Lessons Ethiopia and Eritrea can learn from other conflicts

This study by the Economist Intelligence Unit draws lessons from conflicts in Rwanda, Sri Lanka and Colombia.

The full report is here: Post Conflict Trade

This is an extract

A key part of creating and sustaining economic growth in post-conflict countries is increasing trade. This is not an easy task, however, and it is not without risks. Most, if not all, post-conflict countries were at low levels of development when their conflicts began and are highly dependent on primary commodities exports for growth. Continued

dependence on these products raises the likelihood that the country will revert back to conflict, as well as creating continuing opportunities for corruption at both the state and the local level. But moving up the value chain is difficult. It requires hard infrastructure like roads, bridges and rail and electricity generation and transmission, and for the general population to attain education that endow them with basic skills. They also take time.

Ethiopia and Eritrea both face problems in these areas. To provide insights into their post-conflict trade and development environment, The Economist Intelligence Unit was commissioned by DP World to produce a series of three case studies on how post-conflict countries around the world have dealt with similar issues, for better and worse.

The first case study looks at the coffee industry in Rwanda. Like Ethiopia, Rwanda is a landlocked country and coffee is one of its primary exports. In the aftermath of a civil war and the 1994 genocide, the government instituted a plan to move the country’s coffee industry up the value chain, and compensate for being landlocked, by producing specialty coffee. The early results were mixed, but more recently the effort appears to be paying off.

Potential lessons for post-conflict countries

Every country in a post-conflict situation finds itself facing different problems. The scale and nature of the conflict matters greatly. How much destruction was caused to the country’s physical capital? How much of the population was displaced as a result of the conflict and will they be able to return? Can trust in institutions and civil society be re-established among the combatants?

Nevertheless, there are basic and generalisable lessons that can be drawn from countries that have been or are going through the process of post-conflict recovery. These lessons form a baseline for that recovery. This paper, which looked at three such cases, provides the following lessons:

  1. Identify sensible opportunities for moving up the value chain.

Being ambitious is important to post-conflict development, and development in general. But it must be tempered by reality. Rwanda wanted to develop a manufacturing sector, as do most countries seeking to climb the economic ladder. And it still might be able to do so, despite being landlocked and short of (at least at the time) reliable power. In the short-term, however, it wasn’t a realistic option. What made more sense was to identify existing industries where there were possibilities to add more value rather than start from scratch elsewhere. For Rwanda that meant building a specialty coffee industry off the back of its production and trade in commodity coffee.

Sri Lanka has done likewise by developing a tyre industry on the strength of its domestic rubber output, but it has also found success by leveraging the relatively higher levels of education and skills in its labour force to position itself in niche links in global supply chains, such as the manufacture of weighing components for neonatal incubators.

  1. Beware white elephants.

Right now there is a significant amount of capital available for funding infrastructure projects in Asia and Africa. On its face, this is a welcome development. Almost all of the countries in the two regions, post-conflict or otherwise, are in dire need of paved roads that reach rural areas, upgrades to creaking railways and additional, and reliable, power generation capacity.

Were Ethiopia and Eritrea to focus on these more quotidian types of infrastructure projects, it would do much to improve their export capabilities.

Yet the temptation to build big and shiny airports and other types of facilities where ground can be broken with a golden shovel, and the new building unveiled with a ribbon-cutting photo op, is hard to resist.

But it must be. The case of Sri Lanka and its nearly-empty airport and sleepy new seaport is illustrative of the problems caused by white elephant projects. It is just one example among many, however.

  1. Create an enabling environment for PPPs (Public Private Partnerships).

These are not without problems, but for many countries PPPs can be the best available option. Most, if not all, post-conflict countries lack the domestic capabilities to build the kind of hard and soft infrastructure economic recovery requires. Bringing in foreign firms as partners with the government can help to overcome this constraint, as well as transfer knowledge and expertise to the local populations in a range of areas, such as in digitisation, data analytics and integrating production with global supply chains.

The local environment needs to be conducive for these agreements to be effective, however. Colombia performs well in this regard. Many countries don’t, especially those where good and consistent governance and clearly defined laws and regulations are in short supply.

To a certain extent, however, improvement only comes with experience, but there are areas where quick gains can be made, such as co-ordination among government entities when developing and awarding contracts, creating high-level political support for PPPs and ensuring transparency during the bidding process.

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