The opium economy in Afghanistan: an international problem

PREFACE
For more than two millennia, Afghanistan has been at the crossroads of civilizations and a major contributor to world culture. In the past quarter century, the country has also found itself at the crossroads of international terrorist violence and became a major contributor to world narcotics production.

As a consequence, Afghanistan now faces a historic challenge. Although counter-terrorism is the key battleground, the enemy has to be confronted on other fronts as well, first and foremost in the struggle against illicit drugs. This challenge can be faced: Thailand, Pakistan and Turkey (on the opium front), Bolivia and Peru (on the cocaine front) have shown that legal and commercially viable crops can replace illicit cultivation.

The establishment of democracy in Afghanistan and the Government's measures against cultivation, trade and abuse of opium have been crucial steps towards solving the drug problem. Yet, other news has not been good. For example, last year's opium poppy harvest was among the highest in the country's history.

Not surprisingly, public opinion, both in Afghanistan and abroad, is perplexed. Nagging questions are raised. Why is the international presence in Afghanistan not able to bring under control a phenomenon connected to international terrorism and organized crime? Why is the central Government in Kabul not able to enforce the ban on opium cultivation as effectively as the Taliban regime did in 2000-01?

There are no simple answers to these questions. The opium economy of Afghanistan is an intensely complex phenomenon. In the past, it reached deeply into the political structure, civil society and economy of the country. Spawned after decades of civil and military strife, it has chained a poor rural population - farmers, landless labour, small traders, women and children - to the mercy of domestic warlords and international crime syndicates that continue to dominate several areas in the south, north and east of the country. Dismantling the opium economy will be a long and complex process. It cannot simply be done by military or authoritarian means. That has been tried in the past, and was unsustainable. It must be done with the instruments of democracy, the rule of law, and development.

Does Afghanistan face an insoluble problem? No, if we all play our parts in the solution.

Afghanistan's drug economy can be dismantled if the Government, with the assistance of the international community, addresses the roots of the matter and not only its symptoms. This report exposes such roots, as a contribution to the common effort against illicit drugs. First, the report de-constructs the opium economy of Afghanistan into its main components: cultivation, production, finance, trade and consumption. Secondly, the report re-constructs the country's development processes piece by piece, showing that it is essential: (i) to help poor farmers decide in favour of licit crops; (ii) to replace narco-usury with micro-lending; (iii) to provide jobs to women and to itinerant workers; (iv) to provide education to children, particularly girls; (v) to turn bazaars into modern commodity markets; and (vi) to neutralize warlords' efforts to keep the evil trade alive.

National efforts will not be enough. The problem is international. Afghanistan's cultivation, trafficking and drug abuse have ramifications that reach deeply into the region's post-colonial history, and widely into the contemporary geo-politics of terrorism and violence. Hence convergent efforts are needed by countries through which Afghan opiates are trafficked, and where heroin abuse nourishes the opium economy. In other words, all countries that are part of the Afghan drug problem should be part of its solution.

The United Nations Office on Drugs and Crime, which is the foremost setting for multilateral policy against drugs, and a major provider of technical assistance on counter-narcotic affairs, hopes that this informal report will raise public awareness about an issue that deserves world attention.

Antonio Maria Costa
Executive Director
United Nations Office on Drugs and Crime
January 2003

- Executive Summary Highlights -

Part 1: DIMENSIONS

Production and Trafficking

• Afghanistan's opium production (3400 tons in 2002) increased more than 15-fold since 1979;
  
  
• From 1996 to 1999, under the Taliban, production doubled and peaked at over 4600 tons;
  
  
• In 2000 the Taliban banned opium cultivation, but not trade;
  
  
• In 2002 opium was cultivated by most ethnic groups in the south (Helmand), east (Nangarhar) and north (Badakshan);
  
  
• Cross-border ethnic and tribal links facilitate trafficking by the Pashtuns, the Baluchis, the Tajiks, the Turkmens and the Uzbeks;
• Over three-quarters the heroin sold in Europe, and virtually all of it in Russia, originates in Afghanistan.

Trade and Incomes

• The opium trade was de-facto legal in Afghanistan before and throughout the Taliban period;
  
  
• In January 2002, the Karzai Administration banned it;
  
  
• Opium farmgate prices increased almost 10-fold ($300 per kg) at harvest time in 2001 compared to a year earlier as a consequence of the Taliban opium ban, and some 20-fold ($700 kg) prior to September 11. Despite a good harvest in 2002 - opium prices still amounted to around $350 at harvest time in 2002, and were about $450 at the end of the year;
  
  
• Over the 1994-2000 period, gross income from opium was about $150 million/year ($750/family). In 2001 following the Taliban ban, prices increased 10-fold. In 2002 gross income rose to $1.2 billion ($6,500/family). Part of the income is shared with traders and/or taxed by warlords;
  
  
• Income from opium and heroin trafficking into neighbouring countries amounted to at least $720 million in 2000. It may have doubled in 2002;
  
  
• These are extraordinary revenues in a country where the average wage does not exceed $2 per day.

Drug Abuse

• Drug abuse in Afghanistan has increased strongly in the last few years, due to prolonged human deprivation and suffering, the breakdown of traditional social controls, the return of refugees who developed a drug problem in refugee camps, and the almost unlimited availability of opiates within Afghanistan;
  
  
• The war wounded also became addicted as consequence of primitive first aid and large-scale use of opium, morphine, and heroin as painkillers;
  
  
• Drug abuse in Afghanistan is till low compared to neighbouring countries (Iran, Pakistan and Central Asia).

Part 2: ORIGINS

Historical roots of the opium economy

- The opium economy developed in Afghanistan because of:

• Lack of effective government administration until the recent past;
• Degradation of agriculture and most economic infrastructure due to twenty years of war;
• A war economy and related black marketeering.

• Through the 1980s and 1990s several competing factions financed their war efforts with opium revenue. Since most of the opium producing provinces came under Taliban control after 1996, the Taliban reaped the largest gains from the opium economy.

- The Taliban cultivation ban increased prices in 2001 and revalues stocks by a factor of 10; more liquidity in the hands of traders thus created further incentives for the opium economy.

Poverty, devastation and farmers' motivations

• Afghan farmer grew opium poppy because:
• The opium trade was de-facto legal until President Karzai's ban in January 2002;
• Opium poppy is a profitable crop, produced with cheap labor (women, children and refugees);
• Inputs for opium poppy are abundant, including suitable land, water and know-how from itinerant labor;
• Opium became a form of saving, a source of liquidity and a collateral for credit;
• Opium is an insurance against poverty and hunger: farmer sell future crops to narco-usurers for subsistence;
• Opium requires no marketing or storage, as it can be sold easily o spot markets.

Bazaars, finance and narco-usurers

- Opium has become an "economic narcotic" for whole segments of Afghan society:

• As a commodity, it is an income generator;
• As a source of liquidity, it is a means of exchange;
• As a payment mechanism, it is a way to store value and fund transactions.

Opium traders frequently act as narco-usurers (money lenders), because:

• Opium serves as a means of salaam (informal advance payments);
• They need capital to assist farmers. They regenerate cash-flows via rapid turnover trade (low profit); or via shipments to border regions (medium profit); or by smuggling opiates across borders (high profit). Risks vary accordingly.

Greed, warlords and opium trafficking

- Opium is an ideal commodity for marketing, trade and speculation:

• It is compact to transport and durable to store, with high intrinsic value ($350-400/kg). At present, only a few licit agricultural commodities, such as truffles ($800/kg) are more expensive on international markets;
  
  
• Given high risk of interdiction at the borders with neighbouring countries, high profits (five-fold increases of price) are generated by trafficking;
  
  
• It is a commodity suitable for trafficking, especially in the provinces controlled by warlords who levy a tax in exchange for protection;

• In some regions, traffickers gain respect from the local community when the recycle part of their income for the benefit of poor villages;

- There is a clear nexus between drug trafficking and warlordism;

- The re-emergence of drug cultivation and the recrudescence of violence in certain provinces and well-known phenomena.

Part 3: REGIONAL CONSEQUENCES

(Devastation in neighbouring countries)

Trafficking

• More than 60% of global opiate seizures take place in the few countries neighbouring Afghanistan;
• Most seizures are made by Iran, followed by Pakistan and Tajikistan.

Mega-incomes and economic vulnerability

• Opiate trafficking profits in the countries neighbouring Afghanistan amount to some $4 billion in 2002, equivalent to 2% of GDP;
• Most profits are made in Central Asia, followed by Iran and Pakistan;
• Economic growth in countries neighbouring Afghanistan was below the global average.

Abuse

• Countries neighbouring Afghanistan suffer from rising levels of abuse;
• The strongest rise, in recent years, was in the countries of Central Asia, which were also affected by the strongest increases in drug trafficking.

HIV/AIDS

• HIV/AIDS is increasing in all countries neighbouring Afghanistan, notably in the countries of Central Asia;
• Central Asia has one of the highest rates of IDU related HIV/AIDS infections in the world.

CONCLUSION: The way forward

Apart from supporting the central institutions of the state, the international support has to be targeted at solving the problems, documented in this book, which created the opium economy in the first place. The problems can be solved by:

(i) alternate crops, seeds, fertilizers and equipment for opium farmers;

(ii) alternative sources of income for landless labour and returning refugees;

(iii) jobs for women and schooling for children, especially girls;

(iv) macro-economic structures within which commodity markets (including presently unregulated bazaars) can grow free from the perverse incentives provided by opium and other forms of contraband;

(v) informal financial structures able to extend harvest-based collateralized loans (even micro-credits) to farmers and returning refugees, so as to bankrupt the narco-usurers at their game;

(vi) effective law enforcement against opium markets with the country to combat the perverse economic and political impact of warlordism, and against the international trafficking of opiates.

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