How to spark investment, private sector growth in fragile states

A river market in Kisangani, Democratic Republic of the Congo. The private sector in the African country is informal, making it hard to reach small and medium-sized companies for business opportunities. Photo by: Roberto Saltori / CC BY-NC

There is no lack of business opportunities in fragile states, but how do you attract investors with virtually no basic infrastructure?

Some investors weighed in on the issue Friday during a panel discussion at the World Bank’s annual meetings in Washington, D.C.

“How can we reach these very small medium-sized companies that basically do business with money in a bag instead of having a bank account and being properly registered?” asked Luuk Zonneveld, chief executive officer of the Belgian Investment Company for Developing Countries, the Belgian government’s development finance arm also known as BIO.

BIO is currently seeking business opportunities in the Democratic Republic of the Congo, but the lack of infrastructure in the former Belgian colony’s resource-rich eastern region makes investment a challenge.

“The problem is the private sector is completely informal. There are no land titles. There is no formal structure for these companies ... There’s no office where they can register. There is no auditing done of their account,” Zonneveld explained, adding that companies don’t even have an incentive to register because as soon as they do, they will be taxed by the government.

Karin Finkelston, vice president of the International Finance Corp. — the World Bank’s private sector lending arm — underscored that governments have a critical role to play in supporting the public sector and pointed to Rwanda as one success story. Finkelston however added that donors have a responsibility to provide support and “build capacities within ourselves to cooperate.”

The first thing BIO did in the eastern DRC was become a shareholder at a local bank, and then pushed it to set up branches around the region so businesses and individuals could have access to a bank account and credit.

“It creates safe money,” said Zonneveld.

BIO is also investing in a company that has developed a way to go online without a satellite connection.

“The only thing you need is an FM radio and a computer, and you can link it up,” said Zonneveld. “We’ve invested in a company like that because it allows all sorts of small-scale companies all of a sudden to have access to the Internet, to have cheap telephone, to be able to do mobile banking, all these things businesses need.”

The final crucial element on BIO’s radar is electricity.

“Less than 1 percent of the people [there] have access to electricity, so we’ve invested in this hydroelectric dam which will create energy, especially for small medium-scale enterprises,” said Zonneveld. “So with that, they have a bank account, they have energy, they have inter-ICT connection. And I think if then the government which is the thing that’s still missing in the region will be able to say OK, you can legally register, we’re going to tax you in a decent and transparent way, that would really pave the way for business to boom I think.”

What do you think is needed to attract more investment to fragile states? Please let us know by sending an email to news@devex.com or leaving a comment below.

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About the author

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    Jeff Tyson

    Jeff is a global development reporter for Devex. Based in Washington, DC, he covers multilateral affairs, U.S. aid and international development trends. He has worked with human rights organizations in both Senegal and the United States, and prior to joining Devex worked as a production assistant at National Public Radio. He holds a master's degree in journalism from Columbia University and a bachelor’s degree in international relations and French from the University of Rochester.