RISK AND VULNERABILITY: THE ECLAC EXPERIENCE OF THE IMPACT OF DISASTERS ON DEVELOPMENT Ricardo Zapata-Marti Focal Point for Disaster Evaluation June 2006

Ricardo Zapata-Marti2 CEPAL - ECLAC Disaster management and risk management are not the same thing Emergency management is crucial Emergency management is crucial Assessment of damage, losses and needs Assessment of damage, losses and needs Scale and time line to determine needs Scale and time line to determine needs  Emergency assistance and restoring basic lifelines and services  Return to normalcy  Resilient reconstruction (not rebuilding vulnerability)  Mitigation and prevention  Improve risk management

Ricardo Zapata-Marti3 CEPAL - ECLAC How is risk defined, created and appropriated Risk is a complex formula of hazards (perils or dangers) and existing build vulnerability (infrastructural, social, economic) Risk is a complex formula of hazards (perils or dangers) and existing build vulnerability (infrastructural, social, economic) Anthropogenic origin (generation, amplification, reduction and transfer) of risk Anthropogenic origin (generation, amplification, reduction and transfer) of risk Risk affects society in its entirety at all levels of damages, losses and needs Risk affects society in its entirety at all levels of damages, losses and needs Risk tends to be appropriated by the state Risk tends to be appropriated by the state

Ricardo Zapata-Marti4 CEPAL - ECLAC Risk management and adaptation (to changes associated to climate, socioeconomic and cultural factors) Damage, losses and costs HAZARDS Baseline data modified modified by change by changeand variability variabilityRISK Multi hazards and tensions Severity of effects worsened Severity of effects worsened by vulnerability and changes that and changes that change patterns of change patterns ofrisk MANGEMENT,TRANSFER AND REDUCTION MITIGATIONADAPTATIONEVOLUTION RESILIENCE VULNERABILITY Local and sector specificdiversity

Ricardo Zapata-Marti5 CEPAL - ECLAC News that exemplify exemplify built builtvulnerability

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Ricardo Zapata-Marti8 CEPAL - ECLAC Summary of natural disasters worldwide 2,005Average : Percentage over average Number of national level events % Number of affected countries % Fatalities89,91677, % Affected population (millions) % Economic damage and losses (millions of dls.) 159,00065, % Source: OFDA-CRED, Newsletter, February 2006

Ricardo Zapata-Marti9 CEPAL - ECLAC Impact of disasters in Latin America and the Caribbean: observed evolution and average impact DATE (millions of dollars, 2004) TOTAL TOTAL DIRECT DAMAGE (to assets and capital) INDIRECT (Flow losses) External sector impact ,08549,82728,25924, ,25171,64029,61140, ,36716,80114,5667, (est) 50,05029,51917,5317, (assessed) 25,02514,7598,7653, ,753167,78789,96680,087 Annual average a/ 6,385166,89289,43579,852 a/ Simple average considering only damages obtained from ECLAC assessments: not a scientific or complete assessment Source. ECLAC, on the basis of assessed events

Ricardo Zapata-Marti10 CEPAL - ECLAC Impact of disasters in Mexico during 2005 FatalitiesPrimary affected population TOTALDIRECT (Damage to assets and capital) INDIRECT (Flow losses) Emily, Stan y Wilma982,942,1194,6422,0982,543 Hurricane Emily in July (estimated damage to states and national oil company PEMEX) 0603, Yucatan, July , Nuevo León, July , Tamaulipas,, July , Quintana Roo, July , Pemex 4270 Hurricane Stan in September982,088,0592,0091, Hidalgo427, Puebla350, Oaxaca537, Veracruz018, Chiapas86253,8251, Hurricane Wilma0250,3641, ,331 Quintana Roo 219,2141, ,310 Yucatán 31, Source: ECLAC / CENAPRED

Ricardo Zapata-Marti11 CEPAL - ECLAC CYCLONE PREDICTION IN THE ATLANTIC FOR 2006 (as of 31 May 2006) Number Percentage difference from average Indicator and climatic average for in parenthesis Named storms (9.6) % Named storms day (49.1) % Hurricanes (H) (5.9) % Hurricane days (HD) (24.5) % Intensity of hurricanes (IH) (2.3) % Intense hurricane days (IHD) (5.0) % Net total cyclone activity (NTC) (100%) % Source: Extended Range Forecast of Atlantic Seasonal Hurricane Activity and U.S. Landfall Strike Probability for HTML Format, Philip J. Klotzbach and William M. Gray, 31 May 2006

Ricardo Zapata-Marti12 CEPAL - ECLAC Risk responsibility and transfer Responsibility of risk lies not only in the state: Responsibility of risk lies not only in the state:  Social responsibility  Community action  Share of private sector Risk transfer entails: Risk transfer entails:  Internalizing investment in mitigation and prevention as part of economic and social viability and benefits  Use of institutional and financial instruments and policies to reduce risk

Ricardo Zapata-Marti13 CEPAL - ECLAC Risk, competitiveness and sustainability Competition beyond low cost production and competitiveness based on low prices Competition beyond low cost production and competitiveness based on low prices Private investment as a tool to promote competitiveness and trade Private investment as a tool to promote competitiveness and trade Risk arises from inappropriate valuation of sustainability Risk arises from inappropriate valuation of sustainability Sustainability implies Sustainability implies  Appropriate use of natural resources, environmental management to protect and preserve natural capital and resources  Sustained economic growth rates (of production, trade and investment) at appropriate level over time (avoid fluctuation, variability and decline)

Ricardo Zapata-Marti14 CEPAL - ECLAC Risk, trade promotion and competitiveness Competitiveness not based on risk externalities but on appropriation Competitiveness not based on risk externalities but on appropriation Trade promotion to include trade in risk reducing goods and services Trade promotion to include trade in risk reducing goods and services  There are important business opportunities in risk management through tradable goods and services

Ricardo Zapata-Marti15 CEPAL - ECLAC Risk valuation is necessary for decision making Risk is assessable Risk is assessable  Ex post through quantification of damage and losses incurred in the past (use of ECLAC methodology)  Ex ante based on Extreme case scenarios (designer events) Extreme case scenarios (designer events) Measuring damage and losses not incurred due to prevention, mitigation and investment (cost-benefit analysis) Measuring damage and losses not incurred due to prevention, mitigation and investment (cost-benefit analysis)

Ricardo Zapata-Marti16 CEPAL - ECLAC HUMAN -Health -Education NATURAL -Clean water -Clean air -Biodiversity and ecosystem (microclimate) FINANCIAL -Access to credit -Land tenure and ownership PHYSICAL -Type and quality of settlement and housing SOCIAL -Social networks (security and solidarity) -Family ties and extended family -Violence and security

Ricardo Zapata-Marti17 CEPAL - ECLAC - Networks and safety systems (security, solidarity) - Extended family links. Violence and security -Settlements and housing - infrastructure (transport and other) - Clean (drinking) water - Clean air Biodiversity and integrity of ecosystems (micro climatic impact -Credit access - Land tenure and property legal protection -Health -Education

Ricardo Zapata-Marti18 CEPAL - ECLAC CUMULATIVE IMPACT of successive disasters on gross capital formation * * * * TIME GROSS CAPITAL FORMATION ACTUAL CAPITAL FORMATION POTENTIAL GROWTH PATH *DISASTER

Ricardo Zapata-Marti19 CEPAL - ECLAC MITCH EARTHQUAKE DROUGHT STAN

Ricardo Zapata-Marti20 CEPAL - ECLAC Impact of disasters on GDP: State of Gujarat, India

Ricardo Zapata-Marti21 CEPAL - ECLAC Policy and regulatory deficit Not evident that market assigns price-value to prevention, mitigation and risk management Not evident that market assigns price-value to prevention, mitigation and risk management State has a promotional and regulatory responsibility in face of risk State has a promotional and regulatory responsibility in face of risk Enforce and ensure regulations related to: Enforce and ensure regulations related to:  Human settlements and land use  Construction codes  Responsibility (accountability) of risk created by investment  Liability in the face of risk generated and not appropriated

Ricardo Zapata-Marti22 CEPAL - ECLAC Risk management at all levels Save lives and infrastructure Save lives and infrastructure Preserve macroeconomic equilibriums Preserve macroeconomic equilibriums Face vulnerability of small, non- diversified and less developed economies Face vulnerability of small, non- diversified and less developed economies Protect livelihood of more vulnerable social segments of the population Protect livelihood of more vulnerable social segments of the population Preserve / restore economic activity Preserve / restore economic activity

Ricardo Zapata-Marti23 CEPAL - ECLAC RISKMANAGEMENT INFORMATION Baseline data Data bases APPROPRIATIONRESPONSIBILITY INSTRUMENTS(Policies,resources,Institutions) RECOVERYADAPTATIONEVOLUTION Transversality Integration, Integration,Sustainability Response:AbsorptionSharingTransferCompensation

Ricardo Zapata-Marti24 CEPAL - ECLAC CRITICAL STRATEGIC QUESTIONS Not rebuilding vulnerability Not rebuilding vulnerability Tend to livelihoods rather than housing needs Tend to livelihoods rather than housing needs Preserve habitat sustainability over human settlements Preserve habitat sustainability over human settlements Urban and land planning to reduce risk Urban and land planning to reduce risk Financial and economic instruments Financial and economic instruments

Ricardo Zapata-Marti25 CEPAL - ECLAC OPERATIONAL ASPECTS TO RESTORE ASSETS Linkages to national housing and social development strategies Linkages to national housing and social development strategies Property registration and asset protection Property registration and asset protection Technical aspects to consider: Technical aspects to consider: Construction codes and norms Construction codes and norms Informal, spontaneous construction and settlements Informal, spontaneous construction and settlements Settlement and housing typology (urban / rural, construction materials, construction practices) Settlement and housing typology (urban / rural, construction materials, construction practices) Social considerations: Social considerations: Local practices and uses Local practices and uses Cultural and ethnic diversity Cultural and ethnic diversity Gender perspective Gender perspective

Ricardo Zapata-Marti26 CEPAL - ECLAC The need for financial protection instruments Insufficient use of insurance and other risk transfer mechanisms Insufficient use of insurance and other risk transfer mechanisms Inappropriate pricing of risk in the market: Inappropriate pricing of risk in the market:  A vicious circle in which “public goods” (the state’s responsibility to protect lives and property) become public calamities  A virtuous circle to be promoted: transparent risk appropriation of risk, pricing and valuation leading to risk reduction investment

Ricardo Zapata-Marti27 CEPAL - ECLAC Financial strategies Credits, subsidies and direct reconstruction Credits, subsidies and direct reconstruction Requirements and conditions Requirements and conditions Supplementary financing and mitigation resources Supplementary financing and mitigation resources Linkage to national social policy Linkage to national social policy Access to international financing and grants: ODA and NGOs Access to international financing and grants: ODA and NGOs

Ricardo Zapata-Marti28 CEPAL - ECLAC Risk transfer and “free riders” or the public good trap Risk transfer is not an externality Risk transfer is not an externality Risk materializes in disasters Risk materializes in disasters Local and national levels of risk transfer Local and national levels of risk transfer National and international transfer of risk National and international transfer of risk Sharing the cost of public goods (pricing and taxation) Sharing the cost of public goods (pricing and taxation)

Ricardo Zapata-Marti29 CEPAL - ECLAC Available instruments CAT bonds: parametric measurement and financial derivatives CAT bonds: parametric measurement and financial derivatives Disaster contingency funds: multi annual funding and recurrent operational budgets Disaster contingency funds: multi annual funding and recurrent operational budgets Insurance and reinsurance Insurance and reinsurance Levels of coverage / liability (geographic, regional, national, local) Levels of coverage / liability (geographic, regional, national, local)  Reduction of operational costs, transfer and risk sharing: resource pooling, micro financing and micro insurance mechanisms  Government support and promotion of insurance and protection  Insurance mechanisms for non documented tenure, informality and lack of financial access

Ricardo Zapata-Marti30 CEPAL - ECLAC 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 impact Exposure 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 ethnicity Social impact is regressive: direct linkage between vulnerability and poverty, vulnerability and marginalization, vulnerability and gender or ethnicity

Ricardo Zapata-Marti31 CEPAL - ECLAC SUMMARY  Appropriation to promote reduction of risk  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 intervention Imperfect markets require governmental intervention

Ricardo Zapata-Marti32 CEPAL - ECLAC Thank you. Reference material: - Handbook for socioeconomic and environmental evaluation of disasters ( “desastres”) - Disasters and development (series 2005) - Assessment documents since 1970s Reference material: - Handbook for socioeconomic and environmental evaluation of disasters ( “desastres”) - Disasters and development (series 2005) - Assessment documents since 1970s WEB PAGE: WEB PAGE: ( desastres”)