A GUIDE TO ECONOMIC GROWTH

IN POST-CONFLICT COUNTRIES

January 2009

Office of Economic Growth

Bureau for Economic Growth, Agriculture and Trade

U.S. Agency for International Development (USAID)
Rwandan

farmers produce

high quality 

coffeethrough

the Bringto

Cooperative, 

which benefited

from USAID 

assistance. 

(USAID/Rwanda) 
A GUIDE TO ECONOMIC GROWTH

IN POST-CONFLICT COUNTRIES
ii USAID
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES iii

PREFACE

This Guide to Economic Growth in Post-Conflict Countries seeks to develop comprehensive recommendations for USAID and similar donors on 

how to encourage economic growth in countries emerging from conflict. The Guide is based on the premise that improved economic wellbeing can enhance the prospects for sustaining peace and reduce the high percentage of post-conflict countries that return to violence. 

The Guide is based on staff research and workshops organized by the Economic Growth Office of USAID’s Economic Growth, Agriculture, 

and Trade (EGAT) Bureau during 2007-2008, augmented with input from other USAID and field implementers, staff of other United States 

Government agencies (including the Department of Defense), the World Bank and International Finance Corporation, and several bilateral 

donors and think tanks. 

The Guide is intended for USAID field officers. In this respect, we think it fills an important gap. A former USAID Mission Director involved 

in three of our major programs over the past decade recently commented on the draft that, 

“I wished something like this had been right at my side as we tried to figure out what to do [in the early stages of my post-conflict 

assignments] . . . This should really be required for reading and internalizing by anyone going into a post-conflict situation.”

As the Guide evolved, we realized that what we were learning would be useful to a broader audience and began to incorporate examples and 

case analysis from the experience of other donors. We encourage readers to draw lessons for their own organizations and needs.

We hope the Guide spurs comment and further thought, and leads to improved depth of analysis – including on the outcomes and costeffectiveness of our donor programs – as experience builds. The views expressed here, however, are those of the authors and EGAT’s Office of 

Economic Growth. They do not necessarily reflect the views of the United States Agency for International Development or the United States 

Government.

I wish to express my appreciation for the staff of EGAT who have developed the Guide and for the professionalism they demonstrated in 

showing how conventional development approaches can be adapted to the different world of post-conflict societies. Particular thanks are due to 

Steve Hadley, who initiated the project and helped us to rethink priorities and sequencing of our donor interventions; and to the lead editors, 

David Dod and James (Jay) T. Smith, who made sense out of the large and growing literature and drew thoughtfully from their own experience 

and that of others. 

Mary C. Ott

Director, Office of Economic Growth

Bureau for Economic Growth, Agriculture, and Trade
iv USAID

Table of Contents

Executive Summary vi

Part 1: A New Approach to Post-Conflict Recovery 1

I. Introduction 2

II. Special Circumstances and Characteristics of Post-Conflict Countries 4

III. Post-Conflict Economic Growth Programming – Some Fundamentals 9

IV. Deciding What To Do When – Prioritization and Timing 15

Part 2: Best Practices 20

V. Macroeconomic Foundations 21

A. Fiscal Policy and Institutions 21

B. Monetary Policy and Institutions 28

VI. Employment Generation 32

VII. Infrastructure 40

VIII. Private-Sector Development 51

A. Private-Sector Enabling Environment 51

B. Enterprise Development 58

IX. Agriculture 65

X. Banking and Finance 73

XI. International Trade and Border Management 80

General References 86

Text Boxes

Box 1.1 A New Way of Thinking about Sequencing Economic Growth Activities 2

Box 1.2 Post-Conflict vs. In-Conflict 3

Box III.1 Learning and Leadership 10

Box IV.1 Using Informal Assessments 15

Box V.1 Fiscal Decentralization 23

Box V.2 Contracting Out Management of State-Owned Natural Resource Concessions 27

Box VI.1 Ensuring Community Involvement and Program Legitimacy in Kosovo 33

Box VI.2 Cash for Work Program: Liberia’s Community Infrastructure Program (LCIP) 36
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES v

Box VI.3 USAID’s GEM-ELAP Project in Mindanao 38

Box VI.4 Rebuilding Livelihoods: Mozambique and Burundi 39

Box VIII.1 Special Economic Zones 57

Box VIII.2 Market-Integrated Relief: The Mozambique Flood Recovery Program 60

Box VIII.3 Rwanda Coffee Wash Stations 61

Box VIII. 4 Women’s Business Development in Afghanistan 63

Box IX.1 Privatizing Veterinary Services during and after Conflict in Afghanistan 68

Box IX.2 Jump-Starting Wartime Markets in Southern Sudan 70

Figures and Tables

Figure III.1 Post-Conflict Economic Growth Program Emphases 11

Figure V.1 Government Revenue as a Percent of GDP 24

Figure VIII.1 Foreign Direct Investment as a percent of GDP 63

Figure X.1 Domestic Credit to Private Sector as a Percent of GDP 75

Table 111.1 Post-Conflict Service Delivery Mechanisms 12

Table V.1 Fiscal Policy and Institutions 26

Table V.II Monetary Policy and Institutions 30

Table VI.1 Employment Generation 34

Table VII.1 Infrastructure Assistance 43

Table VII.2 Private Participation Continuum: Public to Private 48

Table VIII.1 Private-Sector Enabling Environment 54

Table IX.I Agriculture 67

Table X.I Banking and Finance 76

Table XI.I International Trade and Border Management 83
vi USAID

Executive Summary

This Guide to Economic Growth in Post-Conflict Countries seeks to fill a gap in the information available to 

decision-makers faced with the urgent, all-encompassing needs of a country emerging from conflict. The 

Guide brings together lessons learned from past and current efforts to promote economic growth in 

post-conflict countries. It proposes a new approach and provides concrete recommendations for establishing 

effective economic growth programs that will improve well-being and contribute to preventing a return to 

conflict. The Guide does not provide a checklist applicable in all post-conflict settings, although it does provide 

the basis for constructing a checklist appropriate to a specific country context.

The lessons learned and program recommendations in 

the Guide also are applicable in situations where 

conflict has been limited to specific geographic regions 

within a country, such as northern Uganda and 

southern Sudan. However, because there still is much 

to be learned about how economic growth programs 

contribute to ending a conflict, it is unclear whether 

the concepts presented here also apply in countries 

currently in the midst of general conflict. Accordingly, 

the Guide’s programming suggestions should not be 

applied unquestioningly in mid-conflict situations. 

The Guide is intended to be practical; it can be applied 

in the chaotic circumstances that prevail in post-conflict settings. Part 1, A New Approach to Post-Conflict 

Recovery, describes the economic impact of conflict and 

suggests ways to set economic growth priorities. Part 

2, Best Practices, discusses lessons learned and provides 

recommendations for seven specific sectors: 1) 

macroeconomic foundations, including both fiscal and 

monetary policy and institutions; 2) employment 

generation; 3) infrastructure; 4) private-sector development, including both the private-sector enabling 

environment and enterprise development; 5) agriculture; 6) banking and finance; and 7) international trade 

and border management.

Economic growth programs: 

a significant part ofthe

solution

The purpose of economic growth programming in 

post-conflict countries is both to reduce the risk of a 

return to conflict and to accelerate the improvement of 

well-being for everyone, particularly the conflictaffected population. Economic issues may have 

contributed to the outbreak of violence in the first 

place, through the inequitable distribution of assets and 

opportunities or simply a widely held perception of 

inequitable distribution. Economic interventions need 

to be an integral part of a comprehensive restructuring 

and stabilization program. While economic growth is 

not the sole solution to resolving post-conflict issues, it 

can clearly be a significant part of the solution.

A newapproach

Evidence shows that early attention to the fundamentals 

of economic growth increases the likelihood of successfully preventing a return to conflict and moving forward 

with renewed growth. Since 40 percent of post-conflict 

countries have fallen back into conflict within a decade, 

it is critically important to heed this evidence and alter 

the familiar donor approach, which focuses first on 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES vii

humanitarian assistance and democracy-building, with 

economic issues sidelined to be dealt with later. 

Start early: Paul Collier, professor of economics at 

Oxford University and leading expert on African 

economies, argues that external peacekeepers and robust 

economic growth have proven to be more critical than 

political reform in preventing a return to conflict.1

Accordingly, many interventions designed to facilitate 

economic growth can and should be implemented at the 

very beginning of the rebuilding process, much earlier 

than traditionally has been the case. 

Address the causes of conflict: It is critical to understand that paying immediate attention to economic 

growth does not mean doing the same thing that 

ordinarily is done in stable developing countries. 

Post-conflict environments demand a different 

approach. Countries emerging from violence have 

fundamentally different characteristics as a result of 

conflict. Most post-conflict countries were already poor 

and badly governed prior to the outbreak of violence. 

Their problems were almost always made worse by 

conflict. More importantly, the nature of many of their 

problems also changed. Post-conflict settings are 

characterized by physical and human destruction; 

dislocation, unemployment, and demobilization of 

combatants; a weak and fragile government; high 

expectations and a sense of urgency; and residual 

geographic, ethnic, or other tensions.

Post-conflict economic growth programs must address as 

directly as possible the factors that led to the conflict, 

taking into account the fragility of the environment. 

Planning has to be based on much more than the narrow 

technical considerations of economic efficiency and 

growth stimulation. Programs also must be effective at 

expanding opportunities and increasing inclusiveness 

throughout the population; they should be judged in part 

on the basis of whether or not they help mitigate political 

factors that increase the risk of a return to hostilities. 

What is required for success?

Clear goals: Clear goals are critical, because – in the 

chaotic circumstances that characterize the post-con

1 Collier, Hoeffler, and Söderbom (2007).

 

flict period – everything seems to be needed at once, 

and there may be many actors with differing priorities. 

Each post-conflict situation is different, but in general, 

economic growth programs should aim to: 

•	 reestablish essential economic governance functions 

and restore the government’s legitimacy;

•	 boost employment and improve well-being as quickly 

as possible; 

•	 address the root economic causes of the conflict; and, 

•	 stabilize the economy and position it to grow rapidly.

Sensitivity to context: In the post-conflict context, there 

must be heightened sensitivity to the political and social 

dimensions of the conflict. Economic growth programs 

must address these dimensions. Donors must consider 

the nature of the conflict, the nature of the peace, and 

the country’s level of development as it emerges from the 

conflict. To be effective in such a sensitive political 

environment, every rebuilding decision should include a 

consideration of the impact it may have on the legitimacy of the government, on employment and improved 

welfare, and on equity or perceptions of equity for the 

various factions participating in the conflict.

A pragmatic approach: At the core of all donor-supported economic growth programs must lay a highly 

pragmatic approach, based on an understanding of the 

critical barriers to resuming growth. Such an approach 

addresses simple issues first, removes barriers to the 

informal sector, and is structured in a way that offers 

the greatest immediate benefits in an equitable manner. 

Host-country ownership: Post-conflict economic 

growth programs need to be carried out with maximum host-country ownership of the reforms, using 

national systems as much as possible. In addition, 

initiatives should be developed through a well-coordinated process that integrates multiple donors and the 

host government. Donors need to make effective 

coordination mechanisms a high priority from the 

beginning.

How should it be done?

Donors should begin work in multiple areas immediately and simultaneously, and begin early on to build 

long-term capacity.
viii USAID

Focus on the basics: Economic growth programming 

should focus on the basics of a functioning economy, 

with early emphasis on short-term effectiveness in 

stimulating economic activity and creating jobs, rather 

than on longer-term economic efficiency. In general, 

short-term results should trump longer-term issues in 

terms of programming choices. There are, however, no 

hard-and-fast rules about these trade-offs. Judgment 

must be applied in every case. 

Establish priorities: During the immediate post-conflict period, there may be a narrow window of opportunity to introduce difficult economic reforms. There also 

may be extreme limits on the government’s capacity to 

implement change. Often, so many changes are needed 

that donors, working with the host country government, have to set immediate priorities on the basis of 

what will most quickly and most effectively generate 

employment and stimulate the economy.

Understand recurring trade-offs: Substantial structural challenges and the ever-present risk of a return to 

conflict mean that donors need to make decisions 

quickly, balancing specific trade-offs that are much 

more acute than in stable developing countries. Four 

trade-offs recur: 

•	 the need for effective economic solutions in the 

short-term while moving toward more efficient 

ones over time;

•	 the tension between the need to achieve tasks 

urgently and the effect such actions (if they bypass 

local institutions) might have on the government’s 

perceived legitimacy;

•	 the conflicts that can arise between short-term and 

long-term objectives; and, 

•	 the desire to use the window of opportunity to 

make dramatic economic reforms immediately 

after the conflict, contrasted with most governments’ very limited absorptive capacity to manage 

change. 

Pay attention to sequencing: The termination of conflict 

creates an immediate rebound of economic activity, 

though typically not to pre-conflict levels. Donor and 

government consumption of local goods and services 

stimulates broader economic activity. Job-creation 

programs generate a temporary upsurge in employment 

and consumption. Donor and government investments in 

physical and social infrastructure stimulate demand in the 

short run and support growth in the medium and long 

term. Regardless of the effectiveness of donor-financed 

programs in the short run, however, it is the country’s 

capacity to sustain economic growth that matters most for 

long-term success.

Donors must work with local government and 

non-governmental entities to quickly restore the 

delivery of critical public services. This will almost 

always require the use of external actors because of the 

diminished capacity of host-country institutions 

following a conflict. Donors should seek to associate 

their activities and the activities of NGOs and 

contractors they support with the host government in a 

way that re-establishes its legitimacy. However, donors 

should avoid “quick-fix” approaches that bypass 

existing local capacity. Instead, donors should look for 

opportunities to make use of local capacity and begin 

rebuilding host-country capacity as quickly as possible. 

A greater role for host-country institutions in delivering services will be one of the most effective ways to 

re-establish the legitimacy of the host government. 

Donors and the host government must also communicate clearly and often to the public about what they are 

doing together to meet people’s needs. These communications should be based on shared objectives for the 

post-conflict recovery and informed by the work of 

donor-host country coordination mechanisms. 

The highly stylized diagram that follows illustrates how 

post-conflict economic growth programming can be 

approached. Early emphasis on providing humanitarian assistance and expanding physical security must be 

accompanied by programs to provide jobs and critical 

public services, and reconstruct key economic infrastructure. Rapid growth requires sound economic 

policies to be established from the very beginning. In 

the longer term, programs must build the host 

country’s capacity to elicit the self-sustaining growth of 

a healthy economy. As results are achieved in the 

immediate post-conflict period, donors should assess 

which initiatives should shift from an emphasis on 

effectiveness and short-term results to a more traditional emphasis on economic efficiency and long-term 

growth. The types of short-term programs that are 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES ix

appropriate for creating jobs and improving well-being 

immediately following a conflict cannot and should 

not be funded in perpetuity by donors. There must be 

the clear prospect of growth through sustainable, 

productive, private-sector employment to displace 

short-term donor programs. It must be kept in mind 

that the patterns shown in the diagram are purely 

illustrative; a great deal of flexibility must be built into 

programs to allow them to respond to rapidly evolving 

post-conflict circumstances. 

What should be done?

In the short term: During the early post-conflict period, 

donors may be required to carry out any or all of the 

following, to ensure a successful economic transformation 

and post-conflict recovery: 

•	 Vigorously promote local private-sector participation in relief and humanitarian assistance programs.

•	 Phase down refugee camps as soon as possible, to 

encourage displaced families to return to their previous economic activities, except where such activities 

are no longer economically viable.

•	 Ensure that the country has a viable currency, 

accepted for trade and commercial transactions. 

•	 Ensure that the government can make payments 

and collect revenues. Build the country’s capacity 

to manage its fiscal responsibilities.

•	 Avoid too much appreciation of the exchange rate, 

such as that which can result from large donor expenditures, which will reduce the country’s export 

competitiveness. 

•	 Knock down as many obvious barriers to both 

formal and informal economic activity as possible, as 

quickly as possible. Such barriers could include everything from price controls to unnecessary administrative requirements. Consult widely with both the 

public and private sectors to understand what needs 

to be done to unleash economic activity. 

•	 Promote employment generation and stimulate 

the economy. For maximum effect, do not place 

undue emphasis on the ultimate sustainability 

of the activities. Rather, the immediate goal is to 

get labor and capital back to work, and quickly. 

Employment generation programs should include, 

but not be limited to, activities targeting excombatants.
x USAID

•	 Provide grants to a variety of groups, making 

the time-limited nature of donor funding clear 

from the outset. Grants may be made to support 

government-managed public works, for example, 

and should be made to a wide range of community organizations, businesses, and conflict-affected 

populations. 

•	 Reduce physical obstacles and eliminate barriers 

to movement and commerce, particularly for rural 

and agricultural markets. Promote the flow of 

market information, and encourage the development of regional and international markets for agricultural products. If needed, remove land mines; 

make emergency repairs to power systems, roads, 

railways, ports, and airports; restore basic utilities; 

and establish modern communications systems.

•	 Establish procedures for handling property and 

contract disputes, including recognizing customary laws already in use. Establish a transparent, 

binding process to resolve the claims of former 

property owners returning to the country, balancing social and political constraints. 

•	 Do not view privatization as an all-or-nothing 

choice. Sell small state-owned enterprises (SOEs) 

to private investors or subject them to competition. Consider sustaining or restarting some of the 

operations of larger SOEs to help generate employment. Avoid large, unsustainable subsidies to 

large SOEs, however, and introduce measures such 

as management contracts, hard budget constraints, 

and competition. Keep in mind that the longerterm objective is to ensure there will be effective 

competition and, in many cases, privatization or 

liquidation of SOEs.

•	 Focus on local investment and local employers 

(and possibly south-south investment) as a source 

of increased demand. Do not rely on foreign 

direct investment from developed countries to 

generate this demand in the short term, because 

most foreign investors will wait for the risk of 

resumed conflict to abate before they invest.

•	 Ensure that basic economic data are collected to 

monitor economic stabilization and the growth of 

economic activity. 

In the long term: As progress is achieved in each 

programming area (which will occur at different rates 

in different areas of activity) donors should shift away 

from short-term fixes and increase their emphasis on 

efficiency-enhancing, sustainable increases in productivity to maximize long-term economic growth. 

Part 2 of the Guide, Best Practices, provides specific 

recommendations for achieving short- and long-term 

goals – and managing the transitions between them 

– in each major sector of economic growth activity. 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 1

PART 1

A NEW APPROACH TO 

POST-CONFLICT RECOVERY

Forty percent of post-conflict countries return to violence 

within a decade. In the urgent rush to help, donors do a 

tremendous amount of good for many people, but nearly 

half the time they fail to do what is needed to prevent a 

return to violence.

Evidence shows that early attention to the fundamentals of 

economic growth increases the likelihood of successfully 

preventing a return to conflict and moving forward with 

renewed growth. It is critically important to heed this evidence 

and make early economic interventions an integral part of a 

comprehensive restructuring and stabilization program. 

While economic growth is not the sole solution to resolving 

post-conflict issues, it can clearly be a significant part of the 

solution.
2 USAID

In almost every case, recovery has been slower than 

desired. Transforming and restructuring the economy 

has frequently taken years longer than imagined. 

Recent analysis indicates that 40 percent of all 

post-conflict countries return to violent conflict within 

a decade.2 In the urgent rush to help, donors do a 

tremendous amount of good for many people, but 

nearly half the time, they fail to do what is needed to 

prevent a return to violence. 

The growth rebound following a conflict has almost 

never been as robust as it could have been, because 

insufficient attention has been paid to policies and 

programs that would most effectively accelerate 

growth and jobs. As a result, living standards have 

remained low (below pre-conflict levels) longer than 

necessary. Employment opportunities and improvements in well-being, however, are critically important 

for people dealing with an uncertain future. The delays, 

in turn, have reduced confidence in the legitimacy of 

the terms on which the conflict was ended and have 

contributed to the likelihood that conflict will resume. 

This Guide to Economic Growth in Post-Conflict 

Countries proposes a different approach. It draws upon 

lessons learned and reflects a growing consensus that 

early attention to the fundamentals of economic 

growth increases the likelihood of preserving peace and 

moving forward with renewed growth. 

By implementing economic growth programs in the 

immediate aftermath of conflict, donors can better 

address the underlying causes of conflict and reduce 

the probability that it will return.The traditional 

approach follows discrete phases: humanitarian assistance, maintenance of security, and democracy-building, 

only later followed by economic growth programs. The

2 Collier, Hoeffler, and Söderbom (2007).

I. Introduction

Bosnia, Kosovo, Serbia, Sierra Leone, Liberia, southern Sudan, Afghanistan, Iraq, and Timor-Leste: These are just 

a few of the many countries in which USAID and other donors have implemented programs in the aftermath of 

conflict. At times, programs have been carried out in the midst of continuing conflict. Much has been learned 

from these engagements.

Box 1.1 A New Way of Thinking about Sequencing 

Economic Growth Activities

In providing assistance to post-conflict countries, 

there has been a tendency to follow a phased, 

discrete, and largely non-overlapping sequence of 

efforts: first, relief and humanitarian assistance are 

provided; second, soldiers, refugees, and internally 

displaced persons are reintegrated; third, physical 

infrastructure is rebuilt; and last, economic reforms 

are put in place.3

 But, as Lewarne and Snelbecker,4

among others, have argued, following such a model 

for the rebuilding process may not be sound.

Paul Collier, professor of economics at Oxford 

University and leading expert on African economies, 

argues that external peacekeepers and robust 

economic growth have proven to be more critical 

than political reform in preventing a return to 

conflict.5

 Accordingly, many interventions geared 

to facilitate economic growth can and should be 

implemented at the very beginning of the rebuilding 

process. Such an approach may involve early policy 

reforms in taxes and regulation of production and 

trade. It may also include changes in organizational 

structures, such as strengthening the central bank and 

reordering other government institutions (e.g., police, 

courts, or registrars that protect property rights).

relief community already has begun to abandon this 

obsolete “relief to development continuum” concept. 

This Guide urges the relief community to accelerate that 

change of practice and to rely even more on programs 

that leverage and strengthen markets while saving lives 

3 See Haughton (1998).

4 Lewarne and Snelbecker (2004).

5 Collier, Hoeffler, and Söderbom (2007).
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 3

and alleviating suffering. The Guide also asks economic 

professionals to accept that short-term considerations are 

immensely important to the success of post-conflict 

economic growth programs. Distributional consequences must always be a central part of their calculus. 

All parties, particularly economic planners, need to 

develop “conflict-sensitive” programs, taking into 

account the local political and social context.

The Guide is not a checklist. It does, however, provide 

the basis for practitioners to construct checklists of 

activities for specific post-conflict situations. Part 1 

describes the economic impact of conflict and suggests 

ways to set priorities for accelerating growth in a 

post-conflict environment: 

•	 Chapter II describes what makes post-conflict 

countries different from other developing countries, differences that are critical for program 

content and design. 

•	 Chapter III discusses key considerations for economic 

growth programming, in response to the unique 

circumstances of specific post-conflict countries. 

•	 Chapter IV provides concise, summary guidance 

on the types of economic growth programs that 

need to be in place immediately following the 

cessation of violence and for programs that may 

follow in later phases. 

Part 2 of the Guide, Best Practices, combines the 

principles set forth in Part 1 with lessons learned from 

post-conflict experience, to suggest specific best 

practice interventions in seven key sectors:

•	 Chapter V: Macroeconomic Foundations 

A. Fiscal Policy and Institutions 

B. Monetary Policy and Institutions 

•	 Chapter VI: Employment Generation

•	 Chapter VII: Infrastructure

•	 Chapter VIII: Private-Sector Development

A. Private-Sector Enabling Environment 

B. Enterprise Development

•	 Chapter IX: Agriculture

•	 Chapter X: Banking and Finance

•	 Chapter XI: International Trade and Border 

 Management

Box 1.2 Post-Conflict vs. In-Conflict

The body of knowledge about effective economic 

growth programs and priorities is greater for postconflict countries than it is for countries in the midst 

of conflict. Accordingly, more attention is paid to 

post-conflict countries in the Guide. Nonetheless, 

it might be possible to base planning for countries 

in the midst of conflict on the guidance offered 

here. Once drafted, such plans should be revised 

periodically to reflect the depth of dislocation and 

destruction from an ongoing conflict. Having such 

plans in place will facilitate rapid initiation of a postconflict program.

For countries where an ongoing conflict is limited 

to specific geographic regions, programs and policy 

reforms often can be pursued on a national basis, as 

well as in relatively stable areas not directly affected 

by the violence. In Colombia, for example, USAID 

programs have helped achieve more rapid national 

economic growth. This has created substantial 

economic opportunities, which have reduced both 

the incentives for and the feasibility of continuing 

conflict in the affected regions. Where conflict is 

largely restricted to part of a country, programs 

should also anticipate and help facilitate the eventual 

reintegration of that area and its people into the 

national economy. (The exception, where devolution 

is part of the peace agreement, is not addressed 

here.) In the midst of conflict, it may be difficult to 

get political support for such programs, but their 

value will become evident once the conflict is 

resolved and the rebuilding process is ready to begin.
4 USAID

Context matters enormously when developing 

immediate, short-term, and long-term programs to 

promote growth in post-conflict environments. This 

chapter discusses the key characteristics of countries 

emerging from conflict and describes the aspects of 

their economies that are accentuated or caused by 

conflict. 

The characteristics of post-conflict countries are 

fundamentally different from those of stable developing countries. For this reason, a different approach to 

programming is required. Standard economic programs, designed to address familiar development 

problems, often are inappropriate or ineffective in 

countries emerging from conflict. In these environments, effective programs require an understanding of 

how economies change during conflict. It also is 

important to understand what traditional post-conflict 

recoveries have looked like and why those traditional 

recoveries have often been inadequate. 

The economic environment brought about by conflict 

increases both the costs and the risks of engaging in 

commercial activity and investing. During conflict, 

the basis for vibrant private-sector activity and robust 

growth is eroded. Conflict reduces physical security, 

drives up inflation, and destroys the value of savings. 

It threatens the rule of law, reduces the security of 

property rights, causes capital flight, shrinks the size 

and geographic scope of markets, dries up access to 

credit and financial services, drives away public- and 

private-sector managers and skilled labor, and destroys 

schools, clinics, hospitals, and strategic infrastructure 

for water, sewage, electricity, telecommunications, and 

transport. Conflict also reduces the scope of regulation 

and taxation, deprives the state of revenues to provide 

essential public services, drives economic actors to 

engage in safer, shorter-term transactions, and rewards 

activities – many essential but some illicit and unsavory 

– that profit from conflict-driven opportunities. 

Economic growth programs must restore confidence 

by reducing the higher-than-normal costs and 

lowering the elevated risks of doing business. In 

designing programs, however, planners face a host of 

challenges as conflict subsides or is brought to an end:

•	 significant insecurity 

•	 macroeconomic instability and uncertainty 

•	 reduced rule of law and protection of property 

rights 

•	 limited access to credit and financial services 

•	 damaged or destroyed infrastructure 

•	 a loss of skills in the private sector and 

government 

•	 distorted labor markets 

•	 distorted regulation of economic activity 

•	 poor tax enforcement and collection 

•	 a high proportion of informal economic activity 

Patterns of Post-Conflict

Growth

The “normal” pattern of recovery after conflict is 

marked by an initial burst of economic rebound 

activity but relatively disappointing progress 

thereafter. One World Bank study6 analyzed per capita 

growth rates from 1974 to 1997 in 62 post-conflict 

countries and found an inverted U-shaped curve for 

post-conflict growth. Typically, although growth 

rebounded in the first two- to three-year “peace-onset” 

phase, it generally was not above average. Then, in 

years four through seven, above-average growth rates 

were achieved. The study states, “We have also found 

that there appears to be no supra normal growth effect 

during the first three years of peace, or beyond the 

seventh year of peace.” Even when growth does 

rebound following a prolonged conflict, it generally 

takes a decade or more for a country to recover to 

pre-conflict levels of income and well-being. 

6 Collier and Hoeffler (2002).

II. Special Circumstances and Characteristics 

of Post-Conflict Countries
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 5

There are at least four sources of post-conflict growth: 

1. Rebound: First, economic activity rebounds, due 

to increased physical security. This rebound is 

highly visible and involves many new economic 

actors who were not active during the conflict. 

2. Donor consumption: Second, an increased 

presence of donor agencies generates demand for 

local goods and services. This donor consumption 

stimulates demand for services such as housing, 

restaurants, hotels, and dry cleaners that serve 

a small, high-income clientele. Donor demand 

also may increase the cost of local professional 

expertise and skilled labor, which donor field offices need to operate and carry out programs. This 

effect can be particularly significant in smaller 

economies. Although it will stimulate the economy, donor consumption by itself is unlikely to 

generate long-term, sustained growth. 

3. Donor investments: The third source of growth 

is the demand generated by donor investments 

in a wide range of public goods. Investments 

may range from agricultural rehabilitation and 

extension programs, health clinics, and schools 

to large infrastructure projects. A rapid surge in 

donor consumption and/or investment spending, however, risks increasing the exchange rate, 

thereby making the country’s exports less competitive. Donors and governments must take care 

to prevent this effect, known as “Dutch disease,” 

from slowing the recovery.

4. Self-sustaining growth: The final source of 

growth is the resumption and expansion of interactions among all participants in the economy. 

This natural, self-sustaining growth is the sign of 

a healthy economy with a sound policy environment. Ideally, this growth occurs at a significantly 

faster rate than before the conflict began, due 

to changes brought about through post-conflict 

policy reforms and economic growth programs. 

Regardless of the effectiveness of donor-financed 

programs in the short run, it is the country’s 

capacity to sustain economic growth that matters 

most for long-term success and which ultimately 

permits donors to step aside. 

Key Common Characteristics

of Post-Conflict Countries

Donors face a broad array of common challenges 

in post-conflict environments. Any or all of the 

following may be present: 

A lack of security: The salient characteristic of 

post-conflict countries, and the factor that affects 

programming more than any other, is the degree to 

which there is enough security to move about and 

interact with the population. There may be different 

degrees of security in different parts of the country. 

This may limit the geographic reach of programs and 

policies during the immediate post-conflict period. 

It is important to increase steadily the degree and 

geographic scope of security, not only through policing and the visible presence of armed authorities, but 

also through political and economic means. This may 

involve negotiating with aggrieved parties, resolving 

issues about which groups can exercise authority, and 

gradually achieving and demonstrating the economic 

benefits of adhering to the peace agreement. 

High unemployment: Most segments of the economy 

rebound quickly and visibly. Construction, in particular, might be booming in the post-conflict capital city. 

Nonetheless, it is important to remember that it will 

take many years for economic activity to fully recover 

to its pre-war level. Thus, unemployment of labor (and 

capital) may be exceptionally high in relation to the 

pre-conflict period or to similar non-conflict countries. 

Many of the newly unemployed may be ex-combatants 

or others who are perceived, due to behavior patterns 

developed during the conflict, as posing ongoing risks to 

peace and security. Generating employment is one of the 

keystones of immediate post-conflict programs.

A need for rehabilitation and replacement of physical 

infrastructure: The country’s physical infrastructure is 

likely to have been significantly damaged or disassembled. 

Frequently, the neglect of basic maintenance is an even 

greater problem than destruction and vandalism. During 

a lengthy conflict, a cumulative lack of maintenance results in infrastructure that must be reconstructed because 

it is beyond salvaging. Of particular interest to enterprises, 

the electricity grid may have shrunk to a narrow and 
6 USAID

unreliable core. Roads are likely to be in poor condition 

because they have not been regularly maintained. Ports 

and airports often are inefficient and under-maintained; 

they frequently serve as focal points for corruption. Clinics, schools, housing, and other social infrastructure may 

have suffered substantially from the need to compete 

for limited resources. Donors in conjunction with the 

host-country government must decide quickly which 

infrastructure merits emergency restoration and which 

infrastructure can be rebuilt after lengthier public procurement procedures.

Weak host-government administrative capacity: During 

protracted conflict, many of the most capable government 

managers and other educated members of the workforce 

flee the country. Most will be slow to return. As a result, 

the post-conflict government’s administrative capacity 

is likely to be particularly weak. Meanwhile, positive 

economic results are urgently needed to strengthen the 

new government’s legitimacy and stability. The need to 

produce quick results may present unusual requirements 

for donors helping to rebuild basic government functions. 

Rather than just serving as advisors, donor-funded foreign 

experts may need to be thrust into line responsibility, 

actually managing some civilian government functions (as 

was done in Kosovo). An external military body, such as 

a United Nations-led military force, may need to serve as 

the country’s primary police force. Donors may need to 

negotiate with host-government leaders to achieve a working compromise on the division of sovereign authority in 

some civilian areas. The speed of donor response in the 

post-conflict period is critical, so donors must accelerate 

the design of programs and the process of contracting and 

mobilizing foreign experts.

A disproportionate impact on women: Economic 

disparities for women often increase disproportionately 

during conflict. There may be a higher-than-usual share 

of women-headed households, with their corresponding 

economic hardships. This makes it all the more urgent to 

include women in transitional employment-generation 

programs and to improve the enabling environment so 

that women can participate fully in the economy.

The presence of multiple donors and aid organizations: There almost always are a large number of donor 

governments, multinational organizations, and interRoad rehabilitation 

south of Jalalabad, 

Afghanistan, makes 

goods and services 

more accessible 

to families and 

businesses, and allows 

local producers to 

reach larger markets. 

(USAID/Afghanistan)
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 7

national NGOs on the ground, anxious to implement 

reconstruction and stabilization programs. Each may 

have different priorities, as well as different views on 

how priorities should be pursued. It is critically important to establish a process for information-sharing 

and coordination – both among donors and between 

donors and the host government – to agree upon policy 

issues and avoid working at cross-purposes or duplicating efforts. This is easier said than done. Coordination involves agreeing upon a leadership structure and 

deciding who has the authority to convene a central 

coordinating body. Donors and host governments also 

need to establish multiple working groups to deal with 

the bureaucratic and technical complexities involved in 

responding flexibly and effectively to a rapidly evolving 

post-conflict environment. The workload associated with 

the coordination process often seems overwhelming to 

understaffed donors and weak host-country administrations, but effective coordination is paramount given the 

large resource flows in play and the high risks of a return 

to conflict. The critical importance of process issues cannot be overemphasized.

The Political and Social

Context

Programs to address post-conflict problems must 

confront as directly as possible the factors that led to 

the conflict, taking into account the fragility of the 

political environment. They must be “conflict 

sensitive” in a way that programs designed in other 

developing countries are not. Post-conflict countries 

suffer from the same litany of problems as other 

countries at comparable income levels, but their 

problems go much deeper and are in key ways 

fundamentally different as a result of conflict.

Infrastructure maintenance, for example, often is 

inadequate in developing countries, resulting in high 

costs or poor service for individuals and enterprises. In 

many post-conflict countries, however, infrastructure is 

not just in poor condition, it is nonexistent. It may 

have been destroyed or not maintained at all during the 

conflict. In deciding which infrastructure to rebuild, 

donors and governments need to take into account not 

only the infrastructure’s contribution to the resumption 

of economic activity, but also the distribution of 

benefits among parties to the conflict. 

Post-conflict countries are also different from each 

other. How different depends to a great degree on the 

extent and duration of the conflict and on how it 

ended. How long did the conflict last? Was it nationwide or more limited in geographic scope? How much 

damage was done to physical infrastructure and to 

social and political institutions? How was the conflict 

stopped? How extensive was the disruption of commerce and general economic activity? What needs to be 

rebuilt for such activities to resume? What can be 

replaced with new technologies and practices? 

Politics of the Conflict

Understanding the politics of the conflict is vital. What 

fueled the conflict? Did the peace agreement help resolve 

underlying hostilities or did it postpone dealing with 

fundamental issues? Does the peace accord open up the 

possibility of using assistance to address these fundamental 

issues, or not? How fragile is the peace as a result of 

whatever accord was reached to stop fighting? What are 

each side’s expectations, as expressed in political settlements? How is power to be shared? 

Inequity and Discrimination

If inequity and discrimination were critical to a 

conflict, and they almost always are, they will be 

present in the new government’s economic decisionmaking; they often override considerations of 

economic efficiency. The issues that led to conflict will 

always be present, and are often foremost in the minds 

of the country’s political and social leaders. Sources of 

hostility may be very deeply rooted and therefore very 

difficult to eradicate. For a Kosovar, for example, the 

roots of conflict may be traced back 700 years. The 

new government may not be in a position to mitigate 

inequity and discrimination, even if it has the will to 

do so. In the worst case, the government may only pay 

lip service to issues important to minorities and the 

political opposition. 

Donors need to encourage and promote inclusive 

national processes and ensure that programs are 

equitable. The driver of conflict, whatever it was, must 

be addressed by all aspects of post-conflict programs, 

and especially by economic planning. As noted by Dr. 
8 USAID

Richard Caplan, professor of international relations at 

the University of Oxford: 

“[E]conomic regeneration is critical for the 

establishment of a sustainable peace in the aftermath of violent conflict. Economic deprivation 

can be a source of civil strife, especially in societies where economic disparities coincide with 

ethnic, religious, tribal or other kinds of social 

differentiation. Where these disparities have 

generated frustration severe enough to have led 

to civil war, it is vital to take measures in the 

immediate post-war environment to promote 

economic development that can improve the 

general welfare and thus weaken the economic 

foundations of political violence.”7

Powerful interests

In addition to perceptions of inequity, there is the 

reality of powerful old interests that may attempt to 

revive the former social and political structure of the 

economy, in order to recreate their privileged position.

The ownership structure of the economy that existed prior 

to the outbreak of conflict typically is reinforced by a 

dense network of personal relationships. If representatives 

of old interests are present in the post-conflict government, there may be a concerted effort to press donors into 

financing the rebuilding of old ownership structures, 

rather than transforming them and subjecting them to 

competition. According to a recent report on market 

development in crisis-affected environments:

7 Caplan (2007).

“Underlying most market failures are powerful monopolies, only sometimes based on true 

competitive advantage. More often, they are 

based on ethnicity, political and family connections, military control, or bureaucratic 

control, which reaps rewards for corrupt officials. Market development programs attempt 

to understand, transform, work around, or 

confront such powerful market interests to open 

markets . . . ”8

To achieve rapid growth while addressing issues of 

equity and bringing about a structural transformation 

of the economy, donors must continuously deepen 

their understanding of the country’s political economy. 

Planning for economic growth programs must be 

based on more than narrow, technical considerations 

of economic efficiency and growth stimulation. It must 

also be effective at opening up opportunities and 

increasing inclusiveness. Programs must be judged in 

part on the basis of whether or not they strengthen one 

party to the conflict. The ex-ante economic structure 

should not simply be rebuilt. Are the perceived inequities that led to conflict mitigated or reinforced by the 

rebuilding program? How can programs increase the 

perception of equitable treatment for all parties and still 

be effective in bringing about renewed growth and 

employment? The relentless pursuit of economically 

efficient solutions must be tempered by the need to 

demonstrate fairness and inclusiveness for economically 

disadvantaged populations, while remaining mindful of 

the need to move toward economic efficiency to assure 

sustainability in the long term. 

8 Nourse et al. (2007).
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 9

Clear Goals

Clear goals, an awareness of key themes, and an 

understanding of recurring trade-offs are important 

for success. Clear goals are critical, because, in the 

chaotic circumstances that characterize the post-conflict period, everything seems to be needed at once and 

there may be many actors with differing priorities. 

Each post-conflict situation is different, but the 

following objectives can serve as a starting point for 

designing economic growth programs:

•	 reestablish essential economic governance functions and restore the government’s legitimacy 

•	 boost employment and improve well-being as 

quickly as possible 

•	 address the root economic causes of conflict 

•	 stabilize the economy and position it to grow 

rapidly 

Sequencing and Process

Economic growth programs in post-conflict environments, in contrast to those in stable developing 

countries, require donors to devote significant resources 

to non-traditional programs and to change how they 

implement programs in order to achieve results more 

quickly. Programs must be developed in a way that takes 

into account the country’s key characteristics. For 

example, to achieve rapid results in spite of a country’s 

weak institutional capacity, donors may have to become 

directly involved in repairing and constructing public 

infrastructure, rather than waiting for multilateral 

development banks to design and finance such programs. 

Other examples of how donor processes must adapt to the 

needs of post-conflict environments are discussed in the 

next section of this chapter, Recurring Trade-Offs. 

Implementing economic growth programs in 

post-conflict environments requires much greater 

attention to process issues than in most developing 

country contexts. There must be particular emphasis 

on the quality of coordination among donors and with 

the host government, which in turn depends on field 

staff specially trained to deal effectively with post-conflict issues. Ideally, donors and the host government 

will develop shared objectives for the post-conflict 

recovery and put in place mechanisms ranging from 

frequent high-level consultations to regular, sectorspecific working groups. Mechanisms such as these will 

help to avoid duplication of effort, ensure timely 

implementation, and identify programming gaps and 

needed adjustments in ongoing programs. Time and 

again, practitioners have pointed out how critical it is 

to act on the basis of information learned through 

public–private-sector dialogue. Donors must consult as 

broadly as possible with all stakeholders, coordinate 

closely with the government (and in particular with 

any champions of reform), and communicate clearly 

and often with the public about what the donors are 

doing with the government and host-country institutions to meet people’s needs. To cope with inevitable 

resistance to change, donors must follow sound 

change-management practices. Flexibility must be built 

into programs, allowing them to respond to rapidly 

evolving post-conflict economies.

What have we learned about sequencing donor 

interventions in post-conflict countries? Donors 

traditionally have not focused immediately on the reform 

of economic policies and institutions, but rather on 

physical reconstruction, human capital recovery, and the 

III. Post-Conflict Economic Growth 

Programming – Some Fundamentals

Economic growth programs must be developed as an integral part of a comprehensive restructuring and stabilization program. The broader program will include investments in political and economic governance, interventions 

for social services such as health and education, the provision of humanitarian assistance, and the maintenance of 

peace and security – without which there is little prospect for economic growth.
10 USAID

social and economic reintegration of former combatants, 

refugees, and displaced persons. All these are important 

aspects of post-conflict recovery. However, economic 

policy reforms, small-scale privatizations, market liberalization, and anti-corruption reforms should also be 

pursued vigorously and early in the post-conflict period, 

limited only by the host government’s capacity to 

implement them credibly and effectively. Donor pressure 

for reforms can be a determining factor in their adoption, 

strengthening the hand of reformers in government. Still, 

donors should generally be careful not to undermine 

host-country ownership of the reforms to ensure the 

reforms are sustained. The purpose of this new approach, 

which focuses earlier on taking the steps necessary to 

re-start economic growth, is to bring about: 

•	 a dramatic shift from widespread humanitarian 

assistance administered by foreign donors to an 

environment where viable livelihoods are delivered 

through the private sector 

•	 a transformation of the pre-conflict economic 

structure through the pursuit of feasible economic 

policy reforms, which will increase both equity 

and the potential for growth

The highly stylized diagram on the following page illustrates 

how post-conflict economic growth programming can be 

approached. Early emphasis should be placed on providing 

humanitarian assistance and expanding physical security. 

Without physical security, the likelihood of economic growth 

is greatly reduced. Donors should immediately and quickly 

build up programs, including the provision of key public 

services and reconstructing infrastructure, to stimulate 

economic activity and generate employment, while continuing to implement security measures. In addition, donors 

should focus immediately on supporting economic 

stabilization through improved macroeconomic management; this tactic will later yield significant benefits. Donors 

should also act quickly to support policy and legal reforms 

that will increase the potential for economic growth. Later, as 

job opportunities begin to increase because more employers 

offer sustainable, productive jobs, donors should phase down 

and eliminate their programs for creating economic demand 

and jobs.At this point, donors should turn their focus to 

efficiency-enhancing programs that will help stimulate rapid, 

sustained private sector-led growth. By combining a 

private-sector orientation with policy reforms and programs 

to strengthen markets, donors can increase prospects for 

maintaining peace and renewing economic growth. 

Throughout the post-conflict period, donors should pay close 

attention to policy reforms, which will increase the chances of 

success for all programs. The overall donor effort will change 

in its composition as the recovery unfolds, but it should 

remain robust for several years following the initial buildup. It 

is important to keep in mind that the diagram is purely 

illustrative, and programming must retain a great deal of 

flexibility to deal with unforeseen developments and the pace 

of economic recovery.

Chapter IV contains a more detailed presentation of 

economic growth programming suggestions.

Service Delivery and HostCountry Capacity

The success of post-conflict economic growth programs will depend heavily on re-establishing security, 

rebuilding the effectiveness of host country institutions, and establishing legitimacy. “Sustaining the 

peace ... depends on the capacity of public 

Box III.1 Learning and Leadership

For both donors and government leaders, the 

learning process about how rapidly economic 

reforms can be introduced and what is required 

for success will continue throughout planning and 

implementation. 

Following the 1994 national elections in Mozambique, 

for example, the new vice minister of finance set 

about reforming the corrupt, inefficient customs 

administration. She politely turned down assistance 

offered by donors. A year later, after concluding 

that unassisted internal reform would not achieve 

her goals, she obtained assistance from the United 

Kingdom to carry out a comprehensive restructuring. 

Although this effort continued for more than a 

decade, within two years it produced many of the 

results the vice minister had been seeking. 

Collaboration produces sustainable results, but it 

also requires local ownership, strong leadership, 

and patience when the reforms are profound.
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 11

Figure III.1 Post-Conflict Economic Growth Program Emphases

administration to restore service delivery, reconstruct 

infrastructure, and reintegrate those who have participated in or suffered from conflict into a more unified 

polity.”9 However, the host country’s capacity to carry 

out these critical missions is generally inadequate in the 

aftermath of conflict. Donors must quickly assess the 

existing capacity and use other actors to fill the highest 

priority gaps. However, donors should seek to associate

their activities and the activities of NGOs and 

contractors they support with the host government in a 

way that re-establishes its legitimacy. At the same time, 

donors and the host government must begin the 

process of rebuilding host-country capacity as soon as 

possible. Ultimately, the host government’s legitimacy 

will depend in part upon its effectiveness in ensuring 

the provision of public goods and services. 

Security, effectiveness and legitimacy are interrelated.

Citizens tend to withdraw legitimacy from a government 

that cannot deliver services effectively. Effectiveness is 

connected to security because citizens engaged in schools 

and jobs, with hope for improving their well-being, are 

less likely to engage in crime or insurgency.

9 Rondinelli (2006).

Service-delivery activities that bypass existing local 

capacity should be minimized. Donors and humanitarian NGOs are often best positioned to take the lead 

in providing essential services and responding to 

immediate needs. However, donors should already be 

looking for opportunities to make greater use of 

existing local capacity. If donors rely too heavily on 

external actors, they may diminish rather than build 

local capacity, risk creating dependency, and reduce the 

chances for sustainability. While donors must act 

urgently to save lives and restore essential services, they 

must also be acutely aware of the risks of continuing in 

a rapid-response mode and build local capacity to 

replace expatriate organizations over time.10

Donors and the host government must clearly 

communicate how they are working together to meet 

people’s needs. Communications are vital throughout 

the post-conflict period to establish realistic expectations, gain the confidence of all parties, and build 

public support. Communications also need to 

emphasize how donors and the host government are 

collaborating to ensure a robust post-conflict recovery 

program. These messages play a critical role in strengthening the legitimacy of host-country institutions in the 

10 Brinkerhoff (2007).
12 USAID

eyes of its citizens. “(It is) not just what an organization 

does, but how it frames and communicates what it 

does, (that) is important for legitimacy.”11

Donor programs to deliver services and to increase 

the effectiveness of host-country institutions must go 

hand-in-hand. Donors should establish explicit 

objectives for expanding and improving service delivery 

with an increasingly greater role for host-country 

institutions over time. This will require a host of 

programs and a substantial investment of leadership 

and staff time coordinating with the host government. 

Examples include rebuilding a functioning civil service, 

installing basic management systems, controlling 

corruption, making health care and schooling available, 

restoring roads and transportation networks, and 

providing social safety nets. For effective basic services, 

the capacity of the private sector and civil society in 

developing country post-conflict settings will be 

equally critical.12

11 Brinkerhoff (2005).

12 Brinkerhoff (2007).

In weighing the advantages and disadvantages of 

different approaches to assisting post-conflict countries, 

donors should consider the factors set forth in the 

following table.13

Recurring Trade-Offs

In post-conflict countries, substantial structural 

challenges and the ever-present risk of renewed 

conflict mean that donors need to make decisions 

quickly, and on the basis of specific trade-offs that 

are much more acute than in stable developing 

countries. The key trade-offs that tend to arise again 

and again are urgency vs. legitimacy, effectiveness vs. 

efficiency,

14 short term vs. long term, and window of 

opportunity vs. absorptive capacity.

15

13 The table is based on Blair (2006). 

14 Effectiveness can have different meanings in different contexts. Here, the term means doing what works without 

regard to its sustainability or economic cost. Efficiency

here follows the economic definition, meaning that which 

will cost society least in the long term. 

15 While there often is overlap and these categories are not 

Table III.I Post-Conflict Service Delivery Mechanisms

Approach Advantages Disadvantages Civil Service 

Role

Monitoring 

and Control

Contracting through and/

or providing grants to 

foreign organizations

Quick

Quality work

Least corruption

Expensive

No local capacity built 

Not accountable 

except to donor

May undermine 

legitimacy

Marginal Donors

Domestic NGOs

Quality of work

Less expensive

Flexible work force

Less corruption

More expensive than 

host government

Cannot meet all need

Marginal Donors

Public opinion

Private sector 

competition

Consumer choice 

drives quality and 

price

Market failures

Imperfect consumer 

knowledge

Insider privatization 

sell-offs

Minimal 

involvement

Easily corrupted

Market

Devolution

Tailored services 

Flexible

Citizen control

Local 

accountability

Local elites dominate

Local corruption

Increased inequality 

among localities

Local expansion

Fragmentation of 

career services

Opposition to 

decentralization

Local citizens

Line bureaucracy

Experience in place

Incremental 

expansion feasible

Bad habits persist

Serious reform more 

difficult later on

Main service 

delivery agency

Accountability 

mechanisms of 

central government
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 13

Urgent vs. legitimate

Urgent action designed to take advantage of an early 

window of opportunity for reform must be weighed 

against the effect such actions — if they bypass local 

institutions — may have on the government’s perceived 

legitimacy. Mistakes will be made in judging among all 

the proposals for urgent action, but there should be due 

consideration of each action’s effect on legitimacy. To 

illustrate this point, consider the passage of a new 

company law in the belief that it is needed to encourage 

business activity and investment. Donors might believe 

that such a law needs to be promulgated quickly, even 

before a parliament has been formed or even if it means 

pushing an imperfect law through parliament. If the law is 

not widely seen as legitimate, however, doing so could 

weaken the credibility of the government. In one such 

case, prior consultation with the intended beneficiaries of 

this law might have revealed how unnecessary this step 

actually was in practice. 

Effective vs. efficient

Effective, immediate solutions are not always 

efficient, but may be important in some situations. 

In post-conflict settings, there often is not time to 

await the benefits of economically efficient solutions or 

arrangements, because results must be achieved very 

quickly to mitigate the risk of instability and a return 

to conflict. A clear illustration of this trade-off is the 

role of informal activity, which is likely to have 

increased dramatically during a conflict. Most postconflict governments, however, want to establish their 

authority over economic actors. Their first instinct may 

be to limit informal activities, particularly where they 

compete with state-regulated industries. In general, 

however, governments should not seek to discourage 

informal enterprises in the aftermath of a conflict. If, 

for example, the national power grid has collapsed, 

small private electricity suppliers may be meeting the 

needs of residential and small-business consumers. 

Although these informal suppliers are both costly 

(economically inefficient) and not legally constituted 

enterprises, the effective policy is to permit them to 

continue to provide electricity as long as their services 

mutually exclusive, each of these trade-offs makes a useful 

distinction in practice.

are in demand. This principle applies to almost all 

post-conflict informal sector activity, with the exception of clearly criminal activities. 

Short term vs. long term

Donors must be careful to prioritize short-term vs. 

long-term programmatic needs. Post-conflict environments require extensive reforms, but do not require all 

of them immediately. For example, foreign direct 

investment is tremendously important for a country’s 

long-term economic growth. In the short term, 

however, it generally is counterproductive to devote 

significant resources to attracting foreign investors, who 

are unlikely to enter the market before investment 

conditions justify it. They may have deep pockets and 

bring new technologies and markets, but foreign 

investors typically are less willing to risk their capital 

than local investors, and often are less well-informed 

about the true investment risks in a post-conflict 

situation. In addition, devoting resources to attracting 

foreign investors would divert government attention 

from the most likely providers of early investment and 

jobs: local investors and employers (and possibly 

south-south investors). In the short term, the government needs to take pragmatic steps to stimulate 

demand and create jobs, rather than focusing on a 

long-term payoff from foreign investment.

Window of opportunity vs. absorptive 

capacity

In considering this trade-off, donors should be very 

selective, introducing a set of changes that will 

produce positive effects without overwhelming the 

government’s capacity to manage change or society’s 

capacity to absorb it. The window of opportunity vs. 

absorptive capacity trade-off will arise immediately 

with a large number of proposals for change, requiring 
14 USAID

donors to exercise judgment along several dimensions. 

At the end of a conflict, a break with the past frequently opens a window of opportunity for reform. 

There is a chance to introduce new, improved practices 

and to change economic governance structures as a 

new administration takes office. Although many 

“stroke-of-the-pen” liberalizing reforms require little or 

no absorptive capacity, there are also many policy, 

procedural, and technological changes which, while 

highly desirable, require the government and civil 

society to have substantial technical and institutional 

capacity. In evaluating the trade-off between a window 

of opportunity and absorptive capacity, donors must 

judge whether the country’s institutions, leaders, 

managers, and human resources are willing and able to 

implement and manage change. 

In some cases (as is argued in Chapter X: Banking and 

Finance) older “tried-and-true” methods will more 

readily restore the functioning of the economy or of a 

specific sector than better or more modern methods, 

because of the time required to train everyone in the 

new system. In other cases, a modern system is so 

superior to an older tried-and-true system that the 

payoff from reforms and restructuring makes it worth 

the investment. Examples of this principle include the 

use of information technology in financial management 

systems (which can also be a useful tool for limiting 

corruption) and the leap to cellular telecommunications 

instead of restoring and relying on landline telephones. 

Unintended CONSEQUENCEs

As donors act urgently to mount post-conflict programs, 

their very presence and the influx of large resource flows 

may result in a number of unintended consequences 

that can set back the recovery they are seeking. Examples 

of unintended consequences include:

•	 displacement of the local private sector by overreliance on NGOs and expatriate contractors;

•	 undercutting the legitimacy of the new host government by failing to include its visibility in the 

service delivery process; 

•	 driving up wages and salaries, especially of skilled 

labor; and, 

•	 weakening of host country institutions by donors, 

NGOs, and contractors aggressively hiring away 

their best staff. 

Also, a large donor response can lead to rapid inflation 

and/or appreciation of the currency, a condition 

known as “Dutch disease,” that can both slow down 

and distort economic growth. Donors and the host 

government should monitor the economy for signs of 

Dutch disease and take appropriate measures to 

mitigate its effect on economic growth.

In general, donors need to be alert to the unintended 

consequences of their assistance and should attempt to 

minimize them as they design and implement postconflict assistance programs. The second part of the 

guide, Best Practices, provides examples and guidance 

on dealing with these dilemmas and trade-offs in 

specific sectors. 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 15

Box IV.1 Using Informal Assessments

Mozambique in the mid-1980s followed a Sovietinspired regime of price controls. In this environment, 

there was almost no incentive for potential vegetable 

producers to supply the Maputo market. Every day, 

customers formed long lines to access the limited 

supply. There was no need for formal studies to 

understand the market failure in this situation. It was 

also easy to observe that there was no market for 

vegetable seed supplies and small tools.

The USAID Mission in Mozambique agreed to 

finance an initial supply of seeds and tools if the 

government would abolish price controls on 

vegetables. Once this happened, the vegetable 

market flourished in short order, with increasing 

amounts and varieties of vegetables. Growth of 

input supply markets soon followed.

Post-conflict work is commonly referred to as “rebuilding,” but this term may create the mistaken impression 

that the idea is to put things back the way they were. It is 

important to keep in mind that the way things were 

contributed in some way to violent conflict. Accordingly, 

the donors’ task is simultaneously to bring about 

stability, a recovery of basic economic activity, and a 

structural transformation of the economy that will 

mitigate the economic factors underlying the conflict 

and position the economy to grow rapidly. Planners 

should not underestimate the challenges of doing all this 

effectively but know that it can be and has been done 

successfully.

rapidly Assessing Economic

Circumstances

Time may not permit thorough analysis, but a rapid 

assessment of a post-conflict country’s circumstances 

and characteristics is a vital early step. In the 

aftermath of a conflict, programming should start 

immediately. Because there is not time to conduct the 

detailed but time-consuming analysis that is a prerequisite for programming in stable developing countries, 

assessments to inform programming must be done 

rapidly. In designing economic growth programs, 

donors need to address a number of key questions. 

How badly has conflict disrupted commerce and 

productive activity? Are markets functioning? If not, 

what is preventing a resumption of market activity? Are 

some markets missing altogether? 

Informal assessments, based on consultation with a 

wide range of economic actors, can provide vital 

information about what needs to be done early on. 

If a lack of physical security for expatriates limits 

mobility, donors can develop systems that rely on local 

employees and organizations. Business people and 

informal entrepreneurs, in particular, can report on 

developments in local markets and provide regular 

information on attitudes, prices, and the availability of 

goods and services. To understand developments in the

economy, frequent interaction with local economic 

actors is strongly encouraged.

Assessments should include basic information about the 

state of the economy, in addition to extensive informal 

consultations and data gathering. This information should 

be related to the causes of conflict. Rapid assessment tools 

are available from various organizations. The 2005 

USAID publication “Conducting a Conflict Assessment: 

A Framework for Strategy and Program Development” is 

IV. Deciding What To Do When – 

Prioritization and Timing

Each post-conflict situation is unique; there can be no single checklist for all situations. Nonetheless, there are key 

elements that need to be included in most post-conflict strategies. This chapter discusses those elements and 

describes the importance of conducting a rapid assessment, which is needed to set more detailed priorities. It also 

provides broad guidance on the types of programs that are appropriate during the immediate post-conflict period 

(usually two to three years in length) and those needed during later phases. This chapter will help planners verify 

the degree to which their programs (along those of other donors) address the fundamental economic issues. 
16 USAID

particularly helpful. “Post-Conflict Reconstruction: 

ESSENTIAL TASKS,” a document developed by the U.S. 

Department of State’s Office of the Coordinator for 

Reconstruction and Stabilization, provides a comprehensive indicative list of tasks, including assessment tasks, in 

matrix format. This list is a valuable guide to the issues 

that need to be considered when developing post-conflict 

economic growth programs. Because the range of 

recommended tasks is extensive, a short-list of countryspecific priorities will have to be determined.

Assessments should identify the potential for “unintended consequences” of donor programs and donors 

should take these into account in designing interventions. Donors should attempt to minimize such unintended consequences as displacement of the local private 

sector by over-reliance on NGOs, undercutting the 

legitimacy of the new host government, driving up wages 

and salaries, and weakening host country institutions 

As the rapid assessment is being carried out, donors 

can begin to identify and prioritize needed interventions. The next section of this chapter lists typical 

interventions required in the immediate post-conflict 

period. It is followed by a list of requirements typical 

during a program’s later phases. 

Typical Requirements inthe

Immediate Post-Conflict

Period

Based on priorities identified by the rapid assessment, 

donors might be required to carry out some or all of 

the following to ensure a successful economic transformation and post-conflict recovery: 

•	 Vigorously promote local private sector participation in relief and humanitarian assistance programs.

•	 Phase down refugee camps as soon as possible to 

encourage displaced families to return to traditional economic activities and to rural employment (if such activities remain economically 

viable), thereby reducing the population of idle, 

unskilled workers in urban areas.

•	 Ensure that the country has a viable currency,

accepted for commerce and trade. This can be 

an international currency until the country once 

again has the capacity to manage its own.

•	 Ensure that the government can make payments 

and collect revenues. Rely on easily administered 

taxes and customs duties at first. From this base, 

immediately begin to build capacity to manage 

the money supply, oversee financial institutions, 

and manage the central government budget. If 

external debt discourages investment, negotiate 

debt forgiveness and rescheduling. Seek to achieve 

fiscal discipline as quickly as possible.

•	 Avoid too much appreciation of the exchange 

rate, such as that which can result from large donor 

expenditures, which will reduce the country’s export 

competitiveness and harm its potential growth from 

export development. This important but complex 

macroeconomic management issue may require 

specialized assistance from economists. 

•	 Knock down as many obvious barriers to both 

formal and informal economic activity as possible, as soon as possible. Such barriers may include 

price controls, onerous business registration procedures, or restrictions on who is allowed to apply for 

import licenses. Consult widely with both the public and private sectors to understand what needs to 

be done to unleash economic activity. Do not limit 

consultation to formal-sector actors only, since they 

may be seeking to curb competition. Include small 

farmers and private-sector agricultural interests, to 

identify any special barriers to agricultural activity. 

•	 Promote employment generation and stimulate 

the economy. While increased donor consumption 

alone will provide a certain amount of stimulus, 

immediate, broad-based impact requires a quick increase in donor-financed investment. At the outset, 

for maximum effect, donors should not be unduly 

concerned about the ultimate sustainability of 

the activities. The goal is to get unemployed labor 

and capital back to work, and quickly. Although 

sustainable investments are always preferable, time 

constraints and inadequate data may not permit a 

careful assessment of all proposed activities. Employment generation programs should include, but 

not be limited to, activities targeting ex-combatants 

from all sides of the conflict.
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 17

•	 Provide grants to a variety of groups, making 

the time-limited nature of donor funding clear 

from the outset. Grants may be made to support 

government-managed public works, for example, 

and should be made to a wide range of community 

organizations and businesses. Distribute cash to 

conflict-affected populations and provide seeds and 

tools to farmers through local vendors to facilitate 

the return of displaced persons and refugees to 

their farms. 

•	 Reduce physical obstacles and eliminate barriers to movement and commerce, particularly 

for rural and agricultural markets. Promote the 

flow of market information and encourage the 

development of regional and international markets 

for agricultural products. If needed, remove land 

mines; make emergency repairs to roads, railways, 

ports, and airports; restore basic utilities; and 

establish modern communications systems to provide timely information about market conditions. 

Ensure that infrastructure policies will sustain the 

newly restored systems for water, sewage, electricity, telecommunications, and transport.

•	 Establish procedures for handling property and 

contract disputes, including recognizing customary 

laws already in use. This will facilitate the return 

of displaced persons and refugees to their land to 

rapidly resume agricultural production. Establish 

a transparent and binding process to resolve the 

claims of former property owners returning to the 

country, balancing social and political constraints. 

Establish alternative dispute resolution mechanisms 

to adjudicate contract disputes without recourse to 

a full court procedure. As soon as possible, begin 

a national dialogue about disputed or unclear 

property rights that pose a serious obstacle to the 

resumption of economic activity. 

In Lugendo, South Kivu 

Province, Democratic 

Republic of Congo, 

community women 

participate in a school 

construction project. 

Communities were 

required to donate 

labor and supply locally 

available materials to 

match donor assistance 

for rehabilitation 

projects. (Chemonics 

International)
18 USAID

•	 Sell small state-owned enterprises (SOEs) to 

private investors or subject them to competition. 

The complexity of preparing medium and large 

SOEs for sale is likely to exceed host-country 

capabilities. However, privatization need not be an 

all-or-nothing proposition. Consider sustaining or 

restarting some of their operations on an interim 

basis to help generate employment.16 If government 

capacity permits, introduce temporary measures 

such as corporatization, management contracts, 

or hard budget constraints to curb the excesses of 

SOE management. Encourage the private sector to 

take market share from SOEs as state subsidies are 

gradually phased out. Reduce the tariffs on imports 

that compete with SOE products. Keep in mind 

that the longer-term objective is to ensure there 

will be effective competition and, in many cases, 

privatization or liquidation of SOEs.

•	 Focus on local investment and local employers 

(and possibly south-south investment) as a source 

of increased demand. Do not rely on foreign 

direct investment from developed countries to 

generate this demand in the short term,17 because 

most foreign investors will wait for the risk of 

resumed conflict to abate before they invest.

•	 Ensure that basic economic data are collected,

to monitor economic stabilization and the growth 

of economic activity. This initiative is vitally important for determining future directions.

Typical Requirements In Later

Phases

Since not all initiatives achieve results at the same rate, 

the later phases will be entered more quickly in some 

areas of activity than in others. It is important for 

16 One author argues that, “Foreign actors should therefore 

seek to limit large negative shocks to employment following the cessation of formal fighting and consider policies 

that move resources out of unproductive sectors gradually rather than suddenly. This means that such policies as 

SOE privatization and bureaucratic overhaul may have to 

be longer-term goals, while in the shorter term, security 

should remain the priority.” See Butterfield (2007). 

17 Some limited exceptions to this recommendation are 

discussed in Part 2: Best Practices.

donors to maintain as much flexibility as possible, so 

they can respond to different rates of change and to the 

contingencies that inevitably arise after a conflict. 

In setting priorities, donors must continue to apply a 

“conflict lens.” It is important to recognize that for at 

least a decade after a conflict has been resolved, the 

country will continue to face a significant risk of 

returning to hostilities. As program decisions are made, 

the government or other authorities should be 

encouraged to continue maintaining and expanding 

the geographic scope of physical security, which is 

critical to the growth of economic activity.

The host country should develop a strategic framework 

to guide policy formulation and the choice of programs 

during this phase. This task, under host-country leadership and in coordination with the donor community, will 

ensure that there is a common understanding and 

agreement to work within the country’s own framework. 

An economic growth program defined by the strategic 

framework may require donors to support some or all of 

the following initiatives:

•	 Strengthen the major institutions of economic 

governance.

•	 Build the capacity of the tax and customs administrations and introduce reforms in the tax 

structure. Tax reform should include simplifying the 

tariff structure and broadening the tax base. If there is 

widespread corruption in the tax and customs administrations, carry out systemic reforms and changes in 

personnel to increase efficiency and fairness.

•	 Strengthen budget execution and budget planning 

functions, including the capacity to interact productively with the parliament or other legislative body.

•	 Build the capacity of the central bank to implement monetary policy and to oversee banking 

institutions. Audit commercial banks and strengthen bank supervision. Establish a sound policy 

framework and modern oversight structures for 

microfinance institutions. Build capacity within the 

financial sector.

•	 Strengthen economic data collection and conduct a national population census.
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 19

•	 Phase out job-creation programs that would 

distort labor markets.

•	 Improve the business climate by establishing 

accepted measures of performance (such as 

the Doing Business indicators18) as benchmarks 

for progress. Increase the availability of market 

information. Support an expanded private–publicsector dialogue, building on the consultations 

begun during the immediate post-conflict period. 

Reduce costs and increase incentives for informal 

enterprises to voluntarily become formal.

•	 Build a national consensus for a more open 

economy to benefit from trade and encourage full 

participation in regional (multi-country) customs 

unions or trading areas. Build the country’s capacity to analyze trade issues and participate in the 

World Trade Organization.

•	 Revise and strengthen laws concerning property 

rights, using a national consultative process.

•	 Continue to place a priority on infrastructure

that supports greater private-sector economic activity. Ensure that infrastructure policy is adequate to 

sustain the infrastructure systems that have been 

restored. Increase the proportion of investments in 

infrastructure that meets standard benefit-cost criteria. However, continue to be conflict-sensitive when 

selecting investment projects, to ensure broadly 

distributed benefits. Build public institutions’ 

capacity to analyze investment proposals, conduct 

the procurement process, and manage and maintain 

major infrastructure. As much as possible, encourage private-sector management of infrastructure 

construction and operation. 

Part 2, Best Practices, combines the principles described 

in Part 1 with lessons learned from specific post-conflict experiences. It provides much more detailed 

programming suggestions for key sectors, as well as 

information about assessment tools and reference 

documents to assist in carrying out program design.

18 World Bank (2007).

Available Rapid Assessment

Tools

Country Analytic Reports: USAID provides field 

missions with short-term analytical services through 

the Country Analytics. Normally, these reports 

are prepared as desk studies, but for post-conflict 

countries a field visit is also involved. Each country report assesses a broad set of indicators to help 

identify trends, constraints, and opportunities in 

such areas as the private-sector enabling environment and the pro-poor growth environment. 

Indicators are analyzed against corresponding data 

for comparable countries. For USAID users, see 

http://inside.usaid.gov/eg/tech-econ/index-html.
20 USAID

PART 2

BEST PRACTICES

The empirical record shows that the private sector provides the 

main thrust for economic growth. The government, however, 

also plays a fundamental role in creating an environment where 

entrepreneurial drive, innovation, and investment can be 

translated into long-term growth. Successful economic-growth 

interventions in post-conflict countries require donors to:

•	help the host government ensure that it has control over state 

revenue and expenditures to provide essential services for the 

public, thereby enhancing its legitimacy and bringing about 

recovery

•	help create a friendly policy environment for enterprises, an 

environment that will allow them to generate and retain 

earnings, invest their own and borrowed resources, grow, and 

create jobs

•	support cost-effective programs for employment and income 

generation; these programs must be conducive to building 

community action and repairing infrastructure, but must not 

disrupt the revival of private entrepreneurs and markets

•	mobilize resources quickly
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 21

Overarching Objective: To rein in inflation 

and preserve price stability

Because inflation – especially at high rates – deters 

business investment, erodes the value of family savings, 

and can weaken or stall economic recovery, a central 

objective for fiscal, monetary, and exchange-rate 

management is to rein in inflation and preserve price 

stability. Host governments must regain control over 

state revenue and expenditures, and over the management of monetary and exchange-rate policies. In the 

post-conflict environment, some basic policy and 

related institution-building interventions are needed to 

ensure this control and maintain price stability. These 

interventions cannot be merely short-term undertakings. In their 2004 survey for USAID, entitled 

“Economic Governance in War Torn Economies,” 

Lewarne and Snelbecker concluded:

“In almost all reconstruction efforts, the task of 

creating new [monetary and financial] institutions has turned out to be harder and more 

time-consuming than expected.”

Fortunately, the main levers of monetary and financial 

stability usually fall within the post-conflict government’s initial “zone of control” or the capital city and 

the main commercial trading centers, allowing 

monetary and fiscal assistance to be started early. Even 

in these centers, however, the host government’s policy 

and administrative structure is likely to be weak, with a 

small number of highly effective ministers at the top 

and a very thin cadre of skilled technical managers in 

key economic ministries.

The International Monetary Fund (IMF) and the 

World Bank normally take the lead in carrying out 

initial assessments and providing short-term advice on 

rebuilding the host government’s basic fiscal and 

monetary management capacity. In addition, they 

usually lead efforts to improve the accuracy and 

collection of the financial and statistical information 

needed to monitor the condition of the economy. The 

IMF’s early technical assistance typically includes a 

diagnosis and recommendations for improving 

monetary management or tax policy and administration. Such assistance usually is short term and takes 

place during intermittent visits, because the IMF has a 

lower worldwide ceiling for funding long-term 

technical assistance than do multilateral development 

banks and bilateral donors. This leaves the IMF with 

little “surge capacity” to carry out capacity-building 

programs in post-conflict states. The World Bank is 

likely to offer greater long-term resident assistance, 

particularly for public-expenditure management 

functions. With some exceptions, such as the Bank’s 

quick response in Liberia since 2005 however, the 

multilateral development banks are slow to assess, 

approve, and mobilize relevant experts. 

In most cases, USAID, the United Kingdom’s 

Department for International Development (DFID), 

and a few smaller bilateral donors have been able to 

mobilize more quickly the type of substantial, longterm resident technical assistance needed to rebuild the 

capacity of fiscal and monetary institutions.

A. Fiscal Policy And 

Institutions

Overarching Objective: To put the host country 

on a path to greater budgetary self-sufficiency

High levels of donor assistance, often totaling more 

than 20 percent of GDP during the initial 

post-conflict years, are not likely to be sustainable 

in the longer term. To adjust to this external 

financial reality, the host government must be able 

to mobilize “own revenue” adequately and to 

manage expenditures soundly.

Political and Social Issues

Prolonged conflict typically decimates a government’s 

ability to collect revenue. In a few post-conflict 

countries, such as Colombia and Lebanon, the main 

public revenue collection mechanisms that existed prior 

to the conflict may be functioning and largely intact. In 

most cases, however, raising enough funds to cover the 

V. Macroeconomic Foundations
22 USAID

public payroll is an immediate challenge. Reviving or 

developing tax collection mechanisms then becomes a 

high priority. These mechanisms must produce adequate 

revenue, taking into account the minimal administrative 

capacity that may exist. Both tax policy (revised tax laws) 

and tax administration mechanisms are likely to need 

modifications. These modifications should be designed 

to: 1) minimize distortions to the enterprise sector; 

2) be seen as fair and reasonable by the public; and, 

3) be within the capacity of the tax administration to 

manage well.

During the conflict, two parallel systems often evolve 

for payment of public services, many of which may 

have been severely eroded or may even be nonexistent. 

The host government budget funds ministerial payrolls 

and other recurrent expenses under the government’s 

control. Donor budgets fund most capital projects and a 

wide array of services. Donor-funded services may 

range from security, including peacekeeping forces 

under international authority, to technical assistance 

and equipment for line ministries. Through international NGOs, donor budgets may also fund villagelevel welfare and enterprise development activities.19 

Key Trade-Offs

In post-conflict countries, substantial structural 

challenges and the ever-present risk of renewed conflict 

mean that donors need to make decisions quickly, and 

on the basis of specific trade-offs that are much more 

acute than in stable developing countries. In providing 

fiscal management assistance, the key trade-offs are 

effectiveness vs. efficiency, urgency vs. legitimacy, and short 

term vs. long term. 

Effective vs. efficient

Early in the post-conflict period, the host government’s capacity to collect import duties and excise 

taxes is usually stronger than its capacity to collect 

19 One Liberian government official noted in 2005 that the 

collective budgets of all of the foreign NGOs in Liberia 

exceeded that of the national government.

sales and income taxes. For this reason, the most 

effective strategy may be to maintain an initial 

structure of broad-based import tariffs coupled with a 

modest number of excise taxes. In the longer term, 

however, economy-wide taxes such as value-added tax 

(VAT, the most efficient type of tax for most developing countries) and income taxes are more efficient; the 

country will need to shift its emphasis accordingly. 

Import tariffs should be applied at a uniform rate 

across all consumer and capital goods to avoid 

distortion of purchase and consumption patterns, as 

was done in Kosovo. Excise taxes should cover both 

imported and locally produced products, and are most 

effective when applied to products such as alcohol and 

fuel, whose entry into the market can be readily 

monitored, either at the port or ex fabrica. The country 

also may need to impose an export tax on one or two 

traditional commodity exports (such as tropical timber 

in Liberia) until other, more management-intensive 

royalty and tax regimes can be introduced. 

Urgent vs. legitimate 

If sufficient own revenue and donor grants are 

available, the host government may decide to ramp up 

expenditures quickly to meet urgent needs for public 

services. Execution by the host government lends greater 

legitimacy to the budget-spending process. Governmentprocured services also may be less expensive than services 

provided by foreign NGOs and donor contractors.

The host government’s capacity to manage the 

spending process efficiently and with integrity is 

likely to be weak. In Liberia, for example, more than a 

year after the January 2006 installation of the Sirleaf 

government, the U.S. Embassy reported that, although 

budget execution had definitely accelerated, two 

important obstacles remained. First, expenditure 

requests were submitted late and appropriations 

approved late because the government lacked the 

capacity to prepare vouchers, procurement requests, 

and other documents needed to justify expenditures. 

Secondly, complying with the country’s Procurement 

Act remained a challenge. This challenge was cited as 

the principal reason for the gap between revenue 

collection and expenditures. 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 23

Short term vs. long term 

The sequencing of new revenue procedures and 

technology must be carefully considered. In particular, 

the appropriateness of tax policies must be assessed 

before tax administration and collection systems are 

modernized. In Bosnia, for example, the donor 

community committed a major error by prematurely 

modernizing the administration of a tax system that 

was based on pre-conflict tax policies that overly 

burdened and distorted private business operations.

During the early and middle post-conflict years, a 

short-term reliance on revenues from border taxes or 

other simple taxes (such as excise taxes) is likely to be 

both necessary and appropriate. There are, however, 

two important qualifications:

•	 To complement improved policies and administration for border and excise taxes, there should be a 

review of the legacy system for direct taxes, especially corporate income and payroll taxes. Parts of 

the direct tax regime may need to be amended or 

scrapped. This may be likely, for example, if the 

pre-conflict tax regime is highly punitive for lawabiding businesses (as in the Balkans during the 

1990s) or if corruption (side payments) among 

administrative staff is too difficult to curb. 

•	 Reliance on border taxes does not imply the use 

of simple or manual methods for assessment and 

collection. In a number of post-conflict countries, 

such as Kosovo and Liberia, the use of Internet 

and electronic methods to verify, value, and collect 

import tariffs and other taxes has proven to be 

both feasible and important during the early stages 

of rebuilding fiscal capacity.

In the early phase of recovery, it often is important to 

help the host government identify and eliminate 

ad-hoc tax exemptions and improper waivers for 

importers. These exemptions, not expressly provided by 

law or treaty, often become widespread during the 

conflict, facilitated by illicit side payments. In later 

phases of recovery, maintaining a firm policy against 

tax exemptions and “incentives” will remain important. 

A broad, uniform definition of the base for tariffs, VAT, 

and income taxes allows tariff and tax rates to be set 

and kept low. It also reduces opportunities for evasion 

Box V.1 Fiscal Decentralization

Decentralization can be a mechanism for limiting 

conflict in ethnically diverse, post-conflict countries. 

The intent is to develop an overall government 

structure that more effectively protects minority 

rights, allows minority groups an appropriate voice 

in policy, and reduces the areas for disagreement 

between groups by allowing each to make 

its own decisions on public service delivery. 

Decentralization can also be an effective means of 

enhancing the quality of public services.

 The policy setting should be structured so that key 

incentives for efficient behavior are established, and 

this requires:

•	 hard budget constraints (apart from pre-set 

budgetary grants, sub-national governments 

must be required to balance their budgets 

within their available own source revenues and 

intergovernmental transfers without receiving 

“gap-filling” grants from the national government) 

•	 elected local officials to ensure accountability 

to the local population;

•	 appropriate systems for reporting to the 

national government and containing corruption

In Bosnia since the late 1990s USAID and the 

Swedish International Development Agency (SIDA) 

have been promoting such practices to develop 

capable local government, with clear systems for 

intergovernmental transfers, good local service 

provision, and strong mechanisms for accountability.
24 USAID

and corruption, which are inherent in all systems offering 

multiple rates and exemptions.

In the longer term, the value-added tax and corporate 

and personal income taxes will become priority. As the 

country’s capacity for tax administration improves, 

collecting the VAT and corporate and personal income 

taxes (withheld by formal-sector employers) will be 

emphasized. Taxpayer self-assessment will become 

increasingly important during this phase, as sophistication 

and recordkeeping improve. Later on, the VAT is likely to 

become the largest single revenue source. As revenue from 

VAT and income taxes grows, authorities will be able to 

reduce tariffs on imports (to, for example, a 10 percent 

uniform rate). This will reduce incentives for smuggling 

and false invoicing, and will promote the development of 

internationally competitive export and import-competing 

industries. Broad income taxes are the most difficult to 

administer effectively and fairly. 

In most cases, the host country’s ability to mobilize 

revenue other than border taxes evolves very slowly.

Figure V.1 shows the pattern of revenue recovery for six 

countries that have full data for five years before and after 

the end of a high-intensity conflict (as identified by 

University of Maryland political violence analysis). On 

average, the ratio of domestic revenue to gross domestic 

product (GDP) starts to increase one year after the 

conflict ends and climbs by nearly three percentage 

points by year five. Even in year five, however, the 

revenue yield is quite low, averaging 11 percent of 

GDP. By comparison, the revenue yield by their 

international peer group (calculated by income group 

for each country at the time the conflict ended) 

averaged 15.5 percent of GDP.

In the short term, in tandem with attention to fiscal 

revenues, the authorities and the international 

community must determine whether the budget 

process works and whether the administration of 

public expenditures is operational and effective.

Early donor support for budget execution and 

planning is likely to be required, with an emphasis on 

creating a single, consolidated set of treasury accounts 

and establishing an expenditure management system 

under the auspices of the ministry of finance. 

FigureV.1 Government Revenue as a Percent of GDP

Source: Nathan Associates’ calculations from Country Analytic Support Database
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 25

Longer-term priorities for managing government 

spending include subjecting the budget to independent checks. Although it eventually will be important 

to ensure that the budget is overseen in an effective 

manner by the legislature and that it is audited by a 

national watchdog agency, these independent checks 

may not be feasible or reliable in the short term.

In many post-conflict countries, state-owned 

enterprises – public utilities, oil and mining companies, or dominant firms in trade, finance, or 

manufacturing – may be important as a major 

source of state revenue, as a serious drain on public 

sector funds, or both. In the short term, there may be 

the need and opportunity for strong new controls over 

waste and corruption at such SOEs that will require 

new management with cleaner hands, reinforced by 

procedural and audit controls. Other reforms, such as 

elimination of redundant or unqualified workers, 

improvements in customer service, and possibly 

privatization, may take longer to achieve.

Programming Options

Donors should seek to shift political authority, budget 

authority, and financial responsibilities from donor 

mechanisms to the host government’s own budget as 

fast as possible, although in reality this process generally 

takes many years. This shift is important for national 

pride; it also may reduce the unit costs of providing 

public services. It is vital, however, to ensure that public 

financial management systems are efficient and able to 

protect public resources from abuse and corruption. 

Collaboration between donors and the host government produces sustainable results, but requires local 

ownership, strong leadership, and patience when the 

reforms are profound. Generally, the host government 

will recognize the need for and be receptive to donor 

assistance with revenue collection and expenditure 

management systems. In some cases, however, the 

government may not truly want to introduce new 

procedures and controls, which may in some areas 

conflict with personal prerogatives customarily available 

to government leaders. Just such a situation arose in 

Liberia in 2004-2005, when donors sought to impose 

controls over unprogrammed budget allocations for 

“travel expenses” by various ministers and ministries 

under the National Transitional Government.

In most post-conflict situations where the U.S. 

government has played a leading role in rebuilding 

fiscal institutions (e.g., El Salvador, Bosnia, Kosovo, 

Afghanistan, and Liberia after 2005), authorities have 

accepted or even embraced donor involvement in 

thoroughly reforming their policies, systems, and 

capacity to implement tax and spending functions.

Based on these cases, as well as other USAID experiences, Gallagher (2007) has suggested the following 

sequencing for donors’ fiscal capacity-building.

On the revenue side, the common aims of both 

donors and host government should be to achieve 

business-friendly systems, reduce compliance costs, 

and curb corrupt behavior by tax officials. Donors 

frequently focus on the design and administration of 

customs, excise, VAT, and income tax systems. If 

customs is the first priority for revenue reasons, a 

balance is needed between taxing all imports effectively 

and making traders’ administrative burdens as simple 

and predictable as possible. (See Chapter XI: 

International Trade and Border Management.)

On the expenditure side, the efficiency of government 

spending needs to be improved. A number of practices 

and procedures are important in achieving this efficiency: 

•	 Improved government treasury operations: As soon 

as possible, a payroll system should be established 

that helps remove ghost employees and channels 

as many payments as possible through the banking 

system. When feasible, a single treasury account system should be implemented, where all government 

revenues flow into one account system, and from 

which all expenditures flow out. In the intermediate 

period, an integrated financial management system 

(such as those which USAID successfully helped set 

up in Bosnia and Kosovo) should be implemented.

•	 Better budget preparation and planning: An annual budget should be prepared that reflects the 

realistic needs of the line ministries. A structured 

process for reshuffling budget allotments during 

the year, to reflect actual revenue availabilities or 

changes in budget priorities, will also be needed.
26 USAID

•	 Development and approval of a public-sector investment budget: The budget must be subject to central 

review to ensure proper prioritization, cost-benefit 

analysis, and attention to financing future recurrent 

costs, including appropriate cost-recovery mechanisms and policies. Tendering for large contracts 

should be subject to central procurement policies 

and to cross-checks that reduce corruption.20 (See 

also Chapter VII: Infrastructure.)

•	 Budget execution and audit: Effective monitoring and 

control procedures for expenditures and an independent, trustworthy audit agency need to be built. 

These measures can help ensure that funds get spent 

20 Even before local authorities take charge of major capital 

investments, donors need to cooperate on capital budgeting. As 

Lewarne and Snelbecker (2004) note in their review of the early 

post-conflict period in Afghanistan, “Specific capital construction projects pushed by individual donors should be funded 

and phased through the fiscal authority so that there is not a 

separation of the current and capital budget. This was one of the 

main mistakes made by the European Agency for Reconstructions (EAR) and UNMIK in Kosovo, and one of the strengths of 

the National Development Framework (NDF) in Afghanistan.” 

for the purposes stated in the budget plan, and that

audits are conducted, which will lead to identification, discouragement, and successful prosecution of 

financial misconduct by public officials.

Financial discipline for state-owned enterprises may 

be a high priority in countries where state-owned 

infrastructure and enterprises have been major 

conduits for waste and corruption and have become 

a drain on the public treasury.

•	 A role for expatriate managers or contractors? In 

some politically robust environments, donors 

may have authority to impose greater discipline 

directly, either as interim managers (as in Bosnia and Kosovo) or within the framework of a 

donor–host-government financial-control pact 

(as in Liberia21). In other post-conflict states, 

21 Between 2006 and 2008, expatriate financial controllers in 

Liberia, acting with signature authority at the Ministry of 

Finance and at four state-owned enterprises, contributed 

to major reductions in corruption and improved revenue 

and expenditure management. See Dod and Nelson 

(2008). 

Activity Urgent Immediate Intermediate Consolidating

Expenditure control

Receipts management

Indirect (tariffs, excise, 

sales) tax control

Direct (income and payroll) 

tax control

Financial control over stateowned enterprises

Fiscal policy planning and 

management capacity

Reform of tax policy

Economic and fiscal 

statistics

TableV.1 Fiscal Policy and Institutions

Priority and Sequencing of Assistance

High-intensity level of 

assistance

Lower-intensity level 

of assistance

No assistance during 

phase
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 27

especially those with socialist traditions and 

those where SOEs dominated the landscape and 

represented major sources of employment, a more 

indirect approach may be needed. For large SOEs, 

financial performance and service delivery may be 

improved through contracting out major components of the firm’s operations. (For applications to 

utilities and infrastructure, see Chapter VII).

•	 Applying hard-budget constraints: Sustaining employment and averting social unrest do not necessarily 

require high-cost government subsidies (such as the 

subsidies given in Kosovo to the electricity monopoly KEK and the mining conglomerate TREPCA). 

The most straightforward solution for continuing 

to operate SOEs under state management while 

restraining subsidies is for the government to impose a “hard budget constraint.”22 Such a constraint 

22 See Moalla-Fetini et al. (2005).

limits SOE outlays for wages, materials, and investment to the cash flow that the enterprise can 

generate and to the credit its bankers and creditors 

are willing to supply against its business plan.

Available Rapid Assessment

Tools

Assessment assistance is available from the USAID 

Office of Economic Growth (EGAT/EG) and from a 

fast-reaction contracting mechanism that provides 

assistance for fiscal reform and economic governance. 

(For USAID personnel, see http://inside.usaid.gov/eg/

contract_grant_svcs.htm#list_of_mechanisms.) 

References for Relevant Case

Studies

Dod, David, and Eric Nelson. 2008. “USAID 

Activities under GEMAP in Liberia: Impact 

Assessment Report.” Report for USAID. 

http://pdf.usaid.gov/pdf_docs/PDACL945.pdf. 

Fox, William F. 2007. “Fiscal Decentralization in 

Post-Conflict Countries.” Report for USAID 

prepared by Development Alternatives, Inc. 

http://pdf.usaid.gov/pdf_docs/PNADK909.pdf. 

Gallagher, Mark. 2007. “Building Fiscal 

Infrastructure in Post-Conflict Societies.” 

Report for USAID prepared by Development 

Alternatives, Inc. 

http://www.fiscalreform.net/index.

php?option=com_content&task=view&id=702

&Itemid=1.

Lewarne, Stephen, and David Snelbecker. 2004. 

“Economic Governance in War Torn 

Economies: Lessons Learned from the Marshall 

Plan to the Reconstruction of Iraq.” Report for 

USAID prepared by The Services Group. 

http://pdf.usaid.gov/pdf_docs/PDACG436.pdf.

Moalla-Fetini, Rakia, Heikki Hatanpää, Shehadah 

Hussein, and Natalia Koliadina. 2005. “Kosovo: 

Gearing Policies toward Growth and 

Development.” International Monetary Fund. 

http://www.imf.org/external/pubs/ft/

kosovo/2005/GPGD.pdf. 

Box V.2 Contracting Out Management of 

State-Owned Natural Resource Concessions

With both technical and financial assistance 

provided by USAID, the Liberian Forestry 

Development Agency in 2008 contracted out the 

collection of stumpage and other fees that are paid 

for the taking of exportable timber. During the 

civil war, warlords and other actors had funded 

their activities through extensive concessions 

to private loggers, although only a fraction of 

the required fees were actually collected by the 

rump government. The U.N. Security Council 

banned countries from buying Liberian timber 

during the country’s civil war. This ban was lifted 

during the term of the first democratically elected 

government, which is now able once again to 

exploit this important resource. 

Under a five-year contract, a foreign company 

(Société Générale Suisse) will now collect fees on 

behalf of the Liberian government. Using a modern, 

computer- and bar-code based chain of custody 

system, the company will tag logs and stumps and 

ensure assessment and collection of fees for every 

tropical log felled and exported.
28 USAID

B. Monetary Policy 

 and Institutions

It now is widely accepted that inflation, especially at high 

rates, deters business investment and weakens economic 

growth. In many post-conflict countries, one important 

early challenge is to overcome inflation (or even hyperinflation) and preserve price stability. A second major 

challenge is to restore or shore up the currency and 

payments system, which provides a medium for transactions and a store of value for the public.

Overarching Objectives:

•	 To help monetary authorities control the 

money supply and credit growth, in ways 

consistent with price stability 

•	 To provide the private economy with an 

efficient and safe system for private payments

Political and Social Issues

A key political issue faced by most post-conflict countries is the need to establish an appropriate degree of 

policy independence for the central bank. Over the past 

50 years, the model of constitutional or statutory 

independence for the central bank – including a long, 

secure term of office for the central bank governor – has 

become accepted around the world. This institutional 

approach gives the central bank the authority to restrict or 

limit the government’s access to credit from the banking 

system, thus curbing this potential key source of inflation. 

In some countries, the basic legal principles of central 

bank independence may need to be introduced. In others, 

the challenge is to select a strong central bank governor 

and to help government leaders understand that the 

central bank is not a politically compliant agency designed 

to provide cheap or easy credit to cover the government’s 

fiscal deficit. These principles are best established as tenets 

of sound public administration, rather than simply as 

IMF conditions during the duration of the donor-assisted 

financial stabilization program. 

Some post-conflict countries may wish to replace their 

old currency with a new one. This type of currency 

reform can be useful in a variety of ways. It can help 

restore confidence, show a break with the past, deal with 

simultaneous circulation of several versions of the national 

currency, or combat widespread counterfeiting. Issuing a 

new currency is an enormous logistical undertaking, 

which requires a number of important steps: 1) designing 

the currency (including security features); 2) determining 

currency denominations; 3) choosing a printer; 4) 

deciding on the quantity of the new currency to introduce; 5) announcing and publicizing the conversion plan; 

6) deciding a date and mechanism for conversion; 7) 

distributing the new currency; 8) establishing terms for 

the old-to-new conversion, including determination of 

the conversion rate; and, 9) disposing of the old notes 

taken from circulation. 

Key Trade-Offs

Donors providing assistance to post-conflict countries 

must make decisions quickly, on the basis of specific 

trade-offs that are much more acute than in stable 

developing countries. In the area of monetary policy 

and institutional reforms, the key trade-offs faced by 

donors include effectiveness vs. efficiency and short term 

vs. long term.

Effective vs. efficient 

Rather than resurrect and manage a national 

currency, a number of post-conflict states have 

adopted a strong foreign currency as their de facto 

legal tender. This approach, followed by Timor-Leste 

(which used the U.S. dollar) and Kosovo (which used 

the Deutschemark/euro), obviates the need for the 

central bank to manage the country’s monetary base. It 

also automatically regulates price inflation. If the 

national currency is retained, allowing the exchange 

rate to float flexibly offers an alternative, low-tech 

approach to central bank exchange-rate policy. 

Retaining a separate national currency gives the 

central bank some potential to manage real exchange 

rate (RER) developments by intervening in the 

exchange market. For this reason, it may be a valuable 

tool. Post-conflict countries, especially small ones 

where donor flows may constitute a large share of GDP, 

risk experiencing significant RER appreciation when 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 29

they receive large amounts of foreign assistance.23 A low 

or depreciated RER has a positive impact on export 

competitiveness and on employment in both the 

export and the import-competing sectors of the 

economy. In contrast, excessive appreciation of the 

RER (unless prevented by the central bank buying on 

the local market and accumulating foreign exchange) 

can severely hamper domestic producers’ ability to 

enter export markets or compete with imports – a 

condition known as “Dutch disease.” 

The central bank may need to provide temporary 

licenses to pre-existing commercial banks, even if 

there are doubts about the banks’ longer term 

viability. Commercial banks provide the public and 

the government with critical payments services (e.g., for 

meeting employee payrolls). In many post-conflict 

countries, pre-existing private or state-owned commercial banks have a network of branches and facilities that 

may be able to provide these services. In such a 

situation, it may be best for the central bank to provide 

temporary licenses to these existing institutions. Later, 

as stronger competitors enter the banking sector, as 

23 Elbadawi et al. (2007) found that Nicaragua, El Salvador, and 

to a lesser extent Mozambique were post-conflict countries 

that experienced high ODA and appreciating RERs.

Drawing on previous experience in 

Afghanistan, USAID 

contractors assisted 

the Iraqi Ministry 

of Finance to introduce a new national 

currency, the Iraqi 

dinar. The currency 

exchange began in 

October 2003 and 

was completed in 

January 2004, converting more than six 

trillion Iraqi dinars 

at a value of $2.4 

billion. 

(Tom Hartwell)

credit skills become more important to bank viability, 

and as bank supervision skills improve, a shake-out 

may be needed to liquidate weak institutions or force 

mergers. For example, in 2005 (six years into rebuilding the banking system) Kosovo’s Central Banking 

Authority determined that just such a shake-out was 

needed; this eventually led to closure of one bank with 

losses to depositors and to mergers for three other 

banks. 

Short term vs. long term

In some cases, a central bank and a commercial 

banking system must be created from scratch. This is 

necessary when neither a viable central bank nor commercial banking system exist.24 In Kosovo and Timor-Leste, 

for example, the IMF led the establishment of a central 

payments office (CPO), managed by expatriate experts 

and which provided transactional banking services 

between the private sector and the government and 

monitored government finances. In both cases, the CPO 

evolved quickly into a banking and payments authority 

with a stronger local legal foundation and with wider 

central banking responsibilities, including the licensing 

and supervision of commercial banks.

24 Lonnbörg (2002).
30 USAID

Even where the central bank and a commercial 

banking system do not have to be created from 

scratch, it is important to gauge how well they are 

performing their basic functions. Assistance may be 

needed to ensure reasonably sound management of 

monetary policy and sufficient transactional services so 

as not to constrain the economy’s capacity. 

In the longer term, the goal should be a transition into 

a full, two-tier banking system consisting of a viable 

central bank and the rudiments of a commercial banking 

system including a number of participating banks, 

microfinance, and non-bank financial institutions.

Programming Options

In the early post-conflict period, the IMF usually leads 

an initial assessment of the country’s monetary policy 

and institutions. The World Bank, USAID, and other 

donors also play important roles in this process, which 

identifies areas where organizational reforms are needed 

and establishes priorities for immediate donor assistance. 

The assessment addresses such questions as:

•	 What key steps should be taken in the monetary 

and banking area to facilitate both basic 

governmental functions and humanitarian and 

rebuilding efforts by donors? (For example, should 

payroll disbursing facilities and revenue collection 

channels use existing or new bank branches?)

•	 Which relevant institutions and resources are 

intact? Does a viable central bank exist? If so, 

is it able to design and implement appropriate 

monetary policy? Which, if any, of the pre-conflict 

institutions and policies should be restored to reestablish a monetary authority?

•	 Do ministries and state enterprises maintain multiple, 

independent deposit accounts in local and overseas 

banks? (In Afghanistan, for example, various entities 

had $700 million in such accounts.) Are there any 

effective procedures for the finance ministry or central 

bank to monitor and control such accounts? 

•	 Is the central bank able to manage the country’s 

monetary base effectively through exchange-market or domestic interventions?

A plan of action must be developed to address the 

weaknesses identified by the assessment. The central 

bank (or the interim entities in place until a central 

bank can be re-established) has a number of key roles, 

including: 

•	 monetary control

•	 foreign exchange market management

•	 collection of market data on prices and exchange 

rates

•	 banking supervision and regulation

Activity Urgent Immediate Intermediate Consolidating

Monetary control for price 

stability

Exchange-rate management 

and/or currency reform

Strengthened inter-bank and 

external payments systems

Licensing of commercial banks

Strengthened supervision of 

commercial banks

Revised banking sector legislation

TableV.I1 MONETARY POLICY AND INSTITUTIONS

Priority and Sequencing of Assistance

High-intensity level of 

assistance

Lower-intensity level 

of assistance

No assistance during 

phase
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 31

•	 capacity-building for all of these key roles

•	 introduction of a new currency (in some cases)

Inflation control is the monetary authority’s prime 

responsibility. Bringing inflation rates down to a low, 

stable level is of immediate concern. In post-conflict 

countries needing significant structural reforms and 

“relative-price” adjustments, however, it may be best to 

resolve some major economic and trade distortions 

(such as those created by highly inefficient gasoline 

subsidies in Iraq) rather than seek to bring down 

inflation rates too quickly. 

An organized foreign exchange market for the 

national currency should be created, where applicable. In order to manage the exchange rate, the 

monetary authority needs a market where it can buy 

and sell currency. Decisions need to be made about 

who can deal in foreign exchange. Who can participate 

in the official foreign exchange auctions that are 

required when the government receives significant 

revenue in the form of foreign currency? What rules 

should apply to those auctions? Who is allowed to 

trade in foreign exchange more broadly? 

Existence of a “wholesale” payments and settlement 

system between domestic banks and for international 

transactions is a key building block for the system 

needed by commercial banks to provide basic retail 

payments services to the public. In many post-conflict 

countries, the lack of such systems severely handicapped 

the provision of depositary and payments services (see 

Chapter X: Banking and Finance) that allow households, 

businesses, and the government to transfer funds required 

for normal monthly expenditures in a secure manner. 

Building the monetary authority’s institutional capacity 

is vital. Technical assistance in each core competency 

should be accompanied by training aimed at strengthening the monetary authority’s operations. Frequently, 

resident foreign advisors are needed to provide on-the-job 

training to new central bank governors who may bring 

high integrity to the job but may lack needed experience 

and knowledge for much of the operational work at hand. 

As the immediate post-conflict phase ends, donors should 

finance more formal training activities, including both 

in-country courses and regional workshops and seminars. 

A limited number of high-level officials should be sent to 

developed countries for training. In coordination with the 

IMF and other donors, USAID or the U.S. Treasury 

Department often play an important role in building 

critical capacities in the payments, supervisory, and 

money-market development and management functions.

The availability of good data, often ignored, is a key 

component of a sound monetary policy-making process.

Statistical offices in post-conflict countries often have 

greatly reduced capacity and are unable to produce good 

data measures of inflation. In such cases, interim measures 

for collecting consumer price data will need to be put in 

place. Technical assistance and training from USAID and 

other international donors may be needed to improve data 

quality for policy-making. 

Available Rapid Assessment

Tools

See Chapter X: Banking and Finance.

References for Relevant Case

Studies

BearingPoint, Inc. and USAID/Afghanistan. 2006. 

“USAID Afghanistan Economic Governance 

Program: Volume 1 Completion Report, 

November 7, 2002 – December 15, 2005.” http://

pdf.usaid.gov/pdf_docs/PDACH901.pdf. 

Elbadawi, Ibrahim A., Linda Kaltani, and Klaus 

Schmidt-Hebbel. 2007. “Post-Conflict Aid, Real 

Exchange Rate Adjustment, and Catch-up 

Growth.” Working Paper WPS 4187, World 

Bank. http://www-wds.worldbank.org/external/

default/WDSContentServer/WDSP/IB/2007/04/

09/000016406_20070409135857/Rendered/

PDF/wps4187.pdf.

International Monetary Fund. 2004. “MFD Technical 

Assistance to Recent Post-Conflict Countries.” 

http://www.imf.org/external/np/ta/2005/

eng/022805.htm.

Lonnbörg, Åke. 2002. “Restoring and Transforming 

Payments and Banking Systems in Post-Conflict 

Economies.” IMF Staff Note. http://imf.org/

external/np/leg/sem/2002/cdmfl/eng/lonnb.pdf.
32 USAID

return to their pre-conflict occupations. Populations in 

IDP or refugee camps may also face difficulties in 

returning to areas where infrastructure has been 

destroyed or become unusable through years of neglect. 

Even with resettlement packages serving as inducements to go back, people may be dissuaded from 

returning by a perception – often accurate – of 

insecurity and by a lack of access to schools and health 

care at home.

In many post-conflict countries, donors and host 

governments face pressure to generate employment 

opportunities, which are seen as necessary for establishing and maintaining social tranquility. Two 

challenges are typically faced by donors:

•	 The country’s program for disarmament, demobilization, reintegration, and repatriation (DDRR) 

may require targeted efforts to provide ex-combatants with jobs, at least in the short term. A key 

VI. Employment Generation

Overarching Objective: To generate increased 

job opportunities during the first several postconflict years

Donor-financed interventions are needed to 

provide employment until security improves and 

to deliver a broad-based stimulus to economic 

activity through increased incomes for labor. 

Political and Social Issues

Population displacement during a conflict can 

impede workers from returning to their traditional 

employment. During a conflict, many workers move 

into towns, which serve as safe havens, or into refugee 

camps. These internally displaced persons (IDPs) often 

have found economically viable ways to adapt to their 

new locations; they may have limited incentives to 

With the support of 

USAID, rehabilitation 

and construction of 

irrigation canal systems improves agricultural conditions for 

local farmers and 

creates immediate 

employment for 

Afghan men. (Ben 

Barber)
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 33

market’s efficiency.

In post-conflict settings, however, given the urgency of 

responding to the pressures described above, the 

sustainability of jobs becomes a secondary concern. 

Many of the jobs offered through transitional employment programs are not likely to lead to future employment; they may only provide on-the-job training and 

income for a short period. Nonetheless, this may be 

sufficient if opportunities for other types of jobs begin 

to appear as the economy revives. 

Urgent vs. legitimate 

The challenge for donors is to conduct transitional 

employment programs in a participatory fashion and 

still get them up and running quickly. The programs 

must produce visible benefits quickly, often before the 

host government has adequate capacity to oversee 

them. This leads to the risks that donor-financed 

employment programs, typically managed by international NGOs may inadvertently reinforce the power of 

local leaders who have been active parties to the 

conflict; or, could be seen as undermining, rather than 

reinforcing, the new government’s legitimacy.

These risks, however, need to be weighed against the 

risk that newly demobilized combatants (and others) 

will engage in destabilizing behaviors if there are no 

opportunities to contribute positively to society. 

Box VI.1 Ensuring Community Involvement 

and Program Legitimacy in Kosovo 

In Kosovo, USAID enhanced legitimacy of 

local reconstruction decisions by establishing 

Community Improvement Councils comprised 

of 12-15 people who reflected the diversity of 

the local population. The Councils identified their 

community’s priority reconstruction needs and 

USAID provided the material resources. Members 

of the Community Improvement Councils 

emerged as representatives of their communities, 

providing donors and international organizations 

with information on real needs and priorities as 

defined by Kosovars.

aim of these efforts is to keep potential “spoilers 

of the peace” off the streets and help wean them 

away from warfare and banditry, which remain 

occupational alternatives. To ensure widespread 

benefits, the DDRR program should also include 

community participation. 

•	 During the post-conflict period, the security situation and the commercial legal environment can 

present very high risks to private investors and 

enterprises. Because of these risks, there may be a 

pronounced lag in the rebound of private enterprise and employment until security improves.

In response to these pressures, donors frequently have 

sponsored mass employment programs, which provide 

transitional employment to the targeted local labor 

force and deliver vocational or remedial training and 

skills development. Donor-financed employmentgenerating activities can be implemented through 

grants to private enterprises, NGOs, community 

groups, local governments, or other public-sector 

entities. Using a wide variety of organizations for this 

purpose can help overcome a general lack of management capacity among all such organizations. 

Key Trade-Offs

Donors providing assistance to post-conflict countries 

must make decisions quickly, on the basis of specific 

trade-offs that are much more acute than in stable 

developing countries. In the area of employment 

generation, the key trade-offs faced by donors include 

effectiveness vs. efficiency, urgency vs. legitimacy, and short 

term vs. long term.

Effective vs. efficient

The primary purpose of post-conflict transitional 

employment is to provide work opportunities, not to 

develop new enterprises or provide sustainable, 

long-term jobs. In stable developing countries, 

employment generation programs focus on sustainable employment and on training for jobs known to 

be in demand, primarily relying on private employers 

and private training providers. Policy attention 

focuses on reducing legal and administrative barriers 

to labor mobility as a means of increasing the labor 
34 USAID

•	 cash-for-work programs 

•	 transitional assistance to farmers and micro-entrepreneurs 

•	 vocational training programs

Donors usually rely on NGOs or contractors to 

design and implement employment-generation 

programs. 25 This approach is used because the central 

government and line ministries typically have little 

capacity to select program priorities, and even less 

capacity to implement mass-employment, massretraining, and safety-net programs effectively and 

without corruption. Donor contractors or NGOs 

establish partnerships, direct programs, or sub-grant 

programs, often at the community level, to carry out 

appropriate employment-generating activities.

The dispersion of community based development and 

employment programs among many implementers can 

lead to duplicative or inefficient efforts. Speaking to 

different donors, community leaders will repeatedly identify 

the same urgent targets to missions by multiple donors, so 

donor coordination is critical. In Burundi, the World Bank 

and Belgian and Norwegian donors were all in early stages 

25 USAID’s efforts in this area are usually led by the Bureau 

for Democracy, Conflict and Humanitarian Assistance, Office of Transition Initiatives (DCHA/OTI). 

Short term vs. long term

Donors need to make clear that funding for transitional 

employment programs is time-limited and will not 

continue indefinitely. These programs are intended to be 

short-term stimuli and must be understood as such by 

participating communities. As economic revival proceeds, 

donor-financed transitional employment-generation 

programs will be phased out in favor of programs to 

improve labor market efficiency and promote sustainable 

private-sector employment. 

Programming Options

Donors and host governments must try a number of 

different approaches to encourage workers to return 

to the livelihoods that offer the quickest route to 

productive, private-sector employment. Because of 

the challenges involved in returning workers and 

families to their farms and villages, both “push” and 

“pull” approaches need to be used. Early in the 

post-conflict period, a steady phase-down and closure 

of refugee camps is an important tactic for “pushing” 

workers toward sustainable private employment. To 

help “pull” workers toward useful and eventually 

long-term jobs, approaches commonly used in 

post-conflict settings include:

TableVI.1 EMPLOYMENT GENERATION

Priority and Sequencing of Assistance

High-intensity level of 

assistance

Lower-intensity level 

of assistance

No assistance during 

phase

Activity Urgent Immediate Intermediate Consolidating

Cash-for-work - trash cleanup and building repair

Cash-for-work - small-scale community 

infrastructure rehab, road and culvert 

crews

Revival of subsistence farming (vouchers for tools, seeds; staple food until 

harvest)

Induce return to rural areas and traditional employment (tools, materials, 

cash; closure of camps for displaced)

Cash and meals for literacy, vocational 

training, or workshop apprenticeships 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 35

activities.

26 Although the alternative of funding 

through local governments might have the advantage 

of helping these governments become operational, their 

disbursement process tends to be slow and to discourage the use of labor-intensive methods. Disbursement 

delays may result in wage-payment delays, which can 

lead workers to strike and protest.

Community-based approaches to employment 

generation can help reduce conflict between ex-combatants and civilian workers. Because providing 

employment benefits to former combatants has appeal 

to peace-keeping forces (e.g., the UN military force), 

donor efforts may be skewed in that direction. This 

practice, however, can aggravate hostility and resentment by war-affected civilian returnees. It is important 

to integrate civilian workers and ex-combatants, but 

doing so is not a guarantee against hostilities. In 

Liberia, for example, both ex-combatants and waraffected returnees were targeted for assistance, but 

antagonism between the groups tended to boil over 

into direct personal conflict at the worksite. To avert 

these clashes, project officials chose not to segregate the 

groups but rather to incorporate one or two counselors 

as full-time behavior-management mediators within 

each work group. Avoiding such problems is a strong 

argument for community-based approaches, which 

include community members as beneficiaries and 

involve traditional local leaders in the design of 

programs to help mitigate conflicts.

Assistance to farmers and 

micro-entrepreneurs 

Direct assistance to farmers often accelerates both the 

recovery of agricultural production and the repatriation of the population to farms and rural areas.

Farmers are the most commonly found entrepreneurs 

in low-income post-conflict countries. For this reason, 

“re-tooling” them with basic implements and seeds is a 

26 For example, for rehabilitation and upgrading of rural roads 

in Liberia during 2004-2005, private local contractors initially bid for the contracted road segment using their preferred efficient means of construction. Then, an additional 

payment was negotiated for the contractor’s commitment 

to hiring and paying (at low, flat wages) an additional block 

of local workers to assist with construction.

of preparing the same housing reconstruction kits (metal 

roofs, windows and doors) for the same impacted villages 

when these actors thought it wise to coordinate. To avoid 

duplication, the donors then divided up the territory. 

Two important principles help donor implementers 

to set priorities for rehabilitation of community 

infrastructure – consultation with the local community and provision of matching contributions from 

beneficiaries. Local community leaders almost always 

are involved in identifying targets for rehabilitation, 

both to meet specific needs and to promote local 

ownership. Similarly, the provision of matching 

contributions from the community, whether in the 

form of land, materials, or volunteer labor, can be both 

a test of the value of the target activity and a means to 

reduce opportunities for corruption, resale, or appropriation of donated materials for an individual’s use. 

Cash-for-work programs

The purpose of mass-employment programs is to 

provide flat, low-wage job opportunities that will be 

selected only by workers whose alternatives are very 

unproductive or unprofitable, or by workers from the 

most vulnerable populations. This approach minimizes 

the risk of interfering with the revival of traditional 

production (e.g., drawing away field workers needed for 

seasonal farm planting or harvesting activities). Wages 

generally are paid in cash rather than in food rations 

alone, but may be supplemented by food served at the 

worksite. This creates an incentive for workers to show 

up every day and generates opportunities for local 

“caterers” to enter the market economy. 

Donors should establish clear, overarching guidelines 

for selecting targets for work activities, drawing on 

common, area-wide priorities that are conducive to 

labor-intensive, low-skill work methods.

Responding to local priorities can result in a quite 

diverse set of activities, as it did in Liberia in 2005-

2006. (See Box VI.2.) Infrastructure rehabilitation, 

when it can employ sufficient numbers, generally is 

preferable to vocational training.

A timely way to reach unemployed workers in 

cash-for-work programs is to fund local privatesector subcontractors or NGOs to carry out 
36 USAID

widely practiced intervention in many post-conflict 

settings, especially when the rural and farming 

population has been displaced. Intervention is 

generally carried out through grants. In the Philippines 

in the late 1990s, for example, USAID introduced a 

farming support program for ex-combatants, to help 

fulfill promises in a peace agreement. 

Apart from farming, USAID generally does not 

recommend assistance programs that primarily help 

ex-combatants and rural workers start their own 

businesses. The reason is that most ex-combatants and 

unskilled civilian laborers are unlikely to have the 

business skills needed to become successful micro-entrepreneurs. The high failure rates typical of business 

start-ups are likely to be even higher for this group. If 

the start-ups involve loan finance, many of these 

workers may find that repaying a micro-loan is a 

personal hardship rather than a means to a better future.

Vocational training programs 

Vocational training is a popular donor approach in 

post-conflict situations, even though its impact has not 

been well-measured and the evidence of its success is 

mixed. Worker training programs have often been viewed 

as a way to absorb the unemployed and make them 

employable. Classroom vocational training, using local 

instructors with relevant skills (such as sewing or carpentry) has the greatest potential to reach large numbers of 

participants. This approach, however, may not subsequently lead to sustainable employment. 

 A 1997 International Labor Organization (ILO) 

report summarized post-conflict reintegration results in 

Mozambique, drawing on a number of sources.27 With 

27 Maslen (1997) notes that, “...the Commission for Reintegration (CORE) Assembly Areas for demobilization were 

opened in late 1993 and the first soldiers arrived in early 

1994. The demobilization process took anywhere from six 

weeks to four months,...According to one report in February 1996, CORE provided 12,000 ex-combatants with 

vocational kits, employment promotion, and vocational 

training activities, through programmes implemented 

by the International Organization for Migration (IOM), 

UNDP, ILO and the German cooperation organization, 

Gesellschaft für Technische Zusammenarbeit (GTZ). ...As a 

result of its reintegration projects, GTZ claimed to have 

1. The start of construction on facilities for six rice 

mills and two cassava-processing mills in Lofa, 

Nimba, Gbapolu, and Capemount counties

2. Completion of the Bong Road

3. Continued rehabilitation of other, smaller feeder 

roads in Bong and Grand Gedeh counties

4. Installation of palm oil processing equipment in 

Foya, Lofa

5. Completion of the Gbarma–Wesua road project 

in Gbapolu, with eight major log bridges and two 

minor bridges constructed;

6. The start of construction on the Zleh town dam 

project, which will support 250 acres of swamp 

rice projects in Grand Gedeh County 

7. Continuation of the RAP program in Bong and 

Nimba counties

8. Continuation of the Monrovia Apprenticeship 

Program, with 447 apprentices working in 59 

businesses

9. Completion of rehabilitation and inauguration of 

AMEU Hatcher Hall

10. Identification and commencement in Monrovia 

of community-development projects – a market 

building, 15 road/bridge rehabilitation projects, 19 

latrines, a community drainage clearing project, 

and a footbridge. Three schools were rehabilitated and officially opened

LCIP activities during the first quarter of 2006 were very diverse and included:

The June 2005 work plan for LCIP called for employment-generating programs in seven counties, covering six 

major areas:

Box VI.2 Cash for Work Program: Liberia’s Community Infrastructure Program (LCIP)

•	 road and bridge rehabilitations

•	 school renovations

•	 agriculture and agribusiness

•	 administrative building renovations

•	 health center rehabilitations

•	 environmental sanitation/drainage
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 37

Under the Liberia 

Community 

Infrastructure Project 

(LCIP), USAID assisted 

the replacement of 

an existing bridge 

in Gbarpolu County, 

Liberia. This 2004 

project made 

intensive use of local 

labor, including excombatants and waraffected persons. (DAI/

Mike Godfrey) 
38 USAID

Box VI.3 USAID’s GEM-ELAP Project in 

Mindanao

USAID introduced the GEM-ELAP project in 

Mindanao, the Philippines, to help fulfill promises 

in the September 1996 peace agreement between 

the Government and the Mindanao National 

Liberation Front. From 1997 to 2000, the project, 

which targeted ex-combatants, assisted participants 

with the startup or resumption of farming activities 

(principally high-yield corn for local markets and 

seaweed harvesting for export). An evaluation 

and independent survey conducted at the end of 

2000 found that most participants had benefited 

substantially from the program. Average yields 

improved by about one-third for corn and by about 

half for seaweed harvesting, which became much 

more prevalent in the target area. Input subsidies 

ended after two cropping cycles, but 90 percent of 

the corn and rice farmers who continued production 

were using a similar set of seeds and fertilizers.

Meanwhile, as indicated by the evaluators, the 

program’s pacification goal also was largely achieved. 

Livelihood from ELAP farming had become a better 

alternative for many former combatants. In Ramain 

and Maguing, two communities in Lanao Province 

on the island of Mindanao, the incidence of banditry, 

burglary, and other illegal activities was reportedly 

reduced to almost nil. Local authorities attributed 

this to widespread ELAP participation in those 

communities.1

1

Mindanao State University–General Santos City Foundation, 

Inc. (2001)

12,000 beneficiaries, the program (funded by USAID 

and other donors) reached a significant number of 

ex-combatants, although this number remained a small 

proportion of the estimated 90,000 to 150,000 

demobilized soldiers. (See Box VI.4.)

already created 6,200 jobs on paper for demobilized 

soldiers in four provinces, of which 5,000 former soldiers 

were actually employed. The head of the GTZ reintegration programme in Mozambique believed that a substantial 

percentage of the jobs would be sustainable.”

Enterprise-based apprenticeship training has proven 

to have a much greater likelihood to lead to sustainable employment than training in state-run vocational or other classroom institutions. Apprenticeship 

training is facilitated by providing financial incentives 

to enterprises that accept workers as apprentices or 

trainees, pay them an emolument, and hire them as 

full-time employees. Moreover, additional employer 

incentives may be needed to break other bottlenecks to 

the expansion of their enterprises.28 After reaching a 

proven skill level, the apprentice may then successfully 

move on to self-employment or may continue to earn a 

reasonable living wage at the participating enterprise. 

Against its superior potential for producing sustainable employment, the enterprise- or workshop-apprenticeship approach has two limitations. First, 

within the target economy, the feasible number of 

successful apprentice-trainees will be limited by the 

capacity of the region or district to absorb the increased 

supply of journeyman artisans in the given skill area 

(welders, furniture makers, etc.). Second, costs per 

trainee of successful workshop-apprenticeship programs are likely to exceed substantially the costs of 

classroom literacy or vocational education. In USAID’s 

experience in Liberia during 2004-06, costs forclassroom training of ex-combatants for 6-8 months of 

vocational training averaged $440 per participant. 

Costs for the typical 9-month apprenticeship training 

in a workshop setting averaged $1400 per participant, 

with additional costs to assist the host enterprise 

(which produced an average of 30 completed apprentice graduates each) amounting to about $40,000 per 

workshop.29

28 For example, in the second and third years of the LCIP 

employment program in Liberia, urban and rural apprenticeship programs were initiated and expanded. These 

programs offered incentives to master craftsmen in such 

areas as carpentry, metal-craft, fishing, and masonry by 

providing a project-funded structure (e.g., a 10-year lease) 

and, for the first eight months, locally prepared lunches for 

both employees and the master craftsmen. The program 

also initially funded apprentice wage payments to employees; the considerable wage costs are now fully borne by 

employers. 

29 Chemonics International, Inc. and USAID/Liberia. (2008).
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 39

Available Rapid Assessment

Tools

Provides mportant guidance for post-conflict transitional employment programming USAID's 2007 

publication, “Community-Based Development in 

Conflict-Affected Areas – An Introductory Guide for 

Programming,” (http://pdf.usaid.gov/pdf_docs/

PNADJ132.pdf.) This document provides many 

examples, including those described in Box VI.3 

above, and discusses programming issues in detail.

References for Relevant Case

Studies

Beasley, Kenneth W. 2006. “Job Creation in PostConflict Societies.” PPC Issue Paper No. 9, 

PN-ADE-194, USAID. http://pdf.usaid.gov/

pdf_docs/PNADE194.pdf. 

Chemonics International, Inc. and USAID/Liberia. 

2008. “The Liberia Community Infrastructure 

Program (LCIP): Final Evaluation of LCIP 1 

(2004-2008) and Midterm Evaluation of LCIP 2 

(2007-2008).” USAID. http://pdf.usaid.gov/

pdf_docs/PDACL922.pdf. 

DAI. 2008. “Liberia Community Infrastructure 

Program I, March 2006 – March 2008: Phase II 

Final Report.” Report for USAID prepared by 

Development Alternatives, Inc. 

Maslen, Stuart. 1997. “The Reintegration of WarAffected Youth: The Experience of Mozambique.” 

International Labor Organization. 

http://www.ilo.org/public/english/employment/

crisis/download/maslen.pdf.

Mindanao State University–General Santos City 

Foundation, Inc. 2001. ELAP Assessment Survey 

Report for USAID.

USAID. 2005. “Livelihoods and Conflict—A Toolkit 

for Intervention.” USAID. http://pdf.usaid.gov/

pdf_docs/PNADE291.pdf.

USAID/Philippines. 2007. “The Livelihood 

Enhancement and Peace (LEAP) Program.” http://

philippines.usaid.gov/mindanao_leap.php. 

Box VI.4 Rebuilding Livelihoods: Mozambique 

and Burundi

Following national elections in Mozambique in 

November 1994, USAID sought to develop an 

employment-generation program that would reach 

as many ex-combatants as possible. The chosen 

approach involved providing grants to a variety 

of groups, including churches, community groups, 

and private employers. Grants funded by USAID 

and other program donors resulted in short- and 

long-term employment for 12,000 ex-combatants. 

To avoid identifying ex-combatants as deserving 

special treatment, grant recipients employed a mix 

of ex-combatants and civilians in their activities. 

While many of the jobs were temporary, a number 

of grants did result in longer-term employment. 

In Burundi, USAID focused on vocational skills 

training to promote successful community 

reintegration and to address both land pressure and 

a lack of economic opportunity. USAID’s program 

trained students in six marketable vocations and 

offered grants to student-formed associations. The 

training emphasized off-farm income-generating 

opportunities, which helped alleviate land pressure 

and reduce poverty. In addition to literacy and math 

education, students also received communications 

and conflict-resolution training. Program recipients 

included undereducated youth, returning 

refugees, IDPs, ex-combatants, and members of 

other vulnerable groups. Program participation 

by undereducated youth and ex-combatants 

successfully reduced violent incidents perpetrated 

by these groups; both the students and their 

neighbors stated that the students were less violent 

and more productive citizens as a result of the 

communications and conflict-mitigation training.
40 USAID

Overarching Objective: To restore basic 

infrastructure and infrastructure services 

that are critical to the resumption of 

economic activity

Infrastructure is the productive backbone of any economy 

and typically includes the physical networks and organizations needed to provide electric power, telecommunications, water and sanitation, transportation (roads, railways, 

ports, airports, and canals), and dams. Adequate infrastructure is essential if a country is to generate economic 

growth, reduce poverty, and achieve international 

competitiveness. In the aftermath of conflict, it is 

important for donors and the government to quickly 

prioritize among the key infrastructure bottlenecks. The 

timely restoration of physical infrastructure and the 

rebuilding of a country’s capacity to regulate and manage 

that infrastructure are critical for achieving robust, 

market-oriented, private-sector-led economic growth. In 

addition, during the rebuilding process, there often is a 

substantial need for reconstruction of infrastructure such 

as health clinics, hospitals, schools, and government offices 

to provide social services and improve standards of living. 

Political and Social Issues

An infrastructure strategy or activity should address a 

number of political and social issues. Successful 

approaches for dealing with these issues are well 

understood today, and the literature on designing 

effective projects is abundant. Key political and social 

issues include the following: 

The timely restoration of infrastructure services helps 

build confidence in the post-conflict government and 

makes a return to conflict less likely. Care is needed, 

however, to ensure that the benefits of restored 

infrastructure go to all parties to the conflict.

Tariff increases are affected by public opposition and 

ability to pay. It is now well established that large tariff 

increases are difficult or impossible when incomes have 

bottomed out due to a conflict and when services are 

poor. Typically, tariff increases need to be: 1) gradual; 

2) matched with improvements in services; 3) accompanied by a public information campaign that explains 

why tariffs are increasing; and, 4) supported by 

statements from senior politicians about the need for 

reform. It often is necessary to first stabilize services 

and rebuild customer relationships, and then to 

undertake a well-planned series of increases in real tariff 

rates so as to bring them into closer alignment with 

supply costs. This means that the enterprise will need 

financial subsidies for several transitional years. In 

practice, the amount by which tariffs can increase 

depends heavily on a combination of political factors, 

the rates paid by the public for services obtained 

through the informal market (for electricity or water), 

and the level of current tariff rates.

Tariff rates are often politicized. Tariffs are a political 

issue. It is common for politicians to tell the public that 

they will be charged very low electricity or water rates. 

Such politicization of rates is particularly common prior 

to elections. Tariff rates often need to be depoliticized 

through multi-donor policy advocacy at the highest 

levels of government. Another common approach is for 

reforms to be accompanied by well-funded public 

relations and customer service initiatives that explain the 

reform program to citizens, provide information about 

tariff and cost-recovery issues, and greatly improve 

responses to customer complaints about billing and 

service. This approach makes politicization of rates less 

effective and less attractive to politicians. 

The reconstruction and maintenance of road networks 

often cannot be readily financed via tariffs (or tolls). 

Required funds will typically need to come from 

government appropriations at the national or subnational level. Donors can work with recovering host 

governments to ensure that adequate funding is 

forthcoming. Another option may be to allow a 

company to collect a toll for use of a road that it 

reconstructs or to award the company the right to 

develop land along the reconstructed road.

Corruption is usually a political issue. Corruption is 

common in poorly governed utilities. Often, over a 

period of years, employees and public officials have 

VII. Infrastructure
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 41

Community members 

work to install a new 

system for distribution 

of clean water in 

Kauda, Sudan. (PACT)

developed arrangements that take a significant portion 

of the cash out of a utility through a combination of 

kickback schemes for contracting, “leakage” in 

customer collections, and undocumented sale of water 

or electricity. In a sense, many poorly governed public 

utilities have been informally privatized by employees 

and public officials, with the benefit going to these 

parties rather than to shareholders. 

The poor generally can pay. Many studies have 

documented that the poor often pay more for informal 

sector electricity and water than they would if they had 

a legal service connection and could buy at scheduled 

tariff rates.30 Deeply financially troubled utilities 

30 For example, a World Bank “Willingness to Pay” study in 

Lagos, Nigeria, found that the poor paid between $1 and 

$7 per cubic meter for water from private vendors, while 

the official tariff rate at that time was $0.50 per cubic 

meter. Most poor households were unable to obtain legal 

connections to the network, so they bought their water 

from private vendors most or all of the time. Another 

study found that prices in New Delhi in 2003 were $0.025 

typically cannot expand services to extremely poor 

populations. However, it is remarkable how much the 

poor actually have been able and willing to pay for 

water and power when they get reliable, high-quality 

service, as illustrated by experiences in Afghanistan, 

Senegal, Tajikistan, and Uganda. In many cases, the 

poor are willing to pay the actual cost of service; the 

problem is the willingness of politicians and bureaucrats to charge. Again, this is more of a political 

problem than a technical one. Solutions include: 1) 

raising tariffs to levels that allow reasonable cost 

recovery in slums, to provide an incentive to the utility 

to expand and maintain services in these areas; 2) using 

private operating contracts that have explicit targets for 

services in poor areas; and, 3) providing clear incentives 

(and penalties) to staff and management for service 

expansion in poor areas.

per cubic meter for service from public utility connections (not available in many slums), $2 per cubic meter 

for water from private tankers, and $12 per cubic meter 

when purchased from private vendors in bulk containers. 

See Llorente and Zerah (2003).
42 USAID

Government sovereignty is often the core issue. The 

government’s control over the utility during a rebuilding or transitional period is a major political issue. In 

some cases, donors want the government to appear to 

be a sovereign entity in control of basic services, even 

though the government’s capacity to actually run a 

public utility is extremely weak. The alternative is for 

donors to convince the government to allow an 

operating contract to be put in place for a limited 

period of time, stabilize the situation, rebuild systems

and personnel capacity, and root out corruption. This 

approach is common in Francophone countries, but 

less familiar to U.S. assistance programs.31

Key Trade-Offs

Given the importance of restoring key infrastructure 

services in post-conflict situations as quickly as 

possible, host country governments and donors must 

make decisions quickly on the basis of specific 

trade-offs that are not nearly as acute in more stable 

developing countries. In providing infrastructure 

assistance, the key trade-offs involve: sectoral focus, 

private participation vs. building a public-sector utility, 

rapid vs. gradual investment in physical infrastructure,

short term vs. long term, and effectiveness vs. efficiency.

The goal of initial infrastructure rebuilding activities 

should be to help restore production capacity and jobs 

as quickly as possible while still meeting basic 

humanitarian needs for housing, water supply, and so 

on. From an economic perspective, addressing electricity 

and road networks is likely to be particularly important, 

but other types of infrastructure such as ports or 

irrigation systems may be critical in some countries. 

Sectoral priorities should be established through an 

evaluative process that involves donors and government 

officials from national and sub-national levels. Initial 

infrastructure repairs (e.g., clearing irrigation canals or 

restoring roads) often provide opportunities for unskilled 

job creation on a significant scale. 

31 The USAID report “Operating Contracts for Managing 

Infrastructure Enterprises Under Difficult Conditions” 

illustrates this concept. The report is cited in the Available 

Rapid Assessment Tools section at the end of this chapter.

Rapid vs. gradual investment in physical 

infrastructure 

Investment in new physical assets should be matched 

by a well-designed program of institutional strengthening. In post-conflict situations, there is often heavy 

pressure to make large-scale investments in infrastructure rapidly, before major organizational improvements 

have occurred. Without institutional strengthening, 

however, there is a reasonably high probability that new 

fixed assets will be poorly maintained and that revenues 

from expanded service will not be realized. 

Major physical investments also should be accompanied by appropriately sized investments in the commercial aspects of operating a utility. The utility will 

not be sustainable if it has large physical asset investments, such as new generating plant investments, but 

no improvements in its ability to manage customer 

records and to generate and collect bills. 

Short term vs. long term

Measures to restore services quickly after a conflict 

may undermine achievement of financial viability in 

the longer term. While prices for infrastructure services 

often are set far too low to cover more than a small 

fraction of the cost of providing services, price increases 

are commonly deferred until infrastructure services are 

restored and even improved. Thus, immediate improvements in service often require donor-financed subsidies. 

In the long-term, prices will have to be raised so that 

service can be sustained at restored levels. Donors should 

clearly establish at the outset the expectation that prices 

will need to be raised for long-term efficiency and 

sustainability. Donors should also support efforts to 

build the capacity of the government and infrastructure 

service providers to manage price-setting. 

Effective vs. efficient

A set of infrastructure projects perceived to inordinately 

benefit one party or one geographic region may 

contribute to a return to conflict, no matter how 

efficient the projects are at increasing well-being and 

bringing about rapid economic growth. A great deal of 

infrastructure will need to be rebuilt or repaired following 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 43

a violent conflict of any significant duration. Even with 

substantial financial pledges by donors, resources will not 

be sufficient to rebuild everything at once. Choices must 

be made among competing projects. One criterion must 

be the infrastructure projects’ contributions to economic 

growth. This cannot, however, be the sole criterion. The 

projects’ contributions to the well-being of conflictaffected populations must also be considered. The 

infrastructure projects selected for immediate implementation must benefit all parties to the conflict. 

Programming Options

Donors’ urgent objective is to work with the post-conflict government to restore basic services. The priority 

should be to reconstruct infrastructure systems that are 

vital for the recovery of economic production and the 

distribution of products and inputs, as well as essential for 

the well being and safety of large, well balanced segments 

of the population. Donors should support physical 

infrastructure projects that support economic activity at 

the productive enterprise level, namely services that will 

generate private incomes and employment. Priority 

projects might include reopening and expediting traffic 

through rural and urban roads,32 ports, railroads, and 

32 Issues to consider in the context of road construction/

rehabilitation include: appropriateness of road design and 

airports. Other possible priorities, specifically power and 

water (including the largest user of water, the irrigation 

sub-sector), can present a great challenge because they 

often demand large capital requirements. 

Donors and the host government should establish 

priorities through a joint evaluation process.33 After a 

conflict, many major civil works need significant 

rebuilding and repair. The vetting process used to 

determine project intervention priorities should 

include basic economic cost-benefit analysis and a 

review of the cost-effectiveness of alternative interventions. Donor coordination and program planning is 

vital, since resources are always scarce, and rapid but 

careful assessments are needed before decisions can be 

made on how to proceed. 

safety standards (e.g., paved vs. unpaved); the typically 

weak technical and institutional capacity of local road 

agencies, contractors, and consultants; and the desirability 

of obtaining the participation of local communities and 

civil societies in planning and implementation activities. 

33 Local ownership in the projects can encourage the host 

government to become operational more quickly, although 

this may in practice require many years. Operating contracts should be used in the initial recovery phase. 

Item Urgent Immediate Intermediate Consolidating

Joint assessment of infrastructure 

re-building priorities

Restoration of key humanitarian 

infrastructure services

Restoration of key economic infrastructure services

Infrastructure sub-sector reform

Institutional / regulatory capacity 

building

User tariffs and collections

Use of operating contracts

TABLE VII.I INFRASTRUCTURE ASSISTANCE

Priority and Sequencing of Assistance

High-intensity level of 

assistance

Lower-intensity level 

of assistance

Typically very little assistance
44 USAID

A critical choice for many infrastructure programs in 

post-conflict countries is whether to try to rebuild 

local utility companies or to use private-sector 

participation to re-establish services, customer 

relationships, and financial and operational 

viability. Local politicians and bureaucrats often 

would prefer that a public utility be rebuilt. This may 

not, however, solve the utility’s serious operational and 

financial problems or lead to acceptable service levels 

over the medium term. Often, local politicians and 

bureaucrats would rather keep the utility in public 

hands. This preference may reflect “good” reasons, such 

as maintaining sovereignty over public services and 

preventing a backlash against privatization. It also can 

reflect “bad” motivations, such as maintaining existing 

corruption arrangements or prioritizing the interests of 

public-sector employees over service quality, public 

financial control, and customer interests. 

Best-practice guidance for deciding between private 

participation and building a public-sector utility 

includes the following: 

•	 Determine the level and causes of performance shortfalls. If performance shortfalls are huge,34 it often 

is a sign that serious corruption is present. When 

corruption is prevalent, it often indicates a serious 

problem with both management and corporate 

governance. In these conditions, the options often 

are to replace management and establish new 

corporate governance arrangements or to use a 

private operating contract. 

•	 Remember that operating contracts can be used to 

stabilize and rebuild the utility. It is important for 

donors to be clear in dialogue with the host government that operating contracts, which are used 

for a limited period of time (two to ten years), are 

a tool to help rebuild services, operational and 

financial conditions, customer relationships, and 

staff capacity. Donors should point out that these 

arrangements are not permanent, and that they of34 An example of a huge performance deficiency is Lagos 

State Water Corporation’s nonrevenue water (NRW) in 

2001, prior to reorganization of the utility. At this time, the 

World Bank estimated that NRW was 97 percent of total 

water produced. This means that revenues were collected 

for only 3 percent of the volume of water produced by 

the corporation. The rest was lost or stolen. 

U.S. Ambassador 

Kristie A. Kenney, 

together with the 

Tawi-Tawi Provincial Governor and 

USAID Mission Director Jon Lindborg, 

turned over a Water Supply Project 

inTawi-Tawi, an 

island in the Southern Philippines. The 

water system’s 

upgrade, undertaken by USAID’s 

Growth with Equity 

in Mindanao (GEM) 

Program, enabled 

the Water District 

to add 12,000 residents to the system.

Health officials now 

expect a decrease in 

waterborne diseases, 

as residents benefit 

from safe, potable 

water. The water 

system is one of over 

850 infrastructure 

projects constructed 

under USAID’s GEM 

Program with local governments 

throughout Mindanao. (USAID/ 

Philippines) 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 45

ten reflect very positively on government capacity 

because of improved staff morale and services. 

•	 Credible business plans are important. If the host 

government requests a large amount of financial 

support to rebuild infrastructure with public-sector 

management, the utility needs to have a credible 

business plan for the rebuilding period. Preparing 

such a business plan is a relatively inexpensive activity, which can be supported by donors. 

In each sub-sector, donors should strike a balance 

between physical reconstruction and rebuilding the 

institutions that manage and maintain infrastructure. This may require a conscious effort on the donors’ 

part since reconstruction is typically more tangible, 

easier, and quicker than institution building. 

Depending upon the duration, extent, and severity of 

the conflict, a post-conflict country will likely require a 

significant phase of reconstructing damaged or 

destroyed physical infrastructure. During this phase, if 

there was an exodus of managerial and technical 

professionals during the conflict, the public institutions 

that manage and maintain critical infrastructure may 

also need to be rebuilt via donor-provided technical 

assistance and training. 

Successful infrastructure development typically requires 

a two-pronged approach, with an emphasis on: 

•	 restoring core infrastructure and services. Donors 

should: 

o promote inclusive sector strategies, working with 

host-country officials

o lower costs and increase access by using affordable, 

detailed, and reliable design standards

o rely on local labor and entrepreneurs whenever possible

o anticipate and include operations and maintenance 

in restoration plans 

•	 building institutional operating capacity for governance and management, toward which donors 

should:

o provide basic training and technical assistance 

o work within the national budget process 

o consider use of operating contracts during the 

transition periods

Institutional capacity-building is particularly 

important; without it, restored physical infrastructure is not likely to be sustained. Donors must help 

build the capacity of the institutions that operate, 

manage, and regulate infrastructure. For these institutions to achieve and maintain sustainable operations 

over the long term, they need both strong external 

discipline over operations and also improved internal 

technical, management, and administrative capacity. 

In most post-conflict countries, local management and 

administrative capacity is weak. Often, it is nonexistent 

or nonfunctional. Re-establishing critical infrastructure 

without a basic level of supervisory management and 

administrative competence, as well as basic regulation, 

can cause immediate operational and management 

problems. These problems are difficult to remedy once 

they take root. Corruption, in particular, can grow 

rapidly in a utility, sapping the entrepreneurial spirit 

needed for economic recovery and rendering donor 

programs ineffective. 

Infrastructure-related capacity building is typically 

much less expensive than the restoration of the 

infrastructure itself. Nevertheless, it is a slow, laborintensive, and demanding process that may exceed 

donors’ time horizons and strain their funding 

capacities. In these difficult situations, donors may 

wish to advocate the use of operating contracts as the 

most rapid way to re-establish utility services.

State-owned enterprises in the infrastructure sector 

often have particularly weak capacity, especially under 

legacy political systems. After a conflict, the re-establishment of state-owned or managed infrastructure 

companies has often resulted in suboptimal service, 

continued bad governance, insufficient investment in 

facilities, and unsustainable operations.35 One typical 

problem at state owned enterprises in infrastructure 

sub-sectors is that “customer-facing” functions are 

35 The poorly performing and financial distressed stateowned electricity company in Kosovo, more than seven 

years after the end of open conflict, provides an example 

of such dysfunctional state management. 
46 USAID

USAID-supported 

road construction 

programs like this one 

in Aceh Province have 

improved Indonesia’s 

efforts to develop 

its transportation 

networks. (USAID/

Indonesia) 

neglected: meters are not read, bills are not collected, 

and customer requests for new service are not fulfilled. 

Reduce corruption through structural measures. 

Utilities are a major target for corrupt behavior because 

they generate large amounts of cash through customer 

revenues and make large payments for supplies, bulk 

energy, and fixed-asset contracting. Corruption is often 

enabled by politicians who benefit from the cash taken 

from a utility. This is not a technical issue; it typically is 

political, and is directly related to corporate governance 

arrangements for the utility.

 Solutions that typically work include: 1) making new 

arrangements for corporate governance, which provide 

a more independent, professionally competent board of 

directors and management; 2) establishing effective 

social safety nets and subsidy schemes (“lifeline tariffs”) 

to ensure a minimum level of affordable supply to the 

most vulnerable consumers; 3) introducing privatesector participation, with appropriate incentives for the 

private operator to minimize corruption; 4) developing 

and implementing program specific performance-based 

lump-sum infrastructure investment and maintenance 

programs; and, 5) commercializing the utility, accompanied by the introduction of professionalized 

management, an obligation to balance costs and 

revenues, and incentives to staff for good performance. 

Staff issues are important during the transition 

period. Utility staffing and salaries can be a very 

important political and social issue during a rebuilding 

period. Utilities often have thousands, even tens of 

thousands of employees. It is common for staff to have 

low salaries, often below cost-of-living requirements for 

families. It also is relatively common for poorly paid 

staff to supplement their incomes through illicit means, 

such as accepting bribes for tampering with meters or 

providing unregistered connections. While rebuilding a 

utility, it generally is necessary to: 1) identify and shed 

highly corrupt staff; 2) reorganize the work force and 

establish new management and supervisory arrangements; and, 3) increase salaries and provide performance-linked incentives. In a number of situations, 

donors have helped design staff transition arrangements. At times, donors have also funded buy-out and 

retraining programs for redundant staff. 

Early in the post-conflict period (generally the first 18 

months), there is a window of opportunity to undertake 

critical reforms in the water, power, transport, and 

telecommunications sub-sectors. Donors should carry 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 47

out a diagnostic of conditions in priority infrastructure 

sub-sectors. They should examine the need for and 

opportunities to implement systemic reforms as part of 

the restoration program. In some countries, it is possible 

to carry out the types of reforms that are critical to the 

sub-sector’s long-term development, such as restructuring 

the water and power sectors, unbundling electricity 

utilities into separate divisions or companies, and 

establishing regulatory agencies. Donors and host 

governments need to consider the nature of the conflict 

when deciding whether there should be a national system, 

a system made up of regional semi-autonomous entities, 

or a more decentralized system.

Depending on specific country circumstances, immediate priorities for emergency repairs to damaged infrastructure and for the restoration of basic services may be:

•	 electricity generation, transmission, and distribution 

to supply basic, essential service to the country’s 

main centers of non-agricultural production and 

employment 

•	 transportation networks to facilitate agricultural production and marketing, and other flows of goods 

and services through business supply chains36

Donor assistance should generally involve helping 

utility organizations overcome critical institutional 

development challenges, such as training staff and 

developing effective financial, personnel, and 

technical management systems. Management 

contracts can help build capacity and are reasonably 

inexpensive. 

Transportation is often an obvious candidate for 

priority attention from donors. Reducing barriers to 

the use of transport facilities is sometimes even more 

important than physically reconstructing transportation infrastructure. Police, militias, and customs agents 

often establish widespread internal checkpoints where 

goods are stopped and taxed. These practices, which 

amount to quasi-official banditry, are significant 

36 Roads often are an immediate priority in post-conflict 

countries (e.g., Afghanistan), but sometimes immediate 

attention to ports and airports is a higher priority (e.g., 

Liberia) because of their importance to ensuring reliability, 

maintaining security, and reducing costs in international 

trade. 

barriers to regional and international trade in some 

countries. In other instances, de-mining may be the 

most important way to bring roads back into use. 

Targeted assistance and training from donors can help 

reduce these barriers.37 Rebuilding transportation 

networks poses the same challenge faced throughout 

the infrastructure sector: high capital requirements, 

which result in the need to attract private participation. 

In some cases, donors can help address high capital 

costs by ensuring that appropriate but lower cost design 

standards are adopted.

Outsourcing the management of critical transportation 

nodes and functions can have a tremendous impact on 

economic growth. Extensive corruption and mismanagement at ports, airports, and municipal markets, for 

example, can have a huge effect on prices and on the private 

sector’s ability to trade. Often, donors do not consider 

private operating arrangements for critical nodes. Donors 

may be reluctant to confront an inept public-sector 

bureaucracy, or they may not fully recognize the impact key 

transit points can have on private-sector incomes. In many 

cases, private operating arrangements in the transportation

sub-sector have enhanced economic growth. Examples 

include rail privatization in Mozambique, port privatization 

in Argentina, the privatization of customs functions in 

Indonesia, and the establishment of operating contracts for 

cold cargo facilities in India and Chile. In addition to 

economic benefits, the social implications of freeing up 

these “chokepoints” can be huge. 

Private investors can play an important role in the 

provision of some infrastructure services. At one 

extreme, since the advent of cheap mobile phones and 

satellite communications technology, the private sector 

may quickly and completely provide telecommunications services with no investment and minimal 

enabling support by the public sector.38 For other 

37 Recent examples, including the Uganda National Water & 

Sewerage Corporation case, demonstrate the importance 

of combining staff training with performance-related 

incentives to improve customer service and operational 

performance in power, water, and sanitation utilities. 

38 Such enabling support may include new legislation and a 

regulation to permit private investment in mobile telephony, such as the enabling support provided by USAID/ 

Afghanistan. 
48 USAID

utilities and infrastructure, a hybrid public-private 

relationship, such as a management contract or private 

concession to operate a facility or network, may be 

necessary. High capital requirements for restoring 

many infrastructure services can be problematic for 

donors. In many cases, private investors, operators, and 

other sources of finance must be brought in. To attract 

these private partners, host governments must offer 

reasonable commercial terms and conditions, as well as 

incentives to invest and operate.

It generally is unrealistic to expect the private sector to 

undertake major infrastructure investments, due to the 

high risks of most post-conflict environments – specifically the possible return to conflict and the unpredictable regulatory environment. A multi-year concession 

is often the best alternative to privatization for an 

existing utility provider that needs major investment. 

There is also a continuum of shorter-term options for 

contracting out the utility’s management or aspects of 

its operations (particularly for its key customer-facing 

functions), as shown in Table VII.2. 

As arrangements move closer toward the private-ownership end of the continuum, it becomes increasingly 

important for the public regulator to accept marketbased pricing for the company’s services and to allow 

enforcement of customer collections through service 

cutoffs.

USAID often supports early interventions that establish 

operating contracts. These are management contracts or 

leases, with private-sector operating companies undertaking the work. These companies, frequently foreign 

businesses operating independently or as joint ventures 

with regional companies, employ experienced management and staff and are able both to re-establish basic 

services and operate critical utilities when local capacity is 

weak. Donors can provide valuable support by helping 

define an appropriate scope for such contracts, assisting 

with the pre-qualification of bidders to exclude inexperienced but politically connected bidders, and ensuring that 

there will be adequate competition and integrity in the 

procurement process. USAID has supported such 

operating contracts in Georgia, Jordan, Liberia, and 

Kosovo. This approach also has been used successfully in 

difficult environments, such as Cambodia, Cote d’Ivoire, 

and Tajikistan. 

Available Rapid Assessment

Tools

Bakovic, Tonci, Bernard Tenenbaum and Fiona Woolf. 

2003. “Regulation by Contract: A New Way to 

Privatize Electricity Distribution?” Working Paper 

14, World Bank. 

http://www-wds.worldbank.org/external/default/

WDSContentServer/WDSP/IB/2003/11/05/000

Public

Management 

Contracts

Leases Concessions

Private

May work if full cooperation of 

managers

 

 

 

 

 

 

 

 

TableVII.2 Private Participation Continuum: Publicto Private

Technical Assistance

and/or

Contract Outsourcing

(for certain business functions)

Private firm runs 

company and

introduces discipline

Similar to 

receivership

Private firm 

operates and

maintains

Investment

funded by public

sector

Private firm 

operates and

maintains

Investment by

private firm
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 49

090341_20031105153200/Rendered/PDF/2714

30PAPER0Regulation0by0contract.pdf.

Besant-Jones, John E. 2006. “Reforming Power 

Markets in Developing Countries: What Have We 

Learned?” Energy & Mining Sector Board 

Discussion Paper 19, World Bank. http://

www-wds.worldbank.org/external/default/

WDSContentServer/WDSP/IB/2007/03/07/000

310607_20070307122641/Rendered/

PDF/380170REPLACEMENT0Energy19.pdf.

Brown, Ashley C., Jon Stern, Bernard Tenenbaum, and 

Defne Gencer. 2006. Handbook for Evaluating 

Infrastructure Regulatory Systems. The World Bank. 

http://siteresources.worldbank.org EXTENERGY/

Resources/336805-1156971270190 Estache, 

HandbookForEvaluatingInfrastructureRegulation 

062706.pdf. 

Estache, Antonio and Gines de Rus, eds. 2000. 

“Privatization and Regulation of Transport 

Infrastructure: Guidelines for Policymakers and 

Regulators.” World Bank Institute Development 

Studies, World Bank. http://www-wds.worldbank.

org/external/default/WDSContentServer/WDSP/

IB/2000/08/19/000094946_00080705302025/

Rendered/PDF/multi_page.pdf.

Hunt, Sally. 2002. Making Competition Work in 

Electricity. Wiley Finance.

Kessides, Ioannis N. 2004. “Reforming Infrastructure: 

Privatization, Regulation, and Competition.” 

World Bank Policy Research Report, World Bank. 

http://www-wds.worldbank.org/external/default/

WDSContentServer/WDSP/IB/2004/06/16/000

012009_20040616143838/Rendered/PDF/2898

50PAPER0reforming0infrastructure.pdf.

Llorente, Marie, and Marie Helene Zerah. 2003 “The 

Urban Water Sector: Formal versus Informal 

Suppliers in India.” Urban India XXII (1). http://

www.cerna.ensmp.fr/Documents/MHZUrbanIndia-2003.pdf.

A USAID 

infrastructure 

program in BosniaHerzegovina 

targeted structures 

that would help 

restart businesses 

and assist citizens 

to return to normal 

living. One of the 

most significant 

efforts included 

repair of the Brcko 

rail bridge between 

Bosnia-Herzegovina 

and Croatia, which 

enabled businesses 

to resume exporting 

their goods. (Kasey 

Vannett; USAID/

Bosnia-Herzegovina) 
50 USAID

USAID. 2005. Good Practices in Water & Sanitation 

Utility Regulation. USAID EPIQ II.

----------. 2006. Water Utility Corporatization. USAID 

Water IQC. 

USAID Office of Infrastructure & Engineering. 2007. 

Operating Contracts for Managing Infrastructure 

Enterprises Under Difficult Conditions. USAID.

World Bank. 2006. Approaches to Private Participation 

in Water Services: A Toolkit. http://rru.worldbank.

org/Documents/Toolkits/Water/Water_Full.pdf. 

References for Relevant Case

Studies

Agarwal, Manish, Ian Alexander, and Bernard 

Tenenbaum. 2003. “The Delhi Electricity Discoms 

Privatizations: Some Observations and 

Recommendations for Future Privatizations in 

India and Elsewhere.” Energy & Mining Sector 

Board Discussion Paper 8, World Bank. http://info.

worldbank.org/etools/docs/library/86456/

ses2.1_delhielectdiscoms.pdf. 

Baietti, Aldo, William Kindgom, and Meike van 

Ginneken. 2006. “Characteristics of WellPerforming Water Utilities.” Water Supply & 

Sanitation Working Note 9, World Bank. http://

siteresources.worldbank.org/INTWSS/Resources/

Workingnote9.pdf. 

Brocklehurst, Clarissa, and Jan. G. Janssens. 2004. 

“Innovative Contracts, Sound Relationships: 

Urban Water Sector Reform in Senegal.” Water 

and Sanitation Sector Board Discussion Paper 1, 

World Bank. http://www.worldbank.org/html/

fpd/water/pdf/WSS_Senegal.pdf.

Buresch, Matthew. 2003. Sustainable Power Reform 

Case Studies. Joint USAID and World Bank Power 

Sector Reform Review, Deloitte Emerging 

Markets. 

Collignon, Bernard, and Jon Lane, eds. 2002. “Urban 

Water Supply Innovations in Cote d’Ivoire: How 

Cross-Subsidies Help the Poor.” Water & 

Sanitation Program Field Note 11, World Bank. 

http://www-wds.worldbank.org/external/default/

WDSContentServer/WDSP/IB/2003/08/27/000

012009_20030827165847/Rendered/PDF/2662

90PAPER0English0Blue0Gold0no1011.pdf. 

USAID. 2005. Case Studies of Bankable Water and 

Sewerage Utilities: Volume II, Compendium of Case 

Studies. Prepared for USAID Bureau for Economic 

Growth, Agriculture, and Trade by Associates in 

Rural Development, Inc. http://pdf.usaid.gov/

pdf_docs/PNADE148.pdf. 

----------. 2006. “Utility Theft and Efforts at 

Prevention: The Georgia United Electricity 

Distribution Company Experience.” USAID/

Georgia Energy Security Initiative Report. 

USAID/Kosovo and U.S. Energy Association. 2006. 

“Qualitative Assessment of Preparations for 

Transition to Local Management within KEK.” 

USAID.
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 51

After security and macroeconomic policies, the 

business enabling environment is the most important 

element for encouraging and sustaining growth. 

During the immediate post-conflict period, an 

important initial task is to get businesses back on their 

feet with donor financing. Such financing, however, 

cannot and should not persist indefinitely. As soon as 

possible, the host country must take responsibility for 

creating and maintaining a business-friendly environment. The following two sections of the guide provide 

recommendations on: A) how to create an environment that enables private-sector growth; and, B) how 

to strengthen enterprises so they can compete in the 

emerging post-conflict economy.

VIII. Private-Sector Development

Enterprise is the key to sustainable growth. Insecure, risky environments marked by considerable uncertainty 

about the future cause businesses, both formal and informal, to shorten their time horizons and engage in 

activities that they believe are lower-risk and offer a higher return. In post-conflict countries, the challenge is to 

convince businesses to take a longer-term view and accept somewhat more risk. 

govern economic activity. Courts may have ceased to 

function effectively, making it difficult, if not impossible, to enforce contracts. Increased corruption can 

lead to disparate and unpredictable enforcement of 

business and trade regulations, enabling some businesses to evade taxes, licensing restrictions, or customs 

duties that others must pay. Frequently, the rules 

themselves may be in flux, with unexpected decrees or 

fluctuating enforcement policies, making it difficult to 

pursue a rational business plan. 

To reduce risks and encourage private-sector activity, 

donor-supported enabling environment programs 

must be pragmatic and effective. In post-conflict 

economies, investment is needed more than ever to 

spur growth, jobs, and stability. Practical considerations 

may call for donor assistance approaches that would 

not be preferred in a more stable environment.

Reformers may need to employ rapid policy interventions, without sufficient stakeholder input, to reduce 

overly burdensome regulation, or may need to 

encourage informal enterprises in the short-term, 

shifting to formalization projects only after 

stabilization.

The devastation wrought by conflict can offer 

important opportunities to simplify the regulatory 

framework. While certain essential government 

services, such as security and sanitation, need to be 

restored rapidly, many countries that fall into conflict 

are characterized by burdensome over-regulation of 

business. Government offices may have in the past 

attempted to control or seek rents from economic 

actors, rather than facilitate economic growth. These 

practices increase both the cost and the risk of doing 

business, while undermining respect for government. 

Programs should be careful to rebuild only those 

services that enhance economic growth, and should 

assist government agencies in shifting from a control 

paradigm to a facilitative model. 

A. Private-Sector 

Enabling Environment

Overarching Objective: To reduce risk and 

increase the predictability of the environment 

in which business is conducted. Without timely 

improvements in both factors, businesses of any 

size are less likely to initiate or increase business 

activity and may even withdraw existing investments. The first step for encouraging increased 

private-sector activity is to lower the risks. 

Political and Social Issues

The risks confronting business in post-conflict 

societies tend to take two primary forms 1) uncertainty over the “rules of the game” (laws and 

regulations) and 2) an inability to enforce rules that 

are certain (weak institutions). Conflict can wreak 

havoc with both the rules of the game and their 

enforcement, and thus with private-sector activity.

Conflict often leads to a breakdown in the government’s ability to enforce the laws and regulations that 
52 USAID

Post-conflict reforms offer an opportunity to 

introduce a legal and regulatory system that applies 

equally to all economic actors. The pre-conflict legal 

system may have favored and protected vested interests 

through a variety of restrictions on competition or 

through incentives for non-competition that favored 

entrenched groups. These restrictions may apply 

particularly to women, who typically may have been 

increasingly marginalized during the conflict or who 

may simply have not had access to significant economic 

opportunities in the past. Conflict can upset the 

dynamics that gave rise to such arrangements, enabling 

post-conflict reforms to establish a system that provides 

opportunities without discrimination. 

Key Trade-Offs

Post-conflict governments sometimes champion 

market-oriented reforms, at least during the initial 

recovery phase. Donors (and particularly USAID, with 

its strong focus on private-sector, market-oriented 

development) should wholeheartedly support such 

enthusiasm for reform. The imperative of short-term 

progress may call for less-than-perfect solutions with 

less-than-ideal partners. This approach can reduce 

impediments to doing business while long-term efforts 

are underway to improve legal and regulatory systems 

and build the capacity of regulatory and enforcement 

institutions. Pragmatic short-term measures send an 

important signal to private-sector actors that enterprise 

is strongly encouraged and that the government 

intends to protect the interests of investors. The 

inevitable trade-offs include effectiveness vs. efficiency, 

urgency vs. legitimacy, and short term vs. long term.

Effective vs. efficient

Effective, immediate solutions are not always efficient, 

but may be important in some situations. Power 

generation offers a prime example. Post-conflict Liberia 

lacked capacity to provide power from the national grid, 

but private suppliers of electricity using privately-owned 

generators have served homes and small enterprises 

without legal sanction. Although less efficient and more 

expensive, such unregulated electricity generation was a 

very effective solution to the immediate problem of 

scarce electrical power. Reliance on informal-sector 

providers should be strongly encouraged and even legally 

recognized until local or national power supply capacity 

can be restored. At that point, larger producers offering 

lower costs can recapture customers from the less 

efficient producers. This pragmatic approach serves 

business by reducing the risk of inconstant electricity 

supply. It also creates a more business-friendly environment by permitting small-scale manufacturing and 

services to continue operating. 

Urgent vs. legitimate 

The urgent needs of a post-conflict economy sometimes dictate short-cuts to the policy process in order 

to encourage immediate economic activity. Reforms 

to the business enabling environment often require 

policy changes that must be enacted through legislation 

or regulation. Normally, effective legal and regulatory 

reforms require several years of interaction among 

stakeholders to ensure sufficient consensus for implementation. In a post-conflict environment, the normal 

vetting of reforms with stakeholders may not be 

practical, but short-cuts come at a cost. The sacrifice of 

legitimacy for the sake of urgency makes the enabling 

environment less stable, and thus less attractive, to 

investors who may have been left out of the policy 

reform process. New laws that suddenly appear without 

input or warning can negatively affect the calculus of 

investment and drive investors away. One of the 

casualties of conflict is trust, so donors must be careful 

to rebuild trust when working with policymakers to 

improve the business environment.

Reforms must be vetted, at least briefly, with the 

affected stakeholders to ensure sufficient buy-in to 

support implementation. In Bosnia, for example, 

Employees at the Unis 

Tadiv machine tool 

production factory 

in Konjic, BosniaHerzegovina received 

their salaries following 

a USAID-assisted 

bankruptcy petition 

filed in October 2005. 

The insolvent stateowned company failed 

to pay due wages 

to its employees for 

three years until 

creditor claims were 

resolved under new 

bankruptcy laws passed 

in 2003. Bankruptcy 

allowed Unis Tadiv 

time to reorganize 

and negotiate 

agreements with 

creditors. (Chemonics 

International) 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 53

successful pledge registry reform engaged the banking 

sector extensively; in contrast, the failed leasing law was 

championed by foreign experts without meaningful 

participation from the local financial community. 

In another case, in an Islamic country shortly after an 

interim government took office, a banking law was 

drafted by foreign experts in English – not an official 

language of that country – and passed in a very short 

time frame. Although the draft law was not widely 

vetted, it had been cleared with committed local and 

expatriate banking investors, who invested heavily in 

the banking sector once the law was passed. Similarly, 

another group of foreign drafters prepared a framework 

commercial law, which had minimal local vetting and 

was passed on an emergency basis without additional 

input. The commercial law has subsequently been 

heavily criticized by the local business community, as 

well as by local and foreign legal specialists, and does 

not appear to have stimulated any investment. The 

basic difference between the two laws was legitimacy. 

The banking law responded to recognized demand and 

was substantively accepted by a target group of 

stakeholders who were sufficiently, although hastily, 

involved in the process. It permitted banks to meet 

identified demand for financial services. It also was 

approved by local experts as compliant with Islam. 

The commercial law, in contrast, had not yet been 

demanded by anyone other than foreign experts. It had 

no local buy-in and was not submitted for effective 

analysis by Islamic experts. Both were perceived to be 

urgent; only one was also legitimate. 

Short term vs. long term

As a corollary to the problem of urgency, reformers 

must be careful to prioritize short-term versus 

long-term programmatic needs. Post-conflict business 

environments require extensive reforms, but do not 

require all of them immediately. In fact, local absorptive capacity is usually very limited. Often, many of the 

most qualified government officials and business people 

have fled the country during the conflict, leaving key 

institutions with only a thin layer of technical capacity. 

Attempting too much too soon can overwhelm reform 

efforts, with the result that few needed reforms are 

processed. 

Programming Options

Donors should seek to restore the business community’s confidence to reasonable levels in the short 

term, while commencing work on the systemic 

changes needed to support long-term growth and 

stability. This requires concrete reductions in risk as 

perceived by business owners and managers. The 

following guidelines can increase the impact of donor 

assistance programs aimed at the business enabling 

environment:

•	 Respond to demand: The business community usually knows the constraints in the business environment and should play a central role in prioritizing 

the reform agenda. Donors need to be careful, 

however, to make sure that they connect with the 

broader business community, not just the elite or 

those who speak English. In Afghanistan, business 

associations surveyed the country’s businesses and 

identified domestic priorities, including electricity, access to land, and reduced regulation. Where 

projects were connected to these needs, there 

was substantial support. Other “urgent” projects 

pursued by donors that were not on the list lacked 

local support and legitimacy. 

•	 Expand opportunities: Urgent pressures may provide 

a chance to expand some concepts of legitimacy, 

such as women’s rights. Just as the World War II 

economy drew American women into factories and 

hastened changes in women’s employment rights 

in the United States, the need for labor in postconflict economies may open doors for women 

to move beyond traditional roles. In cases such as 

Afghanistan, where educated women were shunted 

into obscurity under the Taliban, a transforming 

economic environment is ripe for expanding opportunities for women professionals and workers. 

•	 Scale down: Small changes can often produce 

large impacts. Reformers should look for changes 

that can be accomplished with the “stroke of 

a minister’s pen” while commencing the slow, 

time-consuming legal and regulatory processes 

that may take years. In Guinea-Bissau during the 

mid-1990s, eliminating warehouse ownership 

requirements for the export of cashews introduced 

extensive competition, led to markedly higher 
54 USAID

TableVIII.1 Private-Sector Enabling Environment

Priority and Sequencing of Assistance

High-intensity level of 

assistance

Lower-intensity level 

of assistance

No assistance during 

phase

Activity Urgent Immediate Intermediate Consolidating

Reduced business 

regulation

Improved physical 

infrastructure

Public-private dialogue on 

policy priorities

Alternative dispute 

resolution

Land reform

Court reform and contract 

enforcement

producer prices, and stimulated increased investment. This was a much more effective outcome 

than would have been achieved through a broader, 

long-term effort to reform competition law. 

•	 Plan for amendments: Some legislation will need to 

be prepared quickly and will inevitably need to be 

corrected based on lessons learned during implementation. Many countries provide for interim or 

temporary regulations, often by executive decree, 

which expire unless adopted by a certain date. By 

using interim measures, or by building in a period 

of review and revision, policy-makers can reassure 

businesses that they will have an opportunity to 

correct hastily drafted measures.

•	 Announce changes: An often-cited barrier to 

investment in unstable societies is that changes 

take place by surprise. New rules appear or old 

ones disappear without warning, shaking investor 

confidence and undermining investment assumptions. To ensure greater positive impact, projects 

should invest extensively in public education and 

communication. This also helps re-establish trust 

in the government, leading to greater stability.

•	 Go beyond the capital: Reform efforts that neglect 

to engage stakeholders outside the capital city may 

reinforce pre-existing social conflicts while failing 

to build broad consensus for implementation. 

Urgency may limit the amount of time dedicated 

to consensus-building in the provinces, but should 

not eliminate such efforts altogether. It is important for businesses with national scope to know 

that new rules apply throughout the country, not 

just in the capital.

Key themes for improving the business enabling 

environment will be to remove government constraints on “new entrants” and to reduce the extent 

and complexity of government regulations.

•	 Remove constraints: In post-conflict settings, many 

effective short-term reforms are likely to involve 

permitting business activities that previously had been 

constrained, including economic opportunities for 

women. Marketing boards, price-control boards, and 

various licensing and approval authorities can significantly hamper and distort economic activity. Steps 

such as removing excessive licensing requirements, 

eliminating export restrictions, or removing gender 

discrimination in hiring can legitimize and expand 

economic activity, having an immediate impact. Governments are unlikely to have the capacity to enforce 

new restrictions or define complex new opportunities 

until the socio-political environment stabilizes. 

•	 Reduce regulation: Regulation is the seedbed of 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 55

corruption. Although regulation is necessary for 

many purposes, extensive and complex regulations 

create greater opportunities for rent-seeking. Reforms aimed at reducing and removing constraints 

by eliminating and simplifying regulations will 

increase economic activity while reducing bribery 

and the risks inherent in corrupt systems.

Unfortunately, donors may sometimes become part of 

the regulatory problem, rather than part of the 

solution. John McMillan has cited the case of the 

United Nations Transitional Administration in East 

Timor (UNTAET) that initially wrote the rules on 

business registration during 2000-2002, specifying for 

desperately poor East Timor that a $100 fee be paid 

annually for each enterprise and imposing a $500 fine 

or closure as penalties for failure to register a business. 

McMillan noted the result that, on criteria monitored 

in the World Bank’s Doing Business surveys, TimorLeste ranked 174 among 175 countries surveyed for 

regulatory difficulties of doing business.39

Reforms that respond to the business community’s 

actual, immediate demands should be addressed 

first, with longer systemic changes implemented later.

For example:

•	 Court reform: It takes five to ten years for judicial programs to achieve results, even in stable 

countries. In Bosnia, it took ten years of project 

support to redesign and stabilize the court system 

sufficiently to delve into serious issues of delay 

and corruption. Although such projects should be 

started as soon as feasible, attention should primarily be given to shorter-term solutions, such as 

alternative dispute resolution, private enforcement 

(repossession), and the use of existing customary 

courts. 

•	 Competition: Post-conflict countries need to 

focus on pragmatic, short-term actions to reduce 

obstacles to competition. These include reducing 

the costs and time required to register a business, 

eliminating or simplifying licensing requirements, 

removing export or import restrictions to allow 

more players in the market, and lessening the burden of regulations wherever possible. The immedi39 McMillan (2006).

ate post-conflict period often permits countries 

to make many such changes before the previously 

strong vested interests re-establish past privileges 

and protections. At a later stage, countries may 

engage in the longer-term process of formal competition reform to solidify and build upon their 

short-term reforms to encourage competition.

•	 Process re-engineering: Serbia’s commercial and 

civil codes under Milosevic were said to create a “debtor’s paradise” in which lenders could 

not enforce debts. The codes needed extensive 

reforms over the long term, but in the short term 

it was possible to introduce “mini reforms,” such 

as creating a pledge registry system for movable 

property, which had not existed previously. In 

Croatia and Bosnia, many of the delays in court 

systems were caused by practical problems that 

could be addressed without legal amendment, 

while reformers addressed systemic problems that 

require years of work.

Extensive destruction during conflict means that 

there is an extremely wide range of possible interventions, which must be prioritized for impact and 

feasibility. Donors should conduct rapid, gendersensitive assessments of business-sector needs and 

priorities to ensure that the demand for reforms 

influences the supply. These assessments can be 

repeated periodically and eventually can be run by local 

business organizations. Key indicators should also be 

established to direct the efforts of donors, the government, and the business community toward the most 

essential targets at the outset of recovery efforts. 

While the guidelines listed above provide some 

orientation on how to implement reforms more 

effectively, they do not necessarily indicate what should 

be done. Based on the established needs of businesses, 

however, certain reform needs are relatively predictable. 

Common areas for priority attention that may produce 

high-impact, short-term results include:

•	 Land: Real property rights are fundamental to 

commercial activity. Indeed, property distribution 

frequently is a cause of conflict. Conflicts tend to 

reduce land security, either through the destruction of deeds and other title documents or because 
56 USAID

Before and after 

photos display USAIDassisted efforts to 

restore and reorganize 

more than six million 

legal documents, 

including property 

titles, in the archives 

of the Supreme 

Court in Afghanistan. 

USAID trained 

land administration 

personnel and judges 

in the care and 

protection of legal 

documents and in the 

creation of permanent 

electronic storage for 

easy access to land 

titles. (Emerging 

Markets Group) 

of wartime population migrations. Fortunately, 

governments sometimes have large tracts of land 

with undisputed title that can be privatized or 

leased on a long-term basis to spark investment. 

Even where title is disputed, it may be possible to 

extend the use of leases through interim measures 

which protect the business that is leasing the property from any underlying disputes about ownership. More comprehensive reforms will take time, 

but should begin immediately. 

•	 Contract enforcement: Although comprehensive 

judicial reform takes years, there are short-term 

efforts that can have a positive impact on stabilizing the business climate in the near term. Initial 

improvements can be achieved by working with 

customary and traditional dispute-resolution organizations or by building the arbitration and mediation capacity of business associations. Caution 

should be taken not to improve judicial enforcement unless the judiciary is generally respected; 

otherwise, enforcement efforts will destabilize 

the environment by supporting corruption and 

incompetence, and exacerbating perceptions of 

injustice. 

•	 Public-private dialogue: It is not enough for donors 

to understand business priorities; the government 

also must be part of the conversation and education process. Programs should deliberately create 

mechanisms to improve communication and 

cooperation between the government and private 

sector, including women’s organizations and 

representatives. Such a dialogue will help rebuild 

trust and ensure more effective, business-friendly 

reforms as government officials come to better 

understand and accept market needs. 

•	 Flexible labor policies: To stimulate employment, 

labor policies should be highly flexible in the immediate post-conflict period. Governments may wish 

to adopt temporary policies that permit lower-cost 

temporary contracts to be used or that reduce 

burdensome contribution requirements. They can 

deal with more comprehensive, politically sensitive 

labor reforms once the economy stabilizes. The postconflict environment may open new employment 

opportunities for women, if the male labor force has 

been reduced due to death, emigration, or workrelated relocation (such as public works programs). 

Special attention may be needed to laws that exclude 

women from pursuing the same employment opportunities as men.

•	 Foreign investment climate: Foreign investors are 

likely to be more skittish than local investors in a 

high-risk environment. Therefore, it is important 

to provide assurances against expropriation and repatriation restrictions, as well as other risks. Such 

assurances might be achieved by adopting a new 

foreign investment code (as in Afghanistan) or by 

documenting existing protections. It also may be 

useful to prioritize reforms that are most likely to 

attract foreign investment, such as mining and 

infrastructure investments.
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 57

Available Rapid Assessment

Tools

BizCLIR: USAID provides field missions a multidimensional assessment tool to pinpoint changes 

needed in the commercial and business regulatory 

environment. BizCLIR has two applications: 1) an 

assessment of framework laws and institutions - the 

commercial legal and institutional law assessment; 

and, 2) a business regulatory assessment, based on 

the World Bank’s Doing Business framework. The tool 

has been used effectively in post-conflict countries, including Afghanistan, Croatia, Kosovo, Nicaragua, and 

Serbia. See www.bizlawreform.com. 

The World Bank offers other relevant, useful tools:

•	 The Mini-Diagnostic: The Foreign Investment Advisory Service (FIAS) is well-known for its Administrative Barriers Report (ABR), which is a large, in-depth 

report that covers a range of regulatory issues. It takes 

months and a number of missions for a large team 

to prepare an ABR. FIAS has found that its regular 

ABR can be used in low-intensity conflict-affected 

countries or in countries that are experiencing conflict in parts but not the whole (e.g., Nepal). For use 

in countries intensely affected by conflict, the ABR 

was reworked so that a shorter mini-diagnostic (a 

maximum of ten pages) can be prepared by a smaller 

team in seven to ten days. The mini-diagnostic 

crystallizes the main issues, but requires intensive 

preparation, principally by setting up meetings with 

government officials and carrying out an assessment 

of a wide purposive sample of businesses by knowledgeable donor staff on the ground. 

•	 The Survey of Informality: FIAS developed the 

Survey of Informality in 2006, in response to the 

challenge of large-scale informality in post-conflict 

countries. Rather than estimating the scope of 

the informal economy (i.e., how many firms or 

businesses are informal), the Survey of Informality

investigates the main causes of informality from 

the perspective of businesses. This enables it to obtain a user’s point of view about the most critical 

blocks to formalization. The Survey of Informality is based on research-supported observations 

that informality is a hindrance to growth. FIAS, 

however, accepts the somewhat unorthodox view 

(shared by this Guide) that informality in the very 

short term is less important than enabling people 

to earn incomes, regardless of whether they are 

earned in the formal or informal segments of the 

economy. The Survey of Informality has been used 

in Sierra Leone, Liberia, and Rwanda. 

•	 Doing Business: The World Bank’s Doing Business report has already compiled statistics for 175 

countries. It is updated annually to catalogue the 

burden of regulation on business. These prepared 

annual indicators enable rapid assessments to be 

conducted, identifying problematic areas in business environments. Additional analysis then can 

be conducted to address underlying causes and 

reduce the constraints on business activity. Doing 

Business is a valuable tool that helps provide direction for reform. 

Box VIII.1 Special Economic Zones

Given the chaos of post-conflict environments, 

special economic zones (SEZs) may provide an 

option for attracting investment or jumpstarting 

a sector of the economy. They can range from 

large scale industrial parks to single-factory export 

processing zones, but have certain necessary 

conditions:

•	 Secure land tenure

•	 Reliable electrical supply

•	 Physical security

•	 Investor-friendly regulations

•	 Linkages to local economies

Using private sector management concessions, it 

is possible to supplement government capacity 

to run the SEZ while supplying jobs, creating 

exports and expanding revenues. Care must be 

given to plan for the long-term through incentive 

structures and the regulatory environment. Used 

in more than 100 countries, SEZs have boosted 

economic development, but many have also failed. 

In a post-conflict setting, they may provide shortterm opportunities, which, if managed properly, can 

turn into long-term successes.
58 USAID

•	 Sub-national Doing Business surveys: The Doing 

Business survey can be adapted for use at a subnational level to compare differences in business environments at the municipal level. This allows more 

tailored reform initiatives, while inspiring competition between cities to improve their ratings. Such 

extended assessments can be accessed directly from 

the World Bank, FIAS, and USAID. The surveys 

have been used in a number of non-conflict-affected countries (e.g., Egypt, Philippines outside Mindanao, and Mexico), and also have been introduced 

in Colombia (particularly in some FARC-affected 

departments). The sub-national Doing Business

survey has potential for use in low-intensity conflict 

or mixed conflict-affected countries. 

•	 Enterprise Surveys: The World Bank uses Enterprise 

Surveys in a wide range of countries to explore 

issues such as the degree of corruption faced by 

businesses, the functionality of courts, the level 

and degree of crime faced by businesses, the availability and reliability of infrastructure, and the use 

of technology and labor for innovation. Enterprise 

Surveys have been used in conflict-affected countries such as Cambodia, Bosnia, Lebanon, and the 

Democratic Republic of Congo. 

Other indexes, such as the Economic Freedom of the 

World Index and the Global Competitiveness Index also 

provide a quick overview of problem areas. Like Doing 

Business, they highlight symptomatic problems that 

should be addressed only after further analysis. 

References for Relevant Case

Studies

McMillan, John. 2006. “The Nation Builders’ Blind 

Spot.” Stanford University. http://faculty-gsb.

stanford.edu/mcmillan/personal_page/documents/

Nation%20Building%202.pdf. 

World Bank. 2007. Doing Business 2007: How to 

Reform. 

B. Enterprise 

Development

Overarching Objective: To get enterprises 

working again. The keys to rekindling privatesector activity are a) the restoration and maintenance of physical security and b) confidence that 

improvements in the economic environment 

will be sustained.

Donors’ short-term objective for enterprise development 

should be to get all types of businesses – large and small, 

formal and informal – working again, and to do so as 

quickly as possible. In the medium to long term, donors 

should focus on building the capacity of local sources of 

technical assistance, training, and finance for businesses, 

and on establishing viable mechanisms for public–private-sector dialogue. 

Political and Social Issues

Previous control of the economy by entrenched 

interests based on race, ethnicity, religion, political 

affiliation, or class may have been an important cause 

of the conflict. When working at the enterprise or sector 

level, donors must understand the political, social, and 

economic factors that led to the outbreak of violence. 

Powerful interests, typically reinforced by a dense 

network of social relationships, may attempt to revive 

the former economic structure to recreate their privileged positions. Donors should try to broaden the 

economic base and assist all businesses, including those 

that were not part of the controlling interests prior to 

the conflict. To do otherwise may exacerbate underlying 

conflicts within the society, possibly leading to further 

outbreaks of violence in the future. 

As argued by Nourse and others,40 a fundamental 

challenge is that conflicts disrupt markets. To make 

matters worse, significant relief activity in the form of 

donated commodities and services, while critical to 

meeting human needs, has the side effect of distorting 

40 Nourse et al. (2007).
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 59

private-sector markets. In addition, many relief 

programs ignore locally available goods and services 

and thus exacerbate the problem. Eliminating all 

distortions due to relief delivery is impossible, for 

several reasons:

•	 In a chaotic and pressured situation, there are 

practical difficulties in identifying legitimate 

businesses and entrepreneurs and in designing 

programs to utilize them effectively. 

•	 The inherent objective of relief programs is to 

address the immediate needs of crisis-affected 

populations. This focus on the symptoms of a crisis, coupled with the need for expediency, creates 

an emergency mindset that often keeps the relief 

community from addressing the causes of the 

conflict and from identifying solutions, including 

support for private enterprises.

•	 Many relief agency staffers do not adequately 

understand the private sector. 

•	 Donors’ funding cycles often are short-term and 

inflexible. This fact, combined with the need to assist large numbers of people quickly, favors the direct delivery of goods or services over the indirect 

use of partner institutions and market channels, 

which often have been weakened by the crisis. 

Key Trade-Offs

Donors providing assistance to post-conflict countries 

must make decisions quickly, on the basis of specific 

trade-offs that are much more acute than in stable 

developing countries. In the area of enterprise development, the key trade-offs faced by donors include 

effectiveness vs. efficiency and short term vs. long term.

Effective vs. efficient

In a post-conflict setting, it may be helpful to target 

enterprise development interventions to specific 

companies or specific sectors where there are opportunities for rapid improvement and where doing so 

would blaze a trail for others. This approach, while not 

economically efficient, can be an effective way to help 

get the economy moving again. It may be more 

pragmatic in a post-conflict environment than the 

standard enterprise development approach, which 

attempts to promote development broadly in line with 

market forces and tries to avoid giving particular 

enterprises an advantage over their competitors.

Short term vs. long term

Enterprise development takes time, but immediate 

need often requires short-term approaches.

Experience in numerous countries has shown that 

enterprise development, whether approached through 

clusters, value-chains, or general business development 

services, takes years. Normally, it is best to develop a 

sector, allowing firms to self select for project assistance. 

But it can be useful in a post-conflict environment to 

select individual “anchor” firms that, if rehabilitated, 

have broad impact within a sector or community. In 

Bosnia, assistance was provided to VegaFruit, a juice 

processing company with a large supplier network. The 

project helped to rebuild domestic vegetable and fruit 

processing capabilities, supporting a large number of 

growers. “Picking winners” is always risky, but the 

short-term successes in this case seemed to justify the 

risk and ultimately proved to have long-term impact.

Donors can and should vigorously promote privatesector participation in relief efforts. In the rush to 

provide needed relief, donors often have created their 

own distribution systems and failed to take advantage 

of existing private-sector capacity. This tactic often 

distorts or destroys the very market opportunities they 

will promote at a later stage. Instead, donors should 

rely on the private sector to deliver food, shelter, and 

clothing. Such “market-integrated relief” strengthens 

private enterprises and facilitates a swift transition from 

relief dependence to market-driven development. 

The conditions required to engage in market-integrated 

relief are fewer than one might expect. Is there some 

evidence of existing market activity? Is there a reasonable level of security? Is the population relatively stable? 

Even under difficult conditions, relief and market 

development may be simultaneously pursued quite 

successfully without waiting for improvements in other 

factors that inhibit market activity.
60 USAID

encourage entrepreneurship and enterprise development, especially if measures to improve the enabling 

environment are also taken. 

To get enterprises moving more quickly, the circumstances of a post-conflict economy often justify going 

beyond the standard enabling environment prescriptions of removing impediments to the conduct of 

business, restoring market functions, and providing a 

secure, economically stable environment. Donors may 

find that firm-level assistance in major, traditional 

export sectors can have widespread impact on the 

population. Box VIII.3 describes one such successful 

intervention in post-conflict Rwanda. 

Sector or sub-sector interventions often are used in 

post-conflict situations for low-income countries because 

there may be a high degree of concentration of activity in a 

few product areas. In more developed economies, business 

support programs less often focus on particular sectors or 

sub-sectors, but the sector approach can be helpful. In Serbia, 

for example, following the NATO bombing in the late 

Donors must seek a balance between the need to meet 

short-term relief objectives and the need to focus on 

longer-term private enterprise development. Finding 

a successful balance is challenging precisely because of 

the tendency of relief activity to distort private-sector 

markets. It is, however, vital. The right approach will 

help society address longer-term economic and social 

issues in ways that can help prevent conflict from 

breaking out again years later.

Programming Options

Private enterprises, both formal and informal, can 

and should play a major role in the rebuilding process.

By encouraging local private businesses to participate in 

early relief activities, donors can simultaneously support 

the broader reconstruction process and begin to rebuild 

the country’s private sector. Box VIII.2 describes a 

successful market-integrated relief program following a 

natural disaster in Mozambique. The program targeted 

both the demand by affected households for goods and 

services provided by local private enterprises and the 

financing requirements of the enterprises to supply those 

goods and services. 

Enterprises face a host of challenges in the first few 

years after a conflict. Markets struggle to function 

effectively and uncertainty about the future discourages 

investment. Individual enterprises and entire sectors are 

likely to have lost capacity during the conflict, just as 

government institutions have. Consequently, they may 

not be as responsive to new business opportunities as 

they would have been prior to the conflict. Local 

businesses may also be excluded from participating in 

humanitarian assistance and relief activities. Market 

price and quantity information, which enterprises need 

to make economic decisions, may be scarce because of 

damage to the transportation and communications 

infrastructure. 

To rekindle private-sector activity, action is needed 

on many fronts. Essential tasks include improving 

access to economic information, helping restore market 

functions, restoring macroeconomic stability, generating transitional employment, and increasing economic 

activity through donor spending. All of these steps will 

Box VIII.2 Market-Integrated Relief: 

The Mozambique Flood Recovery Program

In Mozambique in 2001, a USAID-funded postflood recovery program dealt directly with both 

the lack of demand from impoverished households 

for goods and services and the lack of supply from 

businesses decimated by the flooding. USAID 

replaced lost household purchasing power by 

providing cash grants to affected households 

(vouchers could be used in other situations), 

creating immediate demand for market-supplied 

goods and services. Simultaneously, a program 

was established to increase access to credit for 

merchants and businesses in the crisis-affected 

areas. This enabled the businesses to finance 

new inventories to meet the demand created by 

the cash grants. Although applied in a disasterrecovery setting, a similar market-integrated relief 

approach could also be helpful in a post-conflict 

environment.
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 61

1990s, a USAID project worked with five key sectors to 

promote enterprise growth and exports. The project helped 

increase export revenues in these five sectors by $350 million, 

with nearly $50 million attributable to project interventions. 

A subsequent USAID project has supported the agricultural 

sector, with the goals of increasing agricultural exports and 

providing high-quality local products to replace imports from 

Western Europe. 

In the Philippines, USAID’s Growth with Equity in 

Mindanao 2 (GEM2) program assisted over 28,000 

former combatants to initiate or significantly expand 

production of crops suitable for the areas where they lived. 

This has led to increased sales of fruit and vegetables to 

Box VIII.3 Rwanda Coffee Washing 

Stations

Rwanda had been a producer of ordinary quality 

coffee for more than 100 years. Following a period 

of internal conflict, USAID invested in developing a 

specialty coffee sector. The establishment of coffee 

washing stations and rigorous attention to quality 

control enabled Rwanda to establish its niche in 

the specialty coffee market and offer a product 

considered among the best coffee in the world.

In 2000, there was only one operational coffee 

washing station in Rwanda; the country exported 

approzimately 14,000 tons of semi-washed coffee 

and just 18 tons of fully washed coffee. The 

introduction of fully washed processing techniques 

could improve coffee quality and increase farmer 

incomes. A USAID project provided the necessary 

technical training, helped potential investors obtain 

access to financing, and, eventually, helped them 

reach markets. Between 2002 and 2006, 72 new 

coffee washing stations were constructed, 40 of 

which were built with project assistance. By 2006, 

coffee exports had increased to 26,000 tons – 10 

to 15 percent of which was fully washed. The 

project successfully turned the coffee sector into 

the most attractive sector in Rwanda for domestic 

investment, creating a class of entrepeneurs 

who launched new businesses and provided 

employment to thousands of rural poor.

major cities, the export of fish, fruits and vegetables to 

China, and the development of 20 processing plants and 

canneries. The project assisted former combatants in 

making the transition from guerilla fighters to farmers and 

fishermen by providing them with the production inputs, 

technical support, equipment and facilities for small-scale 

commercial production. 

By providing firm-level assistance, donors can both 

promote self-sustaining enterprise growth (of the 

assisted companies) and provide a practical example to 

encourage other local entrepreneurs. Although firm-level 

assistance by donors is often criticized as being too 

expensive, it can be justified in the immediate post-conflict environment as a means of getting enterprises 

moving again. In selecting sectors and firms for direct 

assistance, donors should focus on lines of business likely 

to have wide direct and indirect impacts. This necessarily 

implies “picking winners.” It makes no sense to support 

enterprises with poor chances for success when a key goal 

is to provide a demonstration of how to succeed through 

improved business practices and marketing. During later 

phases of post-conflict programs, donors should move 

away from providing direct firm-level support, and 

instead should help develop the financial system to 

provide long-term enterprise finance solutions. 

The development of public–private-sector dialogue is 

critical. It is important both in the immediate 

post-conflict period and in longer-term efforts to 

promote economic growth. One effective approach, 

used frequently by USAID, is to work with business 

associations and, in a more limited number of cases, 

economic clusters to develop mechanisms for promoting public-private dialogue. These partnerships serve a 

number of purposes in that they: 1) help establish a 

private-sector constituency for policy reforms, which 

will continue long after donor support has ended; 2) 

partner with donors to build local capacity for 

training, advocacy, and other business development 

services; and, 3) can offer an effective channel for 

providing direct assistance to certain enterprises or 

types of enterprises. 
62 USAID

Foreign direct investment (FDI) generally is not an 

effective instrument for stimulating economic growth 

in the first few years after a conflict. In the short 

term, it is usually counterproductive to devote 

significant resources to attracting foreign investors, who 

are unlikely to enter the market before investment 

conditions justify it. As former Secretary of State Colin 

Powell eloquently stated, “Capital is a coward.” Foreign 

investors in mining and other natural resource sectors, 

however, tend to be less risk-averse. They may enter the 

market sooner than corporations in other sectors, 

particularly if they have existing concessions or 

operations (which may have been dormant or scaleddown during the conflict). The employment impact of 

these investments, however, is often small. 

Figure VIII.1 shows the ratio of FDI to GDP in eight 

countries41 for which there is at least five years of 

41 Chad, El Salvador, Ethiopia, Guatemala, Mozambique, 

Rwanda, Serbia, Uganda.

before-and-after conflict data. This ratio tends to rise 

following the end of intense conflict. In general, 

however, foreign direct investment in countries 

recovering from conflict has typically represented only 

5 to 10 percent of gross investment. FDI inflows varied 

widely by country and were marked by large year-toyear jumps within each country. 

As security is restored and the risks of a return to conflict 

diminish, foreign direct investment may resume. Whether 

FDI becomes a major part of the post-conflict program 

depends heavily on the quality of the business climate and 

on investors’ perceptions of country-specific opportunities 

and risks. Local and regional investors, as well as investors 

from the country’s diaspora community, usually are better 

at assessing risks in a post-conflict setting and may be 

more tolerant of risk than foreign corporations. 

Investment promotion should concentrate first on 

regional players who are more likely to enter or return to 

the post-conflict market. Although it may be possible to 

Former fighters of the 

Moro National Liberation Front (MNLF) in 

the Southern Phillipines have become 

commercial seaweed 

farmers through technical assistance and 

production inputs provided by USAID programs. Most of these 

individuals previously 

survived as marginal 

coconut, cassava and 

seaweed farmers, but 

now they have regular 

and stable incomes. 

(USAID/Phillipines)
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 63

combine local capital with international investors’ talents 

or products, donors should not count on large investments from developed country corporations until the 

country can compete with other investment options. 

In the medium to long term, donors should seek to build 

the capacity of local sources of technical assistance, 

training, and finance for enterprise development. By 

developing local business service providers who operate on 

a commercial basis, services will be less dependent on 

donor or government subsidies. Local governments with 

the financial resources to subsidize those services may 

ultimately choose to do so. Countries emerging from 

conflict, however, rarely devote their scarce budgetary 

resources to subsidizing business services. In any case, 

private provision of business services should be encouraged as much as possible, since experience has shown that 

private-sector services tend to be higher quality and more 

responsive to market conditions than those provided by 

governments. In the interim, there may be appropriate, 

even enthusiastic, sources of assistance in the diaspora 

community. This community already has networks within 

the country and can often help establish capacity. 

FigureVIIi.1: FDI as a percent of GDP

Box VIII. 4 Women’s Business Development 

in Afghanistan

USAID supports a broad-gauged women’s 

development program being carried out through 

the Afghan Women’s Business Federation (AWBF). 

Established in October 2005, the AWBF is now a 

consortium of ten women’s business associations, 

covering such specialized activities as agriculture, 

beekeeping, carpet-making, and handicrafts.

The AWBF actively trains women entrepreneurs. 

In less than two years, 27 training programs 

were carried out on a wide variety of topics 

including organization, strategic planning, program 

development, project management, business plan 

development, and design. In addition to training, 

the AWBF provides policy information and advice 

to the government and the public about women’s 

business activities. It has also awarded grants, 

inaugurated and supported a women’s design 

center and a women’s trade development center, 

and initiated joint ventures with several women’s 

businesses. 
64 USAID

Available Rapid Assessment

Tools

Development Alternatives, Inc. 2004. “Enterprise 

Growth Initiatives: Strategic Directions and 

Options,” in Environmental Scanning and GAP 

Analysis Handbook. USAID/EGAT/EG. This type 

of analysis, along with other analysis tools, can be 

found at the Business Growth Initiative Web site 

at https://www.businessgrowthinitiative.org/

ResourceCenter/Documents.

Kaplinsky, Raphael and Mike Morris. 2002. “Value Chain 

Analysis,” in A Handbook for Value Chain Research.

International Development Research Centre 

(IDRC). http://www.seepnetwork.org/files/2303_

file_Handbook_for_Value_Chain_Research.pdf.

The USAID Microlinks site at http:// www.

microlinks.org/ev_

en.php?ID=9652_201&ID2=DO_TOPIC also 

provides an extensive number of documents with 

examples of value chain analysis on specific sectors in 

different countries.

References for Relevant Case

Studies

McVay, Mary. 2004. “BDS in Conflict Environments 

– Neglected Potential? Synthesis of a SEEP 

Network On-Line Discussion.” Small Enterprise 

Education and Promotion Network. 

http://www.value-chains.org/dyn/bds/docs/366/

SEEP%20BDS%20in%20Conflict%20

Environments%20Discussion%20Syn.pdf.

Nourse, Tim, Tracy Gerstle, Alex Snelgrove, David 

Rinck, and Mary McVay 2007. “Market 

Development in Crisis-Affected Environments: 

Emerging Lessons for Achieving Pro-Poor 

Economic Reconstruction.” Small Enterprise 

Education and Promotion Network. 

http://communities.seepnetwork.org/sites/hamed/

files/Market%20Development%20in%20

Crisis-Affected%20Environments.pdf. 

Stokes, Justin, Carlton Jones, Grant Cavanaugh, and 

Jane Shearer. 2008. “Case Studies in Enterprise 

Development in Post-Conflict Situations: Bosnia, 

Philippines, Afghanistan.” Prepared for USAID by 

J.E. Austin Associates and Weidemann Associates, 

Inc. https://www.businessgrowthinitiative.org/

BGIProducts/Documents/Case%20Studies%20

in%20Economic%20Development%20in%20

Post%20Conflict%20Situations.pdf.

USAID. 2008. Value Chain Development in ConflictAffected Environments. http://www.microlinks.org/

ev_en.php?ID=23261_201&ID2=DO_TOPIC.
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 65

Overarching Objective: To reverse the disruption of food production and agricultural markets, and put the agriculture sector back onto a 

growth path 

Agriculture frequently offers the most promising 

immediate source of livelihood for the majority of the 

population in post-conflict countries; for this reason, it 

is a critical aspect of early recovery efforts. Restoring 

agriculture (rural security conditions permitting) can 

have a broad impact on growth and offers widespread 

benefits to returning refugees, internally displaced 

persons (IDPs), and other vulnerable groups. 

Political and Social Issues

Returnees are primarily concerned about going home 

to a safe environment to resume their livelihoods and 

rebuild their communities. Farmers want to return to 

A Rwandan woman 

prepares coffee 

through the Bringto 

Cooperative, which 

received assistance 

from USAID. This 

high-quality coffee is 

intended for export 

to specialty-coffee 

markets, where higher 

prices are available for 

cooperative producers 

like this one. (USAID/

Rwanda)

IX. Agriculture

their farms; others seek wage-paying employment to 

support their families. Returning to familiar surroundings reduces stress and anxiety, and provides families 

with an opportunity to assess the conflict’s impact on 

family resources, check on the condition of farm lands 

left fallow during the conflict, and identify available 

non-farm job opportunities, which may require new 

vocational and technical skills. To ensure that these 

workers have a stake in peace, it is critically important 

that they be reintegrated into an expanding peacetime 

economy through viable market-oriented livelihoods.

In the early post-conflict period, formal authorities 

often have very little control over daily activities in 

rural communities. Institutions are weak. Formal laws 

that applied before the conflict are unevenly enforced; 

and squatters and disputed land rights may pose major 

obstacles. Markets may be missing, segmented or thin, 

and unpredictable. Transaction costs are high. 

Agricultural supply chains are often disrupted. 
66 USAID

Key Trade-Offs

Short term vs. long term

A key short-term objective is to reduce dependence on 

donated food and other relief services and avoid 

undermining long-term agricultural capacity. In the 

short term, the objective of saving lives by preventing 

starvation and hunger trumps the longer-term objective of 

restoring farmers’ livelihoods by promoting local food 

production and marketing. Donated food may be 

urgently needed. As conditions normalize, relief supplies 

may increasingly compete with local production, so that 

ongoing donor food imports glut the local market, depress 

domestic crop prices, and create undesirable disincentives 

to local farm production. For this reason, short-term relief 

activities should be carefully reduced to avoid disruption 

of long-term market development efforts for supplies that 

can be produced locally. It is also important that the 

supply of start-up inputs be sustainable. In Mozambique, 

World Vision helped to create a distribution system for a 

package of basic tools, equipment and seeds that were sold 

at an affordable price to villagers, allowing distributors to 

buy more inputs for further sale. The project was badly 

damaged, however, when other humanitarian groups 

decided to give the same inputs away. This put sellers out 

of business, leaving a void when the flow of free goods 

dried up. 

Effective vs. efficient

Early efforts to put arable land back into production 

should emphasize effectiveness over efficiency. 

Beginning with the country’s major agricultural 

production areas, donors should target rural communities and farms for assistance. Donors’ first steps toward 

Years of war and neglect 

have caused large 

portions of Helmand 

Province’s intricate 

agriculture canal system 

to fall into disrepair. 

Men in Afghanistan 

assemble Gabion nets, 

wire meshes containing 

bricks or river rock that 

are used to reinforce 

river banks and prevent 

erosion. Because 

Helmand Province’s 

economy depends 

on controlling river 

swells and irrigation for 

agriculture, a USAIDassisted project has 

rehabilitated over 2,300 

kilometers of canals and 

river embankments. 

(Chemonics 

International) 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 67

generating employment should emphasize job opportunities that would put arable land back into production. 

Because of the typical lag in the rebound of private 

investment in farming, donor financing may 

be needed for such tasks as rebuilding warehousing and 

feeder roads, and repairing water delivery systems. 

Tailor supply of inputs to local requirements. It is 

essential to bring new land into production, but just as 

essential to do so in a sustainable way. Donors can easily 

provide seeds from the surplus in their home countries, 

but such seeds may not be suitable to local conditions or 

to local market tastes and requirements. It is better to 

obtain seed locally to ensure success, or to obtain from 

the markets where the products will be delivered. Many 

NGOs have begun to help farm communities with seed 

fairs, where they can bargain for locally tested varieties. 

Another approach is to provide seed vouchers, allowing 

farmers to buy what they want instead of planting what 

they are given.42

42 Jones et al. (2002), Walsh, Ngendahayo, and Droeven (2004).

Activity Urgent Immediate Intermediate Consolidating

Assist returnees, provide food aid, 

seeds and tools using marketrestoring approaches

Strengthen markets for 

agricultural services, inputs and 

outputs

Restore rural roads, market 

information systems and other 

key rural economic infrastructure

Reform agriculture sector policies 

and improve the agribusiness 

enabling environment

Reestablish herds; build 

agricultural value chains

Strengthen agriculture sector 

institutions and regulatory 

capacity

Strengthen agricultural training, 

education, outreach and adaptive 

research

TABLE IX.1 AGRICULTURE 

Priority and Sequencing for Assistance

High-intensity level of 

assistance

Lower-intensity level 

of assistance

Typically very little 

assistance

Programming Options 

Early interventions to rebuild farm communities 

normally focus on security, shelter, and subsistence or 

field crops. Agricultural production recovery and market 

development can be undertaken almost immediately after 

a conflict ends or in the midst of low-intensity conflicts, as 

long as populations are relatively stable and security is 

reasonable. Important watchwords here are to get in step 

with seasonality. Prepare immediately for the next 

production and harvest season, using market-led systems 

for input and output marketing.

•	 If the effort begins before the planting season, help 

returning farmers begin family gardens, subsistence 

farming, and cash cropping, as conditions permit.

•	 If refugees and IDPs return late in the planting season, register households for resettlement assistance 

to ensure access to food, shelter, medical, and other 

essential services. Be prepared to support these 

households (or those who support them) until the 

following harvest period.
68 USAID

Early interventions for animal husbandry may 

include assistance either to reestablish herds and flocks 

or to improve veterinary services. In many African 

conflicts, ruminants and flocks have been wiped out by 

pillaging bands of undisciplined or guerilla soldiers. In 

such situations, reestablishment of security will be a 

precondition to reestablishing livestock. Where herds 

remain or have been reestablished, the revival and 

improvement of veterinary services is likely to be a 

priority. In Afghanistan, such services were built on a 

foundation that donors had begun under the Taliban 

(see Box IX.1). In the post-conflict period, when local 

standards were very low, donor project specialists were 

paired with local specialists to provide services while 

upgrading capacity.43

43 Miller and Sherman (2006), Dutch Committee for 

Afghanistan—Veterinary Programmes (2007). 

Box IX.1 Privatizing Veterinary Services during and after Conflict in Afghanistan

In Afghanistan, a country with continuing conflict where public services remain weak and under-funded, USAID 

has been supporting private veterinary services to address livestock health issues. Prior to the Soviet invasion 

in 1979, Afghanistan assigned all veterinary activities to the public sector on the premises that: 1) the rural 

poor deserved free veterinary care for their livestock; and, 2) all veterinary services would be provided by 

the government. Unfortunately, reality fell far short of the ideal. Without a budget for vehicles, fuel, medicines, 

or vaccines, government veterinarians rarely reached the areas where animals were concentrated. Moreover, 

when the Soviet army invaded and backed the government in Kabul, government veterinarians had to flee their 

posts to avoid being identified with the occupiers. In a short period, Afghanistan went from having ineffective 

public-sector veterinary services to having none at all. Privatized veterinary services emerged out of necessity 

during the Soviet occupation. 

Recognizing the central importance of animals and animal health to rural livelihoods, a number of international 

agencies and NGOs – most notably UNDP-OPS, the Food and Agriculture Organization (FAO), the Dutch 

Committee for Afghanistan, and Mercy Corps International – stepped in to provide farmers and herders with 

basic veterinary services. These organizations:

•	 offered two to four weeks of training for basic veterinary workers and five to six months of training for 

para-veterinarians (para-vets); 

•	 established district-based veterinary field units, where field staff could obtain reliable, high-quality vaccines 

and medicines, report diseases, and seek advice; and, perhaps most importantly, established a fee-forservice policy to cover the costs of sustaining a reliable veterinary service delivery system. 

Under this system, paraprofessionals paid for their medicines at the VFUs, charged farmers for their services, 

and earned money to return to the VFUs for new supplies. 

Privatized veterinary services took hold in Afghanistan. Building on earlier efforts, the FAO set up a unified, 

national veterinary field unit system in 1994. By 2000, hundreds of para-vets and basic veterinary workers had 

been trained, and millions of vaccines and medicines had been delivered to farmers and herders on a fee-forservice basis. After FAO funding ended and Afghanistan suffered one of its worst droughts, USAID’s Rebuilding 

Agricultural Markets Program (2003-2006) helped rebuild private veterinary services. 

Through outreach and extension efforts, livestock owners came to understand the value of preventive 

veterinary interventions in reducing livestock mortality, helping replenish diminished herds, and improving 

incomes by increasing the number of animals that could be brought to market. It became clear that high 

school graduates could be effectively trained as para-vets to perform basic animal health care services, such 

as accurately recognizing and properly treating common livestock diseases, or to make referrals to more 

experienced veterinarians if necessary.
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 69

Markets should drive the transition from short-term 

relief to longer-term agricultural development. Donors 

can help rebuild agricultural value chains needed for 

long-term sustainability. Humanitarian relief activities 

often inadvertently distort agricultural markets and 

private-sector production, and often unintentionally 

create new vulnerabilities and dependencies.

“Market integrated relief” approaches provide positive, 

long-term benefits, which work with market providers 

instead of setting up parallel relief supply channels as 

donors seek to work with private-sector partners in 

several ways. First, donors can buy relief supplies from 

local and regional vendors and stimulate demand for 

local production instead of imported supplies. Second, 

food donations can be channeled through market 

mechanisms. For example, USAID’s PL 480 Title II 

monetization program can be used to assist millers, 

grain dealers, and small firms to purchase U.S. donated 

bulk wheat to make flour and feed grain for the animal 

feed industry, reducing competition with local 

producers for the food market while reinvigorating 

underutilized agribusiness services. Third, donors can 

support community-based programs by helping 

wholesalers and retailers purchase rice, vegetable oil, 

beans, and nonfood items that can be traded in local 

bazaars and markets. Box IX.2 shows how agricultural 

markets were jump-started and production incentives 

improved in southern Sudan in the 1990s.44

Restore physical infrastructure, especially roads and 

damaged irrigation structures, needed for agriculture. 

In some cases, donors may need to co-finance restoration 

of critical private installations including warehouses, 

packing sheds, and processing plants. As with community infrastructure programs for towns and villages, local 

participation toward improving common irrigation and 

farm-to-market infrastructure can stimulate formation 

and build the capacity of private organizations (cooperatives, grower/processor/exporter associations, or trade 

associations) that will have enduring value.

Begin work on the agribusiness enabling environment 

early on . Short-term gains in new cash-crop production can 

be lost rapidly if the business environment is not conducive to 

44 Anderson et al. (1995), Salinas and d’Silva (1999), SUPRAID, BYDA and Concern Worldwide (2004), Marks 

(2007).

success. Frequently in the case of private sector enterprises, 

regulatory constraints such as licensing or restriction of 

imported inputs may be important to address and often can 

be addressed in tandem with projects aimed at increases in 

agricultural production and productivity. Producers and 

processors are excellent sources of information on business 

environment barriers; creating a public-private forum to 

address these issues can lead to more effective policy and 

business environment reforms. 

Programs to improve the availability of credit in rural 

communities, although important for sustainable 

agriculture, are a longer-term priority. Establishment 

of formal bank systems that can reach the rural poor is 

a difficult and time-consuming process. In Rwanda, less 

than 10 percent of the rural population had access to 

banking services more than 10 years after the conflict. 

Donors can stimulate credit in the shorter term by helping to provide “embedded” credit, or trade loans from 

purchasers and suppliers to the farmers and processors. 

For example, as an illustration of the trade-credit approach in northern Uganda, the Dunavant cotton mill 

provided input credit for cotton growers, who had no 

access to banks. Over time, village savings and loan associations were established to help meet greater cash flow 

needs of farmers. Such lenders understood the crop and 

payment cycles and could structure credit accordingly. 

Agricultural processors or input suppliers are likely to 

become earlier targets for loan programs than farmers. 

Donors may be able to accelerate such lending best by 

collaboration with local banks, rather than by “picking 

winners” among processing companies and providing 

grants or loans directly to selected regional processors 

or input suppliers. In Rwanda, credit guarantees were 

given to banks for loans to investors in coffee-washing 

stations, and the market responded as investors 

self-selected by deciding to obtain the loans. 

As prospects improve for lending and collection of 

repayments in post-conflict rural areas, donors will 

eventually find more favorable conditions for rehabilitating, assisting, or launching bank and non-bank programs 

to improve wider access to credit in rural communities.

Design of projects should be based on “value-chain” 

timelines. Start-up assistance programs are often 

funded for one to two years while donors get a feel for 
70 USAID

Box IX.2 Jump-Starting Wartime Markets in Southern Sudan

Historically, southern Sudan has been underdeveloped, using a barter system of exchange. Most southern 

Sudanese did not handle cash and had no access to markets. During the war years, in particular, markets were 

limited primarily to garrison towns. All goods arrived on military flights from Khartoum and were sold mainly 

to Sudanese government employees. Prices were greatly distorted and markets had few linkages with the 

surrounding countryside.

When humanitarian NGOs began relief operations in the early 1990s, their workers were paid in soap and 

salt; cash held no value in rural areas. After the Sudan People’s Liberation Army (SPLA) began to capture 

some of the major towns in Western Equatoria in the mid 1990s, things started to change. USAID-funded 

NGO programs began to open up isolated areas and stimulate local economies. NGO recovery programs 

began airlifting basic consumer items such as salt, soap, blankets, buckets, and bicycles to major towns and 

then exchanging those items for seed and surplus grain grown by local farmers. The seeds and grain were 

subsequently sold to NGOs carrying out relief operations elsewhere in southern Sudan. Over time, barter 

exchanges gave way to cash transactions that helped establish the “right” price relationships. USAID helped 

to develop cash markets by selling U.S. emergency food-aid wheat in Uganda and using the Ugandan shilling 

proceeds to buy local grain in southern Sudan.

In later years, locally initiated “Peace Committees” set up eight “Peace Markets” in greater Bahr el Ghazal. 

These markets provide economic incentives for northerners and southerners to put aside their political 

and social differences to exchange consumer goods and livestock in relative security. The Peace Committees 

negotiated rules for the Peace Markets, such as a prohibition on weapons within designated market areas. 

The Peace Markets enjoyed several years of relative success in the years immediately preceding the 

Comprehensive Peace Agreement of December 2004, because each side perceived benefits from continued 

trade.

 Key lessons learned from the programs in southern Sudan include:

•	 Revitalizing farmer cooperatives can increase the effectiveness of local grain purchases by helping amass 

grain from individual farmers, resulting in savings for purchasers and higher unit prices for farmers 

•	 Encouraging surplus food production is unsustainable without steady market demand, even when stimulated by NGOs during emergency and transition phases

•	 Market-driven services such as the Peace Markets can provide a catalyst for reconciliation and stabilization through shared economic incentives for former adversaries 

•	 Restarting markets requires simultaneous attention to improving roads that reduce transport costs, 

increase volumes, and lower prices
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 71

local circumstances and monitor developments. Most 

agricultural and agribusiness cycles, however, are at 

least five years. For example, many tree crops do not 

produce a harvest for three to seven years, making it 

impossible to determine success or properly react to 

developments in the full value chain, such as off-farm 

work in processing of tree crops. A short-term project 

might look good in the first year because it got people 

working, but may fail without ongoing support. 

Re-competing and refinancing short-term projects 

reduces efficiency and effectiveness in meeting 

long-term goals. It is better to start with a five-year 

project and adjust downward if circumstances permit, 

than to quit mid-cycle. 

Expatriate experts will likely be needed to help 

prioritize and strengthen agricultural training, 

education, outreach, and adaptive research. Existing 

public and private institutions are likely to be in very 

poor condition and their mission and scope of work 

may need to be reassessed. Because ministries in 

post-conflict countries typically have a scarcity of 

highly capable staff, training requirements are likely to 

be extensive. The government and donors, however, 

must balance the long-term need for trained personnel 

with the need to establish or restore a functioning 

ministry. Given the limited civil service capacity, 

approaches that utilize public-private collaboration 

should be given priority. Support from foreign 

universities and technical institutions, expatriate 

contractors, international research centers (e.g., 

CGIARs), and donors can play a vital role. 

Available Rapid Assessment

Tools

USAID/Conflict Management and Mitigation. 2005. 

“Conducting a Conflict Assessment: A Framework 

for Strategy and Program Development.” USAID. 

(USAID personnel see http://inside.usaid.gov/ 

DCHA/CMM/documents/CMM_

ConflAssessFrmwrk_May_05.pdf.) 

World Bank. 2006. “Module 11 – Managing 

Agricultural Risk, Vulnerability, and Disaster,” in 

Agriculture Investment Sourcebook. http://

go.worldbank.org/CCC68JMIZ0. 

References for Relevant Case

Studies

Alex, Gary, Tom Remington and Philip Steffen. 2006. 

“Strengthening Agricultural Markets in Areas 

Affected by Conflict.” Agricultural Investment 

Note for the Agricultural Investment Sourcebook. 

World Bank. 

http://go.worldbank.org/AOQSU8S1J1. Further 

information about this publication can be found 

at the World Bank agriculture and rural development website http://web.worldbank.org/ 

WBSITE/EXTERNAL/TOPICS/EXTARD/0. 

Anderson, Don, Barbara Herwaldt, Richard 

Huntington, Richard Longhurst, and Brad 

Michaels. 1995. Evaluation of U.S. Humanitarian 

Assistance Strategy for Southern Sudan. USAID. 

http://pdf.usaid.gov/pdf_docs/PDABP943.pdf. 

Dutch Committee for Afghanistan–Veterinary 

Programmes (DCA-VET). 2007. “Continuation 

of the Afghan Veterinary Privatization Effort to 

Secure Sustainability of the Veterinary Field Unit 

(VFU) System Established Under USAIDRAMP,” in Annual Report 2007. 

http://www.dca-vet.nl/DCA/documents/ 07Jansu

mmarysheetASAPproject_000.pdf. 

Fraser, Shannon, Caroline Gullick, Sebastian Ling, and 

Ka Vang, eds. 2004. “Trading for Peace: An 

Overview of Markets and Trading Practices, with 

Particular Reference to Peace Markets in Northern 

Bahr el Ghazal, South Sudan.” SUPRAID, BYDA, 

and Concern Worldwide. 

Jones, Richard B., Paula Bramel, Catherine Longley, and 

Tom Remington. 2002. “The Need to Look Beyond 

the Production and Provision of Relief Seed; 

Experiences from Southern Sudan.” Disasters 26(4). 

Longley, Catherine, Ian Christoplos and Tom 

Slaymaker. 2006. “Agricultural Rehabilitation: 

Mapping the Linkages between Humanitarian 

Relief, Social Protection and Development.” 

Humanitarian Policy Group Research Report 22, 

Overseas Development Institute. http://www.odi.

org.uk/hpg/papers/hpgreport22.pdf. 
72 USAID

Marks, John. 2007. Personal communication. USAID/

Sudan. 

Miller, Dan, and Dave Sherman. 2006. “Privatization 

of Veterinary Services: Development that Works.” 

USAID/Afghanistan. http://pdf.usaid.gov/

pdf_docs/PDACG913.pdf. 

Nourse, Tim, Tracy Gerstle, Alex Snelgrove, David 

Rinck, and Mary McVay. 2007. “Market 

Development in Crisis-Affected Environments: 

Emerging Lessons for Achieving Pro-Poor 

Economic Reconstruction.” Small Enterprise 

Education and Promotion Network.. 

http://communities.seepnetwork.org/sites/hamed/

files/Market%20Development%20in%20

Crisis-Affected%20Environments.pdf. 

Salinas, Anne O’Toole, and Brian C. D’Silva. 1999. 

“Evolution of a Transition Strategy and Lessons 

Learned: USAID Funded Activities in the West 

Bank of Southern Sudan, 1993 to 1999.” USAID. 

http://pdf.usaid.gov/pdf_docs/PNACF763.pdf. 

Sperling, Louise, Tom Remington, and Jon M. 

Haugen. 2006. Seed Aid for Seed Security: Advice 

for Practitioners, Practice Brief No. 1-10.

International Center for Tropical Agriculture and 

Catholic Relief Services. http://www.crs.org/

publications/list.cfm?sector=1.

USAID. 2008. “Cotton Value Chain Case Study for 

Northern Uganda.” USAID/MicroREPORT No. 91. 

----------. 2008. “Conflict-Sensitive Approaches to 

Value Chain Development.” USAID/

MicroREPORT No. 101. Prepared for USAID by 

International Alert. http://www.internationalalert.org/pdf/mR_101_C-S_Approaches_to_

Value_Chain.pdf. 

----------. 2008. “A Synthesis of Practical Lessons from 

Value Chain Projects in Conflict-Affected 

Environments.” USAID/MicroREPORT No. 

105. 

USAID/Conflict Management and Mitigation. 2004. 

“Land and Conflict: A Toolkit for Programming.” 

USAID. http://www.usaid.gov/our_work/

cross-cutting_programs/conflict/publications/

docs/CMM_Land_and_Conflict_Toolkit_

April_2005.pdf. USAID personnel, see http://

inside.usaid.gov/DCHA/CMM/publications/

toolkits/land/. 

Walsh, Stephen, Bonaventure Ngendahayo, and 

Christophe Droeven. 2004. “CRS/Burundi: 

Experience with Seed Vouchers and Fairs in 

Kirundo Province,” in CRS Seed Vouchers & Fairs: 

Using Markets in Disaster Response. Paula Bramel, 

Tom Remington, and Melody McNeil, eds. CRS 

East Africa. 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 73

Overarching Objectives: 

•	 To ensure that businesses and households 

have the basic capacity to make payments, 

safely transfer funds, and protect their 

savings

•	 To develop a government payments system 

that minimizes the use of cash transactions 

The health of banking and the financial sector is 

critical to a post-conflict economy’s recovery and 

growth. The country must have the capacity to carry 

out financial transactions beyond a simple cash and 

barter economy. To achieve this objective, the government must have the capacity to make payments and 

the central bank must function effectively (see Chapter 

V: Macroeconomic Foundations). In addition, public 

and private financial institutions, both formal and 

informal, must be able to service the financial transaction needs of households and enterprises as they renew 

their pre-conflict activities or enter new markets. 

Donors should help establish a functioning financial 

sector that provides:

•	 safety for savings, with institutions that are trusted 

deposit-takers so households can protect their 

financial savings; and, 

•	 payment mechanisms, or efficient, accessible means 

to pay for goods and services through the formal 

financial system, in all significant trading centers. 

Payment mechanisms facilitate the exchange 

of value required for commerce and enable the 

government to pay its employees – particularly 

teachers, health care workers, and police – outside 

of the capital.

In the classical “two-tier” banking system, commercial 

banks play the leading role of providing deposit and 

payment services to households and enterprises. Ideally, 

commercial banks can also be used to handle or facilitate 

the collection and payment of the most numerous 

transactions required between the private sector or 

public employees and the government. In countries with 

X. Banking and Finance

the most rudimentary banking systems, such revenue 

and payment functions are often performed directly by 

the central bank (i.e., the upper tier), then are shifted to 

the commercial banks over time. 

Political and Social Issues

The public must have confidence in the post-conflict 

government’s ability to manage the money supply and 

oversee the financial sector. Economic growth requires a 

functioning financial sector, and a functioning financial 

sector requires the public and the business community to 

have confidence in the government’s capacity to carry out 

its basic financial management functions: managing 

monetary policy, operating an independent central bank, 

and overseeing banking and financial operations. In the 

aftermath of a conflict, the new government may need 

time to earn this confidence. The donor community can 

assist by ensuring that the government understands how 

important sound and prudent financial management is to 

post-conflict recovery, and by helping the government 

build its capacity to carry out basic financial management 

functions and communicate its policies clearly and 

credibly to the public. 

Key Trade-Offs

Donors assisting post-conflict countries must make 

decisions quickly, on the basis of specific trade-offs that 

are much more acute than in stable developing 

countries. In providing banking and finance assistance, 

the key trade-offs are effectiveness vs. efficiency and short 

term vs. long term.

Effective vs. efficient

Core financial services, such as deposit-taking and the 

facilitation of payments, must be established at a very 

early stage in the recovery. Recovering economies do not 

have the luxury of time to design and implement perfect 

solutions. In addition, they may not have the absorptive 

capacity for such solutions. It is much quicker and more 

effective to re-establish an existing, well-understood 
74 USAID

system, using available human resources, than it is to 

import unfamiliar technology or practices. 

Resurrecting state-owned banks may be part of an 

effective short-term approach in countries where state 

banks have 1) a legitimate base upon which to build,45

2) a history as private institutions, and/or 3) a branch 

network that is not likely to be quickly duplicated by 

the private sector. It should be made clear, however, 

that state banks (as well as other local banks) will not 

be protected from competition or from takeovers by 

new foreign entrants. For example, foreign banks 

entered the market in Bosnia and Kosovo, mostly 

through mergers or acquisitions, soon after the end of 

conflict; they provided safer, more efficient retail 

banking services than had been available previously. 

Short term vs. long term

The expansion of lending is a longer-term objective, 

which takes place as capacity in the financial and 

commercial legal sectors improves. Past experience has 

shown that the growth of bank credit to the private 

sector evolves slowly in the post-conflict period. 

Forcing credit out in an environment that is not 

conducive to loan recovery and where credit skills are 

missing can actually undermine financial sector and 

economic development by misallocating scarce 

resources. In contrast to most developing countries, 

post-conflict states seldom offer a favorable environment for the expansion of retail credit. There often is a 

limited history of credit discipline. Loan recovery 

frequently is problematic as well, and lenders’ riskmanagement skills are often poorly developed. Before 

encouraging an expansion of lending, donors should 

help the host country put in place the basic prerequisites for such an expansion: capable financial institutions, an effective legal and judicial foundation for 

finance, and a supportive business environment. While 

local businesses may press for an expansion of credit, it 

often is not vital to their immediate needs. 

Figure X.1 illustrates the average ratio of private sector 

45 Merging two dysfunctional state banks that historically 

had been competitors and had different cultures might 

seem “efficient,” but may in fact disrupt both, undermining 

rebuilding efforts and limiting future competition. 

credit to GDP in countries where data is available for 

at least five years before and after the end of an intense 

conflict (going back to 1985). When the conflict 

ended, the ratio typically was well below the international benchmark (by income group) and was difficult 

to revive, despite donor efforts. During the post-conflict phase, El Salvador was the only case where 

better-than-average conditions allowed bank credit to 

the private sector to surge from 23 to 40 percent of 

GDP over five years. For the other six countries in the 

group, the average credit ratio after five years was 

roughly the same as at the beginning of the post-conflict period (bottom line in the graph). 

Programming Options

Rebuilding the basic depositary and payment 

services is a high priority. The financial sector is 

critical for economic rebuilding, and post-conflict 

countries frequently have had significant deteriorations 

in their banking system and in their financial sector in 

general. The immediate priorities for donor programs 

to rehabilitate the financial system are:

•	 Diagnose the financial sector’s performance. Determine how well the financial sector is supporting 

the economy and how its institutions are functioning. Existing pre-conflict analyses or rapid 

post-conflict reports by the IMF or World Bank 

may identify structural issues.

•	 Develop market oversight through bank supervision. 

This will be a long-term process, with an early focus 

on the solvency of existing banking institutions. 

(See Chapter V.B: Monetary Policy and Institutions.)

USAID has significant experience helping countries 

develop effective banking and finance sectors. In a 

post-conflict economy, donor assistance can reinforce the 

financial sector’s capacity to perform its payments role, 

including 1) enabling the government to pay employees 

outside of the capital and 2) enabling traders to pay for the 

imports needed for investment and consumption during 

early rebuilding stages. Donor assistance can also help 

financial institutions resume their intermediation role, 

channeling savings to rebuilding enterprises so they can 

once again invest in their businesses. 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 75

Assisting the government and state agencies to 

channel transactions through commercial banks 

– rather than through the use of cash – will improve 

both the safety and integrity of the system. Robberies 

from paymasters and armored-car delivery services have 

been major problems in many post-conflict countries. 

Agencies and ministries can reduce such problems by 

payroll disbursement through checks or, as in recent 

practice in Liberia, sponsoring and establishing direct 

deposit of pay into employee bank accounts. Fastmoving developments in “branchless banking” offer 

prospects that such payments to employees (and 

transfers to family members) in areas not served by a 

physical bank branch will also be available in the 

future.46 USAID and other donors have been working 

to accelerate the diffusion of such systems.

Launching of donor credit programs to the private 

sector through host-country banks has typically 

begun too early and has been ineffective. In USAID’s 

experience, forcing credit out in an environment that is 

not conducive to loan recovery and where credit skills 

are missing will tend to weaken and undermine 

development of sound financial sector institutions. 

Other observers have likewise concluded that the local 

financial sector generally “should not receive substantial

 funding from the donor community to support 

lending following a conflict.”47

A diagnostic assessment should be carried out soon 

after basic monetary management and central 

banking functions have been restored. The assessment, which can be used to chart a strategy for 

developing a financially healthy banking sector, should 

be completed quickly so that rebuilding can begin. The 

diagnostic will likely need to include the following: 

•	 External audits or regulatory diagnostics of the main 

commercial banks, to determine which institutions 

are salvageable and whether some institutions need 

to be restructured, recapitalized, sold, or liquidated. 

If the country’s bank supervision and audit functions are ineffectual, as is often the case post-conflict, the audits should be done by foreign analysts. 

46 Ivatury and Mas (2008). 

47 Dobbins et al. (2007). 

Figure X.1 Domestic Creditto Private 

Sector as a Percent of GDP

•	 An evaluation of the central bank’s regulatory 

capacity, to determine if:

o the rules that govern entry into the banking sector 

ensure fit and proper ownership and management, 

adequate capitalization, and good operating plans

o disclosure practices are adequate

o bank inspectors carry out frequent onsite inspections, and if their enforcement powers are adequate 

to resolve market spoilers

o regulators, supervisors, and inspectors are wellqualified

o financial contracts are enforceable by creditors and 

whether collateral can be realized rapidly, predictably, and inexpensively

Systemically important banks may need to be strengthened or even rebuilt. Donors may need to assist with 

remedies such as improving or restoring the operating and 

risk-management capacity of major banks, particularly 

those with national branch systems that could serve large 

segments of the commercially active population. Private 

and state-owned commercial banks typically are the most 

important financial institutions, although years of conflict 

may have saddled them with unusually large and 

significant handicaps, such as: 
76 USAID

•	 A portfolio of politically directed loans, often at 

concessionary interest rates. This portfolio often 

includes old loans that are now non-performing 

and (possibly) more recent loans to appease leaders of the new government.

•	 Collateral claims that cannot be enforced through 

the court system and may render the related loans 

uncollectible. In such circumstances, leasing based 

on an appropriate lease law may be an effective 

substitute for collateralized credit.

•	 Insider loans to managers or, often in the case of 

state-owned banks, loans to relatives of bank loan 

officers or to phantom companies.

•	 Degraded or outdated operating systems, internal 

controls, management information systems, and 

weak staff capacity.

Banks in post-conflict countries are likely to have lost 

significant portions of their best staff (including to 

emigration) and may not have enough expertise left to 

function effectively. Key records may have been lost. 

If banking services have become scarce, operating 

margins for existing banks may be high, reflecting a 

Activity Urgent Immediate Intermediate Consolidating

Remove exchange controls, 

open exchange bureaus, 

ease remittances

Licensing of commercial 

banks

Strengthening supervision of 

commercial banks

Creditor rights and collection 

mechanisms

Provision of bank credit to 

the enterprise sector

Microfinance startups and 

technical assistance

Microfinance loan funds

Table X.1 BANKING AND FINANCE

Priority and Sequencing of Assistance

High-intensity level of 

assistance

Lower-intensity level 

of assistance

No assistance during 

phase

wide differential between market rates of interest on 

deposits and those on loans or other bank assets. This 

may make some banks, even those with weak operating 

capacity, quite profitable, creating a supportive 

environment for donor-funded rehabilitation efforts. 

Other banks may be less profitable, needing a great 

deal more donor assistance for effective rehabilitation. 

In the longer term, donors may need to engage in more 

significant restructuring, including preparing stateowned banks for privatization. 

An important element of the financial sector strategy 

may be to enable international banks to obtain 

operating licenses in the host country. This would 

permit international banks to provide takeover 

management for state banks being privatized or for 

unsound local private banks that are too weak to 

continue operations. Also, international banks can 

help bring the practices of locally owned commercial 

banks up to any new standards required by the host 

country’s central bank. In developing countries, 

international banks often lead the efforts of the local 

bankers’ association to provide ongoing professional 

training for local bankers. Market demand helps to 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 77

quickly distribute the local staff members who have 

been trained by international banks throughout the 

local banking community. Finally, an established 

international bank has external regulatory support 

from the central bank/regulator of its home country.

Interaction between the host-country and home-country central banks/regulators (to jointly supervise the 

international bank’s operations) may help raise 

standards in the host-country central bank.

Donors can play an important role in building the 

country’s financial regulatory capacity. Parallel with 

the initial cleanup of weak banks, the host country’s 

central bank is likely to need significant assistance to 

strengthen bank regulation and supervision. It also may 

need targeted technical assistance to build or rebuild 

staff capacity. USAID has had wide experience in this 

area, often drawing on the staff and expertise of U.S. 

bank regulatory agencies to support on- and off-site 

supervision and to assist with problem bank resolution.

Experience has shown that non-bank financial institutions 

pose consumer protection risks in post-conflict environments. The capacity for proper financial regulation is vital 

for avoiding potential crises caused by the proliferation of 

new financial fads or unsound institutions. Longestablished informal financial systems, however (such as 

the hawala system)48, will continue to function alongside 

the formal system. 

Expanding the availability of financial services, 

including credit, is a medium-term priority. Donor 

financing of credit and reinvigorated private lending 

are not likely to be realistic early goals; the basic 

financial system should be functioning properly before 

donors promote expanded availability of credit. It 

generally is more appropriate for donors to provide 

financial assistance to the conflict-affected population 

and to small businesses through grants (either cash or 

in-kind) rather than loans, even beyond the immediate 

relief phase of assistance. 

Microfinance institutions may be part of an effective 

post-conflict response, even if they do not have enough 

48 Hawala (also known as hundi) is an informal value-transfer 

system, based on performance and honor in a huge network of money brokers who are primarily located in the 

Middle East, Africa, and Asia.

aggregate economic impact to stimulate overall growth. 

Relative to the commercial banking system, microfinance institutions (MFIs) form only a small part of the 

financial sector in most countries. However, MFIs 

usually serve disadvantaged populations without access 

to the formal banking sector. For this reason, MFIs, 

once they develop a substantial footing in a post-conflict country, may provide a very useful channel for 

reaching otherwise “unbanked” target populations. In 

developing programs in this area, donors should 

consider a variety of issues. Afghanistan, for example, 

had no microcredit lenders in 2001. By the 2004-2006 

period, however, 13 MFIs had expanded to serve 

200,000 active clients in 20 provinces. This experience 

led USAID to support a major expansion of MFI 

operations.

If donors choose to carry out microfinance initiatives, they should be part of a financial-sector-wide 

assistance program. Microfinance alone is not a 

substitute for reconstituting the country’s core banking 

capacity. Nonetheless, as Frasier and Bne Saad argue:

“[Microfinance may be a] useful and effective 

tool in the post-conflict recovery phase...providing...access to financial services when other 

providers have ceased to operate. [Microfinance]...enables the self-employed to resume 

economic activity, supports the reconstruction 

of the financial system, and facilitates a smooth 

transition from short-term humanitarian assistance to longer-term development.”49

Not all researchers, however, have come to the same 

conclusion. A 2003 study funded by the U.K. 

Department for International Development (DFID), 

for example, concluded that “...in practice, post 

conflict microfinance has been disappointing, with 

limited outreach and high delinquency rates leading to 

eventual collapse; and unlike microfinance in more 

stable contexts, there has been little field-based 

investigation into these problems.”50 In more recent 

experience in other post-conflict countries, delinquency 

and failure rates have been lower. Donors should 

consider the distributional effects of microfinance and 

whether emphasis on MFI development might divert 

49 Frasier and Bne Saad (2003).

50 Williams (2003).
78 USAID

A USAID survey 

team leader discusses 

second-tier loans with 

carpenters near Baucau, the second largest 

city in Timor-Leste. In 

collabration with Italy's 

Bocconi University, 

USAID conducted a 

survey on demand for 

second-tier loans of between USD 1,000 and 

USD 10,000. (Federica 

Pallota) 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 79

resources from financial-sector activities that would 

have a greater impact. 

When supporting microfinance, donors must ensure 

that relief services and microfinance services are kept 

separate. In the immediate aftermath of a conflict, the 

NGOs supporting MFIs often are the same NGOs 

that provide humanitarian assistance. This can be a 

practical arrangement, as these organizations typically 

are familiar with local clients, enabling them to quickly 

identify those with the greatest needs. Donors must 

make it clear, however, that grant assistance should 

never be offered as forgivable loans; this practice can 

have negative long-term effects on future loan repayment. NGOs providing both microfinance and grants 

must clearly separate the two activities to avoid 

confusing clients about their loan repayment 

obligations. 

In the longer term, donors should seek to cut the cost 

and increase the safety of remittances. As the formal 

financial system expands and improves, donors should 

encourage the channeling of remittances from the 

diaspora population through the formal banking 

system. Remittances may constitute a major resource 

transfer, important both for the livelihoods of conflictaffected households and for reviving local economic 

activities. Most incoming transfers will take place 

through informal channels. To facilitate a greater flow 

of remittances through the formal banking system, 

their cost should be reduced and their safety increased. 

This should be accomplished by building the capacity 

of formal banks, credit unions, and MFIs to handle 

remittance transactions efficiently. 

Available Rapid Assessment

Tools

Highly sophisticated assessment tools, such as the 

World Bank’s 2005 publication, Financial Sector 

Assessment: A Handbook, are available. This 484-page 

handbook and other available assessment tools are 

primarily for teams of financial sector experts. 

References for Relevant Case

Studies

Dobbins, James, Seth G. Jones, Keith Crane, and Beth 

Cole DeGrasse. 2007. The Beginner’s Guide to 

Nation-Building. Rand National Security Research 

Division. 

Frasier, Susan, and Majda Bne Saad. 2003. 

“Microfinance in Post-Conflict Situations: A Case 

Study of Mozambique.” Development Research 

Briefings (2). 

Ivatury, Gautam and Ignacio Mas. 2008. “The Early 

Experience with Branchless Banking?” 

Consultative Group to Assist the Poor. http://

www.cgap.org/gm/document-1.9.2640/

FocusNote_46.pdf.

Williams, Alison. 2003. Post-Conflict Microfinance 

Research Summary. Dublin: Concern Worldwide. 
80 USAID

Post-conflict countries typically face serious border 

management challenges. Border security problems are 

particularly acute in Iraq, Afghanistan, and Somalia. To 

a lesser extent, border management and security 

present challenges in Nepal and Sudan. The control of 

the illegal drug trade poses special border management 

difficulties in Haiti, Colombia, and Afghanistan. The 

need for security at the border often requires a heavy 

military or law enforcement presence. 

Despite distorted and disrupted international trade 

and difficult borders, post-conflict countries need to 

reconnect with external markets and the global 

economy if they are to successfully put conflict to rest.

Imports of food, medical supplies, and goods to rebuild 

need to flow efficiently. In the medium term, goods 

must be exported to finance reconstruction, pay for 

imports, and provide livelihoods for the population.

The tension between security concerns and the 

efficient flow of goods needed for a competitive, 

growing economy can be managed, but requires 

high-level host-country ownership of the solution, 

particularly in post-conflict economies. Following a 

conflict, not only does the customs administration 

often have out-of-date procedures and equipment, but 

corrupt practices have often become solidly entrenched 

in the organization’s culture. These shortcomings 

undermine both border security and efficient processing of imports and exports. In both areas, improvements require sustained, high-level political attention. 

This is especially true when the customs administration 

needs a thorough “house-cleaning” and reform. 

External technical assistance can only succeed in 

bringing about change if there is sufficient political 

support for the needed reforms. 

Donor and host-government coordination is likely to 

pose significant challenges. Beyond the issue of 

political will and the inherent policy challenges 

involved in balancing security and commerce, there are 

likely to be significant donor and host-government 

coordination issues. Border management and trade 

XI. INTERNATIONAL TRADE AND BORDER 

MANAGEMENT

Overarching Objective: To ensure that trade 

in goods and services increases, contributing to 

economic growth

In most cases, increasing trade means 

attempting to achieve the most liberal trade 

regime possible, given post-conflict security issues 

and critical government revenue requirements.

Many of the benefits of global trade are available to 

post-conflict countries, as long as the right policies and 

institutions are in place. Open economies grow faster 

and create opportunities to reduce poverty, particularly 

when trade liberalization is accompanied by a sound 

investment climate that encourages labor and capital to 

redeploy to opportunities. International trade and 

investment enable specialization, encourage economies 

of scale, spur the transfer of technology, and create more 

competitive domestic markets. These effects yield real 

cost reductions, which are crucial for creating wage and 

income growth. Establishing the policies and functioning institutions needed to facilitate trade in the wake of a 

conflict presents unique challenges, which require trade 

assistance to be prioritized and sequenced differently 

than it is in stable developing countries.

Political and Social Issues

Conflict disrupts and distorts a country’s international 

trade. As the economic, social, and political costs related 

to conflict rise, industries and traders that can choose 

where to locate their operations will move or go out of 

business. Industries that operate in isolated enclaves or can 

earn margins well above operating costs (typically natural 

resource extractive industries such as oil, diamonds, 

timber, and gold) often can continue to produce and 

export during a conflict. Post-conflict countries face a 

challenge of diversifying their export base and reestablishing ties to regional and global markets.
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 81

USAID and the 

Government of 

Lebanon restore the 

Mudeirej Bridge, a 

crucial transport 

link between Beirut, 

eastern Lebanon, 

and Damascus. 

Reconstruction is 

expected to stimulate 

trade and economic 

growth essential to 

Lebanon’s financial 

recovery from the 

conflict of 2006. 

(USAID/Lebanon)
82 USAID

valorem to replace tariffs that had been eliminated. (See 

also Chapter V.A: Fiscal Policy and Institutions.) 

Short term vs. long term

Donors should encourage the use of streamlined 

customs declaration and tax collection systems. These 

measures can limit corruption and leakage, while 

simultaneously reducing both public- and privatesector administrative demands and costs. Relying on 

trade taxes for revenue in the short term means that the 

customs administration must be improved. Poor 

administrative capacity within customs and other 

border management agencies is common in post-conflict countries; it often leads to massive leakage of 

public revenues, either because importers undervalue 

their shipments or because customs inspectors are 

unskilled or corrupt. 

Some interventions that may be appropriate in the 

short term involve a substantial financial cost and 

should not be continued longer than necessary. Such 

interventions might include:

•	 employing a single, internationally recognized 

firm to conduct pre-shipment inspection (PSI) of 

imports, in order to verify the value of shipments 

at their point of origin (introduced early in postconflict Mozambique and Liberia, for example) 

•	 temporarily replacing local customs-clearance 

agents and border management officials with expatriate professionals (introduced at a later stage in 

post-conflict Mozambique and Angola)

These two approaches may be effective as transitional 

measures, keeping in mind that their substantial financial 

cost is born by private traders and importers. It should be 

noted that these approaches are themselves not completely 

immune from corruption and distortion. In the longer 

term, these interventions should be eliminated and 

emphasis should be placed on efforts to broaden the 

revenue base to reduce reliance on trade taxes.

Urgent vs. legitimate 

In the aftermath of a conflict, donors should 

encourage the host government to take immediate, 

unilateral actions to liberalize trade policy rather 

diversification are of interest to many domestic agencies 

and to a number of international organizations and 

donors. Each may have a different interest, focus, or 

perspective on post-conflict border management. To 

provide effective assistance, the priorities of all 

stakeholders must be considered and managed.

In short, the difficulty of improving border management and diversifying exports should not be underestimated; border management must receive appropriate 

attention early in the post-conflict period. 

Key Trade-Offs

Donors assisting post-conflict countries must make 

decisions quickly, on the basis of specific trade-offs that 

are much more acute than in stable developing 

countries. In providing assistance with trade policy and 

institutions, the key trade-off donors face are effectiveness vs. efficiency, short term vs. long term, and urgency vs. 

legitimacy.

Effective vs. efficient 

Early in the post-conflict period, the host government’s capacity to collect import tariffs and excise 

taxes is usually stronger than its capacity to collect 

economy-wide sales and income taxes, even though 

sales taxes such as value-added tax VAT (the most 

efficient type of tax for most developing countries) and 

income taxes are more efficient. At the same time, it 

may be possible to reduce the dispersion of tariff rates 

and eliminate exceptionally high rates on luxury goods, 

which in practice generate little revenue because of tax 

avoidance and corruption. Any move toward uniform 

tariff rates should be encouraged. If an opportunity for 

such a reform exists, it should be carried out as quickly 

as possible – as was done in Kosovo, which followed 

the Chilean model of uniform tariff rates. 

Prolonged reliance on tariff revenues or trade taxes 

to support critical public investment can be selfdefeating, because it undermines the development of 

an efficient, competitive private sector. It may, however, 

be necessary to impose an interim revenue-generating 

levy on imports. Such a levy should be applied at a 

uniform rate across all consumer and capital goods, as 

was done in Iraq, which introduced a five percent ad 
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 83

than awaiting multilateral or bilateral negotiations.51 A number of trade policy measures and 

institutional decisions need urgent action in postconflict countries. Donors may, for example, recommend direct management of borders by hiring 

expatriate officials or employing a PSI firm. In 

addition, the opportunity to achieve liberalization may 

require the host government to quickly develop its 

trade policy by taking enlightened, unilateral actions 

drawn from a short list of proven trade policy 

measures rather than working through multilateral or 

bilateral negotiations. 

In the medium term, donors should turn their 

attention to building the legitimacy of the trade 

policy process and strengthening implementing 

institutions. Once urgent procedures and regulations 

for efficient cross-border trade and simplified revenue 

collection are in place, host governments should be 

encouraged to focus on building legitimacy. In some 

cases, past trade measures were established for sound 

public health and safety reasons; in other cases, these 

measures were designed to support rent-seeking 

51 Often, post-conflict countries already are a party to bilateral, regional, or multilateral trade arrangements, which 

need to be considered when undertaking any unilateral 

liberalization efforts. 

behavior by officials in the ministries of health, 

agriculture, or industry who were protecting the 

narrow interests of industries in their sector. In either 

case, establishing a proper policy process for reviewing 

each measure should be a medium-term priority for the 

post-conflict government. The host government and 

donor community may need to be seen as advocates for 

the broader interests of the household and business 

consumer sectors, which will benefit from greater 

openness to imports.

To be effective, international trade negotiations must 

be perceived as legitimate. Successful negotiations and 

agreements require a strong capacity to analyze, 

conduct dialogue, and build consensus. In the short 

term, post-conflict countries are not likely to have this 

capacity. In addition, while the direct, immediate 

removal of trade restrictions generally benefits society 

at large, it often has an adverse impact on sectors that 

previously were protected by government trade policies. 

Representatives of these sectors are likely to challenge 

the legitimacy of new, more open trade policies, 

leading to credibility and implementation problems. It 

will take time to develop the strong public- and 

private-sector institutions and human resources needed 

both for negotiations and for dealing with the inevitable challenges to negotiated changes in trade policy. 

For these reasons, negotiated international trade 

Activity Urgent Immediate Intermediate Consolidating

Enforcement of border control by customs – tariff collection 

(e.g., PSI) and control of contraband

Unilateral trade policy measures (simplifying and lowering 

tariffs)

Trade facilitation, reduced inspections, and reduced delays for 

low-risk traders (establish risk assessment system)

Development of bilateral or regional protocols to facilitate 

regional trade

Export diversification

Negotiation of new bilateral agreements or Free Trade Areas; 

participation in WTO negotiations

Table XI.1 internationaltrade and border management 

Priority and Sequencing of Assistance

High-intensity level of 

assistance

Lower-intensity level 

of assistance

Typically very little assistance 
84 USAID

commitments usually are a longer-term priority in 

post-conflict countries. 

Programming Options

Trade assistance to post-conflict countries should focus 

on: 1) facilitating trade through effective, secure border 

management; 2) diversifying exports to regional and 

international markets; 3) undertaking unilateral 

liberalization of trade barriers, balanced by the need for 

effective short-term revenue collection by customs; 

and, 4) beginning to rebuild trade institutions that can 

forge a national consensus on open trade and investment policies. With possible exceptions, assisting the 

host government to participate in international trade 

agreements (either bilaterally or as part of multilateral 

trade negotiations) is a higher priority in stable, 

developing countries than in post-conflict countries. 

Border management: Given the trade-offs discussed 

above, donor priorities for assisting post-conflict 

countries with border management may include:

•	 facilitating trade and ensuring security 

•	 correcting transport and border infrastructure 

bottlenecks

•	 increasing utilization of risk management and 

cargo selectivity procedures

•	 instituting customs declaration and tariff collection systems that minimize administrative steps 

while ensuring payment before release of goods 

(such as using a single administrative document or 

electronic documents and filing)

•	 training and certifying private customs brokers

Border-trade enforcement: To stop weapons and 

contraband, customs and other law enforcement 

procedures require routine inspection of most cargo 

crossing the border. Obviously, such inspections may 

slow down legitimate trade. To reduce delays and avoid 

a drag on economic growth from poorly managed 

borders, customs practices and procedures need to be 

modernized, including introduction of a risk-management regime or expedited “green lines” for shipments 

of certified traders.

An important aspect of border enforcement is that 

tariffs must be set at reasonably modest rates. As noted 

by Dobbins, “If smuggling operations finance the 

activities of local thugs, as they have in Bosnia and 

Kosovo, it [may not make sense to impose high tariffs 

that will] make the activities of local gangs that much 

more lucrative.”52

Diversifying exports: Given the trade-offs discussed 

above, donor priorities for assisting post-conflict countries 

with diversifying exports should consider that:

•	 Trade opportunities are unique to each country 

and the effectiveness of assistance to exporters may 

vary widely among products, market, and the type 

of assistance. 

•	 The importance of facilitating regional and border 

trade should not be overlooked. High transportation 

costs may be a major barrier to developing exports 

to far-distant markets. (See Chapter IX: Agriculture

for a discussion of USAID programs to promote 

regional agricultural trade in southern Sudan.)

Unilateral liberalization should be considered in the 

context of a country’s bilateral, regional, or multilateral 

trade commitments. Donor priorities in this area 

should include:

•	 simplifying the tariff schedule and implementing 

the Harmonized System for classifying imports 

and exports53

•	 adjusting tariff rates so as to minimize dispersion 

(e.g., a uniform tariff rate) and minimizing tariff 

waivers or preferences

•	 lowering or eliminating non-tariff trade barriers; 

52 Dobbins et al (2007).

53 The Harmonized Commodity Description and Coding 

System (HS) is a multipurpose international product nomenclature developed by the World Customs Organization 

(WCO). It comprises about 5,000 commodity groups, each 

identified by a six-digit code, arranged in a legal and logical 

structure and is supported by well-defined rules to achieve 

uniform classification. The system is used by more than 190 

countries and economies as a basis for their customs tariffs 

and for the collection of international trade statistics. More 

than 98 percent of the merchandise in international trade is 

classified in terms of the HS.
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 85

•	 applying a temporary uniform revenue levy rate

•	 cutting red tape, simplifying licensing, strengthening 

customs procedures, and controlling corruption

Many of these actions may be feasible to introduce 

immediately, while others may require negotiation, 

technical assistance, and/or legislative changes over the 

medium term.

Rebuilding trade institutions: Donor priorities for 

assisting with rebuilding trade institutions should include: 

assisting the host government to begin a policy 

dialogue with the private sector and civil society, with 

the aim of developing a national consensus for 

openness to trade and investment; and, laying the 

early groundwork for trade institutions that will be 

able to coordinate policy as needed for participation 

in international trade negotiations.

Available Rapid Assessment

Tools

Country-level “Diagnostic Trade Integration Studies” 

(DTIS) that illustrate the type of analysis required in 

other post-conflict countries are available at http://

www.integratedframework.org/documents.htm. These 

are products of the WTO-led effort to coordinate 

delivery of trade-related technical assistance to 

least-developed countries among WTO, World Bank, 

IMF, UN Agencies, and bilateral donors.

Assessment assistance is available from USAID’s Office 

of Economic Growth (EGAT/EG) and from a 

fast-reaction contracting mechanism that provides 

assistance to facilitate trade, known as Trade Capacity 

Boost (TCBoost). See http://www.tcboostproject.com/.

References for Relevant Case

Studies

Gallagher, Mark. 2007. “Building Fiscal Infrastructure 

in Post-Conflict Societies.” Report for USAID 

prepared by Development Alternatives, Inc. 

http://pdf.usaid.gov/pdf_docs/PNADK908.pdf. 

Lewarne, Stephen, and David Snelbecker. 2004. 

“Economic Governance in War Torn Economies: 

Lessons Learned from the Marshall Plan to the 

Reconstruction of Iraq.” Report for USAID 

prepared by The Services Group. http://pdf.usaid.

gov/pdf_docs/PDACG436.pdf.

Afghan women sort 

raisins for market 

in Afghanistan and 

throughout Asia. 

USAID has provided 

assistance for building small factories in 

several Afghan provinces to dry fruit and 

vegetables for export. 

(Ben Barber) 
86 USAID

GENERAL References

The references on this list provide general information about economic growth programs in post-conflict programs. Each chapter in Part 2 contains a list of more specific references related to individual sectors.

BearingPoint, Inc. 2006. “Briefing on USAID-Funded 

Economic Governance Programs in Kosovo, 

Afghanistan, Iraq & Southern Sudan.” Presentation 

to USAID Bureau for Economic Growth, 

Agriculture, and Trade. 

BearingPoint, Inc. and USAID. 2006. “USAID 

Afghanistan Economic Governance Program, 

Volume 1: Completion Report, November 7, 2002 

– December 15, 2005.” http://pdf.usaid.gov/

pdf_docs/PDACH901.pdf. 

Beasley, Kenneth W. 2006. “Job Creation in Postconflict 

Societies.” PPC Issue Paper No. 9, PN-ADE-194, 

USAID. http://pdf.usaid.gov/pdf_docs/

PNADE194.pdf. 

Blair, Harry. 2006. “Rebuilding and Reforming Civil 

Services in Post-Conflict Societies,” in Governance 

in Post-Conflict Societies: Rebuilding Fragile States. 

Derick W. Brinkerhoff. Routledge. Contemporary 

Security Studies Series.

Brinkerhoff, Derick W. 2005. “Organisational 

Legitimacy, Capacity and Capacity Development.” 

Discussion Paper No. 58A, European Centre for 

Development Policy Management, OECD/DAC 

study on Capacity, Change and Performance.

----------. 2007. Governance in Post-Conflict Societies: 

Rebuilding Fragile States. Routledge. Contemporary 

Security Studies Series.

Butterfield, William. 2007. The Role of Foreign Actors in 

Supporting Economic Growth and Liberal Democracies 

in Post-Conflict Countries: Why Efforts May Fail.

Caplan, Richard. 2005. International Governance of 

War-Torn Territories: Rule and Reconstruction.

Oxford University Press. 

----------. Feb. 21, 2007. “The Challenges of PostConflict Economic Reconstruction and 

Development.” Remarks delivered at a Chatham 

House Conference.

Collier, Paul. 2007. “Post-Conflict Recovery: How 

Should Policies Be Distinctive?” Oxford University. 

http://users.ox.ac.uk/~econpco/research/pdfs/

PostConflict-Recovery.pdf. 

----------, and Anke Hoeffler. 2002. “Aid, Policy, and 

Growth in Post-Conflict Societies.” Policy Research 

Working Paper 2902, World Bank Development 

Research Group.

----------, and Måns Söderbom. 2007. Post-Conflict Risks.

Centre for the Study of African Economies, 

Department of Economics, University of Oxford. 

Daly, Jorge L., and Marta Cecilia Rodas. 2006. 

“Modernization of the Land Property Registry in El 

Salvador.” Prepared for USAID by Management 

Systems International. http://pdf.dec.org/pdf_docs/

Pnadf996.pdf. 

Development Alternatives, Inc. 2006. Iraq Transition 

Initiative–Final Report. 

Elbadawi, Ibrahim A., Linda Kaltani, and Klaus 

Schmidt-Hebbel. 2007. “Post-Conflict Aid, Real 

Exchange Rate Adjustment, and Catch-up 

Growth.” Working Paper WPS 4187, World Bank. 

http://www-wds.worldbank.org/external/default/

WDSContentServer/WDSP/IB/2007/04/09/0000

16406_20070409135857/Rendered/PDF/

wps4187.pdf.

Falcetti, Elisabetta, Martin Raiser, and Peter Sanfey. 

2002. “Defying the Odds: Initial Conditions, 

Reforms and Growth in the First Decade of 

Transition.” European Bank for Reconstruction and 

Development.

Harberger, Arnold C. 2005. “On the Process of Growth 

and Economic Policy in Developing Countries.” 

PPC Issue Paper No. 13, PN-ADE-081, USAID. 

http://pdf.usaid.gov/pdf_docs/PNADE081.pdf. 

Haughton, Jonathan. 1998. The Reconstruction of 

War-Torn Economies. CAER II Discussion Paper 

No. 23, Harvard Institute for International 

Development. http://pdf.usaid.gov/pdf_docs/

PNACD402.pdf. 

Hughes, H. 1985. “Policy Lessons of the Development 

Experience.” Occasional Paper 16, Group of Thirty.

Kohl, Richard, and J.Vavra. 2006. “Postconflict 

Economic Policy and Programming.” Nathan 

Associates.
A GUIDE TO ECONOMIC GROWTH IN POST-CONFLICT COUNTRIES 87

Krueger, Anne O. 2005. “De Tocqueville’s ‘Dangerous 

Moment’: The Importance of Getting Reforms 

Right.” The World Economy 28 (6).

Lewarne, Stephen, and David Snelbecker. 2004. 

“Economic Governance in War Torn Economies: 

Lessons Learned from the Marshall Plan to the 

Reconstruction of Iraq.” Report for USAID 

prepared by The Services Group. http://pdf.usaid.

gov/pdf_docs/PDACG436.pdf. 

Lewis, William W. 2004. The Power of Productivity 

Wealth, Poverty, and the Threat to Global Stability.

The University of Chicago Press.

Lonnbörg, Åke. 2002. “Restoring and Transforming 

Payments and Banking Systems in Post-Conflict 

Economies.” IMF Staff Note. http://imf.org/

external/np/leg/sem/2002/cdmfl/eng/lonnb.pdf.

Mendelson-Forman, Johanna, and Merriam Mashatt. 

2007. “Employment Generation and Economic 

Development in Stabilization and Reconstruction 

Operations.” Stabilization and Reconstruction 

Series No. 6, United States Institute of Peace. 

Mindanao State University–General Santos City 

Foundation, Inc. 2001. ELAP Assessment Survey 

Report for USAID. 

Nourse, Tim, Tracy Gerstle, Alex Snelgrove, David 

Rinck, and Mary McVay 2007. “Market 

Development in Crisis-Affected Environments: 

Emerging Lessons for Achieving Pro-Poor 

Economic Reconstruction.” Small Enterprise 

Education and Promotion Network. 

http://communities.seepnetwork.org/sites/hamed/

files/Market%20Development%20in%20

Crisis-Affected%20Environments.pdf. 

Ranis, Gustav. 2006. “Toward the Enhanced 

Effectiveness of Foreign Aid.” Economic Growth 

Center Discussion Paper No. 938, Yale University.

Rondinelli, Dennis. 2006. “Reforming Public 

Administration in Post-Conflict Societies: 

Implications for International Assistance.” Prepared 

for USAID by The Mitchell Group, Inc. http://pdf.

usaid.gov/pdf_docs/PNADG326.pdf. 

United Nations Development Programme, Bureau for 

Crisis Prevention and Recovery. 2008. Post-Conflict 

Economic Recovery: Enabling Local Ingenuity. 

UNDP. http://www.undp.org/cpr/content/

economic_recovery/PCERreport.pdf. 

United States Department of State. 2005. “Post-Conflict 

Reconstruction: ESSENTIAL TASKS. Office of 

the Coordinator for Reconstruction and 

Stabilization,” United States Department of State.

USAID. 2004. “Land and Conflict—A Toolkit for 

Intervention.” USAID. http://pdf.usaid.gov/

pdf_docs/PNADB335.pdf. 

----------. 2005a. “Conducting a Conflict Assessment: A 

Framework for Analysis and Program 

Development.” USAID. http://pdf.usaid.gov/

pdf_docs/PNADD459.pdf. 

----------. 2005b. “Livelihoods and Conflict–A Toolkit 

for Intervention.” USAID. http://pdf.usaid.gov/

pdf_docs/PNADE291.pdf. 

----------. 2006a. “Policy Framework for Bilateral 

Foreign Aid: Implementing Transformational 

Diplomacy through Development.” PD-ACG-244, 

USAID. http://pdf.usaid.gov/pdf_docs/

PDACG244.pdf. 

----------. 2006b. “Strategic Framework for Africa.” 

USAID. http://pdf.usaid.gov/pdf_docs/

PDACG573.pdf. 

----------. 2007a. “Community-Based Development in 

Conflict-Affected Areas: An Introductory Guide for 

Programming.” USAID. http://pdf.usaid.gov/

pdf_docs/PNADJ132.pdf. 

----------. 2007b. “Securing the Future: A Strategy for 

Economic Growth.” USAID. http://www.usaid.

gov/our_work/economic_growth_and_trade/eg/

eg_strategy_v4_final.pdf.

----------. 2008. Post-Conflict Country Analytic 

Template. Report for USAID prepared by Nathan 

Associates.

Williams, Alison. 2003. Post Conflict Microfinance 

Research Summary. Dublin: Concern Worldwide.

World Bank. 2002. Transition: The First Ten Years 

Analysis and Lessons for Eastern Europe and the 

Former Soviet Union. World Bank.

----------. 2005. Financial Sector Assessment: A Handbook.

World Bank. 

----------. 2007. Doing Business 2007: How to Reform. 

World Bank
88 USAID
For more information, please visit

http://www.usaid.gov
U.S. Agency for International Development

www.usaid.gov

1300 Pennsylvania Avenue, NW 

Washington, DC 20523 

Tel: (202) 712-0000 

Fax: (202) 216-3524