Make Poverty Business

In Chapter 9 of Make Poverty Business we start with a quote from the Financial Times:

'For hapless foreign investors, the web of Suharto's patronage held the key to success in Indonesia. The list of those who succeeded is a who's who of international business including BP, PowerGen, British Gas, Mitsui, Itochu, General Electric, Edison International and Siemens. Now, just ten days into the post-Suharto era, those links have become a curse.'

The Financial Times, June 1998.

We go on to say:

'The Financial Times report about the fall of President Suharto in Indonesia captures the paradoxes inherent in most major companies' approach to country risk in developing countries. The more you try to minimise your risk by getting close to the current regime, the more the new regime will want to undermine you. The more you compensate yourself for your risk by negotiating higher returns, or fixing the returns in hard currency, the more you'll be seen as a blood-sucking profiteer when the political climate changes. The more you surround yourself with bodyguards and fences, the more the local community will hate you. Your attempts to decrease your short-term risk end up increasing it in the long term, and all of these paradoxes combine to create the greatest risk of all – that you will be described as “hapless” in the Financial Times.'

We believe that establishing a clear development value proposition which identifies and communicates the value you create for your host economy will help avoid these pitfalls.

Bruce Gale, writing in INSEAD Knowledge, makes the following, similar recommendations on dealing with political risk:

- Examine the political connections of your local partners carefully. Close association with the current regime may be advantageous now, but once key figures are removed from the political stage you could be in for some nasty surprises.

- Be a good corporate citizen, contributing to the host country's economy and culture with worthwhile public projects.

- Do not limit your discussions to representatives of the national or local government. They may not necessarily be a good indicator of public opinion. Make a point of establishing an informal dialogue with local journalists, as well as human rights and environmentalist groups. The alternative - keeping a low profile - can make you appear secretive.