How the private sector can soften the blow of disasters

Financing and developing critical infrastructure – ports, roads, water, power – is a central topic at the World Economic Forum on East Asia in Jakarta this week. There is a role for the private sector in financing and incentivising disaster-resistant, but less critical, infrastructure such as housing and schools.

In many earthquake-prone emerging nations, small and medium enterprises are the builders of houses and schools and the producers of common building materials such as fired bricks or concrete blocks.

Gap and opportunity

The private sector can support these smaller entrepreneurs by supporting technical assistance programmes to improve quality and developing credit products suited to these businesses. Many small businesses are considered too risky by formal banks, while the loans available through microfinance are too small and repayment periods too short. There is both a gap and opportunity to finance and incentivize businesses to produce disaster-resistant buildings and create local jobs.

What other financial instruments or insurance products can be used to incentivize disaster-resistant construction? Disaster micro-insurance is proving its value in protecting small-scale entrepreneurs from weather-related losses, enabling them to take risks and providing quick access to cash for recovery. But the potential for disaster micro-insurance to serve as an incentive for reducing risk and preventing disaster is, as yet, untapped.

Similarly, a catastrophe bond sale is being proposed to support the post-typhoon Yolanda recovery in the Philippines. Such a sale would provide funding for reconstruction and technical assistance needed to build the capacity of local government units to build back better and prevent future disasters. Let’s find a way to use catastrophe bonds to incentivize safe building and prevent the next catastrophe.

Meanwhile, market-based solutions are gaining ground in post-disaster recovery. As time passes after the emergency phase, donors and corporate social responsibility programmes should resist the urge to give away free services. Historically, donors and NGOs push for quick, short, free training of large numbers of construction professionals after a devastating earthquake or typhoon. These courses build awareness, but they are not sufficient for building skills. It is not possible to teach a mason how to lay bricks by simply showing him or her how to do it.

Free training courses attract some folks who are not committed to a career in construction, diluting their impact and increasing their cost per impact. Five years after the earthquake in Haiti, Build Change now has two fee-based training centres booked with fee-paying clients for several months. A similar training centre is under construction in the Philippines. This is just one example of an impact investment opportunity that would support local, small-scale, private sector entrepreneurs to increase incomes and build disaster-resistant buildings.

Understanding the basics

How can I write about the construction industry without addressing corruption? Cutting corners on design and construction specifications to increase profit is one of the primary causes of building collapses during an earthquake. Sufficient budget and resources must be allocated to ensure adequate construction supervision. Someone has to want the building to be safe; a government building inspector, the owner, the NGO or donor funding the project, the builder, a homeowner, a parent of schoolchildren. Understanding the basics of disaster-resistant construction is not difficult. But it does take leadership and courage from the top-down to stand up for building safety.

And let’s not let the Climate Change Adaptation agenda leave the non-weather related Disaster Risk Reduction agenda behind. USAID recently released a call for proposals for an $18 million-$20 million, five-year APIK project to improve the ability of Indonesians to manage climate and disaster risk. USAID has supported Build Change’s work in Aceh to bring technical assistance and small financial incentives to homeowners rebuilding after the July 2013 earthquake near Takengon. But APIK deals with climate-related disasters, not earthquakes. Structural engineers are just not as good at bringing the star power and glamour to the cause of disaster-resistant housing and schools.

Manila and Jakarta rank second and fifth respectively in the Swiss Re Mind the Risk ranking of cities with the highest populations potentially affected by five major perils, including earthquakes and windstorms. After Cyclone Pam swept through Vanuatu last month, President Baldwin Lonsdale said the storm had “wiped out” all recent development. Here in Indonesia, President Joko Widodo will break ground on the ambitious and exciting “One Million House” programme at the end of the month. Let’s work together to make sure this means 1 million disaster-resistant homes.

Author: Elizabeth Hausler Strand is the Founder and CEO of Build Change. She is a Schwab Foundation Social Entrepreneur and a member of the Global Agenda Council on Risk & Resilience

Image: A woman looks on as Mount Sinabung spews ash, as pictured from Sibintun village in Karo district, Indonesia’s north Sumatra province November 18, 2013. REUTERS/Roni Bintang