Legacy of Conflict

Macro-level

The key issues discussed in the literature around conflict legacy effects and macroeconomic conditions include:

the challenges for economic development in such a context;
risk factors for conflict relapse;
the factors that help to enable economic development.

Some of the identified challenges for economic growth in conflict legacy environments include the risk of relapse into conflict due to high levels of political, economic and legal risk (Collier et al. 2008) as well as large, and particularly horizontal, inequalities (Stewart 2010); and a damaged economy resulting from the destruction of physical, social and human capital (Collier 1999) and a shift towards subsistence among the rural population (Adam et al. 2008).

Reducing risks, particularly the risk of further violence, and re-establishing basic security, is considered a precondition for successful economic and social recovery (Collier 2006; UNDP 2008). However, while there appears to be strong evidence of the link between economic growth and the risk of the onset of conflict, Suhrke and Buckmaster (2006) debate whether this argument applies equally to the risk of new violence in differing post-conflict contexts. They find no obvious relationship between economic growth and peace in case studies of seven post-conflict countries comprising of Bosnia, El Salvador, Guatemala, Nicaragua, Cambodia, Mozambique and Rwanda.

Collier et al.’s (2008) analysis suggests that economic development is associated with a reduced risk of conflict relapse over a long period of time. They imply that risks are higher for low-income countries, but also that economic performance in countries emerging from conflict is an important factor. In addition to its effects on the level of income, growth is directly and significantly associated with reduced risk in the year it occurs. Data from some of the focus countries of this topic guide illustrate the difficulty of generalising the relationship between economic conditions, imperfectly proxied by GDP, and conflict. In 2011, per capita GDP (USD) and GDP growth (annual percent) were 576 and 8.2 in Afghanistan, 231 and 6.9 in DRC, 1194 and 2.4 in Pakistan, and 1361 and -10.5 in Yemen (Mallet and Slater 2012).

Chauvet and Collier (2008) find that finance from resource rents has the tendency to lengthen the period of state failure, illustrating that the structure of growth is important for economic recovery and statebuilding. Significantly, illegal economic activities have been identified as major employers and sources of economic growth, even if this is not captured by GDP figures (Mallett-Slater-2012). For example, in 2009 there were an estimated 2.4 million people in Afghanistan involved in opium cultivation with an estimated net export value of US $3.4 billion (UNODC 2009).

David et al. (2011) investigate the factors related to cross-country growth differentials for 30 post-conflict countries in Sub-Saharan Africa. They find changes in the terms of trade to be the strongest correlate of economic performance, followed by institutional quality, particularly limitations on the discretionary power of the executive branch. These changes can affect economic growth through increasing the return to savings or providing incentives to shift the sectoral allocation of resources. However, this relationship may also be driven by the tendency for conflict legacy situations to be linked to export booms (Collier 2009). Foreign aid does not seem to play a substantial role in recovery (David et al. 2011), but if it does, then external factors or ‘luck’ play an important role (Collier and Hoeffler 2002).

There is evidence that the most rapid economic recovery and poverty reduction takes place in communities where women report higher levels of economic empowerment (Petesch 2011). Favourable conditions include some semblance of local security; gender norms that are generally supportive of women working for pay; the ability of both sexes to access and benefit from active local markets; and local governance which is able to attract and make good use of aid and other external resources (Petesch 2012). The linkages between gender, violence and inclusive decision making are being increasingly explored (see Wright and Tielemans 2014) with gender dynamics recognised as playing a key role in the economic recovery process (Domingo et al. 2013). Gender inequality is seen as being an essential consideration in statebuilding and peacebuilding strategies (DFID 2010) without which systems which discriminate against women can become further entrenched (see Kangas et al. 2014).

There is growing evidence of the importance of inclusive political settlements in enabling a sustainable exit from conflict, particularly in contexts where exclusion has been a major conflict driver (Castillejo 2014). Recent research has emphasised that the inclusiveness of political settlements affects the potential for political stability (Mcloughlin 2012). According to the OECD DAC (2010), political settlements determine three key elements of political processes: accountability mechanisms, levels of political inclusion and rules of political participation. Donors face a tension between supporting elite based political settlements (Nigeria, Afghanistan and DRC) that can provide stability, and pushing for an inclusive settlement (Zambia and South Africa) which has consequences for economic development (Castillejo 2011). As highlighted by Gutierrez (2011), a political settlements framework is useful both in explaining slow growth and the persistence of localised conflict.

Meso-level

The literature on meso-level economic activity in countries with a legacy of conflict concentrates on:

the conflict-legacy challenges faced by the private sector;
the ways in which the private sector my spoil peacebuilding and statebuilding objectives;
the role that the private sector can play in economic recovery and stabilisation.

Conflict legacy environments are characterised by an array of economic, political and security, social and demographic factors that pose challenges for the private sector, which are summarised in Mac Sweeney (2008). These economic factors include the reduction in both foreign and local investment, sectoral shifts, and the legacy of a war economy. Political and security-related characteristics include low legitimacy and capacity of the state, residual violence and a lack of a functioning judicial system. Social characteristics include tension between groups, weak or disrupted social networks, fractured families and communities, low levels of trust, and psychological trauma conflict-affected individuals. Demographic characteristics include a high number of female-headed households and more women in the workforce, high numbers of incapacitated and disabled people, increased levels of HIV/AIDS due to sexual violence, population displacement, high numbers of unemployed youth, and low educational levels. In the short-term, whilst conflict-legacy economies suffer from a major decrease in an already short supply of skills, there is also significantly increased demand for these skills (Collier 2006).

Not all firms face the same challenges. As discussed in the previous section, some influential business may have an interest in the continuation of certain types of violence even once ‘peace’ is declared (Keen 2009). Cooper (2002) further investigates this idea, arguing that the political economy of conflict trade can influence the nature and effectiveness of post-conflict peacebuilding and reconstruction. Profits from conflict trade can provide the incentive to fund a return to war and spoil peace. He further argues that even where peace agreements hold, the influence established by war elites over key economic sectors during the conflict may result in the effective continuance of war economies under conditions of non-war.

The private sector also decreases the risk of relapse into conflict by driving diversification away from reliance on a few key sectors dominated by a few powerful actors decreases the risk of relapse into conflict (Carnahan et al. 2006). Massa and te Velde (2011) suggest that DFIs, specifically, can support stabilisation by acting counter-cyclically and channelling investment.

Natural resources are considered to be one way of reenergising an economy emerging from conflict (Harwell 2010). However, the extent to which extractive industries can catalyse positive economic and social outcomes hinge on the quality of the governance (Dietsche et al. 2013, ICMM 2014). Delechat et al. (2015) find that tapping natural resource wealth for inclusive growth in FCAS does hold great promise in unlocking fiscal space to address infrastructure gaps and promoting inclusive growth. Necessary factors include sound fiscal regimes, effective and transparent natural resource administration, and a sustainable public investment scaling up strategy.

The difficulty is in using extractive resources to contribute to economic revitalisation and reconciliation at all levels of society, while avoiding new forms of social or environmental grievances, to create inclusive employment (UNEP et al. 2013). Such improvements are likely to come about not only as a result of government expenditure but also as a result of the direct activities of extractive industry projects. These impacts will not occur on their own, and close collaboration between government and the private sector is often key (Dodd et al. 2015), as is a consideration of macro-economic effects and careful economic, financial political and institutional management, to obtain growth (UNEP 2009).

Micro-level

The main micro-level issue in conflict legacy environments identified is the effect of conflict on the economic lives of individuals and households.

There is suggestive evidence that war has an ongoing adverse impact on physical and human capital even after the cessation of conflict, leaving certain segments of the population at a long-term disadvantage (Mallett and Slater 2012). Although Ibáñez and Moya (2009) suggest that households have difficulties recovering from asset losses resulting from conflict, other research suggests that legacy effects are context and group dependent. Bellows and Miguel (2009) find no evidence of lasting negative impacts of the Sierra Leone civil war on school enrolment levels or of lasting impacts on household socioeconomic status measures. Certain segments of the population have been found to suffer worse and longer-term consequences for human capital accumulation, including young girls (Shemyakina 2006), forced migrants (Kahanec and Yuksel 2010), low-income households (Foltz and Opoku-Agyemang 2011) and socially disadvantaged ethnic groups (Chamarbagwala and Moran 2011).

Evidence on whether livelihoods revert to what they had been prior to war is mixed. There is some indication that households resettle back into pre-conflict social and economic patterns when stability is re-established (Adam 2008), but this type of analysis views war and peace as two distinct and disconnected phases (Mallett and Slater 2012). Other research suggests that livelihoods do not ‘normalise’ once war has ended, particularly for youth. Young people in northern Uganda who had grown up in IDP camps were found to lack the desire to return to agricultural livelihoods (Women’s Refugee Commission 2008). Similarly, young people in the DRC were found to prefer urban living to occupation in agriculture, although they were at a severe disadvantage in accessing decent jobs in an urban labour market controlled by a group of powerful gatekeepers (Raeymaekers 2011).

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