THE ROLE AND GOVERNANCE OF THE PRIVATE SECTOR

International companies in post-conflict reconstruction

Dr Peter Davis13th March 2011

My research seeks to answer 2 questions What impacts do companies have in post-conflict

reconstruction processes? How are companies integrated into those

processes?Why look at this topic?

Significant increase in study of post-conflict in past 20 years

But corporate role within this not understood Session on this described as “ground-breaking” at Post-

Conflict People conference in London, November 2008

Companies in post-conflict reconstruction

Why a growing focus on conflict-affected zones?

More wars Estimated 150 conflicts since 1945 28 million deaths

Twice the toll of WW1

Recognition of collateral impact The injured

Estimated 90 million since 1945 Economic development

Lebanon’s GDP still estimated to be 50% below 1974 level by 1994. Survivors’ livelihoods

Angola has lost 80% of its farmland because of landmines

Global geo-politics Under-pinned by the Liberal Peace thesis More latterly by conviction that failed states would harbour

terrorists.

What causes conflict? Varying explanations (1)

Statecraft? War is “a continuation of political intercourse, with the addition of

other means.” (Clausewitz, 1832) This explanation works less well in a world where most conflicts are intra-

state.

Inter-communal grievance? Conflict an irrational activity, derived from “essentially

inexplicable primordial qualities.” (Pugh & Cooper, 2004) Conflict the result of disputes such as religion, ethnicity, power etc

Economic greed? “War occurs if the incentive for rebellion is sufficiently large

relative to the costs.” (Collier-Hoeffler, 2004) High correlation between low levels of income and conflict risk.

The result of weak state power? States that are unable to project power through their territory

(Holsti, 2006) Warlord states Rentier states

The ‘New War’ thesis? ‘Identity politics’ - identity based on national, religious,

linguistic or ethnic factors – as key cause of conflict Driven by ‘globalisation’

All of the above? ‘Levels of analysis’ approach

International Social Conflicts, which “are neither pure international (interstate) conflicts, nor pure social (domestic) conflicts, but sprawl somewhere between the two.”(Maill, Ramsbotham and Woodhouse, 2007).

What causes conflict? Varying explanations (2)

What actually is reconstruction all about?

Reconstruction as sets of different tasks For example, as defined in Post Conflict

Reconstruction Essential Tasks Matrix (US Department of State) Though not defined until 2005!

The ‘tasks’ of reconstruction divide into four overlapping but roughly sequential clusters: Physical security, trust-building and stability Creating a peace infrastructure Governance, political transition, and self-government Economic development that is broadly based

Corporate impacts in 3 post-conflict theatres

Based on in-depth research (literature & field work) All 3 countries rather a mixed bag

Azerbaijan Huge wealth from oil ‘Greater Baku’ vs rest of the country Absence of coherent reform process

Bosnia Physical reconstruction impressive, but remains a frozen conflict Political dead-lock, only broken by use of OHR powers

A colony of the international community?

Rwanda Hugely ambitious reform plan – Vision 2020 – but how realistic? Economy remains highly aid-dependent Questionable governance

Impacts: Economic Development

Financial impact the most obvious Azerbaijan: BTC alone estimated cost $3.7bn Rwanda: $350m Kivuwatt power generation facility

Wider impact of applying normal business models Training and local partner development

Local procurement BP spends $1.5bn on local suppliers (cf c $800m on

foreign suppliers) Bralirwa estimates it provides employment for 35,000

families. “A certain professionalism”

International rules of the road for business – surely more effective than donor BDS programmes?

Failure to attract further FDI is why Rwanda and BiH remain unhealthily aid-dependent.

Impacts: Infrastructure development

‘Hard infrastructure’ – physical stuff Largely a state-run activity Some notable exceptions

Azerbaijan: BTC and oil infrastructure Rwanda: Kivuwatt / solid fuel generation

Importance of ‘soft infrastructure’ Construction as well as reconstruction

The private sector is best placed to provide much of what’s needed for a modern state Banking sector reform

Makes functional the financial fundamentals donor agencies develop

Educational frameworks HP/ Cisco in BiH Business Centre in Baku

Commercial value chains Starbucks in Rwanda

Impacts: Security, Trust and Stability

Workplaces as connectors in society “Opportunity for trust-building through repeated lateral

interaction” (Pickering) Hiring on ability - Bralirwa, Rwanda / KPMG, BiH

Long term stability BP will be in Azerbaijan until at least 2025 Heineken has committed to long-term presence How long will the donor community maintain a

presence?BTC pipelinePart of the ‘normal’ world

“Mutzig: the taste of success”However, FDI can be de-stabilising

Russian and Serbian investments in Entities, not BiH

Impacts: Governance

Azerbaijan: EITI and the Oil Fund Azeri macro-economic model

International standards of accounting and practice Bralirwa sites audited to same ISO standards as all

Heineken sites Anti-corruption codes

Diagnostic impact FIC White Paper (BiH) and RPSF Investment Climate

Survey (Rwanda)However, also problems

Need for post-conflict sensitivity – banks in BiH APET deal – undermined federal structures in BiH

Governing corporations in global affairs

Continuing dominance of the states systemRealism is alive and well

Governance is a “top down affair, with state-dominated institutions a given” (Ruggie. J. 1993)

The norm remains the “rootedness of all capital in discrete national formations.” (Held, D. and McGrew, A. 2002)

Globalisation has not changed this.

A “growing asymmetry”

“Mainstream IR theory is utterly deficient in assessing the political power of these (corporate) actors.”

Fuchs, D (2005). The Commanding Heights: The Strength and Fragility of Business Power in Global Politics. Millennium: Journal of International

Studies 2005 Vol 35. No 3 “Firms are basically functioning like governments, [taking

on] the mantle of authority as contraction of government authority and the expansion of private regulatory authority are generally accepted by societies… Legal formalism identifies state/ public authority as the only legitimate authority, rendering non-state/ private authority a theoretical and empirical impossibility. As an ontological non sequitur, private authority is thus not part of the discourse of responsible and accountable governance.”

Cutler, A Claire. (2002) Private International Regimes and Inter-Firm Cooperation. In Rodney Bruce Hall and Thomas Biersteker (eds), The

Emergence of Private Authority in Global Governance.

Some efforts to square the circle

UN Global Compact (est 1999) Designed to “bring companies together with UN

agencies, labour and civil society to support universal environmental and social principles

10 “universal principles” in human rights, labour standards, the environment and anti-corruption.

In Larger Freedom (2005) Annan’s template for UN reform Envisages non-state involvement in Human Rights

Council Raises profile of Economics and Social Council Specifically speaks of the importance of “a dynamic

private sector”UN Secretary General’s Special Representative

on Business and Human Rights (2011) ‘Protect, Respect, Remedy’

Governance in post-conflict environments

Governance and engagement processes used by state-based institutions

Governance and engagement processes used by international companies

Strategic decision-making

Reconstruction strategy Engagement of the corporate sector in processes to define priorities and strategy for the reconstruction process

Pro-active awarenessCompanies operate in a way that takes account of the wider development perspective

Tactical/ operational activity

Project/ issue partnersDevelopment agencies work with corporations to deliver aspects of the reconstruction programme

Collateral impactsCompanies undertake ‘business as usual’, with little or no strategic awareness.

Governance by state institutions

Reconstruction strategy Strategic fora exist for donors, eg Rwanda

Development Partners Private sector is excluded

Project/ issue partners More widespread, eg

EITI Sustaining Partnerships to Enhance Rural Enterprise and

Agribusiness Development (SPREAD)

Governance by corporates

Pro-active awareness Heineken, Rwanda BP, Azerbaijan Engagement with initiatives like EITI

Collateral impacts “What war? / “we don’t get involved in political

issues” HP/ Cisco in BiH ‘Night of 1000 dinners’

Post-conflict: the importance of the private sector

It is impossible to create a stable, durable modern state without engaging the corporate sector. Yet no real attempt made by development community to engage

corporations strategicallyCorporates have impacts whether the political architecture

acknowledges them or not Indeed, the very absence of foreign investors can militate against

successful reconstructionNeed for strategic engagement, not a tactical, ad hoc

approach Need for symbiotic relationships – who is best placed to do what? Ignore CSR departments and activities – they’re irrelevant

Private sector needs to be in from the beginning If FIC analysis of Bosnia is right now, why were companies not asked in

1995?

Thank you: now a shameless plug…

“Corporations, global governance and post-conflict

reconstruction”

Available for pre-order from Routledge from May 2011