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The Impact of Violent Conflict on Economic Growth: A Theoretical Framework

Theoretical Framework

Violent conflict has a negative effect on a nation’s economic growth in various ways. First, conflict contributes to distortion of peace within the affected region or community. Ikejiaku (2009), described the lack of social progress especially in most countries in Africa such as Democratic Republic of Congo, South Sudan and Somalia to consistent conflict and insecurity that has stricken it for decades. Africa, though the first home of humankind, is yet the last to be truly inhabitable in the contemporary world as resultant of underdevelopment and poverty-stricken (Serneels & Varpoorten, 2013). Civil war, violent conflict, and border disputes are greatest threats to peace, security, and stability therefore region economic progress.

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Secondly, in fact, at any occurrence of conflict and disputes, stipulated social, political, and economic structures are destroyed in the aftermath. Government and its governing bodies are destroyed as a resultant. In his writing, Collier (1999) argued that international war tends to strengthen the foreign States, for instance, arguably, the United States of America primarily benefited economically and established itself as a World power during the World War II, which was fought at foreign lands, mainly Europe. However, internal conflict and war (civil war and organized violence) have a profound significance to the nation (Schneider, 2006). The destruction brought by warfare; erosion of institutions such as police department, economic chains, governing bodies, schools, business and industries and government bureaucracy, constitutes and manifest in the nations’ economic sector.

Furthermore, economic growth is dependent on the actual capacity of the society to produce goods and services within a gross period. Human and national resources such as capital capability, technological development, as well as adoption, and social and political factors are all determinants of economic growth of a country (Miguel et al., 2010). During a civil war or dispute, human labor force and skills are the most affected where quite a number are displaced, killed or suffer permanent physical injuries and emotional trauma. While school, colleges and learning institutions destroyed rendering the state or region incapable of providing basic requirement of education.

Afghanistan is a conflict-ridden nation with majority of its population in one way or the other affected by war. Violence, as argued by many scholars and reported by World Development Report (2001), is not just one of the causes of poverty, but it is the primary cause of drought, illiteracy, poor infrastructure, a low division of labor and traditional beliefs and structure. Communities that are prey and prone to conflict either political, social or cultural are often trapped in it (Kim & Conceição, 2010). Civil war, ethnic conflict, and organized violence have had a significant implication to both nation and communities trying to uplift themselves from poverty and engaging in more economically productive activities since they tend to act as obstacles (Sidky, 2007).

In the writings by Querubin (2003), he enhanced the effect of the violence on particular factors, which in turn influences the economic development. These factors are deemed crucial inputs for economic growth and they include human capital (skills and labor force), children academic development, subsequent adults’ skills and education levels, and the success of local business organizations (Chirwa & Odhiambo, 2016).

Naturally, estimating the economic impact of war, civil war, or violent dispute is nearly impossible. The very prevalence of conflict provides a challenge in determining the economic growth. Violent conflict can interact with country’s economy in multiple ways including indirect and direct means, both with immediate and long-term impact (Muller & Tobias, 2016). The figure below illustrates the output loss in country’s GDP per capital during a Civil War spanning for four years.

Show the simulated response of GDP to a Civil war for a period of four years 
            Source: Muller & Tobias (2016)

The World Bank (2012) stated that Afghan economy experienced a 9.2 percent GDP growth rate during 2003-2012 (American involvement), but in the period when it was significantly involved in the conflict it recorded nearly zero GDP growth rate (World Bank, 2012). The economic development peaked during 2012/2013 and since then, displayed a progressive stability. The decline in conflict contributed to the trend and subsequent robust agricultural production in the same period (Noorzoy, 2014).

Historical Background of Conflict in Afghanistan

Over the years, Afghanistan has been used as a strategic military position by major superpowers, namely, the United States and Russia to control Middle East, Central Asia and South Asia (Kawasaki et al., 2012). Additionally, frequent and persistent internal ethnic conflict between polarized Afghan people was further worsening owing to different alliances and support to different external power. This frequent violent disputes, has made rebuilding and reconciling the nation which has been conflict-ridden for over three decades difficult and a big challenge considered to be near impossible.

Saur Revolution and Soviet-U.S. Intervention

In 1978, the Saur Revolution led by Hafizullah Amin and the military of the Khalq party, overthrew the government of President Mohammad Daoud Khan and later his family, close friends, and religious leaders were killed (IRACSO, 2010). Following this, and introduction of a state of atheism, land reforms, proposing equality for all gender and communist form of governance by the newly formed government, a group of opposition mainly comprising of Pashtun tribesmen begun plans to overthrow the Marxist-Leninist government.

The government in return requested assistance from the Soviet Union in battling the Mujahedeen resistance. Meanwhile, US saw this as an opportunity to test and oppose the Soviet as part of the Cold War strategy, and they began to provide arms and military training to the Mujahedeen, which resulted in a shift from the initial internal conflict to a power struggle among the superpowers. At the end of the conflict in 1989, an estimate of two million people had died and an addition of 1.5 million disabled. Moreover, two million people were internally displaced, and one-third of country’s population pre-war had taken refuge in the neighboring countries such as Pakistan and Iran. The country experienced no productive activity and all economic factors hindered by the conflict. The image below shows Afghanistan GDP per capita, pre, during, and post conflict. During the conflict, there was no key economic activity-taking place.

Figure 2: Afghanistan GDP per Capita Pre-, During and Post- Conflict
            Source: World Bank (2017)

After 9/11 and US War on Terror

The aftermath of the coordinated attacks in the US on September 11, 2001 (formerly referred as 9/11), US invaded Afghanistan leading to collapse of the Taliban-led government in the same year. Even though the Taliban had been defeated and driven to the southern parts of the nation, its insurgency remained operational killing anyone who corporates with the UN formed government and US. These atrocities have plunged the economy further leading to more dependency on foreign aid and grants. As observed below, before and after US intervention in 2001.

Figure 4: Afghanistan GDP ($ Billion), Population (Million), Gross school enrollment, and CO2 emissions. Pre-, During and Post- Conflict (1960s-2014), 
            Source: World Bank (2017)

According to Word Bank (2017), adult literacy rate was at as low of 23.5 percent with skilled workforce in Afghanistan hard to find, making human resource insufficient in supply, which as mentioned earlier further acted as an obstacle to economic growth. In the same period after the US invention, the Afghan currency struggled to gain value against the dollar and it was only able to start recording gradual rise after 2013, when the US commenced on drastic reduction of its military presence in the country (Chronology: Afghanistan, 2013). This is illustrated in the image below.

Figure 3:  Afghanistan currency fluctuation against dollar (2001-2016) 
            Source: Afghanistan Data (2017)

Analysis

Shadow Economy

Profiteers, businesspeople, drug traffickers, poppy farmers make a profit on the expense of the conflict. Rohwerder (2013) stated that peace could only prevail if these profiteers interest in long-term investment plan are catered for or an alternative to these businesses are in place, otherwise a criminalized war economy will become a criminalized peace economy (Rohwerder, 2013). Taliban are accused of smuggling high-value commodities such as guns, bullets, grenades, armored cars, mine and agricultural products and financial aid to their fighters. Opium, cultivated for production of illegal drugs such as cocaine, is a primary economic factor in Afghanistan conflict-ridden regions to appoint it has recorded a 43% increase in production in the past years (Coyne et al, 2016). Insurgents and Warlords perceives poppy cultivation and trading as the profiting economic activity, while the farmers term it as the sole source of income thus a necessary means of survival. Though the government criminalizes its cultivation, poppy remain the primary source of revenue, including illegal double taxation, mining, and trafficking, in insurgent-controlled areas (Rohwerder, 2013).

As described by Rohwerder (2013), shadow economies run deeply in conflict-ridden areas primarily dealing with gun suppliers and drug traffickers. Large and at times, well-coordinated chain of profiteers control and safeguard these activities. The most vulnerable and affected by shadow economy are women and children who are often trapped by it. In Afghanistan, the shadow economy has resulted in widening the socio-economic gap in the society. Moreover, the state revenue and taxes are limited to un-registered and illegal trading, which in turn reduces the quality and quantity of public provision and amenities by any government (Estrin & Mickiewicz, 2012).

In the writing by Goodhand (2005), he stated that the shadow economy is normally responsible for prolonged conflicts/ war in certain parts of the World. More so in places that are endowed with natural resources such as oil in countries such as Iraq and Afghanistan and diamonds in countries such as Democratic Republic of Congo. It is in the best interest of the profiteers of the shadow economy to ensure the conflict persists or prolonged in order to guarantee continued business, which means more profit. Aslam et al (2014) laments that profits from shadow economy are normally not injected into the national economy since there is no tax remittance under such an economy. Consequently, it is only a few benefits from such a profit economy whilst the nation at large languishes in bad economic conditions.

Landmine and Agricultural activities

In writing, Rashid et al., (2010) described landmines and Explosive Remnants of War (ERW) being the worst legacies the Afghan conflict will be remembered for and remain a threat to the communities up to this moment. The contamination of agricultural and pastoral land, roads, and access to water sources endangers the lives and livelihood (farming and cattle keeping) of many people. According to Rashid et al., (2010), in 2009, more than 40 people every month are either killed or injured by War landmines and explosive remnants related cases, 92 percent of these incidents involve physically abled men with 55 percent below the age of 20 years who are rather at the prime age of economic viability.

Mines in Afghanistan were used indiscriminately by all the parties involved in the War who comprised of the Mujahideen and other American-backed forces who on numerous occasions deployed bomb traps to block or restrain movement of government and Soviet forces. On the other hand, Soviet and the Government (a Soviet-backed) used mines to protect their military base and strategic positions, which were under frequent attack and looting from the rebels. Further, during Taliban ruling, more mines and explosives were deployed in a random manner to curb the opposition. However, lack of historical documentation and mapping where the mines and EPW were laid exacerbated its negative impact, which led to widespread contamination of vital or rather productive agricultural and pastoral lands (Kawasaki et al., 2012). Afghan War led by the US further distorted the issues, as more cluster of munitions and other ERW contaminated lands that were viable and fertile (Rashid et al., 2010).

According to Duttine & Hottentot (2013), they estimated that mines and other explosives contamination have rendered approximately 160 km2 of the agricultural land in Afghanistan unusable. An additional over 6km2 of water source is inaccessible. The total land estimate affected by the mines and other explosives in Afghanistan are 654 km2 affecting directly or indirectly over 2,000 communities in 33 provinces in the country (Afghanistan Data, 2017). This is despite the fact that pastoral activities are essential economic activity in Afghanistan according to UN Environment Programme and offers a vital source of livelihood for the majority of Afghans living in rural regions of the country. According IRACSO (2010), more than 60 percent of the population make livelihood in agricultural oriented activities as illustrate by the figures below.

Figure 4:  GDP proportion of major economic sector of Afghanistan in 2008 
            Source: IRACSO (2010)
            Figure 5: Afghanistan’s major work force proportion 2008
            Source: IRACSO (2010)

The effect of Mines and ERW generally reaches far beyond injuries and death of the innocent local communities, it impedes the return of internally displaced persons and refugees, limit access to social services and other resources that are indispensable for sustainable livelihoods and economic activities (Rashid et al., 2010).

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Foreign Investment (During Conflict)

According to World Bank report (2012), Afghanistan economy is extremely reliant on external funds and aids. Historically, Afghan leaders and rulers have received significant amounts as grants and military aids since Soviet Invasion in the 1970s, becoming highest per capita aid recipients in the world in those periods. Little or no investment from international investors was made in the same period (Aslam et al, 2014). Foreign capital contributes to economic growth and development in the sense that it provides increased productivity capacity of the economy and generates massive employment opportunities (Taylor, 2014, Woolcock, 2015.). The challenges posed by conflict makes investment both by local and foreign investors difficult. According to OECD, most aids flows to a country immediately the conflict ceases (Taylor, 2014). The figure below illustrates the foreign investment during and post- conflict in Afghanistan.

Figure 6: Shows average net foreign investment during and after the war based on data from OECD 
            Source: Muller & Tobias (2016)

Conversely, the effects of war on the economy are depleted at a steady state, with the rate of growth depending majorly on the type of the capital and infrastructure destroyed as predicted by Barro and Sala-I-Martin (2004). The recovery is slowest if the human labor force is killed or displaced permanently than when it is physical capital, which can be easily replenished through grants, foreign investment, and foreign aid. Studies done by some scholars had augmented the Organski and Kugler (1977) theory, with found that, though after both World War I and II, the world economic had plunged to considerably low, this effects had dissipated after 15-20 years when the economies had reverted to pre-war growth rates. Additionally, Cerra and Saxena (2008), indicated that, while the output of any nation or community falls steeply immediately after the war, the economy peaks afterward.

Summarily, the persistent conflict in Afghanistan has acted to the disadvantage of the economic growth of the country. Particularly, because it is unable attract foreign direct investment in the form of capital investments, management expertise, and technology (Hacioglu et al, 2013). This means it is highly unlikely for multinational corporations more so those operating within the oil and gas industry to invest colossal amounts in setting up operations within Afghanistan whilst the existing government forces cannot guarantee the complete safety of their employees when there is a rebel invasion (Ezeoha & Ugwu, 2015). Secondly, it is will be very hard for the country to attract management expertise who can reorganized and strategic position Afghanistan’s major corporations since they will fear for their safety. Consequently, this denies the country ability to attract highly skilled expatriates who could assist in economic growth (Yüce & Zelaya, 2014). Lastly, the constant conflicts within Afghanistan discourage multinational information, communication, and technology companies to set up their operations within the country. This denies the country an opportunity to employ use of top-notch technology to accelerate economic growth through e-commerce and numerous forms of online businesses.

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