War Economies, Drugs and Corruption

War, weak states and non-state actors

What Causes Conflict?

Greed or grievance dichotomy Moderate to high natural resource dependence of a country (measured in terms of primary commodity exports as part of GDP) is correlated with a higher risk of conflict. Economic motivations and opportunities (loot-seeking) are more highly correlated with the onset of conflict than ethnic, socioeconomic, or political grievances (justiceseeking). Resource wealth makes rebellion feasible by providing the opportunity and even the motivation for rebellion.

Combat Economy
(Jonathan Goodhand)

Based on economic interactions that directly sustain combat Dominated by many actors: security apparatus of the state, rebel groups, and domestic and foreign conflict entrepreneurs who supply weapons and military material Funds the war effort of these actors and to achieve military objectives Uses: predatory taxes, illicit and licit economic activities, extortion and local business, control over natural resources, customs in border areas, roadblocks, sale of future resource exploitation rights to foreign companies, or the capture of foreign aid.

Shadow Economy (black market economy)

Broad range of informal economic relationships that fall outside state-regulated frameworks. Key actors: mafias, criminals, warlords Aim: Benefit from the business opportunities that open up in highly unregulated and chaotic war situations and state collapse. Often widespread before conflict starts Those with the right connections can gain a lot from smuggling Incentives for regional strongman and criminal to maintain weak states

Grey market- economic activity that is considered legitimate by the population but outside formal legal structures

Coping Economy
Economic interactions during armed conflict that provide benefits to the civilian population, particularly the poor and most vulnerable. Vital to civilians when livelihoods have been destroyed by the war, and formal economy has been disrupted Encompasses: Lootable resources such as coca and poppy cultivation, subsistence agriculture, petty trade, cross-border smuggling and diaspora remittances

War Economies Defined

Actors involved have a vested interest in the continuation of conflict and instability Combatants resort to pillaging, predation, extortion, and deliberate violence against civilians in order to control lucrative assets, exploit labor and capture legal and illegal trade networks Formal economy has been destroyed or circumvented, lines between legal and illegal economic activities have been blurred; growth of black market economy Means of force, production and exchange are privatized and decentralized Involve: mercenaries and arms, human and drug traffickers Thrive on cross border trade networks with ethnic and religious groups, or regional kin

Economy of Violence
Violence emerges as a marketable good Weapons are the capital; Maintaining security is the business Examples: Membership in a combat unit was more profitable than farming due to landmines and lack of arms for self-defense Main tasks were often to collect taxes at checkpoints; paid well to do so Looting, raiding and plundering rival villages provided profit and generated the feeling of insecurity; fear led to support of local militias for protection

International Organized Crime

Market deregulation and globalization have made it easier for warring factions to develop grey international linkages for survival; boosts opportunities for organized crime Ideologically motivated movements (terrorists) were increasingly involved in organized crime: drugs, human trafficking and arms smuggling; Alliances between terrorists and criminals took place (gray area) These groups corrupt the political spectrum, infiltrate the state to control financial resources, weaken the legitimacy of the state and its control over territory Lower level officials are involved in drug smuggling due to poverty and low salaries Organized crime is attracted to conflict areas due to the weakness of state power Causes: poverty, economic collapse, low wages for officials, weak states institutions, no rule of law, growing transnational organized crime leads to the criminalization of the political system

The criminalization of an institution

Direct state involvement and facilitation of criminal enterprises by that institution or its leaders; goes beyond just taking bribes to allow crime to occur
Criminal organizations try to influence and control state institutions in weak states Targets are the judicial system, security, police, border structures and financial sector

Narcostatization- organized crime and drug trade that is perpetrated by the state

Grey area of crime and ideological groups: Crime-Rebellion Nexus

Civil war and drugs/other illegal activities has led to a grey area Involvement of an ideological group in crime; involvement of a criminal group in political violence may be counter-intuitive Terrorists think they are altruistic and want to achieve political change through violence, whereas the criminal is only concerned with his material satiation but may benefit from involvement in political violence Opportunity for economic profit mutates the motivations of originally ideologically motivated insurgents It becomes a hybrid organization: criminal interests take priority over political goals

Causes of grey area in Central Asia: End of Cold War meant terrorist groups were no longer getting financing, must seek financing elsewhere

Drugs: Opium Production

Drug trade is 8% of world trade

Opium is one of the worlds oldest pain-relievers, obtained from the unripe seedpods of opium poppy. It adapts to ecological environments and production levels have spread 19th century- opium became entrenched into the world economy Opium production moved from China to Southeast Asia then Afghanistan In secret wars by the CIA, covert operations benefited from drug trade Other cash crops not grown because of opium

Opium Production

Drug routes
Most heroin in the US comes from Southwest Asia; In Europe 90-95% comes from Afghanistan 50% of Afghan opiates are trafficked via Iran, while 35% are trafficked via Pakistan and approximately 15% are trafficked into Central Asia, which are manned by corrupt guards

Drug use and HIV

Heroin: 15 million addicts worldwide and strong links to HIV/AIDS and crime. Afghan opiates represented: almost 100% of the illicit opiates consumed in Iran, Pakistan, Turkey, Kazakhstan, Turkmenistan, Kyrgyzstan, Tajikistan, Uzbekistan, Azerbaijan, and Russia. The number of government-registered drug addicts grew by 16 to 28% annually in Central Asia between 1992 and 2000 Pakistan is home to approximately 800,000 chronic heroin and opium users. Iran has 3 million opiate consumers, 800,000 to 1.2 million are chronic users. 67% of HIV infections in Iran are related to intravenous drug use In Afghanistan .6% are addicted to opiates Many Russian soldiers are addicted to heroin that comes from Afghanistan, many more cases of HIV in Russia and heroin addictions; heroin is the dominant driver of HIV spreading

Drug networks Ethnic and tribal relationships facilitate the opium trade within Afghanistan, and in Central Asia, Pakistan, and Iran These networks provide a basis for the organization needed to deliver Afghan opiates to regional markets and into the hands of international trafficking organizations.

Drugs and conflict

Among the nine drug producers (Afghanistan, Bolivia, Burma, Colombia, Laos, Mexico, Pakistan, Peru and Thailand), only Bolivia and Thailand did not experience armed conflict. In Afghanistan, Burma, Colombia and Peru, traditional and minor production of opium or coca existed long before the conflicts. However, the large-scale industrial production of drugs developed after the initiation of conflict. Large-scale drug production is closely related to armed conflict, while minor production is not.

Causes of drug production

Internal or transnational conflicts where villages have been bombed, livestock dwindled and irrigation networks were destroyed Disintegration of the state and law enforcement Lack of economic development projects- rural poverty Low international prices of food crops Droughts Exit of other suppliers and growing demand Comparative advantage Market development and organization- capital financing at all stages and credit and inputs for producers Thrives in war economies

Incentives of Drug Trade

Criminals generate an annual turnover of $30 billion from refining and marketing Afghanistans opium Profit of the opium business lies almost exclusively in its trade, or taxing dealers Shipping and distributing refined opium products is more profitable than cultivating and producing the raw opium Tribal areas now have more refining facilities Easy to enter and exit the market- resembles a competitive market more so than a cartel Corrupt officials, warlords and terrorists can tax poppy production, processing and trade

Incentives for Farmers to grow Poppies

Poppy farmers earn $2,520 per year compared to $670 for other farmers The availability of micro-credit and land available is based solely on opium, which is less prone to bad weather problems and price fluctuations Local creditors, drug traffickers advance money to peasants to buy seed for the next year and food and clothes for winter Legal crops involve more sunk and transaction costs; such as fertilizers, irrigation, both absent and expensive in Afghanistan Fruit spoils too easily if not delivered on time, roads not good; opium is lightweight, easily transportable and non-perishable Local traffickers often pick up the opium directly from the farmers; no need to take costly trips to regional markets on a poor road system Poppy farming pays wages to many people, which provides cash to purchase food since it cannot easily be produced Grain is cheap and available on the market, which means farmers dont have to grow it for self-consumption. Poppy residue provides fuel for the winter, medicinal value, oil used for cooking and winter fodder

Short-term benefits of opium trade Increases demands for more services, goods and construction Provides income Supports the currency Cant be taxed but imports from drug proceeds can go to customs revenues

Source of macroeconomic volatility Price volatility due to eradication efforts May lead to Dutch diseaseexchange rate goes up which makes other products less competitive and discourages the production of non-opium goods Share-cropping arrangements are based on opium production which makes it hard for other activities to take place Capital flight can take place due to drug trade Incomes are unequally distributedbenefits those involved in trading, processing and trafficking Drug production raises prices of consumer goods, dowries, labor Leads to no wheat being harvested

Interdiction: Pursuing drug traffickers, seizing their product, closing opium bazaars, prosecuting traffickers and lab busting Hard to enforce Traffickers adapt and move, hard to catch Local warlords provide intelligence, makes it harder to go after traffickers

Alternative development:
Offer economic alternatives to the rural population Encouraged to grow saffron or pomegranates Hard to cultivate other crops due to issues of state infrastructure, market instability and availability of credit Government has to build better infrastructure, technology, marketing assistance, credit access Requires funding Production shifts elsewhere, may increase prices

Counter-narcotics efforts: Effects of eradication under the Taliban

Eradication under the US

Met with violence and resistance Farmers cant pay their creditors, driven deeper into debt Ended cultivation in order to End up as serfs, leave to Pakistan gain international and end up in radical madrassas legitimacy: No restrictions were imposed on trade, Drives local population into the however, and the flow of hands of regional warlords and opium out of Afghanistan alienates Afghan people to the US did not diminish much.

The ban promoted a shift in Eradication with promised cash cultivation to northern areas compensation: outside the Talibans control, and shifted trade to Failure to honor promises of the northern trafficking route compensation harmed the through Tajikistan. credibility of the program. Local power plays took place with factions trying to Or money has ended up in the destroy each others hands of regional strongman economic bases Farmers went into debt

Other Options
Stopping trade of chemical precursors
Legalizing opium production

Used for pharmaceutical purposes-- Morphine, codeine and thebaine Policy has been a success in Turkey Problem for Afghanistan is that security is still too weak to divert legal opium from illegal opium Requires good government control over production

The opium-to-heroin conversion process requires the use of socalled precursor chemicals, such as acetic anhydride, that are not produced in Afghanistan. Need to stop inflow of chemical precursors to the region

State building must come before the narcotics epidemic can be controlled
Breaking the vicious cycle Stronger government --better able to provide security
Security sector reform and capacity building Better security is less favorable for the opium economy Drug control strategy to reduce size of opium economy

Lower payments weakens warlords DDR: stopping payments and support to warlords Weakened warlords cannot undermine the government Less drug resources to bribe the government Warlords have less ability to undermine national security

Afghanistan Opium Production

Afghanistan is the biggest opium producing country since 1991, when it surpassed Burma in total annual production. 3rd is Laos Opium is 1/3 of the total economy in Afghanistan in 2003, 60% of GDP 90% of opium is produced in Afghanistan, poppy cultivation is everywhere, not just rural areas 1.6 million people cultivated opium in 2008-2009 (6.4% of the population) Legal industries have been financed or supported by profits from narcotics trafficking. Zahir Shah- government soldiers burned poppy crops 1992- state removed subsidies for wheat production Growth of Opium in Afghanistan during resistance to Soviet occupation Insurgent groups such as the (HI) started to benefit from drug economy, production and processing to reduce its dependence on the ISI During the civil war, drugs were the main source of funding for those groups vying for power

Involvement of Government in the Drug Trade in Afghanistan

Government officials in Afghanistan benefit from the drug trade and drug barons are involved in the government; not punished Example: Police chief posts in poppy-growing districts are sold to the highest bidder: as much as $100,000 is paid for a six-month appointment to a position with a monthly salary of $60. Karzai has members of the cabinet involved in the drug trade Warlords and drug-lords provide intelligence for the US Problem? Drug cartels dont want the state to be stable or integrated into the war economy Accommodating the drug trade for stability leads to major instability long term

Poppy problem

Kalishnikov Culture
With the war, the balance of power between various actors and groups has been replaced by warlordism. Young men with arms are the 'big men' in their communities; they make decisions and use arms to solve problems. Decisions are arbitrary and property rights are insecure

Warlords in Afghanistan
Warlords gained more power; autonomous from political leadership and could generate resources to fund their militias Authority was fragmented due to no political settlement Regional strongman had few incentives to support centralizing the state Warlords could control markets through violence, gain monopolies through predation; gain from the drug trade and customs duties Drugs (especially in the south) help regional warlords finance militias and invest in local development projects to maintain their popularity; can secure office positions due to drug money
Example: The customs revenue of Herat has been estimated at US$100300 million a year.

War Economy in Afghanistan

Illegal economy in Afghanistan includes: Drugs Smuggling of consumer goods, gems, timber, artifacts Human trafficking

Example actors:
Gulbuddin Hekmatyar's Hezb- e-Islami (HI) Leading actor in the insurgency and deeply involved in the opium trade

War economy has led to a violent redistribution of wealth and Northern Alliance assets (which controlled the Concentrates wealth and power Panjsher valley and in the hands of commanders and northeast areas of the the cross-border trucking mafia country) was directly involved in the Led to more poverty overseeing of production, Undermines neighboring labs of opium into heroin, economies, circumventing benefited from taxing and customs duty and sales tax; supervising opium empowers non-state actors production

Taliban
Benefiting from the Drug trade Taliban officials co-opted their military opponents with promises of permissive cultivation policies, collecting tax revenue and profits on the growing output. Taliban banned opium in 2000-2001- production disappeared by 97%; but it surged in the Badakhshan province by 158% Banned opium to gain international legitimacy and increase market price Taliban stored enough heroin to maintain its money supply for many years Drugs and taxes on the transit trade are the largest sources of income

Economy of security Alliance between the Taliban and Pashtun networks Only the Taliban monopolized the 'economy of security'. Lack of security led to its emergence, which affected traders who had to pay combat units at dozens of checkpoints Taliban benefited from revenue from transit trade and used it to bribe independent combat units who were absorbed by the Taliban The Taliban has made between $10 million and $50 million on the trade through taxes; much more through individual commanders involvement. Radicalization Some fighters started to think working for the Taliban was too dangerous To deal with this the Taliban had to recruit enflamed students of Pakistan madrassas

Other actors involved in the drug trade

Muhajideen and ISI participated in the drug trade Al Qaeda participates in the drug trade by supplying gunmen to protect drug labs and convoys to a small extent Al Qaeda probably participates in money laundering: cash smuggling, currency exchange bureaus, front companies, real estate securities, trusts, casinos, wire transfers

Ethnic Groups in Central Asia

What caused narcostatization in Central Asia?

Surge in opium production in Afghanistan during Soviet occupation End of Cold War- armed groups sought funding elsewhere Collapse of the USSR New weak states in Central Asia, lacked institutions, weakly monitored and contested borders, no consensus over institutions and political systems Armed conflicts weakened states further Turkey and Iran tightened their borders Violent non-state actors, terrorist groups weakened the states, controlled territory and gained from involvement in crime and drug trade Links to radical Islam, separatist territories and drug trafficking in Northern Caucasus and Central Asia

Tajikistan

Tajikistan
60% of the Tajik population live off money earned by relatives in Russia, 25% live off of drug trafficking and 15% live off loans and grants Economic destitution has led to economic influence of organized crime Civil war (1992-1997)- opposition between the warlords of the United Tajik Opposition (UTO) and the Popular Front of Tajikistan (PFT)- who were nominally loyal to the government State fell apart; remote were regions out of government control Tajikistan was the new smuggling route for Afghan drugs; UTO built bridge for drug trafficking

Tajikistan
After 1997 peace accords, trafficking continued, UTO had a 30% share in the government Tajikistan directly affected by state infiltration, closely linked to organized crime, drug Warlords from the civil war have been absorbed into the government, with close ties with trafficking Many elites in the government have been accused of being narco-barons The Director of the Drug Control Agency is a warlord involved in the drug trade

Islamic Movement of Uzbekistan

IMU- emerged out of radical Islamic movements wanting to create an Islamic state; evicted from Uzbekistan Tried to kill president Karimov Began a terrorist and insurgency campaign Allied with the UTO while Tajik war started, well linked to Taliban and Al Qaeda Involved in drug trafficking; now main aim is to control drug trade 1999- launched military incursions into Kyrgyzstan, caught military by surprise but saved by connections with Tajik politicians IMU has a vested interest in ongoing unrest and instability to secure routes to use for drug trade

Kyrgyzstan

Poor, close to Afghanistan; major transit corridor for Afghan drugs in the late 1990s Poorly paid law enforcement and important politicians highly involved in drug trade Some have used money from the drug trade to provide social services to poor areas where the state has been absent Juncture between politics, crime and terror: a Kyrgyz drug lord elected to parliament was also linked to Islamic terrorists Kyrgyzstan has elected crime leaders into the parliament who buy their seats to gain influence and immunity from prosecution Organized crime networks operate paramilitary forces and threw over the Akayev government. There have been many political assassinations

Other Central Asian Republics

Uzbekistans economy is also more varied, with more opportunities other than drugs Middle and lower level bureaucracy have seen more criminalization, especially in rural areas Kazakhstan has a lot of oil wealth Drug trade is low compared to the total economy of the country; makes the incentive to be involved in the drug trade lower Turkmenistan in the late 1990s seized substantial quantities of illicit drugs and precursors, with heroin seizures peaking at nearly 2 metric tons in 1997. A lot of heroin passed through the country, drug trade still exists there Many heroin addiction problems High-level collusion with the drug trade

Instability in the Caucasus

South Caucasus
Growth of armed ethnic separatism has facilitated crime Loss of state control over territory, creation of criminalized regimes in secessionist states State authority weak, led economic collapse Post independence: Armenia- economy had contracted by 30% by 1993, Azerbaijan by 35% in 1995, Georgia by 25% by 1994 State structures in Armenia and Azerbaijan were stronger from the 1990s Infiltration of criminal groups has occurred at a lower intensity than in Georgia Collusion has occurred in a less chaotic manner and taken place in a more controlled form Unclear how high in the hierarchy of the government the links to organized crime reaches

Georgia and secessionist movements

Chaos and secessionist issues in Georgia

Issues with the South Ossetia province and the Republic of Abkhazia Separatists control the region with little accountability, isolated from international treaties State absent in many areas, controlled by local strongman such as in Ajaria Chechens also had control in the Pankisi Gorge in the late 1990s, which MOI allowed under control by 2002) Forces deeply involved in organized crime, smuggling activities. Collusion with organized crime and high-level government officials Lawlessness led to threats of Russian intervention South Ossetia was the leading channel for contraband into Russia Illegal free trade zone had all kinds of stuff available, provided income to separatist movements which Georgian law enforcement allowed

 When Mikheil Saakashvili came to power in early 2004, his two main priorities for his presidency were defined as reunification of Georgia and the eradication of corruption and crime, which were connected. Separatist territories were connected to the illegal economy and organized crime; living on smuggling Georgia could not be reunited without fighting smuggling and organized crime Arrested high level officials; ended climate of impunity Moved against corrupt police force to transform it into a professionalized one University admission system was reformed Cut off Ergneti market by targeting roads leading into Georgia Measures increased the costs of smuggling, pushed it more underground Late 2005 went after organized criminal networks with strong social roots Membership in one of these networks was illegal Georgia has become more inhospitable for organized crime

Georgias state strengthens which ended anarchy, organized crime

North Caucasus

State authority in North Caucasus rests on informal structures of authority based on kinship or regional ties Politics and economy are linked, many wealthy individuals who had economic and political power Powerful politicians trade classified information and their power for economic benefits Police work hand in hand with criminals Appointments to high offices are given to the highest bidder

Problems in Chechnya
Poor, corrupt, dealt with war (1991-1994, 1996-1999) and mismanagement Free trade zone for contraband, drugs and weapons Government unwilling to provide order in Chechnya More criminal activity of state and society Chechen separatists are connected to organized crime; Resistance became criminalized due to funding issues Chechen organized crime groups spread Connected to the Russian military and police (which did not happen with the IMU); Russian military abducted citizens, plundered, smuggled drugs and weapons Russia fights against Chechens but also engages in smuggling with them Cooperation between the enemies has allowed the conflict to continue since Chechens acquire arms from the Russian forces Illegal activities also benefited some Russian elites Example: 1997- 27 Russian generals had been arrested on corruption charges; many exempt from punishment

Repression leads to unrest in Northern Caucasus

Dagestan- received 80% of its budget from subsidies When funds from Russia stopped, economy fell 9/11: Changed Putins way of governing- moved to abolish federalism and clamp down, appointed people; did not allow elections Steam-roller tactic- repression (martial law declared in 2004) while ignoring socio-economic conditions, such as unemployment, rapid population growth, radicalism and unrest Leaders appointed (such as in Ingush area) mismanaged things and were corrupt and oppressive; alienated parts of the population and led some young Ingush to join forces with Chechens Armed clashes between isolated Islamic radical military groups occurred more often

Insurgent groups in Afghanistan