International loans and capital inflow is widely perceived to be beneficial for emerging countries as a solution to boost business and the economy through job and wealth creation, and thus provide much-needed stability. But what if the picture wasn’t so rosy after all? Recent research by Professor Brian Ganson at Stellenbosch Business School,Stellenbosch University, casts light on the shadier side of the international investment coin. From an interview with Prof. Adrian Zicari, Council on Business & Society

,Armed Conflict in the Global South: Why development banks may be part of the problem by Brian Ganson, from an interview with Adrian Zicari. Related research: Ganson, B., Jamison, A. S., and Henisz, W. J. (2023). International Finance Corporation Projects and Increased Armed Conflict. Business & Conflict Research Initiative Working Paper. http://dx.doi.org/10.2139/ssrn.4540583.

Prof. Adrian Zicari: Welcome Brian Ganson, Professor at Stellenbosch Business School and Stellenbosch University School for Data Science and Computational Thinking.

You and your co-authors Anne Jamison and Witold Henisz are publishing a breakthrough paper about the International Finance Corporation (IFC)—the private sector arm of the World Bank Group—and armed conflict. Your work challenges the common assumption that capital inflows bring peace to countries in the South. That’s surprising! After all, we may imagine that business is good for peace.  

Prof. Brian Ganson: Particularly in the Global North, we are conditioned to see business as a natural partner in society’s development (even if we see its darker side from time to time). But in the Global South, there has been much more continuity in the story of exploitative foreign investment practices, from colonialism to present times.

Let’s take the New Forests Company case in Uganda as an example from our dataset. Such projects emerge from dealmaking between the IFC, the client company, and the government elite in the national capital. They capture the gains. Meanwhile, the government conducted a campaign of terror—we’re talking flamethrowers and drowned children—to evict people from the land to give it to the company. Ordinary people bear all the costs and risks. Yet the IFC and the foreign company still moved forward with the investment. Unsurprisingly, such projects exacerbate the company-community and citizen-government tensions that underlie escalating violent conflict.

Furthermore, banks like the IFC prefer large deals that generate greater profits. However, this enormous concentration of capital in poor places has been shown to promote rent seeking—attempts to benefit from illegitimate gains—and resource competition—conflict in divided societies over which group benefits and which gets left out. Additionally, mining, plantation agriculture, and infrastructure projects are land intensive, and so exacerbate unsettled land claims between individuals and groups.

All of these dynamics increase the risk of armed conflict. And this is exactly what we found. A single IFC project, on average, causes 7.6 additional armed conflict events in the year after it is introduced. In these and other cases where we see violent conflict rising, there can be no talk of positive developmental impact.

Armed Conflict and Development Banks: Where data helps research

Prof. Adrian Zicari: For your exploration, you innovated with the tools of data science. Could you explain?

Prof. Brian Ganson: The issues raised above are not novel—many case studies and even the World Bank Group’s own documents point them out. However, it has been very hard to answer questions at a global scale: On average, do IFC projects increase armed conflict? This is in part because development banks like the IFC (and other private investors) make it very hard to access data about their projects.

This paper is the first of (we hope!) many where our team better applies the tools of data science to business and conflict research to answer such questions. We automated processes to scrape IFC data project by project. We used natural language processing and fuzzy matching techniques to geolocate these on a global grid. We then populated that same grid with data about armed conflict events and other salient factors in the socio-political and socio-economic environment.

This allows us to look carefully at the IFC project in its context, and, using sophisticated econometric analyses described in the paper, to compare it to like places to isolate the impact of the IFC project from other factors, including previous conflict trends.

While powerful in making our case, it is important to note that our approach most likely underestimated the negative impact of IFC projects. Since we only look at armed conflict events, it would not capture, for example, increases in violent crime or gender-based violence around an IFC-financed mine. Because we focus on the local impact, it would not capture a violent protest in the capital related to a project in the periphery. 

A paradox of international banks and development aid

Prof. Adrian Zicari: You raise a critique which is not limited to this or that individual project, but to the ensemble of IFC projects. What can be done? Perhaps some mitigation is possible. Perhaps we should give more emphasis to development aid, which seems less problematic?

Prof. Brian Ganson: This raises a critical issue. Currently, the dominant approach from the North (and most of the development banks) is to push more investment ever more quickly into even more fragile places. This approached is captured by the World Bank Group’s “billions to trillions” strategy that promised us that more private investment would deliver the SDGs. It hasn’t. Quite the opposite: it has increased social upheaval that makes development nearly impossible. Should this trend continue, the evidence allows us to predict the disaster in the making.

The story for aid is much more positive. To be blunt, however, this has been clear in studies for decades now. It is simply ideologically and politically unpopular. 

Solutions to ease the effect of money triggering armed conflict

Prof. Adrian Zicari: What would you propose to address these problems? 

Prof. Brian Ganson: First, we need to get serious about the situation. Disturbingly, our study found that increases in armed conflict were concentrated in projects that the IFC had classified as having only limited and readily manageable adverse environmental or social risks. Change starts by paying attention. 

Second, more accountability would help. It is disturbing that, at the same time when the World Bank’s own watchdog group reports that the IFC covered up the sexual abuse of children for profit motives, the IFC still claims sovereign immunity as an international organisation. There need to be ways for ordinary people to hold the IFC and the companies liable for harms they cause.

More profoundly, we need to think of business investment in difficult environments more in peace building terms. If we remain attentive to the quality of relationships in society, we see that conflict rises or falls less the with the “what” of business (jobs, technology, taxes…) so much as with the “who” and the “how” (the fairness of who gets the jobs, who benefits or loses from the technology, where those revenues flow, whether negative environmental and social impacts are mitigated, whether human rights are respected, whether people are included in decisions that affect them …).  

The question becomes, does an investment within its particular ecosystem bring people in society together, or drive them further apart? While there are certainly some good actors, their efforts can get lost in the broader dynamics of exploitation.

Having said that, business development can (and should) be a factor for peace, and there are more positive pathways forward. Two recent pieces of mine examine some elements of a peace building approach to investment and business development. You can look at them here and here. There are examples of such attitudes and approaches being applied with encouraging results. All of these involve more collaborative and inclusive approaches, right from project conceptualisation. With greater attention to these issues, more positive examples can follow.

Useful links:

• Link up with Profs. Ganson and Zicari on LinkedIn
• Read a related article: Human rights in 2023: 5 priorities for businesses
• Discover Stellenbosch University and Stellenbosch Business School
• Apply for the Stellenbosch MBA program.

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