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Gambling on Conflict: Profiling Investments in Conflict Countries
Unformatted Document Text:  Andreea Mihalache Updated: March 20, 2008 activities such as the law enforcement and the justice system (Collier 1999, Gonzalez and Lopez 2007). In some cases, production costs increase because of guerrilla or paramilitary taxes, extortion, and kidnapping for self financing and for rent-seeking purposes (Rangel 2000). Even in cases where firms turn to the government for protection from political violence, they still incur costs. Take, for instance, the case of Freeport Minerals, the owner of a copper mining operation in the Irian Jaya region of Indonesia. In 1977, when the separatist rebel groups collectively known as Organisasi Papua Merkeda (OPM) were particularly active in the region, the Freeport operations became the target of dissident action. The Indonesian government (GOI) dispatched military units to deal with the situation. Some of these units used the Freeport facilities as a base of operations: they were quartered nearby and used the Freeport airfield to conduct air strikes on suspected OPM targets. As a result, in addition to the losses from the attacks, Freeport incurred expenses “totaling $17,024, related to the support of GOI military personnel engaged in security operations in the vicinity of its facilities” (OPIC, Freeport 1979, p12). Second, transportation costs also increase, due to the destruction of infrastructure and to the more stringent security measures that have to be implemented (Collier 1999). The added security measures sometimes also cause delays. For instance, in a 1995 political violence insurance claim to OPIC, Charles Hoyt, the owner of the Cuirs Hawtan tannery in Port-au-Prince, Haiti, describes how a large share of their losses was due to customs delays in Port-au-Prince. "Haitian customs breaks the seals of sea containers at our plant in Port-au-Prince and examines the contents. Our plant is about 5-6 miles from the customs house. Due to many political problems and fuel shortage, 14

Authors: Mihalache, Andreea.
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background image
Andreea Mihalache
Updated: March 20, 2008
activities such as the law enforcement and the justice system (Collier 1999, Gonzalez and
Lopez 2007). In some cases, production costs increase because of guerrilla or
paramilitary taxes, extortion, and kidnapping for self financing and for rent-seeking
purposes (Rangel 2000). Even in cases where firms turn to the government for protection
from political violence, they still incur costs. Take, for instance, the case of Freeport
Minerals, the owner of a copper mining operation in the Irian Jaya region of Indonesia.
In 1977, when the separatist rebel groups collectively known as Organisasi Papua
Merkeda (OPM) were particularly active in the region, the Freeport operations became
the target of dissident action. The Indonesian government (GOI) dispatched military
units to deal with the situation. Some of these units used the Freeport facilities as a base
of operations: they were quartered nearby and used the Freeport airfield to conduct air
strikes on suspected OPM targets. As a result, in addition to the losses from the attacks,
Freeport incurred expenses “totaling $17,024, related to the support of GOI military
personnel engaged in security operations in the vicinity of its facilities” (OPIC, Freeport
1979, p12).
Second, transportation costs also increase, due to the destruction of
infrastructure and to the more stringent security measures that have to be implemented
(Collier 1999). The added security measures sometimes also cause delays. For instance,
in a 1995 political violence insurance claim to OPIC, Charles Hoyt, the owner of the
Cuirs Hawtan tannery in Port-au-Prince, Haiti, describes how a large share of their losses
was due to customs delays in Port-au-Prince. "Haitian customs breaks the seals of sea
containers at our plant in Port-au-Prince and examines the contents. Our plant is about
5-6 miles from the customs house. Due to many political problems and fuel shortage,
14


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