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The Economics of Ebola

economics of ebola
In Nigeria there have only been two deaths from Ebola, but it’s already beginning to take a toll on the country’s economy. In Lagos, the commercial center of the country, the booming tourist business has taken a large hit. In Guinea, Sierra Leone and Liberia, where the death toll has risen above 1,000, business is sinking even lower.

The government, in combination with aid groups, will surely spend hundreds of millions of dollars in order to confine Ebola, a decision that appears to make good economic sense. Between 1967 and 1979, an average of $23 million per year was spent combating smallpox. Since smallpox was internationally eradicated in 1980, the U.S. has recovered 500 times their initial investment value in saved costs alone.

The economic toll in countries afflicted by disease seems be out of proportion to the physical danger. In addition to the incalculable toll Ebola has taken on human life, it hits the economy in a calculable and forceful manner. In Guinea, the World Bank has lowered the economic-growth rate by one percent. The Liberian finance minister believes that the International Monetary Fund’s prediction of 5.9 percent growth is wholly unrealistic. What could cause such an economic overreaction?

In a word, the issue is panic. Farmers in affected areas have left their fields, leaving their crops rotting. Trading across nation-state borders has been suspended, effectively eliminating an entire source of income for many.

Scores of areas in West Africa have health systems that are being entirely consumed by treating Ebola, and companies have begun to pull workers out. Even in Nigeria, companies have pulled “stealth removals,” where they remove foreign workers by saying they will go on “summer breaks.” China Union, who ships ore from Liberia, has taken a hiatus, but openly threatens to never re-open if something is not done about the spread of disease.

Many are looking to the Nigerian government for answers, and focusing their angst at a leadership group that has been less than transparent.

But the government should not be blamed entirely. Studies show that people consistently overreact to diseases, even when the risk of transmission—as is the case with Ebola—is very low. The SARS outbreak in 2003 caused roughly $50 billion in economic damage, while only afflicting 8,000 individuals, and killing fewer than 800.

What governments – and that of the U.S. in particular – can and should do is to stay calm. Liberia, for example, lost 90 percent of their GDP in 2003 following a civil war that also ravaged all major pieces of infrastructure. But the country has been growing steadily—over eight percent on average annually, and has earned $16 billion in foreign investment.

But the panic of Ebola could halt this progress. Data suggests overreaction could lead to misguided political action. In this time, the U.S. can help by lending stability by taking simple steps such as renewing the African Growth and Opportunity Act.

– Andrew Rywak

Source: WSJ,Business Week,The Economist
Photo: Flicker