Foreign Policy Blogs

The Dangers of Investing in Conflicted Areas

The Dangers of Investing in Conflicted Areas

Investments in Colombia in the ’80s and ’90s were often limited to large multinational companies. These companies would take the risks to mine in Colombia’s regions despite the dangers present to their employees. On many occasions, Colombians and foreign nationals were kidnapped for ransom, and many international workers and influential Colombians would not survive or were kept in captivity for years upon years. Currently, Colombia is one of the best places to invest in Latin America. With a reduction in threats to the Colombian government and a loss of control by many drug cartels in a slowly diminishing conflict zone in Colombia, peace within Colombia has brought prosperity to the country. While the internal conflict has not disappeared by any means, and other factors have influenced growth and debt in Colombia, the reduced threats to Colombian society and international workers on the ground has opened up the country as an attractive place to do business.

Now, with conflicts in the Middle East, Ukraine and other parts of the world becoming the norm, a discussion of the value of investing in conflicted areas should be paramount in the minds of many investors.

Last Sunday on Fareed Zakaria GPS, Fareed Zakaria broadcast a commentary on the positive news in the world to counterbalance news of wars going on in Eastern Europe and the Middle East. He discussed the advancement of the Mexican economy and the opening of their energy industry. He pointed out that a growing and stable Mexico would make North America one of the strongest economic blocs in the world. While his positive approach was enlightening, there was little mention of the internal drug conflict taking place in Mexico and how the high crime rate in Mexico City and various northern regions of the country has affected everyday life and the cost of doing business. The fact that Mexico’s internal conflict has had a limited effect on the country’s economic growth seems to run contrary to the thought that peace is required to bring prosperity. While violent crime and drug wars certainly wards off foreign investment and local growth, Mexico seems to have been able to grow despite heavy fighting in some parts of the country.

The question for investors is whether or not personal risk or the safety risk of employees is worth the burden of working in regions where conflicts take place or might take place. Places like eastern Ukraine that are blocked off by rebels and the Ukrainian army may not be a place where investment is possible; however, the rest of Ukraine is working normally. Country risk, as researched by investment companies, often does not give a comprehensive security outlook to investors or employees on the ground in many of these places. As one commercial associate of mine mentioned, “You can delay payment on items, but there might not be a post office working in a few weeks because we hear there are Russian tanks nearby.” The question on whether central and western Ukraine is in immediate danger, or a place like Georgia or even Poland might be a risk remains in question in each situation.

While places like rebel controlled Syria, ISIS controlled Iraq and Gaza would not be able to take investment at the moment without a heavy shift to stability in those areas, it really depends on the region and type of conflict taking place to determine if a financial and personal security risk is worth the investment. Revolutions and conflicts have often ended and produced some stability and investment, but in most cases if there is no stable region in the country, there would be a limit to doing business in any case. To invest in the broken areas of Iraq and Syria, a special relationship would be required, one that goes well beyond country risk assessments and an honest handshake.



Richard Basas

Richard Basas, a Canadian Masters Level Law student educated in Spain, England, and Canada (U of London MA 2003 LL.M., 2007), has worked researching for CSIS and as a Reporter for the Latin America Advisor. He went on to study his MA in Latin American Political Economy in London with the University of London and LSE. Subsequently, Rich followed his career into Law focusing mostly on International Commerce and EU-Americas issues. He has worked for many commercial and legal organisations as well as within the Refugee Protection Community in Toronto, Canada, representing detained non-status indivduals residing in Canada. Rich will go on to study his PhD in International Law.

Areas of Focus:
Law; Economics and Commerce; Americas; Europe; Refugees; Immigration