Earthquake Economic Risks

Even five months after the earthquake, a vast majority of the people are yet to recover from the loss of property in eastern parts of Nepal. As Nepal is celebrating National Earthquake Safety Day on January 16,2012, the time has come to look at the w

Jan. 15, 2012, 5:45 p.m. Published in Magazine Issue: Vol. : 05 No.-13 Jan. 13 -2012 (Poush 29,2068)<BR>

Months have passed since an earthquake of magnitude of 6.8 in Richter scale shaking Eastern Nepal. But people are yet to get the economic relief from the government. The majority of the houses destroyed by the earthquake are yet to be repaired and rebuilt due to lack of money.


According to the Ministry of Housing and Physical Planning, the economic loss from the last earthquake ran over 4 billion rupees. However, the estimate by other groups on the ground is much higher. Along with houses, the earthquake damaged large numbers school buildings, health posts and other infrastructure in the eastern hilly region.


Experts argue that it was a wakeup call for the valley which risked facing devastation of a very big scale. As Nepal is one of most vulnerable countries, it needs to prepare for earthquakes.  Nepal has recorded over five dozens earthquakes measuring 4-5 Richter scale annually and there was a big quake in every 75 years.


At a program, organized by Nepal United States of America Chamber of Commerce and Industry (NUSACCI) in partnership with National Society for Earthquake Technology Nepal (NSET-N) and USAID, bankers, insurers and representatives of other financial sectors sat together to discuss the economic consequence of earthquakes in a seminar understanding potential impact of natural disasters on banking and insurance sectors and the need for preparedness.


“All disasters impact country’s economy – they disrupt economic activity and damage infrastructure.  But the extent of the impact depends not only on the magnitude of the disaster, but also on society’s resilience; its ability to bounce back quickly.  Both Haiti and Japan experienced devastating disasters in terms of human suffering and loss of life, but the long-term overall economic impact of those disasters will be strikingly different in Haiti than they will be in Japan.  And this offers lessons for countries like Nepal,” said US ambassador to Nepal Scott H. DeLisi at the opening.


“As representatives of banks and insurance companies, you control access to capital and insurance – two critical inputs for those building new structures.  Your standards and your decisions, as you issue loans or write insurance policies, can influence behavior and ultimately change the way buildings are constructed.  Your impact is potentially every bit as powerful as government regulations if not more so. After all, money talks,” said ambassador DeLisi.


Along with loss of life, an earthquake may ruin Nepal’s economy given Kathmandu Valley’s rampant constructions of buildings and apartments and the investments by banks and financial sectors in the business.


“Over ninety-percent of housing and apartments in Kathmandu Valley are constructed without getting permission from the department,” said Shiva Hari Sharma, Deputy Director General Department of Urban Development and Building Construction.


Sharma’s statement indicated risk involved in high rise buildings due to earthquake. According to an estimate of National Society for Earthquake Technology (NSET), a pioneer organization working in the areas of earthquake safety, over sixty percent buildings will collapse in Kathmandu valley and over 200,000 people will die in case of an earthquake like that of 1934.


“It is unfortunate that a couple of companies have completed the process of EIA and remaining buildings constructed without EIA approval,” said Uddhav Banskota, joint secretary of Ministry of Environment. “Many buildings ignore safety issue.”


Non-compliance of building codes, EIA and CIEA by the private developers make valley’s population unsafe. Thus, bank’s investment in the housing sector is also at high risk.


“Imagine what Kathmandu might look like if banks and insurance companies insisted on the checks and balances necessary to ensure compliance with the building code.  You would be protecting not only your investment, but the people of Nepal and the end product would be buildings that are sturdier and more likely to survive an earthquake than many of the structures going up around town as we speak here today,” said ambassador DeLisi. “Just imagine further that the private sector helped to implement those sound land-use plans by ensuring that loans and insurance would only be provided for sound investments that supported those plans. If that were a reality, Kathmandu might not be the sprawling, unplanned, and highly vulnerable city it is today.”


Experts say very low building standards, weak infrastructure and the Kathmandu’s geology which is built on the soft sediment of a former lake bed all contribute to the high risk level.


NUSACCI secretary general Anil Shah expressed the hope that this program will help financial sector to understand risk of earthquake.


History of Nepal’s Earthquake

Although Nepal was flat by 1934 earthquake, the country failed to learn from the past. Late Sardar Bhim Bahadur Pande in his book Tes Bakhat ko Nepal Vol III writes how Kathmandu Valley missed a great opportunity to transform as a modern open and spacious city due to visionless rulers of that time. “Had the rulers made efforts to reconstruct the city sketching a model, the city would have been open and spacious,” writes Pande. “It was a great misfortune when Nepal’s rulers declined to accept the international support offered by various countries of the world.”


Behavior of Nepalese has not changed much even today. Remaining open space and land of Kathmandu Valley are filled by unplanned haphazard constructions. Out of 10 multi-storied buildings, several are constructed at banks of the three major rivers. According to experts, the liquefaction process will be much higher in the river banks than other places.


“Keeping the vulnerability and risk of earthquake in the mind, we organized the workshop to learn risk and vulnerability of earthquake in banking, insurance and financial sector,” said Narendra Kumar Basnyat, president of NUSACCI. “This is just a beginning and we will discuss the matter more in the future.”


Quake on the line

According to geologists, it is only a matter of time before a major earthquake hits Nepal's densely populated Kathmandu Valley, where over 4 million people live in cramped, poorly-built housing with little or no awareness of the dangers.


Experts hold the view that as Nepal lies on the border between two huge plates that have moved together over millions of years to form the Himalayas, Nepal is at risk from an earthquake with a magnitude of around eight -- 10 times as powerful as the Haiti shock that killed more than 212,000 people.


Experts say that the area to the west of Kathmandu is undergoing the processes that drive earthquakes, and there has not been a quake on that section of the fault for hundreds of years. The larger the time gap (between quakes) the larger the quake is going to be. Many other major cities in the region are vulnerable to large earthquakes.


 

From the available data there has been no great earthquakes of magnitude 8.0 in the gap between the earthquakes of 1905 A. D and 1934 A. D. and there is a real threat that a major earthquake may occur in this gap that will affect Western Nepal.


Is Nepal’s banking sector alert on the risk posed by earthquakes? How Nepal’s central bank is preparing to provide the banking sector with all the liquidity they may require at the time of crisis? “We will integrate the economic risk of major earthquake in our national strategy,” said Finance minister Barsha Man Pun.


“While many earthquake hazard-reduction issues have been addressed by the national program during the past 14 years, one issue that warrants more attention is the economic consequences of a catastrophic earthquake. Efforts to manage earthquake hazards must include an assessment of the public and private sectors' ability to reduce and recover from earthquake-induced losses. Stricken communities and states should have the ability to maintain sufficient financial stability, thus allowing them to rebuild their economic bases following a catastrophic event,” says expert.


Measures to protect buildings against the effects of earthquakes must be taken. The economic consequences of seismic events are becoming greater every year. As Administrator of the United Nations Development Program Helen Clark in her recent visit said, Nepal needs to build strong enforcement for building codes and increase the sense of awareness and preparedness to avoid catastrophe.

 

From the available data there has been no great earthquakes of magnitude 8.0 in the gap between the earthquakes of 1905 A. D and 1934 A. D. and there is a real threat that a major earthquake may occur in this gap that will affect Western Nepal.


Is Nepal’s banking sector alert on the risk posed by earthquakes? How Nepal’s central bank is preparing to provide the banking sector with all the liquidity they may require at the time of crisis? “We will integrate the economic risk of major earthquake in our national strategy,” said Finance minister Barsha Man Pun.


“While many earthquake hazard-reduction issues have been addressed by the national program during the past 14 years, one issue that warrants more attention is the economic consequences of a catastrophic earthquake. Efforts to manage earthquake hazards must include an assessment of the public and private sectors' ability to reduce and recover from earthquake-induced losses. Stricken communities and states should have the ability to maintain sufficient financial stability, thus allowing them to rebuild their economic bases following a catastrophic event,” says expert.


Measures to protect buildings against the effects of earthquakes must be taken. The economic consequences of seismic events are becoming greater every year. As Administrator of the United Nations Development Program Helen Clark in her recent visit said, Nepal needs to build strong enforcement for building codes and increase the sense of awareness and preparedness to avoid catastrophe.

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