Illicit Drug Trade: Income Source for Developing States

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Table of Contents

Introduction
Illicit drug production and trafficking in developing countries
Afghanistan
Mexico
Beneficiaries of the illegal drug trade
A potential solution to ending this illicit trade
Personal Opinion
Conclusion
Reference List

Introduction

The War on Drugs is an initiative that was started by the United States government along with other participating nations with the sole purpose of defining as well as minimizing the illegal drug trade (Payan, 2006, p. 23). The war on drugs has a military implication about it since it is largely based on the use of coercion and force through interdiction, eradication, as well as the criminalization of the actual drug trade (Wilson & Stevens, 2008).

The War on Drugs campaign entails several policies on drugs as developed by the U.S government that are aimed at putting a stop to the production, distribution, and use of illicit drugs. The war on drugs only began properly in 1968 during President Richard Nixon’s tenure in office (Fields, 2009).

There is a lot of data available on the prices of illicit drugs, although such data tend to have their own deficiencies. One of the main effects of prohibition policy on illegal drugs is that enforcing them leads to increased supply costs. Drugs become scarce in the market because of the existing stringent rules (United Nations Research Institute for Social Development, 1994). In addition, the drugs available in the market fetch a higher price due to the market forces of supply and demand (Basov, Jacobson & Miron 2001).

Illicit drug production and trafficking in developing countries

It is quite hard to get accurate estimates of income generated through the production and trafficking of illegal drugs. Thus, getting an accurate picture of the effect of income attributed to the production and trafficking of illegal drugs is also hard (United Nations Office on Drugs and Crime, 2008). Such estimates can only offer insight into the scale of the long-term and short-term economic impact of this kind of illegal

activity in a given country. In the short-term, the illegal drug sector offers jobs within the agricultural industry to many individuals with limited education and skills, like itinerant laborers and small farmers. Other beneficiaries include money launderers, wholesale distributors, and runners. Offering people income-generating activities may be seen as economically favorable, at least in the short-term. In Afghanistan, a large portion of the proceeds of illegal sale of drugs in the country is probably spending and kept locally, although it is still quite easy to undertake money laundering and transfer through the hawala system, a paperless form of money transfer that is very difficult to monitor.

Over a third of the national income in Afghanistan originates from the cultivation, processing, and sale of opium. However, a larger cash flow of the proceeds of opium production goes to the traffickers, processors, and to facilitate “protection” at various levels (United Nations Office on Drugs and Crime, 2008). As such, petty agents and opium farmers only get a small share of the proceeds, most of which is spent in the purchase of locally manufactured goods.

On the other hand, traffickers and processors spend and invest more in imported goods, especially durables. There have been indications in recent years of money generated from the drug industry in Afghanistan leaving the country. Cartel leaders get the largest share (Heymann & Brownsberger, 2007). Most of their money is deposited in lucrative offshore bank accounts and as such, they do not get to reinvest in Mexico. Also, drug traffickers in Mexico benefit the economy by investing in livestock, real estate, and other business ventures.

Afghanistan

The illegal drug trade in Afghanistan is a threat to the country’s national security, sovereignty, and political stability. Due to its involvement in narcotics production and trafficking, Afghanistan has effectively harnessed its international identity. The country is now in a dark precipice as far as social affairs are concerned. Also, the Afghans remain the victims of this menacing experience, even as proximately 7 percent of income from the sale of illicit drugs goes to international smugglers (United Nations Office on Drugs and Crime, 2004).

Another key drawback of the opium economy in Afghanistan is the large quantity and price volatility that could result in huge macroeconomic effects. A very large number of poor farmers are already involved in opium-related debts and for this reason, they have to continue participating in the cultivation and production of opium. Others have been forced to marry off their daughters or mortgage their land in order to pay off such debts (Byrd & Ward, 2004, p. 8).

Proceeds from the sale of drugs have led to an increase in land prices, bride price tenancy and sharecropping arrangements, and a rise in the price of urban real estate, especially in opium-producing areas. In addition, there has also been a substantial increase in the number of drug addicts in Afghanistan.

On the other hand, proceeds from the illegal cultivation, production, and trafficking of drugs have helped to boost the country’s overall economy. For example, the opium economy has played a key role in boosting the incomes of rural communities. It also acts as a coping mechanism for the rural poor in Afghanistan, in that many poor people are able to participate in sharecropping, and wage labor. They can also participate in tenancy arrangements that enable them to access credit and land, although on hostile terms.

Some of the current drug cartels in Afghanistan include the Khan cartel, Afghan drug traffickers, and the Noorzai Organization, among others.

Mexico

The drug trade in Mexico accounts for a major portion of the country’s revenue. For example, it is estimated that the industry generates approximately U.S dollar 991 million every year (DEA, 2004). The Mexican drug industry affords the country’s economic benefits in terms of cash flows, employment, and investments. There has been a rapid increase in the number of peasants employed by the agricultural sector in relation to drug production.

Andreas (1998) estimates the number of peasants at 300,000. There are also other employees of the sector who are involved in the drug chain such as the middlemen. The drug industry in Mexico is very lucrative, generating between 3.2 and 9.9 billion dollars every year (United Nations Office on Drugs and Crime, 2010). On the other hand, such revenue tends to be unequally distributed and as such, the flow may be less than anticipated. This may perhaps explain the wide discrepancy.

The drug industry in Mexico has also had a negative impact on the country’s economy. One of the negative consequences is increased cases of violence, resulting in direct and indirect financial costs to the economy (Leticia, 2007). There is also the loss of productivity owing to injury and death, not to mention the loss of human capital investments. In addition, we also have to consider the added cost of legal services and medical care (United Nations Office on Drugs and Crime, 2007). Furthermore, the economy also suffers from psychological harm owing to incidences of violence. Businesses suffer from fear of violence and mass migrations, leading to the abandoning of key economic activities (Lopez, 2007).

In Mexico, drug trafficking is controlled by seven deferent cartels. These include Arellano Felix, Valencia Valencia, Asiel Cardenes, Carrillo Fuentes, Chapo Guzman, Pedro Diaz Parada, and Amezcua Contreras (Heymann & Brownsberger, 2001).

Beneficiaries of the illegal drug trade

Although there is evidence that some of the farmers involved in the cultivation and production of illegal drugs are resource-rich, majority are resource-poor. Most of them are involved in what is known as sharecropping arrangements. There is a link between drug production and rural poverty among most farmers. Nonetheless, because of the weak nature of the data available on the situation of drug farmers in the rural areas, it becomes a bit hard to determine the exact nature of poverty (Ward & Byrd, 2004).

The illegal drug trade has very many beneficiaries. However, the key beneficiaries are the drug barons and their cronies while the poor farmers only get a small portion of the profits. Other leading beneficiaries include warlords and certain politicians. For example, the political elites and local warlords in Afghanistan have previously been financed using drug profits. At the same time, the same profits are used to sustain thousands of poor farmers in rural Afghanistan.

A report by the United Nations Office on Drugs and Crime (2004) estimates the average price of 1 kg of opium at the US $ 23 in 1995. During this time, opium cultivation and production were characterized by low wage-gate prices, meaning that opium farmers received very low income despite their hard work. However, in 2000, the Taliban regime imposed a ban on opium production, and there was an almost 10-fold increase in the price of opium.

Between 2002 and 2003, 1 kg of opium retailed at the US $ 300 but within one year, the price had nose-dived to US 90/kg. Before the Taliban regime imposed a ban on the cultivation and production of opium, traffickers and processors got the lion’s share of income attributed to opium production (United Nations Office on Drugs and Crime, 2004).

At the time, opium production was not very lucrative as other crops were also equally competitive from a financial point of view. However, the Taliban ban led to a dramatic change of the pattern. Between 2002 and 2003, nearly 50 percent of the annual gross income attributed to opium cultivation, processing, and sale seem to have been directed towards the farm. However, by 2004, this income had reduced significantly due to the dramatic decline in farm-gate prices.

Even as the available data remains highly imperfect, there is evidence to suggest t very high margins between, on the one hand, border price opiates and on the other hand, farm-gate prices. In addition, available evidence indicates that in 2004, processors and traffickers realized $ 2.2 billion in gross revenues from the sale of opium United Nations Office on Drugs and Crime, 2004).

The Mexican illegal drug industry is characterized by a high level of secrecy and for this reason, it is quite hard to estimate the retail prices of drugs, and access to such prices is also hard. Nonetheless, even if such information was readily available, it would still not be easy to determine the share of profits that eventually gets in the hands of those involved in the cultivation and production of illegal drugs in Mexico.

Most of these estimates are treated somewhat skeptically seeing that they only represent the cumulative turnover, as opposed to the total revenues that the Mexican drug cartels are able to accumulate in the entire production chain. The Mexican drug sector is a billion-dollar industry that is involved in the production and transportation of heroin, marijuana, and cocaine into various developed countries, such as the United States.

It would be very hard to try and estimate the profits accruing from this industry owing to variations in the quality of the final product, regional prices, lack of information regarding how the profits are distributed, as well as process discrimination (Office of National Drug Control Policy, 2003). On the other hand, in spite of the controversy surrounding the various estimates, there is no doubt that the drug business is extremely profitable.

A potential solution to ending this illicit trade

Most of the strategies that have thus far been implemented as potential solutions to the illegal trade of drugs are mainly interdiction and eradication strategies. Regardless of the level of implementation of these strategies, they are bound to fail since drug producers and traffickers can always change the areas of cultivation. In addition, they can also shift the production inputs, as well as the methods of transportation (Thornton, 2007).

Some of the negative consequences of prohibiting the illegal cultivation of illicit drugs include driving drug consumption and traffickers to those countries that have traditionally not been involved in the trafficking and consumption of drugs. It also complicates the process of treating drug users. In addition, prohibition also means that the organized criminal networks that are involved in the trafficking of drugs end up with high-profit concentrations owing to reduce supply (United Nations Office on Drugs and Crime, 2011).

They can then use this money to initiate the cultivation and production of illicit drugs in other countries. Moreover, the current war on drugs has the potential to unleash political and social instability. The potential huge rents involved in the production and distribution of illicit drugs normally induces the formation of criminal gangs. Such criminal organizations are also able to assert their power through insurgency, violence, and corruption.

The example provided above the point at the consequences of the “law enforcement approach” in as far as the war on drugs is concerned. Such an approach aims at controlling the availability and supply of drugs by concentrating on the individuals and organized criminal gangs involved in the cultivation, production, and trafficking of illicit drugs. However, we need to note that by targeting these individuals or criminal groups alone, it will be very hard to solve the underlying problem since there is still an incentive to partake in the illegal drug trade.

If at all we are to fully address the underlying incentives, it is important to focus on the demand for drugs and the dynamics of the drug market. The drug market is under the market forces of supply and demand. It is also very lucrative. United Nations Office on Drugs and Crime (2010) has indicated that over 15 million individuals all over the globe consume illegal morphine, heroin, and opium. The same report has also estimated that the global demand for the above-mentioned substances is at 3,700 metric tons, with an annual market value of USD 65 billion. If at all we intend to fully address the issue of illicit drugs, we need to incorporate such demand reduction strategies as quality health services, early education programs, and treatment and rehabilitation programs into the war on drugs campaign (United Nations Office on Drugs and Crime, 2010).

This calls for the collective effort of individual governments, civil societies, community groups, faith-based organizations, and NGOs. Such an approach should mainly focus on reducing the harmful effects of drugs (United Nations Office on Drugs and Crime, 2010). In addition, it should also be aimed at reducing the consumption of drugs through education, as well as aggressively fighting organized crime.

Personal Opinion

Based on the research findings for the current paper, there is no doubt that the illicit drug trade is a source of income for poor people in developing countries. Poor farmers in rural Afghanistan have embraced the cultivation of opium because the drug provides better returns compared with other legal cash crops. Proceeds from the illicit drug industry are also being used to develop the economies of developing countries like Afghanistan and Mexico.

The industry is highly secretive and as such, it is very hard to estimate the actual proceeds from it. However, the profits generated have found their way into real estate and farming, along with other businesses. Clearly, the war on drugs has so far not achieved its intended goal. Whereas it is not okay to trade in illegal drugs or treat them as a source of income for poor people in developing countries, the fact that this is already happening shows that we need to reevaluate our stance regarding this issue.

I am of the opinion that the various governments, NGOs, community leaders, and the international community should address the root cause of the illegal trading of drugs. As long as these underlying issues are not addressed, people will continue to depend on the industry as a source of income, regardless of whether it is illegal, or not.

Conclusion

The War on Drugs was started with the intention of reducing the illegal drug trade. The cultivation, production, and trafficking of illegal drugs are rampant in such developing countries as Afghanistan and Mexico. In Afghanistan, the industry is a threat to the country’s national security, sovereignty, political and social stability. In Mexico, the illegal drug trade accounts for a large part of the country’s revenue.

In both countries, the largest beneficiaries of profits accruing from the sale of illegal drugs are the drug barons and their cronies, while farmers only get peanuts. In both Afghanistan and Mexico, proceeds from the illegal cultivation, production, and trafficking of drugs have helped to boost such sectors of the economy as construction, agriculture, and real estate. Considering that the war on drugs is yet to attain its objectives, perhaps we need to think of another strategy to address the menace.

Such a strategy should take into account the market dynamics of the illegal drug industry. The approach should also focus on reducing the harmful effects of drugs, aggressively fight organized crime, and reduce consumption patterns of drugs through education.

Reference List

Andreas, P. (1998). The political economy of narco-corruption in Mexico. Current History, 97(618), 160-65.

Basov, S., Jacobson, M., & Miron, J. A. (2001). Prohibition and the Market for Illegal Drugs: An overview of recent history. World Economics, 2(4), 1-26.

Byrd, W., & Ward, C. (2004). Drugs And Development In Afghanistan. Web.

DEA. (2004). The price and purity of illicit drugs: 1981 through the second quarter of 2003. Web.

Fields, G. (2009). White House Czar calls for end to “War on Drugs”. Web.

Heymann, P. B., & Brownsberger, W. N. (2001). Drug addiction and drug policy; The struggle to control dependence. Cambridge, Mass: Harvard University Press.

Leticia, L. (2007). Más sinaloenses emigran por la violencia. Web.

Office of National Drug Control Policy. (2003). Drug Data Summary. Web.

Payan, T. (2006). The Three U.S.-Mexico Border Wars. Westport, Conn. : Praeger Security International.

Thornton, M. (2007). The Economics of Prohibition. Auburn, Alabama: Ludwig von Mises Institute.

United Nations Office on Drugs and Crime. (2004). Afghanistan: Opium Survey 2004. Web.

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Ward, C., & Byrd, W. (2004). Afghanistan’s Opium Drug Economy. Web.

Wilson, L., Stevens, A. (2008). Understanding drug markets and how to influence them. Web.

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