Banking and FinanceEducation

National Security: An Economic Affair

National Economic Security

During the current election season ‘national security’ is a matter of great debate. The recent massive terror attack in Sri Lanka has also given a momentum to this debate. Some associate it with the nationalism, while others feel it as just another gimmick by the ruling party to garner votes. Some see it as purely a security matter while yet others see it as a veiled attack on a section of society accusing them as a threat to the national security. But, if we see a little deeper, the matter of national security is not only a security matter but is closely associated with the economic development and the level of investments in a country.

On the surface of it, there seems to be a little relation between economic activities and the national security. However, if we see around us and see the state of affairs in the countries around us, we will find that the two things are closely associated. Let us take the example of Sri Lanka first. Everybody knows that till LTTE was active, hardly any country was interested for investments in

National security is an economic matter

the country (even from strategic point of view). However, after the defeat of LTTE, countries like China, India and even USA has shown a great interest for investments in the infrastructure related projects there. Almost all African countries are rich in minerals and natural resources, yet hardly any company is willing to commit large investments in these countries. Whatever the investments are made, they are just limited to extraction of natural resources. Pakistan is on the brink of bankruptcy and is not able to attract any large investments (except for CPEC) despite its all out efforts – because it is considered to the base for a number of terror organizations. Even for CPEC, it has to pay a heavy cost to China, despite the fact that the project is helping China more than Pakistan itself. Within our county itself, we see low level of developments in the states which are affected by terrorism or are having law and order problems – e.g. J&K, Punjab (during insurgency), North Eastern states as well as in Bihar & UP (due to law and order situation)

So what are the links between national security and the economic activities?

Any business concern, be it indigenous or multinational, is most concerned about three basic things while taking investment decisions – safety of capital, return on capital and safety of its people- though not necessarily in that order.  We will discuss the impact of the overall security environment on all these aspects.

  • Safety of capital: Any unrest or terror attack not only harm the people but also damage the assets. The recent attack on hotels in Sri Lanka or the terror attacks in Taj & Oberoi hotels in Mumbai in 2008, caused large scale damages to assets. The severity of losses is increasing day by day as the terrorists are using more and more sophisticated weapons. In some countries they even create parallel armies and fight with governments. We have also seen large scale of assets destruction (personal, industrial and public properties) in the recent unrests/terror activities in the countries like Afghanistan, Syria, Lebanon, Yemen etc.
  • Return on Capital: However, the issues discussed above are only the direct fallouts of unrest/terror attacks. The indirect impacts – in terms of impact on profitability or return on capital- are also serious. An atmosphere of insecurity makes it difficult for the companies to attract talent. It has a direct bearing on the productivity and decision making capabilities of the companies. Also, companies have to expend large sum of money for providing security to its people and assets. The insurance cost also goes up. Not only this, disruption in business for a long period after such attacks or during prohibitory periods announced by the governments (like red-alert/ curfew etc) also lead to loss of business and profits.
  • Safety of people: In today’s world more and more companies are becoming conscious about its corporate governance and human resource responsibilities. The respective governments (to which the employees belong) also become more concerned about the safety of their citizens working abroad. Not only this, the governments/regulators/human rights organizations of the countries, where the parent companies belong to, put considerable pressure on the companies to adhere to high standard for human rights for their employees. Many a times the employment terms in many of the low security countries contain a clause that the companies will pay the ‘ransom amount’ to get their employees freed if they get kidnapped. Though, it has a cost angle also, it is shows more about the concern of the companies about its employees.

It is, therefore, very much essential to maintain national security and tranquility for the economic development and prosperity of the county. Without this, any amount of liberalization, consumerism, natural resources and demographic dividend is not going to yield any substantial result.

**The views expressed here are personal and do not reflect that of my employer.

Share Our Blog Today...

One thought on “National Security: An Economic Affair

Leave a Reply

Your email address will not be published. Required fields are marked *