Commentary -- Corruption, not terrorism, is the biggest threat to investors in Asia

From the Nikkei Asian Review (Jul 28): Commentary -- Corruption, not terrorism, is the biggest threat to investors in Asia (By Nicholas Borroz)



Soldiers patrol near the Holey Artisan restaurant after gunmen attacked the upscale cafe in Dhaka on July 2. © Reuters

The Islamic State group released a video in June showing several battalions of the Philippine Islamist militant group Abu Sayyaf pledging allegiance to the organization and its goals. As the Middle East-based group increases its presence in Asia, particularly in Southeast Asia, foreign investors in the region might well be asking: How much risk does terrorism pose to their investments?

In terms of recent headlines, the region certainly seems intimidating to investors. IS has urged local jihadists who cannot reach Iraq or Syria to join the fight wherever they are. It has particularly targeted secessionist groups in the Philippines and has made menacing noises about Myanmar, particularly after claiming responsibility for the shockingly brutal July 1 Dhaka café attack in neighboring Bangladesh which killed about 28 people. The group also recently launched a Malay-language publication, primarily targeting sympathizers in Indonesia and Malaysia, the region's two largest Muslim countries. Fighters from both countries have joined IS in the Middle East, and have also mounted sporadic terrorist attacks in their home countries in recent years.

 

In Thailand, Malay-Muslim rebels in the south of the country continue to fight against the central government in what they see as a national liberation struggle. These fighters have not yet allied themselves with global terrorist groups, nor have they indicated they intend to do so. But it is worth monitoring this conflict to see if IS tries to use it as a way to expand its presence in the region.

There is also a new type of terrorism developing in Thailand. A large bomb attack in 2015 rocked central Bangkok, killing 20 people and injuring more than 200. It is unclear who carried out the bombing, but it seems to have been in response to Thailand's deportation of 100 Uyghurs to China. Uyghurs are a Muslim ethnic group that China blames for terrorist attacks in its western provinces. Beijing claims that Uyghurs are using countries like Thailand as transit routes to escape to the Middle East.

In Myanmar, the marginalized Muslim Rohingya group seems ripe for radicalization. Denied official recognition by Myanmar's government, many live in squalid refugee camps. Although there is little indication they have been targeted for recruitment by terrorist groups so far, there are growing concerns in the region that IS could seek to leverage the Rohingyas' desperate situation to its advantage in the region.

Along the western flank of Southeast Asia, Bangladesh even before the Dhaka café attack had suffered an uptick in brutal killings, with a series of grisly, high-profile machete deaths of progressive activists. Islamist extremists appear to be the main perpetrators of these killings, and IS has claimed responsibility for some of them.
Despite these developments, terrorism in Southeast Asia appears to have had little immediate impact on typical foreign investments, including equity stakes in local businesses or infrastructure projects.

The Abu Sayyaf announcement of allegiance to IS, for instance, does not mean the organization will become stronger. As seen in other parts of the world, when local groups declare affiliation to IS, they do not necessarily improve their capabilities on the ground. Nigeria's Boko Haram named itself last year as the IS "province" in West Africa. Although the allegiance generated big headlines at the time, it does not appear to have resulted in any significant strengthening of the group. On the contrary, Boko Haram has been relatively quiet since then, compared to the rapid expansion it enjoyed before announcing allegiance to IS.

Islamic State troubles

Another factor to consider when assessing the IS threat in Southeast Asia is the actual weakening of the group globally. Its territory in Iraq and Syria is shrinking -- with losses this past year of up to about one third the land it claimed -- and it may see the eventual demise of its "caliphate." A shift in tactics toward underground terrorist attacks - as opposed to holding territory - has already begun. While this creates a new set of challenges in the short term, the failure of IS in the long term to create a viable state weakens its reputation, and therefore its capacity to support regional affiliates.

Terrorist groups also prefer to target governments or ideological enemies as opposed to foreign investment projects. Attacking government representatives or rival sects does more to boost recruitment than bombing run-of-the-mill targets like industrial facilities or logistics networks.

Of course, the level of risk depends very much on where and what type of investment is under consideration. A hotel chain in Bali, for instance, would be a questionable investment if Indonesia develops a reputation for being a dangerous place for tourists. Other investment projects under threat would be those associated with the ideological enemies of terrorist groups, such as a government-related gas pipeline.

To be blunt, foreign investors should worry more about regular compliance risks and corruption rather than terrorism. Corruption remains a series obstacle to doing business in Southeast Asia, as highlighted by the escalating scandal involving Malaysia's 1MDB investment fund. Instead of being distracted by fears of kidnapping and suicide bomb attacks, investors should focus on establishing proper due diligence programs in managing their projects to tackle corruption or search for new business opportunities.

[Nicholas Borroz is a Washington-based strategic intelligence consultant and an expert on international investment risks.]
http://asia.nikkei.com/magazine/20160728-GENERATION-CHANGE/Politics-Economy/Malaysia-s-1MBD-woes-deepen-with-US-lawsuit