Off-the-books: Taliban's capture of grey economy in Afghanistan

When the Taliban captured Afghanistan following the swift withdrawal of American forces on August 16 after 20 years of fighting a guerilla war against the world's superpower, many wondered how the armed group would run the country's economy. 

Foreign aid made up $4 billion, three fourths, of the US-backed government's yearly budget.  

For the Taliban, it will take strenuous efforts to keep the aid coming in as the Afghan government did once, even though it's projecting a more moderate stance in an attempt to gain legitimacy. But donor states are hesitant. The European Union announced cutting its development funding assistance of $1.4 million on August 17 after a meeting with foreign ministers of member states. 

“No payments are going to Afghanistan right now until we clarify the situation,” he said. “We have to see what kind of government the Taliban is going to organize.”

Even before, Germany said it would cut its funding if the Taliban introduced the Shariah law, which it did. 

But the Taliban might not be exactly desperate. By seizing control of Afghanistan, it also captured its grey economy -- an illicit, uncounted, untaxed source of income. 

Drugs and goods: Trafficking in all forms

A report co-written by Graeme Smith and David Mansfield, experts on Afghanistan's illicit economy, say international aid is rather insignificant relative to the country's informal economy. 

“Humanitarian and development projects might not be so persuasive to the Taliban, because there are plenty of hidden sources of cash circulating, although these might not be applied to similar development or humanitarian purposes," the Overseas Development Institute (ODI) report said.

One of the poorest countries of the world, Afghanistan, supplies at least 85 percent of the world’s heroin, according to the UN, creating an important market for illegal cross border trade.

One example of it is the border province of Nimroz, where there is no fertile agricultural production due to dry summers, and no mining industry either. It is now a strategic hub for processing and trading drugs.

Opium, hashish, methamphetamines are among the narcotics that are being smuggled.

"The Taliban have counted on the Afghan opium trade as one of their main sources of income," Cesar Gudes, the head of the Kabul office of the UN Office of Drugs and Crime (UNODC), told Reuters. "More production brings drugs with a cheaper and more attractive price, and therefore a wider accessibility."

However, trading everyday goods is a far more important source of income in Afghanistan-- and large sums of it are unreported. 

“The $5.1 million in revenues collected by the Taliban from the production and trade in illegal drugs was found to be only a fraction of the $40.9 million income earned from taxing transit goods and fuel,” the ODI report said.

“Transit goods can be anything from car engines and spare parts from Korea, China or Australia, cigarettes from Dubai and Indonesia, or food items from Iran, China and India,” it continued.

Smith and Mansfield’s study reveals how the cross-border trading of the estimated informal taxation raised about $235 million a year both by the Taliban and pro-government persons, while the foreign aid the province received was less than $20 million.

After capturing a US-built Sher Khan Bandar border gateway between Afghanistan-Tajikistan in July, the Taliban started collecting customs revenues, Wall Street Journal reported. The US had spent more than $40 million developing the crossing and its customs compound in 2007. 

The Taliban spokesperson Suhail Shaheen said the border and customs will continue to function as before because the group “don’t want to create problems for businessmen, for traders, for common people.”

The trade and production of drugs have skyrocketed after the American invasion to the country and its trade was also protected by the US at times. 

Sen Chris Murphy, a congressional delegation in 2011 recounted what he had witnessed when he visited Herat province in 2011, as he tweeted days before Kabul’s capture by the Taliban.

It struck Murphy that Afghan farmers would sell poppies — the plant from which opium is extracted to make heroin — and the Taliban, which used to steal the crops before the US invasion, would buy the product under the watchful eye of the US.

"So the US is here protecting the heroin trade that provides the Taliban with an income to continue the insurgency we are supposed to be fighting?" he remembered telling one of the Republicans on the trip. 

Amidst an economic and humanitarian crisis in the country, many Afghans are likely to remain dependent on the narcotics trade for survival -- a potential bonanza of income for the Taliban.

ODI’s experts anticipated that the Taliban’s capture of only two towns in Nimroz province, Ghorghory and Delarem, could be worth $18.6 million per year for the Taliban.  The fuel trade brings $5.4 million, transit goods bring $13 million, and commercial business brings about $300,000 if the current system of informal taxation is maintained.

These are, however, only will actualise if the Taliban maintains the current informal taxation systems, the experts said. The question is now, how Afghanistan's bordering countries will deal with the trade under full control of the Taliban while also considering the humanitarian impact of any decision further.