The COVID-19 Damage on the Ethiopian Service Sector: A Supplement Using

Google Search Trend “Big data” Alemayehu Geda Department of Economics

Addis Abeba University May, 2020 Abstract In the last week alone (May 19 to 25,
2020) the Ministry of Health data shows that the number of confirmed cases has
climbed from 365 last week to 655 on May, 25, 2020. This shows an average daily
growth rate of 9.4 percent and a weekly growth rate of 79.5 percent. With the
elasticity figures estimated in this paper using google search data, this rate
basically means the demand for the service sectors examined in this study has
already collapsed. The model results are realistic as that is also corroborated by the
recent actual data reported by the Ethiopian Hotels association that reported a
decline in occupancy rate by 98 percent. It is imperative for government to realize
the extremely challenging situation the sector has found itself and with more
challenging time in the horizon. Thus, given the significant contribution of the
sector to GDP growth (46 percent) and urban employment (70 percent), it is
imperative to take appropriate actions now. In this effort, time is of the essence to
save firms from collapsing and bankruptcy with the determinantal impact for its
work force. I. Introduction In my recent study about the social and economic
impact of COVID-19 in Ethiopia (Alemayehu. 2020), I have used local and global
media-based information, information obtained from interaction with some of the
industry actors as well as my owen research about the Ethiopian economy to come
up with the possible impact of the virus on the country. That study noted that GDP
may contract by 11.2 percent in 2020/21 fiscal year. In the best-case scenario of
the effect of the virus being limited to the first quarter of the next Ethiopian fiscal
year that runs from July,2020- June 2021, the GDP may contract by 5.6 percent,
instead. In the worst-case scenario of the effect hanging around for the coming
three quarters, the decline could be as high as 16.7 percent. In the same study the
service sector is, on average, is forecasted to contract by about 15.6 percent (Figure
1) 3 Source: Alemayehu, 2020 This paper is a further elaboration (and hence, a
supplement) to the previous paper by focusing in detail on the service sector. The
reasons for this choice are three. First, the service sector is the top contributor to
the GDP growth as well as to urban employment. Second, it is a sector that will be
hit hard by the economic effect of the virus. Third, the “big data” used for this
paper is not capable of showing similar trends in the agriculture and industrial
sectors. The contribution of the service and industrial sector (which are invariably
located in the urban areas and hence the urban economy) to GDP has increased
from its level of 46 percent in 1995/96 to 67 percent in 2018/19, overtaking the
historically dominant contribution of the agricultural sector. Within the urban
economy, manufacturing is usually taken as the most dynamic sub-sector within
the industrial sector. Ethiopia’s urban economy is dominated by the service sector,
however. In 1995/96 the service sector contributed about 34 percent to GDP. This
has increased to 39 percent in 2018/19. The comparable figure for the agriculture
and industrial value added had been 54 and 12 percent, respectively, in 1995/96;
and became 33 and 29, respectively, today – (it has to be noted, however, that
about 70 percent of the industrial sector’s share of this 29 percent in 2018/19 came
from the construction sub-sector ) (Figure 2). ‐11.1% ‐1.6% ‐17.0% ‐15.6% ‐5.6% ‐
0.8% ‐8.5% ‐7.8% ‐16.7% ‐2.4% ‐25.5% ‐23.4% ‐30.0% ‐25.0% ‐20.0% ‐15.0% ‐
10.0% ‐5.0% 0.0% GDP Growth      Agricultre Growth     Industry Growth
Services Growth Figure 1: Scenarios for GDP & Sectoral Growth Effect COVID in
Ethiopia GDP Growth wt COVID‐19 Best Case Worst 4 Figure 2: The Place of the
Service Sector in Ethiopian Economy *Includes financial intermediaries,
education, health, social work, private households with employed person and other
community, social and personal services Within the service sector, distributive
services (trade, hotel and restaurant, followed by transport and communication) at
36 percent share are the most important. This is followed by a collection of sub-
sectors under the name “others “at 22 percent in 2018/19. The latter includes
financial intermediaries, education, health, social work, private households with
employed person and other community, social and personal services. This is
followed by public administration and defense (Figure 2). Such shift in sectoral
share of GDP over time is usually taken as an indicator of structural change an
economy. Structural changed is generally defined as a shift in economic
Agriculture 33% Indistry 28% Services 39% Contribution to GDP (2018/19)
Agriculture 15% Indistry 39% Services 46% Contribution to GDP Growth
(2018/19) Whole Sale & Retail Trade 36% Hotels and Resturants 6% Transports &
Communcation 14% Real Estate, Renting & Bussines Activites 11% Public
Adminstratio n & Defense 11% Others* 22% Sub‐Sector Share in Services
(2028/19 Industry 21% Agricuture 2% Households as employers 10% Services
67% Share in Urban Employment, 2018 5 activity from low productivity areas
(historically the agricultural sector in the history of today’s developed countries)
towards high productivity sectors (the industrial sector historically). The pattern of
change in Ethiopia that is given above defies this historical pattern as the economy
is generally transforming towards the service sector. Unfortunately, this service
sector is not as sophisticated and as productive as the service sector in today’s
developed countries. It is rather dominated by small traders, hotels, restaurants and
administrative organ of the state – thus dashing the hope for true structural
transformation/industrialization that has been observed historically in today’s
developed countries. Notwithstanding this, there are two interesting features of this
service sector development in Ethiopia. First, its contribution to GDP growth is
significant - being a staggering 46 percent today (Figure 2). Second, its
contribution to urban employment, at the staggering rate of about 67, is also the
most important one (Figure 2). Thus, the effect of COVID-19 on the service sector
will have far reaching implications to total GDP growth as well as to urban
employment. This points at the need to focus on the sector urgently now. To
indicate the likely damage of the virus’ economic effect on the sector, the next
section has used a unique data and a model to predict this effect. II. The Data and
Results 2.1 The Data The data used for this analysis is obtained from a recent
paper by Kibrom et al (2020) which is a comprehensive study using google search
“big data” for 182 countries. The analysis below is based on Ethiopia’s data from
this database. Kibrom et al (2020) has made an excellent description of the data as
well as the number of adjustments measures, they took to make the data
comparable across countries. They also adjusted the data so as to make it reflect
the independent effect of COVID’s economic impact on the service sector of the
world. Thus, readers are advised to refer to this study for detailed information
about the data as well as the authors’ result about the impact of the virus on the
global service sector. The Google search data measures the popularity of a search
term in its search engine from billions of google search engine users worldwide. A
number of studies are now beginning to appear using such data to forecast
economic outcomes (see Kibrom et al, 2020 for such studies). Such data is
available since 2004. Google provides search index that measures the popularity of
a search term in a specific geographic area and at specific time relative to the most
popular search item in the same location and time. The index is then constructed by
giving this popular search term 100, and setting the rest relative to this level. Thus,
a search item that has half the popularity of the most popular term in Ethiopia will
have a value of 50 – a process that normalizes the data across time and space for
comparison (see Kibrom et al, 2020 for detail). 6 Such data is extracted by Kibrom
et al (2020) from the Google server. They compiled the data on a weekly basis,
from January 1, 2004 to May 1, 2020 for 182 countries. It is the Ethiopian part of
this dataset that is used for this study. One of the major weaknesses of this data is
its limitation in reflecting the true picture of the service sector in Ethiopia. That is,
at the country’s internet penetration rate of about 4 percent of the population (of
108 million), google search-based information cannot reflect the bulk of activities
in the service sector of Ethiopia. Nonetheless, it crudely shows the trend which is
based on real and near real time “big data” which is important for making a
reasonable forecasting amidst problem of getting real data related to COVID today.
2.2 The Pattern of the Data, the Model and Estimated Results I have generated
elasticity values for the Ethiopian service sector that are given in Table 1. These
results are based on auto-regressive distribution lag model (ADL) formulation of a
vector auto-regressive (VAR) model specified below. In general, in ADL
formulation, a long run (equilibrium) relationship between two variables, Y and X,
could be given by equation [1] ܻ௧ ൌ ܺ ‫ܭ‬௧ [1 [‫݋‬ ܿ ݊‫ ߛ & ݏ ݊ܽݐݐݏ‬ଶߛ ݀݊ܽଵ, ߛ
݈ ݃ ‫ ܭ‬ൌ ଵܽ‫݋ ݁ݎ‬
‫݁݁ݎ݄݁ݓ‬: ‫ ܭ‬௧ ܺଶߛ ൅ ଵߛ ൌ ఊమ As this equilibrium relationship cannot be observed,
the observable disequilibrium formulation of this long run (equilibrium)
relationship between Y and X, in a simplified from, can be given by equation [2].
Equation [2] is a simple ADL (m,n,p) [where m is the number of lags, n &p the
number of endogenous and exogenous variables, respectively], ADL(1,1,1),
formulation of equation [1]: ܻൌߚ ൅ ଴ߚଵܺ௧ ൅ ߚଶܺ௧ିଵ ൅ ߙܻ ௧ିଵ ൅ ‫ݑ‬௧ 0 ൏ ߙ
൏ 1 [2] With some reparameterization1, the ECM representation of equation [2],
which is the estimable version that generated the results in Table 1, could be given
by equation [3] (Benerjee et al, 1993; Thomas, 1993; Hendry, 1995; cited in
Alemayehu, 2002; Alemayehu et al, 2012; Morales and Raei, 2013) ∆ܻ ൌ ߚଵ∆ܺ௧
െ ሺ 1 െ ߙሻሾܻ௧ିଵ െ ߛଵ െߛଶܺ௧ିଵሿ ൅ ‫ݑ‬௧ [3] Where: ߛଵ ൌ ఉబ ଵିఈ
ൌ
; ߛଶ ൌ ఉభఉమ
ൌାఈ ାଵି
భ
ఈ భ భ ; ܽ݊݀ሼെሺ 1െߙሻሽ is the ECM term
and is expected to be negative and less than one. This is the dynamic error
correction model estimated using the Pesaran approach to cointegration (Pesaran
and Shin, 1999; Pesaran et al, 2001). The result from fitting this model for the
eight sub-sectors indicators of the service sector are given in Table 1. 1 Subtracting
Yt-1 from either side of equation [3] and adding and subtracting Xt-1 in the right-
hand side of the resulting equation gives equation [4]. 7 Table 1: Estimated
Elasticities of the service sub-sectors with respect to confirmed cases of the
COVID Virus Elasticities Hates and Restaurants Air Travel/Transport Tourism
ITC n=222(Observation) Hotels Restaurants Airport Flight Tourists Museums
Zoom Skype Short-term -0.11 -0.85 -0.67 -0.37 -1.66 -1.5 0.56 0.11 Long Terms
-0.68 00* 000* -1.42 -0.21* 00* 0.57 0.25 Adjustment Coefficient -0.17 -0.70
-0.86 -0.25 -0.81 -0.58 -0.98 -0.45 * Not statistically significant at the conventional
rates The results in Table 1 show that demand for hotels and restaurants, transport
and tourism have contracted significantly due to COVID-19 while the demand for
ITC services has expanded significantly. A ten percent increase in confirmed
weekly cases in Ethiopia is found to lead to a 1.1 and 6.8 percent reduction in
demand for hotels in the long and short run, respectively. This became -8.5 percent
for restaurants in the short run. Similarly, the demand shock effect of a 10 percent
weekly increase in the confirmed cases on reducing the demand for air travel is
found to range from 6.7 (using the search term “airport”) to 3.7 (using the search
term “flight”) percent in the short run and to about 14.2 percent in the long run.
The effect of a 10 percent increase in a weekly confirmed case is found to reduce
the demand in the tourism sector by about 15 to 17 percent in the short run. This
demand contraction in the service sector can also be read from Figures 3a and 3b.
As can be read form these figures, the declining trend of demand for these services
began in February with the highest decline being observed since March, 2020.
Figure 3a: Ethiopia: The Effect of COVID-19 on the Service Sector Source:
Author’s computation using Google Search data from Kibrom et al, 2020 On the
positive side, the social distancing measures taken and the related condition of
working at home has led to a surge in demand for ITC services in Ethiopia. This
can be read from the increased demand for Zoom and Skype services following the
intensification of the virus’ effect as depicted in Figure 3b. The estimated model
above 0 20 40 60 80 100 120 I II III IV I II 2019 2020 airport_raw flight_raw 0 20
40 60 80 100 120 I II III IV I II 2019 2020 hotel_raw restaurant_raw 8 also shows
that a ten percent increase in confirmed weekly cases leads to about 5.6 percent
increase in demand for Zoom services both in the short and in the long run. This
effect became 1.1 and 2.5 percent surge in demand for Skype services in the short
and long run, respectively. Zoom seems twice popular compared to skype in
Ethiopia. The right panel in Figure 3b shows this positive demand effect in the ICT
sector. Figure 3b: Ethiopia: The Effect of COVID-19 on the Service Sector Source:
Author’s computation using Google Search data from Kibrom et al, 2020 III.
Conclusion In this study, by focusing on the service sector, an attempt to
complement my previous study on the economic and social impact of COVID-19
on Ethiopian economy is made. The choice of the sector is informed (a) by the data
availability – which is google search trend “big data” and (b) the significant
national growth and urban employment effect of the service sector. By estimating a
forecasting model, the study has managed to come up with specific magnitude of
the effect of COVID-19 on the Ethiopian service sector that can be used by policy
makers. The study also shows the potential use of “big data” for forecasting
economic outcomes. To give a perspective about the result, it is imperative to look
the latest infection rate (confirmed cases) in the country. This past week (May 19
to 25, 2020) the Ministry of Health data shows that the number of confirmed cases
has climbed from 365 last week to 655 on May, 25, 2020. This shows an average
daily growth rate of 9.4 percent and a weekly growth rate of 79.5 percent. With the
elasticity figures estimated in this paper, this rate basically means the demand for
the various sub-sectors of the service sector examined in this study has nearly
collapsed (the exception being the demand for ICT services which has expanded).
This model’s results make sense as it is also corroborated by the recent actual data
reported by the Ethiopian Hotels association, for instance. The association noted
that Hotel occupancy rate among its member, that employed about 15, 000 work
force, has collapsed by 98 percent. 0 10 20 30 40 50 60 70 80 90 I II III IV I II
2019 2020 tourist_raw museum_raw 0 20 40 60 80 100 120 I II III IV I II 2019
2020 zoom_raw skype_raw 9 I hope the government realized the extremely
challenging situation the sector has found itself (and is going to be hit further each
passing day) and takes appropriate actions now. In this effort, time is of the
essence so as to save firms from collapsing and bankruptcy with detrimental
implications of this for their work force. Given the significant effect of COVID-19
on the service sector, and the enormous contribution of the sector for overall
GDP/economic growth of the country (46 percent) and urban employment (70
percent), it is imperative to make sure that the sector is operating at a highest
possible level of capacity. When the latter is not feasible (as in the case of hotels &
restaurants), finding alternative engagement for firms (such as using them to
service the health sector) is important. It is also important to provide the necessary
credit and financial help to the sector so that firms may not go bankrupt or fail.
This should be done while at the same time providing COVID related health
services at the premises of firms that could work at some capacity. Apart from its
damaging implication for employment, since most of the new big firms in the
sector, in particular big hotels, are indebted to the banking sector, their situations
may have a knock-on determinantal effect for the banking sector as well.
Acknowledgment I am grateful to Kibrom Abay, Kibrom Tafere, Andinet
Woldemichael for allowing me to access the Ethiopian data from their global
database. Any errors are mine. Reference Alemayehu Geda (2020). The Economic
and Social Impact of COVID-19 and a Direction for Policy Response
(unpublished, Department of Economics, Addis Abeba University/
www.researchgate.net/profile/Alemayehu_Geda ) Alemayehu Geda, 2002. Finance
and Trade in Africa: Modelling Macroeconomic Response in the World Economy
Context. London: Palgrave McMillan Alemayehu Geda., N. Nudng’u & D. Zerfu.
2012. Applied Time Series Econometrics: A Practical