High­est in Emerg­ing Economies

Eco­nomic Fall­out From Nat­u­ral Dis­as­ters is

Insurance - - FEATURE - by He­len Hodge

Some of Asia’s most im­por­tant growth economies have the high­est fi­nan­cial risk from the threat of nat­u­ral haz­ards, due to the high ex­po­sure of their cities and trad­ing hubs to events such as flood­ing, earth­quakes and trop­i­cal cy­clones, ac­cord­ing to the 2nd Nat­u­ral Haz­ards Risk Atlas re­leased by Maple­croft.

Bangladesh, the Philip­pines, Myan­mar, In­dia and Viet­nam are among the ten coun­tries with the great­est pro­por­tion of their eco­nomic out­put ex­posed to nat­u­ral haz­ards. In ad­di­tion, they also demon­strate poor ca­pa­bil­ity to re­cover from a sig­nif­i­cant event ex­pos­ing in­vest­ments in those coun­tries to risk of sup­ply chain and mar­ket dis­rup­tions. This could lead to siz­able busi­ness in­ter­rup­tion costs, in ad­di­tion to ma­te­rial dam­age to es­sen­tial in­fra­struc­ture. Maple­croft’s re­search also showed that it could ex­ac­er­bate other risks like so­ci­etal un­rest, food se­cu­rity, cor­rup­tion and rule of law even lead­ing to in­creased po­lit­i­cal risk.

“High ex­po­sure to nat­u­ral haz­ards in th­ese coun­tries are com­pounded by a lack of re­silience to com­bat the ef­fects of a dis­as­ter should one emerge,” ex­plains Maple­croft’s Head of Maps and In­dices He­len Hodge. “Given the ex­po­sure of key fi­nan­cial and man­u­fac­tur­ing cen­tres, the oc­cur­rence of a ma­jor event would be very likely to have sig­nif­i­cant im­pacts on the to­tal eco­nomic out­put of th­ese coun­tries, as well as for­eign busi­ness.”

The Nat­u­ral Haz­ards Risk Atlas has been devel­oped by Maple­croft to help com­pa­nies as­sess and com­pare nat­u­ral haz­ards risks across 197 coun­tries and builds on re­search un­der­taken by Maple­croft with UN OCHA. It in­cludes 29 risk in­dices and in­ter­ac­tive maps that mea­sure phys­i­cal ex­po­sure to 12 dif­fer­ent nat­u­ral haz­ards, in ad­di­tion to cal­cu­lat­ing over­all eco­nomic ex­po­sure and so­cioe­co­nomic re­silience to large events.

Strong re­silience in big economies re­duces eco­nomic re­cov­ery risks

Maple­croft iden­ti­fies Ja­pan, China, Tai­wan and Mex­ico as hav­ing the high­est eco­nomic ex­po­sure to nat­u­ral haz­ards in ab­so­lute terms. The rank­ing of th­ese eco­nomic heavy­weights comes as no sur­prise, es­pe­cially in the wake of one of the costli­est years ever for in­sur­ers. Eco­nomic losses for 2011 are es­ti­mated at US $380 bil­lion by Mu­nich Re, with the March 2011 earth­quake and tsunami in Ja­pan ac­count­ing for ap­prox­i­mately 55% of the to­tal.

How­ever, huge economies such as Ja­pan have the ca­pac­ity to re­cover rel­a­tively quickly from nat­u­ral dis­as­ters due to en­trenched re­silience fac­tors in­clud­ing: eco­nomic strength, strong gov­er­nance, es­tab­lished in­fra­struc­tures, dis­as­ter pre­pared­ness and tight build­ing reg­u­la­tions – fac­tors that are, ac­cord­ing to Maple­croft, largely in­ef­fec­tive in many of the emerg­ing growth economies.

…huge economies such as Ja­pan have the ca­pac­ity to re­cover rel­a­tively quickly from nat­u­ral dis­as­ters due to en­trenched re­silience fac­tors … eco­nomic strength, strong gov­er­nance, es­tab­lished in­fra­struc­tures, dis­as­ter pre­pared­ness and tight build­ing reg­u­la­tions…

Maple­croft iden­ti­fies Ja­pan, China, Tai­wan and Mex­ico as hav­ing the high­est eco­nomic ex­po­sure to nat­u­ral haz­ards in ab­so­lute terms.

Growth economies of Bangladesh, Philip­pines, Myan­mar, In­dia and Viet­nam at high­est risk from ex­po­sure to nat­u­ral haz­ards – Global study and in­ter­ac­tive atlas l Haz­ards

Eco­nomic fall­out from nat­u­ral dis­as­ters is high­est in emerg­ing economies Bangladesh, the Philip­pines, the Do­mini­can Repub­lic, Myan­mar, In­dia, Viet­nam, Hon­duras, Laos and Haiti are the ten coun­tries most at risk in Maple­croft’s Nat­u­ral Haz­ards Rel­a­tive Eco­nomic Ex­po­sure In­dex. High lev­els of eco­nomic ex­po­sure, cou­pled with weak re­silience, means that the fall­out of a large nat­u­ral dis­as­ter would likely be felt keen­est in th­ese coun­tries. The re­sult­ing im­pacts in the Asian growth economies of Bangladesh, the Philip­pines, Myan­mar, In­dia and Viet­nam would not only in­clude dis­rup­tions to their domestic economies, but also to the op­er­a­tions and sup­ply chains of many of the world’s largest cor­po­ra­tions who in­vest in th­ese lo­ca­tions be­cause of their sig­nif­i­cant growth op­por­tu­ni­ties.

Im­pacts in th­ese ex­posed Asian coun­tries are also height­ened by their eco­nomic fragility. Some of the high­est risk coun­tries have sub­stan­tial eco­nomic out­puts, but they are fu­elled by large, poor pop­u­la­tions, many of which live on mar­ginal land such as flood plains, leav­ing con­stituent work­forces at height­ened risk and with­out the nec­es­sary re­sources to re-es­tab­lish them­selves in the af­ter­math of an event.

Ac­cord­ing to Maple­croft, th­ese coun­tries may take years to ‘bounce-back’ from an event on a sim­i­lar scale to the Ja­pan earth­quake. A year af­ter the fourth largest earth­quake ever recorded the Ja­panese econ­omy has re­turned to the eco­nomic out­put lev­els and growth fore­casts seen prior to the event. The im­pacts on coun­tries with less re­silience than Ja­pan are ev­i­denced by the 2011 floods in Thai­land (ranked 32nd and high risk in the Nat­u­ral Haz­ards Rel­a­tive Eco­nomic Ex­po­sure In­dex), which not only wiped 9% off the coun­try’s GDP but dam­aged in­fra­struc­ture, which is still not fully re­paired nearly a year af­ter the event. The floods also af­fected the op­er­a­tions and sup­ply chains of multi­na­tional com­pa­nies, with the au­to­mo­tive in­dus­try and ICT sec­tors be­ing hard­est hit – man­u­fac­tur­ers of hard­drives were only able to meet two-thirds of de­mand in the fi­nal quar­ter of 2011push­ing prices up by up to 55%.

“As the global in­flu­ence of emerg­ing economies in­creases; the im­por­tance of their in­her­ent nat­u­ral haz­ard ex­po­sure will have wider and deeper global im­pli­ca­tions,” con­tin­ues He­len Hodge. “The test for emerg­ing and de­vel­op­ing economies is to build a stronger ca­pac­ity to meet the chal­lenge of haz­ard prone en­vi­ron­ments. Fail­ure to do so will risk their am­bi­tious eco­nomic growth when the in­evitable nat­u­ral haz­ards strike.”

Fur­ther­more, Maple­croft CEO Alyson Warhurst states “this presents an ex­cit­ing op­por­tu­nity for busi­ness to con­trib­ute to re­duc­ing risk and thus to en­hance their own se­cu­rity in the fu­ture eco­nomic growth en­vi­ron­ment. As the mid­dle classes grow in th­ese emerg­ing economies the ap­petite for in­surance will also grow, in­cen­tivis­ing stronger dis­as­ter pre­pared­ness.”

Philip­pine floods and In­dian drought high­light risks

Re­cent events serve to high­light the ex­po­sure of two of Asia’s high­est risk coun­tries. The Philip­pines’ re­silience to nat­u­ral haz­ards is be­ing tested this week, with se­vere floods af­fect­ing the north­ern is­land of Lu­zon, in­clud­ing the cap­i­tal Manila. At the time of writ­ing nearly two mil­lion peo­ple in 16 prov­inces have been af­fected by the floods which have killed at least 19 peo­ple. Ac­cord­ing to Maple­croft, large sec­tions of the Philip­pine econ­omy are ex­posed to ty­phoons, vol­canic ac­tiv­ity, land­slides, floods and storm surges; a fact re­flected by the 274 recorded dis­as­ters over the last 20 years.

In ad­di­tion, huge ar­eas of In­dia (ranked 5th in the Nat­u­ral Haz­ards Rel­a­tive Eco­nomic Ex­po­sure In­dex), are un­der­go­ing sus­tained drought, which is hav­ing a sig­nif­i­cant im­pact on agri­cul­tural out­puts. Mon­tek Singh Ah­luwalia, In­dia’s deputy Chair­man of the Plan­ning Com­mis­sion, re­cently es­ti­mated that the drought will shave 0.5% off the coun­try’s GDP, equiv­a­lent to ap­prox­i­mately US$8.4 bil­lion. i

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.