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VALUATION OF THE IMPACT OF DISASTERS

Ricardo Zapata Marti

UN ECLAC

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DAMAGE AND LOSSES

• Loss of life or injury

• Reduced welfare and well being

• Material losses and damage

• Disruption of “normalcy”

• Degrees of affectation

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SOME THINGS ARE EASIER TO MEASURE THAN OTHERS

• IT IS DIFFICULT TO IT IS DIFFICULT TO DETERMINEDETERMINE– 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 DETERMINEIT 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

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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

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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

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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

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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 Water supply, drainage and sanitation (link to health sector)health sector)

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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

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WHAT IS IT THE VALUATION WHAT IS IT THE VALUATION METHODOLOGYMETHODOLOGY

INDIRECT EFFECTSLoss of services:

Supply / demand mismatch Imbalance, inadequacy / resilience

Rehabilitation and reconstruction stagesEmergency cost estimates (evacuation, field hospitals,

alternative facilities / services)Impact analysis

(duration of evacuation and / or use of Alternative facilities vs. opportunity /cost,

Cost/benefit, costs / profits)

INTERVENTION:Prevention and mitigation plan

Operational phase, an evaluation:Updating, revision, prevention reinforcement

and mitigation (update and maintenance of technological edge)

Technical criteriaManagement criteria

Assessment of health network(sanitary system)

DIRECT DAMAGEGoods, equipment,

Budget changes(cost / investment)

Preparation of technical dossier

Operational maintenanceTraining in use of methodology

conservationPredictionPrevention

Restoration of service

INDIRECT EFFECTSLoss of services:

Supply / demand mismatch Imbalance, inadequacy / resilience

Rehabilitation and reconstruction stagesEmergency cost estimates (evacuation, field hospitals,

alternative facilities / services)Impact analysis

(duration of evacuation and / or use of Alternative facilities vs. opportunity /cost,

Cost/benefit, costs / profits)

INTERVENTION:Prevention and mitigation plan

Operational phase, an evaluation:Updating, revision, prevention reinforcement

and mitigation (update and maintenance of technological edge)

Technical criteriaManagement criteria

Assessment of health network(sanitary system)

DIRECT DAMAGEGoods, equipment,

Budget changes(cost / investment)

Preparation of technical dossier

Operational maintenanceTraining in use of methodology

conservationPredictionPrevention

Restoration of service

Impact assessment

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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.)

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An example: COMPOSITION OF DAMAGES CAUSED BY MITCH IN

CENTRAL AMERICA

0

500

1000

1500

2000

2500

3000

mill

ions

of U

S do

llars

SECTORS

SOCIAL SECTORS

INFRASTRUCTURESERVICES

PRODUCTIVESECTORS

ENVIRONMENT(protected areas)

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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.

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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

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VALUATION PROCEDURE

D = Va – VbWhere Va is the initial condition expected for a variable

(sectoral, weighed) and Vb is the discounted effect of the disaster.

K = Ka – KbMeasures 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

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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.

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**** **

** TIMETIME

GR

OS

S C

AP

ITA

L F

OR

MA

TIO

N

DEVELOPING COUNTRIIESDEVELOPING COUNTRIIES

INDUSTRIALIZED INDUSTRIALIZED COUNTRIESCOUNTRIES

** DISASTERDISASTER

THE EFFECT OF SUCCESSIVE DISASTERS ON CAPITAL FORMATION

Adapted from Mora, “El impacto de los desastres, aspectos sociales, polítifcos económicos, ambientalesAdapted from Mora, “El impacto de los desastres, aspectos sociales, polítifcos económicos, ambientales y su relación con el desarrollo de nuestros países (BID, 1999) y su relación con el desarrollo de nuestros países (BID, 1999)

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SUMMARY TABLESECTOR INDIRECT PUBLIC PRIVATE TOTAL EXTERNAL

IMPACTPhysical Monetary

estimatePRODUCTIVE SECTORSAgriculture (includes cattle raising, fisheries and forestry)IndustryCommerceServices - Financial and banking - Tourism - Personal and otherINFRASTRUCTUREWater (drinking, irrigation, drainage, sanitation and sewerage)Energy (generation, transmission, distribution) - Electricity - Other (petroleum, gas, etc.)Transport and communicationsSOCIAL ASPECTSEducationHealthHousingCultural heritageSocial fabricENVIRONMENTAL ASPECTSTOTALGOVERNMENT SECTOR IMPLICATIONS - Revenues

- Expenditures

DIRECT

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SUMMARY OF GLOBAL IMPACT

III. MACRO / GLOBAL IMPACT (current value)

Ex-ante situation (current period)

Ex-post situation (present period)

Short/medium term projections

(scenarios)

Scenario 1 (Below trend)

Scenario 2 (Average or

trend)Scenario 3

("Optimistic")1. GDPExternal Balance (A+B) - Exports - Imports A - TRADE BALANCE B - CURRENT AND CAPITAL ACCOUNT BALANCE - Net loans (considering service and repayment) - Net donations - Net transfers (private) - Other net incoming resources (insurance and reinsurance payments)2. FISCAL BALANCE - Revenues - Expenditures3. CAPITAL ACCOUNT - Gross capital formation - domestic investment - foreign direct investment

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PROJECTING EXPECTED FUTURE PERFORMANCE

ECLAC - 2002HANDBOOK FOR ESTIMATING THE

IMPACT OF DISASTERS 138

EL SALVADOR:POSSIBLE RECONSTRUCCION EL SALVADOR:POSSIBLE RECONSTRUCCION SCENARIOS, 2001SCENARIOS, 2001--20032003

3.4

2.0

3.0 3.1 3.23.4

2.0

3.54.0 4.0

3.4

2.0

4.04.5

5.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1999 2000 2001 2002 2003

Year

GDP

annu

al g

rowt

h ra

te

Pessimistic

Probable

Optimstic

Future Scenarios

• 1st 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

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RECONSTRUCTION SCENARIOS RELY ON THE PROJECTED PERFORMANCE

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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