Slow Recovery for Ebola Affected Nations | 12th January 2015

2014 has proved a challenging year for West African nations, with a decrease in exports and a slowdown of GDP growth rates since March 2014, in line with the Ebola epidemic. While the road to recovery seems challenging, Delta Economics forecasts long-term growth in particular export markets, which will be welcome news to the countries that have been worst affected by the disaster.

Ebola has had significant effects on economic growth in West Africa, particularly Liberia, Sierra Leone, and Guinea. The infectious nature of the virus means that countries have ground to a halt, with significant economic effects due to travel restrictions; the closing of shops and markets; local migration; disturbance of agricultural activities; a decrease in tourism; withdrawal of industry personnel; deferred new investment; and a general decrease in numerous operations across the region.

The epidemic has strained government finance and slowed GDP growth, with Liberia, Sierra Leone, and Guinea each auctioning off 91-day and 364-day bills, taking gross debt to 30%, 33%, and 38% of GDP respectively. Liberia’s 2014 GDP growth is only 2.2%, compared with growth of 5.9% pre-crisis and a real growth rate of 8.10% in 2013. Growth is forecast at 4% in Sierra Leone in 2014, down from 13.3% in 2013 and 11.3% before the crisis. In Guinea, GDP growth is only 0.5%, contrasting a rate of 2.9% in 2013 and 4.5% pre-crisis. In 2015, Liberia’s growth is forecast at 3%, whereas both Sierra Leone and Guinea’s economies are expected to reduce by 2% and 0.2% respectively. The World Bank estimated in October 2014 that containment of the disease by the end of the year would affect GDP in West Africa by USD 3.8billion by year end 2015.

News in early 2015 provides a mixed picture: Guinea’s infection rates are fluctuating, while Sierra Leone’s rate appears to be levelling off and Liberia’s indicating low infection levels. The WHO reports less than 10 confirmed new cases in Liberia in the first week of January, contrasting over 80 reported cases per day in September 2014. No cases have been reported in Ghana, Nigeria, or Senegal since the latter two were reported Ebola-free in October.

Certain sectors face a difficult recovery, particularly the agricultural sector, given that 80% of the population in Guinea and two-thirds in Sierra Leone are involved in subsistence agriculture. Yet, the abundance of natural resources in the region and many countries’ comparative advantages in primary products may prove a key mode to aid economic recovery. Operations, investment, and expansion remain halted, yet commodity exports might be significant in reinvigorating these sluggish economies. An increase in mining activity and exports can drive growth; for example, Sierra Leone’s output grew strongly by 20% in 2013, but it was only 5.5% excluding iron ore mining.

Commodity exports have fallen in 2014, with a year-on-year decline of trade in West Africa of 8%. There will be repercussions felt on export growth in 2015 and 2016. Alongside halted production in West Africa, this is partially due to general falling commodity prices and a dip in demand for commodities, including iron ore. In the case of iron ore, a dwindling demand for steel in China’s property sector has impacted prices, which have dropped almost 50% in 2014 from USD 135.79 in December 2013 to USD 73.13 in November 2014. As the top export for Sierra Leone and the second for Liberia (Figure 1), the ninth largest trading partner with China among African nations, this will hamper economic recovery.

 

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Figure 1 |  Top Exports and Top Export Destinations for Guinea, Liberia, and Sierra Leone
Source  |  Observatory of Economic Complexity

 

China’s demand for raw materials also has the potential to sustain new markets and revive flagging ones. The proportion of China-Africa trade as a part of Africa’s total foreign trade volume increased from 3.82% in 2000 to 16.13% in 2012. China’s economy consumes a quarter of the world’s aluminium production. In light of this demand, along with Guinea’s position as the second largest exporter of aluminium ore worldwide, Chinese aluminium imports from Guinea are expected to expand in 2017 and 2018, but only after a slow recovery based on a drop in production of 2014 and modest estimates for general world trade growth in 2015 (Figure 2).

 

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Figure 2 |  Guinea’s Exports of Aluminium Ore
Source  |  Delta Economics

Significant damages will be felt in economic terms in both the short- and middle-term for the countries worst affected by Ebola, in terms of lost GDP and expenditure on health care and social systems. Investment in the trade of raw materials may encourage struggling economies, if both the world demand for commodities and commodity prices increase. Consistent and growing trade with partners such as China, therefore, may offer some relief from the devastating economic effects of the Ebola epidemic.

 

Slow Recovery for Ebola Affected Nations  |  Author  |  Jenny Ung Loh  |  Research Analyst