The economic toll of the new age of terrorism

Mohamed Samir
11 Min Read



In the wake of the recent attack in Nice, the ongoing battle against Islamic State (IS) insurgency in Sinai and Sirte, and the feelings of shock, confusion, and uncertainty that ensue, we must raise the question: what is the real price of terrorism?

The attack in Nice is the latest in a string of major incidents that are occurring on a global scale, with a notable increase in frequency since the beginning of the 21st century, especially in the Middle East and North Africa, Europe, Pakistan, and Nigeria.


According to the Institute of Economics and Peace (IEP) Global Terrorism Index (GTI), the total number of deaths from terrorism-related incidents increased by 80% in 2014, as compared to the previous year which marks the largest yearly increase in the last 15 years.


Until 2014, terrorism had remained highly concentrated with most of the activity occurring in just five countries—Iraq, Nigeria, Afghanistan, Pakistan, and Syria. However, 2015 and 2016 witnessed a huge geographical spread of attacks to other countries; the most recently affected countries are Egypt, Libya, Tunis, Turkey, France, and Belgium.


The change in terrorism trends

Terrorism has changed over the last 15 years, with the most apparent new trend being that terrorism has become bloodier. More than 61,000 incidents of terrorism, which have claimed over 140,000 lives, have been documented. Since the beginning of the 21st century, there has been a nine-fold increase in the number of deaths from terrorism, rising from 3,329 in 2000 to 32,685 in 2014.

That comes as a result of the noticeable change in terrorists’ targets. In 2014, there was a sharp increase in civilians being targeted (rather than police, army, security personnel, and officials), which reflects the increasing lethality of Boko Haram and IS who predominantly target civilians.

IS, also known as Daesh, the terrorist group originally based in Syria and Iraq, killed 5,002 more people in 2014 than the previous year. The most devastating attacks for which the group claimed responsibility were the downing of the Russian Metrojet in October 2015 over Sinai, which resulted in the death of all 224 passengers and crew on board; the Paris Bataclan theatre massacre, which claimed the lives of almost 130 innocent citizens; and the latest attack in Nice, France.

As of 2014, the number of deaths in western countries that were the result of terrorism was 37. That was before the change in IS’s strategy in the wake of the global coalition that was formed to fight the group in Syria and Iraq. The more ground IS lost in Syria, the more it started desperately depending on random lone wolf attacks for “publicity”, which lead to a terrifying increase in the death toll in western countries. 2015 and 2016 alone recorded more than 315 deaths—an 800% increase compared to 2014.


Drivers of terrorism


Although there are many factors contributing to the rising global terrorism phenomenon, IEP highlighted some of the more significant factors. One of the main drivers is ongoing conflict [in the region/area], as well as political violence, sectarian violence, and high-level grievances among a significantly-sized group.

These findings raise the question: why would individuals become foreign fighters for a violent extremist group? In search of answers, the United States Institute of Peace (USIP) carried out a study of around 2,000 individuals who chose to leave their home countries to fight for Al-Qaeda.

The main findings of the study were:

  • Most of the fighters had made a measured choice to join Al-Qaeda; they did not exhibit an anti-social behaviour before joining, and were the most devout and reliable
  • The individuals could not be grouped into a single economic profile
  • Many were raised in Muslim households and had an inadequate understanding of Islam
  • They were not approached by Al-Qaeda but rather sought out membership


Economic cost of terrorism and violent containment

For many countries, terrorism does not have a meaningful impact on economic growth or foreign direct investment (FDI); however, following very large terrorist events, or for countries with very high levels of terrorism, there can be very notable economic impacts.

For instance, large attacks such as 11 September 2001 can have a significant economic impact. It is estimated that the loss of life and destruction of infrastructure from this attack amounted to $14bn in New York alone.

Very significant levels of terrorism can also cause a large decline in output. In Nigeria, FDI decreased by 30% due to increased levels of terrorism in 2010. IEP estimates the direct global cost of terrorism amounted to $52.9bn—a 61% increase from the previous year’s total of $32.9bn, and more than a ten-fold increase since 2000.

In Egypt’s case, the downing of the Russian Metrojet has had a significant impact on the tourism industry, which is the cornerstone of the Egyptian economy, accounting for almost 11.4% of GDP, according to a report by the World Travel and Tourism Council Egypt.

Since the onset of insurgency by the IS-affiliated group Sinai Province in Sinai, the numbers of tourists visiting Egypt dropped dramatically to 9.3 million in 2015, compared to 14 million in 2010. This dropped again by almost 40% after the downing of the Russian aircraft.


Moreover, the vast majority of the cost stems from death and injuries. Since 2000, there has been a growing trend towards minor bombings and explosions and a decrease in major property attacks—defined as those causing over damage worth over $1m. The direct losses from terrorism in 2014 accounted for $52.9bn, up from $32.9bn in 2013.

On the other hand, the most notable indirect cost of terrorism is the increase in security and military spending. IEP has aggregated national security expenditures, and found that the world spends approximately $117bn on national security agencies, which are tasked with preventing terrorist activity.

The US alone accounts for 70% of the total global spending on national security agencies. It is estimated that from 2001 to 2014, domestic security agency expenditure in the US has totalled $1.1tn.

Global military spending accounts for almost $4.9tn; to put this in perspective, this is almost twice as much as the African continent’s GDP. Further, the total global spending in the agriculture sector is $5.1tn.

Although national security agency expenditures are not fully devoted to counter-terrorism, it is still a major component of most intelligence agencies in the developed world. US domestic security agencies are estimated to devote 44% of their expenditure towards counter-terrorism.

In some countries the economic impact of terrorism is minor; but for countries most affected by terrorism, their economic growth and FDI are negatively affected. The costs of a single terrorist attack, particularly large-scale events, can be significant; however, most terrorist attacks are relatively small and it is usually other forms of violence that lead to a much greater human and economic cost.


While terrorism does have an impact on economic performance, it is only visible in countries experiencing a large number of attacks. Terrorism often occurs in countries with limited institutional capacity or low levels of development. Under these circumstances, terrorist events can have a significant effect on output, investment, and growth.


Yet, another very important economic factor needs to be considered, dubbed the “Peace Multiplier” by the IEP. Though the exact magnitude of this effect is difficult to measure, the total amount of expenditure that is dedicated to the containment of violence and terrorism is directed towards more productive areas such as education, infrastructure, and health, which will have significant economic benefits.


Max Abrahms’ publication What Terrorists Really Want: Terrorist Motives and Counter-terrorism Strategy. Abrahms is a professor on the Council on Foreign Relations and the Centre for Cyber & Homeland Security (CCHS) at Washington University.
Max Abrahms’ publication What Terrorists Really Want: Terrorist Motives and Counter-terrorism Strategy. Abrahms is a professor on the Council on Foreign Relations and the Centre for Cyber & Homeland Security (CCHS) at Washington University.

In order to achieve a significant reduction, there must be a change in the traditional counter-terrorism approaches; instead of only increasing security measures, a better understanding of the drivers of terrorism is required to deliver better and more efficient counter-terrorism strategies.

An efficient supply-side and demand-side counter-terrorism strategy is dependent on the terrorist’s incentive structure, according to Max Abrahms’ publication What Terrorists Really Want: Terrorist Motives and Counter-terrorism Strategy. Abrahms is a professor on the Council on Foreign Relations and the Centre for Cyber & Homeland Security (CCHS) at Washington University.

The supply-side strategies will help law enforcement to identify potential terrorists, unravel covert networks, and reduce the pool of terrorist candidates by limiting radicalisation. The demand-side strategies should focus on divesting terrorism’s social utility, mainly by driving a wedge between members by commuting prison sentences for intelligence and peace initiatives—similar to what the Egyptian government did with Al-Gama’a Al-Islamiyya in the 1990s.

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Mohamed Samir Khedr is an economic and political journalist, analyst, and editor specializing in geopolitical conflicts in the Middle East, Africa, and the Eastern Mediterranean. For the past decade, he has covered Egypt's and the MENA region's financial, business, and geopolitical updates. Currently, he is the Executive Editor of the Daily News Egypt, where he leads a team of journalists in producing high-quality, in-depth reporting and analysis on the region's most pressing issues. His work has been featured in leading international publications. Samir is a highly respected expert on the Middle East and Africa, and his insights are regularly sought by policymakers, academics, and business leaders. He is a passionate advocate for independent journalism and a strong believer in the power of storytelling to inform and inspire. Twitter: LinkedIn:
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