It’s a truism that the poor get the hardest by any economic problem, downturn, crunch or crisis. Likewise, the poor get left behind when the economic good times are rolling. It’s perhaps a faint hope, but might it be possible for those truisms to be at least a little less true for poor countries during this crisis and as recovery comes around?
The risk of conflict
Poor countries today are facing a threefold hit because of the economic crisis.
- Markets in rich countries are shrinking so there are fewer opportunities for exports and earning hard currency.
- Investment capital is less easily available and big corporations are themselves taking all sorts of hits so they are hunkering down, playing safe and investing less; the first investment projects for the chop are most often going to be in poor countries where infrastructure is bad, risks high and profits uncertain.
- The global labour market has been shedding jobs by the million so migrant labourers are having to go home, which means they can no longer send money back to support extended families, and of course when they get back home there is no work and no social safety net.
All his makes poor countries poorer. Though the economic elite in poor countries has wealth and power enough to be quite well cushioned against the worst effects of the global downturn, even some parts of the elite may face what they regard as unacceptable privations. This can spark intra-elite conflict in which the contending groups often seek to mobilise broader support among the poor masses. And in many poor countries, where the institutions of governance are often weak and the judicial system is coloured by politics, and many of which have experienced violent conflict in the recent past, this is creating an increased risk of open armed conflict over the coming 2-4 years.
The role of companies
Trying to prevent countries from lapsing or relapsing into violent conflict is a task for many, many different players including governments, international organisations, political parties, NGOs and, in principle, private companies.
There is not much that any big company can do about the decline in world trade or global employment. These are big, blind economic forces and even big corporations are subject to them. But there are things that can be done about investment – both today when it has got tighter and tomorrow when the tap will be turned back on.
Companies that operate in poor countries – such as extractives (oil, gas and mining), the finance sector, communications, transport, construction and engineering – are accustomed to carrying out risk analyses. Some do these themselves, others outsource the task. Until recently, all risk analyses (and today, most) focus on the risks that the political, social and economic environment poses for the company’s operations and their profitability.
But some companies have recently begun to realise that they have an impact on the places where they work, and that has something to do with shaping the risks they face. Investment and the employment opportunities that go with it can be a boon but are all too often also a trigger for conflict as different groups manoeuvre to get maximum advantage from the capital coming into their country, province, town or village. And when investment is withdrawn and employment opportunities evaporate, that has even more conflict potential.
Two-way risk analysis
In other words, companies need to analyse what sort of a risk they pose for their operating environment as well as analysing what sort of risk the operating environment carries for them. And to do it properly, they need to listen to local voices and include them into the process of making the analysis.
Companies that expect to be present in their operating countries for several years – and that includes all the sectors mentioned already – have an interest in conducting this kind of two-way risk analysis both as they reduce investments and as they build them up again. It is obviously a big ask of any company that is frantically drawing in its horns to get them to be careful how they do it, but it is actually in their longer term interests. Either they will seek to return, in which case the less damage they caused on the way out, the better – or they are not going to return there but they will be investing somewhere else, and in these days of internet and blogs, reputation is often a heavy bag to carry from one country to another.
And it is not actually that expensive to do a two-way risk analysis with the involvement of local communities is cheap. The problem is only that many companies don’t know how to do it. But that can be learned.
From dumb to less dumb
The last year has exposed the model of the uncaring pursuit of profit as short-sighted, destructive and in the big picture, pretty close to stupid. As trade and investment recover, as they will in the not-too-very-distant future, companies that adopt intelligent and conflict sensitive guiding principles will fare better abroad and at home than those who carry on in the same dumb old way.