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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.”
Asia Natural Hazards Risk - Economic Exposure 2012
© Maplecroft, 2012
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 socio-economic 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.
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 Viet Nam 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 hard-drives 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 has been tested over recent days, with severe floods affecting the northern island of Luzon, including the capital Manila. At the time of writing nearly 2.7 million people have been affected by the floods which have killed at least 66 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.
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