Paper Launch: Economics of Early Response and Resilience to COVID-19

This blog summarises findings, insights, and reflections presented at the Launch Event for the SPACE Economics of Early Response and Resilience to COVID-19 paper held on 8th April 2021, and organised by the FCDO/GIZ/DFAT funded SPACE service (Social Protection Approaches to COVID-19 - Expert Advice).

The Economics of Early Response and Resilience to COVID-19 paper combines modeling undertaken as part of the Economics of Early Response and Resilience studies, carried out for DFID/USAID, with micro-simulation analysis on the predicted impacts of COVID-19 in Ethiopia, conducted by SPACE, to estimate the overall cost of response and cost-saving of early action. The Economics of Early Response and Resilience studies changed the way both donors fund crises by demonstrating the significant economic gains of investing in proactive responses. The studies made the case by estimating the cost of late humanitarian response and comparing this with an early humanitarian response, a safety net response, and a resilience-building scenario. The recent study adopts a similar approach to understand what the economic gains could have been of the COVID-19 social protection and humanitarian response, primarily focusing on the Productive Safety Net Programme (PSNP) in Ethiopia, by combining the model with micro-simulation estimates of the number of people in need of assistance as a result of COVID-19 lockdown effects. The webinar presented key findings from the paper and its policy implications for humanitarian and development practice at large.

Courtenay Cabot Venton – Deputy Team Lead on SPACE and author of the paper – presented its findings. She was joined by Stefan Dercon (Director of the Centre for the Study of African Economies, and Development Policy Advisor to the FCDO) and Greg Collins (Deputy Assistant Administrator in the USAID Bureau for Resilience and Food Security) to reflect on the findings, drawing on their own experiences in practice. The panel was moderated by Fergus McBean, Head of Climate and Energy, Ethiopia, and African Union for the British Embassy in Addis Ababa.

You can access the webinar presentation slides here, and view the recording here.

 

The Economics of Early Response and Resilience to Covid-19 Study

The webinar kicked off with Courtenay introducing the new study which aimed to estimate the economic impact of safety nets and humanitarian response to the COVID-19 crisis in Ethiopia, with a focus on the PSNP programme – one of the largest national safety net programmes in Africa which benefits over eight million people. The research estimated the overall cost of response and cost-saving of early action by combining:

1. The 2013 (DFID) and 2018 (USAID) studies on the Economics of Early Response and Resilience (TEERR) which combined Household Economy data with an economic model to estimate cost savings of  four different response scenarios: a late humanitarian response, an early humanitarian response, a safety net response, and a resilience-building scenario. And
2. A recent 2020 micro-simulation analysis on the predicted impacts of COVID-19 in Ethiopia conducted by SPACE which estimated the change in number of people falling below the poverty line as a result of COVID-19.

 

The Economics of Early Response and Resilience Studies

The TEERR studies demonstrated the significant economic gains of investing in a more proactive response to crises. The premise is that such responses generate two kinds of savings: (1) reductions in the costs of humanitarian interventions by reducing the humanitarian caseload (both numbers in need as well as the size of that need); and (2) avoided income and livestock losses by households who, in the absence of early interventions, resort to negative coping strategies like distress sales of productive assets.

The studies found that donors could have saved 30% on humanitarian aid spending through earlier and more proactive response to crises in Ethiopia, Kenya and Somalia; equivalent to savings of US$1.6 billion when applied to U.S. Government spending between 2003 and 2018 in these three countries alone. When the avoided losses to household income and livestock are incorporated, the overall savings increase to US$4.2 billion. Put another way, every US$1 invested in building people’s resilience will result in up to US$3 in reduced humanitarian aid and avoided losses. As summarised in the figure below, the findings indicate that savings are realised as a result of a timely response and further increased with a layered approach that combines cash/food transfers with cash+ and resilience building activities that help people to cope with a shock.

 

Micro-simulations for COVID-19 Impact in Ethiopia

As part of its COVID-19 response, FCDO funded SPACE to undertake a rapid assessment of the impacts of COVID-19 in ten countries, with micro-simulations in three countries. The micro-simulations use detailed household surveys, combined with World Bank high-frequency survey data on the impacts of COVID-19, to model the impact of COVID-19 on poverty, and combined this with actual coverage (via existing safety net and humanitarian transfers) to estimate gaps in provision.

The micro-simulation estimates for Ethiopia showed that only a fraction of the people in need were actually receiving assistance. The simulation found that prior to COVID-19, 30 million people lived below the poverty line (BPL), whereas only 12.1 million were covered by some kind of social transfer. This equates to approximately 40% of those in need actually receiving assistance. This gap has increased significantly as a result of COVID-19 as nearly 45 million were now estimated to live BPL, while less than 15 million were receiving some form of social transfer support.

 

Calculated cost savings of early responses

The micro-simulation data was combined with the economic model of the DFID and USAID study data and approach, to model three scenarios:

1. The estimated economic cost savings as a result of ongoing support to pre-existing caseloads for the 8.8 million who receive support through the PSNP and the 3.3 million who receive humanitarian cash/food assistance.
2. The economic cost savings of the planned PSNP expansion in caseloads from 12.1 million to 14.7 million people.
3. The economic cost savings if the caseload had been expanded to cover 18 million (those that should have been covered if assistance had increased at the same rate (+49%) as those falling under the poverty line and estimated by the microsimulations).

As summarised in the figure below, the relative cost savings of each scenario is substantial:

 

Pre-existing Caseloads:

• The economic model suggests that routine support already available under the PNSP and humanitarian assistance has saved $859m in one year in reduced aid costs as well as avoided income and livestock losses;

• Savings to programme costs are 54% of total savings (the remainder are avoided losses to households);

• An increased investment in cash+/resilience investments would have increased savings to $871m in one year.

 

Post COVID-19 Planned Expansion:

• The economic model suggests that a timely response would have generated an additional $135m in savings by scaling up beyond pre-COVID-19 levels;

• Savings to programme costs are 55% of total savings (the remainder are avoided losses to households); this would equate to an additional 1.5m people that could have been reached through the PSNP;

• Investing in a package of resilience building measures through cash+ programming would have increased savings by a further $148m. This represents a return on investment of $3.2 for every $1 spent.

 

Post COVID-19 Proportional Expansion:

• A timely response could have saved an additional $134m (in addition to the savings in the post-COVID-19 Planned Expansion) by scaling up to the full caseload equivalent from the outset, rather than leaving over 3.4 million who are likely to need humanitarian assistance later;

• Savings to programme costs are 54% of total savings; this would equate to an additional 1.6m people that could have been reached through the PSNP;

• Investing in a package of resilience building measures through cash+ programming would have added an additional $145m in savings. This represents a return on investment of $3.5 for every $1 spent.

 

Summary of findings

The findings make a clear case for ensuring that existing systems are able to pivot and horizontally expand when there is increase in needs as this would save significant costs. Investing in proactive responses ultimately serves as huge cost savings for donors/government in terms of responding to crises and avoids losses for households.

It is evident that investment in models that are most successful at delivering a timely response is critical. However, Courtenay highlights three take away points necessary for achieving a timely response to crises:

• Crisis financing channels need to be in place before crises hit. This can speed up the time it takes for international and national funding streams to reach beneficiaries. 
• Finance needs to be channelled to the right systems to respond to shocks rapidly and effectively. For example, shock responsive social protection systems have proven to be critical in responding to COVID-19, allowing for horizontal and vertical expansion to accommodate new and increasing needs.
• Investing in networks of local actors is crucial. These actors are consistently the first responders with cash and in-kind assistance. As the first layer of actors, they play a critical role in delivering economic gains. It is crucial that we further invest in building and strengthening these structures to better respond to shocks and stressors.

 

Panel Discussion

The floor opened to Stefan Dercon and Greg Collins for reflection and panel discussion on the policy implications of this research in terms of responding to future crises. The discussion revolved around some of the underlying drivers and obstacles for adopting more proactive responses to crises in general while highlighting some of the operational, political, and financial barriers and opportunities for the shift from ex-post intervention towards a focus on ex-ante action. Some of the key points are summarised below:

• Studies such as these further build the evidence base necessary to show that prevention and resilience building saves costs and lives and this is essential for incentivising policy makers to further invest in such interventions: Simulations and economic models allow us to look at vast amounts of data over time periods to assess the ‘rolling effect’ of investing in resilience over time. These studies can be further triangulated with empirical studies (e.g. high-frequency longitudinal surveys) to make the case that investment in systems that build resilience saves costs and lives. Building the empirical evidence base around this is crucial to make it more politically attractive and build incentives for action. A recent World Bank study empirically measured the impacts of the PNSP and found that the food security of PSNP beneficiaries in Ethiopia was less adversely affected than those not receiving support and thus less prone to adopt negative and costly coping strategies, with findings corroborating those estimated in the model.
• Further investment is needed to develop and strengthen a portfolio of interventions and systems that focus on prevention, early response, and resilience building: Shock responsive social protection (SRSP) systems are one example of the type of structures that can be developed to ensure countries are equipped to respond when crises strike. The evidence basis for social protection as an effective tool to respond to COVID-19 is clearly established and its ability to support vulnerable people to adapt to climate change and related policy responses is also growing. However, we need to take a portfolio approach that also includes investment in other areas that build adaptive capacity, such as resilient markets and health systems. Economic inclusion also needs to be integrated across this portfolio approach to build social capital to ensure interventions (such as social assistance) lead to sustained livelihood improvements.
• Unlocking and channelling finance options for disaster risk reduction and SRSP is crucial to enable early response to crises and resilience building: Systems that focus on prevention and resilience building will only work if we have finance in place and the mechanisms to channel it effectively. SRSP has proven to form a crucial part of reducing risks and address new risks as they arise and we need to further explore the potential financing options for SRSP systems. Disaster Risk Financing is becoming increasingly central in humanitarian and development discourse and the G7 summit and COP26 are great opportunities to further build consensus and understanding that early response and resilience building interventions are the most effective and efficient way of dealing with large-scale and complex covariate shocks which, with the ongoing COVID-19 pandemic and climate crisis, have proven more than ever to be a very real threat.

 

This discussion was followed by a thought-provoking Q&A session.