1 VALUATION OF THE IMPACT OF DISASTERS Ricardo Zapata Marti UN ECLAC

2 DAMAGE AND LOSSES Loss of life or injury Reduced welfare and well being Material losses and damage Disruption of “normalcy” Degrees of affectation

3 SOME THINGS ARE EASIER TO MEASURE THAN OTHERS IT IS DIFFICULT TO DETERMINEIT IS DIFFICULT TO DETERMINE –Lives: the value of lives lost or affected –Lifelines: the opportunity cost and benefit, investment and profitability –Services: the value and quality of services provided (both curative and preventive) –The duration of the transition / emergency phase (when field hospitals and evacuation processes are operational) IT IS EASIER TO DETERMINE IT IS EASIER TO DETERMINE – Lifelines: amount of investment required for reinforcement vs. potential losses – Lifelines: the cost of reinforcement vs. cost of replacement of affected infrastructure – Services: the cost of providing services when infrastructure collapses

4 SOURCES OF INFORMATIONS Strategic sources The press Maps Verification visits Surveys –Quick appraisal –Household surveys –Expert’s quick appraisal –Situational analysis of women and children Secondary sources –Census National or regional reports –Survey of Living Conditions –PAHO/WHO Reports Interviews Remote sensing data Geographic Information Systems

5 CONCEPTS OF VALUATION: THE STOCK- FLOW MODEL Indirect Damages Effects on flows – Production – Reduced income and increased expenses Are perceived after the phenomenon, for a time- period that can last from weeks to months, till recuperation occurs Direct Damages Impact on assets – Infrastructure – Capital – Stocks Occur immediately during or after the phenomenon that caused the disaster

6 INFRASTRUCTURE Energy Direct damages: –Repair or reconstruction of generating plants, substations, conduction lines, distribution grids Indirect damages: –Reduced income due fall of demand –Increased generating costs by alternative means (thermoelectric plants or energy imports from neighboring countries) Transport and Communications  Direct damages: – Replacement cost of automotive stock – Repairs or reconstruction costs of roads and bridges, railway tracks, ports and airports Indirect Damages: – Increased transport costs – Relocation costs for telecommunication towers – Income losses due to transport reduction

7 INFRASTRUCTURE –Direct damages  Repairs or reconstruction costs in water collection works, water processing plants, distribution pipes, leakages in water distribution network  Repair costs of sanitary sewage network  Rehabilitation cost of served water treatment plants — — Indirect damages  Increased costs of water supply by trucks  Digging and equipment of emergency wells  Fall of income due to supplying enterprises’ decreased billing  Increase of reproductive work of rural women Water supply, drainage and sanitation (link to health sector)

8 PRODUCTIVE SECTORS Agriculture, Livestock and Fisheries Direct Damages –Repair or reconstruction costs of infrastructure, including tertiary level roads –Damages or destruction of fishing fleet, animal stock –Agricultural product ready to be harvested, stocked agricultural produce and grains Indirect damages –Reduced yields in future crops –Not planting of future crops –Reduced fishing –Loss of employment –Differential impact on women Trade and Industry Direct damages — Repair or reconstruction costs of infrastructure — Repair or replacement cost of equipment and machinery — Losses in finished production (stocks and inventories) Indirect damages — Reduced production — Temporary employment losses — Differential impact on women

9 WHAT IS IT THE VALUATION METHODOLOGY

10 STEPS IN DISASTER VALUATION Calculate direct and indirect damages by sector Assess the value-added changes expected for every sector in the short term and for a medium- term period to be agreed (3-5 years or more) Determine the projection of damages of each sector to the others, using input-output tables or sector weighing factors Build a damage scenario, highlighting variations in the main economic gaps: external sector, fiscal deficit, internal equilibrium (prices, exchange rate, etc.)

11 An example: COMPOSITION OF DAMAGES CAUSED BY MITCH IN CENTRAL AMERICA

12 VALUATION CRITERIA Valuation of direct damages will depend on the purpose of the valuation –For historical record and comparison over time and with other disasters, present value accounting cost should be used –For reconstruction planning and mitigation strategies Replacement prices should be used. Mitigation investment, in terms of reinforcement, redesign, relocation or vulnerability reduction, should be incorporated as additional values. Valuation of indirect losses will always be done at current market prices of: –Lost production and supply of goods and services –Additional cost of provision of goods and services under disaster emerging conditions –Business losses due to reduced sales and or activity When insurance exists to cover assets (infrastructure, buildings, machinery, stocks, etc.) and business losses, value will be established on the basis of covered amounts, comparing it to total estimated loss.

13 MEASURING THE DAMAGE “DELTA” OR DAMAGE GAP Pre-existing conditions (ex ante ) Expected performance (without disaster) 3-5 years Disaster impact (ex post) 3-5 years The valuation of direct and indirect effects is done by assuming the pre-existing situation (calculated from sector by sector baselines) and then aggregating effects into national accounts. The national accounts indicators are used to create the disaster-caused scenario, which highlights the gaps between post-disaster performance and that expected prior to the event. Several scenarios may be outlined, based on the assumptions made for the reconstruction process

14 VALUATION PROCEDURE  D = Va – Vb Where Va is the initial condition expected for a variable (sectoral, weighed) and Vb is the discounted effect of the disaster.  K = Ka – Kb Measures the capital (assets) lost, estimated by compiling direct damages computed sector by sector. DY = Ya – Yb Measures the production/income losses The capital/income-production ratio is generally assumed not to vary substantively as a result of the disaster

15 TO QUANTIFY THE “PRE-EXISTING SITUATION”: Identify the core development factors of the economy Identify the main characteristics at the time of the disaster: phase of the economic cycle, seasonal elements, indebtedness level, domestic savings, FDI flows, etc. Obtain macroeconomic databases from national authorities, academic analysts and/or consultants and advisors in the country Identify existing econometric models for the local economy Locate input-output tables if available or determine weighing factors that indicate inter-sectoral linkages.

16 * * * * TIME GROSS CAPITAL FORMATION DEVELOPING COUNTRIIES INDUSTRIALIZED COUNTRIES *DISASTER Adapted from Mora, “El impacto de los desastres, aspectos sociales, polítifcos económicos, ambientales y su relación con el desarrollo de nuestros países (BID, 1999) THE EFFECT OF SUCCESSIVE DISASTERS ON CAPITAL FORMATION Adapted from Mora, “El impacto de los desastres, aspectos sociales, polítifcos económicos, ambientales y su relación con el desarrollo de nuestros países (BID, 1999)

17 SUMMARY TABLE

18 SUMMARY OF GLOBAL IMPACT

19 PROJECTING EXPECTED FUTURE PERFORMANCE Future Scenarios 1 st Scenario: does not include reconstruction activity Alternative reconstruction scenarios: Use not replacement but reconstruction costs Consider emerging reconstruction priorities and strategies, sector by sector Consider economy’s capacity to absorb foreign resources, and to realize projects Performance of key economic variables (interest rates, debt capacity, and availability of production inputs and means in the face of impending reorientation of reconstruction resources

20 RECONSTRUCTION SCENARIOS RELY ON THE PROJECTED PERFORMANCE

21 PROCEDURAL ASPECTS OF ASSESSMENT EXERCISES Composition of team: multisectoral, interdisciplinary, interinstitutional Timeliness: within the “window of opportunity”, not interfering with emergency actions Ensure full coverage and avoid duplication The need for “judgment calls” or the educated guessing of experts Difference between emergency needs and rapid assessment of need for reconstruction