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Citi Perspectives for the Public Sector - Vol 1, 2012

It's All About Pre-Crisis Preparation

Global economic losses related to natural disasters in 2011 reached a staggering $380 billion, making it the worst year in history. Put in the context of the last two years of natural disaster damage, $124 billion in 2010 and $48 billion in 2009, the magnitude of the increase is, in and of itself, daunting.1.

by Jay Collins
Public Sector Group
Citi

Many countries can now be classified as serial victims of natural disasters, experiencing catastrophes with increased frequency and severity. These events are straining the capacity of governments around the world to respond to the urgent needs of citizens, financially challenging governments' ability to operate, and ultimately inhibiting the efforts of governments to rebuild. The real test for governments is to re-prioritize pre-crisis planning and preparation. The need to develop viable and appropriate contingency plans is particularly critical in the area of emergency financial management. The application of technological advances in the areas of electronic banking and financial management are now enabling governments to replace cash and paper with fast, transparent, efficient, effective and controlled ways to move money in a crisis. Again, these tools require advanced planning in order to be effective.

There are several emergency financial management solutions where pre-crisis work is critical to minimizing damage, human casualty and response effectiveness. One such opportunity to mitigate risk ahead of a crisis is in the infrastructure space. Pre-crisis investment in upgrading physical urban infrastructure can save countless dollars in post-crisis rebuilding efforts. Another area in need of pre-crisis focus is government procurement processes, which desperately need an overhaul. These inefficiencies are made exponentially worse in a natural disaster, where the reliance on cash and paper all but eliminates the ability to transparently and effectively deploy and compensate government vendors. Pre-issued and pre-positioned procurement cards, instant issue emergency procurement cards and virtual cards are all variations on how card technology is driving best practice in ensuring governments' ability to procure in a crisis.

Similarly, the distribution of emergency relief funds also requires careful preparation. Currently, the prepaid benefit card is the solution of choice in this area, as a result of its audit and transparent capabilities. In fact, it is important to note that recent aid donors (governments, NGOs or corporates) are not only committing less to countries where aid flows lack transparency and control, but in many cases, they are actually refusing to push the send button for lack of comfort around the fund distribution processes.

Going forward, as mobile financial solutions become more common in developing countries, we will likely see the mobile phone overtake benefit cards as a crisis payment form. The potential for mobile finance to have a material impact on natural disaster response and relief is significant, as the phone will carry with it all the capabilities of the pre-paid card, as well as identity solutions, and the ability to store and receive critical information.

Any discussion of natural disaster response would not be complete without mention of the ever-increasing role of the private sector and global corporate citizenship. Partnerships between NGOs, the private sector, and governments such as Coca Cola's work with the International Federation of the Red Cross, Swiss Re's partnership with USAID, and Target's alliance with FEMA bring innovation to response efforts with a focus on improving speed, efficiency and impact. However, what really defines the success of these public private efforts is their focus on pre-crisis planning and preparation.

1 Munich Re. "Review of natural catastrophes in 2011: Earthquakes result in record loss year", Jan 4, 2012

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