Wednesday, November 20, 2013

In the Aftermath of Super Typhoon Haiyan

By Chriss Street

 Super Typhoon Haiyan is estimated to have been strongest storm ever to ever make landfall.  The Philippines as a nation of 7000 islands experiences on average of nine cyclones coming ashore each year.  

But even with the their knowledge and relative preparedness for serious tropical storms, no nation could withstand the fury of a storm that reach 230 mile per hour winds.  There are approximately 2500 Philippine dead, 20,000 injured and 90% of the structures wiped out across a 500 square miles area.  Natural disasters have huge economic impacts, but their aftermath has long term social, economic and political ramifications.

The Philippines annually spends an estimated ½% of its total GDP on earthquakes, volcanos, storms and other natural disasters.  Over the last 30 years, the ongoing annual loss to the $250 billion economy is estimated at 2% of GDP annually.  Despite the fact that the storm came ashore in the impoverished Eastern Visayas, which contribute only about 2-3% of Philippine GDP each year, almost all the economic output of the region is gone.  Reports indicate that coconut production, a major Philippine export, will take years to recover and there is heightened risk that recent boom in manufacturing and mining may wither if the government cannot handle reconstruction.

Each year droughts in Africa, flooding in Pakistan and Australia, and tropical cyclones in Southeast Asia and the Gulf of Mexico, earthquakes in Turkey, Haiti and Japan undermine prosperity and challenge political stability around the globe.  According to Stratfor Global Intelligence, The Center for Research on the Epidemiology of Disasters estimates that anywhere from 3-12% of the world population each year are affected by natural disasters and the global costs can range from $50 billion to $350 billion.

Disasters obviously have a disproportionate impact on richer and poorer states.  The direct cost of Japan’s triple disaster in 2011 of earthquake, tsunami and nuclear meltdown is estimated at $240 billion, but that is only 4% of Japan’s $6 trillion economy.  Whereas the cost of the 2010 earthquake in Haiti was only $10 billion, but that amounted to over 120% of the island’s total GDP.

Due to higher quality infrastructure, forecasting and early warning systems, response capabilities and insurance coverage, rebuilding businesses and reviving agriculture activity usually happens quickly in Japan, Europe, United States other developed countries.  But the trauma in undeveloped from a natural disaster can take decades to rebuild and often drives away any hope of attracting foreign investment and jobs.

But even in the rich countries natural disasters can threaten the socio-political stability and have long term economic growth implications.  Japan’s nuclear energy sector has not recovered from the Fukushima crisis, and its energy profile may be permanently changed due to domestic opposition to restarting Japan’s 44 other nuclear reactors.  Prior to the earthquake and tsunami of March 2011, nuclear reactors generated 30% of Joan’s electrical power from nuclear reactors and was planned to rise to over 50% in the next twenty years.  As a nation that imports almost all its oil or natural gas, nuclear energy was a national strategic priority to maintain competitiveness for its industry.  This was despite concerns about the ability of Japan’s nuclear plants to withstand seismic activity after the Kashiwazaki-Kariwa Nuclear Power Plant was completely shut down for 21 months following an earthquake in 2007.

Since the Tsunami, Japan has increased consumption taxes, run its national debt up to 150% of GDP, forced down the exchange rate of its currency and begun an offensive military buildup.  All of this threatens a big jump in inflation, but the Japanese national government is under severe pressure to demonstrate its responsiveness to the economic crisis caused by the loss of cheap nuclear energy in the short run and its ability to mitigate future natural disasters in the long run.
The Philippines has been promised assistance from the United States, the United Kingdom, Canada, Australia, Japan and many others to address the immediate humanitarian and economic disaster.  But providing aid also allows pursuit of political objectives.  The U.S. assistance that is pouring into the Philippines may help generate public good will at a time when the two allies are negotiating expanding U.S. military port visitation rights to the former U.S. naval base at Subic Bay.  Japan’s contribution to the relief effort is symbolic from a nation that invaded the Philippines during World War II, but now wants as an ally to contain China’s effort to dominate the South China Sea.

Over time, the direct damage from natural disasters will fade, but there often are substantial long term social, economic and political ramifications.  The Philippine economy grew at an impressive 6.6% last year and was expected to continue to grow at similar rates this year and next year.  But before super typhoon Haiyan’s came ashore, the nation 107 million people already suffered from an unemployment rate of 20% and a poverty rate of 28%.  Given the scale of storm’s devastation, a collapse in Philippine economic growth in the aftermath of super typhoon Haiyan may be a formula for political chaos and popular rebellion.

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