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Natural Disasters: Counting the Cost

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March 2, 2004—Natural disasters are happening more often and having an ever more dramatic impact on the world in terms of both their human and economic cost. While the number of lives lost declined in the past 20 years—800,000 people died from natural disasters in the 1990s compared with 2 million in the 1970s—the number of people affected has risen. In the past decade, the number of people affected by natural disasters tripled to 2 billion.

The International Red Cross, which publishes an annual World Disasters Report, says the economic cost of natural disasters has skyrocketed. In the past two decades alone, direct economic losses from natural disasters multiplied five fold to US$629 billion. Annual direct losses from weather-related events increased from an estimated $3.9 billion in the 1950s to $63 billion in the 1990s. Other recent statistics show:

  • In the 1990s, an average of 80,000 people died each year in natural disasters.
  • In 2003, there were about 700 natural disasters which killed about 75,000 people and caused about US$65 billion damage (source: Munich Re, 2004). Of this insured losses accounted for only US$15.8 billion.
  • Between 1980 and 2003, the World Bank financed 147 post-catastrophe reconstruction projects worth about $12.5 billion.

The Red Cross warns that the frequency and cost of natural disasters is likely to further increase because of:

  • Environmental degradation
  • Climate change
  • Population growth, especially in cities
  • Globalization

The Poor Bear the Brunt When Disaster Strikes

Losses from natural disasters are most devastating to the poorest people, says Margaret Arnold, acting manager of the World Bank’s Hazard Management Unit. This is particularly true in developing countries. Extensive research shows the poor are more likely to occupy dangerous, less desirable locations, such as flood plains, river banks, steep slopes and reclaimed land.

Compare Natural Disasters Impact

Industrialized Countries

Developing Countries

Tend to suffer higher economic losses in strict dollars terms

Have mechanisms in place to avoid loss of life, such as early warning systems

Have immediate emergency and medical care

Insurance of property losses

Cause setbacks to economic and social development

Lack resources for early warning systems

Inflict massive casualties

Divert funds from development programs to emergency relief and recovery

Natural Disasters and Poverty

Disasters are closely linked to poverty as they can wipe out decades of development in a matter of hours. Because natural disasters hit poor people the hardest, implementing effective disaster recovery programs, if they are well targeted, may be an effective means of reducing poverty, according to a forthcoming report by the ProVention Consortium – an international network of public, private, non-governmental, and academic organizations dedicated to reducing the impact of disasters in developing countries. Other senior disaster recovery officials share that view:

Disasters are first and foremost a major threat to development and specifically to the development of the poorest and most marginalized people in the world. … and ensure they stay poor.”

Didier J Cherpitel, former Secretary General of the International Federation of Red Cross and Red Crescent Societies said in the organization’s 2002 Disaster Report.

Natural Disaster GDP














Figures compiled by the World Bank’s Margaret Arnold show that from 1990-2000, natural disasters resulted in damages constituting between 2 to 15 percent of an exposed country’s annual GDP.

GDP losses for individual events can be even more devastating: In Honduras, Hurricane Mitch caused losses equal to 41% of GDP. In terms of the government’s annual tax revenue, the losses amounted to 292%.

Preparation is the Key to Mitigation

Disaster prevention needs to be considered as an integral component of development rather than as a humanitarian issue, says the Bank’s Margaret Arnold. She advocates incorporating disaster prevention needs into the countries’ development plans, including Poverty Reduction Strategies and the Bank’s own Country Assistance Strategies.

Reinhard Mechler, a research scholar at the International Institute for Applied Systems (IIASA) in Austria, agrees. In a recent World Bank publication, Building Safer Cities, The Future of Disaster Risk (2003), Mechler says risk management is crucial to reducing the effects of natural disasters.

International insurance company Munich Re’s annual review of natural catastrophes in 2003 said the earthquake that devastated Bam in Iran on December 26, 2003, killed more than 40,000 people in large part because the mud brick houses were not designed to handle a major tremor.

“The main reason for the large number of fatalities was the generally poor construction quality. Traditional buildings of mud brick and heavy roofing are particularly unsafe when earthquakes strike.”

The report concludes the catastrophe demonstrated once again the connection between a low standard of development and high numbers of fatalities.

Munich Re also warns that a lack of suitable construction in many earthquake-prone cities in developing countries could have devastating consequences:

“Experts fear that if a strong quake were to be triggered beneath Teheran, which has a population of 12 million and has already been destroyed on several occasions in the course of its history, as many as one million people could die.”

How to Cut Losses

Natural disaster risk has not been traditionally included in the evaluation of investment projects, Mechler says.

The consequences of this failure are:

  • projected benefits and investment will be lost when a disaster occurs, and
  • investment funds, which often have to be borrowed internationally in developing countries, could be lost leaving a debt which must still be serviced despite the fact that the assets built no longer remain.

Considering natural disaster risk in project appraisal, therefore, allows for more careful selection and design of projects, as well as the development of risk management measures to protect the benefits of primary projects, says Mechler.

This is called for given the increased urbanization and high population growth in developing countries. These trends increase the potential for loss because they concentrate crucial assets in one place. He says policy makers should also acknowledge the potential for increased severity and frequency of natural disasters due to climate change.

Dividends from Risk Mitigation

Several assessments demonstrate that risk management measures can deliver significant benefits.

  • It is estimated that the $3.15 billion spent on flood control in China over the past four decades of the 20th century averted losses of about $12 billion.
  • A study on Jamaica and Dominica calculated that the potential avoided losses compared with the costs of mitigation when building infrastructure like ports and schools would have been between two to four times.

Related Links
Eluding Nature's Wrath
Reconstruction Process Underway in Bam, Iran
Risk Management: a Proactive Approach
Earthquakes in Turkey
Lessons From the Brink
Youth Design Risk Management Projects
Natural Disasters: Resource Links

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