Risk and Return

The case of Bukit Lawang

Risk and Return

In economic theory risk and return are highly correlated. As risk increases a greater return is required. In some cases however it is possible to receive high return by simply passing the risk to others. Such was the case of Bukit Lawang.

Bukit Lawang

Bukit Lawang is a small village in North Sumatra, Indonesia. It is located on the edge of the Gunung Leuser National Park, a UNESCO World Heritage Site.

Bukit Lawang

The village generates most of its income from tourism. Visitors come to Bukit Lawang to have a close up experience with Orangutans and other wildlife.

Opportunities

The village, built along a fast flowing river provided opportunities for locals to create their own small businesses and there were many small restaurants and guest house there when I visited in September 2003.

Opportunities

One local entrepreneur had also created a business of renting inflated inner tubes for visitors to ride the currents.

Risk

Another economic activity upstream reaped higher rewards but with greater risks. But these risks essentially rested upon the residents and visitors of Bukit Lawang. Within the world heritage site illegal logging was taking place.

Risk

Jungle trees play a vital role in containing water. When removed en masse the risk of flood increases, particularly in tropical zones such as North Sumatra.

The Realisation of Risk

Bukit Lawang was destroyed in November 2003 by a flash flood. Heavy rains not only filled the river and increased its flow, they also swept many of the felled trees into the river. When these logs and the fast flowing water hit Bukit Lawang people were swept away and buildings and livelihoods were destroyed.

A Personal Viewpoint

When I revisited the site in March 2004 the devastation of what had happened was still apparent. Wood and rubble were everywhere and the place was unrecognizable. Only one building was left standing intact and it was impossible to pick out any of the landmarks of the village that I had visited six months before. Aside from one family who were staying in the one surviving guest house (which had been built on higher ground), my friends and I were the only people around.

Today and the Future

The people of Bukit Lawang were never going to be wealthy. But they did have businesses and incomes and a roof over their heads. Their enterprise was low risk and this was the return that they were satisfied with.

Today and the Future

Others however sought greater return but their activities created risks that the people of Bukit Lawang had no idea they would have to bear. It took a number of years for the village and economic life to return to the state it was in prior to the flood of November 2003.

Conclusion

In summary, well written laws which are effectively enforced help disperse risk for citizens of all nations, developed and developing alike. When laws are ignored and corruption is rife, it is typically the ordinary citizen with little or no means who bears much of the risk of the illegal activity. Such was the case of Bukit Lawang.

Purpose

This slide show has been produced for the

Coursera class ‘

Risk and Opportunity: Managing Risk for Development

’ offered by the World Bank

Image CreditsSlide:2. http://www.investopedia.com/university/concepts/concepts1.asp3. http://www.sumatraecotourism.com/bukitlawang/accommodation.html4. http://theworldandback.com/2013/10/10/bukit-lawang-orangutans/5. http://kiwikurt.wordpress.com/2010/01/11/bukit-lawang/6 .http://theworldandback.com/2013/10/10/bukit-lawang-orangutans/7. http://www.worldwildlife.org/photos/illegal-logging-riau-sumatra8. http://www.earthtimes.org/green-blogs/green-living/sumatran-elephant-extinction-looms-large-on-horizon-23-Jan-12/9. http://www.bonanipasogit.com/page.php?id=17011. http://ikimasho.net/2014/01/16/gibbons-gambling-in-bukit-lawang-sumatra/12. http://dimasnugrahaa.blogspot.hk/2012/12/bukit-lawang-sumatra-highlights-gunung.html13. http://www.nation.com.pk/lahore/04-Jul-2013/criminal-justice-system