Friday, April 8, 2016

One year since the Great Gorkha earthquake

It is nearly a year since the catastrophic 7.8 magnitude earthquake struck Barpak, Gorkha. The massive earthquake on 25 April 2015 at 11:56 AM and subsequent aftershocks (two powerful 6.7 magnitude on 26 April and 7.3 magnitude on 12 May) caused widespread damage to lives and properties. About 9,000 were dead and 22,000 injured. Around 602,257 and 285,099 private houses were fully and partially damaged, respectively, forcing thousands of people to seek temporary shelter under tents and tarpaulin sheets. 

It was a natural disaster most were expecting, but the government and households were awfully unprepared— the government either had lax household and settlement policies, or/and did not enforce housing codes strictly; the households (mostly in urban areas) compromised safety standards to save money. Lessons were learnt or so the politicians, bureaucrats and the public said during the first few months of the disaster. Then the simple lessons inculcated only after a terrible tragedy evaporated in thin air as politicians paid lip service only, bureaucracy got mired in the usual maze infested with rent-seeking mentality, and the affected households did what they need to do to get by normal lives (by starting rebuilding houses on their own). It’s a sad story about reconstruction that did not happen even after a year into the disaster. Availability of funds was not a problem given the generous aid pledges during reconstruction conference.

First, a quick snapshot of the events thus far: A post disaster needs assessment (PDNA) was completed within two month. It estimated the cumulative damage and loss to be about $7.1 billion (33.3% of FY2015 GDP). The cumulative need for recovery (Building Back Better concept) was estimated to be $6.7 billion, of which almost half was needed for housing and settlement. The earthquake either destroyed or damaged cultural heritage, schools, health posts, houses, agricultural farms, irrigation system, financial sector infrastructure, communications, roads, hydroelectricity plants, livelihoods, and tourism infrastructure, among others. 

After the completion of PDNA, the government organized International Conference on Nepal’s Reconstruction (ICNR) on 25 June 2015 to raise funds for reconstruction. Bilateral and multilateral development partners made generous pledges to help the affected households get back on feet again. About $4 billion, which was larger than the estimated public sector needs, was pledged with a belief that the government would speed up the establishment of reconstruction authority and make it operational without delay. The initial expectation was that some form of relief would be distributed before the winter. This was to be followed by cash grant of about $2000 to rebuild destroyed houses so that some of the damaged houses could be rebuilt before the arrival of monsoon (June to September 2016). Then the expectation was that the government would plan resettlement where required and build back better the damaged infrastructure, which would help reinvigorate the economy, create employment opportunities and prepare the household better when the next disaster strikes (Nepal is in a seismically active zone). Alas, these remained unrealized expectations. More on this in a minute.

  • Total damage estimated at $7.1 billion. Total recovery needs estimated at $6.7 billion. 
  • Total reconstruction aid pledged by bilateral and multilateral donors was around $4 billion.
  • About 9,000 dead and 22,000 injured.
  • About 602,257 and 285,099 private houses were fully and partially damaged, respectively.
  • About 2,673 and 3,757 public buildings were fully and partially damaged, respectively.
  • Earthquake struck in the tenth month of FY2015. The earthquake chopped 1.5 percentage points off an estimated 4.6% growth in FY2015 in a no-earthquake scenario. GDP growth and per capita GDP estimated at 3.0% and $762 in FY2015. Services sector was hit the hardest.
  • An additional 700,000-982,000 people were pushed below the poverty line. This translates into an additional 2.5%-3.5% of the estimated population in 2015 pushed into poverty compared to the no-earthquake baseline scenario of about 21%. About 50%-70% are from rural central hills and mountains, where the vulnerability prior to the earthquake was already high.
  • An ordinance was promulgated to establish National Reconstruction Authority (NRA) and to start reconstruction activities. 
  • The FY2016 budget and monetary policy were focused on rehabilitation and reconstruction. About $910 million (3.8% of GDP) was earmarked for reconstruction related work ($740 million for the NRA and $170 million to be spent through sector ministries during the interim period, i.e. till the NRA was operational).
  • The FY2016 budget included NRs200,000 (about $2000) for each household that has lost its house due to the earthquake. To address the shortage of labor for reconstruction, skill training is planned for 50,000 people in the areas of masonry, plumbing, and electrical works.

Now, nearly a year since the earthquake, the progress is rather disappointing. Few points:
  • The political wrangle between CPN-UML and NC to appoint the CEO of NRA delayed the passage of the NRA bill. During the NC’s time in the government (coalition with CPN-UML) it had appointed a CEO. However, when the CPN-UML led the coalition government, it demanded that a new CEO be appointed. The disagreement over this persisted for about two months. Finally, after eight months the NRA bill was passed (creating too many committees and layers within it) and a new CEO was appointed. 
  • The NPC handled the work of the NRA while the political infighting was ongoing. It approved many programs, which the NRA has asked ministries to get them approved again. 
  • The NRA is struggling to get things done on time. Even the Prime Minister, who himself chairs the executive committee within NRA, has come down heavily on the NRA for its snail pace work.
  • The NRA is not getting enough human resources and coordination from the bureaucracy to start the preliminary program, especially identification of victims and distribution of cash grant for house reconstruction. Senior bureaucrats have shown strong disinclination to transfer to NRA
  • At the local level, the political parties are trying to usurp the cash distribution process by demanding representation in local committees, under whose recommendation victims are to be identified. This is for the sake of “ownership”. There are also cases of inflated number of victims (dummy victims).
  • The CEO is not taking decisive action despite having unparalleled powers as per the NRA Act. Seeking the presence of political leaders for cash distribution in far off villages is not logical. In one case, cash distribution was delayed because some political leaders were not available.
  • The earthquake affected households have been expecting the promised cash grant for housing for almost a year now. About five months of supplies disruption has not only escalated prices of housing materials, but also created severe shortage of essential supplies in the market. The raw materials used for constructing the houses are in short supply and those that are available are sold at inflated prices. In this respect, the earthquake affected households are even requesting the government to build the houses instead of grant. They are willing to contribute labor for such reconstruction. See this and this episode of BBC Sajha Sawal. 
  • The trade blockade/supplies disruption negatively affected reconstruction planning and works. Its impact will linger on till the supplies and prices normalize to previous levels.
  • There is inadequate coordination among I/NGOs for relief distribution. Affected households are complaining of similar goods (blankets and tarpaulin sheets, etc) being distributed by many I/NGOs. And distribution is centered in some places only. The NRA has to coordinate this in the strict sense.
  • Reconstruction hasn’t started. Even a consolidated planning for reconstruction is not done yet. 
  • There is a possibility that the NRA won’t be able to utilize all the funds pledged during the ICNR last year. The more delay in utilizing the funds, the higher the changes of it being restructured for use in other purposes.
The lingering impact of damages caused by the earthquake and supplies disruption will suppress potential growth and employment opportunities. 
  • GDP growth in FY2016 was initially projected on the higher side because of the expectation of speedy cash distribution and initiation of reconstruction projects. This impact of the trade blockade for about five months and the delayed reconstruction activities will depress growth prospects in FY2016 and beyond. The agricultural output forecast is also disappointing. Some households in the earthquake affected districts have not cultivated their fields due to the uncertainty over housing.
  • Inflation will also continue to be at elevated levels, primarily due to the lingering impact of the supplies disruption.
  • There is a slowdown in the rate of overseas migration because of the cooling of demand for workers in GCC (this in turn is due to the continued low oil prices). Malaysia is implementing measures to discourage foreign workers and is also levying extra taxes on income. This means a slowdown in migration rate and ultimately deceleration of remittance inflows. It will increase the number of unemployed youths in the economy and also put pressure on external sector stability. Current account surplus will decline and if imports rebounds to normal levels, then it may as well be negative.
  • Rehabilitation and reconstruction should primarily aim at increasing productivity-enhancing public capital investment. This is a key to ensuring structural transformation whereby high value-added and high-productivity sectors are more dominant than low value-added and low-productivity sectors in the medium term. Promoting agribusiness, industrial capacity, innovation and high-productivity services need to be at the center of such a reconstruction and structural transformation strategy. In addition to higher investment, this will require reforms on institutional, legal, regulatory, and capacity enhancement fronts.
Overall, the earthquake, the severe supplies disruption and the delay in starting reconstruction projects do not bode well for the economy. It a combination of misplaced politics, ineffective bureaucracy and a lost NRA (which will try to accelerate processes in the next two weeks to show that things are moving ahead despite it being slow-- a common escape argument popular in the bureaucracy!)