When bullets fly, some firms swoop in

Martin Rapaport hitched a ride into Sierra Leone on a World Food Program helicopter in early 2000, sitting atop a sack of rice. On the ground below, he saw 15-year-old rebels waving automatic weapons, amputee camps, and bodies in the street.

He also saw economic potential.

The head of Rapaport Group - an international network of companies that grade and trade diamonds - he had already begun laying the groundwork for an international agreement aiming to end the sale of "conflict diamonds," which bankroll wars and terrorists. Now he was grappling with how to help people at ground level.

Last month, Rapaport Group announced the formation of a diggers' cooperative in Sierra Leone, run in conjunction with the nongovernmental organization Global Witness and the US Agency for International Development. By paying workers a fair market price for the diamonds they found, cutting out middlemen, and brokering the stones on commission, the cooperative could turn a profit and still lift workers out of virtual slavery.

Efforts like this may mark the next frontier of corporate social responsibility.

Companies usually don't rush into regions where bullets are still flying. When they do, they often become targets themselves (think Halliburton in Iraq). But a few firms are wading into conflict zones - or newly postconflict zones - convinced that they can earn profits, ease the transition to peacetime, and seed more fundamentally fair practices in war-torn societies.

Such moves aren't for the impatient or faint of heart. Done wrong, they can do more harm than good, experts warn. Still, with NGOs, government agencies, and Western armed forces strained for resources, the corporation can become part of a stabilizing force - and could represent war zones' best prospect.

"When you create an environment where people have an interest in what they're doing," Mr. Rapaport says, "you create legitimate channels of distribution. And it's this very legitimacy that fights against corruption."

Examples of success are few:

• In Indonesia, scene of ongoing civil strife, USAID has worked with Ikea and Home Depot in their relationships with local logging firms. The partnership even spawned a drive to help orangutans. A USAID spokesman says several other of its some 200 partnerships involve postconflict lands; the agency considers strategies in such places a priority for 2005.

• Eziba, a for-profit firm in North Adams, Mass., that brokers handmade products from around the world, got its start two years ago with widows of the Rwandan genocide. Working with the UN women's development fund, Eziba cofounder Amber Chand was looking for women in a region torn by war or recovering from it. In Rwanda, she found Hutu and Tutsi widows weaving baskets together, and decided to leverage the symbolism.

"The vision was to promote Rwanda as a country that is supporting its weaving traditions and also participating in the marketplace," says Ms. Chand. In March 2003, Eziba sold 100 "peace baskets" online in one day. It has since ordered more than 6,000, she says, and channeled some $100,000 back to the widows' association.

The baskets today represent Rwanda's biggest nonagricultural export, she says.

"We did nothing except mobilize the women and offer them the market," Chand says. This year, Eziba is selling candles made jointly by Palestinian and Israeli women. The company didn't find the venture, as with the Rwandan basketmaking, but rather created it this past summer using Rwanda as a model.

Regions in conflict are dangerous for businesses in more than the obvious, experts say. They require delicate alliances and uncommon patience.

"I strongly believe that there is a legitimate role for outside firms," says Philippe Le Billon, an assistant professor at the Liu Institute for Global Issues at the University of British Columbia, in Vancouver. "The last thing that these conflict-affected countries need is yet another form of economic sanctions."

But where vast natural resources are at stake, Professor Le Billon remains skeptical that such ventures can bridge the cultural divide between foreign businesses and local workers.

In Congo, for example, where 3.8 million people have died in six years of violence, foreign firms have jostled over access to coltan, a metallic ore.

From the Western end, "[t]he first investors are often risk-taking 'pioneers' who understand that local conditions mean cutting corners," he writes in an e-mail. Locally, he notes, the shakeout after a war often leaves power initially in the hands of a few who might not have the interests of the many in mind when striking deals.

Sometimes the businesses create more problems than they solve, experts say.

"There's a long tradition of quasiphilanthropic social enterprises getting poor people to make things that in the early stages find a market niche, and over time that market niche, like all market niches, disappears," says Simon Zadek, who heads AccountAbility, a London institute that promotes accountability for sustainable development. "And if those producers have not evolved to really understand their circumstances ... then all too often what starts off as a successful enterprise ends up leaving producers high and dry."

Companies also need to approach conflict opportunities with the right frame of mind.

"If your priority is to serve the good of all your constituencies, then you move into a situation with that in mind," says Chand. "If you're only really focused on your shareholder and your return on investment, that's problematic."

Shareholder pressure and consumer preferences for products with low social cost could support the rise of such tactics, experts say.

Further, firms of all sizes are now coming to terms with the inevitable involvement of ethics auditors, points out Le Billon. Major oil-industry players, for example, should see scrutiny by such groups as the Open Society Institute's Iraq Revenue Watch.

More important, internal policing remains essential at the most basic levels. "You have to know that you don't know everything," says Rapaport. "You can't go in there as a company, wave your American flag around, and make magic." Instead, he says, an incoming firm should think small, "think about people in villages and towns, [groups of] 20 people."

Drawn to compete, other outside firms will rush to help other cooperatives, he maintains, and use the new relationships to gain advantage in the marketplace.

"You know, DeBeers has that saying, 'A diamond is forever,' " he says. "What Rapaport is trying to say, is 'This diamond makes the world a better place.' "

To deliver on such a promise, he says, his and other companies must work to avoid creating dependencies and inefficiencies. Toward that end, he says, the Rapaport Group and its partners have worked to keep the diamond operation local, insourcing as many levels as possible, sticking to a facilitator role, learning - and remaining patient.

That may represent the most promising formula.

"The cases to me that work best are very often ones [in which firms] don't expect things to work quickly, [that] invest in capacity development of small-scale producers, and understand that over the longer term, unless producers at the very minimum understand their whole value chain, it won't work," says Mr. Zadek.

And the better ventures, he adds, hint at a gradual shift in economic incursions by multinational firms.

"Some of them are very clumsy, and some of them are OK, but rather patronizing, and some of them are very exciting and fail," Zadek says. "But what's interesting is when you step back and look at the whole, what you've got is a whole generation of attempts to innovate the underlying modern economic model, to innovate beyond the basic, transactional buy/sell model. And to build ... relationships into the system."

"I'm kind of hopeful," adds Rapaport, who says he has already been asked about organizing the alluvial- diamond trade in other countries. "What we're doing is very small, but it's going to change the 'world' in this one little community."

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