Coronavirus plunders world health and wealth

The Coronavirus has paralysed Chinese imports and exports, influencing national markets all round the world, including South Africa.

It may seem far away, but even your new smartphone could be affected. Many cities in China have been isolated to stop the spread of the virus and factories have closed.

This affects everything from cars to smartphones and travel, as well as local economies.

The Financial Times reported that Qualcomm, the world’s biggest manufacturer of smartphone chips, warned that the outbreak was causing “significant” uncertainty regarding the demand for smartphones, and the suppliers who are needed to produce them.

For South Africa, the drop in oil consumption is worrying. There has been a staggering 25% drop in China’s oil consumption and a decline in demand of 3.2 million barrels a day, resulting in a 3% drop in global consumption.      

According to Wickus Venter, Senior HR Manager at Sasol Synfuels, Sasol supplies South Africa with 55% of its petrol and then also relies heavily on exports to the Far East and other international customers.

Sasol Mining exports 2.8 million tonnes of coal per annum. Many countries, including South Africa, who rely on tax revenue from oil production to fund government spending, will face government budget deficits and will require an increase in taxes or spending cuts.

On February 5 the Financial Times reported that Brent crude, the international benchmark oil price, had dropped more than 20% since the start of January, falling below $50 a barrel. China is the world’s largest crude importer.     

Due to the expectations of reduced demand, oil prices dropped sharply as the Chinese authorities isolated cities and constrained air and road travel.

An article in The Guardian which was published on February 1, reported that Zhang Ming, a Chinese government economist, expects China to only have an estimated 5% economic growth for the first quarter of 2020, down from 6% last year. This matters, because China is such a big player in the global economy.

Prof Andrea Saayman, a professor in economics at the North-West University Potchefstroom campus said, “Tourism and supply chain are two sectors directly impacted by the virus, tourism is just the start.”

China’s economy, which is known for its supply chain industries such as automotive and electronics, is starting to shrink due to quarantined cities and restricted travel. Shipping companies reported a drop in container volumes. The virus is snarling supply chains and disrupting companies.

The CNN Business website published an article on February 7, reporting that car plants across China have been ordered to remain closed following the Lunar New Year holiday, preventing global automakers like Volkswagen, Toyota, Daimler, General Motors, Renault, Honda and Hyundai from resuming operations in the world’s largest car market.

According to Standard and Poor’s (S&P) Global Ratings, the outbreak will force carmakers in China to slash production by about 15% in the first quarter.

Luxury goods makers, which rely on Chinese consumers, have also been hit. British brand Burberry has closed 24 of its 64 stores in central China. Dozens of global airlines have curtailed or cancelled flights to and from China.

Auto parts already face shortages and have forced Hyundai to close plants in South Korea and caused Fiat Chrysler to make contingency plans to avoid the same result at one of its plants in Europe.