The Advancing Leadership Blog

The Aftermath of a Natural Disaster: How the Economy and Your Business Can Recover

Small businesses are particularly vulnerable to natural disasters and can get hit harder by temporary slowdowns. Although natural disasters cause widespread destruction, over the long run the economy can do better than it would have without the destruction. 

This may be hard to believe if you’re a small business owner dealing with damaged inventory and several days of office closure in the immediate aftermath of a disaster, but there are some reasons to be optimistic.

The Economics of Natural Disasters

Although in the short term natural disasters cause large losses, some academic research shows that areas with frequent natural disasters have faster long-run economic growth than those without. One reason for this is that disasters might destroy outdated capital and cause the purchase of newer, more efficient and productive capital. Although it may be forced on them, businesses have the opportunity to rethink or reinvest in new equipment and strategies. The increased spending on new capital and the long term use of the newer more efficient capital both cause economic growth. An example of this may be seen with the recent flooding in Calgary.

TD Economics estimated that the floods would reduce Alberta’s economic activity by half a billion to 1.5 billion dollars in June. At the same time, they also increased Alberta’s forecast GDP growth for the year from 2.5% to near 3%.

The major banks seemed to agree with this economic assessment, releasing revised forecasts for Calgary and Alberta suggesting that growth would slow in June but would bounce back stronger for the rest of the year. TD Economics estimated that the floods would reduce Alberta’s economic activity by half a billion to 1.5 billion dollars in June. At the same time, they also increased Alberta’s forecast GDP growth for the year from 2.5% to near 3%. Property damage is not accounted for in GDP calculations, but the increased spending and reconstruction to replace this property is.

Government Assistance Programs

If disaster has just hit and you’re a small business owner facing damaged inventory or lost revenues, there are some more concrete sources of help than economic theory and forecasts. The government offers these aid programs to help your business get back on its feet:

Disaster Financial Assistance Arrangements:

What do they do? This is the main government program for providing assistance during natural disasters. The federal government offers money for evacuation costs, emergency food and shelter, repairs to public roads and buildings, as well as repairs to individual dwellings and restoration and repairs for small businesses. These funds are specifically meant to cover uninsured losses. The provincial government handles the dispensation of this funding, and later makes a claim to the federal government for reimbursement.

Example: In Calgary’s case, estimates of the cost of flood damage range between 3 and 5 Billion dollars, with around 25% of that being uninsured. The Province’s commitment of 1 Billion dollars of aid is about right to cover these uninsured losses. You can read more about accessing Alberta’s aid program here.

Employment Insurance Work Sharing Program:

What do they do? This program is designed to help employers and employees avoid layoffs when there is an unforeseen temporary slowdown in business. Employees can cut back their hours and receive some help from the government so that they do not have to seek other work, while the employer can save money by lowering the costs of labour for the duration of the slowdown.

Why is this important: This may be useful if your business won’t be able to return to regular operations for some time. It takes a minimum of 30 days for your application to be approved, so this is only useful for longer term slow downs.

Reinvestment and government aid can help your business and the economy grow and make up for the losses caused by a disaster. If your business can survive the damage and initial closure caused by a disaster, hopefully this assistance can help you emerge with minimal losses, and possibly with some new capital which you wouldn’t have invested in otherwise.

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