Economic Development in War Zones
By Sharon Tregaskis
Sitting in the atrium of Sage Hall, enveloped by the back-to-school cacophony of a new semester, it's hard to imagine second-year MBA student Ben Hansen — clad in a hip, striped black button-down and dress slacks — in desert camouflage. But then he puts pen to paper, sketching a military road construction project in Afghanistan, and suddenly it's no stretch at all to imagine the former U.S. Army captain coaching soldiers through the particulars of a highway linking a rural agrarian community in Afghanistan with the nearest political and cultural center 60 miles — and five hours — away.
"We were able to build a road from here to here," he says, digging his pen into points representing the two cities as he sketches a rough map of the cave-strewn terrain where the Hindu Kush mountains have long served as an Al-Qaeda stronghold. "That reduced travel from Jalalabad to Asadabad from five hours to about one hour, which is great for me as a security guy, but is especially great for the local businessmen," says the twenty-nine-year-old, who also did a tour of duty in Iraq from 2004-05. "Now they get a whole new market. Then there are sub-markets, tertiary markets that build off this."
Technically, Hansen's duties in eastern Kunar Province from 2006-07 comprised leadership of an infantry battalion's intelligence operations. But he says the mechanics of economic development in the war-torn region were always on his mind. "In the time I was there, we were able to see the economy take off along this road and we were able to see these villages flourish because of the access to resources," says the New Orleans native. Because the Army contracted with Afghans to perform much of the construction work, the project yielded short-term local employment while ease of traveling after the road opened boosted regional economic vitality. "Markets were opening. I'm not talking Dow Jones. I'm talking people selling food, basic necessities, people able to take what they use for their own sustenance and if they were over capacity, find a use for it."
Warfare has long included an economic component. After World War II, the Marshall Plan supplied more than $13 billion in economic aid and technical assistance to 16 European countries devastated by the previous decade's conflict. Throughout the Cold War, the U.S. and Russia deployed economic assistance as a gambit to cultivate allies in their clash for global dominance. After the Korean War, the U.S. spent more than a billion dollars to rebuild South Korea's economy.
Ben Hansen, MBA '09
Today, military experts see economic development as not only a follow-up to a peace accord — ameliorating the destruction armed conflict leaves in its wake — but an integral tactic in ongoing counterinsurgency operations. "You can't do it without the economic piece," says retired U.S. Marine Corps four-star general Anthony Zinni, a former commander-in-chief of U.S. Central Command and Frank H.T. Rhodes Class of 1956 Professor at Cornell, who served as chief of staff for the Kurdish relief operation that followed the Gulf War. "You can't just have security; you can't just have a governance system that works. If you don't have a strong economic base, none of those other pillars will hold up. It becomes the foundation piece."
Sand in His Boots
Steve Geary, MBA '86, saw that principle in action during a 13-month stint in Iraq as a civilian member of the U.S. Department of Defense's $50 million Task Force to Improve Business and Stability Operations in Iraq. Led by U.S. Under-secretary of Defense Paul Brinkley, the group was charged with stimulating economic growth and employment as a means to promote stability and security. "Once upon a time, this was a vibrant economy," says Geary, a principal with Boston-based Supply Chain Visions, Inc., a boutique consulting firm expert in supply-chain management and performance improvement. "University of Baghdad was the epicenter of learning in the Arabic lands. There were sophisticated business people running around. My role and that of the task force was to find ways to re-energize these pre-existing enterprises and business people and get them working again. It was a matter of simply getting the economic engine to start turning over."
Re-starting Iraq's once-booming economy isn't merely a matter of beneficence. The way a lot of folks see it, the strength of local insurgencies has a direct relationship to the unemployment rate. In Iraq, the average wage-earner supports a household of more than a dozen people. The oil-fueled economic boom of the 1970s generated a foreign reserve worth $35 billion in 1980 and generated robust growth in local manufacturing and production. That surplus was wiped out in the early years of its war with Iran and since then, the national debt — exacerbated by decades of oil embargoes and sanctions — has only grown. Today, estimates of the country's unemployment rate range from 40 to 60 percent. "People planting improvised explosive devices were doing it just for the money," says Zinni. "They were getting $100 to plant an IED. It wasn't ideological, they weren't supporting the terrorists — they were trying to feed their families."
The U.S. spends nearly $10 billion every month in Iraq, and little of it goes directly to economic development or revitalization. In March 2007, General David Petraeus, then commanding general of the multinational force in the country, launched a program to up the ante, leveraging a greater portion of that $10 billion to support both U.S. military tactics and the longer-term pursuit of stability in the region. Known as Iraqi First, the policy promotes the hiring of Iraqis and Iraqi-owned companies and the procurement of materiel produced in the country. "The heart of the value proposition in Iraqi First is not in the individual procurement being executed, but rather in the economic prosperity it can generate," Geary wrote in an article for the supply chain magazine DC Velocity.
In a country plagued by ongoing violence, says Geary, Iraqi First makes very good business sense. With their ties to local families and leaders, local products and contractors have greater protection from attacks by insurgents targeting foreign investments, while reduced shipping cuts exposure to slowdowns related to road closures, IEDs, and infrastructure glitches. "Treat the fact that the country is dangerous as an opportunity," he says. "Locally sourced materials have a competitive advantage."
From Hansen's perspective, locally sourced labor and materials also have a tactical advantage. "We're not coming in and giving one person rights to these roads," he says. "These roads are going to be available for everyone." Both the act of building the road and the relationships forged with neighboring towns and villages once travel commences yield additional dividends. "They get a long-lasting sense of ownership," says Hansen, "so that they're less likely to allow someone to go and bury a bomb in it the next day."
Geary spent much of his time in Iraq in Iskandariyah, part of the country's "Triangle of Death," south of Baghdad. There Brinkley's task force partnered with local leaders to revitalize the State Company for Automotive Industries (SCAI) and the State Company for Mechanical Industries (SCMI), two derelict manufacturing facilities in the Iskandariyah Industrial Complex, which once employed more than 25,000 people.
Through an intensive matchmaking effort, the task force helped both multinational conglomerates and smaller-scale businesses establish operations in the Industrial Complex. Today, Holland Tractors are assembled at SCMI, while a Kuwaiti company has contracted with SCAI to deliver over-the-road tractor-trailer sets. Prefabricated housing, greenhouses, and buses also roll off the assembly lines at the Industrial Complex, and 1,500 students have enrolled at the refurbished vocational/technical school on the grounds. On June 1, 2008, SCAI and SCMI celebrated an employment milestone: 10,000 Iraqis were at work at the two plants. "You stick with what you know," says Geary, who departed Iraq in October 2007. "I know how to do business. So to me, it was just natural to find places to unlock value and get market solutions going. If you can get a market solution going, it is by definition sustainable."
"You can't just have security; you can't just have a governance system that works. If you don't have a strong economic base, none of those other pillars will hold up. It becomes the foundation piece."
- Retired U.S. Marine Corps four-star general Anthony Zinni, a former commander-in-chief of U.S. Central Command and Frank H.T. Rhodes Class of 1956 Professor at Cornell, who served as chief of staff for the Kurdish relief operation that followed the Gulf War.
Roshan: A Case Study
Five years ago when he left his job with telecom giant Alcatel in Paris, Altaf Ladak, MBA '90, told people he'd taken another job in the industry — in Afghanistan. Today, the chief operating officer of Roshan, the country's largest cell phone concern, thinks of his work a little differently. "Now, I say I am part of the reconstruction efforts in Afghanistan and provide telecommunications as a catalyst for change and civil society," he says. "Our view is that speaking to each other is a basic need. If people can talk, they will not fight."
An Ismalii Muslim of Indian extraction who had already lived in Tanzania, London, and New Jersey by the time he came to Ithaca for his MBA, Ladak admits that the security situation in Afghanistan made the prospect of working there daunting, but the possibility of affecting real change in a war-torn country overcame his concerns. "You can see the impact that you are having on society on a daily basis," says the executive, noting that the Aga Khan Fund for Economic Development, Roshan's majority shareholder, integrates both strict bottom-line accounting and a heavy emphasis on economic and social development. "When we start an initiative in a country, our objective is to be there long-term; to help society as a whole, not just one segment; and to create sustainable development for everyone."
Founded in 2003, Roshan now employs 1,000 Afghans across the country — 20 percent of them women — and serves 227 major cities and towns nationwide. As Afghanistan's largest investor and taxpayer, the company supplies 6 percent of the government's overall domestic revenue.
Roshan has had to contend with a series of challenges associated with Afghanistan's three decades of political and military turbulence, says Ladak. Extended interaction with community elders and local job creation, road construction, and land-mine removal precede each cell phone tower installation. And because electric service in most of the country remains spotty, Roshan installs a gas-powered generator with each tower, making the company one of the country's largest power producers. "This lack of existing telecommunication infrastructure, roads, electricity, security, suppliers/partners — a seemingly insurmountable challenge — also posed a great opportunity," he says, noting that millions of Afghans previously lacked basic phone access, and until 2003 making an international call often required leaving the country. "It allowed us to introduce the latest wireless technology to leapfrog Afghanistan's telecommunications system into the 21st century."
Human resources posed their own challenges. Back when the company was starting out, Roshan's chief technology offi cer set two requirements for qualifi cation as an engineer: the ability to turn on a computer and facility with the English language. Then he set about developing an on-the-job training program. Back then, most of the company's current employees, says Ladak, were still in refugee camps in Pakistan. Today, the largely high school-educated young people in Roshan's employ average just 23 years old; each supports a household of about 13 members. The company provides each a minimum of $1,500 in training — in English, health and safety, diversity and cultural awareness, and computer technology — whether they work as cleaners, drivers, or telecom professionals.
Roshan has also leveraged its investments to improve on the country's health care and banking systems. A collaboration with the French Medical Institute for Children in Kabul and the Aga Khan University in Karachi allows for real-time consultation among doctors in Bamiyan and Kabul with their colleagues in Pakistan. This year, Roshan's mobile money transfer partnership with Vodafone brought cashless fund transfer, salary payment, loan repayment, and micro-fi nance transactions to customers who previously had to spend as much as two days traveling back and forth to the nearest bank. "Everything we do has a social angle to it," says Ladak. "It's part of our DNA."
On a crisp, sunny afternoon in mid-September, two dozen students gather in the ornate Ramin Parlor to hear the State Department's Stephen Kaplitt describe the Economic Empowerment in Strategic Regions initiative, launched in May 2007. Kaplitt, who heads the initiative, was here to introduce business students to the EESR's nascent matchmaking and business development program, intended to increase the capacity of entrepreneurs and small- to mediumsized businesses in areas of the world where unemployment and lack of opportunity exacerbate conflict. His first target: the border of Afghanistan and Pakistan. "There is a need for job creation all over the world, including in the U.S.," says the former corporate and USAID lawyer, who targets business ideas likely to create between 10 and 100 new jobs. "It's not that unemployment doesn't matter in other places, but there are some places where it drives conflict and that's of keen interest to U.S. policy makers."
Using a combination of Internet-based transparency and viral marketing — a model not unlike the microfinance phenomenon Kiva.org — Kaplitt hopes to link both aspiring and established entrepreneurs in about 70 zones worldwide with American business students and funding sources ranging from philanthropies to corporate social responsibility initiatives and even USAID and other governmental sources. "We're trying to create a platform accessible to anyone with e-mail and Internet access," says Kaplitt. "It could be a one-paragraph business idea — and an entrepreneur with vision, determination, and drive can connect with the entire world."
The trick, says Kaplitt, is cultivating what already exists in war-torn regions. "This isn't about investment in conflict regions," he says. "It's identifying entrepreneurs already in the conflict region, doing things they've been doing for thousands of years: Manufacturing, buying, selling, 5,000 years before Americans 'invented' capitalism. How do you reach into these regions, find these entrepreneurs, help them develop their business ideas, and then connect them with public and private sector partners who might be able to help them?"
Kaplitt was on campus as a guest of Mark Milstein, director of the Johnson School's Center for Sustainable Global Enterprise, who also hosted a roundtable event for Kaplitt to further discuss a handful of raw proposals — a honey processing and packaging unit, a poultry farm, a marble-cutting operation, and a fruit-processing facility — with Johnson School students interested in volunteering as advisors to these entrepreneurs, offering questions and insights to refine the business ideas. "We simply play the VP for business development role," says Kaplitt. "A lot of what we're doing doesn't fit into a neat template."
Twenty Johnson School students signed up with EESR, including Ameer Dada, MBA '09, a citizen of Pakistan who views his country as being "at the cusp of the rapid economic development" that India and China have experienced. "In the past several years, there has been a meteoric rise in the foreign direct investment flowing into Pakistan, resulting in Pakistan becoming one of Asia's fastest-growing economies," Dada says. "As terrorist attacks have become more frequent, this investment has significantly slowed. I strongly believe that providing long-term education and employment opportunities to the youth in the impoverished regions of Pakistan is our best chance of permanently eradicating terrorism from our society. After several decades of neglect and underdevelopment, these regions have become fertile breeding grounds for fundamentalism and terrorism. Although not a perfect mechanism, the initiative by EESR is a step the right direction, aiming to tackle the problem at its point of inception."
Last spring, Milstein launched a study to examine how the U.S. Army and Marine Corps deploy private enterprise solutions for poverty alleviation, investigating both similarities and differences between these and the approaches used by non-governmental organizations (NGOs) and the private sector. The work, funded by the Social Equity Venture Network Fund through fall 2009, dovetails neatly with Milstein's interest in business solutions that focus on the world's poorest people — dubbed the Base of the Pyramid.
"The military realizes full well that their expertise is not in economic development," says Milstein, who had previously consulted with the military on the role of sustainability in peace and conflict. "But they also realize that they've got the biggest budget on the block." The military spends $10 billion each month just in Iraq; USAID has an annual budget of less than $5 billion. Last year, the Department of Defense budget — excluding Afghanistan and Iraq — topped $500 billion. "The impact that more successful engagement on the ground can have is huge," says the researcher, who sees the project as more of a fact-finding mission than a theoretically driven analysis. "We're talking millions of people in some of the most difficult situations around the globe. The military is probably doing some pretty interesting stuff — we can learn how to do it better, we can learn what not to do. That can inform both the private sector and non-governmental organizations and vice versa."
"To me, it was just natural to find places to unlock value and get market solutions going. If you can get a market solution going, it is by definition sustainable."
- Steve Geary '82, MENG '83, MBA '86, at Checkpoint Red Sox, Camp Slayer, Iraq, as a civilian member of the U.S. Department of Defense's Task Force to Improve Business and Stability Operations in Iraq, summer 2007.
The power of synergy
In March 2008, the Senate Foreign Relations Committee hosted General Anthony Zinni and the Navy's Admiral Leighton Smith as representatives of a group of 50 retired military officers lobbying Congress to increase funding for the economic and diplomatic efforts that complement military operations. "Security creates the kind of positive environment that allows for something else to go on," says Zinni. "That something else has to be the economic and the political pieces. If they're not in place, eventually the security situation will erode and you have dissatisfaction and lack of fulfilling expectations and then the society's ripe for hostile or radical ideologues to come in and turn it around."
The same thinking informed Geary's experience in Iraq. "You have to bring in social institutions, governmental institutions, rule of law, and you need to bring in basic services like electricity, water, sewerage," says the consultant. "Those are all blurred together and you can't pursue any one at the expense of the others or it all falls apart. That's what makes it so difficult to do counterinsurgency. You can't bring stability until you give people a cause for hope."
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