When major investments in “difficult” foreign environments “go bad” there is reciprocal finger-pointing. The frustrated investor and host government each believe that the other party breached agreements and essential obligations. They launch legal actions to support their respective beliefs. When this happens it is likely that neither the host government nor the foreign investor fully understood the nature and scope of their common interests or their individual problems and constituencies at the outset of the venture.
Too often in such situations, negotiators focus on strategies they believe will maximize their own party’s advantage at the expense of the other. Often deals are unduly shaped (or misshaped) to satisfy financing institutions. Instead, both investors and host governments would be better served by learning about the genuine needs of their future partners, before and during negotiations.
An investor will often face resistance when selling a deal to its board of directors, investment committee, banks, and domestic advocacy organizations. Host governments must persuade political supporters and opponents, labor unions, local businesses wanting protection from competition, single issue NGO’s, and many others of the benefits of the project and the good reputation of the foreign investor. Carefully working through these issues together, not glossing over them to close the deal, will give the new business practical sustainability.
In especially challenging investment environments such as Afghanistan, Azerbaijan, Ecuador, Iraq, Nigeria, Pakistan, Russia, Ukraine or Yemen—to name only a few—the range of opportunities for misunderstanding on both sides is wide. Both must make a major effort, as they first begin to consider an investment opportunity, to identify subjects that need serious study. These should include features of the host country’s law, policies, politics and economic structures that are unfamiliar or hostile from an investor’s perspective. Similarly, there are likely to be laws and business practices in the investor’s home markets such as trade sanctions, disclosure and reporting requirements, NGO demands, and anti-bribery statutes that host governments may not anticipate.Identification and frank discussion of these problems will facilitate both deal negotiations and sustainability of the intended project. This effort should go along with the more straightforward, conventional work of defining project economics, realistic estimates of local employment, tax and royalty requirements, and impact on communities where the project will be located.