In spite of the increasing attention on and investment in post-conflict peacebuilding (PCPB), the renewal of conflict is a significant risk in post-conflict environments. What role do parallel economies play in the recurrence of conflict? What are the implications of parallel economies for PCPB? Complied for Security Dialogue, this paper looks at the relationship between parallel economies and conflict financing and explores policies for engaging parallel economies to increase the impact of PCPB efforts.
About one third of civil wars between 1945 and 1996 reoccurred. Parallel economies, as a means of financing conflict, are often associated with the recurrence of conflict. To create a lasting peace, PCPB must deal in the short term with actors that have a vested interest in conflict financing and in the long term with the structural conditions enabling the parallel economy to thrive.
Parallel economies are part of the larger phenomenon of weak states. They emphasise the inability of state institutions to effectively perform key security, representation and welfare functions. Post-conflict societies develop economic self-help mechanisms parallel to the state. Such activities weaken the state further but may be the only means by which citizens can survive.
- Parallel economies are organised economic activities conducted outside the control of the state but which cannot function without the complicity of key state officials, particularly police forces, border guards or customs.
- The parallel economy is about profiteering from conflict and vested interests in financing conflict, including the self-enrichment of warlords, rebels and their contractors.
- Economic agendas established during conflict create vested interests in conflict perpetuation. These vested interests tend to outlive the actual conflict and present a major challenge to PCPB.
- The UN Mission in Kosovo (UNMIK) eventually recommended that parallel activities be absorbed into regular structures after its initial strategy of ignoring their existence proved inappropriate.
Profits from parallel economies accrue to small groups who divert resources away from the state and who create a lobby against PCPB in a bid to maintain the status quo of insecurity or armed conflict. Whilst parallel economies erode tax revenues and erode PCPB efforts, they provide economic satisfaction to large parts of a population and can contribute to the short-term promotion of order and predictability.
- Where non-state actors controlling the parallel economy are more powerful than the state or the donor community, avenues for engaging with these actors must be sought.
- Policy against transit goods and transnational crime is most effective if started immediately after the end of a conflict and resourced adequately to limit the emergence of a parallel economy and its stakeholders.
- If policy is applied some time after a parallel economy has developed, adopting a sector specific approach to progressive co-optation into the regular economy is recommended.
- Policy should avoid the criminalisation of the parallel economy to encourage the reinvestment of profits made during war and to strengthen state capacity.
- Policy must be accompanied by capacity building of government institutions which should ultimately lead to increased public confidence in the state.
