Economic consequences

Macroeconomic instability, debt burden, and declining economic growth

Civil unrest, in its extreme form of civil war, has several severe direct and indirect economic consequences²⁵⁴. Direct effects include, high military expenditure by both the government and rebel groups, which crowds out development spending; destruction of human, social and physical capital (infrastructure); interruption of economic activities; losses of stocks and related income flows; weakening of institutions; among others. In addition, during and post the conflicts, there are also large amounts resources directed to relief and eventual rehabilitation efforts by the government and the donor community.

All these have adverse impact on long-term economic growth and poverty reduction. Finally, any form of civil unrest including civil war in one country can have severe adverse effects on the economies of neighbouring countries, affecting both investment and trade. In SADC, the cases of the DRC and Mozambique civil wars are clear examples in this regard.

Countries in civil conflict and/or serious socioeconomic tensions are often characterized by severe macroeconomic instability, with high inflation, active parallel exchange markets, with large spreads between the official and parallel exchange rates. In Zimbabwe, during the economic recession decade, 2000-2008, annual inflation surged to 585 per cent in December 2005, before reaching 231 million per cent by end July 2008 and an unpublished 3.2 quintillion per cent by December 2008. This led to rejection of the Zimbabwe dollar as a medium of exchange by the population, and the subsequent official dollarization/multi-currency policy of the economy in 2009.

The acceleration in inflation eroded the value of the Zimbabwe dollar and posed severe transactional challenges, necessitating the re-basing or re-denomination of the local currency, by cumulatively removing 25 zeros in 2006, 2008 and 2009. During the same decade, a vibrant parallel market for foreign exchange developed in the country, on the backdrop of foreign currency shortages. In addition to the official exchange rate which was highly volatile, there were several other exchange rates, such as the United Nations rate, parallel market rate, and different exporters’ rates, among others.

Severe macroeconomic instability, particularly high inflation associated with civil unrest and war, erodes confidence in the formal financial sector, leading to a decline in formal savings, whilst large volumes of financial resources circulate outside the formal banking sector. Government accumulation of arrears of payments to State enterprises and the private sector compound the problem of non-performing loans (NPLs) of the commercial banks. Even in situations where private banks dominate, with high operational risks, price instability and political uncertainty, banks lend very cautiously and for short-term and high interest rate spreads.

The rise in public expenditure to support a military build-up, under civil war situations, or similarly, the dwindling government resources under economic decline and high inflation leads to increased resorting to domestic bank and non-bank financing. In the case of Zimbabwe, the central bank resorted to money printing for quasi-fiscal activities, further fuelling inflation. Resorting to domestic bank and non-bank financing raises public debt and the accumulation, by the Government, of arrears of payments to domestic suppliers and foreign and domestic creditors.

The inflationary pressures together with falling export revenues and the diminished and uncertain flows of donor assistance put unrelenting pressure on the exchange rates. In addition, under resource constraints, governments

254 Collier (1999), using global data, estimated that during civil wars, GDP per capita declined at an annual rate of 2.2 per cent relative to its counterfactual (what it might have been without the war).

tend to cut budget allocations to social sectors and economic services. The social and economic infrastructures suffer from neglect as well as destruction by war. Overall, civil unrest and war reduce growth of the economy.

With long and protracted civil conflicts and wars, the external debt burden often increases, culminating in the loss of access to external official and private borrowing. As the conflict and/or civil unrest proceeds and debt-servicing capacity deteriorates, the country becomes delinquent in servicing the external debt, even to the Bretton Woods institutions, as was the case with Sudan, DRC, Liberia, and Zimbabwe, among others. This would make the country ineligible for further borrowing, including for post-war/unrest reconstruction, until the outstanding arrears are cleared. In addition, it constrains access to official development grants, concessional loans and technical assistance in some cases.

Population displacement and humanitarian assistance crowd out conventional development

The expansion of activities of the United Nations High Commission for Refugees (UNHCR) reflects the increasing need for humanitarian assistance stemming from violent conflicts. The number of persons of concern (POCs) to UNHCR, mostly refugees from wars, grew from 2.8 million in 1975 to nearly 15 million by the end of the 1980s and to 27.4 million in 1995. Spending by UNHCR rose from US$76 million in 1975 to US$580 in 1985 and US$801 million in 2000. About 35 per cent of year 2000 expenditure was spent on SSA countries²⁵⁵. Mchugh (2001), noted that US$ 1 billion was spent on emergency relief in Rwanda between April 1994 and August 1995 and the $500 million committed by the USA to help refugees after the genocide was more than double the entire amount of development aid that it had ever given to Rwanda in the three decades since its independence. Stremlau (1998) claimed that two years of emergency work in Rwanda cost the USA

$750 million, roughly equal to its entire annual development aid to SSA.

In addition, demining activities have been costly in countries such as Angola and Mozambique, and the presence of mines in these countries, continues to rob them of access to prime agricultural land. After the civil war, the Government of Angola spent $187 million settling internally displaced persons (IDPs) between 4 April, 2002, and 2004, after which the World Bank gave $33 million to continue the settling process. The United Nations Office for the Coordination of Humanitarian Affairs (OCHA) estimated that fighting in 2002 displaced 98 000 people between January 1 and February 28 alone.

IDPs comprised 75 per cent of all landmine victims. The IDPs, unacquainted with their surroundings, frequently and predominantly fell victim to these weapons. Militant forces laid approximately 15 million landmines by 2002.²⁵⁶ The HALO Trust began demining Angola in 1994, and had destroyed 30 000 landmines by July 2007.

About 1 100 Angolans and seven foreign workers are employed by the HALO Trust in Angola, with de-mining operations expected to finish in 2014.²⁵⁷ In situations of civil wars or even severe socioeconomic and political tensions resulting in economic recession, as in the case of Zimbabwe, a huge economic cost is incurred in the form of brain drain/or skills loss to perceived greener pastures.

External trade and commerce

Effective foreign trade depends on predictable, institutional trade arrangements, yet civil unrest, particularly civil war, weakens and/or destroys such institutions, disrupting trade flows, commerce and competitiveness, and promoting of smuggling of goods and currencies across borders. Civil war in particular, increases the risk and transactions cost factors in external trade, in relation to delivery, quality assurance, transportation, and financing. When these costs and risks rise, exporters and importers seek alternative reliable and competitive markets. In some instances, neighbouring countries also respond to civil unrest by tightening customs and immigration regulations with the country at war or experiencing unrest, undermining trade agreements and regional integration efforts.

255 UNHCR, 2000; 2001.

256 O. Furley and R. May, 2006.

257 B. Scott, 1 November, 2009.

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While some national institutions such as those for the budget, central banking, revenue management, and even public administration, can be rebuilt quickly after a civil war with strong government commitment, trade institutions on the other hand, will take time to develop. This is because they have to take account of the perceptions of many different agents and institutions inside and outside the country. Thus, external trade, particularly exports, recover very slowly in post-war/civil strife situations.

For example, the protracted civil war in Uganda contributed to the demise of the East African Community (EAC) and the conflicts in Burundi, Rwanda and the DRC rendered the Commission Economic des Pays du Grand Lacs (CEPGL) dormant and impaired the performance of a jointly owned power company (SENELEC), an important source of electric power to the three countries. The bulk of the trade transacted between the countries was taking place underground and was unrecorded.

The control of export commodities is critical for funding a civil war in Africa. Government and rebel groups often muscle in on the high value natural export commodities such as minerals, particularly, gold and diamonds, and take control of marketing. The interventions of the government and rebels bring down producer prices, marginalizing experienced private operators and disrupting normal trade patterns. The result is disinvestments by the private sector and ultimately, a decline in exportation.

For landlocked countries that depend on the country at war and/or in civil strife, for access to the sea-ports, the economic impact can be very severe. These countries must rely on alternative outlets for their goods, and these may be very expensive. For example, the foreign trade of Zambia and Malawi suffered immensely from the crisis related to the Zimbabwe war of liberation in the 1970s, as the rail line passing through that country to the seaport of Beira in Mozambique, was insecure. In an effort to sustain its then booming copper industry, Zambia had to invest in a new railway line through Tanzania, the Tanzania Zambia Railway (TAZARA/Tanzam/Uhuru Railway²⁵⁸).

Petroleum supplies to the Central Africa Republic (CAR) were disrupted seriously by the war in the DRC, aggravating the social crisis and the outbreak of civil war in DRC at the end of 2002, against a backdrop of the Government’s loss of revenues from petroleum. In 1982, Zimbabwe directly intervened in the Mozambican Civil War in order to secure its transport routes, stop cross-border RENAMO raids and help its old ally, FRELIMO.

Zimbabwe’s help was crucial to the defence of the corridors.

Later Zimbabwe became engaged further, carrying out several joint operations with FRELIMO against RENAMO strongholds.²⁵⁹ In order to keep a minimum level of infrastructure working, three heavily guarded and mined corridors were established consisting of roads, railways and power lines: the Beira, the Tete and the Limpopo Corridors.

Environment and natural resources

Unruly behaviour during civil unrest including civil war can cause severe environmental degradation to the land, forests, water resources, livestock, and wildlife that support the agricultural economy and tourism. With weakened public institutions, including a demoralized civil service, environmental regulations are hardly enforced. In some instances, the environment becomes the bank of last resort as the population desperately searches for food and income through the exploitation of protected forests and wildlife.

In addition, the movement of undisciplined armies, paramilitaries, refugees and displaced people, leads to deforestation, the destruction of wildlife and the stock of domestic animals, among others. This can have adverse consequences for long-term agricultural yields, food security and poverty reduction. Furthermore, civil strife and civil war have a directly negative impact on tourism, from a security and other perspectives.

258 The TAZARA Railway, also called the Uhuru Railway or the Tanzam Railway, links the Tanzanian port of Dar es Salaam with the town of Kapiri Mposhi in Zambia’s Central Province. The railway is 1 860 km in length and was built as a turnkey project financed and executed by China. Construction began in 1970 and was completed in 1975, two years ahead of schedule. Construction costs were about US$ 500 million, making it the largest single foreign-aid project undertaken by China at the time.

259 -Working Paper 3”, “Defence Digest, Available from Ccrweb.ccr.uct.ac.za, retrieved 28 April, 2014.

4.2.2 Social consequences

Destruction of social capital and sexual violence

As noted above, civil unrest and war destroy human and physical capital. In addition, it also destroys social capital²⁶⁰ including the trust between individuals or groups of people, as well as undermining the legitimacy of social institutions²⁶¹. Social capital is a critical ingredient for economic development and, while it is easy to destroy, it takes time to rebuild and there are no obvious actions that can be taken to build social capital²⁶². By engendering impunity and thus condoning serious crimes (murder, banditry, and rape), civil war corrupts the fabric of the society, with the overall effect of lowering ethical standards and creating an environment that breeds crime and corruption.

Social capital is also an important element of coping with poverty in poor countries, such that, its reduction increases the impact of poverty, as the poor can no longer expect assistance from their weakened social networks²⁶³. The case of rape as a war tool in the DRC is illustrated in box 4.7.

Box 4.7

Sexual violence against women in the DRC Civil War

Rape has been used as a weapon of war in both the First Congo War (1996-1997) and Second Congo War (1998-2003). Used as a tactic of war, the daily sexual violence against women and children by armed groups created a climate of fear and a reputation for the DRC as the world’s “worst place to be a woman or a child”.²⁶⁴ One statistic suggests that over 200 000 women may have been victimized since mid-2000, while another notes that in some areas, as many as 40 women are raped every day²⁶⁵. Despite the massive scale of violence against women committed, the level of assistance that victims can expect in the form of medical care or post-traumatic counselling service is minimal to the point of non-existence.²⁶⁶ Most of the rape shelters in the DRC are operated by foreign or international NGOs, but these remain inadequate to meet demand.²⁶⁷

In addition to psychological and physical trauma, rape victims bear socioeconomic costs. For example, the families of raped women are only paid a compensation price of two goats, if at all, as compared to the typical dowry price of 20 goats. In addition, raped women are often abandoned by their husbands, while raped girls have difficulty marrying, within the context of the DRC’s patriarchal society. This inevitably affects the rape victims’ economic well-being.

Mass abduction and child soldiers

During the Mozambican Civil War, for example, it is reported that RENAMO conducted mass abduction, especially of children, in order to use them as child soldiers, among other uses. It is estimated that one third of RENAMO forces were child soldiers.²⁶⁸ Abducted people also had to serve RENAMO in administrative or public service functions in the remote areas it controlled. Another way of using civilians for military purposes

260 According to the World Bank, 2011 (web.worldbank.org); ‘social capital refers to the institutions, relationships, and norms that shape the quality and quantity of a society’s social interactions. Increasing evidence shows that social cohesion is critical for societies to prosper economically and for development to be sustainable. Social capital is not just the sum of the institutions which underpin a society – it is the glue that holds them together’.

261 World Bank, 2000.

262 Grootaert, Christiaan and Bastelaer, 2002; P. Collier 2002; N. Colletta and M. Cullen, 2002.

263 Zimbabwe Council of Churches (ZCC), 2011.

264 Human Rights Watch, 2009.

265 L. A Seymour, 2010.

266 L. Hartill, 2010.

267 M. Bosmans, 2010.

268 Available from http://newhistories.group.shef.ac.uk/wordpress/wordpress/?p=2867.

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was the “Gandira”, in which rural populations were forced to fulfil such tasks as producing food for RENAMO, transporting goods and ammunition, and supplying females to serve as sex slaves.

Gandira caused widespread starvation among the rural population due to the little time left to produce food for themselves. RENAMO crimes gained worldwide public attention when its soldiers butchered 424 civilians, including the patients in a hospital, with guns and machetes, during a raid on the rural town of Homoine.²⁶⁹ Human Rights Watch estimates that in Angola, UNITA and the Government employed more than 6 000 and 3 000 child soldiers, respectively. Additionally, human rights analysts found that between 5 000 and 8 000 underage girls were married to UNITA militants. Some girls were ordered to go and look for food to provide for the troops. After victories, UNITA commanders would be rewarded with women, who were often then sexually abused.²⁷⁰

Weakening of social service delivery

The combination of civil unrest, war and economic decline and accompanying social and economic disintegration undermine the provision of social services, such as health, education, water and sanitation, and social protection. For example, irregular immunizations of children creates an environment for the rapid spread of communicable diseases due to displacement of population, and disruption of food supply, which increases malnutrition. With the disruption of educational programmes, the normal intellectual development of school age children is affected and there is a fall in educational achievement, with adverse implications for long-term socioeconomic development.

This could create pools of idle, semi-illiterate and frustrated adolescents that can be attracted or forced into war or criminal activities. In SADC, these social service delivery disruptions were most experienced during the civil wars in Mozambique, DRC, and Angola, with Zimbabwe experiencing some of these adverse impacts during the recession of 2000-2008.

Often in these situations, alternative institutions develop as communities attempt to take over the provision of public services. In DRC, for example, Government provision of social services has never been significant but religious organizations and community-based NGOs have provided such services during periods of peace and war. The United Nations estimated in 2003 that 80 per cent of Angolans lacked access to basic medical care, 60 per cent lacked access to safe water, and 30 per cent of Angolan children would die before the age of five, with an overall national life expectancy of less than 40 years of age.²⁷¹

War crimes and crimes against humanity

Gersony (1988) described how RENAMO normally employed the following tactics in its raids:

“……. In some cases refugees perceived that the attacking force had divided into three detachments: one conducts the military attack; another enters houses and removes valuables, mainly clothing, radios, food, pots and other possessions; a third moves through the looted houses with pieces of burning thatch setting fire to the houses in the village. There were several reports that schools and health clinics are typical targets for destruction. The destruction of the village as a viable entity appears to be the main objective of such attacks. This type of attack causes several types of civilian casualties……… Eyewitness accounts indicate that when civilians are killed in these indiscriminate attacks, whether against defended or undefended villages, children, often together with mothers and elderly people, are also killed.”

269 “MHN: Homoine, 1987”, available from Mozambiquehistory.net.

270 Human Rights Watch, 2008.

271 L. Polgreen, 2003.

Despite the massive scale and organized manner in which war crimes and crimes against humanity had been committed during the Mozambican civil war, so far not one RENAMO or FRELIMO commander has appeared before a war crimes tribunal of any sort. This is due to the unconditional general amnesty law for the period from 1976-1992 passed by Parliament in 1992.²⁷² Instead of receiving justice, victims were urged to forget.²⁷³ Population displacement and the refugee problem

With the violence, destruction of resources, displacement of the population, the brain drain and other

With the violence, destruction of resources, displacement of the population, the brain drain and other