Liberia

If Ebola is contained within the next six to nine months and activities gradually increase across most sectors (Low Ebola), the Liberian economy could modestly rebound in 2015, with GDP growth of about 2.6 percent; that would amount to roughly US$82 million in lost GDP.

Such growth is expected to be driven mainly by the more resilient iron ore mining sector, agriculture, and services including construction (particularly residential construction which may be more easily mobilized). Even with the rebound, prices (food prices in particular) may remain sticky and exchange rate volatility may persist into 2015.

If the epidemic is not so rapidly contained, economic reactions driven by fear may be heightened, precipitating further economic shocks that could shut down production in large-scale mines and further delay investments in capacity expansion. Other likely effects are further disruption to regional and international flights; interruption of the 2015 planting seasons for the two main staples—rice and cassava; and the shut-down of borders and markets. Financial markets and international trade would be affected.

Under this slow containment scenario, the sharp contraction in agriculture, manufacturing and services as well as the cessation of mining would lead to an overall GDP contraction of nearly 5 percent, and a loss of US$228 million in output.

Since the escalation of the Ebola outbreak in July 2014, there has been a sharp disruption of economic activities across sectors. The largest economic effects of the crisis are not the direct costs (mortality, morbidity, caregiving, and the associated losses to working days), but rather those resulting from changes in behavior – driven by fear – which have resulted in generally lower demands for goods and services and consequently lower domestic income and employment.

The mining sector accounts for about 17 percent of GDP and 56 percent of the US$559 million worth of total exports in 2013. Production and exports are dominated by two large iron ore mining companies, ArcelorMittal and China Union.Restrictions on the movement of people have severely curtailed artisanal mining including of gold and diamonds. Overall, the mining sector is expected to show a small contraction of 1.3 percent in 2013 compared with an initial projection for growth above 4 percent.

Production at the largest mining company (ArcelorMittal) is holding steady with production of approximately 3.3 million tons up to August—on track to achieve planned production of 5.2 million tons by the end of 2014. However, investments to expand capacity to 15 million tons per year have been put on hold. The second major mining company, China Union, which had projected production of approximately 2.4 million tons for 2014, has closed its operation since August.

The agricultural sector accounts for about one-quarter of Liberia’s GDP, but nearly half of the total employed workforce and three-quarters of the rural workforce is engaged in the sector. Both export and domestic agriculture have been severely affected by the crisis. The production and shipments of rubber – the single most important agricultural export for Liberia – have been disrupted by both the reduced mobility of the workforce and the difficulty in getting the products to the ports due to the quarantine zones. Rubber exports which were initially expected to be about US$148 million in 2014 are estimated to drop 20 percent. Large investments in palm oil planting, including by the world’s largest producer of palm oil, Sime Darby, have slowed due to the evacuation of managerial and supervisory personnel, and the focus has shifted to maintenance. Sime Darby’s planned construction of a US$10 million modern oil palm mill for which construction started in July 2014 and completion was expected in 2015, is also now on hold.

Liberia’s manufacturing sector, which accounts for only about 4 percent of GDP and is already hard-pressed by weak infrastructure, has been adversely affected by the reduced demand as a result of the crisis. Liberia’s small manufacturing sector is dominated by the cement and beverage sub-sectors which together account for nearly 90 percent of manufacturing output. The production of paints, candles, bottled water and mattresses comprise the remaining output.

The services sector, which comprises approximately half of the Liberian economy and employs nearly 45 percent of the labor force, has been hardest hit by the Ebola crisis. Wholesale and retail traders have reported a 50-75 percent drop in turnover relative to the normal amount for the trading period. The reduction has been largest in markets serving expatriates.

The Ebola crisis has had a substantial impact on regional and international travel to Liberia, with direct effects on the hotel, transport and restaurant sub-sectors in particular. In the short-term, exports (mainly rubber and iron ore) have held, and the reductions in imports (including of capital goods owing to delayed investments) have resulted in an improvement in the balance of payments as reflected in the modest appreciation of the exchange rate in July.

However, this position is unlikely to be sustained going forward with the expected increased demand for imported food, the fall-off in foreign direct investment, and adversely affected exports. For sea transport, the impact has been limited so far, largely due to pre-programmed scheduling contracts. However, there are indications that forward scheduling is weakening. Volumes of containers coming into Liberia are down 30 percent from normal August levels.

The fiscal impact of the Ebola crisis in Liberia has already been substantial, at nearly US$100 million, and the direct and contingent fiscal costs continue to rise. On the revenue side, government data up to the first week of September showed total revenue collection of US$80.4 million, representing a shortfall of about US$10 million relative to pre-Ebola forecasts. Furthermore, the government has revised its revenue target for September down from US$41.7 million to US$26.3 million—the lowest revenue collection since 2012. With the slowing of economic activity and weakness in tax administration (due to curfews and quarantines) total revenues for the year are likely to be about US$46 million below the initial forecast.

On the expenditure side, substantial demands for health and social protection spending have pushed up total spending by nearly US$50 million including US$20 million to address the health emergency. Of the total, current expenditure will increase by nearly US$70 million while the Government will reallocate US$20 million from capital to the current budget. The sharp reduction in fiscal revenues combined with the increased expenditure creates a fiscal gap of about US$93 million to be financed. This is likely to be a lower bound.