Illicit drug trade became widespread and pervasive during the post conflict period in Afghanistan. Although opium cultivation was at its lowest level, 7,606 hectares, after Taliban had introduced a ban in 2001, the cultivation reached the record height of 224,000 hectares in 2014, despite the presence of international security forces in the country.

Harsh punishments introduced by the Taliban regime for poppy cultivation were perhaps one of the key deterrents stopping farmers from wider cultivation. Nevertheless, the Taliban regime’s strategy cannot be considered as the single reason for relatively low levels of cultivation. 2001 witnessed a 91% decrease in cultivation and more than 10 folds increase in price compared to 2000. The price of opium increased from US$30/Kg in 2000 to US$301/Kg in 2001. Some scholars suggest that this was due to short time market manipulation by the Taliban and the drug kingpins to increase the price for the huge stock of dry opium available. However, the ban effects lasted longer and the skyrocketed price remained high in the successive years due to the uncertainty on how and when the international community would crack down on the cultivation. Surprisingly, they never did and counternarcotics remained an isolated issue having the priority number one as chasing terrorists.

There have been also other speculations around this phenomenon. Proven the absence of any sophistication when running the Afghan economy at large under the Taliban rule, a second scenario tells that the incentive to ban opium cultivation was to gain legitimacy and credibility under the international stress. However, it was too late and not enough specially after 9/11 terrorist attack and destruction of Bamyan Buddha statues. Hence the ban lasted only less than a year by collapse of the Taliban regime in 2001. Ever since the regime change, the Taliban’s main source of funding has been from the illicit drug trade. A source of funding that equals to approximately 4% share of GDP of the farm-gate value and 7-8% of export value. This multi-billion USD illicit trade has been the most significant source of income for insurgency.

After the establishment of the interim government of President Karzai, there was great hope for a brighter future despite the poor state of economy at that time. However, it quickly became evident that large swathes of Afghan society, particularly farmers were lacking in resources necessary for development. As a result, many framers returned to opium cultivation (74,000 hectares in 2002) in addition to those who chose poppy cultivation for more money. At the same time, while the government was focused on political reforms and establishing the new government structure,those with more power felt the immunity to return to this cash crop. It was also back in time when Afghanistan’s poor economy was in shortage of policy attention which made it widely dependent on imported goods with no considerable development plans for the licit economy.

In the meantime, some economic measures were introduced to Afghanistan’s fledgling economy, a most prominent of which was the new Afghani currency. Since 2002, the economy did not face so many ups and downs and the currency remained stable due to huge aid inflows from the international community and their commitment to help Afghanistan. But for many (including farmers, traffickers and corrupted officials) the real inflow of the cash was through illicit trade, among them the narco-trade which most likely remain after decrease in donors’ funds. This will affect the economy of Afghanistan in significant ways.

Besides international aid and monetary policies, the inflow of drug money through traditional Hawaala system in the absence of modern banking services affects the currency rate. Transactions through Hawaala to Afghanistan is used due Afghanistan is a safe haven for money laundering. Receiving the money through hawaala system, traffickers invest their money on real estate and in a period of few months to a year, they can sell those properties and provide to the banks evidence where that money originates from to save it as deposits.

Also pressure by criminal groups affects the monetary policies. Currency devaluation helps the state to boost its trade and improve domestic products, but it would have adverse effects on drug trade. The less the currency value, the cheaper are the products, and it is easier for licit goods to be marketed. On the other hand, traders of illicit drugs would not want to sell their product cheaper since they have the monopoly on opium production considering the high demand. Less attractive licit economy in areas of manufacturing and agriculture more the tendency towards the lucrative drug trade. This eventually makes Afghanistan a single illegal product exporter, i.e. opium while having a strong currency. This phenomenon is similar to the Dutch Disease, when economic development as the result of export of natural resources declines competitiveness in manufacturing sector with a strong currency. It negatively impacts on the job market and lead to further poverty, organized crime and insecurity.

Against all these factors, the Afghan government should put in place preventive measures to pass up this cumbersome time and develop effective plans to boost the formal economy. While the recent focus has been on mining industry, risks associated with extractive sector should not be ignored. As mentioned earlier, the Dutch Disease could be the result of extensive export of minerals and natural resources. Furthermore, it would require huge investment in infrastructure and a long time to commence. Yet it would not provide relatively many employment opportunities. Furthermore, it would only help further enrich power holders rather than public enrichment.

With more than 400,000 youth joining the job market yearly that add to the already unemployed population in Afghanistan, there are still very few licit employment opportunities with economy growing at 3.5% rate and the drug cultivation at 36% in 2013 and 7% over that in 2014. Absence of employment opportunities and the young human capital looking for better opportunities eventually leads to increase in the illegal migration and human trafficking that also contributes to the illicit economy. To shift the investments in the licit instead of illicit economy, much sophistication is required in shaping an environment with incentives for such. Additionally, what concerns the vulnerability of poor farmers is to build on bottom-up development processes focusing on ‘quality of life’ issues. There are needs to set up a sound and transparent financial system and a modernized agricultural sector with focus on the exports. With good governance and proper economic plans, faster economic growth would be feasible. In a peaceful environment and with stable economy, Afghanistan could specialize on extractive sector to manifest itself as a wealthy country in the region. But short term thinking and crude projects would never pan out.

If these measures are not timely introduced, the drug trade will remain under the control of criminal groups, which will keep their monopoly over Afghanistan for many years ahead, creating a ‘state capture’ alike situation when state’s decision-making is affected by private interests through illicit channels. While the top priority of the international community and the Afghan government was to bring peace, the correlation of opiate production with insecurity, trafficking of illicit crops with corruption, and threats posed by illicit economy with poverty have been ignored. The silo approach towards counter-narcotics in Afghanistan caused failure of such efforts. Afghanistan at this critical time requires a comprehensive counter-narcotics and anti-corruption policy and strategy, along with purgation of the state institutions, which will break the illicit chain of farmers, intermediaries, traffickers and money launderers. This is the key requirement to implement economic development plans and to prevent Afghanistan from becoming a narco-state.

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