Measuring the Economic Impact of Disasters

Measuring the Economic Impact of Disasters

E.C. Torrente and V.J. Bawagan

Outline

1. Ways of Measuring Disaster Impacts 2. Present damage assessment in the Philippines3. The ECLAC Methodology4. Quantifying economic losses

- Assessing the impact on a per capita basis- Assessing impacts by targets and actual GDP- Assessing impacts the ECLAC methodology

5. Macroeconomic impacts of the typhoons6. Lessons learned7. Recommendations

Direct Costs

• generally termed as “stock”

• damages that usually occur during or right after the actual disaster

• total or partial destruction of physical infrastructure (i.e. bridges, buildings) and economic installations (i.e., power, communication, transportation)

Indirect Costs

• generally termed as “flows”

• Costs due to the disruption to the normal flow of goods and services in the economy (reduced output, income and wage)

• also includes human suffering, insecurity, psychological stress on victims but very difficult to identify and quantify

Secondary Effects

• also called “macro-economic impacts” alterations or changes caused by disaster to the expected performance of the national economy

• disaster has bearing on GDP, current account balance, public finances, gross investment, prices of commodities and employment

Important Macroeconomic Effects

1. Growth in Gross Domestic Product (GDP)

2. Current Account balance

3. Public Finances

4. Gross Investment

5. Prices of Commodities

6. Employment

The Present Damage Assessment in the Philippines

Data and damage estimates are generally in terms of:

• people affected,

• infrastructure damages/losses

• productive assets destroyed and

• production losses.

Present Damage Assessment in the Philippines

Department of Agriculture – (DA - R2)

Upon receipt of weather advisory:- Determined vulnerable crop areas

– Activated its Command Centers. – Prepared first or initial report on. – Estimated total area affected and productivity losses

Within 24 hours of typhoon, prepared second report. – Nature and degree of typhoon– Estimated crop damage– - crops affected– - area affected– - volume loss– - value loss–

The Assessment Method of the Department of Agriculture

Production losses are based on:

- value of crops lost per area at a certain growth stage as well as

- the replacement values of damaged

equipment, facilities, infrastructure and other assets.


Estimating Damages on Crops

Growth stage Tillering Panicle initiation

Flowering Ripening

Days of submergence Estimated Yield Loss (%)

2-Jan 10 15-25 15-Oct 0

4-Mar 15-20 20-45 15-25 15-Oct

6-May 20-30 30-80 20-30 15-20

7 30-50 50-100 30-70 15-20


Estimating Damages on Crops

Growth stage Vegetative Reproductive Maturing

Wind speed 101-150 kph Estimated Yield Loss (%)

< 12 hrs 20 55 25

>12 hrs 25 60 30

Wind speed > 150 kph

< 12 hrs 40 80 60

> 12 hrs 50 80-100 75

Agricultural losses can be considered under the following

Just after planting.

- considers the cost of investment put into the crops.

- costs of seedlings, land preparation, labor, equipment rental, etc.


Various stage of growth. - calculated based on the tables using the growth

stage, wind speed and number of hours that rice and corn have been subjected to.

- when crops are in their early stages, they are assessed by the valued of investments put into them




Ready for harvest. - valued using their farm gate prices.

- farm gate prices are the prevailing market prices which should consider the total amount of inputs, among others, in the crops.

- again, the volume of damaged or lost crops is calculated based on the factors enumerated in the above tables



Within 36-72 hours of typhoon, prepared updated reports

Ten days after the typhoon, final report submitted. Based on joint field validation of DA-RFU 02, BAS and LGU.

Prepared DA-LGU rehabilitation plan including counterpart funding scheme.

The Assessment Method of the Department Public Works and Highways

Report on Damages were categorized into three (3) priority groups:

Priority I - Immediate rehabilitation of collapsed bridges, cut road sections, breached sea walls and dikes and other government buildings to quickly restore mobility and ensure the safety of the affected areas.

•

Infrastructure losses estimated by the DPWH

The Assessment Method of the Department Public Works and Highways

Report on Damages were categorized into three (3) priority groups:

b) Priority II - Ordinary repair works such as patching, potholes, resurfacing of washed-out and slightly destroyed Flood Control Structures.

c) Priority III - Minor repair works to prevent further deterioration of damaged road sections.


DPWH1. Conduct ocular/an in-depth

survey/investigation

2. Take photo on all angles of damages

3. Prepare the plans

4. Quantify the extent of damages


DPWH5.Prepare the detailed cost estimates for materials,

labor and equipment6. Prepare the program of work7. Compute the total amount of damages8. Submit the program of work and plan for

approval.9. The DPWH regional office validates the extent

of damages as per plan and program of work.10. Submit program of works and plans for

appropriate funding.

The Present Damage Assessment in the Philippines

The Department of Tourism uses a checklist that enumerates reservations cancelled, decline in occupancy of hotels and resorts, etc.

However, the DOT is only limited to those tourism establishments that are accredited with their department.


DSWD. Data analysis at the Field Office:• Number of affected families over total

population• Families served inside and outside evacuation

centers• Totally and partially damages houses.• Cost of assistance and capability of LGUs to

respond.• Relief Assistance• Rehabilitation Services


Department of Trade and Industry

Monitors price movements and improves supply to avoid hoarding

Department of Labor and Employment

Monitors labor displacement and implements employment programs


Regional Office of Civil Defense

- Consolidates reports

- Validates reports

- Prepares summaries of damages

- Forwards recommendation to the OCD and NDCC

• Office of Civil Defense (OCD)– only direct costs are accounted

• National Economic and Development Authority (NEDA)– needs added data on indirect damages to

estimate long-term effects on the economy


ECLAC Methodology

Direct & Indirect Impacts of

Selected SectorsBased on ECLAC Study

Damages to Agriculture, Cattle Raising and Fishing PRIMARY CONSIDERATION

Direct damages• Repair or reconstruction costs

of agriculture, cattle farming and fishing infrastructure, including tertiary level roads

• Damages or destruction of fishing fleet

• Damages or destruction of fish farming ponds and shrimp factories

• Agriculture production ready to be harvested

• Stocked agricultural produce and grains

• Losses in animal stock

Indirect damages• Reduced yields in future crops• Not planting of future crops• Reduced fishing• Loss of employment• Differential impact on women

Damages to Housing and Human Settlements

Direct damages• Repair of damaged

housing• Reconstruction destroyed

housing• Household furnishings

and appliances replacement

• Repair or reconstruction of public buildings and facilities

Indirect damages• Temporary housing

supply• Relocation of housing in

safe areas• Cost of migration to

families

Damages in Transport and Communications

Direct damages• Repairs or reconstruction costs

of roads and bridges• Replacement cost of

automotive stock• Repair or reconstruction coast

of railway tracks• Rehabilitation costs of ports

and airports

Indirect damages• Increased transport costs

due to the use of longer alternate routes and/or roads in poor condition

• Relocation costs for telecommunication towers

• Income losses due to air transport reduction or cancellation

• Income reduction in waterways and canals due to reduced water level in the face of drought

Commerce, Industry and Services

Direct damages• Repair or reconstruction

costs of infrastructure• Repair or replacement

cost of equipment and machinery

• Losses in finished production (stocks and inventories)

Indirect damages• Reduced production• Temporary employment

losses• Differential impact on

women

Damages to Tourism


costs of tourism infrastructure

• Repair or replacement cost of furniture and tourism equipment

• Damages to beaches and other tourist attractions

Indirect damages• Temporary fall in hotel

occupancy and income of enterprises

• Negative effect in linked activities

• Cancelled future reservations and cost of promotion campaigns

• Unemployment• Differential impact on

women

Education and Culture Sectors


costs of schooling facilities

• Furnishings and educational material’s replacement

• Rehabilitation of historical and cultural heritage

Indirect damages• Delay in school year• Rent of temporary

facilities• Repairs to schooling

centres used as shelters for displaced population during disaster

• Reduced income from damaged culture and historical centres (museums, etc.)

Health Sector

Direct damages• Repairs or reconstruction

of health infrastructure: hospitals, health clinics, etc.

• Replacement of equipment, furnishings and lost medicines and stocks

Indirect damages• Increased expenditure to

provide medical attention• Preventive campaign

costs in the face of potential epidemics or infective diseases

• Relocation costs for moving health centres to safer grounds

Environment

Direct damages (estimated indirectly)

• Repair costs of natural resources to their previous state: reforestation, land stabilization, protection against slippage, etc.

• Cost of alternative water sources

• Beach cleanup and replenishing

Indirect damages• Loss of environmental

services• Cleanup from spills of

toxic materialsIndirect damages

• Loss of environmental services

• Cleanup from spills of toxic materials

Impact on Women

• Double burden on women

• Effect on gender relationships

Quantifying Economic Losses

Three ways to express and show

impact of disasters:

i. On per capita basis

ii. As a percentage or fraction of total income or output

iii. Total sum of direct and indirect costs (ECLAC Methodology)

Assessing the impact on a per capita basis

• this method can be broken down by province, city, municipality or sector

• the disadvantage is that this method does not include indirect damages to the economy

Damage per capita =Total assessed damages

Total population in the affected area

Assessing impacts by targets and actual GDP or GRDP

Table 1. Social Sector Damages By Typhoon Harurot in Region IISector Quantity AmountI. Social Sector 1. Population Affected 969,556 2. Population Displaced 480,564 for 7 regions 3. Lives Lost/Casualties 33 4. Missing 2 5. Injured 119II. Agriculture PhP 1,870 millionIII. Infrastructure PhP 304 millionIV. Telecommunication Facilities PhP 11,083,425


From Table of Damages and Population of Region II

Damage per capita

= PhP million (1,870 + 304 + 11.1)

2,978,000 persons

= PhP 734 per person


• Agriculture damage per farmer

= PhP 1,870 million

742,000 farmers

= PhP 2,520


• this method is more comprehensive than the direct damages method

• however, there are also disadvantages (i.e., all factors are attributed to the disaster, presupposes target data is accurate, and time delay since economic data comes later after the disaster)

Economic losses = Target GDP (or GRDP) - Actual GDP (or GRDP)


Region II target growth in agriculture = 4.46%

2003Actual GRDP growth rate = 0.4%

Target Actual Target Actual Target ActualPopulation ('000) 2,868 2,923 2,978 GRDP (PhP B) 22.348 23.340 23.343 22.390 24.519 22.687 Per Capita GRDP 7,792 8,135 7,986 7,658 8,233 7,618 at constant prices

Indicator2001 2002 2003


• At constant 1985 prices, GRDP target – GRDP actual = PhP 1.832 B

• At 2003 prices, using the implicit price index of 355.75/100 x PhP 1.832 B the damages of Harurot is = PhP 6.52 B or US$ 358.5 M

• This is about 3 times the PhP 2.18 B direct damage estimate in the OCD report


• The damages to agriculture per farmer is

= Agricultural damages

Total number of farmers


Agriculture GVA at 1985 constant prices

• Target GVA for 2003 = PhP 12.956 B

• Actual GVA for 2003 = PhP 11.504 B

Difference = PhP 1.452 B

At 2003 prices, this is = PhP 5.17 B


• The damage to agriculture per farmer is= Agricultural losses Total number of farmers

= PhP 5.17 B = PhP 6,968 742,000 farmers

This is almost 3 times the PhP 2,520 per farmer using the direct agricultural losses.

Using the ECLAC Methodology

Cost of Damage to Properties (Pesos)

Region Agriculture Infrastructure Total

CAR 99,495,178 187,747,500 287,242,678

I 12,702,453 60,036,005 72,738,458

II 1,870,289,902 304,143,000 2,174,432,902

III 371,500,000 253,725,150 625,225,150

IV 10,649,697 12,930,000 23,579,697

V 7,352,505 30,000 7,382,505

VI 1,677,796 39,250,000 40,927,796

Total 2,373,667,531 857,861,655 3,231,529,186

Harurot Damages

Estimated Direct Losses

Agriculture, Fishery & Forestry

Units (has)Input costs/

unitLabor cost/

unitTotal input

costs

A B C A*(B+C)

Crops not ready to be harvested

- Rice 7,500 3,700 2,970 50,025,000

- Corn 84,525 3,700 2,970 563,778,415

Total 613,803,415

Estimated indirect losses

Manufacturing

Days w/ no production

Net income per month Loss

A(B-D)*exchange

rate(B-D)*exchange rate/24 days*A

- Production (for export) losses 6

1,281,600.00 20,400.00


Electricity

Hrs of interrupted service

Ave income per month Loss

A B A*B/30/24

- Production losses 336 30,000

14,000.00


Water

Hrs of interrupted service

Ave income per month Loss

A B A*(B/30/24)

- Production losses 504 5000

3,500.00


Transport

NumberAverage income per

trip Loss

A B A*B

- Service/Production losses

-- Flights delayed/cancelled

6

10,000 110,000

-- Bus trips cancelled

100

3,000 696,000

-- Jeepney trips cancelled

5,000

500 7,499,000

Total 8,305,000


Communication

Hrs of interrupted

serviceAve income per

month Loss

A B A*(B/30/24)

- Service/Production losses 336

150,000

70,000


Government Services

Type of expenditure Amount

- Emergency expenditures Emergency assistance 23,748,000

Private Services

Type of expenditure Amount

- Emergency expenditures Emergency assistance 1,455,000

Estimated Loss in GRDP

Gross value

GVA ratio2003 Nominal

Gross Value Added

Loss to GRDP 597,313,315.00 429,267,128.12

Agriculture, Fishery and Forestry 613,803,415.00 0.72 442,223,173.50

Mining and Quarrying 0.56

Manufacturing 320,400.00 0.32 103,188.54

Construction 0.54

Electricity, Steam and Water 17,500.00 0.54 9,462.63

Transportation, Communication and Storage 8,375,000.00 0.49 4,116,438.79

Trade 0.66

Finance 0.72

Real Estate and Ownership of Dwellings 0.88

Private Services (1,455,000) 0.55 ( 794,541.79 )

Government Services (23,748,000) 0.69 (16,390,593.54 )

Impact on GRDP

2003 2002

1985 prices 1985 pricesGrowthrate (%)

GRDP Region IIw/o Harurot 21,938,842,484 21,558,450,018 1.76

GRDP Region IIw/ Harurot 21,818,177,566 1.20

Difference -0.56

Lessons learned

1. There are limitations in using the ECLAC methodology

• Not all required data in the Philippines is always available

• The cost of lives lost is inherently difficult to quantify in monetary terms

• Replacement or cost of repair does not reflect the rate of depreciation of the damaged infrastructure

Lessons learned

• - Shadow prices are not available for various goods and services.

• - Difficulty to project the economic impacts on some economic variables like employment or inflation over a longer period.Relief and reconstruction activities will definitely counter these effects

Recommendations

1. There must be a proper format for tabulating the damages

2. There should be an existing methodology to assess data from the field to expedite gathering of raw information

3. Economic projections should be available on a regular basis to provide a solid foundation for estimation

Recommendations

4. The value-added factors for goods and services must be available to the damage estimators

5. Damage estimators should have relevant training

Workshop Recommendations

GENERAL:

NDCC to recommend to the president the adoption of ECLAC Methodology by all agencies by issuing an Executive Order.

SPECIFIC:

For the top level decision-makers to decide which items should be considered direct or indirect damages.


Department of Trade and Industry (DTI)

DTI be oriented and required to assess direct and indirect damage to industry

To tap the assistance and seek the cooperation of local Chamber of Commerce, Trade and Industry in filling out templates in the conduct of survey, including industrial association, business groups, consumers association


Department of Tourism (DoT)• Formalize the conduct of damage and economic impact

assessment of disaster effects in tourism industry• To come up with a uniform template for assessing

impact based on ECLAC methodology • Capability building to be provided

Department of Labor and Employment (DOLE)• To tap labor unions in the conduct of assessment,

workers organization cooperation


Department of Agriculture (DA)• Not to distinguish production whether

direct or indirect damage.

• Will submit reconciling report indicating direct and indirect damage after a period to be determined later by NEDA and DA

Documents

Measuring the Economic Impact of Disasters