Fast Facts:

• “Economic distortions,” which prevent refugee camp economies from functioning efficiently, cause refugees to live in poorer conditions than necessary.
• Giving refugees greater freedom to move and work, implementing work-for-training programs, and creating incentives to encourage more diverse economic activity inside refugee camps would produce better outcomes for both camp residents and the host country economy.

We’ve all read about refugee camps—temporary accommodations for people who have fled their homes because of violence or persecution. According to the United Nations High Commission for Refugees (UNHCR), 2.6 million people were living in refugee camps in 2019, with millions of other refugees living in urban areas or informal dwellings. 

But how many of us have thought about the economy of a refugee camp? Like any city, region, or nation, every refugee camp has an economy: a system by which goods and services are produced, distributed, and consumed. Research by Eric Werker, the William Saywell Professor at the Beedie School of Business at Simon Fraser University, reveals how “economic distortions” found in refugee camp economies “stifle the productivity and thus the economic welfare of refugees, causing them to live in poorer conditions than is necessary.” 

“Economic distortions” are conditions that prevent an economy from operating in a way that produces maximum benefits for individuals and the community. Such distortions in a refugee camp include…

• restrictions on refugees’ movement and the kind of work they can do;
• isolation from other markets, which results in high transportation costs, small market size, and poor “terms of trade”: high prices for what they buy and low prices for what they sell;
• security fears, language barriers, and humanitarian aid that, although well-intentioned, may provide incentives for refugees to work less hard.

For those unfamiliar with refugee camps, Werker paints an eye-opening picture of how their economies work. The Kyangwali Refugee Settlement in Western Uganda, where Werker and a team of researchers from the Refugee Law Project in Kampala, Uganda’s capital, conducted field research, is run by UNHCR partner Aktion Afrika Hilfe (AAH). At the time of the field research, when refugees arrived, AAH gave them a package of non-food items, including farming and cooking equipment, as well as a tarp and blankets. New arrivals also received a plot of land and seeds to plant, two to four seasons of food rations, free health care, primary education, water, and access to community service workers and income-generating programs. 

Most refugees either engaged in agricultural production or lived off food rations from AAH. A smaller number ran businesses in the settlement, ranging from small stalls at the weekly market to shops or teahouses in the main trading center. In most cases, the capital to start these businesses came from goods or money brought from home, loans, earnings from their own labor, or remittances from abroad. 

A refugee who has produced a sack of beans, to take one example, had four options to sell the produce. She may sell the sack to a wholesaler in the camp or outside the camp, or she may sell small quantities from the sack in the camp or outside the camp. Selling the beans in small quantities outside the camp, perhaps in the public market in Hoima, 80 kilometres away, would be most profitable. But to do this she would have to get a travel permit to leave the camp, which she might or might not be able to do—a Congolese refugee said, “To go to Hoima, we need to get a permit from the camp commander and sometimes he refuses to give the permit.” And even if she got a permit it would be limited to a few days, probably not enough time to sell all the beans in small quantities. Traveling to Hoima would also be expensive—a round trip using the available shared-taxi service would cost the equivalent of 40% of one month’s rent for a shop in the trading center—and using a Ugandan middleman to get the produce to Hoima would be costly and potentially illegal (if the middleman got caught without a trading license). 

To bypass such conditions as these and become more self-reliant economically, refugees could choose to live outside the camp, where they could employ the skills they had used to earn a living before fleeing their home countries. But this would require giving up the food rations, health care, education, and other benefits the camps offer. In these and many other ways, the economic distortions affecting the camps result in sub-par outcomes for refugees, as well as for the larger economy outside the camp, which could benefit from what the refugees have to offer. 

For policymakers, Werker suggests several ways that host governments and international organizations could restructure refugee camp economies to produce better outcomes. One type of intervention would be to give refugees greater freedom to work and move and to reduce the isolation of camps by decreasing barriers to the entry and exit of people and goods. Food-for-training programs would allow refugees to acquire new skills which they could use to become economically independent. Another approach would be to use refugee camps’ tax-free status and available labor to encourage enterprising refugees to set up factories in the camps. A carpet-weaving plant, for example, would attract independent refugees to the camp to seek employment and avoid paying taxes, and the wages they earned and spent would create opportunities for other profitable businesses to spring up. 

Sadly, refugee populations are increasing, and huge amounts of money are being spent to provide for the basic needs of forcibly displaced people around the world, but the funds are almost always insufficient to provide a dignified standard of living. Werker points the way toward making refugee camp economies work better—for the refugees, for host countries, for all of us.