Highlights and Main Points Made by Individual Speakers and Participantsa
- Panic and social distancing can devastate economies. The government can mitigate the effects of an epidemic with effective communication and ongoing investment in general development and resilient financial systems. (Warden)
- Many companies already engage in risk management and business continuity planning, but there is room for better communication with the public sector and shared contingency planning. (Stroman)
- Preparedness has a good return on investment, saving both time and money. (Stroman)
- Engaging the private sector early and establishing relationships before a crisis allow for a faster, stronger response. (Hanna, Stroman, Warden)
- Getting money into an affected country and then into the hands of health workers in the field presents major logistical challenges. Special protocols for emergencies could better facilitate the former, mobile payments the latter. (Hanna)
- The public sector can provide funds, information, and an enabling environment to harness private-sector strengths in service of public goods like preparedness. (Crush)
- Public−private partnerships require a strong private sector, which governments can encourage by creating an environment conducive to business. (Crush)
- Many health systems components represent core capacities of the private sector, including management, organization, data, and logistics. As countries identify gaps in their health systems, they could look to the private sector for ways to fill these gaps. (Sison)
a This list is the rapporteurs’ summary of the main points made by individual speakers and participants and does not reflect any consensus among workshop participants.
The next panel considered how to engage the private sector in preparedness and response. In his opening remarks, moderator Eduardo González-Pier pointed out some of the incentives for the private sector to get involved, in terms of both what it could gain and what it would lose in the event of an epidemic or pandemic. But keeping them engaged after the urgency of a crisis wears off has often proved difficult. Four panelists—Staci Warden of the Milken Institute, Trish Stroman of the Boston Consulting Group (BCG), Daniel Hanna of Standard Chartered Bank, and David Crush of the International Finance Corporation (IFC)—discussed the private sector’s role in preparing for and responding to epidemics.
Warden described the devastating toll epidemics take on an economy. On the supply side, an epidemic reduces the capacity to produce; on the demand side, it decreases consumption. The 1918 flu pandemic reduced world economic output by 5 percent; the severe acute respiratory syndrome (SARS) epidemic in Canada cost $2 billion, or 3 percent of gross domestic product, and the Ebola epidemic may cost $4 billion regionally.
According to Warden, the most important way for the government to cushion the economy from these effects is to invest in general development on a regular basis. These investments include building basic infrastructure such as communications systems, as well as ensuring resilient financial systems and functional capital markets. The macroeconomic environment plays a critical role, she said; an inflationary response, for example, can destroy private-sector growth. She also pointed to the value of the government safety net in mitigating economic shocks.
In the United States and many other countries, the private sector tends to view preparedness and response as the government’s job. Warden encouraged early involvement of the private sector as a way to change this mindset. She reiterated Adams’ earlier point about the value of taxes as a way to make tangible the private contribution to the government’s preparedness program.
The government can do a number of relatively simple things to mitigate the effect of epidemics on the private sector. The bulk of an outbreak’s economic impact comes from contagion avoidance and social distancing (Brahmbhatt and Jonas, 2015). The recent outbreak of Middle East respiratory syndrome (MERS) in Korea has not killed many people, but social distancing has seriously harmed the economy. This kind of cost sets epidemics apart from other humanitarian crises. In earthquakes, for example, there is no concern about the contagiousness of the damages.
Effective communication on the part of the government can prevent panic and minimize unnecessary avoidance behavior. Just making information available can provide a valuable service, as the private sector looks to the government for guidance and advice. The government, Warden continued, can encourage the private sector to undertake business continuity planning and lead by example, developing such plans for their own agencies. There are transferable lessons in the contingency plans of any large organization; by sharing their standardized emergency protocols, governments can help private companies develop something similar. She pointed out that companies could vastly improve their preparedness with relatively simple steps such as having an emergency checklist and the contact information of their emergency contacts, a process the government can encourage. One option would be for the government to convene senior management of private companies, taking care not to neglect the small- and medium-sized enterprises, for emergency planning. Planning for pandemic emergencies need not start from scratch. Warden mentioned the extensive counter-terrorism planning the U.S. government has already done and saw that as a starting point for pandemic preparedness.
She acknowledged that the workshop in question was about financial action for outbreaks, but emphasized the value of statutory and regulatory incentives. In 2002, for example, bioterrorism legislation intended to improve the security of the U.S. food supply provided federal funding for preparedness efforts. It can also be useful to identify businesses that will be critical to crisis response and involve them in contingency planning. Warden observed that, while mandates can be problematic, regulation levels the playing field so that no company puts itself at a disadvantage by taking a particular action. Governments can also force the private sector to consider how its activities might add to pandemic risk.
In commenting on the financial consequences of panic and fear, Warden emphasized the role of government in ensuring resilient financial systems. She described how the UK Financial Services Authority runs an exercise every few years to test the resilience of the financial sector. In 2006, they gave a scenario of a pandemic lasting 6 weeks. The exercise inspired recommendations on the management of central banks to ensure sufficient cash in hand and a way to deliver it during an outbreak and a code of conduct
for organizations handling cash, among others. She also encouraged governments to think about regulatory forbearance during an emergency, by definition a rare situation and one where prudential limits are likely to be breached.
When asked how to persuade governments and international organizations to act on the pandemic threat, Warden suggested making the case in terms of the economic cost as well as the human one. Real-time information on the actual costs incurred is helpful; it is also possible to make inferences from the consequences of analogous disruptions, such as strikes. She highlighted the potential for social unrest and likely budget deficits as compelling reasons to invest in preparedness, but acknowledged the lack of cost–benefit analyses to inform decision making.
Corporations look at investment decisions differently, considering capital budgeting metrics like net present value and the internal rate of return. Yet they buy fire insurance, she noted, although the risk of a pandemic is greater than that of a fire; Warden attributed this more to the good market for fire insurance than to any cost–benefit analysis. She concluded that, when it comes to outbreaks, there are many unknowns, and it is important to be aware of and honest about that unpredictability.
Stroman then shared lessons from the work that she and colleagues have done with the World Economic Forum on the role of the private sector in health emergencies. She saw widespread willingness to get involved in outbreak response on the part of the private sector, and potential interest to work on preparedness as well.
Most companies already have business continuity plans and engage in risk management planning, Stroman explained. Though not necessarily profitable, such exercises are still good business, as they can help avoid significant spending during a crisis. She spoke enthusiastically of developing a public–private network for preparedness, but doing so would require connecting public- and private-sector continuity plans. She recognized that such connections do not exist currently; even during the crisis, public- and private-sector communication was ad hoc. As small- and middle-sized businesses have fewer resources to direct to contingency planning, the public sector may need to do more to engage them.
Stroman saw room for the private sector to contribute to public health surveillance. Operating in remote areas, companies are often well placed to recognize a disease outbreak before the public sector does, but they may not know how to respond or even where to report concerns. Stroman mentioned a World Economic Forum pilot program aimed at strengthening relationships among private companies and between the private sector and the government in two or three countries. She hoped there might be interest in better communication about this and various other preparedness programs mentioned during the workshop.
This welcome interest in preparedness pays off, Stroman said. Working with the United Nations Children’s Fund and the World Food Programme, a recent BCG study estimated the return on investment in preparedness and found that the programs always saved time during an emergency and usually saved money, too. More research articulating the value of such programming could drive more effort at preparedness in both the public and private sectors.
The public and private sectors each have their comparative advantages. On the private side, there are generally fewer restrictions on how to spend money or contribute in kind, allowing for faster response. By BCG estimates, the private sector contributed around $500 million, mostly cash, to the Ebola response. While the data are imperfect, Stroman acknowledged, it is clear that the private contribution was substantial and represents a real opportunity if directed well. There is also considerable depth of skill in private industry, which can be tapped in a crisis. In the Ebola response, companies contributed many skills, from logistics to communications to building and running treatment units.
Stroman stressed that companies must know where the gaps are and how those gaps can be filled in order to contribute effectively. Like traditional donors, the private sector would like greater speed and transparency and a better flow of information. Many wanted to help, but had trouble figuring out how to contribute to the Ebola response; contributing to preparedness is only more complicated. She saw room for a single clearinghouse to help direct the efforts of the private sector, thereby avoiding this problem.
But the most effective way to address this problem is to prepare in advance, Stroman reminded participants. For example, FedEx and United Parcel Service have long-standing relationships with donor agencies, which paved the way for seamless collaboration during the Ebola crisis; involving telecommunications and data management firms was not as smooth. She ended her comments by further emphasizing the value of early action to involve businesses in preparedness.
Hanna echoed Stroman’s call for early engagement, paraphrasing the BCG/World Economic Forum report: a crisis is not the time for the public and private sectors to exchange business cards (World Economic Forum and Boston Consulting Group, 2015). Hanna described his company’s involvement in the Ebola response and the lessons he has drawn from this experience.
Standard Chartered was the only large, international bank on the ground in Sierra Leone during the Ebola crisis. It was therefore responsible for payments from multilaterals, and Hanna described the logistical challenge of disbursing money during the crisis. First, the money had to move from the multilateral’s central treasury to aid agencies in the affected coun-
try. Then the agencies had to deliver this money to the workers in the field who would actually spend it.
Over the past few years, banks and regulators have considerably strengthened know-your-customer and anti–money laundering rules. The new protocols require things like verified signatories to vouch for exactly to whom and for what monies are disbursed. While these rules are sensible, it is difficult for aid organizations to have that kind of precision during a crisis. Local and international regulations may further slow the movement of funds. For example, aid often moves in U.S. dollars, but the U.S. Department of the Treasury restricts which nationalities can handle those funds; obtaining waivers for this requirement is possible, but takes time. Getting the names and necessary identification in place required a lot of work by Standard Chartered and its clients, and want of a single signature could halt the entire process for days. Hanna suggested that a crisis protocol allowing regulators to waive some of these rules for well-known and respected agencies in situations of demonstrated need could help reduce the time it takes to get money into a crisis-affected country.
Once the money arrived in Sierra Leone, it still had to reach the frontline workers. Only 10 to 15 percent of Sierra Leoneans have a bank account, and neither Standard Chartered nor the local banks have extensive branch networks. Added to this was the difficulty of moving cash around a country in the midst of an epidemic. In the absence of alternatives, aid workers would collect cash from the nearest bank branch and distribute it by hand to health workers and contract tracers. Hanna acknowledged that this was not an ideal solution during the outbreak of a highly transmissible virus. But the response depended on these workers, and paying them was critical. Mobile payments could have solved the problem; although Sierra Leone has such technology, the network is not as developed as in other markets such as Kenya. Mobile phone technology improved other aspects of the response, Hanna noted, describing an African text message campaign to raise funds for Ebola relief.
He described working with the IFC early in the epidemic to provide financial support to local banks. The IFC suggested concessionary funding and guarantees might be useful. But local banks did not want to receive additional funds or to keep lending, however attractive the price, because their balance sheet problems consumed them. Recalling the example of H1N1 in Mexico, he explained that Sierra Leonean banks could not manage the capital response they had in Mexico.
Standard Chartered worked with the UK Department for International Development (DFID) and the CDC Group, a British development finance organization, to set up a $50 million lending facility for Sierra Leone in only 10 weeks. The facility provided local companies, including small- and medium-sized ones, with the cash necessary to support reconstruction
and response. A lack of working capital had prevented well-placed local businesses from mobilizing supplies and workers to the relief effort. With local products available, aid workers were obliged to import fewer goods, thereby both speeding response and supporting the local economy. Hanna suggested such projects be facilitated in the future by preparing a list of logistics and financial services companies and relevant local partners that might be called on in an emergency.
Crush then discussed the role of public–private partnerships in supporting pandemic response. First conceived as a way of shifting public debt to private companies that might better manage it, the partnerships engage businesses in long-term, contractual arrangements. Unlike the traditional tendering process, their emphasis is on output specifications, rather than input specifications. In a public–private partnership, the government specifies the goals, and the businesses identify cost-effective ways to achieve it. Contracts lock in 10- to 20-year agreements, guaranteeing steady business to the private company and service delivery on tight terms to the government. At their best, these arrangements allow society to benefit from private sector–level services through public-sector funding. The model can work even in fragile and poor states. In Lesotho, the IFC has worked with a public–private partnership to replace the old government hospital with a new hospital and clinics to feed into it.
There are a number of ways governments can encourage partnerships with private industry. First, they can create an operating environment where the private sector can thrive. Some governments do so by creating a public–private partnerships office, but Crush admitted that such arrangements can add to bureaucracy rather than decrease it. Ease of registering property or of obtaining credit are important concerns for business people. He praised regulations conducive to business (ones that protect investors, ease the registration of property, and facilitate trade, for example) as regulations that liberate, not constrain. Citing the IFC’s work in Ethiopia, Ghana, Malawi, Nigeria, Tanzania, and Zambia, he said that governments are increasingly willing to embrace pro-business regulation. As more countries get involved, momentum for change increases, and the pool of African experts available to advise their counterparts in the region grows.
Crush encouraged the audience to involve the private sector in mitigating pandemic risk. International public–private partnerships like Gavi and the Global Fund have become important health funders. Private equity funds may also have a role to play. He mentioned the Africa Health Fund, which supports the private sector’s health programming with backing from the African Development Bank, the Gates Foundation, the German Investment and Development Corporation (DEG), and the IFC.
Crush was frank about the challenges of getting the private sector to invest in something that is ultimately a public good. But he saw room for
public–private partnerships to work toward this end. Governments can provide funds, information, and an enabling environment to harness the ingenuity and efficiency of private industry, particularly in fields like digital data, financial services, and communications. Raw data from mobile phones lends itself to a wide range of practical uses, he pointed out, and the private sector is well placed to develop innovations in this area—for example, in the field of contract tracing.
Calling back to the other panelists’ points about risk sharing and making capital available to small- and medium-sized businesses during a disaster, Crush asked that multilaterals also think of ways to mitigate the larger economic impact of an epidemic, perhaps by working in a coordinated fashion to address affected countries’ debt obligations. Another possibility might be to channel grant funding through a mechanism similar to the catastrophe deferred drawdown option, which provides loan financing through the International Bank for Reconstruction and Development (IBRD). He concluded by emphasizing the importance of speed in emergency response. In an epidemic, more than in almost any other situation, the dollar’s present value far exceeds its future one. Private industry is good at working efficiently and quickly, something invaluable to pandemic response.
In the subsequent discussion, participants talked about some of the opportunities and challenges for engaging the private sector in response and preparedness, as well as broader health systems strengthening. Over the past couple of decades, health has been increasingly recognized as an investment, not an expense (Commission on Macroeconomics and Health, 2001; Jamison et al., 2013; World Bank, 1993). Yet investments in preparedness have continued to lag, González-Pier reflected. One solution might be to link pandemic preparedness with other agendas, like financial inclusion, that would help bring it into the mainstream.
Prashant Yadav urged the group to consider relatively simple ways to involve the private sector. Formal public–private partnerships require complex deal structuring, but governments and donor agencies could, for example, use private laboratory networks for surge capacity during an epidemic. The Global Fund and other donors could encourage recipients to add laboratory capacity development into their grants. This would have the benefit of building on current systems, rather than creating a parallel one for pandemics.
A few participants expressed doubt about the willingness of companies to share their business continuity plans. Linking plans in their generic form would indeed be difficult, Stroman agreed. But, during a crisis, companies want to know what others are doing and seeing, making a private network very useful. The network could be a new entity, like the Ebola Private Sector Mobilisation Group, or it could build on something established like a
business service organization, such as Rotary International. These organizations provide a noncompetitive space and a single point of contact for the public sector. Another possibility would be for the government itself to convene different private-sector actors, encouraging companies to share among themselves.
Recalling Tore Godal’s point about disaggregating the health system, Paolo Sison remarked that many of the health system’s components are core capacities for the private sector: management, organization, data, and logistics. As countries identify gaps in their health systems, they could think about how the private sector might view these gaps as areas of opportunity and pursue arrangements based on this overlap.
Warden pointed out that governments do not need to invent every system from scratch: someone else has probably already done what they would like to do, and simply improving communication would be a significant contribution. For example, the United Kingdom could create and distribute a template for the sector-wide simulation they use to test their financial system. The public sector can also serve as a model, and source of information, for the private sector. She mentioned how in bond markets governments establish a yield curve that the private sector can use to price its own debt. In the same way, when a government takes out an insurance policy, it provides a useful reference price for the private sector to do the same. Finally, she added, governments and donors should do no harm. In particular, she called out the “unconscionable” U.S. Agency for International Development policy of tied aid and urged aid agencies to source locally instead.
Hanna commented that the private sector’s involvement in addressing pandemic threats can be broken down into three areas: response, preparedness, and investment in public health. During a crisis, the private sector can easily see the need and wants to help. Companies have also increasingly become aware of the importance of preparedness from a business continuity perspective; Hanna suggested that it would not take much to broaden this view so it encompasses a business continuity plan for the whole economy. But encouraging investment in the third area is trickier. Public health deals in long-term public goods, which do not fit well with a company’s need to demonstrate the return on investment to its shareholders. Getting the private sector to invest in public health more broadly will require the right incentives, he concluded.
Olga Jonas observed that many institutions, including the World Bank, have policies that allow projects to add contingent components. These components are prepared in advance, but they are only activated and funded in the event of an emergency; they can be designed to include advance procurement or advance financial management. Historically, the health programs take advantage of this policy far less than other fields, notably
infrastructure and agriculture. New instruments are not always necessary, Jonas reflected; sometimes it is a matter of making better use of existing ones.
Finally, Yadav mentioned the flow of remittances into a country, which likely are much larger than the flows of official development assistance and can keep local markets functioning during a pandemic. Hanna noted that a few bond market products have effectively targeted expatriates. It might be possible to combine these types of products with something like a catastrophe bond to tap the financial support of expatriates for extreme events.