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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
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
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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 STOCKFLOW MODEL
Direct Damages
Indirect Damages
•Impact on assets
– Infrastructure
– Capital
– Stocks
• Occur immediately
during or after the
phenomenon that
caused the disaster
•Effects on flows
– Production
– Reduced income and
increased expenses
• Are perceived after the
phenomenon, for a timeperiod that can last from
weeks to months, till
recuperation occurs
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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
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
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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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Impact
assessment
WHAT IS IT THE VALUATION
METHODOLOGY
INDIRECT EFFECTS
Loss of services:
Supply / demand mismatch
Imbalance, inadequacy / resilience
Rehabilitation and reconstruction stages
Emergency 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 criteria
Management criteria
Assessment of health network
(sanitary system)
DIRECT DAMAGE
Goods, equipment,
Budget changes
(cost / investment)
Preparation of
technical dossier
Operational maintenance
Training in use of methodology
conservation
Prediction
Prevention
Restoration of service
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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 mediumterm 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
SOCIAL SECTORS
millions of US dollars
3000
2500
INFRASTRUCTURE
SERVICES
2000
1500
PRODUCTIVE
SECTORS
1000
500
0
SECTORS
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 12
total estimated loss.
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
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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
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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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THE EFFECT OF SUCCESSIVE DISASTERS ON
CAPITAL FORMATION
GROSS 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)
*
DISASTER
DEVELOPING COUNTRIIES
INDUSTRIALIZED COUNTRIES
*
*
*
*
TIME
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SUMMARY TABLE
SECTOR
DIRECT
Physical
PRODUCTIVE SECTORS
Agriculture (includes cattle raising,
fisheries and forestry)
Industry
Commerce
Services
- Financial and banking
- Tourism
- Personal and other
INFRASTRUCTURE
Water (drinking, irrigation, drainage,
sanitation and sewerage)
Energy (generation, transmission,
distribution)
- Electricity
- Other (petroleum, gas, etc.)
Transport and communications
SOCIAL ASPECTS
Education
Health
Housing
Cultural heritage
Social fabric
ENVIRONMENTAL ASPECTS
TOTAL
GOVERNMENT SECTOR
IMPLICATIONS
- Revenues
- Expenditures
INDIRECT PUBLIC PRIVATE TOTAL
EXTERNAL
IMPACT
Monetary
estimate
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SUMMARY OF GLOBAL IMPACT
Ex-ante
situation
(current
III. MACRO / GLOBAL IMPACT (current value) period)
Ex-post
situation Short/medium
(present term projections
period)
(scenarios)
Scenario 1
(Below trend)
1. GDP
External 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
- Expenditures
3. CAPITAL ACCOUNT
- Gross capital formation
- domestic investment
- foreign direct investment
Scenario 2
(Average or
Scenario 3
trend)
("Optimistic")
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Future Scenarios
• 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
PROJECTING EXPECTED
FUTURE PERFORMANCE
EL SALVADOR:POSSIBLE RECONSTRUCCION
SCENARIOS, 2001-2003
6.0
GDP annual grow th rate
• 1st Scenario: does not include
reconstruction activity
5.0
5.0
4.0
4.0
3.5
3.0
3.4
3.0
2.0
4.5
4.0
4.0
3.1
3.2
2.0
Pessimistic
1.0
0.0
1999
Probable
2000
2001
2002
Year
ECLAC - 2002
2003
Optimstic
HANDBOOK FOR ESTIMATING THE
IMPACT OF DISASTERS
138
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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
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