By Nirode Masson
Courtesy IDN-InDepth NewsReport
LONDON (IDN) - A new report has asked the world's emerging economies to prepare themselves better for natural hazards and advised industrial country businesses to pay heed to such risks in the quest for supply chains.
The significance of the study by risk analysis and mapping firm Maplecroft is underlined by the fact that natural hazards have cost much more to the world economy in 2011 than in any previous year on record. The tsunami in Japan, tornadoes in the U.S., the Christchurch earthquake and flooding in Australia together add up to a massive $265 billion for the first six months of the year. A major natural disaster in China or India will not only cause havoc to the two emerging economies but also impact the global economy and severely affect deliveries to industrial country businesses, cautions the survey released on August 11.
The Natural Hazards Risk Atlas 2011 (NRHA), rates 196 countries and territories and finds that though the U.S. and Japan are having "the highest economic exposure to natural hazards, it is the emerging economies of China, India, Philippines and Indonesia, which pose the most risk to investors due to a lack of capacity to combat the impacts of a major disaster".
These countries "are not only at 'high' and 'extreme risk' from economic exposure to natural hazards, such as earthquakes, tsunamis, tropical cyclones, floods and drought, they also lack the resilience to mitigate the disruption a major event would have on their societies and economies," finds the survey.
The risk analysts argue that due to the rising economic power of the major emerging economies of China, India, Philippines and Indonesia, a major natural disaster in these countries "may also have global economic impacts and severely affect the supply chains of business". It adds: "Therefore, investors, currently diversifying portfolios into Asian countries, are advised "to factor in natural hazards risks in to their investment strategies."
The British firm's principal natural hazards analyst Helen Hodge says. "Companies which are dependent upon a global network of suppliers are inevitably likely to be exposed to disruption and financial losses following the occurrence of a natural disaster."
She adds: "Organisations need to monitor risks and build their own organisational resilience. Just as the strength of a country's resilience will determine their economic recovery, the strength of business resilience will be reflected in their management of business continuity and recovery."
The risk analysts find that USA, Japan, China and Taiwan were the only nations to be categorised as 'extreme risk' for absolute economic exposure to natural hazards. The large emerging economies of Mexico, India, Philippines, Turkey and Indonesia are classified as 'high risk' and rank among the top 10. Italy and Canada are the two other countries to be rated as 'high risk'.
"Economic exposure though, is only half the story. Countries such as the U.S. and Japan are rated as 'low risk' in Maplecroft's Natural Hazards - Socio-economic Resilience Index, whereas China, India, the Philippines and Indonesia feature in the 'high risk' category," the risk analyst company informs.
RESILIENCE
A salient feature of the analysis is that whereas "the large developed economies of the U.S. and Japan have the greatest economic output exposed to major natural hazards, they also have the socio-economic resilience to withstand their impacts."
"This includes: economic strength, strong governance, well established infrastructures, disaster preparedness and tight building regulations designed to minimise the effects of natural hazards on the populace," adds the analysis.
Maplecroft's CEO Professor Alyson Warhurst explains: "The emerging economies, although buoyant with growth, lack the socio-economic conditions to limit their disaster risk. This lack of resilience could threaten their economic growth and the extent to which businesses with operations there hope to flourish."
She adds: "Much of the growth of emerging economies is now based on increasing domestic consumption. As their relative purchasing power grows, so too will the absolute economic value exposed to natural hazards."
The analysis quotes a UN report stating that Japan, for instance, has nearly 40% more people exposed to tropical cyclones than the Philippines. It adds: "Yet if both countries experienced similar sized cyclones, fatalities in the Philippines would be 17 times higher than in Japan. However, this is not to say that Japan is immune to the effects of severe natural disasters."
In fact, the damage from the March 11, 2011 earthquake and tsunami, resulting in a nuclear disaster, "has caused sustained disruption to infrastructure and energy distribution, with knock on implications for companies and the general populace."
The earthquake was the fourth largest ever recorded and would have caused much wider destruction in many other societies, states the analysis, adding: "Japan's socio-economic resilience and disaster preparedness enabled the country to limit much of the damage caused by the earthquake. However, the country was unprepared for a tsunami of this magnitude, which caused the majority of the damage. The effects of such a disaster on the 'high risk,' emerging economies is potentially devastating."
"The NRHA is designed to help companies and investors to assess and compare the risks and resilience to the occurrence of natural hazards around the world," says the British company. The atlas includes indices and interactive subnational maps of 12 natural hazard risks and measures countries' overall economic exposure and socio-economic resilience to natural hazards. (IDN-InDepthNews/11.08.2011)
