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The economic cost of nature

As the United States braces it self for Hurricane Sandy, Kipp takes a look some of the economic consequences of major natural events, from earthquakes and tsunamis to fire and ice.

October 30, 2012 12:34 by

  • In March, April, and May 2010, seismic activity that had been detected around Iceland’s Eyjafjallajokull volcano in the previous months came to a head. A volcanic eruption began, and an ash cloud was thrown several kilometers into the sky, which was to cause air traffic chaos across Europe for days.

    So the main impacts were felt by the airline industry. Thousands of flights were cancelled, and shares in publicly traded carriers fell. Meanwhile, alternative transports (such as rail) did well, while other businesses cancelled European travel and settled for teleconferencing.

    Kipp’s impact rating: 4/10

  • The infamous Hurricane Katrina hit Louisiana, Texas and Mississippi in 2005. Just a few months later the US government had sought $105 billion for repairs and reconstruction, making it the costliest natural disaster in US history.

    The region had a huge export industry, including oil and grain. A study by Mark Burton and Michael J. Hicks estimated the total economic impact to Louisiana and Mississippi may exceed $150 billion, according to Wikipedia. Hundreds of thousands lost their jobs, and so no one was paid, and no one spent. In turn the government collected no taxes. The economic after effects are set to last for years.

    Kipp’s impact rating: 8/10

  • Business Credit Management UK says the cost of the current snow storms in the UK is probably around $1.55 billion a day.The organization says that while there are costs to the bad weather, there are offsets as people spend more on heating and warm clothes. As with the volcano, major victims look likely to be air carriers. But pubs, bars, restaurants and shops are also bearing the brunt, with sales likely to be well down. The impact will be more keenly felt in Germany, for instance, where the construction sector is especially climate sensitive. “As a result there is likely to be an economic impact on the German economy about twice as large as a percentage of GDP as for the UK.”

    Kipp’s impact rating: 4/10

  • In late 2004 there was an earthquake in the Indian Ocean. The result was a devastating tsunami that engulfed Indonesia, Sri Lanka, India and Thailand. It was the third largest earthquake ever recorded.

    The worldwide community donated as much as $14 billion to the recovery effort. Indonesia said its Aceh area would need as much as $4 billion to recover, and the International Labour Organisation said that around 1 billion jobs were lost in the country and in Sri Lanka.

    In Sri Lanka, the Asian Development Bank put reconstruction costs at $1.5 billion. One fifth of hotels in the South Coast region were put out of action, having a major impact on the vital tourist industry.

    India was hit on the South East coast. The cost of the damage was estimated to work out at $6.5 billion by Citigroup, but the Indian government decided to meet the costs itself rather than rely on aid.

    Other affected areas: Thailand, Maldives, Malaysia, Burma, Bangladesh, Somalia, Kenya, Tanzania, Seychelles.

    Kipp’s impact rating: 9/10

  • The 2010 monsoon rains brought chaos to parts of Pakistan, as the Indus River basin was over whelmed and one fifth of Pakistan’s total land area ended up underwater. Two thousand were killed, and 20 million more affected. The International Labour Organisation reports that 5.3 million jobs were lost due to the floods, with the flooding aggravating already existing poverty. GDP growth is expected to plummet from 4 percent, maybe even turning negative, as agriculture (the country’s biggest employer) and manufacturing is hit.

    Kipp’s impact rating: 9/10

  • In late July, hundreds of wild fires started across Russia (particularly in the west) thanks to record high temperatures and drought. The fires reportedly caused $15 billion in damages, as the Russian President Vladim… sorry, Dmitry Medvedev declared a state of emergency. It’s so large, that a United Nations team called it a worldwide ecological disaster, and that $15 billion figure is almost 1 percent of the entire Russian GDP. Thousands of houses were destroyed, along with personal property and more.

    Kipp’s impact rating: 8/10

  • When a huge earthquake struck Haiti, it affected around 3 million people. Approximately 230,000 were killed and 1 million were made homeless. A quarter of a million residences were destroyed or damaged, along with 30,000 commercial buildings.

    Estimates put the property losses at between $6 billion and $9 billion, and the business interruption losses at $2 billion to $3 billion for the first year alone. These figures combined amount to more than the entire annual GDP.

    Kipp’s impact rating: 10/10


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