Behind the worldwide coronavirus fallout
From sanitisers made at home or in prisons, to devastating drops in car sales and travel numbers as well as supply-chain disruptions, the knock-on effects of the coronavirus are still spreading worldwide
Writer Derek Shevel* lives and works in New York. He’s been making his own hand sanitiser over the past week, as there’s none available on the shelves or on Amazon. It’s two-thirds rubbing alcohol, one-third aloe vera and some lavender or tea-tree essential oils — a variant on a recipe that’s being used around the US.
"People are price-gouging on Amazon, so that’s why I’m making my own," he says.
"Some people don’t use the essential oils but if I’m going to all this trouble, I’d like a product that sets it apart from all the other homemade sanitisers. It’s almost a competitive thing."
This week, amid widespread shortages and a spike in the price of hand sanitiser, New York governor Andrew Cuomo announced that the state’s prisoners will be making the product — hopefully about 380,000l a week — to be distributed for free.
A similar scenario is playing out in SA, albeit on a smaller scale, with some pharmacies running out of hand sanitiser, and anxious consumers turning to Facebook groups to try to source the product.
Fallout from the coronavirus is ricocheting through businesses worldwide, seriously damaging revenue and putting supply chains under strain. While most stand to lose, some could benefit.
Data analytics firm Dun & Bradstreet last week released a report on the Chinese provinces most affected by the virus. It found more than 5-million businesses worldwide could take a hit because of their ties to the regions: at least 51,000 (163 Fortune 100 companies) have one or more direct, or tier 1 supplier in an affected region; at least 5-million (938 Fortune 100 companies) have one or more tier 2 suppliers. Most of these are manufacturing or wholesale trade businesses, but they also include personal and business services, retail and financial services.
The situation is unlikely to turn around soon. Financial services firm Allianz says the outbreak is likely to keep the manufacturing sector in recession for the first half of this year. And potential export losses to China could amount to $26bn a week, as production and trade are put on hold.
Conferences, trade shows and events around the world have been cancelled or postponed as a result of the virus. In Europe alone, at least 260 conferences have been called off, the LA Times reports. France has temporarily halted all indoor events with more than 5,000 attendees, and Switzerland has banned gatherings of more than 1,000 until March 15.
Baselworld, the world-leading watch show, has been canned, and McDonald’s four-day Worldwide Convention will be a virtual event.
There is talk that the 2020 Tokyo Olympics could be postponed or cancelled.
The direct economic loss from cancelling nine major tech conferences, including Google I/O and Facebook’s F8, has already surpassed $1bn, according to data intelligence company PredictHQ.
A fear of travelling is having a similar effect on the $45bn cruise-line industry. Royal Caribbean and Norwegian Cruise Line Holdings’ stocks are down more than 50% to date, with Carnival not far behind at 45%. The market is shunning Carnival, after the virus spread on two of the company’s cruise ships, according to CNBC.
Other sectors in the service industry have also been hit hard. The big airlines, for example, are slashing flights, and at least 73 have cancelled flights to China. Lufthansa Group will cut about half its flights in the next few weeks because of a rapid decline in demand. It’s in talks with the German government and the EU about concessions, given expected insolvencies in the industry. The International Air Transport Association estimates that airlines could lose $63bn-$113bn in revenue this year — the most since the financial crisis.
Locally, Shelley Bennett, director of the Promogenix Event Company, has cancelled an event she’s been organising for the better part of a year. The Arbitration Week Conference was due to host 350 local and foreign guests at Sandton’s Maslow Hotel. "The snowball effect is so huge, you don’t realise the implications," she says.
Along with the conference facilities, she’s had to cancel catering staff, waiters and barmen. Transport companies no longer need to collect guests from cancelled flights, and hotels are no longer required.
The gala dinner has been cancelled, along with a wine-tasting featuring many Western Cape wine estates.
Tsogo Hotels CEO Marcel von Aulock says the hotel industry faces downside in the short term. "We’ve seen industry-wide group and convention cancellations, particularly from conferences with high foreign attendances, but so far there’s been no major impact on the business," he says.
Whether there’s upside or downside "really depends on how this thing goes", he says.
"If we have isolated cases, then domestic travel continues. If you have what’s happening in Italy, Japan and South Korea — with a large outbreak and regulatory impact and they shut it down by law — then it’s downside."
Only about 100,000 of SA’s 10-million visitors each year are from China, says SA Tourism CEO Sisa Ntshona. It’s an important growth market, but it’s "relatively small" because Chinese travellers require visas to travel to SA, which take time to process, and there’s limited direct air traffic between the two countries. Ntshona believes the big impact in SA will be felt by the business, meetings, incentives, conferences and exhibitions sector.
But there is some potential upside, he says. Fewer foreign visitors will mean an already hard-hit hotel industry will have excess stock. South Africans steering clear of outbound travel could take up some of this slack — and benefit from a possible reduction in prices. Incentive travel could also go domestic, instead of being cancelled, he says.
"The key is the ability and agility of the industry to fill the vacuum caused by the market that is no longer travelling," says Ntshona.
Outside the travel and services industries, fallout from the coronavirus is also expected to be severe.
Manufacturing production levels in China, the world’s manufacturing hub, dropped to record lows last month. China’s car sales fell 80% in February, according to preliminary numbers from the China Passenger Car Association. For a carmaker like Volkswagen, it’s a concern: about 40% of its sales are made in China, and two-thirds of its 2,100 Chinese dealerships are currently closed.
What it means:
Reaction to the coronavirus outbreak is going to affect a wide range of industries globally
The $80bn global toy industry is also heavily reliant on China: about 85% of its stock is produced there, putting supply into question.
Locally, Shoprite expects to take a R100m knock on turnover as a result of the virus. Most of its nonfood products are imported from China, including winter items such as heaters and electric blankets.
According to Business Insider, a February note from financial services firm UBS says the coronavirus could pose a problem for the entire beauty business, one of the biggest categories in travel retail and dependent on Chinese consumers. Credit Suisse estimates that Estée Lauder, for example, generates 17% of its revenue from China.
Luxury brands are also vulnerable because they’re so exposed to Chinese consumers. UBS flags Brown-Forman, Diageo, Pernod Ricard and Remy Martin as "most exposed" to a dip in travel retail.
The virus has cast a shadow over the film industry, too, as it moves closer to the lucrative summer movie season, says CNN. Studios might be forced to choose between a smaller pull at the box office or the costly decision to delay openings. The new James Bond movie, No Time to Die, is the first major film to delay its release due to the coronavirus.
Cinemas in Italy, Korea and China — the second-biggest movie market in the world after the US — have already closed. In SA, Ster-Kinekor and Nu Metro cinemas say they will not be operating at Cape Town’s V&A Waterfront for the foreseeable future.
*Derek Shevel is the writer’s brother