Why is economic analysis essential?

 

Economic analysis is essential because

  • the techniques of economics are geared to attempt a “balance” between two or more objectives,
  • IFM needs adequate understanding of the economics of flood plains, and
  • it can both help us understand the issues and determine the best means of managing floods and the risk of flooding.

What are the tools other than the traditional cost-benefit analysis for making financial decisions?

Traditionally, cost-benefit analysis quantifies in monetary terms as many of the costs and benefits of a proposal as feasible, including items for which the market does not provide a satisfactory measure of economic value.

The increasing importance of social and environmental concerns in development projects witnessed in recent years and the risk issues that need to be addressed in flood management have underlined the need for some criteria other than the traditional cost-benefit criterion for evaluating the usefulness of a project.

One line of approach has been to expand the range of economic analysis and put monetary values to social and environmental concerns. Another line of approach has been to develop a complementary methodology through multi-criteria analysis (MCA). It involves judging the expected performance of each development option against a number of criteria or objectives.

For more information about MCA, please refer to “What is multi-criteria analysis (MCA)?

What are public catastrophe funds?

 

A public catastrophe fund is a pre-disaster measure where the government implicitly self-insures by setting aside money to finance some of the recovery needs following a disaster. Alternatively, the government can mobilize its own financing sources by such policy instruments as imposing taxes, borrowing domestically or internationally, or diverting from the public budget.

For more information, please refer to “Risk sharing in flood management

How does the use of flood plains to help reduce poverty?

In many developing countries there is a strong need for better utilization of the agro-economic potential of flood plains to provide scope for reducing people’s vulnerability and providing enhanced opportunities for food and livelihood securities to the flood affected people.

The sense of insecurity arising out of the high risks due to recurrence of floods in flood prone but fertile plains dissuades farmers from making long-term investments in farming. It also dissuades other investors, including government agencies, from making investment in infrastructural projects. From this point of view “flood is an inhibiting factor in the process of agricultural growth of areas subject to frequent flooding”.

Consequently, without flood management actions both structural and non-structural, flood prone areas receive low levels of investment in both the farming and non-farming sectors. Better utilization of best managed flood plain protection can reduce poverty and improve quality of life thereby reducing the vulnerability of the people.

What are the major challenges of assessment of benefits from flood management projects?

There are several challenges of assessment of direct benefits from flood management projects.

First, flood management projects are usually taken up in the aftermath of a damaging flood where information on loss and damage from such floods is available only after the flood.

Second, in most cases either the flood damage data from past flood events are not available or are not reliable enough as a result of a lack of standardized damage assessment procedures.

Third, In addition to the damage prevented, another direct benefit of flood management schemes is the increase in area which may become available for cultivation as well as for other economic uses due to reduced flood risks.

Forth, assessment of the fertilizing value of silt due to inundation of flood plains if prevented because of flood protection projects needs to be included as a benefit lost or a negative benefit. However, the assessment of the fertilizing value of silt will obviously vary from area to area depending upon its quality and recurrence and very few precise methods are available for assessing this and no general guidelines can be prescribed.

What are the differences between financial and economic analysis?

Financial and economic analyses have similar features. Both estimate the net-benefits of a project investment based on the difference between the with-project and the without-project situations. However, the financial analyses of the project compare benefits and costs to the enterprise, while the economic analyses compare the benefits and costs to the whole economy.

While financial analysis uses market prices to check the balance of investment and the sustainability of project, economic analysis uses economic price that is converted from the market price by excluding tax, profit, subsidy, etc. to measure the legitimacy of using national resources to certain project. Financial and economic analyses also differ in their treatment of external effects (benefits and costs), such as favorable effects on health.

For more information, please refer to “Economic Aspects of Integrated Flood Management“, Session 2.3.

Why is economic analysis essential?

 

Economic analysis is essential because

  • the techniques of economics are geared to attempt a “balance” between two or more objectives,
  • IFM needs adequate understanding of the economics of flood plains, and
  • it can both help us understand the issues and determine the best means of managing floods and the risk of flooding.

What is Strategic Environmental Assessment (SEA)?

 

A systematic process for evaluating the environmental consequences of proposed policy, plan or program initiatives in order to ensure that they are fully included and appropriately addressed at the earliest possible stage of decision-making, on a par with economic and social considerations.

For more information, please refer to “Applying Environmental Assessment for Flood Management”, Chapter 2.

What are the factors that make a community vulnerable?

Vulnerability to floods is a combination of complex, dynamic and interrelated mutually reinforcing conditions that can be divided into three major groups as follows:

Physical/material conditions:

  • Initial well-being, strength and resilience (high mortality rates, malnutrition, disease)
  • Weak infrastructure, such as buildings, sanitation, electricity supply, roads and transportation
  • Occupation in a risky area (insecure/ risk-prone sources of livelihood)
  • Degradation of the environment and inability to protect it

Constitutional/organizational conditions:

  • Lack of leadership, initiative, or organizational structure
  • Lack of or limited access to political power and representation
  • Lack of or poorly resourced national and local institutions
  • Unequal participation in community affairs
  • Inadequate skills and educational background
  • Weak or non-existent social support networks
  • Limited access to outside world

Motivational/attitudinal conditions:

  • Lack of awareness of development issues, rights and obligations
  • Certain beliefs and customs and fatalistic attitudes
  • Heavy dependence on external support

For more information, please refer to “Organizing Community Participation for Flood Management“, Section 2.2.

What are the beneficial impacts of floods?

Recharging water sources: Floods are natural hydrologic processes and provide variable river flows and are an intermittent source of freshwater supply, filling natural depressions and recharging groundwater. Inundation of the flood plains helps recharge the groundwater, which is an important source of drinking water and is essential for agriculture. They are an important source for restocking local man-made water sources such as ponds, reservoirs, dams and irrigation channels, meeting round-the-year demand.

Agriculture: Floodwaters carry nutrients and sediments, which are deposited on flood plains, enriching the soil.. Rice paddies are flooded deliberately to take advantage of this natural fertilization process.

Fishery: A river basin is an ecological unit interconnecting upstream spawning habitats with downstream rearing habitats for a variety of species and other aquatic systems. Seasonal habitats on the flood plain, created by variable flow regimes, are essential for various stages of the life cycle of species. Floods provide an ecological trigger for both the spawning and migration of certain species. Some species spawn on the flood plain itself, whereas others migrate upstream to spawn in the river channel, providing an abundant supply of fish and alternative income sources at the household level.8

Rejuvenation of the river ecosystem: The river ecosystem is a critical habitat for the biota: fish, wildlife and waterfowl. Seasonal variability and variable sediment and flow regimes help maintain ecological biodiversity in rivers and flood plains. Wetlands or swamps located in flood plains serve as natural buffer zones for excessive flood flows and play host to many birds, fish and plants. Supplementary livelihoods in the form of recreational and eco-tourism activities can be made possible by the presence of the rich river ecosystem, bestowed with abundant flora and fauna. Surface runoff and flooding can help wash down pollutants and contaminants deposited on land caused by the intensive use of pesticides and fertilizers. They also flush out accumulated organic substances brought by untreated drainage water from farmlands, stockyards, factories and domestic use and restore the ecological health of stagnant rivers and streams by diluting them and providing clean water.

For more information about the river ecosystem, please refer to “Environmental Aspects of Integrated Flood management“, Section2.3.