Coronavirus is turning out to be a burden to the world economy

Malaria kills millions of people globally every year, with reports showing that in 2018, six countries accounted for more than half of all malaria cases worldwide.

These were Nigeria (25 per cent), the Democratic Republic of the Congo (12 per cent), Uganda (five per cent), Côte d’Ivoire and Mozambique (five per cent) and Niger (four per cent).

However, no airline cancels their flight to these countries.

Scientists tell us that malaria is common in Africa because the mosquito that transmits the disease, Anopheles gambiae, thrives in the African climate.

Nearly 90 per cent of all malaria deaths globally occur in Africa, south of the Sahara.

This makes the disease burdensome to economies.

Like malaria, the coronavirus is turning out to be a burden to the world economy.

Countries that do business with China will be hit most.

The Covid-19 virus belongs to the coronavirus family and is new to the medical profession.

Animal’s market

The Guardian in the UK reported that the disease is from animals. This might explain why the first infections were traced to seafood and newly slaughtered animal’s market in China.

This is a serious disease because it is a threat to both capitalism and socialism.

This is not the first time China is going through a disease outbreak. Between 2002 and 2003, the country was exposed to severe acute respiratory syndrome (SARS) that spread over 17 countries, resulting in 774 deaths. The fear is that these viruses are transmitted from human to human fairly fast and even to doctors attending to the patients.

In markets, we decompose risk into two. There is a risk that managers must manage, that is commonly known as firm-specific risk. In this kind of risk, investors downgrade shares in firms in which the management tolerates firm-specific or idiosyncratic risk because it can be managed away.

The other risk that managers have to contend with is the market risk. This type of risk is unpredictable. Managers have no control over it, and it has the potential to ruin businesses and the global economy if not contained. Coronavirus is a market risk because it has the potential to affect the economy as a whole, though the magnitude of its effects vary from county to county or from business to business.

As an event, and depending on how corrosive it is, the effect of this virus will be felt in stock markets and currencies. Negative news hit stock markets faster than product markets due to investors’ sentiments.

In China in 2003, the SARS pandemic translated to over two per cent loss in real Gross Domestic Product (GDP) in the second quarter of the year.

The stock market effect will be indirect. The major victim in the outbreak is foreign trade and real vector channels.

The virus is heavily impacting the aviation market, specifically, passenger and cargo air traffic.

Cash flow problems

Many major world airlines have blacklisted China. Experts predict that the effects of the Wuhan virus could be more severe than SARS.

The coronavirus is already slowing domestic trade in China and in those countries that trade with it. Wuhan City where the outbreak began, with a population of 11 million, is locked out from the rest of China and other parts of the world.

This means goods and people cannot move out or into the city in the Hubei province.

It is about the loss of life and business. When the virus emerged, Asian airlines were already struggling and unable to cope with competition and political riots in Hong Kong further dimmed their prospects.

China is spending far much more on health than it budgeted due to the outbreak; it has had to construct new hospitals and invest in new equipment. The country might lose out on trade and foreign currency.

Kenyan traders import a lot from China and as of last week, based on the law of demand and supply, importers of goods from China increased their prices by almost 20 per cent.

The most hit sector is the construction industry because major inputs such as tiles, doors and windows are imported from China, and this slows down growth in the sector.

We import substantial furniture and cutlery from China too. Kenyan traders will be affected because the goods they import might be delayed, and those who had taken loans might face cash flow problems and possibly default on their loans.

The advice to traders is always to diversify. In the long run, the extent of the damage is tied to the time it takes the world to contain this virus.

-The writer teaches at the University of Nairobi