In the aftermath of 9/11, close to 200,000 jobs were lost or temporarily relocated out of Big Apple. Lower Manhattan alone lost 30% of its office space and scores of businesses disappeared. In the first trading session after Bali bombings (2002), the Jakarta stock market plunged more than 10% and rupiah plunged 3.7%. The trend is obvious elsewhere too?the train attacks in Madrid (2004), London (2005), and 26/11. Though numbers fail to quantify the impact of such acts on human psyche, the linkage of terror strikes to industry sentiments is evident. Terrorism besides spreading fear has its primal focus on crippling a country?s economy.
Terrorism and political violence are becoming major concerns for businesses while investing capital in politically unstable areas. In the subcontinent, private foreign investors have given Pakistan, Bangladesh and Nepal a miss due to the lack of peace or a friendly investment climate. ?The adverse impacts halt industry to prevent it from making investments. This has happened especially after 26/11 and a number of industrial plans at Western coast have suffered,? says D S Rawat, secretary-general, Assocham.
Paul R Pillar, Center For Peace And Security Studies, Georgetown University, points out, ?How much investment is curtailed for these reasons is impossible to quantify, as they involve decisions not taken and proprietary information of individual firms.? Rajeev Chandrasekhar, MP & chairman, Ficci Taskforce on National Security and Terrorism, says, ?26/11 caused short-term loss in confidence but more importantly brought the focus of this threat to corporate India. Political and country risks so far, hasn?t impacted India in the same manner as it has Pakistan, Bangladesh, and Nepal.?
In a report ?Under Attack: Global business and the threat of political violence?, by Lloyd?s and the Economist Intelligence Unit (EIU), which involved 154 global business leaders, highlights that over a third of companies avoid investing in overseas markets for fear of political violence, while 20% have relinquished promising business opportunities. It revealed that in the last decade, in addition to those who perished after 9/11, nearly 2,000 people have died in terrorist attacks on business alone, and around 20% of terrorist attacks are aimed at the business community.
Boards are spending an increasing amount of time discussing associated risks, says the report. It adds that though large numbers of Western companies are investing into India?s booming economy, but not all of them fully appreciate the risks of political violence in India.
The correlation of security and investment flows is evident. Bundeep Singh Rangar, chairman, IndusView, shares, ?Pakistan?s economy is estimated to have lost $40 bn in the backdrop of terror. FDI in Pakistan took a deep plunge of $1.68 bn or 31.2% during 2008-09. During 2008-09, foreign investors withdrew $1.053 bn they had earlier invested in Pakistan?s securities, including government bonds. Net foreign investment declined by $2.78 billion or 51%.?
Rangar adds, ?Following the 26/11, hotels witnessed about 60% booking cancellations. 30% decline was seen in the sale of Mumbai-bound air tickets. Hotel occupancy in western India fell by 25%. Estimates suggest that the business loss on the two days of the strikes was approximately Rs 50,000 crore.?
The brimming insecurity in AfPak is having considerable spillover affects on the Indian investment climate as well. Maroof Raza, strategic analyst, quips, ?I cannot name companies that have faced the negative impact of what has happened in the region.? He adds, ?Almost all companies have set aside plans of investment in the Af-Pak region. The only big players who had wanted to invest there about two decades ago were American oil companies, but those plans have been abandoned long ago.?
Col R Hariharan, military intelligence specialist on South Asia, avers, ?Af-Pak is a no-go area for businesses except for UN and other international contracts. As for India, if terrorism spills outside J&K in a big way, FDI will go down and trade and marine insurance costs will shoot up.? NS Sisodia, Director General, IDSA, says, ?The IPI gas pipeline is a victim of this insecure climate. Earlier for decades, both infrastructure and businesses had suffered due to intense civil strife in Sri Lanka.?
Shylashri Shankar, senior research fellow, Centre for Policy Research, says she expects to see a rise in FDI, but ?I am apprehensive that FDI will have a negative impact on the minorities eg If Tamil-owned resources are given to Indian or Chinese firms at low rates. So FDI is a double-edged sword.?
On the other hand, Gopalji Malviya, head, department of defence and strategic studies, University of Madras, says, ?Sri Lankan companies would certainly do good business in south India. But, due to the anti-Sinhalese sentiments and political sensitivities, Sri Lankan companies would not like to invest here. Similarly, the Indian experience in Nepal, in recent past has not been encouraging.?