Special lecture: Economic aspects of disasters Ricardo Zapata-Marti Regional Advisor Focal Point for Disaster Evaluation, ECLAC Task Force for Emergency Preparedness Second Emergency Management CEO Seminar August Lima, Perú

The bottom line Experience over the recent years both in Latin America and Southeast Asia supports the notion that a comprehensive socioeconomic and environmental assessment of disasters leads to a profiling of disasters that enables the formulation of reconstruction of affected infrastructures (including the protection of critical infrastructures, with particular reference to public security in sectors such as health, water and sanitation, food security, energy, etc.).Experience over the recent years both in Latin America and Southeast Asia supports the notion that a comprehensive socioeconomic and environmental assessment of disasters leads to a profiling of disasters that enables the formulation of reconstruction of affected infrastructures (including the protection of critical infrastructures, with particular reference to public security in sectors such as health, water and sanitation, food security, energy, etc.). A comprehensive analysis of damage (physical destruction of assets in all sectors of a society, community or economy valued at replacement costs) and losses (income lost, production not realized, employment reduction, budget deficits associated wih post-event emergency and recovery expenditures and tax revenue losses incurred) allowsA comprehensive analysis of damage (physical destruction of assets in all sectors of a society, community or economy valued at replacement costs) and losses (income lost, production not realized, employment reduction, budget deficits associated wih post-event emergency and recovery expenditures and tax revenue losses incurred) allows –a perspective on cross-cutting themes such as gender and disasters, ethics in risk management, environmental risk and the issues of governance, –risk dialogue and consensus building based on assessments, and the mobilisation of resources for risk reduction

Post disaster situation RecoveryObjectives International standards or Developmentgoals (such as MDGs) An additional deficit is created from the pre-existing gap between the prevalent situation vis-à-vis the development goals and the emerging recovery objectives. NewGap

HUMANHealthEducationLivelihoods Housing and shelter Cultural identity NATURE / ENVIRONMENT Clean water, wage disposal and sanitation Clean air Biodiversity and integrity of ecosystems Climate variability and change PHYSICAL INFRASTRUCTURE Quality and resilience of human built environment (settlements and rural/urban planning) Transport and communications, energy and other basic lifelines Productive infrastructure Other built infrastructure (public services, government buildings) SOCIAL Social capital and social networks (solidarity and equity) Family ties, gender perspective and extended family networks and links Violence, security and rights POLITICALGovernanceTransparency Participation, inclusion and political rights Access to information FINANCIAL Access to credit Land tenure, legal rights Compensatory mechanisms and funds Insurance and financial protection

Risk management and adaptation Damage and costs HAZARDSBaseline modified modified by by variability variability and and change change RISK Multi stresses More severely affected More severely affected by vulnerability by vulnerability but aggravated but aggravated by changes by changes in hazards in hazards patterns patterns MANAGEMENT, TRANSFER AND REDUCTIONMITIGATIONADAPTATIONEVOLUTION RESILIENCE VULNERABILITY Diverse, local Sector specific

Socioeconomic development paths Economic growth TechnologyPopulationGovernance An integrated framework, a systemic perspective EMISSIONS AND CONCENTRATIONS Greenhouse gases Pollution (air, water, soil, sea) CLIMATE CHANGE Temperature rise Sea level rise Precipitation change Droughts and floods IMPACTS ON NATURAL NAD HUMAN SYSTEMS Food and water resources Ecosystems and biodiversity Human settlements Human health Unwanted evolution Adaptation and Mitigation Adaptation Current paradigm

Reasons for the increase in natural catastrophes and natural catastrophe losses Global population growth (exponential development); in 1800, for example, there were one billion people living on the earth, today there are 6.3 billion.Global population growth (exponential development); in 1800, for example, there were one billion people living on the earth, today there are 6.3 billion. The rising standard of living in nearly all countries of the world produces growing accumulations of wealth which are hit in the event of a catastrophe.The rising standard of living in nearly all countries of the world produces growing accumulations of wealth which are hit in the event of a catastrophe. Concentration of population and values in conurbations: the emergence of numerous mega cities - even in exposed regions (e.g. Tokyo: 30 million inhabitants)Concentration of population and values in conurbations: the emergence of numerous mega cities - even in exposed regions (e.g. Tokyo: 30 million inhabitants) Settlement and industrialisation of very exposed regions, especially coasts and river basins, tourism in danger zones, e.g. FloridaSettlement and industrialisation of very exposed regions, especially coasts and river basins, tourism in danger zones, e.g. Florida Vulnerability of modern societies and technologies, structural engineering, devices and equipment, networks; problems involving suppliers tooVulnerability of modern societies and technologies, structural engineering, devices and equipment, networks; problems involving suppliers too Increasing insurance penetration throughout the world, i.e. the proportion of insured goods is mounting globally. Consequently, insured losses are escalating even faster.Increasing insurance penetration throughout the world, i.e. the proportion of insured goods is mounting globally. Consequently, insured losses are escalating even faster. Global changes in environmental conditions, climate change, water scarcity, loss of biodiversityGlobal changes in environmental conditions, climate change, water scarcity, loss of biodiversity

ECLAC´s disaster assessments over the years Period AFFECTED POULATION TOTAL DAMAGE AND LOSSES Deaths Primary affected population (millions of US dollars, at 2004 value) ,0424,229,26078, ,2025,442,500101, ,6482,518,50831, (estimated) 18,03235,478,47050, ,92447,668,738260,753 Yearly average 3,7251,444,5077,902 Of which of meteorological or climatic nature 50,06722,929,198127,923 Source: ECLAC led assessments since 1973

Total insurance growth, penetration and density by region

Appropriation of risk needed to promote risk reduction: Need for institutional and regulatory changesNeed for institutional and regulatory changes Use of market to value (“price”) riskUse of market to value (“price”) risk Need for social policies for compensation and promotion (provide gender, age, ethnic sensitive instruments)Need for social policies for compensation and promotion (provide gender, age, ethnic sensitive instruments) See risk reduction as a business opportunitySee risk reduction as a business opportunity Imperfect or inactive markets require government action / intervention

LEVEL OF DISASTER IMPACT Indicates coping and adapative capacityIndicates coping and adapative capacity Risk to be covered (financial gap) “Acceptable risk” Excedence (residual or excedent risk)

ESTABLISHING RISK FINANCING NEEDS Probability or return period Risk type Resource gap Reserve funds 2-3 years years years Recurrent multi- hazard risks Catastrophic risks Parametric coverage Contingency funds Budget constraint CAT bonds bonds

Policy implications Exposure to disaster risks is not unlike exposure to other risks (financial, commercial, social, political)Exposure to disaster risks is not unlike exposure to other risks (financial, commercial, social, political) Exposure to risk has a positive correlation with poverty: disasters impacts are not distributed homogeneously neither in location nor in impactExposure to risk has a positive correlation with poverty: disasters impacts are not distributed homogeneously neither in location nor in impact Social impact is regressive: direct linkage between vulnerability and poverty, vulnerability and marginalization, vulnerability and gender or ethnicitySocial impact is regressive: direct linkage between vulnerability and poverty, vulnerability and marginalization, vulnerability and gender or ethnicity

Appropriation to promote reduction of risk (in the face of extreme events and climate change) –Need for regulatory and institutional changes –Markets as clearing houses to price risk (beyond insurance) –Need for social policies for compensation, promotion and solidarity –Risk management is an investment / business opportunity Imperfect markets require governmental interventionImperfect markets require governmental intervention

The role of ECLAC – in respect of disaster assessment and risk reduction In response to its member countries, has over 35 years assessed disasters’ socioeconomic impactIn response to its member countries, has over 35 years assessed disasters’ socioeconomic impact Developed a methodological tool for damage and loss assessment (DALA), now recognized as the international standard for post-disaster assessmentDeveloped a methodological tool for damage and loss assessment (DALA), now recognized as the international standard for post-disaster assessment Has accumulated quantitative evidence that allows for economic analysis of risk, which may be extrapolated for disaster’s future impact and could be used to quantify partially the socioeconomic implications of climate change and approach the valuation of adaptation costsHas accumulated quantitative evidence that allows for economic analysis of risk, which may be extrapolated for disaster’s future impact and could be used to quantify partially the socioeconomic implications of climate change and approach the valuation of adaptation costs Has increased national capabilities and contributed to policy changes in Latin America and the Caribbean and in other regions, namely South East Asia in cooperation with ESCAP and the World Bank’s GFDRRHas increased national capabilities and contributed to policy changes in Latin America and the Caribbean and in other regions, namely South East Asia in cooperation with ESCAP and the World Bank’s GFDRR

Thank you!