Since the “Arab Spring” of 2011, the multiplication of attacks has diminished the attractiveness of countries in the region, regardless of the targets, institutions or companies.
Although the number of deaths due to terrorism has decreased by 14% in 2021, the number of terrorist attacks in countries in the North Africa and Middle East (MENA) region remains high, and as a result, terrorism remains a significant threat in these countries. Even recently, an attack claimed by Houthi rebel forces in Yemen took place a few kilometers from the site of the Formula 1 Grand Prix of Saudi Arabia, which brought together, at the end of March, the elite of international motorsport.
Admittedly, the countries of the region remain attractive, in particular because of the largest oil and gas reserves in the world, as well as other natural resources, available to states such as those in the Persian Gulf (Saudi Arabia, Bahrain, United Arab Emirates, Kuwait, Iraq, etc.). However, as we note in a recent article research published in International Business Review and involving fifteen countries in the region, this terrorism does lead to a deterioration in the attractiveness of countries for foreign investors.
Short and long term impacts
More specifically, two forms of terrorism have a negative impact on foreign direct investment (FDI) inflows into the MENA region: attacks aimed directly at companies, as well as those launched against public institutions aimed at weakening Governments.
When the terrorist act targets companies, it poses an imminent threat to their activities which could lead to the destruction or damage of their facilities, the disruption of their supply chains or even the kidnapping or assassination. of their employees or subcontractors. These economic and human costs incurred as a result of the attacks primarily have short-term repercussions, with the cost of rebuilding damaged infrastructure and costs related to reduced productivity. In the longer term, companies are subject to an increase in the price of insurance contracts and security expenses to protect employees or customers.
In addition, the stress as well as the feeling of insecurity felt by executives working in countries exposed to a significant terrorist risk negatively affects their motivation and thus makes the process of recruiting new expatriates more difficult due to this context of high uncertainty. . This is particularly the case of Western oil companies which have been attacked by Daesh in several countries of the MENA region, in particular Iraq and Syria.
Moreover, even if terrorist attacks targeting national institutions do not directly impact business activities, they are just as disruptive. In fact, they can not only lead to the destruction of strategic infrastructures, but also exacerbate the institutional void, particularly in developing countries which are characterized by weak economic development and an uncertain political and social environment.
Moreover, these countries are not always in a position to deal with terrorist threats due to a lack of specialized resources (eg advanced surveillance equipment). This context can therefore hamper the proper conduct of the activities of companies already present and have a dissuasive effect on potential investors. Indeed, emerging and developing countries appear more vulnerable to terrorism than developed, more democratic countries.
Crony capitalism
It is generally considered that democratic political regimes provide a more stable investment climate than so-called autocratic regimes and are therefore more attractive to investors. However, as FDI constitute long-term capital commitments, it could be more favorable to invest in autocratic countries since they are less subject to political changes which can contribute to a certain stability of the investment environment. from the country.
These governments would also tend to adopt very strict anti-terrorism measures. Moreover, under these autocratic regimes, investors forge ties with the rulers in power in order to serve their interests. This crony capitalism ( ) thus remains very widespread in the countries of the MENA region, where success in business often depends on the relationships and personal links established and maintained with the representatives of the State. It is a system of favoritism that has led to individual agreements between the actors of the regime and the companies giving them access to government subsidies or even tax reductions.
Since the “Arab Spring” of 2011, there has been a rise in terrorism in MENA countries after the fall of authoritarian regimes. Some of these countries have entered a process of democratic transition, known as the concept of anocracy. However, in these hybrid regimes, the negative effects on the attractiveness of FDI from terrorism targeting companies tend to be reinforced.
Given the political change, the relationships and ties developed by the investors then become an obstacle, as evidenced by the confiscation of more than 214 companies belonging to the clan of Tunisian President Ben Ali after his fall in 2011, as well as the seizure of many companies that were close to the power of leader Hosni Mubarak in Egypt.
In the case where terrorism targets public institutions and infrastructures, the presence of a hybrid regime again tends to reinforce the negative impact of this type of attack on FDI. Indeed, since the "Arab Spring", such regimes have less capacity to respond to attacks because they allocate few public resources to the protection and reconstruction of infrastructure, hence the decline in the attractiveness of these locations. in the eyes of investors.
To conclude, the different targets of terrorism, companies or institutions, constitute dissuasive factors for investors in the specific context of MENA countries. More importantly, we observe that, in hybrid political regimes, attacks tend to have a greater impact on the behavior of investors who must therefore take the political situation into account in their strategies.
Dora Triki, Associate Professor in International Management, ESCE International Business School; Alfredo Valentino, Associate Professor, ESCE International Business Schooland Anna Dimitrova, Associate Professor in International Affairs, ESSCA School of Management
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