What can a South Sudan brewery teach us about business in conflict zones?

SABMiller’s brewery in South Sudan is struggling^[1] and may face closure within weeks. This news is perhaps not surprising. Ethnic tensions and political discord have plagued the region for decades. Since civil unrest resurfaced in December 2013, over 10,000 people have been killed and 2 million displaced. Inflation and raw material shortages have also soared.

The global brewer, which owns brands such as Pilsner Urquell and Foster’s, is unusual in choosing to invest in South Sudan, a country so unstable that it’s been described as a “war economy”^[2]. While SABMiller did not wish to comment for this article, it’s not unreasonable to presume its decision to invest in Sudan was motivated by economic interests: consumers the world over like beer and, in South Sudan, a 25-year ban on alcohol ended shortly before SABMiller invested six years ago^[3].

The company could not have been blind to the risks around investing in such a fragile state. Indeed, SABMiller has made its name by making and selling beer in poor countries. Today, it generates 72% of its profits from developing countries, many with unstable histories, such as South Sudan^[4] and Colombia.

Volatility is part and parcel of investing in conflict-riven countries, but where there are opportunities, companies will continue to seek a presence. Despite the recent jitters of some emerging economies^[5], many business analysts still believe poorer countries hold the best hope for future growth. Sub-Saharan Africa is projected to hit 4.6%^[6] GDP growth this year, a percentage developed markets can only dream about. But a key question is how companies can ensure they can establish a long lasting presence which benefits both their business and the region.

Assess the risk

“Companies have an obligation to do due diligence on the countries and individuals that they engage with,” says Emma Vickers, country coordinator in South Sudan for Global Witness.

That obligation is both moral (to ensure that corporate revenues aren’t helping perpetuate violence or human rights abuses) and fiduciary (to make sure investors’ capital is reasonably protected). There’s also a legal duty of care towards a company’s employees. Transparency legislation could land ill-prepared investors in hot water. The UK Bribery Act^[7] and the Foreign Corrupt Practices Act in the US are cases in point.

At present, it’s very difficult to do business in South Sudan without recourse to corruption, according to Vickers. Companies need to have stringent anti-bribery policies and training in place. She hopes the recent peace deal^[8] will make it easier for investors to act ethically, but says companies should “ask themselves whether it’s a country they can do business in” if that’s not the case.

A comprehensive risk assessment can only go so far, however. That’s the verdict of Philip Sachs, analyst for the Middle East and Africa region at political risk consultancy Verisk Maplecroft. Having mapped the scene, companies then need to determine their own propensity for risk, according to Sachs.
^[9]

Be flexible, be prepared

Unstable countries may lack predictability, but spates of volatility are almost a given. “Some conflicts can be seen from the beginning, but if you plan to invest over 20 or 25 years then you have to anticipate change,” says Sachs.
Ongoing monitoring of the political situation is obviously a must. In conflict areas, protecting a company’s physical assets and its employees may well require investing in security too – a step that demands caution and strict guidelines so as to reduce rather than add to existing violence.

Related: Can investment help Burma emerge from economic strife and oppression?^[10]

A more radical option is for investors to isolate themselves entirely. Such an approach has form, notes David Logan, cofounder of the Corporate Citizenship Company, a specialist consultancy. “The way that big multinationals have traditionally dealt with the problems of instability is to build what are essentially corporate welfare states in developing countries, with water, education, housing, healthcare and so forth.”

Yet the costs and implicit paternalism of such a model make it difficult to sustain. Those who take this route tend to do so because the remoteness of their operations obliges them to do so. Consider the oil operators in Saudi Arabia’s Empty Quarter, for example, or iron ore producers in remote locations of Mauritania.
^[11]

Enhancing stability

Instead of cutting themselves off, foreign investors can adopt a more hands-on approach and try to enhance stability.

Northern Ireland is a good example. During the worst of the troubles, US investors were encouraged to hold to what became known as the MacBride Principles^[12]. Developed by the Nobel laureate Seán MacBride, the principles advocated anti-sectarian measures such as vocational training for minority groups and the abolition of job reservations. The Sullivan Principles^[13] advocated similar anti-discriminatory measures by US corporations in apartheid-era South Africa.

In an increasing number of cases, governments are obliging investors to actively support economic development measures designed to promote stability, says John Morrison, executive director of the Institute for Human Rights and Business. He cites the example of Morocco, where investors are pushed to make ancillary investments in Western Sahara. Similarly, companies entering Burma are often required to set up operations in free trade zones in underdeveloped areas.

Discussions about the private sector’s proactive role in peace building remain nascent. Some initial efforts are being made by the UN Global Compact, a membership group that commits to promoting ethical principles. Its Business for Peace programme^[14] is currently working with 130 signatory companies, including Pearson and Unilever, to apply these principles in conflict-affected areas. Focus countries include Colombia, Egypt, Iraq, Israel, Sudan and Ukraine.

While sophisticated and coordinated interventions are no doubt needed by the private sector, the simple act of providing employment can go a long way to promoting stability, according to Sachs. If you have a job, you have something to lose from a return to conflict, he reasons.

“And if you have something to lose from a return to conflict, then you increase the pressures to prevent it from happening.”

References

1. ^{^} is struggling (www.theguardian.com)
2. ^{^} “war economy” (www.bbc.co.uk)
3. ^{^} invested six years ago (www.reuters.com)
4. ^{^} South Sudan (www.theguardian.com)
5. ^{^} recent jitters of some emerging economies (www.theguardian.com)
6. ^{^} is projected to hit 4.6% (www.worldbank.org)
7. ^{^} UK Bribery Act (www.theguardian.com)
8. ^{^} recent peace deal (www.theguardian.com)
9. ^{^} Africa (www.theguardian.com)
10. ^{^} Can investment help Burma emerge from economic strife and oppression? (www.theguardian.com)
11. ^{^} Empty Quarter (ngm.nationalgeographic.com)
12. ^{^} MacBride Principles (www1.umn.edu)
13. ^{^} Sullivan Principles (www.marshall.edu)
14. ^{^} Business for Peace programme (www.unglobalcompact.org)