Opportunities and Threats to a Business in a Conflict Zone

The increasing instability in Jammu Kashmir, hastened by the mass uprisings since 2008, necessitates business organizations to better understand political risk and conflict, including hartals and curfews, in their daily operations. There is a well-documented research suggesting that peace, especially the absence of internal and external violence enhances economic activity, while conflict has the reverse effects. States suffering from political conflict cannot abandon economic activity until violence diminishes. Still, obstructions to doing business exist in conflict zones more than elsewhere. Even in states where conflict is prevalent, some positive economic activity is undertaken. Against this background, it is critical to highlight which strategies, events and establishments tend to contribute to economic activity in conflict zones. In doing so, government, industry, non-governmental establishments and the public can focus on such productive efforts on the economic front, and thus inject some positive features in a conflict situation.
Discouragement to Economic Activity
Peace contributes to economic development and conflict has the negative effects. Business investment benefits from security and stability. During peace, economies flourish and business becomes proficient. In contrast, conflict impacts traditional business activities and pushes businesses into less transparent and competitive settings. With fewer opportunities, private sector activities become suffocated. Internationally, businesses tend to avoid investments in conflict zones, as the physical and financial risks are seen as outweighing the profits of such high-risk locations. In such an environment, businesses also become targets of regular lockdowns, further undermining private sector activities. Similarly, conflict situations can add to macroeconomic weakness, eventually undermining monetary and fiscal activities. The demand and supply sides of the economy are also impaired by conflict. In fact, the costs of conflict globally are estimated at $100 billion annually. As conflict interferes with traditional payment systems and financial intermediaries, business deals increasingly occur in cash with limited access to credit markets. Conflict leads to infrastructure degradation as transport links, energy, fuel facilities and trade facilities are often targeted. In weakening economic activity, conflict also undermines workers and labor markets as underemployment ascends and brain drain worsens. In fracturing governance and industry capacities, conflict likewise diminishes social capital as trust among individuals, groups, and organizations get hindered.
The severity of conflict in weakening economies rests on the geographical scope (nationwide or localized) as well as the stage (ongoing or has ended) of the conflict. Inadequate infrastructure and the absence of functioning markets, along with the lack of security and depressed populations, are often endemic in armed conflicts. Likewise, the growth of domestic product rates is generally lower in conflict zones than elsewhere.
Impediments to Doing Business, Particularly in Conflict Zones
Impediments to doing business in a conflict zone comprise of political instability, rising crime rate, inadequate infrastructure, taxes, policy uncertainty, maximum budget allocation to defense and mass corruption. Other obstacles for conducting business include limited entrepreneurship skills, such as necessary marketing and financial knowledge. Also, small and medium-sized enterprises (SMEs), which are among the main drivers of job growth worldwide, unfortunately, suffer from a number of impediments in a conflict region and are more vulnerable because of their small size and limited resources.
The lack of strong and predictable business regulatory environment, like difficulties with registering a business and the enforcement of contracts, encourages informal business framework, which is often found in conflict zones. In markets dominated by few competitors, consumers often suffer at the hands of business owners, who dominate the markets using price manipulation, political influence, and vertical integration. Limited electricity and transport capacities undermine economic development, including job growth, while simultaneously raising the costs of doing business.
Business Opportunity in the conflict zone
The private sector in any country facilitates wealth creation, stimulates socio-economic growth and contributes to preventing and resolving conflicts. Research suggests that for successful entrepreneurship, particularly in conflict zones, public-private-non-profit partnerships are critical. Through their operations, businesses benefit from a first-mover advantage. Still, businesses need to be aware of the unique business environment in conflict zone characterized by various factors and risks like security issues, costs involved, insurance necessity, and workforce loss. These factors may vary from one conflict zone to another depending upon the intensity.
Despite having numerous disadvantages in doing business in a conflict zone, some opportunities seem too attractive to let go. This is particularly true for businesses working in mining industries where business is inextricably tied to the host state, even one suffering the ailments of conflict. Our state has a very rich and wide variety of minerals resources. The State has a reserve of minerals like Limestone, Gypsum, Marble, Granite, Bauxite, Coal, Magnetite, Slates, Sapphire, Quartzite, Dolomite, Borax, China Clay, Bentonite, Clay, Quartz Silica Sand, and Graphite, These minerals are found in various districts throughout the valley providing base for forming various minerals based industries in the State.
Even though the state has been suffering from the ailment of conflict for many decades, some entrepreneurial successes are visible even during these times and are worth highlighting. The tourism industry one of the crown jewels of the state has seen a lot of growth prior to 2016 mass agitation as claimed by various tour operators. Various local business houses from the valley have created a sort of conglomerates and provide various products from hospitality, healthcare, food, construction material, etc. to the population. Exports of various types of Kashmiri Arts have faired nicely as well. In recent times, we have witnessed a number of themed restaurant businesses or fast food joints coming up all over the valley focusing on the local population. There are many more examples of successful entrepreneurship throughout the valley.
When providing training in relation to entrepreneurship in a conflict zone, the administration should keep in mind that it is important to find partners for new entrepreneurs with track records of success. They should also provide training in relation to analyzing the requirements of the local population. Conflict provides a unique opportunity for the entrepreneurs, but as it turns out, not everyone is optimistic enough to see it.
Going Forward
While peace aids a state in achieving economic prosperity, conflict challenges such efforts. Although obstacles exist for businesses to flourish, especially in conflict zones, various businesses manage to excel nevertheless. In fact, diverse entrepreneurial successes occur across a variety of sectors. All one needs to do is to be positive, proactive and continuously plan for the active opportunities and threats.Various stakeholders from domestic, national and international level should come forward to encourage and facilitate commerce in conflict zones. This would ensure economic development is accelerated, it is imperative that such organizations are allowed to play a constructive role in transforming conflict zones towards PEACE.
(The writer is a Ph. D. Scholar of the Department of Management Studies, University of Kashmir)