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A research report on the topic

ECONOMIC IMPACT OF EARTHQUAKE

Submitted To:

Mr. Dilip Verma

BBA Co-ordinator

Padmashree International College

Submitted By:

Pratil Koju

In the partial fulfilment of BBA course in Padhmashree International College

November 7, 2015

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Abstract

This is a research report on the topic “Economic impact of Earthquake”. This report include

brief introduction about previous earthquakes in Nepal and other countries. This report also

include the economic impact of earthquake in economic sectors like agriculture, financial

sectors, tourism sectors, industry and commerce sectors, hydropower and so on. The report

should how much damage and losses had cause in these sectors and how much would be the

cost of these damages. Different data from various sources are used to support this report. The

data are all secondary and no primary data are used.

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Acknowledgement

We would like to express our deep gratitude to our respective Lecturers Mr. Dilip Verma and

Mr. Nabin Bista for providing us with continuous guidance and supervision.

We would also like to express our deep gratitude to Mr. Eros Gautam for helping to do this

research report.

Finally, we would like to thank our friends and family for providing us support and

encouragement whenever necessary.

Pratil Koju

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Table of Contents

Abstract ..................................................................................................................................... 1

Acknowledgement .................................................................................................................... 2

Table of Contents ...................................................................................................................... 3

List of Tables ............................................................................................................................ 5

List of Figures ........................................................................................................................... 6

Abbreviations ............................................................................................................................ 7

Chapter 1: Introduction ............................................................................................................. 9

1.1 Basic Introduction of Nepal ............................................................................................ 9

1.2 Economic background of Nepal.................................................................................. 9

1.2 Earthquake and Nepal ................................................................................................... 10

2.1 Nepal Earthquake 2015 ................................................................................................. 11

1.3 Objective ....................................................................................................................... 11

1.4 Limitation ...................................................................................................................... 11

1.4 Outline of the study ....................................................................................................... 12

Chapter 2: Literature review ................................................................................................... 14

2.1 The earthquake of Luzon 1990 ..................................................................................... 14

2.2 The economic impact of the Canterbury earthquake .................................................... 14

2.3 Bihar Nepal Earthquake 1934 ....................................................................................... 15

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Chapter 3: Research methodology .......................................................................................... 16

3.1 Research Design............................................................................................................ 16

3.2 Nature and Sources of Data .......................................................................................... 16

Chapter 4: Economic Impact of Earthquake ........................................................................... 17

4.1 Macroeconomic impact ................................................................................................. 22

4.2 Impact on Agriculture ................................................................................................... 23

4.3 Impact on Commerce and Industries ............................................................................ 24

4.4 Impact on Tourism ........................................................................................................ 25

4.5 Impact on Finance Sector .............................................................................................. 28

4.6 Impact on Hydropower and Electricity ......................................................................... 31

4.7 Impact on Labor market and Employment ................................................................... 33

Chapter 5: Recommendation and conclusion ......................................................................... 35

References ............................................................................................................................... 36

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List of Tables

Table 1: Abbreviations .............................................................................................................. 8

Table 2: Earthquakes in Nepal with magnitude greater than 6.5 ............................................ 10

Table 3: Per capita disaster effect in most affected districts ................................................... 19

Table 4: Loss and damages incurred in the earthquake .......................................................... 20

Table 5: Resources required for Recovery and Reconstruction .............................................. 21

Table 9: Damages and losses to the tourism sector by earthquake ......................................... 26

Table 10: News article published in a daily newspaper during the times of Earthquake ....... 28

Table 11: Total deposits in BFIs and SACCOs ...................................................................... 30

Table 12: Hydropower plants damaged by Earthquake .......................................................... 32

Table 13: Work days lost and income lost per district............................................................ 33

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List of Figures

Figure 1: Death caused by natural disaster from 1st Baisakh 2072 to 11st Kartik 2072 ........ 17

Figure 2: Map of Nepal show districts with most deaths ........................................................ 18

Figure 3: Categories of Earthquake affected districts ............................................................. 19

Figure 4: Economic growth ................................................................................................... 23

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Abbreviations

NEPSE Nepal Stock Exchange

HDI Human Development Index

HDR Human Development Report

NSC National Seismological Centre

UNDP United Nations Development Programme

PDNA Post Disaster Needs Assessments

SACCO Savings and Credit Cooperatives

USGS U.S. Geological Survey

GDP Gross Domestic Product

NRB Nepal Rastra Bank

CBS Bureau of Statistics

BFIs Bank and Financial Institutions

WTTC World Tourism and Travel Council

NEA Nepal Electricity Authority

IPPs Independent Power Producers

MoF Ministry of Finance

DoA Department of Agriculture

MoCTA Ministry of Culture, Tourism & Civil Aviation

TAAN Trekking Agencies’ Association of Nepal

HAN Hotel Association of Nepal

NTNC Nepal Trust for Nature and Conservation

SEBON Securities Board of Nepal

NEPSE Nepal Stock Exchange

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MW Mega Watt

MFIs Microfinance institutions

NGOs Non-Governmental Organizations

FINGO Financial intermediary NGOs

NATO Nepal Association of Tour Operators

Table 1: Abbreviations

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Chapter 1: Introduction

1.1 Basic Introduction of Nepal

Nepal is a small land locked country in South-East Asia, located in between two Asian giants,

India and China. The area roughly covers 56,827 sq. miles with a length of approximately 550

miles east west and 180 miles in breadth north south. It is surrounded by India on three sides

and by China in the North. Despite it being so small, Nepal boasts varied geographical

diversity. The lowest land is 105 meters from sea level and the highest is 8848 meters, which

is also the highest topography of the whole world. The climate varies with the altitude, with

high temperature down south and freezing cold up north while the people in the mid-region

enjoy the mild temperature. Nepal is heavily dependent on India for the import of daily basic

necessities and imports lots of other products from China.

1.2 Economic background of Nepal

Nepal is among the poorest and least developed countries. The real GDP of Nepal (at basis

price) is 690.3 Billion (Economic Survey Fiscal Year 2014/15, Government of Nepal, Ministry

of Finance, 2015). Agriculture is the mainstay of the economy, with more than two thirds

deriving their livelihood from it. Industrial sector is relatively small. In recent years, foreign

employment has emerged as the largest component of services sector and the largest source of

foreign reserves. Tourism is a growing industry and a major source of foreign currency. In

terms of contribution to GDP, agriculture’s share is about one third. The industrial and services

sector account for the remaining two-thirds of total GDP. The economy of Nepal can be divided

into three sectors as agriculture sectors, industrial sector and service sector. According to the

HDR 2014 launched by UNDP, Nepal’s HDI of Nepal is 0.540.

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1.2 Earthquake and Nepal

Nepal is the 11st most earthquake prone country in the world. Nepal is located right on the top

of subduction zone. It a place where one plate of earth crust slides under another. In this case,

India plate id pushing it self to the north under the Euasian plate. The first earthquake was

recorded back in 1255 A.D. Some of the earthquake in Nepalese history are the 1408 A.D.

earthquake, the earthquake of 1681 A.D. and 1810 A.D, but the exact location of these

locations are still unknown.

One of the most memorable earthquake is the earthquake of 1934 January 15. It is estimated

to be a magnitude of 8.0. Kathmandu valley was destroyed and one third of the population was

killed. The earthquake of 1934 A. D. is the most devastating earthquake ever occurred in the

territory of Nepal with casualties of more than 10000 people within Kathmandu valley. After

that 1988, there was another earthquake with magnitude of 6.9 with death tolls over 1500.

Since the great earthquake of 1934, there had been only six earthquake with magnitude greater

than 6.5. The last four earthquake was occurred within this year within a month.

Date Magnitude (Mw)

2015-05-12 6.8

2015-04-26 6.9

2015-04-25 6.6

2015-04-25 7.6

1988-08-21 6.9

1934-01-15 8.4

Table 2: Earthquakes in Nepal with magnitude greater than 6.5

Source: http://www.seismonepal.gov.np/

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2.1 Nepal Earthquake 2015

On Saturday, 25 April 2015 at 11:56 local time, a 7.6 magnitude earthquake as recorded by

Nepal’s National Seismological Centre (NSC), struck Barpak in the historic district of Gorkha,

about 76 km northwest of Kathmandu. The earthquake was originated just 9.3 miles (15

kilometers) below earth’s surface resulting greater damage to Nepal. The earthquake lasted

approximately 50 seconds. Nepal had not faced a natural shock of comparable magnitude for

over 80 years. The 7.6M earthquake was followed by more than 300 aftershocks with greater

magnitude than 4.0 (as of 7 June 2015). Among them three of them were pretty big with

magnitude of 6.6, 6.9 and 6.8.

The earthquake of 25th April have been a terrible disaster for Nepal since it affected almost

half of its districts among with 14 districts were declared crisis hit areas. According to Ministry

of Home Affair, The earthquake took the life of 8891 people and left 22302 people injured.

And half a million houses collapsed or damaged leaving thousands of peoples homeless.

The earthquake also caused avalanches in Mount Everest and also landslides in different part

of the country.

1.3 Objective

The major objective of the study are as follows:

To study the earthquake of April and May

To study the impact of earthquake in social sector

To study the economic losses due to earthquake

1.4 Limitation

In recent years, the social and economic cost of natural disaster is increased due to growth in

population, environmental degradation and unplanned urbanization. The calculation of actual

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damage is very tough quest to conquer. Small hazard like assets, gold, silver and other valuable

item don’t get registered during the process but they will definitely force general people to

poverty. And a good analysis of real economic impact of earthquake is not achieved just a

couple of months later. Only after 2-3 years later, real impact can be achieved.

The limitation of this study are as follows

This study is basically a secondary research and no primary data is included

Real economic impact is hard to analyze just after couple of months

Only economic impact is studied in this report

I may not have gone deep into detail studies due to lack of time span

1.4 Outline of the study

The study consist of 5 chapters

Chapter 1: Introduction

This part consist of introduction to the topic, background and also include objective and

limitation of the study

Chapter 2: Literature Review

This chapter includes the literature reviews. How other people have researched in similar topic

as this one.

Chapter 3: Research Methodology

This chapter deals with methodologies used in this study.

Chapter 4: Economic impact of Earthquake

This section deals with economic impact of earthquake in different sectors.

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Chapter 6: Discussion and Conclusion

This chapter includes any discussion on the subject matter and the conclusion of the study.

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Chapter 2: Literature review

This chapter include theoretical review of past studies regarding this topic. Theoretical review

comprises of selection of available document (both published and unpublished) on the related

topic, which contain information, idea, data and evidences compares how the different studies

have addressed the issue.

2.1 The earthquake of Luzon 1990

The report by Ignacio Armillas (1990) writes in their report that the destruction caused by the

earthquake was having serious repercussions on the lives and economic activities of not only

the people directly affected, but of Filipinos in general. The problem of broken road links

illustrates the manufacturers have been choked and as a result people who barely noticed the

seismic event how feel their standard of living decline in its aftermath. The earthquake has

resulted in increased food prices and unemployment, and had added pressure on the national

balance of payments.

Consequently, the earthquake has placed a heavy new burden on a nation already struggling

with major economic and other problems. The estimated cost of reconstruction and associated

development will be more than billion pesos.

2.2 The economic impact of the Canterbury earthquake

Miles Parker and Daan Steenkamp (2012) writes in their paper about the economic impact of

Canterbury earthquake.

In late 2010 and in 2011, Canterbury endured a series of major earthquakes. Overall, the

Canterbury economy has been reasonably resilient to the impact of the earthquakes, and the

spillover to other regions in New Zealand has been limited. Goods exports and manufacturing

activity appear to have held up well. Conversely, some sectors, notably retail, accommodation

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and hospitality, have been hard hit. International visitor numbers are sharply down, and there

appears to have been some population loss from Christchurch. Repair and rebuild activity is

under way and expected to accelerate from here, peaking in the next few years, but will take

at least a decade to complete. Rebuilding costs of damages from the earthquake is around

NZ$20 billion (US$15 billion) excluding disruption costs, or 10% of GDP. The effect of the

earthquake had been seen every aspect of the economy like construction sector, financial

sectors, business sectors, housing market, labor market etc.

2.3 Bihar Nepal Earthquake 1934

M.R. Pandey and Peter Molnar (1988) studied the effect of the 1934 earthquake and mentioned

the findings in their report. Their study had been focus to the impact in the Kathmandu valley.

They writes that the destruction in the valley was particularly great. Rana (1935) stated that

12397 (or nearly 19%) of houses were completely destroyed by earthquake and 25658 (38%)

were badly fractured. The destruction was most complete at Bhaktapur and neighboring

villages in the eastern part of the valley. This reflected in part by the ratio of the number of

houses “totally destroyed” to the number of those “much fractured”, a ratio that is greater than

one only in Bhaktapur, among the subdivcision of the Kathmandu valeyliisted by Rana (1935).

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Chapter 3: Research methodology

This chapter deals with research methodology that aims at answering the research questions

raised and accomplishing the research objectives. Research methodology sets out overall plan

associated with the study. It provides basic frame work in which the study is based. Before

going further in the study, it is necessary that research methodology be described first.

3.1 Research Design

This research is qualitative study rather than quantitative study. However some data are

presented to support the statement in the study. The study was carried out to find the adequate

information in the context of Earthquake affecting the economy of Nepal. Different secondary

data were collect from different articles and other research papers. No interviews were taken

and no primary data is presented in the study.

3.2 Nature and Sources of Data

The study is solely dependent on secondary data. Secondary data were taken from credible

sources. Secondary data were used to support statements in the study. Different sources of

secondary data are as follows:

PDNA report

Nepal Stock Exchange

Ministry of Finance

Nepal Rastra Bank

Economic Survey

Previous research Papers

Ministry of Home Affairs

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Chapter 4: Economic Impact of Earthquake

In 25th of April 2015, a great earthquake of magnitude 7.6 hit the city of Barpak of Gorkha

district at 11:56 am. The earthquake lasted for almost 50 seconds. The earthquake was rather

shallow, the point of origin of the earthquake was just about 9.3 miles (15 km) below the

surface level. The earthquake was followed by series of aftershocks. There was about 300 of

aftershocks with magnitude greater than 4.0 (as of 7 June 2015). Among the aftershocks, three

were pretty big one. First one occurred in the same day and second on occurred in 26th April

and the last one occurred in 12th of May 2015.

The earthquake was the most terrible disaster after the great earthquake in 1933 with magnitude

8.4 almost 80 years ago. After that there was 1988 earthquake with magnitude of 6.9 also but

it was not as devastating as this one in comparison. This earthquake, because it was very

shallow turned out to be very devastating. According to ministry of Home affair, the

earthquake claim 8891 deaths with 22302 people left injured. The earthquake completely

destroyed 604930 houses while 288856 houses were partially damaged.

Figure 1: Death caused by natural disaster from 1st Baisakh 2072 to 11st Kartik 2072

Source: Ministry of Home Affairs

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It is estimated that the lives of eight million people, almost one-third of the population of Nepal,

have been impacted by these earthquakes. Thirty-one of the country’s 75 districts have been

affected, out of which 14 were declared ‘crisis-hit’ for the purpose of prioritizing rescue and

relief operations; another 17 neighboring districts are partially affected. According to the

figure, Sindupalchowk was the district with most death among other districts. The per capita

disaster effect in the 14 most effected district are given in table 3.

Figure 2: Map of Nepal show districts with most deaths

Source: USGS

North

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District Per capital disaster effect, NPR/Person

District Per capital disaster effect, NPR/Person

Dolkha 255,860 Ramechhap 112,740 Sindhupalchowk 233,370 Bhaktapur 78,770 Gorkha 209,080 Okhaldhunga 74,500 Nuwakot 204,930 Sindhuli 57,865 Rasuwa 179,580 Lalitpur 52,765 Dhading 149,580 Kathmandu 49,495 Kavrepalanckowk 119,200 Makawanpur 43,760

Table 3: Per capita disaster effect in most affected districts

Source: Estimation by Post Disaster Needs Assessments (PDNA) team and UNDP

Apart from these, the earthquake triggered deadly avalanche in the world highest peak, Mount

Everest. 17 people were killed during the avalanche and 61 people were injured. The

Figure 3: Categories of Earthquake affected districts

Source: Ministry of Home Affairs

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earthquake also triggered few landslides in the different part of the country claiming hundreds

of people. Landslides caused by the earthquakes continue to pose both immediate and long-

term hazards to villages and infrastructure within the affected region. Several landslides

blocked rivers, creating temporary dams, which were a major concern for villages located

downstream.

Sector Damage (In NRs

10 Million) Loss (In NRs

10 Million) Total (In NRs

10 Million) Social Sector 3,550,180.00 5,359.70 40,862.50 Housing and Human Settlements 3,036,310.00 4,690.80 35,054.00 Health 642.20 11,220.00 754.40 Education 2,806.40 325.40 3,131.80 Cultural Heritage 1,691.00 231.30 1,922.30 Productive Sector 5,807.40 12,004.60 17,812.00 Agriculture 1,640.50 1,196.20 2,836.70 Irrigation 38.30 - 38.30 Commerce 901.50 793.80 1,695.30 Industry 839.40 1,087.70 1,927.10 Tourism 1,886.30 6,237.90 8,124.20 Finance 501.50 2,689.00 3,190.50 Infrastructure Sector 5,246.00 1,432.30 6,678.30 Electricity 1,780.70 343.50 2,124.20 Communication 361.00 508.50 869.50 Community Infrastructure 334.90 - 334.90 Transport 1,718.80 493.00 2,211.80 water and Sewerage 1,050.60 87.30 1,137.90 Cross Cutting Issues 5,187.20 106.10 5,293.30 Governance 1,875.70 - 1,875.70 Natural Disaster Risk Reduction 15.50 - 15.50 Forest and Environment 3,296.00 106.10 3,402.10 Gross Total 51,743.40 18,902.70 70,646.10

Table 4: Loss and damages incurred in the earthquake

Source: Economic Survey 2015, Ministry of Finance

The losses incurred from the earthquake worth NRs 706.46 Billion which is roughly one third

of the current GDP. 517 billion worth of properties and infrastructure were fully destroyed by

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the earthquake while 189 billion represent the losses and higher costs of production of goods

and services arising from the disaster. Of the total loss, social sector incurred the damage of

57.84%. Productive sector incurred damage of 178 billion (25.21% of total damage) and

infrastructure incurred damage of 66.78 billion i.e. 9.45% of total damage. And 51.87 billion

of loss in cross cutting issues.

Sector Amount required for

recovery and reconstruction (NRs 10 millions)

Share (Percent)

Social Sector 40,774.70 60.90 Housing 32,776.20 49.00 Health 1,469.00 2.20 Nutrition 503.60 0.80 Education 3,970.60 5.90 Cultural Heritage 2,055.30 3.10 Productive Sector 11,561.80 17.30 Agriculture 1,556.10 2.30 Irrigation 46.70 0.10 Commerce 2,005.10 3.00 Industry 735.70 1.10 Tourism 3,871.00 5.80 Finance 3,347.20 5.00 Infrastructure 7,426.60 11.10 Electricity 1,858.60 2.80 Communication 493.90 0.70 Community Infrastructure 445.00 0.70 Transport 2,818.50 4.20 Water and Drainage System 1,810.60 2.70 Cross Cutting 7,187.30 10.70 Governance 1,844.20 2.80 Natural Disaster Risk Reduction 820.40 1.20 Forest and Environment 2,519.70 3.80 Employment and Living Standard 1,254.70 1.90 Social Security 639.80 1.00 Gender and Social Inclusion 108.60 0.20

Total 66950.50 5,625.50

Table 5: Resources required for Recovery and Reconstruction

Source: Economic Survey, Ministry of Finance

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The data shows the total amount of NRs 669.50 billion required for the reconstruction and

recovery from the earthquake. The amount required is almost equal to the announced budget

for the fiscal year 2072/73. The table shows social sectors require most of the recovery cost

i.e. 60.9 % of total amount. Cross cutting require the least i.e. 10.70%.

4.1 Macroeconomic impact

With 706 billion of losses and damages (about one third of GDP), it is expected the economy

to take a great hit. Before earthquake the GDP growth for the fiscal year 2071/72 was expected

to be 4.6 percentile. After the earthquake, according to economic survey done by Ministry of

finance, the GDP growth for the fiscal year 2071/72 was only 3.04%. This was a very huge hit

for an economy like our. According to economic survey by Ministry of finance, the

reconstruction cost of the earthquake will be 669.5 billion Nepalese Rupees that’s about one

year of budget. The social sector alone require 60.9% of the fund. According to World Bank’s

estimate, the earthquake will drive 2.5percent to 3.5 percent of Nepalese population back to

poverty adding 700,000 more poor to the country’s total poor by the end of Fiscal year 2015/16.

Likewise, Multidimensional poverty is likely to receive grave impact owing to hurdles in

drinking water and sanitation services, schools and health facilities, and increased food

insecurity.

Balance of Payment is estimated to receive negative effect as a result of increased imports

against low export volume thus making the domestic production failing to meet higher demand

of construction, materials such as steel, fitting accessories, cement, bricks, and timbeNRs

Revenue collection in fiscal year 2071/72 had fell by 7.0 percent to NRs 393 billion subsequent

to the disaster from the earlier estimates of NRs 423 billion. Likewise, total government

expenditure also declined to NRs 494 billion from expected NRs 618 billion, i.e. 20% decline

in expenditure. Similarly, export is expected to fall while trade deficit is likely to grow albeit

lower import growth rate.

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The inflation had gone up since the earthquake, the consumer price index for the month March

was 7.0% according to Ministry of finance and after the earth in late April and early May, the

consumer price index went up to 7.4% June.

Figure 4: Economic growth

* based on Data for the first 8 months of the current fiscal year

Source: Ministry of Finance (2015)

4.2 Impact on Agriculture

Agriculture is the biggest employer in Nepal, particularly in rural areas, and is the main

contributor to household level food and nutrition security of the rural population. Nearly 80%

of Nepal’s nearly 28 million inhabitants and 60% of the labor force is dependent on agriculture.

Male out-migration in large numbers has left women to perform farm activities in the villages.

Women contribute 60% in crop production and 70% in livestock and poultry production. The

agriculture sector contributes approximately one-third of the national GDP in a country

Damages and losses in the agriculture sector are significant. The estimated number of small

and vulnerable farming households affected in the 24 districts is around 1 million, with female

headed households outnumbering male. Farmers keep their rice and millet grains harvested in

5.1

3.04, Actual

3.9

4.6

3.8

4.6, Expected

2

2.5

3

3.5

4

4.5

5

5.5

2010/11 2011/12 2012/13 2013/14 2014/15*

GDP Growth rate

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previous year were stored in their own houses. With the houses destroyed those rice and millet

were also destroyed. The storage is yet to be problem during the harvest season this year. The

earthquake took the life of many livestock destroyed many commercial farms. Areas in some

of the most-affected districts reported cracks in both upland and irrigated fields. Nearly 1,000

hectares of land have been rendered useless due to landslides and land slips; these lands will

most likely not be recovered. It is feared that due to the heavy pressure of finding food and

shelter to the family people might not have time for farm work and the production losses may

be as high as 50%. Some of the crops were destroyed by the landslides triggered by the

earthquake. The cost of reconstruction and recovery for is sector is estimated to be NRs 15.56

which accounts for 2.30% of total reconstruction and recovery cost for earthquake. The

earthquakes increased the fragility of the food production systems making poor and marginal

farmers, including the elderly and women, more vulnerable to other possible future disasters.

The earthquakes seriously impacted agriculture-based livelihood in the affected districts

increasing their vulnerability to hunger and food insecurity. The loss of farm land and other

productive assets, and the risk of having land uncultivated on the hill slopes of the most

affected districts, further increases the risks of decreased production and food insecurity in the

coming months and in the next couple of years with far-reaching negative impacts.

4.3 Impact on Commerce and Industries

Commerce and industries are key aspect in any economy. Its plays a key role in economic

growth and to strengthen the economy. In our economy, this sector contributes 15% in the

Gross Domestic Product of fiscal year 2071/2072. This sector is also an important employer to

the people of Nepal.

According to PDNA report by Ministry of Home Affairs, the total damages accounted for this

sector is NRs 15.6 billion while losses account for NRs 16.87 billion in the 14 most affected

districts. For overall the country the numbers stand at NRs 17.4 billion for damages and NRs

18.8 billion for losses. The recovery and reconstruction cost for this sector is estimated to be

NRs 27.4 billion rupees.

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Despite these numbers, the subsequent decline in commerce and industries due to earthquake

is likely to result in decline of government revenues and employment opportunities. Thus,

people are forced into poverty. The earthquake affect proper functioning of the industries in

follows:

Damages to premises, equipment, machineries, stock of raw materials and finished

goods.

The earthquake had taken 8891 lives and injured 22302. This is likely to decrease

supply of labor in labor market.

With the damages and losses to the people, their purchasing power is likely to reduce

thus creating lack of demand for goods, especially for non- essential goods.

Damage to trade related infrastructure like roads, bridges, distribution channel of

enterprises.

4.4 Impact on Tourism

Tourism sector is one of the growing sector of Nepalese economy. Tourism sector contribution

to the GDP of fiscal year 2071/72 account for 2.2% according to economic survey of 2015 by

Ministry of Finance. The income from hotels and restaurant accounts for 1.9% of GDP. Central

Bureau of Statistics (CBS) estimates that the hotel and restaurant may contributes to 75 to 80%

to the tourism sector’s revenue. World Tourism and Travel Council (WTTC) 2015 report,

based on pre-earthquake data, indicates that in 2014 travel and tourism in Nepal directly

supported 487,500 jobs (3.5 percent of total employment). The number of jobs was expected

to rise by 4 percent in 2015 and by 3 percent per annum to 681,000 jobs in 2025. Following

the earthquakes, these numbers will need to be revisited.

According to the PDNA report, the damages and losses incurred by this sector is NRs 18.86

billion. The number of tourists were down by a staggering 90% between May and July 2015.

It may take couple of year to gain tourists confidence and resume the number of tourists as

before. Domestic airline operation reported total monthly income loss of NRs 400 million for

the months following earthquake. Tourist accommodations of different types were either fully

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or partially damaged in the Langtang, Gorkha-Manaslu, Khumbu, Charikot, Kalinchok, Jiri

and Rolwaling areas and in Dhanding district. A few hotels in the Kathmandu Valley

(including Nagarkot) were completely damaged with a majority having minor cracks. Many of

the tourism monument and cultural heritage attractions have been destroyed within and outside

Kathmandu valley. The earthquake affected a total of 691 buildings of historic value in 16

districts according DoA, MoCTA. Of these buildings, 131 were fully destroyed and 560 were

damaged. 150 km of trekking trail have noticed significant damages and 200 km require

maintenance and repair.

Table 6: Damages and losses to the tourism sector by earthquake

Officials declare Everest Hotel, some heritage properties “unsafe” By SANGAM PRASAIN, kathmandupost.ekantipur.com May 27 07:25 AM

The Everest Hotel in Baneshwor has been given a ‘red sticker’ by a government team which made a detailed inspect of the five-star hotel on Tuesday. A red sticker is given to any building the government officials deem unfit to live in.

A team of Department of Tourism and Hotel Association of Nepal, alongside government engineers, inspected 16 luxury hotels in the Kathmandu valley in the past few days.

Particulars Million NRs Hotels, other accommodations (Source: HAN/TAAN) 16,294.5 Homestays (report under housing sector) 1,720.0 Eco-Lodges in conservation Areas (Source: NTNC) 415.3 Trekking trails (Source: TAAN) 426.1 Tour operators (Source: NATO) 6.9 Total 18,862.8

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The five-star property had initially been given a ‘green sticker’ after the April 25 Great Quake, declaring it fit for habitation. However, strong and continuous aftershocks since then had made it unsafe to live in, officials said on Tuesday.

A government inspection team placed a red sticker on the property on Tuesday, meaning that the structure had been damaged to the extent that it is now dangerous to inhabit. The hotel has been asked evacuate the occupants as soon as possible.

“As retrofitting of the building is necessary to avert seismic disasters, we have urged the hotel to act accordingly,” said Koshnath Adhikari, a leader of the inspection team. A number of structural experts had said that the hotel could be operated after repairs. “But considering that a five-star hotel should have adequate safety measures, we decided to red-tag the property.”

Adhikari, a senior divisional engineer at the Department of Urban Development and Building Construction, said that after a second round of inspections, they found out that the powerful aftershock on May 12 had severely damaged three main pillars in the hotel’s lobby.

The team will also be making a second round of inspections of another five-star property the Hotel Malla. Hotel Association Nepal (Han) has claimed that 90 percent of the hotels in the Kathmandu valley are fit for habitation. Meanwhile, the government team has said that a number of hotel buildings dating from the Rana period and heritage structures should either be dismantled or strengthened. According to Adhikari, a heritage building of the Kathmandu Guest House has been given a red sticker and not the whole hotel.

Likewise, the Hunter’s Lodge Restaurant at the Gokarna Forest Resort has also received a red sticker. The inspectors have recommended that it be dismantled. The property is more than 150 years-old, with a history of royalties using it. The team has also placed a red sticker on the old building of Dhulikhel Resort in Dhulikhel, though the rest of the property is said to be fine.

Adhikari said that the resort had started demolishing the old building. A tourist-standard Budget Hotel in Thamel collapsed during the earthquake.

It has become difficult to assess the stability of hotel structures and ascertain if they have been weakened by the quake due to lack of manpower, structural experts said. They can be strengthened through retrofitting.

Poor occupancy

Except for a few five-star hotels with 25-30 percent occupancy, all the luxury and tourist-standard hotels in the Capital have reported poor occupancy.

Amar Man Shakya, first vice-president of Han, said that rescue and media personnel were keeping a few five-star hotels busy, but many hotels were getting only 4-5 percent occupancy.

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The hospitality sector is worried that the trend might last a long time. A survey entitled Economic Activities Report 2013-14 conducted by Nepal Rastra Bank showed that there are 1,792 hotels and lodges in the country producing 36,371 room nights daily.

The country’s five-star hotels produce a combined 57,000 room nights every month. According to the Tourism Ministry, the average occupancy of five-star properties in April and May normally stands at 65 percent and 55 percent respectively.

The sharp drop in visitors after the earthquake and constant aftershocks is apparent in the tourist district of Thamel. Tourism entrepreneurs in Pokhara have already announced heavy discount packages in a bid to bring back tourists.

Travel trade entrepreneurs have also formed various bodies to revive the country’s tourism industry and have urged tourists to visit Nepal during the autumn.

The entrepreneurs say the tourist destinations are still safe and attractive and they could attract tourists.

The Annapurna Trekking Route, Pokhara, Chitwan, Lumbini, Bandipur, Tansen, Dolpa, Rara and Bardia are some of the destinations that were not affected by the tremor.

Three heritage sites to reopen

The Department of Archaeology has decided to reopen three heritage sites in the Kathmandu valley that were reduced to rubble by the quake to visitors by June-end.

Ram Bahadur Kunwar, spokesperson at the department, said that they had been working to reopen Kathmandu Durbar Square, Swayambhu and Patan Durbar Square to sightseers. According to him, Patan Durbar Square will be reopened in three-four days.

“As it will take six or seven years to fully renovate the damaged sites, we have decided to reopen them after confirming that they are safe to visit.”

Table 7: News article published in a daily newspaper during the times of Earthquake

4.5 Impact on Finance Sector

In the years prior to the earthquakes, successes have been achieved in expanding the reach of

the financial system, in restructuring state-controlled financial institutions and improving legal

frameworks. Nonetheless, a significant proportion of the population lacks access to financial

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services, and the banking sector remains exposed to several vulnerabilities, including concerns

over asset quality. There are four classes of NRB-regulated banks and financial institutions

(BFIs) differentiated by their capital requirements and range of permissible activities. Non-

bank financial institutions and capital markets are in their initial stages of development, but

with very rapid growth in both numbers and share of system assets and deposits held in Savings

and Credit Cooperatives (SACCOs). Together with microfinance institutions (MFIs) and

financial intermediary NGOs (FINGOs), these are the primary source of financial services for

poor and rural communities.

The disturbance of earthquake in the operation of financial institution short lived. Banks and

financial institution were able to resume their services very soon after the earthquake. However

lots of infrastructures were destroyed by the earthquake. 408 branches and 652 ATMs owned

by Class A, B and C BFIs damaged. Also 502 SACCOs were affected by this earthquake.

Despite these infrastructure losses, many depositors gained access to their accounts very easily

which help to maintain public confidence in banking system. This is a remarkable achievement,

given the serious physical damage to Nepal Rastra Bank (NRB) premises, and the absence of

a Disaster Recovery Site (DRS) and Business Continuity Plans (BCPs). The cost of replacing

the two damaged NRB buildings with a well-equipped modern central bank is estimated at

NPR 3.1 billion.

Deterioration in the quality of loan portfolios of BFIs resulting from the disaster could occur

as a result of earthquake damage and disruption in three main ways:

As a result of damage or disruption to otherwise viable businesses (e.g. Hydro power

and tourism), which may need to restructure their debts and will need additional finance

to repair damage

Damage to uninsured real estate collateral

Losses on deprived sector lending in the affected areas where borrowers are unlikely

to be able to repay their loans. If the impact of these factors is significant, it would lead

to de-leveraging and constricting the flow of credit needed to support reconstruction

and development of the economy

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Year Total deposits (NRs millions)

Mid- January Mid-May Mid- July 2015 1,774,615 1,471,047 2,221,201

Table 8: Total deposits in BFIs and SACCOs

Source: PDNA report

Despite these, the deposits in BFIs are increasing post-earthquake. After in just two months

after earthquake, the deposit BFIs had increased by 50%. This increase in deposit is certainly

going to increase the liquidity in BFIs as it will be hard to flow credit in such times of panic

not to mention there is huge risk of previous portfolio losing its quality. The Insurance

Association estimates that its total losses (i.e., net of reinsurance provided by foreign

reinsurers) will not be more than NRs 3.2 billion.

Beside these, the capital market also took hit by this earthquake. Despite not that much of

damages and losses from the loss of fees to Securities Board of Nepal (SEBON), Nepal Stock

Exchange (NEPSE) and Brokerage houses from no trading for nearly a month, Capital market

didn’t took much of a hit. Although NEPSE was forced to closed down almost for a month

after the earthquake. The market reopened in 24th of May, 28 days after the great earthquake

of 25th April. After the trading day opened, the NEPSE index fell by huge points for couple of

days, it regained its points rather quickly.

The total loss incurred by this sector is NRs. 31.9 billion and the recovery and reconstruction

cost is expected to be NRs 33.47 billion which is 5% of total disaster recovery cost.

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4.6 Impact on Hydropower and Electricity

The April 2015 earthquake significantly damaged hydropower plants, the transmission system

(substation and lines) and distribution lines. The damage to complete transmission lines and

grid substations are being assessed by means of a walk-through survey.

Existing hydropower plants

Three Nepal Electricity Authority (NEA) owned power plants (48 MW) and15 IPP-owned

power plants (123 MW) were damaged, resulting in an outage of 171 MW. Other hydropower

plants are still in operation, their damage status being unavailable. The magnitude of damage

to the power plants of NEA and IPP would be known only after a detailed assessment of

damaged power plants.

It is reported that in the Kulekhani storage hydropower plant (92 MW), a deep crack has

developed in the dam, going 0.8 m deep to the clay-core. Cracks are observed in the shaft

bearing block as well. Cracks have also been observed in the power house of Upper

Marsyangdi hydropower plant (75 MW). In Kaligandaki a hydropower plant (144 MW), cracks

have developed in the left bank of the reservoir which was damaged by heavy rain two years

back. Similarly, the waterway of cascade plants Trishuli (24 MW) and Devighat (14.1) have

reported damage.

However, all the power plants of NEA are currently in operation except for Sunkoshi (10MW);

its infrastructure is said to be seriously damaged. Although there seems no visible damage to

other hydropower plants, a thorough assessment is needed for confirmation. Out of 15 IPP

power plants, Chilime hydropower plant, under a NEA subsidiary company, is already in

operation. Other power plants require major reconstruction work for a period ranging from

four months to 12 months.

Hydropower plants under construction

There are reports of damage to hydropower projects under construction that are owned by NEA

and IPP. The construction work in major hydropower projects such as UpperTrishuli 3A

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(60MW), Upper Tamakoshi (456 MW), Rasuwagadhi (111MW), Madhya Bhotekoshi (102

MW), Sanjen (45 MW) and Upper Sanjen (14 MW) and UT1 (216 MW) was stopped in the

wake of the earthquake and subsequent landslides. The details of damage are yet to be assessed.

Similarly, other small IPP projects under construction, totaling 43 MW capacity, are also

reported to be severely damaged.

Hydropower plant Installed capacity (MW) District Trishuli 24.00 Nuwakot Devighat 14.10 Nuwakot Sunkoshi 10.00 Slridhupalchowk Chilime 22.00 Rasuwa Bhotekoshi 45.00 Sindhupalchowk Baramchi 4.20 Sindhupalchowk SipringKhola 10.00 Dolakha BhairavKunda 3.00 Slridhupalchowk Chaku 3.00 Slndhupakhowk MadheChaku 1.80 Sindhupalchowk Lower Chaku 1.80 Sindhupalchowk Sunkoshi 2.60 Sindhupalchowk AnkhuKhola 8.40 Dhadlng MallungKhola 5.00 Rasuwa RadhiKhola 4.40 Lamjung Jiri 2.20 Dolakha TadiKhola 5.00 Nuwakot SiuriKhola 5.00 Lamjung Total affected: 171.50

Table 9: Hydropower plants damaged by Earthquake

Source: PDNA report, Ministry of Home Affairs

About 600,000 households were directly affected by the earthquake in the form of loss of

electricity services. This impact was either through damage to electricity facilities, on-grid and

off grid, or due to house collapse. Loss of access to electricity has a direct bearing on people’s

ability to derive their livelihoods and generate income, particularly so for rural communities

engaged in small- and medium-scale enterprises. The disruption in the power supply will

further pose challenges to the government’s avowed goal of universal access to modern energy

services by 2030in Nepal. NRs 21.24 billion of damages and losses are estimated for this sector

and NRs 18.58 billion is estimated to be the cost of recovery and reconstruction.

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4.7 Impact on Labor market and Employment

The 25 April and 12 May earthquakes affected the livelihoods of about 2.29 million households

and 5.6 million workers across 31 districts, resulting in the loss of 94 million work days and

NPR 17 billion of personal income in fiscal year 2071/72. The agriculture sector appears to

be the most severely affected; it is estimated that 49.9 percent of all work days lost occurred

in agriculture, followed by tourism with 31.1 percent and commerce and industry with 20

percent. Although the personal income loss is equivalent to only two percent of the total

disaster effect, it is important to highlight that annual labor earnings in Nepal are extremely

low. Therefore, even a minor income loss has serious implications for poverty in the country.

District Lost work days Losses in personal income

(NRs in millions) Bhaktapur 3,288,619 594.00 Dhading 6,466,268 1,167.90 Dolkha 6,011,318 1,085.70 Gorkha 6,859,487 1,238.90 Kathmandu 12,153,573 2,195.10 Kavrepalanchowk 5,855,575 1,057.60 Lalitpur 3,399,321 614.00 Makawanpur 2,410,099 435.30 Nuwakot 7,260,420 1,311.30 Okhaldhunga 1,400,633 253.00 Ramechhap 2,909,959 525.60 Rasuwa 995,447 179.80 Sindhuli 2,201,064 397.50 Sindhupalchowk 8,528,389 1,540.40 Sub - total (14 districts) 69,740,172 12,596.00 Other (17 districts) 25,074,666 4,529.00 Total (31 districts) 94,814,838 17,125.10

Table 10: Work days lost and income lost per district

Source: PDNA report, Ministry of Home Affairs

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Despite the heavy losses suffered, the reconstruction and recovery phase is an opportunity for

job creation and employment growth. It is estimated that large-scale housing reconstruction

may generate up to 352 million workdays over the next five years.

Enabling households and workers to recover their productive and income-generating activities

and increasing the resilience of livelihoods to future shocks must be a key component of the

reconstruction and recovery process. A comprehensive strategy –Working out of Disaster,

Building Resilient Livelihoods–is proposed, consisting of a package of interrelated

downstream and upstream activities to bridge the continuum from immediate income

generation to medium- and long-term employment recovery. The estimated budget for the

employment and livelihoods recovery needs amounts to NPR 12.5 billion.

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Chapter 5: Recommendation and conclusion

With so much destruction and the how livelihood of general people had been affected by the

great earthquake of April and the aftershocks, the recovery and reconstruction campaign is

expected to initiate soon. General people had already initiated their effort for recovery at their

level and they expect the government to initiate their effort soon. But it should be kept in mind

that detailed study is required before acting. Detail study of damages and need assessment

should be done. The recovery strategy should be focused on restoration and reconstruction of

all damaged and destroyed cultural heritage. The heritages should be restored in its previous

state or designed with may be new method included to make the establishment earthquake

proof. Post-disaster recovery will therefore be more effective and sustainable if gender equality

and social inclusion are acknowledged as one of the key guiding principles of implementation.

It is estimated that the cost of recovery and reconstruction is expected to be NRs 669 billion.

The campaign is very huge thus the planning should be detailed and long term.

Conclusion

The main objective of the study is to research about the economic impact of earthquake. The

earthquake of April 25th and their aftershocks had been economically expensive to our country.

The economic cost of this earthquake is NRs 706.46 billion according to the economic survey

carried out by MoF. The social sector took the big hit among all of NRs 408.62 billion. This

sector include health, education, housing and cultural heritage. The damages and losses in the

productive sector and infrastructure sector account for NRs 178.12 billion and NRs 66.78

billion. These are only the economic damages and losses incurred. The earthquake also took

the life of 8891 and injured 22,302 peoples. The psychological and mental impact left in the

mind of people are unmeasurable but they are very significant.

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