On Wednesday morning, at 3:36 am, a 6.4 magnitude earthquake hit central Italy causing the destruction of entire ancient towns and a current death count of 247 victims. Many people are still dispersed.
The earthquake in all its tragedy reminded the people of the area of the one that hit l’Aquila in April 2009, at the same time, with a death toll of over 300 and leaving thousands homeless. But other than the obvious loss for the town and the country, what is the impact of an earthquake on the economy? With the Italian economy still struggling out of a recession, what impact can natural disasters like these have?
A Quiet Town
Before the earthquake, the town of l’Aquila, the capital of the region Abruzzo, housed 23% of the area’s population, mainly employed in local small businesses and the tourism sector. Due to a ski resort nearby, the area attracted over 1.2 million tourists in 2007. The city was always slower to pick up on export growth than other Italian centres due to the lack of a well-serviced transportation system that linked it to other main regional capitals in Italy. Aquila, with a population of just under 73,000 in 2007, also welcomed over 27,000 students at its University, more than half of which were not resident in the city. The students brought a benefit of about €145m yearly to the local economy, about 10% of its wealth.
42.3% is the level of youth unemployment in l’Aquila
What has been the real cost of rebuilding this town? If after seven years, over 70% of the historic city centre is still under construction, what can one expect over the coming decade for Aquila and the newly destructed towns of Amatrice, Accumoli Arquata and Pescara del Tronto?
As of today, the money spent to rebuild l’Aquila is around €12bn, nearly 1% of the Italian GDP. But there are studies that say the cost could rise to over 4% of GDP.
When analysing the impact, it is important to note all the costs to the economy resulting from direct expenses like:
- Over 20,000 apartments needed to restoring from the damages
- An additional equivalent number of shops, offices, workshops and public buildings had to be renovated
- On top of the real estate, many of the local public and infrastructure works consisting of streets, squares, aqueducts, sewers, gas pipes, telephone and electricity networks, television broadcasts electrical facilities, railways and highways, were also in need of repairs
- Additionally, there is the cost of productive assets lost and goods, that were destroyed or damaged
- Just after the earthquake, rescue and care for the injured had to be set up as well as housing for the homeless awaiting reconstruction of their homes
- The work of rescue teams, with about 5,000 people on the location, accounted to about €50m a month
On top of these direct costs, the indirect damage can be calculated as a temporary loss of the economic value of the territory and the associated tourism and university income from non-residents.
The Real Cost
With the direct costs skyrocketing due to mismanagement of projects, delays and huge scandals, l’Auquila’s future seems to be that of an everlasting construction site with an increasing economic burden.
On top of this, the real cost of an earthquake is the loneliness it leaves behind. L’Aquila, the centre of the region’s wealth and economy, today is a ghost town, with many of its original residents finding a home elsewhere. Due to new legislation enacted after the earthquake residents were allowed to ask the government for the equivalent of the value of their homes, and go elsewhere. This caused the migration of hundreds of residents, with the youngest being the first to flee. The municipality, instead of taking the cost of reconstruction and maintenance, became a real estate company that encouraged depopulation. As well as housing, over 2,000 shops and artisan workshops have been emptied as the renovation in the historic centre remained well behind.
With its population leaving, and with the university and tourism struggling to regain the importance of its pre-earthquake time, the economy of Aquila will forever remain weak. Even though the town retains the highest average per capita annual income of the region, it shows signs of growing social inequality. The unemployment numbers are just as negative as those of the whole region, at 12.5% in 2013, while the youth unemployment of l’Aquila is at an astounding 42.3% compared to the average of the area of 37.7%.
If earthquakes cause bricks to fall, and their destruction is far too evident and painful, what remains when the territory quiets down is a desolated land that holds no future for its youngest and brightest. Without an effective plan for reconstruction and job creation, earthquake effects can change the economic landscape of a town or a region forever. Italy’s government should remember this when planning the re-development of these newly injured towns, just 50 km away.