SCC Online Web Edition, Copyright © 2020

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2020 SCC OnLine Blog OpEd 38

COVID-19 and its Consequences - Taking a cue from WEF Report

COVID-19 AND ITS CONSEQUENCES - TAKING A CUE FROM WEF REPORT

by
Stuti Agarwal and Nikunj Baheti*
The world we live in today is bigger in size than what it was hundred years ago
when it saw its last major pandemic. Nowadays, it is a matter of few hours for a viral
infection to travel from one part of the world to another through human carriers.
However, business houses are seldom concerned about the issues that don’t affect
their profit earning capacity. In January 2019, World Economic Forum (WEF) in
collaboration with Harvard Global Health Institute released a report titled “Outbreak
Readiness and Business Impact Protecting Lives and Livelihoods across the Global
Economy1 ” (‘hereinafter the Report’) emphasising the need for business leaders to be
more aware of the dialogue about global health, a topic which is rarely considered a
subject worthy of attention, investment and advocacy. The aim of the Report was to
warn the corporate houses about the threat that may haunt them in the worst of their
dreams, which has now become a reality after the outbreak of COVID-19. Therefore, in
this article, the authors have analysed the relation of the Report to the current
situation along with crisis management tools necessary to be deployed in such a
situation.
International obligation
Considering the shared vulnerability of all the countries due to global outbreak of
diseases, 196 countries of the world (including all member nations of the WHO) being
a part of International Health Regulations (IHR), had agreed to help the international
community prevent and respond to acute public health risks that could potentially
cross borders and threaten people worldwide. The regulations have two primary
objectives which focus on strengthening preparedness and capacity to respond public
health threats and support international response to outbreaks.
Key aspects of the Report
The Report suggested that more than 80% of countries that have assessed their
preparedness to date, were not ready to find, stop or prevent an epidemic. A year
later, this proves to be correct and we see the whole world coming to a standstill2 and
waiting for the situation to improve. Had this Report been taken seriously, the world
could have been in a better situation to face this crisis.
The Report also stated that “Investments needed to improve pandemic
preparedness are not large relative to the risk of being unprepared. After all,
responding to outbreaks once they have occurred is far more expensive, in lives and
money.”3 Such analysis, a year ago, cannot be considered a mere prediction but based
on facts and past precedents as was the case in Ebola, SARS, MERS etc. Using data
from the flu pandemics of the 20th century, a report by the Commission on a Global
Health Risk Framework for the Future estimated the annualised impact of flu
pandemics at roughly $60 billion4 , more than doubling the previous estimates. In the
current situation, however, it is difficult to predict the amount of loss the whole world
would be suffering from.
The Report also stated how, many companies assume that operational continuity
insurance would compensate them for any losses arising from outbreaks, being
unaware that such policies mostly exclude infectious disease outbreaks as a contingent
event. Such policies are therefore, bound to change in future and more attention
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would now be given to mitigate such a situation. In times when only a few companies
would have thought about pandemic insurance, Wimbledon paid around £25.5 million
as premium over 17-year period. Defying many experts this proved to be a very
sensible investment5 , as they are now set to receive an insurance pay-out of around
£114 million on this year's cancelled tournament.
During an outbreak, loss of accesss to a major mineral deposit (or in other contexts
to production facilities, among others) through border closures, quarantines or worker
illness represents a significant threat to firms. Extensive layoffs can have far-reaching
effects, including reductions and disruptions in investment in human capital, leading
to concerns for broader investment and development goals for the affected regions. In
the present scenario as well, though advisories have been issued by the government
prohibiting layoffs, it can neither be considered as law nor a solution to those
companies who are left with no other option. For example, fitness group ‘Cure. Fit’6
axed 800 employees and is now inclined towards all digital move. Therefore, until and
unless the Government takes an initiative to protect these companies, extensive
layoffs are bound to happen.
Analysing it further, taking example of the new recruits selected through campus
placements we can see that many law firms including CAM, Khaitan & Co. have pushed
their joining dates to October.7 However, in many sectors, companies have restricted
themselves from issuing new joining letters in these immediate months of financial
stringency. Thus, along with layoffs this will lead to a situation of rampant
unemployment in the country which would eventually result in decrease in aggregate
demand. As a consequence, production would be reduced bringing us to the similar
situation where companies would be compelled to reduce their workforce.
Changes in business model so as to overcome pandemic like situations
The Report under discussion had enumerated how infectious diseases may pose
potential threats on various variables of the trade and commerce which would lead to a
shift in their traditional ideologies regarding suppliers, employees, chains of trade,
customers and even investors and other regulatory regimes. This change was earlier
experienced during liberalisation in favour of cross-border trade and now, after the
outbreak of COVID-19, a limitation to global integration is thought upon. Companies
should employ both domestic and multinational variables in their operations. For
instance, supplier of raw materials should not belong to one particular country so that
any adverse event in that particular nation does not affect their potency. Therefore,
domestic suppliers must also be identified. Furthermore, maintaining a varied
customer base might ensure continued sale even if a part of the world faces
adversities and prevent a total shut down of the operations during such crisis.
Economists had estimated that, in the coming decades, pandemics would cause
average annual economic losses of 0.7% of global GDP8 - a threat similar to that
estimated for climate change, which businesses can no longer afford to ignore. Thus,
public-private cooperation has become essential in order to mitigate costs and
strengthen health security effectively. Also, businesses should apply their vision to
provide for any similar risk that may occur like creating a provision in advance for the
salaries to be paid during lockdowns i.e. at the time of non-contribution to the
business. The provisions must also be made for any contributions that the company, in
order to appear socially committed and to fulfil their CSR obligations, have to
contribute towards national funds. Moreover, alternatives to the already existing
suppliers must also be identified keeping themselves ready to pay any higher amount
for raw materials at the time of emergencies.
Crisis Management
Companies that effectively put a business continuity plan in place in the occasion of
unforeseen contingencies can mitigate the effects of any negative event that occurs.
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Where risk management is to plan for future unforeseen events, the crisis
management is to manage the already occurred negative event. In order to have a
business continuity plan in the aftermath of a crisis, most firms start by conducting
risk analysis on their operations. However, the question remains whether the
companies globally have ever wondered to consider pandemic as a major risk to their
operations?
A model to cope up with the changing dimensions of the diversified variables in the
business domain may include supply chain modifications, developing infrastructure for
work from home to avoid disruptions and shifting from total human force to machine
intensive model (to some extent) in order to keep the factory running even at the
times of human absence.
This episode of economic duress outlines the importance of savings and maintaining
a contingency fund (might coin a term “pandemic fund”) to deal with fixed costs
during business shutdowns become necessary. Taking the example of US Airlines, the
Senate had approved a $50 billion bailout package in order to save the airline
industry. However, such bailouts using taxpayers' money would have been easier to
stomach if airlines had not spent their cash flow during boom years on stock buybacks
and rather conserved it for the times of unforeseen economic shock.9
In this event of crisis, the organisation which is able to swiftly diversify and
succumb to the need of the hour wins the battle of gaining public reputation by
yielding the benefits of operating in another field. For example, quick action to
undertake production of hand sanitizers and masks by companies who were known for
different line of production.10 Therefore, companies must have a proper management
to take quick decisions during emergencies and to immediately capture the emerging
opportunity in the business environment.
Pertaining to the current circumstance, the development of sensitive gears fostering
health care requires proper regulatory clearance and certification. This is where the
role of the Government sneaks in to undertake the certification on a priority basis. It
can also lure business organisations by offering tax benefits, including their operations
under their CSR activity, reducing their licensing fee, fixing minimum support price for
the products to be manufactured and ensuring availability of duty-free raw material.
Conclusion
Since the Report was issued in 2019, in a way, it had a capacity to warn the world
at large which was totally unprepared to contain an unforeseen emergency in the form
of a global disease outbreak. Since, no country paid adequate attention to it at that
time; the unprepared world continues to suffer from the pandemic. During COVID-19,
the world is experiencing an extraordinary blow in terms of health and economy, which
eventually are somehow connected. Stern measures and policy decisions should be
undertaken to prevent such losses in future. Post COVID-19, the world may experience
a steep shift from globalisation to domestication owing to the fear attached with the
spread of the disease, affecting sectors like EXIM, tourism, aviation, etc. the most.
Therefore, a comprehensive plan, both by the Government and companies, should be
devised to fight the upcoming economic depression and proper crisis management
tools must be deployed by the companies for any future unprecedented event.
———
* IIIrd Year, BA LLB (Hons.) students at Dr. RMLNLU, Lucknow

1 World Economic Forum, Outbreak Readiness and Business Impact Protecting Lives and Livelihoods across the
Global Economy (White Paper, January 2019).
2Rosamond Hutt, ‘Here's what countries are doing to slow the coronavirus outbreak’ (World Economic Forum, 14
April 2020) <https://www.weforum.org/agenda/2020/02/coronavirus-spread-virus-disease-countries-epidemic/>
accesssed on 1 May 2020.
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3 The Report (n 1).
4The Commission on a Global Health Risk Framework for the Future, ‘The Neglected Dimension of Global Security:
A Framework to Counter Infectious Disease Crises’ (National Academy of Medicine, May 2016).
5‘Wimbledon Shows How Pandemic Insurance Could Become Vital for Sports, Other Events’ (Insurance Journal,
13 April 2020) <https://www.insurancejournal.com/news/international/2020/04/13/564598.htm>.
6
‘Covid-19: Fitness group cure.fit axes 800 employees, mulls all-digital move’ (Livemint, 4 May 2020)
<https://www.livemint.com/companies/start-ups/covid-19-fitness-group-cure-fit-axes-800-employees-mulls-all-
digital-move-11588602490506.html>.
7
Pallavi Saluja, ‘Cyril Amarchand Mangaldas, Khaitan & Co. push joining dates of freshers to October’ (Bar &
Bench, 2 May 2020) <https://www.barandbench.com/news/corporate/exclusive-cyril-amarchand-mangaldas-
khaitan-co-push-joining-dates-of-freshers-to-october>.
8
The Report (n 1).
9 Clancy Morgan, ‘Airline salaries compared to stock buybacks show why so many people are angry at the
bailout’ (Business Insider, 22 April 2020).
10‘From perfume to hand sanitiser, TVs to face masks: how companies are changing track to fight COVID-
19’ (World Economic Forum, 24 March 2020).

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