Emerging Markets

ANALYSIS: Charting The Potential Human, Economic Costs Of Ebola

Tom Burroughes, Group Editor, November 6, 2014

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Ever since investors outside the immediate vicinity of West Africa grew aware of the potential scale and lethality of the Ebola virus, people have scrambled to work out how devastating it will be. And associated with that is what will this mean for the African and global economy.

Ever since investors outside the immediate vicinity of West Africa grew aware of the potential scale and lethality of the Ebola virus, people have scrambled to work out how devastating it will be. And associated with that is what will this mean for the African and global economy.

So far, a lot of the commentary has been in the form of educated guesswork. After a few weeks have elapsed, however, organizations are starting to crank out clearer ideas of what Ebola means. A report by Business Monitor International, a Fitch company, citing data from the World Health Organization, said there have been a total of 8,376 Ebola cases across Sierra Leone, Guinea and Liberia, resulting in 4,024 deaths.

Already, the prospect of a sustained problem will be damaging to the West African economy, reversing years of slow but steady progress, and the threat of it spreading elsewhere – there have already been cases in the US – could also hurt economies, experts say.

BIN says that tourism in countries such as The Gambia and Senegal will be hit hard. The organization cut its GDP forecast for The Gambia to 3.9 per cent in 2015 from an estimated expansion of 4.4 per cent this year. Its previous forecasts were 5.1 per cent growth in 2014 and 5.3 per cent growth for 2015. It has also slashed GDP forecasts on other affected nations.

The World Bank, meanwhile, has estimated that in a “Low Ebola” scenario, lost GDP for West Africa as a whole is estimated at $2.2 billion in 2014 and $1.6 billion in 2015. In the case of “High Ebola”, estimates suggest $7.4 billion in lost GDP for 2014 and $25.2 billion in 2015. Both cases assume at least some spread to other countries. (In the case of “Low Ebola”, the disease is contained by early 2015 and cases stay around 20,000 and economic activity gradually increases; “High Ebola” is one in which the disease is contained more slowly, cases reach 200,000 and the outbreak worsens significantly into mid-2015.)

Food and disorder

Another worry, BIN’s report said, is that Ebola could disrupt food supplies, leaving to civil disturbances and greater violence.

“The ongoing West African Ebola outbreak will have a catastrophic effect on the economies and societies of Guinea, Liberia and Sierra Leone. It also carries implications for economic growth in the wider West African region and in Sub-Saharan Africa as a whole. Restrictions on movement, rising prices and investor fears will hamper economic activity,” the BIN report said.

Inflation will rise, boosted by a surge in food prices amid the outbreak, the report said. Food has a high weighting in price indices of countries such as Liberia, accounting for almost a half. At the start of September, the price of West African staple cassava had risen by 150 per cent and peppers by 133 per cent. There are concerns that Ebola will disrupt harvests. Consumer price inflation had been falling steadily in some of the affected nations so far this year but that pattern will reverse sharply, BIN said.

Analysts at Barclays noted that socio-economic and health factors make the West Africa region – with an estimated population total of around 334 million – an ideal breeding ground for disease.  Many people distrust disease prevention methods, while healthcare workers have themselves been stricken with the virus.

Barclays argues that the example of the SARS outbreak, which happened primarily in East Asia, is not a good pointer for what is happening with Ebola. While SARs was an airborne respiratory virus, it is about one-eighth as lethal as Ebola, and therefore could have a more disruptive impact on economies, particularly in a labor-intensive area such as West Africa. On the other hand, SARS affected countries well integrated into the world economy, such as Canada, China and Hong Kong, while Ebola is in economies that are far less well integrated.

If Ebola spread further afield and there were periodic outbreaks worldwide, it will reduce global economic growth and make markets more volatile. Countries that adopt credible measures to contain any outbreak will see lower risk premia attached to their assets, the bank said.

“It must be emphasized again that endemicity of Ebola anywhere – including West Africa – remains a tail risk. But it is a tail that has left the fringes,” the bank added.

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