West African economies threatened by ebola

26 Aug 2014

West African economies threatened by ebola

Since the ebola epidemic first emerged in February 2014, at least nine African countries have closed land, sea or air borders in an effort to halt the spread of the virus. The closures have disrupted imports and have begun to have severe impacts on key economic sectors in the worst-affected countries of Sierra Leone, Liberia and Guinea. The ongoing spread of the virus, and the emergence of new cases of the disease in the regional economic hub of Nigeria, suggest that disruption to commercial operations and trade is likely to continue.

The rapid spread of the ebola virus has prompted South Africa, Senegal, Kenya, Madagascar, Cameroon, Ivory Coast and Chad to close their borders to passengers arriving from ebola-affected countries. Airlines have also halted services to Freetown, Conakry and Monrovia, with British Airways, Kenya Airways and Emirates all suspending flights to the region. In addition, Sierra Leone, Liberia and Guinea have closed their borders. Movement within these countries has also been restricted and the worst affected areas have been quarantined to prevent contagion.

The travel restrictions in all three countries have had significant implications for local business operations and agriculture. In Sierra Leone, where farming employs 66 percent of the workforce, the agricultural sector has been severely affected by roadblocks, border closures and lower trade at public markets. Restricted food imports have contributed to food inflation in recent months, with traders at Duala Market in Monrovia, Liberia, reporting a 10 percent increase in the cost of a bag of rice since July. The Agriculture Minister in Sierra Leona announced the economy had deflated 30 percent this year due to the impact of ebola. There is a credible risk that the economic impact of ebola could undermine governments’ ability to pay medical staff, thus weakening efforts to counter the disease.

Other key economic sectors in all three countries have been affected and productivity will be further undermined should the crisis worsen. The world’s largest steel producer, ArcelorMittal, has halted its iron ore expansion project in Liberia, while Vale, London Mining and African Minerals have withdrawn staff from Guinea and Sierra Leone. In Liberia Sime Darby has reduced palm oil production and Sifca Group has suspended rubber production. The fall in operational activity and import restrictions has also cut government revenues from import tariffs. Some hotels in the Guinean capital Conakry have reported an 80 percent cancellation rate.

The World Bank and IMF have assessed that Guinea is likely to experience a decline in GDP growth from 4.5 percent to 3.5 percent by the end of 2014. Meanwhile, the Liberian finance minister said in August that its expected growth rate of 5.9 percent in 2014 had become unattainable because of the ebola economic ‘slowdown’ effect. Ratings agency Moody’s warned in August that Sierra Leone’s growth rate would rapidly decelerate from its 2013 rate of 13 percent if the virus continued to disrupt mining operations. The full economic impact is very difficult to quantify. Delays linked to border disruption, increased port clearance procedures and reduced business travel will continue to dent and slow economic activity.

As yet, effects on regional West African trade have been more limited, with Guinea, Liberia and Sierra Leone only making up around 10 percent of the whole region’s trade. However, on 22 August there were two additional cases of ebola reported in Lagos, Nigeria, bringing the number of instances of the virus over the past month to 15. Any further spread of the virus in Nigeria will likely have a much more severe impact on regional trading. During the week of 18 August, Chad and Cameroon closed their borders with Nigeria and on 23 August, Ivory Coast was the latest country to introduce border closures in an effort to minimise threat from the spread of ebola. Restrictions on cross-border movement will impact supply chains and trade across West Africa and slow regional economic activity, especially if they affect activities in the larger economies of Nigeria, Ivory Coast and Ghana.

Medical charity Medecins Sans Frontieres estimates that ebola will take another six months to contain. Although the duration of the outbreak and the potential spread into other parts of Africa cannot be accurately predicted, it will continue to have major economic influence on the region and will damage investor confidence for the remainder of the year. Airlines and foreign businesses will only cautiously resume activities and despite government efforts to encourage business operations, measures to counter ebola’s spread are set to continue to slow economic activity.

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