SUBJECT 2. Valuation of the SUBJECT 2. Valuation of the impact of disasters impact of disasters

DAMAGE AND DAMAGE AND RECONSTRUCTION NEEDS RECONSTRUCTION NEEDS

ASSESSMENT MODULEASSESSMENT MODULE

DAMAGE AND LOSSESDAMAGE AND LOSSES

SANTA ANA

AHUACHAPAN

SONSONATE

LA LIBERTAD

SAN SALVADOR LA PAZ

CHALATENANGO

CABANAS

SAN MIGUEL

MORAZAN

LA UNION

SAN VICENTE

USULUTAN

SAN MIGUEL

LA UNION

SANTA ANA

AHUACHAPAN

SONSONATE

LA LIBERTAD

SAN SALVADOR LA PAZ

CHALATENANGO

MORAZAN

LA UNION

SAN VICENTE

USULUTAN

SAN MIGUEL

LA UNION

30 0 30 60 Kilometers

N

EW

S

PORCENTAJE DE VIVIENDAS AFECTADAS POR DEPARTAMENTO

EFECTOS DEL TERREMOTO DEL 13 DE ENERO DE 2001 EN EL SALVADOR

Fuente: información del COEN al 2 de febrero de 2001Encuesta de Hogares de Propósitos Multiples 1999. DIGESTYC

(GRAFICO CON DISTRIBUCION DE HOGARES SEGUN MATERIAL DE CONSTRUCCION)

% Viviendas afectadas

0.1 - 6.7 %6.7 - 15.8 %15.8 - 30.1 %30.1 - 74.2 %

Tipo de materialConcretoBahareque y adobeOtros materiales

• Loss of life or injuryLoss of life or injury

• Reduced welfare and well beingReduced welfare and well being

• Material losses and damageMaterial losses and damage

• Disruption of “normalcy”Disruption of “normalcy”

• Degrees of affectationDegrees of affectation

Some things are easier to Some things are easier to measure than othersmeasure than others

• IT IS DIFFICULT TO DETERMINEIT IS DIFFICULT TO DETERMINE– The value of lives lost or affectedThe value of lives lost or affected– The opportunity cost, cost-benefit or The opportunity cost, cost-benefit or

investment / profitability. This is investment / profitability. This is associated with the lack of adequate associated with the lack of adequate base lines that assess the level, base lines that assess the level, quality and efficiency / efficacy of quality and efficiency / efficacy of health services providedhealth services provided

– The value and quality of services The value and quality of services provided (both curative and provided (both curative and preventive) preventive)

– The duration of the transition / The duration of the transition / emergency phase (when field emergency phase (when field hospitals and evacuation processes hospitals and evacuation processes are operational)are operational)

• IT IS EASIER TO DETERMINEIT IS EASIER TO DETERMINE– The amount of investment required for The amount of investment required for

reinforcement vs. The potential losses reinforcement vs. The potential losses in equipment and inventories in equipment and inventories

– The cost of reinforcement as The cost of reinforcement as compared to the reposition cost of compared to the reposition cost of affected infrastructureaffected infrastructure

– The alternative cost of providing The alternative cost of providing services when infrastructures collapseservices when infrastructures collapse

Ricardo ZapataRicardo Zapata ECLAC / DMF WorkshopECLAC / DMF Workshop 2626

Some figures on the impact of disasters Some figures on the impact of disasters in Latin America and the Caribbeanin Latin America and the Caribbean

Deaths (1972-2003) 110,000 0.02%

Directly affected population (primary) (thousands) 15,000 2.68%

Total affected population (‘000) 160,000 28.57%

Total Damage (millions of dollars) 65,000

Yearly average amount (millions of dollars) 2,300

As percentage of exports of goods and services 0.55%

As percentage of foreign direct investment 7.92%

Source: ECLAC

Main ConceptsMain Concepts

Direct damagesDirect damages• Impact on assetsImpact on assets

– InfrastructureInfrastructure– CapitalCapital– StocksStocks

• Occur immediately Occur immediately during or after the during or after the phenomenon that phenomenon that caused the disastercaused the disaster

Indirect DamagesIndirect Damages• Effects on flowsEffects on flows

– ProductionProduction– Reduced income and Reduced income and

increased expensesincreased expenses• Are perceived after the Are perceived after the

phenomenon, for a time-phenomenon, for a time-period that can last from period that can last from weeks to months, till weeks to months, till recuperation occursrecuperation occurs

WHAT IS IT THE VALUATION WHAT IS IT THE VALUATION METHODOLOGY:METHODOLOGY:

INDIRECT EFFECTSLoss of services:

Supply / demand mismatch Imbalance, inadequacy / resilience

Rehabilitation and reconstruction stagesEmergency 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 criteriaManagement criteria

Assessment of health network(sanitary system)

DIRECT DAMAGEGoods, equipment,

Budget changes(cost / investment)

Preparation of technical dossier

Operational maintenanceTraining in use of methodology

conservationPredictionPrevention

Restoration of service

INDIRECT EFFECTSLoss of services:

Supply / demand mismatch Imbalance, inadequacy / resilience

Rehabilitation and reconstruction stagesEmergency 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 criteriaManagement criteria

Assessment of health network(sanitary system)

DIRECT DAMAGEGoods, equipment,

Budget changes(cost / investment)

Preparation of technical dossier

Operational maintenanceTraining in use of methodology

conservationPredictionPrevention

Restoration of service

Impact assessment

Determine the situation caused Determine the situation caused by the disasterby the disaster

The value we determineThe value we determine• Stemming from sector valuations Stemming from sector valuations

assess the value-added changes assess the value-added changes expected for every sector in the expected for every sector in the short term and for a medium-term short term and for a medium-term period to be agreed (3-5 years or period to be agreed (3-5 years or more)more)

• Supported by input-output tables Supported by input-output tables or sector weighing factors or sector weighing factors determine the projection of determine the projection of damages of one sector to the damages of one sector to the othersothers

• A damage scenario is built (taking A damage scenario is built (taking into account the measured losses into account the measured losses at replacement value) : variations at replacement value) : variations in the main economic gaps is in the main economic gaps is highlighted: external sector, fiscal highlighted: external sector, fiscal deficit, internal equilibrium deficit, internal equilibrium (prices, exchange rate, etc.)(prices, exchange rate, etc.)

The images we seeThe images we see

• Social SectorsSocial Sectors– HousingHousing– HealthHealth– Education, culture, Education, culture,

sportssports• InfrastructureInfrastructure

– Transport and Transport and communicationscommunications

– EnergyEnergy– Water and sewerageWater and sewerage

• Productive sectors Productive sectors – Goods: agriculture, Goods: agriculture,

industryindustry– Services: commerce, Services: commerce,

tourism, etc.tourism, etc.

• Global impactGlobal impact– On the environmentOn the environment– Gender perspectiveGender perspective– Employment and social Employment and social

conditionsconditions– Macroeconomic Macroeconomic

assessmentassessment

SECTOR BY SECTOR VALUATION SECTOR BY SECTOR VALUATION METHODOLOGYMETHODOLOGY

An example: COMPOSITION OF DAMAGES CAUSED BY MITCH IN

CENTRAL AMERICA

0

500

1000

1500

2000

2500

3000

mill

ions

of U

S do

llars

SECTORS

SOCIAL SECTORS

INFRASTRUCTURESERVICES

PRODUCTIVESECTORS

ENVIRONMENT(protected areas)

VALUATION CRITERIAVALUATION CRITERIA• Valuation of direct damage will depend on the purpose of the Valuation of direct damage will depend on the purpose of the

valuationvaluation– For historical record and comparison over time and with other For historical record and comparison over time and with other

disasters, present value accounting cost should be useddisasters, present value accounting cost should be used• For reconstruction planning and mitigation strategiesFor reconstruction planning and mitigation strategies

– Replacement prices should be used.Replacement prices should be used.– Mitigation investment, in terms of reinforcement, redesign, relocation Mitigation investment, in terms of reinforcement, redesign, relocation

or vulnerability reduction additional values should be incorporated.or vulnerability reduction additional values should be incorporated.• Valuation of indirect losses will always be done at current market Valuation of indirect losses will always be done at current market

prices of:prices of:– Lost production and supply of goods and servicesLost production and supply of goods and services– Additional cost of provision of goods and services under disaster Additional cost of provision of goods and services under disaster

emerging conditionsemerging conditions– Business losses due to reduced sales and or activityBusiness losses due to reduced sales and or activity

• When insurance exists, covering assets (infrastructure, buildings, When insurance exists, covering assets (infrastructure, buildings, machinery, stocks, etc.) or business loss, value will be machinery, stocks, etc.) or business loss, value will be established on the basis of covered amount, comparing it to total established on the basis of covered amount, comparing it to total estimated loss.estimated loss.

MEASURING THE DAMAGE “DELTA” OR MEASURING THE DAMAGE “DELTA” OR DAMAGE GAPDAMAGE GAP

Pre-existing Pre-existing conditions (ex ante)conditions (ex ante)

Expected Expected performance (without performance (without

disaster) 3-5 yearsdisaster) 3-5 years

Disaster impact Disaster impact (ex post)(ex post)3-5 years3-5 years

The measure The measure Of direct and indirect damagesOf direct and indirect damagesUpon the pre-existing situation Upon the pre-existing situation

(sector by sector baselines) is aggregated into the (sector by sector baselines) is aggregated into the national accounts and determines the resulting disaster-national accounts and determines the resulting disaster-

caused scenario, as the gap over the expected caused scenario, as the gap over the expected performance prior to the event. Several scenarios may performance prior to the event. Several scenarios may be outlined, based on the assumptions made for the be outlined, based on the assumptions made for the

reconstruction processreconstruction process

VALUATION PROCEDUREVALUATION PROCEDURE

D = Va – VbD = Va – VbWhere Va is the initial condition expected for a variable (sectoral, Where Va is the initial condition expected for a variable (sectoral,

weighed) and Vb is the discounted effect of the disaster.weighed) and Vb is the discounted effect of the disaster.

K = Ka – KbK = Ka – KbMeasures the capital (assets) lost, estimated by compiling direct Measures the capital (assets) lost, estimated by compiling direct

damages computed sector by sector.damages computed sector by sector.

Y = Ya – YbY = Ya – YbMeasures the production/income lossesMeasures the production/income losses

The capital/income-production ratio is generally The capital/income-production ratio is generally assumed not to vary substantively as a result of the assumed not to vary substantively as a result of the disasterdisaster

Know the pre-existing situationKnow the pre-existing situation• Identify the core development factors of the economyIdentify the core development factors of the economy• Identify the main characteristics at the time of the Identify the main characteristics at the time of the

disaster: face of the economic cycle, seasonal disaster: face of the economic cycle, seasonal elements, indebtedness level, domestic savings, FDI elements, indebtedness level, domestic savings, FDI flows, etc.flows, etc.

• Access the macroeconomic data bases from national Access the macroeconomic data bases from national authorities, academic analysts and/or consultants and authorities, academic analysts and/or consultants and advisors in the countryadvisors in the country

• Identify existing econometric models for the local Identify existing econometric models for the local economyeconomy

• Identify if input-output tables are available or determine Identify if input-output tables are available or determine weighing factors that indicate inter-sectoral linkages.weighing factors that indicate inter-sectoral linkages.

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** TIMETIME

GR

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AP

ITA

L F

OR

MA

TIO

NG

RO

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CA

PIT

AL F

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MA

TIO

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DEVELOPING COUNTRIIESDEVELOPING COUNTRIIES

INDUSTRIALIZED INDUSTRIALIZED COUNTRIESCOUNTRIES

** DISASTERDISASTER

THE EFFECT OF SUCCESSIVE DISASTERS ON THE EFFECT OF SUCCESSIVE DISASTERS ON

CAPITAL FORMATIONCAPITAL FORMATION Adapted from Mora, “El impacto de los desastres, aspectos sociales, polítifcos económicos, ambientalesAdapted from Mora, “El impacto de los desastres, aspectos sociales, polítifcos económicos, ambientales

y su relación con el desarrollo de nuestros países (BID, 1999) y su relación con el desarrollo de nuestros países (BID, 1999)

Summary tableSECTOR INDIRECT PUBLIC PRIVATE TOTAL EXTERNAL

IMPACTPhysical Monetary

estimatePRODUCTIVE SECTORSAgriculture (includes cattle raising, fisheries and forestry)IndustryCommerceServices - Financial and banking - Tourism - Personal and otherINFRASTRUCTUREWater (drinking, irrigation, drainage, sanitation and sewerage)Energy (generation, transmission, distribution) - Electricity - Other (petroleum, gas, etc.)Transport and communicationsSOCIAL ASPECTSEducationHealthHousingCultural heritageSocial fabricENVIRONMENTAL ASPECTSTOTALGOVERNMENT SECTOR IMPLICATIONS - Revenues

- Expenditures

DIRECT

Summary of global impact

III. MACRO / GLOBAL IMPACT (current value)

Ex-ante situation (current period)

Ex-post situation (present period)

Short/medium term projections

(scenarios)

Scenario 1 (Below trend)

Scenario 2 (Average or

trend)Scenario 3

("Optimistic")1. GDPExternal 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 - Expenditures3. CAPITAL ACCOUNT - Gross capital formation - domestic investment - foreign direct investment

The question of expected future performance

Future ScenariosFuture Scenarios

11stst. Scenario: damage assessment and event’s impact, . Scenario: damage assessment and event’s impact, without including reconstruction actionswithout including reconstruction actions

Alternative reconstruction scenariosAlternative reconstruction scenarios Taking into account no longer the replacement but the reconstrucTaking into account no longer the replacement but the reconstruction tion

costscosts Emerging reconstruction priorities, sector by sectorEmerging reconstruction priorities, sector by sector The emerging reconstruction strategies in the immediate weeks afThe emerging reconstruction strategies in the immediate weeks after ter

the disasterthe disaster The economy’s absorption capacity of foreign resourcesThe economy’s absorption capacity of foreign resources The economy’s capacity to execute projectsThe economy’s capacity to execute projects The performance of key economic variables in the face of an incrThe performance of key economic variables in the face of an increase ease

or impending reorientation of resources for reconstruction: inteor impending reorientation of resources for reconstruction: interest rest rates, indebtedness, inputs and production means availability (rrates, indebtedness, inputs and production means availability (raw aw materials, capital goods, domestic saving, labour force, etc.)materials, capital goods, domestic saving, labour force, etc.)

ECLAC - 2002HANDBOOK FOR ESTIMATING THE

IMPACT OF DISASTERS 138

EL SALVADOR:POSSIBLE RECONSTRUCCION EL SALVADOR:POSSIBLE RECONSTRUCCION SCENARIOS, 2001SCENARIOS, 2001--20032003

3.4

2.0

3.0 3.1 3.23.4

2.0

3.54.0 4.0

3.4

2.0

4.04.5

5.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1999 2000 2001 2002 2003

Year

GDP

annu

al g

rowt

h ra

te

Pessimistic

Probable

Optimstic

ORGANIZATION OR ORGANIZATION OR PROCEDURAL ASPECTS OF PROCEDURAL ASPECTS OF ASSESSMENT EXERCISESASSESSMENT EXERCISES

• Composition of team: multisectoral, Composition of team: multisectoral, interdisciplinary, interinstitutionalinterdisciplinary, interinstitutional

• Timeliness: within the “window of opportunity”, not Timeliness: within the “window of opportunity”, not interfering with emergency actionsinterfering with emergency actions

• Ensure full coverage and avoid duplicationEnsure full coverage and avoid duplication• The need for “judgment calls” or the educated The need for “judgment calls” or the educated

guessing of expertsguessing of experts• Difference between emergency needs and rapid Difference between emergency needs and rapid

assessment of need for reconstructionassessment of need for reconstruction

Summary of basic conceptsSummary of basic concepts

• Direct and Indirect effectsDirect and Indirect effects• Valuation methodsValuation methods• The damage “delta” or the gap caused in The damage “delta” or the gap caused in

performance by the disasterperformance by the disaster• Sector by sector evaluation of losses, damage and Sector by sector evaluation of losses, damage and

indirect effectsindirect effects• Summation of damage in a non duplicative waySummation of damage in a non duplicative way• Valuation of impacts not present in the national Valuation of impacts not present in the national

accounting system (environment, gender, accounting system (environment, gender, psychological impacts)psychological impacts)

• Short and medium term effect on the performance of Short and medium term effect on the performance of the economythe economy

• Modeling alternative scenariosModeling alternative scenarios