The virus that kills twice

The epidemic is lethal for the population but it also downs the economy.

Kaifala Marah, the minister of finance of Sierra Leone, began his news conference at the 2014 IMF-World Bank Annual Meetings in Washington, D.C., in October, by saying: “Our growth rate was among the highest in the world, we were doing well and our macroeconomic fundamentals were also strong. We were doing well on roads, on energy, on tourism, on agriculture. Then came Ebola, in May, and everything was reversed.

“Cocoa and coffee, which account for 90 percent of agricultural exports, is also at the bottom now because people have abandoned their farms – everybody is running away from Ebola,” Marah added. “Construction also is bad because many of the contractors have abandoned their sites. Tourism is down 50-60 percent. Air travel is about to stagnate. We have been isolated [and] it really is killing our economies.”

The finance minister likened it to a disastrous “economic embargo.”

The repercussions of the Ebola outbreak on the economies of Guinea, Liberia and Sierra Leone are hitting all industries – from safaris and agriculture to mining and finance. What’s more, against all logic or reason, they’re affecting not only the three countries hit by the virus but other African nations as well, some thousands of kilometres from the disease-ridden regions. 

The World Bank estimates that the overall economic impact of the epidemic on Africa will climb to around $32.6 billion (€26.2 bn) from now until the end of 2015. As the weeks pass, with the outbreak still far from reaching its ‘viral peak’, the forecast seems increasingly optimistic and could conceal far worse economic consequences.

“A more protracted Ebola outbreak or a wider extension of the epidemic could have severe consequences for the economy of the region, as it would undermine trade, transport activities, and investment,” say experts at the International Monetary Fund (IMF), which reduced its 2014 economic growth prospects for Africa, from +5.5% to +5%, in part due to the impact of Ebola. While in early 2014 the IMF had predicted Sierra Leone’s growth to be around 11.3%, by August that figure had been downgraded to a leaner +8%. Liberia dropped from +5.9% to +2.5% and Guinea from +4.5% to +2.4%.

However, the numbers and data making the rounds risk providing only a partial picture of the economic price that Guinea, Liberia and Sierra Leone are likely to have to pay. The restrictions on movement, commerce and transportation that arise from the border closures imposed by neighbouring countries not only affect the official figures reported in the data but also severely damage the informal commerce that represents the economy of survival for a large part of the population in all three countries.

Agriculture is one of the hardest hit industries, and in recent months the United Nations Food and Agriculture Organization (FAO) has already warned of “grave food security concerns” in the near future in the Ebola-afflicted regions. The spread of the disease is seriously jeopardising all phases of agricultural production.

Agriculture accounts for 57% of Sierra Leone’s GDP and 39% and 20% of Liberia and Guinea’s gross domestic products, respectively. In just a few months, the price of cassava (a root vegetable that is a staple ingredient in the Liberian diet) has risen by as much as 150% in some of Liberia’s main markets, as have the prices of almost all food products. Not only is there is a shortage of indigenous food due to large numbers of farmers leaving the countryside, imported products are also becoming hard to come by due to limitations placed on cross-border commerce.

Nor have the financial ramifications of Ebola spared the mining industry, which is fundamental to the economies of all three countries: mining comprises 14% of the Liberian economy and 17% of Sierra Leone’s. The sector has been dealt harsh blows by travel restrictions and the repatriation of personnel, but an even greater threat lies in the “the diminished faith of investors,” as experts euphemistically refer to the panic now overwhelming the boards of directors of multinational corporations across the globe.

In Liberia, for example, steel giant Arcelor Mittal has already slowed production and is seriously considering postponing its investment plans to triple the local production of iron indefinitely, while in Sierra Leone and even Guinea – despite the mining region being a long way away from the afflicted areas – large Chinese, Canadian and Australian conglomerates have opted to completely suspend operations.

A situation that is having an adverse knock on effect on the fiscal and monetary policies of the three afflicted countries’ governments, at a time when the Ebola emergency is forcing them to spend considerable sums in a sector – healthcare – that has been shamefully neglected for so long. And while the repercussions on the farming and commercial sectors translate into fewer taxes and customs duties, a drop in mining activities also brings with it a drastic and sudden reduction in the governments’ foreign currency reserves.

So far, the impact that the epidemic is having on the financial sector of the three afflicted countries hasn’t caught the eye as much. Yet as Amadou Sy of the influential American think tank The Brookings Institution points out, “if large depositors withdraw funds, banks may face serious liquidity problems.” Citing a World Bank report, Sy writes that “many wealthier Guineans and expatriates have already left the country and uncertainty and risk aversion in Sierra Leone has prompted a rise in capital outflows.”

“The truth is that we can’t keep up with events. We won’t have the full picture of the repercussions and economic damage that the Ebola epidemic is causing until it’s over. I believe that the estimates that are circulating at present are too optimistic,” warns a UN Economic Commission for Africa official speaking from Addis Abeba, who preferred anonymity because he hadn’t been authorised to speak to the press.

“The epidemic is moving faster than we economists can work,” echoes David Evans, a senior economist at the World Bank. “The latest information suggests that even the World Bank’s ‘High Ebola’ scenario may be optimistic.”

Also weighing in negatively is the so-called fear factor, which particularly in Western countries seems to have sparked a psychosis that is as overblown as it is uncontainable. Because, Ebola, as it turns out, can be contained, counteracted and cured. Not so fear.