Foreign direct investment in conflict-affected contexts

This practice note explains why and how the operations of foreign investors are relevant for economic development planners in conflict-affected contexts. The paper states that the impact of individual investments will depend on the extent to which they are managed in a conflict-sensitive manner.

The author believes that conflict-affected contexts need to adopt a realistic view of the kinds of companies that they can hope to attract, and the speed with which they can attract them. On the other hand, a company’s ability to secure and maintain its “popular license” to operate will often depend on matters of detail, such as employment practices, or training schemes for local entrepreneurs.

The paper introduces the following findings:

• a conflict-sensitive approach can be seen as a form of investor protection
• involving a range of different actors is a prerequisite condition for managing risks and impacts, and achieving a fair and sustainable investment agreement
• if the country is already in recovery, minor benefits or extra pieces of information can make a decisive difference
• the success of local companies is a key indicator for external investors
  
  

• planners must ensure foreign direct investment (FDI) contributes to an “honourable cycle”, whereby peace-building initiatives create an environment conducive to well-designed investments
• they need to ensure that the benefits of both domestic and foreign investment are shared equitably
• they need to ensure that foreign investment does not fuel conflict
• they need to promote sensitive entrepreneurship and help tackle unnecessary bureaucratic obstacles to new entrepreneurs
• development specialists need to appreciate companies’ differences in order to gain a more nuanced understanding of kinds of companies that may or may not consider investments in conflict-affected countries