4 ways business can strengthen fragile states

In a speech last month, US Secretary of State John Kerry told university studentsthat “because the world is so extraordinarily interconnected today, instability anywhere can be a threat to stability everywhere”. Just three days later, the attacks by ISIS-aligned terrorists in Paris brutally demonstrated his point.

Fragile states and regions – those places trapped by violence, extreme poverty and poor governance – are home to much of the world’s misery. Roughly a billion people are being left behind, trapped in cycles of fragility and violence, as the rest of the world progresses.

That disparity alone demands that we, on moral grounds, make the most serious effort we can to get fragile places on a path to progress.

But when coupled with Secretary Kerry’s point – that instability anywhere threatens stability everywhere – the need to strengthen fragile states becomes even more urgent. If we don’t address the roots of fragility in the world’s toughest places, the vast quality-of-life gains we have experienced across the planet could well be undermined. The lofty aims of the new Sustainable Development Goals – especially the focus on ending extreme poverty – will not be realized without such a focus.

Governments and civil society have important, often-discussed roles to play. But I believe it is critical that we engage the private sector in the conversation. The notion that companies – from huge multinationals to local operations – can help make fragile places more resilient simply by doing business need not be fanciful. Yes, the risks are higher and the path to profitability may be more circuitous. But there are good reasons to work on this: some of these frontier markets will be part of a longer term growth strategy, and – again to Kerry’s point – the failure to stem instability could actually threaten business results even in established markets. My organization, Mercy Corps, has worked with companies and communities on market-driven development in a wide range of challenging environments, and I offer four ways businesses can be part of the solution:

Engage civil society in your value chain

International NGOs like Mercy Corps are often deeply knowledgeable of the communities in which they operate. More than 90% of our global team is comprised of nationals of the countries in which we work. Groups like us can help companies get access to better market information and better capitalize on opportunities that provide shareholder value while also addressing social needs.

For example, we partnered with Swiss Re and Haiti’s largest microfinance institution, Fonkoze, to found the Microinsurance Catastrophe Risk Organisation (MiCRO). Organized as a specialty catastrophe reinsurer, MiCRO develops and markets microinsurance products to protect low-income people from the aftermath of severe natural disasters. From 2011-2013, MiCRO insured more than 65,000 Haitian microfinance clients and paid more than $8.8 million in insurance benefits. MiCRO’s engagement in Haiti has been a source of lessons learned as Mercy Corps and Swiss Re partner to expand to new markets in Central America. This effort makes poor people more resilient and advances Swiss Re’s commitment to closing the financial gap by developing insurance products that meet the risk management needs of emerging market consumers.

Remember that “business” is more than multinationals

In places like Davos, “business” tends to mean multinational corporations, because that’s who is there. But let’s not forget that local and regional businesses contribute to and benefit from domestic growth and stability. Like their global counterparts, for whom they’re often sourcing and selling, these businesses can enhance their reach and their social impact by partnering with development NGOs. For example, in Wajir in northern Kenya, there was a dire need for livestock medicine for the herds that sustain the people who live there. Although national supply companies operate in Kenya, the remoteness of Wajir’s population meant it was never on their expansion radar. Mercy Corps examined the value chain and helped create a livestock medicine supply business that activates commission-based local agents to sell product in remote pastoralist gathering areas. That local company became an authorized supplier for a national corporation based in Nairobi. This three-tiered system made money for the companies, gave Wajir pastoralists access to the medicine they needed, and ultimately improved the livelihoods of their communities.

Let others buy down your risk

Market entry can be challenging even in the most stable environments. In fragile markets, there is an understandable reluctance to make big investments. However, as part of their social and economic development missions, private foundations and government donors are already working closely with market-oriented NGOs to test socially beneficial business opportunities. These partners, through the financial and human resources that they bring to fragile environments, are a natural ally in hedging risk. Companies can work closely with NGOs to mitigate their entry risk in new geographies or with new market segments.

In rural Guatemala, for example, we worked closely with the Linked Foundation to establish Tiendas de la Salud, franchised community health stores and pharmacies which provide “last mile” access to medical supplies in rural communities. Linked provided multiple tranches of funding to test and expand the model in partnership with Farmacias de la Comunidad, the largest generics company in Guatemala, who recognized the potential for profit and to achieve their social goals. The network has served tens of thousands of underserved Guatemalans and continues to expand. Using lessons learned from Guatemala, Mercy Corps and Linked have supported the adaptation of the model to Mexico creating a faster and more sustainable expansion into hard-to-reach communities.

Support good governance: it’s good for business and everything else

Poor governance – whether simply ineffective or intentionally predatory – hurts people and business. In two recent studies that examined sub-Saharan Africa, Afghanistan and Colombia, we found that young people turn to violence not only because they are poor or unemployed, but also because they are angry, particularly about weak governance and corruption. Alleviating this grievance can help keep criminality and violence in check. Related to that, our work in Nigeriaindicates that an absence of appropriate governance systems to fairly manage disputes is a key driver in the ongoing farmer-pastoralist conflict in the Middle Belt. This conflict costs the Nigerian economy $9 billion a year, with a potential projected peace dividend as high as $13 billion, if stability were achieved.

Improving governance is hard work, and the private sector has an important role in that. Modelling behaviour related to transparent and equitable hiring practices, engaging stakeholders, and ensuring that business complements, rather than substitutes, expected government services are all important demonstrations of commitment to good governance principles.

Working with MasterCard, the Nigerian government is issuing National Electronic ID (e-ID) cards that will allow Nigerians aged 16 and older to simultaneously have a unique national ID and immediate access to an electronic payment platform. MasterCard sees this as a major market opportunity given the country’s population of 170 million, many of whom are currently unbanked. Building on our longtime collaboration with MasterCard, Mercy Corps is using the programme as an opportunity to provide further services to our beneficiaries, many of whom are traditionally excluded from the formal economy. We are enrolling our programme participants in the ID card programme to help them get one step closer to financial inclusion.

As part of a project with the UK Department for International Development, the Coca-Coca Company, MasterCard and the MacArthur Foundation, Mercy Corps will provide 18,000 adolescent girls in Nigeria with an e-ID linked to a mobile savings account at Diamond Bank by 2016. Paired with entrepreneurship and financial training, young women will have the tools they need to start small businesses, access financial services and become economically independent. This win-win partnership enables the MasterCard and Nigerian Government initiative to enroll populations which were formerly difficult to reach, while Mercy Corps is able to drive greater impact for underserved populations.

We can look at fragile states and regions either as hosts of misery and exporters of chaos, or as future markets and contributors to global stability. If private sector players join with government and civil society in making this a priority – keeping in mind the four lessons I’ve shared here – we stand a much better chance of success.

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