In the aftermath of devastating civil conflict, when institutions have been upended, civil norms razed, and regional demographics deeply altered, private enterprise can help stabilize and rebuild a nation. In a report by the World Bank, researchers cited unemployment as the main reason young people join a rebel group or gang (World Development Report 2011). As a result, providing jobs through entrepreneurship can help fight relapse in post-conflict zones.
Though entrepreneurship can be a powerful tool for recovery, there are several challenges for organizations supporting small and medium-sized enterprises (SMEs) in post-conflict states. Gayle Tzemach Lemmon, a writer and senior fellow at the Council on Foreign Relations, researches entrepreneurship in conflict and post-conflict states. Her work identifies four key areas to improve entrepreneurship as a reconstruction force:
- Promoting female entrepreneurship
- Reducing barriers to market entry
- Increasing access to financial capital
- Developing entrepreneurial networks and skills
This post will explore each of these areas in more detail and summarize Lemmon’s recommendations for effectively supporting entrepreneurs in post-conflict states.
Promoting female entrepreneurship
While gender inequality hamstrings economic growth around the world, sidelining women is particularly wasteful in weak economies. Because women participate less in violent conflict, they often survive their male relatives after a war. In addition, their removal from violence makes them more trusted community members. Supporting female entrepreneurs through access to skills building, networks, and capital allows them to break social norms and become empowered within their families.
Reducing barriers to market entry
Economic development strategies overwhelmingly focus on the micro-level rather than the market level. Instead, Lemmon recommends that organizations help match small business owners to the domestic markets in which they can sell their goods while providing assistance for them to meet international standards.
Nonprofits such as Building Markets and the Business Council for Peace facilitate relationships between buyers and small local enterprises. Their work building market linkages has redirected over a billion dollars into the Afghan economy. Because conflict-ridden states lack the network infrastructure and channels of more developed markets, strategies that increase market access can significantly improve opportunities for entrepreneurs.
Increasing access to financial capital
SMEs often lack access to funding, and the availability is further reduced for those in fragile states. With risk heightened by political instability and conflict, banks prefer to loan to larger companies. In addition, when SMEs can find loans, the short repayment horizons and high interest rates prevent them from being optimally effective.
Organizations such as USAID’s Development Credit Authority hope to expand financial coverage by swallowing private sector risk through loan-guarantee programs. Other nonprofits are looking into novel strategies such as psychometric testing and crowdsourcing SME loans. These techniques reduce the risk of investing in small enterprises, thereby making it easier for firms to acquire capital.
Developing entrepreneurial networks and skills
Entrepreneurs in conflict and post-conflict states typically don’t have the training or education that helps to secure loans and run a business. Currently, organizations like Goldman Sachs and the International Finance Corporation pioneer initiatives to provide entrepreneurs with business and management training and access to networks and mentors. By investing in entrepreneurs themselves, such initiatives increase the likelihood of homegrown economic growth.
Recommendations and conclusions
Based on her research, Lemmon suggests the following recommendations for policymakers and development agencies:
- Offer comprehensive programs for entrepreneurs that integrate skills training, funding, and market access
- Sponsor financial products such as loans in states that lack risk capital, especially for female business owners
- Scale solutions that work
- Share information and lessons learned throughout the development sector
Research shows that entrepreneurship has stabilizing effects both economically and politically. As a result, it should be emphasized as a tool for international development, especially in conflict areas. With research such as Lemmon’s, methods of supporting entrepreneurship will continue to become more informed and effective.
Access the full paper here: http://www.cfr.org/entrepreneurship/entrepreneurship-postconflict-zones/p28257
Access the World Development Report here: http://siteresources.worldbank.org/INTWDRS/Resources/WDR2011_Full_Text.pdf
Contributed by Marisa Bhargava.