Set against a stark global economic backdrop, current forced displacement trends reflect a deeply concerning global reality. The number of forcibly displaced people continues to grow annually, with a record 117 million people displaced in 2023. Over half of the displaced originated from just three countries, Syria, Ukraine and Afghanistan. The scale of global forced displacement is such that today 1 in 68 people worldwide are fleeing conflict, war or persecution. The majority are displaced inside their own countries, internally displaced persons (IDPs) reached an all-time high of 75 million in 2023, rising from around 40 million only 5 years ago. The war in Ukraine triggered the highest number ever recorded for any one country.

Forced displacement crises are growing in size and shifting in nature. Two-thirds of displaced populations find themselves in protracted situations, living in unsustainable conditions for years in their host countries, with little to no prospect for return. On average, displacement lasts 20 years for refugees and more than10 years for IDPs. Low- and middle-income countries are disproportionately affected, with 9 in 10 displaced persons often grappling with their own socio-economic challenges, including the consequences of COVID-19, inflation, debt burden, food insecurity, drought, and conflicts. There has also been a strong urbanization trend, with many displaced travelling from camps to cities in search of socio-economic opportunities often lacking in the regions they have arrived in.

With dwindling humanitarian financing and the protractedness of refugee contexts, refugees’ inclusion in national services and access to socio-economic opportunities is more critical than ever. Inclusion ensures their protection against harm and repatriation, and permits them access to health, education and other social services. It also helps to strengthen their self-reliance and resilience, enabling them to contribute to the social and economic conditions of the communities who host them, rather than having to depend on unsustainable parallel humanitarian assistance for years. A recent IMF study “Regional Spillovers from the Venezuelan Crisis: Migration Flows and Their Impact on Latin America and the Caribbean” indicates that although the arrival of Venezuelans seeking better lives has strained the economies and societies of Latin American host countries, their socio-economic inclusion has the potential to increase GDP in these countries by up to 4.5 percentage points by 2030.

In 2018, the Global Compact on Refugees (GCR) marked a significant shift in the approach to addressing forced displacement challenges. It recognizes that traditional humanitarian aid, while crucial for immediate relief, falls short in providing long-term solutions for these populations and their host communities. The GCR advocates for developmental approaches, broadening the focus on refugees as recipients of aid to recognizing their developmental impact on, and potential for host communities. It recognizes the potential of the private sector in providing sustainable solutions for refugees and actively encourages private sector involvement in initiatives aimed at fostering economic opportunities, empowering them, and enabling their integration into national economies. The GCR is a game changer on two levels: for host governments and populations, it extends the benefit of interventions in areas impacted by the influx of refugees, making their presence somewhat more acceptable in return for broader economic and social development opportunities ; for private companies, it broadens the market opportunity, focusing on a larger geographical scope – forced displacement contexts (bringing together the displaced and their hosts) – rather than focusing on specific social groups.

The GRC has enabled a stronger engagement of development actors in forced displacement contexts. Notable progress has been made by development banks (MDBs), through a responsibility sharing approach with refugee-hosting governments, in providing financial and technical support for sustainable access to jobs, services, social assistance, as well as paths to solutions. The World Bank has been a forerunner through its partnership with United Nations High Commissioner for Refugees (UNHCR) and its dedicated financing arms for supporting countries hosting refugees (namely, the IDA Window for Host Communities and Refugees for low-income countries, and the IBRD Global Concessional Financing Facility for middle-income countries). These instruments offer critical incentives for host countries to include refugees in national systems. The MDB Coordination Platform on Economic Migration and Forced Displacement enhances its cooperation on knowledge, evidence, and data and ensures coordination with other stakeholders, including deploying better-targeted instruments. Yet, there remains enormous potential to be leveraged in the private sector.

WHAT IS THE CURRENT STATE OF PRIVATE SECTOR ENGAGEMENT IN FORCED DISPLACEMENT CONTEXTS?

The private sector is already a key actor in forced displacement contexts, mostly in three ways. One is informal sector activities which are prevalent in all contexts; another is its growing CSR (Corporate Social Responsibility) activities, which have surged since the onset of the Ukraine War; yet another is procurement (being con tracted by Humanitarian agencies and INGOs to deliver goods and services). However, we are now calling for another, more impactful, private sector engagement, namely bringing the business dimension of the private sector to forced displacement contexts.

According to a forthcoming study from the IFC-UNHCR Joint Initiative, “From Host to Growth Communities”, the private sector engagement in forced displacement contexts varies across regions. New opportunities have recently emerged in the Americas and Europe, where middle-income countries have been affected by forced displacement, particularly those hosting Venezuelan and Ukrainian refugees. Both continents are facing labour shortages, and we are seeing positive trendsamong financial service providers, which are extending their services through digitalization, contributing to the enhanced financial inclusion of refugees.
 
As noted above, we have seen some interesting progress, particularly with financial service providers extending their services to refugees and the displaced. In terms of other areas such as employment in the private sector, refugees are usually limited to taking jobs that locals are reluctant to do, either physically demanding work, or manufacturing and agriculture-related work. Demographic changes, such as aging populations, policy changes, labor shortages, and nearshoring (locating manufacturing closer to main markets), along with advancing digitalization are creating new employment prospects beyond the traditional so-called 4Ds (dirty, difficult, dangerous, or dull jobs) in some FDP situations.

WHY IS RESPONSIBLE PRIVATE SECTOR ENGAGEMENT NOT HAPPENING AT A LARGER SCALE?

The first barrier to scaling is an important one, that of an enabling and inclusive policy environment which allows FDPs to work legally with their hosts, register their businesses, and access key services (e.g. mobile money.). An enabling regulatory framework is key to advancing market-based solutions. This facilitates and incentivizes private sector engagement. However, even where there are progressive and inclusive regulations, their application is not always uniform. Administrative, institutional, and practical barriers remain,particularly at the local level. In my experience, one of the first questions larger companies ask is “Is it legal to employ, work with, source products, etc. from refugees?”.

A second bottleneck is in access to, and ease of doing business in forced displacement contexts. Often refugees and the displaced are in remote areas, in the poorest parts of a country. In camp settings they often rely on a humanitarian economy, which deters longer-term sustainable economic development. In urban areas, they are often concentrated in the poorest neighborhoods. While the informal economies may be vibrant, refugee related markets are still generally very low-income ones.

Unique challenges also exist on the private sector side. Many businesses ignore forced displacement markets, have limited market intelligence on opportunities, and often have misconceptions and biases about engaging FDPs. Or while keen to engage, they do not have the right tools or information to do so. The second question frequently asked is “For how long will they stay?”. Lastly, even when a decision is made to engage, it is the operator in the last mile who finally decides to extend a loan, offer a service, or buy goods from FDPs: as we have seen in many contexts, there can be strong bias against working with refugees.

WHAT WOULD IT TAKE TO GROW THE PRIVATE SECTOR ENGAGEMENT IN FORCED DISPLACEMENT?

The International Finance Corporation (IFC) portfolio has a growing number of projects in forced displacement, particularly in the financial inclusion area. In Lebanon, IFC supported microfinance institution Al Majmoua to provide financial services to very small enterprises owned by refugees and host community members. In Colombia IFC supported Bancamia, and in Peru, Financiera Confianza to implement tailored value propositions for Venezuelan migrants and refugees. IFC also provided an investment to Santander Poland to enable loans for SMEs owned and managed by Ukrainians and Polish SMEs that are inclusive of Ukrainian displaced. In Moldova, IFC is providing advice to MAIB bank, and in Georgia microfinance institution, Crystal, to offer tailored services to Ukrainians. IFC is also looking at the potential of our clients in agribusiness, education, services, as well as infrastructure transactions (water or electricity) that could serve areas and geographies that are impacted by forced displacement.

Based on these examples, three key new approached would help to grow private sector engagement:

1. Include a private sector perspective from the onset, even in emergency humanitarian situations. Moving forward, opportunities must be seized. To achieve sustainable out-comes in humanitarian emergencies, early and active private sector engagement is essential. Private sector business operations can and should be leveraged right from the onset of a refugee crisis.
2. Change the mindset and broaden the scope. Do not look at refugees or internally displaced populations specifically; rather focus on the geographic areas impacted. This offers a broader market opportunity and makes it more relevant to host governments. A good example of this is the work the IFC teams have done in and around the Kakuma refugee camp in northern Kenya. This approach combines support for small businesses – enabling the business environment jointly with the local county government – and trying to attract bigger companies, including whenever possible IFC clients, to an area which had previously been overlooked in terms in development.
3. Support the responsible companies engaging in forced displacement contexts. For DFIs, through a market creation approach, support private sector engagement through a wide range of instruments, from the production/ dissemination of data on market opportunities to rewarding private companies engaging in forced displacement contexts through a combination of cheaper loans and tailored technical assistance.