Resources and conflict in Angola : an economic conflict analysis

Summary Three attempts to cooperate between the fighting groups in Angola have proven unsuccessful, resulting in continuing conflict. This indicates that the parties to the conflict find it difficult to agree on a peaceful solution that satisfies both, and it seems that the prisoner s dilemma is a recurrent problem. The three broken peace agreements and the long-lasting conflict in Angola lead me to the first statement: Natural resources such as oil and diamonds have been of major importance in sustaining the conflict in Angola since the end of the Cold War. Income from oil has been highly significant for the government army in financing warfare. International oil companies show a growing interest in Angola s oil, and their technology makes extraction of oil possible. According to the model I will present, low transparency and lack of reporting of the oil revenues could have an influence on the extent of the fighting when it was ongoing, as well as on risk for further conflict. The size of the oil and diamond reserves is decisive for the scope of the fighting. The two groups, FAA and UNITA, decide their fighting effort from their expectations of the size of the rent. If the oil companies started to publish their earnings from oil, it could be revealed that the rent is higher or lower than the fighting groups expect. A higher rent than expected will increase the fighting, whereas a lower will reduce its extent. The second hypothesis is motivated by recommendations by the IMF and others to increase the level of transparency to solve Angola s major problems of poverty and four decades of conflict. In my thesis, I investigate the following two hypotheses: : The presence of oil and diamonds makes it difficult for the two fighting groups, FAA and UNITA, to cooperate. : Increased transparency in oil revenue from reporting by oil companies of payments to the Angolan government will reduce the potential for further conflict. An approach by Mehlum & Moene (2002) is adapted to test if the two hypotheses hold. The conflict is modelled as a contest between the government and the rebel group over the resource rent. This game-theoretic model has been chosen because it appears to be applicable for conflict analysis. The approach has not been used for specific country analysis, and particularly not for the war in Angola. In both duopoly and civil war, there is competition between two parties to get the highest expected payoffs. In Angola, the conflict has been ongoing for four decades since both FAA and UNITA want to control the whole resource rent by governing the country. According to the model, the parties will end up in Nash-equilibrium in war if they follow their dominant strategies. Two broken peace agreements between the Angolan government and UNITA indicate that the parties find it difficult to cooperate, and this supports . The war ended without reaching a new peace agreement. It was a ceasefire agreement followed by dismantling of former UNITA forces that ended the war. This could be a sign of dissatisfaction within UNITA; maybe they were too weak to continue fighting. If the war ended without a peace agreement that satisfies both, it is likely not a lasting peaceful solution. A sharing of the rent that satisfies both is required to establish a long-lasting peace. That has not happened so far, so is not rejected. A third party, namely the oil companies, could possibly assist the country achieve lasting peace. They can influence the conflict through reporting their income from oil and the size of their investments in the oil sector. The oil companies activities may resolve the prisoner s dilemma. Increased transparency in oil revenue can either increase or decrease the risk for further fighting, depending on whether the numbers reveal higher or lower oil reserves than the belligerents expected. On the one hand, reducing the risk for further conflict seems unlikely if the reporting of oil revenue reveals that the rent is higher than FAA and UNITA expect. A high rent without a peace agreement that satisfies both can increase the risk for further conflict. On this basis, the test of my second hypothesis is uncertain. In the case that increased transparency reveals that rent is higher than expected, the hypothesis is rejected, since a higher rent will increase the extent of the fighting, according to the model. One may argue that since the payments from the oil companies to the government are kept secret, the rent is likely to be higher than the parties expect. This result is opposed to the recommendation of increased transparency in public finances by the IMF. Reasoning outside the model and from the viewpoint of the civilian population instead of the warlords, the results of increased transparency can differ. Angolans expectations of the oil reserves could be wrong. It is reasonable to assume that they have underestimated the oil reserves. Increased reporting of oil payments can change their expectations about the rent. If the reporting reveals a higher rent, the population could demand a higher share of the oil income. Then FAA and UNITA would have less to fight over. The risk for further conflict will be reduced, and poverty in the country could decrease if the people get their part of the oil income. Increased transparency could help sustain peace and establish the foundation for an equal distribution of income. It is, however, possible to argue that the oil companies and warlords could have benefited from war, since the extraction rate is likely to be higher than optimal and since transparency is low. For some groups, low-intensity war may be preferred to peace, since it is possible in wartime to capture more of the rent from oil and diamonds. The minority that can benefit from war is powerful, and of course the consequence is that the majority suffersa huge loss from war. If the warlords get higher expected profit from war than in peace, they can have a preference for conflict. One may say that in such a case the prisoner s dilemma exists for the majority only, but not for the groups that gain from war