The last few weeks have seen a range of factors causing panic in investment markets across Africa. Latest worry to investors is the Ebola Virus Disease (EVD) outbreak.
Though experts in the field of Medicine are optimistic that cure for the disease will soon be found, there are concerns that the fear of EVD may linger, long after its cure and preventive measures have been found.
At the moment, economic experts are already compiling immediate and future effects it is having, and will have on investments and returns thereof.
The Chief Executive Officer, Financial Derivatives Company (FDC) Limited, Mr. Bismarck Rewane said Nigerian economy risks losing over $3.5billion (circa N542.5bn) to the epidemic by December this year, if nothing is done to contain the spread. The firm in its recent report, said the sectors that will be impacted the most in Nigeria are aviation, hospitality and tourism, trade, medical and agriculture.
This is even as experts in the Maritime sector have raised concern that Containers volume has dropped slowly as container ships have reduced to 16 this month from July’s 26, indicating 38.4 per cent drop and from the average of 31 to 16 as total number of ships laden with containers expected this August. This also represents a difference of whopping 48.4 per cent. The 2014 Ebola outbreak is adjudged the worst to date affecting Guinea, Sierra Leone, Liberia and Nigeria. As of August 13 there were 2127 cases and 1,145 deaths although this likely understates the true position.
Also, from an investment risk perspective, Dr. Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital notes that the experiences with swine flu, SARS and bird flu have shown that fears of pandemics rarely come to pass.
AMP Capital is an Australian based leading investment house with over $144 billion in funds under management.
Oliver says that while the “key for investors at this stage is to be alert, but not alarmed”, investors should monitor developments closely because “the risk is not insignificant”.
He believes that a global pandemic would have a devastating effect on economies as people would stop travelling and showing up for work, while even a more contained spread beyond Africa could also rattle markets with the uncertainty it would create.
His words: “News of cases popping up in western countries would cause significant uncertainty which might have a small negative impact on economic activity. The travel industry is most likely to be affected (much as occurred with SARS) as people stop travelling and there may also be some effect on economic activity as people avoid crowds. But the impact should be small and short-lived.
“If Ebola spreads globally,share markets would likely fall sharply – maybe by 20per cent or so – reflecting the huge economic and profit uncertainty. Cash would be the place to be for investors.
“However, if history is any guide, economic activity would rebound quickly once it’s clear the pandemic is under control. “Share markets are likely to anticipate this and rebound even as economic conditions remain bleak.”
Already, Deposit Money Banks (DMBs) in Africa, especially the most hit countries of Liberia, Siera Leon, Kenya and Guinea are getting more apprehensive; so are the parent companies in Nigeria which still have subsidiaries in those countries.
Available records show that seven Nigerian banks currently have foreign subsidiaries. The banks are United Bank for Africa (UBA), Guaranty Trust Bank, Zenith Bank, Access Bank, FirstBank and Diamond Bank and Skye Bank.
Guaranty Trust Bank has operations in other African countries like Gambia, Ghana, Cote d’Ivorie, Liberia, Sierra Leone, Rwanda, Uganda and Kenya. Skye Bank has subsidiaries in Siera Leon, Gambia and Madina, the hub of business activities in Guinea Conakry. Access Bank plc now has subsidiaries in Burundi, Democratic Republic of Congo, Ghana, Rwanda, Sierra Leone and Zambia.
United Bank for Africa has presence in 18 African countries.
A long-term crisis that may hit these DMBs as well as other companies in Nigeria as a result of un-contained Ebola spread could have a more devastating effect than the 2008/2009 banking crisis.
There are fears that it may get to a point where people in bid to avoid public gathering places will not only be absent from work, but also prefer to keep cash at home rather than banking or investing them.
The immediate effect could be likened to a scenario in Siera Leone which Bloomberg reported thus: “Sandi Sesay was promised three months’ pay by his boss to stop coming to work. In fact, most of Sesay’s colleagues at the Marampa iron-ore mine in Sierra Leone were offered much the same deal. The reason: to prevent the spread of Ebola. Two weeks later, Sesay, 29, a driver, says he has yet to see any of the money from his employer, Dawnus Construction, a contractor at the mine. ‘I am taking care of my mother, my sisters, and my wife and three children,’ he says at a gas station near his home. ‘How am I going to cope?’”
