Monday, October 27, 2014

Economy in the time of Ebola: An embargo!

I suppose the uber-religious who see a divine explanation in everything that happens might have a solid rationale for the Ebola nightmare in West Africa.  Or, for that matter, even for slavery.  But, for the rest of us rational people, we are worried that this latest outbreak of Ebola, which could have been easily contained if only the rest of the world had cared at least a tad, will set back economic conditions not only in the three primarily affected countries but in the rest of the continent too.

It will affect the entire continent because to most people in the world Africa is one country.  One big blob.  Ebola in Liberia becomes an "African" disease. An "African" problem. Thus, even as slowly the world is beginning to respond to the crisis, the irrational fear is driving individuals and businesses away from the sub-Saharan economy, in particular.
"Everybody is running away from Ebola, Kaifala Marah [Sierra Leone's finance minister] said at the annual meetings of the International Monetary Fund and World Bank in Washington.
"By default or design, it really is an economic embargo," he said.
An economic embargo.  How terrible!

How were the economic conditions in the three countries a few months ago?
Before the Ebola outbreak intensified, these countries were making remarkable economic progress—particularly Sierra Leone and Liberia, which experienced rapid economic growth in recent years after overcoming decades of civil strife. In 2013, Sierra Leone and Liberia ranked second and sixth among the top 10 countries with the highest GDP growth in the world (albeit their base levels of GDP are very small to begin with). Guinea, while growing more slowly at 2.5 percent in 2013, had high expectations for growth
Just when conditions seemed to be settling down, not only does the Ebola virus hit but also the irrational response from the rest of the world.
In addition to the enormous and tragic loss of human life, the Ebola epidemic is having devastating effects on these West African economies in a variety of essential sectors by halting trade, hurting agriculture and scaring investors.
The long-term destructive effect on the economies coming from the fear:
the largest economic effects of the crisis are not as a result of the direct costs (mortality, morbidity, caregiving, and the associated losses to working days) but rather those resulting from aversion behavior driven by fear of contagion.  This in turn leads to a fear of association with others and reduces labor force participation, closes places of employment, disrupts transportation, and motivates some government and private decision-makers to close sea ports and airports. 
Keep in mind that the following were estimates of impacts developed nearly a month ago:
these estimates rise to $809 million in the three countries alone. In Liberia, the hardest hit country, the High Ebola scenario sees output hit 11.7 percentage points in 2015 (reducing growth from 6.8 percent to -4.9 percent).  
Now, $809 million might not seem to be a high number.  Until you think about the estimated GDP of the those countries.

If instead of words, you prefer a picture, here is one from The Economist:



I suppose that it is only a continuation of history when we rich folks in the rich and poor countries decide that all we want to do is to lift up the drawbridges and keep the poor and the hungry and the ill away and on the other side of the moat, and casually remark that they can eat cakes.  Some fucked up humans we are!

Have you made your donation to help those fight the good fight?  I recommend donating to Doctors Without Borders.



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