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Businesses add up the cost of surviving in an unsafe world Print

By Dale Fuchs - February 16, 2007 - Int. Herald Tribune

MADRID: Ricardo Benedí, a Basque auto parts manufacturer, is accustomed to ordinary market risks at his plant just outside Bilbao, where he employs 450 people. But when he received the third threatening letter from the Basque separatist group ETA last year, Benedí decided he could no longer risk his physical safety, too.

So he did what many businesspeople in this wealthy yet troubled Spanish region have felt compelled to do: He sought the protection of two bodyguards, who trail him wherever he goes.

"It's exhausting," he said. "But this is my country, my land. I don't want to abandon it and I can't put wheels on my factory."

Benedí is one of more than 900 people — politicians, judges, professors, journalists and businesspeople — who require bodyguards in the northern Spanish region, according to the Basque Interior Ministry. Since 2002, central and regional governments have paid a combined total of €120 million, or $157 million, a year in private bodyguard salaries to keep people like Benedí safe — and prevent them from leaving.

The threat of separatist violence in Spain — ETA has killed 800 people in its four-decade fight for independence — has handed dangerous work to a total of 4,000 suited, grim-faced bodyguards throughout the country, who earn an average of €7,000 a month, according to Vicente de la Cruz, president of the Spanish Association of Body Guards.

Large Spanish corporations, which do not receive the government security subsidy, hire as many as 50, de la Cruz said. They are often accompanied by a small fleet of armored cars, which cost between €100,000 and €400,000 each.

These are just a few examples of the cold economic calculations often overshadowed by the human drama and political turmoil of terrorism and other continuous threats. Each violent act — from the March 11, 2004, railroad attacks in Madrid and the tourist-targeted bombings in Bali to the ongoing fighting in Iraq — adds extra costs to the companies doing business there and drains local economies, like the Basque region's, as a whole. And often it takes metal detectors, scanners, bulletproof vests and special employee-badging systems to keep danger outside the door.

While most businesses thrive in peace, a few are doing well in its absence. When ETA exploded a car bomb at the Madrid airport parking garage in December, ending a nine-month cease- fire, 300 more Spaniards, most of them judges and business executives, took on bodyguards.

"We do not live off other people's suffering," de la Cruz said. "We live to provide protection, to provide peace."

His words could be the slogan of a growing number of international companies that offer physical protection and "risk management" to government agencies and corporations operating in dangerous places around the globe. They constitute a multibillion-dollar industry, according to a study by Armor Group, a British-based protection company that is one of the largest in the business, with 9,000 employees in 38 countries.

Multinationals — telecommunications giants, oil companies, hotel chains — pay these companies "tens of thousands to tens of millions of dollars" for everything from employee badge systems to steel barriers "so a truck bomb can't ram the front door," said Scott Harrison, founder of the Philippines-based risk consultancy Pacific Strategies & Assessments, whose seven-year- old business has grown by up to 40 percent a year.

Armor Group, for instance, earned $46 million last year from oil and natural gas companies alone — about 20 percent of total revenue, a spokesman, Patrick Toyne-Sewell, said.

Personal protection by highly trained former military officers was once a luxury, or a burden, reserved only for "traveling CEOs and diplomats," said Steven Kellner, chief of the intelligence division for ASI Group, a U.S.-based risk consultancy. "People who went to bizarre places would just arrange for a driver on the ground, very rarely a security- trained driver," Kellner said.

In the 1980s and 1990s, a small number of Western private security firms began offering protection to energy companies expanding their reach to so-called hostile environments from Colombia to the former Soviet republics, said Toyne-Sewell of Armor Group. The industry really began to take off after the terror attacks of Sept. 11, 2001, as multinationals perceived the need for heightened vigilance and crisis planning.

But the majority of the international companies — about 100, according to Armor Group — have come into existence since the war in Iraq, where private security companies protect workers involved in reconstruction.

Since then, multinationals have increasingly hired these firms to protect their employees and offices against suicide bombers, organized crime rings, separatist guerrillas and modern-day pirates.

"More and more businesspeople are going to dangerous places, and extremists are willing to target them," said James Smither, head of global issues at Control Risks, which is based in Britain and has 700 employees in 26 countries. He said his business was growing globally by 40 percent to 50 percent a year as Western companies compete with "risk-tolerant" Chinese and Indian companies for dwindling, and high- priced, natural resources.

Recent lawsuits brought by families of deceased or injured workers have also fueled the industry. They have made multinationals more conscious of the need to protect their employees, or at least show evidence of trying.

Prices reflect the danger. Until recently, a private security firm could command as much as £1,200, or $2,340, a day for top-trained Western body guards in Baghdad, for instance, according to Janusian Security Risk Management, a subsidiary of Risk Advisory Group, a Britain-based risk management consultancy with offices in eight countries. Use of an armored car costs £2,000 a day; to save money, some companies buy them.

"It used to be a chap sat at the table and you kept putting money on the table until he would go to Iraq," said Charles Skinner, operations manager for Janusian. "But now the bubble has burst." The security firms now charge half as much for bodyguards in Iraq, and they cut other costs in hopes of gaining a client's business elsewhere in the world, he said.

In Europe, demand for international security firms is concentrated mostly in Russia and the former Soviet republics, the Balkans or Eastern Europe, often prompted by organized crime, security companies say. The Spanish Basque region, with its star chefs, quaint seaside towns and titanium- clad Guggenheim Museum, is not high on the radar.

But the threat of ETA has been enough to help fuel a €3.1 billion private security industry in Spain, according to the Spanish Association of Professional Security Services. That amounts to nearly one quarter of the entire European market. Decades of ETA attacks, including package bombs, coupled with sporadic anarchist violence, brought bag scanners and metal detectors to corporate headquarters, courthouses, banks and media outlets long before Sept. 11 put the rest of the Western world on alert.

The expensive bodyguards and high- tech trappings are perhaps the most glaring economic costs of the separatist violence. But there other costs as well, from brain drain to lost foreign investment, often overlooked because of the region's overall wealth, economists say.

Indeed, the Basque per capita income is among the highest in Spain, and the economy is growing far faster than the EU average, at a rate of 4 percent last year. Tourism to the region has climbed steadily, to two million visitors last year. Moribund industries like shipbuilding and mining have been replaced by light-manufacturing and service businesses.

"Some are starting to talk about the Basque economic miracle," said María Carmen Gallastegui, an economics professor at the University of the Basque Country in San Sebastián.

Business leaders, moreover, are quick to play down the economic impact of ETA for the sake of the region's image, or they simply refuse to talk about the matter for fear it could make them a target.

"You know, Bilbao is not Beirut," said Enrique Portocarrero, director of Confebask, an association of Basque businesses. "There were very difficult moments — many small businesses are very vulnerable if they don't pay the revolutionary tax and remain there — but the threat has been assumed with certain normalcy. There's certain dignity to not bowing to terror."

Still, the nearly four-decade conflict takes a subtle toll, economists say.

A study published last year by the Institute of Industrial and Financial Analysis of Complutense University in Madrid estimates the direct economic cost of separatist violence in the region to be €667 million a year, including insurance payouts for death, injury and property damage and government pensions for victims and families. The study attributes the largest costs to anti-terrorism police units and the freeze on construction of a nuclear power plant in 1981 after ETA kidnapped and killed the plant engineer.

Basque businesses have also migrated. About 40 percent of the region's 100 large and midsize companies have transferred production centers to nearby provinces, said Mikel Buesa, a professor of applied economics at Complutense University and president of a conservative association of ETA victims, Foro de Ermua. He said they move because of targeted vandalism and extortion letters, demanding sums of €12,000 to €300,000.

The climate of fear has also led to brain drain. About 80 of the region's 4,000 university professors are believed to have left for other parts of Spain in the last decade, after the group widened its targets beyond police officers or civil guards. Some teachers were uncomfortable with the climate of fear; others appeared on ETA's list of targets.

"It's certainly not an attractive area for the great innovators from around the world," said Joaquín de Paul, a former dean of the psychology department at the University of the Basque Country, who left his post after living with bodyguards for three years.

The Basque region has not received as much foreign investment as might correspond to its economic might, Gallastegui said. For instance, throughout the 1980s, the most recent data available, the region received 3 percent to 4 percent of foreign investment in Spain, even though it accounted for 6.4 percent of gross domestic product.

"It's hard to invest," Gallestegui said, "if tomorrow you could have a bomb blow up your investment."   

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