The New Great Game- Economics as the Fulcrum in Afghanistan

‘Now I shall go far and far into the North, playing the Great Game….’

-       Rudyard Kipling, Kim, 1901

Definitions of ‘The Great Game’ have morphed through many different generations. What underpins most historical definitions is the importance of Central Asia as the cross roads between East and West and the key hinge upon which trade routes would swing to support economic expansion. Modernity has transitioned this definition of ‘The Great Game’ into being the efforts made by countries maneuvering to fill (or exploit) the demise of the USSR and the fracturing of nation states in Central Asia. Superimpose onto this an increasing desire for natural resources as well the positioning of neighbouring countries considered a threat to democracy and democratic efforts. The dimension of ‘The Great Game’ is being reshaped. 

No longer is ‘The Great Game’ about a struggle in Central Asia to control trade routes, but rather posturing to ensure best strategic position to support both political and economic endstates.

Whilst Central Asia, and subsequently ‘The Great Game’ is not solely about ‘Afghanistan’, it is widely recognised that Afghanistan remains pivotal as a location of untapped natural resources that surpasses those, for example, in Mongolia. The attraction as well as the complexity is linked to its immature economy and a young government that struggles with both the concept and the execution of democracy. It remains easily manipulated by those powerful nation states that are willing to prop up the economy in return for an ability to grow strategic posturing and an opportunity to access resource yields. Infrastructure and utilities are limited. The supply chains are highly complex. And all this in a security environment that remains threatening to all, save those with the largest appetite for risk. 

Gold in the Hills

The resource sector is the big business key to the economic growth of Afghanistan; and the big consumers of resources know that Afghanistan retains extensive resource wealth. Major mining companies from America, Australia, Canada, China, India and Russia have been scoping, bidding and now leading exploration of resource blocks in Afghanistan. Increasing demand for resources worldwide is driving prices upwards and hence resource companies are drawn with increased risk appetite to challenging locations like Afghanistan. 

 Leadership? Generals, Politicians or Businessmen?

The response from the international community to the increased volumes of incidents has typically been to increase the rate and tempo of military operations, but Afghanistan is largely an insurgency operation and the success of mainstream military campaigns on insurgencies is destined to win the battles but lose the war. The ‘death from a thousand cuts’ for NATO forces will occur in Afghanistan. Topography and a lack of complex terrain such as built up areas and complex streetscapes will mean that it will take insurgents and factional groups longer, but in the end they can/ will win. History also supports this theory. Afghanistan has a strong history of occupying forces being allowed easy access to the Country and then slowly attritted until political will is lost.

The counter insurgency campaign needs to be replaced with a business insurgency campaign. This will lead to a greatly improved security situation as local economies grow and improved opportunities present themselves to districts and provinces. Stability and progress can be created by small to medium enterprise development; but also more rapidly through larger projects of economic value. The traction in the Afghan Ministry of Mines in developing the contracting architecture to tender resource blocks is encouraging.

Economic progress will dislocate and isolate anti government elements, factional groups and those who are criminally motivated. Communities will not be interested sponsoring nor supporting insecurity where there are livelihoods and standards of living that may be threatened.

War is far too important to leave to the generals, or to the politicians for that matter. In Afghanistan it is best left to the businessmen. 

Arab Spring- The New Heightened Awareness

The Arab Spring saw unprecedented geopolitical change in the Middle East and North Africa, but with it came increased instability and uncertainty in those directly affected countries. A related vibration radiated to other parts of Africa and, in the case of recent events, even as far as Eastern Europe and Central Asia.

The changing socio-political dynamics in emerging markets and fragile environments presents newfound challenges for Australian companies currently operating in these regions as well as for those evaluating the associated risk versus reward payoffs in entering them. As Asia continues to fuel increasing demand for resources, companies may be increasingly indulgent in their risk appetite. This will include companies with capital looking at project based opportunities that regularly present themselves in post-conflict environments like Iraq, Sudan, Democratic Republic of Congo  and Afghanistan, as well as more remote, austere and fragile areas in Africa and across the South East Asian and South Pacific archipelago. 

We are currently observing  an arc of instability radiating outwards in North and East Africa, propelled by the catalyst of the Arab Spring, but with a much longer genesis. There are very few truly stable countries remaining in the North and Eastern regions of Africa but there are significant resource reserves. The littoral states are most attractive to investors and offer the most profound and enticing opportunities, given access to seaports that can easily install a seaborne supply chain.  

A decade ago Chinese and Malay resource companies moved into an immature African market space which are often benchmarked as being the original resource frontier markets. The main lesson learnt from these African experiences was sustainable profitability;  consequently exploration and production companies must pay more attention to the final frontiers of resource wealth; which are often immature in their governance systems and stability. These locations are receiving more attention from those resource sector companies with capital but no onstream projects. Increasing shareholder demands will place greater pressure on this tranche of companies to take greater risks in order to deliver greater returns. Players in the extractive industry must pay attention to these new and developing opportunities to remain ahead of the power curve given  the range of resources in frontier markets, particularly Africa and parts of Central Asia, that are not under exploration or in production.  True reward always accompanies true risk and this changing frontier brings many existing and some new challenges. 

Countries such as Iraq, Afghanistan, Ghana, Sudan, Code d’Ivoire and Sierra Leone are increasingly seeking to develop deals and concessions with Western domiciled companies that that have a proven track record in project delivery, high standards of safety, and competency in managing local stakeholders and communities with appropriate corporate social responsibility programs. They have learned, through experience and research, that non Western Companies do not necessarily conduct their projects with the same sensitivity and corporate social responsibility nor do they offer opportunities for local industry participation as being commonplace in their projects. There is, therefore, an increasing demand for the services and support of Western based and Western principled companies. The outcomes of events like the Arab Spring, political instability in Cote d’Ivoire and elections in Iraq, all of which dislocate ‘old regimes’, are likely to further this demand trend.

For those companies planning to operate in this environment, there are a myriad of challenges that should be mapped, resourced and proactively managed. These can be summarised as follows:

1. Ungoverned Spaces (Political Terrain)

·         Typically an ungoverned space appears where there are contested or porous borders or countries with immature governments and political systems. This creates risk for the business practices of any international entity operating within that country’s borders. Critical to managing this risk is effective business intelligence that operates as part of a company’s early warning radar. Threat and Vulnerability Assessments offer a better quality optic that creates improved visibility and awareness across the widest disciplines including stakeholder interactions, social, cultural and political influencing factors as well as the prevailing security and health environments.

·         During the Arab Spring, many resource companies were caught unaware of the emergence of political instability and consequently the rapidly developing ungovernable spaces. Libya, for example, saw widespread regional looting of international organisations from criminal groups that presented themselves as being ‘rebels’. On occasion, this manifested into personal security risks to international and local staff. In some instances, Unity Resources Group (Unity) were requested to advise, prepare, treat and evacuate employees and families within 24 hours from the most remote of environments. This was far from ideal from an operational and cost perspective, let alone the potential trauma that was created for valued employees and their families. Many companies were underprepared and hence fell  to their lowest level of preparation; thus paying not just the real financial costs but also suffering irreparable image and reputation damage as local staff were left behind and projects were abandoned and suspended. Many have still to re-staff and recover their projects.

·         Beyond operational intelligence and the threat of ungoverned spaces, associated criminality, lack of infrastructure and rapidly changing geographical and cultural environments all require a more complete preparatory view prior to final investment decisions. We are increasingly dealing with clients that are assessing investments with significant potential (theoretical) returns yet have little experience operating in some of these challenging environments. Navigating through the opaque operating environments in frontier markets requires a sound plan, a well designed and produced road map and a robust business compass. It is then necessary to develop and conduct projects with exceptional resilience and recoverability plans.

2. Security against Terrorism (Human Terrain)

·         For businesses operating in fragile and demanding environments, challenges often emerge due to the prevalence of internationals coupled with unregulated and often lawless swathes of geography and the associated highly complex supply chains. In many countries, resource rich areas are common targets of terrorist, factional and clan based groups, both on and offshore. Insecurity , including piracy, is a major issue that any company should have considered and if required developed a risk mitigation strategy for.

·         Unlike other companies entering these environments, resource companies are often highly visible in terms of their physical footprint and lines of supply and communications. There are susceptible to being targeted. Indeed, incumbent governments in these countries  often actively promote the foreign investment, due to the potential economic benefits and political gravitas. Therefore an unintentional consequence of this activity is making the project a ‘trophy target’ for terrorist activity.

·         Piracy is a growing concern along the very linear offshore supply lines that offer the most affordability for large volume movements of commodities. It is predicated that piracy will continue to grow and expand across the Pacific and Indian Oceans as exploration and production volumes grow from Africa and Asia.  Funded through the ongoing payment of ransoms, pirates also have become more sophisticated and are extending their activities. We are noticing piracy events moving from the traditional high risk locations such as South China Sea, Malacca Straits and the Gulf of Aden. This upward and outward trend has shown piracy is now prevalent deep inside the Indian Ocean and on the fringes of the Persian Gulf. It remains a major threat to the cost base of providing resources to customers.

3. Logistics (Supply Chain)

·         Due to underdeveloped infrastructure and utilities, Africa can be logistically complex. The supply chain for importing and exporting resources is often convoluted and therefore high risk as it traverses ungoverned spaces that commonly harbour issue motivated groups, criminals and anti government elements.

·         Cross border movements require a detailed understanding of stakeholders and liaison networks, to mitigate the risk of convoys and staff being impounded and significant time delays.

·         Quality and quantity inside the supply chain are often misaligned with demand, and we also regularly notice that speed and reliability are often below expectations.

·         Supply chains can be installed that are successful and these should be mapped and designed as part of one cohesive and coherent market entry strategy but constantly adapted to remain ahead of the morphing environmental factors: including social, political, economic, security, health, legal and environmental  factors.

4. Social, Cultural and the Environment

·         These disciplines extend to religion, beliefs, community ties and inter/ intra community frictions, climactic and environmental changes and flora and fauna. Understanding these sensitivities and how to manage the needs and expectations of the local community and authorities can make the difference between harmonious relations with a predictable and manageable operating environment and a project which lacks local support.

·         Seeking the endorsement of local communities as well as offering opportunities for local industry is core to developing resilient business practices and delivering successful and profitable projects and programs. Community outreach and community based safety and security can also act as the adhesive of a successful project delivery apparatus.

These operational threats and challenges, while not unusual or unique, need to be analysed closely and a detailed plan developed prior to entering a territory.

Solutions: Address the Challenges Before You Arrive

Time spent in reconnaissance is seldom wasted- Napoleon

Research, analysis and due diligence is critical to inform the early and preparatory phases of a project. Just as you undertake comprehensive geological, engineering and technical business case reviews and due diligence, the same must be applied to the physics of the operating environment. For smaller companies, the initial challenge often resides in finding the right resources to undertake the due diligence. In most cases, safety, health, environment, security and business intelligence consultants who have an on-the-ground presence with many years of experience in these regions are a very cost effective approach to undertaking the relevant due diligence. The opportunity cost of skipping due diligence is regularly profound and acute in terms of financial loss. Small to mid cap resource sector companies can seldom afford an initial error in the project review, development and rollout.

By undertaking appropriate due diligence and then preparing the right risk mitigation strategies, a company will in many cases reduce its overall operational costs once in market; and certainly sidestep  the real costs of poor due diligence and a semi-informed and semi-prepared market entry strategy.

A forward focus should take account of all the known variables on a particular project and also prepare for known and possible unknown contingencies, the branches and sequels of events and the associated second order effects. This widest and deepest outlook will ensure that a company is well prepared and does not need to be incident reactive. Incident based response generates additional costs by demanding additional surge services as well as issue management across stakeholder groups. In many cases feeble planning results in project failure.

The Approach - Creating a Refined Threat and Vulnerability Assessment

Stability is a precondition to development. Stability can be created and influenced at the project level.  Proactive risk mitigation and aligned outreach, liaison and diligence before entering the operational environment is a critical step that ensures the best chance of developing project stability. Risk mitigation strategies should be informed by comprehensive threat and vulnerability assessments that identify and treat risks across a spectrum of disciplines including social and cultural, technological, environmental, political, legal and logistical (including the supply chain) issues. A company should apply experienced resources (internal or consultancy based) across all of these disciplines (at a minimum) to deliver data and information that are fused together to provide contextualised intelligence to assist management decision making.

A highly refined Threat and Vulnerability Assessment permits risks to be identified, understood and then enables a comprehensive strategy to be developed prior to market entry. By targeting efforts and resources toward obtaining the information and insight required to fill knowledge gaps, businesses can inform and increase productivity and minimise the excessive use of time and resources. In order to gain transparency on critical issues surrounding the operations and logistics of operations in high risk locations it is essential that companies collect data sets across the full range of functional areas prior to market entry.

Resource companies must work to reposition market nuances into business advantages and seek specific business intelligence while navigating the opaque environment of foreign and complex markets. These environments are dynamic and require constant fine tuning and adjustment. It is, therefore, vital that foreign businesses commit to the ongoing monitoring and evaluation of all systems and procedures and apply appropriate feedback loops into a continual improvement process.

The Critical Element – Multiplying the Value of Your Investment through Proactive use of Human Terrain

So what are the critical elements of a threat and vulnerability assessment? Understanding the organisations that can influence the success (or otherwise) of your operations are stakeholders that contribute to the Human Terrain.

Human Terrain Systems create the conditions for establishing and shaping the socio-cultural framework to enable investment and operational planning, preparation, execution and assessment. This model focuses on developing a fully integrated civil affairs program to engage the community while providing security, medical, safety, cultural awareness and incident and emergency management services, all of which, when fused, deliver successful project outcomes in line with client goals. Civil affairs and the associated outreach will seek to reassure and build both trust and confidence that the issues, concerns and needs of the community and its stakeholders are addressed. This includes the application of local industry participation, including for suppliers and employees that promotes greater economic progression.

Understanding the effect of investment through the lens of the local culture and psyche should be foremost in planning and consideration prior to every final investment decision. A good business model for resource companies should incentivise the local population towards the project, thus giving the human infrastructure both the value and the reason to be a supportive alliance.

Again Human Terrain Systems are researched and designed as early as possible for once a company has extended and promoted a certain approach it is difficult to change direction. Concurrent due diligence of partners, suppliers and customers, combined with community liaison and outreach programs prior to market entry can minimise the threat posed by a resource company moving into an area of instability and neutralise or marginalise confrontation and conflict. Civil affairs and human terrain teams (HTTs) regularly lead community based security and safety programs which complement traditional safety, medical and security systems. As well as acting in a promotional capacity for the project they provide a useful feedback loop. Outreach initiatives, such as ‘Town Hall’ sessions with local populations, that are led by HTTs additionally provide access to knowledge and relationships that allow companies to address challenges through a different prism and using different angles that are typically known by local populations. This enables a greater understanding and more options to overcome them. Local endorsement leads to broader local support and, ultimately, contributes to project success.

To successfully develop a tapestry to inform executive decision making, information should be sought from trusted and proven sources in the area developed during the preparatory stage but reviewed, evolved and modified through the life of projects. Sources are typically drawn from across the community, businesses, local suppliers and providers, law enforcement, international community groups and non government agencies  and the media.

Below are stakeholder groups that are typical to a resource project that companies may need to be cognisant of:

Domestic Business Sector

·         Particularly within the energy and infrastructure industry

·         Within local and foreign companies operating in the country

·         Chambers of Commerce and National Business Institutions and Councils

Law Enforcement

·         Public Security Forces

·         Investigative Police Force

·         International military, security and policing bodies

·         Other Commissions

·         The Justice architecture

The Media

·         Investigative journalists both in-country and globally with a focus on local and regional politics and business relations

·         Some people in remote communities may be illiterate and audio messaging takes an increased importance as does learning through visual imagery

Local Suppliers

·         Procurement agents and those offering supply chain solutions

·         Freight forwarders and brokers

·         Competitor advice can complete and round out stakeholder analyses

Diplomatic, Community and NGOs

·         Information & Analysis Services both in-country and in other jurisdictions where the country maintains an accessible diplomatic presence

·         Embassies  and High Commissions and international organisations such as the UN and the World Bank.

·         Primarily international human rights organisations that have been monitoring local activities

·         Local community, cultural and religious groups

·         Inter country chambers of commerce and industry groups

Government

·         Senior level officials in the following typical Ministries:

o   Ministry of Petroleum/ Oil and Mineral/ Natural Resources

o   Ministry of Commerce and regional Chambers of Commerce

o   Ministry of Finance

o   Ministry of Foreign Affairs

o   Ministry of Interior/ Police

o   Ministry of Defence

o   Customs and Immigration agencies

o   Ministry of Labour

Academia and those with Influential social status individuals/families or clans

·         Academic scholars in-country and abroad including Diaspora

·         National Universities and Professors in the local area

·         Legal services

·         Local legal firms and international law firms operating in-country

·         Influential and successful families

Prepared for Business Resilience

As outlined, a successful development project in high risk areas inherently creates stability, despite environmental challenges and pressures. Incidents and events can overshadow and threaten stability and as a result contingency plans are critical to guaranteeing business continuity. Business resilience and recoverability from incidents and events is vital to maintaining both the profitability and the image and reputation of an organisation in unstable and challenging environments. This demands intelligent and thorough planning and preparedness.

Not all risks can be foreseen, but due diligence, research and analysis followed by sound systems and procedures for implementation can ensure that incident, emergency and crisis management plans are both thorough, rehearsed and therefore are robust.

Other supporting systems including safety, security and emergency management, health and medical and environmental response and recovery all need to be integrated into the business resilience architecture.

Conclusion

The events of 2011 have created an arc of instability radiating out from North and East Africa and should serve as a reminder to resource companies that many of the frontiers containing significant resource holdings are not without their inherent challenges; that often change at no notice. With careful preparation and planning and a deliberate approach to due diligence which includes operational, social, cultural and environmental considerations, resource companies greatly improve their chance of success of establishing sustainable and profitable operations. 

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