by Anthony Harrington
On 8 November, the Philippines was hit by super typhoon Haiyan with winds gusting to a fraction under 200 miles per hour (320 kilometers). According to Maplecroft, the UK-based risk research house, the country is the fourth most prone on the planet to damage and loss of life from natural catastrophes, ranking just behind the U.S., Japan and China. Typhoon Haiyan is now officially the most powerful storm on record to strike the Philippines. Bloomberg cites figures from the Asian Development Bank which put losses to the Philippines' economy from storm and earthquake damage at an average of US$1.6 billion annually - an astronomical figure for any economy to have to absorb.
In the teeth of this, President Benigno Aquino's government has been able to increase spending year on year on roads and infrastructure, as well as on airports and flood prevention. However, with a four meter storm surge striking the city of Tacloban (capital of the province of Leyte and the largest city in Eastern Visayas) there was little that flood defenses could do to stop the city being virtually wiped off the map. Early reports at the time of writing put the probable death toll at over 10,000 in Tacloban alone, with almost every structure destroyed, including the airport. The city's population prior to the hurricane stood at over 220,000.
In the past, the country's economy has proved resilient in the face of natural disasters, and will prove so again. However, initial reports suggest that some 9.5 million people have been rendered homeless by Typhoon Hiayan, which amounts to around 9% of the population. The economic loss is expected to be around $14 billion. President Aquino had planned to double state spending on public works to around $19 billion by 2016 (some 5% of GDP); however, the Philippines is constrained - like India, Singapore, Indonesia and several other emerging markets - by fear that the existing fiscal deficit could prove to be crippling if the U.S. moves to initiate tapering of quantitative easing - a course of action that is certain to drive up U.S. interest rates. This would hit those emerging market economies which have already built up large public and private sector dollar loans by making those loans much more expensive, and is expected to be a severe shock to these economies, initiating another emerging market crisis.
Already, Aquino had implemented a record infrastructure budget for 2013, allocating some 295 billion pesos to infrastructure projects such as flood control and drainage. Another 64 billion pesos are being earmarked for equipment to forecast or monitor storms, volcanic eruptions and earthquakes, along with a further 7.5 billion pesos being put towards a calamity fund, according to Bloomberg.
Maplecroft points out that, thanks to the money already spent by the Philippines government on early warning systems, more than 125,000 people across 22 provinces were evacuated, with relief supplies worth US$4.5 million being positioned ahead of time in the Samar and Leyte Islands. Nevertheless, the impact has been nothing short of catastrophic, because no one foresaw a four meter storm surge accompanying the typhoon:
"Companies with interests in the region [...] continue to face severe challenges. Identifying where they are most exposed and building resilience capabilities will be vital, especially with climate change forecast to increase the frequency and severity of extreme weather events."
Longer term, if severe weather events multiply, we could find that the bottom line won't be about building resilience, but about recognizing the impossibility of continuing any kind of vibrant economy in some highly vulnerable areas across the planet. That raises a whole new set of problems about population migration that no one is ready to address just yet, despite the fact that human history has many such examples of mass migration. A four meter storm surge can do a fantastic amount of damage across a frighteningly large area of low-lying land. As of yet, we have very little by way of a realistic defense to that kind of phenomenon - apart from the moves the Philippines government is already making, namely implementing early warning systems and spending on rapid evacuation capabilities. Nothing in this, however, is good news for the economy and the impact on inward cash flows is likely to be dire. There is such a thing as one storm too many...