S&P: no immediate impact on Ebola hit countries in Africa

From Standard & Poor's 

• The ongoing outbreak of the deadly Ebola virus in West Africa has no immediate impact on our sovereign ratings in the region.
• Of the affected countries, we rate Nigeria and the Democratic Republic of Congo, but not Liberia, Sierra Leone, or Guinea.
• The level of economic linkages between the worst-affected countries (Liberia, Sierra Leone, and Guinea) and the African sovereigns we rate is low, which currently limits its impact.
• However, the future course of the epidemic is impossible to predict with confidence and we will continue to monitor the situation.

LONDON (Standard & Poor's) Aug. 27, 2014–The World Health Organization (WHO) has declared the ongoing Ebola outbreak in West Africa to be an international public health emergency. Standard & Poor's Ratings Services currently rates 20 sovereigns in Africa, but these do not include the three countries most affected by the outbreak–Sierra Leone, Liberia, and Guinea–where the tragic loss of life has already been high.

According to the WHO, by Aug. 20, 2014, over 2,000 cases had been officially reported since the first reported infection in December 2013, of which around half were fatal. The economic and fiscal impact of Ebola on these three countries will also prove significant.

Nevertheless, none of the three most-affected countries is a significant trade or investment partner of the sovereigns we rate in the region or elsewhere,
which limits the potential ratings impact. For example, even combined, the three countries account for less than 5% of the recorded exports and a negligible share of the imports of Senegal, which shares a border with Guinea. Similarly, they barely register as trade partners of Nigeria and Burkina Faso, largely because the main export markets for the region are developed economies and rapidly emerging ones, such as China and India. Intraregional trade is restricted by a lack of regional infrastructure, high transportation costs, inefficient and expensive customs procedures, and low income levels.

Consequently, any drop in demand from the three worst-hit countries is unlikely to meaningfully harm the external positions of the sovereigns we rate
in the region. That said, there may be considerable unreported trade between rated and unrated sovereigns in the region, particularly Senegal and neighbouring Guinea, so the impact on the informal economy could be somewhat larger.

Border controls seek to limit the risk of contagion and these appear to have been reasonably successful so far. They range from medical screening of
arriving passengers to more draconian measures. Cameroon recently decided to close its border with Nigeria, while Senegal closed its border with Guinea. Kenya Airways, meanwhile, has suspended flights to and from Ebola-affected countries. However, many land borders in Africa are porous, given the limited resources of governments on the continent to police them, so infected people could slip through, unbeknown to the authorities.

The WHO has reported just 16 confirmed cases of Ebola in Nigeria to date. If the number of infections remains low, as many epidemiologists expect, the
outbreak would have no impact on our sovereign ratings on Nigeria, which is the continent's economic heavyweight and has a population approaching 200 million. But because some of the infections were in Lagos, one of the world's biggest and most densely populated cities, there is a non-negligible risk of a wider and more-damaging outbreak.

In late August, the authorities in the Democratic Republic of Congo (DRC) reported 16 deaths from Ebola in what experts believe to be a separate outbreak from that in West Africa. All the victims to date have been in one remote area of the country's Equateur province, some distance from the country's economic powerhouses of Katanga province and the capital, Kinshasa. The authorities have erected a cordon sanitaire around the area.

Given the remoteness of the affected region and small scale of the outbreak so far, we do not expect it to negatively affect our ratings on the DRC.
Nonetheless, the DRC lacks health care resources, and Ebola has broken out several times since the disease was first identified in 1976. Therefore, we
cannot rule out the risk that this or a future occurrence of Ebola in the country could be more damaging.

The current outbreak of the deadly Ebola virus in West Africa is reportedly the biggest on record, which has led to global media attention and concern about its possible consequences. However, Africa suffers from many other serious endemic diseases, such as malaria and HIV/Aids, which impose costs that African governments and individuals can ill afford. Despite this, many economies in the region have demonstrated remarkable resilience, with several ranking amongst the fastest growing in the world.

Perhaps one of the biggest risks to rated sovereigns currently posed by Ebola is that business travellers, tourists, and freight companies from outside Africa may not distinguish between affected and unaffected countries on the continent, but rather choose to shun all of them, leading to a drop in trade and investment. Yet on balance, we do not expect the current Ebola epidemic to affect our sovereign ratings, although we will continue to monitor its evolution.

Under Standard & Poor's policies, only a Rating Committee can determine a Credit Rating Action (including a Credit Rating change, affirmation or withdrawal, Rating Outlook change, or CreditWatch action). This commentary and its subject matter have not been the subject of Rating Committee action and should not be interpreted as a change to, or affirmation of, a Credit Rating or Rating Outlook.