Volume 1 Cedric - revised luca Final - RUIG-GIAN

promotion of employment-friendly investments, and social dialogue principles andtechniques. 23 A noteworthy feature of the concept is that entrepreneurs and socialpartners are fully engaged in developing the economic recovery / developmentstrategy. The expression Local Economic Recovery is sometimes used to refer toshorter-term, more focused strategies, as is usually appropriate to post-crisisenvironments.• Microfinance and other small financial institutions that can respond to the needs ofinformal and small formal sector enterprises are critical. 24 The vital role of finance isclear in one case study of crisis-affected countries after another; the papers on Iraq andMacedonia are examples. Repeatedly, small entrepreneurs complain of the difficulty ofgetting credit, especially from commercial banks, and of the onerous terms on which itis offered when it is available. Recently there have been encouraging developments onthis front; they are discussed in the following section.2.5.3. MNEsMNE decisions to invest or not in areas affected by crisis—to stay in countries wherethey are already established, rather than leave, and to go into countries where they do notyet have a presence—are normally taken for commercial reasons. They may be influencedat the margin by broader considerations of corporate social responsibility, but where thecommitment is sizable and long-term, the business case needs to be solid. This sectionexplores the determinants of MNE investment decisions in order to better understand whatpolicies and conditions might lead to increased levels of investment.As regards countries still undergoing conflict, light was shed on this question by asurvey of 25 MNE managers overseeing their companies’ operations in countries that werethe scene of conflicts, including Algeria, Angola, Azerbaijan, Colombia, Congo, Georgia,Kazakhstan, Indonesia, UK-Northern Ireland, and Sri Lanka. Critical factors affecting thecompany’s willingness to continue operations in the country were found to be whether theconflict was predictably limited to a certain part of the country or could otherwise beexpected to be territorially contained—for example, urban investments would be retainedif the conflict took place only in rural areas; whether the government (or in some cases thecompany, using its own security personnel) was able to defend the investment-intensiveareas; and whether the conflict was limited to occasional terrorist acts or rebel incursionsinto government-controlled territory, which in some sectors could be accepted as a cost ofdoing business. 25In countries emerging from conflict, the first point to make is that all of the generalfactors that MNE managers consider when contemplating investment in non-crisiscountries also apply to countries affected by crisis. These include whether the potentialrewards justify the commercial risks; whether non-commercial risks such as thosestemming from government regulation or political change are acceptable; whether theproject fits the firm’s business model; and whether the commercial environment in thecountry (e.g. respect for contracts, efficient financial and judicial institutions, reasonablelevel of “red tape”) is satisfactory. In countries affected by crisis several of these variablesare likely to give more negative readings than under normal conditions; in the case of therisk factor, the higher risk might be accompanied by higher potential reward. In addition23Martiin Gasser, Carmelo Salzano, Roberto di Meglio, and Alfredo Lazarte-Hoyle, Local EconomicDevelopment in Post-Crisis Situations, Geneva: ILO, 2002.24 Geetha Nagarajan, Developing Financial Institutions in Conflict Affected Countries: Emerging Issues, FirstLessons Learnt and Challenges Ahead, Geneva, ILO Action Programme on Skills and Entrepreneurship Trainingfor Countries Emerging from Armed Conflict, 1997. More recent information on developments in numerouscountries (Angola, Cambodia, Kosovo, Liberia, Mozambique, Nepal, Rwanda, Timor-Leste, and Uganda) can beaccessed through the web site http://topics.developmentgateway.org/microfinance.25 Jonathan Berman, “Boardrooms and bombs”, Harvard International Review, 22 (3), Fall 2000.21