Doing Business in the Post-Conflict Part II

Updated: Mar 12

Foreign Money but Internal Losses: When liberal peace schemes increase the country’s vulnerabilities

By Alessia Cappelletti


It is generally accepted that economic investment in the form of foreign aid or business ventures into post-conflict societies is a fruitful activity that can often enhance local peace and stability. The underlying reasoning of this ‘economic peace’ is to make stability more profitable than war - this is generally known as the ‘liberal peace’ framework.

However, the reality is never as clear-cut as theories because local dynamics are not linear nor straightforward. Certain studies proved that there is no actual correlation between foreign direct investment (FDI) and post-conflict peace. Quickly re-opening the country to foreign investment may even destabilize the country further by introducing new influential stakeholders.  


In some instances, foreign economic interest is proven to be detrimental to the humanitarian development of the country. This is because they tend to create new elites or exacerbate preexisting cultural hierarchies. Often, in war-torn countries, discrimination against minorities is systematically enforced, and corruption is a common practice carried out at the - literal - expenses of minorities. If foreign donors or business people are not aware of this, they risk seriously aggravating the situation.

Businesses in the Post-Conflict

In Myanmar, it has been documented that the government-supported multinationals contributed to the instability of the country. At the end of the military regime in 2011, the country opened its doors to foreign businesses believing that the new frontier for a stable peace was the economic development of the territory. Whether this could be true in theory, the reality was different.

Very few people benefitted from liberal peace models implemented in the country. Elites got richer, but tensions between Rakhine and Rohingya intensified since the 'development' promises that were made to the population ultimately did not materialise. The Rakhine population was promised a fortune from the business deals. Still, as exclusion became clearer, Rohingya Muslims were blamed - which is both a symptom and an aggravation of the active ethnic targeting being perpetrated to their expenses.


As a result of these culturally unresponsive economic endeavours, the country is still far from the peace and stability it hoped to achieve at the beginning of the economic opening. Ethnic grievances have transformed into frequent clashes around the country between the military, Rakhine's armed group, and the rebel faction of the Shan state. In addition to this, there is, of course, the ethnic cleansing of millions of Rohingya Muslims taking place.


Donors in the Post-Conflict

Examples of such failed 'liberal peace' schemes are everywhere to be found, from Colombia to Congo, to Sierra Leone. Where foreign involvement is disconnected from local realities, it can result in unhelpful or useless projects and, in the worst-case scenarios, projects that are harmful to the local population. That is the case also for Nepal, in which foreign aid organisations often reinforced cast divisions, negotiating with the elites and excluding the rest of the population.

Nepal suffered a ten-years long conflict, from 1996 to 2006, between the government of Nepal and Maoist insurgencies. The conflict came to an end in 2006, with the signing of the Comprehensive Peace Accord and the abolition of the monarchy. In Nepal, foreign aid is now considerably significant (in 2018-19 it represented 22% of the yearly state budget) and after the accords, even the Maoist Party welcomed it.

The issue is that the political elite's relatives manage the NGOs that receive foreign funding, which then is associated with one party or another,  thus creating a 'development cast.' Even by trying to operate as locally as possible, problems of power and authority did not change, and money flows are often ultimately controlled by some other elite – though not passing through the central government.


This situation created a stall in which the subsistence of post-war Nepal is based on foreign money in-flow. Should this stop, the government would be severely underfunded. This also erodes the government's authority and legitimacy among the population, as only (some) foreign implemented projects are effective in reducing poverty. Moreover, the government is perceived to fail systematically at addressing the needs of the poor. Thereby, foreign investment has created a cycle that reinforces local structures of inequality, similar to the case of Myanmar.

Conclusions

Ultimately, 'going abroad' with a substantial investment capacity always needs an in-depth risk assessment, not only at the beginning stage of the project but also during its implementation. A constant re-evaluation and honest and transparent evaluation of the benefits of such projects will ultimately benefit the local population. If investment or aid is perceived as being detrimental for ethnic and class discrimination, or if it exponentially increases the dependence of the country, region, or village on foreign money, rather than empowering them, it should be stopped and re-assessed.


This article is part two of a series highlighting the potential risks of doing business in post-conflict countries.


For source references, please download the PDF version.

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About the author:

Alessia Cappelletti is a Global Security Analyst and Program Manager of DEWIS. She has field experience in South America, Colombia especially, which makes her largely acquainted with the security challenges of the Latin American context. Her expertise includes conflict analysis and investigation, human rights protection, and criminality.


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