Socio-Economic Consequences of Terrorism

1. Socio-Economic Consequences of Terrorism Prepared for the International Conference on Countering Terrorism 18-20 October 2007, BMICH, Colombo Anila Dias Bandaranaike (formerly, Director of Statistics, Central Bank of Sri Lanka) 20 October 2007

2. Socio-Economic Development Nations strive to improve the quality of life of all their citizens, which requires sustainable economic development that minimises regional inequalities in well-being, deprivation and poverty.

3. What Drives Economic Development? • Players – individuals, households, institutions, government • Access to Land (physical resources) • Land: for cultivation, manufacturing, service areas • Transport: roads, rail, vehicle fleets • Communications: posts, telephone, computers • Utilities: fuel, electricity, gas, water, drainage • Access to Labour (human resources) • Education: quality and relevance to labour market • Health and Nutrition: for productive labour force • Labour laws: conducive to productive employment • Access to Capital (financial resources) • Domestic savings: to finance investment • Finances: for investment and production

4. Manifestations of Terrorism(including impact of armed combat between security forces and terrorists) On Land • Devastation of lands • Destruction of physical infrastructure • Extortion of goods, services • Terrorist/conflict related economic activities On Labour • Killings, injury, abductions of individuals • Displacement of communities • Psychological intimidation of individuals, communities On Capital • International criminal financial activities • Financial extortion from individuals, businesses

5. Socio-economic Consequences Impact can be • Short-term • Medium-term • Long-term We also need to address socio-economic causes of terrorism towards prevention of its further expansion

6. Consequences – Short Term On Land • Loss of natural resources from devastation, degradation, inaccessibility • Loss of housing, household amenities, economic activity due to destruction • Loss of production due to destruction of plant and machinery • Loss of production due to inaccessibility of land areas On Labour • Loss of skills, manpower from death, disability, displacement • Loss of efficiency, output from fear, uncertainty • Loss of judicial, education, health services from destruction, destabilisation On Capital • Higher inflation due to security related costs of transport • Lower budgets for development due to higher defence costs • Higher interest rates due to higher government borrowing • Price volatility and black markets due to disruptions to supply systems • Volatility in financial markets due to financial crimes by terrorists

7. Household Lifestyles – Utilities • Access to power includes high share of illegal connections in N, E • Sanitation conditions lowest in N,E • Access to safe water lowest in N • Conflict has affected access to all utilities in N,E • Source:CBSL, CFS 2003/04

8. Defence Expenditure-Sri Lanka(Rs. Million) • Nominal defense expenditure fell during ceasefire in 2003 and 2004 • Defense expenditure and Government debt have doubled in 6 yrs. • In 2006, 43% of Government expenditure was debt servicing.

9. Inflation TrendAnnual Average Change % • Inflation fell dramatically during ceasefire period from early 2002 to early 2004 • Domestic production, transportation and distribution of consumer goods improved with improved access and confidence

10. Consequences – Medium Term On Land • Lower investment due to • reduced access/opportunities • economic uncertainty • Lost efficiency in goods transport/distribution due to security constraints On Labour • Decline in conflict areas of • education levels • health conditions • living conditions • Loss of skilled, unskilled human capital due to internal, external migration • Reduction in domestic demand, hence output – e.g. leisure, transport • Reduction in external demand, hence employment -e.g. tourism • Greater demand for security related goods and services • Business opportunities arising from conflict - .e.g. supplies to terrorists, armed forces On Capital • Higher financial costs due to evolving security features in financial institutions • Lower domestic savings and capital flight due to extortion • Capital flight and reduced foreign inflows due to uncertainty

11. Household Population Structureby Gender and Age • Male population share lowest in N, E • Share of working age population lowest in N,E • Males, working age population have left N,E for employment elsewhere or died or gone underground. • Source:CBSL, CFS 2003/04

12. Labour Force Participationby Gender • Lower LFPR in N,E for both sexes • LFP affected by conflict conditions in NE • Workers have moved away from N,E • Source:CBSL, CFS 2003/04

13. Household Income Shareby Source • Income share from occupation lowest, from transfers highest in N,E; from property lowest in N • Migration for employment away from N,E • Unsettled investment, employment climate in N • Source:CBSL, CFS 2003/04

14. Some Field Observations-Sri Lanka Output of Goods and Services grew during ceasefire • Expansion of economic activities in conflict/border areas • Cultivation of previously abandoned lands Inflation fell and employment rose during ceasefire • Prices fell with higher production and lower transport costs • Prices fell with resumption of markets between N and S • Employment opportunities rose for plantation youth in urban areas Living conditions improved during ceasefire • Agricultural produce from N to S, construction and consumer goods from S to N, raised access to goods and economic opportunities • Private transport services expanded, raising economic opportunities • Travel time reduced drastically, raising efficiency, convenience • Evening movement of persons rose, raising economic activity – e.g.transport, leisure, restaurant services • Domestic tourism rose, raising economic opportunities

15. Some Field Observations- International Volume and Direction of International Travel • Security in airports/seaports has extended travel time, reduced efficiency of business travel • Security concerns have changed direction of tourists and students -e.g. Middle East, Asian markets away from West Adverse Impact of International Media • Irresponsible media reporting of terrorism activities has impacted adversely on investment decisions and economic activities globally New Economic Opportunities • Security concerns have created new security related services, financial regulation services, communication features • Terrorist needs have expanded arms manufacture, illegal activities, supply of goods to armed forces and terrorists Loss of Privacy • Security related developments have led to invasion of privacy –e.g. registration of persons, tracing of phone calls

16. Consequences – Long term Future economic development will be affected by • Economic rehabilitation needs of • bereaved families • disabled citizens, forces, terrorists • displaced persons • armed forces- manpower deployment in peace time? • Psychological rehabilitation needs of • armed forces and families, terrorists and families, other affected • Children and new generations who grew up in conflict areas/times • Polarisation of ethnic/religious groups • in work environments • In communities and schools • Social problems of • migrant families-alcoholism, incest • migrant returnees-readjustment, re-employment • Deterioration from non-use of physical infrastructure • hotels and other buildings • Commuter roads and railways in conflict areas

17. Risk Factors and Suggestions to Address Socio-economic Outcomes of Terrorism • Poor focus on prevention - address causes, not consequences, of terrorism • raise awareness towards consensus and national consciousness • Improve economic access thro’ better infrastructure, education, health • Change attitudes towards tolerance, understanding of others’ needs • Confrontational approach - self defeating • With every innocent citizen/family affected by the annihilation of existing terrorists, new terrorists are born • Every displaced immigrant will support the terrorist cause (diaspora) • Every affected non-citizen will sympathise with terrorist causes (harrassment) • Adverse role of media – Sensational news items attract readers at a cost • affect economic decisions by creating undue panic and misconceptions • need change to balanced, unbiased, analytical reporting of facts • High powered negotiations vs. ground reality – need realistic review • impact of “adopted conventions” and “ratified protocols” • Impact of local catalysts “in situ”

18. Thank You