The Legacies of War Economies: Challenges and Options For Peacemaking and Peacebuilding

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The legacies of war economies: challenges and options for peacemaking and
peacebuilding
Heiko Nitzschke a; Kaysie Studdard b
a
German Foreign Ministry, b International Peace Academy IPA,
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The Legacies of War Economies: Challenges
and Options for Peacemaking
and Peacebuilding
HEIKO NITZSCHKE and KAYSIE STUDDARD
Research and policy analyses have produced important findings on the political economy of
contemporary armed conflicts, which not only challenge some core assumptions of contem-
Downloaded By: [Columbia University] At: 19:33 11 September 2008
porary peace operations but also highlight possible avenues for improved policy interven-
tion. Yet the extent to which economic dimensions, including natural resource predation
and economic criminalization, have distinct legacies for peacemaking and peacebuilding
remains an ongoing question. This article discerns key operational challenges for policy
makers in governments, international organizations and civil society, and identifies
policy mechanisms and strategies to deal more effectively with the economics of war
and peace. These include: increased attention to the role of economic agendas in peace
processes, the political economy of disarmament, demobilization and reintegration;
efforts to address the informal economy and crime in post-conflict peacebuilding; and
the transformation of resource-based rentier-states.
Since the mid-1990s, academic and policy research has produced important new
insights on the economic dimensions of contemporary civil wars.1 The studies
demonstrate the increasing self-financing nature of contemporary conflicts as
both rebels and governments, faced with a post-cold war decline in superpower
support, have sought a variety of revenue sources to sustain their military cam-
paigns.2 Often centred around the predatory exploitation of lucrative natural
resources such as oil, diamonds, tropical timber and narcotics, or the control of
trade networks, informal economies and diaspora remittances, the ensuing ‘war
economies’ have become intricately linked to global markets for commodities
and finance.3
International policy responses to such war economies have largely focused on
establishing global control regimes aimed at ‘starving’ conflicts. This has been
attempted by diminishing the self-financing abilities of combatants through
their exploitation of lucrative natural resources and related financial inter-
actions.4 The commodity and financial sanctions regimes imposed by the UN
Security Council, the Kimberley Process Certification Scheme for rough dia-
monds, and global anti-money laundering efforts are among the most robust
efforts to curtail resource flows to rebel and government combatants in conflict
theatres such as Sierra Leone, the Balkans, Angola, Afghanistan, Liberia and
the Democratic Republic of Congo (DRC).5 Yet, such control regimes offer com-
paratively few practical insights for those in government, aid agencies, relief
organizations and the UN system who are confronted with the daunting tasks
International Peacekeeping, Vol.12, No.2, Summer 2005, pp.222–239
ISSN 1353-3312 print=1743-906X online
DOI:10.1080=13533310500066511 # 2005 Taylor & Francis Ltd.
THE LEGACIES OF WAR ECONOMIES 223
of peacemaking and peacebuilding where conflict has distorted political and econ-
omic relationships in favour of the entrepreneurs of violence.
This article contributes to filling this policy gap by discerning the legacies of
war economies and identifying strategic priorities for policy-makers engaged in
brokering and mediating peace processes and in devising and implementing pro-
grammes for post-conflict recovery.6 A systematic attention to the legacies of war
economies may challenge some core assumptions that have long informed think-
ing and guided policy with respect to conflict resolution and peacebuilding. In
addition, focus on the political economy of war and peace may highlight some
potentially unintended consequences of external policy intervention, while point-
ing to new policy mechanisms to more effectively support a country’s transform-
ation process from a war economy to a peace economy. To that end, we first
highlight key lessons from the growing body of scholarly and policy research
on the political economy of civil wars; we then discuss some distinct operational
challenges for policies and practices in peacemaking and peacebuilding; and
finally we offer options for policy action.
The Political Economy of War and Peace: Key Findings

Throughout history, economic factors have played a central role in warfare. In the
cold war era, however, the political economy of civil wars received scant policy
attention. This has changed with the ascendance of intra-state wars as the main
type of contemporary armed conflict. Innovative research on conflicts such as
those in Sudan, Angola, Sierra Leone and Cambodia has demonstrated
that, rather than acting as an inherently dysfunctional disruption of social
interaction, violence can serve a range of political and economic functions for
combatants, civilians and external actors participating in both conflict and the
war economies sustaining it.7 There is now a broad consensus that addressing
the political economy of conflict can be a key to improved conflict analysis and
policy responses. Several findings to that end can be discerned.8
First, much of the earlier scholarly and policy debate on the economic causes of
conflict was focused on the ‘greed or grievance’ dichotomy first introduced by Paul
Collier and Anke Hoeffler. Among the many findings of their econometric work,
the most widely reported was that natural resource dependence (measured as
the percentage of resource exports to GDP) is correlated with a higher risk of
conflict. That rebels can ‘do well out of war’ through resource predation
(‘loot-seeking’) was initially advanced as better explaining the onset of armed con-
flict than ethnic, socio-economic or political grievances (‘justice seeking’).9 While
highly influential among policy-makers, qualitative and quantitative studies have
challenged the rebel-centric ‘greed thesis’ and its methodological underpinnings.10
By now, there is a more comprehensive understanding of how economic dimen-
sions can influence the onset, character and duration of armed conflicts. Impor-
tantly, research suggests that the resource conflict nexus is primarily mediated
by critical governance failures that weaken states and make them more vulnerable
to rebellion. Known as the ‘resource curse’, numerous studies show that countries
richly endowed with natural resources are often characterized by systemic
224 INTERNAT IONAL PEACEKEEPING
corruption, economic mismanagement, patrimonial rule, and political and socio-

economic exclusion of ethnic or other minority groups (‘horizontal inequalities’)
which create conditions conducive to the onset of armed conflict.11
Second, the type of natural resources in a country, the modes of exploitation
and the way that related benefits accrue to conflict stakeholders can have an
important impact on conflict dynamics. There is a strong indication, for instance,
that ‘unlootable resources’ (oil, gas, and deep-shaft gems and minerals) tend to be
associated with separatist conflicts such as those in Bougainville (Papua New
Guinea), Aceh (Indonesia), Nigeria and Sudan, where the inequitable sharing of
resource-rents by exclusionary governments may spark or fuel local grievances
that have the potential to turn violent. By contrast, easily exploitable, ‘lootable
resources’ (alluvial diamonds, coltan, narcotic crops and timber) feature strongly
as sources of rebel self-financing in non-separatist insurgencies such as those in
Angola, Colombia and Sierra Leone.12

Third, war economies serve different functions for different groups. Though
overlapping, these functions may be more adequately understood by distinguish-
ing among the combat, shadow and coping economies.13 The combat economy
encompasses those economic relationships implicated in sustaining actual fight-
ing, ranging from arms smuggling to the exploitation of natural resources or
other income-generation by combatants. The term ‘shadow economy’ describes
a variety of economic interactions outside the margins of state regulation, moni-
toring and control, such as black market and smuggling activities in Kosovo,
Bosnia-Herzegovina and Sierra Leone. With the disintegration of normal
economic relationships in civil war, shadow economies may come to provide
essential sustenance to large sectors of the civilian population. The resulting
coping economy often encompasses economic activities centred around lootable
resources such as coca in Colombia, poppy in Afghanistan and coltan in the
DRC.14
Fourth, easy access to lucrative resources, civilian predation and control over
black markets can also have important implications for the character of armed
conflicts. In such settings, war economies tend to become criminalized. The
degree to which today’s combatants move in and out of criminality varies. In
Colombia, for instance, both guerilla groups and paramilitaries have become
engaged in narco-trafficking and money laundering, as well as kidnapping and
extortion. In the DRC, Sierra Leone, Liberia and Angola, rebel groups have
often operated through shadowy ‘conflict entrepreneurs’ attracted by the high
profit margins of illegal trafficking in arms and diamonds. This has led some to
view rebellion as a ‘quasi-criminal activity’.15 Yet, as much as rebellion and orga-
nized crime have come to resemble themselves in terms of the self-financing
methods used, they should not be treated so simplistically. Tackling rebellion
through law enforcement, for instance, may simply foreclose avenues for political
solutions while ‘criminalizing’ those in society who have become dependent on
illicit activities for a lack of alternatives. It may fail to root out the illicit activity
if no viable alternatives and incentives for income generation are introduced.
Fifth, contemporary conflicts, and the war economies sustaining them, also
often have a strong regional dimension, particularly where they are embedded
in a wider ‘regional conflict formation’.16 Conflicts in Sierra Leone, Afghanistan,
the DRC and Bosnia-Herzegovina, for instance, have thrived on linkages with
neighbouring states, informal trading networks, regional kin and ethnic groups,
arms traffickers and mercenaries, as well as legally operating commercial entities,
each of which may have a vested interest in the prolongation of conflict and
instability.17
Last, once conflict has erupted, the economic activities of combatants may sig-
nificantly influence the duration of hostilities, becoming powerful barriers to war
termination. Combatant self-financing through easy access to resources and finan-
cial flows may simply allow the weaker parties (typically rebel groups) to avoid
‘hurting stalemates’. In Sri Lanka, for example, the Tamil Tigers have relied
heavily on their international diaspora networks to provide revenue to maintain
their rebellion. Furthermore, in Sierra Leone, Angola and Colombia, economic
considerations, while not the sole or even primary cause of the conflicts,
became more important to some combatants than political factors. Where such
opportunities for self-enrichment exist, there is also a greater risk that conflict
will be lengthened by the consequent fragmentation and fractionalization of com-
batant groups. In the DRC, for instance, the number of rebel groups, financed in
part through the exploitation of coltan and gold in the Kivu provinces, has
increased steadily throughout the conflict and its violent afterlife. Furthermore,
the opportunity to benefit from war may undermine internal discipline and cohe-
sion of armed forces, making it harder for leaders to impose peace agreements on
their followers.18 An example is the oft-cited ‘sobel’ phenomenon (‘soldiers by
day, rebels by night’) witnessed in Angola, Sierra Leone and the Balkans, where
soldiers frequently colluded with rebels for personal gain. Those rebel and govern-
ment elites who benefited from predation during war may thus act as ‘spoilers’,
using force to thwart peace mediation or implementation.19
This complexity of contemporary intra-state wars presents policy-makers with
the twofold challenge of accurately assessing the impact of economic factors on
the dynamics of armed conflict and of developing and implementing effective
policy responses.
Challenges for Peacemaking and Peacebuilding

With the end of the cold war, the range of policy tools, diplomatic initiatives and
military interventions aimed at conflict prevention, peacemaking and peacebuild-
ing has significantly increased. The UN Security Council in particular has
expanded its repertoire of coercive and non-coercive responses to intra-state vio-
lence and civil war, including the deployment of ‘complex peace operations’, of
which the transitional administrations in Kosovo and East Timor represent the
most far-reaching to date.20 Regional organizations, including NATO, the
Organization for Security and Cooperation in Europe (OSCE), the Economic
Organization of West-African States (ECOWAS), and the African Union, have
become important actors for international peace and security, deploying their
own peace operations and engaging in post-conflict peacebuilding.21 With
increased attention to the nexus between security and development, aid donors,
too, have recognized the important role of development and humanitarian aid in
conflict prevention and post-conflict peacebuilding.22
The scholarly literature on peacebuilding operations has equally grown apace;
with a mixed verdict on the effectiveness and appropriateness of peacebuilding
strategies and mechanisms.23 Particularly relevant to this article, empirical
research shows that while today’s peace operations complement traditional secu-
rity priorities with efforts to hold democratic elections and establish good gover-
nance and rule of law programmes, strategies to adequately address the specific
challenges posed by the political economy of peacebuilding and post-conflict
reconstruction have often lagged behind. Numerous studies highlight the lack
of systematic attention given to these issues and the implementation of at-times
inadequate and rigid policy responses rooted in what critics call the contemporary
paradigm of ‘liberal interventionism’. These responses can have dire and lasting
consequences for stability and recovery in a post-conflict country, in that they

fail to accurately address the factors that either led to the conflict or threaten to
spoil a newly-acquired peace.24
Economic Agendas, Negotiated Settlements and the Peace Dividend

The post-cold war period has seen the international community successfully
mediate and support peace processes in war-torn countries as diverse as El
Salvador, Cambodia and Sierra Leone. Such peace processes and the negotiation
of peace agreements are critical moments in a country’s transition from war to
peace. Clearly, they are highly context specific and depend to a large degree on
the personalities of combatant leaders and the mediators involved. Yet, where
economic dimensions featured strongly in conflict dynamics, the legacies of war
economies may for two reasons pose significant challenges for third-party peace
mediation and the design of peace agreements.
The first challenge is dealing with peace spoilers. Experts have emphasized
that transitions from war to peace should be understood as ‘a realignment of
political interests and a readjustment of economic strategies rather than a clean
break from violence to consent, from theft to production, or from repression to
democracy’.25 Thus, combatants may weigh the revenues generated from preda-
tion during the war against the potential benefits of peace.26 A comparative study
of 16 peace processes identified the continued access to lucrative resources and the
proliferation of combatant parties as key factors in failed peace implementation –
by creating and multiplying the number of potential spoilers.27 Those engaged in
conflict mediation and the design of peace agreements thus face the difficult task
of trying to anticipate potential spoilers. Making such an a priori judgement is
often difficult; yet assessing the economic endowments and activities of comba-
tant elites may be as important as taking stock of their military and political
power.
How to manage potential spoilers once they are identified is an altogether
different question that deserves further systematic scrutiny.28 Simply neglecting
their economic agendas out of fear of overburdening fragile peace processes
may generate future problems. The 1994 Lusaka protocol between the Angolan
government and the UNITA rebels, for instance, did not address the contentious
issue of diamond revenue allocation. When rebel leader Jonas Savimbi sub-
sequently resisted the extension of government administration into the
diamond-producing territories under his control, the government restarted the
war in December 1998.29 The economic predation by elites on all sides of the con-
flict in the DRC was also not a priority issue during the Sun City peace talks. As a
consequence, the scramble for control of the DRC’s vast resource wealth among
elites both in the DRC and in neighbouring countries continues to undermine
peacebuilding efforts, and the threat of renewed conflict remains. Similarly, in
Afghanistan, the coalition forces’ enlisting of predatory warlords in the war
against the Taliban continued to pose serious problems to the Karzai govern-
ment’s attempts to curtail the warlords’ often-substantive sources of income
from drugs and smuggling.
The co-option of potential spoilers through the provision of economic and pol-
itical carrots was attempted with rebel leader Foday Sankoh in Sierra Leone, who
had financed much of his brutal guerilla war through the trade in ‘conflict dia-
monds’. While the 1999 Lomé peace accord offered Sankoh a ministerial post
with the nominal control over the country’s natural resources, he shortly after-
wards resumed his all-out war against the government in Freetown. Economic
co-option failed because Sankoh had political ambitions as well as pecuniary
motives. Ultimately, however, it also failed through the lack of credible penalties
in the case of non-cooperation. The latter proved to be crucial for co-option in the
case of Myanamar where the military regime granted ethnic insurgent groups tacit
licence to continue their wartime business ventures in exchange for informal cea-
sefires, which proved to be remarkably robust despite the absence of a formal
peace accord.30
Second, where civil wars end through a negotiated settlement rather than the
outright military victory of one side, former rebel groups and separatist move-
ments need to be included in peace processes. Provisions for political power-
sharing as part of peace agreements are thus critical to the cessation of hostilities.
Yet where economic factors have become closely intertwined with socio-cultural
and political grievances, designing peace agreements that reflect the political
economy of the conflict may be critical for lasting peace. With few exceptions,
the tendency in peace processes has been to neglect the economic dimensions of
conflict and transformation.31 The peace process between the Islamist govern-
ment in Khartoum and the opposition Sudan People’s Liberation Army (SPLA)
to end the protracted civil war in the Sudan provides an important exception.
The framework peace agreement of 2002 contained, inter alia, provisions for
sharing the country’s oil wealth, a probable reason for the relative stability of
the peace process. That the rebellion in the Darfur region has been driven in
part by the perceived exclusion of resistance groups in the region from a similar
peace dividend, however, demonstrates the need for a more inclusive peace
process.
In practice, then, it becomes clear that there is no ‘one size fits all’ approach to
dealing with spoilers and devising peace agreements. Research and experience
suggests, however, that greater policy recognition of the prevailing political
economy of conflicts may have the potential to secure more comprehensive
peace agreements and reduce the risk that economic competition will lead to
renewed conflict.
The Political Economy of Disarmament, Demobilization and Reintegration

The disarmament, demobilization and reintegration (DDR) of former combatants
has become a key component of most contemporary peace operations. Experi-
ences in Afghanistan, Liberia, the DRC and Sierra Leone suggest that the legacies
of war economies – particularly the continuing availability of lucrative resources
and entrenched economic predation – pose additional challenges to an already
difficult process. In particular, these conflicts demonstrate that the possession of
arms may not be just a function of ongoing insecurity but also an economic
asset. For some fighters the economic opportunities and rewards available
through violent predation might exceed those expected to be available after con-
flict, thus influencing a combatant’s decision to voluntarily disarm and return to
civilian life. The proclivity of rank-and-file soldiers to disarm may thus depend on
the expected opportunities of socio-economic reintegration, most importantly
access to education, land or employment and income opportunities.32 In the
eastern DRC, for instance, where swathes of fertile land have been ruined by
uncontrolled coltan exploitation and where conflict has led to a consolidation
of large-scale landholdings, effective disarmament and demobilization may
depend on the provision of new forms of civilian economic opportunity.33 In
Sierra Leone, the DDR programme of the UN encountered serious security pro-
blems when many ex-combatants who were not reached by the reintegration
programme migrated to the diamond-rich areas where they challenged local
groups and were recruited as mercenaries for the war in Liberia.34
In light of the lack of discipline as well as the fragmentation of many contem-
porary rebel groups, DDR programmes need to better identify and target the
various economic interests of fighters of different ranks. Given the opportunities
for predatory self-enrichment, the incentives offered to rank-and-file fighters to
disarm and return to civilian life may be insufficient to persuade middle-
ranking, local commanders. The latter are not only the critical agents of
mobilization, but also often control access to lucrative resources and have well-
established informal taxation regimes that depend upon the continued threat or
use of violence. In Afghanistan, these middle-ranking, local commanders
remain critical assets to regional warlords.35 A survey of ex-combatants in
Sierra Leone suggests that valuable goods and resources captured in battle were
passed up to the rebel commanders, with the rebel groups’ rank-and-file benefiting
only little from predation and illegal diamond mining.36
Taking into account the political economy of many contemporary conflicts
may thus help those in donor agencies and the UN to develop strategies and
DDR programmes that offer appropriate incentives for combatants to disarm
and reintegrate into society. Ensuring expanded and meaningful economic oppor-
tunities for former combatants, most importantly through the provision of edu-
cation and employment alongside their demobilization and disarmament, may
help DDR programmes succeed in undercutting the temptations for continued
participation in the war economy. The DDR programme in Afghanistan, for
instance, was criticized for directing the majority of ex-combatants to take the
‘rural crop option’, despite the fact that the agricultural sector is not large
enough to absorb the considerable numbers of former combatants. Different
employment sector opportunities in the non-agricultural sector had not been suf-
ficiently factored into DDR planning.37 This suggests that the concept of post-
conflict security should be broadened beyond the immediate ‘security dilemma’
faced by former combatants. Security encompasses both physical and economic
security, the latter being a function of development and poverty reduction. As
Mark Sedra notes: ‘As long as the principle factors mobilizing Afghans to take
up arms – poverty and a lack of viable employment opportunities – remain,
violence, insecurity, and lawlessness will remain the norm in Afghanistan’.38
Peacebuilding, Informal Economies and Economic Criminalization

As the concept of ‘war economies’ aptly demonstrates, economic life does not
cease to exist during armed conflict; rather, it adapts and changes, serving a
variety of functions for different actors. Often controlled by former combatants,
criminal entrepreneurs and corrupt government elites, violent economic relation-
ships tend to persist even after the formal cessation of active hostilities. For post-
conflict peacebuilding, this suggests two closely interrelated challenges:
First, there is ample evidence to suggest that pervasive criminality can
seriously undermine peacebuilding and post-conflict recovery. Those who have
generated economic benefit during conflict, not least from sanctions regimes (as
in the case of mafia structures in Kosovo and Bosnia-Herzegovina), seek to
consolidate their power in the fragile post-conflict environment by expand-
ing control over the local economy and political processes. In such settings,
post-conflict peacebuilding is significantly influenced by the legacy of a crimina-
lized conflict.39 In Bosnia-Herzegovina, writes Peter Andreas, ‘Key players in
the covert acquisition and distribution of supplies during wartime have
emerged as the nouveau riche “criminal elite” with close ties to the government
and nationalist political parties’.40 Not only insurgent groups engage in self-
financing activities during war. In many conflict theatres, the military and
police are engaged in predatory economic activities which the government
either actively encourages or tacitly acquiesces in.41 In Cambodia, Burma,
Kosovo, Bosnia and Haiti, this included the trade in gemstones and timber, the
trafficking of arms, drugs and people, or running protection rackets. The
availability of such off-budget resources may seriously undermine post-conflict
peacebuilding in that key actors in the security sector have a vested interest
in resisting and actively undermining reform efforts aimed at establishing
civilian control and budgetary oversight and fighting corruption.42
Second, the informal economy is often widespread in a post-conflict situation,
providing crucial income and livelihoods to civilians. In post-conflict Bosnia-
Herzegovina, the World Bank estimated that the informal economy represented
50 – 60 per cent of GDP.43 Yet the more widespread the informal economy, the
fewer tax revenues that accrue to the government. This undermines the ability
of states emerging from war to finance the provision of goods and services
(including internal and external security), to undertake much needed reconstruc-

tion projects, and to establish viable governance institutions. In post-war
Kosovo, for instance, public revenue collection in 2001 operated at about half
of its potential, with 80 per cent of this shortfall due to illegal activities.44
While post-conflict foreign aid may temporarily bridge this finance gap, it does
not provide a sustainable basis for state budgets. In addition, it may create
severe aid dependency. Importantly, the failure of the state to provide basic ser-
vices, often provided de facto by criminal or shadow networks, undermines the
creation of the ‘social contract’ necessary for stable and accountable governance
to form and take root.
This dual challenge demonstrates that those engaged in peacebuilding have to
address the dysfunctional elements of the criminalized and informal economy,
while retaining its socially beneficial aspects. Yet illicit economic networks are
frequently difficult to eliminate because of their function as economic and

social support systems to civilian populations. While often under the control of
criminal or shadow entrepreneurs, civilian incomes from these informal activities
can sustain livelihoods and hence compensate for the state’s incapacity or neglect
in providing basic services. In addition, regulatory and interdiction efforts are
further complicated by the fact that these activities make use of the same or over-
lapping trade and financial networks. The poppy economy in Afghanistan serves
as an example. Farmers continue to grow poppy not only because it is a lucrative
crop, but also because the poppy trade has generated a complex system of
patron –client relations and an elaborate, if highly extortive, credit system. For
poor farmers and sharecroppers, poppy cultivation is often the only way to
access credits needed to secure their livelihoods and to pay accumulated debts
to local warlords. Policy efforts to reduce poppy cultivation thus need to
address the socio-economic structures that characterize the ‘poppy cultivation
environment’. Simple eradication or crop-substitution programmes are fruitless
unless the problem of the coercive credit system controlled by local strongmen
is addressed.45
Transforming Resource-based ‘Rentier States’

The demonstrated role that mismanagement and inequitable distribution of
resource wealth can play in the onset of armed conflict highlights that the early
restoration of transparent and efficient resource management needs to be a pri-
ority for peacebuilding strategies. Yet, governance reforms are already difficult
enough in developing countries in transition that have escaped the scourge of
armed conflict.46 Rebuilding the capacity of domestic institutions and promoting
good governance over natural resources after years, if not decades, of war sus-
tained by the militarization, criminalization and systemic corruption of the
economy is a far more difficult and long-term task, but a critical one nonetheless.
In countries such as Sierra Leone and the DRC this requires the outright trans-
formation of the predatory rentier state – often the product of colonial rule
and kleptocratic post-independence leadership, and sustained by geopolitical
and commercial interests in the North. Corruption and smuggling in the
diamond industry of Sierra Leone since the 1950s, for instance, led to the
situation by 1970 that official diamond exports were almost non-existent. This
‘privatization’ of the diamond industry not only weakened the state and provided
sources of income to the rebels; it also continues to be rampant in the post-conflict
environment. In such settings, the UN and aid donors engaged in peacebuilding
may face strong vested interests among host government elites and former
warlords.
Donor agencies, chief among them the World Bank and the International
Monetary Fund, have already begun to design and support tools and strategies
for more effective, equitable and transparent systems of oil, gas and mining
revenue management as part of their ‘good governance’ programming. Efforts
to include such mechanisms in post-conflict peacebuilding can thus draw on the
experience of existing initiatives, including national natural resource funds tra-
ditionally used for fiscal stabilization and savings.47 According to Philippe Le

Billon, a post-conflict situation may provide the unique opportunity for donor-
supported efforts to place public revenues from natural resource exploitation
under international supervision to ensure that they are used for reconstruction
and socio-economic projects.48 The so-called ‘Oil-Diagnostic’ in Angola, aimed
at verifying that no official oil revenues were diverted on the way to the central
bank in Luanda, was one, albeit largely futile, attempt to that end.49 The
World Bank-supported Chad –Cameroon Pipeline Project, with its fiscal manage-
ment, multi-stakeholder overview and social revenue-sharing components can be
seen as a special ‘test-case’. Not only will it demonstrate the international commu-
nity’s commitment to ensure that Chad’s oil wealth serves the common good in
the country, but it may also determine the World Bank’s future involvement in
similar projects. Although the project’s success is still uncertain, the issue of
resource revenue management in weak and conflict-prone states has enjoyed the
increased attention of development and security practitioners.50 Experts have
suggested, for instance, that a multi-stakeholder trust fund for the Ituri region
in eastern DRC should be developed to collect, monitor and allocate the revenues
generated from the region’s valuable natural resources for the purpose of
infrastructural and social investment.51
Yet where conflict was fuelled by the exploitation of lootable resources, peace-
building efforts face additional challenges. Such resources are often located in
areas not under effective government control. Their exploitation tends to be an
artisan activity that generates livelihoods for civilians. Referring to Sierra
Leone’s artisanal diamond mining, for instance, the International Crisis Group
writes that ‘mining in these areas is more like farming that involves tens of thou-
sands of persons and is virtually impossible to control. . . . It remains literally the
only source of income for large parts of the country’.52 Against this background,
peacebuilding support by the UN and multiple donors has made a priority of
restoring order and transparency to the diamond industry. The mandate of the
UN peacekeeping mission includes support to the government in establishing
effective control over the diamond area. Similarly, the UN peacekeeping
mission in Liberia has been mandated by Security Council Resolution 1521 to
assist the transitional government in restoring the proper administration of
natural resources. These efforts may also provide important lessons for compar-
able settings. Observers claim that in both cases, however, there was reluctance
within the missions to engage in policing activities in the diamond-rich areas, a
task that was seen as falling under the purview of the governments and their
national police forces. In terms of the socio-economic aspects of the diamond
exploitation in Sierra Leone, innovative donor-funded programmes, such as the
Peace Diamonds Alliance as well as the Campaign for Just Mining were designed
not only to provide income to the government by expanding the scope of licensed
mining and raising official diamond exports; the programmes also ensure regular
incomes, fair prices and human rights education to artisan miners and their
communities.53 While diamond smuggling is still pervasive, official exports
have dramatically risen, a function also of Sierra Leone’s membership of the
Kimberley Process.
In addition to government resource management, private sector activity

during armed conflict and post-conflict peacebuilding has come under increased
scrutiny by scholars, practitioners and advocacy NGOs. The role of oil compa-
nies and diamond traders in ‘fuelling war’ and dealing in ‘conflict diamonds’ in
particular has sparked numerous campaigns and policy initiatives aimed at
improving business conduct in crisis-prone or unstable countries.54 The UN
Security Council, too, has recognized the relevance of the business sector in con-
flict prevention, peacekeeping and post-conflict reconstruction.55 Yet the issue of
business in conflict zones is a particularly delicate one. Private investment in the
extractive industries, such as that in Botswana or Namibia, could be an import-
ant source of income for a country’s economic recovery. Few governments, par-
ticularly in a post-conflict setting, have the technical know-how, financial capital
or market access required in the highly competitive extractive industries. Rather,
they rely on multinational energy and mining companies that, often as joint-
venture partners with host-state state-owned companies, engage in the exploita-
tion and trade in lucrative natural resources. In theory, the resources generated
through taxes, royalties and direct income should benefit the country. Yet in
practice, this is often not the case. Examples abound where oil, gas and
mining companies are allegedly contributing to human rights violations,
environmental pollution and corruption in host countries, thus contributing to
grievances and instability. The financial deals between extractive industry com-
panies and repressive and unaccountable host governments in particular have
attracted attention. In post-war Angola, for instance, revenues from oil pro-
duction continue to be siphoned off by government elites, while the vast
majority of the population suffers from devastating poverty.56 In the DRC,
the absence of government control over the country’s riches has enabled unscru-
pulous foreign companies to sign lucrative contracts with strongmen who claim
to be the bearers of concession rights. Not only does this rob the central govern-
ment of crucial income; it also fills the pockets and war chests of potential peace
spoilers. How to foster the productive power of business in post-conflict situ-
ations while cutting out those who benefit from violence and instability is
thus a key issue for peacebuilding that requires further analysis and policy
commitment.
Conclusion: Options for Policy Action
Given the relative newness of the issue in academic and policy circles, more
empirical research is needed on the political economy of conflict and conflict
transformation to inform improved policy action. Based on existing findings,
several policy mechanisms and strategies can be identified that governments,
aid agencies, international financial institutions (IFIs) and the UN system can
undertake, which may challenge peacebuilding orthodoxy but nonetheless may
increase the odds for successful peacemaking and peacebuilding.
First, the international community should seek to integrate, where feasible, the
economic dimensions of conflict and conflict transformation in the design and
mediation of peace processes, in addition to the traditional political and military
issues. Importantly, mediators must account for the economic interests of poten-
tial spoilers within and outside of the country to prevent them from subverting
peace processes. Where politically feasible, third-party mediators could explore
ways to ensure that these economic issues are addressed by incorporating formal
economic agreements into peace accords. Such agreements could include pro-
visions for more equitable resource sharing, as well as third-party monitoring
and verification of responsible resource management and restitution packages.
Doing so would have the advantage of establishing common and transparent
benchmarks and promoting clear expectations that property rights and economic
justice will be respected. In the longer term, such benchmarks could serve as a
reference point for multilateral and bilateral donors and civil society to hold gov-
ernments accountable for their post-conflict policies. Given their important finan-
cial and political leverage power in post-conflict recovery, IFIs need to participate
at an early stage in a peace process to ensure coordinated policy action among
donors and the UN, and to match the content of peace agreements with post-con-
flict economic recovery strategies. Where such coordination is lacking, as in El
Salvador, the consequences for sustainable peace can be grave.57 More innovative
thinking should thus be directed at how IFIs could strengthen peace implemen-
tation with targeted ‘peace conditionality’, aimed at, inter alia, better resource
management and revenue-sharing schemes to redress horizontal inequalities.58
This may mean diverting some funds away from packages aimed at economic
liberalization in the short term in order to help build up state institutions and
distribute wealth equitably.
Second, programmes and strategies for DDR as part of peace implementation
should be informed by the political economy of the conflict in question. This
suggests that the prevailing donor practice of treating disarmament and demobi-
lization as prior to reintegration and rehabilitation, rather than as parallel and
mutually reinforcing processes, needs to be revised. Socio-economic support
should not be an afterthought, but rather an early and central element of the
DDR process, with due regard paid to the different agendas of soldiers and offi-
cers. For UN peace operations, renewed focus on reintegration programmes
may require more coordination with humanitarian and development actors,
including the World Bank as a main actor in DDR and post-conflict reconstruc-
tion. Importantly, disarmament and demobilization efforts must be met with
up-front provision of sufficient funds for ‘quick impact’ reintegration projects,

above all for job provision. This may require providing a range of employment
and income-generating activities for former combatants that goes beyond the
standard ‘DDR-packages’ offered by the international community. DDR thus
needs to be integrated into a larger, long-term framework of post-conflict peace-
building and economic reconstruction, with a particular focus on livelihood
protection.
Third, post-conflict reconstruction and peacebuilding efforts need to ade-
quately address shadow economies and economic criminalization that character-
ize many post-conflict societies. This requires an appropriate balance between
carrots and sticks. Regarding the former, strengthening economic and political
governance and the provision of alternative livelihoods for those individuals
who have developed a dependence on violent or black market economies is a
key to expanding the formal economy. Yet lessons from several countries
suggest that the focus of current reconstruction strategies by bi- and multi-
lateral donor agencies on early privatization, economic liberalization and
macroeconomic stabilization may well be counterproductive. According to
Susan Woodward: ‘The war economies that must be transformed to peacetime
economies in contemporary cases of civil war are not emergency adjustments to
an otherwise normal economy but an entire transformation of social and politi-
cal institutions’.59 This suggests that IFIs may well need to review their post-
conflict macroeconomic and fiscal strategies to better understand the beneficial
social functions that shadow economies play in a post-conflict context. Other-
wise, their policies risk hurting those who have come to depend on the
shadow and coping economies in conflict and post-conflict settings, while ben-
efiting corrupt elites.60 Regarding the latter, much-needed economic rebuilding
and wealth distribution cannot occur in the absence of comprehensive strength-
ening of law enforcement and the judiciary. Where domestic policing and judi-
cial capacity have been eroded by years of conflict or corruption, assistance
from the international community in the form of ‘rule of law’ programmes,
including the training and capacity building of police forces and the judicial
sector, is crucial. It must be embedded, however, in a wider strengthening of
the political institutions and the development needs of a country.61 In some
cases, policing activities by UN peace operations or regional actors may be
required in the initial post-conflict phase to ensure a degree of security and
tackle the most egregious crimes.62 Examples include the organized crime unit
established by the OSCE in Kosovo. If the military and police were part of
the predatory state structure, donor-supported security sector reform (SSR) pro-
grammes can play a crucial role in transforming the interests of the security
apparatus from economic predation to civilian protection. Given the insufficient
local border policing and customs control capacities in many conflict-ridden
countries, a complementary strategy worth pursuing is to support cooperation
within regional and sub-regional organizations, such as the Mano River
Union or ECOWAS, to eliminate differentials in prices, taxes, and quota
systems that raise the profitability of, and thus create the incentives for,
cross-border conflict trade.63
Finally, more effective, equitable and accountable systems of natural
resource management and revenue sharing needs to be a priority for peacebuild-
ing strategies. Indeed, as donor leverage is often greater in a post-conflict setting,
the potential for securing effective resource governance is strong. Donors and
civil society can assist post-conflict countries through capacity building for
public administration, particularly in the areas of financial oversight, budgeting,
accounting and public expenditure reviews, as an integral part of wider govern-
ance reforms and programmes. International agencies may also play an import-
ant role in acting as independent monitors to ensure compliance through
externally-monitored natural resource funds or escrow accounts for income gen-
erated from the exploitation of oil, gas or mining. If properly administered, these
could protect the large inflows of revenues from rent-seekers, and safeguard
their productive use for peacebuilding and reconstruction. Yet sustainable
peace also requires a concerted policy commitment among developed and devel-
oping country governments to alter business behaviour. Governments, civil
society, private companies and IFIs should thus support initiatives such as the
UK-sponsored Extractive Industries Transparency Initiative and the Publish
What You Pay Campaign, which seek to promote fiscal transparency among
corporations and host governments engaged in extractive industry operations.
Given the range of private actors engaged in conflict trade and the exploitation
of natural resources during conflict, effective natural resource management in a
post-conflict situation thus requires an adequate regulatory framework for the
extractive industry sector and commodity trade. Clear and enforceable regu-
lation may be a necessary option to provide legitimate companies with a
secure business environment, and also to hinder ‘rogue companies’ from exploit-
ing fragile post-conflict settings.64 When geared towards the specific reconstruc-
tion needs of the host country and not solely to commercial interests of investing
companies, the World Bank’s International Finance Corporation can play a
crucial role in designing extractive industry and mining codes that help minimize
the risk of corruption and corporate malfeasance. To avoid a ‘race to the
bottom’ among individual countries vying for foreign investment, such stan-
dards could be developed and implemented region-wide. The establishment
of an Africa-wide standard for corporate conduct in extractive industries,
for instance, was discussed during the consultations on peace and security
between the African Union and the New Partnership for Africa’s
Development.65
In conclusion, viewing intrastate conflict from a political economy perspective
affords important insights for our understanding of civil war and conflict trans-
formation. Clearly, not all violent conflicts have strong economic dimensions.
Those that do, however, seem to pose different – and at times greater – challenges
for those engaged in peacemaking and peacebuilding. Acknowledging the legacies
of war economies and the distinct challenges they entail not only helps to refine
some of the assumptions and strategies that underlie today’s peacemaking and
peacebuilding efforts, but ultimately could lead to more effective policies for a
country’s successful transition from war to peace – and from a war economy
to a peace economy.
ACKNOWLEDGEMENT
The authors would like to thank Karen Ballentine, Michael Pugh and the anonymous reviewers for
their comments on an earlier draft of this article. The views expressed here are the authors’ alone.
Many of the findings presented in this article emerged from research conducted and expert meetings
held by the Economic Agendas in Civil Wars program at the International Peace Academy, New
York. For more information on the EACW Program, see www.ipacademy.org (completed programs).
NOTES
1. See David Keen, The Economic Functions of Violence in Civil Wars, Adelphi Paper No.320,
Oxford: Oxford University Press/IISS, 1998; Paul Collier and Anke Hoeffler, On Economic
Causes of War, Oxford Economic Papers No.50, Oxford, 1998; Mats Berdal and David
M. Malone (eds), Greed and Grievance: Economic Agendas in Civil Wars, Boulder, CO: Lynne
Rienner, 2000; Karen Ballentine and Jake Sherman (eds), The Political Economy of Armed Con-
flict: Beyond Greed and Grievance, Boulder, CO: Lynne Rienner, 2003.
2. Ballentine and Sherman, ‘Introduction’, in Ballentine and Sherman (n.1 above), p.1; Mark Duf-
field, ‘Globalization and War Economies: Promoting Order or the Return of History?’, Fletcher
Forum of World Affairs, Vol.23, No.2, 1999, pp.21–38.
3. François Jean and Jean-Christophe Rufin (eds), Economies des Guerres Civiles, Paris: Hachette,
1996; Jakkie Cilliers and Christian Dietrich (eds), Angola’s War Economy: The Role of Oil
and Diamonds, Pretoria: Institute for Security Studies, 2000.
4. Sherman, Policies and Practices for Regulating Resource Flows to Armed Conflict, IPA Confer-
ence Report, New York: International Peace Academy, 2002; Neil Cooper, ‘State Collapse as
Business: The Role of Conflict Trade and the Emerging Control Agenda’, Development and
Change, Vol.33, No.5, 2002, pp.935–55.
5. Ballentine and Heiko Nitzschke (eds), Profiting from Peace: Managing the Resource Dimension of
Armed Conflict, Boulder, CO: Lynne Rienner, 2005; Ian Bannon and Paul Collier (eds), Natural
Resources and Violent Conflict: Options and Actions, Washington, DC: World Bank, 2003.
6. This article draws on Heiko Nitzschke, Transforming War Economies: Challenges for Peacemak-
ing and Peacebuilding, Report of the 725th Wilton Park conference in association with the Inter-
national Peace Academy, New York: International Peace Academy, December 2003.
7. Mats Berdal and David Keen, ‘Violence and Economic Agendas in Civil Wars: Some Policy Impli-
cations’, Millennium: Journal of International Studies, Vol.26, No.3, 1997, pp.795–818; Keen: The
Economic Functions of Violence in Civil Wars, Adelphi Paper No. 320, Oxford: Oxford University
Press/IISS, 1998; Philippe Le Billon, ‘The Political Ecology of Transition in Cambodia 1989–1999:
War, Peace and Forest Exploitation’, Development and Change, Vol.31, 2000, pp.785–805;
William Reno, Corruption and State Politics in Sierra Leone, Boulder, CO: Lynne Rienner, 1995.
8. For a more detailed discussion, see Ballentine, ‘Beyond Greed and Grievance: Reconsidering the Econ-
omic Dynamics of Armed Conflict’, in Ballentine and Sherman (see n.1 above), pp.259–83; Ballentine
and Nitzschke, Beyond Greed and Grievance: Policy Lessons from Studies in the Political Economy
of Armed Conflict, New York: International Peace Academy, 2003 and ‘The Political Economy of
Civil War and Conflict Transformation’, in Martina Fischer, Beatrix Schmelzle and Oliver Wils
(eds), Transforming War Economies: Dilemmas and Strategies, Berghof Handbook for Conflict
Transformation, Berlin: Berghof Research Center for Constructive Conflict Management, 2005.
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Washington, DC: World Bank; Collier, ‘Doing Well Out of War: An Economic Perspective’, in
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Research (forthcoming); James D. Fearon, ‘Primary Commodities Exports and Civil Wars’,
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terman, You, The People: The United Nations, Transitional Administration, and State-Building,
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Europe and Beyond, Boulder, CO: Lynne Rienner, 2003.
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as Politics: Cultivating Peace in Fragile Societies, Boulder, CO: Lynne Rienner, 2001; Michael
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in Cambodia and El Salvador, Cambridge: Cambridge University Press, 1997; Roland Paris, At War’s
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25. Berdal and Keen (see n.7 above), p.798.
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29. Charles Cater, ‘The Political Economy of Conflict and UN Intervention: Rethinking the Critical
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31. Woodward (n.24 above), p.184.
32. Eugenia Date-Bah (ed.), Jobs After War: A Critical Challenge in the Peace and Reconstruction
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34. William J. Durch et al., The Brahimi Report and the Future of UN Peace Operations, Washing-
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53. For more information on these initiatives, see: www.peacediamonds.org and www.nmjd.org.
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59. Woodward (n.24 above), p.192.
60. Ibid.; Pugh and Cooper (n.13 above), pp.219–38.
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63. Pugh and Cooper (n.13 above), p.230.
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65. African Union, Report of the AU-NEPAD Consultations on Peace and Security, Addis Ababa,
17– 18 Feb. 2002.

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HEIKO NITZSCHKE and KAYSIE STUDDARD

The Political Economy of War and Peace: Key Findings

corruption, economic mismanagement, patrimonial rule, and political and socio-

Angola, Colombia and Sierra Leone.12

Challenges for Peacemaking and Peacebuilding

consequences for stability and recovery in a post-conflict country, in that they

Economic Agendas, Negotiated Settlements and the Peace Dividend

The Political Economy of Disarmament, Demobilization and Reintegration

Peacebuilding, Informal Economies and Economic Criminalization

(including internal and external security), to undertake much needed reconstruc-

frequently difficult to eliminate because of their function as economic and

Transforming Resource-based ‘Rentier States’

ditionally used for fiscal stabilization and savings.47 According to Philippe Le

In addition to government resource management, private sector activity

up-front provision of sufficient funds for ‘quick impact’ reintegration projects,

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