April 24, 2020

Learning by Doing: How We Can Be Better Prepared For the Next Crisis

Äripäev/Scanpix
At the beginning of April, the first shipment to Estonia of personal protection equipment arrived from China. Pictured among others meeting the aircraft are Jaak Aab and Urmas Reinsalu, members of the government.
At the beginning of April, the first shipment to Estonia of personal protection equipment arrived from China. Pictured among others meeting the aircraft are Jaak Aab and Urmas Reinsalu, members of the government.

From a security perspective, it is important to guarantee reserves centrally.

It is impossible to be completely and comprehensively prepared for an extensive crisis, let alone one that is global. Thus, it seems obvious that gaps in capacity should be critically evaluated and practical preparedness increased. In this article I will focus on measures to guarantee the state’s active reserves (i.e. crisis reserves) and the security of reserve supplies, basing my enquiry primarily on conclusions drawn from analyses carried out by the International Centre for Defence Studies.1

Resolute Advance Warning Issued by the Estonian National Audit Office

First, it must be said that the critical capacity gap in providing medical products and personal protection equipment (PPE) in the Covid-19 emergency was not completely unanticipated by the Estonian government. Attention was drawn to the matter at least in the first half of 2018, in the government’s broadly based regulation of 15 February entitled “Concept for Civil Protection”,2 as well as in a thorough report by the Estonian National Audit Office (NAO) of 19 June, “State activities in preparing for states of emergency that pose a threat to internal security”.3 Within the concept of civil protection, it is important to create reserves, by which state institutions and local governments can provide aid to residents in the form of primary needs, ensuring the delivery of services necessary for the defence of life and health, in long-term resource-intensive crisis situations.4

During the current coronavirus crisis, and in view of the sharply increased need for PPE, the concept stated that “a significant precondition for providing aid in endangered regions is to guarantee access to necessary personal protective equipment in the responding areas” (p. 61) and that “in crisis situations, operational aid providers may need more extensive supplies for respiratory defence, helmets, protective vests, etc” (p. 62). However, the report also recommended (point 8.2.2) that operational services analyse and plan for special needs, depending on emergency situations or security risks, including those pertaining to PPE, with the ultimate goal of increasing rescue preparedness in crisis situations for those in need.

The conclusions of the NAO report was critical of the state’s activities in 2013–17:

Authorities leading the process of resolving an emergency and those involved in the process lack a comprehensive overview of taking the measures for preventing emergencies and alleviating the consequences listed in the risk analyses. As a result, there is the risk that the authorities cannot fully account for the actual capabilities and gaps in capability when planning their work as well as when resolving an emergency. … The Health Board is not familiar with exercises organised by hospitals and with the issues discovered in the course thereof. This casts doubt on the ability of the Health Board to operatively resolve the issues of ensuring the continuity of emergency care. (NAO, p. 4)

These are but two relevant examples.

On the basis of this audit’s conclusions, the NAO has made a series of proposals, including working out a sustainable financial model to ensure the continuous functioning of life-maintaining services, and for joint efforts to prepare for states of emergency that endanger internal security and lines of command for broadly-based national defence. The task of coordinating the process as a whole rests with the Estonian Government Office, which transcends individual ministries and reports direct to the head of government.

The author of this article is keenly aware that most of the NAO’s proposals have been applied in one way or another, or are in the process of implementation. However, it should be noted that the country would clearly have been better prepared for the current crisis if it had taken its own risk assessment and preparedness analysis into account more quickly. It is also true that other countries, including those that are larger, older and wealthier than ours, face similar problems and challenges as they prepare for extensive and lengthy crises.

Principles of Crisis Reserves Strategy

Crises force everyone to mobilise possible solutions quickly, but it is important to work in tandem on long-term preparedness measures for future emergencies. In planning a national system of crisis reserves, one needs to be ready for demand shock (including the outbreak of panic buying), lack of supplies (including interruptions to imports), various logistical failures (including closing the borders or restricting exports) or the simultaneous effect of all these factors. The ongoing coronavirus crisis demonstrates the dangerous nature of a cascade effect between supply shortages and panic buying due to export bans and the closure of borders.

In Estonia’s view, the free flow of goods should be guaranteed by the European Union; under Article 26 of the Treaty on the Functioning of the EU (TFEU), the Union should apply measures for establishing an internal market, which would ensure the free movement of goods, persons, services and capital.5 To ensure the free movement of goods, restrictions on the volume of imports and exports, and other measures with similar impact, are prohibited. However, the EU’s regulations concerning a free internal market are not absolute. Article 36 of the TFEU states that regulations for a free internal market do not preclude bans and restrictions on the export, import or transit of goods, if these are justified from the perspective of public order or security, or in order to protect the life and health of people, animals or plants. Thus, when planning security of supplies for crisis situations, it is important to take into account the internal market’s partial right to apply temporary restrictions in the interests of the security of society.

Comparing the crisis supply systems of various countries, four general areas of focus can be identified:

  1. establishing regulatory clarity, along with the specification of rights, obligations and responsibilities;
  2. guaranteeing crisis reserves follows the principle of creating supply responsibility in a staged and intersectoral manner. Finland provides a good example: crisis reserves are divided into supply reserves belonging to the state, obligatory reserves for importers in case imports are cut off, and security reserves for businesses to continue production even if the supply is interrupted.
  3. establishing a stable income base for obtaining and renewing crisis reserves and allowing for compensation in the form of contracts with businesses that provide the state with active reserves. Switzerland provides a good example here, with tax breaks on products for businesses that maintain obligatory reserves. The state also offers low-interest loans to finance the creation of reserves.
  4. institutional leadership and oversight capacities are specified in such a manner that the supply security chain functions as a whole, in readiness for prompt implementation.

Finland: an Autonomous Crisis Reserves Model with Stable Financing

In Finland, the provision of supply security in crisis situations is divided between several levels and sectors, albeit in accordance with the principle of central leadership.6 Local governments, larger manufacturers, and participants in the supply chain all develop preparedness for crisis situations in their respective areas of responsibility. Centrally organised and broadly coordinated competences, including rights to international cooperation, are assigned to the National Emergency Supply Agency (NESA), founded in 1992.7

In order to guarantee stability in the supply system, NESA is financed by a special Emergency Supply Fund, consisting of a specific percentage of the retail price of energy resources consumed (the Security of Supply Levy). In addition to excise taxes and income from dividends, NESA allows businesses providing essential services to borrow funds within a specified limit, and to earn a measure of profit from the renewal of reserves. This ensures that the crisis preparedness budget has a clearly defined and stable income base.

The agency is led by an advisory board which meets twice a year, consisting of representatives of seven ministries and businesses in the private sector. The chairman and at least half of the members are chosen from the private sector. The director of NESA is appointed by the government, and over a thousand experts are included in the centre’s activities. In addition to the advisory board and the executive board, the agency consists of sectors and specialised working groups, established on a contractual basis between NESA and larger manufacturers, as well as area-specific associations of specialities.

Through NESA the state has extensive oversight capacities with respect to the maintenance of reserves, including the right to audit the bookkeeping of supply warehouses in real time and the right to physically inspect the quantity of reserves. The agency also has the right to obtain, at any time, documented reports of the quantity of stored reserves, organise supplementary inspections by the tax service and initiate government audits of the maintenance of reserves.

Thus, NESA coordinates and organises the entire state supply security system, along with guaranteeing ongoing cooperation between sectors. Businesses participate in the process voluntarily, but in general they are motivated to take part as they have access to information and the opportunity to shape the process through partnerships as part of their continuity planning. NESA also organises various information events and training sessions, and specialised information portals are available to participants.

Norway: Regulatory Unity, with Strategic Businesses Included at the Government Level

Similar to Estonia, in Norway various ministries have responsibility for the existence and implementation of supply reserves in their own functional area. As a whole, they are regulated by the Business and Industry Preparedness Act,8 which covers supply security for goods and services in peacetime, war and all other states of readiness in between. The law regulates the right to implement extraordinary measures at the ministry level month by month for a maximum of three months; such measures are to be applied immediately and are later compensated. An important role in crisis preparedness is also assigned to the local and regional levels, obligating them to support businesses in the planning of crisis readiness and the performance of tasks. At the provincial level, there are appropriate oversight capacities. In the event of shortages, the executive power has the right to assign additional crisis preparedness tasks to the local level.

In recent years Norway has also moved to a cooperation-centred model, where the key role is played by developing dialogue with the private sector, specifically with businesses that directly own resources throughout the supply security chain. Under the Business and Industry Preparedness Act, businesses in the private sector are obligated to provide the state with information required for crisis preparedness. This obligation overrides the confidentiality of business secrets, meaning that private businesses may not refuse the state necessary information on that pretext. The state, in turn, has the responsibility to use the information only for the purpose of guaranteeing crisis preparedness.9 The heads of the most important businesses are members of the ministry-level crisis regulation organisation, and cooperate in conducting periodic training, including annually at the national level.

Recommendations for Estonia

Having assessed Estonia’s situation, and based on international comparisons, the following recommendation are offered.

  • It is necessary to create a stable resource base for the ongoing development of a system for crisis preparedness. Legislation could be introduced to allocate a specified amount of excise taxes for this purpose.
  • Regulations related to supplies should be reorganised into a unified system and should constitute a purposeful whole. Minimum contractual requirements for guaranteeing supplies should be regulated by law, and a central institution should be assigned to negotiate such contracts.
  • In order to reduce the danger of interruption of external supply routes, critical reserves must be physically located in Estonia and under state control. There should be maximum legal clarity with respect to property rights over such reserves; in addition, businesses that own reserves must also warehouse them. Contracts must specify the mandatory provision of information about the condition of the reserves.
  • Businesses’ awareness of preparation for emergency situations and the extent and forms of cooperation with the state must be increased. Similarly, instructions and recommendations should be drawn up for businesses on risk leadership in emergency situations and alleviation of consequences.
  • Significant businesses must be included in drawing up risk analyses and preparedness for emergency situations, and in necessary training exercises aiming to clarify obstacles to the functioning of the supply chain during a crisis, as well as to increase actual preparedness.
  • In order to guarantee the secure operation of the logistics chain in crisis situations, contracts should be made with logistics enterprises.
  • The state must have an accurate overview of the reserves located in different areas, as close to real time as possible. The submission of data by businesses must therefore be guaranteed, including the obligation to provide certain data.
  • With respect to types of goods needed in a crisis, it is important to require businesses that already have a relevant trading certificate to store the necessary quantity of reserves to ensure that a specified quantity of essential goods is always available on Estonian territory. To support this, the state can provide collateral and benefits. It can also support expansion of storage and provide autonomous energy sources for central storage facilities.
  • From a national security perspective, it is useful to ensure centralised maintenance of crisis reserves, in order to prevent fragmented responsibility among different offices, and to guarantee an accurate and comprehensive overview of the existence, procurement and supply of crisis reserves.

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1 I. Juurvee, R. Loik, A. Voog, M.A. Ploom, T. Hintsov, A. Parve and E. Heldna, “Analysis of supply security for emergency supplies”, Tallinn: International Centre for Defence and Security, 2019; R. Loik, I. Juurvee, T. Hintsov, E. Heldna and A. Parve, “State ordinance for food supplies: Report on Analysis”, Tallinn: ICDS, 2018. A publicly accessible summary of research, “Preparing for Crises in Estonia: Improvement Options for Civilian Food and Emergency Goods Supplies”, is available at: icds.ee/emergency-supplies-in-estonia-cooperation-… (last accessed 4 April 2020).

2 The public section of the report “Elanikkonna kaitse kontseptsioon” (Concept of Civil Protection) drawn up and coordinated by the Estonian Government Office and the Ministry of the Interior, and approved by the government on 15 February 2018, is available in Estonian at www.riigikantselei.ee/sites/default/files/content-… (last accessed 4 April 2020).

3 “Government’s activity upon preparing for emergencies endangering internal security (summary of the report)”, Tallinn: National Audit Office, 19 June 2018. A publicly accessible summary of the report is available at: www.riigikontroll.ee/Suhtedavalikkusega/Pressiteat… (last accessed 4 April 2020).

4 The concept describes the expected situation of society as follows (p. 71): “Necessary measures have been applied and sufficient reserves have been created in order to guarantee the availability of food, emergency supplies, and medications in case of interruption of supply chains and production. Readiness has been created for residents to make use of reserves, and the continuation of supply and distribution in crisis situations.”

5 Treaty on the Functioning of the European Union, Articles 34 and 35.

6 “Government Decision on the Security of Supply Goals”, Helsinki: Finnish Government, 5 December 2013. Unofficial English translation available at cdn.huoltovarmuuskeskus.fi/app/uploads/2016/08/311….

7 NESA website: www.nesa.fi/organisation/the-national-emergency-su… (last accessed 5 April 2020).

8 Business and Industry Preparedness Act (16 December 2011) No. 65. Norwegian Ministry of Trade, Industry and Fisheries: Norwegian Government Security and Service Organisation 07/14-100.

9 Paragraphs 15 and 16, Business and Industry Preparedness Act. The law also sets out sanctions, ranging from penalties to various fines and up to one year of imprisonment. These may also be aggregated. (Paragraphs 19, 20, 21 and 22, Business and Industry Preparedness Act).

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