Blessing or curse? Assessing the local impacts of foreign direct investment on conflict in Africa
| Published date | 01 January 2025 |
| DOI | http://doi.org/10.1177/00223433231200928 |
| Author | Samuel Brazys,Indra de Soysa,Krishna Chaitanya Vadlamannati |
| Date | 01 January 2025 |
https://doi.org/10.1177/00223433231200928
Journal of Peace Research
2025, Vol. 62(1) 149 –165
© The Author(s) 2023
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DOI: 10.1177/00223433231200928
journals.sagepub.com/home/jpr
1225162JPR0010.1177/00223433231200928Journal of Peace ResearchBrazys et al.
research-article2023
Regular Article
Blessing or curse? Assessing the local
impacts of foreign direct investment
on conflict in Africa
Samuel Brazys
School of Politics and International Relations, University College Dublin (UCD)
Indra de Soysa
Department of Sociology and Political Science, Norwegian University of Science and Technology (NTNU)
Krishna Chaitanya Vadlamannati
School of Politics and International Relations, University College Dublin (UCD)
Abstract
The question of foreign direct investment (FDI) and socio-political development is debated heavily. Liberals believe
that FDI brings economic opportunities and/or increased incentives for peace and security among host societies.
Critics suggest that FDI is exploitative, leading to conditions that increase the risk of violence. We take a political
economy perspective that views FDI as problematic depending on how FDI affects politically powerful local
interests. As such, all forms of FDI should meet domestic opposition, but only FDI in the extractive sector, where
domestic political actors have little at stake, escalates to major war. Building on recent work which examines this
question pertaining to extractive sector FDI, we introduce sub-national, geo-referenced data on FDI in all sectors for
evaluating local conflict using combined data from four distinct geo-referenced conflict databases. Using site-period
fixed effects with a difference-in-difference like approach, we find that FDI in all sectors increases local conflict.
Conflicts induced by most FDI sectors fall short of becoming civil war, except for extractive sector FDI.
Keywords
Africa, conflict, foreign direct investment, geo-referenced data, spatial econometrics
The government will also address all other matters that
relate to the creation of an attractive investment climate
for both domestic and foreign investors, conscious of the
fact that we have to compete with the rest of the world
in terms of attracting, in particular, foreign direct invest-
ment. Nelson Mandela. Newly elected President of
South Africa. The State of the Nation Speech, 24
May, 1994.
1
Lack of managerial skills and capital among Botswana
will lead to a situation where the economy will be in the
hands of foreigners which will ultimately impact on the
policy of the country.... It is like a man who marries a
rich woman. He will lose control over the affairs of his
house. Former leader of the opposition in Botswana,
Kenneth Koma. Cited in Mo ss, Ramachandran &
Shah (2004: 342).
Introduction
The quotations from Nelson Mandela and a prominent
Botswanan politician, Kenneth Koma, above feed into
a long and contentious debate between liberal/moder-
nization theorists and dependency and other critical
Corresponding author:
samuel.brazys@ucd.ie
1
See: https://www.sahistory.org.za/archive/1994-president-
mandela-state-nation-address-24-may-1994-after-national-elections.
ment. (Nelson Mandela. Newly elected President of
South Africa. The State of the Nation Speech, 24
May, 1994.)1
house. (Former leader of the opposition in Botswana,
Kenneth Koma. Cited in Moss, Ramachandran &
Shah (2004: 342).)
150 journal of P R 62(1)
theorists about the desirability of foreign direct invest-
ment (FDI) from transnational corporations (TNCs)
for economic and socio-political progress (Seligson &
Passe
´-Smith, 1998). The quotations highlight the ten-
sions between domestic and foreign economic interests,
and illustrate how such tensions spillover into politics,
affecting the economic futures of countries (Moss,
Ramachandran & Shah, 2004). The modernization
school argues that FDI promotes economic growth and
development because TNCs bring much-needed invest-
ment, new ideas and technology, and they open up
richer markets for developing countries (Asiedu,
2006; Lipsey, 2000). The neo-Marxist/dependency the-
orists argue that FDI is simply monopoly capitalism
that exploits the poor and undermines local institu-
tions, placing profits over the interests of poor people
(Le
´onard et al., 2014). Liberals counter that very little
FDI flows to poor countries because weak institutions,
political instability and other risks dissuade TNCs from
investing among the poor (Moran, Graham & Blom-
stro
¨m, 2005; Asiedu, 2006; Vadlamannati 2012). As
some suggest, the problem with FDI is that there is
too little of it in the poor world, not too much (Lipsey,
2000; Bhagwati, 2004). Yet, as Mandela’s quotation
above suggests, governments pursue FDI because they
lack capital for generating growth, which brings jobs
and tax revenues, particularly following the disastrous
failure of import substitution industrialization (ISI)
policies.
Critics of FDI argue that inves tments from TNCs
bring negative externalities, such as political instability
and civil war. A recent study by Kishi, Maggio & Raleigh
(2017) suggests that African conflicts can be explained
by the degree to which states are dependent on FDI
because finance from TNCs encourages states to ‘secur-
itize,’ or seek military solutions, rather than make
reforms. Their argument is that FDI provides revenues
to states for pursuing military options, reducing incen-
tives to make concessions. Similarly, Pinto & Zhu
(2022), using a global sample, find that FDI increases
the risk of a civil war onset. They argue that FDI
increases market concentration, producing high rents
over which states and challengers fight, which is partic-
ularly likely within weak states (Pinto & Zhu, 2022).
Others focus specifically on natural resource extraction,
assessing disaggregated data on FDI in mining activity,
where conflict is driven by the extortion of companies by
‘loot seeking’ rebels, or issues pertaining to disagree-
ments between foreign companies and host communities
(Berman et al., 2017; Wegenast & Schneider,
2017; Mihalache-O’Keef, 2018; Christensen, 2019;
Vadlamannati et al., 2020).
We expand on these studies in several distinct ways.
First, we argue that focusing only on mining activity is
unnecessarily restrictive because FDI, in any form, is
potentially ‘lootable’ because of the ‘obsolescing bar-
gain,’ where FDI projects become vulnerable due to
sunk costs post hoc. Where state institutions guarantee-
ing security are weak, FDI projects in Africa are likely to
be politicized simply because they are large and visible.
Accordingly, we examine the impact of all types of FDI,
not just mining, on the risk of proximate conflict. If
weak state arguments are correct, then FDI’s impact on
conflict should not be sector dependent since any for-
eign finance, regardless of sector, should matter for
weakening states and securitizing politics. If the
mechanism to conflict is the availability of ‘lootable’
rents due to market concentration, then all forms of
FDI should matter.
Secondly, our theoretical argument broadens Chris-
tensen’s (2019) logic of bargaining failure under imper-
fect information and uses information on FDI projects in
all sectors using geo-referenced, project-level, FDI data
from the Financial Times’ ‘fDi Markets’ database. We
suggest that FDI causes local level conflict because FDI is
a threat to the monopoly rents enjoyed by local capital.
FDI potentially displaces powerful local economic actors
and is conflict prone when its ‘displacement’ effects
threaten powerful local interests. Some sectors should
be more important for powerful local interests than oth-
ers, but industrial and service projects should be more
enticing for domestic elites to squabble over than min-
ing, which is often very capital intensive and oligopolis-
tic. Comparatively, an agro-business or tourism project is
likely to displace well-placed domestic actors with access
to political power, but these same actors should have very
high opportunity costs for organizing large-scale vio-
lence. As some argue, domestic capitalists/governments
own the largest share of the capital stock, which would
make large-scale violence very costly for domestic com-
mercial interests (de Soysa, 2020). Thirdly, we use new
aggregation techniques developed by Donnay et al.
(2019) to merge conflict data from four distinct conflict
databases: the Armed Conflict Location and Event Data
Project (ACLED) (Raleigh et al., 2010); the Georefer-
enced Event Dataset (GED) (Croicu & Sundberg,
2017); the Global Terrorism Database (GTD) (START,
2022); and the Social Conflict Analysis Database
(SCAD) (Salehyan & Hendrix, 2017). These data allow
us to examine gradations of violence from non-fatal to
fatal conflicts as well as civil wars based on established
2journal of PEACE RESEARCH XX(X)
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