The October 2002 bombing of two nightclubs in Bali, Indonesia, reduced the nation's total gross domestic product by an entire one-percentage point, according to a recent report by the Australian government. Yet despite this staggering blow to Indonesia's economy, many people in the developing world still think terrorism is something that primarily affects the United States and its Western allies.
Geoff Raby is Deputy Secretary of the Australian Department of Foreign Affairs and Trade. He says the Australian government's report found that terrorism has a direct and immediate economic impact on the country where an attack took place. ?But secondly, and more importantly in some ways from a policy perspective, are flow-on effects across borders into other countries which may not have been the target of primary incidents. Following on from that is that terrorism therefore requires a collective response from economies. And thirdly, and quite significantly, is that the costs fall disproportionately on developing countries.?
Geoff Raby says there are several reasons why developing countries are hurt disproportionately by the economic shock waves a terrorist attack in one country generates. ?Developing countries on average tend to be more exposed to trade. That is trade tends to be a larger share of GDP. Also, they're disproportionately more dependent on foreign direct investment flows and these are two areas which are highly susceptible to disruption from terrorist activity.?
Geoff Raby says the greater the perceived risk is in any given country, the costlier capital becomes. When that happens, businesses tend to avoid investing in long-term deals, particularly in areas of infrastructure. Instead they invest in short-term ventures. That means fewer companies are willing to spend money on the very kinds of projects developing countries need most, such as highways, rail-lines or water treatment plants.
Ross DeVol, Director of Regional Economics at the Milken Institute, an independent economic research organization in California, says there's another reason developing countries' economies are more susceptible to terrorism. ?I think the developing countries that have large travel and tourism bases were the most exposed. So you think about Bali bombing and what impact that has had on their travel and tourism industry. And a lot of Asian developing countries have a large tourism base in their economy. And most of it comes from foreigners coming to their countries. So those types of countries certainly have been hit.?
There are a number of things that can be done to lessen the economic impact of terrorism. Ross DeVol says first and foremost is improving security: ?I would argue an investment in improved security could actually reduce the cost of terrorism in the future. It's a big price tag up front, but it could certainly reduce costs in the future. And of course, the long-run solution behind combating future terrorist attacks is to reduce the conditions that foment terrorist acts, which gets back to resolving some very important Mid-East issues, such as the Israeli-Palestinian conflict. As long as you have those deep-rooted conflicts unresolved without prospects for hope, it breeds people who are going to take a look at terrorist acts as a way to lash out.?
The economies of the Middle East many of them already stagnant as a result of poor government economic policies have been hit by the double blow of the ongoing Israeli-Palestinian strife and the conflict in Iraq.
Egypt's multi-billion dollar tourism industry has never fully recovered from a series of terrorist attacks in 1997 that were carried out by Islamic radicals against foreigners. Since then, the U.S. State Department warning against travel to the Middle East and North Africa has caused further damage.
The attacks in Egypt, like the twin blasts that recently rocked two Istanbul synagogues, killing at least 24 people and wounding more than 300 others, show that Muslim countries are not immune to terrorism.
Neil Livingstone, CEO of Global Options, an international risk management company and author of nine books on terrorism, says many developing countries, including Muslim ones, have done too little in terms of dealing with terrorists in their own backyards: