VALUATION OF THE IMPACT OF DISASTER

1
VALUATION OF THE IMPACT OF DISASTER

• 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 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
• 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
• Experts 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
• Repairs or reconstruction costs of roads and
  bridges, railway tracks, ports and airports
• Replacement cost of automotive stock
• Indirect Damages
• Increased transport costs
• Relocation costs for telecommunication towers
• Income losses due to transport reduction

7
INFRASTRUCTURE
Water supply, drainage and sanitation (link to
health sector)

• 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

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)
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
Expected performance (without disaster) 3-5 years
Disaster impact (ex post) 3-5 years
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
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)
GROSS CAPITAL FORMATION

TIME
17
SUMMARY TABLE
18
SUMMARY OF GLOBAL IMPACT
19
PROJECTING EXPECTED FUTURE PERFORMANCE

• 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 economys 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