In a report published on September 22, 2014 the World Health Organization (WHO) classified the countries affected by Ebola Virus Disease (EVD) into two categories: those who experience intense and widespread transmission of the virus and those who experience initial cases or localized transmission. The first category includes the Liberia, Sierra Leone and Guinea. The second category includes Nigeria and Senegal. Our discussion and analysis of the economic impacts of the Ebola virus will cover the three severely affected countries.

Liberia, Sierra Leone and Guinea are low-income, neighbor countries located in Sub-Saharan West Africa. Table 1 gives an overview (in nominal terms) about the size of the economies of these countries.

Table 1 - Macroeconomic Indicators of the Countries Affected by EVD (Source: World Bank)

Affected Countries

GDP in 2013 in current USD

GDP per capita in current USD

GNI per capita in 2013 in Current USD

Liberia

2 bln.

454

410

Sierra Leone

5 bln.

809

680

Guinea

6.2 bln.

527

460

The epidemic is expected to have larger effect in the short and medium term than the long term, assuming that the virus will be contained by the end of 2015.

Short Term Impacts

The short run impacts, measured through the end of 2014, have fall into two categories:

1) Direct and indirect economic effects resulting from a contraction in the labor supply due to sickness and death and the rising cost of healthcare recourses. According to the WHO, as of September 20, 2014 in the three countries listed above, 2803 deaths occurred out of 5843 of total Ebola cases detected (both figures include confirmed, probable and suspected cases). Some analysts fear that the true numbers may in fact be as large as two to four times what is reported due to underreporting issues.

2) Behavioral effects of fear of contagion. The behavioral effects of the Ebola virus in the affected countries include people emigrating from infected zones, the reduction of labor participation due to people staying home from work, foreign companies evacuating their personnel (and capital) and closing borders for exports.

The economies of Liberia, Guinea and Sierra Leone consist of mining, agricultural and service sectors, which will potentially experience large negative impacts on overall economic growth because of Ebola.

Impacts on Mining

The mining sector in the three countries is dominated primarily by iron ore mining, but it also includes gold and diamond mining to a lesser extent. This sector accounts for 17% Liberia's GDP. ArcelorMittal (MT), the largest mining company in the country, decided to postpone its planned investment to expand its production capacity from 5.2 million tons of iron ore to 15 million tons, and, China Union, the second largest mining company has shut down its operations since August. As a result mining sector growth forecast by the World Bank for 2014 has been revised from 4.4% growth to 1.3% contraction (see the Table 2 below).

The mining sector of Sierra Leone, which accounts for about 16% of the country's GDP, has not been affected considerably by the Ebola outbreak, in contrast to the other countries reviewed here, (see the Table 3). However, iron ore prices recently decreased considerably, and consequently mining revenue is expected to decrease.

The mining sector in Guinea does not make up as much of the economy as in Liberia and Sierra Leone. The initial projection of mining sector growth was -3% and the revised projection of -3.4% is only slightly worse (see the Table 4). Thanks to the fact that Guinea's major mines are far from the infected zones, the expected contraction is not expected to deteriorate. (For more, see: Mine For Profits With Natural Resource Sector Funds.)

Impacts on Agriculture

The agricultural sector has been severely hit by Ebola in all the three countries. Agriculture accounts for nearly a quarter of the Liberia's GDP, and employs almost half of the workforce. Reduced workforce mobility and migration of people to safe zones, foreign companies postponing investment due to the evacuation of key expatriates affected both export and domestic agriculture. As a result, the World Bank revised its growth expectations from 3.5% to 1.3% (Table 2). Also, due to the abandonment of many small farms that produce food for domestic consumption, the World Bank expects Liberia to experience food shortages that may in turn lead to food price increases.

Similarly, Sierra Leone's agricultural sector, which focuses on rice, cocoa and palm oil, accounts for about half of the economy. According to the Ministry of Agriculture, Forestry and Food Security, the two regions that were the epicenter of the outbreak together produced about 18% of the domestic rice output. Quarantined zones restricted workers movement and many farms were abandoned. According to the reports cited by the World Bank, rice prices jumped by 30% in the affected regions of the country.

The Guinea economy is largely composed of agriculture and services. There was large reduction in production of cocoa and palm oil, which are the main export products of the sector and underpin Guinea's economy. (For more, see: Agricultural Sector Investment Program - ASIP.)

Impacts on Service

The service sector accounts for about half of the Liberian economy and has been the sector most impacted by the outbreak. According to the World Bank data, wholesalers and retailers experienced 50-75% drop in turnover compared to the period before the crisis. Reductions of business and tourist trips have led to decreases in markets serving expatriates; thus, the hotel and restaurants sub-sector has also been negatively affected by the crisis.

The story is the same in Sierra Leone's and Guinea's service sectors. Sierra Leone's tourism industry has suffered from canceled flights. Hotels are at half capacity, and secondary effects have extended to the country's brewing industry. In Guinea, projected growth in the services sector has been cut in half.

The Figure 1 illustrates the channels of the short term impact.

Figure 1 - Broad channels of short term impacts (source: World Bank)

Fiscal Impacts

The negative effects of the Ebola outbreak in the affected countries' economies are also expected to be reflected in the fiscal balance of these countries. An effect of the economic slowdown with be a complimentary slowdown in tax revenues. At the same time, governments will have to increase expenditures to meet the increased costs of fighting the virus. According to the World Bank, budget deficits of the affected countries are expected to increase by amount equal to 1.8% of GDP in both Sierra Leone and Guinea and 4.7% in Liberia.

Negative effects in the agricultural sector will lead to food shortages that in turn will cause the food price increases. Panic buying may also cause inflation through rising food prices.

Contraction of the major economic sectors coupled with a significant decrease in exports will negatively affect GDP growth. The World Bank staff has revised their 2014 GDP growth projections of the affected countries: Liberian GDP was revised from 5.9% to 2.5%, for Sierra Leone from 11.3% to 8.3% and for Guinea from 4.5% to 2.4%. (see Tables 2-4).

Table 2: Liberia – Estimated GDP Impact of Ebola (2014) (Source: World Bank / IMF Staff Estimates)

Contribution To Growth Shock (%)

Initial Projection (June 2014) Revised Projection
Real Growth in GDP 5.9 2.5
Agriculture 18.0 3.5 1.3
Forestry -0.1 2.0 2.0
Mining 27.3 4.4 -1.3
Manufacturing 4.6 9.6 5.0
Services 50.2 8.1 4.0

Table 2: Sierra Leone– Estimated GDP Impact of Ebola (2014) (Source: World Bank / IMF Staff Estimates)

Contribution To Growth Shock (%)

Initial Projection (June 2014) Revised Projection
Real Growth in GDP 11.3 8.3
Agriculture 27.8 4.8 2.6
Industry 54.5 24.8 18.4
Mining (39.6) (27.3) (21.8)
Services 17.7 7.7 5.7

Table 3: Guinea - Estimated GDP Impact of Ebola (2014) (Source: World Bank / IMF Staff Estimates)

Contribution To Growth Shock (%)

Initial Projection (Jan. 2014) Revised Projection
Real Growth in GDP 4.5 2.4
Agriculture 20.3 5.7 3.3
Forestry 0.0 3.5 3.5
Mining 3.8 -3.0 -3.4
Manufacturing 2.5 6.5 5.6
Services 73.5 6.7 3.8

Medium Term Impacts

The World Bank team has assessed the medium term economic impact of the Ebola outbreak through 2015 and proposed two scenarios. In the first scenario, the virus is contained by the end of 2014. In this case it's expected that the economy will quickly recover throughout 2015. In the second scenario, the virus worsens in 2015, economic disruptions will widen, growth will plunge.

The Bottom Line

The Ebola outbreak has hit the already weak economies of the affected countries and this negative effect on their economies may worsen if the outbreak is not contained as soon as possible.