Economic costs of Ebola rising as people shun human contact

The World Bank says the disease’s economic cost could be US$32 billion over two years, with the mining sectors badly hit. But many of the most damaging effects are on a microcosmic scale as citizens in Liberia, Sierra Leone and Guinea, shun their families, friends and communities.

The World Bank says the disease’s economic cost could be US$32 billion over two years, with the mining sectors badly hit. But many of the most damaging effects are on a microcosmic scale as citizens in Liberia, Sierra Leone and Guinea, shun their families, friends and communities.

There are parallels with the spread of the Black Death in Europe hundreds of years ago. Paranoia and panic are rife. Families in Liberia, Sierra Leone and Guinea – the three West African nations at the epicentre of the problem – are shunning close relatives stricken with Ebola, orphanages are overrun with the children of the deceased and foreign workers have fled Africa. The death toll from the Ebola outbreak had risen to 4,447 on Tuesday and the World Health Organization (WHO) said there could be 10,000 new cases a week in two months unless there is immediate global investment of US$1 billion to fight the problem.

The economic costs have been overshadowed by personal tragedy, but they are profoundly worrying for three of the world’s poorest nations emerging from years of civil war. No one knows what the final cost will be, but if history is any indication, it will be disproportionate to the death toll. The 2003 SARS (Severe Acute Respiratory Syndrome) outbreak, which killed 800 people, inflicted US$50 billion in damages on the global economy, according to The Economist.

The World Bank says that if the Ebola epidemic spread to neighbouring countries – some of which have larger economies – the two-year regional financial impact could reach US$32.6 billion by the end of 2015. Even at the World Bank’s lowest estimates, with cases restricted to Liberia, Sierra Leone and Guinea, their growth forecasts would be slashed.

Professor Eric Werker, a specialist in the Liberian economy from Harvard Business School, said: [quote] “Ebola is as much an economic crisis as a health crisis. The health costs are devastating and are affecting thousands, but the economic costs are affecting millions. They have the potential to disrupt markets, create shortages as areas are cordoned off and affect trade as countries are closed from outside markets.” [/quote]

The three West African nations are ill-equipped to deal with such a crisis. Sierra Leone and Liberian are emerging from years of civil war. In Liberia, about 250,000 people were killed in the conflicts. Infectious diseases, including polio, plague the area, and a 2009 Oxfam study found the world’s highest illiteracy rates in West Africa.  

[quote] “In the last few years Sierra Leone and Liberia have been the fastest-growing countries in the world. Political stability allowed many projects to be switched on in the resource sectors and individuals gained the confidence to make small and medium investments,” said Werker. [/quote]

“In this context, the Ebola crisis is all the more tragic. It’s a huge setback which takes them back to the dark days of the conflicts when you had much greater day-to-day uncertainty about the larger events shaping your lives.”

The World Bank president Jim Yong Kim remains unconvinced that Ebola will be contained before the new year. “We do not have the people on the ground, enough resources, to get to the best-case scenario, which is to get it under control in the next few months,” he told reporters.

The mining sectors have been hard-hit in all three nations. In Sierra Leone, iron ore is the most important export. Even before the health crisis, global prices had slumped by 39%, but Ebola has made it worse and the two biggest producers are in crisis. African Minerals employs 7,000 people at the Tonkolili mine, which cost US$1.7 billion to build. The London-based company’s stock has slumped 92% this year. Meanwhile, shares in London Mining were trading at 4p last week, down from 400p in 2011. The company is likely to go into administration. Also in Sierra Leone, diesel sales fell by roughly a quarter over the summer as travel and trucking slowed.

In Liberia, operations at China Union, the country’s second largest mining concern, have been forced to shut down. Rubber exports out of the country have been interrupted, and the construction of a new palm oil mill is on hold. Also in Liberia, ArcelorMittal – the world’s largest steelmaker – was forced to delay the expansion of iron ore mines after 15 contractor companies working on the project evacuated their employees. In Guinea, where the average per capita income is US$460, palm oil production has fallen by three quarters.    

In a note, Deutsche Bank analysts said mines which were less reliant on expat workers would be able to continue to operate. Since most mines in West Africa are remote, using local employees protects mines from the spread of the virus. 

[quote] “For the big enclave sectors, such as the iron ore mines and rubber plantations, the effects vary a lot by firm,” said Werker. “Did they take steps to isolate, treat and prevent the further spread of the virus by quarantining workers? This is possible in remote areas where families are living in the town serving the mine. It just takes a bit of temporary heavy-handedness on the part of the owners. But mines that have evacuated all foreign workers, grind to a halt.” [/quote]

Deutsche Bank also said Ebola could pose a major threat to gold and cocoa production in neighbouring West African nations. One major worry was the spread of the disease to Ghana, which is the world’s 10th biggest producer of gold with nine of the region’s 30 operating mines.

For now, the impact on cocoa supplies is limited. Deutsche Bank said Ebola had reached three counties in Liberia that account for 90% of that country’s production, but Liberia only accounts for 0.2% of world cocoa exports. The effects would be much greater if the disease spread to neighbouring Ivory Coast, which is the world’s top producer with 37.8% of exports.

The economic damage could also be felt on a more microcosmic scale all over Liberia, Sierra Leone and Guinea.

[quote]“The mining industries might get the headlines, but the effect on the market economy is more serious because it’s so pervasive, especially in areas hit by the curfews,” said Werker. [/quote]

“The best way to stop Ebola is to reduce interaction between people, but market economies are based on interactions. We’re seeing the open air markets where people buy their tomatoes and rice, badly hit. And also the transportation networks of taxis, buses and motorcycles,” he said. “There’s a real danger of a shortfall in food supplies as producers can’t get enough workers to produce the food and fewer buyers are coming in to the markets.” 

[quote]“The effect on livelihoods can be terrible. I have a friend who was studying at Monrovia University and driving a taxi to pay for his studies. The taxi market has collapsed and all his classes have been cancelled so has returned home to grow his own food in order to survive.” [/quote]

The removal of wealthy expats from the economy has also had drastic consequences for the food trade. The expats – along with Liberia’s local financial elites – were the biggest spenders in restaurants and hotels. Werker said hotel occupation rates had fallen from 80% to under 10% and restaurants were largely empty. 

The long-term effects on the African economy may not be restricted to West Africa. What the World Bank calls “aversion effects” have been seen as far afield as Namibia – almost 3,000 miles from the core of the epidemic – where investment summits have been cancelled. Meanwhile, Korean Air Lines scrapped flights to Kenya, a regional hub that has not recorded any Ebola cases in this outbreak.  

[quote] “There is a danger of people shunning Africa. They could be potential tourists who choose what they perceive as ‘safer’ destinations, or potential business investors,” said Werker. “If a company has a risk management framework and they are being conservative, they might hesitate about going in to Ghana, even though it has zero infections, because it’s close to the badly affected nations. Nigeria has dealt with its few cases, but it could be affected by the same aversion principle and find itself on a list of stigmatized countries.” [/quote]

The World Bank has granted a US$230 million financing package, including US$105 million for emergency supplies. And the IMF has expanded zero-interest loans for the three countries to help them meet financing gaps of US$300 million. Although the World Bank and the European Union have pledged to cover up to 20% of those budget shortfalls, the IMF says the countries will still need another US$130 million just to cover the next six to nine months. 

But the WHO says that not enough money or resources are being thrown at the problem to guarantee the halt of the infection. It demanded global investment of US$1 billion.

[quote] “The effects of the crisis are predictable, but the scale is not,” said Werker. “The first thing to do is to get the numbers down to a manageable figure to avert total catastrophe. Right now, there are parallels with the Black Death. People are going about their daily lives washing their hands with chlorine in front of buildings and before taking public transport. We’re getting situations where a secretary’s sister had Ebola so all of a sudden 40 people don’t show up for work. That kind of thing, too, will have an incalculable effect on the economy if it goes on for months and months.” [/quote]