The largest economic threat posed by ebola could be summed up in something Franklin D. Roosevelt said over 80 years ago, in his first inauguration speech in the depths of the Great Depression: “The only thing we have to fear is fear itself.”
Why? The very word “ebola” is striking panic in hearts from West Africa to the U.S., although the spread of the disease itself has been extremely limited outside the current hotspots in West Africa: Liberia, Guinea and Sierra Leone.
Even though what started out nearly 40 years ago as an obscure disease with a high mortality rate that afflicted people in small villages in South Sudan and what was then Zaire has risen to global significance, the effects of the disease itself have so far been almost completely restricted to Africa.
It could, of course, be worse, and may get there if ebola continues to spread. But thus far the economic damage it has already caused to markets is largely due to fear, taking a toll on everything from mining and agriculture to tourism and international commerce.
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The three countries currently experiencing ebola outbreaks together represent just 1% of Africa’s total economy. Yet, according to World Bank figures in an October report, the ebola epidemic not only threatens those three countries’ economies, it poses a larger threat to the well-being of the entire region of West Africa.
GDP growth in Liberia and Guinea, said the World Bank, could be cut in half by the outbreak, while losses to West Africa could total $32 billion. Should ebola spread beyond its current borders to hit Ivory Coast, Nigeria and Senegal, that total could mount to $40 billion. And while it is necessary to do everything possible to contain the epidemic, some of the economic damage could also be averted by a focus on “mitigating aversion behavior”— forestalling or reversing the effect of investment outflows and tourism flight from the region because of fears over the disease.
That last may be easier said than done, as the drumbeat of headlines and a flurry of reports not just from the World Bank but from analysts at various outlets highlight the dangers of a lack of containment.
And while markets were at first slow to react, perhaps the first “ebola effect” to be reported was an increase in the price of cocoa as commodities traders sought to insulate themselves from the effects of the epidemic. Since 70% of cocoa comes from West Africa, research analyst Anna Mulholland at Deutsche Bank said in an October report that spread of the disease beyond its current borders “would hold significant implications for cocoa production.”
But cocoa is by far not the only commodity that could feel the effects of a broader outbreak. According to Mulholland, West Africa “is a major producer of commodities across the energy, metals and agricultural sectors.” As a result, investors should keep a watchful eye on market action in a broad range of categories.