Taliban will have trouble reining in Afghan’s opium economy

Taliban will have trouble reining in Afghan’s opium economy

Robert Looney

In the aftermath of the Taliban’s takeover of Afghanistan, a great deal of attention has been given to the causes and consequences of the failed intra-Afghan peace process, the factors leading to the collapse of the Afghan military and the role played by pervasive corruption at the highest levels of the country’s internationally backed government. Far less discussion has focused on the ways that economic factors, especially the illicit opium economy, strengthened the Taliban in their years as an insurgency, and how they will limit the Taliban’s options now that they are in power.

Shortly after the fall of Kabul, Taliban spokesperson Zabiullah Mujahid stated that Afghanistan under Taliban rule would not become a narco-state, announcing the group’s intention to curtail the production of opium. Nevertheless, the Taliban have historically taken an opportunistic approach toward opiates and heroin, forbidding their consumption, but not the cultivation of the poppies they are derived from or their processing and sale. During the last several years before the fall of Kabul, most opium production in Afghanistan occurred in areas already under Taliban control or influence. Rough estimates suggest the Taliban may have generated around 60 percent of their income, or up to $400 million each year, from the drug trade.

Shifting the economy away from poppies and opium to create alternative livelihoods for the country’s vast agricultural population is a formidable task. Afghanistan produced about 85 percent of the world’s opium in 2020. In recent years, the opium crop directly generated between 7 and 12 percent of Afghanistan’s gross domestic product. However, its contribution is significantly higher when considering opium’s linkages to the country’s formal economy. The opium harvest generated around 119,000 full-time jobs in 2019, for instance, while the opium economy involves thousands of additional workers as opium traders, heroin producers and domestic dealers.

In effect, Afghanistan’s economy is like that of a classic oil rentier state, wh-ere the proceeds of the opi-um economy play the role of oil revenues in eroding governance structures and institutions, creating a bo-om or bust economy depen-dent on external prices, and discouraging economic diversification into manufacturing or alternative export-oriented sectors.

Economists generally advise countries to focus on their comparative advantage in charting out a development strategy. Unfortun-ately, Afghanistan’s comparative advantage is in drugs—traditionally opium and heroin, and more recently methamphetamine manufactured from the ephedra plant that grows at high altitudes in Afghani-stan. As poppies and ephedra do not compete for land or water, cultivation of both can expand simultaneously. And the country’s existing opium distribution network and low farming costs could easily be harnessed to make Afghanistan a leading source of methamphetamines.

Without opium, the Afghan economy would be hard-pressed to generate alternative sources of foreign exchange reserves. Exports in 2020—primarily carpets, figs, licorice and other agricultural products—amounted to only $783 million, and Afghanistan has little else to offer at a scale that is as lucrative as opium. Nor will the government be able to count on extensive amounts of international grants and aid—which accounted on average for 40 percent of GDP, making it the central pillar of the pre-Taliban economy—as it did in the past. In fact, the country’s dependence on opium revenues will loom ever larger now, given the difficulty it faces in attracting enough foreign financial assistance to stave off an economic collapse.

The $3.3 billion in aid pledged at a donor conference in November 2020 is now on hold. The Afghan government’s 2021 budget, as initially drawn up, projected aid inflows to make up 50.3 percent of revenue, with an International Mon-etary Fund loan partly funding a fiscal deficit. The IMF has now stated that Taliban-ruled Afghanistan cannot receive any funds under the extended credit facility that was in place, and that a $440 million allocation in special drawing rights—part of a $650 billion global program to support post-pandemic recovery in low-income countries—would also be unavailable.

Afghanistan’s dependence on opium revenues looms ever larger now, given the difficulty it faces in attracting enough foreign financial aid to stave off an economic collapse.

Moreover, as of April 2021, a substantial proportion of Afghanistan’s international reserves—around $9.4 billion—were held abroad and will not be made available to the Taliban government. Leading money transfer companies, such as Western Union, have suspended their services in Afghanistan—at least temporarily—due to sanctions against the Taliban, cutting off considerable amounts of the much-needed remittance income currently supporting low-income households. Many charities and nongovernmental organizations have also suspended their programs in Afghanistan. The U.S. and other major economies are pledging humanitarian aid, but are generally insisting on funneling it through aid charities and international organizations rather than the Taliban government.

Afghanistan has several other possibilities for generating revenues and employment besides the opium economy, including its often-cited extensive mineral reserves. If the Taliban can demonstrate their ability to control the country and ensure security, there is the potential for attracting foreign investment, probably from China, to develop these. However, that won’t happen in time to meet the country’s immediate funding needs. The same applies to the potential for Chinese investment in infrastructure projects as part of its Belt and Road Initiative.

Nor will shifting agricultural production to high-value crops, as is often suggested, provide the immediate returns the Taliban would need to replace opium revenues. Afghanistan was once famous for its apricots, for instance. However, many of its apricot orchards were destroyed during the Soviet occupation. Many apricot farmers subsequently removed surviving trees to make room for the cultivation of poppies. New plantings will not help in the short run, as it takes three to four years for apricot trees to start bearing fruit and five to seven years to harvest a whole crop.

Another possibility often proposed is pomegranates, for which international demand has spiked due to their antioxidants and potential healing properties. The area around Kandahar is ideal for their cultivation, but unfortunately, exporting pomegranates requires considerable capital and infrastructure, such as cold-storage depots and modern packing facilities, which are currently lacking. They would also have to be flown out of Afghanistan, making them expensive compared to competing crops. A Taliban military offensive in southern Afghanistan last year only made the situation worse. A ban on domestic opium production might help the Taliban gain broader international acceptance and perhaps partially restore its aid flows. When previously in power, the Taliban banned poppy cultivation in 2000, nearly eliminating its production. However, the costs were high, involving significant amounts of lost income for around 3.3 million people. Currently, the notion of a ban on opium production would be even more problematic, as it would engender additional costs, particularly in light of significant changes in today’s global drug markets compared to 2001. In particular, considerable competition from cheap and potent synthetic opioids means that, if the Taliban enforced a ban in Afghanistan for even a year or two, Afghan producers could suffer a permanent loss of market share to drugs such as fentanyl in the highly profitable European drug markets.

Afghanistan’s lack of economic options, other than a strong comparative advantage in opium and methamphetamine production, means that any cuts in drug production would come at a high cost in terms of broad-based employment and incomes for an already impoverished population. It would alienate large segments of Afghanistan’s agricultural population and significantly exacerbate the humanitarian crisis that is already occurring, with regional implications.

All of this means that, their rhetoric notwithstanding, the Taliban are unlikely to effectively enforce a ban on opium production, even if they sincerely desired to. Instead, the withholding of much-needed financial assistance will only lead to increased dependence on the drug economy, causing world markets to be flooded with additional amounts of heroin and methamphetamines. After fighting a long, drawn-out war, the Taliban are unlikely to change their world views or their hard-line domestic agenda. The international community’s options in Afghanistan are limited and grim.

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