TRADE, INVESTMENT AND COMPETITIVENESS TRADE, INVESTMENT AND COMPETITIVENESS EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Business Environment Reforms in Fragile and Conflict-Affected Situations What Works and Why? Tania Ghossein and Ahmed Nauraiz Rana Business Environment Reforms in Fragile and Conflict-Affected Situations What Works and Why? Authors Tania Ghossein, Senior Private Sector Specialist Ahmed Nauraiz Rana, Consultant–Economist © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. >>> Contents Acknowledgments v Acronyms and Abbreviations vi Executive Summary 1 1. Introduction 3 2. Characteristics and Drivers of Fragile and 7 Conflict-Affected Situations 2.1 Violence and Subnational Conflicts 11 2.2 Poverty and Lack of Economic Inclusion 12 2.2.1 Gender Inequality 12 3. Private Sector Development in FCS 13 3.0.1 Environment Reforms 14 3.0.2 Foreign and Local Investment in FCS 14 3.1 Barriers to Private Sector Development 16 3.1.1 Operational Challenges for the Implementation 17 of BER Programs 3.1.2 Challenges to Business Environment Reform 19 and Implementation 4. Business Environment Reform Interventions in Fragile 21 and Conflict-Affected Situations 4.1 How to Implement BER 22 4.1.1 Keep the Project Design Simple and Accept Higher 22 Costs and Longer Timelines 4.1.2 Understand Local Context 23 4.1.3 Focus on Fundamental Interventions First 23 4.1.4 Implement BER Programs in a Cluster 24 4.1.5 Ensure Government Buy-in 24 4.2 Elements to Consider for BER in FCS 25 4.2.1 Undertake an In-Depth Assessment of Business Environment Constraints (by Leveraging 25 Specific Data) 4.2.2 Accept the Limitation(s) of Traditional Approaches 25 to BER 4.2.3 Leverage ICT for Regulatory Design, Implementation, 26 and Monitoring & Evaluation (M&E) 4.2.4 Encourage Formalization and Supporting 27 Subsistence Firms 4.3 Business Environment Reform Themes in an FCS Context 28 4.3.1 Public-Private Dialogue 28 4.3.2 Reform Governance 29 4.3.3 Elite Capture and Leveling the Playing Field 30 4.3.4 Gender-Specific Interventions 32 5. Country Case Studies 34 Business Environment Reforms in FCS: Somalia 35 Business Environment Reforms in FCS: Nigeria 37 Business Environment Reforms in FCS: Lebanon 40 Business Environment Reforms in FCS: West Bank and 43 Gaza Territories 6. Conclusion 47 Endnotes 48 >>> Acknowledgments This note was prepared by Tania Ghossein and Ahmed Nauraiz Rana under the technical guidance of Sylvia Solf (Global Lead–Business Regulation) and Asya Akhlaque (Practice Manager, Investment Climate Unit). The team is grateful for the contribution and inputs from Andreja Marusic, Aris Molfetas-Lygkiaris, and Iulia Cojocaru (Country Case Study–West Bank and Gaza territories), Lars Grava and Taneem Ahad (Country Case Study–Somalia), Nneka Ekwuozor (Country Case Study–Nigeria), Goran Vranic (Regulatory Technology), Gharam Alkastalani Dexter, and Souad Adnane (Gender Equity). The note benefited from the constructive comments of the following peer reviewers: Alessio Zanelli (Senior Private Sector Specialist), Besart Avdiu (Economist), Joanna Kata-Blackman (Global Lead for Fragile Countries, International Finance Corporation), and Nadia Fernanda Piffaretti (Senior Economist). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< v >>> Acronyms and Abbreviations BER Business environment reforms CAMA Companies and Allied Matters Act DFIs Development finance institutions EBES Enabling Business Environment Secretariat FCS Fragility and conflict-affected situations FCV Fragility, conflict and violence GDP Gross domestic product GIC Global investment competitiveness GIS Geographic Information Systems GNI Gross national income GVCs Global value chains G2B Government to business IBEP Improving Business Environment Program ICT Information and communication technology IEG Independent Evaluation Group IFC International Finance Corporation IFI International financial institution MDA Ministries, departments, and agencies MNC Multinational corporation MoCI Ministry of Commerce and Industry MSMEs Micro, small, and medium enterprises M&E Monitoring and evaluation NAFDAC National Agency for Food and Drug Administration and Control PPD Public-private dialogue RegTech Regulatory technology EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< vi RRA Risk and resilience assessments SDGs Sustainable Development Goals SMEs Small and medium enterprises SOE State-owned enterprise SON Standard Organization of Nigeria (SON) WBG World Bank Group WEF World Economic Forum EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< vii Executive Summary Currently, 39 fragile states have been classified by the World business environment that is predictable and transparent and Bank as “countries with high levels of institutional and social serves to protect public goods such as health, safety, and the fragility” and/or “affected by violent conflict.” They are inhab- environment. Generally, sound business regulations, policies, ited by almost one billion people, 335 million of whom live in and related institutions that facilitate new entry, growth, and extreme poverty.1 Of deep concern is that the number of fragil- exit create a level playing field for all market actors and pro- ity and conflict-affected situations (FCS) is on the rise today. mote dynamic contestable markets. Rule of law, strong institu- In all likelihood, some FCS economies will plunge further into tions, and secure contractual and property rights encourage conflict, while other economies currently not in FCS will erupt investment. A favorable business environment is particularly into conflict of different types, including both interstate conflict important in fragile contexts, where the private sector plays (such as the one ongoing between Ukraine and Russia), and a critical role in transitioning countries out of fragility. A favor- conflict within a country or subnational region(s). able business environment is also instrumental in contributing to longer-term resilience against shocks and fosters stronger Economies suffering from fragility, conflict, and violencea economic bounce-backs as countries transition out of fragility. (three distinct yet interconnected elements of FCS) confront intractable poverty and faltering growth — missing out on Business environment reforms (BER), whether regulatory, in- development objectives by significant margins. As the pov- stitutional, or administrative, aim to improve the overall regula- erty rate in FCS has increased, the number of poor people in tory quality and effectiveness of the business environment by those economies has increased from 180 million to nearly 300 removing barriers to entry and operation, reducing procedural million2 — almost at par with the number of poor in non-FCS complexities, and improving economic governance. However, economies (who constitute 90 percent of the global popula- the success of such reform projects in an FCS country de- tion). It is estimated that, by 2030, two-thirds of the global poor pends not only on the type of reform and/or intervention, but will be concentrated in fragile states. also on the manner in which the reforms are designed and employed and the differences in political economy, stability, This means that ending extreme poverty requires accelerat- and security across FCS countries. ing gains where poverty has been most intractable: in fragility and conflict-affected situations. By definition, the economies This study seeks to identify and present the types of, and ways concerned are often characterized by weak institutions and in which, BER can contribute toward building resilient societ- political instability and lower levels of private sector develop- ies and private sector development in countries and subna- ment to promote business-led growth. FCS economies require tional regions grappling with fragility, conflict, and violence. significant reforms to policy and delivery mechanisms along It draws on lessons learned from the World Bank’s business multiple dimensions to achieve growth and poverty reduction. regulation–related engagements in Lebanon, Nigeria, Soma- lia, and the West Bank and Gaza (all incorporated as country The private sector can serve as a counteracting force to fragil- case studies), and complements these lessons with in-depth ity and conflict and help to reverse their economic impacts. review of the literature, including existing project reports, such However, the private sector in FCS economies tends to be as those by International Finance Corporation (IFC) and the small and underdeveloped. Private sector development is also Independent Evaluation Group (IEG), evaluating business en- made difficult by lack of institutional capacity (and sometimes vironment reforms undertaken in FCS countries. The findings willingness), political instability, weak enabling environments, and recommendations of this study can be leveraged by policy and lack of domestic and foreign direct investment (FDI) due makers and development practitioners to design and imple- to negative perceptions, in addition to myriad operational fac- ment BERs that target FCS economies. tors (such as lack of human and/or capital resources). The following recommendations on how to implement busi- The private sector can be supported in reaching its full poten- ness environment reforms in FCS contexts can be considered tial for growth and job creation by putting in place an enabling by policy makers as well as by the donor community: a. The World Bank Group’s list of fragility and conflict-affected situations (FCS) captures countries affected by fragility and conflict, but not by violence (i.e., by violence only). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 1 1. Investigate the local context to develop an understanding 3. Leverage information and communication technology of the major driver(s) of fragility, leveraging tools such (ICT) to enact BER, and employ monitoring and as conflict-sensitivity assessments, political economy evaluation (M&E). analysis, do-no-harm frameworks, and risk and resilience assessments (RRAs). 4. Encourage formalization and support for subsistence firms to build greater competitiveness in the economy. 2. Focus on fundamental interventions first, such as improving G2B services by putting in place more efficient And finally, the report identifies the following reform themes and transparent company registries, land registries, for strengthening business environment reforms in FCS coun- conflict resolution mechanisms, etc. tries and/or subnationalb regions: 3. Implement business environment reforms in a cluster 1. Employ Public-Private Dialogue (PPD) to build trust and in close succession to build (and leverage) trust in between different stakeholders and ensure support for the government. meaningful and sustainable reforms. 4. Factor in (and accept) higher costs and longer timelines 2. Develop institutional frameworks (such as those for BER. that improve cross-institutional coordination, remove bureaucratic redundancies, and ensure greater 5. Ensure government ownership and align projects with accountability and transparency) and focus on national priorities. strengthening institutions (improving governance and service delivery). Additional efforts to consider during the design and implemen- tation of BER include: 3. Focus on competition-enhancing reforms that can serve to counteract elite capture and improve the level playing 1. Undertake an in-depth assessment of business field for private sector operators. (To avoid risks of environment constraints — going beyond tools and instability, such reforms should take into account causes diagnostics that may work well in non-FCS settings — and drivers of fragility and be informed by RRAs and and leverage innovative techniques and approaches to other available diagnostics.) collecting data, such as mobile phone surveys, geospatial imaging, etc. 4. Design and implement gender-specific interventions, given that women are affected disproportionately by 2. Accept the limitations of traditional approaches conflict-related violence and its aftermath. to BER, given the heterogeneity across FCS and non-FCS countries. b. Such as microenterprises without the capacity to formalize. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 2 1. >>> Introduction A fragile and conflict-affected situation (FCS) is a major threat to sustainable growth, leav- ing low- and middle-income countries prone to a cycle of fragility. Preventing and mitigating the challenges associated with FCS is central to achieving the Sustainable Development Goals (SDGs) and the World Bank Group’s (WBG) twin goals of ending extreme poverty and promoting shared prosperity. A state of fragility is characterized by deep governance issues and institutional weakness, and violent conflict is characterized by active conflict culminating in loss of life. Economies in FCS suffer high poverty rates and have difficulty reducing them. Deteriorating macroeconomic condi- tions, such as high rates of inflation or unemployment, tend to signal the impact of fragility on a broader economic scale. Similarly, a weak private sector — a product of continued fragility and conflict — signals a deteriorating (or non-conducive) business enabling environment. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 3 The incidence of FCS has only increased in recent years, and private sector-led growth and development can help reverse that trend is expected to continue. Old conflicts remain un- the economic impact of the COVID-19 pandemic and serve resolved, while new ones continue to erupt, such as the one as a counteracting force to increasing fragility, conflict, and now ongoing between Russia and Ukraine. By 2030, about violence. However, the private sector in most FCS economies two-thirds of the world’s poor will be concentrated in fragile is weak and underdeveloped, dominated by the presence of states, as illustrated in Figure 1.3,c Despite the unique differ- state-owned enterprises (SOEs) and high informality. ences with respect to local and or regional contexts, states en- gulfed in environments of fragility, conflict, or violence tend to The challenges faced by the private sector are much ampli- exhibit common characteristics that include, but are not limited fied in FCS as compared to countries or regions classified to, the following:4 as non-FCS. These challenges include — among others — limited investment inflows; lack of investor and entrepreneur • Social conflict and excluded groups confidence; a non-conducive investment climate, including • Poor institutions and services weak institutional capacity; and volatile and highly uncertain • Inadequate infrastructure and government and environments. Operating in an environment of fragility and firm capabilities conflict, private sector firms tend to struggle and underper- • Environmental and social issues form, often at times downsizing and reducing the number of • Limited and undiversified private sectors employees and thus further exacerbating economic instability. • Low levels of trade and per capita incomed FCS economies also tend to suffer from misallocation of la- bor across firms and away from production to protection. The COVID-19 has further exacerbated fragility both directly and loss due to protection efforts is substantial, and patterns of by worsening other conditions that tend to aggravate fragil- state protection at the micro-level can profoundly impact ag- ity and conflict. Amplifying the pressure on already-stressed gregate output losses. Lebanon, for instance, a country cur- health systems, the COVID-19 crisis has deepened economic rently amid one of its worst economic crises since the nine- fragilities, leading countries to experience their worst reces- teenth century, experienced a drop of 11.1 percent in firms’ sions in five decades. The World Bank estimates that the CO- real sales and a drop of almost 4 percent in employment an- VID-19 crisis has pushed an additional 18 to 29 million people nually between 2016 and 2019. The persistent state, regional, living under FCS into extreme poverty,5 owing to supply-chain and national conflict, together with high levels of institutional disruptions, permanent business closures, and layoffs, among fragility, are considered among the major causes of Lebanon’s other reasons. In light of existing and evolving conditions, economic situation. c. The estimate underlying this statement preceded the Ukraine-Russian conflict. d. It is imperative to note that fragility and violent conflict have also been increasing in middle-income countries and are not exclusive to low-income or poor countries. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 4 > > > F I G U R E 1 - Global Population Living Under FCS a . P O V E R T Y R AT E S 40 37% 30 Poverty rate (%) 20 10 5% 3 0 2000 2010 2020 2030 Economies in FCS Other economies b. MILLIONS OF POOR 1,500 Millions of poor 1,000 500 323 293 0 2000 2010 2020 2030 Economies in FCS Other economies Source: World Bank 2020.6 EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 5 Governments across majority FCS economies lack the capacity ventions to provide direct support to vulnerable firms in a fragile (and in many instances, the legitimacy) to deliver the jobs, effec- context and/or humanitarian assistance. Rather, business envi- tive public services, and opportunities that firms and individuals ronment reforms (BER) complements those efforts by support- need. This makes it challenging for the private sector to reach its ing long-term, sustainable success. This study focuses on the full potential for growth and job creation. Therefore, among other design and implementation of business environment reforms in interventions to strengthen the private sector, such as develop- the context of FCS economies and seeks to answer how such ing the financial sector or promoting sustainable infrastructure, reforms can contribute to the building of stable and resilient soci- creating an enabling environment — characterized by a predict- eties by helping to develop a vibrant private sector. Furthermore, able and transparent regulatory environment, good governance, this study focuses on lessons learned with respect to the WBG’s a diversified economy, accountability, and low levels of corruption business regulation–related engagements in Lebanon, Nigeria, — can support business-led growth and serve to help break free Somalia, and the West Bank and Gaza. It aims to leverage these from the “fragility trap.”7 Additionally, given the lack of governance lessons to better identify solutions and reforms that have worked and institutional capability and structures, building trust, security, in FCS and to distill trends, factors, and recommendations for and strong institutions serves to ensure long-term stability. more impactful business regulatory reforms that can be lever- aged by policy makers and development practitioners. It is imperative to note that business environment reforms do not substitute for interventions at the micro-level, especially inter- EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 6 2. >>> Characteristics and Drivers of Fragile and Conflict-Affected Situations Globally, more violent conflicts are currently taking place than at any time in the past 30 years.8 Simultaneously, the world is facing the largest forced displacement crisis ever recorded, with more than six million forced to flee their homes in recent weeks due to the Ukraine-Russia conflict.9 Rising inequality, lack of resources and economic opportunities, discrimination, and exclusion are fueling grievances and perceptions of injustice. Climate change, demographic change, migration, digital transformation, illicit financial flows, and violent extremism are often interconnected, with effects that transcend borders.10 These factors can increase vulnerability to shocks and crises and create regional spillovers. They can cause lasting and devastating impacts — especially for women, children, youth, and people with disabilities — that are likely to be felt for generations. In view of such adverse and deteriorating circumstances, FCS tend to suffer negative and lasting economic ramifications that can even outlive the conflict situa- tions and that in many instances erode the progress made toward socioeconomic growth and eradicating poverty. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 7 Causes of fragility and conflict are deep-rooted and the result The risks facing the private sector also vary across FCS of tensions that evolve over years, decades, and sometimes economies, affecting not only investors’ decisions but also the even generations. Often, however, the economic impact is scope and depth of necessary business environment reforms. sudden and triggers a multitude of social and political prob- Along the so-called fragility chain, conflict-affected situations lems. The nature of FCS varies across countries (or subna- include territories under severe risk of conflict, others experi- tional regions) and is driven by distinct factors such as eth- encing active conflicts, and states in post-conflict transitions.11 nic fractions, long periods of economic turmoil, and modes of Some drivers of fragility and conflict are more prominent than governance (such as authoritarianism or military rule), among others and tend to exacerbate underlying issues more aggres- others. Policy makers must therefore be aware of these dis- sively and actively, as captured in the following subsections. tinct factors and characteristics when designing policy inter- ventions. A conflict situation arising from ethnic fractions, for It is important to note that many of these issues are both instance, may require efforts to establish trust between stake- causes and effects of FCS, such that they can interchange- holders before any actionable solution can be implemented. ably be considered drivers as well as characterizing features of fragility and conflict. To help differentiate the approaches, Policies and reforms — including those focused on creating policies, and instruments that may be adopted when pursu- and improving the business enabling environment — should ing engagements in FCS, distinctions between countries can incorporate tools such as conflict sensitivity (Box 1) and po- be made based on the nature and severity of the issues they litical economy analysis (Box 2) to understand and identify face. Countries (or subnational regions) with weak institutions the context of fragility. By doing so, development practitioners and/or governments tend to amplify the grounds for institu- and agencies can create reforms that target sociocultural con- tional and social fragility. straints, address challenges to private sector development, and influence the behavior of public and private stakehold- ers (such as government and business entities) to accept and comply with (newly introduced) business regulations. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 8 > > > B O X 1 - What Is Conflict Sensitivity?12 Conflict sensitivity is an approach adopted to ensure that the designed intervention mitigates unintended negative effects and does not contribute to the conflict, but rather strengthens the possibility for peace and stability. It is an overall ap- proach that is employed at all stages of design and implementation to understand and identify how an intervention could affect the context in which it is implemented. Conflict sensitivity assessment considers the two-way interaction between an intervention and the context and uses the findings to leverage adjustments that ensure the intervention “does no harm.” The approach encompasses the following: 1. Understanding the conflict and context, including conflict actors, key driving issues, and dynamics. 2. Understanding the interaction between the key elements of the reform/intervention and the key elements of conflict (context). 3. Adapting and creating strategic choices (including management and coordination decisions) during various stages of the reform/intervention. Other instruments Organization Conflict (context) factors Program/ Project Step 3: Step 1: Project/program Understanding options and the conflict adaptations context Actors Partners/ Stakeholders Step 2: Understanding the interaction between the program/project and the conflict Partners/ Project Cycle Organization Stakeholders Management Program/Project EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 9 > > > B O X 2 - What Is Political Economy Analysis (PEA)?13 Crucial factors for determining whether reforms/interventions are successful is how incentives and constraints shape the willingness and ability of national or local elites to act in pursuit of development goals. Political incentives are frequently at odds with a technocratic approach to development. Given this challenge, the need arises to better understand stakeholder incentives and answer questions such as “What is blocking reforms in other places, and what could be done about it?” The premise of PEA for development effectiveness is that it is important to understand how political incentives shape decisions and to build an awareness of political constraints — as well as opportunities — into advice and development engagement. Political economy analysis (PEA) helps complement the design and implementation of a reform/intervention by clarifying and presenting the prevailing political and economic processes in the society — specifically, the incentives, relationships, and distribution and contestation of power between different groups and individuals. PEA can support politically feasible and therefore more effective reforms by setting realistic expectations of what can be achieved, over what timescale, and the risks involved. As the figure below illustrates, the PEA approach broadly comprises three steps: 1. Identifying a specific development challenge that requires technical analysis and engagement. 2. Analyzing why the observed, dysfunctional patterns are present, that is, identifying the political economy drivers. 3. Identifying ways forward, including how to initiate change (given the political economy constraints). The problem or issue for which a solution is being sought Structural factors Technical and economic Institutions Political economy analysis of feasible (formal and informal) analysis focused on solutions Stakeholder interests, constellations, and power Implications: What can best be done to “make reforms happen” or to find a solution that delivers progress? Implementing the identified approach Source: Based on Fritz, Kaiser, and Levy 2009. Note: This figure is an amended version of the three-layer approach proposed in their 2009 Good Practice Framework (see Fritz, Kaiser, and Levy 2009, 7). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 10 Fragility is strongly associated with governments’ failure to ful- pacity, regular elections, and capable security forces. Armed fill the basic needs of their citizens — whether through lack conflicts and high levels of interpersonal violence heighten vul- of capacity or by intent. This further amplifies the potential for nerabilities, including gender-based violence, food insecurity, adverse outcomes due to the absence of fundamental struc- and forced displacement. tures that ensure stability. Over the past decade, nearly 30 countries have shown chronic fragility — the majority of them Since World War II, interstate conflict has fallen sharply, but being low-income countries. Where institutions and govern- intrastate conflicts and interpersonal violence have risen.14 ments are weak and unable to manage the stresses or absorb Despite fewer wars between nations, global safety and se- economic shocks (such as that caused by the ongoing CO- curity indicators have deteriorated over the past decade.15 In VID-19 pandemic), risks to the stability of states and societies many FCS, poverty rates appear to be rising, stagnating, or at often increase. best declining slowly. And the conditions of FCS are spread- ing, casting their shadow over a growing number of countries and an increasing share of the global population. The number 2.1 Violence and Subnational of people living in close proximity to conflict zones has more than doubled in the past decade (Figure 2), driven by wars in Conflicts Syria, Ukraine, and Yemen that alone have affected millions of people. The proliferation of non-state armed groups, globally, is linked The World Development Report (WDR) 2011 on Conflict, Se- to the rise in interstate conflicts, which many times transform curity, and Development advocates prioritizing “ending and into extreme violence. In the last decade, the number of major preventing violence” as the main impact that all interventions in violent conflict events has tripled globally. Findings reveal that fragile and conflict-affected situations should aim to achieve.16 violent conflicts span country income levels, highlighting that Armed by research and analysis, WDR 2011 identified three violence is not a problem faced only by low-income countries. key outcomes as essential to achieving this ultimate objective: Many of the current subnational conflicts are taking place in security, justice, and jobs. middle-income countries with relatively strong institutional ca- > > > F I G U R E 2 - The World’s Populations Living in Proximity to Conflict Deaths Has Doubled in 10 Yearse M I L L I O N S O F P E O P L E L I V I N G I N P R O X I M I T Y T O C O N F L I C T, 2 0 0 7 - 1 7 250 220 200 Millions of people 150 100 99 50 0 2007 2009 2011 2013 2015 2017 Source: UCDP 2019; LandScan 2012. e. The figure shows the world’s population living within 60 kilometers of a major conflict event, defined as 25 or more battle-related deaths in the year in question. In relative terms, the share of the world’s population living in close proximity to conflict has increased from 1.5 percent in 2007 to 3.0 percent in 2017. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 11 2.2 Poverty and Lack of Economic Inclusion Poverty levels often coincide with the presence of fragility 2.2.1 Gender Inequality and conflict. There is significant overlap between low-income Gender inequality constitutes another indicator of lack of social countries and countries categorized as facing FCVf (fragility, inclusion and is an aggravating factor in fragile situations. conflict, and violence), with almost 70 percent of low-income Gender inequality tends to be magnified under FCS, where countries classified as FCV by the World Bank. In addition regressive gender norms, including patriarchal structures to being a direct or sometimes indirect function of poverty, (such as workplace biases) and a higher risk of gender-based different forms of FCS are increasingly linked to lack of political violence, including sexual exploitation and abuse, combine and economic inclusion and equality as well as grievances with lack of access to health, education, and employment. Only and perceptions of injustice — all factors that also tend to four out of ten women in settings marked by fragility, conflict, dampen a country’s investment climate. FCS countries are and/or violence are in formal employment, a figure that drops often characterized by societal divisions and skewed power to two in ten in protracted conflicts,19 leaving the majority of structures. As a result, socioeconomic dividends are not women more vulnerable to economic hardship and excluded equally distributed among all segments of the population. from social protection measures targeted at workers. Lack of economic opportunities, high unemployment, and In addition to the common issues regarding the gender impacts a weak business enabling environment all feed into FCS, of conflicts, specific characteristics in different countries exacerbating other FCS drivers as well. Poverty, among other affect the overlap of conflict and gender dimensions. In Sri factors, is increasingly linked to FCS, due to insecurity and Lanka, for instance, the majority of the approximately 90,00020 lack of institutional capacity.17 Government institutions may not war widows in the north and east remain without access to be able to provide adequate services, and informal institutions adequate resources, housing, or vocational skills, and they — often non-inclusive, i.e., available only to certain segments are often denied land rights and exposed to sexual violence of society — may take a large role in managing daily life and and trafficking.21 commerce. Poverty is often substantial, and people lack formal employment, leading to the continuance and growth of Women-headed households in FCS are more vulnerable to the informal economy. economic shocks. Because the share of women-headed households tends to increase during violence and conflict, Even countries categorized as at risk of conflict suffer promoting economic opportunities for women is key. Findings substantial economic marginalization, political polarization, from focus group discussions in Indonesia (BRA-KDP project) and external stresses that heighten uncertainty and point suggest that women who head their households tend to be to the need to prevent conflict-related situations, including more engaged than other women in attending and actively by creating an enabling environment and by increasing participating in community meetings, since they are less likely investment. Poverty and inequality are also associated with to be represented by men. increases in a range of illicit activities, including trafficking, corruption, and illicit financial flows — all of which exacerbate FCV-related challenges.18 f. FCV is used by the World Bank Group to refer to conditions of fragility, conflict, and violence that affect countries and/or subnational areas. By contrast, FCS refers to countries or territories. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 12 3. >>> Private Sector Development in FCS The development of the private sector is key to helping FCS economies deal with the socioeconomic impacts of fragility, conflict, and violent and their adverse effects on development and poverty levels. The private sector is the engine for growth and employment and contributes to trust and stability by building functioning markets and trading relationships. A diverse and vibrant private sector also helps to embed greater resilience through sectoral diversification and value chain integration and greater inclusivity by adopting inclusive business models and improving access to goods, services, and markets for underserved groups or communities — thus helping to move the country toward shared prosperity.22 Inclusivity and shared prosperity can serve to heal tensions and/or avoid conflict outbreaks by mitigating grievances stemming from economic exclusion.23 It is imperative to recognize the diversity and range of interests in the private sector. Driven by incentives to optimize economic and financial gains, the private sector plays a leading role in healing or avoiding FCS by providing essential goods and services, such as food, medicine, and other basic supplies desperately needed in countries with limited economic activity, such as post-conflict or acutely low-income economies. Private financing enables critical infrastructure — such as roads, electricity, and sanitation —through public-private partnerships. The private sector also delivers a revenue stream (in the form of tax revenue generation) that subsequently enables the government to provide public services to its citizens. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 13 However, the private sector in most FCS is underdeveloped reforms help remediate key constraints faced by businesses due to instability, a weak enabling environment, and lack of throughout their life cycle and address gender gaps in local and foreign direct investment (FDI). Generally, the sector economic and property rights. comprises largely informal firms, with poor capabilities and lack of access to finance. It is often prey to elite capture and Business environment reforms help private enterprises (and constrained by lack of security and the rule of law — making broadly, the private sector) by (i) reducing business costs, (ii) the business environment unattractive for investment and or reducing risks and uncertainty, and (iii) increasing competitive entrepreneurial ventures. All of these factors imply that the pressures. However, private enterprises face severe conditions prospects for private sector or business-led growth are lower in fragile and conflict-affected situations, characterized as for countries and/or subnational areas under FCS. the “combination of exposure to risk (of negative events) and insufficient coping capacity of the state, system and/or Furthermore, state-owned enterprises (SOEs) tend to communities to manage, absorb or mitigate those risks.”27 dominate the business environment, and infrastructure Sound business regulations, policies, and related institutions and supply chains are typically inadequate in many FCS created in a manner that addresses the distinct challenges economies.24 The dominance of SOEs enables state capture in the context of the FCS, can facilitate new entry, growth, and creates an imbalance where certain social groups are and exit across distinct industries and sectors. Similarly, rule favored market actors. The presence of the state, through of law, strong institutions, and secure contractual and property SOEs, acts as a barrier to contestable markets and creates rights encourage investment. an unequal field for private businesses. Such a scenario tends to lower investment in productivity-enhancing economic Effective business regulations, therefore, promote activity and deters private sector development. Additionally, entrepreneurship, investment, and competitiveness and help as previously stated, FCS-affected institutions are typically address the country’s legal and institutional deficiencies. A weak and government capacity low, which implies a sub-par favorable business environment is particularly important in legal and regulatory framework. To this end, improving the fragile contexts where the private sector plays a critical role in investment climate and economic governance serve as an transitioning countries out of fragility.28 Business environment avenue for private sector development. reforms are advantageous in conflict settings because they aim to create a level playing field for all businesses (in contrast Economies in FCS tend to rank low in investment climate to selective promotional tools) and to promote dynamic, indicators, especially quality of infrastructure, market size, contestable markets.29 In a post-crisis context, a favorable and institutional trust.25 A difficult and unfavorable business business environment is also instrumental in helping firms environment, coupled with the increased risk profile of countries adjust, thus contributing to longer-term resilience to shocks engulfed in FCS, deter investment by both local and foreign and stronger economic bounce-backs.30 investors, as well as traditional lenders (primarily banks). To unlock private sector–led growth, it is therefore essential to 3.0.2 Foreign and Local Investment in FCS create a business environment that enables investees and Foreign investment in the form of loans or equity is an important entrepreneurs — across different size industries — to operate source of private sector growth in low- and middle-income effectively and securely. Jobs and private investment are countries. However, given the weak economic fundamentals much needed to ensure peace and stability in settings marred and the conditions of fragility, many international investors by conflict and violence.26 do not consider countries facing FCS to be viable hosts. In South Sudan, the inflow of foreign direct investment (FDI) as 3.0.1 Environment Reforms share of gross national income (GNI) was virtually zero until Business environment reforms are interventionsg that serve 2019,31 highlighting the difficulty and investors’ reluctance to to improve the overall regulatory quality and effectiveness invest in fragile and conflict-ridden states. It was only after of the business environment. These include addressing the ceasefire in 2018 that South Sudan received a new wave issues identified in firm surveys, such as the WBG enterprise of investments, but that was concentrated in the oil sector, surveys, and factors underlying country performance in global an often-seen trend: FDI concentrates in certain high-rent benchmarking products such as the Global Competitiveness sectors related to natural capital, which may not contribute Index or the Product Market Regulation Indicators. These much toward economic diversification or creation of a dynamic g. Interventions can be both micro or macro in nature. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 14 private sector. Also, it is imperative to note that overall, FCS rewards. Moreover, results of the 2019 Global Investment states receive just 1 percent of global FDI, or one-fifth of the Competitiveness (GIC) Survey show that investors rank global per capita average.32 a county’s legal and regulatory environment as one of the top three factors shaping investment decisions (Figure Investment opportunities in countries (or subnational areas) 3), confirming the importance to investors of transparent, engulfed in fragility and conflict are associated with existing predictable regulatory environments. Additionally, as business industrial structures, natural resources, skills, and government environment reforms inadvertently reduce business costs, capacity that enable the investment climate. Key elements of firms can increase profits, which may be further reinvested to business environment reforms should focus on reducing risks increase market share, output, and employment. to investors while maximizing investment opportunities and > > > F I G U R E 3 - The Legal and Regulatory Environment Is the Third Most Frequently Cited Investment Decision Factorh Question: How important were the following factors in your patent company’s decision to invest in this country? Political stability 49.4 34.9 Macroeconomic stability 49.0 34.9 35.7 Legal and regulatory environment 42.0 42.1 Talent and skills 41.5 43.5 Low taxes 41.3 35.5 Market size 39.3 42.6 Physical infrastructure 38.6 40.8 Ability to export 38.4 37.1 Intellectual property protections 35.4 35.4 Investor protections 34.5 37.5 Low labor and input costs 33.2 41.4 Supply chain coordination 30.1 44.2 Local input sourcing 26.6 42.2 Resource endownments 18.5 31.7 Local acquisition targets 14.4 35.6 0 20 40 60 80 100 Share of respondents (%) Critically important Important Source: Global Investment Competitiveness Report 2019/2020. h. Findings from the Global Investment Competitiveness report are not FCS specific. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 15 3.1 Barriers to Private Sector Development Promoting private sector development and private investment marked by fragility and conflict. Surveys that help develop in high-risk FCS remains a major challenge. Findings from and analyze the understanding of market conditions and the evaluations, such as those by the World Bank Group’s Inde- risks facing the private sector in fragile situations include, but pendent Evaluation Group (IEG), emphasize the challenges are not limited to, the World Bank Group’s Enterprise Sur- related to leveraging the private sector for sustainable develop- vey presenting country-specific data, including in some FCS ment in FCS countries, including investing in difficult operating countries, and the World Economic Forum’s (WEF) Executive environments with specific fragility risks (such as security and Opinion Survey. weak capacity of clients and governments), different charac- teristics of the private sectors and potential project sponsors, Drawing on survey results from the WEF Executive Opinion distinct features of investment opportunities, and higher costs Survey, Figure 4 maps average perceptions on the intensity of doing business. Additionally, key knowledge gaps remain of constraints (i.e., how disruptive market conditions can be concerning the approaches and instruments most effective in for business) and the difference in averages between FCS engaging the private sector in FCS countries. and non-FCS low-income countries to determine whether a problem is specific to FCS (i.e., whether the constraints are Several global data sources document what businesses specific to fragility and conflict or typical of the development and investors perceive to be the biggest obstacles hindering level). Judicial independence and property rights, for instance, market entry and business-led growth and investors’ ability are prominent institutional challenges to private sector devel- to expand investment in countries (or subnational regions) opment that are considered severe and specific to FCS. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 16 > > > F I G U R E 4 - Perceptions on Severity and FCS-Specificity of Challenges, 2018 5 4.5 4 3.5 3 2.5 2 -1.2 LESS SEVERE SEVERE Quality of electricity supply BUT SPECIFIC AND SPECIFIC TO FCS Strength of TO FCS investor protection -1 FCS-specificity (lower is more specific Ease of access to loans Regulation of Foreign market size index -0.8 Securities and Exchanges Strength of auditing and Judicial independence reporting standards Domestic market size index Soundness of banks Financial services Quality of infra Reliability of police services meeting business needs -0.6 Property rights Bribes Local equity markets Business Impact of rules on FDI Quality of rail infra Transpar of gov policy Burden of customs Buyer sophistication procedures Prevalence of trade barriers Diversion of public funds Intensity of local competition Prevalence of Affordability of financial services Ag policy costs foreign ownership Extent of market dominance Quality of roads Venture capital -0.4 Quality of air availability transport infra Degree of customer orientation Efficiency of legal framework Effect of Burden of gov reg in challenging regs taxation on Efficiency of corporate boards Business costs of incentives Favoritism in decisions crime and violence to invest of government Business costs of terrorism Organized crime Effectiveness of anti-monopoly policy Efficiency of legal framework in settling disputes -0.2 Protection of minority shareholders’ Quality of port infrastructure interests Public trust in politicians 0 Institutions Infrastructure Financial markets Market size and efficiency Other Source: IFC, Generating Private Investment in Fragile and Conflict-affected Areas (2021). Impediments to private sector development in the context of 3.1.1 Operational Challenges for the FCS fall into two groups: Implementation of BER Programs In an FCS country, implementing a project aimed at private (i) Operational constraints, and sector development or a micro-intervention targeted at (ii) (Non-conducive) business environment reform and improving an area of business environment (such as a implementation licensing reform or setting up a one-stop-shop) becomes more expensive. The more challenging the environment, the more Operational constraints include, but are not limited to, lack costly intervention tends to be. This is largely due to higher of human and/or capital resources, travel constraints due to security costs and the need to mobilize specialists who can the security environment, and limited investment and funds remain on the ground to support implementation. For example, necessary to achieve the desired reform. Challenges related an analysis of IFC advisory projects implemented by the to the enabling environment primarily impact businesses International Financial Corporation in Somalia shows that the through their life cycle. These include a nonoptimal (or below cost to mobilize consultants increased project overhead costs par) regulatory framework, gaps in reform implementation, by 25 percent; this was due to increased security costs and lack of judicial independence, and poor public governance. It is increased labor costs compared to a non-FCS environment. imperative to analyze these distinct challenges to understand the scope of the needed business environment reforms and Fragility, conflict, and/or violence also affects project timelines. related government action. Projects in countries with higher fragility take longer to yield EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 17 results. FCS-related challenges cause disruptions and delays investment in 2009, for instance, encountered substantial in project implementation, as compared to a poor investment delays (from initiation to stages of operation) due to security climate in a non-FCS country. A West Bank and Gaza issues and authorizations required in Israeli-controlled areas. > > > F I G U R E 5 - Average Project Length and Cost by Fragility Cluster 3.7 3.2 Implementation duration (years) 2.9 2.8 2.4 1- 2- 3- 4- 5- Most challenging Fragility worse than Investment climate Medium risk Least challenging investment climate worse than fragility 1.7 1.7 1.7 Average project cost, $ million 1.4 1.3 1- 2- 3- 4- 5- Most challenging Fragility worse than Investment climate Medium risk Least challenging investment climate worse than fragility Source: EFI SSA Advisory Services Project Data, 2002–2020. Note: The circled figures highlight the finding that project timelines are longer in countries where fragility is worse than investment climate. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 18 3.1.2 Challenges to Business Environment irregular payments and bribes, propagation of the status quo (for instance, redundant and cost-intensive non-tech Reform and Implementation solutions, weak public trust in politicians, and favoritism in Inadequate governance — implying issues with effective decision making by government officials) are perceived as service delivery and reform implementation and enforcement, severe obstacles.33 Institutions in FCS are often weak,i a rent-seeking practices, and lack of capacity — continues common characteristic across all types of FCS, but especially to be a major challenge in FCS. Improving, or in some in states facing post-conflict or frequent conflict-to-peace instances creating, the enabling environment to support transitions,34 and the weakness typically persists over years. private sector development in an FCS country can therefore Data findings and empirical evidence point toward a strong be time-consuming, as it requires and is contingent upon a correlation between countries considered low on government strong commitment and implementation capacity from the effectiveness and countries considered fragile, per the Fragile government. Due to limited capacity and/or weak enforcement, State Index (Figure 6). Weak government effectiveness governments may be more likely to pursue a quicker public makes it imperative that policy makers consider interventions sector solution or be tempted to move forward without a aimed at enhancing governance when implementing business buy-in for political or expediency reasons, resulting in limited environment reforms in an FCS country. support for the private sector and associated longer-term permanent solutions. Closely linked to weak institutions are corrupt practices and rent-seeking behavior by government officials, which not only The quality of public governance is also a major obstacle impacts service delivery but also erodes public trust. in implementing business environment reforms. Issues of > > > F I G U R E 6 - Fragility and Government Effectivenessj 2 Government effectiveness score 1 0 -1 -2 20 40 60 80 100 120 Fragile States Index Non-FCS Past-FCS FCS Source: Worldwide Governance Indicators, World Bank; Fragile States Index, Fund for Peace. i. It is imperative to note that this is not an absolute rule. Some countries categorized as FCS have strong institutions, including Ethiopia, Kenya, Nigeria, Sudan, Ukraine, etc. The causes and drivers of fragility and conflict tend to vary greatly. j. Note that government effectiveness is an aggregate indicator that reflects perceptions of the quality of public services, of the civil service and its independence from political pressures, of policy formulation and implementation, and of the credibility of government commitment to such policies. This is part of the Worldwide Governance Indicators dataset. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 19 Despite those challenges, many fragile and conflict-affected the reform effort by working with the ministries, departments, states have been able to improve their business environment and agencies (MDAs) of government to implement the recom- in a number of regulatory areas, including business entry, mendations of the World Bank Group and other development access to credit and finance, tax payments and structures, finance institutions (DFIs). EBES helped ensure the traction contract enforcement, real estate transfers and land admin- of government reforms and had a positive impact on the pri- istration, construction permitting, and cross-border trade. In vate sector. In the years since EBES was established, four addition to improving the overall business environment, legal, laws have been enacted that had positive outcomes on the regulatory, procedural, and institutional reforms have served regulatory environment and reduced costs for businesses. to enhance some FCS countries’ investment competitiveness, The case study in section 5 presents further details about the reducing the risk that investors face by improving transpar- most notable reforms, such as enactment of the Companies ency and discretion in regulatory implementation. and Allied Matters Act (CAMA) in August 2020, a founda- tional legislation that introduced provisions that considerably In Nigeria, for example, a secretariat for enabling the business improved the registration, constitution, and operation of all environment (EBES) was established and helped coordinate businesses nationwide. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 20 4. >>> Business Environment Reform Interventions in Fragile and Conflict-Affected Situations Business environment reforms that dismantle barriers include interventions such as regulatory simplification, reduction in costs, time, procedural complexity, digitizing and redesigning G2B service delivery, and adopting risk-based approaches. However, the success of such reforms in an FCS country depends not only on the type of reform and/or intervention, but also on the man- ner in which the reforms are designed and employed. Given the differences in political economy, stability, and historical underpinnings between FCS countries and non-FCS countries, it is im- perative to consider additional elements and acknowledge the limitation under FCS conditions of the typical business environment reforms that tend to work in non-FCS countries. This section delves into nuances in the means, types, and themes of business environment reforms most likely to work in the context of an FCS country or subnational region. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 21 4.1 How to Implement BER 4.1.1 Keep the Project Design Simple and project timelines leads to better project outcomes in FCS set- tings. Given the nature of many BER (such as setting up com- Accept Higher Costs and Longer Timelines mercial courts and magistrates to improve contract enforce- Despite the challenges of higher costs and longer timelines ment), it takes longer on average for results and benefits to facing projects in FCS settings, increased government buy-in become visible, as compared to non-BER projects, and thus has been shown to correlate with successful implementation. practitioners should factor in and accept long timelines for The World Bank Group’s engagement in FCS and associated success in BER-related activities. data shows that higher spending in combination with longer > > > F I G U R E 7 - Average Implementation Time of Project by Business Environment Reform Area 2.9 2.9 Average implementation duration (years) 2.8 2.6 2.4 1.8 1.8 1.5 1.2 1.1 Getting Resolving Trading Paying Starting Dealing Enforcing Registering Protecting Getting credit insolvency across taxes a business with contracts property minority electricity borders construction investors 84 23 59 50 44 22 18 13 5 2 Number of projects Source: World Bank, Sub-Sharan Africa Advisory Services Project Data (2002–2020). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 22 4.1.2 Understand the Local Context erty registration), which serve as “low-hanging fruit” and A deep understanding of the local context is necessary to suc- have been successfully implemented across different regions cessfully realize benefits from reforms and interventions. This and settings.36 covers all aspects of implementation, ranging from capturing local business needs and mitigating operational risks to avoid- Sector-specific projects that aim to improve access to busi- ing unintentional consequences. Any business environment ness or investment in target sectors, such as the financial-sec- reform strategy requires proper sequencing and prioritizing torl are more complex and may be more challenging to imple- and must consider the country’s conflict dynamics, economic ment. For instance, building a credit reporting system would opportunity, institutional capacity, and willingness to reform. be contingent upon having a working legal system and an The strategy must be implemented in a balanced way to se- effective business registry. Similarly, a project on agricultural cure short-term gains while building momentum for deep insti- financing or rural inclusion would be more likely to succeed if tutional transformation. a system for accurate land titling is in place. This highlights the need for and importance of developing the broader business Undertaking a deep-dive into FCS-drivers and the local con- enabling environment by addressing horizontal constraints, text requires “conflict sensitivity” and “conflict-typology” ap- rather than starting with sector-specific reforms or interven- proaches. This means understanding the context and en- tions. However, it is imperative to note that this is not a firm vironment in which companies operate; becoming aware of rule. Sector-specific and transactional efforts can also happen potential positive and negative effects that reform policies may in parallel. Rather, some contexts may likely be more suited have on the conflict environment; and adopting the necessary for sector-specific intervention. steps to avoid causing or worsening the conflict. To ensure re- forms and interventions employ the Do-No-Harm principle and Similarly, it is important to identify and narrow the type (and do not widen gaps between social groups, it is imperative to size) of firms that are most vulnerable to the effects of fragility be aware of both the political economy and the drivers of FCS and conflict. The WBG’s engagement in FCS has highlighted and how they affect the local private sector when (i) design- the need to focus in particular on the needs and requirements ing and implementing reforms, and (ii) finding the appropriate of SMEs, as they are not large enough to afford private pro- entry point for intervention.35,k tection (such as private legal expertise), but not small enough to operate “below the radar” and avoid exploitation by gov- ernment and nongovernment entities (especially through 4.1.3 Focus on Fundamental violence). Such firms tend to face the risk of predation and Interventions First consequently reduce investment and (mis)allocate labor to The World Bank Group’s experience in implementing BER in provide security, suffering output losses as a result.37 When FCS in Sub-Saharan Africa reveals that effective sequenc- designing and implementing BER, therefore, development ing typically begins with foundational enabling-environment practitioners and policy makers are advised to factor in the projects targeting the entire economy (such as those focus- challenges SMEs face. ing on business registration, construction permits, and prop- k. The Do-No-Harm approach avoids premature or poorly thought-out reforms that can do more harm than good, notably, steps that overwhelm a society’s capacity to absorb aid and put it to effective use and that risk pushing fragile situations and societies into particular kinds of severely disruptive corruption. Do-No-Harm is a tool for mapping assistance and conflict interactions and can be used to plan, monitor, and evaluate both humanitarian and development assistance programs. l. Financial-sector projects include, but are not limited to, developing financial infrastructure and institutions, such as credit infrastructure, SME finance, and securities mar- kets; easing access to finance processes; and adopting digital tech solutions. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 23 4.1.4 Implement BER Programs in a Cluster ports (airport and seaport) involved agencies such as the Ni- Based on project data from the WBG’s engagement in FCS gerian Customs Service, the Standard Organization of Nigeria countries between 2002 and 2020, success primarily accrued (SON), the National Agency for Food and Drug Administration in projects that were implemented in a cluster, meaning imple- and Control (NAFDAC), and the Trademarks Patent and De- menting projects or programs in close succession.m Finding an signs Registry (Commercial Law Department). These efforts entry point (i.e., a specific project or area for business reform) were far more challenging than were ease of doing business and following the engagement with other reform programs, reforms due to lack of political support and will from the con- indicates greater trust and better relationships between the cerned agencies and principals. development agency and the country government, and such relationships can be leveraged to ensure government buy-in In addition to securing government buy-in, it is also important — a necessary factor for success in FCS context. to build capacity within the government to enable long-term sustainability of the intervention. For example, in 2015, the Also, concentrating resources (i.e., staff on the ground and WBG’s Investment Climate projects in Zimbabwe to create a funding) for use on multiple projects over a limited time period business registry and develop a credit infrastructure succeed- within a given FCS area is more likely to optimize economies ed due to the government’s collaborative ability and because of scale and lead to better outcomes. This is a logical deduc- the team was able to provide alternative solutions, ultimately tion given that one of the challenges posed by FCS-settings owning the project implementation. is the lack of quality human resources (as highlighted in the previous section). It is also important to identify and focus on short-term goals and outputs while pursuing longer-term outcomes to keep public stakeholders engaged and involved. Early wins can 4.1.5 Ensure Government Buy-in help gain the trust of government stakeholders, which is nec- Successful projects have also been found to have greater essary for pursuing objectives that can take years to realize. government buy-in, which may be either shared dollar cost WBG experience in Sub-Saharan Africa suggests that many or in-kind commitments. Naturally, the greater the finan- governments are reluctant to commit political or financial cial buy-in by the government, the more committed and in- capital to support programs or agendas without having seen volved the government becomes in ensuring successful concrete or measurable program results. Government own- project outcomes. ership of and responsibility for project success can support successful implementation. Experience from past project im- Given that governments are the primary clients for projects plementation demonstrates that government representatives that involve creating or strengthening the business enabling with decision making authority and public mandates tend to environment, it is important to align programs with national mobilize the support needed by local government agencies. priorities, particularly those that sustain the development of For example, in the Democratic Republic of Congo, the Prime the private sector in light of fragility. This course of action helps Minister’s Office drove the Investment Climate reform agenda secure buy-in from governments and national stakeholders and its implementation. The endorsement from this office of and ensures that the international development community authority helped speed up reform implementation, and the so- and governments are both aiming at the same overarching lutions were accepted and adopted at the highest level. goals. In Malawi, for instance, the WBG team aligned its pro- gram with the national priority of developing a credit reporting However, ensuring such buy-in is politically challenging at system to expand access to finance. The team working on the times. In many instances, the needed reform solutions con- credit Reference Bureau Act and subsequent amendments test the status quo. The underlying objective of business not only gained the government’s approval but was also able environment reforms is to enhance the country’s level of to build sustained trust among the private sector. competitiveness and to strengthen the private sector. Many FCS economies are characterized by the presence and domi- Conversely, the World Bank’s engagement in Nigeria revealed nance of SOEs, and governments in such economies may that a business reform program is only as successful as the be less receptive to interventions that may challenge the principal (i.e., the head of the relevant agency) allows it to be. sectoral landscape. Reforms to improve operational processes (to make move- ment of goods and people within the country easier) at the m. While there is strong correlation, the evidence and direction of causation remains weak. For instance, were more projects implemented because of permissiveness, or did more projects drive improvement? EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 24 4.2 Elements to Consider for BER in FCS 4.2.1 Undertake an In-Depth Assessment and to track the welfare of people displaced by the crisis in northern Mali. Mobile phones were also used to collect of Business Environment Constraints data in Afghanistan for the Business Pulse surveys.39 (by Leveraging Specific Data) The challenges (addressed in the previous sections) posed by • Geospatial technology has the potential to change how FCS require interventions that are tailored to the distinct geog- survey data are collected and has made sampling using raphies, histories, and drivers of each setting. To design BER Geographic Information Systems (GIS) accessible to projects, programs, or interventions, therefore, it is advisable more users. To deal with the absence of sampling frames to develop a comprehensive, in-depth understanding of the in the Democratic Republic of Congo and Somalia, unique challenges that businesses face in FCS settings. satellite images and sophisticated machine learning algorithms were used to estimate population density and Evaluative mechanisms (ex-ante) should be designed to demarcate enumeration areas. not only measure the economic impact of reforms but also to gauge the reforms’ ability to support a transition toward • Endorsement experiments, list experiments, and peace, stability, and sustainability, thereby counteracting fra- behavioral approaches can be used to ask questions gility. This can be achieved by incorporating conflict assess- about sensitive issues, such as loyalty to controversial ments of the political economy, identifying the drivers of peace groups, and can also help to avoid strategic responses and conflict, and determining the appropriate entry point for from respondents expecting benefits associated with agency intervention. Diagnostic instruments such as the World certain answers. For instance, in South Sudan, different Bank’s Risk and Resilience Assessments or the Collabora- sampling approaches were tested in an IDP camp to tive for Development Action’s Do-No-Harm Framework can be shed light on their precision. leveraged to assess the context of conflict and factor in the reform’s result metric. Adopting creative ways to fill data gaps in FCS contexts will not only help inform reforms and priorities but will ensure the Business environment assessments must be adopted and em- reform process is an inclusive one. ployed for BER programming and for driving reform program- mers to connect with humanitarian assistance measures. In this regard, the aim should be to identify the most severe con- 4.2.2 Accept the Limitation(s) of straints on private sector growth, simultaneously focusing on Traditional Approaches to BER private sector issues that affect the most vulnerable and those Findings from a review conducted by the IEG reveal that tra- most affected by the violence and conflict. ditional business environment reforms in FCS tend to focus mostly on simplifying business licensing, permitting, and ad- Tools and diagnostics to assess a country’s business envi- ministrative barriers. In certain countries, they are comple- ronment may work well in non-FCS settings, but lack of data mented by broader investment climate reforms encompassing in FCS countries or subnational regions can make it difficult investment promotion and public-private dialogue.40 to identify constraints and barriers that impede private sec- tor growth and contributions. While undoubtedly challenging, While regulatory simplification and removing administrative however — especially in countries with ongoing violence and barriers are good confidence-building signals that can yield conflict — quality data can be collected and produced using early results, it is also important to complement those reforms the following innovations and techniques:38 with others, such as value chain development, particularly for domestic firms, through reforms and processes that ease ac- • Mobile phone surveys offer substantial benefits in cess to finance and technology, and to deepen institutional re- specific circumstances and to meet a specific data forms (such as privatization). Strengthening legitimate institu- collection need to remotely collect high-frequency data tions to promote the rule of law accords citizens the security, from conflict-affected and hard-to-reach areas. For justice, and access to jobs that is paramount for breaking cy- instance, such surveys were used to collect information cles of violence.41 However, institutional transformation should during the Ebola crisis in Sierra Leone and during the adopt a “best-fit” not “best-practices” approach. For instance, drought in Nigeria, Somalia, South Sudan, and Yemen, FCS countries with stronger institutions, such as some of the EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 25 middle-income countries affected by conflict, may be able to benefit from regulation through more agile regulatory design take on more ambitious institutional transformations at an ear- and digitalized G2B processes. Second, it helps to systemati- lier stage than other conflict-affected countries. cally enhance monitoring and evaluation (M&E), data collec- tion, and real-time risk management in the FCS. There is value in prioritizing simplification of business regu- lations over revamping and expansion at the early stages To achieve the first of these ends, regulatory technology for of reform in FCS. However, business environment reforms private sector development (RegTech) uses real-time data and must go well beyond simplification procedures to respond emerging technologies, such as artificial intelligence (AI), to of- to the challenges posed by and characteristics embodied in fer both innovative regulatory models and service delivery for FCS countries. businesses and citizens. The approach has three pillars: (1) business data management, (2) agile policy making, and (3) 4.2.3 Leverage ICT for Regulatory Design, smart service delivery. Implementation, and Monitoring & In terms of the second, smart service delivery, RegTech en- Evaluation (M&E) ables relevant stakeholders to enhance the accuracy and ac- FCS present many obstacles to accessing remote and inse- countability of M&E, to evaluate the impact of relevant reforms, cure areas. Lack of physical field access and awareness of and to create customized platforms for remote supervision, re- specific needs and dynamics in FCS, exacerbated by the re- al-time operational risk management, and coordination across cent COVID-19 pandemic, impedes operational engagement projects and partners, providing a robust response to the chal- precisely in the areas where development interventions are lenge of inaccessibility posed by FCS by helping to “bring eyes most critically needed. Given these constraints, it is advis- on the ground, where and when we cannot always have feet on able for governments and development actors to employ digi- the ground.”42 This can be achieved by building the capacity of tally driven solutions that can provide real-time insights into government agencies and implementing partners to leverage field activities. low-cost open-source technology and simple methods of digi- tal data collection and analysis, such as mobile phone surveys, Integrating information and communications technology (ICT) geospatial imaging, etc. into BER serves a dual purpose. First, it makes it easier for businesses operating in FCS countries to comply with and > > > T A B L E 1 - Three Pillars of RegTech Pillar I Pillar II Pillar III Business data management Agile policy making Smart service delivery • Design of integrated data for • AI-supported mapping of • Implementation of a single regulatory delivery, minimizing administrative procedures digital point of contact for data requirements from for easy navigation and businesses and investors. businesses. understanding by businesses • Integration of G2B services • Design of investor’s promotion using a digital registry throughout the business life databases and use of of regulations. cycle—from entry through digital platforms to connect • Analysis and design of operation to exit—for increased businesses to global value policies and forward-looking regulatory effectiveness and chains (GVCs). regulations for seamless, digital reduced compliance burdens. regulatory delivery. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 26 As a model for enhancing service delivery, the World Bank quality assurance (Figure 8). Empirical evidence shows that Group supported adopting a new and modern Company’s Act the labor productivity of informal firms is about one-fourth that in West Bank and Gaza (published on December 31, 2021). of formal firms.46 Moreover, the labor productivity of formal firms Enactment of the new legal framework was a prerequisite for that face competition from informal firms is about 75 percent of implementing a digital solution for the Automated Business the average labor productivity of formal firms without informal Registry supported through the World Bank’s Innovative and competition.47 Informal activity also reduces public revenue Private Sector Development operation (IPF). A low-capacity due to unpaid taxes, which in turn lessens government capac- environment requires an innovative and agile approach to de- ity to provide the social protection programs and robust public veloping the new digital solution. As a transitional option, the services that are so essential in FCS contexts, where trust in World Bank team had already supported the Ministry of Nation- government service delivery is eroded. Above-median rates of al Economy in publishing new forms for business registration informality are associated with reduced government revenues online, which enabled the commencement of new procedures as a proportion of gross domestic product (GDP).48,n in April 2022. Improving the regulatory environment can contribute to the Similarly, in Kosovo, the World Bank supported enactment of formalization of businesses with the capacity to transition out a new Inspection Law, published in January 2022. The new of the informal economy. Drivers of informality are generally Law sets a basis for implementing the new digital platform for interlinked. For instance, corruption and lack of trust in public inspection management: e-Inspections. Currently, the World institutions — both prominent across countries in FCS — are Bank’s Kosovo Competitiveness and Export Readiness Proj- linked with regulatory burdens. While these findings are not ect (IPF) is supporting the client government in developing a specific to countries in FCS, analysis from firm-level surveys technical specification for e-Inspections and developing an ac- reveal that bribery rates increase by 0.03 percentage point for tion plan to set a new General Inspector’s Office under the each percentage point increase in the regulatory burden.49 Prime Minister in August 2022. Encouraging formalization and supporting businesses with 4.2.4 Encourage Formalization and high-growth potential is therefore a key component of a private sector development strategy in fragile states. Relevant stake- Supporting Subsistence Firms holders in FCS should consider business environment reforms One major effect of conflict and insecurity is widespread in- that help economic activity shift to the formal sector. Overregu- formality. Research shows that weak government enforce- lation, lengthy procedures, and high compliance costs through- ment capabilities combined with an adverse business climate out the business life cycle may incentivize entrepreneurs to increase the costs and reduce the benefits of operating for- operate informally. Therefore, depending on the degree of mally.43 Indeed, the high perception of lack of government en- fragility, the required reform can be as basic as setting up a forcement capabilities is an important factor associated with well-functioning company registration process and introducing informality. With these conditions in mind, it is easier to under- appropriate company laws. In other contexts, further incentives stand the nature of the informal economy in conflict settings. to formalize may be needed. In response to conflict and fragility, high-potential domestic However, it is important to note that addressing informality firms tend to impose self-moratoria and flee the country, while is a complex undertaking. It not only encompasses interven- smaller firms go informal to avoid harassment or extortion by tions aimed at formalization but also entails mechanisms to public authorities.44 The COVID-19 pandemic has further exac- promote the productivity of informal operators. Though a re- erbated informality in FCS countries: the economic contraction sult of market inefficiencies, the informal economy provides increased instability and the risk of closure for smaller firms.45 incomes unavailable from the formal economy. Many informal Such trends and business responses to economic shocks re- actors, particularly those as yet lacking the capacity to exit the duce the size and productivity of economic activities and un- shadow economy, derive their livelihoods from informal ac- dermine market development. tivity. While devising policy objectives and interventions, it is therefore imperative to consider the heterogeneity of the in- A large presence of informal activity tends to hold back growth, formal sector and to remember that not all informal firms have create unfair competition, and erode formal firms’ market share the capacity to formalize; it is therefore critical to balance the and the resources available to boost productivity, as informal formalization agenda. businesses circumvent government regulations on cost and n. Ohnsorge and Yu (2021) suggest this may range from 5 to 12 percentage points. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 27 > > > F I G U R E 8 - Half of Firms in Developing Countries Compete Directly Against Informal Ones 80 70 60 50 40 % of firms 30 20 10 0 High income: Europe & South Asia Middle East East Asia Sub-Saharan Latin America OECD Central Asia & North Africa & Pacific Africa & Caribbean % of firms competing against unregistered or informal firms % of firms indentifying practices of competitors in the formal sector as a major constraint Source: Enterprise Surveys, various years. 4.3 Business Environment Reform Themes in an FCS Context 4.3.1 Public-Private Dialogue PPD fills the gap resulting from the lack of legitimate institu- Factors that lead to the emergence and existence of FCS en- tions and builds ownership, transparency, and confidence in vironments are created by both state and non-state actors (in reform efforts — all essential for successful reforms in FCS. most FCS countries), making it imperative to anchor engage- PPD identifies the need for reforms and interventions that can ments and interventions in agreements with both state and improve the business environment and attract investment in non-state actors. BER are most successful when they accu- an inclusive manner. It is employed as a process for execut- rately cover all business segments of a population, including ing business environment reforms. Reinforcing the lessons ethnic minorities, women, and youth. Inclusiveness is even highlighted in the previous section: not only does what has more important in FCS and post-conflict environments, where to be done (i.e., the content of reforms) matter, but the man- divisions within the society are prevalent. Paradoxically, in ner in which reform programs are designed and implemented FCS basic societal agreements and structures are either fail- does as well. As elaborated in the sections above, FCS are ing or so new that they lack the capacity to comply with their characterized by low levels of trust in the government and in own mandates. Public-Private Dialogue (PPD) is one way to the business community. In this regard, evidence points to the build trust among different stakeholders and ensure support importance of PPD when supporting business environment for meaningful and sustainable reforms. PPD platforms not reforms in FCV settings, as it helps build consensus and con- only support horizontal reforms in FCS but can also provide a fidence among diverse groups (likely to be) affected by the useful starting point for the private sector to develop projects reform process.51 But PPD must be transparent to remain im- in key sectors, such as agribusiness and extractives, where mune from being hijacked by vested interests and politically PPD can help build links between large-scale investments and connected firms. While weak government and private sector the local economy.50 institutions are the biggest challenges to effective PPDs, other EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 28 participants may lead to its success, despite the FCS context. supporting colonization by talking to large businesses. Con- For instance, communicating commitments publicly, including sequently, South Sudan had no entity able to organize and in the media, is an effective means of creating transparency represent the private sector. Knowing the background of this and accountability. relationship, the World Bank Group initiated a reform program with a very gradual process to first help the local private sector As an example, when Cambodia was transitioning out of organize itself into associations and build trust among stake- conflict,o the government established the Government-Private holders. The subsequent PPD was instrumental in building the Sector Forum. This PPD body aimed to provide a reliable and trust needed to foster private sector development and entre- trustworthy dialogue mechanism for consultation between the preneurship in the country. government and the private sector on investment and busi- ness climate issues. It also aimed to include the struggling 4.3.2 Reform Governance private sector in developing the economy, a necessary condi- When implementing business environment reform programs, tion for its growth. An important factor that enabled the forum the institutional environment and political economy can to move forward was the focus on a neutral, inclusive, apoliti- substantially influence the potential for success. Often, well- cal platform that could be used for constructive consultation designed reform plans fail to achieve their goals due to lack on issues. If the forum had been perceived as other than a of effective oversight and poor coordination mechanisms to constructive, participatory process, it would not have encour- ensure implementation, particularly in FCS contexts, which aged businesspeople to engage in a participatory process are usually characterized with low government capacity and for development. Twenty-four years later, the forum contin- weak institutions. Effective reform governance, including ues to provide a reliable platform through which Cambodia’s stakeholder engagement, cross-institutional coordination, business community can raise and resolve problems with capacity building, and accountability mechanisms are the government.52 all critical (see Table 2). In the FCS context, institutions implement the regulatory framework both formally through Similarly, in South Sudan, where foreign companies were laws or decrees and through de facto norms or customs, perceived as colonizers, the Sudanese government had sup- thus governing businesses’ behavior and limiting the harm pressed the ability of South Sudanese enterprises to develop individuals and groups can inflict. It is therefore imperative linkages with international firms or multinational corporations. to focus on strategies and institutional mechanisms that help This context had created a deep mistrust in public-private sec- (i) successfully identify and prioritize reforms, and (ii) ensure tor relations, as the government was wary of being seen as successful reform implementation in different country contexts. > > > T A B L E 2 - Key Features of Effective Reform Governance Level Features Responsibilities High-level • Often public-private • Determine overall priorities oversight • Relevant ministries for investment climate • Set KPIs mechanism reform agenda • Unblock implementation obstacles/delays • Direct periodic reporting PM or President together with PM/President (e.g., monthly, every three months) Coordinating • Technical staff • Oversee reform program day-to-day across unit • Direct reporting line to PM/President all areas • Liaise between technical level working • Monitor reform roadmap and KPIs/ groups and steering committee or setting KPIs PM/President • Ensure agenda setting, minutes, follow-up • Escalate key issues to steering committee items, timelines or PM/President for action • Escalate issues o. While Cambodia is no longer considered an FCS country, the example is used to highlight the government’s successful achievements as the country was emerging from conflict. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 29 Table 2 continued... Level Features Responsibilities Technical • Key stakeholders from public agencies • Develop and implement detailed action working (e.g., focal points of relevant line ministries) plans, bringing in expertise where needed groups • Private sector; professional experts (e.g., legal assessments, proposals for (lawyers, IT, accountants, architects, etc.) legal amendments, IT assessments, • Frequent structured meetings budget proposals) (e.g., bi-monthly) • Develop timelines and milestones; clarify responsibilities Inefficient and discretionary institutional frameworks under- on competition or through incentives for noncompetition that mine legal certainty, increase costs for the private sector, and favored entrenched groups, post-conflict reforms offer an op- negatively impact market dynamics. This is even more true in portunity to introduce a legal and regulatory system that ap- fragile and conflict-afflicted contexts, which have a keen need plies equally to all economic actors. for strong state institutions that deliver security, justice, and jobs to move beyond conflict and promote compliance through Lack of competition and an uneven playing field often result increased trust. from monopolies, including state-owned monopolies, politi- cally aligned incumbents, and sectors captured by the politi- Developing institutional frameworks helps to remove regula- cal elite and groups involved in conflict. Reformers, therefore, tory capture by vested interests and intermediaries; ensures justifiably see a robust business environment as a necessary efficient service delivery to the private sector; aids the inter- condition for increasing competitiveness and job creation. It agency coordination crucial for effective policy implementa- is also important, however, to be conscious of pushback from tion; integrates and consolidates registration databases; de- actors with vested interests and who benefit from the sta- velops institutional capacities through training on new tools tus quo to the detriment of competition. In Ghana, reformers and digital technologies; and rehabilitates offices for physical avoided vested opposition by focusing on ministerial decrees one-stop-shops in low digital capacity environments. that could be delivered complete, bypassing opponents. Elite capture manifests across a number of policy areas, ranging Institutions play a central role that cuts across various phases from influence in policy making to disproportionate allocation of the business life cycle, from entry (such as business regis- of incentives, public contracts, or licenses. While not specific tration and licensing), through operations (such as permitting, to FCS contexts, it tends to be more accentuated there, given competition and taxation, etc.), to growth or exit. Institution- the weaknesses in governance, rule of law, and accountability. al reforms, such as setting up one-stop-shops for business The Central African Republic, Lebanon, and Nigeria are some registration and licensing, have therefore been considered to of the many countries where regulatory frameworks are con- support favorable outcomes in FCV settings.53 ducive to elite capture and hamper market-based competition, affecting the countries’ ability to achieve their growth potential. 4.3.3 Elite Capture and Leveling the Following a conflict or political instability, governments may Playing Field also make regulatory reform part of a national strategy to Competition and privatization policies are contentious and restore entrepreneurial and investor confidence, both do- difficult measures for governments operating in FCS coun- mestically and internationally. Innovative BER, such as use tries to adopt. Competition-enhancing reforms help level the of regulatory technology and digitalization of government-to- playing field for private sector operators and contribute to cre- business services, can also reduce clientelism and cronyism. ating a more dynamic market, thus promoting greater inclu- Moreover, identifying gaps and entry points prone to elite or sion and social cohesion in FCS countries and subnational special interest capture inform the design of privilege-resistant regions. Where pre-conflict legal systems may have favored policies (Figure 9).54 and protected vested interests through a variety of restrictions EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 30 > > > F I G U R E 9 - Areas Prone to Elite Capture in Lebanon, and Regional Comparators . ep R ab Ar n co no a ria an t t, oc ai an si yp ba ge rd w ni or m Eg Ku Tu Le Jo Al M O Public Procurement The institutional and regulatory frameworks Fair Opportunity Transparency, confidentiality, and access to information Grievance, complaint, recourse Integrity and accountability Trade and Customs Tariffs structure and transparency Import restrictions and special regimes Electronic processing of declarations and connectivity Fines Brokers Customs procedure and ethics Laws and appeals Incentives Policy Legislative framework Consultations Administration and governance of incentives Transparency and access to information Citizen Engagement Transparency of rule making Public consultations Impact assessment Access to Public Industrial Land Institutional and regulatory framework Transparency, publicity, and scrutiny Grievance and resourse Enforcement: tax collection EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 31 Figure 9 continued... . ep R ab Ar n co no a ria an t t, oc ai an si yp ba ge rd w ni or m Eg Ku Tu Le Jo Al M O Business Regulation Business registration Permits and licenses: construction permits Tax inspections Finance Related parties and PEPs Corporate governance Insider trading Public Accountability Mechanisms Access to information Conflict of interest Asset disclosure Rather privilege proof 0 < composite score < 0.25 Moderately prone to privilege 0.25 < composite score < 0.5 Prone to privilege 0.5 < composite score < 0.75 Very prone to privilege 0.75 < composite score < 1 Source: Mahmoud and Slimane, World Bank (2018). 4.3.4 Gender-Specific Interventions barriers such as capital market imperfections that make it dif- In the FCS context, a focus on inclusive growth and employ- ficult to access funding; social and cultural norms associated ment is highly relevant to address drivers of fragility, with im- with gender roles; and laws and regulations that discriminate portant linkages to state-building and peace-building activities. against women and curtail their economic empowerment.55 Gender issues in FCS are often more acute than in compari- son to even low-income countries. As a result, they merit spe- Discriminatory laws and regulations and the absence of legal cial attention because of the different needs, coping strate- protections negatively impact economic outcomes, including gies, and challenges of women versus men. More often than women’s employment, business ownership, and wages. Gen- not, women are affected disproportionately by violence and der equality contributes to a level playing field that enables its aftermath. Women face gender-based inequality and barri- women to participate in the economy and improve their in- ers to participation; they are more vulnerable to gender-based comes. Additionally, it is associated with better development violence; and they often face greater economic burdens than outcomes, such as lower rates of vulnerable employment and in more stable societies. These include but are not limited to extreme poverty among female workers. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 32 > > > F I G U R E 1 0 - Gender Legal Equality Is Lower in FCS Compared to Non-FCS Countries 100 90 80 70 60 50 40 30 20 10 0 ts e y ce y p n ge od ilit Pa or hi io se la ria ho rs ns Sc ob kp As eu ar nt Pe M BI or re M en W W Pa pr tre En FCS economies Non-FCS Source: Women, Business and the Law (2022). Note: Indicator-level scores are obtained by calculating the unweighted average of the WBL questions within that indicator and scaling the result to 100, with 100 representing the highest possible score. In the context of FCS, research has established that inclu- Similarly, in Lebanon the government enacted legislation pro- sive employment and job creation is one of the most effective tecting women from sexual harassment in employment — a means of breaking the cycle of violence. Both conflict-related major obstacle and deterrent to women’s economic participa- violence and legal constraints on women’s business activities tion — including both criminal and civil remedies for harassing tend to be amplified in FCS. Therefore, it is advisable for poli- conduct. Burundi mandated equal remuneration for women cy makers and practitioners to integrate legal analysis and re- and men doing the same work. form solutions that address legal gender inequities that consti- tute barriers to women’s participation in the economy. In Iraq, When designing and implementing gender-specific reforms, for instance, it was identified that between 2017 and 2020, policy makers should recognize the potential impact of the women were granted many fewer loans than men (92,272 to reforms on vulnerable and marginalized groups, including women as opposed to 368,868 to men). To address the dis- women, and should take steps to mitigate the negative effects parity, the Central Bank of Iraq (in collaboration with the World any reforms may have on these groups. More attention should Bank’s Finance Competitiveness and Innovation Group and be given to reforms that promote inclusive economic growth the World Bank’s Mashreq Gender Facility), issued a circular and that specifically focus on the experiences of vulnerable in March 2022 to prohibit gender-based discrimination in ac- and marginalized groups. In parallel, it should not be assumed cessing financial services, with the aim of increasing wom- that reforms will affect all social groups or categories of firms en’s access to loans and entrepreneurship opportunities. The in the same way. Therefore, any policy action should take into circular is binding on all commercial banks, and the Central consideration the potential harm to women and other vulner- Bank of Iraq is currently in the process of introducing gender- able groups that could be created by contemplated reforms. disaggregated indicators for commercial banks and financial institutions to report to the Central Bank and demonstrate compliance with the reporting process. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 33 5. >>> Country Case Studies Business Environment Reforms in FCS: Somalia Somalia has been engulfed in civil conflict since 1991 following the overthrow of the Said Barre regime by rebels. The conflict spiraled as warring factions were unable to agree on how to form a unified government, thus splitting the country. This breakdown of civil order incapacitated public institutions, hampered the development of the legal and regulatory frameworks, and severely limited enforcement of existing laws. Without a stable government, Somalia fell into arrears with international creditors, disengaged from international commerce (formal trade and investment), and relied on a largely informal economy with few but powerful conglomerates. Since 2000, however, following peace conferences, formation of a transitional federal government, and promulgation of a constitution, Somalia has been on a steady trajectory of transformation. By 2012 Somalia was showing sustained progress, with functional institutions and governance. By 2020, international financial institution (IFI) reengagement was on course, backed by sustained economic reforms delivering critical results: domestic revenue has more than doubled as a share of GDP since 2013. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 34 1. WBG Engagement 2. Type of BER Implemented In Somalia, businesses have operated in a legal and regulatory Prior to the reform, the private sector in Somalia operated with vacuum with little or no formal government enforcement, outdated legal and regulatory frameworks and inadequate instead relying on traditional or customary mechanisms. government capacity. Missing or out-of-date company Companies were regulated under the Somali Civil Code accounts and ownership records meant that suppliers, of 1974, augmented by the Italian Civil Code of 1942 and creditors, and customers had to rely on their own information a number of decrees and directives. In practice, firms were sources to guide their decisions about doing business in licensed annually by the Ministry of Commerce and Industry, Somalia. Regarding business registration, the country relied and as of the start of 2017, only about 5,000 businesses on the Civil Code of 1974, which provided for annual licensing were registered — a small portion of the total number of rather than a modern business registration regime. These firms operating informally. To establish a stable and rules- lengthy procedures affected the contestability of firms and based business regulatory environment in Somalia, it was hence their access to market opportunities and consequently necessary to introduce a Companies Act as well as a business their contributions to economic growth. registration system. The WBG project sought to address this situation by providing Passing and operationalizing the Companies Act was the following technical assistance to the Ministry of Commerce: supported by WBG’s Somali Core Economic Institutions and Opportunities Program (SCORE) through the Digital Uplift i) Undertaking diagnostic work covering detailed process Project (SCALED-UP) and the Somalia Investment Climate mapping of the business registration process and other Reform Program (SICRP), phases 1 and 2. The World Bank’s relevant agencies involved. SCALED-UP project also supported the procurement of the Business Registration System, with IFC SICRP2 offering ii) Engaging the private sector to mobilize input into and project management and ICT backstopping support to support for the law (in the past, due to elite capture, laws the ministry. had been reported as “stuck in parliament”). The government identified the passage of the Companies Act iii) Providing complementary technical assistance on the as a prior action to be addressed as part of the World Bank– proposed Online Business Registration and Online supported debt clearance process. The link to debt clearance System to be rolled out in Somalia, supported by a WB increased the Act’s political importance, strengthening the lending project. momentum to pass it. As a result, the Somalia Companies Act was part of a package of legal reforms that the government iv) Supporting legal reforms. approved in December 2019. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 35 The new Somalia Companies Act, adopted in 2019, provides difficult working environment. Despite these challenges, the legal framework to protect creditors and shareholders and the MoCI worked consistently over several years to pass provides limited liability for entrepreneurs. For some foreign the Act with the support of development partners. The investors, this was a necessary precondition for investment. World Bank Group provided capacity support to MoCI, By enabling expanded access to finance to Somalia’s small- and this increased capacity also contributed to the and medium-sized entrepreneurs (SMEs), the law will also realization of other priorities for the Ministry. support their growth. Through easier registration, local companies will be able to access public procurement contracts ii) Somalia’s security environment presented its own and international supply chains. Government revenue will also challenges. Travel in some areas (including parts of increase as companies formalize and submit returns annually. Mogadishu) is deemed to be high risk, and travel within Somalia is limited and controlled, making it difficult As such, through the introduction of the Companies Law to hold meetings at a clients’ workplace or to convene of 2019, the Regulations of 2020 (updated in March 2021), stakeholders. The World Bank Group could not directly and the introduction of an online business registration and employ staff on the ground, but instead relied on inviting licensing system, the following changes have been realized: clients for capacity building and meetings outside Somalia and peer-to-peer learning and embedding i) Reduced legal requirements to start and operate a advisers within the Ministry. business by providing online business registration, excluding seal requirements and notary involvement. iii) The high turnover of champions within the Ministry of Commerce and Industry and the accompanying loss ii) Limits to the official time for processing applications, of institutional memory, plus overstretched financial including name reservation and business registration. and human resources teams, also slowed progress. Ministerial changes led to further turnover among iii) Reduced discretionary power in the Companies’ Registry, mid-level staff, extra briefings for new officials and specifying regulatory responsibilities and providing for leadership, and changes in approach. The appointment use of ICT in business registration. of key advisers within the Ministry of Commerce and Industry, until the passage of the law, was an important iv) Possibility under the legal regime to complete regulatory stabilizing strategy. requirements for starting or operating a business online. iv) Low levels of trust and understanding slowed the v) An online function integrating regulatory functions for process. Some stakeholders raised concerns that starting and operating a business, i.e., incorporation formalizing the economy would increase taxes and allow and issuance of business licenses by the Ministry of the entry of more domestic and foreign investors (mostly Commerce and Industry. from among the Somali diaspora). On the government side, federal member states had to be engaged: they vi) Through introduction of business intelligence reports, have a stake in the Companies Act because they all a monitoring and evaluation mechanism to promote currently issue licenses to businesses at the state level, continuous improvement of the business entry system. which is a key source of revenue for them. Supported by the IFC, public-private dialogue (PPD) raised the 3. Key Findings: What Worked, What Did Not, and What profile of the Companies Act and engaged the private Could Be Done Differently in the Future to Maximize sector. The Chamber of Commerce was also involved, Impact and Sustainability of BER in FCS Countries briefing their members on the importance of the reform. In the final year, as the PPD slowed, political support The following key findings resulted from the introduction came from the Ministry and a broad-based consultation of Somalia’s new Companies Act and business process involving the federal government of Somalia, registration system: federal member states, the House of the People, and the Upper House of Parliament. Engaging at the political i) Lack of institutional capacity was a challenge: The and technical levels proved equally important: in the end, Ministry of Commerce and Industry (MoCI), the line leadership at the Ministry facilitated the law, which was ministry administering the Company Act, is poorly funded. recognized as home-grown and Somali. Restricted resources resulted in limited IT capacity and a EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 36 Business Environment Reforms in FCS: Nigeria The Nigeria reform journey started with the National Competi- management services), the economy (state finances, busi- tiveness Council of Nigeria (NCCN), established in 2013. The ness sophistication, access to finance, and tax), and insti- NCCN’s mission was to mobilize the private sector with input tutions (security and instability, transparency, bribery and from the government around developing and implementing corruption, permits, government policy and contracting, a clear competitiveness agenda aimed at boosting Nigeria’s and justice). collective prosperity. NCCN’s role was to generate and sus- tain the national conversation around competitiveness while Subsequent to this work, the federal government set up the positively influencing policy decisions around reform and im- Presidential Enabling Business Environment Council (PE- proving the business and investment climate to make it more BEC) in November 2016, with the mandate to remove critical attractive for domestic and international investors. bottlenecks and bureaucratic constraints to Doing Business in Nigeria. As this work had a direct relationship to the WBG, NCCN successfully produced an annual report on competi- advisory was provided to the PEBEC team through the Global tiveness in 2016 that measured the states of human capital Indicators Group and then through the prosperity-funded Im- development (sub-pillars included education, health migra- proving Business Environment Program (IBEP) on setting up tion, and other labor market issues), infrastructure (quality the reform, reform action planning, and recommendations for of roads, electricity, airports, telecoms, and water and waste business environment reforms. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 37 1. WBG’s Engagement and the Type of BER Implemented aligning the framework for regulation of companies and other business entities with international best PEBEC set up the enabling business environment secretariat practice. These changes allow Nigeria to position itself (EBES) that coordinated the reform effort and worked with as a preferred destination for establishing a corporate the ministries, departments, and agencies (MDAs) of the gov- presence in pan-African investments. ernment to implement the recommendations provided by the WBG and other development finance institutions (DFIs). Most PEBEC also worked on an omnibus bill encompassing mul- areas of focus for reform were guided by the WBG’s recom- tiple facets of business regulation reforms that affect busi- mendations on formalizing regulation through laws and pro- nesses. The EBES team engaged with stakeholders across cess automation. In the years since EBES was established, the legal and business community for their input, including four laws have been enacted that have had positive effects on the Nigerian Bar Association Section on Business Law (NBA the regulatory environment and reduced costs for businesses. SBL), the Nigerian Economic Summit Group (NESG), the Na- tional Assembly Business Environment Roundtable (NASS- i) The Secured Transactions in Movable Assets Act 2017 BER), and other organized private sector stakeholders and enables SMEs to use movable assets (vehicles, farm members of the public. This bill was intended to help further equipment, jewelry, machinery) as collateral to get a loan institutionalize reforms in the country and included review of from banks. all laws affecting business facilitation by amending provisions of the present legislative framework identified by stakeholders ii) The Credit Reporting Act of 2017 gives borrowers as bottlenecks for business climate reforms and by introduc- the legal right to access credit data from credit ing new provisions to accentuate business climate reforms. bureaus that provide credit scores to banks and other financial institutions. Further to these laws, several government agencies automat- ed and streamlined processes for obtaining licenses or per- iii) The amendment to the Companies Income Tax Act by mits or for making payments to the government. The Federal the Finance Act 2020 provides that any taxable persons Internal Revenue Service (FIRS) automated the corporate tax or companies falling under the N25 million revenue platform; the CAC optimized the company registration portal threshold are not required to make company income tax and reduced the number of forms needed to complete a com- contributions or file returns to the government and are pany registration; Visa on Arrival was instituted for prospective also not required to register, remit, or issue tax invoices international investors; and work on a single window portal for or collect VAT. Medium-sized companies with revenue the ports is ongoing. running between N25 million and N100 million in any tax year will be required to pay a company income tax rate Subnational Reforms of 20 percent (a 33 percent reduction from the previous On the subnational level, interest is growing in replicating the tax rate of 30 percent), while companies with turnover success of the federal government at the state level. Since bigger than N100 million annually would pay the CIT rate PEBEC was established, some states have set up similar of 30 percent. To create incentives for early payment of business environment councils. At the forefront of the reform taxes under the self-assessment framework, Section 77 effort, Kaduna, Anambra, and Enugu states have made signifi- of the Act proposes a 2 percent and 1 percent tax-back cant improvements to their business environments, citing the bonus for medium-sized and large firms that file their subnational doing business report as the backbone of their re- taxes early (90 days before the deadline). form efforts. Here, reform mainly focused on automation and process improvements. The IBEP program in Nigeria further iv) The 2020 amendment of the Companies Allied Matter supported states, including Anambra, Edo, Ekiti, Kaduna, Act 1990 (CAMA) has had far-reaching impact in the Nasarawa, Gombe, and Ogun, in their reform action plan- registration, constitution, and operation of all businesses ning and by providing reform recommendations to improve nationwide. Its provisions that make it easier to set their business environment. Improvements in states included up and run a company by reducing fees, introducing passing laws (e.g., tax laws and mortgage foreclosure laws electronic fillings and signatures, improving the efficiency in Nasarawa) and executive orders (several states set up of business administration business services by the business environment councils, reduced fees, and removed Corporate Affairs Commission, introducing an insolvency unnecessary inspections through executive orders); build- framework and transparency measures that specifically ing electronic platforms for business registration (Ogun and protect smaller shareholders and investors, and by Nasarawa states); reducing licensing costs for MSMEs (Ekiti EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 38 state); and improving transparency and information availability v) The World Bank holds a high level of influence as an in the state (Kaduna, Edo, Ekiti, Nasarawa, and Ogun states). authoritative voice in business regulation reform in In addition, due to their efforts to prioritize business environ- Nigeria. States want the healthy competition of being ment reforms, the states of Ogun, Nasarawa, and Ekiti formal- ranked and also appreciate the impartiality of the WB ized their investment promotion activities by passing laws to in terms of the business environment reform agenda. set up their respective investment promotion agencies. Further, without a regular external ranking at the national level by an independent body such the WB, lack of 2. Key Findings: What Worked and What Did Not? visibility of agency reforms by agencies other than DB (e.g., NAFDAC or Trademarks Patent and Designs i) The biggest takeaway from the Nigeria experience Registry, Commercial Law Department (TPDR)) often has been that a business reform program is only as discourages further reform efforts. successful as the principal allows it to be, whether that principal is the president or the governor of the state or, vi) Frequent changes at the MDA level hampered progress, at times, the head of an agency. For instance, reforms much as did failure to remove ineffective heads of at the ports (airport and seaport) that involved agencies agencies. At times, lack of clear consequences for such as the Nigerian Customs Service, the Standard incapable MDA heads or even civil servants meant that Organization of Nigeria (SON), the National Agency for reforms were frequently stalled by only a few individuals. Food and Drug Administration and Control (NAFDAC), and the Trademarks Patent and Designs Registry vii) Resistance is strong against any reforms that involve (Commercial Law Department) (TPDR) aimed at making cost reduction, as these are perceived to reduce federal the movement of goods and people within the country or state revenues. easier, but it was more challenging than the Doing Business reforms. Reform is also often politicized, and What could be done differently going forward to gains made can be wiped out with a change in political maximize the success, impact, and sustainability of leadership or agency head. (This has been the case in such reforms? Ogun state as well as nationally.) i) Financial incentives for reforms help generate initial ii) The subnational Doing Business report was the main interest in reform at the state level. motivation for reform in the states. It provided structure and measurable outcomes and encouraged healthy ii) A more convincing link is needed between improved competition. Although this was the case, only about one- investment climate and greater revenue generation third of the 36 states put some effort into reforming the for states and at federal level to heighten interest in business environment. Very few states currently have a improving the business environment. business environment council or a reform action plan, and they struggle to generate momentum. iii) Focus should be not just on reform but also on how states communicate the reforms to the iii) Most states struggle as well with resource allocation and private sector and the world at large. Most states deprioritize the need for business environment reforms. taking steps to improve the business environment Reform seems to be part of the state agenda when it tend not to follow up and effectively communicate is an external DFI-initiated (sponsored) activity. Only those steps to stakeholders. This minimize the Nasarawa, Enugu, and Ekiti states have initiated contact reforms’ impact. and tried to sustain the reform agenda on their own resources, without help from any DFIs. Sustainability of reforms remains tricky, as even if laws are passed, uniform implementation takes time and resources, iv) Peer learning among states is in its infancy, and and these may not be available to ensure the implementation collaboration between federal and state governments is drive is successful. still very limited. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 39 Business Environment Reforms in FCS: Lebanon Lebanon is in the midst of a crisis that has been building over full-time employment in micro and small enterprises, which three decades of social, economic, financial, and fiscal mis- hire the majority of poor and vulnerable groups. Compared management. While the ramifications and impacts are being to 2019, employment in 2020 decreased by an average of 23 felt more severely now, the shortcomings and structural defi- percent across key private sector industries. ciencies continue to grow, exacerbated by the ongoing CO- VID-19 pandemic and the Beirut port explosion, to the point Lebanon’s current economic crisis has its roots in elite capture where the country no longer has the fiscal space to boost and regional conflict, both of which have blocked reform and the economy. development when it did not benefit all confessional leaders. Two mutually reinforcing and overarching constraints are (1) The country has been marred by a history of conflict, being elite capture behind the veil of confessionalism and confes- caught up in civil war and geopolitical rifts. The civil war, from sional governance, and (2) conflict and violence, stemming, 1975 to 1990, had adverse impacts on the country’s economy, in part, from the broader dynamics of conflict in the Middle with GDP growth (annual) dropping to a staggering negative East and exacerbated by the country’s confessional system. 43 percent. Furthermore, the 2006 conflict with Israel was es- These overarching constraints have created a fragile and dys- timated to cause damages of $3.5 billion, and the Syrian con- functional political system and a state that has been unable flict led to $7.5 billion in foregone output. The years following to regulate political conflict and exercise sovereign author- the civil war, however, that is, post-1990, saw periods of eco- ity. In addition to the two overarching constraints, Lebanon’s nomic resurgence during which Lebanon experienced strong economic growth and development is inhibited by macroeco- economic growth and socioeconomic stability. nomic instability, a weak business environment, insufficient investment in infrastructure, weak institutions and regulatory The country has been regressing into fragility, however, and framework, and a mismatch of skills with labor market needs seems to be losing the ground it had regained due to re- — all of which can be classified as nested constraints. gional spillovers, internal political deadlock, transnational militant groups, and other factors. The economy has strug- 1. WBG’s Engagement gled to reduce widespread poverty and to generate inclusive growth, as job creation has been weak and poorly distributed. The World Bank Group has been actively involved in Leba- Long-run elasticity in employment growth is estimated at 0.2 non, helping and supporting the government in designing and (World Bank 2012), much lower than the estimated MENA implementing investment climate and business environment average of 0.5 (IMF 2014). Meanwhile, the employment that reforms. In 2016, the World Bank signed an agreement with has been generated has concentrated in low productivity ac- the Office of the Minister of State for Administrative Reform tivities because those involving higher productivity have not (OMSAR) in Lebanon and initiated projects, including the Leb- grown proportionally. anon Interoperability Framework, to help the government re- duce the time and cost requirements for business registration, The pandemic has further exacerbated Lebanon’s economic part of its efforts to improve Lebanon’s investment climate and woes. While long-term economic ramifications are becom- encourage private investments. ing increasingly obvious, even at the end of 2020, the pan- demic had reduced formal private sector sales by 45 percent The World Bank Group has been involved in a number of compared with 2019. The pandemic decreased demand for projects aimed at improving Lebanon’s investment climate EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 40 and enhancing competitiveness. In 2018, the World Bank As a result, the Lebanon Government Interoperability supported the Creating Economic Opportunities in Support of project was terminated before term without achieving its the Lebanon National Jobs Program-for-Results Project to im- intended outcomes and impact. Nonetheless, it has led to prove economic opportunities for targeted beneficiaries. The lessons learned for the team on implementing investment crisis in Syria had contributed to a sharp slowdown in Leba- climate reforms in the midst of FCS-related challenges non’s economy, aggravating the existing jobs crisis and raising and ways to mitigate them for future projects. Many of social tensions. The refugee crisis also exacerbated climate the challenges faced by the team and highlighted below, vulnerabilities, raising risks for low income, rural households such as lack of political buy-in, high political turnover, in lagging regions. In this context, the government of Lebanon and others, are not particular to Lebanon and have has developed a National Jobs Program (NJP), to complement been observed in other FCS contexts where the team the Capital Investment Plan, together constituting the central has worked, such as in West Bank and Gaza, Somalia, pillars of the reform and investment program presented at the and elsewhere. 2018 Paris investor conference. The World Bank supported the government in implementing NJP. In fact, many lessons learned are currently being put to use as the team kicks off its implementation In 2018, the World Bank also supported the development and of a World Bank Programmatic ASA, The Lebanon implementation of the Land Administration System Modern- Economic Recovery Project (P178111), which aims to ization Project for Lebanon with the aim of improving access support private sector development through investment to land use and value data, property rights data, and geospa- climate reforms. tial information through land registry and cadastre system modernization. ii) Creating Economic Opportunities: Lebanon National Jobs Program Most recently, in 2021, the World Bank initiated the Lebanon Reform, Recovery and Reconstruction Framework (3RF) as The World Bank program supported the government in part of a comprehensive response to the massive explosion implementing NJP across three results area as follows: in the Port of Beirut on August 4, 2020. The 3RF aims to help Lebanon achieve three central goals in response to the Beirut 1. Results Area 1: Enhancing the Environment for port explosion, one of which is to implement reforms to sup- Private Investment port reconstruction and to help restore people’s trust in gov- 2. Results Area 2: Catalyzing Job Creation through ernmental institutions by improving governance. Trade and Investment in Lagging Regions 3. Results Area 3: Connecting Women and Youth 2. Type of BER Implemented to Jobs i) Improve Investment Climate and Enhance Competitiveness iii) Land Administration System Modernization This effort aimed to help the Lebanese government In 2018, the World Bank supported the development improve its services and interactions with the private and implementation of the Land Administration sector, with a focus on streamlining the business System Modernization Project for Lebanon with the registration process, by implementing an online aim of improving access to land use and value data, commercial registry one-stop shop to facilitate business property rights data, and geospatial information registration and ensure process transparency. A through modernization of the land registry and cadastre cooperation agreement was signed in 2016 between system. The project had five components, including the IFC and the government of Lebanon to implement implementation of an integrated Information and a commercial register through an interoperable platform Communication Technology (ICT) solution for the digital (CRTIP). Despite this reform being aligned with land registry and cadastre system that is integrated/ Lebanon’s priorities to improve its business climate, the linked with other functions, such as property valuation need to reduce private sector barriers to business entry, and state land management. This component was and the government’s buy-in at inception, declining client designed to improve the quality of services provided by support and interest during implementation contributed the government and the level of trust in the sector by to poor achievement of intended results. promoting transparency, equal access to information, electronic services, and streamlined processes. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 41 iv) Reform, Recovery, and Reconstruction Framework (3RF) (OMSAR), part of Lebanon’s Interoperability Framework. One of the main reasons why the project was agreed upon and The 3RF has two parallel tracks. A people-centered implemented was because it was considered a priority for the recovery track (Track 1) focuses on essential actions, government of Lebanon in its quest to support the business such as policy measures, investments, and institutional community and improve the provision of services through the strengthening, to address the urgent needs of the most Dawlati II e-government platform. Through the support and vulnerable populations and small businesses affected long-standing partnership with the IFC, along with the active by the Port of Beirut explosion. This track largely relies coordination with the Ministry of Justice Commercial Register, on receiving adequate international grant financing and the Ministry of Finance Tax Authority, the National Social Se- on clearing the way for progress on immediate policy curity Fund, and the Office of the Prime Minister, OMSAR was action to facilitate recovery, such as adopting appropriate able to develop a solid plan for implementing a commercial actions plans and institutional measures. registry one-stop shop. However, while the action plan was drafted and agreed upon, many of the expected outcomes for A reform and reconstruction track (Track 2) focuses on the project could not be achieved and the agreed deliverables critical reforms to address governance and recovery could not be attained, mainly due to the fragile state of Leba- challenges in Lebanon as well as investments that non’s government and the ephemeral nature of government focus on the reconstruction of critical assets, services, counterparts (in positions of authority) with whom IFC was col- and infrastructure. Progress on governance and laborating. Furthermore, the country’s dysfunctional political socioeconomic reforms are prerequisites for mobilizing system, characterized by elite capture, has impeded project international support for reconstruction beyond the implementation as it prohibited rent-seeking behavior. recovery track and for unlocking new sources of public and private finance. Lesson 2: Engaging and building trust with the private sector The 3RF is built on four strategic pillars: States that have successfully reformed the business envi- ronment have built up trust with the private sector and de- a. Improving governance and accountability veloped relationships that led to better regulatory solutions. b. Jobs and opportunities Most states still do not understand BER through the lens of c. Social protection, inclusion, and culture creating a friendlier environment for investment. They al- d. Improving services and infrastructure most all view businesses as nothing more than targets for taxation. The government in Lebanon, too, should active- Each pillar identifies a set of strategic objectives and ly engage with the private sector and businesses to create priority areas across both the recovery track and the business-centric reforms. reform and reconstruction track. Lesson 3: Resource allocation, patience, and longer- 3. Key Findings: What Worked, What Did Not, and What term results Could Be Done Differently in the Future to Maximize Impact and Sustainability of BER in FCS countries Business environment reforms tend to be prioritized when re- sources are allotted and relevant projects are externally spon- Lesson 1: Ensuring buy-in from governments and key sored and funded by organizations such as the World Bank public officials or through DFIs. Additionally, initiatives projected to provide short-term wins are prioritized over those that take longer to The biggest takeaway from the Lebanon experience has been realize. It is imperative to consider that institutional reforms that an investment climate reform program is only as success- take time to show results. Furthermore, uniform implementa- ful as its principal counterpart allows it to be, whether that coun- tion takes time and enough resources to ensure success of terpart is the president, a minister, or the head of an agency. the implementation drive. Political risk remains the biggest obstacle to sustainability, as changes in government remain The project to implement an online commercial registry one- disruptive and a threat to continuity. To ensure long-term suc- stop shop, a system that will facilitate business registration cess, it is therefore imperative to efficiently (and adequately) and ensure the transparency of the process, falls within the allocate resources, to build long-term implementation plans framework of Dawlati II, an e-government platform led by Leb- impervious to changes in government authority, and to adopt anon’s Office of the Minister of State for Administrative Reform a patient approach. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 42 Business Environment Reforms in FCS: West Bank and Gaza Territories 1. WBG’s Engagement (iii) overhauling the Companies Law framework. Additionally, an Investment Policy Financing (IPF) Grant will invest in hard The WB team has been engaged in business regulatory infrastructure and institutional development to transform the reforms in the West Bank and Gaza territories since 2017, Companies Controllers’ Department into an automated mod- through two ASAs providing advisory services and informing ern business registry. The IPF will also support development the design of a lending operation. The ASAs focused on three of a legal framework to formalize home-based businesses. areas: (i) producing diagnostics on the business regulatory en- See figure 11 for an overview of the relevant engagements. vironment, (ii) supporting the Palestinian Authority (PA) in im- plementing municipal business licensing (MBL) reforms, and > > > F I G U R E 1 1 - An Overview of the Advisory and Lending Operations on Business Regulatory Reforms in the West Bank and Gaza • Diagnostics • Municipal Business Licensing (MBL) Reform BER 1 ASA 2017-2018 BER 2 ASA • Implementation support 2018-2021 on the MBL • Advisory on the Companies Law reform IPF Grant 2018-present • Business Registry automation • Framework on Home Based Businesses EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 43 The initial diagnostics identified business entry, operation, and 2. Type of BER Implemented or Currently Under Way exit as major bottlenecks for both domestic and foreign busi- nesses. The main sources of those barriers included: The WB ASA prioritized a reform the West Bank and Gaza municipal licensing regime. This was initiated using legal (i) Administrative and procedural burdens that increased amendments that streamlined the business licensing process direct and indirect costs, such as redundant licensing by introducing a risk-based classification system of business requirements, excessive minimum capital requirements, activities based on the International Standard Industrial Clas- and onerous corporate governance and auditing sification 4 (ISIC 4). The legal amendments also introduced requirements for micro and small businesses. a reduced flat fee of JD 25 (US$35) per activity. Moreover, the team supported implementation of these amendments by (ii) Regulations that granted broad discretionary, helping the client improve operational efficiency and close supervisory, and quasi-judicial powers to the companies implementation gaps. The reform also streamlined documen- controller, such as provisions allowing the controller to tation requirements, reengineered the approval process to sit in General Assembly meetings of public shareholding remove redundancies, standardized forms for inspectors to companies and reject business registration applications ensure consistency in inspection procedures, and developed without clear grounds. guidelines to help municipal staff implement the new process. (iii) Regulations that restricted entry to foreign investors, Furthermore, the reform leveraged digital technology solu- such as discriminatory licenses, foreign equity limits, and tions. It introduced tablets to help inspectors record findings implicit requirements for foreign investors to have a local and violations in real-time; connected databases, thus reduc- partner and/or representative. ing the need to resubmit information; enabled online submis- sion of licensing applications and automatic SMS notifications (iv) Regulations that contributed to conflicts of interest and to applicants to help them track their applications; created regulatory capture, such as weak protections for minority auto-filled templates for communication with applicants; and investors and mandatory involvement of lawyers in introduced a management tracking tool to enable case man- business registration. agement and ensure timely follow up by municipal staff in case of delays. (v) Lack of a transparent framework, which contributed to unpredictability for shareholders and creditors, such as As a result of these measures, obtaining a municipal business the bad quality of and limited accessibility to business license became significantly easier. Based on data from the registration data. Ramallah municipality, the average time to obtain a business license for a company dropped between December 2019 and (vi) Regulatory gaps, such as the lack of a framework for April 2020 by 84 percent. Businesses no longer had to wait company mergers, divisions, and transformations. several weeks or months to obtain a license — the average time of issuance dropped to one week. (vii) Lack of a clear framework on business exit covering grounds, liabilities, procedures, and timelines. A longer-term effort on the Companies Law has been under- way since 2017. The WB team has advised MoNE on how Many of these bottlenecks were due to the outdated 1964 to adapt international good practices into this unique context. Companies Law framework. In 2017, the WB team and the This entailed developing model articles and working with local Ministry of National Economy (MoNE) agreed on the press- corporate lawyers to adapt them to the local legal framework ing need to improve the operating framework for businesses and commercial customs. Moreover, the WB team assisted in the West Bank and to automate the business registry, an MoNE to engage in lengthy consultations with stakeholders, endeavor to be supported by the Companies Law reform. The such as supervision authorities, ministries, government law- team aimed to build momentum toward these longer-term ef- yers, private law practitioners, private sector representatives, forts through quick wins by reforming the municipal business and entrepreneurs, to ensure a participatory process. Lastly, licensing framework. This had been identified as a bottleneck the WB team has delivered workshops to build the local stake- to market entry because businesses were subject to a convo- holders’ capacity in various topics relevant to corporate law luted process plagued by serious delays extending from sev- and the supervision of companies. eral weeks to months. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 44 The Companies Law was enacted on December 30, 2021. gal experts to explore options to overcome these constraints The Law provides a more predictable and proportional frame- and came up with the second-best approach of amending the work for establishing and operating businesses. For instance, Law’s annex. This proved to be sufficient to adopt ISIC4 and it introduced new legal entity types and enables home-based introduce the risk-based classification system for business li- businesses. It also removed restrictions on foreign investors censing. This required cabinet approval, which was more fea- and offered protection to minority investors. It lowers compli- sible in the short-term and would serve as a building block for ance costs, enables the use of digital technologies, and facili- more complex reforms in the future. tates business exit, among other improvements. The lesson learned is that business regulatory reform in the 3. Lesson Learned: What Worked, What Did Not and What West Bank and Gaza required finding innovative implemen- We Could Do Differently Going Forward to Maximize tation approaches. The regulatory framework is convoluted, Impact and Sustainability of Such Reforms outdated, and implemented arbitrarily. WB teams need to ex- ercise patience and aim for small steps in the beginning and Lesson 1: Identifying a critical path to legal reform in the not look exclusively for “quick wins” when it comes to design- West Bank and Gaza has not always been straightforward; ing new projects. the team has had to employ innovative approaches to im- plement and pursue quick wins before attempting more Lesson 2: Business regulatory reform in the West Bank and comprehensive reforms. Gaza requires a high degree of flexibility in adapting good practices to the unique and challenging environment. Legal reform is a key dimension of business regulatory re- forms. It is typically the first building block and must be estab- Flexibility is not only required to find innovative approaches; it lished before other improvements, such as capacity building is also required to craft policies that are fit-for-purpose in this or digital technology solutions, can be introduced. However, unique environment. For the Companies Law reform, the team legal reform cannot be taken for granted in the FCS environ- had to account for a particularly weak court system and the ment. In this case, amending laws has been difficult because lack of commercial courts specializing in business disputes. the Parliament has not convened since 2007. All legislation The local courts’ inefficiency at resolving commercial disputes passed into law since 2006 has been done exceptionally by would take several years to address through capacity build- presidential decree, which is not an environment conducive ing and investment, an area well outside the project’s scope. to furthering legislative reform. The team decided to pursue Since addressing this institutional weakness was not possible, municipal business licensing reform first to create momentum the team came up with the innovative solution of providing an before attempting to reform the Companies Law, since the lat- alternative means of dispute resolution. The Companies Law ter was a more comprehensive and riskier endeavor. included a section on the Registrar’s mediation role to provide an additional option for resolving disputes involving entrepre- When the team explored the possibility of overhauling the Law neurs, investors, companies, or managements. The mediation on Crafts and Industries, however, it soon became clear that role is not typically in a company registry’s quiver in other ju- introducing comprehensive amendments to the legal frame- risdictions, but it was a sensible solution given the institutional work would not be feasible. The team consulted with local le- weaknesses in the West Bank and Gaza. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 45 The lesson learned is that a high degree of flexibility in adapt- Legal reforms are not easy to spearhead in the FCS context, ing good practices to a unique and challenging environment is primarily due to strong resistance by incumbents who see ef- necessary to develop fit-for-purpose solutions. forts toward enhanced transparency and predictability as a threat. The team faced strong opposition from vested inter- Lesson 3: WB teams engaging in business regulatory reforms ests in the case of the Companies Law reform. For example, in FCS must prepare for an intensive engagement that will the companies controller tried to maintain broad discretionary, require going above and beyond the typical advisory delivered supervisory, and quasi-judicial powers. The Bar Association to clients. tried to capture regulation by mandating the involvement of lawyers in business registration procedures and by requir- The team realized early on that the client did not have the ing all businesses in West Bank and Gaza to hire a resident resources and capacity to do the heavy lifting necessary to lawyer — policies directly at odds with the reform’s broader implement the Companies Law reform. In response, the re- policy objectives. gional task team leader identified resources to support a more intensive engagement, and the global team members Political pressure from stakeholders who tried to maintain the rolled up their sleeves and invested a significant amount of status quo against the public interest were initially kept at bay time to get into the weeds of legal reform to provide tailored for months. However, a government reshuffling in the PA in- technical assistance. troduced new risks that culminated in formation of a Drafting Committee (DC) in fall 2019, which comprised a majority of Subsequently, the team engaged in labor-intensive discus- anti-reformers. The DC was tasked with finalizing the draft law sions with local lawyers to gain insights on relevant laws and previously developed by MoNE with WB’s support that had practices and on the specificities of the context due to the benefited from a transparent, consultative, and participatory conflict. In addition, the team worked closely with local law- process. However, the DC produced a draft that largely pre- yers to provide technical guidance on each of the law’s chap- served the status quo. This development derailed previous ters. This was a painstaking exercise that required attention reform efforts and threatened to erase nearly two years of in- to detail, diplomacy, and patience. Following the first draft’s tensive work by the WB team, MoNE, and local lawyers who completion, the WB team supported MoNE in engaging in an had been engaged to produce the initial draft. intensive round of consultations with public and private sec- tor stakeholders through workshops and bilateral discussions. The WB team had to reengage MoNE decision-makers, reset Additionally, the team delivered targeted trainings on good the policy level dialogue, and raise awareness on the broader practices to selected stakeholders. Finally, the team engaged implications of maintaining the status quo for the future de- heavily in policy dialogue with decision-makers in the PA to velopment path. Bringing the reform back on track required ensure that the new policies are clearly understood, that the several consultations both internally (e.g., with CMU and re- reform benefits for all economic participants align with gov- gional management) and externally with the donor community. ernment development objectives, and that government at the These efforts culminated in a decision from the MoNE Minister highest levels takes ownership of this complex reform. to form a new Drafting Committee in spring 2021. The new DC had a different composition — it was free of vested interests The lesson learned is that teams operating in such contexts to — and a clear policy mandate from the government. implement similar complex reforms must factor in the limited local institutional capacity and the limited coordination among The lesson learned is that convening key stakeholders from the relevant institutions at both the policy and the operational the public and private sectors around the table to build con- levels during design and implementation. Countering those sensus may increase chances of success, but it is not always challenges will require heavy engagement from all team mem- sufficient. Having strong and consistent support from WB bers throughout the reform process. management to prioritize the reform through high-level dia- logue and coordination with other donors is crucial to increase Lesson 4: Comprehensive legal reform in the FCS environ- the likelihood of success in this context. Project teams must ment is possible, but it requires perseverance, patience, and a be proactive when a reform is being derailed due to resistance high tolerance for risk from project teams, coupled with strong from vested interests. By acting as soon as it becomes aware management support. of efforts to undermine the reform, the WB team can become the key to avoiding significant delays. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 46 6. >>> Conclusion Fragility, conflict, and violence usually result from issues and tensions that have evolved over years. Multiple factors contribute to and culminate in FCS. While some countries (or subnational regions) have over the years been able to escape the FCS trap, the majority have become stuck in a recurring cycle of fragility and conflict. Exacerbating this cycle of fragility and unrest are, among other drivers, high unemployment and lack of economic opportunities. There is no “one-size-fits-all” solution for designing and implementing BER in FCS. Clustering countries by fragility profile reveals significant heterogeneity,56 which calls for differentiated policy and programming approaches to achieve effective reform solutions. In addition to the type or theme of reform, factors such as how reforms are implemented and considerations raised by conflict-sensitivity assessments are equally crucial for ensuring the success of business environment reforms in FCS. Tailoring BER engagements to the specific manifestations of fragility, building institutions and systems that can deliver on inclusive growth, and strengthening public and private sector dialogue are some of the key elements for success. Enabling appropriate private sector activities is a means for countries to break free of the “fragility trap” that impedes their progress on economic development. Business environment reforms present a solid opportunity for reaching this goal. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 47 >>> Endnotes 1. World Data Lab, “World Poverty Clock” (2021); Brookings, “Poverty and Fragility: Where Will the Poor Live in 2030” (2021). 2. World Bank, “Fragility and Conflict: On the Front Lines of the Fight Against Poverty” (2020). 3. World Bank, “Fragility and Conflict” (2020). 4. IFC, “Generating Private Investment in Fragile and Conflict-Affected Areas” (2019). 5. World Bank, “Supporting the Most Vulnerable: Scaling Up Support to Address Fragility, Conflict, and Violence” (2020). 6. World Bank, “Fragility and Conflict” (2020). 7. IEG, “IFC’s Engagement in Fragile and Conflict-Affected Situations — Lessons and Results” (2017). 8. United Nations; World Bank, Pathways for Peace: Inclusive Approaches to Preventing Violent Conflict (Washington, DC: World Bank, 2018). 9. UNHCR, Global Trends, 13, https://data2.unhcr.org/en/situations/Ukraine. 10. IFC, “Generating Private Investment in FCS” (2019); World Bank, “Classification of Fragile and Conflict-Affected Situations”; World Bank, “Fragility, Conflict & Violence — Overview.” 11. WBG, “Global Investment Competitiveness Report — Foreign Investor Perspective and Policy Implications” (2018). 12. World Bank, “The Conflict Analysis Framework (CAF)” (2002); UNDG, “Conducting a Conflict and Development Analysis” (2016); SwissPeace, “Fact Sheet Conflict Sensitivity.” 13. World Bank, “Problem-Driven Political Economy Analysis” (2014). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 48 14. von Einsiedel, Sebastian, Louise Bosetti, James Cockayne, Cale Salih, and Wilfred Wan, “Civil War Trends and the Changing Nature of Armed Conflict,” Occasional Paper 10 (United Nations University, Tokyo, 2017). 15. Institute for Economics and Peace, Global Peace Index 2019: Measuring Peace in a Complex World (Sydney: Institute for Economics and Peace, 2019), http://visionofhumanity.org/reports. 16. World Bank Group, “World Development Report 2011: Conflict, Security and Development: 2011” (Washington, DC: World Bank, 2011). 17. World Bank, “Fragility and Conflict” (2020). 18. Global Initiative, “Organized Crime: A Cross-Cutting Threat to Sustainable Development,” Research Report (Geneva: Global Initiative Against Transnational Organized Crime, 2015), 4. 19. World Bank, “Gender Inequality Exacerbates the COVID-19 Crisis in Fragile and Conflict- Affected Settings” (2020). 20. AquaDocs, “Widows’ Struggles in Post-War Sri Lanka” (2022). 21. Reuters, “Sri Lanka’s War Widows Trafficked as Slaves to Gulf” (2017). 22. IFC, AIMM Framework Dimensions, https://www.ifc.org/wps/wcm/connect/topics_ext_ content/ifc_external_corporate_site/development+impact/aimm/aimm-dimensions/ measuring-outcomes. 23. U. Schrade, B. Seibel, C. Weinreich, and S. Reichenbach, “Is There a Case for Private Sector Development Interventions in Contexts of Open and Sustained Violence?” (GIZ [Corporation for International Cooperation GmbH], Eschborn, Germany, 2017). 24. DCED, “Business Environment Reforms in Fragile and Conflict-Affected Situations” (2020). 25. IFC, “Generating Private Investment in FCS” (2019). 26. World Bank Group, “World Development Report 2011: Conflict, Security and Development: 2011.” 27. Organization for Economic Cooperation and Development (OECD; 2016). 28. DCED, “Business Environment Reforms in Fragile and Conflict-Affected Situations” (2020). 29. GTZ (Agency for Technical Cooperation), “Private Sector Development in Post-Conflict Situations” (2008). 30. GTZ (Agency for Technical Cooperation), “Private Sector Development in Post-Conflict Situations” (2008). 31. WBG, “Global Investment Competitiveness Report — Foreign Investor Perspective and Policy Implications” (2018). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 49 32. World Bank, “Global Investment Competitiveness: New Insights on FDI” (2017). 33. WBG, “Global Investment Competitiveness Report — Foreign Investor Perspective and Policy Implications” (2018). 34. Ibid. 35. World Bank Group, “World Development Report 2011: Conflict, Security and Development: 2011.” 36. IFC, “Public Sector Advisory Operations in Fragile African Markets” (2021). 37. Timothy Besley and Hannes Mueller, “Estimating the Peace Dividend: The Impact of Violence on House Prices in Northern Ireland,” American Economic Review 102 (2; 2012): 810–33. 38. World Bank, “Data Collection in Fragile State” (2020). 39. Business Pulse Surveys measures the performance of businesses, their responses, and access to public support. 40. IEG (Independent Evaluation Group), Investment Climate Reforms: An Independent Evaluation of World Bank Group Support to Reforms of Business Regulations (Washington, DC: World Bank, 2015). 41. World Bank Group, “World Development Report 2011: Conflict, Security and Development: 2011.” 42. World Bank, “Geo-Enabling initiative for Monitoring and Supervision (GEMS),” https://www. worldbank.org/en/topic/fragilityconflictviolence/brief/geo-enabling-initiative-for-monitoring- and-supervision-gems. 43. R. Kanbur, “Conceptualizing Informality: Regulation and Enforcement,” Working Paper 09-11 (Cornell University, Dept. of Applied Economics and Management, 2009); Nancy Benjamin and Aly Mbaye, “Informality, Productivity, and Enforcement in West Africa: A Firm- Level Analysis,” Review of Development Economics (2012). 44. WBG, “Global Investment Competitiveness Report — Foreign Investor Perspective and Policy Implications” (2018). 45. World Bank, “Beaten or Broken — Informality and COVID-19” (2020). 46. Mohammad Amin et al., “Casting a Shadow: Productivity of Formal Firms and Informality” (Washington, DC: World Bank, 2019). 47. Amin et al. (2019). 48. Franziska Ohnsorge and Shu Yu, “The Long Shadow of Informality: Challenges and Policies” (World Bank, Washington, DC, 2022), https://openknowledge.worldbank.org/ handle/10986/35782 License: CC BY 3.0 IGO. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 50 49. Mohammad Amin and Yew Soh, “Do More Rules Lead to Corruption?” (World Bank, Washington, DC, 2020). 50. World Bank Group, Public-Private Dialogue in Fragile and Conflict-Affected Situations: Experiences and Lessons Learned (Washington, DC: World Bank, 2014). 51. IFC, “Generating Private Investment in Fragile and Conflict-Affected Areas” (2019). 52. Cambodia Federation of Employers and Business Associations. “Cambodia’s Government- Private Sector Forum is a public-private consultation mechanism” (2020). 53. DCED, “Business Environment and Reforms in Fragile and Conflict-Affected Situations” (2020). 54. Syed Akhtar Mahmood and Meriem Ait Ali Slimane, “Privilege-Resistant Policies in the Middle East and North Africa: Measurement and Operational Implications,” MENA Development Report (Washington, DC: World Bank, 2018). 55. World Bank, “Women at Work,” Policy Research Working Paper 8935 (2019); World Bank Group, Women, Business and the Law 2021 (Washington, DC: World Bank, 2021). 56. World Bank, “Fragility and Conflict” (2020). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT | BUSINESS ENVIRONMENT REFORMS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS <<< 51