Geopolitical Weekly: The Business Impact

Analytical Insight provides a weekly overview of global geopolitical events and the potential impacts these events may have on business operations.

India - An Increasing Threat From Terrorism

Key Points

The return of many jihad fighters from Afghanistan, combined with the formation of an Al-Qaeda affiliate group, Al-Qaeda in the Indian Subcontinent (AQIS), has increased the threat of terrorism in India, which will continue to increase in the forthcoming year.

Business Continuity – The modus operandi of the returning jihad fighters is likely to be a large-scale attack, comparable to Mumbai 2008 or London 2005. Therefore, it is essential that businesses in India re-evaluate their business continuity plans to reflect this threat. The short-term business continuity issues in the wake of an attack are likely to include widespread city lockdown, closure of financial services such as the Bombay Stock Exchange, disruption to infrastructure and reduced staff access to sites. Companies with supply chains in India should re-visit their supply chain continuity plans.

Business Risk – Business risk is likely to be minimal in the immediate aftermath of an attack, however the medium-term impacts to businesses in India are likely to be more extensive. These impacts may include reduced investor confidence, withdrawal of foreign direct investment (FDI), increased insurance costs, diversion of government spending and stagnation of much needed economic reforms. The indirect business risk impact is likely to be significantly higher than the cost to businesses directly affected by an attack.

Security – Security costs in India will increase in the near-term as the threat of an attack becomes more prevalent. Businesses should reconsider their security arrangements in light of the increased threat and ensure their security plans consider a potential large-scale attack.

Travel – India is assessed as a MODERATE WITH HIGH AREAS travel destination. Travellers to main cities should consider the increased threat of attacks, especially to tourist hotspots and Western hotels. Security mitigation measures should be implemented

Background

The increased threat of terrorism in India is a result of two events.1) Withdrawal of US troops in AfghanistanThe withdrawal of troops in late 2014 has encouraged many fighters in Afghanistan to return to India to continue their jihad. These individuals will be highly trained, extremely radicalised, and will have strong networks for support both in and outside of India. This influx of returning fighters will increase both the capability and intent of current domestic cells already within the country. 2) Formation of Al-Qaeda in the Indian Subcontinent (AQIS)Al-Qaeda has recently extended its reach and formed a branch in India. This group is India-centric and focused on targeting Western interests within India. The group is formed of several jihad factions from within India, Pakistan and Afghanistan.

The Business Impact

A large-scale terrorism attack in India would have both direct and indirect impacts to businesses operating within the country. Direct impacts would include:

damage to assets
loss of assets
restrictions to operations
injury or death of personnel

Businesses operating in India, especially Mumbai and New Delhi, should re-assess their security operation plans considering the increased threat. Businesses in close proximity of high-risk assets should consider increasing physical security measures in the short-to-medium term. Businesses should also consider recovery sites away from large cities. Business continuity plans should be re-evaluated considering the increased threat, especially supply chain risk management plans for companies with critical processes in Mumbai and Delhi.

Indirect Impact

The indirect impact from a large-scale terrorist attack in India would be significant. The indirect costs of 9/11 are currently estimated at $3 trillion and climbing. Following a large-scale terrorist attack in India, the indirect impacts would include:

Increased insurance premiums
Increased physical security costs
Reduction in FDI
Decreased GDP
Increased government spending

Insurance

Following a large-scale terrorism attack in India, it is likely that insurance companies could inflate insurance premiums significantly. However, the Insurance Regulatory and Development Authority is seeking to raise the terrorism risk pool in 2015. This should reduce inflated premiums in the event of an attack.

Security

In the aftermath of a large-scale terrorist event, the perceived physical security risk increases significantly. While the true risk may not change, the need to mitigate the perceived risk remains important.

For companies that have offshore assets in India, the duty of care of the employer means that any expats or travellers to these locations must experience the same level of safety as they would conducting business in their home country. Additional security measures are required to mitigate any real or perceived threat, which can be costly.

In India, physical security should be exercised using a risk-based approach. Therefore as the risk or perceived risk from terrorism increases, the cost of security will increase too.

Foreign Direct Investment

In the aftermath of the Mumbai 2008 attacks, FDI was significantly affected. Investors pulled $13.5 billion from Indian stocks, which caused a 56% fall in the Bombay Stock Index. However, this impact is often only short-lived.

Decrease in GDP

Terrorism can affect GDP. This can be a knock-on effect from a decrease in FDI, reduced trade and changes in consumer patterns. Tourism accounts for approximately 10% of India’s GDP, and would suffer significantly in the aftermath of an attack, especially in the victim city.

Increased government spending

The Indian government would absorb the majority of the financial burden from terrorism. Therefore, much needed reform funds would be diverted away from infrastructure investments, social investments, education, healthcare and R&D. Legislative and political stalemate in the aftermath of a terrorist attack can cause issues for many businesses.

For further information on the potential impact to your business, contact a member of our Asia Analysis Team

Situation Update - Nigerian Elections

Key Points

Nigeria is set to face further political uncertainty as the presidential election is delayed until 28 March.

There is an increased threat of violent civil unrest in the near-term across parts of the country
Violent unrest following either party’s victory is likely to intensify as election delays continue
Government officials are likely to embark on an intense campaign of intimidation, bribery and vote-rigging in an attempt to win the election
There is an increased possibility of a proxy coup led by senior military officials backed by the ruling government in a bid to buy time and re-gain lost supporters

The Nigerian presidential elections were pushed back from 14 February to 28 March due to the ongoing conflict against Boko Haram in northern Nigeria. The government was unable to secure the polling process as many troops are currently in combat with the terrorist organisation.

The delay of the presidential elections will further decrease the political stability in Nigeria. President Jonathan’s desire to delay the polls is seen as a move to attempt to fraudulently secure a win by opposition supporters. The delay will increase political tensions and may lead to violent unrest in parts of the country.

The delay may also be a result of the ruling People’s Democratic Party’s (PDP) concerns that they have yet to secure the election. Officials and supporters of the government will likely engage on an intense six-week campaign to attempt to secure a win, including using bribery, intimidation and vote-rigging.

Should this approach not be successful, it is possible that the PDP will coerce senior members of the military to lead a proxy coup that will be implemented under the guise of a security crisis. This will provide the current government more time to secure a win at a later election.

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