Value chain mapping and visualisation
of the talc, fuel and transit trade in Afghanistan
In the areas of Afghanistan where minerals and crops—particularly illicit drug crops—are produced, they are well-known sources of income for communities, local elites, and powerbrokers. However, there is also a vibrant trade and transport sector for these and other commodities, particularly fuel and imported consumer items, that goes largely unnoticed. It is a sector that provides significant employment and income to those who work along the length of the value chains involved. With goods worth hundreds of millions of dollars transported across the country, the sector is also potentially a major source of economic rents for those who predate on the primary transport routes.
This research set out to better understand how control over the production, movement and sale of goods through key locations—chokepoints—generates economic and political gains for powerbrokers and local elites, and employment opportunities in the trade and transport sector for local communities. Recognising that the geopolitical interests of Afghanistan's neighbours play a critical role in shaping the country's economy and political future, the research focused on three cross-border value chains: fuel, transit goods and talc stone. In doing so, the research sought to map and quantify the economic benefits derived by powerholders and communities along the length of these value chains in Afghanistan and on its borders. The research also assessed how armed conflict and policy shifts, such as the closure of the border or changes to export licenses, affect the different groups involved.
The research reveals a substantial undeclared economy, in which imports and exports reported by the Afghan authorities are less than half the amounts and values that cross the international borders, resulting in hundreds of millions of dollars in lost revenues to the Afghan state and a steady stream of funding for both the insurgent and state-affiliated actors in the provinces. The research shows how conflict over territory is closely tied to locations where revenues can be derived, or denied, particularly on the main highways. These chokepoints could become trading chips in any diplomatic efforts to negotiate an end to the war and potential fracture lines – points of conflict where opposing parties fight over rents – in any future settlement.
Findings
The real economy of Afghanistan is markedly different from the one that is officially reported. In 2019, the Afghan government reported imported goods valued at $6.8 billion and exported goods worth $863 million, of which the exports were 45 percent fresh or dried fruit, 21 percent medicinal herbs, and 10 percent minerals. In reality, however, trade at the borders is more than twice the amount of freight reported by volume and possibly an even greater multiple of the reported value. For example, our estimates of talc exports at their peak in 2018—prior to the curtailment of production in 2020—are more than twice the amount reported in trade statistics, and almost five times the reported value. High-resolution satellite imagery also reveals a coal industry with significant undeclared exports, as well as substantial amounts of chromites crossing into Pakistan without any of the trade recorded in official statistics.
The same vast discrepancies can be seen with reported imports. Our calculations, show fuel imports from Iran of 2.5 million metric tons, compared to the 1 million metric tons reported in Afghanistan's official trade statistics. It is more difficult to calculate aggregate amounts or values of particular goods, but our analysis of the trade in transit goods—items that are transported duty-free through Afghanistan's neighbours on the agreement that they are consumed within Afghanistan—suggests a quantity and value of goods that far exceeds declared imports. This research also points to a vibrant trade in a variety of commodities sourced from all over Asia and the Gulf, transported across Afghanistan by a network of traders and transporters, before being smuggled into Pakistan or other neighbouring countries by handcart, pack animal and truck. This trade employs tens of thousands of people and generates hundreds of millions, possibly billions of dollars, but the income, profits and its contribution to the economy goes unreported.
The implications of the level of underreporting at Afghanistan's borders are manifest. For one, it points to an Afghan economy that is much less agricultural than official statistics suggest. For example, trade reports claim that minerals constitute only 10 per cent of the total value of Afghanistan's exports. However, this is based on a systematic underreporting of the amounts of coal and talc stone traded, which underplay the sector’s importance to the overall economy, even more so when coal and talc stone make up 99 percent of Afghanistan's official mineral exports- almost all of it going to Pakistan. In fact, once the potential level of underreporting of coal and talc stone is factored in, minerals make up perhaps 23 percent of the value of Afghanistan's exports. This figure is likely to rise further were accurate assessments of other minerals, precious stones and metals, such as gold, chromites and lapis, included lazuli.
Similarly, the amount of employment, income and rents generated by these non-agricultural activities, most notably the extraction, production, and processing of minerals, and Afghanistan's position as a major conduit for trade, questions the assumption of Afghanistan's agricultural character. At its peak in 2018, the talc stone industry in Shirzad created an estimated 681,000 labour days of employment, and up to $3.3 million in local wages, much of it to a rural population, who are most likely recorded as "farmers" in official statistics. In contrast to projected estimates in which minerals and transit trade are critical to long-term growth, this research shows that minerals and trade make up a significant share of the existing economy, and are major sources of revenue for officials, insurgents and local powerbrokers.
The second implication of underreporting of goods at and within Afghanistan's borders is the loss of substantial revenue to the Afghan government. Our assessment of fuel imports from Iran indicates a shortfall of up to $100 million per annum in duties and taxes due from the amount of fuel that enters Afghanistan undeclared. The annual losses to the government on talc stone production were in the order of $6.6 million before new contractual arrangements were put in place and local traders ceased operation. While, the multiplicity of goods entering Afghanistan from a wide range of countries, makes it impossible to offer an accurate assessment of the government losses on undeclared transit goods, it would not be unreasonable to estimate that it would be in the hundreds of millions of dollars given that these goods are typically more valuable than fuel, and the number of container trucks entering the country vastly exceeds the number of fuel tankers. Ultimately, the scale of the losses across all three value chains have significant implications for the financial sustainability of the Afghan state. This does not even begin to include similar losses in other value chains.
This research shows that where the administration in Kabul loses financially, corrupt officials and the Taliban gain. The latter two have a deep knowledge of the amount of goods that enter and exit Afghanistan due to their presence on the ground. Control over chokepoints provide a comparative advantage to the Taliban and corrupt officials, whether at the points of production in the case of talc stone, at strategic locations in transit such as checkpoints at critical junctures on the main highway for fuel and transit goods, at official and unofficial border crossings, or at the point of sale. What Kabul doesn't see Kabul doesn't receive.
The main highways serve as the primary artery on which the Taliban and corrupt officials predate (see Figure 1). The amount of money involved is startling. For example, the Taliban can earn up to $83.4 million per annum from their tax on the movement of fuel and transit goods entering from Iran alone, siphoning off a further $26.7 million at Muqur in Ghazni on transit goods joining the main highway from Spin Boldak. The strategic positioning of their checkpoints in the southwest mean that there are few vehicles that evade payment and with the amount of traffic plying these roads, it is likely that the tax on fuel and transit goods is one of the Taliban's primary source of finance, significantly larger than the $40 million at which opiates are valued.
The revenues collected by corrupt officials along the main highways are equally significant. Our estimates indicate as much as $133.6 million per year is collected at government checkpoints on fuel and transit goods entering from Iran. With as many as 31 checkpoints staffed by government officials from the border crossing at Islam Qala in Herat to Kabul, and similar numbers on the journeys from the crossings at Mile 78 and Ziranj, it should be of little surprise that as much as one quarter of trader's transport costs are absorbed by these illegal payments. Clearly, the proliferation of illegal checkpoints imposes significant costs on trade, raises prices to the consumer, fuels animosity to the Afghan state and its institutions, and provides millions of dollars in revenues to government officials and local powerbrokers, some of whom may have little interest in a political settlement that might curtails these significant revenue earning opportunities.
These findings have profound implications for diplomatic efforts to end the war. At the highest level, the international community has approached the peace talks in Doha with the assumption that donor assistance is vital to the financial survival of Afghanistan. Foreign ministers of several countries addressed the opening of talks on September 12, 2020 with lists of conditions the warring sides must satisfy to obtain future humanitarian and development aid. The diplomatic leverage that could be obtained from such conditionality might be less than the ministers anticipated, if the underground economy is bigger than previously understood. For the Taliban in particular, the bounty of illegal taxation could be easily converted into legal taxes in the event of a peace settlement, suggesting that donors may have less influence over the Taliban than expected.
Conflict and violence track closely with these points of revenue extraction. The illegal monies earned at some of the most lucrative government checkpoints can be as much as $9.75 million per annum; even more is earned at the Taliban checkpoints at Farahrud, Ghorgary, and Muqur. Even in more remote areas, the collection at government checkpoints can be as much as $0.5 million per year due to the amount of traffic moving along the primary roads. These monies are not kept by those who collect them from the passing traffic; rather, most is given as tribute to the senior government officials who secure the appointment of family members or associates to that particular checkpoint. In fact, locally, some of these checkpoints are named after the individual who controls them, some of whom are the relatives of provincial council members and parliamentarians, and who determine who is selected to serve there. The concentration of violence around these checkpoints should be viewed not just as a traditional battle over the control of territory and the presence of opposing forces, but also seen through the prism of a contestation over revenues: the attempt to derive monies, or deprive the other side of a revenue stream, and even, in the case of some examples pursued by the Taliban in Farah, to strive to be seen as champions of anti-corruption.
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