Iran’s Economy Incurs Heavy Losses From Natural Disasters

EghtesadOnline: Floods have inflicted losses worth nearly 90 trillion rials [$690 million] on Iran’s economy in the fiscal 2019-20.

News ID: ۷۴۹۵۲۳

22 January 2020

The Crisis Management Organization put flood damage suffered by three provinces at 30 trillion rials ($230 million) and spring inundations during March-April 2019, which involved 15 provinces, at 60 trillion rials ($459.77 million), Financial Tribune reported.

To get a sense of just how big these figures are, you need to compare the registered capital of two major Iranian carmakers, namely Iran Khodro and SAIPA, which is about 50 trillion rials ($383.14 million) and the aforementioned flood losses incurred during 10 months, reads an article published in the Persian newspaper Shahrvand.

Two years ago, Kermanshah Province in western Iran was also hit by a devastating 7.3-magnitude quake that caused losses estimated at 80 trillion rials ($613.02 million).

Statistics show that only 3% of Iran are located in areas with low likelihood of disasters. Iran is exposed to 32 out of 43 natural disasters, the most common of which are earthquake, drought, flood, wildfire and landslide.

The Crisis Management Organization says 75% of Iran’s centers of population (geographical points that describes a center point of the region’s population) are exposed to flood hazards and 80% are prone to other natural disasters like earthquake.

The largest number of human deaths caused by any natural disaster in Iran was associated with an earthquake, while flood and drought have exacted the biggest losses economically in the country. In addition, the acceleration of climate change over the past few years is likely to make natural disasters even more frequent and more catastrophic.

Vulnerability to Natural Disasters

Ali Beitollahi, the head of Engineering Seismology Department of Roads and Urban Development Research Center, elaborated on Iran’s disproportionate vulnerability to natural disasters.

“Over the past few years and decades, our executive managers had been negligent in adopting proactive policies in the face of natural disasters whereas advance, short-, mid- and long-term planning rather than post-disaster response is needed to counter natural disasters,” he said.

Beitollahi noted that Japanese infrastructures have been improved to direct rising water level of rivers to canals for preventing the submersion of streets.

“This is while, in the absence of disaster prevention and preparedness like the dredging of Gorganroud River in northeastern Iran to facilitate and expedite the flow of water, floods caused extensive damage to the country in spring,” he said.

A report by IMF entitled "Macroeconomic Outcomes in Disaster-Prone Countries" published in October 2019 categorized Iran among first quartile (0%-25%) of the annual probability distribution of natural disasters in non-disaster-prone countries.

Iran’s economic costs of natural disasters were equivalent to 0.27% on average and a maximum of 2.9% of the country’s GDP during 1998-2017.

The macroeconomic impact of natural disasters includes three stages. The first stage involves direct losses from the destruction of infrastructure and property. In the second stage, indirect losses accumulate from foregone output and incomes, and costs are incurred as individuals and businesses work around disruptions.

Finally, as the recovery starts, rebuilding of infrastructures and replacement of damaged goods leads to a temporary boost in activity and employment in the affected area. It also gives rise to an opportunity to upgrade infrastructures.

Apart from the cycle of impact and recovery from individual disasters, the periodic destruction of part of a country’s productive assets is an implicit tax on capital, which tends to deter investments and lower productivity and living standards on a sustained basis, the report concluded.