Natural Resources: Activities

The literature on natural resources and peacebuilding presents little consensus for a common framework for outlining key activities related to natural resources and peacebuilding, the relationships between them, and related strategies to address natural resource related conflicts. While some of the following tools are drawn from the literature on natural resource governance, strategies identified here go further. In the former, solutions sought are often technical. As noted by Borel, McCandless and Abu-Nimer, such approaches may be valid in the short term, but they can complicate conflict if they are "imposed unilaterally or without wide consensus. Shared dependence and interdependence among stakeholders on natural resources and the environment in conflict situations invariably emerge as valuable dimensions in which to advance processes of conflict transformation and peacebuilding in their needing a requirement for basic cooperation."1

Peace agreements

Serving an essential role in ending or abating violent conflict, peace agreements are legal contracts between involved parties to bring about an end to hostilities. Generally, they address three primary issues: procedure, substance and organization. In cases where natural resources may have played a role in conflict, strategies for natural resource management may be included in the substantive components of peace agreements.2 Their design is of particular importance considering the fact that negotiated settlements in natural resource wars are less likely to produce a durable peace than an outright military victory by one side.3

The inclusion of natural resource ownership and management issues in peace agreements is often warranted and indeed necessary. 4 Even the most basic peace agreement is capable of ceasing violence temporarily, but if that agreement fails to address the fundamental drivers of the conflict adequately, it can aggravate grievances and intensify, rather than attenuate, fighting.5 In a report for the International Peace Academy, Karen Ballentine writes, "Preliminary studies on peace implementation have identified combatants' continued access to lucrative resources and other sources of self-financing as a major factor of failed processes in the 1990s."6 Furthermore, failing to arrive at an agreement early in the recovery can be disastrous for peace prospects.7

Economic issues such as the ownership and management of natural resources are not often included in agreements despite their indisputable relevance to post-conflict society. In formulating the substantive provisions of peace agreements, policy advisors suggest they should center on three key issues: (1) human security, both for individuals and groups; (2) creating institutions appropriate to a changing state; and, pertinent to this discussion, (3) the root causes of inequitable distribution of wealth.8 Karen Ballentine recommends that third parties (e.g., IFI officials) can assist in linking the agreement with natural resources and post-conflict economic recovery strategies.9 Revenue sharing schemes may also be included in peace agreements, but in practice rarely are. One explanation for this involves garnering the participation of warring parties who may be wary of involvement that may avert their economic gains or leverage. In these cases, third-party mediators are advised by scholars to outline plans for resource-sharing as part of a broader resource management plan. This may not only provide them with ancillary benefits, but also may act as a platform for the public and international community to hold governments accountable.10 Finally, it is critical that peace agreements clearly spell out strategies for implementation.11

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Transforming war economies

The transformation of war economies represents a cornerstone of economic recovery and peacebuilding. As natural resources are a key component of many war economies, linking them in a meaningful way to legitimate alternative livelihoods as part of a broader economic recovery strategy may offer promising prospects for peace. With a carefully planned and government-led natural resource management strategy included within a peace agreement, and the subsequent support for developing the capacity to implement it, shadow economies can transform and formalize.12

Go to Economic Recovery: Natural Resources - Definitions and Conceptual Issues: War Economy

With the wartime breakdown of the formal economy and traditional livelihood options, shadow economies become important sources of civilian incomes. "These coping economies can encompass economic activities centered on lootable resources such as coca and poppy in Colombia and Afghanistan, alluvial diamonds in Sierra Leone, coltan in the DRC, as well as smuggling and contraband in the Balkans."13 Understanding the ways war economies shape political and economic relationships in post-conflict states is critical to making sure such forces do not undermine peacebuilding and statebuilding efforts.14 Moreover, economic recovery planners cannot assume that all war economies are inherently "bad," as may be the tendency - particularly if the "greed" framework is assumed. Peacebuilding efforts need to "distinguish between those actors who engage in armed conflict for profit and power, and those who are forced to participate in war economies to sustain their civilian livelihoods and who may suffer as much from indiscriminate predation as from ill-conceived efforts to end it."15 Distinguishing economic activities may help identifying specific actors, their incentives, and their vulnerabilities.16 Identifying the ways in which rents are used to finance violence or even undermine conditions for peace in post-conflict settings, and endeavoring to stop these processes, is vital to peacebuilding efforts. Of course, alternative livelihoods for those involved is likely to be a factor towards ensuring that peace is not "spoiled."

Go to Economic Recovery: Private Sector

Others argue that more transformative approaches are needed to address the complex set of causal issues often at play in natural resource-based conflicts. Borel, McCandless and Abu-Nimer point to the need to build trust and confidence between parties, the use of consensual and process-based approaches that aim to recognize the interdependence of parties involved, that seek to (re)establish local stewardship mechanisms, and that highlight and incorporate the role of institutions.17Attention should also be given to addressing the laws, norms and regulatory frameworks governing natural resources, and in particular how these are interpreted and understood at local levels. There is often much confusion in post-conflict settings around concessionary agreements, taxation systems, land and resource ownership and community benefit laws and systems. These issues are often deeply intertwined with livelihood issues at local levels, reinforcing the need to get beyond the preoccupation with sanctions, towards issues that affect communities that directly sustain the peace.18

As highlighted by the UN Peacebuilding Support Office, high value natural resources can be an asset in the economic recovery if properly managed. "Land and water are critical assets, while high-value resources hold out the prospect of economic development, employment and budget revenues. Indeed, not only can failure to respond to the environmental and natural resource needs of a population or to management of valuable resources seriously complicate the task of building sustainable peace, but ignoring the environment as a peacebuilding tool misses a serious opportunity for reconstruction and reconciliation in post-conflict situations."19

Go to Economic Recovery: Natural Resources and Peacebuilding - Actors and Activities

Of particular promise is the idea of building domestic downstream (i.e., "forward") linkages in the value chain of natural resources. Such a strategy involves building local industrial capacity into the sophisticated value-adding processes necessary to make finished products. Such a strategy has a number of advantages. First, it leverages existing natural resource wealth into more sustainable, knowledge-intensive industry that is more likely to promote long-run growth. Second, such knowledge-intensive industry tends to be more immune to looting, creating an "uncontested sector" that raises the opportunity costs of further conflict, making it less likely.20 Third, by gathering a larger part of the value chain within national borders, it creates employment opportunities that did not exist before domestically, thereby raising wages and reducing the relative incentive to rebel.21 Fourth, in countries with diffuse natural resources, creating domestic downstream buyers who are willing to pay as much or more for resources that would otherwise be sold on international markets is a way of disciplining warlords. That is, if the net flow of money is going from the buyer to the warlord, the resource has been converted from a dangerous "bottom-up" resource into a more tractable "top-down" resource.22 Finally, this strategy begins to create a web of economic linkages in the country (as opposed to "pipelines" of value going directly to export). These economic linkages may (1) build "bridging" social capital between ethnic groups,23 (2) help to spur economic innovation to fuel further growth,24 and (3) reduce monopolistic/ monopsonistic trade patterns between urban and rural areas.25 Such a strategy has been implemented in Botswana, where the country has built upon its existing diamond exports to capture the added value of gemstone faceting.26

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Government natural resource revenue mobilization

Post-conflict countries with abundant natural resources and competing demands on public funds will want to ensure they can raise revenues from their natural wealth. Often these revenues are an important source of income for the state when systems are broken down in a post conflict context. As explained by Revenue Watch Institute, for example, "Oil, gas and mining companies make payments directly to governments in the form of royalties, bonus payments and taxes, providing the state with an autonomous flow of funds that is independent of its citizens."27 And yet, if natural resource revenue is not mobilized and collected through transparent and legal mechanisms, this can adversely affect economic recovery and peacebuilding, in particular by undermining nascent efforts to restore state authority.

Go to Economic Recovery: Public Finance

The United Nations Development Programme (UNDP) report on post-conflict economic recovery declares, "Restoring fiscal capacity means strengthening local revenue mobilization capacity, and controlling corruption and rent seeking, especially in states with abundant natural resources."28 As state capacity strengthening is a priority to generate revenue needed for growth, transparency emerges as a critical platform to discourage rent seeking and encourage responsible resource stewardship.29

Go to Economic Recovery: Natural Resources and Peacebuilding - Actors and Activities: Natural Resource Management and Governance

Go to Economic Recovery: Natural Resources and Peacebuilding - Actors and Activities: Capacity Development

In another UNDP report, John Ohiorhenuan and Chetan Kumar argue that governments must institute strict controls over the use of natural resources and the resulting revenues. "Rigorous oversight of the management of public finances and national resources and the establishment of robust systems of public control and oversight of the economy are necessary prerequisites for post-conflict economic recovery. These help to reduce the risk of imprudent or corrupt decisions...Strong public control of revenues from natural resources is particularly critical especially where there is significant dependence on them. Some have argued that the most effective public control in these situations is to generate broad citizen participation in the management of these resources."30

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Revenue sharing agreements and community benefits

Revenue sharing agreements and community benefits play a key role in peacebuilding for a number of reasons, often related to inequitable distribution of wealth. At the heart of the problem quite often is state-sponsored behavior of entrenched corruption and illegitimate practices in appropriating taxes and royalties from extractive industry corporations without compensating local communities or engaging them as primary stakeholders in participative decision-making.31 The equitable distribution of gains from resource rents to local populations serves good governance, building trust between populations, and ultimately peacebuilding.

Go to Economic Recovery: Natural Resources and Peacebuilding - The Natural Resource Curse

Communities isolated by geography and communication may lack representation in the political process. 32 Despite traditional, resource-dependent occupations (artisanal miners, farmers, or fishermen), they may lack resource rights.33 This combination of factors can increase the risk of conflict.34 Natural resource management strategies that benefit local communities can minimize tensions and reduce disparities between groups. Some research indicates that those communities able to retain private resource rights enjoy substantially greater political leverage and become better negotiators for their own fair financial remuneration from foreign investors and their own government. Indications suggest that this distinction will grow in importance with the evolution of resource markets (e.g. carbon trading) when communities with intact private resource rights are better equipped to guard against exploitation and ensure not only the protection of their natural resources and livelihoods, but also faces improved prospects for security.35

Particular strategies linked to revenue sharing agreements and community benefits include: distribution plans, direct distribution, decentralization, localization of supply chains and staff, public investment

Distribution plans

One constant theme throughout the natural resource and peacebuilding literature is the need for distributional equity in mineral rent allocation, both "vertically" between socioeconomic classes and dispersed horizontally throughout the country.36 The benefits this approach brings are twofold. It can compensate for difficulties in other sectors (e.g. manufacturing) that typically drive economic growth. It is also a valuable source of civic employment for laid-off workers in those sectors, as well as encourages the adoption of broader pro-poor policies. 37Distribution plans are advocated as a way of reducing inequalities. These plans are beneficial in the following ways: they help to ensure the equitable distribution of government rents; they minimize opportunities for the government to engage in corrupt, inefficient or self-serving behavior by reducing access to rents; they help mitigate price volatility; and they help citizens procure a direct stake in a more accountable national management of oil revenues, through which they become a potent force for negotiating conditions for social community benefits.38

Direct distribution

One of the newest trends in natural resource management involves bypassing the state to collect revenues directly.39 Philippe Le Billon argues that this empowers local populations by prioritizing their needs first and encourages revenue collection through efficient taxation systems.40 However the risks with direct distribution are that if tax systems cannot be put in place, the system could circumvent the governance reforms of well-intentioned but poorly equipped states.41

Go to Economic Recovery: Natural Resources and Peacebuilding - Actors and Activities: Government Natural Resource Revenue Mobilization


Many argue that decentralization offers greater participation and a continuum of positive effects on the use of natural resource revenues for community support. According to the Institute of Development Studies, "Decentralization offers good possibilities for enhancing environment and poverty linkages." It is also heralded as a conduit for placing the environment firmly on the PRSP policy agenda, as well as tying it to programs addressing poverty priorities.42 The process is lauded as a boon to civic engagement in political processes and more broadly in local and national development efforts, such as the PRSP.43

Localization of Supply Chains and Staff

Governments may offer incentives to mining companies to hire local workers and to support local economies through the procurement of local supply contracts. 44 Other options include restricting migratory flows of workers into the extractive region, encourage local development investments, encourage NGOs to be mediators between companies and local communities and promote transparency for mining revenues.45 Moreover, weak post-conflict governments may also benefit from revenue sharing arrangements when community corporate monitoring services are instrumental to providing the government with tax or royalty revenue. Giving communities a stake in the resources exploited by private sector operations - for instance, a share of derivative royalties extending into the future - can incentivize local citizens to monitor compliance for the state. This model has worked well in forest management in conflict prone states of India.46

Public investment

Many argue that natural resource revenues for the government should be used for public investment. This notion is expanded in greater detail in other sections both the public finance and private sector chapters.

Go to Economic Recovery: Public Finance

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Land Rights Restitution, Redistribution and Readjustment

Peace agreements may hinge on the ability of those whose livelihoods were in upheaval during the war to reestablish themselves, on the redistribution of inequitably distributed livelihood resources, and on ways to intensify land uses with minimal disruption to the social fabric that undergirds livelihoods. It is often asserted that official land/property rights are legal prerequisites for economic growth and sustainable peace. In fact, the issue of land and property rights for local communities, particularly among ethnic minorities, is a recurring issue and one that offers an important check to power imbalances.47

Land and property rights are meant to performs several functions: (1) promote greater investment and hence higher long-term capital yields; (2) improve or enable the transferability of land so that parcels can go to the highest and best use; (3) increase access to credit, as owners in information-imperfect markets can put property up as collateral for loans; and (4) bolster the local land/property tax base, providing more public goods to spur productivity and be capitalized in property values.48 Dunn, however, points out that in any given situation, the benefits of instituting a private property system have to be weighed against the benefits already conveyed by customary (often communal) land tenure systems, which may convey many of the above-mentioned benefits to varying extents and for various groups.49 The debate over securing land tenure via titling and property rights enforcement is far from settled. Especially in Africa, where very little land is registered private property, the interface between customary and official property rights systems is a critical one.50 The issue comes to a head especially during conflict-driven urbanization, as property transferability is often required for land use transitions. In general, helping to reinforce traditional rights in the post-conflict property law framework can help to secure property and put an end to violence, as long as the rights are well-enforced.51


Internally displaced persons and refugees may return home only to find their homes, lands and property occupied by others - sometimes even those who had persecuted and exiled them in the first place. In these cases, strong institutional support for land and property restitution and established mechanisms for resolving related disputes may help to build a foundation for rural recovery.52


Post-conflict land management may involve redressing longstanding horizontal inequalities in land via redistribution. Land redistribution may also be justified on the grounds of (a) poverty alleviation and (b) more efficient management. These are not necessarily always harmonious goals, as the first suggests redistribution to the poorest, whereas the second suggests redistribution to middle-income farmers.53 In cases in which a socioeconomic elite has a disproportionate share of the landed property, the occurrence of violence between groups may be reduced in the context of strong government support for redistributive policies, and where civil society groups (NGOs) help claimants to navigate the system and report recriminations.54


Post-conflict countries are unusually subject to competing land use disputes - whether because conflict has caused large population influxes to dense urban areas, introduced displaced populations in previously less-densely settled areas, or induced governments to exploit natural resources (and the land they reside on) more intensively. In this context, it may be helpful to have a tool that can help governments to accommodate increasing claims on the land while keeping social upheaval at a minimum. Land readjustment is a promising strategy for developing and upgrading land already occupied in developing countries - often facilitating the transition from rural to urban uses. The local government expropriates the parcel it wishes to develop after mapping out the previous lot boundaries and valuing each of the properties. It then makes a new plan for the area whereby a certain percentage of the land-often 15% by convention-will be reserved for public improvements (e.g., roads, electric and sewerage infrastructure, parks, etc.). The remainder is divided amongst the new private interests seeking to invest (perhaps an extractive corporation in this case) and the prior residents such that the value of the newly apportioned lots is equal to or greater than the previous value. The amount of land returned may be determined by a real or value calculations.55

Allowing the land to densify means that multiple competing land uses may be accommodated relatively easily. The advantages of land readjustment include: (1) the ability to retain the original community members in roughly the same location and in close proximity to one another (so that social networks and capital remain intact); (2) allowing the market to decide how to use the property and to directly fund the development; and (3) allowing the government to pay upfront without recourse to credit. This last point may be crucial when the fiscal system may be weak or not publically trusted, lowering the prospects of "clawing back" public expenditures through property or land taxation; when the local government has other urgent priorities for its account reserves; or when the local government does not have good access to capital markets and cannot float bonds.56

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Natural resource management and good governance

Some donors cite economic policy and governance as the two deal-makers or breakers in distinguishing whether natural resource wealth leads to prosperity and social development or to endemic corruption and violence.57 Though there is no single prescription for natural resource management, it is important to create an enabling environment and frameworks for action. These strategies ideally would aim to find a balance between resource usage and conservation.58 As echoed throughout this section, strategies for natural resources should be locally owned and managed by those with a direct stake in the resources through direct engagement.59

Many agree that natural resources should be considered a governance issue. The UN Expert Group on Natural Resources and Conflict in Africa asserts that this should be the case at all levels - local, national, regional, continental and international - and specifically targets political, economic and corporate governance. Political governance should be participatory, transparent and accountable to the public, while economic governance should be integrated into development strategies and public finance activities, including revenue mobilization and expenditure management. Similarly, corporate governance should follow the tenets of good governance and include government regulatory structures and corporate social responsibility (CSR) guidelines. 60

One of the major ways that actors are contributing to post-conflict environmental and natural resource management during economic recovery is through the promotion of good governance - in particular, transparency and accountability. The IFIs and NGO "watchdogs" are taking bolder steps to tackle political and budgetary transparency and corruption issues.61 In fact, many international organizations are adopting transparency initiatives within their own management and in the programs they administer. Following the lead of the World Bank and IMF, the Asian Development Bank and African Development Bank have issued similar edicts for their policies, with special emphasis in their supervision of extractive industries. One body, the International Accounting Standards Board is reported to be considering greater stringency in reporting standards for these industries, but many circles question the validity of their commitment to governance reform.62

Go to Economic Recovery: Public Finance

Go to Economic Recovery: Natural Resources and Peacebuilding - Actors and Activities: IFIs

Good governance begins with the national leadership but requires broad commitment by all actors. This commitment may only manifest when stakeholders have been engaged by a state prioritizing new policies for good governance. These policies are formed by local and national pro-active decision making and if either party acts irresponsibly or in self-interest, the other is more likely to follow suite as well.63 Thomas Sikor, a professor of development studies, theorizes that natural resource governance has traditionally been divided into either public or private categories and that this is an overly simplistic paradigm. Instead, Sikor argues that public and private institutions operate at many levels and interact with each other with varying degrees. The author also provides six fields of natural resource governance: agri-environment, biodiversity, bioenergy, food quality and safety, forestry and rural water.64

Additionally, the United Nations Expert Group on Natural Resources and Conflict in Africa recognizes the necessity of a "broad and holistic approach" that is rooted in the links between natural resource governance, peace, security and development. In relationship to peace and security, natural resource governance is linked to small arms and light weapons (SALW), conflict prevention, post-conflict reconstruction and development. Natural resource governance is connected to development through trade, regional integration, socio-economic development, food security, poverty reduction strategies, money laundering, corruption, and environmental protection - all of which could also have an effect on a sustainable peace. The issues of youth unemployment and gender are considered to be cross-cutting and link to natural resource governance at multiple levels. The Expert Group also highlights the importance of designing natural resource governance strategies based on individual contexts, including the country context and the resources involved, while simultaneously addressing regional issues. Natural resource governance strategies should also be grounded in coordination and cooperation between local and national governments and international institutions.65

The term governance can describe many aspects of peacebuilding objectives, but as it relates to resource management, it has been identified as being fundamental to the bridging the resource-conflict dynamic and for safeguarding the rights of local communities.66 Research has indicated that good governance of resources can naturally have an immediate impact on driving economic growth and cutting poverty. The Revenue Watch Institute notes, "public information and public accountability are the best guarantee that a country's resource wealth will translate into lasting benefits for its citizens."67 Without it, corruption, bribery, self-serving wealth accumulation and mismanagement can riddle a country's prospects for emerging from debt, violence and poverty. This is especially true in the extractive industries sector of well endowed developing states, according to the World Bank and IMF.68

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Types of financial transparency in natural resource governance

Revenue transparency

Citizens often lack access to information about government revenues and contracts for natural resources. Generating mechanisms to ensuring transparency is cited as a crucial step in (re)gaining public confidence in and endorsement of resource governance reform. These measures reverse old patterns of secrecy enshrined in mutual confidentiality clauses typical in resource contracts, which allowed, in some cases, illicit dealings between the contract holders. Revenue Watch cites a growing international movement towards greater transparency and accountability in the extractive industries, owing in part, to a greater awareness borne of the advocacy efforts of civil society groups and organizations. In particular links between human development, the economy, the environment and governance are more apparent now than ever and leaders are being pressured to open the extractives sector, in which they all coalesce, to public scrutiny. Examples of partnerships between mining and oil companies, civil society groups and governments proliferate, aligned to mutual goals of responsible resource revenue management and good governance.

Expenditure transparency

However revenue transparency alone will not guarantee improved governance without the inclusion of scrutiny over resource expenditures, as these are directly tied to redirecting corrupt resource flows to needed public investment in poverty alleviation programs and social service provision. Initiatives like the EITI offer the kind of raw data and tools needed for measured public examination of state revenue flows, but it is not sufficiently comprehensive to provide a global picture of the implications for these flows on economic growth and human development.69

For the Discussion Summary of the UN Expert Group Meeting on Natural Resources and Conflict in Africa: Transforming a peace liability into a peace asset, click here.

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Capacity development

Many authors argue that institutions are the critical link to effective natural resource management. Capable state institutions with the capacity to regulate, incentivize appropriately, and manage existing conflicts through a legal system are much better equipped to address the root causes of conflict, keep conflict from becoming violent, and provide the right kind of incentives for peace. Capacity development of institutions for good natural resource management recognizes that conflict can be managed and transformed, and that peace is not the absence of conflict, but a positive notion of a society that works toward the increased welfare of all. As such, capacity development constitutes a critical strategy and resource for peacebuilding.

Scholars have developed indicators to describe and measure different aspects of institutions. Argentino Pessoa categorizes them as such: a) institutional quality (the enforcement of property rights and contracts); b) political instability (riots, coups, civil wars); c) distinctiveness of political regimes (elections, constitutions, executive powers); d) social characteristics (differences in income and in ethnic, religious, and historical background); and e) social capital (the extent of civic activity and organizations)."70 He points out that economists often rely on one or several of these types of indicators to capture the features of institutions, "although each one has a potentially different channel of impact on growth." The largest part of studies on institutional empirical approach he observes, "relies on the importance of creating an institutional environment that is generally supportive of markets (e.g., protection of property rights, enforcement of contracts, and voluntary exchange at market-determined prices)."71

Natural resource governance must be linked to government capacity, and international support can be given when the state lacks the capacity. It is the unfortunate reality that most often developing states that enjoy great resources wealth may have the weakest institutional capacity to govern them.72 As Philippe Le Billon states, "A clear priority is to link resource exploitation and institutional capacity building more systematically. Such linkages should ensure that revenues first serve the basic needs and security of local populations, thereby reinforcing the stability and legitimacy of state authorities."73 Naturally, fortifying this link has become a priority for international policy makers in order to create legitimacy within recovering states to service the basic needs and security of its population before its own coveting of revenue, and in doing so, pour the foundation for stability and prosperity. 74

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Abundance and regional sharing

Natural resources can be managed through burden-sharing and profit-sharing. These resources are often viewed as a "natural and strategic capital stock" belonging solely to the state, posing challenges for international policy makers who view natural resources as global assets for which responsibility is shared. Michel Fouquin, Rolf J. Langhammer and Rainer Schweickert highlight how this thinking can be a "curse" for deep integration which requires some asymmetric burden-sharing between rich and poor countries and perhaps even an inter-country redistribution of income. At the same time, they argue, "it could be also a blessing if resource revenues enable the resource-abundant country to generously offer and finance such redistribution and take more risks in implementing long-term integration time tables."75

As some scholars note, the issue of resource abundance and regional integration is not a new one. Some integration schemes in poor areas of the world began as early as the 1960s.76 However, many developing countries with high import rates involved in South-South integration schemes resisted additional liberalization within their regions to focus on expanding to global markets outside their region in hopes of capturing higher revenues. But in response, many of the resource exporting countries with huge revenue windfalls neglected domestic governance reforms in favor of revenue pursuit, with volatile repercussions within the integration schemes. 77

Regional integration has become a priority within resource rich regions, i.e. in Latin America, which are confronting highly competitive global markets, such as the labor-abundant Asian markets as newly capable global suppliers.78 In such cases, regional integration may open regional markets and revert to more traditional, labor-intensive resource extractive activities to spur development.79 Additionally, regional sharing and integration schemes may be important avenues for peacebuilding where conflicts related to natural resources exist. Nevertheless, Paul Collier has noted that whereas North-North integration schemes benefit the poorest members disproportionately by shielding them from low-wage Southern competition, South-South integration schemes usually benefit the richest by shielding them from Northern industrial products and services.80

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Trade policy and diversification

Known as the "volatility effect", natural resources, unlike some other commodities, are highly susceptible to price volatility stemming from low-price elasticity. In addition, countries that tend to be net exporters of natural resources often over-rely on this single commodity as a primary source of state revenue, meaning any fluctuation in the markets (or in foreign demand) easily cause shock back home. Social safety nets are rarely in place to buffer against these movements and instability can cause security and other knock-on effects. One illustration is the crisis of Zambian copper in 1998 resulting from the Asian financial crisis. The 40% drop in sales of this primary export nearly froze public spending and doubled inflation rates instantly.81

These natural resource price shocks are often more extreme than shocks caused by natural disasters, which the international community responds to disproportionately due to the humanitarian emergency they represent. But in the case of rapidly declining world commodity prices, inflationary effects of price shocks on populations whose states are poorly equipped to respond can be even more calamitous.82 Even given rising world prices, though, resource-dependence can produce what is known as "Dutch Disease" wherelarge revenues from an extractable commodity (e.g. Minerals, gas, oil) may dramatically increase foreign exchange reserves, thereby raising the exchange rate and making domestic manufacturing products more expensive (and thus less competitive) abroad. Such resource-generated infusions of quick cash can then distract governments from more important long-term investments in diversified manufacturing and industrial exports and education and training investments in the labor force. 83

According to Le Billon, a wide policy framework is necessary in order to guarantee that resource wealth is captured and diffused in the interest of local populations and security by cushioning and maximizing resource revenue.The framework should pursue several objectives:
- Maximizing and cushioning resources revenues;
- Allocating revenues fairly and efficiently;
- Diversifying resource-dependent economies;
- Promoting peaceful and secure resource supply.84

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Maximizing and cushioning resources revenue

In order to mitigate against the effects of price shocks and volatility, Le Billon advises resource endowed states to focus on stabilizing prices and revenues for these raw materials - not through increased production, but rather by using a combination of the following measures: (1) enhancing productivity, (2) increasing demand, (3) adding value to exported goods, and (4) enhancing taxation capabilities. These measures may have limited impact however, unless developed countries take earnest steps to open their markets with lower trade barriers and protective schemes.85

This tends to lead to the notion of states which rely on natural resource exports as primary revenue sources as "price takers" (as opposed to "price makers") because they are left open to price and demand volatility. Short of domestic measures to control this volatility and without other well developed sectors, falling export prices can collapse an already fragile recovering economy. Economists suggest short-term fixes may necessitate emergency interventions where domestic markets have collapsed, while long-term solutions include instituting fair pricing schemes and financial instruments that assist in equitable compensation.86

Paul Collier suggests that IFIs such as the World Bank could reduce their own default risk by aligning structural debt repayments to prevailing oil prices, thereby easing the burden on states to repay when markets sour, similar to the way derivative markets are used to share risk burdens. However this fairly technical tool may not be appropriate for still developing economies, although in such cases, the World Bank can negotiate risk-bearing contracts with these states which the Bank could then offset in the markets directly.87 For its part, the IMF has its own Compensatory Financing Facility, although it is seen as an underutilized tool, and borrowing at variable commercial rates when negative shocks may be looming put states at unnecessary risk. Collier suggests that donor aid in the form of grants may fill this gap as they often carry a more coherent framework for legitimate revenue generation.88

Others argue for reducing price shocks wherever possible, rather than just cushioning their impact. Commodity price controls have had limited success but trade policies, particularly in OECD countries, can have immediate repercussions on global market prices.89

By allocating revenues fairly and efficiently, diversifying resource dependent economies and promoting peaceful and secure resource supply, developing states can formulate natural resource governance policies that cleverly support economic growth objectives.

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Diversification of the economy

Financial reliance on a single commodity can put countries as risk to the kinds of price shocks discussed in the previous section. Known as the "staple trap" model, this failure to diversify can make rent-rich states susceptible to collapse. A more inclusive range of income sources, by adding value to raw materials or diversifying horizontally in other commercial sectors can be a wise strategy if adopted thoughtfully through strong economic policies.90 Dependence on a staple commodity can be reduced by three factors: growth, aid and policy, as determined by one study.91

Go to Economic Recovery: Public Finance

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Regulatory instruments and initiatives

Establishing legitimate state control over natural resources is fundamental to prospects for peace and security. This legitimacy will in part be linked to creating a rule of law that includes sanctioning illegal traffickers and establishing regulatory controls and certification instruments (e.g. the Kimberley process).92 Together, they prove an effective shield against illicit trade flows and conflict-resource laundering operations that adversely affect the financial and environmental health of the country.93

Regulatory instruments vary from voluntary procedures designed and adopted by resource businesses to mandatory regulations imposed by intergovernmental bodies under international law. Each has its own advantages and disadvantages. They can be designed and applied on national, regional, and international levels.94

The goals of corresponding enforcement instruments similarly aim to prevent access to resource revenue from the agitators of conflict, and in doing so, promote non-violent means of conflict resolution for these groups. Investments and technology transfer have been found to be effective enforcement tools in regulating market access for these commodities.95 Creating an incentive structure that clearly delineates licit from illicit commodities should, according to policy advisors, be based on the following three criteria: (1) conflict prone resources are subject to targeted trade regimes (e.g. diamond certification); (2) blanket ban on activities found to be linked to human rights abuses (e.g. human trafficking or forced labor); and (3) identified belligerents or perpetrators of war crimes lose their privilege to participate in regulated trade activities (ex. UN travel ban sanctions).96

However there are major challenges to the effective implementation of these enforcement instruments for conflict-related natural resources. Firstly, private sector actors effectively control many sectors of the economy and as such are more difficult to monitor and regulate (though creating downstream domestic industry may facilitate monitoring by making resources "top-down." Secondly, domestic enforcement can be problematic when third-party states may offer asylum to criminals or offer a 'safe haven' for their illicit operations. Thirdly, a problem of capacity and incentives in the rule of law sector prevent effective deployment of police, judicial or customs personnel or systems (though alternative enforcement strategies may help, such as community enforcement, pedagogical enforcement and bargaining-style enforcement). Fourthly, government motivation for lodging such measures may be compromised by pockets or patterns of corruption, or the financial benefit of courting corporate interests, or political alliances formed on resource revenues. A fifth factor is the issue of transnational jurisdiction (e.g. Offshore banking or intellectual property rights). Lastly, the perennial problem of coordination and consensus among disparate actors at local, regional and international levels prevents effective enforcement mechanisms from reaching natural resource governance objectives.97

In this activity sub-section, the focus is on sanctions, in order to give a thorough analysis of one regulatory instrument. Certification schemes and commodity tracking regimes are also briefly addressed here, but included in more depth in the "Institutional mechanisms" section. Conditionality and judicial instruments are other regulatory instruments often recognized as important, but are not analyzed here.

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Sanctions may be imposed on countries, groups and individuals (also called targeted sanctions). They generally target the illicit industries of arms, natural resources (e.g., timber, diamonds), assets or travel. The UN Security Council carries the authority under Article 41 of the UN Charter to impose economic sanctions on any party including its own member states, although regional bodies and individual countries may also enact sanction regimes.98 The UN sanction guidelines are covered explicitly in the UN Charter as a means of influencing political parties in peaceful ways "in the service of maintaining and restoring international peace and security (Article 42 under Chapter VII). Its use has increased over the last 15 years and the UN has now an experience from some 17 sanctions regimes."99

Sanctions can be wielded in a variety of ways, to express disapproval by bringing economic pressure to bear, or to proactively render criminals less powerful by blocking access to their target markets.100 The international community can also apply sanctions to influence the government's reliance on natural resource revenues or illegal trade. In Liberia, diamond sanctions (targeting the cross-border diamond trade that funded the RUF in Sierra Leone) did have some positive effect, but alone were insufficient in curtailing the contribution of illegal mining to the state economy after the conflict.101 The application of sanctions can incentivize states to exercise greater authority, and hopefully thereby develop legitimacy, in the allocation of rights and revenues for coveted resources.102

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Returnee mechanisms

A number of strategies are advocated by practitioners and scholars to address returnee specific challenges in conflict mitigation and resource governance. Comprehensive plans of action (CPAs), adapted for each country's specific returnee challenge, are one strategic tool designed to include sociopolitical and economic factors used widely by UNHCR in the field103 Others, according to Khalid Koser of The Brookings Institution suggest the following measures may contribute to reducing property disputes and stabilizing peace: (1) registering land; (2) adopting legal measures for the recognition of property rights for women and children; (3) transferring informal titles to the formal system; (4) restoring collective forms of property to minorities or indigenous people; (5) building institutions capable of processing and monitoring disputes and restitution claims, including law enforcement; (6) developing mechanisms to assist people that are evicted from land following a property dispute.104

Go to Economic Recovery: Natural Resources and Peacebuilding - Activities: Revnue Sharing Agreements and Community Benefits

USAID also recommends the use of property assistance programs. For example, such programs were used in Bosnia and Herzegovina to ameliorate security concerns faced by internally displaced persons (IDPs) and returnees by using information centers and legal aid for solving property disputes, as well as help returnees navigate a dense and sluggish restitution process.105 The challenges these populations face spill over to the resource rights and access issues linked to property disputes. Parties on either side of a conflict may be subject to creating resource sharing arrangements, a difficult task made more acute in the absence of targeted reintegration programs or local/national reconciliation processes. Resource management strategies for returnee populations would benefit from this consideration.

Go to Economic Recovery: Community Reintegration

1. Rolain Borel, Erin McCandless and Mohammed Abu-Nimer, "Environment and Natural Resource-Related Conflicts: Moving Towards Transformational Approaches," Journal of Peacebuilding and Development 2, no. 1 (2006): 4-5.
2. Nita Yawanarajah and Julian Ouellet, "Peace Agreements," in Beyond Intractability, ed. Guy Burgess and Heidi Burgess (Boulder: University of Colorado, Conflict Research Consortium, September 2003).
3. Jeremy Weinstein, "Autonomous Recovery and International Intervention in Comparative Perspective," (Working Paper No. 57, Stanford University Center for Global Development, 2005); Macartan Humphreys, "Natural Resources, Conflict, and Conflict Resolution: Uncovering the Mechanisms," Journal of Conflict Resolution 49, no. 4 (2005): 534-5.
4. Kaysie Brown, "War Economies and Post-Conflict Peacebuilding: Identifying a Weak Link.," Journal of Peacebuilding and Development, 3: 1 (2006): 9.
5. Julian Ouellet, "Structural Components of Peace Agreements," in Beyond Intractability, ed. Guy Burgess and Heidi Burgess (Boulder: University of Colorado, Conflict Research Consortium, September 2004).
6. Karen Ballentine, "Program on Economic Agendas in Civil Wars: Principal Research Findings and Policy Recommendations," (New York: International Peace Academy, April 2004), 2.
7. Ouellet, "Structural Components of Peace Agreements."
8. Ibid.
9. Ibid.
10. Ballentine, "Program on Economic Agendas in Civil Wars: Principal Research Findings and Policy Recommendations," 6.
11. Kathleen O'Toole, "Why Peace Agreements Often Fail to End Civil Wars," Stanford Online Report (November 19, 1997).
12. Barnett R. Rubin, "The Political Economy of War and Peace in Afghanistan," Eurasianet.
13. Heiko Nitzscke, "Transforming War Economies: Challenges for Peacemaking and Peacebuilding" (Sussex: Report of the 725th Wilton Park Conference, in association with the International Peace Academy, October 27-29, 2003), 9.
14. Ibid.
15. Ibid.
16. Ibid.
17. Borel, McCandless and Abu-Nimer, "Environment and Natural Resource-Related Conflicts."
18. Erin McCandless and Tyler Christie, "Beyond Sanctions: Evolving Integrated Strategies to Address Natural Resource-Based Challenges in Post-Conflict Liberia, Journal of Peacebuilding and Development, Volume 2, Number 1, 2006.
19. United Nations Peacebuilding Support Office (PBSO,), "From Conflict to Peacebuilding: The Role of Natural Resources and Environment," (New York: briefing paper prepared by PBSO in cooperation with UNEP, May 2008), 1.
20. Raul Caruso, "Butter, Guns and Ice-Cream: Policy Implications of Economic Theories of Conflict," MIT International Review (February 2009).
21. H.I. Grossman, "A General Equilibrium Model of Insurrections," The American Economic Review 81 no. 4 (1991): 912-921.
22. Nicholai Lidow, "Resources and Rebel Organization: A Comparative Study of Armed Groups in Ituri" (paper prepared for the Midwest Political Science Association Conference, Chicago, IL, April 2-5 2009.)
23. Saumitra Jha, "Trade, Institutions and Religious Tolerance: Evidence from India," (Manuscript, 2007).
24. See, e.g., Paul Krugman, "Increasing Returns and Economic Geography," The Journal of Political Economy 99, no. 3 (1991):483-499.
25. Marcel Fafchamps, "Networks, Communities and Markets in Sub-Saharan Africa: Implications for Firm Growth and Investment," Journal of African Economies 10 (2001): 109-142.
26. The Economist, "Keeping the Sparkle at Home: African Diamond Producers Want to Extract More Value from their Stones" (The Economist, March 19, 2008).
27. Revenue Watch Institute (RWI), "Our Work/Issues: Revenue Transparency," RWI.
28. United Nations Development Programme (UNDP), "Post-Conflict Economic Recovery: Enabling Local Ingenuity: Crisis Prevention and Recovery Report" (New York: UNDP Bureau for Crisis Prevention and Recovery, 2008), xxii.
29. UNDP, Post-Conflict Economic Recovery, xxiii.
30. John Ohiorhenuan and Chetan Kumar, Sustaining Post-conflict Economic Recovery: Lessons and Challenges, (BCPR Occasional Paper 1, New York: United Nations Development Programme, October 2005), 7.
31. United States Agency for International Development (USAID), "Minerals and Conflict: A Toolkit for Intervention," USAID (2005): 4.
32. Ibid.
33. Ibid., 4-5.
34. Ibid., 5.
35. Rights and Resources Initiative (RRI), Seeing People Through the Trees: Scaling Up Efforts to Advance Rights and Address Poverty, Conflict and Climate Change, (Washington DC: RRI, 2008), 21.
36. Michael L. Ross, "How Mineral-Rich States Can Reduce Inequality," in Macartan Humphreys, Jeffrey D. Sachs and Joseph E. Stiglitz (eds), Escaping the Resource Curse (New York: Columbia University Press, 2007), 237.
37. Ross, "How Mineral-Rich States Can Reduce Inequality," 241.
38. Ibid., 243.
39. Macartan Humphreys, "Natural Resources and Armed Conflicts: Issues and Options," in Karen Ballentine and Heiko Nitzscke, Profiting from Peace: Managing the Resource Dimensions of Civil War, (Boulder: Lynne Rienner Publishers,Inc., 2005), 30.
40. Philippe Le Billon, Fuelling War: Natural Resources and Armed Conflict (London: Adelphi Paper 373, IISS, 2005), 54.
41. Humphreys, "Natural Resources and Armed Conflicts: Issues and Options," 30.
42. Linda Waldman et al., "Environment, Politics and Poverty: Lessons from a Review of PRSP Stakeholder Perspectives," (Brighton: Institute of Development Studies, 2005), 31.
43. Ibid.
44. Ross, "How Mineral-Rich States Can Reduce Inequality."
45. Ibid., 237.
46. Joshi, Anuradha, "Progressive Bureaucracy: An Oxymoron? The Case of Joint Forest Management in India," (network paper 24a, Overseas Development Institute, London, UK, 1999).
47. Rights and Resources Initiative (RRI), Seeing People Through the Trees: Scaling Up Efforts to Advance Rights and Address Poverty, Conflict and Climate Change, (Washington DC: RRI, 2008), 21.
48. Robert C. Ellickson, "Property in Land," Yale Law Journal 102 (1993): 1322-1335; 1341-1344 and Lorenzo Cotula, Camilla Toulmin and Ced Hesse, Land Tenure and Administration in Africa: Lessons of Experience and Emerging Issues, (London: International Institute for Environment and Development, 2004).
49. Malcolm H. Dunn, "Privatization, Land Reform, and Property Rights: the Mexican Experience," Constitutional Political Economy 11 no. 3 (2000): 215-230.
50. Lorenzo Cotula, Camilla Toulmin and Ced Hesse, Land Tenure and Administration in Africa.
51. Khalid Koser. "The Return of Refugees and IDPs and Sustainable Peace," The Brookings Institution (February 10, 2008).
52. Scott Leckie, "Housing, Land & Properties Rights in Post-Conflict Societies: Proposals for a New United Nations Institutional and Policy Framework," (Geneva, Switzerland: UNHCR, 2005).
53. Lorenzo, Tenure and Administration in Africa.
54. Topher L. McDougal, "Law of the Landless: The Dalit Bid for Land Redistribution in Gujarat, India," (Master's Thesis, Massachusetts Institute of Technology, 2007).
55.Topher L. McDougal, "Development During Crisis: Promoting Asset-Building in Protracted Refugee Situations," MIT International Review (Spring 2007).
56. Ibid.
57. USAID, "Minerals and Conflict: A Toolkit for Intervention," 6.
58. Jamaica Clearing-House Mechanism, "Exploitation of Natural Resources," Biodiversity for High Schools.
59. Ibid.
60. United Nations, "United Nations Expert Group Meeting on Natural Resources and Conflict in Africa: Transforming a Peace Liability into a Peace Asset," (Cairo: United Nations, 2006).
61. Philippe Le Billon, Fuelling War: Natural Resources and Armed Conflict (London: Adelphi Paper 373, IISS, 2005), 54.
62. RWI, "Our Work/Issues: Revenue Transparency," RWI.
63. Jamaica Clearing-House Mechanism, "Exploitation of Natural Resources."
64. Thomas Sikor, Public and Private in natural Resource Governance: A False Dichotomy? (London: Earthscan, March 2008).
65. United Nations, "United Nations Expert Group Meeting on Natural Resources and Conflict in Africa: Transforming a Peace Liability into a Peace Asset," (Cairo: United Nations, 2006).
66. Bonn International Center for Conversion (BICC), Resource Conflict Monitor: Governing the Dynamic Between Natural Resources and Violent Conflict," BICC.
67. RWI, "Our Work/Issues: Revenue Transparency," RWI.
68. Ibid.
69. RWI, "Our Work," RWI.
70. Argentino Pessoa, "Natural Resources and Institutions: The 'Natural Resources Curse' Revisited" (paper no. 8640, Munich Personal RePEc Archive, May 5, 2008), 10.
71. Ibid.
72. Humphreys, "Natural Resources and Armed Conflicts: Issues and Options," 25.
73. Le Billon, Fuelling War: Natural Resources and Armed Conflict, 82.
74. Ibid.
75. Michel Fouquin, Rolf J. Langhammer and Rainer Schweickert, "Natural Resource Abundance and its Impact on Regional Integration: Curse or Blessing?" (discussion note, Sao Paulo: ELSNIT/Fundacao Getulio Vargas Conference, April 7, 2006), 2.
76. Ibid.
77. Ibid., 3.
78. Ibid.
79. Ibid.
80. Paul Collier, The Bottom Billion: Why the Poorest Countries are Failing and What Can be Done about It, (New York: Oxford University Press, 2007).
81. USAID, "Minerals and Conflict: A Toolkit for Intervention," 7.
82. Paul Collier et al, Breaking the Conflict Trap: Civil War and Development Policy. (World Bank and Oxford University Press, 2003), 132.
83. USAID, "Minerals and Conflict: A Toolkit for Intervention," 7.
84. Le Billon, Fuelling War: Natural Resources and Armed Conflict, 51.
85. Ibid., 52.
86. Ibid.
87. Paul Collier et al, Breaking the Conflict Trap, 133.
88. Ibid.
89. Ibid.
90. Le Billon, Fuelling War: Natural Resources and Armed Conflict, 56.
91. Collier et al, Breaking the Conflict Trap, 134.
92. John Ohiorhenuan and Chetan Kumar, Sustaining Post-conflict Economic Recovery: Lessons and Challenges, BCPR Occasional Paper 1 (New York: United Nations Development Programme, October 2005), 12.
93. Le Billon, Fuelling War: Natural Resources and Armed Conflict, 57.
94. Philippe Le Billon, "Getting it Done: Instruments of Enforcement," in Natural Resources and Violent Conflicts: Options and Actions, ed. Ian Bannon and Paul Collier. (Washington, DC: The World Bank, 2003), 222.
95. Ibid., 220.
96. Ibid., 222.
97. Ibid., 274.
98. Peter Wallensteen, Mikael Eriksson, and Daniel Strandow, Sanctions for Conflict Prevention and Peace Building: Lessons Learned from Cte d'Ivoire and Liberia, (Uppsala: Uppsala University Department of Peace and Conflict Research, 2006), 6, 26.
99. Ibid., 4.
100. Le Billon, Fuelling War: Natural Resources and Armed Conflict, 58.
101. Wallensteen, Sanctions for Conflict Prevention and Peace Building, 23.
102. Peter Wallensteen, Mikael Eriksson, and Daniel Strandow, Sanctions for Conflict Prevention and Peace Building: Lessons Learned from Cte d'Ivoire and Liberia, (Uppsala: Uppsala University Department of Peace and Conflict Research, 2006), 6, 24.
103. IRIN, "The Long Journey Home: an IRIN Web Special on the Challenge of Refugee Return and Reintegration," (IRIN, February 2005).
104. Koser, Khalid. "The Return of Refugees and IDPs and Sustainable Peace," The Brookings Institute. Coordinating Chaos Conference, Trudeau Centre for the Study of Peace and Conflict, (University of Toronto: February 10, 2008).
105. USAID, "Land and Conflict," (Washington, DC: USAID, 2004), 17.

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