While the Ebola outbreak rages, and the immediate need is to control the spread of the disease and help those infected, I am increasingly being asked to comment on how we can plan to rebuild post-Ebola. In this first blog I provide some thoughts about rebuilding the economy.
Planning under uncertainty
We still have very little idea when the outbreak will come to an end or what the state of the economy will be at that point. There are promising signs that the infection rate has slowed in the districts that were first affected (Kailahun and Kenema), but infections in Freetown and surrounding areas are rising sharply and it is much harder to contain the outbreak in dense urban slums (as the situation in Liberia has shown). Planning is also a challenge because one of the many casualties of the outbreak has been frequent and reliable data. With transport restricted and systems overburdened it is hard to know exactly what is going on. A number of groups have been setting up phone surveys to try and monitor the situation. I am involved in a survey of markets, a household survey, and hope to have a firm survey soon. These, however, take time to set up and are likely to be less accurate and representative than in-person surveys. We also need to recognize that individuals, journalists, and agencies often have an incentive to tell a particular story, so we need to try and sort out fact from anecdote.
Restoring confidence is the key to economic recovery
The largest economic consequences of the outbreak are likely to be indirect, spreading far beyond those who fall sick from the disease and their immediate family. The largest impacts will come because purchases and investments are delayed in these uncertain times and because people avoid activity that puts them at risk of infection. A good example of this is our markets report for September, which shows the number of rice traders down by 40 percent in cordon areas compared to the same time in 2012.
Number of Traders in Domestic Rice, 2012 vs. 2014
The most important thing the government can do to boost the economy is to help restore confidence by ensuring that they provide reliable, consistent messaging about the disease and the economy. As Herbert M’cleod discusses in his Huffington Post contribution, the Ebola outbreak uncovered, among other things, a lack of trust in government that had tragic consequences. Building trust will take increased transparency and accountability and will not be a short-term project.
Donors can help the economic recovery by ensuring that trade and travel restrictions are kept to the minimum necessary for control of the disease and that governments do not give into domestic hysteria (and impose damaging and senseless trade and travel restrictions). Donors can also help the affected countries maintain stable exchange rates. We know how to do this: It does not require foreign support on the ground (just foreign money), and it is essential for maintaining confidence. There will be a temptation post-Ebola to announce big new projects to kick-start the economy, but big promises followed by delays will breed cynicism. Realistic commitments delivered reliably and transparently will rebuild trust and confidence more effectively. Simply paying government bills (for wages and goods purchased) on time would help ease the credit crunch faced by individuals and suppliers.
Distinguishing between output delays and output losses
Much of the discussion of the economic costs of Ebola has failed to draw a distinction between lost output and delayed output. Until recently Ebola had not severely impacted mining revenues in Sierra Leone but this is likely just a matter of time. But if/when mining is disrupted there will mainly be a delay in output, not a long-run loss. Instead of being sold this year, the minerals will be extracted and sold in subsequent years. The government will lose revenues in the meantime but (like the exchange rate) this can easily be compensated for by donors. Employees of firms who have to suspend operations will also be impacted. For mining this is a relatively small number of people. In contrast, if the cocoa harvest rots because traders can’t get into cordoned areas to collect it, this is a real cost that cannot be made up for. The costs are much more diffuse and compensating farmers is therefore a much harder exercise. This means that when we seek to limit economic impacts now, and when we think about restoring the economy post-Ebola, the most immediate focus should be on addressing output losses--not output delays.
In my next blog I will give some thoughts on rebuilding the health-care system post-Ebola.