It is the world's fifth poorest nation with no prisons and few police. Now this small west African failed state has been targeted by Colombian drug cartels, turning it into a transit hub for the cocaine trade out of Latin America and into Europe. Grant Ferrett and Ed Vulliamy tell the remarkable story of how the cocaine cavalry arrived three years ago and transformed the life of Guinea-Bissau

The roads outside the X Club nightspot in Bissau, capital of the world's fifth poorest country, are cracked and pot-holed. They have not been repaired since they were torn up by the tracks of military vehicles during Guinea-Bissau's civil war of the late 1990s. But the cars that are parked outside - Porsche and Audi four-wheel drives - wouldn't look out of place in the wealthiest quarters of London.

Inside, the music is thumping Europop, a beer costs more than twice the average daily income of a dollar a day. Many of the clubbers, though, are knocking back the imported whisky, which costs up to $80 a bottle. One of the regulars points out the people who represent the various stages of the cocaine supply chain from South America via Guinea-Bissau in West Africa to the UK and the rest of Europe. 'He's a pretty big dealer, and that's one of his security guys. That guy there thinks he's big news but he's just small-time. That woman is a mule. She's been to Europe a couple of times.

Down a street of elaborate colonial-style buildings is Ana's restaurant. Beneath red-tiled roofs, giant candles flicker in the gentle, humid evening breeze - it could be mistaken for an exotic tourist destination. But 'the only visitors we get are the Colombians', sighs Ana, 'this country is being destroyed by drugs. They're everywhere. A few weeks ago, the man who used to be my gardener knocked at the door and offered to sell me 7kg of cocaine.'

Among the destitute locals are scores of wealthy, gaudy Colombian drug barons in their immodest cars, flaunting their hi-tech luxury lifestyle, with beautiful women on their arms. Outside Bissau city are exclusive Hispanic-style haciendas with wide verandahs, turquoise swimming pools and gates patrolled by armed guards.

By day, Guinea-Bissau looks like the impoverished country it is. Most people cannot afford a bus fare, never mind a four-wheel drive. There is no mains electricity. Water supplies are restricted to the wealthy few, and landmark buildings such as the presidential palace remain wrecked nine years after the end of the war. But this wreck of a country is what the UN - which declared war last week on celebrity cocaine culture - calls the continent's 'first narco-state'. West Africa has become the hub of a flow of cocaine from South America into Europe, now that other routes have become tough for the traffickers.

US drug enforcement agents report that the old cocaine channels through the Caribbean, markedly Jamaica and Panama, have become more intensively policed, forcing the Colombians to develop new routes to traffic cocaine. The increasing might of Mexico's powerful drug cartels has forced the South Americans to search for trafficking routes to Europe across the Atlantic rather than through Central America.

Moreover, the West African coast can be reached across the shortest transatlantic crossing from South America: either by plane from Colombia, with a re-fuelling stop in Brazil; or by ship from Brazil or Venezuela. The boats leaving South America travel only by night, remaining motionless by day, covered in blue tarpaulins to avoid detection from the air. The journey can be completed in four to five nights travelling this way.

Once ravaged by the transatlantic slave trade, the West African coast is again 'under attack', says the Executive Director of the UN Office on Drugs and Crime (UNODC), Antonio Maria Costa, who calls the impact on Africa of Europe's cocaine habit an echo of that of slavery. 'In the 19th century, Europe's hunger for slaves devastated West Africa. Two hundred years later, its growing appetite for cocaine could do the same.'

The seizure of West Africa by Colombian and other drug cartels has happened with lightning speed. Since 2003, 99 per cent of all drugs seized in Africa have been found in West Africa. Between 1998 and 2003, the total quantity of cocaine seized each year in Africa was around 600kg. But by 2006, the figure had risen five-fold and during the first nine months of last year had already reached 5.6 tonnes. The latest seizure, from a Liberian ship - Blue Atlantic - intercepted by the French navy last month, was 2.4 tonnes of pure cocaine.

But while seizure rates globally are estimated to be 46 per cent of total traffic, the amounts found in West Africa are 'the tip of the iceberg', says UNODC. Even though one recent raid in Guinea-Bissau netted 635kg of cocaine, the traffickers were thought to have still made off with a further two tonnes.

The street value of the drugs trafficked far exceeds gross national product. A quarter of all cocaine consumed in Western Europe is trafficked through West Africa, according to UNOCD, for a local wholesale value of $1.8bn and a retail value of 10 times that in Europe.

Nigerian drug gangs have always been an energetic presence on the global trafficking scene, but the target of the South American traffickers have been the 'failed states' along the Gold Coast, where poverty is extreme, where society has been ravaged by war and the institutions of state can be easily bought off - so that instead of enforcement, there is collusion. And no more so than Guinea-Bissau, whose weakness makes it a trafficker's dream prey.

In Guinea-Bissau, says the UNODC, the value of the drugs trade is greater than the national income. 'The fact of the matter,' says the Consultancy Africa Intelligence agency, is that without assistance, Guinea-Bissau is at the mercy of wealthy, well-armed and technologically advanced narcotics traffickers.'

Guinea Bissau, with a population of 1.5 million, is ranked fifth from bottom in the UN's world development index. Even its recent history is one of torment: after 13 years of bloody guerrilla conflict, it won independence from Portugal, spent the first years under a Marxist Leninist dictatorship, then 18 under João Bernardo Vieira, until he was ousted by a military rebellion. Successive crises, two wars and economic collapse brought Vieira back in 2005, with a purge of the army and deceptive stability.

The White House has singled out Guinea-Bissau as 'a warehouse refuge and transit hub for cocaine traffickers from Latin America, transporting cocaine to Western Europe. Costa says: 'When I went to Guinea-Bissau, the drug wealth was everywhere. From the air, you can see the Spanish hacienda villas, and the obligatory black four-wheel-drives are everywhere, with the obligatory scantily-clad girl, James Bond style. There were certain hotels I was advised not to stay in.'

A senior official at the US's Drug Enforcement Agency (DEA) with a long record of fighting transatlantic drug trafficking, explained how and why the capture of Guinea-Bissau took place, and the trail to Europe. 'Geographically, West Africa makes sense. The logical things is for the cartels to take the shortest crossing over the ocean to West Africa, by plane - to one of the many airstrips left behind by decades of war, or by drop into the thousands of little bays - or by boat all the way. A ship can drop anchor in waters completely unmonitored, while fleets of smaller craft take the contraband ashore.

'A place like Guinea Bissau is a failed state anyway, so it's like moving into an empty house.' There is no prison in Guinea-Bissau, he says. One rusty ship patrols a coastline of 350km, and an archipelago of 82 islands. The airspace is un-patrolled. The police have few cars, no petrol, no radios, handcuffs or phones.

'You walk in, buy the services you need from the government, army and people, and take over. The cocaine can then be stored safely and shipped to Europe, either by ship to Spain or Portugal, across land via Morocco on the old cannabis trail, or directly by air using "mules".' One single flight into Amsterdam in December 2006 was carrying 32 mules carrying cocaine from Guinea-Bissau.

The official admitted 'this has happened quickly, and the response has been tardy. They're ahead of the game.' And it didn't help that most Western diplomatic presence had left Bissau during the fighting, preferring to operate from neighbouring Senegal. The US and Britain shut up shop in Bissau in 1998, the Americans only last July reopening a diplomatic office in response to the cocaine raids.

Although much of the cocaine goes directly to Spain and Portugal, London is becoming an increasingly prominent final destination, says the official - because of the street prices the drug commands - yet Britain also has no permanent diplomatic presence in Bissau, and has not joined the Iberian countries and the EU in contributing to the latest UN plans to help the country. According to the UNODC, the UK and Spain have now overtaken America in the consumption of cocaine per head.

Guinea Bissau's cocaine Calvary began three years ago when fishermen on one island found packages of white powder washed up on the beach. They had no idea what the mysterious substance was. 'At first, they took the drug and they put it on their bodies during traditional ceremonies," recalls local journalist Alberto Dabo. 'Then they put it on their crops. All their crops died because of that drug. They even used it to mark out a football pitch'.

The real moment of truth came when two Latin Americans arrived by chartered plane, armed with $1 million in 'buyback' cash, which the locals gleefully accepted. The two men were apprehended by police, but released. 'When people found that it was cocaine and they could sell it,' says Dabo, 'some of those fishermen bought cars and built houses.'

As well as the favourable location, in Guinea Bissau the cocaine gangs have found a country where the rule of law barely exists. 'It's an easy country to be active if you're an organised crime lord,' says the deputy regional head of UNODC, Amado Philip de Andres. 'Law enforcement has literally no control for two reasons: there is no capacity and there is no equipment'.

A further development highlighted by the DEA and UNODC is that Guinea Bissau and other West African countries are being targeted by Asian and African cartels trafficking heroin across the Atlantic in the opposite direction, to the US. Last year, the DEA and police in Chicago tracked nine West Africans who had moved heroin originating in South-east Asia through various West African countries, markedly Guinea-Bissau, to the central US.

Estimates vary as to the cogency of the Colombian presence, but one observer suggests there are as many as 60 Colombian drugs traffickers in Guinea-Bissau. Colombians have bought local businesses, including factories and warehouses, and built themselves large homes protected by armed guards. They and their local hired help flaunt their liberty to operate - and the money they make from doing so.

'We can see these people walking in complete freedom. They are parading their wealth. They're showing it completely openly,' says Jamel Handem, of a coalition of civic groups called Platform GB.

Guinea-Bissau's armed forces and some politicians are thought to be deeply involved in the drugs trade. Last year, two military personnel were detained along with a civilian in a vehicle carrying 635kg of cocaine. The army secured the soldiers' release and so far there is no sign that they will face charges.

In his large, carpeted, air-conditioned office, a refrigerator humming quietly in the corner, the army spokesman, Colonel Arsenio Balde, brushes aside suggestions the incident proves the army's complicity in the drugs trade. He says the soldiers were simply in the wrong place at the wrong time: 'They were on the road hitching a ride and they saw this car driving by. They asked for a ride and then this guy stopped, and later on this car was stopped and they were arrested. You don't have any evidence of high-level involvement. Just please, bring the evidence. That's what we're asking for.'

Government spokesman Pedro da Costa gives a similar response when asked if the government is involved in the drugs trade. 'I don't have any information on that,' he says, curtly. He insists the authorities are keen to tackle drugs traffickers, but don't have the resources. Like many others in Guinea-Bissau, though, he's worried that disputes over control of the trade could break out, pushing the country back to civil war. 'We're worried, of course. We're all concerned. If it's going to bring consequences to our people similar to the war of 1998-99, I think today the motivation would be different. But of course, there is a danger for the country.'

Parliamentary elections, originally scheduled for this month, have been postponed until the end of the year. The campaign could lead to heightened tension between political groups, and provide more scope for corruption. 'One of the risks now is that they will have a deep penetration of dirty money into politics that will overturn everything in the country,' says Fafali Kudawo, rector of the country's first university, 'because this country is very, very fragile, and he who has money can do whatever he wants. You do not know at any given moment what will change the situation or lead the country to war or to violence'.

The UNOCD Office has drawn up a detailed plan to help Guinea-Bissau. In 2006 it suggested a possible budget of several hundred million dollars to potential donors. They refused to pay. Last year the agency came up with a far more modest programme concentrating on reform of the security services, boosting the judicial police, and building a jail. The estimated cost was $19 million. In December a donor conference in Lisbon produced pledges of $6.5m.

As though the suffocation of society by the cartels were not enough, Guinea-Bissau inevitably suffers from a proliferation of addiction among its own people. 'Foot soldiers are paid in kind,' says Antonio Maria Costa, 'and whatever is left behind is sold domestically.' With addicts hidden away in villages, many still believe that their hallucinations are the result of evil spirits.

When United Nations workers went to the country's only excuse for a rehabilitation unit in a mangrove swamp 30km from the capital, they found a man called Bubacar Gano, who calls himself 'the first man to smoke pedra' - as crack cocaine is known in the country. He recalls the fishing boat that lost its load in the sea in 2005, saying: 'Most of the locals who found the packages had no idea what it was or what to do with it. But I knew. After a while I became crazy and aggressive. But it is a difficult thing to stop smoking pedra.'

· Grant Ferrett is a BBC corrrespondent who has worked extensively in Africa.

Guinea-Bissau factfile

· Sandwiched between Senegal and Guinea-Conakry, Guinea-Bissau is a tiny wedge of land, largely composed of mangrove swamps and islets, and an archipelago of 90 islands.

· Colonised in the 16th century, it broke away from Portuguese control in 1974 after a 12-year struggle for independence. During the Eighties and Nineties, the presidency of João Bernardo Vieira brought a measure of stability to the country but little development.

· The capital, Bissau, remains hazardous. Unexploded ordnance continues to be found, even though it was declared a 'mine-free' zone in 2006. New mines were laid recently by rebels fighting over the Casamance area to the north.

· Guinea-Bissau's roaring drugs trade sees an estimated one tonne of pure Colombian cocaine a day leave the country, most of it en route to Europe.