This report focuses on the specific challenges and opportunities of states that are making two challenging concurrent transitions, away from both extreme poverty and from conflict. First, they are ‘countries where the longer term prospects of the poor to escape poverty are overall good, but not necessarily secure or sustainable, and at risk of development reversals’ (Dercon and Lea, 2014). Second, they are affected in various ways by conflict and instability and are addressing the challenges of maintaining peace. This report is based on studies in six such countries with the aim of providing evidence, conclusions, and recommendations on the developing of private sector development (PSD) strategies in such places. The countries studied are Egypt, Ethiopia, Lebanon, Nepal, Myanmar, and Sudan. The report builds on previous research, including an earlier study under the UK Department for International Development’s (DFID) Policy Research Fund looking at the challenges of PSD in lower-middle-income countries (Davis., 2016).

It is clear that, for PSD practitioners, the usual toolbox of solutions is not sufficient to meet the challenges that exist. These include firstly a focus on macroeconomic stability, which though technically not part of a PSD portfolio is necessary to provide support to countries responding to significant instability. Reform of the regulatory environment is a key challenge in these countries, but making change happen is complicated by elite control and poor implementation capacities on the part of public servants. As a result, much PSD effort goes on firm-level activities, to support companies to survive and expand even in a problematic wider context. It is also clear that in these contexts, PSD programming needs to be very closely tied to other streams of development activity, in particular interventions on issues of governance and peacebuilding. However, factors such as education and infrastructure are also important to the longer-term development of the private sector, and therefore PSD needs to link closely to activities in these areas too. Programming needs to be flexible and adaptive and responsive to change as it happens, as well as needing to pick up and exploit opportunities as they arise. The combination of conflict and middle-income challenges often make the reform agenda seem huge and undoable. By focusing on what might be relatively small areas of reform, practitioners are in a better position to make change happen.

This study shares many of the conclusions of the 2016 study looking at lower-middle-income countries. These include: challenges with elite control and the impact this has on the growth of the private sector; a poor and opaque regulatory environment; and the need to see PSD programming as part of an overall approach in a country, in particular with interventions focused on good governance. However, this study has also identified significant additional issues stemming from the addition of conflict dynamics. First, the regional context in which a country exists is extremely important, meaning programming needs to consider the regional as well as the national context. Second, the implications of conflict may lie as much in the fear of instability as much as in the reality of it. Third, and most importantly, the conflict dimension means that the stakes are much higher. The skein of interests and networks that prevents a fragile situation getting worse is complex and often opaque. Development programming needs to be very sensitive and undertake detailed and appropriate analysis to ensure that interventions improve the situation or at the very least do not destabilise the status quo.