Conflict and instability are a new normal for investors in emerging and frontier and markets. Their experience of conflict includes the full spectrum of conflict; from the many faces of non-violent conflict (sit-ins, strikes or other forms of collective action), to those that pass the threshold of violence (protests, social unrests, civil wars, or geopolitical confrontations). Given this strategic horizon, this brief proposes to take a step back to reflect on what we understand by “conflict” and why it should matter for investors. Understanding “conflict” is important in relation to the current discussions around “peace finance” — a relatively undefined field of practice that aims to leverage private investment for peace impact. This brief suggests that measures for the levels of “conflict” are a useful benchmark for peace investors, especially in terms of establishing the relationship between investment projects and the conflict escalation or de-escalation dynamics across the spectrum of non-violent and violent conflict. Extracting conflict from frontier markets through deliberate conflict management and monitoring systems associated to investment projects is a tangible demonstration of peace impact.
The “Conventional” and “Non-Conventional” Conflict Lens
For many people, the word “conflict” triggers an association with interstate or civil wars. It is a type of conflict the depictions of which we feel to know from our history books at school: Two armies with soldiers in uniform fighting against each other on the battle-field. This is the type of “conventional” conflict that also provided the founding rationale for many international organizations, such as the United Nations and the International Committee of the Red Cross, two institutions that are providing the rules to manage such “conventional” conflict.
Yet when we change our lens — like when we change a pair of glasses — we can perceive a series of other manifestations of conflict associated to a transforming security landscape. These include, for instance, chronic political instability, persistent social volatility, or the proliferation of non-state armed groups, private armies or transnational crime actors.
What are the implications of the distinct outlook on conflict through a “conventional” or “non-conventional” lens? Non-conventional conflicts are not always considered “political” conflicts and therefore perceived to fall outside the formal channels of diplomacy. This is why there is a set of other actors that maintain informal networks with access to some of the most difficult actors relevant to affect this more complex security landscape. Working through these networks and between the formal and informal spheres is called “private mediation” in specialist terms. It is a way of working with a long history in a global hub like Geneva.
An “Investor” Lens on Conflict
Both “conventional” and “non-conventional” conflicts are important to investors in emerging and frontier markets, especially when consumer markets or critical resources are affected by violent conflict. Yet investors also need to pay attention to non-violent conflict such as protests, road blockages, or strikes that can results from their own footprint in the complex environment. These represent a risk to every-day operations and can affect the bottom line or sustainability of an investment project in the long term. Yet many companies remain ill-equipped to address such conflict in complex operational environments.
Anecdotally, the relationship between business and conflict has many stories. The head of a national oil company once noted “every morning I go to work and look for oil. But because I love my country, every night I go home and pray we don’t find it.” This anecdote reflects that many professionals know that natural resource finds can change local or national political dynamics. They are cognizant of the fact that a multi-billion dollar investment in a complex frontier market changes all the incentives for everyone. This usually means the escalation of conflict dynamics as existing incompatibilities are amplified or new ones are created.
At the project level, there are some good examples about the implications of non-violent conflict. A study of direct costs to business of conflict found one nine-month construction delay due to work stoppage that resulted in US $750 million in additional project costs. Stoppages at another project carried a price tag of $100 million per year. In yet another project, a community’s ability to protest against a third company by cutting its power lines cost it US $750,000 per day.
There have also been advances in research that have developed a more comprehensive analysis on the relationship between investment and conflict. Based on a geospatial dataset of 5,413 International Finance Corporation (IFC) projects in the period 1994-2022, one study found that “IFC projects are associated with a pronounced increase in armed conflict events in years following project start. The effects are even larger when the investments are in land-intensive sectors, which often face a larger risk of socio-political and socio-economic disruption.”
These insights from anecdotes, project implementation or research illustrate that investments in emerging or frontier markets have a direct relationship to conflict dynamics which in turn result in costs for the investment project or affected communities and governments. They therefore show that there is a missing link between investment and the stimulation broad-based economic opportunity. This missing link might well be the lack of appropriate conflict management and monitoring systems associated to an investment.
Peace Impact through Conflict Management and Monitoring Systems
The good news for investors, communities and governments is that there is a substantial professional track-record of successful conflict management. Especially in a global hub like Geneva, this professional competence is strong, yet its connections to the private sector has been weak so far. Conflict management systems have evolved from aligning several strategic elements, including trustworthy data, collaborative analysis, and progressively expanded coalitions for change. These mechanisms work on the most acute risk factors of conflict and violence, the partisan interest of stakeholders to the conflict, and the sustained support by an honest broker over longer periods of time. In a complex environment where formal government systems are weak or abusive, investors need to support a separate conflict management system to politically accompany the investment project. Investors can draw upon a multitude of instruments developed in the field of private mediation including, for example, verification mechanisms, multi-stakeholder dialogues, and networks of insider mediators and brain trusts. They can also draw on the notion of infrastructures for peace that connects the management of local conflict to broader dynamics at the provincial, national or international levels. As with economies that need infrastructures to work — from ports to roads to property rights — peace needs infrastructures to be maintained — from dialogue platforms to conflict resolution mechanisms to trusted networks of intermediaries.
A critical element in this architecture is a conflict monitoring system that establishes a trusted foundation for collaborative analysis. This can occur, for instance, through a qualitative expert assessment on the ground, especially in contexts that are “information poor and rumour rich”, it can occur through household surveys, or through AI-supported machines that plough through large amounts of media data. Advances in machine learning and natural language processing techniques will likely make it soon possible to scale the monitoring of conflict escalation and de-escalation at the project levels, as one additional layer of analysis for the performance of investment projects.
Whatever the instruments applied, the relationship between conflict escalation or de-escalation and the investment project is an important factor for demonstrating peace impact. Given the current evidence base, it is safe to say that investments that are conflict blind — i.e. that do not deploy a conflict management and monitoring system as part of the investment — could be hard to be considered peace enhancing, because the risk of inadvertently causing or escalating conflicts is too high.
The association of functioning conflict management and monitoring systems to investment projects is, therefore, a critical ingredient for harnessing market forces for peace. By deliberately deploying such systems in complex environments, investors can deliver a layer of peace impact.
Daniel M. Franks et al (2014). ‘Conflict translates environmental and social risk into business costs’, Proceedings of the National Academy of Sciences of the USA 111(21) 7576–7581.
Brian Gansion (2014) Business in Fragile Environments: Capabilities for Conflict Prevention. Negotiation and Conflict Management Research Journal 7(2), pp.121-139.