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A Dam Difficult Future for International Business

We are currently living in a world of geopolitical competition, and that competition isincreasingly taking on the nature of a zero-sum game Although the !" has played the role, attimes, of a glo#al hegemon since the collapse of the "oviet !nion, it no longer possesses the political influence or the economic #andwidth to continue to do so $erhaps more importantly,new rising economies are fle%ing their muscle and demonstrating their a#ility and desire tocarve out their own spheres of influence Ian Bremmer, &'( of 'urasia )roup, and *ouriel

+ou#ini, &hair of +ou#ini )lo#al 'conomics, have termed this new geopolitical paradigm a )-ero. world, a world in which no single country can meet the challenges of glo#al leadership

As difficult as the )-ero World is for governments to navigate, it is even more difficult forinternational #usinesses /he )-ero world is characterized #y the tension due to increasinginterconnectivity, fueled #y the stateless nature of capital, and increasing competition #etweenglo#al powers, as #est demonstrated #y conflict over natural resources in Africa, territorial #oundaries in Asia, and the strained relationship #etween the West and &hina )oing forwardmultinationals will #e increasingly trapped #etween glo#al opportunities and sovereignconcerns

/he growing interdependence of a glo#al marketplace implies that trou#les in one market can,and will spread to others /his pernicious aspect of glo#alization has made pro#lemsincreasingly interconnected0 yet solutions still remain primarily local /he solution to this issupposed to #e provided through multilateral organizations of #oth the glo#al and regionalvarieties 1the !*, the '!, *A/(, A"'A*, etc2 3et such organizations are proving difficult tomaneuver and largely fall short when called upon to to enforce any agreed-upon measures

/he solution to this pro#lem remains unclear, sovereign identities are a powerful force in theglo#al landscape leading to tensions #etween states over issues of 4oint concern /he a#ility toforge a uni5ue sovereign destiny remains a closely protected right, and as #usiness increasinglycrosses-political #oundaries, the )-ero world will create numerous pro#lems for investors and

corporations of all nations as they are caught #etween the interests of different nations

A#sent glo#al leadership, conflicts of interest and different development goals will increasecross-#oarder tensions, precluding proactive and increasingly important agreements onfundamental economic and geopolitical issues such as water rights, glo#al warming, healthcare,etc In short, we live in a glo#al community of local values

/he effect of such tension on #usiness is already visi#le where political #oarders and essentialnatural resources meet Water, the most essential of all resources, is often found flowing across #orders with no regard for the geopolitical realities of a region Water6s shared nature hasalready created pro#lems in Africa and &entral Asia and is now at the heart of a growing

controversy in "outheast Asia where &7 8arnchang, one of the largest and most successful/hai construction firms, is faced with political risks that are putting a 9:; #illion dollarhydroelectric dam pro4ect at risk

/he <aya#uri Dam pro4ect in =aos6s northern province is a >? )igawatt 1)W2 hydroelectricdam across the @ekong +iver and is an essential step in the =ao government strategy to #ecomea regional transport corridor and electricity provider for much of "outheast Asia =aos is one ofthe poorest countries in "outheast Asia, with a population of ? million and a per capita grossdomestic product of 4ust 9>,:? Increasing its economic difficulties is the fact that =aos islandlocked and mountainous /he one clear #right spot is the estimated >C)W of hydroelectric

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 power potential, of which only ?;)W is tapped #ut which nevertheless generates :E of =aoe%port revenue

"eeking to forge a #etter future for its people through economic development, =aos is intent onleveraging this hydroelectric potential, a goal at odds with, and very likely damaging to, thedevelopmental goals of ietnam /he @ekong +iver is an essential resource for the ietnameseagricultural industry, comprising appro%imately one fifth of the economy and the source ofemployment for one fifth of ietnam6s workers ietnam fears that the <aya#uri dam will not

only wreak havoc on the delicate river ecosystem, #ut also set a precedent for furtherhydroelectric pro4ects that could fundamentally change the nature of the @ekong river #asin

/he tensions #etween ietnam and =aos over the issue of the <aya#uri dam have #rewed since?>, when =aos and /hailand first signed an agreement to #uild the dam !nder the terms ofthe agreement /hailandGs state power company agreed to #uy H; percent of the electricity thedam generates )iven the shared nature of the @ekong, the @ekong +iver &ommission 1@+&2, a four-nation regional #ody representing ietnam, =aos, &am#odia and /hailand, and in chargeof managing regional developments, was tasked with carrying out a review of the pro4ect and inApril of ?>> called for a delay in construction

 *evertheless, =aos decided to move forward on the pro4ect, and with the support of the /haigovernment held a ground#reaking ceremony for <aya#uri on *ovem#er ?>? (n anuary ?:rd

of this year &7 8arnchang announced that it was pushing forward with construction and thatthe pro4ect was appro%imately >E complete Because =aos has decided to push ahead withthe pro4ect against the wishes of the @+&, a multinational organization it is party too, strainedties with ietnam, historically one of =aos6s closest allies, are unavoida#le

For international #usiness the )-ero world means #eing trapped #etween opportunities in onenation and the criticism, concerns and dismay of another /he @ekong +iver #asin is a glo#allysignificant resource0 it is the world6s largest inland fishery and home to million people, andmany derive their livelihoods from the river It is unclear who would 4udge whether =aos

should #e aloud to #etter the future of its people through economic development, if it would doso at the cost of ietnam6s economic security Although ietnam6s concern is warranted, theyhave few levers to pull, and will likely have to endure the conse5uences of =aos6s decision tomove forward with <aya#uri

"tuck #etween the international concerns regarding potential damage to the river and thesovereign concerns of =aos is &7 8arnchang &7 8arnchang is not protected #y sovereignstatus and has already lost hundreds of millions in delays and e%tra construction costs they areunlikely to recoup Furthermore &7 8arnchang has a ?H-year concession to operate the dam, aconcession that is looking increasingly risky given political tensions surrounding the dam &78arnchang is not the only private enterprise to suffer though According to 8raisak &hoohavan,

a former /hai "enator, /he international reputation of the /hai #anks who have agreed tofinance the dam is also at risk, 5uite apart from the pro4ect6s financial via#ility.

(n top of this, the credi#ility of the @ekong +iver Association has #een severally damaged /he@+&Gs development partners, who have contri#uted appro%imately 9: million to theorganization since >HH;, are witnessing firsthand how futile multilateral efforts can #e in a )-ero world

/he )-ero world is one in which regional and glo#al issues are increasingly su#4ect to self-interested local concerns /he political minefields through which a multinationals must now

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walk are growing increasingly dangerous, and missteps risk #oth loss of investment andsignificant reputational risks Businesses #eware, the free market is less free then it used to #e,and governments are increasingly playing the role of spoilers

Author: William Thomson

Bio: William Thomson is currently a graduate student at Harvard University where his research

focuses on political risk for multinationals, specifically firms involved in extractive industries in

Asia. He previously served as a Strategic Advisor to NATO in Afghanistan assisting withcounter-corruption and economic development issues. His writings have appeared in the

Diplomat, the Foreign Policy Journal, the International Policy Journal and the Small Wars

Journal.

Previous Publications

1) The Impending Japanese Sovereign Debt Crisis (Foreign Policy Journal)

2) India Winning Polio Fight (The Diplomat)

3) India’s Education Woes (The Diplomat)

4) India’s Food Security Problem (The Diplomat)

5) Criminal Organizations, Competitive Advantage and State Failure in Afghanistan (Small

Wars Journal)

6) The Process of Islamic Radicalization in Intra-State Conflict (Small Wars Journal)