Refugee camps are a major untapped opportunity for private sector investment, particularly when combined with the local host community, the UN and International Finance Corporation have concluded after analysing the economy of one of the world’s largest centres for displaced people. 

Governments and development agencies should do more to support private sector investment in such areas, according to Philippe Le Houerou, chief executive of the IFC, the World Bank’s investment arm. 

“Conflict, violence and persecution are driving more people from their homes than at any time since world war two [but] government aid to tackle the challenge is limited,” he said. “Private sector investment could make an important difference — by creating jobs and opportunities for refugees. But investors often lack the critical information they need to venture into these markets.” 

The IFC and UN refugee agency (UNHCR) reached their conclusion after studying Kakuma, a town of 60,000 people in north-western Kenya that hosts 180,000 refugees. The total annual household consumption in what is the equivalent of the country’s tenth largest city is well over Ks6bn ($59.9m) not including in-kind donations to refugees, according to the study — the first of its kind in the world.

There are more than 2,000 informal businesses in the camp and 73 per cent of the refugees have a regular income. 

Disposable income is also likely to rise in Kakuma and elsewhere as the UN and other agencies move towards more cash assistance rather than in-kind handouts. 

Raouf Mazou, the UNHCR representative in Kenya, said aid organisations’ approach to refugees needed to change. “We’ve seen how sometimes our intervention actually dehumanises refugees and how our intervention removes refugees’ ability to produce because they’re provided with humanitarian assistance for a long period of time,” he said. “Refugees should be part of the economy, refugees should live normally. The only way to do that is by partnering with the private sector.” 

Significant challenges prevent refugees in many countries from optimising their economic potential, which in turn deter many companies from considering investing in refugee camps, the report said. These include restrictions on refugees’ property ownership, their right to work and access to capital. 

Anzetze Were, a Nairobi-based development economist, said the fact that three-quarters of the Kakuma refugees’ income came from handouts also might deter investors since they could be withdrawn. 

“If we can find ways to use the [refugees’] income to create autonomous income-generating activities that could be used to develop sustainable ecosystems then that would work,” she said.

Michel Botzung, the IFC’s Africa manager for fragile and conflict situations, acknowledged that attracting private investors to refugee camps was “a challenge because it’s not business as usual”. 

“There’s an additional element of risk that will be associated with doing investment,” he said. “But we’re willing to help [companies] move there if they’re convinced of the merits.” 

He said several IFC clients in Jordan, which hosts hundreds of thousands of refugees, had asked the agency for help to invest in communities for displaced people.

Josphat Nanok, governor of Turkana — the county where Kakuma is, said the study had convinced him that policy towards refugee management needed to change. 

“It highlights to the government of Kenya the importance of remodelling Kakuma with its refugee and host population into an urban setting in an organised way . . . that will encourage investors to come in.”