Ebola's impact on the West African economy
Of the 16 countries in West Africa only three – Guinea, Liberia and Sierra Leone – are affected by the Ebola virus. Nevertheless, it is having an economic impact on not only these affected countries but many others in the region.
Several West African countries have significant numbers of expatriate workers in critical sectors of the economy and the fear of Ebola has caused almost a mass movement of foreigners back to their home countries. The weak healthcare infrastructure of most countries in the region does not inspire confidence in the expatriate population to remain. In Ghana, for example, a country with no reported cases of Ebola, some global companies have evacuated non-essential foreign personnel.
For countries affected by the virus it is much worse. Across Sierra Leone, Liberia and Guinea, foreigners are naturally showing even greater levels of caution, including the Chinese who in the last few years have invested heavily in Africa.
Recently, critical projects have stalled as a result of Ebola. For example, in Liberia, a World Bank contract for the construction of a road between Liberia and Guinea, expected to facilitate trade, has been suspended as the Chinese contractor, China Henan International Cooperation Group, pulled out its workers.
Across West Africa, the sectors most likely to be affected are trade, tourism and agriculture.
Having been stuck below 10% in all trade over the years, trade within the region was beginning to increase following concerted efforts by governments to facilitate the movement of goods and services. But border closures by countries like Senegal, Côte d'Ivoire and Ghana, as well as travel bans by airlines to the worst affected countries, will have a significantly adverse effect on trade in the region.
We have also seen the postponement of investments by foreign investors who are waiting to see the outcome of the disease. One of the attractions of West Africa for investment is the size of the market, and the huge number of deaths caused by Ebola has effectively reduced this so investors are clearly cautious about the timing of their investments in the region.
Airlines, hotels and travel companies are expected to suffer reductions in revenues. The World Travel and Tourism Council, which represents airlines, hotels and other travel companies recently stated that early indications suggest a decline of 30% in bookings to the region.
Gambia, which derives 16% of its GDP from tourism, is perhaps the worst affected in the region. The start of the tourism season in October has seen significantly lower number of tourists than in previous years with an anticipated 50-60% decline in numbers, according to the tourism minister of Gambia, Benjamin Thomas. In a country where half the population live below the poverty line and are dependent on this industry for their livelihood, we can expect a worsening of their conditions.
Another sector badly hit by the crisis is the agriculture sector. In Guinea, Sierra-Leone and Liberia, there have been disruptions due to farmers staying away from farmlands and market places to the detriment of the agriculture sector.
Outside these countries, there are also concerns regarding the impact on agriculture production, with cocoa a critical area. West Africa produces 70% of the world's global cocoa supply with Ghana and Ivory Coast accounting for 60%. This could be threatened if the virus continues its spread and extends to these countries.
With so many disruptions to the productive sectors of the region's economy, there will be a fiscal gap which must be managed. With aid coming in to strengthen healthcare infrastructure, consideration has to be given to how the fiscal gap can be contained as well.
The economic impact of Ebola is such that the IMF has now reduced its growth projections for the region to 5% from 5.5%. The World Bank shares this outlook, revising growth estimates for the three countries. It warns that the disease, if not successfully contained, could cost the West African economy US$32 billion in 2015.
The World Bank expects that GDP growth in Sierra Leone will only be 8.3% (down from 11.3%), with agriculture among the worst affected sectors, and also causing a slow down in mining operations. Guinea's growth estimate is down to 2.4% from 4.5%, the worst hit sector is again agriculture. And Liberia, one of the smallest economies in the world, has had its growth projections reduced to 2.5% from 5.9% with projections of zero or negative growth in 2015 – with mining and agriculture the worst hit sectors in the country.
Overall, the World Bank estimates that the Liberian economy has declined by US$113m as a result of the crisis; Sierra Leone by US$95m; and Guinea by US$120m.
In all of this, with people acting on their primal instincts to survive, consideration must be given to how actions to halt the spread of the disease may impact the economy and the long-term future health of citizens of the region.
And, for those in the worst-hit nations of Guinea, Sierra-Leone and Liberia, even if the disease is stemmed today, the economic impact will be felt for many more years to come.
This article was originally published on The Conversation, Oct 2014. By Enase Okonedo, Lagos Business school.