Ebola epidemic may reverse decades of socio-economic progress in Sierra Leone

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by Ibrahim Ansu Bangura

Following a remarkable post-conflict recovery in the early 2000s, Sierra Leone was on track to overcome its troubled past, especially after consistent double-digit growth seen over the past five years. The current Ebola epidemic and its overwhelming repercussions on livelihoods, and economic activity is threatening to halt that aspiration and end the positive trajectory of the small West African state.

The Ebola Viral Disease (EVD) epidemic currently ravaging the Mano River Union (MRU) region has so far infected more than a 1,200 people and killed more than a third of infected cases in Sierra Leone.

Sierra Leone had made tremendous progress in consolidating peace and rebuilding state institutions. The withdrawal of the UN Peacekeeping mission in March this year manifested how far the country has come. However, the current outbreak unprecedented in nature and scale could reverse the country’s remarkable post-conflict achievements. Within 100 days and with an average of over four deaths and 12 new infected cases per day, the hemorrhagic viral disease is ubiquitous, spreading fast across the nation’s 14 geographic districts (save one) including the nation’s capital city, an emerging epicenter. The rate of spread and deaths within the past three weeks has been exceptional, with some days as high as 51 infected cases. The phenomenal contagion reflects the vulnerability of the country’s fragile health-care system, with inadequate medical infrastructure, and limited trained health care personnel to effectively manage the outbreak and slow the vicious chain of EVD transmission. The rapid spread of EVD and efforts to treat affected cases has overwhelmed response measures.

The Government’s recent pronouncement for a three-day country-wide shutdown later this month reflects desperation to end a difficult period in the nation’s post-conflict history. The Government is committing US $1.6 million for this exercise and would deploy 21,000 youths across the country to engage in door-to-door sensitization. The economic and social consequences of the epidemic could be overwhelming in the short-, medium- and possibly long-term. The post-Ebola recovery period could prove challenging with the effects of the epidemic threatening implementation of the country’s Agenda for Prosperity (A4P), delaying achievements of its long-term objective of attaining middle-income status in 20 years’ time. In the short term, the authorities and donors need to address shocks to economic activity and macro-economic stability in order to prevent more people from slipping into poverty.

The Government’s immediate financial requirement to fight the epidemic is estimated at US $45 million, three times the annual health budget and includes an 18-million multi-donor package earmarked for health-care workers’ incentives and allowances for the next six months. This is in response to address numerous strike actions from health-care workers that have so far lost 33 of their members including three medical doctors, deteriorating the country’s appalling doctor-to-patient ratio of 1:120,000. It is anticipated that this initial estimate would be revised upwards due to the continued spread of EVD, extending the lifespan of the epidemic.

The impact on fiscal policy measures due to distortions in overall budget execution would be critical as Government tries to close the financing gap and meet short-term commitments in the health sector. Implementing the Government’s US $950-million annual budget would also be very challenging as revenues contract and expenditures expand. Anticipated shortfalls in revenue receipts are estimated at US $66.6 million accounting for approximately 12% of projected annual revenue for 2014. This is a serious blow to an already low revenue base even at Sub-Saharan average levels. Fiscal deficit including grants, contained in single digits (4.9%) for quite some time risk escalating to double digits especially if extra budget support is not forthcoming to smooth consumption in the short to medium term.

Management of the Government wage estimated at 6.5% of GDP (Revenue to GDP is 12.5% of GDP) would be critical in the months ahead. Other program distortions include flagship infrastructure programs in road transport and energy and essential social spending on education and post EVD women’s empowerment initiatives as women have been disproportionately affected by the epidemic. There would also be implications on efforts to increase energy supply, assessed to be one of the most binding constrain to growth and potentially affecting Government’s medium-term ambitions of supplying 1000 MW of electricity in 2018 from its current baseline of about 90 MW.

The full impact on the real economy remains to be seen, but the immediate economic disruptions are notable already. Inflation was reduced to single digits for the first time in five years reaching 6.5% in April 2014, from 12% in December 2012 mainly due to prudent monetary policy and increased food supply. Inflation is now on the upward trend approaching 8% due to expectations in food supply pressures falling beyond IMF program targets. There is potential for higher inflation expectations. The local currency, the leone, depreciated 7% against the dollar in the parallel market in the past month with potential for further decline as demand for imports rises. Efforts to close revenue shortfalls and meet extra demand for expenditure should preclude Government not to revert to borrowing through the domestic securities market that would increase pressure on interest rates and risk debt sustainability. The IMF has estimated that GDP will drop by 3.3% mainly from non-iron ore components, lowering overall GDP estimates from 11.3 to 8%. The entertainment industry has been deeply hurt due to the ban on public gatherings, stopping all social and entertainment activities. Profits from the only brewery company would be seriously hit and the revenue authorities are estimating that revenue reductions from the beer company would be as high as $18 million.

The epidemic has disrupted a rebounded tourism industry damaged during the conflict and it would take time and effort to regain its past glory. Air transport suspensions have affected six of the eight air carriers flying into the country. This action has interrupted air transport services and halted tourism activities. Tourism industry was gradually regaining its lost glory, with 32,000 tourist arrivals in 2007 increasing to 60,000 in 2012 and projected to double by 2017. The sector was prioritized in the country’s Agenda for Prosperity as an economic diversification platform to divert economic output away from dominant mining sector.

The continent’s regional integration efforts, especially for West Africa and Mano River Union region, have been constrained with border closures within the region and with other regions, affecting informal trade and potentially formal trade. It now takes almost two days to fly from Freetown to Ghana, a two and half hour journey in normal times. Commuters first have to fly to Morocco before connecting to their final destination. The price of the journey has doubled.

There are currently over 800 quarantined households, most of them in affected rural communities with urban numbers growing fast. This has constrained agriculture, cross-border trade and commerce. The potential impact on household poverty especially on rural farmers and women could hypothetically erase gains made in poverty headcount figures since 2003, which had improved from 67% to 53% between 2003 and 2011.The two most affected districts are renowned cocoa- and coffee-producing areas, and foreign exchange earners. 2014 was anticipated to be a promising harvest year for cocoa farmers as production was projected to increase by 20% from last year’s 35,000 metric-tonne harvest. Revised cocoa forecasts by the Government’s Produce Marketing and Monitoring Board anticipate cocoa exports to decrease by 67% from the previous year’s levels.

The impact on domestic production of rice, the country’s staple food, has so far been limited. The planting season preceded the outbreak and the country experienced good rainfalls this year. Several surveys to assess the impact on rice framers are being undertaken by Government, think tanks and donors. However there are expectations of price increases of imported rice (comprising 40% of total rice consumption) due to demand pressures as current stocks run out.

A possible slowdown in mining activity could have a devastating impact on the economy, as mining and its associated activities account for nearly one third of economic output. Preliminary estimates of the country’s five large-scale mining projects indicate that only diamonds (Octea) and rutile (Sierra Rutile) production would be impacted negatively by 10% and 5%, respectively. However, the two iron-ore giants and growth drivers since 2012, London Mining and African Minerals, indicate that revised production and export estimates remain unchanged as originally estimated. Both companies were cautiously optimistic that their operations would be minimally impacted since the Ebola outbreak had limited presence in their areas of operation in the northern parts of the country; however, the epidemic has in recent weeks reared its ugly head in communities close to both companies’ operational areas. Continued spread would require a re-evaluation of the initial assessment.

The African Development Bank response includes an initial dispersement of US $3 million through the World Health Organization (WHO), including $1 million in grants to support the Sierra Leone’s six-pillar response strategy, and a US $60-million package to support the three affected countries in West Africa and prepare other neighbouring countries at risk of infection. A much-appreciated response was the visit paid to affected countries by the Bank’s President, Donald Kaberuka, in late August together with the WHO Regional Director for Africa, Dr. Luis G. Sambo. However, more resources are needed from the international community and all interested parties to help the country contain the disease and mitigate its economic impact. Only then will the country be able to quickly recover from the shock, regain its momentum and restore its path in the transition from fragility.


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