Project finance is the art of financing a project using its future earnings.
At its simplest expression, project finance requires the following:
- The identification of all project risks.
- The mitigation of each risk.
- The allocation of each risk (which refers to provisions that determine which party assumes responsibility for the risk should certain events occur or fail to occur).
While it is too soon to comparatively evaluate each society’s performance against the Covid-19 pandemic and to draw up a list of lessons learned, it is not too soon to acknowledge that pandemics are risks that can occur again. If societies were applying project finance principles to pandemics, they would now turn their attention to mitigation and allocation.
The Covid-19 pandemic caused most governments to deploy measures that dealt with:
- (a) Health and sanitation.
- (b) Essential goods and services procurement.
- (c) Financial support.
Financial support measures are by far the costliest measures. They also result in serious unintended consequences for society, including increases in the wealth gap between economic strata and generations.
Most economies have been hit hard but the pain has not been felt equally. For example, transportation, entertainment, leisure, hospitality and tourism are all economic sectors which have been hit particularly hard. Moreover, these sectors are likely by their very nature to remain vulnerable.
In order to lessen the burden on society should another pandemic occur, governments could require vulnerable economic sectors to contribute to a state pandemic fund managed by an independent third party.
It is likely that it would take a long time before such a fund is sufficient to weather a pandemic, but the fund would nonetheless ease the burden on the rest of society, as well as serve as a basis for continuing discussions between industry and governments as to how to improve the resiliency of vulnerable sectors.