Global Report on Human Settlements 2007 - PoA-ISS

Disaster risk: Conditions, trends and impacts
179
Impact
Hazard type
Flood Wind Wave/tsunami Earthquake Volcano Fire Drought Human
made
Direct: loss of housing ✗ ✗ ✗ ✗ ✗ ✗
Direct: damage to infrastructure ✗ ✗ ✗ ✗ ✗ ✗
Systemic: short-term migration ✗ ✗ ✗
Systemic: loss of business production ✗ ✗ ✗ ✗ ✗ ✗ ✗
Systemic: loss of industrial production ✗ ✗ ✗ ✗ ✗ ✗ ✗
Systemic: disruption of transport ✗ ✗ ✗ ✗
Systemic: disruption of communication ✗ ✗ ✗ ✗ ✗
Table 7.7
Economic impacts of
disasters by hazard
type
Source: adapted from
UNDRCO, 1991
losses worth US$5 billion. 30 Economic losses are regionally
differentiated, with the Americas and Asia incurring highest
losses from natural disasters 31 and Europe experiencing
greatest loss from human-made disasters.
Various hazards have differentiated effects on urban
economic systems (see Table 7.7). The scale of economic
impact varies according to the spread, intensity and form of
the energy released by each hazard type. For example,
natural disasters that tend to produce spatially concentrated
impacts, such as flows of hot ash and rock fragments from
volcanoes, will not usually overwhelm urban transport
systems, compared to the more widespread impacts of earthquakes,
hurricanes or catastrophic flooding. Drought is more
likely to undermine economic activity indirectly rather than
lead to property damage and therefore may cause a loss of
industrial productivity, but with little impact on productive
infrastructure. Human-made disasters tend to have systemic
impacts on cities through damage to, or isolation of, critical
infrastructure such as transport and communication
systems, but are less destructive of housing.
Powerful players can move indirect economic losses
around the urban economy. This was the case in Kobe
(Japan) following the 1995 earthquake. Here, major
producers, such as Toyota Motor Corporation and Kawasaki
Heavy Industries Ltd, used a ‘just-in-time’ stocking approach.
Following the earthquake, damage to subcontractors threatened
to hold back production. The major producers were
able to protect themselves by shifting to new subcontractors
within a few days. This strategy passed risk on from the
major producers to the subcontractors who had to cope with
a double burden of disaster impacts and lost contracts. Many
faced bankruptcy as a result. 32
Larger developed urban/national economies with
sizeable foreign currency reserves, high proportions of
insured assets, comprehensive social services and diversified
production are more likely to absorb and spread the
economic burden of disaster impacts. An example of large
economic losses in an urban region that were contained
comes from the 1999 Marmara earthquake in Turkey. Direct
losses were estimated at US$2 billion for industrial facilities,
US$5 billion for buildings and US$1.4 billion for infrastructure,
including a similar figure for losses generated through
lost production during the many months required for factories
and industrial facilities to return to their pre-disaster
production levels. 33 However, only seven months after the
disaster, a downturn in the rate of inflation and declining
interest rates for government borrowing indicated that the
Turkish economy had made a fast recovery. 34
There is also growing potential for cities connected to
regional or global financial systems (e.g. Mexico City, Rio de
Janeiro, Johannesburg, Bangkok, Manila, Seoul and
Singapore) to spread the negative consequences of disaster
across the global economy, with huge systemic loss effects.
Evidence for what has become known as the ‘contagion
effect’ can be seen from the losses incurred following the
Kobe earthquake in 1995. While world stock markets were
unaffected, the Japanese stock market lost over 10 per cent
of its value in the medium term. The duration of negative
effects on stock markets depends upon wider consumer
confidence. Munich Re considers human-made disasters to
be worse than natural disasters for the international market.
More catastrophic might be a disaster (or series of disasters)
that damages the global trading infrastructure. It is for this
reason that financial institutions and businesses invest
heavily in back-up systems. 35
For urban residents, systemic economic effects may
not be felt for some time as businesses restructure, although
in the short term, unemployment or livelihood disruption is
to be expected and may be prolonged. Shelter and labour
power are the two most important assets for low-income
urban households. When either is damaged or destroyed in
disaster, households are forced to expend savings or borrow
to survive and re-establish livelihoods. Relief aid itself can
distort local livelihoods and markets as goods and services
that can be provided locally are undercut and replaced by
externally sourced aid. The result is that local livelihoods and
the local economy can be eroded. For households with
strong familial or social ties, access to remittances or borrowing
money without interest payments is a possibility.
Increasingly, access to remittances from overseas is a key
indicator of resilience to economic shocks caused by natural
and human-made disasters in urban Latin America.
■ Urban land markets
Disaster impacts, risk of disaster impacts and actions taken
to protect areas from disaster risk all have an impact on
urban land values. As in any urban regeneration or upgrading
scheme, urban planning and engineering projects aiming to
mitigate disaster exposure can lead to changes in the social
geography of communities or city regions.
Investing in mitigation to protect those at risk can
result in increases in the value of land and housing, which, in
turn, can lead to lower-income households selling to higherincome
households. This cycle is a major challenge to the
poverty reduction potential of investments in structural
mitigation. Informal, illegal and formal/legal land and
Larger developed
urban/national
economies … are
more likely to
absorb and spread
the economic
burden of disaster
impacts
Disaster impacts,
risk of disaster
impacts and actions
taken to protect
areas from disaster
risk … have an
impact on urban
land values