Nicholas A.J. Taylor writes: It is now widely acknowledged that business operations and investment capital can contribute to peace and stability in host societies. The inverse is also true, however: poor risk management may not only contribute to political instability and violent conflict, but it may also harm the foreign organization by increasing the risk of doing business, including creating difficulties in repatriating assets, and ensuring the safety of personnel. This in turn puts investment capital at risk.
Applying the latest thinking from the UN on responsible business operations in conflict affected and high risk areas to the Middle East and North Africa (MENA), we found that regional and country nuances are critical to the opportunities and limitations in implementing the U.N.’s guidance, and one can expect that a level of adaptation will be necessary in any developing country environment.
Some of the factors to consider in identifying opportunities are as follows:
- The legitimacy of traditional authorities at the community level, which constitutes a strong channel for company-community dialogue and grievance settlement.
- The presence of well-established NGO and other civil society networks, which can help companies in community engagement and support strategic social investment initiatives.
- Overall, relatively high social cohesion and cultural homogeneity – this simplifies the stakeholder engagement process and reduces the risk of friction arising from perceived inequalities in any potential wealth distribution.
- Improving professionalism, transparency and rationalism of MENA governments, and in many cases a strong vision for economic development.
- Relatively high government legitimacy within MENA societies.
- Strong human capital and entrepreneurialism in many MENA societies.
The challenges include:
- The omnipresence of state security apparati and the overriding state concern for national security tends to lead to repression and human rights abuses.
- Corruption, which remains very common in both the private and public sectors, and is often falls well short of international standards of good governance.
- While governments are improving, there remains a high degree of convolution and structural irrationality in many MENA governments, and this complicates government relations.
- The presence of Islamist extremism, which can portray foreign businesses as negative influences and work against constructive community engagement.
- Programs to promote gender equality must be managed with respect and consultation with traditional MENA values.
- Fragmented local business landscape, often consisting of numerous small, family-run businesses, the leading families of which often have competing political interests.
Investors must manage the risks associated not just by their direct investments in unstable political and social environments, but also the businesses in which they invest.
Nicholas A.J. Taylor is principal of Taylor McKellar, and a lecturer at La Trobe University, Australia.
This article is part of our NSFM opinion series, in which participants propose specific steps towards real and sustainable market reform. Contributors write in a personal capacity. NSFM participants are invited to contribute to the series. Please contact Ebba Schmidt or Frank Jan de Graaf for further information.