GAR 2013 Pocket Version

INVISIBLE RISKS

Small disasters undermine local development as well as national competitiveness

In low and middle-income countries, accumulated losses from small-scale, highly frequent and localised disaster events approach the magnitude of those from major disasters. Such losses contribute to declines in social welfare, economic growth and ecosystems. These disasters undermine local development as well as national competitiveness. Risks in rural areas may be particularly invisible. During the 2010-2011 La Nia episode in Colombia, the proportion of affected rural populations that had over 56 percent of their basic needs unsatisfied was approximately 35 times greater than those in urban areas with less than 27 percent of their basic needs unsatisfied.¹⁴

Extensive risk is produced by urban and economic development

Badly planned and managed urban development can generate flooding, through increased run-off from a growing area of impermeable surfaces, inadequate investment in drainage and water management and the urbanisation of low-lying flood prone areas. The decline of regulatory ecosystem services, such as wetlands, aquifers, forests, floodplains and mangroves, exacerbate and magnify hazard levels. Low-income households urbanise hazard prone areas, through informal mechanisms. Cities and regions with weak governance may either lose control over the above processes or contribute to them.

Costs of extensive disasters often absorbed by less resilient households and businesses

Although extensive disasters cause only 13 percent of nationally recorded disaster mortality, they are responsible for 42 percent of direct economic loss. The costs of these extensive disasters are often absorbed directly by low-income rural and urban households, small and medium-sized enterprises (SMEs) and informal sector businesses. More than 90 percent of damage to roads, power and water supplies and telecommunications is associated with

extensive risk (Figure 5). Unless these losses are made visible and their fiscal and indirect impacts on businesses and households understood, it is difficult to justify increased public sector investments in safe and resilient infrastructure. If indirect losses to business could be measured, then the private sector may become a key advocate for increased public sector investment.

Extensive risks are rarely recorded or accounted for in national risk assessments

Hybrid loss exceedance curves now provide a way of combining and measuring the annual average loss that would be expected from all disasters, intensive and extensive. This enables countries to develop a more complete analysis of their contingent liabilities. It also lays the foundation for future risk assessments that would include indirect losses and liabilities currently absorbed – to a large extent – by individual businesses and households.

THE RESILIENCE CHALLENGE

Economic recovery and business recovery are interrelated

Resilience refers to the capacity to absorb losses and recover. How quickly an economy recovers and how quickly a business recovers are clearly interrelated. But businesses are more likely to recover faster in a country where governments have the capacity to invest in reconstruction or where they have risk financing measures in place that cover most contingencies.

Countries least able to afford lost investment are losing the most

When disaster losses represent a high proportion of capital formation, countries will have less capacity to replace lost capital. For example, in Mozambique, annual direct disaster losses surpassed capital formation ¹⁵ three times during the period 1993–2011. In each episode, investment not only slowed down in the country but actually reversed. In 2011, these losses represented 12 percent of Mozambique’s