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This country study of Dominica is the first of three studies undertaken as part of a broader research project aimed at increasing understanding of:
•the wider economic and financial impacts of natural disasters;
•factors determining the vulnerability of hazard-prone economies; and
•opportunities for mitigation. The method of investigation is eclectic, using a mixture of quantitative and qualitative analysis to examine the economic impacts of natural hazards.
The Commonwealth of Dominica is a lower middle-income small island state in the Eastern Caribbean, of some 750 square kilometers with a population of 76,000 and per capita GDP of EC$7,900 (US$2,900) in 1998. Some 30% of the population was estimated as living at or below the poverty line in 1996.
Dominica is vulnerable to a wide range of natural hazards. The most common and historically most significant are tropical storms and hurricanes. Reflecting a rugged physical topography, most of the population and infrastructure are located on the coast, making Dominica particularly vulnerable to strong winds and high seas. The island is geologically extremely young and almost completely volcanic in origin. Following a volcanic alert in 1998-9, its susceptibility to future volcanic activity is also currently a major cause for concern. There is a related risk of earthquake. Landslides are a common feature of life and the landscape. Other potential hazards include drought, storm surges, floods, bush fires and tsunamis.

Many of the study findings are intuitive, even obvious. However, this is the first time that the evidence has been brought together, systematically analyzed and policy implications drawn. Dominica’s economy is, with perhaps the exception of offshore financial services, highly vulnerable to tropical storms. Hurricane David in 1979 had the most catastrophic effects in modern times on the environment, economy and society, but there were severe storms too in 1989, 1995 and 1999.

The study draws a number of key conclusions:
1. Natural hazard risks and uncertainty - there is considerable uncertainty even about natural hazard risks, both in Dominica and more generally. For example, in 1999 the island suffered extensive damage from Hurricane Lenny, when this storm tracked from west to east on a path some 150 miles to the north. No hazard warnings were issued because storms normally approach the Caribbean from the east and are, at that distance, not expected to affect Dominica.

2. Dynamic nature of vulnerability - the Dominica economy’s vulnerability is constantly changing, reflecting both the longer-term direction of development and capital formation in the island, and also shorter-term shifts in the structure and composition of economic activity. For example, the fall in banana production during the 1990s has (positively) reduced the potential scale of agricultural losses in a disaster. However, a more diversified agricultural sector will be less secure because crop insurance is only available for bananas, which also had an assured export market. As a further example, the scale of physical damage to the transport network is now potentially far greater and the pace of recovery could be slower due to the long-term development of a largely coastal road system without adequate sea defenses.

The study shows that a particular level or form of hazard vulnerability is not inevitable. Some sectors and sub-sectors are more vulnerable than others, whilst measures can be taken to reduce structural vulnerability. Greater integration of hazard risks into medium - and long-term economic and financial analysis and planning could substantially reduce the economy’s hazard vulnerability, thus contributing to sustainable growth.

3. Economic policy choices in disaster management - in the immediate aftermath of a disaster, both government and the private sector face choices between the pursuit of rapid recovery and a reduction in longer-term hazard vulnerability. In Dominica, effectively by default, the emphasis has been on quick recovery because the political impetus and associated financial incentives for investing in mitigation and changes in land use have been insufficiently strong.

The study also highlights the tensions caused by the wide range of demands on public finance, including forfunding to reduce physical vulnerability to natural hazards. Such tensions are particularly acute in this smallisland economy, with relatively high per capita infrastructure needs, in turn due to diseconomies of small scale and a relatively scattered population combined with a difficult and mountainous terrain. The study points to the need for improved information on the budgetary impact of disasters both to facilitate costeffective allocation of resources and also to emphasize the importance of integrating hazard risk reduction into medium - and long-term economic and financial planning.

4. Natural hazard information and risk management – the levels and forms of hazard risk information available in Dominica have been unsatisfactory, hindering appropriate risk-averting decision making. Issues that urgently need to be addressed include ensuring sufficient investment in monitoring, assessment, mapping and dissemination activities. Public information needs to be provided in an easily understood and usable form. Achieving and sustaining such investment is particularly difficult in a small island economy, because there are economies of scale and hazard information is a regional public good.

5. Wider implications for small island states - the vulnerability of a small economy can alter quickly. The sources of change are structural, occurring within an open economy that is being driven now by exogenous forcing mechanisms – technological development, globalisation and climatic change.

In considering appropriate forms of disaster mitigation, it is important to recognize the physical characteristics of the island(s) which underlie the economy and society. This study reconfirms the substantial value added in disaster mitigation investment in key infrastructure. The encouragement of less vulnerable areas of activity will facilitate long-term sustainable development by buffering medium-term growth from the effects of disaster shocks.

The role of catastrophe insurance and other financial risk-spreading mechanisms in spreading and reducing risk also needs to be enhanced significantly in the Caribbean and increased use should be made of such mechanisms as a tool for promoting hazard mitigation.

Donors need to address their own problems of coherence and overstretch in working with small island states by adopting joint programs, agreeing lead agencies on projects, supporting regional solutions and reducing micromanagement of projects.