Transcript Private investment i..

Private investment in
risk management
as a tool for the
promotion of
competitiveness and
trade
Presentation by Ricardo Zapata Martí
Disaster Assessment Focal Point, CEPAL
Regional Conference on Disaster Risk Reduction in Central
America - Planning and Policies for a Safe Future
Integration enhancement: creation of policies and regulations
that respond to challenges and opportunities
San Salvador, August 15-18, 2005
CEPREDENAC- U.S. SOUTHERN COMMAND
Difference between
disaster management and
risk management



Emergency management
Quantification of damages, losses and needs
Sizing and duration of the needs





Emergency and reestablishment of basic services
Return to normality
Strengthened reconstruction (do not rebuild
vulnerability)
Mitigation and prevention
Risk management improvement
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How risk is defined,
generated and assumed




Risk as a complex formula of hazard
(threat) and existing and built infrastructure
It is human intervention that generates
(increases, decreases or spreads) risk
Risk is suffered by society as a whole at
several levels of damage, losses and needs
Risk is generally absorbed by the State, in
great extent
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Responsibility and risk
transference

Risk responsibility is not only for the State:




Social responsibility
Community action
Private sector participation
Risk transference implies:


Investment in mitigation and prevention as part of
social and economic profitability
The use of institutional and financial tools and
policies to reduce it
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Risk, competitiveness and
sustainability



Competitiveness goes beyond low-cost
production and low-price marketing
Risk results from an inadequate assessment
of sustainability
Sustainability implies


Adequate use of natural resources by managing
the environment to preserve it and to prevent
deterioration
To sustain economic growth rates (production,
trade and investment) at a suitable level in time
(avoid fluctuations, sudden drops and
deceleration)
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Risk and promotion of trade
and competitiveness
Competitiveness cannot leave
risk out, it has to assume it
 Trade promotion must include
the trade of risk-reducing goods
and services

 There
are significant business
opportunities in the form of goods
and services
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Risk assessment is
necessary for making
decisions

Risk can be assessed
 Ex
post based on past damages and
losses (use of CEPAL methodology)
 Ex ante based on
Consideration of worst-case scenarios
(design events)
 Measuring damages not caused by
adequate prevention, mitigation and
investment (cost-benefit analysis)

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Assessment Methodology
Asset
reconstruction
Damage to
Assets or
Capital
Financing gap
(fiscal and
investment
portfolio)
Variation of
economic flows
Cyclone
or
hurricane
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- Changes in
macroeconomic
behavior and impact on
wellbeing
CEPAL
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Total damage breakdown
Reconstruction costs
•Direct damage
•Indirect effects
Effects on the economy
• Asset losses
• Production losses
• Cost increase
• Income reduction
Primary damages
Secondary effects
Tertiary effects
Public investment
•Public sector
Private sector
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PrivateReconstruction
investment
Portfolio
CEPAL
(internal and external
resources) 9
GROSS CAPITAL FORMATION
EFFECT OF A SERIES OF DISASTERS ON GROSS
CAPITAL FORMATION
*
DISASTER
INDUSTRIALIZED COUNTRIES
“DEVELOPING” COUNTRIES
*
*
*
*
TIME
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GDP growth in Honduras
6.0
5.0
4.0
MITCH
3.0
DROUGHT
2.0
1.0
0.0
1996
1997
1998
1999
2000
2001
2002
2003
2004
-1.0
-2.0
Growth without Mitch and drought
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Growth with Mitch and drought
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GDP growht in Nicaragua
8.0
7.0
6.0
5.0
4.0
3.0
DROUGHT
2.0
1.0
0.0
1996
1997
1998
MITCH
1999
2000
2001
2002
2003
2004
-1.0
Growth without disasters
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Growth with Mitch and drought
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GDP growth in El Salvador
5.0
4.5
4.0
MITCH
3.5
3.0
2.5
DROUGHT
2.0
1.5
EARTHQUAKE
1.0
0.5
0.0
1996
1997
1998
1999
2000
Growth without disasters
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2001
2002
2003
2004
Growth with disasters
CEPAL
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GDP growth in Guatemala
6.0
5.0
MITCH
DROUGT
H
4.0
3.0
2.0
1.0
0.0
1996
1997
1998
1999
Growth without disasters
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2000
2001
2002
2003
2004
Growth with Mitch and drought
CEPAL
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GDP growth in Costa Rica
12.0
10.0
8.0
MITCH
6.0
4.0
SEQUIA
2.0
0.0
1996
1997
1998
1999
2000
Growth without disasters
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2001
2002
2003
2004
Growth with Mitch and drought
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Disaster impact on Latin
American and the Caribbean

Between 1970 and 2001, natural
disasters provoked 246.569 deaths,
affected 144 million people in several
magnitudes and caused material losses
estimated at nearly 68.600 million
dollars in Latin America and the
Caribbean, reported the United Nations
Program for the Environment.
(FIN/2005)
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Role-Players: can be public and
private, at a local or central level
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Human impact of disasters in Latin
American and the Caribbean
DATE
AFFECTED POPULATION
Dead
Direct victims (primary
effect)
1972-1980
38,042
4,229,260
1980-1990
33,638
5,442,500
1990-1999
31,086
2,518,508
2000-2004
7,047
12,911,890
1972-2004
109,813
25,102,158
3,787
865,592
Annual average (simple,
taking into account only
the damages reported by
CEPAL assessments,
non-scientific, noncomprehensive sample)
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Economic impact of disasters
(based on CEPAL assessments)
TOTAL DAMAGE (millions of dollars of 2004)
DATE
TOTALS
DIRECT (Asset
or capital
damage)
INDIRECT
(Cash Flow
losses)
Effects on
external
sector
1972-1980
78,085.14
49,826.61
28,258.53
24,197.79
1980-1990
100,497.13
70,886.11
29,611.02
40,671.10
1990-1999
27,965.57
14,364.46
13,601.11
7,466.83
2000-2004
18,199.92
11,229.84
5,470.08
3,296.23
1972-2004
225,756.39
145,797.11
79,959.28
77,149.81
7,784.70
5,027.49
2,757.22
2,660.34
Annual
Average
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HURRICANES IN THE CARIBBEAN, 2004
Relative and absolute impact of losses and
damages
4,000
1000.00%
212.00%
183.00%
3,500
US $ millions
3,000
100.00%
2,500
8.00%
7.30%
2,000
1,500
10.50%
1,000
10.00%
1.70%
500
551
3,432
296
889
296
595
0
1.00%
Hurricanes Hurricane
Frances
Ivan
and Jeanne
Bahamas
Tropical
Storm
Jeanne
Hurricane Hurricane Hurricane
Ivan
Jeanne
Ivan
Cayman Dominican Grenada
Islands
Republic
Economic Impact, US$ million
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Haiti
Jamaica
Impact as % of GDP
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Factors to consider
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Need for policies and
regulations



The value of prevention, mitigation and risk
management is not evident in the market
indications.
The State has to play a role in promotion
and regulation in risk situations
Strengthen and enforce regulations
regarding:




Human settlements and land use
Construction codes
Responsibility for the risk generated by
investments
Penalties for the risk generated or not assumed
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Why in the integration
scenario


Risk is not restricted by national borders
(i.e. the effects of a disaster extend to the
nations, for example, Hurricane Mitch or the
indirect consequences in other countries of
the damage caused in one of them)
Adopting regional policies and regulations
increases competitiveness


Improving the external image of the region and all
the countries
Avoiding adverse competition among countries
leading to the adoption of lax policies to appear
more attractive
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Thank you
Ricardo Zapata-Marti
Disaster Evaluation
Focal Point
CEPAL Subregional Headquarters
in Mexico
[email protected]
www.cepal.org/mexico
(disasters)
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