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Confronting the ugly face of disasters

(Article published in the May 16,2012 issue of Manila Standard Today)  

While most of the Philippine business community were, during the first Thursday of this month (May 3) at seminars and conferences of the 45th Annual Meeting of the Board of Governors of the Asian Development Bank at the Philippine International Convention Center, in the City of Manila, a few others were on the other side of town, at the Rockwell Campus of the Ateneo de Manila University in the City of Makati at the Roundtable on Business Continuity Planning conducted under the auspices of the school and Manila Observatory.

The space that separated the two venues as well as the time that had to be spent if one had tried to negotiate the distance in order to attend both events belied the close affinity between the subjects taken up in the two gatherings.  Both groups were concerned about wealth: those in Manila discussed how make more of it and how to share it, up and down as well as all around, with society’s many levels; those in Makati were talking about how to quickly resume the process of making it and return their enterprises to normalcy in the event of a disruptive natural or man-made calamity.  Enough (too much, in the estimation of some) has been said about the Manila event; not enough coverage, I submit, was given to the Makati conference.  Hence, this piece.










     

The main speaker at the Roundtable on Business Continuity Planning was Ms. Margareta Wahlström, Special Representative of the Secretary-General for Disaster Risk Reduction since November 2008.  She has over 30 years of extensive national and international experience in humanitarian relief operations in disaster and conflict areas, and in institution-building to strengthen national capacity for disaster preparedness, response and for risk reduction and therefore knew whereof she spoke.

Her case for business continuity planning, or why businesses, as a matter of necessity and survival, ought to incorporate into their planning processes how they would be putting themselves back up on their feet again after the disruption caused by a major catastrophe, is simple: disasters have become global not only in terms of geography but also in terms of demography. Not only have disasters been occurring in various and in many parts of the globe with alarming frequency, but also their victims, or those whom they have severely affected, are not longer confined to those living and working in the vicinity where the disasters have occurred.  Even those situated elsewhere have been known to have dramatically felt the impact of calamities that have occurred away from them.

Therefore, the business continuity planning, Wahlström’s thesis states, that ought to be integrated into everyone’s business processes needs to be focused on the vulnerabilities of the business itself as well as inclusive of the consequences of the disaster on those with whom the business deals in one way  or another.  Indeed, at no other prior time has it even been accepted with more unanimity than now that no man is an island; and at no time has it become more evident that no island, both literally and figuratively, stands alone.

The damage wrought by recent disasters is staggering.  The floods that have hit Bangkok last year are said to have an estimated cost of $40 billion. Factories that have stopped operating exceeded 1,000 causing 700,000 workers to lose their jobs. More than 800 people died in the floods.

2011 recorded the cost of catastrophes, both natural and man-induced, such as the floods in Australia and Thailand and the earthquake in Japan, at its highest at $370 million.  Insured losses amounted to $116 billion, second only to its peak in 2005.

The cost of the disruption in the supply chain caused by disasters is just as staggering.  The slowdown of 1 percentage point in economic growth of Japan in 2011 due to the 2011 earthquake and tsunamis impacted on the Asia-Pacific region, showing the latter’s grown by .01 percentage point. 

The Japanese earthquake decreased the automobile production in the Philippines, Thailand and Indonesia by 10% to 25% and the electrical component manufacturing in Malaysia and the Philippines went down to 10% to 20%.  The global price of rice went up by 30% due to the Thailand floods and global industrial production was set bank by 2.5% by the same floods. 

Unlike the gentle rain that falls on the rich and the poor alike; disasters hurt the poor more extensively and intensively than the rich.  Historically, small and medium businesses were affected more adversely than the large corporations.  Those in retail and service sectors suffered more than those in manufacturing and financial firms. 

Planning to prevent or minimize the impact of disasters makes economic sense.  It is established that for every $1 invested in resilience or prevention of damage, $4 to $7 are served.  Earnings of companies that have adopted the best practices of disaster risk reduction were 40% less volatile than those who didn’t.  Average property loss is 20 times larger for companies with weak risk management practices.  On the other hand, those who follow best risk management practices incur losses that are 7 times less costly than those borne by those who didn’t.  Insurance coverage, though comforting, is not fully satisfactory.  Only lost or damage plant and facilities were covered; loss of market and customers are not.  In many instances, closure becomes the only option for many, triggering a series of downstream consequences in terms of employment, taxation, economic health and social welfare of localities and regions.

          The message, is obvious: although disasters are not wholly preventable, universal is the need to plan and to prepare to meet them when, not “if”, they come.

     

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