Terrorism costs Malta €26.5 million in economic losses

Before his election as prime minister, one of Joseph Muscat’s first faux pas came in 2011 when he suggested Malta should double up on its tourism promotion after civil society protests broke out in Tunisia and Egypt.

The carelessness of the remark was redolent of anecdotal wisdom that Malta’s safety attracted wary travellers steering clear of the unrest that followed the Arab Spring or terror attacks in Egypt, Tunisia and France.

But although untouched, Malta still bears a cost for terror attacks, according to a report by the European Parliament’s research service – and that cost is primarily an economic one.

Between 2004 and 2016, it is estimated that Malta lost some €26.5 million mainly in economic losses associated with the impact of terror attacks around Europe.

The effect was measured mainly on gross domestic product, and calculated using the Global Terrorism Database’s terrorism index.

According to the experts who ran up Europe’s “terrorism bill”, on average a one-unit increase in the terrorism index is associated with a reduction in economic growth by about 0.04 percentage points in the year of the attack.

To give an example, based on this estimate the 2016 Brussels bombings, with 32 civilian fatalities and 340 injuries, may have led to a 0.1 percentage point reduction in growth in Belgium in 2016.

“We estimate that terrorism has caused a loss of about €5.6 billion in lost lives, and injuries and physical capital between 2004 and 2016. Roughly €2.6 billion of this loss has occurred since 2013… Terrorism has also had a tangible, albeit small and short-lived, impact on economic output in the EU, with a GDP loss across the EU-28 member states since 2004 of about €180 billion, of which about €88 billion occurred between 2013 and 2016,” the EP report’s experts said.

But interestingly, the effects of terrorism on economic growth tend to be relatively short term and only apply within the year of the incident.

“In line with previous research, we found that terror attacks tend to have a short-lived effect only and that tourism levels tend to normalise within one to three months,” the experts said.

“We find that it mainly affects investments, which tend to be cut back to some extent. In addition, we find that consumption as a share of GDP increases slightly. This is in line with previous empirical research that in light of terrorism risk individuals may change their consumption behaviour,” the EP’s experts said.

The member states bearing the largest economic cost were Belgium, France, Germany, Greece, Spain and the United Kingdom. Greece and Cyprus suffered large GDP costs because of domestic terrorism, whereas Belgium, France, Germany, Spain, Sweden and the UK suffered transnational terrorism.

While terrorism diverts tourists away from affected countries towards other destinations, the impact tends to be immediate but short-lived.

On the other hand the 9/11 terror attacks resulted in increased security measures and fewer passengers travelling by plane: a decline of 94% in revenue passenger miles by 2005. Apart from that, insurance claims of billions led to a raise in premiums that hit shipping, transport, and commercial property.