As Ebola Fear Spreads, So Does the Risk of Economic Contagion

As the epidemic cripples West African countries at the heart of the crisis, new cases in the U.S. and talk of travel restrictions could generate wider economic damage.


Anja Wolz, emergency co-ordinator at the Doctors Without Borders (Medecins Sans Frontieres) clinic at Kailahun, helps Joanne Liu, president of medical charity Doctors Without Borders, right, as she puts on goggles and protective clothing at the charity’s ebola treatment center at Kailahun, Sierra Leone, in this handout photo taken on Aug. 27, 2014, and released to the media on Wednesday, Oct. 8, 2014. The Doctors Without Borders clinic sits in Kailahun, Sierra Leone, a city of roughly 30,000 inhabitants about 25 miles from the point where the country’s border meets those of Liberia and Guinea. Photographer: P.K. Lee/MSF via Bloomberg EDITOR’S NOTE: NO SALES. EDITORIAL USE ONLY

P.K. Lee/via Bloomberg

The spread of Ebola is a public health disaster for the West African countries at the heart of the crisis. As the human toll mounts and fears of contagion grow, Ebola poses a growing economic risk to West Africa and potentially to the global economy.

The tragic loss of life from the recent Ebola outbreak, with 4,447 deaths and another 8,900 people believed to be infected as of October 14, is proving devastating for local African economies. Productivity and output have declined in the three hardest-hit countries — Sierra Leone, Liberia and Guinea — as laborers fall ill, employers suspend business, farmers abandon their fields and governments temporarily close borders to interregional trade.

The International Monetary Fund last week slashed its growth forecast for the region. It now expects Sierra Leone to expand by 8 percent this year, down from 11 percent; Guinea by 2.5 percent, down from 5.9 percent; and Liberia by 2.4 percent, down from 3.5 percent. The economic cost for West Africa could hit $32.6 billion by the end of 2015, according to the World Bank, if the epidemic isn’t contained quickly.

Ecobank Transnational, a pan-African bank based in the West African country of Togo, began stress testing its portfolio last week to assess the potential impact of the epidemic, said CEO Albert Essien. His big worry: Some international companies have begun pulling skilled personnel out of the region, which could cause output to decline at mining and other resource operations that are critical for local economies. “The whole economy is grinding to a halt” in the three countries at the source of the outbreak, he said in an interview in Washington last week. “People are not going to the market. They are not shopping.”

Such an economic setback, as harsh as it is for countries that are among the world’s poorest, barely registers in a nearly $80 trillion global economy. Yet Ebola is spreading concern at a time of heightened nervousness about the global economy. Market participants cite Ebola as just one more piece of negative background news that has contributed to sell-off in financial markets over the past two weeks. On October 15, major European indexes fell about 3 percent and the Standard & Poor’s 500 index dropped more than 3 percent at one point before rallying. That morning, news surfaced that a second nurse in Dallas had contracted Ebola after having treated Thomas Eric Duncan, who had caught the disease in Liberia and became the first person to die from it on U.S. soil.


At a hearing in Washington on Thursday, several Congressional representatives criticized the head of the Centers for Disease Control and Prevention over the infection of the nurses and called for measures to restrict travel to countries at the source of the outbreak. Such moves post the risk of economic contagion. The outbreak of severe acute respiratory syndrome, or SARS, in Asia in 2003 depressed growth by about 1 percentage point in China and more than 2 percentage points in Hong Kong, according to academic studies, with most of the losses resulting from people staying home and companies and governments imposing travel or trade restrictions. The CDC and the World Health Organization announced their first-ever travel advisories that year, strongly advising against nonessential travel to the affected areas; flights to China, where the disease was believed to have originated, fell by 45 percent in June 2003.

“Fear is a powerful motivator,” says Laura Seay, assistant professor of government at Maine’s Colby College, who specializes in the study of African politics, development and post–conflict state reconstruction. “It’s hard to avoid economic damage from a crisis like a major Ebola outbreak.”

Moroccan authorities last week called for the postponement of the Africa Cup of Nations, the soccer tournament that the country is due to host in January, because of concerns about the possible spread of Ebola. Even companies that don’t conduct business in West Africa are questioning whether it’s safe to travel through major hub airports in Berlin, Paris and London, for instance, where connecting flights arrive from West Africa, says John Rose, COO of iJET International, a risk management consultant to the travel industry.

This year’s Ebola outbreak is the most devastating occurrence since the virus was discovered in Sudan and the Democratic Republic of the Congo in 1976. Total deaths so far number more than all previous outbreaks combined, which averaged some 283 deaths each. The epidemic is doubling every three weeks, the WHO reports, and, if not contained, threatens to kindle 10,000 new cases per week by December. The epidemic is “unquestionably the most severe acute public health emergency in modern times” and has progressed into “a crisis for international peace and security,” Margaret Chan, the WHO’s director-general, said on October 13.

The outbreak has potentially crippling fiscal implications for the three states affected most directly. Tumbling economic activity and trade has driven down tax and tariff revenues while efforts to contain Ebola and treat victims have put pressure on government budgets. The World Bank anticipates short-term fiscal losses up to $120 million for Guinea, for example, by the end of 2014.

Global leaders take a benign view of the deficits. “It is good to increase the fiscal deficit when it’s a matter of curing the people, of taking the precautions to actually try to contain the disease,” Christine Lagarde, the IMF managing director, said at the Fund’s annual meetings in Washington last week. The IMF approved $130 million in emergency assistance for Guinea, Liberia and Sierra Leone in late September; the World Bank is providing $400 million to help the countries combat the disease. The U.S. has committed 4,000 troops to the region to build treatment centers and train local providers, and Cuba has promised to send 450 doctors and nurses.

“The best antidote to fear is an effective ... and urgent response,” United Nations secretary-general Ban Ki-moon said last week at a Washington meeting on the Ebola crisis with Lagarde, World Bank president Jim Kim and the presidents of the three West African countries. “We need a twentyfold speed and resource mobilization.”

“There’s no question that the uptick in efforts to contain Ebola in the last few weeks constitutes progress, but it is probably not enough,” says Colby’s Seay.

The economic outlook for the majority of sub-Saharan African states remains positive despite the difficulties in Ebola-infected economies, says Antoinette Sayeh, director of the IMF’s African Department. The Fund expects sub-Saharan Africa to be the second-fastest-growing region in the world, behind emerging Asia, with growth of 5 percent this year and 5.75 percent in 2015.

Still, Ebola’s impact is evident in parts of the financial markets. Cocoa futures rocketed to $3,377 a ton in late September on the IntercontinentalExchange, the highest level since 2011, before retreating to $3,118 on October 17 — still up 17 percent for the year. West Africa, led by Cote d’Ivoire, produces 70 percent of the global cocoa supply. Shares of certain pharmaceutical companies making headway in creating Ebola vaccines have taken off. The stock price of Canada-based drugmaker Tekmira Pharmaceuticals Corp., whose promising TKM-Ebola was used to treat American missionary Richard Sacra, has soared 13.4 percent since the start of September, while North Carolina–based competitor Chimerix, whose experimental drug was used to treat Duncan, jumped 43 percent in the same period.

Major international carriers such as Emirates, British Airways and Air France, as well as regional African players Gambia Bird, Togo’s Asky Airlines and Nigeria’s Arik Air, have suspended flights to the region in the past three months and have seen their share prices take a roller coaster ride. U.S. airline stocks were hit on October 15 after news came out that Amber Joy Vinson, one of the infected nurses, had taken a flight from Ohio to Texas the day before being diagnosed with Ebola. American Airlines Group’s shares tumbled 4.5 percent that day, United Continental Holdings dropped 6.88 percent, and Delta Air Lines fell 3 percent; all three stocks recovered those losses by the end of the week.

The African continent at large is not immune to economic disruption. Travelers are canceling East African safaris thousands of miles away from the Ebola epicenter. In August, Korean Air Lines Co. announced the suspension of flights to Nairobi as a precaution, though Kenya has not reported a single case of Ebola to date. “That’s the kind of knee-jerk reaction you get from people who don’t really understand the region and see it as one big lump,” explains Yvonne Mhango, sub-Saharan Africa economist at Renaissance Capital.

Most analysts believe the risks of wider economic contagion are limited for now. “We haven’t seen any generalized market impact,” says Marvin Barth, European head of FX strategy at Barclays.

Renaissance Capital’s Mhango points out that Guinea, Liberia and Sierra Leone have tiny economies with few trade linkages to the wider world. “Through travel, tourism and trade — the three main channels of impact to economies — my impression is that the impact of Ebola today is very limited and that’s why we haven’t seen much impact on global financial markets,” she asserts.

Mhango’s biggest concern is the potential reversal of economic progress made by former conflict countries — Liberia and Sierra Leone in particular — since the beginning of the millennium. Both have made significant headway in fighting poverty and stabilizing their economies since their civil wars ended more than a decade ago, whereas Guinea has posted double-digit growth in recent years. Now these countries run the risk of rising poverty rates and depleted state coffers, she says, making it difficult for governments to maintain spending on education or to combat other diseases, like malaria.

“I don’t think we will see state failure or massive institutional collapse due to the Ebola epidemic, but there could definitely be political instability and even regime change in the medium to long run,” argues Colby’s Seay, who says it will take years to repair the economic and budgetary damage done by the outbreak. “That said, I also expect that donors, which already give large amounts of aid to Liberia and Sierra Leone, will commit additional resources to aid the governments with their budget shortfalls and other issues after the crisis is over,” she adds.

Neighboring countries such as Mali, Cote d’Ivoire and Guinea-Bissau run the greatest risk of an Ebola outbreak, experts say. The disease spreads through direct physical contact with bodily fluids, like blood and saliva, of an infected individual. Mhango suggests that laborers and travelers in affected countries where international flights are canceled may journey by road to neighboring countries to catch flights. Seay says seasonal cross-border migration associated with labor needs ups the risk. The region suffers from weak public health systems, making it especially hard to suppress any outbreak. That said, Ebola is more difficult to contract than diseases like malaria. “This epidemic has been out of control for six months now, and it hasn’t spread outside of Sierra Leone, Liberia and Guinea,” notes Seay.

Progress in Nigeria and Senegal is promising. The two countries were quick to stamp out Ebola after the disease entered their borders in July and August, respectively. The WHO is expected to announce the end of the Ebola outbreak in Senegal on October 17 and in Nigeria on October 20, which would be the requisite 42 days — twice the virus’s incubation period — after the last reported incidence of the disease.

Most analysts are also optimistic that health officials can prevent a major outbreak outside of Africa, given strong public health systems in developed countries. “I am very confident that there will not be an Ebola epidemic in the U.S. or other countries outside of the outbreak zone,” says Seay.

Ebola’s trajectory remains highly uncertain, though. The world has never dealt with an outbreak of this magnitude, and distrust of local governments and foreign health care workers is making it hard to assess the true scale of the epidemic and bring it under control.

If Ebola becomes a persistent threat, “it likely will have a persistent effect on global demand for travel and entertainment and will have a broader impact on global markets, as the potential for it to affect other economies will rise,” Barth says.

SARS never became endemic anywhere, and its effects on the global supply chain were minor and short-lived, Barth explained in an October 8 research report. If Ebola ever takes hold in a large, globally integrated economy like that of the U.S., the economic fallout could be dramatic. “A sustained outbreak of a high-mortality disease like Ebola in any large or important economy in the global supply chain would imply significantly larger impact than SARS caused,” the report stated.

Follow Georgie Hurst on Twitter at @Ghurst_iimag .