1. Private investment in risk management as a tool for the promotion of competitiveness and trade Presentation by Ricardo Zapata Martí Disaster Assessment Focal Point, CEPAL Regional Conference on Disaster Risk Reduction in Central America - Planning and Policies for a Safe Future Integration enhancement: creation of policies and regulations that respond to challenges and opportunities San Salvador, August 15-18, 2005 CEPREDENAC- U.S. SOUTHERN COMMAND

2. CEPAL2 R.Zapata-Martí Difference between disaster management and risk management Emergency management Emergency management Quantification of damages, losses and needs Quantification of damages, losses and needs Sizing and duration of the needs Sizing and duration of the needs  Emergency and reestablishment of basic services  Return to normality  Strengthened reconstruction (do not rebuild vulnerability)  Mitigation and prevention  Risk management improvement

3. CEPAL3 R.Zapata-Martí How risk is defined, generated and assumed Risk as a complex formula of hazard (threat) and existing and built infrastructure Risk as a complex formula of hazard (threat) and existing and built infrastructure It is human intervention that generates (increases, decreases or spreads) risk It is human intervention that generates (increases, decreases or spreads) risk Risk is suffered by society as a whole at several levels of damage, losses and needs Risk is suffered by society as a whole at several levels of damage, losses and needs Risk is generally absorbed by the State, in great extent Risk is generally absorbed by the State, in great extent

4. CEPAL4 R.Zapata-Martí Responsibility and risk transference Risk responsibility is not only for the State: Risk responsibility is not only for the State:  Social responsibility  Community action  Private sector participation Risk transference implies: Risk transference implies:  Investment in mitigation and prevention as part of social and economic profitability  The use of institutional and financial tools and policies to reduce it

5. CEPAL5 R.Zapata-Martí Risk, competitiveness and sustainability Competitiveness goes beyond low-cost production and low-price marketing Competitiveness goes beyond low-cost production and low-price marketing Risk results from an inadequate assessment of sustainability Risk results from an inadequate assessment of sustainability Sustainability implies Sustainability implies  Adequate use of natural resources by managing the environment to preserve it and to prevent deterioration  To sustain economic growth rates (production, trade and investment) at a suitable level in time (avoid fluctuations, sudden drops and deceleration)

6. CEPAL6 R.Zapata-Martí Risk and promotion of trade and competitiveness Competitiveness cannot leave risk out, it has to assume it Competitiveness cannot leave risk out, it has to assume it Trade promotion must include the trade of risk-reducing goods and services Trade promotion must include the trade of risk-reducing goods and services  There are significant business opportunities in the form of goods and services

7. CEPAL7 R.Zapata-Martí Risk assessment is necessary for making decisions Risk can be assessed Risk can be assessed  Ex post based on past damages and losses (use of CEPAL methodology)  Ex ante based on Consideration of worst-case scenarios (design events) Consideration of worst-case scenarios (design events) Measuring damages not caused by adequate prevention, mitigation and investment (cost-benefit analysis) Measuring damages not caused by adequate prevention, mitigation and investment (cost-benefit analysis)

8. CEPAL8 R.Zapata-Martí Assessment Methodology Damage to Assets or Capital Variation of economic flows Asset reconstruction - Changes in macroeconomic behavior and impact on wellbeing Financing gap (fiscal and investmentportfolio) Cycloneorhurricane

9. CEPAL9 R.Zapata-Martí Total damage breakdown Direct damageDirect damage Indirect effectsIndirect effects Asset losses Asset losses Production losses Production losses Cost increase Cost increase Income reduction Income reduction Public sector Private sectorPublic sector Private sector Reconstruction costs Effects on the economy Primary damages Secondary effects Tertiary effects Public investment Private investment ReconstructionPortfolio (internal and external resources)

10. CEPAL10 R.Zapata-Martí EFFECT OF A SERIES OF DISASTERS ON GROSS CAPITAL FORMATION * * * * TIME GROSS CAPITAL FORMATION “DEVELOPING” COUNTRIES INDUSTRIALIZED COUNTRIES * DISASTER

11. CEPAL11 R.Zapata-Martí MITCH DROUGHT

12. CEPAL12 R.Zapata-Martí MITCH DROUGHT

13. CEPAL13 R.Zapata-Martí MITCH EARTHQUAKE DROUGHT

14. CEPAL14 R.Zapata-Martí MITCH DROUGT H

15. CEPAL15 R.Zapata-Martí MITCH SEQUIA

16. CEPAL16 R.Zapata-Martí Disaster impact on Latin American and the Caribbean Between 1970 and 2001, natural disasters provoked 246.569 deaths, affected 144 million people in several magnitudes and caused material losses estimated at nearly 68.600 million dollars in Latin America and the Caribbean, reported the United Nations Program for the Environment. (FIN/2005) Between 1970 and 2001, natural disasters provoked 246.569 deaths, affected 144 million people in several magnitudes and caused material losses estimated at nearly 68.600 million dollars in Latin America and the Caribbean, reported the United Nations Program for the Environment. (FIN/2005)

17. CEPAL17 R.Zapata-Martí Role-Players: can be public and private, at a local or central level MITIGATION STAKEHOLDERS Beneficiary populationBeneficiary population Service providers Service providers DONORS MultidisciplinaryMultidisciplinary Academic Academic Technical associationsTechnical associations Political level Political level FINANCING SOURCE PublicPublic PrivatePrivate International International NGO NGO

18. CEPAL18 R.Zapata-Martí Human impact of disasters in Latin American and the Caribbean DATE AFFECTED POPULATION Dead Direct victims (primary effect) 1972-198038,0424,229,260 1980-199033,6385,442,500 1990-199931,0862,518,508 2000-20047,04712,911,890 1972-2004109,81325,102,158 Annual average (simple, taking into account only the damages reported by CEPAL assessments, non-scientific, non- comprehensive sample) 3,787865,592

19. CEPAL19 R.Zapata-Martí Economic impact of disasters (based on CEPAL assessments) DATE TOTAL DAMAGE (millions of dollars of 2004) TOTALS TOTALS DIRECT (Asset or capital damage) INDIRECT (Cash Flow losses) Effects on external sector 1972-198078,085.1449,826.6128,258.5324,197.79 1980-1990100,497.1370,886.1129,611.0240,671.10 1990-199927,965.5714,364.4613,601.117,466.83 2000-200418,199.9211,229.845,470.083,296.23 1972-2004225,756.39145,797.1179,959.2877,149.81 Annual Average 7,784.705,027.492,757.222,660.34

20. CEPAL20 R.Zapata-Martí HURRICANES IN THE CARIBBEAN, 2004 Relative and absolute impact of losses and damages

21. CEPAL21 R.Zapata-Martí Factors to consider KEEP THE SERVICE AND FUNCTION TEMPORARY FACTOR Foreseen Redundancy Foreseeable redundancy time (alternate provision) TECHNICAL FACTOR Execution capabilityExecution capability Absorption capability Absorption capability Management capabilityManagement capability COST FACTOR Minimum and maximum Minimum and maximum tolerance levels Financial capacityFinancial capacity (internal resources, access to credit)

22. CEPAL22 R.Zapata-Martí Need for policies and regulations The value of prevention, mitigation and risk management is not evident in the market indications. The value of prevention, mitigation and risk management is not evident in the market indications. The State has to play a role in promotion and regulation in risk situations The State has to play a role in promotion and regulation in risk situations Strengthen and enforce regulations regarding: Strengthen and enforce regulations regarding:  Human settlements and land use  Construction codes  Responsibility for the risk generated by investments  Penalties for the risk generated or not assumed

23. CEPAL23 R.Zapata-Martí Why in the integration scenario Risk is not restricted by national borders (i.e. the effects of a disaster extend to the nations, for example, Hurricane Mitch or the indirect consequences in other countries of the damage caused in one of them) Risk is not restricted by national borders (i.e. the effects of a disaster extend to the nations, for example, Hurricane Mitch or the indirect consequences in other countries of the damage caused in one of them) Adopting regional policies and regulations increases competitiveness Adopting regional policies and regulations increases competitiveness  Improving the external image of the region and all the countries  Avoiding adverse competition among countries leading to the adoption of lax policies to appear more attractive

24. CEPAL24 R.Zapata-Martí Thank you Ricardo Zapata-Marti Disaster Evaluation Focal Point CEPAL Subregional Headquarters in Mexico ricardo.zapata@cepal.org www.cepal.org/mexico (disasters)