English Appendix
Economic damage and impact of disasters (natural or man-made)
An outline assessment framework
In general terms disaster assessment can be
defined as a process for determining a disaster’s
impact on society, the immediate priorities and
needs for saving the lives of survivors, available
resources and the possibilities for favouring and
speeding up the long-term recovery and
development.This article, drawing on the
published literature in this field, aims to
present an overview of how to assess the
damage caused to the affected geographical area
by a given catastrophic event, doing so basically
from an economic point of view.
MARÍA JOSÉ PÉREZ FRUCTUOSO
UNIVERSIDAD CARLOS III DE MADRID
INTRODUCTION
In recent decades there has been a staggering increase in natural disasters (but also in man-made disasters), both in frequency and intensity, largely due to the current process of climate change.This growth has sparked off widespread international concern, not only from a humanitarian standpoint but also in terms of the economic impact these disasters might have now and in the future.
In developed countries catastrophes take a heavy toll of human lives each year and produce considerable damage, mainly due to two reasons: population growth and the higher number of insured assets. Greater effort has therefore been made to ascertain the causes and effects of said extreme events, such as drawing up hazard maps, building codes and emergency plans.Against this, it must also be pointed out that many constructions and infrastructure items, for example, are increasingly sensitive to damage and have lower stability.
In developing countries major catastrophes also lead to a slowdown or even a complete halt in their real economic growth, since funds that might have been spent on projects for medium or long-term development have to be diverted to the rehabilitation and reconstruction of the devastated area, leading to a lower investment in the improvement of social conditions in general.The destruction of these countries’ already insufficient infrastructure (roads, railways, power lines,water supply lines, etc.), calls for the use of resources that would otherwise have been invested in productive activities. This tends to stymie economic growth and, even more importantly perhaps, destroys jobs not only in the formal and aboveboard economy but also in the informal and even illegal production sectors.This problem is particularly acute in certain geographical areas where major disasters are exacerbated by the concurrence of other more minor but much more frequent events that undermine the population’s main means of subsistence (self-consumption crops, death of animals, destruction of houses, interruption of productive activities, loss of sources of employment, etc.). It is in these cases that the strongest brake is applied to the normal development of activities, completely ruling out any possibility of improving their lot, since the scarce resources are siphoned off for disaster recovery.
To avoid these situations, or at least mitigate their effects, an assessment has to be made of the disaster’s effects on the region’s economic development and its society as a whole.
The methodology used by insurance companies to gauge the losses caused by disasters (small, medium and major) and the basic needs during the emergency periods involves complex statistical disaster-simulation methods based on the amount of insured property in insurance policies.
But without doubt the most important methodology on this matter is the one developed by ECLAC (2003), which tackles the conceptual and methodological aspects of the measurement in economic terms of the disaster-caused damage to capital resources and the production flows of goods and services as well as estimating the possible temporary effects on the main macroeconomic variables. In other words the ECLAC model records the direct effects of disasters on the affected countries and also the indirect and secondary effects on their economies, with the aim of ascertaining the government’s approximate expenditure on postdisaster reconstruction, especially when this outlay is substantial.
This article, on the basis of existing studies and ECLAC’s disaster assessment handbook, will set forth a basic analytical framework for analysing the impact of disasters and risk management. It kicks off with an individual description and assessment of the basic concepts for carrying out a risk analysis. Next comes a classification and definition of the main effects of disasters, both from a general and local point of view, with a description of the main forms existing today for establishing their value. Finally, the main conclusions are drawn from the study.
DEFINITION OF DISASTER-RELATED TERMS
An analysis is made below of the main concepts involved in the assessment of the losses deriving from natural and manmade disasters.
- Disaster: The United Nations Department of
Humanitarian Affairs, UN-DHA, defines disasters as
those events in which at least one hundred people die or
whose economic cost is more than 1% of the GDP of
the country involved.
The International Federation of Red Cross and Red Crescent Societies defines a disaster as any event or GERENCIA DE RIESGOS Y SEGUROS 4 • Nº 98—2007 series of events causing a great number of people to be suddenly under stress and in need of food, clothing, shelter, medical care and nursing, advice services and other types of urgently needed aid.
The International Strategy for Disaster Reduction, ISDR, regards a disaster as a serious disruption of the functioning of a community or a society, causing widespread human, material, economic or environmental losses which exceed the ability of the affected community or society to cope using its own resources.
Finally, the definition of disaster used in writing this article is the one proposed by the Economic Commission for Latin America and the Caribbean, ECLAC, which considers a disaster to be an event, usually sudden and unexpected, which causes damage, losses and temporary breakdown of the activities in a given area, affecting a substantial part of the population. - Types of disasters: A distinction is normally
made between natural disasters and manmade disasters,
caused by human action or related to technology.
Natural events can be broken down into the following:- Geodynamic phenomena: which may be endogenous or exogenous, depending on whether they are generated by the earth’s internal or external geodynamics. Disasters of this type include tectonic events such as earthquakes, volcanic eruptions, tsunamis or seaquakes and major ground deformation caused by the delayed effects of soil liquefaction or the movement of geological faults.
- Hydrological phenomena: bound up with the movement of water inside and on the surface of the earth’s crust.This category includes floods in general, lake and river overflows and flash flooding of low-lying areas, terrestrial and coastal erosion, sedimentation, salinisation, the drying up of aquifers, desertification and droughts.
- Atmospheric phenomena: these are events of a meteorological origin such as tornados and gales, torrential rain and storms,weather phenomena such as frost, hailstorms, sharp changes in temperature, forest fires and events of oceanatmosphere interaction such as hurricanes and the El Niño Southern Oscillation.These events in turn generate hydrological and geodynamic extreme events with heightened effects due to the global climate change.
- Biological phenomena: these comprise basically epidemics and plagues that might affect humans, animals or crops.The human-affecting events include virus-borne illnesses such as cholera, measles, influenza and AIDS; the animal -or cropaffecting events include clouds of locusts,African bees and overpopulation of rodents.
As regards manmade events a distinction can be made between:- Technological events: involving system failures due to negligence, lack of maintenance, operational errors, lack of materials or poor mechanical functioning. Some examples might be aircraft and ship accidents, rail accidents, dam breakages, explosions, industrial fires, etc.
- Polluting events: involving the action of toxic or hazardous agents for human beings and the environment such as leaks of hazardous chemical substances, oil spills, nuclear emissions, etc.
- Anthropogenic events and conflicts: caused accidentally or deliberately by man, such as wars, terrorism, vandalism and, in general, violent military and civil conflicts.
- Post-disaster phases: The disaster aftermath is
usually broken down into three phases: emergency,
rehabilitation and recovery (transition) and
reconstruction (Stephenson, R. S. 1991).
The emergency phase begins immediately after the disaster and lasts for a variable time depending on the gravity of the disaster. It comprises all the actions designed to save human lives and furnish the people affected with basic necessities, such as search and rescue operations, evacuation, provision of shelter, first aid, emergency medical protection and help, restoration of transport and communication routes, preliminary repairs to essential public utilities, registration of injured parties and recording damage to public and private property.
The rehabilitation phase includes the activities designed to return the disaster-affected zones and communities to normality, such as the stopgap repair of dwellings and buildings, temporary reestablishment of transport and communications and provision of public utility services (power supply, drinking water, etc.).This phase also involves the emotional and psychological recovery of the population affected by the disaster.
Finally, the reconstruction phase takes in all the measures designed to reorganise the physical space and environment to the end of allocating resources in line with the new social priorities in the aftermath of the disaster. - Hazard: This is the potential threat generated
by a given adverse phenomenon occurring in a human
settlement or site and in a specific time period (Meli, R.
et al.; 2005).
Depending on their origin, hazards may be natural, technological or social; some phenomena might produce several hazards at the same time.
Hurricanes, for example, might provoke flooding, strong winds, heavy seas and tidal surges while sites close to a volcano might be exposed to the threat of lava flows or pyroclastic material such as the emission of ash and lethal gases. - Hazard Intensity: This is the measure of its size or damage-causing capacity (Meli, R. et al.; 2005). The intensity depends on the magnitude of the event and the distance between the site affected by the event and its place of origin.A hazard’s area of influence depends on the nature of the specific phenomenon (a hurricane, for example, might affect several cities, regions or islands at once; an earthquake might affect several cities close to the epicentre; a volcanic eruption would damage mainly the area close to the volcano while a landslide would probably affect only part of any city).
- Physical vulnerability: This indicates a system’s damage proneness from its interaction with potentially hazardous internal and external processes (Meli, R. et al.; 2005 and Gómez, J. J.; 2001).The degree of vulnerability depends on the threat to which the given system is exposed; it is therefore logical that a system might be more vulnerable to one phenomenon than another. In the case of manmade physical systems, such as the buildings of a given city, the vulnerability depends on the characteristics of their design, the quality of the construction material used and the subsequent deterioration from the effect of external agents, age or lack of maintenance. It should be stressed that the measurement of vulnerability is a tricky business, due largely to the sheer size and complexity of the physical systems, the incomplete knowledge of the damage-causing processes and the mutual interdependence of vulnerability and hazard.
- Social vulnerability: This is the damage that human groups settled in a given spot may suffer, depending on a set of socio-economic, psychological and cultural factors (Meli, R. et al.; 2005 and Gómez, J. J.; 2001).When any natural hazard occurs, this type of vulnerability is greater in the poorer strata of developing countries (and, within these strata, the groups of children,women and elderly people are regarded as most vulnerable).This is because such social sectors usually have no access to information or resources that would have allowed them to take measures to protect their life and health.
- Exposure: This concept refers to the size and cost of the assets that might suffer losses as the result of a disaster occurring in a given region (Meli, R. et al.; 2005).Within this concept the items considered to be subject to exposure are the infrastructure, the population, the economy, production; the value thereof will depend on the size and diversification of the region to be analysed.
- Risk: This is the result of the interaction of the hazard, vulnerability and exposure.This interaction gives rise to damage or losses (economic, physical, social or environmental) in certain sectors of the society (Meli, R. et al.; 2005).A system’s risk will increase directly with any of the factors intervening therein; furthermore, the more complex a system is, the more difficult it will be to identify and estimate the risk. In the case of multiple hazards, for example, due consideration must be given to the correlation between the losses caused by the various hazards; when we are analysing the risk of a zone with concentrations of assets in geographically scattered points, consideration then has to be given the joint probability of losses associated with the event under study.
- Scenario:This is the possible situation where an event of great intensity or wide area of influence affects adversely a certain region or human settlement (Meli, R. et al.; 2005).A critical scenario is one that generates heavy losses; these losses will depend on the distribution of the exposed assets, vulnerabilities and the existent hazards in the region under study. Moreover, certain factors of a scenario will vary over time, so when a scenario is established due consideration has to be given to the most critical moment in which the most unfavourable conditions are obtained.
- Perception of the risk: This is the people’s attitude towards the risk they run (Meli, R. et al.; 2005). This variable is fundamental if the economic stakeholders base their risk-management strategies or policies on these perceptions.Very hazardous situations might be generated if the perceived risk is less than the real risk or very costly situations if the converse relation holds.
ASSESSMENT OF DISASTER-RELATED CONCEPTS
- Hazard assessment: The main objective of this assessment is to find out the cause of the hazard, identifying it and gauging its intensity and zone of influence (Meli, R. et al. 2005).The table below shows the factors that weigh most heavily, from a practical point of view, on the damage caused by the hazard:
| HAZARD | INTENSITY |
|---|---|
| Flood caused by rain or river overflows | Height of the water |
| Earthquake | Peak ground acceleration |
| Wind | Windspeed |
| Volcanic eruption | Volcanic explosion index |
| Volcanic ash | Height of the ash |
| Drought | Duration of the drought |
| Earth flows and mudflows | Height or speed of the mud |
| Tsunami | Height of the water |
| Storm surge | Height of the water |
| High seas | Height of the water |
| Landslide | Volume of sliding earth |
Information on the various hazards needs to be culled from the following sources:
- EARTHQUAKES
- Historic records on past events, identification and analysis of geological faults, studies of the effect of the distance from the epicentre of the earthquake to the site analysed and the possible soil amplification effects.
- TSUNAMIS
- Historic records of the floods caused by past tsunamis, record water levels, land surveys of the area and contours of the coastal fringe. It would also be useful to have seismic and tectonic information on the surrounding area, propagation speed figures and times for the wave to reach the coast plus studies of the natural or manmade defences to mitigate the effects of the tsunamis.
- HURRICANE WINDS
- Historic records of the frequency and intensity of hurricanes and the affected population. Studies of hurricane generation and probably trajectories, topographic maps (of the coastal zone). Information should also be culled from stations in meteorological observatories, statistical information and extreme-value distribution models.
- RAIN FLOODS
- Historic information on flood maps from previous disasters, precipitation probability, annual maximum precipitation and daily average precipitation, hydrograms, topographic maps, contours, drainage work surveys, filtration and runoff models to suit the analysis zone, soil permeability studies and determination of flood-prone areas.
- VOLCANIC ERUPTION
- Historic information on zones affected by previous volcanic episodes, geological studies of material ejected in previous explosions and estimation of eruption dates, with their corresponding occurrence rates, volcanic classification, volcanic explosion indices and wind speed and direction in the case of volcanic ash hazard.
- STORM SURGE
- Historic information and records of water height, cyclone generation studies.
- LANDSLIDE
- Historic records of the area or zones with similar conditions, studies of physical and geological characteristics of the slope, studies of the speed and run of the landslip and studies of the frequency and intensity of the causal event (heavy rain, earthquake, etc.).
To estimate the likelihood of a hazard occurring in a given zone we need first to draw up an intensityfrequency model to assess its magnitude in probability terms.This is done by way of exceedance rates.These rates are defined as the number of times the magnitude of an event will be exceeded in a given time period. They serve as the basis for calculating, as a corollary thereof, the return period, which is one of the most frequently used parameters in measuring a hazard.The normal working hypothesis is that the occurrence times are independent, resulting in a variable return period distributed on the basis of a Poisson process. On these assumptions, the return period Tr is calculated as,
Tr= TE /ln(1-p)
where TE is the exposure period or time and p the exceedance probability. Both parameters are established on the assumption of acceptable risk levels, aversion to risk and knowledge of the event generation process by the evaluators. Once the exceedance rate has been established, and ipso facto the return period, the results can be presented in the form of a hazard map with contours, showing the intensity of an event for a given site with a known return period.
| HAZARD | IMPORTANT INFORMATION FOR ASSESSING VULNERABILITY |
|---|---|
| Earthquake | Age of buildings, percentage of houses built outside the building rules |
| Flood, high seas, storm surge | Percentage of dwellings built from material of low resistance and durability |
| Tsunami | Percentage of dwellings built from flimsy material |
| Volcanic eruption, landslide, volcanic ash | All structures are almost equally vulnerable |
| Drought | Crop-growing area, nature of the crops, existence of reserves of water |
| Wind | Percentage of dwellings with flimsy roofs; measures taken by the population before the event |
- Assessment of vulnerability: Estimation of
system vulnerability aims to establish the existing
relations between the intensity of the phenomena and
the probable damage to property (Gómez, J. J. 2001 and
Meli, R. et al. 2005).To gain a general idea of system
vulnerability we first need to know certain information,
such as the degree of development and abidance by
construction norms, reports on the characteristics of the
buildings and the physical infrastructure (quality and
types of construction, age and state of conservation) and
also the type and severity of damage caused by past
natural events.We then need to build up mathematical
models of vulnerability or existing structural fragility for
the site and hazard under study and find out about
existing rehabilitation and structure-maintenance
From a quantitative point of view, this concept can be assessed on the basis of vulnerability indices. In the case of seismic hazards, for example, these indices combine indicators of the quality of the infrastructure, the age of the buildings and the population density and growth rate.The drawback of using these indices is that they make no estimation of the risk in financial terms since they do not explicitly incorporate the value of losses from property damage.A more sophisticated way of analysing vulnerability, therefore, is through vulnerability functions, which bring the intensity of the event into relation with the damage it causes to given infrastructure.These functions are calibrated from a value of 0%, indicating no damage, to a value of 100%, indicating total system loss.
A specific form of vulnerability is social vulnerability, defined as the sum of circumstances affecting a population, limiting its ability to cope for itself and determined by the following factors:- Distribution of the urban and rural population by sex, age and spatial distribution of the main human settlements and their historic growth.
- Social infrastructure, including education, historic and cultural heritage, recreational and sports, housing, healthcare and transport and telecommunication services, supply of drinking water and evacuation of sewage, and power supply, identifying the sources and siting thereof.
- Farming, industrial and commercial output (including tourism), its spatial distribution and annual breakdown.
- Indicators of development and its spatial development in the country under study.
- Sector breakdown of GDP and its variation over the recent years.
- Existence and application of programmes to reduce the adverse effects of extreme natural events, such as seismic alerts, tsunami alerts and others.
- Educational programmes explaining how to behave in the face of disasters and the location of hazardous sites or activities.
- Risk assessment: Risk assessment aims to
establish its nature and scope, to be able to gauge its
consequences on the affected society.This is done by
analysing the dependency factors between the various
participating risk factors and studying earlier events
(Meli, R. et al. 2005).
One common way of measuring risk is the quantification of its economic, social or environmental consequences on the basis of stochastic processes that model the generation of damage, taking into account occurrence probabilities or mean values and variance.To do so it is necessary to establish the return period so that the risk is then expressed in terms of the loss associated with that period and the loss exceedance rate.The calculation of this rate calls for a detailed knowledge of the stochastic models of hazard and vulnerability and also of the spatial correlation between the damage and losses, given that the event will not occur at the same time in each of the various regions threatened by it.The exceedance rate tells us the loss function of any event, the expected value of the annual cumulative loss and the probable loss for given exposure times.All these values are very useful for analysing the risk financially insofar as they tell us the necessary sum for rehabilitating and reconstructing the lost assets and also the possible compensation values and ipso facto the insurance and reinsurance premiums.
Another form of assessing the risk is to analyse society’s behaviour in the face of a major disaster generating substantial economic, social, environmental or strategic demands.These risk perception studies serve as the basis for setting up effective education and communication programmes designed to change a population’s mindset and behaviour and generate actions for the reduction or mitigation of risk in vulnerable or highly threatened communities. - Extreme event scenarios: The analysis of
scenarios of this type allows an assessment to be made of
a country’s capacity of coping with disasters and the
possible consequences thereof.This involves carrying out
a predictive study on the basis of historic data as well as
estimating the value of the elements that will probably
be affected by the disaster.A sine qua non here is a
thoroughgoing knowledge of the physical conditions of
the analysed scenario and also the characteristics of the
infrastructure, thoroughfares, composition and
characteristics of the population, productive activities
and exposed environments (Meli, R. et al. 2005).
In general, the information needed for analysing scenarios is historic statistical information on the number of casualties and deaths, probability studies of the occurrence of the phenomenon; hazard maps; indices and functions of vulnerability for the area and for the analysed hazard; surveys; cadastres; processed satellite photos; average construction value per square metre for the different types of buildings; location, capacity and state of hospitals; medical attention centres; shelters; fire station; police station; schools; theatres; dams;water pipelines; power lines; power stations; oil pipelines; gas pipelines; oil refineries; roads, bridges and urban transport; population breakdown by zone, age, class, sex, religion and other indicators; possibility of side effects and existence and maintenance of disaster mitigation programmes in the population; alarm systems; simulation and drill systems and evacuation systems, among others.
The analysis of critical scenarios has to include direct and indirect losses, a diagnosis of the country’s disaster management systems and an analysis of the distribution of the financial burden of the damage and reconstruction costs as well as the knock-on effects on the economy and development. It should be pointed out here that calculating the occurrence probability of these extreme events is sometimes a complex business and the associated losses are unknown, so this information should not be used for inter-country comparisons. Furthermore, there is no single criterion for determining the critical scenario so all risk factors are usually maximised, giving rise to an occurrence probability for this scenario that is lower than acceptable risk levels.
CLASSIFICATION AND DEFINITION OF THE EFFECTS OF THE DISASTER
There are three types of effects deriving from a natural phenomenon: direct, indirect and macroeconomic.The main differences between them can be summed up as follows (ECLAC, 2003):
- Direct damage occurs at the moment of the disaster or within a few hours of it, unlike indirect and macroeconomic damage that may come to light long afterwards. Experience shows that this time lag, in the biggest disasters, may be up to five years.
- From the point of view of the rapid appreciation of the damage, direct effects are relatively easy to identify and evaluate. Indirect effects come to light over variable periods of time after the disaster; many are not evident at the time of making the assessment while others, albeit identifiable at the time of estimating the damage, may not be measurable in money terms.
- LThe direct and indirect effects can be lumped together to gauge the total damage.The macroeconomic effects, however, measure the knock-on effects on the economy and the macroeconomic disruption attributable to the event: adding them onto the other two categories could lead to double counting.
- Direct damage: Direct damage refers to the damage suffered by productive assets and stocks (both final goods and goods in process).The main damage in this category includes the total or partial destruction of physical infrastructure, buildings, facilities, machinery, equipment, means of transport and storage, furniture, damage to cropland, irrigation systems, reservoirs, etc. (In the case of agriculture, any produce destroyed at the moment of the disaster also has to be considered as direct damage, since it was ready for harvesting). For calculation purposes, a distinction should be made between damage to the public sector and damage to the private sector to determine who will bear the brunt of the reconstruction costs.
- Indirect damage: This refers to the damage
done to the flows of goods and services, which will cease
to be provided or produced from the time the disaster
occurs and for some time thereafter, perhaps throughout
the whole rehabilitation and reconstruction period.This
time is conventionally capped at five years.This type of
damage is a knock-on effect of the direct damage to the
production capacity and social and economic
infrastructure. Indirect effects occasionally produce
windfall benefits, which have to be subtracted from the total loss figure. For example, a prolonged and intense
flood in a South American country, caused by the El
Niño phenomenon, brought a sizable swathe of the
coastland, hitherto infertile, into cultivation.This land
was planted up by the owners and the yield obtained had
to be subtracted as an indirect benefit from the
calculation of the total disaster losses. Disasters also
generate indirect effects that are difficult to identify and
therefore impossible to quantify.
Intangible effects of a disaster are the human suffering, insecurity, solidarity, the effects on national security and many other factors of the same ilk, which impinge on social welfare and the quality of life.
Lastly, there are indirect effects that could be measured in money terms but not within the time available for the assessment. Examples might be lost opportunities in economic activities or the losses of human capital due to the victims and injured parties, etc.
A list is given below of the main indirect effects of a disaster:- Increase in operational costs due to the destruction of infrastructure and stocks.
- Fall in the output of goods and services due to the total or partial shutdown of activities.
- Costs deriving from the use of alternative means of production or service provision (transport costs caused by the need of using makeshift means of communication that are longer, more costly and of lower quality, etc.).
- Costs deriving from the post-disaster reshuffling of the budget.
- Costs deriving from meeting the needs of the affected population during the emergency phase and of tackling such situations as health campaigns to pre-empt epidemics.
- Loss of income due to the total or partial inability of providing services (of electricity, drinking water, etc.).
- Knock-on loss of production or revenue (such as the reduction in the activity of suppliers with no alternative outlet for their products, etc.).
- Disaster-derived costs or benefits that are absorbed by third parties not directly affected (such as the costs of environmental pollution, etc.).
- Macroeconomic effects: These are the effects
of the disaster on the behaviour of the main
macroeconomic variables, on the assumption that the
authorities of the country do not carry out any type of
emergency adjustment.
Generally speaking the main macroeconomic unit of analysis is the country. In the case of some disasters, however, localised in very specific areas, the analysis might need to be made, information permitting, at a lower level of province,municipal district, etc. It is also essential to have some sort of idea of how each of the variables evaluated would have evolved but for the disaster.This allows us to make an estimation of how much the disaster has interfered with economic targets and how far it hamstrings the country’s capacity to take on the tasks of rehabilitation and reconstruction.
The period over which macroeconomic effects need to be estimated depends on the magnitude of the disaster. Experience shows that a reasonable estimation time is the rest of the year in which the disaster has occurred (short term) plus one or two additional years and exceptionally up to five (medium term).
An account is given below of the methodological aspects for estimating the main macroeconomic variables affected by disasters:
- GROSS DOMESTIC PRODUCT
- This has to be estimated on a sector basis. First of all an estimate has to be made of the yearly GDP trend of the sector under consideration until the disaster occurred.This will then be extrapolated to obtain a pre- and postdisaster result, subtracting the losses and adding any positive knock-on effect for the construction sector.
- GROSS INVESTMENT
- The size of this variable in the disaster year reflects two types of effects: projects underway that were shelved due to the disaster and loss of stocks.These figures, together with an estimate of the sector investments necessary to repair the damage over the next 5 years, will be used to analyse the gross investment.
- BALANCE OF PAYMENTS
- The post-disaster production slowdown, exportation limits and increased imports sucked in to satisfy internal demand will all have an effect on the trade balance and the balance of payments.The current account during the disaster year has to be calculated from the sector information on lower exportations of goods and services, increased imports to meet essential needs during the recovery and reconstruction phase, the reinsurance sum from abroad and a possible reduction in external-debt interest payments.The capital account has to be estimated from the medium- and long-term external financing requirements to fund top-priority investments in the reconstruction process, taking into account the necessary external top-up to offset the effect of the above actions on the current account.
- PUBLIC FINANCES
- Public spending will increase to cover the costs of the emergency and rehabilitation phases.Tax revenue may fall in line with the drop in production and exportation or even because of the shelving of some taxes to alleviate the pressure on the sectors worse affected by the disaster.The net result may be a sharp worsening of the tax deficit.
- PRICES AND INFLATION
- Prices may be forced up by post-disaster scarcity and speculation, fuelling an inflation spiral.To evaluate these variables, an estimate will have to be made on a sector by sector basis of the effect of supply restrictions on the price of certain goods and services that now need to be supplied through different channels.
- EMPLOYMENT
- The employment level has to be estimated on a sector basis to appreciate the global effects of the destruction of productive capacity or social infrastructure and the new demand for personnel to carry out the emergency and rehabilitation work.
OVERALL VALUATION OF DISASTER DAMAGE
From an economic point of view a catastrophic event can be interpreted as the exact opposite of an investment project, since it causes damage of all types and disrupts the production flow of goods and services, balking their availability and reducing the system’s efficiency.An analysis of investment projects can be tackled in terms of a private assessment or a social assessment.The former gauges the benefits of the project in terms of the sale of products or services minus rawmaterial costs and payment of the factors of production. In the latter approach the benefits derive from an increase in the national income fuelled by the execution of the project minus the opportunity cost of the other projects sacrificed in its favour.The two types of assessment use similar criteria for studying the feasibility of an investment plan but differ in the form of valuing the variables constituting its costs and benefits: private assessment is based on market prices; social assessment on shadow prices or basic social prices, namely foreign currency, manpower and the social discount rate. In the assessment of disaster-related damage it is feasible to apply the social assessment methodology of investment projects, using shadow prices to gauge the value of the damage done to society. From a practical point of view, however, it is much simpler to use market prices given the sheer number of sectors usually affected by disasters and the short time normally available for damage assessments (ECLAC, 2003).
Applying the private project assessment methodology, a catastrophe damage valuing criteria would be the depreciated value of lost assets (book value), i.e., taking into account the past years of service in estimating the costs of fixed assets and other assets subject to depreciation and obsolescence, to arrive at the asset’s remaining useful life at the time the disaster occurred.
In countries with rampant inflation it would obviously be misleading to use the book value for estimating the market value of lost assets. In these cases it is no longer feasible to establish the original value of the assets by appreciation from the year of purchase to the year of destruction because the long-term price indices are just not reliable enough.The only alternative left, therefore, is to value the assets at replacement cost, i.e., taking into account technological advances and new developments to protect them from any future natural or manmade catastrophes.
It should be pointed out here that the valuing criteria finally used will depend on several factors such as the needs of the analysis itself, the basic characteristics of the set of assets being valued, the information and time available.An intermediate option between the abovementioned ones would therefore be to value the assets at replacement cost without deduction of any depreciation that the objects being valued might have suffered throughout their useful life.
Regardless of the valuing criteria used, the starting point for the analysis of direct catastrophe damage is the quantification in physical units of the affected assets (e.g., the number of machines and productive equipment lost or damaged, square metres of destroyed constructions, hectares of crops affected, tons of farming produce lost, etc.). Price lists of different products and services must then be drawn up (e.g., square metre construction cost of housing and industrial facilities, updated prices of the main agricultural products, etc.) on the basis of consumer price indices, wholesale prices or producer prices. It would also be useful to find out the prices of capital goods or construction materials of investment products that the government might have in the pipeline or have carried out recently. Intermediate prices will in all likelihood be opted for in making the damage assessment, splitting the difference, for example,between the square metre construction value of a destroyed marginal settlement and the type of permanent dwelling solution that the government of the country intends to provide for those affected by the disaster, or between the value of a destroyed textile machine that was running towards the end of its useful life and the cost of replacing it, which will be different because of the technological changes incorporated in the new machine.This means that the valuing has to be done on the basis of the value of the equipment that most resembles the destroyed equipment in functional terms and is feasible to purchase or finance in terms of its cost and characteristics.
As for indirect damage deriving from the temporary interruption to the production of goods and services, this should be valued at producer prices or market prices as the case may be. In the productive sectors the losses represent the value of the goods and services that have not been produced, so they should be evaluated at producer prices. In the service sector, on the other hand, a better idea of the lost service provision due to destruction of infrastructure can be gained by an analysis of the prices paid by consumers or final users.
All the costs and prices used for the valuing process must be considered in real terms, excluding financing costs such as commissions, interest payments, discounts, insurance and reinsurance, subsidies and all post-disaster funding systems.Transfers within an economy are also excluded from the picture, since they do not use resources or produce goods and services.
Finally, calculations of direct and indirect damage and losses should be carried out in local currency of the affected country, although it is often useful to convert these figures to United States dollars to facilitate international comparisons and encourage a greater awareness within the international community.
LOCAL VALUATION OF DISASTER DAMAGE
Although it is true that a major disaster may turn out to be a development opportunity for the affected area, especially when the reconstruction work introduces improvements and risk-reduction forms, disasters of a small or medium intensity do not normally attract additional resources. Quite on the contrary they usually have to be tackled with the country’s own resources; reconstruction work therefore tends to be inadequate and makeshift with no measures to reduce the possibility of similar disasters in the future (Cardona,O.D., 2001). For this reason it is necessary to set up alternative methodologies based on indicators more in tune with local characteristics of the areas and settlements where such events usually occur.As well as the cost, these indicators aim to measure the disaster’s impact on the different sectors of the population.
With this aim in view, the Red de Estudios Sociales de Prevención de Desastres en América Latina (Social Studies Network for Disaster Prevention in Latin America) has brought out a methodology based on a Simple Impact Index (ISI in Spanish initials), applicable both at a general level and in smaller territorial areas. This index makes a time comparison of the impact produced by one or several disasters on a given population or strategic economic sectors. It is based on a series of variables called base integrating variables, which reflect such factors as the characteristics of the population, the economic sectors, the level and type of infrastructures, the local management and the natural resources of the municipal district under study while also recording the most significant damage and losses that might be caused by the disasters.
The tables below show each of the variables used and the information necessary for estimating them:
| ANALYSIS OF THE PRE-DISASTER SITUATION | ANALYSIS OF THE POST-DISASTER SITUATION | ASSESSMENT |
|---|---|---|
| VARIABLES | VARIABLES | |
| NUMBER OF INHABITANTS AND STRUCTURE:the information is obtained from the national
population censuses fine tuned with the
information from each municipal district. INCOME LEVEL: breakdown into high-, medium- and low-income groups in terms of maximum and minimum income limits and the characteristics of the particular population, lifestyles and socio-economic level. This tells us the differences between the pre-and post-disaster conditions, establishing the real effects thereof, especially on marginal populations, where the normal living conditions may be similar to the post-disaster living conditions. LEVEL OF EDUCATION: maximum level of studies and illiteracy indices in the population. |
VICTIMS DECEASED:ascertain the number of
deceaseds of heads of family and / or the main
household breadwinners. NUMBER OF CASUALTIES: total number of injured people requiring prolonged medical attention paid for by the families themselves, those who suffered some sort of temporary or permanent impediment and those who lost income because of some sort of incapacity. MODIFICATION OF THE FAMILY INCOME: number of households who lost an income source because one or several of their members died or were injured or because their forms of subsistence were modified and the number of households who benefited from the disaster by the sale of products or provision of services to meet post-disaster needs, thereby boosting their income. |
Impact of the disaster on family groups with different characteristics. Identification of the most vulnerable population sectors and groups. Identification of the population sectors and groups who benefited from the disaster. An estimate can be made of the impact on the population by working out the difference between the lost income of the affected households and the increased income of households who benefited from the disaster. |
| ANALYSIS OF THE PRE-DISASTER SITUATION | ANALYSIS OF THE POST-DISASTER SITUATION | ASSESSMENT |
|---|---|---|
| VARIABLES | VARIABLES | |
| ACTIVITY BRANCH: determination of the main
activity branches in the municipal district and
the weight of each one in the local, regional
or national economy. Determination of
informal job-generating activities, i.e. as well
as such activities as the sale of food or street
trading, those illegal activities that have a big
impact on local economies (clandestine
felling, sale of protected species, drug
trafficking, etc.) TYPE OF ACTIVITY AND LEVEL OF DEVELOPMENT: ascertain the type, level of development and level of production of each one of the economic branches, both formal and informal, existing in the municipal district. OCCUPATION LEVEL: number of jobs of each productive branch, both formal and informal, before the disaster. |
SECTORS AFFECTED: level of productive losses
and effects in the main formal and informal
economic sectors caused by the disaster or by
the temporary interruption of activities
(including not only the estimated shutdown
time but also the time needed to recover the
pre-disaster conditions). SECTORS BENEFITED: ascertain the formal and informal productive sectors that could benefit from the disaster (such as the construction sector). OCCUPATION LEVEL: ascertain the number of jobs lost as a result of the disaster as well as those that might be generated in benefited sectors and calling for an increase in manpower. In the informal sectors a determination has to be made of the reductions due to the loss of merchandise or the unemployment increase in formal economic sectors. |
Impact of the disaster on the main economic sectors. Identification of the most vulnerable sectors and those that have benefited from the disaster. Increase of the municipality’s dependence on other national and international sectors. Analysis of the correlation between affected and benefited sectors, bearing in mind that disasters affect the most vulnerable productive sectors but that there are other sectors that benefit from the unforeseen demand for certain products or services. In the case of major disasters that involve the sending of humanitarian aid, an estimation has to be made of the impact of this aid on the productive sectors and the local market. |
| ANALYSIS OF THE PRE-DISASTER SITUATION | ANALYSIS OF THE POST-DISASTER SITUATION | ASSESSMENT |
|---|---|---|
| VARIABLES | VARIABLES | |
| INCOME: level of internal and external income
managed by the municipal district before the
disaster. It is important to find out the type
and source of the municipality’s current and
extraordinary income in normal conditions. PUBLIC INVESTMENT: amount of investment in public works scheduled or underway in the disaster year. SOCIAL INVESTMENT: amount of expenditure on social investment, including anti-poverty programmes scheduled or underway in the disaster year. Determine whether the government intends to support the sectors with the lowest pre-disaster income levels. |
INCOME: income reduction due to the effects of
the disaster or income increase fuelled by the
input of external resources in the form of
reconstruction or humanitarian aid. PUBLIC INVESTMENT: reduction in the investment in public works for budgetary reassignment towards top-priority attention areas or income reduction of the affected zone. Increase of investment in public works for rehabilitation and reconstruction purposes. INVESTMENT IN SOCIAL EXPENDITURE: reduction in the amount of investment in social expenditure due to budgetary reassignment towards top-priority attention areas or income reduction in the affected area. Increase of the investment in social expenditure for reconstruction and support of marginal social sectors affected by the disaster. |
Impact of the event on municipal finances due to its outlay to deal with the effects of the disaster minus the scheduled expenditure for this year. The impact will be higher, the lower the planned outlay on public works and social expenditure, with a consequently greater reliance on extraordinary expenditure. Long-term impact on the receipt of external financial resources for rehabilitation and reconstruction. Level of dependence on other government levels in terms of recovery and the occurrence of other disasters in the future. |
| ANALYSIS OF THE PRE-DISASTER SITUATION | ANALYSIS OF THE POST-DISASTER SITUATION | ASSESSMENT |
|---|---|---|
| VARIABLES | VARIABLES | |
| TYPE OF INFRASTRUCTURE:
Basic: this takes in the infrastructure that facilitates the
performance of productive activities and everyday
activities and also the integration of the municipal district
with other regions. A determination has to be made of the
value it represents for the development of the economic
activity and the population’s general activity.
Services: infrastructure designed to provide basic services
for production and productive sectors.
Housing: general characteristics of the housing and the
type of use allocated to it. GENERAL CONDITIONS: Basic and services: conditions and state of maintenance normally received by infrastructure of this type. In the case of services a determination has to be made, for example, of whether water-supply deficiencies are disaster-caused or are in fact the normal state of affairs. Housing: reference is made to the construction quality (type of materials used and construction techniques used). COVERAGE: Basic and services: existing level of infrastructure coverage and efficiency and also the pre-disaster deficit. Housing: pre-disaster satisfaction of the housing demand and arrangements for doing so and housing deficit. It would also be important to find out whether the housing is owned, rented or irregular dwellings. |
DAMAGED:
Basic and services: infrastructure that has
suffered reparable damage and whose repair
cost does not exceed the replacement cost.
Housing: housing that has suffered reparable
damage and whose repair cost does not exceed
the replacement cost. WRITE OFF: Basic and services: totally destroyed or severely damaged infrastructure whose repair cost equals or exceeds the replacement cost. Housing: housing that has suffered total destruction. COVERAGE LEVEL: Basic and services: reduction of the efficiency in the coverage or provision of services and possible increase of the coverage or efficiency due to replacement of totally lost infrastructure or repair of damaged infrastructure. Housing: reduction in the housing quality due to the effects of the disaster and possible increases in the housing quality due to the reconstruction or repair of damaged housing. |
Impact of the disaster on basic infrastructure and housing, in terms not only of the replacement cost but also use value for the various sectors of society. Identification of the top-priority attention areas and definition of reconstruction projects both for infrastructure and housing. Impact of the damage in the strategic economic sectors. Impact of the breakdown of productive services. |
| ANALYSIS OF THE PRE-DISASTER SITUATION | ANALYSIS OF THE POST-DISASTER SITUATION | ASSESSMENT |
|---|---|---|
| VARIABLES | VARIABLES | |
| EXISTING NATURAL RESOURCES:
inventory of
existing natural resources in the zone
(including flora and fauna). IN NATURAL STATE: inventory of natural resources that have undergone no modification by social and economic processes. IN MODIFIED CONDITIONS: inventory of natural resources subject to transformation whether by productive processes or by occupation. Description of the processes or activities that are modifying the natural environment. |
EXISTING NATURAL RESOURCES: state of the
existing natural resources after the disaster. IN NATURAL STATE: inventory of natural resources that have been damaged by the disaster without the intervention of man. IN MODIFIED CONDITIONS: inventory of natural resources subject to transformation and affected by the disaster. |
General impact of the disaster on the
zone’s natural resources.
Differential impact on transformed
ecosystems and those in a natural
state. Level of vulnerability of the zone’s ecosystems and of factors likely to generate new threats or aggravate existing ones. |
CONCLUSIONS
The last decade of the twentieth century was marked by a series of major disasters throughout the whole world, most of them sharing similar characteristics. This spate of disasters has sparked off worldwide concern due to the high probability of such extreme events recurring in the future, with equal or worse consequences, in the same or different parts of the planet. The occurrence of a given disaster depends not only on the existence of a high threat or hazardousness in a given zone but also the vulnerability of this zone. Many parts of the world, for example, have buildings that are equally vulnerable to earthquakes because the seismic threat in the region has long been deemed to be low; a minor or moderate earthquake could therefore cause a major disaster in these areas. Underestimating the threat might lead to many disasters in places where the vulnerability is high or the threat is considered to be low. Disasters are therefore becoming an increasing problem; their impact is growing with time due to a series of factors such as development models, population growth and the urbanisation models in many countries, land occupation trends, ongoing impoverishment of large segments of the population, the use of unsuitable organisation systems and pressure on natural resources.All these factors have brought about an increase of settlements’ vulnerability towards a wide range of hazards, both natural and manmade.This context calls for a set of tools for measuring the nature and amount of the losses associated with the different types of disasters and also their social, economic and environmental effects.
One of such tools is the assessment methodology used by ECLAC, the aim of which is to estimate the cost of the disasters as the basis for allocating and marshalling resources throughout the emergency, rehabilitation and reconstruction phases and also to analyse the effect, negative or positive, of the country’s damage and the short-term macroeconomic losses.This cost is measured to ascertain the total sum of economic losses caused by the destruction of property, interruption of the economy’s various services and activities, while also determining the disaster’s negative effects on the economy’s normal development. Moreover, to record the effects of small and medium-sized disasters on a more local scale, the Social Studies Network for Disaster Prevention in Latin America has developed an alternative method to the ECLAC one, considering the different magnitudes of the disasters and also their impact on the various sectors of the affected population.The aim in so doing is to estimate the opportunity cost and the benefit that would be reaped from carrying out appropriate risk management policies.
BIBLIOGRAPHIC REFERENCES
Meli, R.,D. Beltrán and S. Santa Cruz (2005), El impacto de los desastres naturales en el desarrollo: documento metodológico básico para estudios nacionales de caso. United Nations. Economic Commission for Latin America and the Caribbean -ECLAC.
United Nations Development Program (2005), Human Development Report 2005. International Cooperation at a Crossroads:Aid,Trade and Security in an unequal World. http://hdr.undp.org/reports/global/2005/pdf/HDR05_complete.pdf
ECLAC (2003), Handbook For Estimating The Socio-Economic and Environmental Effects Of Disasters. Economic Commission for Latin America and the Caribbean. http://www.eclac.org/cgibin/getProd.asp?xml=/publicaciones/xml/7/12707/ P12707.xml&xsl=/mexico/tpl/p9f.xsl&base=/mexico/tpl/top-bottom.xsl
Cardona,O.D. (2001), El impacto económico de los desastres: esfuerzos de mediciones existentes y propuesta alternativa. Unidad ejecutora sectorial del subprograma de prevención de desastres. Secretariado Técnico de la presidencia de la República Dominicana e International Development Bank.
Gómez, J. J. (2001),Vulnerabilidad y medio ambiente. United Nations. Economic Commission for Latin America and the Caribbean-ECLAC. Centro Latinoamericano- caribeño de Demografía CELADE-División de Población.
Bull, R. (1994), Disaster Economics.Disaster Management Training Programme. United Nations Development Programme and United Nations Disaster Relief Programme UNDP/UNDRO. 1st edition.
Stephenson, R. S. (1991), Disaster Assessment. Disaster Management Training Programme. United Nations Development Programme and United Nations Disaster Relief Programme UNDP/UNDRO. 1st edition