Attracting new investment is never an easy undertaking and it has become even more difficult in recent years since the onset of the global economic downturn. But the difficulty of the task increases exponentially in the aftermath of a natural disaster. The path of destruction wrought by tornadoes and hurricanes can put businesses out of service for days, weeks or even months, and can leave them with sizable repair bills, something that would surely deter businesses from setting up shop in areas that are prone to such natural disasters.
FDI into states in the US that have been hit by natural disasters in the past few years has shown a surprising level of resilience, however, demonstrating that a structured response from local officials can both cushion the impact of such calamities and, in some cases, even serve as a catalyst for economic development.
Joplin's quick thinking
When Joplin, a city in the south-western tip of the state of Missouri was struck by natural disaster it forced the regional authorities to take a crash course in economic recovery. In May 2011, the city was hit by a tornado that claimed 158 lives, injured more than 1000 people and caused damage estimated at $3bn. According to Rob O’Brian, president of the Joplin Area Chamber of Commerce, the tornado hit the densest part of the city, directly affecting more than 500 businesses and about 5000 jobs.
“Joplin Area Chamber of Commerce's immediate response was to reach out to those people and help them resume operations as quickly as possible,” says Mr O’Brian. But the chamber's responses were severely limited in the first instance. “Telephones were not working and the cell phone service was quite bad as well. We literally had to walk door to door to see who needed help,” says Mr O’Brian.
The next step was finding the capital to fund recovery efforts, which was not as easy as it might be imagined. “It is a myth that the federal government comes and just hands out money. It does not, especially not to businesses,” says Mr O’Brian. The Joplin community therefore launched its own fund, called Joplin Tomorrow, which provided low or no-interest loans to companies willing to launch a new investment or significantly expand an existing one.
Mr O’Brian estimates that 85% of the companies affected by the tornado are back in business. He says that about 30 new businesses have been launched since May 2011, and the city's unemployment rate of 5.6% is 2.3% below the national average.
Alabama turns the tide
Two weeks prior to the disaster in Joplin, a series of tornadoes caused $2.2bn-worth of damage and killed more than 200 people in central and northern Alabama. As was the case in Joplin, a primary concern for officials in these areas was the downtime experienced by utility companies, such as telephone operators.
Greg Canfield, Alabama’s secretary of commerce, addressed the need to resolve this problem as quickly as possible. “We worked really closely with our power providers, so they were able to respond quickly so that power shortages did not affect the industry,” he says.
The quick response was praised by local businesses, according to Ethan Hadley, vice-president of economic development at the Huntsville/Madison County Chamber of Commerce. “A rapid response and efforts coordinated by local authorities were crucial in the immediate aftermath of the tornado”, he says.
In the months following the disaster, local businesses responded by contributing time and resources to the recovery and rebuilding operation. This was a significant gesture, given that the cost of labour had been a point of contention for the previous few years, with a number of companies moving jobs away from the US and into developing economies where the cost of labour was considerably lower.
“Local companies were very involved in recovery efforts. For example, [car manufacturer] Toyota loaned a significant proportion of its workforce to [help] rebuild the damages in the community,” says Mr Hadley.
Another car manufacturer, Mercedes-Benz, contributed more than $1m to Alabama's tornado relief efforts. What is more, one year after the disaster, both companies announced new investments in the area. Toyota announced an $80m investment at its Huntsville engine plant and Mercedes-Benz a $2bn investment into its factory near Tuscaloosa.
Wrangler, a North Carolina-headquartered clothing manufacturer, was another company that contributed to the post-tornado recovery efforts. Its operations in Hackleburg, a town of 1500 people in the north-west of Alabama, was established in 1966 and employed 150 people. But when the tornado reduced its operation to rubble, it put the company's presence in the town and the future of its considerable workforce in question.
Four months after the tornado, however, Wrangler announced that it was reopening the plant and, according to Mr Canfield, the new centre would be “bigger and better, with 50 extra hires”.
Louisiana's fresh start
Hurricane Katrina, which hit the US state of Louisiana in 2005, is the costliest natural disaster on record in the country, with damages amounting to $108bn. But representatives from the state put a positive spin on the costly bill.
“Instead of a catastrophe that might hold us back, we turned it into one of the biggest selling points of Louisiana,” says Stephen Moret, secretary at state investment facilitation organisation Louisiana Economic Development (LED). “Louisiana has better public leadership, a state-of-the-art water protection system and the coolness factor of being part of a place that is undergoing transformation."
Mr Moret adds that the years since the hurricane have been spent seeking new sectors of economic development and improving the business environment of the state. “As a result," he says, "Louisiana has a multi-billion dollar biomedical district under way and, in terms of doing business, Louisiana has gone from being in a cellar to being among the top places nationwide."
The efforts have paid off as the state has seen significant increases in FDI inflows, according to data from greenfield investment monitor fDi Markets. Louisiana recorded twice as many new projects in 2012 as in 2007, and FDI-related job creation was up by 56% over the same period.
The most recent mega projects to be announced in Louisiana have included a $2.1bn investment by Illinois-based fertiliser company CF Industries in an ammonia and urea plant in Donaldsonville, and an investment of between $16bn and $21bn by South Africa-based energy and chemical firm Sasol in an energy complex in Lake Charles.
FDI projects in New Orleans, one of the cities most severely damaged by Hurricane Katrina, are also on the up. Sectors such as creative media, software and IT, and entertainment, which have been highlighted and supported by LED as key industries, have been on the rise.
Reading the warning signs
But does the fact that these states are vulnerable to such natural catastrophes put off some would-be investors, fearful of a repetition of a Hurricane Katrina-like disaster? Not so, according to officials in the region.
“Once in a while we have to remind people that Hurricane Katrina is a thing of the past. But we are now eight years past that. After the protection system [was] brought up to a 21st century level, the concerns about natural disasters have been lessened,” says Mr Moret.
The $14.5bn defence system installed after Hurricane Katrina – which consists of walls, floodgates, levees and pumps – certainly proved to be effective when, in August 2012, the state was hit by Isaac, a tropical storm. “That [storm] was just an inconvenience more than anything,” says Mr Moret.
Alabama's Mr Canfield is similarly defiant that the state does not miss out on investment because of its vulnerability to tornadoes. “Most investors are sophisticated enough to follow a thorough analysis, which includes patterns connected with natural disasters and their outcomes. There are many other areas where tornadoes occur with greater frequency than in Alabama, but they occur here nonetheless. It is all about preparedness,” he says.