You are currently viewing Business not as usual with Coronavirus

Business not as usual with Coronavirus

Do you know the symptoms for spotting Ebola? Perhaps not. 

It is a pretty dangerous disease with a mortality rate close to 50%. If you got Ebola, there is a one in two chances that you were going to end up dead. Most people don’t know much about Ebola or what the disease does. The same is not true of Coronavirus or COVID-19. COVID-19 has a lower mortality rate through, close to 2% amongst those aged between 10-60 Years. 

How is Coronavirus different?

Unlike Ebola which spreads through blood, COVID-19 spreads through the air and through contact. This makes it far more likely that one could get infected just by being in close proximity to someone with the infection. This makes it highly communicable and that has, in turn, led to more and more people getting infected across the world. 

The high communicability combined with the fact that it is not very fatal has resulted in the rapid spread of the disease across the world. Also, 50% of 100 is 50 but 2% of 100,000 is 2000. This has meant that the mortalities caused have been quite high. 

You can see the real-time spread of the disease on this dashboard.

It is not just what but also where

China is probably just as alien to most of us as Africa, a continent with 52 countries. The difference – the device that you are reading this on was most probably Made in China. Not only that – many of the things around were also probably made there OR required a machine or part that came out of China.

China has become the factory of the world and almost nothing can be made without something or the other being contributed by the country. China has been the epicentre of the Coronavirus outbreak and this implies that any business involved in making any of the things that you see around you has had to contend with the after-effects. 

Trying to contain

The fast spread of the disease in China forced the government to take action – shutting down factories and even forcing people to stay away from work and public areas. It did not help that this coincided with the Chinese New Year, which traditionally has driven the growth in demand in China. 

Making things takes input. Inputs such as materials, energy, processes and people. When production ceases, obviously the demand for all of the inputs decreases dramatically. Yesterday, the Saudi’s dropped the price of oil significantly causing Brent crude oil prices to drop 25% in a single day. This kind of movement is usually not seen in an entire year. Tells you how bad things actually are.

Screenshot 2020 03 09 at 11.50.01 AM
Coronavirus Vs Oil

China is the largest consumer of oil in the world and the virus has taken a bite out of demand. Think about it, what would force you to drop prices by 25%? The business has to be struggling or growth disappearing. 

Companies like Apple are also struggling to stock the shelves with enough product since production has significantly slowed down and many of the factories are not fully operational. No matter how good you may be at selling if you do not have any product you can’t sell.

Consumption is slowing

Several major events have been cancelled and several more are anticipated to be cancelled. Mobile World Congress in Barcelona was the first to be cancelled. It brings together more than 100,000 people. Imagine the loss to the economy – if you consider each of those people spent $1000 to be there. SXSW, which attracts 140,000 attendees has also been cancelled. Google IO is also going to be cancelled and in all likelihood, a whole lot of other governmental and non-governmental events and conferences are also going to get cancelled. The loss would be in Billions of dollars.

Airlines, hospitality and tourism have already taken a huge beating since January. Many airlines have announced that they would be cutting flights by 10%-20% this year till the demand is back up. For hotel operators, there is no respite in sight. The combination of event cancellations and tourism slow down is going to cause pain. Tourists also bring local retail consumption which will also slow down. This coupled with an investment slowdown is going to make 2020 a very difficult year. 

We fear what we cannot see more than what we can

More than all of the real slowdown and absence of demand; the fear that something like this brings along with it is a greater cause for worry. Let us say, you have a company with a Million dollars waiting to be invested. Would you make that investment when the world is in this state or would you wait till things get better? If you have a retail store and see sales slowing, would you yourself buy more or wait to see this phase through? Investment decisions made in a climate of fear often result in investment not being made. A bird in hand is better than two in the bush.

The financial services industry will also get hurt. You are not likely to take a loan when the economy is slowing down. When all the dominoes are done falling, almost all industries would have felt the pain. 

The sooner the fear passes, the better since this is a necessary precursor to recovery.

Leave a Reply