After two months, the daily rate of new infection and deaths attributable to Coronavirus in China is in steady decline. The Chinese government is now moving quickly to get the nation back to work. That is welcome news. Manufacturing and production can get going again?
However, the rate of new infections in Europe, the Middle East and the Americas is beginning to increase. While China was in lockdown, the rest of the world was moving freely, and the virus has spread. Arguably, we are two months behind the China curve. It will take time for new cases to plateau and governments to put control measures in place.
Much of the debate so far has been around the supply chain. China had stopped working, and manufacturers around the world would be negatively impacted as their buffer stocks ran out. We are now in a different phase the virus is spreading outside China. Action is being taken quickly. South Korea is imposing quarantine measures as is the UAE, Italy, Spain and one, now famous, hotel in Tenerife.
We are experiencing the same fears, worries and concerns that China did, at the beginning of the outbreak. We are still in the early stages of Coronavirus management, but there is already public discussion of cancellation of international sporting event and school and university trips. This is only the tip of the iceberg.
In the past twelve months, we have seen Thomas Cook go out of business and the ripple effect across the hotel sector, particularly in Spain. Venice has suffered from floods and just when the tourists were coming back Coronavirus breaks out. If we are two months behind the curve, then things will get worse before they start to improve. How many families across Europe will decide to cancel o not take a summer vacation because of the overhang from Coronavirus? There are many countries in Europe that are very dependent on tourism. Dubai is not a poor state, but tourism contributes 5% to GDP.
The spread of Coronavirus outside of China demonstrates how we criss-cross the globe both for business and pleasure. Airlines, airports hotels, restaurants, taxi firms and many other ancillary companies benefit from the global criss-cross.
These businesses, both large and small, need to consider how their business will be impacted if Coronavirus takes a firm hold, outside China, and both business trips and vacations are curtailed. How many companies have sufficient cash resources enabling them to survive, say, a six-month slowdown? How many of these businesses have entered into early discussions with their funders to quantify the amount of additional support that will be provided?
The outbreak of Coronavirus outside Europe is serious. It may peter-out and not become a major epidemic. Nonetheless, management teams should ask how the outbreak may affect their business and what steps can they take to mitigate the impact. Equally, lenders or funders should analyse their portfolios and assess their exposure to some of the potentially vulnerable sectors; such as hotel, airlines and leisure.
Author: Bill Liddell