Use of Economic Analysis in Strengthening NMHSs Vladimir Tsirkunov The World Bank Tashkent, December 3, 2008 WMO Regional Seminar on Strategic Capacity Development of NMHS in Redgional Association II (Asia)
Outline Lack of economic analysis of NMHS services is one of the obstacles to secure adequate government support Techniques of economic valuation How to undertake a simple economic assessment when data is poor What to do with the results 2
Status of NHMSs in ECA countries have considerably deteriorated over the last 20 years Importance of NMHS should grow due to increasing society exposure to hazards and growing climate risks but ability to deliver needed services is deteriorating Reasons for degradation considerable underfunding of NHMS in the process of social and economic reforms, and military conflicts. Massive underfunding of NHMS has led to: Deterioration of observation networks and reduction in observation programs Depreciation of equipment and outdated technology Lack of modern monitoring equipment and forecasting methods Insufficient scientific and research support Lack of trained specialists Consequences considerable increase of excessive economic losses The share of unpredicted hazardous phenomena in Russia increased from 6% at the beginning of 1990s to 23% at the beginning of 2000. Evaluation of potential economic benefits of NMHS modernization is an important tool to convince the governments to invest in this public sector It is well known that investments in improvement of NMHS service delivery are well justified from economic perspective 3
Assessments of Economic Benefits Provided by NMHS show very significant benefits vs. costs WMO International Conference (1994) : A rough approximation of the ratio of economic benefits to an NMS budget would typically be in the range of 5-10 to one. And given that the global budget for NMSs at that time was about US$4 billion, it was concluded that the global economic benefits were in the range US$20-40 billion. WMO International Conference, "Secure and Sustainable Living: Social and Economic Benefits of Weather, Climate and Water Services, Madrid (March 2007). M.Jarraud, WMO Secretary-General, indicated, that one Euro spent on weather, climate and water-preparedness can prevent seven Euros from being spent in disaster-related economic costs, and this is indeed a very considerable return on investments. In addition, beyond disaster prevention alone, the modernization of meteorological and hydrological services can yield profit of even broader scope. Traditionally, the overall benefits accrued from investment made in the meteorological and hydrological infrastructures were estimated to be, in several countries, in order of 10 to 1. This ratio would of course differ from one ecogeographical zone to another, depending on the relative vulnerability of a specific locality, its socio-economic development and its susceptibility to weather and climate and parameters used in calculations. According to the Report on Surveying and Evaluating Benefits of China s Meteorological Service (CMA) completed in 2006, the ratio of CMA s average annual costs to the overall yearly economic benefits of meteorological service is 1:69. Compared with the survey conducted by CMA in 1994, which adopted similar approaches and calculated the ratio between the input and benefit is in the range 1:35-40, it is assumed that the benefits of meteorological services have considerably increased as China has accelerated its economic development and social growth as 4 well as the development of meteorological service.
Many techniques are used to evaluate economic benefits provided by NMHS Gunasekera, D. 2003: Measuring the Economic Value of Meteorological Information, WMO Bulletin 52 (4) Market-based approaches. Normative or prescriptive decision-making models. Descriptive behavioral response methods Contingent valuation method. Conjoint analysis. Zillman, J.W. 2005: Economic Aspects of Meteorological Services, WMO Workshop on Public Weather Services, Melbourne, Australia Lazo J.K., and L.Chestnut. 2002: Economic Value of Current and Improved Weather Forecasts in the U.S. Household Sector, Boulder Harrod M.,P.H. Larsen, J.K. Lazo, and D.M. Waldman. 2007: Sensitivity of the US Economy to Weather, Boulder, CO: NCAR www.economics.noaa.gov www.sip.ucar.edu 5
1.Establish the baseline 2. Identify NMHS options Primer on Economics for National Meteorological and Hydrological Services Jeffrey Lazo, Robert Roucher, Thomas Teisberg, Carolyn Wagner, 2007 3. Identify full range of benefits and costs 4. Screen benefits and costs for appropriate analysis approach Quantitative 5. Assess the value of benefits and costs in monetary terms, to the extent feasible Analyze benefits and costs Qualitative 6. Qualitatively describe key benefits and costs for which quantification is not appropriate or feasible 7. Summarize and compare all benefits and costs 8.List all omissions, biases, and uncertainties 9. Conduct sensitivity analyses on key variable values 10. Compare analysis results to stakeholder perception of value 6
If so evidently important, why economic analysis is not so widely used by NMHSs Lack of established techniques of economic assessment understandable to NMHS staff Lack of in-house economic expertise Lack of baseline economic data, particularly data on losses from weather events Insufficient priority attached to this economic assessment by some NMHS management Poor interactions with clients/beneficiaries Lack of resources for studies 7
Madrid (2007) Conference Statement and Action Plan Action 11 Encourage the NMHSs and social science research community to develop knowledge and methodologies for quantifying the benefits of the services provided by NMHSs within the various socio-economic sectors. In particular: develop new economic assessment techniques including especially techniques of economic assessments for developing and least developed countries; develop WMO Guidelines on operational use of economic assessment techniques; train national staff on use and practical application of economic assessment of the benefits of services provided by NMHSs; present results of economic assessments to governments and donors/international Financial Institutions with the goal of modernizing the infrastructure of NMHSs and strengthening their service delivery capacity. 8
ECA Study Weather and Climate Services in Europe and Central Aisa. A Regional review (2005-2007) Capacity overview of ECA NHMS (19 countries) Assessment of economic benefits from hydromet services (8 countries) Studies of weather warnings effectiveness in a subset of countries Review of regional cooperation opportunities in two sub-regions Climate change adaptation proposals in two countries 9
GFDRR. Development of an Action Plan for Improving Weather and Climate Service Delivery in High-Risk, Low-Income Countries in Central Asia (2008-2009) Assessment of natural hazards User needs assessment with emphasis on agriculture, emergency forecast and early warnings, water resources management and irrigation NMHS capacity assessment Assessment of the economic benefits of potential NMHS modernization Development of recommendations and a prioritized plan of improvement of data delivery to national users 10
Methods of Economic Assessment Assessing economic benefits of NHMS vs. costs Benchmarking (all countries) Sector-specific assessment (all countries) Benefit-cost analysis of potential modernization programs (Belarus, Georgia, Kazakhstan, Tajikistan) Households survey to evaluate willingness-to-pay for hydrometeorological information (Azerbaijan, Serbia) 11
Methods of economic assessment: Benchmarking Why Benchmarking? Limited data on economic losses from hydromet phenomena Financial and time constraints for more comprehensive surveys and studies Main Benchmark parameters used in the analysis. Coefficient of preventable losses (assumed range 0.2-0.6) Total direct economic losses as % of GDP (0.1-1.0%) Country-specific characteristics used for benchmarking. Meteorological vulnerability of the country Weather dependence of the economy Share of agriculture in GDP Status of NHMS 12
Methods of economic assessment: Sector-specific assessment Sector-specific assessment is based on the specially designed surveys of experts from weather-dependent sectors to receive: information on the level of direct and indirect losses from hazardous weather events and adverse weather conditions in a specific sector; estimated changes in the share of preventable losses and costs of protective measures due to a more accurate and timely hydrometeorological information and forecasts as a result of modernization programs. The obtained data is used to evaluate the marginal effects from modernization for each weather-dependent sector and the integral effect for the economy. 13
Basic characteristics of some NMHSs Country Average NMHS financing Million USD (2000) Services in total NMHS budget (%) Number of employees total with professional degree (%) Equipment exceeding life time Reduction of various observation networks Tajikistan 0.33 1.1 712 15 over 80 % 25-40% Azerbaijan 1.70 10 1700 7 over 70% 5-10% Armenia 0.47 5 698 24 90% 35-40% Belarus 2.96 11 1450 40 60% 5-10% Georgia 0.47 3 780 55 80% 60-70% Kazakhstan 4.21 24 2437 19 60-80% 35-65% Ukraine 7.70 32 4765 38 over 90% 5-10% Turkmenstan 1.09 4 672 16 over 90 % 50-60% 14
Main Results of Economic Assessment Estimated benefits from the current provision of the NHMS in the surveyed countries notably exceed the cost of government funding. Estimates from all employed methods in all studied countries suggest that benefits of NMHS modernization considerably exceed its costs: Each dollar invested in potential modernization will help to avoid approximately 3-6 dollars of economic losses on average 15
Main Results of Economic Assessment Countries Estimated cost of modernization program, Yr.2000$ million/ (exceedance of NMHS annual budget, times) Investment efficiency, % (across 7 years), benchmarking Investment efficiency, % (across 7 years), sector-specific assessment Albania 4.0 (9) 438 320-680 Azerbaijan 6.0 (3.5) 430 1440 Armenia 5.3 (12) 210 1070 Belarus 11.5 (4) 530 480-550 Georgia 6.0 (13) 260 1050 Serbia 4.4 (0.8) 880 690 Ukraine 45.3 (6) 310 410-1080 Kazakhstan 14.9 (3.5) 540 - Turkmenistan 19.5 (17) 413 - Tajikistan 3.5 (17.5) 210 310-450 16
Tajikistan: Estimate of economic losses from dangerous weather events (data of the Committee for Emergencies) Event Annual frequency (based on climatic records) Average economic losses in 2001-2007 (prices 2006 г.) Somoni, Mln. USD, mln. Heavy rain 2.2 0.1 0.0 Heavy snowstorm 3 1.4 0.4 Hail 7.7 13.0 3.9 Landslides avalanches and 58.3 (31.7 и 26.6) 19.8 6.0 Floods 10.1 23.1 7.0 Droughts 1.1 26.1 7.9 Total: 83.5 25.2 17
Tajikistan: Estimate of economic losses based on sectoral data Sector Annual agerage losses, (US$, 2006, mln) Expected reduction of losses after modernization (%) Expected reduction of losses after NMHS modernization (US$, 2006, mln) Agriculture 8-21 2-4 0.2-0.8 Irigation and water resources management 11-13 10 1.1-1.3 Transport 6 13.6 0.8 Total 25-40 2.1-2.9 18
Traditional Benefit-cost analysis of potential modernization programs Belarus Ukraine Azerbaijan Tajikistan Total losses, $ million 57,5 151,8 35.5 16,3 Annual incremental effect of improving NHM service delivery, $ million Potential Modernization costs, $ million 8,5 20,1 3.8 1.6 11,5 45,3 6,0 3.5 Implementation period, years 4 5 6 4 B/C ratio 3.4 2.0 2.9 2.1 Pay back period, years 3.9 5.8 4.4 5.5 19
Limitations and advantages of the proposed techniques of economic assessment Limitations Insufficient data base to establish key parameters (e.g. losses, vulnerability) Assumption that modernization proposed by NMHS will lead to capacity improvement and to avoided losses Sensitivity to selection of sectoral experts Does not take into account many benefits (tend to underestimate) Advantages Several independent estimates and opportunity to compare Results are understandable to decision-makers Relatively expedient and low cost techniques Involvement of key stakeholders Helps to establish links with main clients 20
Economic assessment should be a main part of NMHS modernization package NMHS should try to develop integrated modernization package which should include Vulnerability assessment Client s needs assessment NMHS capacity assessment Modernization proposal including specific improvements in delivery of information Economic assessment of proposed modernization This package should be submitted to the Government as a main beneficiary of NMHS modernization Without Government support NMHS modernization can not be sustainable in a long-term perspective 21
Economic assessment is important for securing donor support or for IFI involvement Donors may help to support some key elements of NMHS observation networks and train staff Role of World Bank and other IFIs Can provide financial resources Can help to develop NMHS modernization proposal Can help to develop economic assessment and jointly with MNHS management present results to the government NMHS modernization can be a part of a broader initiative 22
Proposed Central Asia and Caucasus Disaster Risk Management Initiative To reduce vulnerability by building capacity and promoting a coordinated approach in disaster risk mitigation, transfer, preparedness and response. In line with the Hyogo Framework for Action To support CAREC s Special Initiatives under the 2006 CAREC Comprehensive Action Plan To form the foundation for regional and country specific investment priorities/projects in the area of early warning, disaster risk reduction and financing While initial focus is on-structural measures, structural investments could be supported later to protect assets, lives and livelihoods Funds could also be provided for adaptation to climate change and streamlining adaptation activities into development programs. 23
Key Areas of Initiative 1. Develop capacities and promote a coordinated approach to disaster preparedness and response to a range of disasters such as earthquakes, floods (natural and man-made), industrial accidents, droughts and other emergencies. 2. Develop disaster financing and risk transfer mechanisms 3. Strengthen hydromet services, data sharing and early warning systems These initial components are to be updated based on a desk review risk assessment that will cover the main risks faced by the countries of the region. 24
Thank you! 25