Estimating the Economic Cost of Ebola

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Recent news of declining numbers of new Ebola cases in Guinea, Liberia, and Sierra Leone suggest encouraging progress toward ending the epidemic. The human cost has been tragic and until we reach zero cases the threat to human lives remains the main risk and so the public health response must remain our focus. Yet, as Guinea, Liberia, and Sierra Leone glimpse – we hope – light at the end of the tunnel, thoughts also need to turn to their needs for reconstruction and development.

One of the lines of work we have been involved with at the World Bank is estimating what the losses have – and might have – looked like.

How do you make an educated guess at how an epidemic like this one hits an economy? And how do you think about what might happen if it spreads beyond? These were the questions we grappled with.

The first one is easier if you have feet on the ground, country economists observing how different sectors of the economy – agricultural harvests, food and drink processing, informal markets – are  behaving. These observations, plus some assumptions about labor and capital, allow us to update our output growth forecasts. Compare the new estimates with the old ones for the same time period forecast before the epidemic, and you have a reasonable guess at what the hit was. We put it at about $1.6 billion in 2015 across these three economies. That’s a huge hit, about 12 percent of GDP (hint: it doesn’t come just from lower growth in 2015, but also from starting from a lower base in 2014).

What about the effects on Africa beyond the three? There have been many anecdotal reports in the media of cancelled holidays, from The Gambia through Kenya to South Africa. Air traffic has been down, borders closed… Yet it seems the aggregate effects have not been that big. Our economist teams’ reports from each country aggregate up to not much over $0.5 billion.

The “what if” scenarios are a bit harder: that’s where we need our researchers and models. We can use equilibrium models of the world economy to focus on the effects on Africa of downside scenarios of Ebola spreading beyond these three – relatively small – economies, calibrating our models on what we have observed in the three. We did this in September last year and recently updated our estimates for the World Economic Forum in Davos.

September’s most optimistic scenario of little-to-no spread beyond the three matches our on-the-ground estimates for 2015 almost exactly: the damage our model gave relative to a “no Ebola” run for 2015 was $2.1 billion. 

Our latest estimate of what might happen if Ebola spreads beyond the three are about three times that: $6.2 billion of output losses across Africa. The difference between these two numbers, over $4 billion, can be loosely thought of as the output price-tag of getting to zero new cases with no new spread to other countries.

Back in September we came up with another number: over $30 billion of losses for Africa in a downside “high Ebola” scenario. Wait… five times the losses? What has changed so much since then?

The answer is that even where Ebola has occurred, not only in in the three countries but also in Nigeria, Mali, and Senegal, African health systems have both proved and improved their ability to respond, treating more patients in healthcare facilities, changing sanitary practices, tracing contacts, and so on. This affects the models we use. If the disease spreads, it spreads much more slowly, and the economic damage from fear-driven behavioral reactions in the economy is much, much less… a factor of five less (from $30 billion to $6 billion).

This can be thought of as the price tag (just in output terms for 2015) on preparedness in the rest of Africa, making sure that what happened in the early days of the epidemic in Guinea, Liberia, and Sierra Leone never happens again.

This avoidance of the worst case scenario may be of little comfort to Guinea, Liberia, and Sierra Leone as they begin to heal their own economies. But it underlines the triple challenge we now face: eliminate Ebola from these countries; rebuild their economies; and build mechanisms of vigilance and preparedness across Africa, especially in its most fragile and vulnerable states.

Authors

Mark Roland Thomas

Sector ManagerSector Manager for Poverty Reduction and Economic Management in the Africa Region of the World Bank

Join the Conversation

Darren Smith
March 05, 2015

Thank you for this important post. You noted that the international leaders talked about changing approach to preparedness in Davos. That is excellent news , and I hope you can write a followup blog to describe changes in African countries that are already made for better preparedness.
Is this now a priority in World Bank programs in African countries? If the international organizations fall asleep, there will be another epidemic, maybe much worse than Ebola in 2014. Please do write more about how the World Banks has change its assistance for preparedness. Thanks.

Andrew M
February 04, 2015

Very informative post and good to hear more about the updates to the modelling and estimates. The discussion of the $4B price tag to get to zero cases is very interesting and I'm wondering if there's any guidance on whether this is being used as benchmark for investment targets?Additionally, understanding where this investment goes seems important. For instance should it come from donors or governments themselves and what types of services should be prioritized in terms of prevention vs. treatment vs. preparedness?
Also a great point about the reduction in the impact of a "spread" scenario from $30B to $6B, which you mention comes mainly from the behavior response. Have you seen any similarities to the dynamics of this behavior response to previous outbreaks such as SARS?
Thanks for the great work.

Mark Roland Thomas
February 12, 2015

Thanks for your comment. I cannot really say to what extent our numbers are used as "benchmarks" but in my view they do set important context. The benefits (forgone costs) of good investments in preparedness are enormous. More work is certainly needed on exactly where such investments should go, even understanding what have been the most important factors to date in reducing spread. We currently have only a fairly general picture. On SARS, I am no expert but it occurred against a very different backdrop of health system capacity (Hong Kong, Canada etc.), making direct economic and behavioral comparisons difficult.

Amelia Lanham
February 24, 2015

The benefits of investment in preparedness and prevention are enormous.
Why, then, is the World Bank not funding these investments? Does it prefer to ride in on a white horse, coming to the rescue in a crisis and being self-important? Reactive and not pro-active. Looking to lend more for more costly crisis? I hope not.
Still, how do you explain that a tropical region with many exotic viruses has no Early Warning System? After 50 years of World Bank programs? Surely you do not expect the overburdened health sector to worry about the next Ebola as well? They already cannot handle malaria, pregnancies and dozens of other here-andnow plagues. Leaving preparedness to the health sector is to resign yourself to the job not being done at all!
You may be interested that I found IMF Survey December 2014 article giving cost-benefit calculation globally , based on SARS and influenza: low cost combined with very high benefit , just as in your very valuable study on Ebola!
http://www.imf.org/external/pubs/ft/fandd/2014/12/jonas.htm

Mark Roland Thomas
February 27, 2015

Thank you for your comment. There is no doubt that the Ebola epidemic has led the international community to revisit its approach to pandemic preparedness. This was one of the main focuses of discussion at the recent World Economic Forum in Davos. And although I must state that I am not a health specialist, I think I agree with you that what is needed goes beyond national health systems towards regional or international arrangements. The World Bank is committed to working with all the relevant international partners in this area towards solution that would avoid another epidemic of this nature. But also do not miss one of the points of my post, which is that some of the higher costs associated with a quick spread in neighboring countries have, so far, been avoided, precisely because there were positive policy responses at the national level, both in the three countries and beyond.