The Role of the Private Sector in Areas of Conflict

Recently, international attention has focused on the often-prominent role that foreign investors play in conflict-ridden areas of the world. There is an inherent tension between the need to encourage private sector investment in the economy, and the potential for this investment to contribute to continued conflict and instability. In this daylong conference, participants drawn from academia, the private sector, humanitarian groups, and the policy world gathered to explore the appropriate roles for the public and private sectors before, during and after the breakdown of political stability and the challenges and opportunities they face.

Virginia Haufler of the University of Maryland set the context for the conference by discussing the reasons why many people are concerned today about the role of the private sector in regions of conflict, arguing that some worry that investors will pass by or disinvest from unstable regions of the world, while others are concerned that any investment in areas of conflict and corruption will exacerbate political instability and operate without concern for public goals and values.

Participants in the first session focused on "Peacebuilding in Iraq and Afghanistan." The session was moderated by Bennett Freeman, a consultant at Burson Marsteller and formerly Deputy Assistant Secretary of State for Democracy, Human Rights and Labor. Eleonora Kopera, of the Business-Humanitarian Forum, presented information on partnerships between the private sector and humanitarian groups in rebuilding Afghanistan. Theodore Moran of Georgetown University expressed optimism that foreign
investment, which is so necessary to economic development, can be attracted to post-conflict countries if the environment is open and competitive, but that it will be unsustainable if simply reinforces a rent-seeking society. Deborah Avant of George Washington University examined the pros and cons of using private security forces by looking at the short- and long-term costs and risks regarding supply and demand; legal rights and responsibilities; accountability; and political change. Andrew Newton of the Royal Institute of International Affairs in London, discussed reputational and legitimacy risks for businesses investing in places such as post-reconstruction Iraq, and pointed out that it is too easy for both public and private sector actors to get this wrong and go "down to the desert of despair."

In the next morning session, moderated by Jonathan Berman of Political and Economic Link Consulting, participants looked at "Learning from Experience: Challenging Cases." From his experiences running a major mining project in Indonesia, David Lowry of Freeport McMoRan highlighted the difficult challenges facing investors even when they attempt to address community needs and international values. Nick Killick of international Alert, who has worked on conflict transformation with the oil sector in Azerbaijan, concluded that intervention must occur as early as possible; that a policy of "do no harm" can backfire; that the country not the project must be the main concern; and that the private sector must be integrated with other actors in partnerships. Vivian Lowery-Derryck of the Academy for Educational Development examined public-private partnerships that AED has undertaken in Africa, the need for the return on investment to be extremely high for either domestic or foreign investors to be interested, and the key role diasporas can play in encouraging investment and conflict prevention.

A smaller group met in the afternoon, with the first session looking at "Domestic Security and Foreign Investment." This session was moderated by Johanna Mendelson Forman of the United Nations Foundation. Bobby Gillham, of Gillham Security Solutions International, drew upon his experiences working with the private sector to determine the risks and security vulnerabilities involved in operating in specific contexts, looking at crime, war, corruption, and other factors. Jordan Schwartz of the World Bank looked at the relationship between the public and private sectors in infrastructure development, providing an overview of World Bank projects since 1990s across a variety of sectors and proposing that the first phase after conflict is driven by foreign aid, which ends too quickly for sustainable investment to occur. David Marchik of Covington and Burling presented the recommendations of a high-level panel convened by BP for its investment in the Baku-Tbilisi-Ceyhan pipeline, including proposals for a development fund, transparency, employment projects, financing for small and medium sized enterprises, decommissioning the pipeline at the end of its life, and adoption of human rights principles and creation of an ombudsman for the local people.

The second afternoon session examined "The Global Context of Investment," moderated by Steve Clemons of the New America Foundation. Fritz Heimann of Transparency International USA argued that there has been a transformation in attitudes toward corruption, and that new international treaties, while limited in some respects, provide a promising avenue for ending the acceptance of corruption and bribery in international transactions. Halina Ward of the International Institute for Environment and Development discussed the legal framework for corporate voluntary initiatives for conflict-related issues, arguing that codes of conduct have not evolved in this direction very much, with the possible exception of the Kimberly Process and the Extractive Industries Transparency Initiative. Examining the legal issues arising from corporate globalization, Elliott Schrage of the Council on Foreign Relations argued that the Alien Tort Claims Act is at the cutting edge of accountability for corporations; that multinational corporations simply need to do more to address human rights risks abroad; that litigation is good tactics but poor policy; and that the US needs to develop a framework for defining and enforcing corporate social responsibility and accountability.

The conference concluded with a session led by Carla Koppell of the Wilson Center on future directions for this interested in engaging this topic.