Volume 1 Cedric - revised luca Final - RUIG-GIAN

Sectoral aspectsthere will be added risks such as the security of company staff and physical assets. In somecircumstances political risk insurance (PRI), such as that offered by the World Bank’sMultilateral Investment Guarantee Agency (MIGA), may help, especially“when [investors] can identify a turning point in a country’s fortunes. If the risks are too high,and there are few business opportunities, then companies will simply go elsewhere. If stabilityhas already been achieved, there is less need for insurance. However, if opportunities areevenly—or nearly evenly—matched by risks, then PRI can tip the balance.” 26The balance of risk and reward as perceived by foreign investors varies from oneeconomic sector to another. A comparative analysis of the role of international companiesin post-conflict reconstruction in selected sectors has brought to light significantdifferences. 27 For the extractive industries—upstream oil and gas, timber, and mining—the abundance and accessibility of the natural resource in question is primordial. At theexploration stage, when the scale of required investment is modest, oil companies willtolerate a great deal of instability and insecurity in countries with good geological potentialin order to position themselves for the day when significant production may be possible.“Oil and gas companies have been quick to return to war-torn countries in West Africa, theMiddle East and Central Asia just as mining interests and large smelters have faceddifficult environments in the Andes and Central and East Africa. Similarly, forestryconcessionaires have shown resilience to political instability concerns in Southeast Asia.” 28However at the development and production stage, when the investments at stake have anexpected life of some decades and a cost of hundreds of millions or billions of US$, thenan expectation of political and regulatory stability will be important.The construction sector has a similar concern for the security of its physical assets,although they may in general be less concentrated and vulnerable than those of the oilindustry. Offsetting this is the prospect of large contracts financed by donor governmentsand international agencies whose capacity to pay is more or less assured. The role of thissector is extremely important, of course, since physical reconstruction is likely to have ahigh priority in conflict-affected as well as natural disaster situations and since this is asector where there are likely to be local firms with a significant capacity to generateemployment and economic growth. On this issue some tension may be expected betweenthe international and local actors. Donors and international agencies may find it easier andbe accustomed to dealing with the large multinational firms, and these firms may find iteasier to use equipment-intensive techniques; these are more familiar to them and do notpresent complex issues of local labour management, which they may not feel comfortablewith. On the other hand, local authorities, enterprises and workers are likely to have moreto gain from the choice of more labour-intensive techniques.Telecommunications. Mobile telephone companies are among the first to be willingto invest in conflict-affected regions. The scale of initial investment is limited and thepayback begins immediately. In countries that are not well endowed with fixed-linetelephony there may be profitable opportunities to gain a strong position in a fast-growingmarket. This is a win-win situation, since the host government and economy also benefitfrom the infrastructural aspects of a functioning telephone network.26 John Bray, MIGA’s experience in conflict-affected countries: The case of Bosnia and Herzegovina, World BankSocial Development Papers, Conflict Prevention and Reconstruction, Paper No. 13, Washington, D.C., June 2004.27 John Bray, International companies and post-conflict reconstruction: Cross-sectoral comparisons, World BankSocial Development Papers, Conflict Prevention and Reconstruction, Paper No. 22, Washington, D.C., February2005.28 Jordan Schwartz, Shelly Hahn, and Ian Bannon, The private sector’s role in the provision of infrastructure inpost-conflict countries: Patterns and policy options, World Bank Social Development Papers, Conflict Preventionand Reconstruction, Paper No. 16, Washington, D.C., August 2004.22