Terrorist attacks in emerging markets like Iraq, China, Nigeria and Kenya, coupled with weakening internal governance, means countries which had previously recorded the fastest growth since the 2008 global financial crisis could witness a sharp economic contraction as international firms reduce their investments, the consulting firm Maplecroft has warned in a report.
According to Maplecroft, over the past 12 months global fatalities from acts of terrorism have risen by 30%, and Iraq, Libya, Kenya and Nigeria have witnessed the largest rises in terrorist attacks. In addition, a spike in ethnic tensions in China’s Xinjiang Province could also threaten China’s position as the world’s second-largest economy as security in the north of the country continues to deteriorate.
Although all of these countries, which have become key recipients of FDI, have been catalysts for international trade, insufficient governmental responses to rising internal security challenges could cause net outflows of FDI from foreign companies. “Libya, Kenya and Egypt are among a handful of countries to witness a significant increase in risk, and investor confidence in key sectors, including tourism and oil and gas, has been hurt,” Jordan Perry, a principal political risk analyst at Maplecroft said in an online statement. “When faced with rising security costs and decreasing safety for their personnel, companies reconsider their country-level commitments.”
According to Maplecroft’s new Terrorism and Security Dashboard (MTSD), a mapping platform that logs and analyses all reported incidents of terrorism, piracy, and political violence globally, the strong economic performance of resource-rich emerging economies such as Iraq and Nigeria, as well as key business and tourism destinations like Kenya and China, could be derailed by significant increases in terrorist attacks. While the fDi Report on greenfield FDI reveals that Iraq was the leading FDI destination in the Middle East and Africa – the country attracted 15% of inward FDI in 2013 – the MTSD ranked it as the country at greatest risk of terrorism globally. According to Maplecroft, the Iraqi government’s inability to combat the terrorist activities of the militant group the Islamic State has led this group to control vital oil and gas infrastructure in northern Iraq. As a result, Iraq could see disinvestment from foreign oil majors, the dominant operators in the region, as tensions escalate.
While Nigeria was ranked by the fDi Report as the number six destination for inward investment in the Middle East and Africa in 2013, an intensifying campaign of violence by Islamic militant group Boko Haram has left the country as the fifth-highest at risk of increasing terrorism activity, according to Maplecroft. Between July 2013 and June 2014, the country experienced 146 reported attacks, in which more than 3,477 people were killed. As a result, Maplecroft maintained that declining investor confidence in the government’s ability to guarantee security could lead foreign investors to reduce their financial commitments.
In addition, while increasing terrorism attacks from militant group Al Shabaab has put Kenya as the 12th most at-risk country in the MTSD ranking, increasing tensions between the Han and Uyghur ethnic groups in China’s Xinjiang Province has led to a rise in terrorist attacks in key transportation hubs. Although Maplecroft classified China as a “medium risk” country, ranking it at 32nd in its MTSD index, the firm maintained that increasing attacks could slow the country’s attempts to develop unconventional hydrocarbon energy reserves, as foreign investors could be deterred from exploration activities in the hydrocarbon-rich western Xinjiang province.