The Economic Impact of Ebola in Africa

Oct. 21 (Bloomberg) -- The CDC is training volunteer health-care workers before they go to West Africa at an old Army base in Anniston, Alabama. Bloomberg's Brendan Greeley traveled to the site and donned a hazmat suit for an inside look at the training. Video by: Sadie Bass, Justin Beach. (Source: Bloomberg)

Oct. 21 (Bloomberg) — The CDC is training volunteer health-care workers before they go to West Africa at an old Army base in Anniston, Alabama. Bloomberg’s Brendan Greeley traveled to the site and donned a hazmat suit for an inside look at the training. Video by: Sadie Bass, Justin Beach. (Source: Bloomberg)

Earlier this month, the World Bank issued a warning to West Africa outlining the economic damages faced by the region if it fails to contain the spread of Ebola. While Ebola is still pervasive in only three African nations (Guinea, Sierra Leone and Liberia), its economic impact stretches to the entire West African region. The World Bank stated that the West Africa could face a far-reaching $32.6 billion economic decline if Ebola cannot be contained in the near future. The Bank indicated that a best-case scenario, deemed “Low Ebola,” would result in the control of Ebola in the region by the end of 2014 and an accumulated loss of $3.8 billion to GDP by the end of 2015. However, the worst-case scenario, entitled “High Ebola,” would occur if Ebola spread to other West African countries such as Ghana and Senegal, causing losses to hit the aforementioned $32.6 billion number by the end of 2015, a value equivalent to 3.3% of what the region’s GDP would have been without Ebola.

World Bank economists illustrated that one of the most significant economic impacts of an extended Ebola crisis would be on the labor market, in which people in West African nations would be incapable of going to work due to sickness or would choose not to go to avoid contracting the deadly virus. The economists also noted that a prolonged Ebola outbreak could lead to widespread health checks, such as restrictions on travel, which could hinder trade and commerce. If “High Ebola” were to prevail, economic growth in West Africa, measured by the GDP growth rate, would decline from an estimated 6.7% to 4.1% in 2014.

The implicit issue driving the economic impacts outlined by the World Bank is not Ebola itself, but rather the fear of the disease. Economists have given a name to this type of fear: “aversion behavior.” People would refuse to go to work out of fear of getting sick, and travel restrictions would be imposed out of fear of a spread of the disease to other African nations. To illustrate this notion, Wall Street Journal reporter Michael Casey pointed to Gambia, a nation that has not a single Ebola case, where fears of the virus have induced tourists to cancel their reservations. Overall, West African hotel bookings have fallen 65% in concert with the rise of Ebola. Aversion behavior’s role in economic decline is not unprecedented, as World Resource Institute senior fellow Milan Brahmbhatt indicated that 80% of lost economic activity during the SARS outbreak of 2003 could be attributed to aversion behavior.

The fear induced by Ebola can substantially hurt economic progress in Africa due to its dependence on foreign investments and trade. Even though the disease still exists only in three West African nations, uninformed prospective investors from around the globe still buy into the stigma that “all” of Africa faces an Ebola crisis. Bloomberg cites Charles Laurie, the head of Africa at Bath, England-based risk consulting firm Maplecroft, who notes that companies “fail to distinguish between high and low risk areas and the whole of West Africa has suffered as a result.” As a result, simple decisions like an American deciding not to travel or broad government policies like a national ban on travel can have profound negative impacts on economic conditions and GDP growth in Africa. For example, a potential ban on travel to West African nations by countries such as the U.S. could substantially damage African companies if investors with essential capital are unable to visit. Furthermore, Guinea President Alpha Conde argued that a ban on travel to West African nations by countries such as the U.S. could restrict the inflow of aid workers and lead to political destabilization that can cripple economies. While people here in the United States have been calling for a restriction on travel, the evidence would suggest that U.S. needs to maintain it’s freedom of travel in an effort to help these nations thwart the spread of Ebola. If our nation were to close its borders, these nations could fall into an uncontrollable spread of Ebola and rapid economic decline.

Nevertheless, the outlook for West Africa isn’t as bleak as the World Bank’s report suggests. In its report on Sub-Saharan Africa, the IMF still predicts “solid growth” in most West African economies, with an average of 5% growth across the region this year and 5.75% in 2015. The IMF warns that these numbers could only be severely affected if Ebola spreads to other African nations. Time will only tell if Ebola can be contained before it wreaks further havoc on the continent of Africa.

Sources:

http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/10/07/000456286_20141007140300/Rendered/PDF/912190WP0see0a00070385314B00PUBLIC0.pdf

http://www.ft.com/intl/cms/s/0/a8439bf4-4eb3-11e4-a1ef-00144feab7de.html?siteedition=intl#axzz3GpvTWaaV

http://online.wsj.com/articles/gauging-economic-fear-factor-1413770097

http://www.bloomberg.com/news/2014-10-20/ebola-s-economic-fallout-can-t-be-quarantined-in-africa.html

http://www.businessweek.com/news/2014-10-18/companies-in-africa-are-fighting-ebola-travel-ban#p2

http://www.ft.com/intl/cms/s/0/3695aeee-5786-11e4-8493-00144feab7de.html#axzz3GpvTWaaV

 

 

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