Reconstruction Zones as a Driver of Conflict - Sensitive Policies For Inclusive and Dynamic Growth in War - Torn Countries

Countries coming out of crises have found it easier to achieve macroeconomic stability than to create a basic legal, institutional, and regulatory framework, simple and flexible enough, to support the creation of local jobs and entrepreneurship and attract foreign direct investment. Since most countries start reconstruction from a very weak fiscal situation, and spikes of aid are short-lived, governments need to vigorously support private sector development that is dynamic, inclusive and sustainable. By contrast, many of the private sector activities that create growth in these countries—including natural resource concessions and free trade zones for low-skilled manufacturing (also known as export-processing zones)—have operated as enclaves within the country, without an impact on the population at large, and even creating threats to human security by putting large investors and local communities in confrontation with each other as they are in the Niger Delta, Liberia, Haiti and elsewhere. An appropriate and stable policy and institutional framework is necessary to attract foreign direct investment, particularly into infrastructure development, manufacturing for export, banking, and the utilization of natural resources, including both agriculture and mining. The right framework is essential in ensuring that transnational corporations and large domestic ones create links between their export-oriented activities and the national economy, that there is a fair distribution of gains and risks between the public and private sectors, and that land concessions and other preferences given to large investors do not become a new source of conflict in the country. Such framework is also essential for ensuring that domestic micro, small and medium-sized enterprises have a level-playing field to operate in the country, including basic infrastructure and adequate credit. I have proposed elsewhere the creation of reconstruction zones (RZs)—combining an export-oriented (ERZ) and a local-production zone (LRZ), together with trade preferences in international and regional markets for goods processed in these zones. I have made specific proposals for highly-aid dependent countries such as Afghanistan, Haiti, and Liberia that need to replace foreign direct investment and exports as a source of foreign exchange and reduce their dependency on aid. The purpose of this paper is to focus on the policy issues and on the specific legal and regulatory framework that countries need to have in place to establish RZs that effectively promote investment, trade, food security, employment and entrepreneurship. In this process, RZs could become a major policy tool to improve human security as well.