Volume 1 Cedric - revised luca Final - RUIG-GIAN

Commercial banking has an important role to play in conflict-affected areas becauseof its role in facilitating a resumption or continuation of normal economic life. Given therisk-averse nature of bankers, and the special security concerns that affect this sector,international commercial banks cannot in general be expected to be the first outsideinvestors to enter a post-conflict environment. However, some regional banks see nicheopportunities in countries where their larger competitors may not wish to go. Examplesinclude Standard Chartered in Africa and Asia, several Austrian banks in Bosnia -Herzegovina, ANZ which became the first foreign bank to open a branch in Timor-Lestefollowing its independence, or Stanbic Bank from South Africa, which operates in 17countries in sub-Saharan Africa. Bray and colleagues go on to note that:Banks’ commercial expansion in post-conflict economies typically follows a sequence.Initially, as with ANZ in Timor-Leste and Standard Chartered in Afghanistan, they may earnmost of their income from international money transfers on behalf of diplomats and aidagencies. Then, as the economy starts to recover, they begin to work on import deals, forexample of reconstruction equipment for large international companies with recognizedcredentials. Later on, they may extend their services to high-net-worth individuals, forexample successful members of an international diaspora who want to invest in their homecountry. Then come infrastructure finance and loans to small and medium enterprises (SMEs).Retail banking tends to come last…[although it] is a desirable long-term objective for bankswho wish to establish a long-term presence in the host country. 29There have recently been indications, as referred to in the preceding section, thatcommercial banks’ traditional reluctance to lend to SMEs in poor countries may bechanging. The rates of return are high, the lending is less vulnerable to economicdownturns than corporate finance, and new technologies for cheap point-of-sale machineshave brought down transaction costs. One study gave examples of corporate activities inSME finance from 18 countries. Citigroup is reported to be examining the potential forlending through the intermediary of micro-finance institutions to small entrepreneurswhom commercial banks would not consider creditworthy as direct clients. 30 The ShellFoundation has a pilot project that aims to provide financing to large numbers of smallenterprises in Africa, to “help bridge the gap between the millions of small-scale Africanentrepreneurs who already understand risk and return and the hundreds of millions of US$in the accounts of risk-averse local banks.” 31 A feature of this programme is that thefinancing is accompanied by mentoring, as experience has shown that often what SMEmanagers perceive to be financial problems are, in fact, basically management problems. Itis also the experience of the ILO, for example in Croatian LED programmes, that creditprovision is more successful if accompanied by business development services.Infrastructure investments are comparable to those in banking in that they areimportant for facilitating activity throughout the economy. Yet governments tend in thefirst years after conflict to confront a bitter paradox: “they can neither absorb fullyreconstruction aid [i.e. public money from international agencies and government donors]nor can they attract much private investment to infrastructure sectors that could offset thestate’s low absorptive capacity”. 32 The challenge for policy is, first, how to provideessential services--during the interim until stability returns for a sufficiently long period formajor investments to again be forthcoming (some six years on average)--and, second, howto accelerate the arrival of the major investments. On the former point, small-scale privateproviders of electricity and water supply do commonly emerge in conflict-affectedcountries, and play a critical role, even if there are irregularities in service and occasional29 Ibid., p. 32.30 Financial Times, Special Report on Business and Development, 14 September 2005.31 Kurt Hoffman, “Lack of investment is the real tragedy in Africa”, Financial Times, 10 June 2005.32 Jordan Schwartz, Shelly Hahn, and Ian Bannon, The private sector’s role in the provision of infrastructure inpost-conflict countries: Patterns and policy options, World Bank Social Development Papers, Conflict Preventionand Reconstruction, Paper No. 16, Washington, D.C., August 2004.23