Changes in geopolitics can have a substantial and costly impact on large and small business. Seldom is the economic impact on small business considered in government geopolitical actions. This week’s Wall Street Journal articles focused on potential major impacts of minor changes in political winds around the globe. Minor may not be the correct term but I suspect the minor shifts are being blown out of proportion for political gain domestically and internationally.
The real victims of Geopolitics and the rhetoric are small business interests around the world. The news always emphasizes the large multinational companies like Boeing and Aramco. What about the hundreds of small businesses caught in the changes? Their revenues are in the in the hundreds or thousands or few million?
How do business survive with constantly changing Geopolitics?
The following story is really about a local business owner and investor with experience surviving geopolitical change kept his business from harm and investment safe. His quote on how he survives the local impact of geopolitics is at the end of the blog.
Currently MEA Trading, LLC sells industrial equipment into multiple countries in the Middle East through local suppliers serving operations of international corporations. Among these, are corporations from Saudi Arabia, Iraq, Iran, Russia, China, European Countries, and the US. It can be extremely difficult to navigate the changing geopolitical whims of global leadership. If the US decides to sanction a Russian leader, as a small business, we don’t have the resources to determine if these leaders are involved in a Russian petrochemical operation in Basra, Iraq. Perhaps one of the infrastructure projects receiving financing from Saudi Arabia Sovereign Fund is impacted by geopolitical changes due to the recent US Court decision on 9-11 liability. Suddenly both our local supplier and ourselves can be left holding equipment or liabilities for equipment due to lack of funding for the project.
Geopolitical impact can originate with relative minor decisions on the global stage. The actions don’t have to be “huge” to impact local business.
Gereshk, Afghanistan is where decisions made 7,000 miles away the dramatically impacted potential improvements of 100s of lives.
Case in point is the Geopolitical change in Afghanistan during the Gereshk agriculture distribution center project. On the world stage these were minor decisions. Each decision illustrates how even minor changes can impact the livelihood of hundreds of people. Do you conduct business on an international stage or locally in areas of rapidly changing geopolitical environments. Your business needs to anticipate these changes and how they will impact your business.
The agriculture value chain plan in Southern Helmand Province was to extend the initial test project in Marjeh developing a wheel and spoke structure of small packing houses feeding into a larger central distribution and storage center. A proven agriculture distribution model would provide hundreds of jobs and improve economic efficiencies for hundreds of more farmers in the region. Our organization would provide the initial $3 million funding for the collaborative solution of the central distribution center. Navigating the funding mechanisms, rules and regulations in a war zone is a daunting task. Construction and sustainment was even a bigger challenge. All the agencies, local, and central government were on board. Land rights agreements were in place. Investor interests and private funding for management and sustainment were firming up.
Our organization was fortunate to locate and hire two Agricultural experts from the US. One in leadership and one local expert helped validate our model and ad needed expertise to the local efforts.
Then the Geopolitical climate started to change rapidly. First due to political infighting in the US Congress the funding for our operations was to end. The orders came down from DC that all our projects should be transferred to other government agencies. If the project was to continue I had to find another US Agency willing to take on the responsibility and management of the ongoing project. I had already secured funding for the project. I was required to transfer funding to the organization accepting the responsibility. Neither was an easy task.
Our organization’s comptroller help me navigate and agreement for transferring the funding with the USMC comptroller. Then I facilitated a memorandum of understanding with USMC to assume responsibility for managing the project. I would continue to assist as possible. USDA would pick up day to day direction of the agriculture issues and US Corps of Engineers the construction.
Example of documentation required for interagency cooperation. MOA with USMC
The second geopolitical decision followed. US leadership now decided to draw down the USMC forces to pre-surge levels. Much of the security umbrella the Marines provided in Helmand was to be turned over the Afghan National Police or Army. Since USMC provide our transportation and security the draw down left us high and dry without any priority to travel locally.
It also meant that even the US Corps of Engineers and USDA had difficulty getting out to the Gereshk site to manage the construction. Construction ended up delayed 9 months. The nine-month delay and change in security impacted the interest of the private investor. It also delayed the negotiations between the private investor and central government’s Ministry of Industry that held the rights to the land. No one want to finalize anything until the work at the facility was completed.
Our leadership in DC managed to secure a reprieve on our funding such that our operation would continue but we were now going to pull out of Helmand to concentrate on higher profile projects in the North and Western part of Afghanistan.
I was relocated to Kabul leaving the project in the capable hands of the USMC, USACE, and USDA. In Kabul I would continue to advocate and facilitate the negotiations between the private investor and the Ministry for another 3 years to no avail. The geopolitical decisions created a chain of events that couldn’t be overcome.
The Geopolitical impact created irreparable harm to the project. The investors avoided financial harm primarily due to their knowledge and experience working through geopolitical changes during years of conflict. They reserved their final commitments until all the issues were resolved. The local community we impacted due to the loss of jobs from earlier bombing of the cotton plant we were refurbishing for the distribution center. The farmers in surrounding communities still had no way to get their produce to the larger markets. The original test packing and sorting facility in Marjeh was now marginalized.
The US taxpayer was out the $3 million dollars spend to refurbish the old cotton mill and new buildings that today remain vacant.
This wasn’t the only project impacted. The Regional Command Center turned into a $36 million monument.
It is difficult to calculate the overall negative impact of the chain of events begun by a couple minor geopolitical decisions. There were other more visible impacts of these decisions. The new command center for SW Command at Camp Leatherneck was one of the more noted stories. There are now many more as the Taliban continues to take back over the southern territories of Afghanistan.
Is your company doing business in foreign countries and don’t have the resources to analyze the potential geopolitical impact on your operations? Listen carefully to local partners in they have the experience and knowledge for dealing with many of the obstacles.
The Real Key to a Successful Business in Changing Geopolitical Conditions.
I asked the local business owner how he managed to survive for 30 years through all the different geopolitical changes in Afghanistan. He told me and I’m paraphrasing: With each new government, whether English, Afghan, Russian, Taliban, or American, I just changed the clothes I wore, my hat, and with the Taliban my beard. That was all each really needed to accept me and allow me to continue my business.
Copyright 2016 MEA Trading, LLC