Damage and Losses Evaluation in Cases of Disasters An Introduction to the ECLAC methodology J. Roberto Jovel, Consultant

22 enero 2003Roberto Jovel2 Why undertake a Damage and Loss Assessment? Any disaster brings about both destruction and damage to physical assets, and changes in the economic flows of the affected area In most cases, estimates of direct damages are made and allegedly represent the total effect of disasters However, the amounts of indirect losses that arise in the medium term as a result of the disaster may be of more significance to the affected population

22 enero 2003Roberto Jovel3 Damage vs Losses: El Salvador Eartquakes in 2001 Million US$ Direct damages 939 Indirect losses 665 Total 1,604

22 enero 2003Roberto Jovel4 Damage vs Losses: Argentine Floods in 2003 Million US$ Direct damages 662 Indirect losses2,216 Total 2,878

22 enero 2003Roberto Jovel5 Damage vs Losses: Central America Drought in 2001 Million US$ Direct damages... Indirect losses Total 162.2

22 enero 2003Roberto Jovel6 The Timing of Effects Time, months Direct Damages Indirect Losses 5 yrs Affect: Living conditions Economic development

22 enero 2003Roberto Jovel7 Usefulness of the Damage and Loss Assessment To determine the amount and geographical distribution of disaster effects (damage and losses) To estimate financial requirements for reconstruction and medium and long term social and economic recovery To identify most affected sectors or areas that will require priority attention in reconstruction and recovery To provide basis for designing strategic framework for reconstruction and long-term economic and social recovery To identify mitigation activities in order to reduce effects of future disasters To determine the capacity of affected government to face by itself the reconstruction and recovery requirements and – by default – to ascertain assistance requirements, whether internally or from abroad

22 enero 2003Roberto Jovel8 The Damage and Loss Assessment Tool The ECLAC experience in damage and loss assessment in the Latin America and Caribbean region The Handbook for Assessment of Socio- Economic and Environmental Effects of Disasters A tool for –dialog and communication with decision makers –analyzing risk under alternative scenarios

22 enero 2003Roberto Jovel9 Basic Concepts Utilized Origin of disasters –Hydrometeorological –Geological –Man made Type of disaster –Sudden –Slowly evolving Types of effects: –Direct damages –Indirect losses –Macro-economic effects

22 enero 2003Roberto Jovel10 Direct Damages Destruction or partial damage to assets, including infrastructure, stocks, production ready for harvesting, natural resources, etcetera They occur during or immediately after the disaster They are measured in physical terms, and a monetary value is assigned to them

22 enero 2003Roberto Jovel11 Examples of Direct Damages Value of destroyed or damaged housing Value of destroyed or damaged household goods within affected housing Value of destroyed or damaged commercial buildings Value of stocks stored in commercial buildings affected Value of lands eroded or silted by flooding Repair and reconstruction value of water supply and sewerage, electricity, transport, etcetera

22 enero 2003Roberto Jovel12 Criteria for the Valuation of Direct Damages Present (book) value of assets, adjusted for obsolence and maintenance level Replacement value of assets Reconstruction costs including measures for modernization, mitigation and prevention

22 enero 2003Roberto Jovel13 Indirect Losses Changes in economic flows They include: –Future production that will not be obtained –Increased costs and decreased revenues in the provision of services –Cost of relocation into safe areas –Humanitary (emergency) assistance costs They occur after the disaster Measured in monetary (not physical) terms, at current prices

22 enero 2003Roberto Jovel14 Indirect Losses: Examples Agricultural production that will note be obtained due to flood or drought, or that will not be sown because of soil erosion Increased operational costs or decreased revenues in the provision of water supply, electricity or transport services Reduction in economic activity in the commerce and tourism sector Investments required for relocation of activities in safe areas Cost of humanitarian assistance during emergency phase Costs incurred to avoid epidemics after disasters

22 enero 2003Roberto Jovel15 Total Amount of Effects Equivalent to the addition of direct damages and indirect losses Expressed in monetary terms Usually underestimated, in view of difficulty in estimating indirect losses No economic value is assigned to the loss of life

22 enero 2003Roberto Jovel16 Macroeconomic Effects The impact of the disaster on the overall economic performance of the affected country or region, as measured on the main economic variables May not be added to the total amount of effects previously described They occur after the disaster –Short term, up to six months (emergency and rehabilitation) –Medium term, 1 to 2 years (rehabilitation and reconstruction) –Long term (Structural changes, changes in development prospects, non replacement of assets)

22 enero 2003Roberto Jovel17 Macroeconomic Effects.. Measured as the difference in performance of main macro-economic variables, after and before the disaster Effects on following variables: –Gross domestic product (GDP) at national and sectorial levels –Trade and payments balance –Gross capital formation –Public finances –Level of debt and monetary reserves –Changes in consumer prices and inflation –Employment levels –Personal and family income –Morbidity and mortality levels –Malnutrition and migration

22 enero 2003Roberto Jovel18 Effects on GDP: Hurricane Mitch in Honduras

22 enero 2003Roberto Jovel19 Effect on Sectorial GDP: Mitch and Honduras

22 enero 2003Roberto Jovel20 Effects on Foreign Sector: Honduras and Mitch

22 enero 2003Roberto Jovel21 Effects on Public Finances: Honduras and Mitch Before the hurricane, fiscal deficit was expected to be 2.5% of GDP in 1998 As a result of the disaster, fiscal deficit jumped to 3.6% of GDP in 1998 and to 8% in 1999 This was due to –A drop in tax revenues due to diminished economic activity –Increased expenditures to meet requirements for humanitarian assistance and rehabilitation stages

22 enero 2003Roberto Jovel22 Effect of Disasters on Gross Capital Formation Groos Capital Formation Time Disaster Developing country Industrial economy

22 enero 2003Roberto Jovel23 Other Macroeconomic Effects Due to damages in productive activities, workers lose employment and income Workers in the construction industry, however, may actually be in higher demand and have higher income during the reconstruction phase Consumer good prices may rise due to lack of sufficient local production and to speculation, thus increasing inflation rates

Handbook for Estimating the Socioeconomic and Environmental Effects of Disasters

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