Economic Consequences of a Pandemic

At the time of this writing H5N1, known as Avian Flu, is spreading throughout Asia with one of the highest mortality rates of any flu virus of the previous century. Even the Influenza (Spanish Flu) of 1918 did not have as high a morbidity and mortality rate as H5N1 (Avian Flu). We are seeing almost daily some revelation from the World Health Organization (WHO) or Centers for Disease Control (CDC) or the popular media.

I recently wrote an article on the parallels that can be drawn between the impact of Hurricane Katrina and the aftermath of a manmade ‘dirty bomb’ attack ( Viruses mutate in order to adapt. It is the nature of a virus to survive and mutating is a virus’ defense mechanism against manmade antibiotics. When H5N1 mutates to allow human to human transmission the stage will be set for a global pandemic.

In the aftermath of Hurricanes Katrina and Rita, New Orleans has been reeling from the devastation. In spite of significant warnings ahead of time, the city, the State of Louisiana and the Federal Government were overwhelmed by the impact of the direct hit by Katrina and the cascade effect of the rains from Hurricane Rita. Katrina, a category 4 hurricane, rendered effective allocation of resources and rapid response totally ineffective. Hurricane Rita’s rains re-flooded an already devastated city.

The consequences of a rapid spread of H5N1 from a continuity planning perspective cannot be overlooked. If hurricanes Katrina and Rita put the people of New Orleans and the Gulf Coast in a fight for their very survival, what would a pandemic do?

Why is so much attention being paid to H5N1?

At present the transmission of H5N1 has been limited to animal/human transmission. This has limited the number of people who have become infected by the virus. Mortimer B. Zuckerman writes in the New York Daily News on 20 June, 2005, in his article entitled, “A Nightmare Scenario – H5N1 Pandemic” the following excerpt:

Should we sound the alarm for a worldwide epidemic that might not occur? There is no choice with the avian flu emerging from Asia. Should it adapt to be able to be transmitted from human to human, international health experts warn, bird flu could spark a global pandemic, infecting as much of a quarter of the world's population and killing as many as 180 million to 360 million people - at least seven times the number of AIDS deaths, all within a matter of weeks.

This is utterly different from ordinary flu, which kills between 1 million and 2 million people worldwide in a typical year. In the worst previous catastrophic pandemic, in 1918, more than 20 million died from the Spanish Flu. That's more than the number of people who died from the Black Death in the Middle Ages, and more people killed in 24 weeks than AIDS killed in 24 years.

There are three elements to a pandemic. First, a virus emerges from the pool of animal life that has never infected human beings, meaning no person has antibodies to fight it. Second, the virus has to make us seriously ill. Third, the virus must be capable of moving swiftly from human to human through coughing, sneezing or just a handshake.

For avian flu, the first two elements are already with us. Well over half the people who have contracted it have died. The question now is whether the virus will meet the third condition: mutating so that it can spread rapidly from human to human.

Table 1 reflects the latest statistics on H5N1 as of April 2005. The forecast, issued by the World Health Organization that accompanies the statistics reads:

The outbreak in Asia is not expected to diminish significantly in the short term. It is likely that H5N1 infection among birds has become endemic to the region and that human infections will continue to occur. So far, no sustained human-to-human transmission of the H5N1 virus has been identified, and no evidence for genetic re-assortment between human and avian influenza virus genes has been found.

It should be noted that the types of antiviral drugs that may be effective against H5N1 (bird flu) may have been diminished since April as the result of giving Tamifu, one of the antiviral drugs, to infected birds in Asia. This should be of concern, as Tamiflu is being stockpiled by many countries as their first line of defense against H5N1.

It should also be noted, that of those who have become ill with H5N1, approximately half (50%) have died. The eventual mutation of H5N1 virus into a form that can be transmitted easily from human to human has experts around the world worried due to the high mortality rate. When this mutation occurs, the current worst case forecast is for a worldwide pandemic even worse than the Spanish Flu. Note that Table 1 provides an estimate of the global deaths that resulted from the Spanish Flu at 40 – 50 million. Recent worst case scenario figures for a H5N1 are in the range of 180 – 360 million. Table 1 give a “best case” scenario figure of 2 – 7 million deaths worldwide. Please take note, the figures are for deaths, not those who get infected and are able to survive. An H5N1 pandemic could affect between 20 – 50% of the total world population.

If H5N1 has a mortality rate even half of its current rate, estimates of the deaths worldwide will range from 40,000,000 to 100,000,000. Even more important experts are predicting that the morbidity rate will be around 33% of the population. In the United States, current medical facilities would be overwhelmed having to support over 80 million sick individuals.

But the World Health Organization issues these warnings all the time

Why should we as business continuity planners be concerned? The World Health Organization (WHO) issues many warnings, for example a recent WHO advisory stated:

The World Health Organization has warned of the rapid spread of an atypical strain of pneumonia which appears to be resistant to conventional treatments. Reports of the illness have been received from Canada, China, Hong Kong Special Administrative Region of China, Indonesia, Philippines, Singapore, Thailand, and Viet Nam. Businesses should be aware of the risk to staff, especially those that have recently traveled to any of the affected countries. The new disease could be the cause of a global pandemic.

A recent Reuters story entitled, “Bird flu 'resistant to main drug'”, reveals that H5N1 is showing resistance to Tamiflu.

The Lancet carried an article entitled, “H5N1 influenza pandemic: contingency plans” (The Lancet 2005; 366:533-534 DOI: 10.1016/S0140-6736(05)67080-8) written by Dr.’s Kenneth WT Tsang, University Department of Medicine, University of Hong Kong, Queen Mary Hospital, Pokfulam, Hong Kong SAR, China, Philip Eng, Department of Respiratory and Critical Care Medicine, Singapore General Hospital, Republic of Singapore, CK Liam, Department of Medicine, University of Malaya Medical Centre, Kuala Lumpur, Malaysia, Young-soo Shim and Wah K Lam, Department of Internal Medicine, Seoul National University College of Medicine, Korea, is highlighted on the below:

The current epidemic of the highly pathogenic H5N1 strain of avian influenza, with a mortality of 58%, appears relentless in Asia, particularly in Vietnam and Thailand.1 Although inefficient, there is some evidence of human-to-human transmission for the H5N1 virus.2 A possible catastrophic pandemic could, therefore, emerge should re-assortment of viral antigens occur resulting in a highly infectious strain of H5N1. Influenza pandemics in 1917–18, 1957–58, and 1968–69 have already caused approximately 15, 4, and 0•75 million deaths worldwide, respectively.

A vaccine for H5N1 will not be available in the foreseeable months. Even if pharmaceutical manufacturing begins soon after an outbreak, there would not be a sufficient supply for the countries most in need—ie, the Asian nations. Antiviral drugs are consequently the only specific treatment, pending availability of effective vaccines.

Governments and health agencies should also consider planning for clinical trials, for instance a combination of both neuraminidase inhibitors, with or without other potential novel drugs, such as short-interfering RNAs and interferon.3 These trials, if initiated at the early stages of a pandemic, could provide useful information for further patient and outbreak management in later stages. The geographic location of vaccine manufacturers in developed countries would also delay poorer Asian nations from obtaining the updated influenza vaccine. Perhaps vaccine and neuraminidase inhibitor manufacturing activities should also begin in Asia to deal with such deficiencies. The ethics of maintaining drug patents in a potential worldwide catastrophe is questionable. Epidemiological modelling suggests that influenza is more infectious than severe acute respiratory syndrome, and that severe acute respiratory syndrome infection control measures might not be adequate for a pandemic of influenza.17 There will, therefore, be an overwhelming strain on health-care workers and hospitals in an H5N1 pandemic, and staff could be rapidly demoralised and degenerate into deserters, if colleagues develop hospital-acquired H5N1 infection, especially if not given adequate intensive-care unit treatment.18 Protection of core personnel should also be planned to underpin recovery in the aftermath, when many key players in health care and governmental institutions would have perished.

Gardener Harris of the New York Times writes in his article of October 7, 2005:

A plan developed by the Bush administration to deal with any possible outbreak of pandemic flu shows that the United States is woefully unprepared for what could become the worst disaster in the nation's history.

A draft of the final plan, which has been years in the making and is expected to be released later this month, says a large outbreak that began in Asia would be likely, because of modern travel patterns, to reach the United States within "a few months or even weeks."

If such an outbreak occurred, hospitals would become overwhelmed, riots would engulf vaccination clinics, and even power and food would be in short supply, according to the plan, which was obtained by The New York Times.

The 381-page plan calls for quarantine and travel restrictions but concedes that such measures "are unlikely to delay introduction of pandemic disease into the U.S. by more than a month or two."

The plan's 10 supplements suggest specific ways that local and state governments should prepare now for an eventual pandemic by, for instance, drafting legal documents that would justify quarantines. Written by health officials, the plan does yet address responses by the military or other governmental departments.

Pandemic – Business Continuity Planners what are you doing?

We, as business continuity planners seem to be wary of addressing the issue of a pandemic as a viable scenario for planning. I recently did a tabletop simulation for a client and a presentation on pandemics at a business continuity summit for another client. The tabletop participants reflected on the experience and uniformly expressed to me that the tabletop was one of the most stressful and frustrating experiences that they had participated in. The business continuity summit attendees and many of the speakers who followed me, continued to comment on the material presented, stressing that they needed to rethink their plans. Participants in both events expressed the hope that a pandemic would not materialize.

Pandemics cause major economic losses due to absenteeism. Experts predict that during a pandemic up to 30% of the global workforce could either be off work due to sickness or stay away due to fear. Absence levels at the expected rates would cause severe problems.

The economic impact of H5N1 will be felt around the world. The impact will initially appear in two primary aspects of business. The first will be the availability of the workforce, the second and more unique impact will be in the market place.

Helen Branswell of the Canadian Press wrote on August 17, 2005 in her article entitled, “Flu pandemic could trigger second Great Depression, brokerage warns clients”:

A major Canadian brokerage firm has added its voice to those warning of the potential global impact of an influenza pandemic, suggesting it could trigger a crisis similar to that of the Great Depression.

Real estate values would be slashed, bankruptcies would soar and the insurance industry would be decimated, a newly released investor guide on avian influenza warns clients of BMO Nesbitt Burns.

"It's quite analogous to the Great Depression in many ways, although obviously caused by very different reasons," co-author Sherry Cooper, chief economist of the firm and executive vice-president of the BMO Financial Group, said in an interview Tuesday.
"We won't have 30-per-cent unemployment because frankly, many people will die. And there will be excess demand for labour and yet, at the same time, it will absolutely crunch the economy worldwide."

A leading voice for pandemic preparedness said the report is evidence the financial and business sectors - which have been slow to twig to the implications of a flu pandemic - are finally realizing why public health and infectious disease experts have been sounding the alarm.

"I think that this particular report really signifies the first time that anyone from within the financial world, when looking at this issue, kind of had one of those 'Oh my God' moments," said Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota.

"The financial world is finally waking up to the fact that this could be the boulder in the gear of the global economy," he said, suggesting a pandemic could trigger an implosion of international trade unlike anything seen in modern history.

"All the other catastrophes we've had in the world in recent years at the very most put screen doors on our borders. This would seal shut a six-inch steel door," Osterholm said.

Cooper, a highly influential figure in the Canadian financial sector, wrote the report with Donald Coxe, a global portfolio strategist for BMO Financial Group.
They warn investors the economic fallout out of a pandemic would inflict pain across sectors and around the globe.

Airlines would be grounded, transport of goods would cease, the tourism and hospitality sectors would evaporate and the impact on exports would be devastating, Cooper wrote.

"This would trigger foreclosures and bankruptcies, credit restrictions and financial panic," she warned, suggesting investors reduce debt and risk in their portfolios to be on the safe side.

Absence of purchases due to illness and psychological reactions to a pandemic will present a new form of business impact that is currently not assessed as part of the traditional business impact assessment; and as such, it is not addressed in any business continuity, disaster, crisis management or recovery plans. Another area that has not been addressed in impact assessment or plans is the loss or restriction of a company’s revenue. Traditional plans start with an assumption that the marketplace is still viable; a potentially false assumption. Traditional plans are designed to get an organization back into their market as quickly as possible – RTO, RPO and MTO come to mind (RTO = Recovery Time Objective, RPO = Recovery Point Objective, MTO = Maximum Tolerable Outage). In the case of a pandemic markets may no longer be viable. If your market is materially impaired, a consequence is that the revenue that is derived from that market may be restricted and/or completely gone.

In another article, published on October 7, 2005 ( entitled, “Economic Shock Waves From Avian Influenza Spreading Faster than the Disease” the following is pointed out:

The Avian influenza crisis in Asia has already caused more than $10 billion dollars in damage in the economies of the most-seriously affected countries, but this is just the tip of the iceberg compared with the possible global economic consequences of a human influenza pandemic according to a study, Thinking Ahead: The Business Significance of an Avian Influenza Pandemic, released today by Bio Economic Research Associates (bio-era™).

“According to the quantitative measures we developed for assigning relative economic risk exposure to infectious disease outbreaks for countries in Asia, Hong Kong and Singapore are especially vulnerable to the initial economic shock waves that would ensue from a pandemic,” said James Newcomb, Managing Director and principal author of the bio-era report. “However, the secondary impacts on other countries, especially China, could have far-reaching impacts for economies around the world, including the US,” he added.