The Ebola crisis: Implications for trade and regional integration

6 May 2015

In addition to the severe effects of Ebola, the virus has implications for trade, investment, and regional integration in West Africa. What can be done to revitalise trade in West Africa in a post Ebola context?

 

The outbreak of the Ebola virus in parts of West Africa has been widely declared a threat to peace and security and a public health emergency by international organisations. By February 2015, nearly 23,000 people had been infected and more than 9,000 people had died from the virus, almost all of them in the three worst-affected countries – Liberia, Sierra Leone and Guinea. The devastation wrought on these three countries has been incalculable, not just in human terms but in terms of social dislocation and economic impacts. This article examines the broad economic impact on the three main affected countries and the implications for trade, investment and regional integration in Ebola West Africa.

Closed borders, transport and connectivity

To contain the epidemic, the affected countries had closed their own borders with each other and most of their neighbours. Many countries within Africa banned citizens from the three countries from entering their borders as well as travellers who had been to the affected areas. The majority of airlines stopped flights into the affected countries, mostly to Liberia and Sierra Leone. Only two airlines, SN Brussels and Royal Air Maroc, continued flights to these countries, although more airlines have since resumed flights.

Concerns about the spread of Ebola through cargo movements have been disruptive, with increased scrutiny on cargo shipments from West Africa and screening crew members for possible infection. Despite these concerns, the ports remain open and sea traffic continues to provide a crucial channel for trade.

Visitors from Africa and further afield have, however, avoided the region for fear of contamination, resulting in reduced demand for hotels, airlines and service providers with links to international business. Sub-Saharan Africa has suffered to a lesser degree from an ‘aversion’ and branding impact from outside the continent, with cancellation of conferences, holidays and a slowdown in business activities, particularly in hospitality and aviation.

Economic and fiscal impacts

Liberia, Sierra Leone and Guinea are all least developed countries (LDCs) that confront extreme poverty and socioeconomic challenges. Although these countries experienced high growth rates in recent times, buoyed by favourable commodity prices and post-conflict assistance, the gains of the past decade are being quickly eroded due to the current Ebola crisis notably. The World Bank has estimated the virus has cost these nations more than US$2 billion over 2014-15. Since mid-2014, the three affected countries have experienced flat or negative income growth.

The World Bank has further lowered the prognosis for 2015 on the basis of continuing new infections, second-round effects and investor aversion: -0.2 percent in Guinea, 3 percent in Liberia and -2.0 percent in Sierra Leone (down from pre-Ebola estimates of 4.3 percent, 6.8 percent and 8.9 percent respectively). The World Bank also estimates foregone income in 2015 of about US$1.6 billion: US$540 million in Guinea, US$180 million in Liberia, and US$920 million in Sierra Leone. This is more than 12 percent of their combined GDPs.[1]

Multinational companies operating in the three most affected countries have pulled back new investment (especially mining, oil and gas), repatriated many foreign workers, and cut production of critical revenue generating exports. Their economic plight has been exacerbated by the simultaneous drop in iron ore prices on international markets, adding to the revenue woes of these mining economies.

Tax collection has been identified as another major fiscal impact. According to the World Bank, tax revenues in Sierra Leone for the 2014/15 fiscal year, initially projected at US$399 million, could be $40 million lower. Money earmarked for capital spending has largely been diverted to recurrent spending on the Ebola crisis.

International and regional trade

The combined impact of Ebola and falling commodity prices from their peak a few years ago makes it very difficult to project the impact of the epidemic on the affected countries’ current and future trade performance. According to UNCTAD data, over the past decade Sierra Leone has steadily increased its trade from US$158 million in 2005 to US$341 million in 2010, soaring to US$1.917 billion in 2013. Much of this has been accounted for by foodstuffs and ores and metals destined for China. Sierra Leone’s exports grew remarkably by 220 per cent in 2012 and 70.9 per cent in 2013 reflecting favourable commodity prices.

Sierra Leone, for example, also confronts the challenge of diversifying its economy to take advantage of the various trade preferences offered to LDCs, notwithstanding their diminishing value. Sierra Leone also qualifies under the African Growth and Opportunity Act (AGOA), although its export performance under this scheme has been weak. Sierra Leone’s advantage in terms of producing ginger, cashews, textiles and garments could still be exploited for export to the USA. AGOA expires in September 2015 but is expected to be renewed, perhaps with some new conditions.

Regional trade in West Africa is largely informal and beset with considerable insecurity to traders and goods from corrupt law enforcement agencies or cross-border gangs or syndicates. The insecurity of traders is compounded by inadequate border infrastructure (such as warehousing facilities and reliable transport) and that traders often do not have valid travel documents or certificates of origin for their wares. Overall, aggregate levels of intra-regional trade are typically low relative to other regions of the world economy due to the prevalence of trade barriers, undiversified and underdeveloped production structures and poor infrastructure. According to UNCTAD data, in 2007-2011 the share of regional trade of the 15-member ECOWAS was only 9 per cent, down on previous years.

Regional integration in West Africa is progressing. In January 2015, ECOWAS launched the long-awaited common external tariff (CET). It is too early to say what the effects of the new CET will be but there are fears it may push up the price of basic household goods in these import dependent countries. Although the CET includes protection for agricultural products, it raises the tariff on rice, which is zero in many countries, to 10 per cent with a view to increases over time. However, this may also provide a regional export opportunity for rice producing countries in the region, which include the Ebola-hit economies. There are other examples of trade policies that may, if carefully negotiated and managed, form part of the post-Ebola strategy.

Ironically, this deepening of regional integration comes at a time when the region has shut down borders and is focusing more than ever on national priorities. The Ebola-induced suspension of formal and informal intra-regional trade in goods and services could lead traditional West African trading partners to seek alternative suppliers, even from outside Africa, thereby undermining regional integration and potential trade-led regional value chains in ECOWAS.

Conclusion: Post-Ebola West Africa

The economic impact of the virus on West Africa is continuously being assessed.[2] ECOWAS is projecting a regional growth rate of more than 6.4 percent in 2014, rising to 7.1 percent in 2015, largely discounting the Ebola effect but also based on a prediction of the epidemic ending by 2015. The three worst-affected countries are among the smallest economies in the region, accounting for about 2 percent of ECOWAS GDP compared to, for example, Nigeria, which accounts for more than 60 per cent. The growth projections do take into account the limited Ebola effect on Nigeria, Ghana and Côte d’Ivoire – the biggest regional economies, which are still trading with each other.

With these fragile countries now starting to look at post-Ebola recovery even as they continue to tackle new infections, there may be some light at the end of the tunnel. Already the International Finance Corporation has committed a financing package of US$450 million to stimulate private sector recovery, trade and investment in Liberia, Guinea and Sierra Leone. Similar efforts are likely to come from other agencies as the medical spending starts to wind down, barring no new Ebola frontiers emerging. Liberia is so confident it has beaten the epidemic that it announced the lifting of a night-time curfew and the opening of the borders in late February 2015.

The full impact of the virus on the three economies is still largely speculative and growth projections are estimates only. To date it is safe to say the worst-case scenarios for the countries concerned will be realised in terms of lost growth, productivity, trade and other issues. Proper recovery is only expected to gain traction in 2016, with another year of economic crisis still ahead.

There are not only issues of rebuilding the economies, but of building trust between people, governments and investors. The branding effect of Ebola may last a lot longer than the contagion, with foreigners from both within and outside Africa wary of the region for some time to come for fear of another outbreak. Assuming there is no spread of the virus into larger economies and it remains contained, the medium-term prognosis for the region may still be positive.

Authors: Dianna Games is Chief Executive, Africa @ Work, Johannesburg, South Africa; and Brendan Vickers is Economic Adviser, International Trade Policy Section, Commonwealth Secretariat, London.
 
The views expressed in this article are those of the authors and do not necessarily represent those of the Commonwealth Secretariat.

 


[1] World Bank, ‘The Economic Impact of Ebola on Sub-Saharan Africa: Updated Estimates for 2015’, paper prepared for the World Economic Forum in Davos, 20 January 2015

[2] See UNECA, Socio-Economic Impacts of Ebola on Africa (revised edition), Addis Ababa, Ethiopia, January 2015.

TAG: 
Africa, Health
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