Over the last couple of decades Africa has enjoyed an era of economic promise that has eclipsed the syndrome of “Afro-pessimism”, depicting a helpless land of war and famine, that had dominated the public perception of the continent for decades. Since the mid-1990s, per capita GDP has soared, driven by commodity prices, improved governance and increased investments, including through cheap Chinese loans. All this has led to a new momentum that many call “Africa Rising”.
At a time when Europe is facing one of the lowest growth rates in its history, Sub-Saharan Africa is second only to Asia as the fastest growing region in the world with a growth forecast exceeding 5% in 2014 and nearing 6% in 2015 according to the latest IMF World Economic Outlook. A few countries, in particular, are experiencing a remarkable high growth trajectory : three of them, all located in a small corner of West Africa facing the gulf of Guinea, have been leading the way, driven by a veritable mining boom. While Sierra Leone scored its record as the second fasted growing economy in the world in 2013 thanks to 20% growth, Guinea was to conclude a game changing $20 billion iron ore exploitation and investment deal, capable of upgrading its obsolete rail infrastructure to serve a highly lucrative production, holding the promise of an overhaul of living conditions in one of the poorest country in the Africa. Liberia, meanwhile, has experienced double digit growth over the past 10 years. The three countries were also emerging from periods of conflict, making tremendous progress in consolidating peace and rebuilding state institutions. The steep reduction of the UN Peacekeeping mission from Liberia and the final withdrawal of the UN Peacekeeping mission from Sierra Leone in March this year were both testimony of the countries’ trajectory of peace and increased prosperity.
Against this backdrop the Ebola outbreak which is ravaging Liberia, Guinea and Sierra Leone has come as a cold shower, with the potential to reverse their remarkable post-conflict achievements. With more than 4,000 confirmed deaths, the hemorrhagic viral disease keeps on spreading with no signs of containment or reversal. Various estimates have been made, including the tragic scenario depicted by the US Centers for Disease Control and Prevention (CDC), whereby the number of victims could soon reach 1.4 million. Various organizations and reporters, including the CDC, actually argue that the current number of reported cases is just a fraction of a much greater tragedy.
The disease has also spread beyond the three countries’ boundaries, reaching into Nigeria and Senegal (which have both acted swiftly to break the chain), but also extending to places as far as the United States and Spain. In all such countries though, the contagion seems to be under control, despite various degrees of concerns on potential new cases. Nigeria and Senegal’s case was quite remarkable. Nigerian Health authorities detected the first Ebola case in their country only three days after that person’s arrival in Nigeria from Liberia by airplane, and acted quickly to isolate infectious individuals and trace their potential contacts. Nigeria has observed 20 cases in which Ebola was transmitted, with no new cases reported as of Sept. 8. Similarly Senegal was able to successfully detect and cure its only case.
The different patterns of contagion and response in the three most affected countries (Liberia, Sierra Leone, and Guinea) and this other group of countries is an important testimony of profound differences. While in the earlier grouping, the disease has rapidly gone out of control leading to a collapse of the health systems, which were already suffering from inadequate medical infrastructure and by limited size and capacities of healthcare personnel, the health infrastructure of the other countries was much better prepared and equipped to face the emergency. The outbreak was also exacerbated by mistrust by the population over the various warnings provided by the authorities.
While the world seems to be on a wave of panic over the idea of a global spread of the disease, most medical experts do not believe that the West African epidemic will spread globally. The Ebola virus is not airborne and is less easily contagious than most people believe, as transmission occurs through the sharing of fluids with symptomatic patients. New cases are expected to be reported in more countries, but they are likely to be isolated and contained more easily, particularly in the absence of the above-mentioned development challenges. While the global response has been tardive, it is now gaining momentum. Massive inflows of aid are coming to the region from various parts of the world, ranging from doctors to military personnel.
One big question is the economic impact of this disease will be on the future of the continent. The disease and the various measures put in place to fight it, including travel limits, quarantines, have effectively paralyzed various segments of the local economies. The World Bank estimates a short term impact on the three most affected countries of $359 million by the end of the year, leading to a slowdown of GDP by 2% in Guinea, 3.4% in Liberia and 3.3 % in Sierra Leone, and various scenarios ranging from as little as $129 million to $815 million for the three countries in 2015 depending on the containment of the disease. The mining sector, which accounts for a large part of the economies of these countries is only partly contributing to these losses, as production, particularly by large mining operations, appear to be carrying on. Agriculture and service sectors are the most badly hit. The broader regional impact is, however, rather limited - also in view of the small size of the three economies which account for less than 1% of the continent’s GDP and around 2% of that of West Africa. Similarly, the total shares of production of Liberia, Sierra Leone and Guinea are too small to have an impact on global markets, although those shares may become significant for some commodities (e.g. cocoa, gold) if neighboring countries see their production reduced by Ebola. A serious Ebola outbreak in Ivory Coast, the largest cocoa producer in the world, could have a dramatic effect on global cocoa prices. To a lesser degree, gold may also be affected if Ghana and Mali, which jointly account for 5% of global gold output, are hit by the disease.
The largest impact, however, may be the result of the so-called “aversion” behavior, linked to the temporary fear of travelers and investors to expose themselves to the region. For the time, very little impact has been witnessed, with the exception of a moderate slowdown in the travel industry. Reports of lower than expected occupancy rates of business hotels have been reported also in Ivory Coast, Ghana and Nigeria, but these impacts are likely to be short-lived. It is worth noting that as time goes by, more countries will increase their preparedness, thereby reducing the risk of contagion.
On the continental level, Ebola may, however, risk bringing back the earlier-mentioned Afro-pessimism and new fears, particularly among uninformed investors or decision makers. Some extreme phenomena of risk aversion have already occurred like the suspension of Korean air flights to Kenya, and some reported slowdown in tourism to South Africa, despite being thousands kilometers from the epicenter. Compared to the SARS epidemic, which tremendously affected travel and transport for a limited amount of time, tourism is less of an issue in this case as it plays a much more marginal role in the continent’s GDP - and the international travel industry is in a much better position to face a possible global impact than it was before SARS. Ebola appears as the latest “tail risk” with very little probability to materialize. Although the horrors of Ebola have captured headlines, other factors, including falling commodity prices and localized insecurity, pose more significant risks for most African countries. However, the region’s strong potential and ever-improving fundamentals, coupled with some of the highest returns on investment, are likely to continue to offset the many risks involved in doing business in Africa, including Ebola.