Lloyd s City Risk Index Middle East and Africa

Transcription

1 Lloyd s City Risk Index Middle East and Africa

2 Lloyd s City Risk Index Middle East and Africa Overview 1 Cities 12 2 Threats 18 3 Resilience 28 References 31 Acknowledgements 32

3 Lloyd s City Risk Index 279 cities. 22 threats $546.5bn at risk The Lloyd s City Risk Index measures the GDP@Risk of 279 cities across the world from 22 threats in five categories: finance, economics and trade; geopolitics and security; health and humanity; natural catastrophe and climate and technology and space. The cities in the index are some of the world s leading cities, which together generate 41% of global GDP. The index shows how much economic output (GDP) a city would lose annually as a consequence of various types of rare risk events that might only take place once every few years, such as an earthquake, or from more frequently occurring events such as cyber attacks. GDP@Risk is an expected loss figure in other words it is a projection based on the likelihood of the loss of economic output from the threat. The resilience levels of each city are taken into account, including the city s governance, social coherence, access to capital and the state of its infrastructure. If some or all of these are resilient they can reduce the overall expected loss. One way of thinking about GDP@Risk is as the money a prudent city needs to put aside each year to cover the cost of risk events. The concept of GDP@Risk helps policymakers, businesses and societies understand the financial impact of risk in their cities, a first step to building greater resilience. The index also shows the scenario costs these are the one-off costs if a specified threat scenario takes place. The index shows two numbers: the lower total is the loss that would occur from a moderate-sized event of that threat category; the higher total is the loss from an extreme scenario. These numbers represent the amount of lost economic output from the city from these types of scenarios. If occupants of the city hold insurance that covers property damage and business interruption, then some of the economic losses would be compensated from claims payments on these policies.

4 Global overview 279 cities. 22 threats Top ten cities at risk 1. Tokyo $24.31bn 2. New York $14.83bn 3. Manila $13.27bn 4. Taipei $12.88bn 5. Istanbul $12.74bn 6. Osaka $12.42bn 7. Los Angeles $11.56bn 8. Shanghai $8.48bn 9. London $8.43bn 10. Baghdad $7.91bn Top ten threats 1. Market crash $103.33bn 2. Interstate conflict $80.00bn 3. Tropical windstorm $62.59bn 4. Human pandemic $47.13bn 5. Flood $42.91bn 6. Civil conflict $37.15bn 7. Cyber attack $36.54bn 8. Earthquake $33.96bn 9. Commodity price shock $20.29bn The index s key finding is that $546.50bn is at risk each year from all 22 threats, in all 279 cities. The largest threats globally 1 are: market crash ($103.33bn), interstate conflict ($80.00bn) and tropical windstorm ($62.58bn). Man-made threats account for 59% of the total GDP@ Risk and climate-related risks account for $122.98bn of lost GDP a sum that will grow as extreme events increase in frequency and severity. The three cities which stand to lose the most GDP through risk worldwide are Tokyo ($24.31bn), New York ($14.83bn) and Manila ($13.27bn). The ten cities with the highest exposure could together lose $126.82bn per annum, almost a quarter of the total GDP@Risk in the index, with Tokyo standing to lose more than any other city. Asian cities stand to lose the most GDP to risk, accounting for $241.28bn or 44% of the global total, with tropical storm the costliest single risk at $59.14bn. North American cities can expect to lose $92.96bn each year and European cities, $70.33bn. In both regions, market crash is the single costliest risk. Cities in the Middle East and Africa will lose $97.20bn of their GDP, with interstate conflict the costliest risk. Latin American cities make up less than 10% of the global total with $44.73bn of GDP@Risk. The index ranks each city with a resilience score from very strong to very weak. A higher resilience score reduces the GDP@Risk. If every city in the index were to upgrade their resilience to very strong, the amount of GDP@Risk would reduce by $73.4bn. 10. Sovereign default $17.97bn

5 Middle East and Africa overview 34 cities. 22 threats The in the 28 Middle Eastern cities included in the index, is, at $65.78bn, higher than the $31.42bn expected loss in 28 African cities. However, these two regions have similarities in the types of risks they are most exposed to. Interstate conflict is the most costly threat for both: Middle Eastern cities stand to lose $25.46bn to this threat and African cities, $13.28bn. Both regions also have civil conflict in their top three risks, although for this threat, the cost to African cities ($7.88bn) is marginally higher than for those in the Middle East ($7.79bn). Geopolitical and security risks will cost this region more than any other, accounting for $61.44bn or two-thirds of the total for all risks. The economic impact of these threats includes disruptions to production, tourist revenue and investment. Some drivers of civil unrest in this region are similar to those in other regions: the presence of large numbers of young people living in poverty or the fact that 62 per cent of Africans live without access to clean water, sanitation, and other basic services. However, unrest in this region has political roots beyond wealth inequality. In some cities such as Baghdad and Khartoum, war has weakened governance structures. In others, as was seen during the Arab Spring, autocratic but previously functioning states were toppled by large numbers of young people calling for change 2. In terms of natural catastrophe and climate threats, earthquake, flood and drought are the costliest threats for cities in both regions. However, the cost of earthquake is much more considerable: at $7.70bn, for Middle Eastern cities almost 95 per cent of the total for the region. This is due to tectonic plates meeting along the Zagros mountain range which runs along the Iran- Iraq border and the Anatolian plate which sits under Turkey. In terms of finance threats, in general, Middle Eastern cities are more likely to lose GDP through market crash ($9.21bn) than sovereign default ($3.37bn). Man-made threats are, overwhelmingly, more of a risk to this region s GDP. They account for 83% of the total. Cities in this region have the lowest resilience scores in the index. Almost half of the cities rated as having very weak resilience - the lowest rating - come from this region. Nineteen are African cities, including all Nigerian locations, while three Baghdad, Amman and Sana a - are Middle Eastern. The region has an opportunity to improve the resilience of its cities in a way that older economies can t. Much of the urban infrastructure in this region is yet to be built, particularly in Africa, which is urbanising faster than any other continent in the world. This affords countries the opportunity to build in urban resilience at the planning stage. There is a clear example of this in Abu Dhabi and Dubai, cities which have grown at a fast pace in recent decades and which the index scores as having the highest possible resilience score of very strong. Urban growth in many cities in this region can avoid the difficulties faced by Europe and North America of having to adapt infrastructure built in the 19th century or early 20th century. The index shows the economic value of doing so and highlights the risks that should inform the resilience blueprints of these megacities of the future.

6 Middle East and Africa at a glance Top ten cities at risk Top ten threats 56 Middle Eastern and African cities stand to lose $97.20bn per year to risk. The costliest are interstate conflict and civil conflict. Geopolitical and security risks are expected to cost $61.44bn almost two-thirds of the total cost of all risks. Manmade threats account for 83% of all risks to GDP, with natural catastrophe and climate comprising just 17%. 1. Istanbul $12.74bn 2. Baghdad $7.91bn 3. Cairo $5.74bn 4. Tehran $5.53bn 1. Interstate conflict $38.74bn 2. Civil conflict $15.67bn 3. Market crash $10.65bn Earthquake will cost the region s cities $8.14bn and is a significant threat to some Middle Eastern cities. 5. Riyadh $4.77bn 4. Earthquake $8.14bn Middle Eastern and African cities could save $26.97bn if they strengthened resilience. 6. Lagos $4.42bn 5. Sovereign default $5.92bn 6. Terrorism $4.83bn 7. Tel Aviv $4.09bn 7. Human pandemic $4.80bn 8. Khartoum $3.79bn 8. Social unrest $2.19bn 9. Jeddah $3.40bn 9. Flood $1.94bn 10. Ankara $3.30bn 10. Drought $0.93bn

7 Top ranked cities 1. Cities 12 Fig 3. Middle East and Africa: top ten ranking cities ($US billion) City by risk Global Costliest ranking Risk ranking threat 1. Istanbul $12.74bn 5 Interstate conflict 2. Baghdad $7.91bn 10 Interstate conflict 3. Cairo $5.73bn 19 Interstate conflict 1. Cities Istanbul tops the ranking for the Middle East and Africa and is fifth in the global rankings, with an expected loss of $12.74bn annually. The three costliest threats to Istanbul s GDP are: interstate conflict, earthquake and market crash. Its high ranking is due to its exposure to a wide range of risks, both man-made and natural. Istanbul is the most exposed city to market crash in the region. Sovereign default is a major risk for several cities in Turkey, including Ankara, which sits in 10th place in the index s overall ranking for the region. 4. Tehran $5.53bn 23 Interstate conflict 5. Riyadh $4.77bn 30 Interstate conflict 6. Lagos $4.42bn 32 Civil conflict 7. Tel Aviv $4.09bn 33 Interstate conflict 8. Khartoum $3.79bn 40 Interstate conflict 9. Jeddah $3.40bn 44 Interstate conflict 10. Ankara $3.30bn 46 Interstate conflict Istanbul s greatest threats come from its location as the bridge between Europe and Asia it straddles cultural, political and tectonic plates. It is third in the index s rankings for loss due to earthquake, and is also vulnerable to flood and drought. The city s proximity to conflict zones in the Middle East and the threat from militant groups means it is sixth place in the index for losses caused by interstate conflict and second for losses due to terrorism. If Istanbul were to raise its resilience rating to the highest category of very strong, its overall GDP@ Risk would reduce by $3bn to $9.7bn. Baghdad is the city with the most GDP@Risk in the region from interstate conflict. This has driven it to second place in the index s overall regional ranking. In total, geopolitical and security risks are expected to cost Baghdad an annual average of $7.48bn, money which the city desperately needs to rebuild its damaged economy. The expected cost is more than triple the $2.1bn pledged by the international community as a response to Iraq s humanitarian crisis in For several years, the city s economy was challenged by both conflict risks and a declining oil price. The country takes first place in the 2017 Global Terrorism Index, with more than 9,000 fatalities caused by terrorism in The Institute for Economics and Peace has estimated that violence costs Iraq 52% of its GDP 4. The country also faces demands for independence from Iraqi Kurdistan 5. The unrest in Baghdad has the dual effect of depressing growth and damaging infrastructure and services, which in turn renders the city less resilient. The Iraqi Government is seeking foreign investment to rebuild damaged infrastructure 6. The incentive for improving resilience and reducing the threats to the city, and wider country, is Iraq s potential for considerable prosperity it holds the fifth largest oil reserves in the world. The city currently has the lowest score very weak for resilience. However, if it were to achieve the highest ranking, it could reduce its GDP@Risk to $4.06bn a saving of almost $4bn. Lagos is the second largest city in the region and fifth in the Middle East and Africa in terms of potential loss to its GDP. The largest city in oil-rich Nigeria, Lagos, is another city facing geopolitical and security threats. It tops the index s ranking for civil conflict, with an expected loss of $2.07bn. Nigeria s ongoing battle with Boko Haram makes it third in the world for expected GDP loss ($437m) due to terrorism. Lagos is a coastal city and will most likely be affected adversely by sea level rise caused by climate change. For example, flooding in 2017 caused disruption and economic loss in the Lekki and Victoria Island areas of the city. 7 Rising water levels could also assist the spread of disease, and human pandemic is the fourth costliest risk ($265m) facing the city.

8 Interstate and civil conflict are the dominant threats Baghdad Top three risks Interstate conflict $4366m Terrorism $1620m Civil conflict $1368m Istanbul Top three risks Interstate conflict $2606m Earthquake $2146m Market crash $2108m Cairo Top three risks Interstate conflict $3140m Civil conflict $880m Market crash $480m 1. Cities Cities Fig 4. Top five cities in the Middle East and Africa (US$ million) Baghdad Istanbul Lagos Johannesburg Dubai $7909m $12740m $4422m $1066m $2130m Risk Global ranking Top five Interstate Interstate Civil Civil Market threats conflict conflict conflict conflict crash by $ (with $4366m $2606m $2071m $276m $1370m global rank) (2) (6) (1) (37) (16) Terrorism Earthquake Interstate Sovereign Earthquake $1620m $2146m conflict default $448m (1) (3) $802m $212m (22) (21) (14) Civil conflict Market Terrorism Market Human $1368m crash $437m crash pandemic (4) $2108m (3) $0.20m $140m (6) (145) (105) Sovereign Civil conflict Human Human Flood default $1989m pandemic pandemic $49m $166m (2) $265m $180m (144) (21) (51) (82) Human Sovereign Sovereign Cyber Drought pandemic default default attack $45m $145m $862m $245m $46m (58) (101) (1) (12) (139)

9 High levels of wealth disparity in Johannesburg that make civil conflict the city s costliest risk 1. Cities Cities Although Johannesburg, in the south of the continent, has a similar sized GDP to Lagos, it stands to lose $1.07bn of GDP as opposed to Lagos $4.42bn. Like many cities in this region, there are high levels of wealth disparity in Johannesburg that makes civil conflict the city s costliest risk at $276m. While there are programmes aimed at improving living and working conditions for low income residents of the city, around 20% of Johannesburg residents live in poverty 8. $276m is at threat from civil conflict annually in Johannesburg However, increasingly sovereign debt is becoming a threat to economic growth. Standard & Poor s and Fitch downgraded South Africa s sovereign credit rating to junk class in This has led to higher borrowing costs, which will impact on living costs and services in the country s cities. It remains to be seen whether the new President, Ramaphosa, can restore faith in South Africa s institutions, and restore investor and ratings agency confidence. City authorities in Johannesburg have shown commitment to building resilience in their city. Infrastructural needs in fast growing cities can often clash with environmental concerns, such as the need to protect wetlands. In 2011, the infrastructure and environmental departments in Johannesburg were merged into a single unit. One outcome of this was a flagship development to re-naturalise a polluted and silted up Lake Bruma into an ecological park and restore natural wetland bio-filters to improve sewer and storm-water infrastructure 10. Dubai, a commercial powerhouse in the Gulf is one of only two cities in this region with the highest resilience score. As a financial centre, its costliest threat to GDP is market crash ($1.37bn). It stands to lose GDP from only two geopolitical and security risks: social unrest and terrorism. It is, however, exposed to $448m of GDP@Risk through moderate earthquake risk. It is also faces drought ($45m) in its top 10 risks, and is currently reliant on expensive and polluting desalination plants to provide water 11. However, it has set itself ambitious sustainability targets, including the lowest carbon footprint in the world by 2050, and plans to invest $163bn in sustainability projects 12. Increasingly sovereign debt is becoming a threat to economic growth

10 $10.7bn is at risk from market crash in the region 2. Threats Threats. Finance, economics and trade Fig 5. Middle East and Africa: finance threats Finance, economics and trade ($US million, global rank) Market crash Commodity price Sovereign default shock Top five Istanbul $2108m (6) Istanbul 300m (15) Istanbul $862m (1) cities in Abu Dhabi $1782m (11) Tel Aviv $181m (28) Tehran $516m (5) region (global Dubai $1370m (16) Ankara $87m (71) Cairo $323m (8) ranking in Tel Aviv $617m (45) Izmir $45m (112) Ankara $250m (10) brackets) Ankara $612m (46) Jerusalem $33m (126) Mashhad $246m (11) Three cities Istanbul, Abu Dhabi and Dubai stand to lose more than $1bn to market crash Although market crash is the costliest threat to GDP globally, with a total cost of $103.33bn, in Middle Eastern and African cities it accounts for $10.65bn of GDP@Risk. Only three cities, Istanbul, Abu Dhabi and Dubai, stand to lose more than $1bn to this threat. However, it remains the largest threat to GDP in this category, followed by sovereign default which has a combined cost of $9.52bn. The impact of debt can have a severe effect on cities: as the cost of borrowing rises, so too does the cost of goods and services. The Middle Eastern and African cities with the highest GDP@Risk to this threat are Istanbul, Tehran and Cairo. Istanbul also tops the region s ranking for commodity price shock in the index, followed by Tel Aviv. Energy security has been an issue for Israel since the state was established, given its complex relations with its oil-rich neighbours 13. The discovery of natural gas off its coast in 2010 could change this. The country has another powerful source of energy: the sun. Indeed, Israeli companies are world leaders in renewable technology, although the country itself only derives 2.5% of its own energy from renewables 14. The index shows that investment in energy security could substantially reduce Tel Aviv s $181m exposure to commodity price shock.

11 Fig 7. Middle East and Africa: natural catastrophe and climate threats 2. Threats 20 Natural catastrophe and climate ($US million, global rank) Top five regional cities by loss Drought Earthquake Volcano Flood Istanbul Istanbul Nairobi Istanbul $123m $2146m $76m $456m (18) (3) (23) (18) Tehran Tehran Douala Ankara $80m $1532m $45m $264m (36) (6) (30) (42) Lagos Abu Dhabi Sana a Tel Aviv $75m $595m $19m $228m (41) (14) (38) (52) Tel Aviv Izmir Addis Ababa Tehran $74m $574m $16m $115m (42) (16) (41) (93) Cairo Dubai Lagos Kuwait City $45m $448m $16m $106m (57) (22) (42) (100) 2. Threats. Natural catastrophe and climate Earthquake is expected to lead to losses of $8.12bn in the region s cities. Much of this is concentrated on the Middle East. Iranian and Turkish cities are particularly affected. The Zagros Mountains, which mark the border of Iran and Iraq, sit on the edges of the Arabian and Eurasian tectonic plates, and Turkey is situated on the Anatolian plate. Istanbul stands to lose more than $2bn on an annual basis from rare, large magnitude earthquakes and is third in the index s global ranking. This is a well-known risk. Since 1900, 250,000 Iranians have died as a result of earthquakes 15. When a 7.3 magnitude earthquake occurred on the Iran-Iraq border in November 2017, it was the strongest earthquake of that year16. The event raised concerns about the vulnerability of new buildings. In 2007, the Iranian authorities launched a drive to build more affordable housing, with the result that 1.8 million new properties were constructed by Ninety per cent of these properties in the area affected by the 2017 quake were damaged. The impact of earthquake can be considerably mitigated by robust building codes, if they are implemented effectively. Catastrophic loss both human and economic - can be mitigated by constructing more resilient buildings. Bahrain, Iraq, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates (UAE) and Yemen are also moderately exposed to this threat. However, there are relatively few earthquake models which would allow insurers to price the risk and therefore offer products to the region. This led Lloyd s working with CATRisk Solutions, to publish a model on the Oasis platform. The report can be read here Flood is the second costliest risk in the region, with an expected loss of $1.10bn. One way to mitigate economic loss through weather events is by using accurate and well distributed forecasts. This allows authorities, businesses and residents to take steps to protect their assets. For example, product and commodity stocks stored in low lying areas at risk from flooding can be moved to safer places. However, Africa has the least developed weather, water and climate observation network in the world, according to the Global Facility for Disaster Reduction and Recovery, which estimates that every dollar invested in such facilities could generate $3 of benefits17. The Middle East is more exposed than African cities to flood; however, African cities have a larger exposure in total to drought, with Lagos standing to lose $75m of GDP@Risk and Cairo $45m. In 2018 Cape Town became the first modern city to consider turning off its taps 18. Increasing urbanisation leads to water stress as more people share and/or compete for the same level of resource. This includes businesses that may depend on regular water supplies for their day-to-day operations. There is a clear incentive, therefore, for business to reduce water wastage and usage. There is an opportunity to improve resilience in this area in many cities across the region. For example, a report by the Egyptian Centre for Economic and Social Rights showed that deteriorating pipes lose 35% of the country s water supplies 19.

12 Fig 7. Middle East and Africa: technology and space threats 2. Threats 22 Technology and space ($US million, global ranking) Top five regional cities by loss Cyber Power outage Istanbul Istanbul $182m $77m (62) (23) Tel Aviv Tel Aviv $159m $46m (68) (45) Ankara Riyadh $53m $40m (131) (53) Johannesburg Lagos $46m $40m (139) (55) 2. Threats. Technology and space Power outage will cost the region $771m. Fifteen cities in Africa and the Middle East can expect more than 50 outages a year. Cyber attack will cost the entire region $778m. This relatively small sum is because this region is less digitised than others. However, as this changes, exposure to cyber threats will grow. Only four cities Abu Dhabi, Doha, Shiraz and Cape Town have exposure to loss through nuclear accident. This exposure is due to a city s proximity to a nuclear power station. At present there are only two such facilities in the region, which is rich in fossil fuels. One is in South Africa, the other in Iran. However, according to the World Nuclear Association, 23 countries in this region are considering building nuclear power 20 plants. The Barakah power plant is scheduled to complete in the United Arab Emirates in Tehran Cairo $30m $38m (152) (59) Only four cities have exposure to loss through nuclear accident

13 Fig 8. Middle East and Africa: geopolitical and security threats 2. Threats 24 Geo politics and security ($US million, global ranking) Top five ranked Middle East and African cities Civil Interstate Social Terrorism conflict conflict unrest Lagos Baghdad Istanbul Baghdad $2071m $4366m $708m $1620m (1) (2) (1) (1) 2. Threats. Geopolitics and security African and Middle Eastern cities can expect to lose more than $61.44bn to these risks annually. This is almost two-thirds of the total loss for all threats. War leads to high losses not only because of damage to infrastructure, but because external investment dries up and the economy goes into slowdown as commercial activity declines. Istanbul Riyadh Ankara Istanbul $1989m $3391m $205m $569m (2) (4) (3) (2) Baghdad Cairo Lagos Lagos $1368m $3139m $182m $437m (4) (5) (4) (3) Tel Aviv Istanbul Baghdad Cairo $897m $2606m $126m $221m (10) (6) (9) (10) Cairo Khartoum Izmir Tehran $884m $2425m $105m $168m (11) (7) (11) (13) War leads to high losses because damage to infrastructure and investor confidence Military spending affects the provision of services necessary for a well-functioning city. For example, the Darfur conflict, between the Government of Sudan and armed militias, has resulted in a doubling of military spending; as a result, during the conflict, the Sudanese Government has spent less than 1% of its GDP on education 21. By contrast, in 2012, Ghana spent 8.2% of its GDP on education. Civil conflict will cost the region less than interstate conflict ($15.67) but it is more widespread, affecting nearly all the cities in the region. The primary driver for this, as in other regions of the world, is wealth inequality. Informal settlements in cities, with high unemployment and poverty, are often the places where civil unrest starts. Riots can prevent both the manufacture and transportation of goods as well as depress commercial activity and foreign investment. The index shows that terrorism has more impact in cities that experience frequent attacks Baghdad, Istanbul and Lagos top the global ranking for this threat. The index estimates that terrorism will cost the eight Turkish cities included just under $1bn, a 10th of the total for all cities in the index.

14 Fig 9. Middle East and Africa: health and humanity threats 2. Threats 26 Health and humanity ($US million, global ranking) Top five regional cities by loss Human pandemic Istanbul Lagos $560m $100m (16) (21) Lagos Cairo $265m $42m (51) (53) Plant epidemic Cairo Khartoum $225m $38m (63) (57) Riyadh Istanbul $205m $32m (74) (65) Abu Dhabi Kano $195m $30m (75) (66) 2. Threats. Health and humanity The economic consequences of the Ebola crisis were considerable, costing Guinea, Liberia and Sierra Leone an estimated $2.8bn. All three economies were growing before the crisis but experienced slowdown after it struck. Liberia s GDP growth fell from 8.7% to 0.7%. In Sierra Leone, real GDP in 2015 contracted by a fifth, primarily due to the shutdown of iron ore operations as a result of the disruption caused by the spread of the virus. In fiscal terms, governments needed to spend more on healthcare to fight the outbreak just at the time corporate tax revenue and VAT receipts were declining 22. Human pandemic remains a significant threat to the GDP of every Middle Eastern and African city. It is expected to cost the region $4.80bn each year. Cities are particularly vulnerable to pandemics which spread faster among dense populations. Illness or fear of contagion depresses commercial activity and lowers output. Better living conditions, improved sanitation, strong medical services and investing in vaccine research will reduce the likelihood of an outbreak. There are also important disaster management steps that can be taken such as using scenario planning for public health officials and contingency planning to lessen the immediate impacts of a pandemic. Human pandemic remains a significant threat to the GDP of every Middle Eastern and African city

15 Fig 8. Middle East and Africa: resilience rankings 3. Resilience 28 Very strong 5% Strong 14% Moderate 5% Weak 68% Very weak 8% If every Middle Eastern and African city were to maximise their resilience rating, the continent would save $26.97bn 3. Resilience Of the 56 cities the index analyses in the Middle East and Africa, two (Abu Dhabi and Dubai) are categorised as having very strong levels of resilience. However, 47, including Nigerian, South African, Turkish, Egyptian and Iranian cities, are classified as either weak or very weak in terms of resilience. Of the very weak cities, 19 are in Africa and three are in the Middle East. If every Middle Eastern and African citiy included in the index were to maximise their resilience rating, the continent would save $26.97bn. If the continent is to capitalise on its growth potential, it must ensure that city GDP is protected against $97bn of This is the sum that governments in Latin American should retain in savings to cover the consequences of risks. In a time of fiscal austerity, with several cities and states heavily indebted, this is challenging. As the GDP of Middle Eastern and African cities rises so, inevitably, will their position in the index s GDP@ Risk rankings. This does not mean more disruptive events are inevitable. For a great many perils, with earthquake as a clear example, the knowledge and technology currently exists to drastically reduce death tolls and economic consequences. Climate change will inevitably increase the risk of flood and drought, and will require adaptive measures to strengthen urban communities. Tackling poverty could reduce the risk of civil conflict and social unrest, and other violence that could harm economic growth. At a World Bank meeting in January 2016, leaders of African cities acknowledged the need to build resilience into the design of their fast-growing cities. One of the opportunities they identified was that, with a large proportion of the urban environment yet to be built, African cities can avoid the past mistakes of established economies and embed resilience in policies and planning. Risk can be mitigated, GDP levels can be protected and future generations can be made safer in Africa and the Middle East.

16 As asset prices rise in this region, insurance becomes more critical 3. Resilience Resilience. Underinsurance In 2012, Lloyd s published research analysing the level of underinsurance in 42 countries. Some of the most underinsured countries in the world were in Africa and the Middle East. Saudi Arabia alone had an insurance gap the amount between an expected loss and what is covered by insurance of $5bn. Egypt had a shortfall of $3.2bn and Nigeria, $2.6bn. These are the sums which governments need to find or borrow to recover from disasters. South Africa, in contrast, was better insured so GDP will be more resilient. However, many of the cities featured in this report do not have adequate cover to meet their risks. Insurance plays a dual role in risk mitigation. After an event, it covers the rebuild cost, meaning economic output will recover more quickly, but it also serves to reduce risk, as policies will often stipulate safety levels, best practice and minimum standards. As asset prices rise in this region, insurance becomes more critical. Next steps Design and build urban infrastructure which will meet the needs of megacities in a changing climate. Develop strategies and innovative technologies which can be sold to other regions. Invest in strong forecasting models which are well disseminated, and allow businesses and residents to prepare for extreme weather events. Develop strategies to use rising growth to lift people out of poverty and raise living conditions in slums and informal settlements. Raise insurance levels to ensure that GDP does not decline following a disaster and debt levels are not increased.

17 References 31 References 1 When the term global is used it refers only to all cities in the index, not all cities in the world many of which were not analysed by the index Lloyd s : Seismic Shock: a hazard overview for the Middle East World Bank: West Africa Ebola crisis: Impact Update

18 Acknowledgements 32 Acknowledgements About Lloyd s Lloyd s is a global specialist insurance and reinsurance market. Under our globally trusted name, we act as the market s custodian. Backed by diverse global capital and excellent financial ratings, Lloyd s works with a global network to grow the insured world building resilience of local communities and strengthening global economic growth. With expertise earned over centuries, Lloyd s is the foundation of the insurance industry and aims to be the future of it. Led by expert underwriters and brokers who cover more than 200 territories, the Lloyd s market develops the essential, complex and critical insurance needed to underwrite human progress. Disclaimer This report has been produced by Lloyd s for general information purposes only. While care has been taken in gathering the data and preparing the report, Lloyd s does not make any representations or warranties as to its accuracy or completeness and expressly excludes to the maximum extent permitted by law all those that might otherwise be implied. The views expressed in the paper are Lloyd s own. Lloyd s accepts no responsibility, and shall not be liable, for any loss which may arise from reliance upon the information provided. No responsibility or liability is accepted by the Society of Lloyd s, the Council, or any Committee or board constituted by the Society of Lloyd s or the Council or any of their respective members, officers, or advisors for any loss occasioned to any person acting or refraining from action as a result of any statement, fact, figure or expression of opinion or belief contained in this document or communication. This report does not constitute advice of any kind. Lloyd s 2018 All rights reserved About Cambridge Centre for Risk Studies The Centre for Risk Studies is a multidisciplinary centre of excellence for the study of the management of economic and societal risks. The Centre s focus is in the analysis, assessment, and mitigation of global vulnerabilities for the advancement of political, business and individual decision makers. The Centre provides frameworks for recognising, assessing and managing the impacts of systemic threats. The research programme is concerned with catastrophes and how their impacts ripple across an increasingly connected world with consequent effects on the international economy, financial markets, firms in the financial sectors and global corporations. To test research outputs and guide new research agendas, the Centre engages with the business community, government policy makers, regulators and industry bodies. Cambridge Centre for Risk Studies Disclaimer The views contained in this report are entirely those of the research team of the Cambridge Centre for Risk Studies, and do not imply any endorsement of these views by the organisations supporting the research, or our consultants and collaborators. This report is not intended to provide a sufficient basis on which to make an investment decision. The Cambridge Centre for Risk Studies develops hypothetical scenarios for use in improving business resilience to shocks. These are contingency scenarios used for what-if studies and do not constitute forecasts of what is likely to happen. The results of the Cambridge Centre for Risk Studies research presented in this report are for information purposes only. Any commercial use will require a license agreement with the Cambridge Centre for Risk Studies.

19 Acknowledgements 33 Acknowledgements Key contacts Trevor Maynard Head of Innovation For general enquiries about this report and Lloyd s work on emerging risks, please contact innovation@lloyds.com Acknowledgements Cambridge Centre for Risk Studies Simon Ruffle, Director of Research & Innovation Dr Andrew Coburn, Director of the Advisory Board Jennifer Copic, Research Associate Professor Daniel Ralph, Academic Director Dr Michelle Tuveson, Executive Director Jessica Tsang, Research Assistant Dr Andy Skelton, Senior Risk Researcher Further thanks go to the following for their expertise, feedback and assistance with the study: Data analysis & text provided by Fiona Sinclair Editor Flemmich Webb, Senior Manager, Strategic Communications, Lloyd s Design Zach John Design Picture credits Map tiles by Stamen Design, under CC BY 3.0. Data by OpenStreetMap, under ODbL.