THE ECONOMIC VALUE OF PEACE 2016 | Executive Summary a MEASURING THE GLOBAL ECONOMIC IMPACT OF VIOLENCE AND CONFLICT THE ECONOMIC PEACE VALUE OF 2016Quantifying Peace and its Benefits The Institute for Economics and Peace (IEP) is an independent, non-partisan, non-profit think tank dedicated to shifting the worlds focus to peace as a positive, achievable, and tangible measure of human well-being and progress. IEP achieves its goals by developing new conceptual frameworks to define peacefulness; providing metrics for measuring peace; and uncovering the relationships between business, peace and prosperity as well as promoting a better understanding of the cultural, economic and political factors that create peace. IEP has offices in Sydney, New York, The Hague, Brussels and Mexico City. It works with a wide range of partners internationally and collaborates with intergovernmental organizations on measuring and communicating the economic value of peace. For more information visit economicsandpeaceCONTENTSEXECUTIVE SUMMARY 2 Key findings 4 Map: Cost of violence, 2015, by country as a percentage of GDP 5 1 CONCEPTUAL BACKGROUND 6 The macroeconomic impact of violence 7 2 RESULTS (1) security services and prevention oriented costs, (2) armed conflict- related costs and, (3) consequential costs of interpersonal violence. The direct costs associated with violence are accounting losses which occur in the current year, such THE ECONOMIC VALUE OF PEACE 2016 | Executive Summary 3 factors. It was over three and half trillion dollars PPP in 2015, which is approximately 26 per cent of global violence costs. The country average for the impact of violence is ten per cent of national GDP, but there is significant variation between countries, with the median at 7.2 per cent of GDP. While there are 35 countries which record relatively low violence containment costs of less than five per cent of GDP, by contrast, there are 15 countries where the economic impact of violence is equivalent to more than 20 per cent of GDP. This highlights the global inequality in peace and the unequal economic impacts that violence and conflict has on countries. There are at least two major trends emerging from the data. Firstly, where countries have experienced dramatic increases in conflict and violence there is a corresponding impact on their economies. The primary example of this is the case of Syria where the civil war has devastated the country and economy, with violence and conflict costs equivalent to 54.1 per cent of GDP in 2015. Conversely, countries that have achieved peace have reaped significant economic gains. The economic impact of violence in Sri Lanka has decreased 66 per cent since 2009 resulting in a peace dividend of $48 billion PPP which is equivalent to 20 per cent of the countrys 2015 GDP. Secondly, the changing dynamics in global peace over the past ten years have seen military expenditure and internal security spending proportionally decrease and the consequential costs of violence, such as GDP losses from conflict, lost lifetime earnings and lost productivity from violence increase. This is largely due to ongoing conflict in the Middle East and North Africa region and to a lesser extent within the Russia and Eurasia region due to the conflict in Ukraine. Even though the average country score of peacefulness deteriorated by 0.6 per cent in 2015, reflecting a less peaceful world, the economic impact of violence actually decreased by two per cent or $246.4 billion. This reflects the fact that much of the worlds violence has been concentrated in lower income countries which impact the global costing model to a lesser extent. It also underlines the fact that the economic impact of violence and conflict varies by country. The report compares losses from violence to the costs of containing it and aims to assess the optimal level of spending on violence containment. The research shows a distinct link between the broader environment for Positive Peace and the level of spending required to contain violence. This shows countries with the highest levels of Positive Peace spend between one and two per cent of GDP on internal security whereas countries with average levels of Positive Peace tend to spend more. Meanwhile those countries with the lowest levels of Positive Peace and resilience generally spend less than one per cent of GDP on internal security highlighting an under-investment in violence containment. This is common among low income, fragile conflict-affected countries which tend to spend only a fraction of the per capita costs that higher income countries are spending. The research also shows there are certain levels of Positive Peace where increases in internal security and public order are not linked to greater peacefulness. This situation occurs in many hybrid and authoritarian governance types. Conversely, full democracies continue to improve their Positive Peace and levels of violence while tending to spend less on internal security. Understanding the optimal level of violence containment spending is important for improving levels of peace. The data show no country that spends less than 0.8 per cent of GDP on internal security is ranked above 42nd on the GPI. However, no country that spends more than two per cent of GDP on internal security is ranked amongst the top 20 most peaceful countries either. Further understanding the systemic interactions between violence containment, violence and Positive Peace is a complex ongoing research project. It is well understood that violence destroys human and physical capital as well as social and political institutions. Aside from the human impact, it can lead to disruptions in consumption, investment, trade and production. Further, violence requires the diversion of investment from productive areas such as business development, innovation, education, infrastructure and health into less productive, albeit necessary areas such as private security expenditures, the criminal justice system, and the military. Through understanding the economic losses caused by violence and which types of violence have the greatest effect on economic performance, governments and policymakers can better understand how a lack of peace is affecting their future economic growth. By identifying the right violence containment strategies, policymakers may be able to lower economic costs of violence and provide greater peacefulness. PURCHASING POWER PARITY All values shown in this report are given in 2014 constant purchasing power parity (PPP) international dollars, to allow for cost comparability between countries and over time. For a detailed definition and explanation of the calculations see Appendix A.4 THE ECONOMIC VALUE OF PEACE 2016 | Executive Summary KEY FINDINGS The total economic impact of violence to the world economy was $13.6 trillion in 2015, expressed in purchasing power parity (PPP) terms. This is equivalent to 13.3 per cent of world GDP. The country average for the economic impact of violence is 10.2 per cent of its GDP. However, there are large differences between countries with the median being 7.2 per cent of GDP. The economic impact of violence is equivalent to less than five per cent of GDP in 35 countries. By contrast, there are only 15 countries where the economic impact of violence is more than 20 per cent of GDP. Countries with the highest levels of Positive Peace spend between one and two per cent of GDP on internal security. Countries with average levels of Positive Peace tend to spend more, whilst those countries with the lowest levels of Positive Peace generally spend less than one per cent of GDP on internal security. The Syrian economy is most affected by violence, at 54.1 per cent of GDP. Iraq, Afghanistan, and Venezuela are the only other countries where the impact of violence is more than 40 per cent of GDP. Indonesia has the lowest economic impact of violence as a percentage of GDP, at 1.98 per cent. This is largely due to Indonesias low levels of military and internal security expenditure. The economic impact of violence is also under 2.5 per cent of GDP in Canada, Iceland and Austria. The total global economic impact of violence fell two per cent between 2014 and 2015. This is equivalent to $246 billion PPP. The decrease was driven by a fall in both military and external security expenditure. Internal security expenditure, which encompasses police, judicial and prison system spending among other factors, is the second largest category. It stood at just over three and half trillion dollars PPP in 2015, which is approximately 26 per cent of the global total. Military expenditure is the single largest category in the economic impact of violence model, accounting for approximately 45 per cent of the total figure. US military expenditure alone accounts for 12 per cent of the global total. The economic impact of total world military expenditure in 2015 was an estimated $4.46 trillion PPP. However, it has been decreasing in recent years, with falls every year from 2011 onwards. Regionally, the cost of violence has surged in Latin America as well as in the Middle East and North Africa. Of all the regions, only North America, Europe, and Russia and Eurasia had a lower total cost of violence in 2015 than 2007. There are vastly different impact profiles between the regions. 78 per cent of the total economic impact of violence in North America stems from military expenditure, compared to only 14 per cent in Central America and the Caribbean. Military and internal security spending is more than 50 per cent of the total economic impact in all but two regions. Identifying the optimal level of violence containment spending is complex. No country that spends less than 0.8 per cent of GDP on internal security ranks better than 42 on the Global Peace Index. However, no country that spends more than two per cent of GDP on internal security ranks among the top 20 most peaceful countries. Spending too much or too little on violence containment does not lead to a peaceful society. ODA targeted at security sector reform has risen substantially over the last decade, increasing 145 per cent between 2005 and 2014. However, it still comprises less than one per cent of total assistance in 2014. Spending on peacebuilding and peacekeeping is small compared to the economic losses caused by conflict, representing respectively 0.9 per cent and 1.1 per cent of the cost of conflict in 2015. THE ECONOMIC VALUE OF PEACE 2016 | Executive Summary 5 >28% 2028% 1220% 412% <4% No data The cost of violence per country as a percentage of GDP COST OF VIOLENCE, 2015 THE COST OF VIOLENCE BY COUNTRY AS A PERCENTAGE OF GDP