Economic Consequences of Terrorism

By Dr Adil Rasheed

(Speech delivered at the 4th West Asia Conference, ManoharParrikar Institute for Defence Studies and Analyses, New Delhi - 26 January 2020)

Honorable Chair, Distinguished Speakers, Excellencies and Dear Friends

In 1975, terrorism expert Brian Jenkins famously said: “Terrorists want a lot of people watching, not a lot of people dead.”

The understanding then was that terrorists commit acts of violence just to grab public attention and in order to send out a political message.

Thus, terrorists groups in the 1970s hijacked planes (like the 1970 Dawson Fields hijacking by PFLP) or carried out assassinations like those of the Red Brigades or the Munich massacres of 1972, mainly to draw global attention to the plight of a supposedly aggrieved people or to promote a political ideology.

Sadly, the situation became much worse thereafter when terrorism metastasized into a serious mode of warfare that not only wanted “a lot of people dead”, but also aimed at fomenting widespread social and political unrest as a consequence of their attacks to bring down regimes and countries.

In fact, terrorist organizations like the LTTE in Sri Lanka and FARC in Colombia evolved into full-fledged armies, carving out their own territorial spaces.

But it was from the heart of West Asia that a new form of transnational terrorism rose with the formation of Al-Qaeda and then ISIS that aimed at bringing down the entire modern international system by carrying out a prolonged assymetrical war of attrition, where in the key target and center of gravity was not the military but the economy of the world, headed mainly by America and its capitalist juggernaut.

In the words of Al-Qaeda strategist Abu Ubayd Al-Qurayshi in “A Lesson in War,” published in 2002.

“It is clearly apparent that the American economy is America’s center of gravity. This is what Shaykh Usama bin Ladin has said quite explicitly. Supporting this penetrating strategic view is the fact that the Disunited States of America are a mixture of nationalities, ethnic groups, and races united only by the “American dream,” or, to put it more correctly, worship of the dollar, which they openly call “the Almighty Dollar”

Even in its official publication, Sawt Al Jihad, Al-Qaeda wrote just after the September 11 attacks

If the enemy has used his economy to rule the world and hire collaborators, then we need to strike this economy with harsh attacks to bring it down on the heads of its

owners.

Thus, it is arguably for the first time that terrorism chose economic sites as the preferred targets for its violence because that gave attackers more long term tangible and cumulative returns for their limited and precise strikes.

Thus, we saw the World Trade Center buildings being struck in New York in the 9/11 attacks and this strategy has since been adopted by other militias and forces in West Asia, even by Shiite forces in their recent drone attacks against Saudi oil installations.

In fact, ISIS and Al-Qaeda, have drawn their strategies extensively from Abu Bakr Naji’s diabolical book ‘Idaarat Al Tawahhush’ (Management of Savagery), whose key strategy is of ‘"Harb Istinzaf “ - a long drawn out war of attrition that speaks of bleeding the adversary economically, which would then impact the society, polity and military.

The West Asian terror groups even attack economic targets in their own region as they seek to vitiate the climate of security and stability necessary for economic growth in order to destabilize existing regimes and to compel foreign corporations and Western military forces out of the region.

Although Al-Qaeda, ISIS and other West Asian groups have targeted many economic sites over the years, they have some clear favourites that need mentioning. The first are of course oil installations, as has been witnessed for decades in Iraq, Syria and even recently in the Aramco drone attacks. Then come tourism resorts like in the 2015 Sousse beach attacks in Tunisia, followed by attacks on hotels, churches and high end marketplaces in Asian and African countries, as we witnessed in the 2017 Palm Sunday attacks in Alexandria and the 2019 Easter Sunday bombings in Sri Lanka, along with transportation and communications systems (airplanes and waterways).

Adding to this pain is the pillage and desecration of ancient sites as was witnessed in the ISIS’ ransacking of 3000 year old heritage cities of Nimrud and Palmyra.

Whereas the most obvious direct economic impact of such attacks is the destruction of lives, wealth and property, the indirect effects on the economy covers a calculus including primary impact, security adjustments, mitigation costs and behavorial adjustments as well as pro-active counter-terrorism measures to fully evaluate the total economic impact of terrorism on the economy.

Ironically, there is surprisingly a debate on whether acts of terrorism cause lasting damage on the economic growth of developed countries in the medium to long term, as the jury is still out whether the Iraq war or other US-led interventions in the region were in response to terror attacks conducted by Al-Qaeda and ISIS, or were they the result of a separate agenda to change regimes.

Having said that, a 2018 report from Brown University put the total costs of 9/11 attacks borne by the US economy at $5.93 trillion.

However, there is little doubt that terrorism has had a definitive and indisputable impact on developing countries in West Asia and North Africa.

It has been found that most terrorist incidents globally (nearly 87 percent) are being perpetrated by home-grown terror groups against their own states, which are particularly high in number in countries of West Asia and Africa.

The global economic impact of terrorism in 2018 amounted to $33 billion in constant PPP (purchasing power parity) terms, a decline of 38 per cent from its 2017 level, according to the Global Terrorism Index of 2019.

Of this, the MENA and sub-Saharan Africa have the highest economic impact, representing $11.9 and $12.2 billion respectively. This is equivalent to 73 per cent of the world’s total for 2018.

The rise of terrorist groups and sectarian militia in WANA have increased the burden of security costs more importantly drained away both foreign (FDIS) and domestic investments from the region’s economy.

Terrorism has also exacerbated the informal and illegal economy in West Asian states, exacerbating crimes like narcotics trade and money laundering, promoting youth unemployment and illiteracy, causing massive internal and external displacement of peoples.

Fear of terrorism alters economic behaviour, primarily by changing investment and consumption patterns as well as diverting public and private resources away from productive activities and towards protective measures. Terrorism and the fear of terrorism also generate significant welfare losses in the form of productivity shortfalls, foregone earnings and distorted expenditure - all of which affect the price of goods and services.

In order to secure terrorism from attacking economies of West Asia, it would be important for governments there to have contingency measures on the ready. Some of these could be:

a)    Governments should have emergency mechanism in place for withstanding sudden financial and economic shocks and setbacks, particularly those dealt by terrorist attacks that cause turbulence in markets and a drastic decline in investment. In 1988, the US Working Group on Financial Markets developed what is known as “The Presidential Plunge Protection Team”, which massively intervenes in bourses during periods of emergency to protect falling markets and to arrest panic from spreading to vital sectors of the economy.

b)   In the wake of a terrorist attack immediate actions could also be taken to offset “supply chain interruptions” (major breakdowns in the production or distribution nodes), which reportedly accounted for a third of the entire losses from the 9/11 attacks.

c)    Security forces should break the circuit of communal reprisals or ethnic vendetta in the wake of terror strikes as they trigger anarchy and thereby compound social and economic losses in the wake of a terror attack. Governments institutions and media should highlight how quickly systems are restored –power, water, transport and communication system - and the country is back on its feet to the nation and the world to mitigate the self-fulfilling fear of imminent disaster.

d)   In addition, contingency planning to withstand and mitigate cyber and drone attacks on economic centers and systems need to be developed.

In the end, it would suffice to say that one of the best means for negating the economic impact of terrorism would be to take US President Franklin Roosevelt’s famous New Deal advice seriously:

“The only thing we need to fear is fear itself.”

- THANK YOU! delivering the talk at the West Asia Conference at MP-IDSA on 26 February 2020