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How to Fix Divestment from Sudan

Let’s bring companies to the negotiating table.

By Tristan Reed, UCLA
July 27, 2007

Let’s bring companies to the negotiating table.

By Tristan Reed, UCLA
Friday July 27, 2007

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2005: Students rally at UCLA shortly before UC Regents vote to divest from Sudan (Photo: Minjung Park)

“A Call to Your Conscience,” reads a weathered tarpaulin outside a church in northwest Washington, D.C. For the past few years, this has been a rallying cry of activists across the world yearning to put an end to the extraordinary violence in Darfur, Sudan. As a student, I was one of them, a founding member of the University of California Sudan Divestment Task Force. Calling on a particularly august set of consciences, we convinced the U.C. regents to make ours the first public university to divest itself from companies whose business bolsters the barbarous policies of the government of Sudan.

The idea of divestment as initially conceived was simple enough, and has inspired universities, pension funds, and even some U.S. states to pull their money from Sudan. Nevertheless, divestment remains a weak policy. Its efficacy relies on a simple hope that small shifts in demand for stock will actually affect political calculation in Khartoum. It also fails to bring multinational companies to the negotiating table, where their economic clout really needs to be brought to bear. Happily, an easy tweak to the current divestment strategy could fix these problems, and turn divestment from Sudan into more than just a brittle stick.

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The traditional chain of events in the argument for divestment goes something like this: Sudan’s government, which is chiefly responsible for perpetuating the Darfur catastrophe, relies heavily on foreign investment to stay stable and strong. Oil investment in particular is key. Returns from the stuff made up 59 percent of government revenue last year, according to estimates by the International Monetary Fund. If large institutions make it their policy to shed stock in companies whose projects support the government, demand for such stocks—and with it the stock’s prices—will fall. Given that managers seek to maximize the price of their companies’ stock, they’ll try to preempt a sell-off and change their practices accordingly, curtailing offending projects until the violence abates. The government, seeing that if it doesn’t get its act together it’ll lose lucrative projects, should then soften in its negotiations with the Darfur rebels and let in U.N. peacekeepers while talks continue.

Sensible, right? Indeed, some companies are already withdrawing under pressure. Most notably, the German company Siemens was set to cease all non-humanitarian operations by June 30, according to company spokeswoman Esra Ozer. Activists are encouraged, and the divestment campaign moves swiftly ahead.

It is unclear, however, that a company’s response to the threat of divestment will actually change the government’s stance. Currently, the divestment model promoted by the Sudan Divestment Task Force, the coordinating body for myriad campaigns, attempts this feat by asking shareholders to “engage” offending companies, giving them 90 days to either suspend non-humanitarian projects in Sudan or face divestiture.

Implicit in this model is the assumption that at least one of two mechanisms will cause Khartoum to change its stance. Either the company values its investment in Sudan enough that it lobbies the Sudanese government to change policy, or the Sudanese government values the investment enough that it changes policy on its own accord, hoping to entice the company to stay. In the former mechanism, investment functions as a carrot; in the latter, its potential withdrawal functions as a stick. Unfortunately, however, there is no evidence to suggest that either of these two mechanisms have been set in motion.

As for the first mechanism, the companies that have left so far have done so with little fanfare, without any documented requests for the government to shift course. When interviewed by Campus Progress, Ozer was unable to comment on whether Siemens had made any such requests. ABB Ltd., a European power company that recently withdrew, says on its website only that it engages in continuing “dialogue” with the government, and has not publicly specified any demands. Thus, it appears companies are content to hang back passively until the conflict ends instead of actively lobbying Khartoum. As for the government, it has shown little interest in changing policy in order to bring companies back in. Indeed, it may be that state-owned Asian companies—notably those of China, India, and Malaysia, who are expanding their capacities rapidly—are able, for now, to fill Khartoum’s investment gap.

Now, one could argue, fairly, that the government has yet to respond to the stick because divestment has not yet been pervasive enough to affect the activities of the Asian companies. Indeed, if Warren Buffet, the investment guru whose decisions are closely monitored by the market, decided to pull his company’s investments out of PetroChina—a company whose parent, the China National Petroleum Corporation is heavily invested in Sudan—CNPC might begin to worry about Sudan and Khartoum might start to get its act together. But such an event is unlikely, and until one occurs Khartoum’s perception of the investment climate will probably stay the same.

But what of the carrot? The Task Force’s “engagement” strategy could do more to utilize it. It should insist that after companies cease business activity, they immediately—and publicly—make the renewal of business contingent upon Khartoum taking specific steps towards peace. Siemens, for instance, could offer to continue work on the city’s telecom networks if and only if U.N. peacekeepers hit the ground in Darfur. Ideally, the Task Force could bring companies and peace negotiators together to decide which contingencies would be most productive.

Some companies already have the social connections in place to start such a process. ABB, in addition to its “dialogue” with the government, also maintains connections with NGOs, U.N. agencies, and diplomats. Divestment campaigns should force companies like ABB to team up with these groups in lobbying the government. With their economic influence outweighing any political heft concerned members of the United Nations have exerted thus far, it’s a travesty these companies aren’t brought front and center at the negotiating table.

Incorporating such a strategy in a divestment campaign would have no disadvantages. Activists would still have the same negotiating power, as companies would still face divestiture if they failed to negotiate with Khartoum. Additionally, the strategy may well draw more public attention to Darfur. In owning stock, investors own a piece of a company, and when they see they can put their company to work at the negotiating table, they will feel all the more connected to the crisis.

Companies such as Siemens and ABB have touted their humanitarian concern for the people of Darfur. Let’s see how much they mean it.

Tristan Reed was chair of the UC Sudan Divestment Task Force and co-author of the group’s 2005 “Proposal for Divestment from Sudan.”

Correction: This article originally referred to Siemens as Swiss-based telecom company. It is, in fact, based in Germany and is primarily an engineering and electronics company.

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