11 Negative Impacts of Terrorism on Global Marketplace

1. Disruption of financial and currency markets: The Norwegian Capital market has cumulative losses of approximately 25% in the 11 days after 9/11 attack. It took 107 days for the Norwegian stock exchange to recover, the second longest recovery period among stock exchanges worldwide, behind the Johannesburg securities Exchange, which took 162 days to recover.

2. Bad effect on transportations systems and infrastructure

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3. Distortion of global prices of key commodities

4. Increased security costs for the corporate world: Some firms have increased security budgets to defend against possible terrorism-related threats.

5. Disruption of Internet and telecommunications infrastructure: Hacking of computers and spread of viruses is a common trait of educated terrorists. Internet viruses are dangerous for identity fraud. In 2005, there were about 60 cases per 100,000 people. It shows the vulnerability of the Internet to terrorism.

6. Increase in political risk of investment: Numerous firms appear to include terrorism in decision making while choosing international markets, as well as locating and managing foreign operations.

7. Reduction in GDP: The US had to suffer 0.75% reduction of the 2000 GDP. The train bombing attack on March 11, 2004 and the London terrorist attack on July 7, 2005, damaged not only these economies but also the Europe and the world economy.

8. Reduction of FDI flows: During 2001-02, net private capital inflows to emerging economies decreased from $ 167 billion to $106 billion, a decrease of 36.5%.

9. Hospitality industry (tourism and hotel) and insurance industries feel the brunt: International arrivals decline, international and national flights are reduced. The tourism industry is the world’s largest industry in terms of inputs to gross world product, approximately 11%. It employs around 207 million people worldwide. In 2006, due to terrorist attacks and threats on Turkey, it lost between $4-5 billion and tourist arrivals decreased by 20%. The world’s insurance industry parted with about US$ 50 billion. Reinsurance companies think terrorism as an uninsurable risk.

10. Specific indirect effects include declines in buyer demand, increased IB transaction costs, government regulations to deal with terrorism, and interruptions in international supply chains. US now requires firms to submit manifests of merchandise imports and exports. Container Security Initiative, Maritime Transportation Security Act, International Ship and Port Facility Security code, and the Patriot Act have imposed tens of billions of dollars in compliance and other costs on private sector firms. Such measures affect the competitiveness of international firms, partly by increasing business transaction costs.

The Ford Motor Company, though not a direct target, lost US$ 30 million due to 9/11 because of supply chain disruptions. Nigeria, the eighth-largest petroleum producer in the world, due to an attack on ‘ oil tankers had to face a 20% reduction in its oil exports.

11. Above all these economic losses, the most negative impact is psychological, i.e., a fear in the mindsets of barriers against globalisation, liberalisation and free trade. Decrease in tourism, both domestic and international, is a direct result of psychological impact of terrorism. Such psychological barriers become real barriers for international business.

In 2006, Dubai Ports World, owned by the Dubai Government, purchased the British company Peninsular & Oriental Steam Navigation, the US Congress felt uncomfortable; and the Dubai Ports World sold it to an American Company.

Preparing for exposure to terrorism by minimising risk and maximising flexibility of response is particularly important for companies doing business in countries or regions where attacks are more frequent, but should happen for all locations. It includes creating a disaster plan. The twenty-first century bandits are highly organised and heavily armed.

In cargo shipment the international cargo losses of $30-50 billion are because of open seas shenanigans. Some of the vulnerable parts include Southeast Asia and the Indian subcontinent, and Africa and Gulf of Aden. Companies doing business in these and surrounding areas face higher cost because of increased security measures that include installing electric fences on cargo ships.