West Africa/Ebola: Getting the right narrative and focusing on the bigger picture
Ebola is certainly having some devastating effects on Liberia, Sierra Leone and Guinea, but the ongoing narrative on the economic impact of Ebola may even create much more damage than those very adverse consequences it is intending to capture. At the recent World Bank Annual Meeting, shortly after the Bretton Woods institution released a study pointing to billions of potential losses due to the Ebola, AfDB President Donald Kaberuka rightly warned the world of the need to be careful about doomsday narratives. Such words of wisdom are backed by facts and by the need to put things into perspective.
While Ebola is wreaking devastation on the three affected countries, these economies are marginal even to the wider regional economy, let alone the economy of the whole continent, for which they only account for less than 1% of the continental GDP. Moreover, the impact on regional trade has been marginal; as most restrictions have been lifted to regional air traffic and much of the regional trade occurs through the widely unaffected ports of Lagos, Abidjan, Dakar, etc.
The travel industry has been marginally affected even in countries as far as South Africa, but, while rising in its importance, the sector still accounts for less than 3% of GDP in Sub-Saharan Africa. There is also no evidence so far that the epidemic has significantly reduced the appetites of investors outside of the three most affected countries. Experienced investors are accustomed to facing risk, oftentimes rewarded by concomitantly higher returns, and they mostly see Ebola as a so-called tail risk.
Even on the health front, it is important to put things in perspective, as doctors and researchers are pointing out not only that malaria and HIV still causes more deaths than Ebola in the three most affected countries. And that it is going to be even more the case, as a result of the neglect of such diseases and the population’s fear of seeking treatment.
As we advocated in an earlier blogpost, West Africa and the wider region is and remains an attractive place to invest and the disease is unlikely to derail its bright prospects. Many African economies are better placed today than in past decades to weather such a crisis. Africa is home to six of the 10 fastest-growing economies in the world, and half of its top 10 performing countries, according to the World Bank’s latest Doing Business Report, all of them in West and Central Africa. As a whole, the continent possesses 30% of world mineral reserves and half of its uncultivated arable land.
Africa is also becoming an important consumer market, with average incomes rising by 30% in the last decade. Africa is also witnessing a veritable boom in mobile banking, ahead of some of the world’s most advanced economies. Granted, strong commodity prices have been central to the continent’s economic turnaround, but other factors have played a part, too, as proven by the amazing performance of countries like Rwanda and Ethiopia.
The greatest danger here is that doomsday narratives may lead to some sort of self-fulfilling prophecies by discouraging investors and travelers to the region, and a slowdown the prospects of the so-called Africa rising.
Analysts and media pundits should focus more on other bigger economic challenges faced in the region, which are receiving much less attention, yet they have a much greater impact. Commodity price volatility, for instance, is the major concern at the moment.
Oil prices, down by over 25% since June, are slashing growth prospects in Nigeria and putting serious pressures on the currency of the region’s largest economy. Thankfully, the country had made tremendous strides in a yet incomplete economic diversification agenda, notably by boosting agribusiness and services. Yet this may not be the case in other African oil exporting countries.
Lower oil prices may also have the effect of slowing down the wave of oil explorations and the related foreign direct investment (FDI). West Africa is of particular concern as virtually all countries, with the exception of Burkina Faso and Cape Verde, are engaged in some form of exploration or production. While these effects appear so far limited, as proven by the recent announcement by Tullow Oil to continue investing in the region, it may not be true if prices continue to fall, and it may not be the case for all African countries.
Lower oil prices may reduce the appetite for renewable energy investments, too. The good news is that oil price decline would conversely have a positive impact on many oil-importing countries, by reducing pressure on often weak balance of payments, reducing cost of energy, hence leading to higher productivity. Prices of minerals also need to be watched more carefully: the slowdown of prices of iron ore is having a much more determining impact on investment decisions than Ebola. On the positive side, prices of some cash crops like cocoa are maintaining their rally, leading to higher income in both Côte d’Ivoire and Ghana.
In conclusion, Ebola is a major tragedy and need to be fought with all necessary resources, yet there are bigger economic issues out there to watch. Focusing on the wrong risk may lead us to miss the biggest opportunities offered by the continent and create even further damage than Ebola is currently creating.