A Novel Approach to Disaster Risk Management: The Story of Mexico

Although the 2007 Tabasco floods are an exceptional example of the damage a single natural disaster can cause, natural disasters are commonplace in Mexico.  Approximately 41 percent of Mexico’s territory and 31 percent of its population are exposed to a range of natural hazards, including hurricanes, storms, floods, earthquakes and volcanic eruptions.  Between 1970 and 2009, natural disasters affected almost 60 million people in Mexico, a figure that could easily increase due to the impact of climate change on the intensity and frequency of natural hazards.

Disasters impose a significant burden on the federal government’s budget.  From 1999 to 2011, the cost of post-disaster reconstruction of public assets and low income housing, financed by the federal government, averaged US$1.46 billion per year.  The government incurred the highest costs in 2010 when major floods generated rehabilitation needs exceeding US$5 billion. Mexico’s individual states also have a heavy burden to bear as a result of damages caused by disasters.  Each year, the 32 states face contingent liabilities of over US$1 million for damages to state and municipally owned assets.  

While the occurrence of a natural hazard could be considered exogenous, its transformation into a disaster is not. As Mexico’s population continues to grow, problems such as unplanned and unregulated land use, lack of environmental controls and poor building standards become exacerbated.  These challenges, combined with a changing climate and increased climate variability, set the stage for increased losses and damages from natural events.   

Mexico and the World Bank 

For over a decade, the Government of Mexico and the World Bank have been working together to improve the country’s disaster risk management system and secure its economic and financial standing in the event of future disasters.  Mexico has one of the most sophisticated financial protection strategies against disasters amongst middle-income countries, as part of their overall Civil Protection system.  Over the years, it has been able to establish, and continuously improve, an effective system for allocating resources for emergency response, rehabilitation and reconstruction, built around the Natural Disasters Fund (FONDEN) and comprised of a variety of risk transfer instruments.

The country’s ongoing commitment to developing innovative and sustainable financial protection strategies against disasters has significantly secured the country’s ability to respond to human and infrastructure needs in the event of disasters.  However, effective prevention and risk reduction and its linkages to the overall financial protection strategy against disasters remain the main challenge in disaster risk management for Mexico. Today, the collaboration between the Government of Mexico and the World Bank focuses on supporting this key challenge of gradually shifting from an ex-post response and reconstruction approach to disasters to an ex-ante prevention and risk reduction approach.

A New Programmatic Approach

In 2012, the World Bank renewed its commitment to the Government of Mexico through a new Programmatic Approach in Disaster Risk Management.  A Programmatic Approach organizes different activities and projects under one overarching objective. It is designed to establish a more effective collaboration between the World Bank and Mexico’s government by allowing for flexibility and responsiveness to meet evolving needs within a particular subject. This ongoing partnership between Mexico’s government and the World Bank has served to increase the understanding of the country’s major disaster risk management levers; identify constraints and challenges that persist; and strengthen the capacity of key government stakeholders to advocate for, and implement, disaster preparedness and risk reduction measures.

This comprehensive approach is founded on three main pillars:

• Strengthening Mexico’s existing disaster risk management systems.  
• Supporting disaster and climate resilience activities across a wide range of sectors.
• Fostering collaboration, exchanges and partnerships around disaster risk management within the region and beyond.  

Pillar 1: Strengthening Mexico’s existing disaster risk management systems  

Under Pillar 1, the Government of Mexico and the World Bank seek to deepen understanding and broaden integration of disaster risk reduction measures in federal investments and improve monitoring and evaluation of financial protection strategies against disasters.  They also aim to strengthen the capacity of state-level governments to assess, understand and manage fiscal disaster risk.  Some activities involved in this process include:

1. Analyzing the Federal Government’s investments in prevention and disaster risk reduction over a five-year period. 
2. Assessing the use of hazard and risk information - including geo-spatial, financial, actuarial and socio-economic information - in the Federal Government’s decision-making on disaster risk prevention and reduction. 
3. Assessing the impacts of investments through a number of case studies, as in the case study of Tabasco (see below).
4. Formulating a strategy for integrated disaster risk financing at the subnational level through the development of a joint catastrophe risk transfer mechanism for Mexican States. 

Disaster Risk Reduction and Prevention: The Case of Tabasco 

In 2007, following the debilitating floods in Mexico’s state of Tabasco, President Felipe Calderon pledged to rebuild.  Through the National Water Commission (CONAGUA), the federal government and the government of Tabasco worked together to design and implement the Integrated Hydraulic Plan of Tabasco (PHIT for its acronym in Spanish) which included short and medium term measures to reduce the risk of floods.  These measures involved improving the overall hydraulic infrastructure of the state, optimizing the use of water resources and relocating the population to areas less prone to flooding.

In 2010, Tabasco was once again pounded by heavy rains.  Records of the activity showed that the 2010 floods were even superior in magnitude to the floods of 2007.  However, thanks to the previous investments in disaster risk reduction (DRR), impacts were minimal in comparison.  An innovative impact evaluation of these investments in the state of Tabasco, led by the World Bank, show that DRR investments in Tabasco, primarily through the PHIT, prevented almost 30 million Mexican pesos in damages and losses during the 2010 floods. To put this into perspective, this amount is equal to seven percent of Tabasco’s GDP and represents four times Tabasco’s Public Works budget in 2014. Moreover, just in 2010, the benefits of DRR investments in Tabasco were three times higher than their cost.

These results underscore how crucial it is for Mexico to focus and actively promote disaster risk reduction and prevention measures. 

Pillar 2: Supporting disaster and climate resilience activities across a wide range of sectors  

Through activities under Pillar 2, the Government of Mexico and the World Bank seek to improve understanding and management of disaster and climate risks in Mexico’s urban areas.  Activities accomplished so far include:

1. Engaging with the Ministry of Agriculture, Territorial and Urban Development and CENAPRED (National Disaster Prevention Center), on integrating risk reduction policies into territorial and urban planning. 
2. Engaging with Mexico’s Education authorities to identify needs and strengthen opportunities around safe school issues. This collaboration, so far, has produced a preliminary sector diagnosis on safe schools and is expected to become an important part of further collaboration between the Bank and Mexico’s Government.   
3. Developing partnerships to study the potential distribution benefits and poverty impacts of improved catastrophe risk management in Mexico.  Over the years, Mexico has compiled a trove of data on poverty that can be used to better understand the dynamics of natural disasters and its redistribution impacts.
4. Providing technical assistance to the government of Mexico on the use of a risk modeling platform and its transfer to the National Center for Disaster Prevention.  This activity will help to streamline disaster risk information into the design and formulation of federal investments, thereby strengthening the sustainability of federal investments in the country.

Pillar 3: Fostering collaboration and partnerships around disaster risk management  

Pillar 3 focuses on disseminating the best practices and lessons learned from Mexico’s developed expertise in disaster risk management with countries facing similar challenges.  Activities under this pillar include:

1. A knowledge sharing platform, developed over the past two years, on Disaster Risk Financing Insurance (DRFI).  
2. Support for Mexico as they hosted the G20 Summit in June, 2012.  More than 15 G20 countries and international organizations participated in the summit to share knowledge and good practices in disaster risk assessment and financing.  During this Summit, Mexico and the World Bank released the first deliverable under the G20 Disaster Risk Management Agenda – a joint report entitled, “Improving the Assessment of Disaster Risks to Strengthen Financial Resilience.”  
3. A knowledge partnership established through the World Bank and the Swiss Secretariat for Economic Affairs’ (WB-SECO) Program for Sovereign Disaster Risk Financing and Insurance for Middle-Income Countries.  
4. A two-day workshop held in the framework of the III Session of the Regional Platform for Disaster Risk Reduction of the Americas that hosted participants from the Ministries of Finance in Panama, Costa Rica, Peru, Colombia and Mexico and the private sector.  This collaboration led to the development of a comprehensive strategy on disaster risk financing under the National Disaster Risk Reduction and Management Act.

The services provided through this Programmatic Approach have closed knowledge gaps in areas where disaster risk management remains chronically understudied.  It has also strengthened the capacity of key government stakeholders to measure the performance of disaster risk management expenditures and policies.  The analytical approach developed for the impact evaluation of disaster risk reduction investments in Tabasco, can also be used to assess the efficiency, effectiveness and impact of similar investments in other parts of the country.  Mexico’s Ministry of Finance has also adopted the methodology and tools provided through its engagements with the World Bank to further refine the Federal DRFI strategy currently under implementation.

Overall, the ongoing partnership with the Government of Mexico and the World Bank, guided through this Programmatic Approach, supports Mexico’s transition towards a comprehensive disaster risk management strategy that balances efforts in risk identification, prevention and risk reduction with efforts in risk financing and post-disaster reconstruction.