Ebola to slash growth, knock billions off fragile W. African economies

The outbreak of Ebola that is ravaging parts of West Africa could cost affected nations billions of dollars and slash economic growth rates by double digits if the virus’ surge continues across Guinea, Liberia and Sierra Leone, the World Bank estimated Wednesday in a new report.

In addition to the human toll — over 2,400 deaths have been reported in the past five months — economists have warned that the outbreak is draining public finances. It’s also encouraging aversive behavior, such as avoidance of travel and trade for fear of contagion, which could incur lasting economic damage in fragile postconflict economies.

“The primary cost of this tragic outbreak is in human lives and suffering, which has already been terribly difficult to bear,” World Bank president Jim Yong Kim said in a statement that accompanied the report. “But our findings make it clear that the sooner we get an adequate containment response and decrease the level of fear and uncertainty, the faster we can blunt Ebola’s economic impact.”

According to the analysis, the worst-case scenario could see economic growth in these three countries slashed by 2.3 to 11.7 percentage points in 2015, potentially plunging countries into a deep contraction. Should the international community mount a more concerted campaign to help contain the virus, however, those estimates would shrink closer to 1 to 4.2 percentage points.

The report comes a day after the U.N. announced that it needed to raise $1 billion to effectively contain the virus, treat its victims and prevent much-feared spillover into other countries. On Tuesday, President Barack Obama announced he would send 3,000 troops to the region to help stem the spread of the contagious disease and build health facilities to treat victims.

But the international community has taken heat from public health advocates in West Africa who say the response has been paltry thus far and that newly announced aid, while welcome, has come too late. According to the World Bank, the short-term cost of Ebola for 2014 will likely surpass $350 million in the three worst-hit countries, regardless of how effectively the virus is contained.

These countries recently emerged from years of war, and the damage to their economies is already considerable. The smallest of the three, Liberia, had a GDP in 2013 of just under $2 billion. The estimated short-term loss caused by the Ebola outbreak of $66 million will sting, but should that figure climb to the worst-case estimate of $228 million in 2015, the effect could be destabilizing.

The short-term costs these countries have incurred are in part a result of an inability to contain the diseases spread by health care systems that are massively underfunded and understaffed. Cash is tight in Liberia, Guinea and Sierra Leone, but the startlingly low doctor-to-population ratio — Liberia has about 50 doctors for 4.4 million people — and dire shortages in medical supplies made these countries highly vulnerable to such an outbreak.

“The sad thing is these countries were rebounding economically, but we can see here that not having invested in health infrastructure is costing them so much,” said Amadou Sy, a senior fellow with the Brookings Institution’s Africa Growth Initiative and a former economist with the International Monetary Fund.

The farthest-reaching economic harm from contagious diseases like Ebola usually comes from fear, or more specifically, aversive economic behavior that stems from concerns of contagion. According to the World Bank, fear of contact with others in the affected countries means fewer people are showing up to work, many offices and businesses are closed and transportation is disrupted. Tourism is likely to plummet, in part because major seaports and airports have been shuttered in order to prevent the virus from jumping across international borders. Food security can also be affected — a phenomenon that will become apparent as planting season approaches and quarantines hamper transportation of food supplies.

In recent infectious disease outbreaks, such as the SARS epidemic of 2002–04 or the H1N1 flu of 2009, behavioral effects caused about 80 to 90 percent of the total economic impact, the World Bank report noted.

The private sector is also vulnerable, said Sy. In small countries like those primarily affected, attracting foreign investment is tricky enough without the outbreak of terrifying illnesses like Ebola. He noted that during the recent African leaders summit at the White House in August, news of the first American doctor to contract Ebola blew coverage of the summit out of the headlines, turning what might have been a moment for optimistic coverage of African growth into a horrifying reminder of West Africa’s public health woes.

That damage is done, however, and economists warn that unwarranted hysteria over the virus can only fuel fear-driven reclusion and exacerbate economic downturn.

The international community must play a part in smoothing things over, economists say. The World Bank has recommended a four-pronged response that begins with humanitarian support to contain the virus and about $290 million of fiscal support to stave off the collapse of government services in these countries. Other measures, like providing screening facilities at air- and seaports, would assuage merchants’ fears of contagion and allow for some level of trade to continue even while the virus persists.

In the long term, however, the most important initiative might be to address the dire incapacity of West African health care systems to detect and treat contagious viruses like Ebola in their early stages.

“The lesson for Africa is that investing in the health sector, having an almost military preparedness to deal with such crises, is very important,” said Sy. “We talk a lot about the infrastructure gap in Africa, but public health should really be part of that.”

“Sometimes people say this shows that Africa-is-rising stories are overblown, but I see the glass half full,” he added. “This shows the growth is fragile, but I’m confident it can rebound.”