France is the most visited country in the world. Yet, following the recent Islamic State-motivated attack in Nice, travel stocks dipped considerably. Was the drop a short-term fluke, or will sustained market falls become the new normal in countries targeted by terrorism?
The nature of terrorism is changing. What was once small groups planning “spectacular attacks” like 9/11 is becoming an anyone, anywhere phenomenon. We saw examples of this trend in Nice, and before that in Paris, Brussels, Dhaka, Bangladesh, Istanbul as well as other places that once seemed unlikely targets. Clearly, the response to terrorism can no longer be left only in the hands of police and Special Forces. As new areas are affected, we need to develop a whole-of-society approach that would involve other sectors -- especially business.
Typically, stock markets rebound quickly after a terrorist attack. But their resilience is applicable to stocks in the aggregate, and to markets in the short term. Tourism, transit and other related industries may experience deeper impacts, such as Bangladesh’s garment industry or Turkey’s tourism sector. According to a study by the Institute for Economics and Peace, terrorist violence cost the global economy $113.5 billion in 2015.
One study, from 2006, estimated that when a militant attack targets companies, the per-firm impact results in a loss of $401 million in market capitalization for a number of years. A 2013 study pointed to a 2.5 percent reduction in stock market indices in smaller countries within 11 days of a larger trading partner suffering an attack. When assaults become commonplace, a long-term trend may result, such as the economic damage to Northern Ireland during The Troubles. As we have seen, the indirect political fallout related to fears of a terrorist attack can lead to border closings, as in Europe. Cultural friction can have commercial repercussions too. Consider, for example, how the United Arab Emirates issued travel warnings to citizens in the United States after an Emirati was held at gunpoint while wearing traditional dress in Ohio--and what that might mean for multinationals doing business in both countries.
Islamic State-inspired attacks could become commonplace in the next three to five years. According to researchers at the University of Maryland, fatalities from terrorist attacks overall are up tenfold since 2000. In addition, since 2011, more than 36,500 foreign fighters from more than 100 countries have traveled to Syria and Iraq to fight for jihadi groups like Islamic State, including an estimated 6,600 from Western countries. As we saw in Paris and Brussels, many of these fighters are from immigrant families; they return home to create lethal networks in previously unaffected areas. Islamic State is also cultivating global branches outside Iraq and Syria with the aim of motivating individuals with no direct connection to the group to kill in its name.
As many studies show, attacks seldom happen out of nowhere.
Long before an individual kills, there tends to be a pathway to his or her radicalization that could have been interrupted through opportunity, a sense of community or counseling. In many cases, the private sector is best placed to create such openings. Some companies have taken on this challenge, notably in the technology sphere. Facebook, Twitter and Google’s parent company, Alphabet, made a recent investment in countering extremist narratives online. Companies that have adopted the Voluntary Principles on Security and Human Rights to show appreciation for their local communities may follow suit.
Organizations like Islamic State abuse commercial products like social media and target employees and infrastructure in ways that can disrupt supply chains (if not worse) and hurt global commerce. So why is the private sector loathe to contribute funds toward preventing extremism? Probably because it has yet to affect their earnings systematically. But that may be changing. More attacks could create enduring security or political risks to the commercial sector and reduce profits through sustained risk premiums.
The top voices in political-risk management need to convince companies with social responsibility programs to focus their projects on communities where violent extremist recruitment is a concern. Such an approach could create hope, provide for a sense of identity for a local population and mitigate the risks of violent extremism. The investments could drive down risk premiums and prevent shocks to industry after new attacks. Additionally, private-sector initiatives may be more effective because they would not come with the same credibility burden of those from government.
The Obama administration has stepped up efforts to prevent radicalization and to encourage – though, not necessarily to incentivize – private investment in this cause. Recently, the administration asked “Madison Valleyood” (Madison Avenue, Silicon Valley and Hollywood) to come up with more innovative solutions, particularly from sources more palatable to impressionable youth than the U.S. government. However, Congress has seldom provided enough resources to address the challenge from a prevention perspective, and many of the existing public-private partnerships are either nascent or superficial.
Big businesses are not helpless bystanders. We need to ask them to provide practical aid to communities at risk of fostering a climate for violent extremists. That aid could save lives — and boost their bottom lines.
About the Author
Ryan B. Greer is CEO of Vasa Strategies, a social impact and political risk consultancy. He has worked at the White House and the U.S. Department of State on countering terrorism.
The views expressed in this article are not those of Reuters News.