Have Activists Found A Soft Power Policy More Powerful than Sanctions?
Apropos of Ibrahim Adam’s call to increase foreign direct investment in Sudan, it’s worth considering whether a strategy, pushed by American divestment activists, that bringing firms to the negotiating table offers a more productive soft power strategy than sanctions. In my view, there is a small chance that it does.
What began as a push by student activists (myself included) at a few American universities for essentially more sanctions–we wanted mainly for administrators to divest university holdings from a few oil firms with business in Sudan–the divestment movement has now grown in sophistication and scope. Today, the Sudan Divestment Task Force, a coordinating body for divestment campaigns run by former student activists at the Genocide Intervention Network, recommends that shareholders follow a nuanced policy of engagement before pursuing divestment. Namely, they that shareholders lobby firms to:
“engage the government of Sudan, either independently or, where possible, collectively with other companies with business operations linked to Sudan, requesting Khartoum fully and promptly implement all provisions of United Nations Security Council Resolution (UNSCR) 1769, including free and unfettered access to humanitarian aid for Darfur, disarmament of the Janjaweed militia without delay; and to cooperate with the Darfur peace process. Companies should express these concerns both publicly and privately.”
Firms are to dissolve all future contracts in Sudan and/or cease their current operations if and only if they deem such engagement a failure. The Task Force now recommends divestment only from a list of “Highest Offender” firms that have refused to engage the government. While many universities, which bore the brunt of activist pressure in the early years, have simply divested from the “Highest Offenders,” many American states and municipalities have now, on paper at least, adopted the Task Force’s policy of engagement. This is heartening. Last year, I worried in CampusProgress that pure divestment, without engagement, is tantamount to sanctions and does little to leverage firms’ economic clout towards a peaceful resolution of the Darfur conflict.
Unlike sanctions, the engagement strategy attempts to bring firms to the negotiating table, and to leverage their investments directly, through interpersonal talks with the government, as an incentive to cooperate with peacekeepers in Darfur.
So, is it working? The chain of events in theory of engagement is simple. To paraphrase my earlier writing on the subject, if large institutions make it their policy to shed stock in firms that do not engage the government, demand for such stock, and with it the stock’s prices, will fall. Given that firm managers seek to maximize the price of their firm’s stock, they’ll try to preempt a sell-off and engage the government, ending operations only if the government proves unresponsive. If all works out, the government, seeing that if it doesn’t get its act together it’ll lose lucrative projects, will soften in its negotiations with the Darfur rebels and assist peacekeepers and humanitarians. To properly evaluate the engagement strategy, we must examine how each link in this chain is faring.
At least part of the chain appears strong. Analysis done by the Task Force finds that the stocks of the “Highest Offenders” underperformed a peer group of firms in the same industry, geographic region, and market capitalization category by 45.97% over one year, 22.23% over three years and 7.22% over five years. Analysts forecast that these firms will continue to be a poor investment, returning over the next year, on average, 6.06% less than their peer group. Thereí¢â‚¬â„¢s not enough data there to paint a causal story, but the fall off in return does coincide with the rise of the divestment movement. Firms therefore have some reason to fear a fall in stock price if they do not engage the government.
Whether this fear has pushed them to substantial engagement, however, is unclear. Many large Western firms, such as Total SA, ABB Ltd, and Siemens have simply halted their operations, either because they found engagement to be a failure, or, more likely, because the profitability of Sudanese investment were not worth the costs of engagement. Still-active firms, which the Task Force monitors closely, are likely doing very little in terms of engagement. Tellingly, though some firms, such as Shlumberger and Petrofac, have ambiguously pledged to take “substantial action,” the Task Force’s quarterly report worries that “due diligence” is still needed. The actions of others on the monitoring list appear much less than substantial.
Therein lies the fundamental problem with bringing firms to the negotiation table. Spending substantial resources on negotiations that return little profit is charity work. Unfortunately, such magnanimity by definition fails the cost-benefit test that drives most business decisions.
Exhortations from the Task Force and the threat of divestment have moved the calculus slightly, but, for now at least, not enough. Nevertheless, if one accepts Adam’s argument that sanctions have been detrimental, the Task Force’s engagement strategy may very well be the better soft power strategy to take. Firms end up staying in the country, and yet their economic power, in theory at least, is still brought to bear. In practice, unfortunately, engagement amounts mostly to the former. Still though, its downside is substantially less than that of sanctions.
What is needed for engagement to work is for firms to present the Sudanese government with a clear, united ultimatum. Though the Task Force and activists have struggled valiantly towards this goal, they have not yet reached it. Perhaps if the American and European governments change their support for sanctions into support for engagement, diplomats will be able to wrangle their countries’ firms together to present such an ultimatum. Though it will be very difficult, these diplomats could urge their Asian counterparts to do the same with their countries’ firms.
Sanctions don’t appear to have had much impact on the government’s decisions. Though the return may not be so great, if we’re going to spend diplomatic resources on soft power at all, engagement is our best bet.
Tristan Reed was chair of the University of California Sudan Divestment Task Force in 2005. He is currently a policy evaluation consultant based in Freetown, Sierra Leone. He keeps a blog on economic development at bianaoh.blogspot.com.