Worldwide Security Spending Continues to Rise

by Ahmed Abou Taleb, an analyst at Global Risk Insights

Armed conflicts in the 21st century are less common than before, or at least that is what conflict focused databases have shown in the last few years. However, other forms of threats, ranging from physical violence to cyber risks, are spreading, affecting governments and private firms alike.

A narrative often repeated by politicians and the media is that today’s world is witnessing increasing conflicts. But research has recently proven otherwise. In terms of numbers, most forms of organized violence have been declining around the world since the end of the Cold War.

The end of the Cold War and the greater role played today by the international community, as well as the development of international criminal law, may help explain this decline. But in fact, a key reason is the engagement of fewer states in war, accompanied by a rise of non-state actors’ contribution to violence of all forms.

[Related: Marc Chandler: Military Expenditures on the Rise]

In 2008, armed groups and militias around the world were responsible for 83% of deaths from one-sided violence while deaths from wars between states accounted to one-quarter what they were in 1980. Non-state actor violence is not to be ignored. Although non-state actor armed conflict can be less intense than state violence, it is becoming increasingly costly.

For instance, terrorism increases uncertainty and directly affects investments. Studies have found that each neighboring state in conflict reduces annual growth rate by 0.5%. Internal conflicts also almost double the share of GDP devoted to defense and security. Consequently, this limits spending on other sectors such as infrastructure and education.

This is precisely the case in Colombia, where the state is combatting insurgency and narco-trafficking. In 2010, the country allocated 14.2% of its budget to security, versus 13.9% to education.

Security spending is not only a burden for countries but also for businesses. The more fragile a state, the more a company spends on security. Firms in Sub-Saharan Africa lose a higher percentage of sales to crime and spend a higher percentage of profit on security.

For example, between 2007 and 2009, Shell spent about US $1 billion on security worldwide, of which $383 million were in Nigeria alone. In 2008, Shell’s spending on security in the Niger Delta, where several militias operate in lawlessness, exceeded its spending for the same purpose in the Americas, EU and Russia combined.

Security threats and their economic impact go beyond unstable zones and war-torn countries. In fact, threats in stable countries can take forms other than physical violence. Cyberspace is a new battlefield and cyber threats top the list of security issues for governments, companies, and individuals. Cyber risks are becoming more sophisticated and diverse every day, varying between phishing, economic espionage, “hacktivism,” and other threats.

In less than one month, the US retailer Target lost details of about 40 million credit and debit card numbers and 70 million customer details to hackers. Loss of customer data is only one concern among others such as the loss of trade secrets, reputational damage, and interruption of service.

To face these challenges, businesses of every size have increased their cyber security spending. A 2013 report projected a $30 billion rise in the global IT security spending by 2017, which signifies an annual compounded increase of 6.6%. In a survey of senior IT officials in companies from different sectors, 60% of those surveyed in the US said their cyber security budget would increase as a direct result of recent high-profile attacks. The percentage was not much less in the UK (49%), Canada (54%) or Australia (64%).

State and government systems and networks might in some cases lack an economic interest for the attackers. However, they are not immune to such risks. Threats vary between offenses by professional hackers and massive DDOS attacks. The latter are mostly launched by mobilized amateurs who use easy, user-friendly programs such as LOIC and attack a target website at the same time to stop it from working temporarily.

Whether they are criminal or politically motivated, cyber attacks have made cyber security spending no longer optional. Last month, France announced a $1.3 billion plan to enhance its defenses against cyber attacks. Such measures have also been taking regional dimensions with the launch of initiatives like the NATO Cooperative Cyber Defence Centre of Excellence.

Another threat facing governments is whistle-blowers. Wikileaks and Edward Snowden’s revelations have proved they can be damaging to international relations and diplomatic ties, not to mention defense and security. Chairman of the US Joint Chiefs of Staff General Martin Dempsey lately estimated that at least two years of study and billions of dollars are needed to overcome the loss of security caused by Snowden’s revelations.

Today’s world might be witnessing fewer wars than before, but it is witnessing other growing threats. Interdependence, globalization, and technology help them spread and aggravate their impacts. Whether physical or cyber, these risks mark a changing nature of conflicts and exacerbate security spending.

About the Author

Editor
admin [at] globalriskinsights [dot] com ()
randomness