The impact of terrorism on the world economy

Currently, we are going to discuss about The Impact of Terrorism to the Market.
This is for our assignment 2.

Terrorism, in modern sense, is the act of unlawful violence, or other harmful acts committed for political or ideological goals. It had done a lot of destructions to our current world. One of the biggest terrorist acts is the 911 incident. 4 commercial passenger jet airliners were hijacked by nineteen terrorists affiliated with al-Qaeda.

On the morning of September 11, the world changed. In the wake of the terrorist attacks in New York, Washington, and Pennsylvania, the United States launched a global campaign not only against the perpetrators of those attacks but also against terrorism itself, wherever it exists.
There can be no excuse, no justification, and no rationalization for these acts of mass murder of innocent people.

The attacks inflicted casualties and material damages on a far greater scale than any other terrorist aggression in recent history. Lower Manhattan lost approximately 30 percent of its office space and a number of businesses ceased to exist. Close to 200,000 jobs were destroyed or relocated out of New York City, at least temporarily. The destruction of physical assets was estimated in the national accounts to amount to $14 billion for private businesses, $1.5 billion for state and local government enterprises and $0.7 billion for federal enterprises. Rescue, cleanup and related costs have been estimated to amount to at least $11 billion for a total direct cost of $27.2 billion.

The 9/11 attacks drastically increased the perceived risk of large-scale terrorist attacks in Central Business Districts and placed particularly large pressures on major financial centers, like New York, London, and Chicago. From the point of view of an economist, the increased threat of large-scale terrorist attacks in Central Business Districts has profound potential implications, given the crucial role of Central Business Districts in economic activity.


The Costs of Terrorism
Terrorism raises the risk and cost of doing business, whether that business is diplomacy, manufacturing, or sales.
Examples:

• The AP reported in October that nearly 200,000 people were laid off after 9/11, including close to 40,000 in the aerospace industry

• An airline industry spokesman estimated in October that the world’s airlines may have lost as much as $15 billion due to passenger and freight cut backs

• New York City’s comptroller estimated the attacks will cost the city’s economy $1.7 billion in lost sales and $1.75 billion in lost rent by the end of FY 2003

• The world’s insurance industry took an estimated $50 billion hit. The cost to insurers will be passed on to all of us, but primarily to businesses.

These costs are huge and affect every aspect of the business world. We must take up the challenge – together – to defeat global terrorism.


Pipeline Security
Another area of major concern to businesses is the safety of oil pipelines.

• According to the American Petroleum Institute, U.S. consumers use 20 million barrels of crude oil a day (bpd).

• Domestic refineries process only 6 million bpd. – Hence, the majority of petroleum is imported.

• In 2001, Colombia’s Cano-Limon-Convenas pipeline was attacked 170 times and was shut down for six months. Total loss in revenue was $500 million (based on 115,000 bpd). It has been attacked 13 times so far this year.

Protecting the petroleum infrastructure is a big job. We are working with the petroleum industry to help them keep these pipelines safe from attack. For example, we are currently developing a series of pipeline security courses for Colombia that will assist in such areas as the electronic detection of line tampering, and the development of a Rapid Response Force to repair damage after attacks. This program also has important applications to the new pipelines being planned in Central Asia.

Importing and Exporting
Every country has its own special blend of natural resources that are indigenous to its particular region of the globe. These resources help to drive a country’s economy and fuel the markets around the world. However, very few countries can be entirely self-sufficient in every aspect of the marketplace. Even if a country does have the resources to produce all its basic products domestically, there is always a market for imported luxury items. The following highlights some of the ways in which terrorism impacts how importing and exporting is done throughout the world.

The threat of biological terrorism raises fears in regards to the importing and exporting of products from one country to another. Terrorists could possibly contaminate a shipment with a biological weapon, such as anthrax, in order to infect those that will receive the contaminated shipment. This has led to many countries making stronger regulations and taking security precautions to help deter the threat of biological contamination.

The effects of heightened security surrounding the importing and exporting of goods result in higher costs passed onto the consumer. Such price increases serve to shape the financial world of importing and exporting. Due to higher costs, companies may decide that importing or exporting a particular product is no longer cost effective. If importing and exporting continues to occur, profit margins may be effected which will in turn hurt the overall performance of the company and its value on the market. This is how terrorism serves to shape the world economy by affecting the importing and exporting habits of virtually every nation around the globe.

Human Loss
The loss of human life is undoubtedly the tragic side of terrorism. The effects of the deaths of loved ones are tremendous. The business world does not go unaffected by these human losses; the loss in labor force and other key players in a company can cause significant negative effects. During the September 11th attack, the lives of many were lost, including top level executives from Morgan Stanley, Merrill Lynch, American Express, and many other publicly traded companies. Not only did these companies lose a corps of wonderful human beings, but many lost their most important leaders and thinkers. The result was a tragedy for the victims’ families and the companies, as well.


Tourism
The economic importance of tourism is undeniable. According to the World Tourism Organization (WTO), international tourism generated $476 billion in 2000, a figure that accounts for roughly one-tenth of global total tourism revenue, suggesting that, with domestic revenue, current total tourism revenue could be as high as five trillion dollars.1 For many countries in the developing world, tourism is a critical source of revenue generation and therefore a major component of economic development, a relationship that rewards states when positive conditions such as a strong global economy exist. But what happens when negative conditions exist, such as terrorism? The impact of terrorism on a state’s economy may be enormous, leading to unemployment, homelessness, deflation, crime and other economic and social ills. According to Adam Blake and M. Thea Sinclair, two scholars who have studied the impact of the September 2001 al Qaeda strikes on the U.S. tourism industry, “The contribution of tourism and travel to both industrialized and developing countries is now so great that any downturns in the level of activity in the industry are a cause of concern. The repercussions extend beyond activities directly associated with tourism, notably airlines, hotels and catering, to sectors that supply intermediate or final goods that are purchased by firms and employees in the industry, so that all
sectors of the economy are affected to a greater or lesser extent.”


Impact of terrorism on the world economy - Fear
Terrorism can bring an economy to its knees because of fear. Businesses may be afraid to operate as normal because of fear that another attack will happen. Increased costs in security can cause companies to fall on economic hard time ultimately decreasing the value of their stocks and hurting shareholders. One such example of this phenomenon is the resulting collapse of small or floundering airlines after the September 11th attacks on Americans in 2001. Fear can often lead to erratic stock market behavior. Those that play the stock market are looking for predictability and a terrorist attack provides anything but a stable market.


Impact of terrorism on the world economy - Air Travel
Airplanes are excellent targets for terrorists for one simple reason, the helplessness that passengers have when on an aircraft. If a terrorist tries to take hostages on the ground, people can try and run, the police will soon arrive, and the situation is contained within one location. On an aircraft, there is nowhere to run, no police in sight, and the location of the hostage situation is constantly changing. This presents a very difficult problem to law enforcement who are incapable of defusing a situation. The moment at which terrorists succeed at using airplanes to inspire fear in air travelers they have accomplished their aim. Since 9/11, the airline industry has been wracked with increasing economic problems, from security to increased ticket prices, to a drop in air travelers, along with a host of other fall-out factors. And, now, the increasing cost of oil is forcing once solid industry giants to lose their financial footing.


Risk factors that may increase adjustment problems for children

• Intense or prolonged exposure to the event, including geographic proximity;
• Witnessing or sustaining an injury;
• Perceiving a threatto themselves or loved ones;
• Other major life stressors, such as parental divorce or the death or hospitalization of a family member;
• Death of parents, siblings, or close friends;
• Having parents who are traumatized themselves by the event;
• Disruption in daily routines, residence, or school;
• Television exposure following the event, even if the child was not directly affected.

Attacks
The number of pirate attacks worldwide has tripled in the past decade, and new evidence suggests that piracy is becoming a key tactic of terrorist groups. In light of al Qaeda's professed aim of targeting weak links in the global economy, this new nexus is a serious threat: most of the world's oil and gas is shipped through pirate-infested waters.

The recent crackdown on terrorist financing has required states to increase their vigilance of money laundering. Similarly, states must come together to levy sanctions against third parties that facilitate hijacking. Existing measures are insufficient to ensure that hijacked ships are not able to operate under what are known as "flags of convenience." Countries such as Liberia, Malta, and Panama provide what amount to flags for hire-enabling dubious companies to register ships that they do not own. Although the IMO has agreed on "Measures to Prevent the Registration of 'Phantom' Ships," these measures have no teeth and must be strengthened. If a state cannot ensure that the ships it is flagging are legitimate, then all of the ships flying its flag should be blacklisted and prevented from entering the territorial waters of other states. If international agreements cannot be put into place to enforce this measure, then consumer countries must consider implementing such blacklists independently. This is not at all a trivial task, as the majority of cargo shipped to and from the United States is transported on ships sailing under foreign flags.



Conclusion

Effective action to combat terrorism will generate significant benefits for the global economy, preventing losses from reduced trade flows and investment undermining economic growth. Since international goods and financial markets transmit terrorism's costs well beyond the country where acts occur and terrorist groups operate across borders, any economy's actions to curb terrorist activities should produce global and regional benefits. Similarly, failure to counter terrorism will produce costs for all economies and populations. Given their active participation in international trade and high investment requirements to promote growth, developing APEC economies have at least as much to gain from countering terrorism as industrial economies.
The prevention of terrorism cannot reach perfection, everyone has a part to play in. It is a long term matter to clear the terrorism.
We should cultivate ourselves to be an alert citizen which able to save you and me. Beside this, the goverment will also plaay a big part to prevent in by educate you and me and the future generation to what is the impact from the terrorism.

http://www.terrormarketeffect.com/index.shtml

http://www.state.gov/s/ct/rls/rm/8839.htm