Japan faces five-year road to reconstruction

AMSTERDAM Wed Mar 16, 2011 9:32am GMT

A firemen goes through pictures found in ruins of the devastated residential area of tsunami hit Otsuchi March 15, 2011. REUTERS/Damir Sagolj

A firemen goes through pictures found in ruins of the devastated residential area of tsunami hit Otsuchi March 15, 2011.

Credit: Reuters/Damir Sagolj

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AMSTERDAM (Reuters) - Japan will take at least five years to reconstruct its earthquake and tsunami afflicted regions as it balances the need to rebuild houses, roads and power grids with planning for disaster-proof infrastructure.

As the world's third largest construction market, Japan has the resources, skills and social cohesiveness required to rebuild quickly, but that the disaster will spur it to think even harder about urban planning and protection, experts say.

"Reconstruction after the 1995 Kobe earthquake in Japan took a bit less than five years, I would expect reconstruction here to last five years," said Abhas Jha, programme leader at the East Asia disaster risk management unit of the World Bank.

The world's third-largest economy, already saddled with public debt double the size of its $5 trillion output, must rebuild its infrastructure -- from roads and rail to power and ports -- on a scale not seen since World War Two.

While the short-term needs of the population, from sanitation to a reliable power supply, will have to be quickly addressed, social planning takes longer, said David Alexander, professor of disaster management at the University of Florence.

"Few are the cases where reconstruction takes less than five years, because it's a case of not just physically doing it but also planning it, which requires things such as geotechnical surveys and sorting out land ownership," he said on Tuesday.

Some cost estimates put the recovery and reconstruction bill at $180 billion, or 3 percent of Japan's annual economic output, but the World Bank's Jha cautioned that such initial numbers usually get revised.

Standard & Poor's said on Tuesday that Japan's central government will play a major funding role in the reconstruction drive but that local governments will also need to finance the efforts with their own bond issues.

The markets are likely to be able to absorb additional central government debt without a major increase in risk premiums, it added.

The rebuilding will give a short-term jolt to Japan's construction industry, which faces a bleak future of declining population, slow economic growth and high public debt that hampers future investment in major infrastructure projects.

This will buoy Japan's construction groups such as Kajima Corp (1812.T) and Taisei Corp (1801.T) as well as engineers who specialise in seismic -- and increasingly tsunami -- protection.

"Research seems to show that building in safety into new investments adds about five to seven percent over the regular costs, but you more than make that up in terms of future reconstructions costs," Jha said.

But the government will need to be careful not to make devastated regions too reliant on the construction sector.

"It is good practice not to have a boom and bust situation in which the only motor of the local economy is the construction industry. Reconstruction can finish without any other viable themes for the local economy," Alexander said.

(Editing by Alexander Smith)

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