Final draft nghieu's presentation on disaster mitigation in vn (in tokyo's workshop)

Dr. Bui Duong NghieuInstitute of Financial Science Vietnam Ministry of Finance

Tokyo, April 2009

November 10, 2012 1

November 10, 2012 2

According to a 2005 World Bank report, approximately 89 percent of Vietnam’s GDP is located in areas at risk due to impacts of at least two types of natural hazards (Flood and Storm).

Sea-level rise of 30 centimeters to one

meter over the next 100 years is

expected, which is projected to cause

capital value loss every year of up to US$17 billion if no

protective measures are taken.

[In the year of research, 1998, VNse’

s GDP is 27,8 billion of USD]

Contents

Background

Actual measures for natural disastermitigation in Vietnam

Fund for Flood and Storm Prevention

Self Reliance Fund for Natural DisasterMitigation for Households

Conclusions

November 10, 2012 3

November 10, 2012 4

Damage in Vietnam 2008Unit Total

lossesOnly in 2008 Hanoi flood

Human deaths person person 474 20

Human missing 64

Human injured 404

Houses collapsed and washed away house 5,180

Houses flooded and damaged 338,476

School collapsed and washed away school 138

Schools damaged 1646

Hospitals collapsed and washed way center 6

Hospital damaged 151

Agriculture (areas of crops flooded) ha 473,403

Total estimated losses million USD

775 175

November 10, 2012 5

Economic impacts

Direct losses: the value of capital destroyed (much ofthis damage is public infrastructure) or damaged valueof loss of life.

Indirect losses: the loss of outputs and earnings,including the value of agricultural crops destroyed.

Secondary impacts: the cost imputed to disruption ofdevelopment plans, loss due to foregone newinvestment as damaged infrastructure is replaced,increased indebtedness, etc.

November 10, 2012 6

Disaster Impacts

Natural disasters and climate change have:

negative consequences for economic growth, both inthe short term and the long term.

cause significant fiscal pressure.

Produce very negative effects to households,especially to the poor (loss of house, assets, crops,livestock, income, etc.).

Economic and fiscal costs may not be easilyvisible. Normally, only the direct losses arecounted.

November 10, 2012 7

State budget, including center and local government levels.

Expenditures by Annual Budget Plan Expenditures by Contingent Liability: the maximum amount is 5% of total annual

budget, normally is lower than that.

Fund for Flood and Storm Preventions (FFSP)

Urgent money

Aid is also re-allocated for households, but it is: Charity, random, irregular, Lower than loss level Tardy (the collection and the distributions take much time)

Credit

Formal credit (via banks, especially Agriculture Bank and Social Policy Bank) Semi-credit (via civil institutions such as Woman’s Organization, etc.) Informal credit (with terrible rate)

Insurance.

November 10, 2012 8

Actual measures for natural disaster mitigation

Budget expenditures allocate to the ministries and local authorities

For public infrastructure (before and after natural disasters), For non-infrastructure solutions (Weather forecast, disaster ‘s map.), For disaster prevention (training, rehearsal, purchasing equipment for relief.) or for support for losses (urgent relief).

Contingent Liability (a budget line) takes around 5% of total annualbudget expenditures.

Remarks:

All money allocated by State Budget for disaster mitigation does not godirectly to the households, excluding the money for support for losses asurgent relief.

And always lower than the actual loss.

November 10, 2012 9

State Budget

Charity money is from organizational andindividual donors, domestic and foreign.

It is:

very good for the households

very random

lower than loss level

always late.

November 10, 2012 10

Relief

Commercial banks don’t loan the money dueto high risk.

Several non-commercial banks do lendmoney directly, but, the amount is very small.

Currently, the highest possible loan is less than 300 USdollars.

Informal credit is terrible in terms of interestrate.


Credit

Vietnamese insurance company “Bao Viet”piloted an agriculture insurance policy in1982, 1997

French insurance company “Groupama”offered an agriculture insurance in 2002 –2003.

Both companies suffered losses.


Insurance

Legal framework:

Created in 1993 by an Ordinance (by the StandingCommittee of National Assembly).

Activated in 1997 by a Government Decree forestablishment the FFSP

Independent of the State Budget

Non-profit.

Model organization

Administrated at the provincial and district levels,

Not at the community and central levels.


Fund for Flood &Storm Prevention (the FFSP)


Community-level: No FFSP

FFSP FFSP FFSP

Central Executive Board of

FSP

District-level FFSP

Province-level FFSP

Central level : No FFSP

Current organization structure of FFSP in Vietnam

Contributions

Compulsory:

Enterprises and economic organizations located at theareas (domestic and foreign)

Citizens

All Vietnamese citizens (males from 18 to 60 years old, and females from 18 to 55 years old).

Voluntary:

Voluntary contributions of international, domesticorganizations and individuals (AID).


How much is the compulsory contributions?

Citizens:

0.5 US dollar: Members of agricultural households.

1 US dollar: Members of non-agricultural households.

Enterprises:

0.02% of their total production and business capitalbut not exceeding VND 5 million (USD280) per year.

Unnoticeable amount for the households andthe enterprises.


Exemptions


Who is exempted to contribute for the FFSP? The members of the poor households. The public interest enterprises. The agricultural cooperatives.

The exemption policy of FFSP contributions areirrational, unfair: The FFSP covers all beneficiaries relating the natural disasters or

climate change. It’s irrational and unfair if there are someoneexempted to contribute for this fund.

Some have benefited from another policy (for exp. Healthinsurance). So, it’s unfair to give them the exemption.

Due to the exemptions for the poor, there are many localities thatare not able to form FFSP (as most of them are poor communities– for example Laichau province)

Activities

Patrolling, guarding dykes in flood and stormseasons.

Public awareness course on safety measuresand reactions during floods and storms.

Purchasing necessary equipments for reliefand rescue to victims of floods and storms.


FFSP’s problems

No community representation;

Low contribution;

Not self sufficient;

No investment (unspent money unused);

No insurance;

No full time staff (the fund managed only by apart-time staff).



Self Reliance Fund

for Natural Disaster Mitigation

for Households

(the SRF)

Research contributors

Contributing to the research are:

Mr. Landis Mackeller (UNDP consultant)

Mr. MacShall Silver (UNDP senior expert/disastermitigation)

Professor Jerry R. Skees (U. of Kentucky)

Mr. Luzi Hitz (Director, Dept. of Natural DisastersInsurance Technique – Swiss Re)


Self Reliance Fund (SRF)

Communal;

Self financed;

Not-for-profit;

Self sufficient;

Correlates with market economy rules;

Households insured;

Specialization.



Provincial

SRF

Provincial

SRF

Central SRF

District –level

Central-level SRF

Province –level SRF

Community –level SRF

Provincial

SRF

Proposed structure of SRF for natural disaster mitigation

Awareness raising & loans for strengthening capacity against disaster


The SRF

Govt. & Donors

Aid, relief,

charity,

1. Start-up capital

Households

2. Items-based reimbursements

2. Compulsory contributions

4.Urgent money

3. Govt. subsidy for poorest households

Insurance, Re-insurance, Multual-

insurance

5. Premiums 5. Compensations

Financial Investment

6. Ivest. & Revenues

Capacity building for managing disaster risk

Enterprises


The SRF

Govt. & Donors

Aid, relief,

charity,

1. Start-up capital

Households



4.Urgent money


Enterprises


The SRF

Govt. & Donors

Aid, relief,

charity,

1. Start-up capital

Households



4.Urgent money



insurance


Enterprises


The SRF

Govt. & Donors

Aid, relief, cha

rity,

1. Start-up capital

Households



4.Urgent money



insurance




Enterprises



The SRF

Households




insurance



Enterprises



The SRF

Govt. & Donors

Aid, relief,

charity,

1. Start-up capital

Households



4.Urgent money



insurance





Enterprises


House-holds SRF

Re-insurance market

Insurance market

Multual Insurance

Baoviet and Groupama(1997, 2003-2004)

Agriculture Insurance schemes.

FAILED

Representative system

Financial sources

Start-up capital

VNse Government: 50% of seed money Donors: 50% of seed money

Compulsory contributions:

Households Enterprises

Voluntary contributions:

Aid Relief

Government subsidy for poorest households

Revenues from financial investments

Insurance compensations


Compulsory contributions

SRF FFSP

Enterprises : 0.05% (uncapped)

Tax deductable

0.02%Not over 280 USD per year

Households :

For the employed: One day of salary 0.5 USD

For street merchants and such

two USD per person per year

0.5 USD

For others (farm workers/unemployed)

one USD per person per year

0.5 USD

Subsidy from VNse-Govt Exemption for poor

Why to set-up the SRF?

The SRF can:

Strengthen capacity for households to respond anynatural disaster or climate change events (ex-ante);

Finance ex ante for reduction of vulnerability faced tonatural disasters or climate change hazards (ex-ante);

Provide modest but timely and crucial supports to re-establish the household’s livelihoods (ex-post).

Compensate for the households loss with insurance.

In doing this, the fund will significantly reducepoverty.


Efficient management

Random aid (avoid any type of overlap andpossible fraud).

Item-based assistance.

Insurance compensation.

Secure and low risk (e.g. CATbonds, governments bonds) investments.


Supreme guarantee

Agreement of SRF solvency in time ofextreme catastrophe (from VietnameseGovernment and donors).

There are two cases:

Catastrophes come in the setting up period (3 to 5years).

Catastrophes come after setting up period.


Conclusion

As climate change exacerbates the frequencyand impact of natural disasters, governmentsmust learn to adapt and be self sufficient. TheSRF would be isolated, ensuring relief andsecurity to households. This, in turn, wouldlessen the government’s workload during naturaldisasters.

Our slogan:

You can give a man a fish, but it’s better to give him fishingequipment.


Thank y ou f o r y ou r

a t t e n t i o n!


SRF - 3 levels

SRF Central

SRF Province

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SRF Province

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SRF Province

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Community-level budget

Budget of

province A

Budget of

province B

Budget of

province C

Local budget

District-level budget

Province-level budget

Central budgetState

budget

Current model of State budget system in Vietnam


Community-level

steering board of FFSP

Steering

board of

FFSP

Steering

board of

FFSP

Steering

board of

FFSP

Central Steering

board of FFSP

District –level


Province-level


Central Steering Board of FFSP

Organization structure of current Steering board of

Flood and Storm prevention (FSP )

Economy & Finance

Final draft nghieu's presentation on disaster mitigation in vn (in tokyo's workshop)