President of Political & Economic Link Consulting and Adjunct Scholar in Preventive Diplomacy at the Center for Strategic and International Studies. The author wishes to acknowledege the Global Access Corporation and the International Executive Service Corps, under whose auspices a portion of the research for this article was conducted.
Investments in conflict regions will also be structured to reduce the payback period on capital investments. This is an especially important tool in the natural-resource sector, where payback periods are typically the longest. MNCs in these industries will estimate the period during which they can be reasonably assured that the conflict will remain stable in terms of its effect on the MNC's operation. The company will then seek to obtain a return of their initial investment within that time horizon. (It should be noted that, while profits are obviously the goal, it is the initial investment alone which is considered for this narrow purpose).
Where possible, MNCs will seek to structure payments so that all funds remain offshore, beyond the reach of insurgent governments or current governments whose resources are stretched by the conflict. This is a luxury afforded primarily to natural resource MNCs, since the revenues from their operations come overwhelmingly from export sales and require relatively limited interaction with the local economy. Smaller MNCs and those deriving revenue from the domestic economy of the host country do not have access to this risk-reduction strategy.
In recent years, MNCs participating in privatization projects have also considered government distribution of shares to the public as a factor that mitigates risk caused by armed conflict. Such equity-distribution plans have obvious political appeal for host-country governments. In addition, belligerents are perceived by MNCs as less likely to damage an asset if equity in the asset is held by a significant portion of the populace.
Finally, MNCs believe that participation of the leading multilateral development organizations (commonly called "multilaterals") in investment will greatly reduce risk from armed conflict. Participation may take the form of direct investment of funds, but more often appears as loans, loan guarantees, or guarantees on the host-country government's performance. Multilateral participation is valuable because MNCs perceive multilaterals as wielding significant influence over host-country political forces. This influence derives from the extensive loans, grants, and other programs host countries typically arrange with multilaterals, particularly with the World Bank Group. Once a multilateral is involved in a MNC's project, even in a peripheral manner, it is anticipated that the multilateral will lend weight to negotiations with political forces should such forces endanger the project.
Understanding how corporations think about war is the sine qua non for engaging corporations in nurturing peace. Diplomats seeking to negotiate solutions to conflict have potential allies in the corporate sector, but they will realize that potential only if they understand the motivations that underlie it. NGOs desiring to influence corporate behavior in areas of conflict must understand the concerns that motivate that behavior. Governments seeking foreign investment to rebuild war-torn countries need to understand how corporations will assess the risk from tensions that persist both during conflict and even after a truce is signed. By understanding how corporate managers think about war, constituencies to peace-building will go further toward engaging the corporate sector in achieving their goals.
