COVID-19 Policy Insights:

POLICY INSIGHTS

Navigating through Covid-19


THE DAY AFTER TOMORROW


RESILIENCE MATTERS

MARCH 2020

A massive stimulus is needed to avoid a long-term recession, yet planning from now for the day after is essential:

  • What are the policy options available for governments?
  • What is the impact on global governance and people’s behaviours?
  • How to enact a multi-disciplinary, all-encompassing country response?

The Article was developed under the direction of Fadi Farra, Founder and Partner, with the contributions of Alex Crean, Anthony O’Sullivan, Dr Davoud Taghawi-Nejad, Franco Bosoni, Dr Kai Chan, Nadia Klos, Timothy Ang and Dr Wissam El Hachem.

WE ARE AT WAR, BUT WE NEED TO MAKE PLANS FOR PEACE

A key lesson from previous pandemics is that policymakers must act early and decisively to limit the damage. Of course, this can be a real challenge given that the sense of public urgency often does not materialise until the number of casualties is high, and it is too late for the actions that would otherwise be effective at the onset. Here, countries that have not previously succumbed to these types of crises may be less vigilant and prepared than those countries with recent memories such as China, South Korea and Singapore which led the fight against SARS.


For policymakers globally, there are several key lessons to consider from the results of Whiteshield Partners’ socioeconomic model and simulation. As mentioned above, time is of the essence; a short delay in acting has an enormous negative impact. The model demonstrates that infections double due to a 10-day delay in action. Second, policymakers must act decisively and commit real resources to fighting COVID-19. A light stimulus does little to abate the crisis and represents a waste of resources. Third, the model shows that good governance is essential during an emergency. When the public has trust in the government, policymakers can achieve results and govern more effectively. Finally, a full lockdown lasting more than 90 days will cripple most economies, and this fate may be worse than the virus itself. Jobs lost, the decline in living standards and overall socioeconomic prosperity of a country is in jeopardy under the worst scenarios. Governments must work comprehensively to balance restrictive measures with an ambitious set of supportive actions to keep the economy and society afloat.


Defeating a pandemic like COVID-19 can only be achieved through a comprehensive and well-coordinated approach involving global decision-makers and experts working together to deliver effective solutions. This type of plan will be needed going forward, ensuring that the social contract remains aligned with economic ambitions. It’s time to move on from economics to a “whole-of-country” multidisciplinary approach.




Fadi Farra

Founder and Partner

Whiteshield Partners

COVID-19 CRISIS: THINKING NOW ABOUT THE DAY AFTER

COVID-19 has spread faster than any virus in recent history

We are living extraordinary times. What started as pneumonia of unknown cause in Wuhan, China at the end of 2019 has in just three months mutated into a global pandemic spreading to over 190 countries while causing a wave of panic and a global lockdown.

That “pneumonia” turned out to be a new form of the coronavirus, which goes by the scientific name “2019-nCoV acute respiratory disease” or COVID-19 for short. It is an infectious and contagious flu-like disease with a mortality rate estimated at 2-3 per cent – significantly higher than the common flu – which is strongly correlated with age and pre-existing medical conditions that compromise the immune system.

The world has faced significant pandemics in the past – other global epidemics include HIV/AIDS, MERS, SARS and Ebola, these are currently contained. The speed and scale with which COVID-19 has spread is unprecedented, surprising policymakers, business leaders and citizens alike.

The exponential spread of COVID-19 compared to other epidemics can be explained by a combination of global connectivity, urbanisation, a high degree of contagion and symptoms that are easy to confuse with the common flu. The current reproductive rate – the number of secondary cases per infectious case – of the virus has been estimated between 2 and 3, compared to 1.3 for the common flu, with an interval between two infected cases of about five days. If we assume a reproductive rate of 2.5, then a single infected person with COVID-19 could result in 244 new cases after just 30 days (2.5^6) compared with less than five at the reproductive rate of the common flu

The pandemic is exposing several systemic weaknesses

COVID-19 exposes a country’s structural weaknesses – such as the overall effectiveness of the healthcare system or dependence on global supply chains – and presents policymakers with some difficult choices. How should a country evaluate tradeoffs between protecting public health and safeguarding the economy? How to balance securing individual liberties with protecting society as a whole? The optimal solution minimises the loss of life and the economic impact on society while dynamically adjusting to the emerging circumstances.

Some actions are straightforward and simply need expedited implementation if the country has the relevant capabilities and resources. For instance, widespread testing and tracking is a critical first step in combating the virus because you cannot resist an invisible enemy.

The impact of COVID-19 stretches beyond the direct health implications of infections and deaths. In fact, as a global pandemic, it has repercussions that span across all dimensions of society. Any response needs to be holistic, recognising every form in which this virus can have an impact. Organising a coordinated response includes looking beyond borders to learn from the experience and knowledge of others. No matter where a country is at the moment – whether COVID-19 is at a severe outbreak level within the country or just making landfall – they need to understand their level of risk and resilience to the disease and the corresponding policies and actions that follow from trying to limit the spread of the disease.

  1. HOLISTIC APPROACH MIXING SUPPORTIVE AND CONTAINMENT POLICIES BASED ON A COUNTRY’S RISK EXPOSURE

Figure 1: Whiteshield Partners Crisis Response Framework

Source: Whiteshield Partners

In a globalised society, it is necessary to develop relevant scenarios and policy options to be vigilant in the event of a crisis. To be prepared, different scenarios and responses are updated continuously, to have viable options for any developing situation


Evaluate the risk of crisis: Help predict your recovery time

During a pandemic, it is critical to understand the systemic risk and vulnerabilities within the country that require a policy response. Whiteshield Partners’ Crisis Resilience Index© (CRI) assesses the robustness of economies against the types of shocks associated with pandemics. In this case, it is tailored specifically to the current COVID-19 crisis. The Index uses five pillars to examine the strength of a nation to cope with the challenges brought on by a global pandemic (Figure 2).

Figure 2: The five pillars of the Crisis Resilience Index© (CRI)

Source: Whiteshield Partners

Yet South Korea, and especially China, have been significantly affected by COVID-19. The overall resilience to the disease will depend on a combination of their existing structural characteristics as measured by the CRI© and by relevant, rapid and useful policy actions adopted. Indeed, a resilient country may nevertheless succumb to adverse outcomes if it takes a weak policy response. Likewise, a vulnerable state may be better able to cope with COVID-19 through effective policy responses. Moreover, as pandemics are global, events outside the borders of a country also play an essential role. Timing is similarly vital; states nascent into the crisis can learn from the experiences of those already deep in the situation and may benefit from actions taken abroad.

According to the CRI©, countries most resilient against the challenges associated with COVID-19 include the European Nordic countries, as well as China, Indonesia, South Korea, Switzerland, the UK, and the Netherlands (see Figure 3).

Figure 3: Top 10 countries with the least systemic risk to pandemics such as COVID-19 based on CRI©

Source: Whiteshield Partners

If the outbreak had started in a less resilient state (and without the benefit of knowledge and lessons learned from others), the numbers would likely be even higher.

Countries that score lower on the CRI©, such as Italy or Iran, which are below the global average score of 0.462, have the greatest urgency for policy action. Those at the bottom of the ranking such as Lebanon (rank 150) and Ukraine (rank 155) are at risk of rapidly being overwhelmed by the pandemic and may need international support to compensate for their systemic gaps. Notwithstanding this, countries may nevertheless rise to the challenge if they understand where their weaknesses lie and take targeted actions in coordination with internal and global stakeholders.

Most importantly, states at the bottom of the S-curve of this global pandemic have the benefit of hindsight and not diving into the crisis blind. For instance, as already stated, some key lessons learned are that testing, quarantines and social distancing are valid and necessary tools to apply.

Review current policy options: Assimilate scenarios based on your ‘pre-existing’ conditions

Countries must take into account the unpredictability of new pandemics (“what we don’t know”), as well as the economic and social impact of different measures to determine appropriate policy responses.

Because of the complex system surrounding the evolution of the virus and the crisis, countries must consider planning for different outcomes as the situation evolves. Each result, or scenario, is gradually validated or disproved as data reveals the evolution of the pandemic.

The scenarios should also cover extremes to anticipate low probability, but potentially devastating developments, of the pandemic (see Figure 4).

Figure 4: COVID-19 pandemic crisis impact and response in four scenarios

Source: Whiteshield Partners

The standard expected economic and social outcome to a pandemic such as COVID-19 follows a U-curve with a progressive improvement to the previous level of growth and social well-being (Boomerang scenario). Full recovery depends on the severity of the crisis and the effectiveness of policy responses.

However, a U-curve recovery is not a foregone conclusion in the case of COVID-19 as the severity of the economic downturn could lead to a different outcome. Consider the “New Order” scenario which essentially puts a return to pre-crisis levels into question. A new global economic model that rests on less labour (e.g. replaced by technology) and greater national autonomy (e.g. to increase resilience to pandemics) could also emerge.

While overall GDP growth might return close to previous levels, it could happen with a structural reduction in jobs and under a new economic model based on social distancing.

Framing the possible scenarios allows policymakers to anticipate future shocks and the appropriate policy responses.

A government Crisis Response Unit (CRU) led by the Head of the State and involving senior representatives from all relevant ministries should guide the development of scenarios and policy options. The CRU should also consider including the Ministries of Health, Economy, Labour, and Finance.

Assess mix of containment and stimulus required: avoid a lockdown over 90 days

Once a country has gauged its level of systemic risk to a pandemic and developed relevant scenarios and policy responses, it should stage its intervention according to different degrees. Each successive level increases the intensity of the intervention depending on the level of systemic resilience (as measured by the CRI©) and the evolution of the pandemic (see Figure 5).

Figure 5: Staged policy responses to a pandemic in 5 levels (directional)

Source: Whiteshield Partners

There are five stages to frame the policy response to COVID-19 or any other pandemic crises, which are consistent with the DEFCON (defence readiness condition) alert states used by the US Armed Forces and to the WHO’s phases of pandemic alert.

The two main sets of policy actions are either restrictive (contain) or supportive. Containment measures limit the movement or actions of people and goods (e.g. quarantine, school closure). Supportive actions help the economy and reinforce positive behaviours that work to counteract the crisis (e.g. the distribution of masks, and economic stimulus packages).

Thus Level 5 (D5) would correspond to the least severe level of urgency (normal readiness) matched to a low outbreak probability of a disease in a country. By contrast, Level 1 (D1) refers to the maximum state of preparation for the most severe level of urgency to deal with an infection with a high likelihood of developing into a global pandemic. Level D1 has three different variants D1A, D1B and D1C, where containment measures are kept constant but the financial stimulus is 15, 25 and >50 per cent of GDP respectively. These variants are required to reduce the lockdown period if possible.

An effective policy to deal with pandemics must also consider the human tendency to behave in irrational ways during exceptional situations.

Addressing peoples’ biases can improve the response to a pandemic such as COVID-19. Information campaigns (D5) have a critical role in ensuring the key facts are presented and helping people respond more rationally to the crisis for the benefit of society. In this regard, ‘nudging’ can be very useful as a tool to leverage individuals’ cognitive biases to slow an epidemic.

Customise policy actions to consider social needs: become multidisciplinary

Adopting a more atomistic policy approach leads to greater effectiveness in fighting the pandemic, this involves the segmentation of population subgroups (e.g. occupations) to complement broader policies which apply to the whole population.

Beyond the more obvious criteria of age and existing medical conditions which compromise the immune system, other factors to consider are education level, income level, occupation, urban versus rural residence, family status, and cultural background.

A low-income family of seven and a city-dwelling college student should be treated differently in terms of communication and policy intervention. The low-income family of seven presents the highest economic, social and health risk from COVID-19. The college student is more likely to be a carrier and propagator of the virus to more vulnerable segments.

Risk by occupation in the pandemic takes on two critical dimensions. First, some professions are associated with higher probabilities of infection due to the nature of their work. Secondly, the economic fallout associated with measures to reduce the transmission rate of the disease are unevenly distributed.

In the case of risk from infection, frontline healthcare workers are the most susceptible. In general, occupations that involve more direct contact with others (e.g. teachers) are at higher risk than those that work in isolation (e.g. programmers). Policies must note the divergent risks of infection associated with different occupations, and how occupational types might also map onto other demographic or socioeconomic characteristics.

On the economic front, occupations most at risk must also be segmented both by sector and type. Jobs in airline and leisure/hospitality sectors are immediately impacted by the sudden and drastic decline in demand associated with lockdown policies. In a second wave comes occupations in fast-moving consumer goods (FMCG) and retail hit by disrupted global supply chains and progressive fall in demand. Jobs at smaller firms that are less able to withstand a working capital crunch will be vulnerable, as will freelance and short-term contract employment. By contrast, work in the technology sector is likely to continue with minimal interruption: as markets were steeply declining in the middle of March 2020, California technology firms were still looking to fill 16,000 job postings.

Coordinate a ‘whole-of-country’ response: adopt a longer-term rapid response unit

Just as it is crucial to segment individuals and professions, it is also critical to understand the dynamics across government policies, individuals and firms as modelled through agent-based and system dynamics (see Figure 6).

Figure 6: System dynamics and agent-based modelling of Coronavirus outbreak and response

Source: Whiteshield Partners



The Whiteshield Partners WSP-Navigator™ is based on the SEIR (susceptible, exposed, infected, recovered) compartmental model in epidemiology.

The unit of analysis in this model are agents, i.e. individuals, who differ by age, occupation, and other defining characteristics. Agents carry on their daily economic activity (work, consumption, etc.) in the different sectors of the economy. These are typically affected by labour supply, consumption and demand from other industries. Agents thus have different probabilities of becoming infected. A simulation of the model is run on discrete day-by-day time series to capture the evolution of economic, social, and health characteristics in response to various policy options. Calibration of the number of infections happens at time 0 in the model (matched to that observed in the economy under examination).

Act comprehensively and monitor results: engage actively with the private sector

Given the complexity of different forces at work in a pandemic such as COVID-19, policymakers should employ a comprehensive dashboard to monitor the outbreak continuously and measure the social, economic, and health consequences of any measures undertaken (see Figure 7). Such a dashboard allows decision-makers to distil large and complex amounts of data into more actionable values that correspond to policies.

A tool such as the WSP-Navigator™ also provides communication, alignment and collaboration opportunities for members of a Crisis Response Unit or other coordinating bodies to act cohesively in support of broader mitigation objectives.

Figure 7: The Whiteshield Partners NavigatorTM

Source: Whiteshield Partners

  1. CASE STUDY: KEY INSIGHTS FROM MODELLING THE COVID-19 PANDEMIC FOR OIL-BASED ECONOMIES

Whiteshield Partners’ model and simulation of the response to the pandemic for oil-based economies provides valuable insights for policymakers

Modelling the impact of a pandemic like COVID-19 can provide critical and real-time insights to design and adjust policies as the crisis evolves. Whiteshield Partners developed a comprehensive model leveraging a range of tools described in the first section of this article, including system dynamics and agent-based modelling approaches combined with the segmentation of people and firms. The model was customised to simulate the socioeconomic outcomes across OPEC countries.

In particular, the model examines how the bloc performs on measures of economic, social, and health in light of the COVID-19 pandemic. Using an agent-based systems dynamics model Whiteshield Partners simulated the outcomes across a wide range of scenarios.

For oil-based economies, we arrived at five key insights:

  1. Restrict the length of economic lockdown. A full lockdown of the economy for more than 20 days is detrimental to the economy. More than 90 days lockdown and economic stimulus above 8-9 per cent of GDP will lead to an unsustainable fiscal/budget balance.
  2. Keep trade open. Current social curfews – ‘stay at home’ – are required to keep infection prevalence from the levels predicted if no action is taken. However, the policy response should be less restrictive on trade and product flows: turn trade capture into an opportunity.
  3. Support specific sectors. Massive job losses and other social/economic consequences are expected in education, health, hospitality, retail, construction, and potentially administration sectors.
  4. Retain skills and competitiveness. Large expatriate workforces can quickly mobilise out of the region in a recession scenario almost certainly leading to a long-term loss of competitiveness.
  5. Plan. The dual shock of COVID-19 and the fall in oil prices may lead to a recession with GDP contracting by at least 9 per cent if the situation continues for more than 120 days without an effective policy response.

Figure 8: Typical country response and expected impact on infection prevalence and economy

Source: Whiteshield Partners

Box 1: Game theory model of confinement strategy for two populations

Objective of the game:

The game aims to model the behaviours of two hypothetical countries that connect through trade and travel and must evaluate full confinement versus no confinement strategies to counter the spread of COVID-19.

Rules of the game:

Each government has a utility function which depends on three dimensions:

  1. Health: worsens as people become infected or die and improves as they recover. The entire population is susceptible to being infected. Depending on the transmission rate of the virus, people become infected, then they recover or die.
  2. Economic: worsens as economic activity slows down due to confinement as well as the level of confinement of the other country. There is a ‘confinement differential’ factor which incentivises each country to ease its confinement to capture the leftover market of the other country.
  3. Social: is based on a comparison of the health and economic performance of the two countries. As one country performs relatively better on the health or economic dimension, its social aspect improves. The confinement decision of each country impacts the three dimensions described above. Thus, the choice of the level of confinement is interdependent between both governments. The relative size of each country’s population and economy will also influence the confinement strategy.

Outcomes of the Game:

As confinement strategy of the other player increases, our confinement strategy decreases to take advantage of the relatively lower virus transmission rate and of the confinement differential which allows to capture a fraction of the other country’s market.

Figure 9: Population effect, bigger = more complex

Source: Whiteshield Partners

  • Each country’s level of confinement increases as the size of population increases.
  • As the initial situation worsens (i.e. more people infected), the government introduces more severe measures early on.

Figure 10: Economic tradeoff, time matters

Source: Whiteshield Partners

  • As the impact of confinement on one economy increases, the confinement decreases. The worsening of economic and social conditions is not compensated by the rise in the health dimension, which has a delayed effect. Meaning, the delay of perceiving a change in the health sector is longer than that of observing a difference on the social and economic sectors.

Figure 11: Balancing health and wealth

Source: Whiteshield Partners

  • As the weight of the health dimension increases the confinement strategy becomes stricter.
  • The weight of the economic dimension follows a similar pattern but to a lesser degree.

Figure 12: Utility dynamics

Source: Whiteshield Partners

  • The economic and social dimensions of a country and the relative differences in size of population and economy with the other country will play the most significant role in the confinement strategy adopted.

A CALL FOR A MULTIDISCIPLINARY APPROACH IN PUBLIC POLICY

A whole-of-country approach is required to deal with COVID-19 effectively. All countries coping with the disease and affected by its global ramifications have to chart a course beyond. The day after tomorrow, when the pandemic is brought under control, will be critical to the continued prosperity of the global economy. This type of all-encompassing plan will be needed going forward.

It requires a country’s best capabilities, including mapping the social contract, revising public policy strategies and deploying state-of-the-art tools such as the Crisis Resilience Index© (CRI), scenario planning and the WSP-Navigator™ presented in this paper.

Leadership is crucial to gauge the severity of the challenge, anticipate different scenarios, mobilise resources, design the best policy responses, and bring together policymakers, business and society act decisively beyond the current crisis.

Ultimately the shock of COVID-19 should be used to strengthen country systems such as healthcare and build further resilience for the future.

Coronavirus may not be the last pandemic that we will see in our lifetime, and we need to be ready for the next one to come.

To obtain an urgent covid-19 socioeconomic country analysis

Contact our rapid response team

Whiteshield Partners Strategy & Public Policy Advisory All rights reserved.
‘Policy Insights. COVID-19 Crisis: The day after tomorrow’ is the copyrighted material of Whiteshield Partners, including the ‘Whiteshield Navigator Technology’ © 2016. The analysis and drafting of the ‘Policy Insights. COVID-19 Crisis: The day after tomorrow’ (hereafter: ‘Article’), was conducted by Whiteshield Partners based on a proprietary methodology integrating information from international organisations and interviews with the Advisory Board members. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise without the prior permission of the Whiteshield Partners. Suggested Citation: Whiteshield Partners, ‘Policy Insights, COVID-19 Crisis: The day after tomorrow’, Whiteshield Navigator.

DISCLAIMER
The ‘Policy Insights. COVID-19 Crisis: The day after tomorrow’ and any opinions expressed in this publication are the sole responsibility of the authors. All efforts were made to compile data that is as accurate and recent as possible based on available international sources. Whiteshield Partners, and all entities or partners associated to this publication, do not take any responsibility for data that may be inaccurate.