Economic Impact of Terrorism

Economic impact of terrorism is decreasing. The cost of terrorism has reached 89.6 billion dollars in 2015, it decreased by 15 percent from 2014. It as well reflects the overall decline in the number of people killed by terrorism. Still, the 2015 economic impact of terrorism was still at the second highest level since 2000. The economic losses caused by terrorism approximately increased by 11 times in the last 15 years. World has seen two peaks in the economic impact of terrorism and now we are living with the third one. First significant impact of terrorism started in 2001 after 9/11 attacks, second peak took place in 2007 and main cause was the peak in the Iraq war. In 2001 the economic impact of terrorism costed globally 10 billion dollars as in 2007 it has reached 37 billion dollars. The present peak from 2014 to nowadays has the biggest impact on economics with the highest 106 billion dollars a year, so from 2001 to 2014 losses to terrorism risen by 96 billion dollars. The figures shows how economy can suffer from terrorism. In the years 2015/2016 transnational terrorism has widely touched peaceful countries, including OECD states.
How the economic impact of terrorism is calculated? It is calculated using Institute for Economics and Peace methodology. Which includes the direct and indirect cost of deaths and injuries as well as the property destruction from incidents of terrorism. The direct cost includes costs borne by the victims of the terrorist acts and associated government expenditure, such as medical spending. Indirect costs include lost productivity and earnings as well as the psychological trauma to the victims, their families and friends. Unit costs for deaths and injuries are sourced from McCollister et al (2010).
Ten most terrorism affected countries are all conflict-affected countries. Countries from Middle East and North Africa, Sub-Saharan Africa and South Asia. The largest economic impact from terrorism was felt in Iraq, which loses 17.3 of GDP every year that is almost a quarter of entire Iraq’s economy, in second place is Afghanistan with 16.8 percent. The most interesting is that economic impact of terrorism is significantly small compared to the other forms of violence at the global level in 2015. The impact of violence costs 13.6 trillion dollars or 13.3 percent of GDP globally.

Rokas Barkauskas

References

Denise-Marie. Ordway. Martin Maximino Journalist’s Resource (2015). The Relationship between terrorism and economic growth: Research. Available at: https://journalistsresource.org/studies/international/conflicts/relationship-between-economic-growth-terrorism-new-research (Accessed: 13th April, 2017).

Joe Myers, World Economic Forum (2015). What is the economic impact of terrorism? Available at: https://www.weforum.org/agenda/2015/11/what-is-the-economic-impact-of-terrorism (Accessed: 13th April, 2017).

National Consortium for the Study of Terrorism and Responses to Terrorism (No Date) Available at: http://www.start.umd.edu (Accessed: 13th April, 2017).

Institute for Economics and Peace (2016) Global Terrorism Index. Available at: http://economicsandpeace.org/wp-content/uploads/2016/11/Global-Terrorism-Index-2016.2.pdf#page=64&zoom=auto,-20,516 (Accessed: 13th April, 2017).

Sub-Saharan Africa Growth Challenges

Growth in Sub-Saharan Africa region is estimated to have slowed to 1.5 percent rate in 2016, it is the weakest pace in over two decades, as commodity market lowered the price and region struggled to adjust to it. Per capita basis, regions GDP shrunken by an estimated 1.1 percent. The greatest causers of the regions struggle is South Africa and oil exporters, which contributes two-thirds wealth to the region’s economy.
Growth is expected to pick up slightly to 2.9 percent in 2017, as Sub-Saharan region is still adjusting to lower commodity prices. In 2017 oil exporters will be weaker again, as countries that are not gaining resources from natural ways will remain in strong position. As a comparison large infrastructure investments will continue to support growth among countries with wide agricultural economy, as Côte d’Ivoire and Ethiopia growth is expected to be above 8 percent.
Sub-Saharan Africa is facing serious problems. Externally uncertain trade policies from US and Europe could lead commodity market to even more fragile position. It could lead to higher borrowing costs and cut off capital flows to the markets. Upcoming elections in France can become the most serious impact to the region’s growth. France’s Central Bank hold foreign exchange reserves of 14 African economies and is considered to be a key figure for political stability and counterterrorism in Sub-Saharan Region. Large part of French business groups has good relations in the region. Main economic activities is: mining iron and oil export. First round of French elections will take place on 23rd April, and it is almost certain that no candidate will win a majority, final election between two front runners will be held on 7th of May. There are two main opponents in upcoming elections Marine Le Pen of the National Party and Emanuel Macron, an independent candidate. As French government has very strong relations with their colonies for decades, the new French government’s foreign policy will have a significant impact on them. If Le Pen will come to power, the French National Party will change the relationship with Sub-Saharan Africa and lean towards francophone Africa. Other major factor in Sub-Saharan Africa is French security presence, which is huge, it plays a very significant role in managing civil disturbance and extremism. Current French government are fighting the Jihad’s from beginning of West Sahara desert towards to Sudan territory. Nevertheless, France have deployed troops for peacekeeping in various African Countries.
Other strong sections that France is involved is: aid and trade. Africa is the first on the list when the speech is leaning towards aid. France gives 55 percent of aid to Africa, which 41 of 5 percent goes to Sub-Saharan Africa. In this instance Le Pen’s argument is that aid which Sub-Saharan Africa receives, encourages migration flows to get larger. Le Pen is planning to divert the aid to more to the side towards francophone Africa’s development.
Although Sub-Saharan region should recover its economy in 2017/2018 by 2.8 percent GDP, the internal risks regarding the growth looks poor, security and humanitarian issues in some of the Sub-Saharan region, as well as failure to make better trade policies across the region could stop he growth. Also we cannot forget the external risk from upcoming France government elections that could disrupt free trade agreements and potential international trades.

Rokas Barkauskas

References

Ricardo, A.Aceves. (2017) Economic Snapshot of Sub-Saharan Africa.
Available at: http://www.focus-economics.com/regions/sub-saharan-africa (Accessed: 12th April, 2017).

The World Bank (2017) Global Economic Prospects: Sub-Saharan Africa.
Available at: http://www.worldbank.org/en/region/afr/brief/global-economic-prospects-sub-saharan-africa (Accessed: 12th April, 2017).

World Bank Group (2017) Global Economic Prospects Weak Investment in Uncertain Times.
Available at: http://pubdocs.worldbank.org/en/712231481727549643/Global-Economic-Prospects-January-2017-Weak-investment-uncertain-times.pdf (Accessed: 12th April 2017).

Trade Facilitation Agreement – Global Economic Boost

Trade Facilitation Agreement was signed on 22nd February, 2017. This agreement is the most successful multilateral trade agreement since the establishment of WTO in 1995. Negotiations started in 2013 as part of the Doha Development Plan. WTO members acknowledged potential benefits because of the agreement for all of the members, but especially for developing countries. EU committed to aid financially to the countries which are in the largest need to meet the regulations of the Trade Facilitation Agreement. European Union has been one of the leaders in the efforts to sign the deal. EU hopes that this agreement will play a significant role in developing countries economy, for that reason EU committed to give 400 million euros that will assist to meet the requirements and the rules as set by the agreement. Here is few more examples of European Union’s commitments for developing countries: “Zambia Regional Integration Capacity Building Project” Grant amount: 2.66 million euros (part of COMESA Regional Integration Support Mechanism programme of 116 million euros). Starting date: May 2015. Key objective: To focus on key economic sectors, including important trade facilitation reforms, to improve border management in line with WTO Trade Facilitation Agreement. “Uganda Northern Corridor Road (NCR) Improvement Project” Grant amount: 167 million euros (EC contribution 122 million euros). Duration (2009 – 2014). Objective: To reduce transport costs and travel time on the Northern Corridor Route in Uganda with the aim of promoting economic and social development and facilitating international and transit trade and thereby boosting regional integration. The Northern Corridor links Burundi, the DRC, Rwanda and Uganda, as well as Southern Sudan to the Kenyan port of Mombasa.” (Source: European Commission Support for Trade Facilitation January 2017. Available at: http://trade.ec.europa.eu/doclib/docs/2017/february/tradoc_155332.pdf ).
Following the activation of the agreement by the Council and the European Parliament in 2015, EU actively encouraged other WTO members to approve the deal without postponing. As Chad, Oman and Rwanda validated the agreement the minimum requirement of WTO members required has been reached and the agreement was immediately was launched into force. So, how this ‘Trade Facilitation Agreement’ is going to contribute towards global economic rise?
The agreement aims to simplify and clarify the international import and export orders, customs formalities and transit requirements. It could reduce trade costs by an average of 14.3 percent and boost global trade by 1 trillion a year, with biggest contribution to the poorest countries. It will simplify commercial – related agreements and will lower the costs. This will help to boost to global economic growth quite significantly. European Union administration will have a leading role in the beginning of the agreement and will act as an example to follow towards further progress of this agreement within European Union and at global level. As Facilitation Agreement benefits globally are uncontested. Like: transparency, consistency and predictability, simplified border procedure there is costs of the agreement.
Agreement was signed when the minimum WTO member’s amount was reached, which is 110. Why others countries does not want to commit to the Facilitation Agreement? First reason is that poorest developing countries to improve the borders and customs systems may face multiple agreement demands on very limited sources. The governments have an idea that it will have to fund themselves some of the reforms, before the benefits will be seen in an increased revenue and trade despite EU financial aid and ability that reforms can bring the benefits to pursue further reforms. In general the main concern is that it is too early and difficult to say how much effective trade facilitation will cost and how much reform governments will have to undertake to start felling the benefits of the agreement. So this could be a cause why some countries are still not signing the agreement.
Even though the reforms are costly and complex, even the modest improvements will bring considerable relative gains. Costs that incurs in implementation of Trade Facilitation are mainly: new regulations, institutional changes, training, equipment and infrastructure.
Regulatory costs: Costs rise mainly because agreement requires new legislation or changes to the existing laws, which requires time and specialized people in regulatory work.
Institutional costs: Costs arise because some facilitation agreement measures requires deploying new units which requires additional staff. The costs rises if existing staff is relocated because of training requirements.
Training costs: This is considered as most expensive and most important subject in facilitation. It is most important trade facilitation principle as the agreements primary principle is to get more effective ways of doing trade between border agencies. Countries can choose to recruit new expert staff, train existing staff or ‘import’ trained staff through exchanges with other countries ministries and agencies. As recruiting or importing new experts are the most costly option, countries often decide to train old staff as it is less costly but as well more lengthy process, because staff still needs to perform their normal duties.
Equipment and infrastructure: Often these are most costly elements as well as staff training. Most of the equipment has to be carefully implemented and sequenced with regulatory, institutional or human resource changes. At the same time insufficient equipment and infrastructure make some facilitation measures too difficult to implement.
Generally the costs are significantly high, but those countries who undertake the reforms in trade facilitation have seen that benefits exceeds costs in very wide margin. Angola undertook a five year customs modernisation process, and even mid-way through the process Angola saw the increase of revenue by 150 percent and reduced customs procedures up to 24 hours.
Trade Facilitation Agreement is the helping hand for all of the world, but mostly for the developing countries which from first sight lookalike that will suffer from expensive costs of the reforms, but as we can see the benefits can exceed the expectations.

Rokas Barkauskas

References

World Trade Organization (No date) Trade Facilitation.
Available at: https://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm (Accessed: 9th April, 2017).

World Trade Organization (2017) WTO’s Trade Facilitation Agreement enters into force.
Available at: https://www.wto.org/english/news_e/news17_e/fac_31jan17_e.htm (Accessed: 9th April, 2017).

WTO Trade Facilitation Agreement Facility (No date) The Trade Facilitation Agreement.
Available at: http://www.tfafacility.org/trade-facilitation-agreement-facility (Accessed: 11th April, 2017).

European Commission Press Release Database (2017) EU welcomes entry into force of the WTO Trade Facilitation Agreement.
Available at: http://europa.eu/rapid/press-release_IP-17-188_en.htm (Accessed: 11th April, 2017).

European Commission (2017) European Commission Support for Trade Facilitation.
Available at: http://trade.ec.europa.eu/doclib/docs/2017/february/tradoc_155332.pdf (Accessed: 11th April, 2017).

OECD Policy Brief (2005) The Costs and Benefits of Trade Facilitation.
Available at: http://www.oecd.org/trade/facilitation/35459690.pdf (Accessed: 11th April, 2017).

Can Brazil Recover?

Brazil’s economy is still resisting to come back out of recession. Countries economy is trying to get out from serious, long and tiring economic stagnation. The main reasons of the decadence in Brazil’s economy were distrustful citizens, because of corruption in almost, actually not in almost in every political institution, very low consumer and business confidence, and low investment from the region. According to “Datafolha” poll data released on 2016, 63 percent of respondents throughout the country believed that Brazil’s government was “bad or terrible”, and only 13 percent (in other poll data agencies website’s it is even 6) were thinking that governmental institutions are doing a “good or excellent” work. It looks like that people’s patience have drained out, as in 2011 Brazil’s citizens showed 80 percent of trust in all governmental bodies. Only 4 other South America’s countries have less confidence in their government bodies: Columbia, Peru, Ecuador and Chile.
So what has gone wrong in Brazil? First thing corruption. The impeachment trial against Dilma Rousseff. The opposition indicted that ex Brazil president used the government’s accounts in 2014 when she was in the competition of her re-election. The trust figures that we have is explainable by the corruption scandals in the last decade, which has touched the highest groups of business and politics in the country. The biggest two were: Mensalao and Operation Car Wash.
“Mensalao” corruption scandal is a typical inequality and protectionism example. The wealthy business groups who controls the bigger part of the capital, were trying to pay the members of Congress to vote in crucial meeting, where policies were accepted. The scandal started in 2012, and in 2012 Brazil’s Supreme Courted concluded the Mensalao trial were 25 politicians, bankers and businessmen had been convicted. Some of whom were holding high positions in Worker’s Party. Yes, the same one as Ms. Ex-President Dilma Rousseff.

Second biggest scandal called “Operation Car Wash”. Indictments was released in 2014. It had involved biggest state oil company Petrobras. Allegations were leaned on that Petrobras were highly overcharged for building contracts. The overcharged peace of money had been passed to Petrobras executives and politicians who were taking part in the deal. This operation is worth highlighting that last two Brazil’s presidents are involved with this scandal. Ms. Dilma Rousseff was impeached having strong information that she was involved in this scandal.
Corruption scandals in the country had not only triggered big protests in entire country, but as well caused big economic stagnation. In 2015, economy shrank to its worst since 1981, by 3.8 percent. Inflation reached 10.7 percent, highest in 12 years and unemployment increased by 9 percent. The forecasts were disappointing, but it looks like that Brazils is showing recovery signs, as political uncertainty diminishes.
International Monetary Fund and Brazil Central Bank has released data which shows that the larger economic recovery started in the third quarter of 2016. GDP growth from -2.90 percent to 0.50 percent GDP growth. Central Brazil Bank has lowered its interest rates, to support nation’s recovery, but before continuing to Brazil’s economic recovery it would be worth to look into other reason than domestic political issues.
• Countries investments were continuously unstable, which led to decreased competitiveness and difficult financial conditions.
• Consumption lowered due to crisis in labour market and difficulties in credit agencies.
• Economic policies were not functioning properly, which led to economic deficit.
Consumers finally are finding some trust in their government as political uncertainty with the new president’s appointment. Brazil posted the largest rise in consumer confidence in 2016. Consumer trust and confidence could be the first aid to pull out Brazil’s economy out of stagnation with more spending and lending. That would enable to overall economic growth. As country citizens are purchasing and consuming more the prices become more stable. Within 12 months inflation rate decined to 5.4 percent in January 2017, compared to 6.3 percent as in the previous month, and 10.7 percent a year ago. The 5.4 inflation rate was lowest since September 2012. Consumers are finding courage to consume and this could boost up countries economic activity in various ways. Rising consumer confidence has a fast reaction on the companies involved in consumer and retail businesses.
Export contains 13 percent of GDP in Brazil. Brazil is expected to attain an incline in its economic growth in 2017, because of rising commodity market are policy amendments in export. Commodity market forms 50 percent of Brazil’s export. Countries commodity indexes steadily rises in agriculture, metal and energy. Brazil is a major iron ore exporter. As in 2015 iron prices fell 50 percent because of decreased demand in China. In 2008 China’s construction boom boosted Brazil’s economy greatly, but as years passed the demand lowered, putting largest Brazil’s iron export companies under pressure, but in 2017 it is likely that iron prices will increase due to rise of Chinas infrastructure plans, it should be a helpful boost for Brazil’s economy as well.
The biggest aid is awaited from services sector as it contributed 66 percent to GDP in 2015. For comparison the industrial sector contributes 28.5 percent and agricultural 5.5 percent towards GDP.
However, the country still struggles with major development challenges in the 21st century. Especially in agriculture. However improved commodity market, decreased inflation, GDP growth and restrained corrupted politician and business groups is bighting Brazil’s future in 2017.

Rokas Barkauskas

References

Mary Sadler, (2017) Is Brazil Showing Improvement in Its Economic Growth?
Available at: http://marketrealist.com/2017/02/brazil-showing-improvement-economic-growth/ (Accessed: 15th March, 2017).

OECD, (2016) Brazil – Economic forecast summary.
Available at: http://www.oecd.org/eco/outlook/brazil-economic-forecast-summary.htm (Accessed: 15th March, 2017).

Trading Economics, (No date) Brazil GDP Growth Rate.
Available at: http://www.tradingeconomics.com/brazil/gdp-growth (Accessed: 10th March, 2017).

BBC News, (2016) What has gone wrong in Brazil?
Available at: http://www.bbc.co.uk/news/world-latin-america-35810578 (Accessed: 10th March, 2017).

Esteban Ortiz-Ospina, Man Roser, (2016) Trust.
Available at: https://ourworldindata.org/trust (Accessed: 28th March, 2017).

Sarah Sands, (2016) Is Brazil Still Outperforming Global Indexes?
Available at: http://marketrealist.com/2016/07/brazil-still-outperforming-global-indexes/ (Accessed: 28th March, 2017).

The World Bank, (No date) Brazil Overview.
Available at: http://www.worldbank.org/en/country/brazil/overview (Accessed: 28th March, 2017).