Pandemics take an undeniable toll on human life. The recent outbreaks of Ebola virus in West Africa and Zika virus infections in Latin America and the Caribbean have had massive economic costs as well. Now development lenders and the private sector are teaming up to help meet those costs.
The 2014 Ebola pandemic highlighted the importance of harnessing the resources of the global financial community to address vulnerabilities to infectious disease threats. More than 28,600 people were infected with Ebola worldwide and 11,300 died, primarily in Guinea, Liberia and Sierra Leone. The disease overwhelmed the capacities of those poor countries and their weak public health systems. Fear of contracting the disease, which can cause organ failure and uncontrollable internal and external bleeding, frightened away international travelers, investors and businesspeople, compounding the costs. The World Bank estimates the Ebola outbreak reduced economic activity by more than $2.2 billion in the three most-affected countries in 2015 alone, and by an additional $500 million across the rest of Africa. The World Bank, the African Development Bank and others have mobilized more than $2 billion to support the recovery.
The financial community is being called upon again because of the recent Zika outbreak, which the World Health Organization expects will affect up to 4 million people. Only 1 in 5 of those afflicted shows symptoms, but the consequences can be severe for those who do. The virus is linked with the paralysis disorder Guillain-Barré syndrome and birth defects such as microcephaly in babies of afflicted mothers. As of Wednesday, the Zika virus was active in 38 countries, mostly in Latin America and the Caribbean. The World Bank puts the viruss economic toll at around $3.5 billion this year but warns that figure may skyrocket if the international response is slow.
The benefits of a prompt response and the cost of delay can be huge: According to WHO, the cost of controlling the 2014 Ebola pandemic rose from $5 million, one month after the first case was discovered, to $1 billion, just six months later.
In addition to providing donations of money, goods and services to the worst-hit developing nations General Electric Co. gave $2 million to the crisis response and International Business Machines Corp. donated software to help track the epidemic private sector companies are joining with development institutions to create innovative financing tools, and hoping to develop a new market for pandemic risk management.
In January 2015 Standard Chartered was among the first international banks to address the Ebola outbreak. The economy of Sierra Leone, where the London bank has had a presence for more than 120 years, had grown at an average rate of 15.3 percent between the end of its civil war in 2002 and 2013, but growth slowed to 4.6 percent in 2014 as Ebola began to spread; output plunged by 23.9 percent in 2015 as the full fallout from the epidemic hit.
Last year Standard Chartered and CDC Group, the U.K. governments development finance institution, lent $50 million to medium-size businesses that produce food, building materials, hygiene products and other goods in Ebola-stricken Sierra Leone. The injection of funds helped local firms lacking working capital to assist aid agencies with transportation and logistics, says Daniel Hanna, London-based head of public sector and development organizations for Africa, the Americas, Europe and the Middle East at Standard Chartered. The economy was missing out on a potential positive multiplier effect from aid funds, he adds. The bank is looking to learn lessons from the experience and make preparations to extend this strategy to future pandemics.
Private sector firms, from mobile phone operators to airlines to financial services firms, have a massive role to play in disease outbreak response, says Peter Sands, a former Standard Chartered CEO who is a senior fellow at Harvard Universitys Mossavar-Rahmani Center for Business and Government and chair of the Commission on a Global Health Risk Framework for the Future, which was behind a January report on countering infectious disease crises. Dozens of firms worldwide formed the Ebola Private Sector Mobilization Group to rally in-country resources that backed humanitarian and health care responders and ensured long-term social and economic revival in affected countries.
The World Bank is developing a Pandemic Emergency Financing (PEF) Facility with the WHO and in consultation with public and private sector partners. The insurance-based, fast-disbursing mechanism will provide early funds to governments and accredited international responders, such as U.N. agencies and other nongovernmental organizations, to restrict or mitigate the impact of a future public health emergency.
To construct the insurance products, the World Bank partnered with AIR Worldwide, a Boston-based risk-modeling firm with extensive pandemic data, to determine the odds and risks of a potential pandemic and determine the pricing of the products. The insurance will pay off when a country hits predetermined criteria a certain number of deaths in a certain period of time on a trajectory thats likely to cross borders, for example. The PEF is meant to be, among other things, a seed for the construction of a pandemic risk management market in the private sector and in the insurance markets, explains Susan McAdams, senior adviser for development finance at the World Bank in Washington. The bank will issue catastrophe bonds and insurance contracts for immediate use in the face of a potential pandemic. Such bonds will pay high coupons to investors in normal times, but if theres a pandemic that meets the issues criteria in terms of disease-related deaths, investors will lose the principal, which will be used to finance the crisis response. The World Bank Group expects to launch the PEF later this year.
McAdams is hopeful the pandemic risk management field will develop in the next five years, though she admits theres a perverse incentive structure. If we are fortunate enough to not have a major, devastating pandemic, the market will be less interested because we humans tend to discount the longer-term possibility of catastrophic events, she says. If we are unfortunate enough that there continue to be rapid, challenging and frightening events, then I would think the market would develop quite quickly.