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Development Impact of Fragility
Report for IFC on Fragile States as of April 2012
1
April 2012
Fragile and conflict-affected states suffer from low economic growth and development, and citizens of
these states lack access to basic services. More than 1.5 billion people live in countries affected by
fragility, violence, and conflict. No low-income fragile state has achieved a single Millennium Development
Goal, and poverty reduction in countries affected by violence is on average nearly a percentage point
lower per year than in countries not affected by violence.
The Infrastructure Challenge in Fragile and Conflict-Affected States
Fragile and conflict-affected states have an urgent need to deliver basic infrastructure services. However,
characterized by the negative impacts of conflict or natural disasters, infrastructure service provision in
these states is often left underfunded, and in many cases, damaged or destroyed. In addition, fragile and
conflict-affected states often have inadequate public revenues and insufficient government capacity to
provide these services.
Opportunities exist to leverage the private sector in the financing and operation of vital infrastructure
assets. Mobilizing private sector financing and expertise can break the cycle of low investment, low
productivity, and resurgent conflict.
Nevertheless, challenges remain in attracting private investors with the risk appetite inherent in working in
fragile and conflict-affected states:
� Higher political and economic risks
� Weak investment climate/enabling environment
� Lack of counterpart agents
� Greater investment needs
� Lower payment capacities on the part of consumers
Laying the Groundwork for Private Sector Participation
Establishing an early track record of attracting private investment and demonstrating good contractual
faith can have a positive demonstration effect on other potential private investors. Creating a solid
enabling environment and investment climate through legal, regulatory, and policy reforms can represent
the first steps on the road to improved infrastructure service provision through private participation.
In post-conflict states, mobile telephony has successfully attracted rapid private sector interest due to the
sector’s short cost recovery period. Investments in other sectors such as power generation and ports
have also taken place relatively soon following the end of conflict. Choosing first projects with the highest
chance of success can create a signaling effect, with the possibility to sequence further activities in other
sectors based on the success of initial projects.
PPIAF-IFC Collaboration in Fragile and Conflict-Affected States
PPIAF and IFC are committed to supporting governments in fragile and conflict-affected states to deliver
basic services to citizens. In June 2010 the IFC provided PPIAF $2 million, 30% of which was targeted
towards IDA-eligible fragile states, with a focus on Sub-Saharan Africa.
PPIAF has used the funds to attempt to address the development issues that plague fragile and conflictaffected
states by supporting an enabling environment for long-term private sector investments in
infrastructure and by funding activities in telecommunications and other sectors with the highest likelihood
of yielding immediate impact. Examples of PPIAF technical assistance include: