The Cost of Terrorism

Economic impact of terrorism related incidents

According to the 2015 Global Terrorism Index, the cost of terrorism to the world was $52.9 billion in 2014, the highest value since 2001, and a tenfold increase on the same value in 2000.

The cost has been proportionately higher in certain economies as the following examples indicate:

  • In Nigeria, terrorism has caused foreign direct investment to drop by $6.1 billion or 30%
  • Since 2005, terrorism has cost Iraq over $159 billion, or 32% of GDP
  • The total economic costs of the 9/11 attacks has been estimated by the New York Times at a staggering $3.3 trillion dollars

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A detailed study on the economic impact of the terror attacks in Paris on Nov 13, 2015 found four distinct economic impacts which are applicable to terrorist attacks in any major Western city

  • The first impact is an immediate and sustained decrease in tourism which typically affects the whole country, not just the area where the incident occurred
  • The second impact is a decline in consumer spending as consumers reduce their exposure to large public spaces in the city such as shops, cafes, restaurants and major sporting events
  • The third impact in the psychological impact on consumers – the threat of terrorism has been shown to have a significant impact on consumer sentiment which results in families delaying major expenditure such as new cars, consumer electronic and holiday
  • The fourth impact is the significant costs and productivity lost through increased security measures including screening and access control to public spaces

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A study conducted by economists in the United States found that the economic effects of the publics change in behaviour are 15 times more costly that the immediate damage in the wake of an incident.  When surveyed 41% of shoppers would still avoid an area where an incident had occurred and employees would require a 45% increase in wages to return to their jobs.  The study also found that increasingly the threat of terrorism (without actual incidents occurring) also had a significant impact on the way people behaved.

In Australia, ASIO has confirmed that security operations have prevented 4 mass casualty attacks since September 2011.  Victorian police have similarly conducted numerous raids aimed at disrupting potential attacks, most recently prior to Christmas.

It is also important to consider the cost of ‘false alarms’ or false positives which occur when a full security response is activated in response to a suspicious object or activity which ultimately turns out to be innocent.

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In Melbourne these types of incidents have become increasingly common:

  • Aug 30, 2014 – Closure of the Bourke Street mall and surrounding streets following a hoax bomb threat
  • 23 January 2015 – Elizabeth Street in Melbourne’s CBD was evacuated after a bomb threat
  • Nov 17 2015 – Several streets in the Melbourne CBD were closed and buildings evacuated after a suspicious shoebox was abandoned in Collins Street near Southern cross station
  • January 10, 2015 – Closure of Terminal four at Tullamarine airport after a hoax bomb threat
  • November 20 2015- Evacuation and lockdown of Station Pier after the reporting of a suspicious package
  • January 12, 2017 – Evacuation of the Moorabbin justice complex after a bomb threat

In all of these incidents the locations were subject to lengthy lockdowns and / or evacuations.

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Determining the short term economic impact for these is at one level relatively simple – lost productivity from workers forced to evacuate or locked down and lost retail turnover both during the incident and in subsequent weeks.  Whilst this understates the true cost of these ‘false positives’ it provides ample evidence that these events are extremely costly and this cost could have been prevented if a cheaper and quicker way could have been utilised to determine the true risk.

As an example, using our modelling methodology, the 2014 closure of the Bourke Street Mall resulted in retail losses in excess of $200,000 on that day alone.  The evacuation of buildings surrounding Southern Cross station in 2015 as the result of the suspicious shoebox resulted in potential productivity losses in excess of $1 million.