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Creating a virtuous circle: reform in post-conflict Africa

Do economists know enough about the mechanics of institution-building in post-conflict states in Africa? Do they take an over-optimistic view of institutional change? In the aftermath of war, is it best to start all over again and import ready-to-go legal systems? Is enough being done to restore protection of property and contract rights?

A report entitled ‘Building institutions in post-conflict African economies’ from the University of Oxford’s Centre for the Study of African Economies examines the challenges of designing sustainable legal and other institutional reforms in post-conflict developing states. Reminding us that these nations share problems and opportunities with other developing countries, it suggests that research on practical policy interventions toward institution-building is not yet well developed.

Assuming that African states are inherently corrupt, some donors in the past encouraged a reduced role for the state. Partly as a result, adequate regulatory capacity has not been put in place to supervise newly liberalised markets and private sector activity. African states have been left with weakened institutional capacity. Their lack of an effective legal framework helps perpetuate poverty.

Institutions are altered by conflict, depending on the scale, duration and type of war. At one extreme – as seen in Somalia – formal political, social and economic institutions may be completely overwhelmed. Elsewhere, as in Angola and Mozambique, central state structures remain intact. Peace is often complicated by the considerable expense of implementing retributive justice, resettling the displaced and the demobilisation of combatants. The ongoing prevalence of arms entrenches criminality.

Economists often take an optimistic view on institutional change and naively view organisations as flexible and able to respond rapidly to changed incentives. In fact, institutional change is path-dependent and incremental, and is circumscribed by a reluctance within existing organisations to alter long-entrenched practices.

Among problems identified by the report are:

the inability of Africa’s commercial banks to rely on the judicial system to enforce contracts and recover bad debts
the need for screening by reputation and ethnicity to overcome moral hazards in the absence of robust contract enforcement mechanisms
payment of protection money to intermediaries where violence or the threat of it is used to enforce property and contract rights
domination of organisations by elites who have invested capital into being able to operate in a weak institutional environment
the futility of reforms to promote market activity in a hostile political context where human rights are not observed.

The report advises that in the aftermath of conflict:

Utopian policy prescriptions for institutional reform, so prevalent in the literature, must recognise practical constraints in implementation.
Well-functioning contract law and property rights do the most to promote complex forms of exchange similar to those in developed economies.
If foreign laws are imported, they must be adapted using local expertise and take into account local customary law and informal constraints.
A minimal set of enforceable rules does more to turn things around than expensive new legal systems incapable of being monitored even in the medium term.
Facilitation of alternative dispute mechanisms, such as small claims courts and arbitration, can do much to increase transactions and boost the operation of markets.
Substantial donor assistance is required to achieve effective regulation, enhance economic growth and set up a virtuous circle encouraging deeper reforms.

Source(s):
‘Building institutions in post-conflict African economies’, Discussion Paper No. 2002/124, United Nations University / World Institute for Development Economics Research (UNU/WIDER), by Janine Aron, 2002 Full document.
‘Building Institutions in Post-Conflict African Economies’, Journal of International Development, by J. Aron, (forthcoming Spring 2003)

Funded by: DFID, Swedish International Development Agency (SIDA) and Directorate General for Development Cooperation

id21 Research Highlight: 22 May 2003

Further Information:
Janine Aron
Centre for the Study of African Economies
Department of Economics
University of Oxford
Manor Road Building
Oxford OX1 3UQ
UK

Tel: +44 (0)1865 271955
Fax: +44 (0)1865 271094
Contact the contributor: janine.aron@economics.ox.ac.uk

Centre for the Study of African Economies (CSAE), UK

Tony Addison
Project on Underdevelopment, Transition, and
Reconstruction in Sub-Saharan Africa
UNU/WIDER
Katajanokanlaituri 6 B
00160 Helsinki
Finland

World Institute for Development Economics Research (WIDER)

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