Economic Impacts of Natural Disasters

ECONOMIC IMPACTS OF NATURAL DISASTERS ABSTRACT: Disasters of both natural and technological origin have a considerable impact on communities. The effects of disasters in India are significantly reduced by well established counter disaster arrangements at all three levels of government. These arrangements comprise comprehensive plans of prevention, preparedness, response and recovery and in more recent times, of mitigation. The economic effects of disasters can be devastating and widespread.When disasters strike houses, businesses and community infrastructure get damaged or destroyed and people’s livelihoods are temporarily and sometimes permanently disrupted. Physical damage is the most visible economic impact of disasters. Major natural disasters can and do have severe negative short-run economic impacts. Disasters also appear to have adverse longer-term consequences for economic growth, development and poverty reduction. But, negative impacts are not inevitable. Vulnerabilit y is shifting quickly, especially in countries experiencing economic transformation – rapid growth, urbanization and related technical and social changes.In the Caribbean and Bangladesh there is evidence of both declining sensitivity to tropical storms and floods and increased resilience resulting from both economic transformation and public actions for disaster reduction. The largest concentration of high risk countries, increasingly vulnerable to climatic hazards, is in Sub-Saharan Africa. Risks emanating from geophysical hazards need to be better recognized in highly exposed urban areas across the world because their potential costs are rising exponentially with economic development.Natural disasters cause significant budgetary pressures, with both narrowly fiscal short-term impacts and wider long-term development implications. Reallocation is the primary fiscal response to disaster. Disasters have little impact on trends in total aid flows. Keywords: Disaster Impacts, Dir ect Economic Impacts, Indirect Economic Impacts, Intangible Economic Impacts. Submitted by: Dr. A. PADMAVATHI, Guest Faculty, Department of MCA, S. V. U. C. C. M&C. S. , S. V. University, Tirupati-517502. Introduction: The economic effects of disasters are mostly seen as physical damage to infrastructure.More often than not loss of income through loss of trading activity and the time taken to re-establish such activity, particularly for agricultural industries, is overlooked. The consequences of extended periods of trading or production down-time can result in bankruptcy, forced sale, business closure, loss of experienced workers, a depleted customer base and population shrinkage. These consequences are exacerbated by community losses resulting in a reduction in disposable income. The flow-on through the disaster affected community has been likened to the domino effect.It addresses the economic consequences of disasters on communities and includes a framework of economic recovery pr inciples as well as strategies to implement those principles. In this publication the term â€Å"economic† is used with respect to the costs to the community caused by the disaster while â€Å"financial† is used with respect to those schemes aimed at providing monetary sources to assist recovery. The range of economic effects and consequences on a disaster affected community is relative to the specific nature of the event and the economic demographics of the affected community Economic Consequences of Disasters:The economic effects of disasters can be devastating and widespread. When disasters strike houses, businesses and community infrastructure get damaged or destroyed and people’s livelihoods are temporarily and sometimes permanently disrupted. Physical damage is the most visible economic impact of disasters. However, the less visible impacts such as lost income through being unable to trade are just as significant and the consequences often last longer than the physical damage (for example, bankruptcy and business closures). The flow-on effects through a community can be pervasive.The range of economic effects and consequences for a disaster-affected community vary greatly and depend on both the nature of the event and the economic health of the community. It is also important to recognise that communities are diverse. In some cases, disaster-affected communities recover and prosper, in others the adverse economic impact has a domino effect that spreads throughout the community. What makes some communities recover and prosper and others decline in the aftermath of a disaster? What are key characteristics of disaster-resistant communities?These are important questions and are critical to understanding the economic recovery process. The principles and strategies identified later in this report provide a starting point for considering these questions. The economic consequences of disasters can be classified in a variety of ways. No singl e framework will cover and prescribe every possible impact a disaster might have. Each disaster has unique characteristics and consequently in any attempt to classify these impacts there will always be impacts that do not fit neatly within the classification.Nevertheless a classification framework is a useful guide or tool we can use to tackle these issues. Almost all impacts of disasters have an economic dimension, even if this economic effect cannot be measured. Economic impacts are typically divided into two categories: tangible (those impacts we can assign a dollar value to) and intangible (impacts which are not easily expressed in monetary terms). These impacts are then further subdivided into direct and indirect impacts. Direct impacts are those that result from the physical destruction or damage to buildings, infrastructure, vehicles and crops etc.Indirect impacts are due to the consequences of the damage or destruction. Figure 1 illustrates the impacts of disasters using thr ee main categories-direct, indirect and intangible. An alternative approach is to examine the impacts of disasters in terms of who or what is affected. Three groupings are common: * Public infrastructure and community facilities; * Business enterprises (commercial, industrial, retail, service, agricultural etc); and * Residents and households. Using figure 1 and BTE Report 103 a brief discussion of the direct, indirect and intangible impacts of disasters on each of these three groups follows.FIGURE 1 THE ECONOMIC IMPACT OF A DISASTER Culture & Heritage Clean up Infrastracture Intangible impacts Health Aspects Death & injury I Indirect Impacts Business Disruption Disaster Impacts Direct Impacts Agriculture Commercial buildings 1. Direct Economic Impacts: Public Infrastructure and Community Facilities: Lifelines (such as water and sanitation systems, electricity, gas, telecommunications and transport) are vulnerable to all types of disasters. Direct damage to lifeline infrastructure i ncludes the immediate physical damage (eg. oads cracked or washed away, destroyed electrical transformers and so on) and also the damage which may take some time before becoming visible (eg. accelerated road deterioration due to the effect of water intrusion under road pavements). Public buildings include schools, child care centres, kindergartens, hospitals, nursing homes, neighbourhood centres, churches, entertainment/art/cultural centres, museums, clubs and so on. Direct damage to public buildings can also be thought of using the break up into structural (eg. roofs, walls etc), contents (eg. urniture, floor coverings and specialist items like sound systems and paintings etc) and external (eg. Playground equipment, swimming pools etc) damage. Business Enterprises include commercial, industrial, retail, service and agricultural business types. The economic impact of disasters on agricultural enterprises is often treated separately from other business types. Essentially however the impact on businesses can be viewed as falling into 3 main areas. * structural damage to buildings such as shops,factories, plants, sheds, barns, warehouses, hotels and so on.This includes damage to foundations, walls, floors, roofs, doors, in-builtfurniture, windows etc. * contents damage to fixtures and fittings (eg. carpets), furniture, office equipment, farm equipment, records, product stock (finished manufactured products, works in progress and input materials), crops, pastures, livestock etc. and * external damage, for example, to motor vehicles and fences. Residents and Households: The residential sector includes houses, flats, unit, townhouses and so on. The break up of direct damage into structural (eg. roofs, walls etc), contents (eg. furniture, floor coverings etc) and external (eg. wimming pools, gardens etc) is equally useful for this category. 2. Indirect Economic Impacts: Indirect impacts are those that are incurred as a consequence of the event, but are not due to the direct impact. Many indirect impacts are common to the public/community sectors business, and household (for example, disruption and clean up). Disruption effects: The disruption to the community, businesses and households caused by disasters is pervasive. The economic impact of disruption and its consequences for community recovery is often overlooked, as economic recovery can tend to focus on the highly visible direct physical damage.The following categories list the common forms of disruption relevant to each area. Sector/Area of impact| Disruption Examples| Business| —Lost or deferred production (eg. manufacturing, agriculture, services etc)—Lost or deferred income/trade/sales/value added (eg. Tourism operators, retail traders etc)—Increased costs (eg. freight, inputs, agistment)| Public services and networks| —Transport (traffic delays, extra —operating costs etc)—Loss of computer controlled systems—Loss of other lifelines (eg. electricity)—Government services (eg. ducation)| Households| —Additional costs (eg. alternative accommodation and transport, heating, drying out costs, medical costs etc)| Natural disasters can cause serious disruption to affected businesses which may not be able to operate during the event, and for some time afterwards, while the premises are being cleaned and equipment repaired. Business lost during this period can have devastating financial consequences and in some cases the business may not recover at all. Loss of farm income due to a natural disaster can affect the economies of country towns.For example, the Australian Bureau of Agriculture and Resource Economics (ABARE 2000) estimates that farm expenditure represents at least a third of the economies of towns with less than 1000 people. Disasters that reduce farm expenditure can therefore have a major effect on the economies of small towns. Clean up: Cleaning up after a disaster is another obvious area of indirec t impact. The impact for public and community infrastructure, businesses and households is essentially the time it takes and the costs of cleaning materials.Clean up activities typically include removal of mud and debris, disassembly and cleaning of machinery and equipment, removal of destroyed household and business contents items and so on. 3. Intangible Economic Impacts Intangible impacts are often described as a ‘catch all’ that includes all those costs that are very difficult to estimate, for which there is no agreed method of estimation and for which there is no market to provide a benchmark. Evidence suggests that the size of intangible costs is substantial and although most cannot be quantified, in many cases they do still have an economic impact that should not be ignored.Sector/Area of impact| Intangible impact examples| Business| —Loss of confidence—Loss of future contracts—Loss of experienced staff| Public/Community| —Health impac ts (deferral of procedures, reduced quality of care etc)—Death and injury—Loss of items of cultural significance—Environmental impacts—Heritage losses—Lack of access to education, health, defence, art galleries and museums etc| Residents and households| —Loss of personal memorabilia—Inconvenience and disruption, especially to schooling and social life. —Stress induced ill-health and mortality—Pets—Quality of life—Dislocation| Conclusion:Assistance that ensures the survival of the existing economic infrastructure of a region is vital to disaster recovery, but it should not be so great as to affect the natural economic laws of supply and demand operating on the sales and distribution of existing products or services. Government can initiate major projects, that can assist in erasing some of the bad memories of the past and provide a boost in construction and service jobs into the area. References: (1) http:// en. wikipedia. org. (2) www. ndmindia. nic. in/ (3) www. ndma. gov. in/ (4) disastermgmt. bih. nic. in/ (5) http://saarc-sdmc. nic. in/index. asp