Financial shocks and earthquakes: These are the riskiest cities in Latin America

Pedro Bernal June 25, 2018

47 3 minutes read

Mexico City stands out as the city that has more economic production to lose before in case of 22 natural and human threats

The University of Cambridge and the English insurance market Lloyd's, this month revealed the latest Lloyd's City Risk Index, a study that evaluates and quantifies the vulnerability of cities. The study reveals the economic production that a city could eventually lose when faced with 22 threat scenarios, both natural and human, showing that cities are more vulnerable to risk.

Leer en español: Choques financieros y terremotos: Estas son las ciudades más riesgosas de América Latina

Globally, the city of Tokyo is the one that could lose more when faced with risk, with more than 24 billion dollars exposed to the 22 scenarios used by Lloyd's to calculate risk. These range goes from earthquakes and floods to cyber attacks and pandemics.

In Latin America, the city with the most economic production to lose because of these threats is Mexico City, with 7.8 billion dollars in risk. The biggest threat facing the Mexican capital would be a stock market crash, which could cost up to 2.7 billion dollars. Among the natural threats that could devastate the economy of this city, Lloyd's and Cambridge calculate that the most damaging would be a tropical storm, something that could take away 1.2 billion from the economy.

The City of Mexico is followed by Sao Paulo, the largest city in Brazil with over 12 million inhabitants. The city of Sao Paulo also faces the biggest losses when faced with a shock from the stock markets, a threat that the study reveals could be the most expensive worldwide, this could cause Sao Paulo almost 3 billion dollars.

The study starts from the idea that cities cause a huge concentration of goods, something that can generate economic opportunities to facilitate their exchange and make them accessible to those who work them, but that also represents a huge source of risk, since it concentrates in small geographical areas.

For this reason, larger cities are often at the top of the list, since they accumulate the largest amount of goods. However, vulnerability to risk means that size is not the only factor that increases the possible economic losses of a city in the face of the 22 threats calculated by Lloyd's and the University of Cambridge.

One of the most interesting findings of this study reveals that financial catastrophes consistently represent the greatest source of risk for cities, since it is through the financial markets that most of the goods flow.

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Although the cities of Latin America must take care of their markets from the collapse to what it gives place, the natural threats appear like the greater source of risk for some cities of the region. Lima, for example, has earthquakes as the most expensive irrigation for the city, because an earthquake could cost up to 1.4 billion dollars.

Earthquakes, then, are positioned as the second biggest threat to the economies of the cities of the region, because they could cost 4.8 billion dollars. However, very close is the risk of a civil war, which Lloyd's and Cambridge consider can subtract 4.5 billion from the economic output of Latin America.

The study lists the risk cities face due to economic production lost to natural and human threats, calculated in billions of dollars.