Economic Consequences of the Swine Flu Outbreak

By Geary W. Sikich
Copyright© Geary W. Sikich 2009. World rights reserved.
Published with permission of the author.

Introduction

A paradigm is broadly defined as: a philosophical or theoretical framework of any kind.

A paradox on the other hand, is an apparently true statement or group of statements
that leads to a contradiction or a situation which defies intuition. A paradox, while
seemingly self-contradictory or absurd in reality expresses a possible truth.

At the time of this writing H1N1 known as Swine Flu has spread through much of the
world. Its low mortality rate has made it a relatively mild pandemic. Yet to be
determined is what will happen when the flu season arrives in the northern hemisphere
this fall. The World Health Organization (WHO) and Centers for Disease Control (CDC)
have been revising much of their guidance and we are seeing almost daily some
revelation from the WHO, CDC and the popular media.

Far Greater Immediate and Long Term Impacts?

The economic impact of the swine flu virus in some countries may be drastic, the chief
economist for the International Monetary Fund has warned. Chief economist Olivier
Blanchard said the tourism industry in some countries may be negatively affected during
a speech at the Carnegie Endowment for International Peace in Washington.
Thomson Reuters reported recently that fears of a deadly swine flu pandemic wrecking
an already wobbly global economy. These fears have materialized with a vengeance in
the commodities markets. Hog futures dropped dramatically and cascaded to share
prices of U.S. meat companies which also dropped. Egypt reported that it will slaughter
its entire pig population of approximately 300,000 in an effort to stem the Swine Flu
virus. Early sell-offs in commodities recall market reactions to the SARS and H5N1 bird
flu in 2003. Those outbreaks also raised concerns over demand for food commodities.

Economic Impacts are already being felt

The impact of Swine Flu on the markets combined with the current financial crisis and
an already weak world economy could make Asia’s experience during the Severe Acute
Respiratory Syndrome (SARS) outbreak in 2003 pale. This is partly due to the fact that
the current Swine Flu virus is spreading faster than SARS did. Secondly, we have seen
a much quicker reaction by the WHO and CDC, raising the Pandemic Phase from 3 to 5
in rapid succession. The cascade effects will be seen in commodity prices, stocks of
food companies, energy prices, pharmaceutical company expenditures to find a vaccine
and any measure of things to come, the region's economies may find themselves in a
much deeper hole should swine flu spread. Economists and industry leaders are
closely watching the spread of the swine flu. Should a severe outbreak of the flu occur
in Asia, economists and industry executives fear the economic damage would be worse
than that of the Severe Acute Respiratory Syndrome outbreak in 2003.
 Economic Consequences of the Swine Flu Outbreak

In an article entitled, “Matthews borrows against turkeys” (By Iain Dey, Sunday
Telegraph, published on 24/06/2007) the following excerpts reveal the economic
impact that H5N1 is already having:

Bernard Matthews, the poultry farmer whose eponymous empire was

blighted by avian flu earlier this year, has been forced to refinance his
business by securing its future against his stock of turkeys.

Sales of the company's "bootiful" turkeys have been hammered by the health
scare. Recent research suggested sales of both frozen and fresh turkeys
across the UK are down around 30 per cent in the wake of the outbreak. The
last figures provided by the company suggested a 20 per cent plunge in
sales.

Bernard Matthews has now been refinanced through an asset finance deal
struck with Burdale, a subsidiary of Bank of Ireland, and supported by a
handful of other major international lenders.

The loans have been secured against some of the company's 56 farms, its
plant and equipment, as well as its livestock, according to banking sources.

Matthews founded the business in 1950 with 20 turkey eggs and a second-
hand incubator. The business turned over about £400m last year and
employs more than 6,000 people worldwide. The company produces 7m
turkeys in the UK every year.

The avian flu disaster is estimated to have wiped around £70m from
Matthews personal fortune. The business is run from his Norfolk mansion,
Great Witchingham Hall, set in 36 acres, which he restored from dereliction.

My colleague, John Stagl and I transcribed some notes as we were preparing to discuss
the economic consequences of a pandemic at a luncheon in Chicago in 2006. We had
come to the conclusion at the time, that a pandemic will have a domino effect
worldwide. We all know that a pandemic will create a unique set of conditions that
impact society, the business markets and medical support systems. One of the
differentiating characteristics of a pandemic, unlike any other disaster, is its wide-spread
impact. We have already seen that this impact has occurred without human-to-human
contagion occurring. The economic consequences to the poultry industry have been
dramatic.

However, let’s turn our attention to the human-to-human aspects of the post-pandemic
period. While we know that the medical community will be one of the hardest hit areas,
it is by no means the only area that will suffer extensive near-term and severe long term
impact. The medical impact, for that matter it will most probably be the most short-lived
impact factor of the pandemic (in terms of deaths, etc.) and post-pandemic periods
(people will alter their lifestyles to, perhaps do with less medical services). The longer
term ramifications will be felt economically throughout the world. Below is a list of some
of the various elements that will feel the impact of a pandemic, either directly or
 Economic Consequences of the Swine Flu Outbreak

indirectly. Impacts will reverberate through various sectors of the worldwide socio-
economic system. The key point to note is that the reverberation and cascading effect
will be painfully uneven. Some countries will fare better than others. Some companies
will fare better than others. Collectively though, each will feel the impact of the other as
if they were dominos falling creating a cascade effect. An analogy would be to compare
the cascade effect of a pandemic to a tsunami wave. The initial wave may be hardly
noticeable however, as it ripples out it gains strength until it surges over the land
causing devastation and destruction. Current thinking about pandemic generally starts
with the recognition of the illness and a projection on its societal impacts. We know
that:

 People are affected

 Society is unprepared
 Governments are unprepared
 Private Sector Enterprises are unprepared
 Medical Institutions will be impacted
 Economic Sectors Worldwide will be impacted
 Medical Support Systems are impacted
 Social Behavior will reflect be Susceptible to Significant Degradation

But what we do not know and can only speculate about is the scalable variables brought
about by random chance. Biological variables (mortality and morbidity rates as a result
of the pandemic) can be estimated based on the lethality of the virus (currently at
almost 60% versus the Spanish Influenza virus which was around 2 – 3%). There is an
excellent study that has been published regarding the impact of a pandemic on the Life
Insurance Industry (I will cite from it later). With scalable variables, as Taleb says in the
Black Swan, “the longer you wait, the longer you will be expected to wait.” This is as a
result of the scalability of random events – randomness runs counterintuitive to
conventional logic and the normal bell curve deviations that we are used to.

So, here are some purely speculative projections as to what the post-pandemic
recovery, restoration and realignment may look like. I have based some of what I am
about to project on limited historical evidence from the Plague and Spanish Influenza. I
use the term “limited” as a reference to the differences in technology, population,
education, industrialization, etc. that was present at the time of the Plague and Spanish
Influenza (a mere 89 years ago as of this writing in 2007).

Here are some fast facts (courtesy of Maplecroft Index – August 2007) to ponder as we
get ready for our journey into post-pandemic speculation.

 Nearly two billion people (mostly in developing countries) do not have

access to electricity

 Nearly half the world's population (three billion people) have never made a
phone call
 Economic Consequences of the Swine Flu Outbreak

 Enabling digital inclusion is most urgent in Africa – a continent that houses

1 in 8 people (12%), has only 1 in 40 fixed line telephones (2.5%), 1 in 30
mobile telephones (3%), 1 in 70 personal computers – PCs (1.5%), 1 in
150 Internet users (0.7%) and 1 in 500 Internet hosts (0.2%)

 Developing countries now account for almost half (49%) of total telephone
subscribers in the world, up from just 19% in 1990

 Globally only 650 million people have PCs. In the developing world,
figures average at about 1/100 people but can be as high as 8/100 in
Argentina or as low as 0.18/100 in Burundi

 In 1990 only 20 countries were connected to the Internet. In 2003 there

were 209

Consider these aspects of predicting the future. In the material that follows, I have
calculated a possible error rate of 100%. I could be completely wrong. Other than that
what I am writing is pure speculation based on a random event occurring at some time
in the future. However, I have cleverly, I hope not cast my forecast with any date
specific timeframe and therefore could be 100% right – eventually! Forecasting without
incorporating an error rate uncovers, according to Nicholas Taleb (The Black Swan)
three fallacies all arising from the same misconception about the nature of uncertainty.
His first fallacy is that variability matters. I agree; that is why I am not taking my
projections too seriously and casting them with a date, hence I propose a range of
possible outcomes. Second, he states that there is the fallacy of failing to take into
account forecast degradation as the projected period lengthens. Here again, I agree;
we do not realize the full extent of the difference between near and far futures. H5N1 is
extremely lethal at present. Viruses mutate in order to survive. I would speculate that
the influenza virus that creates a pandemic will be far less lethal than the current strain
of H5N1. This, however, also allows for the virus to spread faster, longer and to infect
more people – because we stay alive longer and can pass it to many others over time
(evidence my projection figure from the previous chapter. Finally, Taleb offers his third,
and according to him possibly the most grave fallacy that concerns a misunderstanding
of the random character of the variables being forecast. We do not realize the
consequences of the rare event. It is the lower bound of estimates (worst case
scenario) that matters when engaging in a decision. The worst case is far more
consequential than the forecast itself.

Remember –

“A black swan is a highly improbable event with three principal characteristics: it

is unpredictable; it carries a massive impact; and, after the fact, we concoct an
explanation that makes it appear less random, and more predictable, than it
was.”
Nassim Nicholas Taleb
The Black Swan: The Impact of the Highly Improbable
Economic Consequences of the Swine Flu Outbreak
 Economic Consequences of the Swine Flu Outbreak

The following are the initial albeit speculative impacts that we can attribute to a
pandemic:

Business (all forms of Private Enterprise) Impact

 Reduction in workforce this leads to a reduction in output capacity
 Reduction in consumption (people staying at home) leads to a
decrease in demand
 Reduction in revenue leading to less profit, leading to less taxes being
paid
 Lack of consumption demand leading to employees being laid off;
leading to loss of benefits (healthcare insurance, etc.)
 Reduction in disposable income leads to further consumption declines
and consumption focused on necessities (healthcare insurance may
become a luxury)
 Redistribution of family asset spending – necessities only
 Food
 Medical (if you can pay health insurance, you still have
deductibles; will the influenza be covered under your existing
plan?)
 Housing
 Private transportation – if possible
 More layoffs due to a worldwide sloughing off of demand and some
countries closing borders as they attempt to isolate themselves
 Business bankruptcies medium and small businesses will feel the pain
because they have limited cash reserves. Large enterprises will suffer
as a result of loss of consumers and suppliers (how dependent is your
business on the small to medium size supplier/vendor? Or, is your
small/medium size business heavily dependent on a customer (large
enterprise) that may experience a drop in demand putting your
operations at risk?)

Medical Support Systems (All Medically Related Endeavors)

 Doctors in demand for patient diagnosis – office visits
 Hospitals overwhelmed with patients
 Patients must be isolated, from traditional patient care
 Isolation supplies become limited, if available at all
 Respiratory equipment in short supply - for secondary pneumonia
 Committees will decide who gets respirator support & who does not
 Limited supplies of medication (no vaccine for 6-9 mos.)
 Hospital & public pharmacies must increase security for medications

Investments Fall (Anything that can be Monetized)

 Redistribution of family assets – reduced investing
 Companies need cash for operations vs. reduced investments
 Investors seek “safe havens” for investing – no 3rd world investments
 Economic Consequences of the Swine Flu Outbreak

 Reduced capacity to process investment activity – up to 40% of staff

sick
 Stock and Bond Markets behave erratically leading to less and less
investment in publicly traded stocks, bonds
 Private equity investments in companies drops for all the above
reasons cited previously and all the subsequent points yet to come

Commodity Markets
 Demand becomes erratic leading to reduced trading
 Open pit operations are limited due to physical concerns – exposure to
others in the trading pit
 Electronic trading (heavier now than ever) becomes erratic as power
supply systems and Internet are less consistent
 Commodity delivery erratic
 Investors seek “safe havens” for investing – no 3rd world investments
 Reduced capacity to process investment activity – 30% of staff sick

Business Assets Depleted

 Lack of investing
 Redistribution of company assets to current expense issues
 Growth is replaced with survival strategies
 Revenue continues to slip
 Unemployment grows
 National disposable income declines
 Human capital (talent – an overlooked asset) not easily replaceable,
long lead times to train, less loyalty, more dependent on technology

Business Failures Increase

 More Unemployment
 Loss of personal disposable income
 Increased demand for government services (at all levels)

Government Impact
 Substantial drop in revenues (tax base drops)
 Quarantine and Isolation requirements will us most of government
assets
 Limited ability to provide of traditional support services
 Increased demand for services
 Social unrest ferments – “someone has to help us” mentality

Bankruptcies
 Business failures increase to unprecedented levels
 Increase in personal and commercial bankruptcies
 Backlog in court processing of bankruptcies
 Economic Consequences of the Swine Flu Outbreak

 Creditors wait longer for assets from courts

 Creditors see drop in assets from bankruptcies
 Creditors become more restrictive in loaning money and extending
credit
 Credit and loan availability drops
 More companies fail due to lack of loans & credit

Creditors Fail
 Delays in bankruptcy processing & asset distribution results in lender
failures
 Bankrupt company assets are not redistributed into the market
 Business market contracts because of operational asset decline
 Lender failures compounds bankruptcy backlog and asset distribution

Opportunities
 Large numbers of qualified, trained individuals available for
employment
 Companies prepared to identify these people will grow stronger &
faster
 Substantial number of opportunities will exist as a result of company
failures

Let’s take a look at one sector, transportation. Within that sector take the slice dealing
with passengers and cargo. Just on the basis of moving people and stuff you can
already project the complexity. Below are the world’s thirty busiest airports in 2005
ranked by passengers and by cargo. What was your estimate that a person, who knew
that they had a highly infectious form of Tuberculosis, would be capable of flying
internationally on several flights? Now, take that projection and add the variability factor
and random character of the event and think about the consequences in the context of
flying from any one of these airports with a case of influenza.
World’s 30 busiest
Airports Total passengers World’s 30 busiest Airports Total cargo
1. Atlanta, Hartsfield (ATL) 85,907,423 Memphis (MEM) 3,598,500
2. Chicago, O'Hare (ORD) 76,510,003 Hong Kong (HKG) 3,433,349
3. London, Heathrow (LHR) 67,915,403 Anchorage (ANC) 2,553,937
4. Tokyo, Haneda (HND) 63,282,219 Tokyo, Narita (NRT) 2,291,073
5. Los Angeles (LAX) 61,489,398 Seoul (ICN) 2,150,140
6. Dallas/Ft. Worth (DFW) 59,176,265 Paris, Charles de Gaulle (CDG) 2,010,361
Paris, Charles de Gaulle
7. 53,798,308 Frankfurt-Main (FRA) 1,962,927
(CDG)
8. Frankfurt-Main (FRA) 52,219,412 Los Angeles (LAX) 1,938,430
Amsterdam, Schiphol
9. 44,163,098 Shanghai (PVG) 1,856,655
(AMS)
 Economic Consequences of the Swine Flu Outbreak

1
Las Vegas (LAS) 43,989,982 Singapore (SIN) 1,854,510
0.
1
Denver (DEN) 43,387,513 Louisville (SDF) 1,815,155
1.
1
Madrid (MAD) 41,940,059 Miami (MIA) 1,754,633
2.
1
New York (JFK) 41,885,104 Taipei (TPE) 1,705,318
3.
1
Phoenix, Sky Harbor (PHX) 41,213,754 New York (JFK) 1,660,717
4.
1
Beijing (PEK) 41,004,008 Chicago, O'Hare (ORD) 1,546,153
5.
1
Hong Kong (HKG) 40,269,847 Amsterdam, Schiphol (AMS) 1,495,918
6.
1
Houston (IAH) 39,684,640 London, Heathrow (LHR) 1,389,589
7.
1
Bangkok (BKK) 38,985,043 Dubai (DXB) 1,314,906
8.
1
Minneapolis/St. Paul (MSP) 37,604,373 Bangkok (BKK) 1,140,836
9.
2
Detroit (DTW) 36,389,294 Indianapolis (IND) 985,456
0.
2
Orlando (MCO) 34,128,048 Newark (EWR) 949,933
1.
2
Newark (EWR) 33,999,940 Osaka (KIX) 869,474
2.
2
San Francisco (SFO) 32,802,363 Tokyo, Haneda (HND) 799,073
3.
2
London, Gatwick (LGW) 32,784,330 Beijing (PEK) 782,066
4.
2
Singapore (SIN) 32,430,856 Atlanta, Hartsfield (ATL) 767,897
5.
2
Philadelphia (PHL) 31,495,385 Guangzhou (CN) 750,555
6.
2
Tokyo, Narita (NRT) 31,451,274 Luxembourg (LUX) 742,766
7.
2
Miami (MIA) 31,008,453 Dallas/Ft. Worth (DFW) 741,805
8.
2
Toronto (YYZ) 29,914,750 Oakland (OAK) 672,844
9
3
Seattle/Tacoma (SEA) 29,289,026 Brussels (BRU) 660,854
0.
NOTES: Total passengers enplaned and deplaned, passengers in transit counted once. Total cargo loaded and
unloaded, freight and mail (in metric tons).
Source: Airports Council International World Headquarters, Geneva, Switzerland. Web: www.airports.org .
 Economic Consequences of the Swine Flu Outbreak

There were almost two billion passengers traveling in 2006; that is roughly three million
people every day flying from one city or one country or one continent to another. The
potential is obvious for someone with an infectious disease unwittingly perhaps carrying
it from one part of the world to another.

Air New Zealand had an unexpected downturn in revenue of 11% while cities with
SARS were transformed by the SARS outbreak. Sherry Cooper from Toronto explains:

During its four-month run in Toronto, ending in June, SARS killed fewer than 50
people. Even China and Hong Kong, the two places hardest hit by the virus,
suffered ‘only’ 648 deaths in total. On April 23, the WHO sent out a warning
against all unnecessary travel to Toronto, Beijing, and China’s Shanxi province.
Travel to and from Toronto plummeted overnight. Overall SARS cost the city’s
hotel industry more than $125 million Canadian; more generally, the tourism
industry in the province of Ontario lost more than $2 billion Canadian in income
and jobs.
 Economic Consequences of the Swine Flu Outbreak

In another example, an article titled, “Just plane gross” published on August 14 2007 in
the Wall Street Journal (WSJ):

This summer, rampant flight cancellations and delays are forcing many travelers
to languish, sometimes for hours, before they can board their flight.
Unfortunately, that's nothing compared with what may await them on the plane.

Airplanes may be some of the best breeding grounds for illness. The WSJ article
further cited the following incident:

Indeed, delays can affect cleanliness and comfort, particularly with planes now
flying fuller. The percentage of on-time flights fell to 74.5 percent in July from
76.4 percent a year earlier, according to flightstats.com. Summer thunderstorms
have been to blame, as have technical glitches like the Federal Aviation
Administration computer snafu on June 8.

On Saturday, more than 20,000 international passengers were stranded for

hours at Los Angeles International Airport, waiting on airplanes and in packed
customs halls while a malfunctioning computer system prevented U.S. officials
from processing the travelers' entry into the country. The U.S. Customs and
Border Protection system went down around 2 p.m., forcing some planes to sit
on the tarmac for so long that workers had to refuel them to keep their power
units and air conditioning running. Maintenance workers ran trucks around the
airport hooking up tubes to service lavatories.

So what does this mean from a pandemic and post-pandemic perspective? Just take a
look at what the article reveals regarding the cleaning schedule for airplanes:

JetBlue says its planes undergo a "maximum deep clean" once a month, same
as before, a process that includes a thorough cleaning of the lavatories and
galleys, vacuuming of carpets and cleaning of seats, seat trays and side walls.
Southwest Airlines says its deep-cleaning cycle is 30 days too. American
Airlines says it also keeps a 30-day average. Continental Airlines, like many
airlines, says its planes also undergo an overnight cleaning, which includes
replacement of soiled pillows and blankets, vacuuming of cabin floors and
cleaning of lavatories and passenger seating areas.

Between flights, though, the cleaning tends to be cursory. American says it picks
up trash and cleans seat-back pouches between flights, but it doesn't wipe down
tray tables or vacuum while at the gate unless there's an obvious mess that must
be addressed. ATA Airlines also says it doesn't wipe down tray tables between
flights unless there's a clear need because of the limited ground time.

I am sure that after reading this, you are probably thinking about carrying disinfectant
wipes with you on your future travels! If the above examples are common practice, the
spread of viral illness could extend the post-pandemic meltdown for the transportation
 Economic Consequences of the Swine Flu Outbreak

industry, or the industry could be required to employ more stringent cleaning standards
to their fleets of aircraft. And this is only one example of only one segment of one
industry sector!

Business Impacts – How Long Can You Survive?

Impacts can be immediate and expensive. It is therefore prudent that your pandemic
planning efforts consider the dynamic nature of the world’s markets as part of your
overall strategy. This makes good business sense. It can be readily applied to
situations other than a pandemic. With this broader perspective in mind your pandemic
preparations can be leveraged into greater management awareness and perhaps, more
of a competitive edge for your enterprise. This is true, for public sector entities too.
Government can be more competitive and forward thinking and gain leverage with the
constituents (taxpayers) whether they are individuals or businesses.

One key issue that businesses face with a pandemic that is different from other
disasters is that multiple locations could be affected simultaneously. This is complicated
by loss of personnel that could occur for several reasons – sickness, caring for sick
individuals, school closures, fear of contamination at the workplace, etc. Most of the
current business continuity models are based on the recovery of technology and
facilities (“brick and mortar” type structures). Few are addressing the human
component and if they do they are not doing it very well. First and foremost a basis for
ensuring that communication and information flows seamlessly vertically and
horizontally throughout the enterprise is essential. This means that you have to have
common terminology within and with all the external touchpoints (customers to vendors)
that is clearly understood by all. Most organizations come up short when an analysis of
the communication and information flow is undertaken. The general finding is that
fragmentation and a lack of seamlessness exists.

Decision making regarding governance issues can only be addressed by senior

executives. Senior executives will establish and manage voluntary compliance
mandates as well as ensure compliance with regulatory driven requirements.

Strategy requires management engagement in order to achieve 3600 coverage. This

coverage consists of: 1) forward looking capabilities “active analysis” and situational
awareness; 2) awareness of challenges; 3) executable goals and objectives and 4)
ability to capitalize on experience and past successes. Operating in a pandemic will
require that your organization have a flexible and responsive strategy. Incorporating
business strategy elements into the management decision making process at all levels
of contingency planning can facilitate greater flexibility.

A tactical focus on processes rather than a strategic focus that is broader based –
business goals, objectives and response to market demands can equal less than
effective business continuity.
 Economic Consequences of the Swine Flu Outbreak

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
 Economic Consequences of the Swine Flu Outbreak

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 (NewsTarget.com) 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™).
 Economic Consequences of the Swine Flu Outbreak

“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.

Other key findings in the report include:

 Avian influenza is the latest in a series of major livestock disease

outbreaks that have caused more than $60 billion in economic
damages worldwide over the past 15 years.
 Concerns about a possible influenza pandemic are already
providing stimulus for increased spending and accelerated
research and development efforts in some parts of the economy,
ranging from custom microarray chips for rapid diagnostic
testing to antiviral drugs.
 Governments around the world have recently made
commitments totaling an estimated $1.4 billion to stockpile
oseltamivir (Tamiflu)—an antiviral drug produced by
pharmaceutical giant Roche.
 Manufacturers of flu vaccines are gearing up for what may be an
unprecedented global demand for a vaccine effective against
H5N1 variants, but it is not known whether the vaccines being
developed now would be effective against the influenza strains
that might emerge.
 New “DNA vaccines” offer an alternative to conventional
production technologies and could speed the vaccine industry’s
ability to respond, but these technologies are not yet approved
by FDA.

“We’ve been looking at how things might unfold under six very different but
highly plausible scenarios for the evolution of the outbreak,” said Stephen
Aldrich, President of bio-era. “In the process, we’ve made assessments of
potential outbreak risk by country, the relative economic exposure by country
— and how selected industries and companies are likely to be affected.”

We have not experienced this type of business problem in our lifetimes. The last
generation to have to address such a widespread issue was that of our grandparents
and parents during the Great Depression.

During the Great Depression the revenue component of the free enterprise system was
significantly impaired. Just as important, today on a worldwide basis we do not have
any leadership in business or government who has lived through the 1918 Spanish Flu
Pandemic or the Great Depression and so that experience base is lost to us. Our best
option, therefore, is to start to think about the possible problems we may have to
 Economic Consequences of the Swine Flu Outbreak

confront and take steps to avoid or deal with them in our businesses. If we wait until the
pandemic starts, it will be too late.

Even if a pandemic were mild, it is estimated that about a third of the world's population
would fall sick over a period of months and millions would die. If the strain is virulent,
the death toll could mount to several million, over a relatively short period. If we look at
previous pandemics (Spanish Flu 1918 – 1919, Asian Flu 1957 – 1958, Hong Kong Flu
1968 – 1969) they generally run their course in 18 to 24 months. As an example, the
economic consequences could be staggering; SARS wreaked economic devastation on
affected cities and countries in a relatively short period.

The Health and Human Services Department plan outlines a worst-case scenario where
more than 1.9 million Americans would die and 8.5 million would be hospitalized with
costs exceeding $450 billion.

Current Forecasts – Business Continuity Planners where can you add value?

We often use the phrase “value added” when we promote business continuity planning.
We say that we “add value” to an organization by preparing it to respond and recover
from incidents. At this time I think that we can earn our keep, so to speak, by providing
that “value added” service that we speak of. Current forecasts predict that the H5N1
pandemic will spread around the world in a historically short period of time. One expert
stated that if this pandemic is identified on the west coast of the United States it will
spread across the country in a week. When SARS spread from China just a couple of
years ago, it was in 5 countries in 3 days and in 24 countries in 3 months. Time to react
will be virtually non-existent. And if we are to earn our merit as business continuity
planners, we need to react now! The companies that survive this extraordinary disaster
when it occurs will have heeded the words of Sun Tzu centuries ago, “Victorious
warriors win first and then go to war, while defeated warriors go to war first and then
seek to win.” Planning today will prove to be the only viable strategy to ensure a
company’s “victory”.

What If…?

What if the pandemic does not materialize? Do we have the proverbial “egg on our
face”? In the event that this pandemic does not materialize, your planning will not be
lost. Most of it will be transferable. There will be future pandemics (and they occur
approximately every 30 – 40 years) and to the ever present threat of terrorist attacks
using chemical/biological/nerve agents. Business survivability in the face disasters is
imperative to the economic strength of the world community.

We as continuity planners have an obligation to be forward thinking and to see what

others choose not to recognize until it is upon them.

Steps to take…Now
 Economic Consequences of the Swine Flu Outbreak

The ability to effectively respond to and manage the consequences of an event in a

timely manner is essential to ensure an organization's survivability in today’s fast paced
business environment. With the emergence of new threats, such as cyber-terrorism
and bio-terrorism; and the increasing exposure of companies to traditional threats such
as, fraud, systems failure, fire, explosions, spills, natural disasters, etc. an “integrated”
approach to Business Continuity Planning is essential. The “integrated” approach, as
presented in this article, is based on the concept of graceful degradation and agile
restoration. “Graceful degradation” refers to the ability of an organization to identify the
event, classify it into a level of severity, determine its consequences, establish minimal
stable functionality, devolve to the most robust less functional configuration available
and to begin to direct initial efforts for rapid restoration of services in a timely fashion.

Several steps can be taken to prepare your organization. First, put in place an effective
surveillance program; meaning, expand your business impact assessment activities. In
my article, “"Futureproofing" - the Process of Active Analysis” written in 2003, I
recommended that we rethink the business impact assessment process:

Traditional analysis such as that performed at the initiation of the business

continuity plan development is recognized as necessary to develop a baseline
of information. However, it should also be recognized as having certain
limitations:

• Pre-Event - Best guess as to what could occur

• Static - Best guess based on available facts and models

Traditional analysis creates undecidability due to the inability to predict all

behavior in a dynamic environment. Therefore one should adopt an Active
Analysis methodology, such as that developed by Logical Management
Systems, Corp. (LMS). LMS' methodology is based on the U.S. Military's "Joint
Special Operations Targeting and Mission Planning Procedures" (JP 3-05.5 10
august 1993). It is detailed herein.

The advantages that can be realized by adopting this methodology and

maintaining an active analysis process are:

• Uses Static Analysis as a basis

• Touchpoint complexity factors
• Dynamic - based on creating a mosaic
• Time Factors (Time Critical, Time Sensitive and Time
Dependent) act as drivers

Termed "Futureproofing" by LMS the active analysis process is designed to

create a mosaic that enhances decision making by identifying behavior
patterns in a dynamic environment.

Active analysis can be subdivided into three categories of possible

threats/occurrences that could befall an organization. Dr. Ian Mitroff refers to
the three categories as Natural Accidents, Normal Accidents and Abnormal
 Economic Consequences of the Swine Flu Outbreak

Accidents. I have renamed them and to differentiate the three aspects of

each. That is, the threat, the actual occurrence and the consequence of the
occurrence.

• Natural Threats/Occurrences/Consequences consisting

of such things as drought, floods, tornadoes, earthquakes,
fires and other naturally occurring phenomena.
• Normal Threats/Occurrences/Consequences consisting
of such things as Economic Disasters, such as:
• Recessions
• Stock Market Downturns
• Rating Agency Downgrade, etc.
Personnel Disasters, such as:
• Strikes
• Workplace Violence
• Vandalism
• Employee Fraud, etc.
Physical Disasters, such as:
• Industrial Accidents
• Supply Chain
• Value Chain
• Product Failure
• Fires
• Environmental
• Health & Safety
• Abnormal Threats/Occurrences/Consequences
consisting of Criminal Disasters, such as:
• Product Tampering
• Terrorism
• Kidnapping & Hostages, etc.
Information Disasters, such as:
• Theft of Proprietary Information
• Hacking, Data Tampering
• Cyber Attacks, etc.
Reputation Disasters, such as:
• Rumors
• Regulatory Issues
• Litigation
• Product Liability
• Media Investigations
• Internet Reputation, etc.

Please note Abnormal Threats/Occurrences/Consequences are becoming

more of the norm than abnormal as we see the normalization of threats such
as hacking and data tampering.
 Economic Consequences of the Swine Flu Outbreak

Five key assumptions were used as a basis to for the developmental

framework of the "Futureproofing" methodology. These are:

• Assumption # 1: The modern business organization represents

a complex system operating within multiple networks

• Assumption # 2: There are many layers of complexity within

an organization and its "Value Chain"

• Assumption # 3: Due to complexity, active analysis of the

potential consequences of disruptive events is critical

• Assumption # 4: Actions in response to disruptive events

needs to be coordinated

• Assumption # 5: Resources and skill sets are key issues

Based on the above assumptions and the results of the baseline analysis
(static analysis) one realizes that the timely identification, classification,
communication and response, management and recovery from a disruptive
event are critical. As depicted in the graphic on the next page over time
uncertainty will decrease, as will available options for response and recovery.

This is contrasted with increasing numbers of issues and higher and higher
costs associated with response and recovery efforts. As such, an
organization should seek to continually analyze situations so as to develop a
clear picture of the current state of the business system network. Referred to
as "Data Fusion - Constructing a Mosaic" by LMS; this is a process of getting
enough bits and pieces of information in place in order to transform seeming
chaos into recognizable patterns upon which decisions can be made.

Second, recognize that you cannot depend on public authorities (read this as
government at all levels) to be there for your organization. They will have too many
issues to deal with and they will also be impacted by the pandemic – remember that
30% of the population could be affected; that means that civil authorities are just as
susceptible to contracting the disease. Your organization and its “value chain” must its
own comprehensive plan for dealing with the business consequences of a pandemic.
Rethink the basis on which you developed your plan – talk to the risk management and
strategic planning personnel in your organization and find out what they are looking at
with regard to business expansion, contraction, risk mitigation, etc. They should be very
conversant as a result of the recent hurricanes, earthquakes, tsunami and general
competitive forces in the economy. Revise your business continuity plan. Develop the
ability, as an organization, to sequence back your operations while ensuring that your
business system and its network (“value chain”) can maintain level of functionality while
operating at reduced capability. When your business system and its network reaches
the state of minimum functionality, the organization can begin to conduct a campaign of
"agile restoration" until it achieves a state of full functionality and a return to normal
operations.
 Economic Consequences of the Swine Flu Outbreak

If you do the first step, putting in place an effective surveillance system, you will develop
"detectors and indicators of change" metrics that can be employed to facilitate the
constant analysis of the state of the business system and its complex "value chain"
network. The "detectors and indicators of change" provide the early warning basis for
event classification at the lowest (least severe) levels.

Third, train, drill, exercise. All the planning in the world is never going to be effective
unless it can be implemented. One key to implementation is having a trained
organization. That means that we have to train not only the primary position holders in
our organization, but we have to train the secondary and even a third level within the
organization.

If Only We Had Known…A New Paradigm for Planning Strategists

In my latest book, “Integrated Business Continuity Planning: Maintaining

Resilience in Uncertain Times” I asked:

"Is Business Continuity integrated into your business operations as a

way of doing business; or is Business Continuity an adjunct to the
business that you are involved in?"

As you ponder this question, you need to reconsider the value proposition offered by
having an integrated approach to business continuity.

I offer the following definitions for the purpose of this article and as a basis for
developing an “integrated” approach to continuity:

Crisis: "A disruptive event that is amplified, elevated and magnified."

Business Continuity: "All initiatives taken to assure the survival,

growth and resilience of the enterprise."

Executives have an obligation to their stakeholders to assure that everything that can
reasonably be done to protect the business and ensure its competitiveness in the
marketplace is done. Unless executives rethink the relationship between how they do
business (strategy, competitive intelligence, etc.) and the way they currently address
business continuity (managing disruptive events, security, etc.), the imbalance between
"security" and competitiveness will not be resolved. Therefore, businesses must rethink
their recovery strategies to be able to deal with and survive pandemics. This is a whole
new paradigm for planning strategists.

The table below is a look into the proverbial “crystal ball” at what could be some of the
possible outcomes when the pandemic strikes.

Economic Effect of a Pandemic – Business Continuity Planning Analysis

 Economic Consequences of the Swine Flu Outbreak
Segment Short-term Effect
Commercial Real Demands for office space
Estate will potentially decline in
affected areas. Suburban
areas may see an increase
in demand due to
businesses relocating from
areas that have been
quarantined.
Utilities Potential loss of worldwide
(Electric, Gas and workforce could see system
other infrastructure degradation due to
power supplies) lessened ability to respond
to normal maintenance and
emergency situations.
Energy Industry Potential loss of employees
(Oil & Gas) worldwide due to pandemic
could cause inability to
meet demands resulting in
higher prices for energy
and related products.
Communications Potential increase in
Industry (Voice, Data demand due to pandemic
and other information causing more people to
systems, etc.) work remotely, greater
need for information,
greater need to
communicate with others.
Potential loss of worldwide
workforce due to
pandemic.
Banking & Finance Potential demands for cash
can outstrip the amount of
cash in circulation. Credit
and Debit systems (cards)
use could decline as a
result of pandemic.
Volume based businesses
could see a decline in
revenue (i.e., SARS created
decline in volume for many
car companies).
Potential for significant
short term disruption to
economies worldwide.
Transportation Pandemic could be the
single most devastating
event for this sector ever.
Quarantine, flight
restrictions, lack of
workforce, inability to ship
goods to markets, lack of
security of Intermodal
Long-term Effect
Fixed costs for businesses
holding leases will remain
the same, even in the face
of declining occupancy and
declining revenue.
Loss of expertise within the
workforce could result in a
permanent destabilization
of the energy sector,
leaving it more susceptible
to disruption than at
present.
Potential long-term
demands may not reach
current levels as a result of
loss of life worldwide. Fixed
costs for businesses would
remain the same
regardless of utilization or
demand.
Fixed costs remain
unchanged regardless of
demand. Due to potential
loss of workforce, system
reliability may be impaired.
Potentially having to live in
a cash society (i.e.,
earthquake aftermath)
could create continued high
levels of demand for cash.
Potential for inflation
remains high. Businesses
impacted due to loss of
workforce and falling
revenue. Markets
worldwide could see
significant declines that will
last for long periods.
Potential for long term
disruption to economies
worldwide.
Air, land, sea transport
potentially effected in such
a way that they never
recover. Cargo security will
be a high profile area. Port,
distribution and staging
areas will receive
heightened scrutiny due to
Analysis
Presidential Executive
Order: Amendment to E.O.
13295 Relating to Certain
Influenza Viruses and
Quarantinable
Communicable Diseases
Subsection C added:
"(c) Influenza caused by
novel or reemergent
influenza viruses that are
causing, or have the
potential to cause, a
pandemic.".
Utilities in general, need
greater business continuity
assistance due to the lack
infrastructure being replaced.
Integrated grid systems are
susceptible to disruptions that
can cascade throughout a
system quickly.
Worldwide refining capacity is
currently under pressure. A
pandemic could see facilities
forced to shutdown either by
quarantine or due to lack of
workforce.
Dependence on information
systems to operate facilities,
pipelines, etc. creates security
vulnerabilities for this industry.
Heavy dependence on
information systems for
operations creates security
vulnerabilities for this industry.
Loss of skilled workforce
creates potential system
vulnerabilities.
Heavy concentration in large
metropolitan areas,
dependence on information
systems for operations, low
reserves of cash could create
vulnerabilities. Loss of
workforce due to pandemic
could create inabilities to
function effectively.
Quarantine could have
devastating effects. Difficult to
ensure security, information
systems are vulnerable.
Human resource issues will be
ongoing concern.
 Economic Consequences of the Swine Flu Outbreak

systems could create havoc the high potential for

with businesses and transmission of virus
consumers. Shortages tainted produce at these
would occur immediately touchpoints.
(i.e., hurricane effects)

Economic Effect of a Pandemic – Business Continuity Planning Analysis (continued)

Segment Short-term Effect
Water Supply Potential loss of worldwide
Systems workforce could see system
degradation due to lessened
ability to respond to normal
maintenance and
emergency situations.
Emergency Services Potential loss of worldwide
workforce could see system
degradation as demand for
service would escalate to
unprecedented levels.
Hospitals worldwide could
not manage the amount of
patients. Possible collapse
of medical systems
worldwide. Lack of antiviral
drugs would have
immediate impact. Police,
fire and other services could
be severely impacted due to
loss of workforce at a time
when demand escalates.
Continuity of Potential collapse of
Government governmental control
worldwide. Use of military
by governments worldwide
to maintain order could
result in negative effects.
Loss of workforce could
create inability to
implement current
pandemic plans. Possible
inability to protect
population and
infrastructure.
Long-term Effect
Loss of expertise within
the workforce could result
in a permanent
destabilization of the
energy sector, leaving it
more susceptible to
disruption than at present.
Water systems would
remain highly vulnerable
due to a lack of security
resources.
Potential loss of worldwide
workforce could see
system degraded for a
long period even in the
aftermath of the
pandemic. Demand for
general services would be
impacted. Hospitals
worldwide would take long
periods to recover.
Possible long term collapse
of medical systems and
healthcare worldwide.
Lack of antiviral drugs
would have long term
impact. Police, fire and
other services would be
short of employees for
long period.
Demands for action will
grow; lack of antiviral
medication could have
major negative impact.
Potential chaos with
targeting of government
facilities for disruption.
Worldwide tensions as
scarce resources are in
demand and loss of
population leave
governments vulnerable.
Analysis
Water systems need greater
business continuity assistance
due to the lack infrastructure
being replaced. Potential loss
of workforce has long term
impact on water systems
resulting in degradation to
service.
Degradation of Emergency
Services combined with
degradation Transportation
could present significant
infrastructure concerns for
continuity planning efforts.
Possible return to late 19th
century medical services
capabilities due to loss of
skilled workforce. Significant
regional and local impacts for
continuity planning.
Disruption of government could
happen, although it is difficult
to foresee a total collapse.
Governments worldwide would
be under tremendous stress.
From a continuity planning
perspective, the need for
collaboration would never be
greater. Government could
invoke orders to force business
cooperation (i.e., U.S.
Presidential Executive Orders)

Conclusion: Seize the Initiative - It Makes Sense

A Chinese proverb states that "Opportunity is always present in the midst of crisis."
Every crisis carries two elements, danger and opportunity. No matter the difficulty of the
circumstances, no matter how dangerous the situation… at the heart of each crisis lays
a tremendous opportunity. Great blessings lie ahead for the one who knows the secret
of finding the opportunity within each crisis.
 Economic Consequences of the Swine Flu Outbreak

Today business leaders have the responsibility to protect their organizations by

facilitating continuity planning and preparedness efforts. Using their status as “leaders,”
senior management and board members can and must deliver the message that
survivability depends on being able to find the opportunity within the crisis.

Market research indicates that only a small portion (5%) of businesses today have a
viable plan, but virtually 100% now realize they are at risk. Seizing the initiative and
getting involved in all the phases of crisis management can mitigate or prevent major
losses. Just being able to identify the legal pitfalls for the organization of conducting a
crisis management audit: can have positive results.

We cannot merely think about the plannable or plan for the unthinkable, but we must
learn to think about the unplannable. Business continuity planning must be overlapping
in time, corrective in purpose complimentary in effect.

About the Author

Geary Sikich
Entrepreneur, consultant, author and business lecturer

Geary Sikich is a Principal with Logical Management Systems, Corp., a consulting and
executive education firm with a focus on enterprise risk management and issues analysis;
the firm's web site is www.logicalmanagement.com. Geary is also engaged in the
development and financing of private placement offerings in the alternative energy sector
(biofuels, etc.), multi-media entertainment and advertising technology and food products.
Geary developed LMSCARVERtm the “Active Analysis” framework, which directly links key value drivers to operating
processes and activities. LMSCARVERtm provides a framework that enables a progressive approach to business
planning, scenario planning, performance assessment and goal setting.

Prior to founding Logical Management Systems, Corp. in 1985 Geary held a number of senior operational
management positions in a variety of industry sectors. Geary served as an intelligence officer in the U.S. Army;
responsible for the initial concept design and testing of the U.S. Army's National Training Center and other
intelligence related activities. Geary holds a M.Ed. in Counseling and Guidance from the University of Texas at El
Paso and a B.S. in Criminology from Indiana State University.

Geary is also an Adjunct Professor at Norwich University, where he teaches Enterprise

Risk Management (ERM) and contingency planning electives in the MSBC program,
including “Value Chain” Continuity, Pandemic Planning and Strategic Risk
Management. He is presently active in Executive Education, where he has developed
and delivered courses in enterprise risk management, contingency planning,
performance management and analytics. Geary is a frequent speaker on business
continuity issues business performance management. He is the author of over 195
published articles and four books, his latest being “Protecting Your Business in
Pandemic,” published in June 2008 (available on Amazon.com).

Geary is a frequent speaker on high profile continuity issues, having developed and
validated over 1,800 plans and conducted over 250 seminars and workshops
worldwide for over 100 clients in energy, chemical, transportation, government,
healthcare, technology, manufacturing, heavy industry, utilities, legal & insurance,
banking & finance, security services, institutions and management advisory specialty
firms. Geary can be reached at (219) 922-7718.
 Economic Consequences of the Swine Flu Outbreak

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