After their stunning capture of Kabul, the Taliban have tried to convey a sense of calm. Only days after Afghanistan’s top officials scrambled onto military flights and desperate Afghans clung to the fuselage of departing planes, the Taliban coolly went on inspection tours of government facilities.
In the control room of the state electrical utility, a delegation of the Taliban stood in front of the blinking display panels and promised to keep the lights on.
How exactly the Taliban plan to keep all systems running, in one of the poorest countries of the world that depends on more than $4 billion a year in official aid and where foreign donors have been covering 75 per cent of government spending, is an urgent question.
The state’s bankruptcy has tempted some Western donors into thinking that financial pressure — in the form of threats to withhold humanitarian and development funding — could be brought to bear on the new rulers of Afghanistan. Germany already warned it would cut off financial support to the country if the Taliban “introduce Sharia.”
But those hopes are misplaced. Even before their blitz into the capital over the weekend, the Taliban had claimed the country’s real economic prize: the trade routes — comprising highways, bridges and footpaths — that serve as strategic choke points for trade across South Asia.
Insulated from decisions of donors
With their hands on these highly profitable revenue sources and with neighbouring countries, like China and Pakistan, willing to do business, the Taliban are surprisingly insulated from the decisions of international donors. What comes next in the country is uncertain — but it’s likely to unfold without a meaningful exertion of Western power.
One reason foreign donors inflate their own importance in Afghanistan is that they do not understand the informal economy, and the vast amounts of hidden money in the war zone.
Trafficking in opium, hashish, methamphetamines and other narcotics is not the biggest kind of trade that happens off the books: The real money comes from the illegal movement of ordinary goods, like fuel and consumer imports. In size and sum, the informal economy dwarfs international aid.
For example, our study of the border province of Nimruz, published this month by the Overseas Development Institute, estimated that informal taxation — the collection of fees by armed personnel to allow safe passage of goods — raised about $235 million annually for the Taliban and pro-government figures. By contrast, the province received less than $20 million a year in foreign aid.
A southern province in the heartland of Taliban supporters, Nimruz is the sort of place that might serve as a basis for Taliban thinking about how the economy works.
This summer, they set about taking it over. In June, they captured Ghorghory, the administrative center of Khashrud District, followed by the town of Delaram, on the main highway, in July.
These two towns alone could be worth $18.6 million a year for the Taliban if they maintain the previous systems of informal taxation, including $5.4 million from the fuel trade and $13 million from transit goods.
Annual duties and taxes
A bigger prize was the custom house in Zaranj, a city bordering Iran and the first provincial capital to fall during the Taliban’s August offensive.
Though the city officially provided the government with $43.2 million in annual duties — with an additional $50 million in direct taxes in 2020 — there was, we found, a significant amount of undeclared trade, particularly of fuel, taking the true total revenues from the border crossing to at least $176 million a year.
The Taliban’s advance forced a dilemma on neighbouring countries: They could either continue to trade, giving the Taliban more power and legitimacy, or deny themselves trade revenues and accept the financial pain. Though they have sometimes opted for the latter, it’s unclear — as pressure mounts to officially recognise the Taliban government — how much longer that will last.
Take Iran, for example. We estimated that the Taliban earned $84 million last year by taxing Afghans who trade with Iran — and that was before the insurgents captured all three of Afghanistan’s major border crossings with Iran. Tehran, unwilling to legitimise the Taliban, halted all trade with Afghanistan in early August. But the economic imperative to reopen to commercial traffic is strong.
More than $2 billion in trade passed through those crossings last year, according to official figures, and our research suggests that the actual numbers, once informal trade is included, could be twice as high. Early reports suggest the border crossings are open again, though trade remains slow and disrupted.
The Biden administration, yet to come to a formal position on how to respond economically to the Taliban’s takeover, reportedly froze Afghan government reserves held in US bank accounts on Sunday — while the president’s national security adviser, Jake Sullivan, suggested this week that American leverage over the Taliban could come from “issues related to sanctions.”
But the windfalls from cross-border commerce — a single border crossing to Pakistan, captured in July, brings in tens of millions of dollars a year in illegal revenues — are making the Taliban, now ruling the Afghan state, into major players in South Asia’s regional trade. That means, crucially, that the usual methods by which recalcitrant regimes are subjected to international pressure — sanctions, isolation — are less applicable to today’s Afghanistan.
This is only one of the many ways the West, now forced to reckon with a Taliban-run Afghanistan, has been humbled by recent events. But it may be among the most consequential.
Graeme Smith and David Mansfield are experts on Afghanistan who recently published a study on the country’s informal economy
The New York Times