GAR 2013 Main Report

Chapter 1

farmers and informal small and micro-enterprises occupy the bulk of the labour force in many parts of Asia and Africa (Figure 1.2).

Compared with global businesses, informal sector producers and SMEs are far less resilient, particularly in low and middle-income countries. Smaller businesses are at risk to recurrent localised extensive disasters, such as landslides, fires, floods and storms. More likely to be located in hazardous areas, with evolving extensive risk, these businesses are less likely to have invested in protective risk-reducing schemes.

A single disaster may wipe out all or a large part of businesses’ capital; and only a small percentage of these smaller businesses have insurance coverage. In Pakistan, for example, uninsured SMEs took longer to recover from the major floods in 2010 than larger businesses; a good majority of SMEs did not survive (Asgary et al., 2012

Asgary, A., Anjum, M.I. and Azimi, N. 2012.,Disaster recovery and business continuity after the 2010 flood in Pakistan: Case of small businesses., International Journal of Disaster Risk Reduction, 2(2012).46-56.. .

These losses may result in poverty outcomes. In normal times, asset holdings in small businesses— ranging, for example, from fishing boats, carpentry and welding equipment and tools to farm implements—increase the income generating potential of poor households, leading to higher welfare and less poverty. Asset holdings also offer a crucial means to buffer disaster losses (UNISDR, 2009

UNISDR. 2009.,Global Assessment Report on Disaster Risk Reduction: Risk and poverty in a changing climate., United Nations International Strategy for Disaster Reduction., Geneva,Switzerland: UNISDR.. .

). In the absence of formal and informal credit and insurance markets or safety nets and social security, however, the loss of asset holdings can reduce consumption in the short term and lead to an observable deterioration in health, nutritional and educational status and other welfare problems in the longer term. Disasters for business thus translate into disasters for households and communities.

1.3

When business loses its

lifelines: indirect losses and

infrastructure damage

Infrastructure—such as road, power and water networks, and health and primary education facilities—is a basic requirement of a competitive economy. Businesses rely on functioning utilities and communications networks, which are provided by a range of public and private actors. It is therefore vital for competitiveness and sustainability of an enterprise to ensure that critical infrastructure is resilient to shocks.

When infrastructure fails, businesses experience indirect losses, as production, distribution and supply chains are interrupted; consequently, production, output and throughput are reduced. Even when businesses do not experience direct losses, they depend on publicly managed or regulated roads and transportation lines, energy and water networks as well as on a workforce that in turn depends on housing, education and health facilities.

In New York and New Jersey, for example, many businesses that did not suffer direct losses caused by Super-storm Sandy (Box 1.2) were affected by transport and power network failures, airport closures and difficulties faced by employees whose homes were damaged or unable to get to work.

Intensive disasters such as Super-storm Sandy or the 2011 East Japan Earthquake can damage major infrastructure facilities such as mass transit systems, power stations, ports and airports. However, most damage to local infrastructure is associated with extensive disasters. In Figure 1.4, disaster loss data from 56 countries show that more than 90 percent of damage to roads, power and water supplies and telecommunications is associated with extensive risk.

This example highlights the critical interdependence between business and the public sector. Although public investment may be no more than 15 percent