Chapter 1
Introduction and Overview: The sheer size and illicit nature of the opium economy mean that it infiltrates and seriously affects Afghanistan's economy, state, society, and politics. The opium economy is a massive source of corruption and gravely undermines the credibility of the government and its local representatives. While the chapters in this report cover diverse topics and use different research methods, their findings are broadly consistent and they have many common themes. This introductory chapter focuses on methodology, main themes, chapter summaries, and conclusions and recommendations.
Introduction and Overview: The sheer size and illicit nature of the opium economy mean that it infiltrates and seriously affects Afghanistan's economy, state, society, and politics. The opium economy is a massive source of corruption and gravely undermines the credibility of the government and its local representatives. While the chapters in this report cover diverse topics and use different research methods, their findings are broadly consistent and they have many common themes. This introductory chapter focuses on methodology, main themes, chapter summaries, and conclusions and recommendations.
Chapter 2
Macroeconomic Impact of the Drug Economy and Counter-Narcotics Efforts: The opium economy is equivalent to more than one-third of Afghanistan’s licit economy. Iit is the country's largest source of export earnings, and it comprises a major source of income and employment in rural areas. However, because a large share of drug proceeds leave or never enter the country, and some of the rest are used for imports, the impact of the opium economy is less than its size would suggest. Correspondingly, the harmful macroeconomic effects of successful measures against drugs may be somewhat limited and manageable, although monitoring is needed. The critical adverse development impact of counter-narcotics actions is on poor farmers and rural wage laborers.
Macroeconomic Impact of the Drug Economy and Counter-Narcotics Efforts: The opium economy is equivalent to more than one-third of Afghanistan’s licit economy. Iit is the country's largest source of export earnings, and it comprises a major source of income and employment in rural areas. However, because a large share of drug proceeds leave or never enter the country, and some of the rest are used for imports, the impact of the opium economy is less than its size would suggest. Correspondingly, the harmful macroeconomic effects of successful measures against drugs may be somewhat limited and manageable, although monitoring is needed. The critical adverse development impact of counter-narcotics actions is on poor farmers and rural wage laborers.
Chapter 3
Responding to the Challenge of Diversity in Opium Poppy Cultivation: This chapter argues that diversity in rural household characteristics, assets, and access to markets means a diverse pattern of dependency on the opium economy, and of decision-making about whether to cultivate opium poppy under varying local circumstances. There is also diversity in households' responses to shocks like elimination of opium poppy cultivation in their locality, and to which degree they are able move into alternative livelihoods, or remain dependent on opium. Households with the least assets and limited access to local resources (land, irrigation water) and market opportunities tend to be the most dependent on opium. All of this diversity calls for a commensurate response on the part of the counter-narcotics strategy – working with the diversity that exists rather than ignoring it, and making use of the knowledge that has been gained about rural households and opium cultivation in different localities.
Responding to the Challenge of Diversity in Opium Poppy Cultivation: This chapter argues that diversity in rural household characteristics, assets, and access to markets means a diverse pattern of dependency on the opium economy, and of decision-making about whether to cultivate opium poppy under varying local circumstances. There is also diversity in households' responses to shocks like elimination of opium poppy cultivation in their locality, and to which degree they are able move into alternative livelihoods, or remain dependent on opium. Households with the least assets and limited access to local resources (land, irrigation water) and market opportunities tend to be the most dependent on opium. All of this diversity calls for a commensurate response on the part of the counter-narcotics strategy – working with the diversity that exists rather than ignoring it, and making use of the knowledge that has been gained about rural households and opium cultivation in different localities.
Chapter 4
Opium Trading Systems in Helmand and Ghor Provinces:This chapter looks into the next level up – opium traders and patterns of opiumtrade – based on fieldwork in Helmand, the dominant center of opium production and trade in the south, and Ghor, a much more recent and marginal producer toward the west. Geographical and climatic differences, continuity of different trading systems from the past, and drug-related economic interactions between the two provinces, have shaped the very different size and evolution of the opium trade. There is a case for anticipatory action in Ghor to restrict the spread of opium cultivation in that province. A persistent theme is the engagement of key provincial and district authorities in the opium economy, and both interdiction and eradication measures may have inadvertently contributed to key drug industry actors and their sponsors gaining tighter control over distribution and trade.
Opium Trading Systems in Helmand and Ghor Provinces:This chapter looks into the next level up – opium traders and patterns of opiumtrade – based on fieldwork in Helmand, the dominant center of opium production and trade in the south, and Ghor, a much more recent and marginal producer toward the west. Geographical and climatic differences, continuity of different trading systems from the past, and drug-related economic interactions between the two provinces, have shaped the very different size and evolution of the opium trade. There is a case for anticipatory action in Ghor to restrict the spread of opium cultivation in that province. A persistent theme is the engagement of key provincial and district authorities in the opium economy, and both interdiction and eradication measures may have inadvertently contributed to key drug industry actors and their sponsors gaining tighter control over distribution and trade.
Chapter 5
Prices and Market Interactions in the Opium Economy: This chapter analyzes prices of opium and opiates to assess price trends, market structure, and the degree of market integration. Opium prices in Afghanistan have fluctuated sharply in recent years and have been volatile, reflecting supply side factors (weather, cultivation bans) mediated somewhat by inventory adjustments. Spatial price patterns indicate that opium markets are flexible and mobile; actions against the opium economy can have an impact on local markets, but they tend to encourage a shift of production and trade to other areas. Based on econometric tests, opium markets have become less integrated in recent years, probably due to the differing strength and effectiveness of counter-narcotics actions in different areas. Helmand and Kandahar in the south appears to be functioning as a “central market” for opium in Afghanistan.
Prices and Market Interactions in the Opium Economy: This chapter analyzes prices of opium and opiates to assess price trends, market structure, and the degree of market integration. Opium prices in Afghanistan have fluctuated sharply in recent years and have been volatile, reflecting supply side factors (weather, cultivation bans) mediated somewhat by inventory adjustments. Spatial price patterns indicate that opium markets are flexible and mobile; actions against the opium economy can have an impact on local markets, but they tend to encourage a shift of production and trade to other areas. Based on econometric tests, opium markets have become less integrated in recent years, probably due to the differing strength and effectiveness of counter-narcotics actions in different areas. Helmand and Kandahar in the south appears to be functioning as a “central market” for opium in Afghanistan.
Chapter 6
The Nexus of Drug Trafficking and Hawala in Afghanistan: This chapter explores the very important but murky nexus between the drug industry and the informal financial transfer system (hawala). The hawala system facilitates the transfer of drug-related funds in Afghanistan, while at the same time serving as a vehicle for licit commercial transactions, aid flows, and remittances. In the settlement process hawala dealers are heavily reliant on formal banking channels in regional countries around Afghanistan. The positive role of the hawala system must be recognized, and through partnership and incentives it can progressively be brought into compliance with existing registration and taxation provisions. The international community also needs to be more diligent in its use of the hawala system to prevent its funds from becoming intermingled with illicit transfers. But imposing stringent anti-money laundering standards too quickly on the re-emerging formal financial sector risks alienating the Afghan people from using banks. Anti-money laundering provisions need to be more strictly enforced for nearby countries’ banks which support the hawala trade.
The Nexus of Drug Trafficking and Hawala in Afghanistan: This chapter explores the very important but murky nexus between the drug industry and the informal financial transfer system (hawala). The hawala system facilitates the transfer of drug-related funds in Afghanistan, while at the same time serving as a vehicle for licit commercial transactions, aid flows, and remittances. In the settlement process hawala dealers are heavily reliant on formal banking channels in regional countries around Afghanistan. The positive role of the hawala system must be recognized, and through partnership and incentives it can progressively be brought into compliance with existing registration and taxation provisions. The international community also needs to be more diligent in its use of the hawala system to prevent its funds from becoming intermingled with illicit transfers. But imposing stringent anti-money laundering standards too quickly on the re-emerging formal financial sector risks alienating the Afghan people from using banks. Anti-money laundering provisions need to be more strictly enforced for nearby countries’ banks which support the hawala trade.
Chapter 7
Drug Trafficking and the Development of Organized Crime in Post-Taliban Afghanistan: This chapter looks at the drug industry in Afghanistan from an organized crime perspective, focusing on its consolidation, changing internal structure, and linkages with different levels of government. In an environment of criminalization of narcotics, increasing albeit uneven law enforcement and eradication campaigns, and ongoing efforts to rebuild state institutions, the drug industry in Afghanistan is becoming increasingly consolidated. The chapter argues that at the top level, around 25-30 key traffickers, the majority of them in southern Afghanistan, control major transactions and transfers, working closely with sponsors in top government and political positions. The chapter concludes that there are no easy solutions to the drug industry as an increasingly organized set of criminal activities. New analytical frameworks and thinking will be needed, countering organized crime will require a careful balancing act, and improvements in specialized law enforcement agencies alone will not be sufficient. Broader state-building and governance improvements will be key.
Drug Trafficking and the Development of Organized Crime in Post-Taliban Afghanistan: This chapter looks at the drug industry in Afghanistan from an organized crime perspective, focusing on its consolidation, changing internal structure, and linkages with different levels of government. In an environment of criminalization of narcotics, increasing albeit uneven law enforcement and eradication campaigns, and ongoing efforts to rebuild state institutions, the drug industry in Afghanistan is becoming increasingly consolidated. The chapter argues that at the top level, around 25-30 key traffickers, the majority of them in southern Afghanistan, control major transactions and transfers, working closely with sponsors in top government and political positions. The chapter concludes that there are no easy solutions to the drug industry as an increasingly organized set of criminal activities. New analytical frameworks and thinking will be needed, countering organized crime will require a careful balancing act, and improvements in specialized law enforcement agencies alone will not be sufficient. Broader state-building and governance improvements will be key.
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