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GREAT insights Magazine

Business and conflict in fragile states: The case for pragmatic solutions

February 2016

Ganson, B. 2016. Business and conflict in fragile states: The case for pragmatic solutions. GREAT Insights Magazine, Volume 5, Issue 1. February 2016.

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International policy debates caught up in old ways of looking at business, conflict and fragility are for the most part ignoring violence reduction and conflict management approaches that can mitigate today’s growing conflicts.


The rising tide of business and conflict


Because I’m the head of the state oil company, every morning I go to work and look for oil. But because I love my country, every night I go home and pray we don’t find it.” The executive’s sentiments reflect the reality of his small nation. Though soon to be counted among the world’s middle income countries, the population is largely impoverished. In an ideal world, the country could well use the royalties, tax revenues, jobs, training, infrastructure development, and value chain opportunities that oil and gas exploitation might enable to help drive human development. But it is also a country that barely manages the delicate balancing act in national politics that intense inter-ethnic rivalries require. There are tensions between the capital and the outlying provinces over resources and authority, and in the provinces between poor farmers and even more marginalised indigenous populations over land. Missteps over many years by international mining companies – including land grabs, repressive security measures, water pollution, and broken promises to invest in communities – provide the basis for smouldering grievances, overt protest, and generalised suspicion of the private sector. Meanwhile, highly-organised and internationally-financed gangs increasingly engage in illegal mining on an industrial scale, leading to skirmishes with the army. This all plays out against the memory of the country’s guerrilla insurgency. Pouring oil revenues into this cauldron, the executive reflected, would more likely lead to greater chaos than accelerated development.

While this is the story of one small country, it describes the dynamics of conflict and violence in many of the world’s fragile states. Here as in many other places, the assertion that large scale foreign investments can help reduce fragility, confronts the reality of global corporations becoming embroiled in fragile state conflict and violence. This is particularly true for ‘large footprint’ investments: extractives industries, agriculture or infrastructure development that inevitably become entangled with and part of broader systems and dynamics that create and maintain fragility. Such operations often expose the sharp edge of business and conflict, characterised by heightened intergroup tension, project abandonments, political upheaval, heavy handed government responses, or violence: those situations where the promised ‘win-win’ for business and development has instead manifested ‘lose-lose’ outcomes. Indeed, a review of the 100 countries at the bottom of the Fragile States Index shows that virtually all have in the past five years confronted significant conflict including fatalities with a nexus to large scale business investments. Deadly conflict can range, for instance, from illicit trade in natural resources in war-ridden Central Africa to more isolated deaths related to protests over Barrick Gold’s Pueblo Viejo project in the relatively stable Dominican Republic.


Contemporary international responses rooted in long history


Two narratives compete to explain the nexus of business and conflict in fragile states and provide solutions. One view sees the multinational corporation as a root cause of conflict and violence in fragile states. Democratisation and development NGOs, international human rights bodies, accountability advocates and others draw on an enduring legacy of global enterprises willing to exploit fragile conditions, strike deals with unsavoury actors, and foment conflict for economic gain – dating back to the slave trade and eras of colonial and neo-colonial exploitation – to understand multinational corporations as fundamentally profit-hungry, soulless and seemingly stateless. The logical extension of this perspective is advocacy for a variety of legal-regulatory approaches to containing the worst forms of corporate conduct in fragile states, both through legal accountability in the companies’ home countries and through international regulation. One example is the current attempt to build the UN Guiding Principles on Business and Human Rights into a binding international treaty law with recourse mechanisms for victims.

The alternate view sees the multinational corporation as a force for conflict reduction in fragile states. Multilateral financial institutions, growth-oriented fragile state governments, business advocates and others draw on an almost equally longstanding liberal economic history – dating back to Locke in the 1600s and John Stuart Mill’s assertion in 1884 that “it is commerce which is rapidly rendering war obsolete, by strengthening and multiplying the personal interests which are in natural opposition” – to understand a vigorous and inclusive private sector as the foundation for peaceful development. The logical extension of this perspective is a focus on statebuilding approaches that support the regulation of an open economy and the protection of private sector interests, as well as advocacy for ever-greater roles for multinational corporations in fragile state affairs. These are illustrated by initiatives such as the UN Global Compact and its Business for Peace initiative, donor policies that increasingly favour private sector solutions, and World Bank support for institutional reform in Angola and Uganda.


A need for new lenses on business and conflict in fragile states


From the perspective of anyone who would like to advance human rights and peaceful development for people today and their children tomorrow, it is hard to put too much faith in either approach. Focused as they are on creating incentives and disincentives for international companies, they appear to have little to say about the multi-faceted and context-specific dynamics of business and conflict in fragile states illustrated above. And as the gap between international policy responses and this new face of conflict widens, so too does the gap between these policies and the new face of investment. Trends from the new Asian Infrastructure Investment Bank to the growing investment of Africa’s own pension funds in the continent’s major projects, for example, allow fragile state elites less interested in the international policy agenda to engage with alternative investors, aid donors and trade partners largely beyond the reach of current policy levers. The international regime on which both international policy responses to business and conflict are built is shifting under their feet. Meanwhile, state-building has proven too slow and too resistant to outside intervention to be proposed as a realistic solution by those who claim to be concerned with the lives of this generation and the next.

At the same time international policy responses seem remote from the people touched hardest by conflict and violence, neither do they seem particularly attractive from the perspective of even an ethical company. Neither assessing and reporting on the company’s compliance with international standards under a variety of compulsory and voluntary mechanisms or engaging in international policy forums meant to promote responsible investment in fragile states impresses the stakeholders who make the decisions about conflict or coexistence with the company at the level of its local operations. So even in the ideal case where a company invests significant resources to comply with international law and emerging norms, stay within the bounds of its host country legislation, and engage communities according to what it is told are international best practices, it may still find itself confronting operational disruption, destruction of assets, threats to people, or other forms of conflict and violence.

Contemporary international policy responses offer little that will address acute and widespread risks of conflict and violence related to large scale business operations in fragile states at anything approaching the scale and speed required. If international policy responses remain focused primarily on the long-term goals of state formation, private sector promotion and human rights enforcement, destructive conflict will undermine business and social goals alike. Conflict and violence will at the same time hamper attempts to implement otherwise laudable and necessary reforms. If the primary goal is to reduce destructive conflict over private sector activities today in ways that lay a foundation for peaceful development tomorrow, then more pragmatic thinking and immediate action is called for. Conflict risk mitigation, conflict management and conflict resolution will need to be addressed directly and on their own terms.


A new logic for business risk mitigation and conflict prevention


The good news is that solutions exist to address destructive conflicts related to large scale business operations in fragile states as they unfold today and can be anticipated to increase in number tomorrow. They are to be found, however, largely outside of the current debates about either regulation or enablement of the private sector in fragile states. Mainstream peacebuilding and conflict prevention practice in areas as diverse as electoral conflicts and urban violence reduction demonstrate that even acute conflict is preventable and manageable. Experience also shows that these principles and practices when applied to the corporate domain can be predicted to have the same positive impacts.

These approaches can in general terms be described as a set of interconnected building blocks: institutionalised mechanisms or networks for monitoring the local context; the rallying of diverse and sometimes conflicting local stakeholders around higher-quality data and more trustworthy analysis; dialogue that builds sufficient consensus for action; proactive conflict prevention and resolution interventions; and a backbone support organisation that facilitates expert and neutral assistance. Local actors in many conflict-prone and fragile environments put these tools to work. The Colombian city of Medellin achieved a 90% drop in violence from 1991 to 2006 through a holistic strategy that would implement pacification and community policing, improve access to basic services by marginalised communities, change the built environment and spatial segregation of the city, create jobs for at-risk youth, promote social cohesion within the city, and improve urban governance for security; in Somalia, at least 100 local processes over the last 20 years have protected the trade on which livelihoods depend and managed violence.

Unlike the dominant international policy responses of private sector promotion and human rights enforcement – which appear to largely ignore the political economy of fragile states themselves, in effect exhorting them to be less fragile by adopting the trappings of the liberal state – these approaches succeed despite conditions of social divisions, weak institutions, lack of trust in government, legacies of grievance from the past, pressing socio-economic challenges, or the presence of spoilers. They manage fragility by engaging parties on the basis of their partisan interests and desires to mitigate their own risks; creating vertical linkages from local conflicts to influential actors at regional, national or international levels; building from existing social and political capital and functioning institutions whether formal or informal; and providing outside intervention in more acceptable forms of expertise and advice. From company-community mesas de diálogo that are increasingly prevalent in Latin America to the peace committees sponsored by Chevron in Nigeria, such approaches work better to manage business and conflict, even in fragile contexts.


Conflict management as pragmatic coalitions for change


Neither company shareholders nor advocates for peaceful development need or should accept the growing cost of business-related conflict in fragile environments. It is unhelpfully naïve to ignore the actors inside and outside of companies and governments perfectly willing to profit from fragile state dynamics, including violence; but it is irresponsibly cynical to ignore the increasingly strong evidence of conflict mitigation strategies that all the same work. International policy debates caught up in old ways of looking at business, conflict and fragility are for the most part ignoring violence reduction and conflict management approaches that can mitigate today’s conflicts while helping to build a firmer foundation for longer-term political stability and inclusive development. But those who want to band together to do something about business and conflict in fragile states – whether businesses looking for sustainable profitability, advocates seeking greater positive impact for vulnerable populations, or international institutions seeking greater stability – have much work to do but many places to start.

This article is drawn from the forthcoming book by Brian Ganson and Achim Wennmann entitled Business and Conflict in Fragile States: The Case for Pragmatic Solutions. (London: International Institute for Strategic Studies, 2016).

About the author

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Brian Ganson, J.D. is Head of the Africa Centre for Dispute Settlement (ACDS) and Extraordinary Associate Professor at the University of Stellenbosch Business School.

 


Photo: Jansaengpo Industrial Plant, Busan (Scott Rotzoll, flikr.com)

This article was published in GREAT Insights Volume 5, Issue 1 (February 2016).

Conflict, Security and ResilienceEconomic Transformation and TradeBusiness and DevelopmentConflictFragile statesPeacebuilding

External authors

Brian Ganson