banking and payment system, business transactions must rely on cash and cannot access formal credit. Businesses that need credit for working capital (for example, to purchase inputs or goods for on-selling) have to rely more than usual on informal financial services, which are more expensive, unregulated, and limited in range.

The juxtaposition of a lack of a functioning payments system with low levels of physical security in a post-conflict situation can pose particular problems. Following the war in Sierra Leone, for example, banks were absent in a large part of the country and the logistics for moving money across the country were weak.<sup>6</sup> The lack of physical places to store physical cash and the lack of security for large cash transactions limit the size of business deals, acting as another drag on private sector activity.<sup>7</sup>

# _Infrastructure_

The physical degradation of infrastructure is one of the most tangible legacies of conflict. Infrastructure services facilitate the diversification and specialization of production, and the expansion of trade. Without the rehabilitation of infrastructure, economic growth potential will be limited. However, infrastructure components that comprise vital cogs in the machinery of the private sector are also first in the firing line during conflict: transport links (bridges, roads), energy and fuel facilities (power stations, electricity distribution hubs, fuel depots), telecommunications (fixed line and mobile) and trade facilities (ports, airports). In addition to its importance to private sector activity, the rapid restoration of essential infrastructure services following conflict assists in the perception of a return to normality, contributing to the reconciliation process.<sup>8</sup> While the impact of the destruction of physical infrastructure weighs on all private sector actors, it is particularly damaging to larger, formal firms and exporters. Firms in the manufacturing sector are likely to have degraded physical plant (either through direct conflict damage or through an inability to perform maintenance), may lack access to power, and face significant problems in transporting inputs and finished product. Exporters face the challenge of physically accessing foreign markets.

Some infrastructure sectors recover faster than others. One study found that telecoms investments, particularly mobile telecoms, materialize immediately after (sometimes even before) the end of the conflict, and represent the lion’s share of investment for the first five years of the post-conflict period.<sup>9</sup> Other sectors attract less investment. Energy projects, particularly in generation, start to emerge about three years after the conflict and increase in frequency after five. Private investment in transport comes later, and the water and sanitation sector—despite having the greatest needs— tends to come last of all, reflecting the high capital costs and constrained regulatory environment.

> 6 Isima 2004.

> 7 See Lister and Pain 2004.

> 8 DFID 2005.

> 9 See Schwartz, Hahn, and Bannon 2004. The infrastructure package for rolling out mobile phone networks has been largely commoditized, with minimal country-specific engineering requirements. The infrastructure is also rapidly deployable, allowing operators relatively quick returns on their initial investment.

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