Will the Coronavirus Outbreak Disrupt Supply Chains?

Will the Coronavirus Outbreak Disrupt Supply Chains?

Coronavirus Outbreak

Novel coronavirus or nCoV is a new strain in the large family of Coronaviruses that has not been detected in humans, previously the outbreak reported in a major city of China’s Hubei Province, Wuhan, in December 2019, declaring it as a public health emergency by the WHO. The coronavirus has infected close to 45,000 people while killing least 1,115 people.

China is the world’s second-biggest economy, with a GDP of $13.6tn, owing to its extraordinary economic surge over the past 40 years. The supply chain of several industries, such as electronic products, textiles, pharmaceuticals, and automobiles, is led by the country. With the outburst of the coronavirus in December 2019, China is struggling to catch up with the work pace after more than two weeks, due to the shortage of workers, lack of medical supplies and transport disruption, making it difficult for businesses and the supply chain.

Several countries, such as Africa, India, Japan, and the United States, are major trade partners with China. Companies from these countries are highly dependent on China as an integral part of their supply chain for their major product lines. The trade being affected in China is resulting in an obvious slow down in other countries and a major impact on their income. If the disruption prolongs, it could majorly influence the global economy as China is not only the major importer of good but also the prime exporter, which could lead shortages in numerous consumer and industrial products, further inflating and devastating the share price of companies.

China is contributing about one-third of total growth, the world economy as a whole will feel the brunt, starting with the Asia-Pacific region. China has been India’s biggest trading partner, accounting for 14% of Indian imports in 2018-19. The Indian industries have a direct dependency on supplies from China for various products.

• Pharmaceutical industry: Any long term disturbance in the supply of Activated pharmaceutical ingredients (APIs), Antibiotics could lead to major consequences for India. The risk rate during this period seems to be moderate as the Indian players have inventory stocked for a month or two.

• Automobiles: Several parts of the automobile are directly imported from China. The recent shut down of Hyundai’s manufacturing in Korea is a clear example of such high dependence on the country in terms of the automobile supply chain.

• Textile: Several of SME’s highly depend on Chinese imports for fabrics while major players have diversified their sources.

• Argo & Fertilizers: The risk for the agro and fertilizer industry is expected to be moderate as the overall imports from China are limited. Moreover, India imports 77% of phosphate-and potassium-based fertilizers from China.

The United States imports 21% of all the goods from China. The country is heavily dependent on China as it provides income-constrained American consumers to make ends meet with low-cost goods. America is China’s third-largest and by far its most rapidly growing major export market as it helps America with its own exports to Canada and Mexico. The interruption of the supply chain dues to coronavirus will affect several major industries and retailers.

• Gaming Industry: 98% of video game hardware are imported from China, for example, retailers, such as Best Buy could get affected.

• Pharmaceutical industry: 80% of pharmaceuticals sold in the U.S. are manufactured in China, as they are the largest global supplier for the active ingredient of some vital medications. Coronavirus disruption can majorly affect the supply of essential medical products to the U.S, causing the death of thousands of Americans.

• Retail: As the cost of labor is low in China, Apple has 42 stores in the country, and the company’s products are majorly supplied out from China, are said to remain closed due to the spread of coronavirus. The US retailers, such as Nike, Starbucks, Levi’s, have several stores in China are also being shut, affecting the retailers in the US majorly.

Over the past two decades, Africa and China have entwined themselves as China has been funding several large infrastructure projects, along with billion dollars in loans and investments. China has also expanded its economic, political, and military ties with Africa. With coronavirus affecting the mainland of China, the foreign investments to Africa will reduce. This prolonged standstill could intrude the supply chains in the automotive, chemical, electronics and textile industries. The longer the growth of the Chinese market is down, there would be a worse effect on the African commodity exporters from Zambia to Angola. Several industries see a surge during the Lunar New Year celebration; however, due to the coronavirus, producers of commodities, such as copper, will be affected by a downturn in Chinese manufacturing. African stock exchanges and currencies are also vulnerable.

As China shows dominance in exports and imports, the effects of the virus are not only impacting the country but has also spread on a global scale. There is a warning that the worst-case scenario could be an economic contraction in China. International players that rely on the Chinese market for a substantial chunk of sales are to endure a significant hit. Since the outbreak of the coronavirus, there has been a drop in copper and oil. The disruption of the virus results in major losses in central Asia while there will be a major economic gain in South and Southeast Asia.