecommunications system was fragmented, dilapidated, and small: the five major cities had a mere 57,000 fixed lines, and the fixed line operator was not really functional. Recog- nizing that telecommunications would be critical to rebuilding the country, the government prioritized development of the sector. In 2003, the government approved a Telecommunications and Inter- net Policy, focused on accelerating sector development. It strongly endorsed private sector participation and transparent, market- based competition. Soon afterwards, the government began awarding private sector mobile licenses, without waiting for the adoption of a comprehensive telecommunication sector reform law. IFC and MIGA supported one of the new mobile operators, Areeba Afghanistan (now part of the MTN Group). A Telecommunications Regulatory Board (TRB) was then established within the Ministry of Communications—a pragmatic first step toward more independent hands-off regulation of the sector. The TRB awarded additional licenses to new mobile and local fixed service providers and facili- tated interconnection agreements. It also established regulatory procedures and processes, including stakeholder consultation on all important decisions. These reforms resulted in increased competition in the sector. As of 2012, there were five licensed cellular network operators at the national level and 23 internet service provider licenses—bringing around $1 billion in private investment into the sector since 2006. As a result, the tariffs have fallen by 95 percent since 2002, and around 80 percent of Afghanistan’s people now have access to telecommunication services. The sector employs more than 20,000 people. Source: Adapted from “Transforming telecoms in Afghanistan,� by Bhavna Bhatia and Neeraj Gupta; Gridlines, PPIAF; and “PPIAF Assistance in Afghanistan,� August 2012. Additional context provided by author. Illustration © Aleksander Velasevic/istockphoto IFC | 17 INVESTMENT CLIMATE Political risk insurance Photo © epsos.de By Mary Porter Peschka Political risk insurance is designed to pro- trade transactions as well as longer-term tect investors and lenders against a range investments. In the wake of the global of risks they may encounter, including financial crisis and the political events in war, civil unrest, political violence, expro- the Middle East and North Africa, inves- priation, and other circumstances. Hav- tors are increasingly turning to this risk- ing insurance against these risks makes mitigation instrument. Between 2008 and it possible for more investors to venture 2011, issuance of political risk insurance into markets where the perceptions of by Berne Union members (the leading political risk are elevated and to secure international organization and community funding from commercial banks at better for the export credit and investment insur- rates and for longer tenors. Typically, this ance industry) increased 29 percent. insurance is offered for both export credit/ 18 | IFC.ORG/HANDSHAKE Political risk insurance can play a particularly this type arises, those investors can and should important role in economies recovering from take recourse in the local courts. conflict. Governments in these countries are But acts of political violence (and resulting loss often vulnerable to political risks, and because of income) should fall in a different category it takes time for the judicial system to rebuild covered by insurance. In fact, since political itself, it may be perceived to too dependent on violence is often such an urgent concern of local the government and subject to political influ- investors in the reconstruction period, this could ence. These and other factors may convince an be critical for them—and to those financing investor that there is an enhanced risk, or that these investments. breaches of contract will not be adjudicated in favor of the investor. Private sector providers of political risk and export credit insurance typi- cally limit their exposure in such environments, The presence of political risk since their mandate is to maximize their profits insurance coverage might and minimize their losses. However, public assuage the concerns of existing providers—including the U.S. Overseas Private Investment Corporation, France’s COFACE, investors and ultimately contrib- and China’s Sinosure, as well as multilateral ute to economic stability. organizations such as MIGA, have a develop- mental mandate placing them in a better posi- tion to offer longer-term protection. Other constraints also make it difficult or impos- sible to cover existing investments. While the THE CASE FOR EXPANDING logic against covering existing investments is the COVERAGE lack of development benefit from such coverage (since the investment has already taken place), However, even these public providers face there is a strong argument for the other side. In constraints in mobilizing investment in countries pre-conflict situations in particular, there is a that need it most. There are several reasons for serious risk of disinvestment, as investors become this. First, the rules and eligibility requirements increasingly nervous. Such disinvestment may for coverage eliminate one of the most important add fuel to the fire by increasing unemployment target groups: local investors. MIGA and other and harming the country’s fiscal base, among public and private providers generally only cover other destabilizing effects. The presence of cross-border investments and loans. For incon- political risk insurance coverage might assuage vertibility, expropriation, and breach of contract, the concerns of existing investors and ultimately local investors cannot step outside the bounds contribute to economic stability. of their own country to protect themselves from actions of their own government; if an event of The potential benefits of expanding political risk insurance are illustrated on the following pages. IFC | 19 COTE D’IVOIRE (MIGA) expropriation, war and civil disturbance, and breach of contract for a period of 15 years. This After a prolonged civil crisis, economic activity coverage is for the equity investor and all of the in Côte d’Ivoire is on the upswing and inves- project’s private sector lenders as well as FMO, tors are returning to help the country address the development finance institution of the Neth- its vast reconstruction needs. As evidence of this erlands. The African Development Bank is also a renewed but cautious interest, MIGA’s exposure lender to the project. in the country has risen from $1.8 million in 2011 to $706 million in 2013. The construction of the bridge is a high priority for the government, as Abidjan’s existing bridges and infrastructure are under severe strain and The Henri Konan Bedié Toll Bridge unable to manage the city’s growing traffic. Once One of the investments being covered by MIGA completed, the new bridge will significantly is the construction and operation of a toll bridge reduce travel times, improve overall mobility, over Abidjan’s Ebrié Lagoon. This planned and alleviate chronic traffic congestion. The public-private partnership had been shelved for project will also provide important demonstra- over 10 years, but construction is now under- tion effects for further private sector initiatives way, backed by equity sponsors and private and in the country. The projects was named African public lenders. MIGA is providing $145 million Transport Deal of the Year 2012 by Project in cover against the risks of transfer restriction, Finance magazine. 20 Photo IFC.ORG/HANDSHAKE ©| Globeleq Expansion of the Azito Thermal approximately 430 megawatts while avoiding Power Plant 225,000 tons of CO2 emissions per year. Upon Côte d’Ivoire’s power sector is also seeking to completion, the facility will become one of the rebuild as demand for electricity is growing at an largest independent power generators in Sub- estimated eight percent annually. IFC and Saharan Africa. MIGA are helping to mobilize private finance The IFC-MIGA collaboration was facilitated by for the expansion of the Azito Thermal Power a business development partnership between the Plant, which will generate 50 percent more two. IFC arranged a $350 million debt package, power without using any additional gas. providing $125 million for its own account, and The Azito project will increase installed capacity mobilizing the balance from five European devel- by 10 percent with no upfront cost to the gov- opment finance institutions (led by Proparco) ernment, and using combined cycle technology and the West African Development Bank. will result in annual savings of $60 million. This MIGA is providing breach of contract cover to groundbreaking transaction in a country under- the equity investor and lead sponsor, Globeleq. going reconstruction was recognized in 2012 as African Power Deal of the Year by Project Finance magazine. The project involves converting the existing simple-cycle Azito Plant to combined- cycle, increasing total capacity from 290 to IFC | 21 AFGHANISTAN (MIGA) After decades of armed conflict, Afghanistan’s com- Photo munications network was barely functioning. The © country had no internet access. In fact, the state of the IMTF country’s communications infrastructure was so poor I that it hindered the government’s ability to coordinate its own operations. Photo MTN Afghanistan © In fiscal year 2007, MIGA issued a guarantee of $74.5 mil- Zac D lion to MTN Group of South Africa. This covered its equity investment in MTN Afghanistan (MTNA), a provider of e n Ade telecommunication services including mobile and internet. An l additional $2 million “first loss� provision was insured under MIGA’s Afghanistan Investment Guarantee Facility, designed to encourage foreign investment into the country. In 2011, MIGA issued additional coverage for MTNA’s expansion, bringing the agency’s gross exposure to $155 million. MTNA has contributed to the development of the telecommuni- cations sector in Afghanistan and continues to do so by expanding its coverage and product offerings. Afghanistan’s mobile network has increased by seven-fold in the past five years, from two million mobile subscribers in 2006 to around 13.7 million in 2010, with a penetration rate of 47 per 100 inhabitants. MTNA is playing an important role in expanding coverage in remote areas of the country, with the number of subscribers expected to grow to over 18 million by 2014—despite facing daily security threats from insurgent forces, as well as a highly uncertain policy environment. 22 | IFC.ORG/HANDSHAKE Photo © Ben Cum ming HAITI (OPIC) Wheat and wheat-derived products have long been diet staples in Haiti, particularly among the country’s low-income families. Les Moulins d’Haiti In 2010, a massive earthquake destroyed a key flour mill and animal feed facility, Les Moulins d’Haiti (LMH), which pro- duced as much as 95 percent of the flour consumed there. Rebuilding the mill required not only substantial invest- ment but also a way to mitigate the risk of doing business in one of the poorest and most unstable countries in the Western Hemisphere. OPIC provided political risk insurance to Seaboard Overseas Limited, a U.S. com- Photo pany working on the mill’s rebuilding, operation, and © maintenance through a joint venture with Continental jaynea Grain Co.; Unibank, a commercial bank in Haiti; ndd and the Government of Haiti. The insurance covered damage to assets or business income loss resulting from political violence. Reconstruction of the facility—including a flour mill, offices, warehouse, storage silos, machine shops, and an electricity generating plant—began in February of 2010 and was completed in December 2011. Along with increased produc- tion capacity and more modern equipment, the facility was rebuilt to handle greater seismic activity. Rebuilding Les Moulins d’Haiti has created 150 local jobs and increased the supply and distribution of flour through- out Haiti. IFC | 23 INVESTMENT CLIMATE DOING GOOD &doing it well DONOR SUPPORT TO THE PRIVATE SECTOR IN POST- CONFLICT COUNTRIES By Melina Heinrich Photo © Land Rover Our Planet The donor community can play a critical role in the transition to longer-term stabil- ity and development after conflict—start- ing shortly after the conflict has ended. And although the role of the private sector in achieving peace and development has historically been ignored, the good news is that the private sector has now become a priority for many donors. 24 | IFC.ORG/HANDSHAKE Many factors impact the likely success of donor support to post-conflict private sector development (PSD). The Donor Committee for Enterprise Development (DCED), which works with donor staff, experts, and field practitioners to tease out joint lessons, prin- ciples, and guidance based on real-world experience, shares here the elements common to most successful projects: DESIGN PROGRAMS FOR PEACE- BUILDING IMPACT Contrary to the belief that donor programs involving the private sector only impact economic development, we now see that such interventions can be valuable across all aspects of peace-building. This has rarely been recognized, although the opposite—that donor programs should at the minimum “do no harm�—is better documented. Designing programs that achieve these broad-reaching impacts requires a deep understanding of the conflict and needs to be coupled with careful monitoring of program impacts. DONOR CHALLENGES IN RECONSTRUCTION • Identifying specific entry points for economic recovery when everything needs fixing; • Delivering a tangible and rapid peace dividend for the jobless without distorting incentives for long-term investment; and • Coordinating efforts with many, often unfamiliar stakeholders—including the military, relief agencies, and multinationals. IFC | 25 ! PRIORITIZE SUPPORT AND RECOGNIZE TRADE-OFFS Prioritization of donor support is critical, as is avoiding the temptation of trying to do too much, too quickly, and overestimating the ability to deliver change. This prioritization is tricky, as it depends entirely on the context. Applying Growth Diag- nostics is a good starting point to help donors organize information and identify effective approaches. Since constraints to growth are likely to be present in all contexts, political economy and conflict analysis—combined with wide stakeholder consultation—can help identify the most pressing issues that can realistically be addressed. Starting on multiple simultaneous tracks has proven effective. This includes measures to produce quick wins, but also efforts to lay critical foundations for medium to longer term development. It also implies a combination of macro-economic and regulatory reforms on the one hand, and more direct interventions on the other. Focusing reforms at the right level can help too. Where no legitimate or functional cen- tral government is in place, reforms may at first be more effectively delivered at the local or regional level. A constant task for donors is to find a sound balance between short- and long-term strategies, peace-building, and economic development goals. The implica- tions each may have for the other need to be explicitly considered when programming. ADAPT TO FAST-CHANGING ENVIRONMENTS Programming approaches in post-conflict countries need to be flexible, to allow time to react to changing situations and to reallocate resources when new opportunities arise or conflict dynamics deteriorate. Donors should also be prepared for key actors in the government to change, and build reform efforts around mul- tiple stakeholders and key individuals in society with staying power. These can include business leaders, private sector representatives, and officials in government ministries. 26 | IFC.ORG/HANDSHAKE COORDINATE WITH OTHER DONORS This is a recurring theme, perhaps because donor coordination in post-conflict countries faces many obstacles. More than elsewhere, donors in post-conflict countries are under pressure to spend sub- stantial amounts of money in a short time, which can be a disincentive for coordination and pooling resources with others. Yet the risks of a fragmented and incoherent approach remain high. An obvious entry point for coordination is in the research and gathering of up-to-date information, which is difficult for any organization to successfully accomplish on its own. Multi-donor trust funds can be a practical mechanism in this case. Coordinating policy advice to the central government on business environ- ment reform is more difficult, but very important. Business environment reform efforts may not only improve the conditions for doing business, but also contribute to improved state capacity and perceived legitimacy. In several countries, donors set up a country group on PSD as a regular forum to share information or formulate common positions. CREATE ALLIANCES WITH UNFAMILIAR STAKEHOLDERS Achieving positive results in post-conflict countries depends on collaboration with other actors, some of which may be beyond the traditional “comfort zone� of donor organizations. This may involve working closely with humanitarian groups to ensure market-integrated relief, or relying on international military forces for logistical support and security, especially to reach remote areas. Working with multinational companies on governance issues or as partners in developing value chains can be equally important. For example, Heineken is developing local maize and sorghum supply chains in Rwanda and Sierra Leone, with co-funding from the Dutch Ministry of Foreign Affairs. Keeping an open mind and following a pragmatic approach to such collaborations can help donors navigate more successfully through the challenges of post-conflict programming. IFC | 27 A “Hippocratic Oath� for donors Photo © Jushua Kruger Donors are usually generous in post-conflict situ- Economic Co-Operation and Development ations, providing advice, expertise, and funds to (OECD) recognized in its 2010 report, Do No help fragile countries get back on their feet. The Harm: International Support for Statebuilding. idea is to move beyond economic development, Policy reforms and aid can undermine the state’s rebuilding the entire state ecosystem, including ability to fulfill its basic functions: provide institutions, civil society, and core government security and rule of law, raise revenue through functions. In recent years, well-meaning benefac- taxation, manage economic development, and tors have reached out to countries as diverse as provide public services. For example: Bolivia, Sierra Leone, Afghanistan, and Nepal • Aid delivered outside state budgets can after—or even during—disruptive conflicts. prevent governments from developing public But abundant resources are not enough. financial management skills, including Sometimes, good intentions generate harmful budgeting, planning, accountability, and side effects. This is a risk the Organisation for coordination. 28 | IFC.ORG/HANDSHAKE INVESTMENT CLIMATE • Donors can undermine “shadow public political settlement or receive approval from sectors,� especially where vulnerable gov- local elites, as could happen when an ethnic ernments have little experience delivering minority group is left out. In such cases, services. This denies governments the chance donors may need to consider alternative to build critical service delivery capacity power sharing arrangements. themselves. • Donors need a deep understanding of the • Generously-funded development programs interaction between NGOs and civil soci- can create a local “brain drain,� making it ety before engaging with them. Failing to harder for governments to hire and keep top understand this can exacerbate tensions in talent. state-society relationships and interfere with • Failing to grasp the impact developmental political processes. policies have on local political dynamics can • Donors can positively contribute to state- undermine “buy in� by powerful elites. building when their actions support per- ceptions of state legitimacy—for example, The OECD’s “do no harm� approach helps providing security and protecting property in donors understand the tradeoffs between deliver- a post-conflict setting. ing aid and causing unintentional harm to the statebuilding process. While circumstances vary • Restoring livelihoods and creating employ- by country and program, the OECD’s findings ment opportunities is critical for people in can be used in designing effective post-conflict post-conflict settings, many of whom live in aid programs. extreme poverty. Donor programs that con- tribute to livelihood protection can support For example: state legitimacy, but can cause harm if they • Big-picture strategic objectives may not reduce employment in the informal economy. always align with local statebuilding goals. • Understanding local conditions, including For example, donor country policies to the politics, culture, and history, is important promote regional economic integration, limit for designing and executing effective pro- global warming, or promote human rights grams in post-conflict areas. Donors will need may have implications when applied locally more workers on the ground than they would in a post-conflict setting. Donors should rec- in other development programs. ognize and consider these potential conflicts when designing their programs. Adapted from Conflict and Fragility: Do No Harm: Interna- • Support for electoral processes can be tional Support for Statebuilding, OECD 2010. harmful if they do not lead to an inclusive IFC | 29 Anke Hoeffler is a research officer at the Centre for the Study of African Economies and a research fellow at St. Antony’s College, University of Oxford. Her research interests are in the area of political economy, focusing on the economics of conflict and the relationship between democratization and development. Here, she talks to Handshake about how economists calculate the price of war, and why the “peace dividend� is critical to recovery. The cost of conflict 30 |© Photo IFC.ORG/HANDSHAKE Rick Bajornas/UN Photo ECONOMICS What does it mean when economists speak of the “cost of conflict�? For economists the costs of conflict are not restricted to the fatalities of armed conflict. Costs include deaths and disabilities due to the conse- quences of war, and the economic losses to the country experiencing civil war, their neighbors, and the rest of the world. One of the most recent efforts to quantify the costs was undertaken by the Copenhagen Consensus Project and estimated the cost of the average civil war to be in the region of $203 billion. Economists arrive at a figure like this by using a counterfactual approach that compares the path the economy takes during and after the conflict, with the likely path the economy would have taken in the absence of conflict. • Economic costs are estimated by summing the cost to the war economy (the country in conflict), the spill-over cost affecting neighboring economies, and the legacy effect of war, using the actual average value of income, the average length of civil wars, the average number of neighboring countries, and an assumed discount rate of 5 percent. • Health costs are estimated by the impact of war using the concept of Disability-Adjusted Life Years (DALYs)—one DALY can be thought of as one lost year of healthy life. The average civil war is estimated to cost half a million DALYs per year. DALYs are then priced and discounted to derive an estimate in U.S. dollars. IFC | 31 • Global costs, which include refugees, drug fact, recurring civil wars are the dominant form trafficking, and terrorism, are very difficult to of armed conflict in the world today. Economic estimate. This can be “guesstimated� to be of characteristics also determine conflict risk, with the same magnitude as the total cost to the income levels and growth robustly correlated war country and its neighbors. with conflict onset. This means that strong economic recovery is crucial to avoid a cycle of Admittedly, these estimations are imprecise. war and underdevelopment. However, they do provide us with a guide to measure the cost effectiveness of interventions. All three rounds of the Copenhagen Consensus How long does recovery Projects suggest that conflict prevention and intervention strategies are very cost effective and usually take? that focusing international efforts on these strat- Countries experience higher than average growth egies is hugely beneficial for development—not rates once the war has ended—this is known as only in the war affected country and its neigh- the “peace dividend.� Post-conflict economies bors, but also for the global economy. grow by about 1.6 percent per annum less than peaceful states, but once the war ends their “ economic growth rate increases by about 1 per- Forty percent of civil war cent. Given that the average civil war lasts about seven years, this general pattern means that it countries revert back to war takes 22 years on average for these economies within a decade, showing the to recover—that is, to revert back to pre-war critical importance of post- income levels. war economic recovery. � What is the most common barrier to rebuilding? How can outside What factors can predict a organizations help? country’s likelihood of conflict? Economies cannot rebuild after war with ongo- Forty percent of civil war countries revert back ing lower-level violence. The message is simple: to war within a decade, showing the critical there is no peace dividend unless the country is importance of postwar economic recovery. In at peace. Governments should therefore concen- trate their efforts on ending all violence. 32 | IFC.ORG/HANDSHAKE Steps to ECONOMIC RECONSTRUCTION Postwar countries must reduce the risk of conjunction with UNPKOs. This suggests renewed conflict while focusing on economic that a tighter regulation of international arms reconstruction—two closely intertwined chal- transfers could reduce the intensity of ongoing lenges. After all, there is no security without violent conflicts and help prevent lower-level development and no development without conflicts from escalating. Five countries supply security. International aid, UN peacekeeping 75 percent of total conventional weapons (U.S., operations, restriction on arms transfers, and Russia, Germany, France and the U.K.). Given improved commitment to security services help this concentration, binding international rules to make the peace last. should be effective in reducing the supply of arms to countries in conflict. On April 2, 2013, INTERNATIONAL AID the UN General Assembly voted in favor of an Although there is no evidence that aid prevents international Arms Trade Treaty. This prohibits wars, there is evidence that it stabilizes postwar the export of conventional weapons that would situations and may decrease the risk of re-enter- be used for acts of genocide, crimes against ing conflict by boosting growth and income. humanity, war crimes, or terrorism. However, research shows that the effect of aid on postwar growth is moderate (an extra 1 percent SECURITY SERVICES of aid increases growth by 0.05 to 0.1 percent). There are concerns worldwide about the Significantly, these results do not hold in violent legitimacy, image, and professionalism of private postwar situations. Aid in violent postwar situa- security providers. Signatory companies to the tions has no growth enhancing effect. International Code of Conduct (ICOC) for Private Security Providers affirm their responsi- UN PEACEKEEPING OPERATIONS bility to respect the human rights of, and fulfill There is now considerable evidence that UN humanitarian responsibilities toward, all those peacekeeping operations (UNPKOs) are effective affected by their business activities. However, the in maintaining peace. Research indicates that code is not legally binding and there is no inde- 60 percent more spend in UNPKO activities pendent oversight. Making commitments legally reduces the risk of major armed conflict by half. binding, providing independent oversight, and encouraging third party governments to hire RESTRICTIONS ON ARMS TRANSFERS ICOC signatories would improve the account- The limited literature on arms embargoes ability of private security services. suggests that embargoes do limit the flow of —Anke Hoeffler weapons, and that they are more effective in For a complete list of sources please contact handshake@ifc.org. IFC | 33 ANATION NEW RULES FOR REBUILDING Paul BROKEN Collier’s Long conflict can wreck a country, leaving behind poverty and chaos. But what’s the right way to help war-torn countries rebuild? In his widely circulated 2009 TED Talk, Paul Collier explains the problems with current post-conflict aid plans, and suggests two fresh, complemen- tary approaches, summarized here for Handshake readers. Paul Collier is Professor of Econom- ics and Director of the Centre for the Study of African Economies at Photo © Randy Quan Oxford University. He researches the causes and consequences of civil war, the effects of aid, and the problems of democracy in low-income societies rich in natural resources. 34 | IFC.ORG/HANDSHAKE ECONOMICS THE CONVENTIONAL IRED · EX APPROACH XP PI ·E R ED ED ED EXPIR ED · EX R EXPI PIRED · POLITICS ARE PIR WHAT MATTER EX EX · PI RE D · EXPIRED First, a political settlement must be reached. “ So that’s the con- ventional approach. THEN PEACEKEEPING I think that Peacekeepers are brought into approach the country but pulled out as quickly as possible. denies reality. We see that there is no quick fix, certainly no � FOLLOWED BY ELECTIONS quick security fix. An election will produce a legitimate and accountable government. WATCH THE TED TALK Paul Collier’s new rules for rebuilding a broken nation. IFC | 35 A FRESH APPROACH RECOGNIZE THE INTERDEPENDENCE Once interdependence is OF THREE KEY ACTORS recognized, what follows is an expectation of mutual commitments. THE SECURITY COUNCIL Peacekeeping is a cost-effective approach that increases secu- rity, if the commitment is for at a least a decade. THE DONORS Post-conflict aid is key, but economic recovery is inevitably Security, investment/aid, and slow. Again, a decade-long reform work together to commitment will ensure produce economic recovery— better results. peacekeepers’ most promising exit strategy. Photo © Albert González Farran/UNAMID THE POST-CONFLICT GOVERNMENT An inclusive approach to policy and economic reform is the only path forward. 36 | IFC.ORG/HANDSHAKE TO NATIONAL RECONSTRUCTION FOCUS ON THREE CRITICAL NEEDS JOBS Young men need work—fast. The con- struction sector, which typically suffers Photo © Grim Santo during conflict, is the best place to start to generate jobs. An inflated civil service is unsustainable. IMPROVEMENT OF BASIC SOCIAL SERVICES Independent service authorities will split the functions of a monopoly line ministry into three pieces: • Planning/policy function. • Delivery of services on the ground. • Public agency that channels money to service providers. This approach allocates money coher- ently, making NGOs accountable as they compete for resources. Services will be “co-branded� by the post- “ conflict government. Gradually it will shift from a politics of plunder CLEAN GOVERNMENT to a politics “Clean� governments track how funds � are allocated, providing money to the of hope. budget alongside significant scrutiny. IFC | 37 LEGALEASE Teachable moments legal lessons from post-conflict PPPs By John D. Crothers & Pierre Bernheim Public-private partnerships (PPPs) are an After all, sponsors and financial institutions essential component of the overall economic require well-structured projects with secure cash effort required to provide necessary infrastruc- flows—not necessarily easy to find. Despite the ture to post-conflict countries. However, donor obstacles, however, the success of a post-conflict aid usually precedes any consideration of PPPs, PPP depends on government officials putting a and even when it’s time for PPPs to make an priority on the projects most likely to succeed, entrance, these partnerships are not always instead of those needed the most. Once officials adapted to the infrastructure construction or have established a successful track record, more rehabilitation needs of post-conflict countries. challenging PPPs can be proposed to the market. 38 | IFC.ORG/HANDSHAKE Our work on pioneering PPPs in post-conflict ing the history of the country and the progress countries such as Bosnia and Herzegovina, accomplished since the conflict. This will help Timor-Leste, Kosovo, Rwanda, Sierra Leone, convey to the private sector a more realistic and the Solomon Islands has reinforced this les- picture of the country than what may have been son, among many others. Despite the uniqueness depicted by mainstream media. of each situation, success can hinge on just a few key factors. Here are the tips we convey at the start of discussions: International hotels were the BUILD A GOOD HOTEL first infrastructure built or Surprisingly, a good quality business hotel is the renovated in Eastern Europe first key infrastructure need for a country recov- ering from conflict—because, like the airport, a in the early 1990s after the hotel of international standing serves as visitors’ fall of the Berlin Wall. gateway to the country. The hotel is a straight- forward infrastructure and business model, an easy win because international consultants and foreign investors require a place to stay, meet, WHICH LAW OR LAWS? and work. The structure itself is also one of the first positive signs to the world of the state One of the first tasks of the legal consultant of economic development of the country. The assisting the government in launching a PPP is primacy of this step has been proven over and to assess the legal framework and compatibility over: International hotels were the first infra- with the proposed PPP project. When a tempo- structure built or renovated in Eastern Europe in rary peacekeeping authority has been governing the early 1990s after the fall of the Berlin Wall. the country for a transitional period it may have Sierra Leone’s first post-conflict project was also issued its own legislation, as in Kosovo and a hotel. Timor-Leste. Many questions follow: “Which law do we apply?� “Is the new law designed to be temporary like the peacekeeping authority REASSURE INVESTORS that drafted it?� “Now that a government has Post-conflict countries usually benefit from an been established, should we revert to the old law additional effort in marketing the country as or wait for new laws to be put in place?� The recovering or fully recovered. This could be done perception that the old law represents a previous in the information memorandum by highlight- regime and must be replaced is also a factor in moving forward. IFC | 39 TOO MANY ADVISORS MAKES legal due diligence on the potential risks. Often, there is no clear legal title. The PPP contract will FOR BAD LAW likely require that government take the risk and Another challenge of the legal framework compensate the private partner for all claims may arise when a post-conflict country has related to ownership of land. Customary rights enacted too many laws with too many advisors of indigenous people over their land may also financed by various donor funds and countries. be protected by a new land law which might be In theory—and in a stable country—laws are applicable. Ascertaining their applicability (or proposed by the government and approved after not), and the procedures they entail for a project, debate by the parliament. The civil servants is a key element of a legal due diligence prior to drafting the laws are products of the legal culture structuring a PPP. of their country, whether it is common law or civil law. The result is compatible with the legal GOVERNMENT COUNTERPARTS system even if the law might not meet interna- tional best practice in some respects. By contrast, MAY LACK CAPACITY a post-conflict country often receives grants to Advisors and private investors in post-conflict upgrade its laws and regulations through the countries also suffer from a lack of experienced assistance of legal advisors who will come from institutional counterparts. In some cases, former other countries and even different legal systems. civil servants may have left the country during They may produce a PPP law or land regime law the conflict; in others, certain ethnic groups that does not fit with other laws, or mesh with may be tacitly disqualified to work in the new the country’s legal principles. administration. The new civil servants might not benefit from the supervision and experience of LAND IS USUALLY A MAJOR the previous employees. Regardless of the specif- ics, any country rolling out its first PPPs will PROBLEM need time to adjust and build capacity. In post- Conflicts are often linked to land. But if the land conflict countries with a new administration, it’s registry burned to the ground during the con- crucial to set aside this time. The international flict, how is ownership evaluated for an eventual consultant advising the government on the first PPP? Assessing and mitigating this risk will be PPP will need to factor in this learning period critical. The international legal advisor working when planning the project. with the government will investigate this matter along with local legal counsel and report in the 40 | IFC.ORG/HANDSHAKE BE PREPARED FOR CAPACITY BUILDING IN LOCAL COUNSEL The international legal consultant may experi- ence some difficulties with local lawyers—who, like the new civil servants, may lack the experi- ence necessary for PPP or large commercial contracts generally. Because local lawyers will not have had the opportunity to analyze and apply the new laws being put in place, which will change often as the project moves forward, both international and local lawyers will have to be prepared to learn as they go. This may require the drafting of sector-specific or project-specific laws to allow the project to proceed smoothly. RESULTS MAY VARY It is a special challenge to work on pioneering PPPs in post-conflict countries. To succeed, projects require adaptability, innovation, and perseverance from all parties. On our list of proj- ects in post-conflict countries, one has failed, one has succeeded, one has been “on hold� for almost two years, and two are just starting out. Given the trauma these countries have experienced in the past, however, advisors and investors can take special pride in trying to make these projects work, especially if they ultimately triumph. Photo © tlupic IFC | 41 RISKY BUSINESSES Private participation in infrastructure (PPI) patterns in the “riskiest� of countries— those that are emerging from conflict—show that affected nations typically require six or seven years to attract significant levels or forms of investments in infrastruc- ture from the day that the conflict is officially resolved. The first infrastructure investments to arrive in conflict-affected countries are in sectors where commercial risk is relatively low, primarily in mobile telephony. Private investments in sectors where assets are harder to secure—such as water, power distribution, or roads— are slower to appear or simply never materialize. By Gonzalo Araya and Jordan Schwartz 42 | IFC.ORG/HANDSHAKE INFRASTRUCTURE Recent World Bank research confirms the causal relationship between sovereign risk and levels of investment in public-private partnerships (PPPs) in infrastructure for developing countries. Understanding that link is vital because it raises the stakes for investment success or failure above the level of the PPP itself. The message is that for governments to benefit from competitive participation of the private sector and the resulting efficiencies, all hands must be on the wheel. This includes not just utilities and line agencies, but ministries of finance, economy, and planning as well as legislators—all the way up to the office of the president. Decisions on national debt restructuring, rules governing repatria- tion of capital, or expropriation practices, which previously may have seemed removed from the considerations of market interest in a single investment opportunity, are in fact good predictors of the levels of investment. By contrast, sovereign risk ratings are not a powerful predictor for overall levels of Foreign Direct Investment. In other words, investors in industries like oil and gas, minerals, or forestry will find returns commensurate with the challenges associated with investments in high risk countries. Infrastructure investors—in both greenfield and in existing assets—are much more sensitive to sovereign risk. In short, country risk ratings—which aggregate several politi- cal, economic, credit and financial conditions, and behaviors at the sovereign level—can be used to explain a significant part of the differences among countries trying to attract investment in infrastructure. CONFLICT IS THE CRITERIA Embedded within country risk are multiple traits that are affected Photo © Intiaz Rahim by political and economic stability. For this reason, few invest- ments can be considered higher risk than those that require long- term periods of return and that go into conflict-affected countries. IFC | 43 As the graph below illustrates, conflict-affected mobile telephony sub-sector. The countries that countries are poorer than other developing need the most typically get the least. countries, have smaller economies, and attract How long, then, does it take for investments in less private participation in infrastructure, both the form of private infrastructure commitments in absolute terms and as a share of their popula- to return to conflict-affected countries? What tion. Not surprisingly, levels are lower still in sectors are more likely to attract private part- those countries characterized as having weak ners or investors and to close transactions? By or non-functioning governments. Whereas a zeroing out end-dates of conflicts for a set of 31 developing country that has not suffered from countries that have suffered from conflict over recent conflict will attract, on average, $22 of the the last 20 years, we can establish a fixed point PPI per capita, conflict-affected countries with from which to consider investment trends. That functioning governments will attract about $14 is, “Year 0 (Zero)� is the year at which a conflict per capita of PPI, and governments with non- is considered to have terminated in a country functioning governments will attract about $9 so that conflicts which ended 15 years apart can per capita—most of which is coming from the be put on the same timeline. By creating this normalized timeline, we can see that investments GDP and PPI per capita in developing countries, conflict-affected countries, and conflict-affected countries with weak or non-functioning governments (1990-2010). 1852 $22 Non-conflict countries $14 Conflict 973 countries $9 688 Weak, non- functioning governments Average GDP per capita (US$) PPI per capita (US$ per person) 44 | IFC.ORG/HANDSHAKE trickle in over the first five years and then begin elasticity of demand sufficiently high for mobile to increase after year five, finding their peak at operators to accept higher levels of country risk. the seventh year. Mobile investors have been active in countries like Somalia during a time when there is little government structure, for example, and in Iraq SECTOR MATTERS just a matter of weeks after the country was last When the data are viewed by sector, however, the invaded. story becomes more intriguing. In the first four Other sectors with larger investment require- years, with only a few exceptions, only telecom ments, longer cost-recovery periods, and greater investments have found their way into countries sensitivity to user willingness to pay—such as that have just emerged from conflict. These toll roads, electricity, and water utilities—have are almost entirely from mobile licenses and longer lag times. With only a few exceptions, related investments. This single sector concentra- private investors in those sectors do not enter tion may be because the cost recovery period conflict-affected countries until six years have for mobile investments is extremely low, the passed. technology sufficiently diffused, and the price Number of private infrastructure investments and PPPs in post-conflict countries, with sector breakdown PPI Projects 0 2 TOTAL Telecom Transport 1 5 TOTAL Energy Water 2 6 TOTAL Year(s) after conflict 3 4 TOTAL 4 5 TOTAL 5 7 TOTAL 6 13 TOTAL 7 17 TOTAL 8 11 TOTAL 9 6 TOTAL IFC | 45 By focusing on a sector that has longer-term cost recovery periods, it is easier to see the effects of conflict on investment. In energy, among the 31 countries studied, there is only one case of a pri- vate investment in the first five years post-con- flict. Disaggregating the sub-sectors of energy, it is clear that more than half of the investments are in power generation. In these cases, off-take agreements for power purchasing can minimize exposure to commercial risk—as can other credit enhancements, including political risk insurance. off-take agreements typical of power generation, water, and wastewater treatment plants can cover for a larger part of sovereign risk. In addition, the assets can be physically protected and secured more easily than distribution networks. Out of 28 total energy projects in these 31 countries, 19—or two-thirds of the total—are in electric- ity generation. Only one electricity distribution investment was made in the first six years from the time the conflict ended. The only gas distri- bution investment came eight years after conflict ended. 8 This is consistent with regressions run on the effects of country risk to greenfield projects versus concessions. Greenfield investments have RISK/RESULTS a much wider range of reaction to sovereign risk For conflict-affected countries, data on num- than investments in existing assets. This sug- bers of PPI transactions successfully carried out gests that guarantees, credit enhancements, and within nine years of a conflict ending illustrates how difficult it is for these countries to attract private infrastructure invest- Number of private energy projects in post-conflict ments. Very few investments took countries by sub-sector place in the first five years after conflict ended, and nearly all of those invest- PPI Projects ments were in the telecommunications 0 0 TOTAL sector—primarily in mobile telephony. Electricity distribution Energy investments took six or seven 1 0 TOTAL years to mobilize and came primarily 2 0 TOTAL Electricity generation in electricity generation—invest- Year(s) after conflict Gas distribution 3 1 TOTAL ments that are often characterized by Electricity transmission 4 0 TOTAL sovereign-backed off-take payments, 5 dollar denominated transfers, and an 1 TOTAL asset footprint that is much easier to 6 8 TOTAL protect from attack than a distribution 7 6 TOTAL network. 8 7 TOTAL Graph sources: PPI Database, World Development 9 5 TOTAL Indicators, and authors’ calculations. For the full article please contact handshake@ifc.org. 46 | IFC.ORG/HANDSHAKE 89 26 32 2 THE AUTHORS GO BEHIND THE NUMBERS 0 4 15 0 7 9 In order to obtain private investment levels in leasing assets, or otherwise contracting for provi- infrastructure we used the World Bank PPI sion of the infrastructure services. Only projects Database. The PPI database offers detailed that have come to financial closure are included information by year, country, sector, and form in the database. If a purely public investment is of public-private partnership. Within sectoral carried out in tandem with a private operator or categories, it distinguishes among primary a private management contractor, the database and secondary sectors by investment. It also does not include a value for those public invest- provides the form of private investments, so we ments. All project figures are noted in the year can distinguish between greenfield projects and that the project comes to financial closure. concessions of existing assets among other types For the purpose of this article, the PPI database of partnerships and investments. is an appropriate source of information because The database, however, captures both public it reports the commitments of the investments contributions to the infrastructure investments for each year by country and by sector once a as well as private contributions. That is, the contract has come to financial closure—that is, database notes total project size in commit- a license, sale, concession, lease, BOT, or other ments—later adjusted to actual disbursements, contractual agreement is signed by both parties investments, or transfers, where information is and financial arrangement have been secured. available. Those commitments combine private Having the commitments instead of the exe- and, in many cases, public sources. The thresh- cuted investments allows us to establish a clearer old for consideration is that the project involves relationship between investments and country a private service provider building greenfield risk at a given point in time. assets for its own operation, or—in the case of existing assets—purchasing, concessioning, or —Gonzalo Araya and Jordan Schwartz IFC | 47 INFRASTRUCTURE After 14 years of conflict, Liberia was a shattered 128 megawatts (MW), about half of which was country. Over 200,000 people had been killed. provided by the Mount Coffee Hydropower Professionals had fled, taking their technical and plant, and served 30,000 customers. managerial skills with them. Infrastructure was But during and after the war, Liberia’s entire devastated, leaving the country with limited access electricity system, including Mount Coffee, was to power, water, and transportation. Businesses col- destroyed and looted. All metal in the plant, lapsed along with the economy, pushing the major- including the turbines and the wiring in the elec- ity of Liberians into deep poverty. Reconstruction trical distribution network, was stolen and sold would be long and difficult; restoration of electricity for scrap. Restoring power—a critical factor in would be a key part of the process. rebuilding homes, businesses, schools, the health system, communications, and other public The end of Liberia’s brutal civil war in 2003 services—would be a key element in rebuilding brought peace, but it didn’t turn the lights the country after the war. back on—at least not right away. The country’s President Ellen Johnson Sirleaf, elected in 2006, electricity sector had been completely destroyed made restoration of electricity a priority. Under during the 14-year conflict. Before the war, the the Emergency Power Program, the Liberia electrical system had a generating capacity of Electricity Corporation (LEC) was reestablished upLiberia Powering Photo © Travis Lupick 48 | IFC.ORG/HANDSHAKE in 2007. Limited power was restored in the capital, Monrovia, using 2 MW diesel generators. Results were mod- LIBERIA lights up est but symbolically important: a row Francis Cooper is Chairman of the Board of Liberia of lights lit up a street in Monrovia, Electricity Corporation (LEC), where he began and 450 commercial customers were his career in 1974 as First Managing Director. connected to the fledgling system. The Here, he talks to Handshake about the destruction long process of rebuilding the country’s wrought by the civil war and the management con- power infrastructure had begun. tract and partnership with donors that supported But without technical and managerial the LEC’s reconstruction. capacity, the process of rebuilding was too slow. To address this, the govern- ment decided to turn over management What was the pre-war state of the of LEC to a private sector firm with Liberian power sector? substantial experience in the sector. IFC advised the Liberian government, LEC, and a donor, the Norwegian govern- Liberia’s energy came from two major sources: the ment, in the design and execution of a public utility sector, represented by the Liberia five-year management contract to oper- Electricity Corporation (LEC); and through conces- ate LEC. After an open tender process, sions with iron ore mining and rubber plantation the contract was awarded to Manitoba companies. LEC’s system consisted of 64 megawatts Hydro International (MHI), a Cana- (MW) of hydro run–off river power plant, 64 MW dian power company, in April 2010. of non-operational gas turbines, 49 MW Heavy Fuel Oil (HFO) plant, and 10 MW of medium speed diesel engine—for a total installed capacity of 187 PRIVATE SECTOR MANAGE- MW. The transmission network consisted of about MENT DELIVERS RESULTS 400 kilometers (KM) of 69 kilovolt (kV) lines and Under MHI’s management, LEC began 800 KM of 12.5 kV medium voltage distribution rebuilding the electrical distribution lines. LEC had 35,000 customers, including residen- system in Monrovia, with impressive tial, commercial, and industrial customers and NGOs results. Between 2010 and the end of as well as the government itself. The Mount Coffee 2012, the LEC: hydro plant provided 70 percent of the total annual energy generation needed by LEC Monrovia and its • Added over 12,000 new connections, network, and the remaining 30 percent was provided reaching an estimated 50,000 people; by thermal plants. cont. on page 51 IFC | 49 • Increase revenue by 160 percent; at a rate reflecting costs as if the project were • Decreased losses by 21 percent; commercially financed, and channeling the corresponding amount to a trust account. These • More than doubled peak load; funds will be used to finance plant O&M, debt • Improved fuel efficiency by 33 percent. service, and future investments in the sector. This pricing structure also maintains a cost reflective Although capacity was low, at only 20 MW, it tariff and avoids creating market distortions was sufficient to begin rebuilding the overall and roadblocks to future private investment in power infrastructure and lay the groundwork for new generation. The revised contract includes gradual expansion. new targets—15,000 additional connections, improvements in collection rates, better opera- THE NEXT PHASE tional efficiency, and a reduction in losses. It also provides a framework for expansion beyond However, power generation relied on expensive Monrovia. diesel generators. Electricity tariffs are over $0.50 per kilowatt hour, among the highest in the world and too expensive for most Liberians. EXPECTED RESULTS And low generating capacity meant there wasn’t • Power capacity in Liberia is expected to enough power to support the needs of busi- quadruple to over 80 MW. Clean hydro nesses, hospitals, schools, and ordinary people. power will largely displace diesel generators, More capacity at affordable prices would be which are costly and more harmful to the necessary to keep the post-conflict reconstruc- environment. tion process on track. • At least 48,000 new connections will be cre- Reconstructing the Mount Coffee hydropower ated, providing an additional 250,000 people plant was a logical next step. This would add in Monrovia with electricity. up to 78 MW of power capacity during the wet season and increase the number of new electrical • Electricity losses are expected to be reduced connections. To do this, the Liberian govern- from 25 to 12 percent, while collection rates ment and its partners envisioned the creation are expected to climb at least 97 percent. of a project implementation unit (PIU) within • Up to $30 million annually is expected to LEC to manage the reconstruction of Mount be available for re-investment and expansion Coffee. It also would require modification to the of the electricity system. These funds will be management contract with MHI. managed under a transparent governance Most important of these was a tariff structure system. and governance framework for the revenue gen- erated by Mount Coffee. This will be achieved by pricing the power provided by Mount Coffee 50 | IFC.ORG/HANDSHAKE cont. from page 49 from the USAID video What happened to the power “Starting From Zero: Rebuilding Liberia’s Electricity Sector� sector as a result of the war and its aftermath? After 1990, most of LEC’s infrastructure was exten- sively damaged and later vandalized. The Mount Coffee plant was left unattended and the main intake damp was breached. The thermal plants were also left Overview unattended and later scrapped. The transmission and Post-conflict challenges in Liberia’s distribution network, including the substations, were power sector. looted and destroyed. How has the management contract and partnership with donors sup- ported the LEC’s reconstruction? When the lights went out The 14-year civil war left the country The civil war in Liberia did not only destroy the in darkness. power sector, it also drastically reduced LEC’s human assets as people fled. To overcome this, it became clear very early on that LEC needed a capable and experienced foreign partner to access qualified profes- sional staff. Partnership with donors gave LEC the capacity that was required to establish and maintain credibility with customers, as well as with local and Planning a brighter tomorrow international businesses. The first steps toward revitalizing the electricity sector inspired further progress. How would you advise others facing the prospect of reconstructing such an important sector? Drawing up a careful plan with key partners in the Engaging the private sector sub-region and international community is an essen- Rebuilding the infrastructure with private tial first step. sector commitments was the key to success. cont. on page 53 IFC | 51 INFRASTRUCTURE USAID lends support In post-conflict situations, resources and • For the long-term development of Liberia’s expertise provided by the international donor power sector, USAID supported the Liberia community can contribute to the rebuilding of Energy Assistance Program (LEAP). It devel- communities, national and rural infrastructure, oped a National Energy Policy and intro- and economies. In Liberia, the United States duced pre-paid metering, which increased Agency for International Development (USAID) collections, improved LEC’s cash flow, and helped President Ellen Johnson Sirleaf deliver on led to more responsible use of electricity. her promise to turn the lights back on through a LEAP also ensures that renewable and clean number of complementary initiatives addressing energy plays a part in national energy policy. short-term needs and long-term development: • The Liberia Energy Sector Support Program • The Emergency Power Program re-established is developing two hydro and two biomass the Liberia Electricity Corporation (LEC) generating facilities over a four-year period. and installed 2 megawatts (MW) of generat- This $19 million program will reach the rural ing capacity in Monrovia, enough to power population, much of which has never had some street lights and buildings. This modest electricity before. effort was the first visible sign of progress on Many challenges remain before Liberia’s energy rebuilding the power sector after the war. sector can fully support commercial and resi- • USAID financed the construction of a diesel dential power needs. Even today, fewer than 10 generation plant on Bushrod Island. In less percent of the population has access to power. than one year, it added 10 MW of power But USAID’s efforts, in partnership with the generating capacity, doubled the number Liberian government and other donors, have of customers, and spurred development of furthered progress and momentum that is the electrical transmission system, making contributing to the development of the overall increased power generation possible. system and Liberia’s economic development. Photo © John Leber 52 | IFC.ORG/HANDSHAKE cont. from page 51 After that: • The rebuilding process should be simple and not too ambitious in the initial stage. • Ensure that cost recovery is achievable within your project objectives. • Do not hesitate to get expertise in areas where you may not have the personnel. • No matter how small, make sure the contribution of the host government is visible. • Encourage the development of local staff to limit the need for foreign expertise. What is your vision for LEC? Our vision for LEC is to rebuild a utility company that takes advantage of the abundant hydro potential of Liberia and the sub-region. We would also like to explore alternative energy sources such as bio-mass, solar, and wind power to expand environmentally friendly electricity distribution. What does the rebuilding of LEC mean for Liberia’s future? The rebuilding of LEC is vital to the economic devel- opment of Liberia. Affordable and reliable electricity will not only enhance economic growth, but posi- tively impact reliable health services, good education systems, and the population’s overall social welfare. IFC | 53 INFRASTRUCTURE Photo © Project H Design LARGE- SCALE SMALL-SCALE SERVICES PURPOSE 54 | IFC.ORG/HANDSHAKE Small-scale private service providers (SPSPs) that up to a quarter of the urban population have long played a quiet but important role in Latin America and nearly half of urban in the provision of water and electricity. They dwellers in Africa rely on SPSPs for at least vary in scope, scale, and the types of constraints a portion of their water supply. They often they face. For governments seeking to learn compensate for—or supplement—the limited more about how SPSPs can serve their citizens, financial and human resources of the public consider these points: sector. • SPSPs are significant service providers in • The local private sector accounts for over many countries, particularly in periurban, 85 percent of all private sector investment rural, and remote regions, and may be the in water services and the potential for only viable operators in some contexts. local financing of small-scale water supply SPSPs are estimated to reach as much as half is significant. The local private sector has the population in some countries, particularly demonstrated its ability and interest in the in post-conflict situations and other cases of development and management of water sup- weak or failed states. Overall, it is estimated plies even in remote or difficult locations that PRICE OF WATER BY TYPE OF SERVICE PROVIDER $0.22 Public Utilities $0.02 $0.79 $0.32 Private Networks $0.17 $0.86 $1.05 Point-source Vendors $0.34 $3.60 $2.00 Tanker Trucks $0.45 $6.32 $3.50 Carters $0.76 $11.00 $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 Source: Kariuki, Mukami; Schwartz, Jordan. 2005. Small-Scale Private Service Providers of Water Supply and Electricity : A Review of Incidence, Structure, Pricing and Operating Characteristics. The World Bank, Washington, DC. IFC | 55 are unattractive to formal providers. Despite • Small-scale providers have the potential unclear legal or operational status and sub- to become local private operators in small optimal financing arrangements (primarily towns, and over time, in medium and large from the informal market) these providers towns. With growing recognition of their role have made significant investments in water in water supply and electricity services, SPSPs supply and electricity systems. Establishing are evolving from owner-operators of isolated a clear policy and a supportive regulatory systems to developer-operators of formally framework for SPSPs could free up scarce recognized systems in small towns or multi- public financing for less attractive segments of village areas (such as Paraguay and Uganda). the market and reduce costs, thereby improv- While SPSPs’ prior experience in the informal ing prices for consumers. sector may not adequately prepare them for • Cost Recovery Prices provided by small- formal bidding processes, experiences in sev- scale private network systems are a fraction eral countries demonstrate that with the right of the price charged by traditional water support and consortium-building, SPSPs can vendors. An analysis of the comparative costs become an important channel for the devel- of small piped private networks shows that opment of local private sector capacity for the per unit cost of water delivery can be as water supply and electricity service. little as 10 percent of the cost of purchasing • While small entrepreneurs are unlikely water from vendors. That is, where public to take on the responsibility for massive utilities fail, small piped systems prove an rehabilitation or expansion projects in economical solution—particularly when large metropolitan areas, SPSPs can help considering that they do not generally require fill the growing gap in private financing of the types of ongoing subsidies provided by infrastructure by serving marginal urban governments to public utilities. communities, periurban areas, and outlying • Where water sourcing or energy supply and rural communities. These are often the technology presents barriers to entry, PPPs most costly clients to serve for large investors, may be designed to share that risk. World the last to receive connections, and the targets Bank Group experience working with SPSPs of controversial universal service obliga- in countries like Paraguay has allowed for the tions imposed upon private investors and expansion of SPSPs into areas where sourcing concessionaires. risks would otherwise have prevented their investments. Public transfers for borehole This article is based on a series of papers and articles by Jordan drilling and output-based subsidies for con- Schwartz, Mukami Kariuki, Franz Drees-Gross, Alex Baka- necting the poor have been key. lian and Michael Schur. 56 | IFC.ORG/HANDSHAKE Affordable Drinking Water in Haiti The lowest cost option for safe, treated water in Haiti is currently $.12 per gallon, making access to clean drinking water unaffordable for many Haitians. DloHaiti, a market-based solution providing safe drinking water in Haiti, offers water at a price average Haitians can afford. DloHaiti’s business model is the deployment and operation of water kiosks dis- pensing or delivering water in 5-gallon jugs. DloHaiti seeks to improve this long-accepted business model, lowering costs and deliver- ing superior products and services to high- demand but under-served communities. DloHaiti water kiosks can provide drinking water exceeding World Health Organization standards at a 25 to 40 percent discount from the lowest market price while maintain- ing healthy operating margins to provide a return for investors. In addition to investment returns, an important goal for the business is addressing a critical social need with a market-based solution that is sustainable and more efficient than current governmental or NGO-managed efforts. DloHaiti launched an 18- to 24-month, 40-kiosk pilot in Haiti in early 2013. This will be the foundation for a Haiti-wide deployment creating entrepreneurship and employment opportunities for working- and middle-class Haitians. A post-pilot scale-up will seek to establish a 300-kiosk Haiti-wide network that could reach 5 to 8 percent of Haiti’s population—people who are currently underserved or beyond the limits of public infrastructure or water trucking. Photo © UNICEF Canada IFC | 57 Getting off the plane for the first time in Juba, South Sudan, I was amazed at the number of water trucks. There were dozens of them on every street, delivering water everywhere: from the private water tanks at wealthy houses, to trucks refilling large blue plastic drums by the side of the road for on-selling to the poorer resi- dents of the city. These blue plastic drums are a lifeline to 90 percent of the population that does not receive water from the public water com- pany. Only 3,000 households have that privilege. As this fledgling country establishes itself after a devastating conflict, the vast majority of Juba’s people must find their own ways to access water. Some resort to hand dug wells or private bore- holes. Others purchase water from water vendors with tankers or from bicycle-drawn drums. And although there are formal public-water system filling points where tanker drivers can purchase water for reselling, the supply is erratic and the wait is long, so tanker drivers often resort to selling untreated water straight from the Nile. For this water of dubious quality, customers pay from $8 to $12 per cubic meter—almost 10 times what I pay at home in Washington, D.C. WAITING A MARKET LIKE ANY OTHER Post-conflict countries feature at the bottom FOR of every human development indicator, and as I saw in Juba, access to water in South Sudan WATER is no exception. Similarly, in Afghanistan, the Democratic Republic of Congo, Somalia, and Papua New Guinea, more than 50 percent of By Jane Jamieson Photo © UNAMID 58 | IFC.ORG/HANDSHAKE INFRASTRUCTURE the country’s population does not have access to investments, but also consider how to harness clean drinking water. In many of these countries, and regulate the markets that have emerged and where the governments are struggling to provide that will continue to be significant players. What services for their populations, the types of water ultimately matters is moving toward providing markets in South Sudan have sprung up to meet good quality water at a reasonable price. this most basic need. Water is a market opportu- There is precedent for this “bottom-up� nity like any another. approach. Many countries that have transitioned When we talk about PPPs or private participa- out of post-conflict have formalized the role of tion in the provision of water services, as with the private sector in service delivery. In Rwanda, many other public services, we are usually talk- for example, nearly 40 percent of rural water ing about bringing in varying degrees of private schemes are managed by small firms or indi- participation to improve the performance and viduals. In Cambodia, the government licenses sustainability of traditionally public services. operators to take over the construction and Even in the rural and small towns of countries running of small water schemes. like Uganda or Benin, where management is del- egated to small scale operators, these often rely on significant donor or government financing A FRESH APPROACH of the initial capital investment to keep tariffs Private water vendors are often portrayed as within an affordable range. opportunists who exploit the most basic of human needs, and in some cases this is true. But As in South Sudan and other post-conflict coun- often these vendors are people trying to make tries, however, the reality is very different. In ends meet like everyone else. On the same trip to these nations, the governments and donor invest- Juba, for example, I met a man who had invested ment combined is a drop in the ocean compared a significant amount of money in converting a to the needs of the population. Governments truck to a water tanker and importing it from often lack the capacity to regulate or maintain Uganda. He was keen to differentiate himself any level of service, so the private sector sees an from the other tankers, looking for simple water opportunity and responds accordingly. The level testing kits that could help him prove to custom- of service and quality of water is often poor, and ers that his water was clean and safe. prices high—but the fact remains that they are there and are likely to remain the main providers When thinking about water sector develop- of water to people in the immediate future. ment in post-conflict countries, the role of the private sector is no less relevant than in more Therefore, the way we approach water service stable, developed countries. It just it takes a very delivery in these post-conflict environments different approach to harness the already vibrant must be different. The role of government and water markets to provide good quality water at development partners should not only focus on an affordable price. the traditional development model of large new IFC | 59 C Photo © Ken Doerr peration amid conflict By Ryan T. Ketchum with contributions from Marie Marconnet & Ananda Covindassamy It’s not impossible for nations in conflict to put aside their differences to coordinate the delivery of natural resources, but it’s unusual. For the Democratic Republic of Congo, Rwanda, and Burundi, cooperation is transforming the shared Ruzizi River into a valuable source of hydropower for three peoples. It sounds too good to be true: three countries management of the river and the catchment area with a history of conflict, finding creative ways that supplies it with water, and is in the process to split resources from a shared river that can of establishing an independent international deliver much-needed hydropower to the citizens regulatory authority that will regulate the use of of all three nations. There are no loopholes and this shared resource. no secret ways for one nation to gain the advan- For the Democratic Republic of Congo (DRC), tage, even when it comes to taxes. Rwanda, and Burundi, this sort of creative The umbrella organization that is promoting cooperation amid conflict makes reconstruction the project has sponsored a treaty governing the possible. Energie des Grands Lacs (EGL), the 60 | IFC.ORG/HANDSHAKE INFRASTRUCTURE international organization that operates under the auspices of the Economic Community of the MEET the Great Lakes Countries (CEPGL), has promoted this reconstruction since the late 1970s, first MEDIATOR with the development of the Ruzizi II hydroelec- tric project, and now by promoting the Ruzizi III hydroelectric project, which will be developed Claude Kayitenkore is Director at as a public-private partnership. Energie des Grands Lacs (EGL). He Those behind the Ruzizi initiative point to four oversees negotiations among officials of important reasons this post-conflict project has the DRC, Rwanda, and Burundi for flourished: the mounting need for power and Ruzizi III. Here, he discusses how the for replacing high-cost gas-oil based generation group has overcome political tensions with lower cost sources; the precedent set by past to produce a workable agreement. initiatives; the cross-border coordination; and the tariff tailored specifically for the needs of the parties involved. How did EGL ensure that each THE NEED FOR LOW-COST CAPACITY of the players in the Ruzizi project were treated fairly? The power systems of Burundi, the eastern DRC, and Rwanda are mainly based on gas-oil EGL focused on ensuring that there fired units. The cost of gas-oil based generation is was transparency in the work, studies, especially high in the Great Lakes region due to and decision-making throughout the huge transport costs from Kenyan and Tanza- entire process. EGL has been consult- nian ports. Most of the alternative economical ing extensively and regularly with a hydro sites are small and Ruzizi III is the larg- committee of representatives from each est and lowest cost option in the region, along country on the various technical mat- with methane gas extracted from Lake Kivu for ters. For high-level issues, EGL con- the generation of base load electricity. Increas- sulted government ministers, including ing demand for electricity has been fueled by ministers for energy, foreign affairs, and economic growth and ambitious electricity access water resources. programs financed by donors. As a result, the region is facing a rapidly increasing shortage of capacity and energy. cont. on page 63 IFC | 61 PRECEDENTS PAVE THE WAY by management and financial challenges since its commissioning—a repeat of that structure The Ruzizi III dam will be the third in a series for Ruzizi III was not an option. Donors and of four projects on the Ruzizi River. The experi- governments wanted a fully commercial and ences of the first two initiatives provide the independent structure protected from interfer- clues to the success of Ruzizi III. The Ruzizi ence by any of the three governments, assuring River forms the border between the DRC and that they are all equal. Rwanda. The south-flowing river connects Lake Kivu with Lake Tanganyika. The 29.8 megawatts EGL has been working steadily to promote the (MW) Ruzizi I plant, owned and operated by third project. In June 2012, EGL launched a SNEL, the parastatal electricity utility of the request for proposals for the selection of a private DRC, is located 3 kilometers downstream of the investor to develop Ruzizi III on a Build-Oper- outlet from Lake Kivu and was commissioned ate-Transfer basis. In September, EGL declared in 1959. The 43.8 MW Ruzizi II plant is owned the consortium of Sithe Global and Industrial and operated by SINELAC, a multi-national Promotion Services (Kenya) as the preferred organization established by a treaty among bidder for the project (the same consortium Burundi, the DRC, and Rwanda, and was com- that developed the 250 MW, US$900 million missioned in 1989. SINELAC has been besieged Bujagali Hydroelectric Dam on the River Nile in Uganda). Hydropower in Africa Hydropower is undoubtedly the most com- mon form of sustainable and renewable In late December of 2012, the General energy. In 2008, hydropower accounted for Assembly of the United Nations declared 16.3% of global electricity production. In 2014-2024 the decade of sustainable energy Europe and North America, 25% and 29% for all and launched the Sustainable Energy respectively of the potential hydropower has for All (SE4ALL) Initiative jointly with the been developed. In Africa, one of the conti- African Development Bank. In passing the nents with the greatest need for additional resolution, the General Assembly noted generation capacity, only 5% of potential that 1.3 billion people live without access hydropower is in use today. With solutions to electricity and that 2.6 billion people in like Ruzizi III, hydropower has the potential developing countries rely on traditional bio- to provide a significant percentage of the mass sources for cooking and heating needs. energy that is necessary to realize the objec- Half a billion of those living without access to tives of the General Assembly’s resolution. electricity live in Africa. 62 | IFC.ORG/HANDSHAKE cont. from page 61 The proposed technical solution for Ruzizi III envisions a run-of-river project comprising: How do you steer discussions • a diversion dam, so that political differences • a 7 kilometer headrace tunnel, don’t threaten the project? • penstock and surge chamber, The discussions have remained convivial • surface powerhouse, and we have had no difficulty main- • three Francis type turbine-generator units, taining a focus on technical issues. All • a 220 kilovolts switchyard, and three countries realize the significance of this project for meeting the energy • a 10 kilometer transmission line to a substa- needs of the region, so participants have tion located at Kamanyola in the DRC. remained focused on how to move it The design also includes a small generating unit forward. at the dam site to produce energy from the eco- logical flow that will be released to the bypassed What are the most important reach of the river between the dam and power qualities for an organization station. like yours that serves as the The Proposed Technical Solution has a total “go-between� for nations in installed capacity of 147 MW, with each turbine designed for a maximum flow rate of 50m3/s, conflict with each other? giving a total plant discharge of 150 m3/s (not • A community spirit: EGL itself is including the small unit at the dam site). Given composed of representatives from the hydrology of the river, it is anticipated that all three countries who work side by the nominal mean annual energy production side and who are able to coordinate will equal approximately 710 gigawatts per hour, action in all three countries. which equates to a capacity factor of approxi- mately 56 percent. • Transparency: for national and international stakeholders. CROSS-BORDER COORDINATION • Competence: to understand both the regional aspects and context, as well The need for cross-border coordination has as the technical aspects. derailed many projects that are economically attractive. Typically, the political issue of distrib- • Team work. uting power among three nations is trickier than the technical solutions proposed. In this case, the cross-border coordination facilitated by EGL IFC | 63 has been key. EGL has been successful at bring- plant is available, and it allocates day-to-day ing the three countries together by developing hydrological risk to the offtakers. This “all for practical solutions, and sidestepping the more one and one for all� concept allows the nations sensitive political issues by emphasizing values to share equally in the benefits as well as the such as transparency, competence, and socio- risks. economic benefits. For Ruzizi III, EGL has arranged for the project’s COMMON CAUSE, COMMON POWER capacity to be purchased by the parastatal utili- The countries will enter into a Common Power ties of Burundi, the DRC, and Rwanda. Each Purchase Terms Agreement before firm pricing off-taker will purchase on commercial terms, is known because the tariff will be set using a so- with a full payment security package, one-third called regulation by contract method. This will of the capacity of the project under a Common effectively enable the project to be constructed Power Purchase Terms Agreement, and separate using a form of regulation that is similar to the Power Purchase Agreements. return on rate base form of regulation widely used in the U.S., Europe, and other well devel- oped markets. Such ex post regulation is feasible The political question of in those markets given the long history of their regulators successfully balancing the interests distributing power among of investors and ratepayers. It is unlikely that three nations is trickier a system of ex post regulatory review would be feasible in countries that are in an earlier stage of than the technical solutions development, including in most of Sub-Saharan proposed. Africa. To overcome this problem and allow for a system of regulation that entails many of the benefits of return on rate base regulation, the regulation Tariffs are being structured with cooperation in by contract method defines the methodology mind as well. Off-takers will pay for the capacity that will be used to establish the final tariff in made available by the project company. Capacity an agreement that is subject to international will be adjusted hourly from actual to nominal arbitration. This agreement is entered into before hydraulic conditions to determine an hourly the investment is made. This approach leads to availability payment, which will later be con- a balanced sharing of risks on construction cost verted to a monthly availability payment. between the investor and the future off-takers. This structure achieves two objectives: it incen- tivizes the project company to ensure that the 64 | IFC.ORG/HANDSHAKE MOVING DOWNSTREAM Multi-lateral development finance institutions (DFIs) have expressed an interest in providing or have already provided significant fund- ing for the Ruzizi III project. Interested private lenders will be encouraged to participate by the protection offered by a possible (under discussion) partial credit guarantee from the World Bank. The sponsors are expected to request political risk insurance on equity from MIGA. EGL recently selected a pre- & ferred bidder for the project—a consortium made up of Sithe Global and Industrial Promo- Ruzizi I II tion Services (Kenya) and the project agreements are under The Ruzizi River forms the border between the negotiation. Democratic Republic of Congo and Rwanda. The south-flowing river connects Lake Kivu with The successful development Lake Tanganyika. Two projects located on the of Ruzizi III will integrate river are currently in operation. The 29.8 MW the region’s disparate power Ruzizi I, which is owned and operated by SNEL, systems into a single intercon- the parastatal electricity utility of the DRC, is nected system with scale and located 3 kilometers downstream of the outlet diversification. It will dramati- from Lake Kivu and was commissioned in 1959. cally lower the cost of electric- The 43.8 MW Ruzizi II is owned and operated ity in East Africa, making by SINELAC, a multi-national organization access for all a dream that has a established by a treaty among Burundi, the chance of coming true. DRC, and Rwanda and was commissioned in 1989. Photo © Ryan Ketchum IFC | 65 INFRASTRUCTURE eM undy By Mik At the end of World War II, Allied bombing raids killed How to rebuild a seaport over 55,000 people and inflicted extensive damage to the port of Hamburg. Getting the port working again was an SECURITY absolute priority for national • Reinstate the port perimeter or at reconstruction, and even today least a working port zone, with the process undertaken in established physical barriers. Hamburg serves as a model for other countries. The following 1 • Secure the whole port area. steps can guide the efficient restoration and function of war-damaged ports. 66 | IFC.ORG/HANDSHAKE Photo © Neven Milinković/istockphoto Why are ports critical to reconstruction? • To open up a maritime gateway for the provision of aid (food, housing and medical aid, and other supplies essential to sustain life). • To deliver materials and resources that enable reconstruction to commence. • To restart normal economic activity, including export and import trade and the free movement of people. 2 MANAGEMENT • Deploy a core team of experienced port personnel with a clear chain of command, including port administration, navigation, and operations. • Establish a comprehensive plan to open the port. • Plan the transition from interim measures to normal operations. • Position the port to complement the country’s recovery program. • Establish a working party with key port users, interfacing between the port man- NAVIGATION agers and port users to ensure the recon- • Provide safe marine struction’s approach meets users’ needs. access to the port; clear • Establish good communication systems mines and wrecks. with port users, the agencies responsible • Remove sunken vessels for interfacing road and rail infrastruc- alongside berths. ture, and other parties that are a regular feature of port life. 3 • Put navigational aids in place. IFC | 67 4 LANDSIDE ACCESS • Work with the agencies respon- sible for reinstating interfacing landside infrastructure, such as road and rail operators. CARGO HANDLING • Survey the whole port area to identify areas that may be brought back into service as soon as possible. • Consider interim berthing measures if the main berthing infrastructure is severely damaged—for example, float- ing pontoons equipped with cranes for cargo discharge and loading. • Establish temporary “ro-ro ramp� systems (the ideal cargo mode to get things quickly moving again). • Use off-the-shelf IT systems to support the management and operation of port/terminal facilities. • For faster roll-out, deploy heavy duty mobile cranes as an alternative to fixed cranes for diverse cargo types, and 5 mobile pneumatic un-loaders for free-flowing, dry bulk commodities. 68 | IFC.ORG/HANDSHAKE 6 WAREHOUSING • Use quick erection storage buildings or other temporary structures to deliver warehouse capacity. Photo © Pim Stouten THE CASE OF UMM QASR Following its capture in March 2003, the Making Umm Qasr operational again was approach to the port of Umm Qasr, Iraq had critical because as Iraq’s only deep-water port to be de-mined by specialist military forces. and primary port of entry for cargo and food, This was achieved relatively quickly, allowing it handles around 85 percent of Iraq’s bulk food the shipment of humanitarian supplies to Iraqi supply. Countries with a single port gateway, civilians. Sunken vessels in the port’s access like Iraq, are highly dependent on the efficient channels—some booby-trapped—represented functioning of the port because it is the key to the next big challenge to opening the port. The maritime transportation and trade. channels needed to be cleared for regular com- mercial traffic as opposed to low draft military craft to allow the large-scale delivery of humani- tarian supplies. IFC | 69 UP DIALING reconstruction Limited physical infrastruc- ture needs, relatively low investment cost, and the huge potential for growth make telecom an attractive sector for early entry investors. 70 | IFC.ORG/HANDSHAKE INFRASTRUCTURE Although governmental services and basic infra- recovering the investment almost immediately. structure are often absent in nations undergoing In developing countries with cash societies, the reconstruction, cell phones tend to become a business model most widely used by telecom part of daily life, even providing critical services companies is pre-paid cards, which have no col- such as banking and tele-medicine. By allowing lection problems. people to stay connected to each other as well Afghanistan, Somalia, and the Democratic as take advantage of these critical services, the Republic of Congo, where the average mobile- telecommunications industry demonstrates how penetration growth rate was 111 percent the private sector can help alleviate rather than between 2001 and 2006, are compelling exam- exacerbate conflict. Investment in the field has ples of the telecom industry’s grassroots appeal. yielded positive results for all parties, promoting In fact, the Middle East Times called mobile peace-building, reconstruction, and development telephony in Afghanistan its “most impressive while turning a profit. economic success�—strong words for a country Several factors make the telecommunications desperate to rebuild its infrastructure. industry uniquely suited for its role in societies The examples on the following pages—from experiencing deep changes. These companies Afghanistan, Iraq, and the West Bank and Gaza, are able to start initiatives during a conflict, for and in sectors as diverse as agriculture, banking, example, and do not have to wait until stability —highlight ways that the telecom and politics­ and peace have been fully achieved. In contrast industry can have an immediate impact on to other industries, mobile phone companies the economy and social fabric of post-conflict make smaller investments, and start getting a environments. return as soon as the first subscriber makes a call, according to a World Bank report. The initial —From The Role of the Private Sector in Fragile and Conflict- investment is usually quite low compared to Afflicted States, July 2010, updated April 2011. other industries, and companies are able to start Photo © cotesebastien/istockphoto IFC | 71 IRAQ In Iraq, where the movement of people and goods is compli- cated and heavily restricted, access to reliable, high quality voice and data services is key for economic activity and for personal and family safety. Zain Iraq, the leading mobile telephony company in Iraq, with 51 percent market share and 10.3 million subscribers, is investing in: EXPANDED ACCESS While Iraq’s total poverty rate is approximately 22 percent, poverty is considerably higher in many southern and western governorates as well as in rural areas. Zain Iraq will focus its growth on some of Iraq’s poorest governorates, including Al-Anbar, Diala, and Salahuddin. EXTENDED DEVELOPMENT The majority of private capital that has entered into Iraq in recent years has gone to Iraqi Kurdistan. Zain Iraq’s existing operations are located outside of Kurdis- tan, where investment funds are most needed. JOB CREATION As of December 2009, Zain Iraq employed 1,355 staff. Indirect employment is sig- nificantly higher through distribution networks, security, and network construction. SERVICE DELIVERY Zain Iraq is pioneering the delivery of services, such as banking, using the country’s mobile platform. 72 | IFC.ORG/HANDSHAKE WEST BANK AND GAZA In the West Bank and Gaza there is a severe shortage of capital, and large projects are challenging given the territory’s borders and the small size of most active governing bodies. However, growth and integration are critical factors in the economy’s reconstruction. Through an agreement with the Palestinian Authority’s Ministry of Telecommunications and Information Technology, Wataniya, the mobile phone network, will lead an effort to accelerate market growth while improving the current low tele-density and increas- ing competition within the sector. Wataniya will be required to provide coverage to 100 percent of cities and 97 percent of the population by year three; an IPO is required within six months of roll out. IFC | 73 ry rato Lab nal atio oN dah ©I to Pho 81,800,000 There are now more mobile the number of globally registered money accounts than mobile banking customers. bank accounts in Kenya, Madagascar, Tanzania, and Uganda. 1,000,000,000 the estimated number of people who will use mobile banking by 2017. 20% of Kenya’s GDP is 56,900,000 sent via text message each the number of registered mobile bank- year by users of the ing customers in Sub-Saharan Africa. M-PESA system. Sources: Global System for Mobile Communications Association & Pew Research Center. t boo e Re © Th to Pho 74 | IFC.ORG/HANDSHAKE BANKING ON CHANGE Re-starting the economy is a daunting challenge in post- conflict countries, but the introduction of mobile banking in these environments has placed money—and reform—on speed-dial. The 2007 launch of M-PAISA, Afghanistan’s first mobile money transfer system, provides financial services for people who cannot access a bank. Because transactions carry no cost, they ultimately stimulate nationwide economic activity. Capa- bilities include microfinance institutions’ loan disbursement and repayments, as well as salary disbursements and airtime distribution. The system now has 1.6 million subscribers who withdraw and pay money through retail outlets that are able to provide banking services without brick-and-mortar banks in place. The system also includes inter- active voice recognition, presenting new opportunities for the extensive population of Afghanis who are illiterate. Police in Wardak province, Afghanistan were used to earning a salary of 1,500 afghanis per month; however, once the police started picking up their salaries from M-PAISA, they started receiving 3,500 afghanis. The policemen subsequently discovered that they had not once received their true salary and in fact didn’t even know what it was. Just as important, the technology also assures their safety and ability to physically deposit the money. In the early days, the police were followed when they went to pick up their paycheck, but now, because there are cash points throughout the country, they can travel to more remote loca- tions where they can’t be followed. M-PAISA is modeled on a similar and successful program in Kenya, M-PESA. M-PESA was launched in 2007 by Safaricom of Kenya, and by 2009 the program had 7 million users. Originally, male, urban migrants sending money home to their rural families used the service most, but now it is used for sending tuition and even paying taxes. In total, around 130 billion Kenya shillings ($1.7 billion) is transferred, and around 150 million Kenyan shilling ($1.96 million) is transferred daily. —From The Role of the Private Sector in Fragile and Conflict-Afflicted States, July 2010, updated April 2011. IFC | 75 a Providing opportunities for all in a post-conflict environment In many parts of the world, losing a job means more than losing income. Unemployment can sever economic and social ties, breed mistrust, and damage people’s sense of com- munity and hope for the future. Young people in particular may turn to gangs or other violent groups to compensate for the lack of ties in economic and social life. These effects are magnified in societies undergoing reconstruction because the lack of jobs among dislocated populations, including migrants, refugees, and displaced persons, can be particularly disorienting. It can influence status and identity, especially for migrants who had better or more prestigious jobs in their places of origin. The social effects of unemployment among dislocated populations may be especially isolating for people lack- ing family or other ties in their new communities. It can have implications for psycho- logical well-being, as well as the ability to participate in civil society. Even migrants who find work may be vulnerable if their jobs do not provide adequate channels to integrate within the new society or if the migrants lack voice or information about their rights. Following are two innovative back-to-work projects that succeeded in post-conflict states. Photo © DFID 76 | IFC.ORG/HANDSHAKE REINTEGRATION work Public works at Northern Uganda Sri Lanka’s Northern Province Two decades of insurgency, instability, and In Sri Lanka, a cash-for-work program initially conflict led to high rates of poverty in north- established to resettle 100,000 returnees fol- ern Uganda. By 2005, a measure of peace and lowing internal conflict actually assisted more stability had returned to the region, allowing for than 250,000 returnees and quickly evolved into the demobilization and reintegration of former one of the largest sources of employment in the combatants and other war-affected populations. Northern Province. In 2006, the government launched the Youth Participants noted that in many cases the pro- Opportunities Program to stimulate income gen- gram meetings were the first community-level eration and employment growth among young gathering that they had attended after having adults ages 16 to 35. The program provided arrived from camps for internally displaced cash grants for vocational training and business populations. By many accounts, community materials to groups of participants with suc- meetings, shared meals, team work, and the cessful grant proposals. Groups had an average involvement of elders and children as indirect of 22 members, and most expressed interest in beneficiaries of the program promoted a sense of tailoring, carpentry, metal works, mechanics, or belonging among the newly resettled families. hairdressing. Thirty-six-year-old Sachchithananthan Subod- An evaluation two years after the intervention hini, from the Northern Province, said that she found increased investments in skills, participa- was “very happy. As a result of cash for work, the tion in skilled work, greater incomes, and higher whole village is working as one.� Reflecting on savings. Grantees were 4 percent more likely to her life journey since being displaced in 1995, attend community meetings and 9 percent more she said that the program “had helped to bring likely to be community mobilizers. Participants the community together... [T]he village seemed also reported receiving more social support from abandoned but the shramadana [volunteer work] their family and the community. Furthermore, helped to get the community back to its original men who received grants reported a 31 percent state.� decline in aggressive behavior relative to the control group. This finding is consistent with Sources: Blattman, Fiala, and Martinez 2011 (Northern theories that link aggression to stress levels, low Uganda); Andrews and Kryeziu 2012 for the World Develop- ment Report 2013 (Sri Lanka). social standing, and perceived injustice. IFC | 77 REINTEGRATION Photo © Arne H oe l/W orld Bank ON THE PUTTING BUSINESSWOMEN MAP Destruction, displacement, and loss of lives rural areas or move to the city, or to leave and livelihoods affect men and women camps and look for economic opportunities alike. But conflict often leaves women elsewhere. Providing women with access to to carry the double burden of economic information and with entry points to formal and familial responsibility in the absence and informal job networks are crucial steps of men who are imprisoned, disabled, or toward social and economic inclusion. The dead. While society reconstructs itself, these following lessons from societies undergoing women must make life-altering economic reconstruction can be applied in many areas decisions: to invest, to sell assets, to stay in of the world which are also in transition. FROM AFGHANISTAN The success of female entrepreneurs is essential for post-conflict economic stabilization and revival. Finan- cial institutions must tailor services to women and promote women’s access to finance. Women who can no longer rely on steady earnings from the male head of household during hardship must often make ends meet by engaging in informal micro-income-generating activities. First Microfinance Bank of Afghanistan (FMBA) demonstrated how banks can reach out to women in need of these micro-income loans when it developed a group lending product exclusively for women in 2006. The product targeted the increasing number of women in the labor force as a result of the conflict, as well as the increase in female-headed households. According to recent statistics, 16 percent of FMBA’s borrowers are women, many of them war widows. 78 | IFC.ORG/HANDSHAKE FROM LIBERIA FROM IRAQ An early gender-focused baseline survey can help government Women entrepreneurs can ben- formalize women’s participation in national reconstruc- efit from training and business tion efforts. In 2007, the World Bank Group surveyed the mentoring in safe environments barriers to enterprise formalization in Liberia. The survey that accommodate the challenges confirmed that women business owners are more likely than of physical access. In 2006, Iraq’s their male counterparts to own informal enterprises and that interim coalition government this was due in part to the unequal treatment of men and agreed to provide women with women during business registration. Following the survey, a quota of the contracts for the government recognized the need to address this inequal- reconstruction, which led to ity and identified business associations to disseminate a growth of women-owned information about formalization as a first step. small-and-medium enterprises. To provide entrepreneurship/ management training safely, additional transport and security costs were allocated FROM THE DEMOCRATIC REPUBLIC so that the Iraqi women could OF CONGO (DRC) be trained safely in Amman, Post-conflict legal reform initiatives may facilitate changes Jordan, in conjunction with the to existing gender-discriminatory legislation. In the DRC, Iraqi International Chamber of discriminatory provisions in the Family Code require Commerce and Industry and married women to obtain marital authorization to go to the Jordan Forum for Business court in a civil case, to buy and sell property, or to enter and Professional Women. into commercial obligations such as starting a business; banks generally also require co-signature or approval from husbands if women are to obtain loans. A Microfinance Law passed two years ago retains the need for spousal permission for married women to take out a microfinance loan. These are among the steepest obstacles women face in seeking access to finance. A new draft Family Code, which could remove these constraints, is expected to go before Adapted from “Creating Opportuni- the National Assembly for approval later this year. Other ties for Women Entrepreneurs in Conflict-Affected Countries,� an IFC potential reforms in the pipeline are a draft Labor Code that SmartLesson by Mark Blackden, Car- could remove provisions related to restricted working hours men Niethammer, and Henriette von for women. Kaltenborn-Stachau. IFC | 79 Photo © Gates Foundation Education under (re)construction By Peter Buckland Schools and education systems are invariably debili- • Financial resources to scale up programs tated by conflict. They are left weakened, damaged, that work and ensure these reach the service and underresourced at precisely the time when com- delivery level. munities, governments, and international agencies • A relentless focus on results. need them to help rebuild and transform themselves and the societies they serve. This twin mandate of All this must be achieved in a context where reform and reconstruction offers both significant political authority and civil administration are opportunities and enormous challenges to societies often weakened, compromised, or inexperienced; emerging from conflict. Research and experience where civil society is in disarray, deeply divided, demonstrates that certain approaches, such as those and more familiar with the politics of opposi- below, often lead to long-term success. tion than reconstruction; and where financial resources are constrained and unpredictable. Post-conflict reconstruction of the education Yet each of these constraints also contains pos- sector faces challenges that are complicated by an sibilities. Most notably, new political authorities added sense of urgency following the debilitat- are more likely to seek education reform to ing aftereffects of war. Four factors are critical to distance themselves from the previous regime, the success of rebuilding the education sector in particularly where international aid provides postconflict societies: additional incentives. • Sound policies and committed leadership at the country level. Capitalizing on reform efforts • Adequate operational capacity at all levels, Civil society often focuses on education as a key including capacity of communities to partici- strategy around which it can coalesce for reform, pate effectively, with the right incentives. and the publicity around the end of conflict 80 | IFC.ORG/HANDSHAKE REINTEGRATION Teachers, & often attracts an injection of resources that can help to kickstart this reform. However, when the demands on an reform, education system outstrip its capacity to deliver, the question of priorities looms reconstruction large. In facing challenges on all fronts, Teachers are the most critical resource in educa- where does one begin? Here are the tion reconstruction. During early reconstruction, most important starting points: many teachers return to their previous posts, along • Focus on the basics to get the system with members of communities who may have functioning so that the return of been involved in supporting education during the children and youth to school can conflict. The education system often offers the first be seen as an early “peace dividend� opportunities for public sector employment, but at that will help to shore up support for the same time, many qualified teachers are attracted continued security. to opportunities in the new bureaucracy, and in the • Acknowledge the importance of international agencies and NGOs. This often results symbolism in education and ensure in a shortage of qualified teachers accompanied by some bold symbolic actions (such oversupply of underqualified or unqualified teach- as purging textbooks). This signals ers in early reconstruction. that, while much about the system Teacher development and training, usually remains unchanged, reform has neglected during conflict, creates particular chal- started. lenges for post-conflict reconstruction as the system • Build recognition that reform of has to respond to the training backlog, an influx education is an incremental, of untrained teachers, and limited capacity of the ongoing process that takes decades central authorities to coordinate the wide range and must be led from within the of private and donor-sponsored training initia- country as consensus develops on tives. The greatest challenge for new authorities society’s wider development vision. is to coordinate this energy into a more coherent teacher development program without stifling it • Focus from the beginning on with bureaucratic controls. Teacher organizations, building capacity for reform, which which often have the potential to obstruct reform, includes supporting the participation can play a significant positive role in supporting of communities, local authorities, reconstruction. The key appears to be in early and other stakeholders. involvement and ongoing dialogue. Adapted from Reshaping the Future: Education and Postconflict Reconstruction, The World Bank, 2005 IFC | 81 The Hon. Melanne Verveer was the U.S. Ambassador-at-Large for Global Women’s Issues until early 2013, coordinating foreign policy issues and activities relating to the political, economic, and social advancement of women around the world. Prior to that, Verveer served as chair and co-CEO of Vital Voices Global Partnership. Verveer previ- ously served in the Clinton administration as Assistant to the President and also advised then-First Lady Hillary Rodham Clinton on women’s rights, democracy, and peacebuilding initiatives. Verveer is now the director of Georgetown University’s new Georgetown Institute for Women, Peace and Security, which examines the impact of women’s participation in resolving conflict, mitigating state fail- ure and humanitarian disasters, and shaping major political transitions. Here, she talks to Handshake about women’s role in post- conflict settings. pportunity AMBASSADOR OF Photo © Phil Humnicky/Georgetown University 82 | IFC.ORG/HANDSHAKE INTERVIEW What are the issues that matter to people whose countries are transitioning out of conflict? I remember traveling to Bosnia with Hillary Clinton when she was First Lady, at a time the conflict there was still far from being resolved. What stayed with me was her comment that “This place will not work if they don’t meet the dire economic needs of the people.� It’s the economic piece that matters. That’s not “humanitarian.� Humanitarian goals are important; relief is important. But you’ve got to start reconstruction by creating the mechanisms to have sustainable economic opportunity. What are the differences in barriers to women entrepreneurs in developing countries versus the barriers in post- conflict countries? The degree of obstacle is heightened signifi- cantly in post-conflict countries. We know that the usual, documented obstacles have to do with capital, markets, the capacity of training and mentoring, networks— the opportunities to engage. Often there are also discriminatory laws shutting out women. What is a problem in the developed country is magnified in a post-conflict setting. By Alison Buckholtz & Carmen Niethammer IFC | 83 How are the specific needs of What is the role of women in women entrepreneurs in post-con- peacemaking? flict countries generally addressed? It’s been nowhere near where it should be. Security Council Resolution 1325 has hardly The issues articulated by women entrepreneurs fulfilled its potential if you look at the sorry are rarely on the agenda in post-conflict nations. record of how many women have been engaged It’s an afterthought. But women-owned small- in peace processes. If there is a process going and-medium enterprises must be a part of the on where citizens are writing a constitution, solution in order to prevent recidivism—because developing government, creating laws for how there will be recurring conflict if you don’t the society can succeed, then they must take address this issue. When I look at the peace into account the issues that women know must agreements that have been made and how many be addressed—their everyday realities which are break down after the first five years, I see that required for economic stability and opportunity. this is a common thread that’s missing in this If these economic issues are not factored into a configuration. The more you’re involved, the peace agreement, it’s bound to be inadequate. more you see it. A good example is the process of ending the civil war in Angola. Negotiators were all male, Where have you seen women’s access and their talks on de-mining were all focused on to finance making a difference? roads—not forests, not fields, not wells, which is where the women and children were, where the It was especially clear when I was traveling activity of daily life took place, and where there with Secretary Clinton during her time as First is potential for future economic opportunity. Lady—we went to the Former Soviet Union Without the perspective of women as part of the when the massive political transformation was peace process, the outcome will be shortchanged occurring. We can see the same dynamic now in dramatically. the Arab Spring countries. Had it not been for microcredit in the FSU, providing an income to female doctors and teachers who weren’t being How do partnerships play into the paid and had to find alternative sources—along economic progress of a post-conflict with women entrepreneurs who were able to start businesses to keep their families afloat— nation? they all told us they would have been in even The private sector is about profitability, and the worse shape. So, there is a clear and obvious role companies involved can also be extraordinary for the private sector and our challenge is to get partners in terms of the social value. I want to the private sector engaged in ways that it can see explore this more for women in post-conflict the opportunity for itself. nations, and figure out how to make this work. 84 | IFC.ORG/HANDSHAKE To the extent that these new private initiatives succeed—like the women’s economic empowerment initiatives of Wal-Mart, Bank Coca Cola, Marriott, or technology companies working to orld close the gap—we all succeed. We need these synergies. ra/W At the State Department, Secretary Clinton was a huge adaja champion of public-private partnerships. Because as she said, no one of us has all of the competencies required; mN we each have different competencies. No one of us has ksha all the resources, but we can tap resources, leverage © La skills, and work together. o Phot You recently transitioned from “ the U.S. Ambassador-at-Large The private sector is for Global Women’s Issues to about profitability, and heading the new Women, the companies involved Peace and Security Institute can also be extraordinary at Georgetown University. partners in terms of the What’s next for you in this role? It’s imperative for us to contribute to social value. � data, research, and scholarship on women, peace, and security that shows that countries can transition to stability because of economic empowerment and financial tools for women. The only thing that you can sell is proof. Bankld Wor ogg/ hn H © Jo o Phot IFC | 85 FAST FACTS 25% 30% of the world of people in conflict is affected by countries live on $1 violent conflict. per day. $ The annual global cost of conflict is estimated at $100,000,000,000 The average cost per civil 30 YEARS war is roughly equal to 30 years of a country’s GDP. Numbers of refu- gees and internally displaced people have tripled in the last 30 years. By 2025, 82% of the global poor will live in fragile states. Sources: Global Poverty Project, Overseas Development Institute, and the World Bank. 86 | IFC.ORG/HANDSHAKE “ Peace hath her victories No less renowned than war. � —John Milton, “To the Lord General Cromwell� May 1652 IFC | 87 Subscribe: ifc.org/handshake Connect with us: facebook.com/ifcinfrastructure twitter.com/ifc_advisory scribd.com/ifcppp handshake@ifc.org April 2013