Lessons from global reaction to COVID-19

Vital takeaways as contagion compresses world economy takeaways

By Antony Mutunga

It has been over three months since COVID-19 started its war on humanity in Wuhan, China. At the time of press, more than 350,000 people worldwide had contracted the virus and more than 16,000 people lost their lives.

Even though China has contained it, it continues to spread all over the rest of the world, affecting individual and national economies alike. And as global bodies, such as UNCTAD have noted, apart from the threat COVID-19 has on human life, the contagion carries serious risks for the global economy.

Despite what could be said to be ample warning from the countries first affected, many economies were caught off-guard when the virus arrived in their borders. Italy is a sad but apt example in this regard. When the virus first hit China in December last year, among the first attempts the government took to contain the virus was to lock-down most of the affected cities, restrict the movement of people in the country and suspend most business operations.

The very first result of that lockdown was that it affected the global value chain as manufacturing in China slowed down – China is the hub of global manufacturing. In addition to its low labor costs, China has become known as “the world’s factory” because of its strong business ecosystem, lack of regulatory compliance, low taxes and duties, and competitive currency practices. Because of this enabling ecosystem, it is the leading supplier of various products such as aviation parts, digital cameras and cars, tech products and innovation and so on; companies that rely on these products are already reeling from the effects as output becomes decidedly constrained.

An example of such companies includes Apple which announced it would not be able to meet its revenue forecast for the quarter as with some Chinese factories closed at the time.

In addition, the closure of factories and the slowdown of the manufacturing sector in China at the early stage of the pandemic saw countries that relied on it for their exporting goods affected. In fact, the country’s manufacturing Purchasing Manager’s Index (PMI), which is a critical production index, had fallen by 20 points to stand at 37.5 as of February 2020, its lowest since 2004.

This meant that the country had not only recorded a reduction in its exports but also reduced what it imported in terms of raw materials. For instance, Africa’s smaller economies such as Togo, Madagascar and Mali, which have no alternatives for their goods other than China, are already in dire straits.

Further, many economies will not meet their economic growth forecasts as their manufacturing slows down as well, all on account of the lockdown in China.

“Any slowdown in manufacturing in one part of the world will have a ripple effect in economic activity across the globe because of regional and global value chains,” said UNCTAD secretary general Mukhisa Kituyi.

COVID-19 has not only affected the manufacturing sector, but it has also had an adverse effect on the oil sector. As global economic activity reduced, the demand for oil went down with it, taking crude prices to their lowest since 2001.

The recent disagreement between OPEC and its allies such as Russia on cutting production has also caused the prices to slump further. With China, the world’s largest crude oil importer and also the epicenter of the pandemic, some countries that heavily rely on oil such as Nigeria, Angola, and Libya have been compressed.

Tourism is also among the most hit. With international travel virtually halted, the hospitality sector is experiencing a revenue crisis like it has never experienced. Businesses have had to postpon or cancel conferences and events, affecting travel and hospitality immensely.

The financial sector has also not escaped the wrath of the virus as stock markets around the world have reacted with volatility as investors forecast that the spread of the corona-virus will continue to cause more disruptions and reduce demand. As a result, a majority of investors jumped to panic-sell out of fear causing stocks to decline all over the world. For example, in Kenya, investors rushed to make panic share sales causing the Bourse’s total market capitalization to shrink by Sh120 billion, which is one of its largest declines in a day.

As the number of those contracting the virus continues to rise globally, it is time governments truly rose to the occasion to help halt the spread. As with China, economies will have to understand that negative short-term impact that is necessary to avoid a catastrophe in the long run.

COVID-19 is real and dangerous; it will take more than good hygiene, and in some cases isolation, from individual people, but also strict regulations and assistance from the governments around the world to contain it.