2.2.4. BEE and the Post-Conflict Context
The highest priority needs in post-conflict countries are often employment and stability. Reconstruction activities generally focus on ensuring access to clean water and basic provisions, rebuilding infrastructure and establishing rule of law. But in many post-conflict environments, policy constraints can also create bottlenecks in key industries and drive up prices, thereby decreasing the impact of development funds. Failure to relieve such constraints can contribute to de-stabilization as frustration with the government grows. Conversely, removing these constraints not only facilitates the development of domestic industries and stretches donor funds, but also allows the government to demonstrate its commitment to reform, its legitimacy and its effectiveness.
Immediately following a conflict, there can be heightened openness for reform. Embarking on reforms early provides critical signals to the private sector in post-conflict environments. Over time, reform becomes politically riskier and more complex. In the medium-term, typical reforms include capacity building, licensing reform, trade logistics and customs reform; and in the longer term, business registry and investment promotion.
Even before reforms have been achieved, government can provide the public with an indication of its commitment to reform by engaging in dialogue with the private sector. Dialogue with the private sector can be used to identify the key laws, regulations and government entities that are the greatest constraints on business and employment growth.
A conflict lens should be applied to planning the reform process. An analysis of the BEE should include an assessment of the potential for future conflict and whether mitigating strategies such as promoting employment for ex-combatants should be prioritized. Donors and implementers should avoid focusing on regulations that may exacerbate regional disparities and should find multiple champions for reform. Since increased participation in the reform process generally leads to broader public support, which in turn increases the likelihood of success, donors and implementers should ensure that information is available to all stakeholders to enable them to engage in meaningful dialogue.
The following case studies document BEE reform efforts in post-conflict environments.
Case Study One: Overhauling Contract Enforcement in Rwanda
In the wake of the genocide of 1994, Rwanda embarked on policy and structural reforms targeted at reducing poverty through private sector-led economic growth. Rwanda chose the path of economic growth through competitiveness to address the business climate and private-sector development constraints that affected its ability to attract domestic and foreign investment. A major constraint targeted for reform was the justice system, “which was not responding to the country’s immediate aspirations” of becoming a middle-income country and achieving the Millennium Development Goals.
While Rwanda recognized early that reforms in the commercial justice sector were critical, competing needs, especially due to the legacy of the genocide, made it difficult to enact reforms until 2001. In December of that year, with World Bank support provided through the Competitiveness and Enterprise Development Project (CEDP), Rwanda began the process of building an enabling environment for private sector-led development. Since then the country has not looked back, posting a track record of reform that has generated strong support within both the country and the international community. While the reform process is far from complete, results are already being seen.
The country has attracted major foreign investors, notably in the communications field. Improvements in the business and investment climate and in overall competitiveness have been achieved by updating the legal and regulatory framework, improving the efficiency of institutional structures, and building human resource capacity to enable effective and speedy enforcement of contractual obligations and the resolution of disputes. The effectiveness of Rwanda’s reforms is largely the result of a highly consultative process, which involved the private sector, government and legal community.
Rwanda realized that the creation of a suitable environment for the enforcement of contractual obligations required a holistic approach that looked at the laws, the legal institutions, human resource capacity and customer service mechanisms. As new insights were made, the reform process was amended to incorporate them. Rwanda also learned the importance of taking enough time to involve both the top leadership and representatives of all those likely to be involved with and/or affected by the process. “It takes time for people to accept change; people prefer what they are used to, however poor or inefficient it may be.” Engaging and involving the private sector in the reform effort helped to bridge the gap between the public and private sector and to drive the reforms forward by increasing their acceptability to and ownership by the private sector. Rwanda’s reform process benefitted significantly by having private-sector individuals head some of the key reform committees and related projects.
Key factors in the success of Rwanda’s reform effort included the following:
- The establishment of ad hoc law review committees and commissions with time-limited scopes of work as opposed to permanent organs was a cost-effective and efficient way of accelerating reforms.
- The assurance that reforms would not have to compete for government resources with other pressing needs contributed to smooth the management and financing of the reform effort. The government support structure for the reforms was clearly centered in the Justice and Commerce ministries, while the CEDP operated as a semi-autonomous source of funding for the reform effort.
- The establishment of commercial court branches in at least three other locations in the country addressed the geographical representation issues that have hampered reforms elsewhere. This, plus the establishment of the commercial court in Kigali as a court of both original and appellate record, is worthy of more study by other countries.
Bosnia’s post-conflict economic recovery was burdened by the complex and multi-layered political structure created under the Dayton Peace Accords. Bosnia’s thriving informal sector represented an estimated 40 percent of the economy and the incentives to formalize were few. When corruption did not stifle honest businesses and drive investment from the region, heavy bureaucracy and the multiplicity of administrative and legal jurisdictions did.
The Bulldozer Initiative in Bosnia and Herzegovina was an innovative reform methodology that successfully overcame the lack of political will and capacity at the government level through a bottom-up approach. Using a grassroots public awareness methodology, the initiative mobilized the local business community to "bulldoze" barriers by identifying concrete legislative changes and advocating for their adoption and implementation. By delivering fast results–50 reforms in 150 days-the initiative won the confidence of entrepreneurs and empowered them to institutionalize permanent grassroots reform committees. The force of this lobby group created political will by putting public pressure on the politicians to do their part to enact the reforms. Most importantly, it carried investment climate reform the last mile by delivering concrete, quantifiable results in all sectors of the economy. Over time, the initiative established a dynamic of reform and public-private partnership that facilitates tackling more complicated structural reforms.
More than any specific result achieved by an individual reform, the largest impact on the investment climate was the fact that the reforms were passed as a package, pushed by the private sector itself, and that they received a positive response from the government, thus creating a constructive dialogue between the private and the public sectors.
In Bosnia and Herzegovina, the Bulldozer Initiative succeeded not only in introducing important reforms but also in empowering and training local groups to advocate for change and in establishing sustainable democratic mechanisms for civic participation in government. By breaking through political and ethnic barriers, it created coherent and sustainable links through a new democratic dynamic.