Coronavirus and its Effects on the Economy

It’s increasingly recognised as the biggest global event since World War II. And like that War, which fundamentally altered demographics, populations, society, culture and the economy, coronavirus is having a profound impact on the way we live and do business. Will the world ever be the same again? Take a look…

Coronavirus Effects on the Economy

What is Coronavirus?

By now, we’re more than familiar with the term but there is still an incredible amount of disinformation circulating online. Says John Hopkins Medicine – the online presence of The John Hopkins School of Medicine – a coronavirus is a type of virus, so named for its crown-like appearance (‘corona’ being Latin for crown) when viewed under a microscope. There are many types of coronaviruses, of which the latest virus – now being referred to as COVID-19 (‘coronavirus 2019’) is just one. Other coronaviruses include SARS (Severe Acute Respiratory Syndrome), of which there was a major outbreak in 2003/04, and MERS (Middle East Respiratory Syndrome), which circulated in 2012.

Why is Coronavirus So Dangerous?

Often referred to in the media as ‘novel coronavirus’ (i.e. a new, entirely unfamiliar strain), we’re still seeing how it acts, including how quickly it replicates, how and where it survives and what its effects are. While many people dismiss it as just a ‘flu, the reality is that it’s a much more virulent type of virus. Although sharing symptoms with ‘flu – like a runny nose, dry cough, fever and body aches – it can lead to an aggressive form of viral pneumonia in the elderly and immune-comprised individuals. While the data is still being collected, and no one really knows just how many people have been, are or will be infected (virologists estimate up to 60% of a population will contract it), globally coronavirus is proving to have a mortality rate of approximately 4.35%.

What is a Pandemic?

Unlike an epidemic – which is a term used to describe an outbreak that spreads quickly and affects many people at the same time, explains the World Health Organisation (WHO), a pandemic is declared when a new disease for which people do not have immunity spreads around the world beyond expectations. First diagnosed in Wuhan, China – probably in November 2019 – the WHO declared coronavirus a pandemic on 11 March 2020, after the exponential increase in cases outside of China, calling on governments around the world to take “urgent and aggressive action” to change the course of the outbreak.

Industries Affected by Coronavirus

Coronavirus Impact on Travel and Tourism

With a sense of disbelief, the world watched as coronavirus took holidaymakers on cruise ships hostage – the Diamond Princess was one of the first to fall foul of the pandemic, as the virus spread amongst passengers, forcing the cruise liner to be quarantined off Yokohama, Japan. Later that same month, it was the turn of passengers aboard the Grand Princess to be quarantined off the coast of San Francisco Bay. Closer to home, the MSC Orchestra controversially left the port of Durban after the State of Disaster declared by Cyril Ramaphosa on 15 March 2020.

Next, it was airlines that were grounded – as the threat ramped up, flights were grounded and airports closed, leaving passengers unable to take upcoming trips, or worse, stranded at their travel destination or in-transit indefinitely.

Before coronavirus, the travel and tourism industry accounted for 10% of the world’s GDP – that’s according to the World Economic Forum, which predicts that the pandemic is putting up to 50 million jobs at risk globally – 30 million in Asia, seven million in Europe and five million in the Americas. Estimates the World Travel and Tourism Council, it’ll take the industry up to ten months to recover.

And it’s not just leisure travel which is affected. Consider that the vast majority of all trade goods are transported by sea, with much of this comprising raw materials to China and manufactured goods from China and it’s not difficult to see the implications. Allard Castelein, CEO of Rotterdam harbour – the gateway to the European Union – is quoted in Harvard Business Review: “The effect of the coronavirus is already visible. The number of departures from Chinese ports has decreased 20%.”

Coronavirus Impact on Manufacturing

Much of the Western world may now be services-driven – with the call to remote work to avoid the spread of the virus – but the global economy is, in fact, manufacturing-driven, where working from home is simply not possible. The upshot – plants must shut down.

Indeed, manufacturing is the building block of tertiary industries – supplying the goods we need to navigate modern life (even remotely), such as computers, tablets, smartphones and smart TVs, and supply services – as accountants, attorneys, hairdressers, plumbers, electricians, health care workers, shop owners and digital marketers.

With most of the world’s manufactured goods now coming from the East, which initially bore the brunt of the disease, the peak of the impact on the global supply chain is yet to come. Reports Harvard Business Review, this peak will occur around mid-March. The knock-on effects of lockdown of factories in Asia include:

  • Shortage of manufactured goods, including technology devices
  • Shortage of parts used by manufacturing facilities in other parts of the world
  • Temporary closures of manufacturing facilities in Europe, Africa and the Americas
  • Loss of earnings and decrease in the contribution of manufacturing to global GDP
  • Loss of jobs in the manufacturing sector globally.

Coronavirus Impact on Mining

If manufacturing drives the services economy, mining drives manufacturing, producing the raw materials needed to make the goods we need and want.

As Covid-19 restrictions have come into place mines have been forced to shutter temporarily – like manufacturing, mining is not a work-from-home industry. In a move unprecedented in its 150 year history, South Africa – a mining superpower supplying much of the world’s gold, platinum, iron ore and palladium, amongst other minerals, and employing 450 000 people – announced it would be coming to a complete standstill midnight, Thursday 26 March, in keeping with the country’s 21 Day Lockdown announced by President Cyril Ramaphosa earlier that week. All but a few coal mines needed to fuel South Africa’s power stations are to remain open for the duration of the coronavirus lockdown. This after being hit by recession, legislation changes and loadshedding – all of which places the country’s mining industry in a precarious position.

Coronavirus Impact on Hospitality and Retail

Across Europe – famous for its bustling café society – the streets fell silent as increasingly more stringent forms of coronavirus lockdown were implemented. Deserted streets around iconic landmarks like the Colosseum, the Eiffel Tower and – closer to home – the V&A Waterfront under the shadow of Table Mountain, point eerily towards the devastating effects on business in the hospitality and retail sectors. Here are stark figures, courtesy of global hospitality data centre STR:

  • Hotel occupancy is down 96% in Italy, 68% in China, 67% in the UK and 59% in the USA
  • Revenue per room is down sharply – up to 85% – with many rooms being used for lockdown purposes, being sold off at reduced prices, or standing empty
  • Seven out of every ten hotel rooms are currently empty
  • Forward occupancy has all but collapsed – with projections of between five and 20% as cancellations roll in and hotels close indefinitely.

On the retail side of things, it was looking bleak prior to the coronavirus crisis for South African retail outlets, with the burgeoning recession taking its toll as disposable income and consumer spending decreased. Covid-19 could be the nail in the coffin for many a South African retailer – Edcon is the first major casualty, with the possibility that one of the country’s oldest retail chains won’t be opening post-coronavirus, looking all the more likely. In a similar vein, many smaller retail chains and ‘mom and pop’ stores don’t have the cash flow to survive an extended lockdown.

On the bright side, in the wake of the SARS epidemic, what followed was a quick V-shaped recovery after six months. Hoteliers, restaurateurs and small business owners the world over will be hoping this will be the trend once Covid-19 is finally beaten. The other positive – the move to the digital sphere, as online shopping booms. Those small businesses that are able to rethink their business models and move to ecommerce platforms will thrive.

Coronavirus Impact on Sports and Leisure

For the sports fanatic, a veritable wasteland! The sports and leisure industries have been hit hard by the coronavirus pandemic, with major sporting competition and sports leagues being put on ice for the foreseeable future, including:

  • Super Rugby
  • The Tokyo Olympics
  • Diamond League Athletics
  • The FA Cup
  • J-League football (Japan)
  • La Liga football (Spain)
  • F1 motorsport
  • PGA golf
  • International cricket tours and national and regional cricket series
  • Global parkruns, and many more…

Again, there are major knock-on implications of these cancellations, including billions in lost revenue globally as a result of ticket sales, lost sponsorships and TV viewing deals.

As gyms across the world close their doors, with the resulting loss of revenue to the health and fitness industries that that entails, a new door opens – the boom in online fitness. Suddenly, we’re all on board bootcamp, yoga and cardio seshes in our living rooms, as personal trainers like Joe Wicks, aka The Body Coach, take their fitness tutorials online.

Coronavirus Impact on Agriculture and Food Production

As it become apparent that lockdown was the only solution to stop so-called in-community transfers, panic buying became the norm the world over. Fortunately, South Africa remains a net exporter of food products, which means that there should be more than enough to go around, even in the event that our lockdown extends beyond the initial 21 days.

Any shortages will be of imported goods due to manufacturing downtime on the supply side and/or logistical bottlenecks in shipping.

Globally, it remains to be seen what the effect of the pandemic will have both on the supply chain and on food prices. For the South African agricultural industry, there could be implications due to the slowdown of export demand as our key export markets grapple with their own economic challenges.

Fit-for-Purpose Fuels, Whatever Your Industry

As an essential service, SA Oil has put into place extensive preparedness plans to deal with the Covid-19 pandemic. Furthermore, at the heart of our offering lies the undertaking to provide industry – from mining to manufacturing to agriculture and agri-processing – with the fuels they need, when they need it. We’re on standby throughout these trying times – get in touch