EFFECT OF TERRORISM & DISASTERS ON ECONOMY

EFFECT OF TERRORISM ON ECONOMY

Introduction

Hitting economy is terrorism’s major aim Terror Economy : Incredible Facts

Terror Economy is bigger than UK GDP Grows faster than the US economy (Loretta

Napoleoni,2004)

Learning the impact of terrorism on economy is important

Financing Of TerrorismFour Major Sources: Inheritances and investments of Osama

estimated $300 million inherited invested in bank accounts and a host of

legitimate and illegitimate businesses Arab supporters

wealthy Gulf citizens, especially Saudi bankers and businessmen

Annual supplies about $16 million

Financing Of Terrorism (contd.) Islamic charities

“Zakat”: requiring all Muslims to give at least 2.5 % of their income to charities

Some merely serve as money laundering and terrorist financing apparatuses

Criminal activities Smuggling, counterfeiting and the narcotics

trade -Al Qaeda earned millions of dollars through opium production in Afghanistan

Extortion-Abu Sayyaf Group relies on ransom from frequent kidnappings

Damage Caused By Terrorism- Effect On FDI

Terrorists can quite easily attack and damage foreign owned firms, seriously disrupting their activities.

Terrorism can affect the decision of firms investing money in foreign assets.

Even quite mild terrorist activities reduce the inflow of capital to host country.

From 1975 to 1991, terrorism reduced annual FDI inflows to Spain by 13.5% and to Greece by 11.9%

Damage Caused By Terrorism- Effect On Stock Market

Stock prices reflect expected future gains of a company, and the likelihood that the expected gains materialize.

Terrorist attacks influence both : Expected profits are lower Risk premium is higher

Stock market in Israel reacts with a similar magnitude to suicide bombings - without terrorism, it would’ve been 30% higher in June 30, 2003

Damage Caused By Terrorism- Effect On Investment Increased risk perceptions undermine

investor confidence, reducing willingness for new projects

Investors turn to lower risk, lower return and shorter term investments-Cumulative effect is reduction in overall Investment

Without terrorism in Israel, overall investment would’ve been 18% higher

Damage Caused By Terrorism- Effect On Foreign Trade Countries targeted by terrorism are not

preferred Two direct ways:

Risk of a direct destruction of traded goods

Security measures put in response to terrorist attacks increase transaction costs

Doubling of terrorist incidents reduces the bilateral trade flows by 4%

Effect On Tourism industryTourists are a frequent target of terrorist

activities :Luxor 1997-58 foreigners shot Bali bombing,2001-200 tourists killed

Visitors less likely to choose a destination with a higher threat of terrorist attacks

Host countries are negatively affectedAfter Bali tragedy, Indonesia’s 2002 tourist

arrivals fell by 2.2 %, reducing GDP by 0.8%

9/11 Impact The estimated property loss in the city of New

York 21.8 billion $ which is 0.2 % of the GDP for a year. Defense and Security spendings increased by a

massive from 2002 to 2003 amt. over 100 billion$ now US spends 500 billion $ anually around 20%of federal budget.

Spendings on defense and security are essential but they also come with an opportunity cost that can be spent on health , education and tax reductions.Higher the risk of terrorism simply raisesthat cost

9/11 The stock marketclosed for four days after

the attacks,Dow promptly fell 7.13% was the dow’s one day loss ever, it also aggrevated the 2001 recession. currency prices fell down sharply

Tourism industry has also suffered form huge losses there is 40% fall in hotel occupancy in New York city and air travel also fell drastically across the nation , due to increased fear of repeat attack.

ISIS in Iraq More then half Iraq’s GDP comes from the oil

sector ,which employs around 40% of the workforce,The govt. derives an astonishingly high 93% of its revenues from oil.

ISIS controls a few small oil fields in north.It sells crude at a steep discount at a rate of 30$/barrel (whereas price as of oct. 2014 is 80-85$/barrel) in black market.

The presence of ISIS in the state and on border crossings effected the trade between neighouring countries as they have to change the route which reduces the profitabilty almost to zero.

Cyber crimes 1.Tax refund fraud –The city of tampa in FL alone

estimates that cybercriminals have cashed $450 million in fraudlent tax refunds.

2.Corporate account takeover – SMBs and their financial institutions suffered $120million losses in 3rd quarter of 2009 in U.S

3.Identity Theft – It occurs when a cybercriminal successfully steals a person’s personally identifiable information. E.g –credit card fraud in target and customer information of sony psn.

4.Theft of intellectual property – According to New York Times article chinese hackers have stolen product blueprints,manufacturing plans,pricing documents etc. in U.S including coca-cola,Lockheed martin and many others.

http://www.aicpa.org october 2013

Present Scenario: Terrorism Expanding its Base

Sincere efforts to eradicate terrorism are lacking Only $140 million of terror money frozen Only 6 of 241 controversial charities closed

Security measures has facilitated trade: Reduced exposure to terrorism Advanced electronic techniques speed up

passenger movement and cargo processing

Counter Terrorism-Global Strategy

Deny Safe Heavens Improve Governance Secure Weapons of Mass Destruction Attack Terrorist bases Develop partnerships Economic development Education and Training Contribute to establish conditions that

deny ideological support to terrorists

Conclusions Terrorism has negative effect on

various aspects of economy Future threat may be higher Security measures are important Suitable understanding can make

economy comparatively resilient to terrorist attacks

Disaster and Economy

Disaster and Economy Economy is quite unprotected to occurrences

like War, Technological innovations and Disasters (Manmade or Natural Disasters)

While Proactive Safety Preparedness Efforts can Protect Economy from Collapse All Disasters including Chemical, certainly affect the economy

We witnessed this in our country and in other places as well

But public memory being short we tend to forget the impact of Disaster on the Economy we jump from one Crisis to another Crisis

Extent of Affliction to Economy by Disaster Disaster affects economy in many ways:

death, destruction, extensive damage to property and infrastructure

Further modes of Affliction are trade and Commerce, National & International

While the former impact lasts till reconstruction, the latter impact may go beyond duration of reconstruction and involves political dimension which is difficult to address

Further, disasters obviously have its cascading effect on Globalised economy

Most Expensive Natural Disasters in History Earthquake and tsunami, Japan (2011)

Cost: $235 billion (by the World Bank) Kobe earthquake, Japan (1995)Cost: $100 billion (by the World Bank) Hurricane Katrina, U.S. (2005)Cost: $42 billion (by NOAA) Northridge earthquake, California, U.S. (1994)Cost: $42 billion (by NOAA) Sichuan earthquake, China (2008)Cost: $29 billion (by the World Bank) Indian ocean earthquake & tsunami (2004)Cost: $15 billion (by wikipedia)

Details of Impact of Disasters on Economy The first impact is economic loss to

individuals affected by disaster, immediate and long term

Production not obtained, and corresponding higher production costs

Changes in economic flows caused by the disaster.

They are measured in monetary terms at current prices.

Impact on trade & commerce, short and long term, could be quite hurting

Details of Impact ….Contd…

Unexpected expenditures (humanitarian assistance,demolition and debris removal, relocation of human settlements)

Higher operational costs and lower revenues in the provision of essential services

They occur from the time of the disaster until full reconstruction and economic recovery are achieved

Details of Impact of Disasters on Economy Second is Damage occurs during or

immediately after the disaster. Total or partial destruction of assets,

including buildings,infrastructure, stocks, natural resources

Damage occurs during or immediately after the disaster

Damage is measured in physical terms, and a monetary replacement value is assigned to it.

Impact Sector wise Social sectors-Housing, Health, Education, Cultural and

Religion Productive sectors-Agriculture and Livestock, Fisheries,

Industry and Trade Infrastructure-Transport, Communications, Energy,

Water and Sanitation, irrigation works Cross Sectoral-Environment, Governance and

administration Bank and Finance.

Sichuan Earthquake China,(2008) China is one of the countries most affected

by natural disasters. It had 5 of the world's top 10 deadliest natural disasters.

In the city of Shifang, the collapse of two chemical plants led to leakage of some 80 tons of liquid ammonia, with hundreds of people reported buried

2008 Chinese winter storms, the 2008 Sichuan earthquake, and the 2008 South China floods affected national economic growth.

 

China GDP growth rate (2005-2015)

Sichuan Earthquake China,(2008) ..contd.. but did do major damage to local and

regional economies and infrastructure. China's earthquake reconstruction cost

$150bn Growth rates for Sichuan dropped to

4.6% in the 2nd quarter Both the Shanghai Stock Exchange and

the Shenzhen Stock Exchange suspended trading of companies based in southwestern China.

Sichuan Earthquake China,(2008) ..contd..  Chinese economy is significantly

affected by the 2008-9 global financial crisis due to the export oriented nature of the economy which depends heavily upon international trade.

However, government economic-stimulus has been hugely successful by nearly all accounts

Indian Ocean Earthquake and Tsunami, 2004 Affected many countries in Southeast Asia and

beyond, including Indonesia, Sri Lanka, India , Thailand, Somalia, Myanmar ,Malaysia and others.

Damage and losses were sustained by the productive sectors of agriculture and livestock,fisheries and aquaculture, agro-industry, commerce and tourism.

The main reason for the limited economic impact was that the tsunami missed the industrial and commercial centres of all affected countries other than Maldives.

Phuket,Thailand tourism-

120000 people have lost jobs in the tourism sector in Thailand (Source UNDP)

Indian Ocean Earthquake and Tsunami,2004 ..contd.. In Thailand Tourism contributes to 5-6% of

the country‟s GDP Informal and home industries (fishing,

food vendors to handicraft making) are connected to tourism

Salt intrusion causing major environmental changes will affect the livelihoods based on freshwater aquaculture and agriculture

It (money) does not apply to the measures of human lives lost. "A total of about 250,000 deaths in the Indian Ocean Tsunami can never be compared by economic loss."

Impact of Disasters on India: The impact of Certain Disasters on our

Economy were significant. To name a few the following are

significant in today's value: Bhopal Disaster (1984) Fire in Jaipur Oil Depot (2009) Flood in Jammu & Kashmir Very Severe Cyclonic Storm Hudhud in

Andhra Pradesh

Note : Figures in million $Source: Global Assessment Report 2015 of UN office for Disaster Risk Reduction

 GAR 2015 – Assessment Report from 2005-2015

Details of Impact ….Contd… In respect of Bhopal Disaster, Factory is

Closed and the City’s population is yet to recover from the disaster even after 30 years

Country’s Safety Record in International arena took a beating

Quality,efforts relating to Environmental Conservation are becoming increasingly critical to Economy including disposal in the context of Global warming and Climate Change

Details of Impact ….Contd… Fire in Jaipur Oil Depot- a defective pipe

line leak that set fire to 50,000 kilolitres of diesel and petrol out of the storage tanks at the IOC Depot.

Globalised Economy means Slender Profit Margins, Fierce Competition among Countries.

There will be serious problems in regard to Trade dealings Nationally and Internationally

What is the Solution The solution to these problems lies in

improving Safety Level and Emergency Preparedness for mitigating the impact of Disasters

We need an overview approach to success in every walk of Life particularly in regard to Business

Training in alternative livelihoods Promotion of Eco Tourism Communicating and incident assessment Communication revolution and our Strengths

in IT & IT enabled Businesses Community based livelihood recovery

programme

What is the Solution Link Environment and Natural Resource

Management with Livelihood enhancement and Disaster mitigation

We need a collective will to achieve this. Shall we Call it National will.

The above will be possible by well meaning Nationalists to bring about an awakening among Population

Risk awareness & Knowledge development including education, training, research and information are of the important fields of action for Disaster Risk Reduction

Thank You