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All rights reserved. This volume includes chapters written by a number of different authors, and is edited by staff of the United Nations Office on Drugs and Crime (UNODC) and The World Bank. Doris Buddenberg is Country Representative of UNODC in Kabul, Afghanistan; William A. Byrd is Advisor in the World Bank's South Asia Region. The views, findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of UNODC or The World Bank, the latter's affiliated institutions, its Executive Board of Directors, or the governments they represent. UNODC and The World Bank do not guarantee the accuracy of the data included in this work. The boundaries, colors, denomina- tions, and other information shown on any map in this work do not imply any judgment on the part of the UN system concerning the legal status of any territory or the endorsement or acceptance of such boundaries. TABLE OF CONTENTS Chapter 1: Introduction And Overview 1 William A. Byrd And Doris Buddenberg I. Background And Methodology 1 II. Main Themes 4 III. Chapter Summaries 7 IV. Conclusions And Policy Implications 18 V. Refrences 23 Chapter 2: Macroeconomic Impact Of The Drug Economy And Counter-Narcotics Efforts 25 Edouard Martin And Steven Symansky I. The Macroeconomic Impact Of Drug-Related Activities 25 II. The Government's Counter-Narcotics Strategy 33 III. Macroeconomic Impact Of A Counter-Narcotics Campaign 36 Chapter Summaries Annex 2A: Model Of The Macroeconomic Impact Of The Opium Economy 43 References 45 Chapter 3: Responding To The Challenge Of Diversity In Opium Poppy Cultivation 47 David Mansfield I. Introduction 47 II. Levels Of Opium Poppy Cultivation: Diversity And Contrasts In Provincial And District Trends 48 III. Rural Livelihoods: Diversity In Assets And Opportunities 52 IV. Opium Poppy Cultivation: Diversity In Assents And Dependency 54 V. From Maximising On-Farm Income To Enhancing Access To Assets 57 VI. Coping With Shocks: Diversity In Response To A Reduction In Opium Poppy Cultivation 63 VII. Policy Options: Diversity In Circumstances, Diversity In Responses 67 VIII. Conclusions 71 References 74 Chapter 4: Opium Trading Systems In Helmand And Ghor Provinces 77 Adam Pain I. Background And Introduction 77 II. Main Findings And Themes 79 III. Opium Trading Systems In Helmand 93 IV. Opium Trading Systems In Ghor 103 V. Conclusions 112 References 114 Chapter 5: Prices And Market Interactions In The Opium Economy 117 William A. Byrd And Olivier Jonglez I. Introduction 117 II. The Evolution Of Opium And Opiates Prices Over Time 119 III. Horizontal Structure Of Prices (Changing Spatial Patterns) 125 IV. Vertical Structure Of Opiate Prices 129 V. Market Integration In Afghanistan's Opium Economy 139 VI. Conclusions 143 Annex 5a: Opium/Opiates Price Data For Afghanistan And Neighboring Countries 145 Annex 5b: Statistical Tests Of Market Integration 149 References 152 i Chapter 6: The Nexus Of Drug Trafficking And Hawala In Afghanistan 155 Edwina A. Thompson I. Introduction 155 II. Methodology 161 III. The Mechanics Of Hawala System 164 IV. Provincial And Regional Contexts 169 V. Note On The Formal Banking System 182 VI. Conclusions 183 References 187 Chapter 7. Drug Trafficking And The Development Of Organized Crime In Post-Taliban Afghanistan 189 Mark Shaw I. Introduction 189 II. Defining And Analyzing Organized Crime In Afghanistan 190 III. Drug Trafficking And The Consolidation Of Criminal Organizations 193 IV. Conclusions 209 Reference 213 BOXES Chapter 2 Box 2.1: Impact Of The Counter-Narcotics Campaign In Nangarhar 42 Chapter 3 Box 3.1: Borrowing In Jurm, Badakhshan 59 Box 3.2: Jailed In Marja, Helmand 60 Box 3.3: The Ban As A Stimulus 68 Box 3.4: Corruption In Gulistan District, Farah Province 69 Box 3.5: Eradication And Accumulated Debt In Marja District, Helmand 70 Chapter 5 Box 5.1: Additive Versus Multiplicative Price Mark-Ups 137 Chapter 7 Box 7.1: Summary Chronology Of Evolution Of Drug Industry Organization In Afghanistan 210 ii FIGURES Chapter 2 Figure 2.1: World's Opium Production (In Metric Tons) 26 Figure 2.2: Opium Cultivation By Province, 2002-2005 35 Chapter 3 Figure 3.1: Cultivation And Prices Of Opium, 1997-2005 49 Figure 3.2: Contribution Of Some Provinces To Total Cultivation, 1995-2005 50 Figure 3.3: Access To Assets And Dependency On Opium 55 Chapter 5 Figure 5.1: Dry Opium Prices In Kandahar And Nangarhar, 1997-2006 120 Figure 5.2: Dry Opium Prices In Six Localities, 2003-2006 121 Figure 5.3: Opium Price Trends In Nangarhar And Kandahar 122 Figure 5.4: Volatility Ratio (Standard Deviation/Mean) In Kandahar And Nangarhar 124 Figure 5.5: Volatility Ratio (Standard Deviation/Mean) In Different Regions 124 Figure 5.6: Trends Of Opium Prices In Different Regions Of Afghanistan 127 Figure 5.7: UK "Value Chain" For Heroin In 2004 131 Figure 5.8: Price Chain For Opium (Percentage Of The Final Price) 133 Figure 5.9: Estimates Of The Prices In US$ At Various Stages Of The Opium Chain 134 Figure 5.10 Estimates Of Heroin Price Chain (US$/Kg) 135 Figure 5.11 Estimate Farm-Gate Value And Potential Export Value 136 Chapter 6 Figure 6.1: Estimate Percentages Of Drug-Related Funds In Provincial Hawala Markets 156 Figure 6.2: Value Of Opiate Exports (US$ Billion) 2000-05 160 Figure 6.3: Opiate Farm-Gate Prices, 1994-2005 (US$/Kg) 160 Chapter 7 Figure 7.1: Pyramid Of Protection And Patronage 200 Figure 7.2: Schematic Overview Of The Process Of Consolidation Of Criminal Groups 203 Figure 7.3: Rough Estimates Of Numbers Of People At Each Level Of Trafficking 204 Figure 7.4: Arrangements For Cross Provincial Trafficking From East To The South 209 iii TABLES Chapter 2 Table 2.1: Basic Indicators Of Opium Production, 1986-2005 25 Table 2.2: Yields And Income Per Hectare For Various Crops, 2005 27 Table 2.3: Opium Production's Potential Export Value, 2004-05 27 Table 2.4: Relative Size Of Opium Production, 2002/03-2005/06 28 Table 2.5: Use Of Gross Disposable Income, 2002/03-2005/06 32 Table 2.6: Main Factors Influencing Farmers' Decisions To Cultivate Opium, 2005 36 Table 2.7: Simulation Of The Potential Macroeconomic Impact Of An Eradication Campaign, 2006 - 2010 38 Table 2.8: Simulation Of The Potential Macroeconomic Impact Of An Interdiction Campaign, 2006 - 2010 39 Table 2.9: Simulation Of The Potential Impact Of A Counternarcotics Campaign Combining Eradication And Interdiction, 2006-10 41 Chapter 4 Table 4.1: Contribution Of Helmand And Ghor To Afghanistan's Opium Poppy Area 81 Table 4.2: Estimates Of Annual Opium Traded (Tons) By Trader Category 86 Table 4.3: Profile Of Key Helmand Informants 94 Table 4.4: Opium Poppy Area (Ha) By District And Year In Helmand 96 Table 4.5: Estimates Of Numbers Of Opium Traders In Helmand By 10 Informants 98 Table 4.6: Characteristics (Assets And Trading) Of Opium Traders In Helmand 99 Table 4.7: Monthly Opium Trading Volumes By Informants And Trader Category 100 Table 4.8: Profile Of Ghor Key Informants 104 Table 4.9: Cultivated Area Of Opium Poppy In Ghor (Ha) 106 Chapter 5 Table 5.1: Yearly Averages Of Monthly Rates Of Change In Opium Prices 123 Table 5.2: Spatial Pattern Of Dry Opium Prices 126 Table 5.3: Recent Evolution Of Prices In Six Localities 128 Table 5.4: Geographical Pattern Of Opium And Opiates Prices 129 Table 5.5: Pair-Wise Correlation Of Opium Prices On Different Markets 140 Table 5.6: Tests Of Marketing Integration Hypotheses 140 Table 5A.1: Opium Prices Serious 145 Table 5A.2: Opium Prices Estimates (Farm-Gate And Border) 147 Table 5A.3: Estimates Of Border Prices Of Opiates 148 Chapter 6 Table 6.1: Rough Estimates Of Aggregate Hawala Flows In Afghanistan (2004-05) 161 Table 6.2: Stages In A Typical Hawala Transaction 165 Table 6.3: Inflow Of Funds Of Hawaladars In Faizabad 172 Table 6.4: Composition Of Significant Hawala Business In Herat City's Main Market 175 Table 6.5: Monthly Average Inflows Of Medium Hawaladars In Herat 176 Table 6.6: Number Of Specialists Drug Money Launderers 177 Table 6.7: Inflow Of Funds And Drug Component In Helmand And Kandahar 180 Table 6.8: Drug Inflows For Helmand And Kandahar Markets In Sample 180 Table 6.9: Estimates Of Quantity (%) And Value (US$) Of Opium Trade To Helmand Before Further Sale (2004/05 Harvest) 181 iv ACRONYMS ACBAR Agency Coordinating Body for Afghan Relief ANA Afghan National Army ANP Afghan National Police AREU Afghanistan Research and Evaluation Unit ASNF Afghan Special Narcotics Force ATT Afghan Transit Trade Agreement CNPA Counter-Narcotics Police of Afghanistan CNTF Counter-Narcotics Trust Fund CPEF Central Poppy Eradication Force DAB Da Afghanistan Bank (Central Bank) DDR Disarmament, Demobilization, and Reintegration DIAG Disarmament of Illegal Armed Groups FAO Food and Agriculture Organization FATA Federally Administered Tribal Areas FATF Financial Action Task Force on Money Laundering GDP Gross Domestic Product GTZ German Agency for Technical Cooperation I-ANDS Interim Afghanistan National Development Strategy INGO International Non-Governmental Organization ISAF International Security Assistance Force MCN Ministry of Counter Narcotics MoD Ministry of Defense MoI Ministry of Interior NGO Non-Governmental Organization NRVA National Risk and Vulnerability Assessment NWFP North West Frontier Province PATA Provincially Administered Tribal Areas PRT Provincial Reconstruction Team SWIFT Society for World Wide Interbank Funds Transfer TABSF Transnational Afghan Border Security Force TT Telegraphic Transfer UAE United Arab Emirates UNDCP United Nations Drug Control Program UNODC United Nations Office on Drugs and Crime WFP World Food Program v PREFACE AND ACKNOWLEDGEMENTS Afghanistan's drug industry is a central issue for the country's state-building, securi- ty, governance, and development agenda.
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