Special lecture: Economic Special lecture: Economic aspects of disastersaspects of disasters

Ricardo Zapata-MartiRicardo Zapata-MartiRegional AdvisorRegional Advisor

Focal Point for Disaster Evaluation, ECLACFocal Point for Disaster Evaluation, ECLAC

Task Force for Emergency Preparedness Task Force for Emergency Preparedness Second Emergency Management CEO Second Emergency Management CEO

SeminarSeminarAugust 12-14August 12-14

Lima, Perú Lima, Perú

The bottom lineThe bottom line• Experience over the recent years both in Latin America and Southeast Asia Experience over the recent years both in Latin America and Southeast Asia

supports the notion that supports the notion that a comprehensive socioeconomic and a comprehensive socioeconomic and environmental assessment of disasters leads to a profiling of environmental assessment of disasters leads to a profiling of disastersdisasters that enables the formulation of reconstruction of affected that enables the formulation of reconstruction of affected infrastructures (including the protection of critical infrastructures, with infrastructures (including the protection of critical infrastructures, with particular reference to public security in sectors such as health, water and particular reference to public security in sectors such as health, water and sanitation, food security, energy, etc.).sanitation, food security, energy, etc.).

• A comprehensive analysis of damage (physical destruction of assets in all A comprehensive analysis of damage (physical destruction of assets in all sectors of a society, community or economy valued at replacement costs) and sectors of a society, community or economy valued at replacement costs) and losses (income lost, production not realized, employment reduction, budget losses (income lost, production not realized, employment reduction, budget deficits associated wih post-event emergency and recovery expenditures and deficits associated wih post-event emergency and recovery expenditures and tax revenue losses incurred) allows tax revenue losses incurred) allows – a perspective on cross-cutting themes such as gender and disasters, ethics a perspective on cross-cutting themes such as gender and disasters, ethics

in risk management, environmental risk and the issues of governance, in risk management, environmental risk and the issues of governance, – risk dialogue and consensus building based on assessments, and the risk dialogue and consensus building based on assessments, and the

mobilisation of resources for risk reductionmobilisation of resources for risk reduction

International International standards orstandards orDevelopment Development goalsgoals(such as MDGs)(such as MDGs)

Recovery Recovery ObjectivesObjectives

Post disaster Post disaster situationsituation

An additional deficit is created An additional deficit is created from the pre-existing gap from the pre-existing gap between the prevalent between the prevalent situation vis-à-vis the situation vis-à-vis the development goals and the development goals and the emerging recovery objectives.emerging recovery objectives.

NewNewGapGap

1

10

100

Past CurrentIn the medium term In the long termAS ALTERED BY DISASTERS

HUMANHUMAN

Health Health EducationEducationLivelihoodsLivelihoodsHousing and shelterHousing and shelterCultural identityCultural identity

NATURE / ENVIRONMENTNATURE / ENVIRONMENT

Clean water, wage disposal and Clean water, wage disposal and sanitationsanitation

Clean airClean air

Biodiversity and integrity of Biodiversity and integrity of ecosystemsecosystems

Climate variability and changeClimate variability and change

PHYSICAL INFRASTRUCTUREPHYSICAL INFRASTRUCTURE

Quality and resilience of Quality and resilience of human built environment human built environment

(settlements and rural/urban (settlements and rural/urban planning) planning)

Transport and Transport and communications, energy and communications, energy and

other basic lifelinesother basic lifelines

Productive infrastructureProductive infrastructure

Other built infrastructure Other built infrastructure (public services, government (public services, government

buildings)buildings)

SOCIALSOCIAL

Social capital and social Social capital and social networks (solidarity and networks (solidarity and

equity) equity)

Family ties, gender Family ties, gender perspective and extended perspective and extended family networks and linksfamily networks and links

Violence, security and rightsViolence, security and rights

POLITICALPOLITICALGovernanceGovernanceTransparencyTransparency

Participation, inclusion and Participation, inclusion and political rightspolitical rights

Access to informationAccess to information

FINANCIALFINANCIALAccess to creditAccess to credit

Land tenure, legal rightsLand tenure, legal rightsCompensatory mechanisms and fundsCompensatory mechanisms and funds

Insurance and financial protectionInsurance and financial protection

Risk management and Risk management and adaptationadaptation

Damage and costsDamage and costs

HAZARDSHAZARDSBaselineBaseline

modified modified by by

variabilityvariability and and

changechange

RISKRISKMulti stressesMulti stresses

More severely affectedMore severely affected by vulnerability by vulnerability but aggravatedbut aggravated

by changesby changes in hazardsin hazards patternspatterns

MANAGEMENT, MANAGEMENT, TRANSFER ANDTRANSFER AND

REDUCTIONREDUCTION

MITIGATIONMITIGATION

ADAPTATIONADAPTATION

EVOLUTIONEVOLUTIONRESILIENCERESILIENCE

VULNERABILITYVULNERABILITYDiverse, localDiverse, local

Sector specificSector specific

Socioeconomic Socioeconomic development pathsdevelopment paths

Economic growthEconomic growthTechnologyTechnologyPopulationPopulation

GovernanceGovernance

An integrated framework, a systemic An integrated framework, a systemic perspectiveperspective

EMISSIONS AND EMISSIONS AND CONCENTRATIONSCONCENTRATIONS

Greenhouse gasesGreenhouse gasesPollution (air, Pollution (air,

water, soil, sea)water, soil, sea)

CLIMATE CHANGECLIMATE CHANGETemperature riseTemperature rise

Sea level riseSea level risePrecipitation changePrecipitation changeDroughts and floodsDroughts and floods

IMPACTS ON NATURAL IMPACTS ON NATURAL NAD HUMAN SYSTEMSNAD HUMAN SYSTEMSFood and water resourcesFood and water resources

Ecosystems and Ecosystems and biodiversitybiodiversity

Human settlements Human settlements Human healthHuman health

Unwanted evolutionUnwanted evolutionAdaptation

and Mitigation

AdaptationAdaptation

Current Current paradigmparadigm

Reasons for the increase in natural Reasons for the increase in natural catastrophes and natural catastrophes and natural

catastrophe lossescatastrophe losses• Global population growth (exponential development); in 1800, for Global population growth (exponential development); in 1800, for

example, there were one billion people living on the earth, today there example, there were one billion people living on the earth, today there are 6.3 billion. are 6.3 billion.

• The rising standard of living in nearly all countries of the world The rising standard of living in nearly all countries of the world produces growing accumulations of wealth which are hit in the event produces growing accumulations of wealth which are hit in the event of a catastrophe. of a catastrophe.

• Concentration of population and values in conurbations: the Concentration of population and values in conurbations: the emergence of numerous mega cities - even in exposed regions (e.g. emergence of numerous mega cities - even in exposed regions (e.g. Tokyo: 30 million inhabitants) Tokyo: 30 million inhabitants)

• Settlement and industrialisation of very exposed regions, especially Settlement and industrialisation of very exposed regions, especially coasts and river basins, tourism in danger zones, e.g. Florida coasts and river basins, tourism in danger zones, e.g. Florida

• Vulnerability of modern societies and technologies, structural Vulnerability of modern societies and technologies, structural engineering, devices and equipment, networks; problems involving engineering, devices and equipment, networks; problems involving suppliers too suppliers too

• Increasing insurance penetration throughout the world, i.e. the Increasing insurance penetration throughout the world, i.e. the proportion of insured goods is mounting globally. Consequently, proportion of insured goods is mounting globally. Consequently, insured losses are escalating even faster. insured losses are escalating even faster.

• Global changes in environmental conditions, climate change, water Global changes in environmental conditions, climate change, water scarcity, loss of biodiversityscarcity, loss of biodiversity

0

500

1000

1500

2000

2500

3000

1900-09

1910-19

1920-29

1930-39

1940-49

1950-59

1960-69

1970-79

1980-89

1990-99

2000-2005

Number of events recorded

Historical distribution of disasters, by origin

Hydrometeorological Geological Biological

TOTAL AMOUNT OF ECONOMIC DAMAGE BY REGIONS

Americas36.1%

Asia48.4%

Europe13.3%

Oceania1.3% Africa

0.8%

0.00

100.00

200.00

300.00

400.00

500.00

600.00

Africa Americas Asia Europe Oceania

Hydrometeorological Geological Biological

ECLAC´s disaster assessments ECLAC´s disaster assessments over the yearsover the years

PeriodPeriod AFFECTED POULATIONAFFECTED POULATION TOTAL DAMAGE TOTAL DAMAGE AND LOSSESAND LOSSES

   DeathsDeaths Primary Primary affected affected

population population

(millions of US (millions of US dollars, at 2004 dollars, at 2004

value)value)

1972-19801972-1980 38,04238,042 4,229,2604,229,260 78,08578,085

1980-19901980-1990 34,20234,202 5,442,5005,442,500 101,251101,251

1990-19991990-1999 32,64832,648 2,518,5082,518,508 31,36731,367

2000-2010 2000-2010 (estimated)(estimated)

18,03218,032 35,478,47035,478,470 50,05050,050

1972-20051972-2005 122,924122,924 47,668,73847,668,738 260,753260,753

Yearly averageYearly average 3,7253,725 1,444,5071,444,507 7,9027,902

Of which of Of which of meteorological meteorological

or climatic or climatic naturenature

50,06750,067 22,929,19822,929,198 127,923127,923

Source: ECLAC led assessments since 1973Source: ECLAC led assessments since 1973

Total insurance growth, penetration and density by region

Appropriation of risk needed to Appropriation of risk needed to promote risk reduction:promote risk reduction:

• Need for institutional and regulatory Need for institutional and regulatory changeschanges

• Use of market to value (“price”) riskUse of market to value (“price”) risk• Need for social policies for Need for social policies for

compensation and promotion (provide compensation and promotion (provide gender, age, ethnic sensitive gender, age, ethnic sensitive instruments) instruments)

• See risk reduction as a business See risk reduction as a business opportunityopportunity

Imperfect or inactive markets require Imperfect or inactive markets require government action / interventiongovernment action / intervention

LEVEL OF DISASTER IMPACTLEVEL OF DISASTER IMPACT• Indicates coping and adapative capacityIndicates coping and adapative capacity

110

1001000

10000100000

100000010000000

1000000001000000000

10000000000100000000000

100-500

50-100 25-500 10-25 5-10 1-5

Amount of macro impactProbabilityPotencial (Amount of macro impact)

Risk to be covered (financial gap)Risk to be covered (financial gap)

““Acceptable risk”Acceptable risk”

Excedence (residual or excedent risk)Excedence (residual or excedent risk)

ESTABLISHING RISK FINANCING NEEDSESTABLISHING RISK FINANCING NEEDS

Probability or return periodProbability or return period Risk typeRisk type

Resource Resource gapgap

Reserve fundsReserve funds

2-3 years2-3 years

20-30 years20-30 years

50-200 years50-200 years

Recurrent multi-Recurrent multi-hazard riskshazard risks

Catastrophic risksCatastrophic risks

Parametric Parametric coveragecoverage

Contingency Contingency fundsfunds

Budget constraintBudget constraint

CATCAT bondsbonds

Policy implicationsPolicy implications

• Exposure to disaster risks is not unlike Exposure to disaster risks is not unlike exposure to other risks (financial, exposure to other risks (financial, commercial, social, political)commercial, social, political)

• Exposure to risk has a positive correlation Exposure to risk has a positive correlation with poverty: disasters impacts are not with poverty: disasters impacts are not distributed homogeneously neither in distributed homogeneously neither in location nor in impactlocation nor in impact

• Social impact is regressive: direct linkage Social impact is regressive: direct linkage between vulnerability and poverty, between vulnerability and poverty, vulnerability and marginalization, vulnerability and marginalization, vulnerability and gender or ethnicityvulnerability and gender or ethnicity

Appropriation to promote Appropriation to promote reduction of risk reduction of risk

(in the face of extreme events and (in the face of extreme events and climate change)climate change)

– Need for regulatory and Need for regulatory and institutional changesinstitutional changes

– Markets as clearing houses to price Markets as clearing houses to price risk (beyond insurance)risk (beyond insurance)

– Need for social policies for Need for social policies for compensation, promotion and compensation, promotion and solidaritysolidarity

– Risk management is an Risk management is an investment / business opportunityinvestment / business opportunity

• Imperfect markets require Imperfect markets require governmental interventiongovernmental intervention

The role of ECLAC – in respect of The role of ECLAC – in respect of disaster assessment and risk reductiondisaster assessment and risk reduction

• In response to its member countries, has over 35 In response to its member countries, has over 35 years assessed disasters’ socioeconomic impactyears assessed disasters’ socioeconomic impact

• Developed a methodological tool for damage and loss Developed a methodological tool for damage and loss assessment (DALA), now recognized as the assessment (DALA), now recognized as the international standard for post-disaster assessmentinternational standard for post-disaster assessment

• Has accumulated quantitative evidence that allows for Has accumulated quantitative evidence that allows for economic analysis of risk, which may be extrapolated economic analysis of risk, which may be extrapolated for disaster’s future impact and could be used to for disaster’s future impact and could be used to quantify partially the socioeconomic implications of quantify partially the socioeconomic implications of climate change and approach the valuation of climate change and approach the valuation of adaptation costsadaptation costs

• Has increased national capabilities and contributed to Has increased national capabilities and contributed to policy changes in Latin America and the Caribbean policy changes in Latin America and the Caribbean and in other regions, namely South East Asia in and in other regions, namely South East Asia in cooperation with ESCAP and the World Bank’s cooperation with ESCAP and the World Bank’s GFDRRGFDRR

Thank you!Thank you!

http://www.eclac.org/ http://www.eclac.org/ http://gfdrr.org/ http://gfdrr.org/

http://www.proventionconsortium.org/http://www.proventionconsortium.org/http://groups.google.com/group/pdna-for-recoveryhttp://groups.google.com/group/pdna-for-recovery

http://www.recoveryplatform.org http://www.recoveryplatform.org http://www.undp.org/cpr/iaschttp://www.undp.org/cpr/iasc