# **Box 5. ‘Trading with the enemy’: a tale of two markets**

Sadakhlo market was situated in Georgia, but close to the border of Armenia and Azerbaijan. With up to 5,000 people attending on a busy day, it was the main source of income for tens of thousands of Armenians, Azeris and Georgians. Even at the peak of the war between Armenia and Azerbaijan, ordinary Azeris and Armenians continued to trade at Sadakhlo, with traders from each country reaching the market via different routes. Azeris and Armenians demonstrated surprising levels of trust for two countries at war, without the fall-back of formal laws or contracts. In the words of one Azeri middleman who supplied goods on credit to Armenian customers, “we all know each other and reputation is our major asset.” However, in April 2006, the Georgian authorities decided to close the market, terminating the only place where direct trade contacts between Armenians and Azeris occurred.

The ‘Arizona’ market that sprang up in the Brcko border district between Bosnia & Herzogovina (BiH) and Republika Srpska following the Balkans war has emerged as a major centre for regional trade, bringing together traders from Bosnia, Croatia, and Serbia. Despite concerns about criminality and tax evasions, the Office of the High Representative decided to keep the market open—while closing down all other informal markets in BiH—viewing it as a source of livelihoods and a ‘neutral space’ for economic interactions between the three economic groups. Recent reforms have formalized the market, with an Italian investor winning the tender to finance, design, construct, and manage the market for 20 years, accompanied by concerted law enforcement action to suppress criminal activities. The market today employs around 5,000 people, with different ethnic groups living side by side and earning the highest average wages in BiH.

_Source:_ International Alert (2006).

1997. The council aims to promote dialogue and reconciliation between two countries that lack diplomatic, official or economic ties, by demonstrating the benefits of direct co-operation between each country’s private sector. Joint activities have included lobbying both governments for the restoration of transport links.<sup>32</sup> Another example is in Burundi where the _Dushirehamwe_ networks of Hutu and Tutsi women, which started as a community-level dialogue focused on conflict resolution, soon evolved to include joint economic activities. Organizers realized that reconciliation would be incomplete without addressing the urgent problems of securing livelihoods, and so established farming cooperatives, achieving economies of scale through the joint production and sale of agricultural products. In the words of one organizer, “the various economic activities carried out by different groups serve shared interests and reinforce the cohesion between different ethnic groups.”<sup>33</sup> Private sector activity can also build social capital at the institutional level. Co-operation between private sector participants may lead to the (re)establishment of business associations that subsequently engage in dialogue with government to improve the business environment. Business associations can provide checks and balances on governmental actions, act as a conduit for criticism, and lobby for the improvement of important institutions such as systems for resolving commercial contract disputes.<sup>34</sup> The growth of the private sector may also provide incentives for

> 32 Schwartz, Hahn and Bannon 2004.

> 33 Schwartz, Hahn and Bannon 2004.

> 34 At the same time, private sector actors can sometimes play a destabilizing role. In a weak regulatory environment, firms may help embed corrupt practices through bribery. They can undermine the establishment of an effective law

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