The perfect storms
ECA’s latest Location Ratings scores were dominated by 2017’s Atlantic hurricane season. It was, to say the least, active - there were 17 named storms, with ten consecutive ones reaching hurricane status, the greatest number in the satellite era. The season was the fifth most active and the costliest since records began. Preliminary reports estimate damages of over $350 billion, almost all of which were caused by three of the hurricanes: Harvey, Irma and Maria.
The impact that natural disasters have on our Location Ratings (and therefore on our clients’ location allowances for international employees that are based on them) can be wide-ranging. While the most obvious and direct results are considered in the Natural Hazards element of the Natural Phenomena score, it is not necessarily only that aspect that is affected. There may be a direct or indirect impact on other parts of the assessment, including Health, External/Internal Isolation, Utilities, Personal Security and more. In September, my colleague Neil Ashman wrote a short piece after hurricanes Harvey and Irma, highlighting some of the key location allowance issues arising from natural disasters and urging caution against knee-jerk reactions. He noted that it was important to wait for the team to complete its in-depth analysis of all locations in order to gain a better understanding of the effects on assignees. The results have now been published and, perhaps as expected, locations impacted by the Atlantic hurricane season have seen the most significant score increases this year.
In August, Harvey became the first major hurricane to make landfall in the United States since Wilma in 2005, and the most powerful to hit Texas in more than 50 years. Setting a record for the most rainfall dropped by a tropical cyclone on the contiguous United States, Greg Abbott, the Texas State Governor, has warned that Harvey could cost the state up to $180 billion. The hurricane caused 82 deaths, displaced an estimated one million people, and damaged some 200,000 homes, with the Houston area hit particularly hard. In fact, the rainfall on the Greater Houston area was so severe, a NASA geoscientist tweeted a startling map that showed the earth’s crust around Houston had warped, sinking the city and the surrounding area around 2cm into the earth. To give some perspective, sinking a city the size of Houston by 2cm in to the earth’s crust would require 275 trillion pounds of water - about the same weight as 77 percent of the total estimated mass of Mount Everest.
In September, parts of Florida saw record flooding following Hurricane Irma, with storm surges in Jacksonville pushing water levels four to six feet above normal high tides. In Miami, the financial and downtown districts were significantly affected and major thoroughfares like Brickell Avenue and Biscayne Boulevard were turned into rivers. Fortunately for the residents of Houston, Miami and Jacksonville, infrastructure in these cities is largely capable of withstanding storms as powerful as Harvey, meaning that any serious damage is likely to be short term. This is why mainland US locations have not seen the large score increases that some other less developed countries or territories have seen.
Before making landfall in Florida, Irma caused widespread destruction across the Caribbean, and it is not surprising that locations in this region have seen the largest score increases this year. On Sint Maarten, 70% of the infrastructure was destroyed, four people killed, and hundreds more injured. There has been severe damage to the island’s roads, mobile phone and other communication networks, as well as utility services, with sanitation issues and a lack of clean water in the immediate aftermath major concerns for residents.
Even at the time of writing, parts of the island remain without basic utilities. Much of the expatriate community, as well as visiting tourists, were evacuated from the island to Curacao by the Dutch government in anticipation of the hurricane, and this sharp decrease in the expatriate population has impacted on the overall score also. The wide-ranging impacts of Irma have resulted in Philipsburg, the capital, having its recommended location allowance increased from many home bases. Other Caribbean locations to see score increases following Irma include Cuba, where the crumbling housing infrastructure in Havana was battered by the resulting storm waters and 11 people were killed by collapsing buildings. There were also rises in scores for Anguilla, where one person died and 90% of the electrical system and much of the water service were damaged; and Grand Turk, where Irma ripped off dozens of residential roofs, severely damaged the island’s hospital, flooded streets, brought down utility poles and caused an island-wide blackout.
Perhaps the most publicised of all published locations to be hit by the hurricane season has been Puerto Rico. In late September, two weeks after Irma had caused two deaths and knocked out the power for more than a million residents, Hurricane Maria made landfall and caused an ongoing humanitarian disaster on the island. ECA International Data Researcher, Mark Johnson, visited San Juan in the weeks following the hurricane and has written a blog describing the ruined palm trees, destroyed bus stations and fallen power cables in Condado, a popular expatriate district of San Juan.
Estimates from Moody’s Analytics of the damage caused range from $45-$95 billion dollars. $95 billion represents almost an entire year’s output for the territory’s already suffering economy. The poor state of Puerto Rico’s economy had already put San Juan’s medical infrastructure under considerable strain, and, with an exodus of doctors being particularly worrying for expatriates, it’s not surprising that the Health score for San Juan has seen the largest increase in Maria’s wake. The hurricane hugely exacerbated problems with the health service and Puerto Rico now faces severe shortages of drugs and basic medical supplies, with hospitals and other medical infrastructure forced to crisis point. Further scoring criteria that have seen increases in San Juan include Goods and Services, given that, at least in the short term, imports have become a necessity. Internal Isolation and Utilities have also risen, due to the severe damage caused to roads and energy infrastructure in the city, as has Personal Security, in recognition of widespread looting in Maria’s wake which threatened expatriate homes and property.
Although other places in the Caribbean were also devastated by Maria, the only other published location to see any score change in its wake was Pointe-a-Pitre, where two deaths and some localised flooding occurred. Perhaps here it is important to note that some published locations in countries significantly affected by the 2017 hurricane season did not see score increases; this is because in these instances the published location was widely spared from damage, even if other parts of the country they are situated in were ravaged. A good example of this is St John’s, the capital on Antigua and Barbuda. While Irma destroyed 95% of structures on Barbuda, including its hospital and schools, and completely flattened some residential blocks, the fact that St John’s is situated on the island of Antigua, which sustained minimal damage, means St John’s sees no hurricane related score increases.
Elsewhere in the world, Typhoon Hato came within 60km of Hong Kong and caused disruption to businesses, schools, flights and even the stock market. Hato brought down trees and blew out windows on skyscrapers, but much like the Floridian cities mentioned earlier, Hong Kong has the infrastructure to withstand such events and recover from them quickly. Macau, however, was less fortunate - Hato claimed at least ten lives, injured more than 240 others, left almost half of the city without water and electricity, and brought businesses and public transport to a standstill. Subsequently, the scores for Macau have increased to reflect the severity of Hato’s damage, as well as its considerable impact on the city’s utility provision.
Continuing chaos in Caracas
Away from the devastation of hurricane season, Venezuela’s economic and security problems have continued to worsen this year, with Caracas seeing further increases to its already high score. The mismanagement of the Venezuelan economy has severely impacted the availability of goods over the past years, and this year the availability of dairy products in particular has plummeted, resulting in an increased Goods and Services score. Perhaps more pressing for expatriates, civil unrest in the capital raged for months following the decision by Nicolas Maduro’s government to limit the powers of the opposition-controlled National Assembly. The anti-government protests, which began in April, saw hundreds of thousands of Venezuelans take to the streets, and led to over 100 deaths, including those of protesters, police officers and passers-by.
Further, in a drastic escalation of the protests, there were astonishing scenes in June when two assailants flying a stolen police helicopter fired bullets and launched grenades during a two-hour assault on Venezuela’s Supreme Court building. Because of the unrest and resulting violence, expatriates based in Caracas now need to further restrict their movements, and this has seen increases to the freedom of movement element of the Socio-Political Tensions score. The score increases for Caracas follow a trend over the last years of higher scores for inbound assignees as the country continues to battle with its significant internal turmoil.
Crisis in the Gulf
In stark contrast to Venezuela, one country that has better managed a potentially difficult year is Qatar. In June, the foreign ministries in Bahrain, Saudi Arabia, the UAE and Egypt issued statements announcing the severing of diplomatic relations with the Qataris, and in the process imposed a land, sea, and air embargo on the country. There were fears in Doha that the embargo would cause mass food and goods shortages, and, although this may have been the case in the immediate aftermath as residents rushed to stock up, in the long term the fears were unfounded. The IMF even lauded the Qatari government’s efforts to avoid food shortages by diversifying sources of imports, a diversification which included a bovine airlift of thousands of cows, and by boosting domestic production. Nevertheless, while Doha has seen no score changes for the Goods and Services section, the crisis has necessitated an increase to the Socio-Political Tensions scoring in recognition of the increased friction between Qatar and its neighbours in the Gulf. With the crisis ongoing, we will be monitoring the situation closely over the next year.
A look ahead
In what feels like déjà vu, as we enter 2018 the global security situation is again fragile. There is much ongoing political tension, creating a great deal of apprehension for international assignees in hotspots around the world. For instance, expatriates in Jerusalem and Ramallah may be particularly worried by the announcement that the US embassy is to be relocated from Tel Aviv, following the US’s official recognition of Jerusalem as the capital of Israel. What this means for the peace process is unclear, as is the timeframe for the move, but Hamas chief, Ismail Haniyeh, has called for a "day of rage" and civil unrest has broken out on the Gaza strip and in the occupied West Bank.
In Iraq, where some may be forgiven for assuming the situation for expatriates would have stabilised and improved following the ‘defeat’ of Islamic State, the underlying tensions between Baghdad and Erbil have increased after the autonomous region held a vote on Kurdish independence in September that overwhelmingly backed secession from the rest of Iraq. The Iraqi government responded by halting all international flights in and out of Kurdistan and sending troops to retake disputed areas held by Kurdish forces outside the autonomous region, leaving Erbil grappling with an economic and political crisis that will no doubt affect expatriates in the city.
Further to the East, rhetoric on the Korean peninsula continues to cause concern for expatriates in South Korea, Japan, Pyongyang and elsewhere, as Kim Jong-un continues his seemingly hell-bent endeavour to match the missile capability of the North’s counterparts in the ‘Nuclear Club’. The North’s persistence in this arms build-up has seen tough new United Nations sanctions imposed on the country. The effects of such sanctions could be devastating for the North’s economic development, meaning a significant knock-on impact for expatriates based there.
On a more positive note, in Saudi Arabia reforms through the Vision 2030 project are seeing the country’s entertainment sector modernising. Last May, the first live concert in 25 years, featuring US country music star Toby Keith, was held in Riyadh; whilst in September, performances and concerts to mark the 87th anniversary of the founding of Saudi Arabia marked the first time women were allowed into King Fahd International Stadium. For the first time in 35 years, in 2018 cinemas will re-open, heralding a shift in the hard-line rule that has characterised the entertainment sector for decades. Furthermore, and perhaps most notably of all, women will be legally allowed to drive from June 2018. Should Saudi reforms continue in the same vein, the scores for moves to Riyadh and elsewhere in the Kingdom could see decreases in future Location Ratings scores.
While predicting which countries may see score increases or decreases is a difficult task, the cases noted are examples of things the Location Ratings team will be monitoring over the course of the next year. With the world in a constant state of flux, 2018 is sure to be an interesting one for those of us interested in international affairs and global mobility, and the Location Ratings team will continue to closely monitor developments in all published locations to guarantee fair and reflective compensation for international assignees.
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ECA's Location Ratings are delivered through ECA's Location Allowance Calculator which offers a transparent and detailed system for calculating location allowances for expatriates relocating to a new country. The system recognises that where an employee is coming from as well as going to can affect the level of adaptation required. Users can select region-to-city allowances or city-to-city allowances, so that depending on a company's policy the system reflects the level of detail required.
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