Features
2 Sep 2016 10:30am

How diseases affect economies around the world

Epidemics and pandemics make headlines and often cause panic and worry. Zika, in particular, has led to travel warnings, celebrity boycotts and even threatened the Rio Olympics. Oliver Griffin investigates how diseases affect economies around the world

https://economia.icaew.com:443/-/media/economia/images/thumbnail-images/disease800thumbnail.ashx
Caption: Oliver Griffin examines how epidemics devastate countries worldwide

Coughs and sneezes spread diseases, so the saying goes. If they spread rapidly enough and cause sufficient damage to working populations and other parts of society, they could also devastate economies.

Perhaps unsurprisingly, there is more focus on the human costs of disease than the economic impact. But according to studies by the World Health Organisation (WHO), the impact of pandemics on economies can be highly significant. A healthier workforce has both improved physical and mental ability and can produce more from the same inputs, it says. Economies with better health conditions enjoy a positive and direct impact on economic growth, largely through increased worker productivity.

“In our Pandemic Emergency Facility (PEF) we quoted an estimate that a severe pandemic could have an economic impact of approximately $550bn-$570bn (£399bn-£422bn) worldwide, which is about 0.7% of global GDP,” says Daniel Dulitzky, Latin America manager and Zika co-ordinator at the World Bank. “So potentially, yes, damage to economies could be large.”

Countries need to have some level of preparedness so that they are not caught by surprise when such an emergency takes place

Daniel Dulitzky, Latin America manager and Zika co-ordinator at the World Bank

The pandemics that sit most recently in global memory are Zika and Ebola, and tuberculosis and HIV/Aids. While TB is slowly declining worldwide, the burden of the disease is still high, with approximately 1.5 million deaths per year. And despite huge progress in the fight against HIV and Aids, the battle is far from won.

As Prince Harry, whose charity Sentebale focuses on supporting HIV-positive young people in Lesotho, explained recently at the International Aids Conference in South Africa, “Aids is a topic that has drifted from the headlines, and with that drift of attention we risk a real drift of funding and of action to beat the virus. We cannot lose a sense of urgency, because despite all the progress we have made, HIV remains among the most pressing and urgent of global challenges – 1.1 million people died of Aids and 2.1 million were infected last year.”

In the middle of the most recent Ebola outbreak, which started in 2013, a report presented by the World Bank estimated that, at the high end, the disease could cost up to $32.6bn if the outbreak continued and was unable to be contained in Sierra Leone, Guinea and Liberia.

While not as high as the World Bank’s top estimate, Ebola has cost $10bn to date. With around $7bn supplied in aid from other countries, the outbreak has cost the three main affected countries a further $2.8bn. These were sums they simply could not afford, and subsequently plunged them into recession and stunted their economic growth.

In 2015, Liberia’s economy grew 0.3%, Guinea’s grew 0.1% and Sierra Leone’s fell to -2.5%, down from pre-Ebola estimates of 6.8%, 4.3% and 8.9% respectively. Sierra Leone enjoyed GDP growth of 20.2% in 2013, which represented a devastating contraction to its growing economy.

This is by no means the first time that a disease has resulted in economic damage. The Spanish flu outbreak in 1918, which lasted until 1920, killed approximately 100 million people worldwide and wiped 5% – around $4trn – from global GDP.

In fact, regular flu outbreaks still manage to cost economies billions. For example, in the US, roughly 5% to 20% of the population contracts flu each year, resulting in thousands of hospitalisations and deaths. This costs the US an estimated $10.4bn a year in medical expenses and an additional $16.3bn in lost earnings. This is, of course, mirrored in economies all over the world, such as the UK, where it costs the economy £1.35bn annually.

“Diseases can affect the economy in various ways,” explains Dr Marcus Keogh-Brown, a researcher at the London School of Hygiene and Tropical Medicine. “If you have a flu pandemic you could have a fairly significant reduction in your labour supply across the economy, for example, which will have an affect across all sectors. Particularly when you’re talking about an outbreak, you tend to get a policy-related impact as well, or behavioural responses to the pandemic that also have an economic effect.”

Ill-health, even one-off cases of sick leave, reduce the productivity and efficiency of businesses and negatively affect both earnings and profit. Across a wide enough scale – the kind caused by destructive pandemics – this can hit productivity on a national, or even global level, eventually having an impact on the economy.

This is without considering the cost to nations of increased healthcare expenditure and precautionary measures, such as awareness and vaccines, that pandemics also cause. These are known as the secondary (indirect) and primary (direct) impacts of diseases respectively.

Recent years have seen a dramatic resurgence of the threat from emerging and re-emerging infectious diseases

WHO director general Margaret Chan

“By direct impact we mean the cost of medical care, the cost of increasing efforts of surveillance and diagnostics, the cost of implementing infection control and the cost of public health initiatives,” Dulitzky explains.

“Indirect costs are associated with, for example, aversive behaviour; people decide not to travel to infected areas, or infected countries, or businesses decide that the risks of investing in those countries is too high, so decide not to do it, or to postpone it.”

With Ebola, much of the economic impact can be traced to declines in labour productivity, as well as increased healthcare costs. Ebola hit workforces in all three of the affected countries, resulting in significant damage to agricultural output. Similarly, industries such as mining were scaled back in the face of the outbreak, while schools were subject to long-term closure, resulting in parents having to look after their children instead of working.

Diseases can impact heavily on tourism and related sectors, too. The 2002 to 2004 outbreak of Severe Acute Respiratory Syndrome (SARS) saw a large economic impact on affected countries, due to postponements of travel plans, despite only a relatively small number of deaths. While roughly 10,000 people were infected in countries including China, Hong Kong, Canada and Brazil, 10% died as a result and labour productivity was not affected in the way that many commentators feared it would be.

However, the fear generated around SARS had significant impact on tourism sectors, as well as associated industries such as catering and hospitality. In Keogh-Brown’s 2008 paper The economic impact of SARS: How does the reality match the predictions?, SARS cost Chinese tourism some $3.5bn and Malaysian tourism $1.7bn. Similarly, the accommodation and food sectors of Canada and Australia lost $4.3bn and $120m respectively. This was caused by changes in behaviour as people abandoned business and travel plans to avoid contact with the disease.

“With SARS the number of cases and deaths was reasonably small for a pandemic but the economic impact was still fairly large and significant,” Keogh-Brown says. “Given the number of people affected the economic impact was big, but a lot of that was due to behavioural responses.”

While Ebola has had a significant economic impact on affected countries, Zika has not had anywhere near the same effect. The current bill for Zika is estimated to be around $3.5bn for the whole of South America and the Caribbean, or 0.06% of the area’s GDP, with higher costs stemmed by what the World Bank has described as a swift and coordinated international response.

“The health impact of epidemics can be quite damaging but, in the case of Zika, we have not seen a strong impact because the clinical manifestation of Zika is relatively mild,” Dulitzky adds. “That is unless we are talking about pregnant women and the potential risk of microcephaly, which is quite severe, but we have not seen too many cases of that.

“The economic impact – including the cost of medical care, increasing efforts of surveillance and diagnostics, implementing infection control and the cost of public health initiatives – has been relatively light. This is because countries in Latin America and the Caribbean already have experience of infection control because of the existence of other diseases such as chikungunya [a viral disease transmitted by infected mosquitoes] and dengue fever.”

Aids is a topic that has drifted from the headlines, and with that drift of attention we risk a real drift of funding and of action to beat the virus

Prince Harry

Dulitzky also says that, despite the media hype around Zika, tourism to South America and the Caribbean has not taken a noticeable hit. This is despite recent high profile news stories, such as pop-star Rihanna’s decision to pull out of a Colombian music festival due to fears over Zika, or concerns for pregnant women throughout the Rio Olympic games.

“Frankly, from a practical standpoint, those costs [to tourism] have been relatively small,” Dulitzky says. “Most of the costs from Zika are related to what we think is a negative impact to tourism but we have not really seen a huge decrease in tourism inflows to countries in Latin America and the Caribbean.

“With Zika having relatively mild clinical symptoms, the productivity loss, for the time being, also seems to be relatively small. However, if a child is born with microcephaly, those costs are potentially large, the productivity loss of a child with microcephaly is also very large.”

For Keogh-Brown, a country’s readiness to deal with epidemics is key to mitigating potentially damaging economic consequences. “Certainly, if a country is not able to respond and suffers to have a larger proportion of the population affected then that would [have an economic impact].

“Some of it comes down to the particular sectors and industries that can be substituted.

"If you have an abundance of labour supply then obviously that can help mitigate it. In that sense you could say that more wealthy countries, per capita, could be affected more significantly economically. But if you have more people infected, there’s a higher cost on your health service and once the health service is overloaded, that impacts in other ways.”

The PEF was established by the World Bank early in 2016 as one of two direct responses to the Ebola crisis. Billed as an innovative and fast-disbursing global financing mechanism, the PEF will be used to protect economies – and people – against deadly pandemics around the globe. The mechanism will be used to speed up national and international reactions to pandemics, which have been historically slow, as highlighted by both the SARS and Ebola outbreaks.

President of the World Bank Group Jim Yong Kim has recognised the collective global failure to prepare thoroughly for pandemic outbreak. He speaks from experience. In the 1990s his not-for-profit organisation Partners in Health created “Socios en Salud” to help combat outbreaks of Cholera in Lima, Peru. The government at the time was initially opposed to the help, although it is today embraced by the Ministry of Health.

In announcing the PEF, Kim said the Ebola crisis had shown the necessity for the global community to “be much more vigilant to outbreaks” so that it can “respond immediately to save lives and also to protect economic growth”.

As a mechanism, the PEF will work as an insurance market for pandemic risk and will help to initiate rapid containment of wide-reaching diseases. This appears to be an increasingly important weapon to have in the global arsenal to protect against pandemic damage.

According to WHO director general Margaret Chan, “recent years have seen a dramatic resurgence of the threat from emerging and re-emerging infectious diseases”. She has also warned of the potential damage that pathogens pose globally. Meanwhile, another initiative from the World Bank to help prevent the impact of future pandemics is its Regional Disease Surveillance Systems Enhancement (REDISSE) program. Funded in part by the charitable work of the Bill & Melinda Gates Foundation, REDISSE aims to address the weaknesses that are present within human and animal health monitoring that make it easier for diseases to spread.

The World Bank described REDISSE’s creation as a response to the Ebola epidemic after it had been demonstrated that poor surveillance and inter-country collaboration had combined to cripple economies and create large scale human suffering.

In total the World Bank is channelling some $110m to help rebuild those countries that were most affected, as well as an additional $20m from the International Development Association and $4m from Canada. This extra $24m will be used to improve disease surveillance infrastructure, information sharing and collaboration across the 15 countries that comprise the Economic Community of West African States.

“Countries need to have some level of preparedness so that they are not caught by surprise when such an emergency takes place,” Dulitzky concludes. “They need a system that covers the majority of the population so that people can access healthcare systems when they are sick, and they need to have improved diagnostic mechanisms.”

Oliver Griffin

 

Related articles

Bill Gates: The emerging world's vaccine pioneers

The economic consequences of drug resistance

Feel the force

Bill Gates: The problem with poor countries' GDP

Topics