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Gambling on Conflict: Profiling Investments in Conflict Countries
Unformatted Document Text:  Andreea Mihalache Updated: March 20, 2008 customs would not show up for days and sometimes for weeks, and the container with perishable skins would be exposed to extreme heat. Hides, being protein substance, were irreversibly damaged by this exposure. We did offer to provide customs with transportation and they occasionally accepted" (OPIC, Hoyt 1995, p8-9). Furthermore, gas and vehicles, which are in high demand in conflict situations, become scarce and very expensive. The Hoyt 1995 claim identifies the “shortage and delay of transportation to bring hides and skins in from the provinces to our plant in Port-au-Prince” (OPIC, Hoyt 1995, p1) as another cause for their loss. Tea Importers, who own a tea plantation and tea processing factory in Cyohoha-Rukery, Rwanda, filed a political violence claim with OPIC in 1991, for losses incurred when the Ministry of Defense of the Government of Rwanda requisitioned the firm’s truck “to use in fighting the rebel invaders” (OPIC, Tea Importers 1991, p.2). Third, political violence destroys assets, both human and material or, in the least, reduces their productivity. Collier (1999, 170) states that “civil war creates temporary uncertainty with respect to the future return on assets held within a country.” In a violence-free equilibrium, the returns on domestically held assets, accounting for the rate of return and depreciation equals the expected returns if the assets were held abroad. As conflict creates disequilibrium and lowers the expected returns on domestically held assets, firms are better off investing in a conflict free host. There are several ways in which political violence can have directly destructive consequences for firms. First, firms can be caught in the crossfire between the fighting factions. For instance, in their 1972 political violence claim to OPIC, Hercules Inc., owners of a fertilizer plant in Pakistan, write: “At 1:20 PM on December 4, 1971, during the Indo- 15

Authors: Mihalache, Andreea.
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background image
Andreea Mihalache
Updated: March 20, 2008
customs would not show up for days and sometimes for weeks, and the container with
perishable skins would be exposed to extreme heat. Hides, being protein substance, were
irreversibly damaged by this exposure. We did offer to provide customs with
transportation and they occasionally accepted" (OPIC, Hoyt 1995, p8-9). Furthermore,
gas and vehicles, which are in high demand in conflict situations, become scarce and very
expensive. The Hoyt 1995 claim identifies the “shortage and delay of transportation to
bring hides and skins in from the provinces to our plant in Port-au-Prince” (OPIC, Hoyt
1995, p1) as another cause for their loss. Tea Importers, who own a tea plantation and tea
processing factory in Cyohoha-Rukery, Rwanda, filed a political violence claim with
OPIC in 1991, for losses incurred when the Ministry of Defense of the Government of
Rwanda requisitioned the firm’s truck “to use in fighting the rebel invaders” (OPIC, Tea
Importers 1991, p.2).
Third, political violence destroys assets, both human and material or, in the least,
reduces their productivity. Collier (1999, 170) states that “civil war creates temporary
uncertainty with respect to the future return on assets held within a country.” In a
violence-free equilibrium, the returns on domestically held assets, accounting for the rate
of return and depreciation equals the expected returns if the assets were held abroad. As
conflict creates disequilibrium and lowers the expected returns on domestically held
assets, firms are better off investing in a conflict free host. There are several ways in
which political violence can have directly destructive consequences for firms.
First, firms can be caught in the crossfire between the fighting factions. For
instance, in their 1972 political violence claim to OPIC, Hercules Inc., owners of a
fertilizer plant in Pakistan, write: “At 1:20 PM on December 4, 1971, during the Indo-
15


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