en
frSince the end of 2013, the Ebola epidemic has spread throughout West Africa killing thousands of people. Four countries of the area are severely affected: Guinea Conakry (source of the epidemic), Sierra Leone, Liberia and Nigeria. Africa holds its breath now that the epidemic has spread to the Democratic Republic of Congo. Experts believe that the it will continue to spread in the days to come. Many actions have been taken to prevent the contamination of the virus in the ECOWAS region. Some countries have gone to the extent of closing their borders and controlling all the travelers.
Although these measures are justified by the reasons mentioned above, what is the impact of this scourge on the economy of the affected countries? Rather than deploring the efforts of the authorities to contain the Ebola epidemic, we shall analyse the economic impact of this epidemic specifically in the affected countries and more generally in Africa.
Document 1: Ebola: the situation in West Africa (affected areas, number of cases and deaths till the 9th August)
It would not be possible to put a number on the economic effects of this epidemic in a given country or area. De facto, an epidemic can affect any sector of a country’s economy. This shock can provoke a series of events that may in turn cause other shocks that will aggravate the economy. However, it is possible to identify different sectors that will be impacted by this epidemic.
In the affected countries, the government has increased expenditures that were not planned in the budget in order to take charge of infected people and to prevent the spread of the epidemic. In Sierra Leone, close to ten million dollars has already been spent in the past semester and more expenditures are to be expected for the rest of the year. This is also the case in other affected countries as well as in the neighbouring countries that have implemented measures to prevent or take care of any case of declared disease. These extra expenditures will impact, undoubtedly, budget balances no matter what funding strategy is adopted. Many public investment and development programs have been stopped, and some companies in the extractive, mining, agriculture and food sectors have been forced to suspend their activities. In Guinea, Arcelor Mittal has suspended expansion works of an iron ore mine and has evacuated a part of the workforce working on a site. In Sierra Leone, London Mining has moved out some of its non-essential staff.
Furthermore, the tourism sector is badly affected too. Fearing the epidemic, tourists prefer not to travel to these countries. The impact on the neighbouring countries is also quite significant. With the fear of the disease, tourists will not be attracted to these destinations anymore. Plus, some measures such as closure of borders or systematic medical controls seriously limit economic exchanges with the neighbouring countries and some tourists will prefer less restrictive destinations with less contamination risks.
Senegal prohibited imports of agricultural products coming from Guinea. It is very likely that other affected countries shall be in the same situation. Many companies working with these countries have also stopped buying meat and agricultural products from them. Thus, the growth rate is limited this year. According to Moody’s rating agency, the IMF and the World Bank, Guinea Conakry would lose one point of growth in 2014. The rate will be of 3.5% rather than the 4.5% that was expected initially. Growth rates are expected to decrease in other countries as well. The tax revenue targets will not be achieved. This will enhance budgetary imbalances and jeopardize development programs implemented by the authorities. Actually, health expenses caused by this epidemic will be funded by cutting investment funds or current expenses and seeking financial support or loans. In so doing, the governement will increase its arrears to some suppliers and suspend its own development programs by postponing infrastructure works that are essential to sustain economic performance.
On medium term, budgetary imbalances caused by this on-going epidemic will have an impact on the credit quality of the affected countries. Indeed, the respect of certain conditions under the supervision of the IMF, particularly in terms of budgetary management, are prerequisites for the action of financial partners but also ensure the success of interventions on the international financial market. During the past few years (especially in 2014) African countries' incursions on the international financial market have been successful. This is partly due to indicators produced by the Fund in terms of public resources management which are reassuring for investors. If these indicators deteriorate, even if they are not the result of bad public resources management but clearly linked to a shock, investors will be less likely to invest in these countries with weakened engines of growth.
For instance, a simple military coup (although not comparable to an epidemic) would be enough to tarnish a country’s image to its partners, regardless of efforts made to come back to a constitutional order. At least in this case, the economic activity continues, ensuring at least budgetary revenues to the State. With an epidemic, the firms will not return immediately. The return can be very long with the lack of strong guarantees of the country’s ability to contain the epidemic. This would result in a slower growth. So the State would not be able to follow up its financial commitments, delaying the implementation of development programs and increasing the debt burden of the economy over the medium run.
In any case, Ebola has a deep economic impact in African countries. It is difficult to quantify its consequences on agriculture, industrial production, food security. However, it is all the more difficult to assess the effects on society (destruction of families and social structures, millions of orphans, critical decrease of communal networks). It is obvious that the economic performances of affected countries and areas will be limited. In fact, if a country’s growth can usually be correlated to life expectancy (according to the WHO’s estimations, 0,5% of economic growth is gained for each extra 5 years of life expectancy), a mortal epidemic such as Ebola represents a significant obstacle to economic growth on the short and medium run, especially if it is not quickly controlled. Infrastructure and staff training expenses required for this type of disease seriously burden economic development of these African countries, which are already struggling with their own inclusive growth.
Africa still has a fragile economy. The performance of the continent can be jeopardized by shocks such as epidemics, military coup, natural disasters, … If it is almost impossible to foresee such events, it is at least possible to take necessary actions to limit their impacts, particularly regarding health and political aspects. According to Georges, in a democracy (or at least when there is an intention to build one), less onerous means exist for the economy; the same goes for health. It is absolutely possible to avoid situations that will slow down the continent’s development. Indeed, if Ebola or any other mortal diseases (such as Aids) spread that fast in Africa, it is because health systems are quite obsolete and do not allow a good management of these kind of scourges. Moreover, people’s behaviour in relation with some cultural practices – however uncontrollable – and education levels accentuate risks of contamination.
The 260 million US dollars promised by the World Bank and the African Development Bank to fight the current epidemic of Ebola will not be enough to contain the actual situation and prepare the 54 countries of the continent to other similar situations. It would be suitable for countries to already determine ways and means to strengthen their health system, implement adequate information systems and invest more in this sector but also in education. This is an equation that can seem complex, since Africa wants to accelerate its development. Thus, many African countries are adopting development programs. Nevertheless, the funds necessary for their implementation are generally not mobilised internally. These different issues encourage the states to think about a development model that would adapt to their abilities and challenges. After all, China or South Corea needed more than just a few emergency plans implemented over a decade to become the emerging nations they are today.
Foly Ananou
Translated by: Olivia Gandzion