Ebola hits Liberia’s economy hard

With over 400 deaths in Liberia and more than 1,000 across West Africa, the Ebola epidemic has been the deadliest in history and has spread fear and panic across the region but, beyond the health crisis, Ebola has hit Liberia’s economy hard

With over 400 deaths in Liberia and more than 1,000 across West Africa, the Ebola epidemic has been the deadliest in history and has spread fear and panic across the region. But beyond the terrifying health crisis, the Ebola outbreak threatens to reverse much of the economic and social progress Liberia has made over its decade of peace. While GDP growth had averaged over 8% since 2011, it was already forecast to slow down to 5.9% in 2014 due to slower growth in iron ore production, weak timber and rubber exports growth, and the gradual drawdown of the United Nations force (UNMIL). However, restrictions on transportation and commerce, the withdrawal of international workers, a slowdown of investment, and a panicked population will further reduce growth this year. Containing the crisis rapidly will be critical to preserve the progress made, and to reduce risks to the short- and medium-term outlook.

Government measures to control the spread of the virus

Government measures to control the spread of the virus, including the quarantine of communities, restrictions on travel between counties, sealing land borders, and the closure of major markets, have severely restricted trade within Liberia and with its neighbours. Free movement has also been restricted with all but two airlines suspending flights with Liberia. Additionally, public fear of the disease has led many consumers, traders and businesses to stay home or otherwise limit their activity and potential exposure. Families and communities with Ebola cases are stigmatized, and neighbours, drivers and traders avoid them. This is reducing the supply of food, other goods and services throughout the country. Reports that ships from Liberia are being blocked in Côte d’Ivoire would exacerbate this, especially for fuel supplies, which would have a severe impact on transportation and power availability.

Liberia imports more than 60% of the rice it consumes, but some areas are self-sufficient in rice production. One of the epicenters of the outbreak – Lofa county – produces around 20% of Liberia’s rice and largely meets its own rice demand while producing numerous other crops and trading with cross-border markets and Monrovia. However, some fields are being deserted, and after months of slower trade with Sierra Leone, there are already reports of food shortages and discussion of the need for food drops. Quarantine measures will further cut off rural areas and restrict trade with Monrovia.

Unprecedented spread

The unprecedented spread to a major urban centre is changing local transportation. Taxis have reduced the number of passengers they will hold from six to four in order to reduce physical contact, while also nearly doubling the cost to passengers.

Consumers have stocked up on food and essential goods, pushing up their prices, but they are reducing their purchases of non-essential goods. The temporary closure of Government offices for all but core staff has reduced sales at shops and from traders in central Monrovia. This all contributes to lower incomes and worsening purchasing power, which affects Liberia’s poor the most.

Mass exodus

Added to this is the large-scale departure of much of the substantial expatriate community and Liberians who had been gradually returning after the war. Not only will the country lose their skills in the private sector and donor projects, but the service economy that has developed to meet their higher incomes is suffering from a substantial drop in activity. Hotels and restaurants are increasingly vacant. One of Monrovia’s most popular hotels reports only a 30% occupancy rate, with the few remaining guests from the Center for Disease Control (CDC), World Health Organization (WHO), and similar health agencies. Real estate owners will suffer the impact slower, with many expatriates holding year-long leases paid up front.

The concessions sector, with some $16 billion in foreign direct investment commitments, has led aggregate growth in Liberia since the end of the war, but it has not escaped the crisis. Iron ore has been the largest export over the past two years due to production from the Arcelor Mittal mine.

While the company is continuing production and still expects to produce 5 million tonnes of iron ore this year, its expansion from 5 to 15 million tonnes by the end of 2015 has been delayed after the 15 contractors involved evacuated their 645 employees. China Union, which was expected to produce 500,000 tonnes of iron ore this year, has temporarily halted operations, following reports of six suspected cases of Ebola at its company-run hospital.

The palm oil sector has had similarly mixed activity. Golden Veroleum, with operations in Liberia’s southeast, which has so far largely avoided the Ebola outbreak, is continuing operations, while taking precautions and granting leave to some staff based in Monrovia. However, Sime Darby, whose activities are near several affected areas, is slowing operations, although it will continue paying its 3,000 workers.

Rubber production, Liberia’s second-leading export, has mostly continued activities, although recent Ebola cases in Kakata in the centre of the rubber production region could significantly slow production. Timber production, which has dropped since 2013 due to governance issues and transportation bottlenecks, is based in the largely unaffected southeast and could avoid a significant impact.

The economic slowdown

The economic slowdown is reducing Government receipts after already experiencing revenue shortfalls over the past year. Tax revenues were reduced by $12 million between April and June, and have fallen further since the end of July when the outbreak escalated. This will make it significantly more challenging to fund the Government’s proposed a $20.9-million emergency response plan, and its $559-million draft Fiscal Year 2014/15 Budget will have to be revised. The budget had increased security expenditure to offset the United Nations Mission in Liberia (UNMIL) drawdown, which will be necessary considering the significant military activities involved in containing the outbreak. While the Government has one of largest payrolls as a percent of GDP in the region and there are serious deficiencies in the system, the payroll also provides income to around 40,000 households. Continuing to pay Government workers will be critical during the crisis to sustain economic activity. Potentially re-allocating some of the $18.25 million budgeted for District Development Funds could provide some needed fiscal space.

Slowing public and private investment could also affect medium-term growth. The evacuation of skilled staff and contractors and restricted movements, if prolonged, will delay existing investment projects, as is being seen with Arcelor Mittal and oil exploration. In light of the considerable uncertainty, the local business community is waiting to see how the situation evolves before making further investment and expansion, preferring to leave funds offshore in Lebanon or the United States. Slowing investment, especially from smaller businesses and on Government energy and roads projects, would reduce the prospects for employment-generating, inclusive growth.

The perception of a return to instability in the region may take years to overcome. Liberia has spent 10 years of peace working to move beyond the memories and reputation of its brutal civil war, but this episode will revive those memories and add an additional layer of stigma. This will not only affect investors and the broader international community, but also Liberians abroad. The Liberian diaspora had been gradually returning since the war, bringing skills and resources, but this crisis has seen many leave again. With their families often still residing in the United States, they may hesitate to return once again. This will reduce the middle class of the country, which is essential to develop the economy, as well as to rebuild Government services.

Perception is equally important for Liberians at home. Already distrustful of the medical system, a Government that continues to face governance challenges, and the international community, the likelihood of unrest will increase the longer the crisis unfolds, service provision is interrupted, and as the economic and social damage increases. With 78% of the labour force only holding “vulnerable employment” without assurance of a salary, the large number of subsistence farmers and traders relying on small margins – while owning only modest assets and little savings – will not be able to cushion the downturn easily. Stability had been their opportunity to make modest progress and to gradually transition towards longer term perspectives. The poor will be hit hardest by the lack of access to medical facilities for treatable illnesses, unnecessarily increasing hardship and mortality. With even schools closed and soccer matches cancelled, an otherwise restive youth has few distractions. An armed mob’s looting of an Ebola clinic in West Point, chanting “there is no Ebola!” is just one of many instances highlighting local suspicion and the potential for disorder. International support must move rapidly and decisively to contain the disease and mitigate its economic and social impact. The Ebola crisis has been terrifying, and while the economic damage may be less striking, it will affect many more lives and increase the fragility of a region that was eager to move beyond its history of conflict.

This article was also published on the African Development Bank Blog.