The Ebola effect

The fear spread by the Ebola epidemic stretches far beyond the actual geographic reach of the disease, which has devastated the economies of the three countries hardest hit

Africa’s economic future is looking bright, as illustrated by a Deloitte survey released last November that concludes this is the optimum time to invest in the continent. In 2013 the gross domestic product of sub-Saharan Africa grew at a blistering 4.9%, outpacing all of the BRIC nations (Brazil, Russia, India and China) with the exception of China. And this was no one-year wonder. The average 5.5% growth rate over the past decade has been more than double the 1990s rate. 

But, as global headlines make only too clear, two ominous clouds currently hang over the continent. The first is a slide in commodity prices, which account for the lion’s share of African countries’ export revenues. And the second is a widespread outbreak of Ebola, a gruesome haemorrhagic fever. 

Aside from the obvious human impact of the disease, any epidemic can have an extremely damaging effect on an economy. At the height of the panic over severe acute respiratory syndrome (SARS), for example, a form of avian flu, retail sales plunged around 15% in Hong Kong, even though the disease resulted in no more than around 300 deaths in a province with a population of 7.2 million. 

Africa may be even more vulnerable to the panic caused by the spread of a contagious disease, worries Edouard Messou, PwC’s senior partner for francophone Africa. ‘Many outsiders see Africa as a single country rather than a continent,’ he says. ‘So even though Ebola has so far been contained in a tiny part of West Africa it risks scaring off the foreign visitors and foreign investors who have become a key driver of economic growth for many nations.’ 

Economic toll

The fear that Ebola engenders extends far beyond the disease’s actual geographical reach and may linger long after Ebola fades from the headlines. The main question for economists is whether this could be sufficient to slow Africa’s promising growth spurt. 

There can be no doubt as to the devastating toll on the three nations hardest hit by Ebola – Guinea, Sierra Leone and Liberia. Worst off of all is Liberia, one of Africa’s poorest countries, with a per capita income of just US$410. As of November 2014, the tiny nation accounted for about 3,000 of the 5,700 deaths from the disease. The understandable panic has been a hammer blow to a nation that had been struggling to recover from a long and bloody civil war. 

A World Bank report, The economic impact of the 2014 Ebola epidemic, concluded that the biggest economic consequences were not the direct effects of death, surging health spending or loss of workers, but rather ‘changes in behaviour – driven by fear – which have resulted in generally lower levels of employment, income and demand for goods and service’. 

Investments in vital sectors such as mining, which accounts for 17% of GDP, have also been put on hold. As recently as June 2014, the World Bank had expected Liberia’s economy to expand by 5.9% in 2014. By October it was forecasting just 2.5%. Few Africa experts would be surprised if the outcome turns out to be even worse. Extra healthcare spending and lower tax revenues for Liberia alone have been estimated to amount to more than US$100m – 5.1% of the country’s GDP. 

Add in Sierra Leone and Guinea, and the short-term hit measured in lost GDP for 2014 alone is likely to add up to US$359m, the World Bank has estimated. 

Part of the damage comes through lower productivity and higher costs for businesses. PwC, which has operations in the most affected countries, offers one example of this. ‘To keep our staff as safe as possible we have been restricting their travel to the worst-hit areas for assignments,’ says Messou. ‘Since using public transport can increase the risks of infection, we have arranged a minibus to take some staff to work. The extra travel time means that instead of working eight hours a day, some employees are now able to be in the office just five or six.’ 

Of course, Guinea, Sierra Leone and Liberia are three of Africa’s smallest economies, with a combined GDP of just US$14bn in 2014. That is a mere 0.8% of sub-Saharan Africa’s US$1.7 trillion economy, according to data from the International Monetary Fund. Whether Ebola harms the entire African economy will depend on several factors: how far afield the disease spreads, how quickly it can be contained, and how far it is possible to convince wealthy outsiders not to punish Africa as a whole for a regional outbreak. 

In terms of the spread of the disease there are some grounds for cautious optimism. True, the outbreak is already the deadliest by far since the disease was first identified in Zaire almost 40 years ago. Fatalities from previous Ebola epidemics have never risen much above 300. The US Center for Disease Control estimated in September last year that up to 1.4 million people could be infected by Ebola by early 2015 if the response did not improve. Since the disease has been killing about 70% of those who get infected, that is a terrifying prospect. Meanwhile the World Bank has projected that if the epidemic spreads into neighbouring countries the total cost by the end of 2015 could reach US$32.5bn – more than twice the GDP of the three nations at the heart of the epidemic. 

But most experts agree that the response has already improved. The nations that border Guinea, Liberia and Sierra Leone have been strikingly successful at containing the outbreak. Officials in Nigeria and Senegal meticulously tracked down anyone who could have been exposed to the disease and monitored them for signs of the illness. As a result the disease has so far been contained in these countries. ‘This is extremely encouraging,’ says Amadou Sy, a senior fellow at Brookings Institution’s Africa Growth Initiative. ‘The first step is to prevent this from becoming a continent-wide problem.’ 

For nations with functioning healthcare systems, Ebola should be relatively easy to stop. The virus is not airborne and sufferers are contagious only once they start to exhibit the conspicuous symptoms of the disease. As a result the average sick person will infect no more than two others. That compares to four for HIV and SARS, 10 for mumps and 18 for measles. ‘I believe that within a year the issue with the disease itself will be largely fixed,’ says Messou. 

Back in business

If the disease does die down, the affected economies can start to get back to some semblance of normality, says Mead Over, a former World Bank health economist and now a researcher at the Center for Global Development in Washington. ‘The main worry over the disease is that it stops people going about their normal economic business,’ he says. ‘A lot of people have been less willing to go into work, potentially hollowing out companies and government bureaucracies. Gradually that fear will subside as the epidemic is brought under control.’ 

Unfortunately, outside perceptions may be harder to shift. The tourism industry accounts for about 10% of sub-Saharan Africa GDP, including indirect wealth creation. Until the Ebola outbreak, visitor numbers had been growing fast, hitting 36 million in 2013. There are already signs that this burgeoning sector is being hit – even thousands of kilometres from the affected areas. Bookings are down for safari trips to Kenya, which is about as far from Liberia as London is. ‘I was talking to somebody recently who said they planned to cancel a trip to Papua New Guinea,’ laments Sy. ‘The mere fact that Guinea was in the country’s name seems to have been enough, despite the fact that it is located on a remote island north of Australia and obviously has no reported cases of Ebola.’ 

‘The trouble with Ebola,’ says Over, ‘is that it plays into the idea that Africa is a dangerous place, associated with famine, war and exotic diseases.’ 

Such aversion will almost certainly create strong headwinds for Africa during this year. In addition, many African nations will have to cope with some self-inflicted woes during 2015, predicts William Jackson, an analyst for Capital Economics: ‘Many countries in Africa squandered the windfalls they received from a decade of high commodity prices. We see a lot of countries with high budget deficits that will be hard to sustain if raw material prices remain weak.’ 

Some African nations – Ghana and Zambia in particular, – boosted government payrolls and subsidies instead of investing in productivity-boosting infrastructure projects. 

Despite such additional impediments, Messou of PwC believes that Africa will overcome the Ebola epidemic. ‘This is not going to dramatically slow the continent’s economic momentum,’ he argues. He points to several grounds for optimism. ‘The main drivers for growth still exist,’ he says, adding that the latest commodity price slump is unlikely to last. ‘A growing global population will need to be fed and Africa has a disproportionate share of the world’s arable land.’ 

Large-scale investors interested in Africa’s mineral wealth may respond more rationally to the outbreak than international tourists – especially if the disease is kept under control. ‘Africa also boasts a burgeoning middle class and a youthful population, standard ingredients for fast economic growth,’ says Messou. ‘Democracy and the rule of law are also spreading and the level of corruption is starting to decline in many places.’ 

Ebola may be dominating the continent’s headlines, but it could be a speed bump that Africa will soon get over.

Christopher Fitzgerald and Fernando Florez, journalists

"Many outsiders see Africa as a single country rather than a continent. So even though Ebola has so far been contained in a tiny part of West Africa it risks scaring off the foreign visitors and foreign investors who have become a key driver of economic growth for many nations"

Edouard Messou - PwC