The world was shaken by the quick spread of Coronavirus disease. Many countries implement dramatic restrictions on the movement of people and goods to slow down the epidemic.
Relationship between China and Sub-Saharan African countries will be greatly affected by the epidemic
Due to the Coronavirus epidemic, the production output of China decreased dramatically. According to the Chinese National Bureau of Statistics, industrial output fell by 13.5 per cent in the first two months of 2020. The fall in industrial output is accompanied by 20.5 per cent drop in retail sales.
Quarantine measures and social fear also affected the international trade capacity of China. The demand for Chinese products decreased and less business activities are conducted due to quarantine rules.
The effects of the coronavirus on the relationship between China and African countries are expected to become worse due to travel bans for Chinese nationals by African countries. The Democratic Republic of Congo already imposed quarantine measures for Chinese nationals. Ghana, Kenya, Rwanda and Uganda announced similar measures restricting travel.
As a result, we expect a direct slowdown in business travels and trade volume between Africa and China. Depending on the severity of the epidemic, this decline can be dramatic and long-lasting.
The epidemic of COVID-19 might slow down the AfCFTA process
African countries have taken serious steps on The African Continental Free Trade Area (AfCFTA) agreement in the last years. African countries are taking serious steps in promoting trade and developing welfare. In March 2018, 44 out of 54 African countries signed the African Continental Free Trade Agreement (AfCFTA) in Kigali, Rwanda. The agreement outlines the removal of tariffs on 90% of goods, allowing free access to commodities, goods and services across African countries. If the African Continental Free Trade Agreement enters into force, the Intra-Africa trade can converge to the level of Intra-Asia or Intra-Europe trade.
The Coronavirus epidemic puts the AfCFTA process at risk. The national borders are being closed to fight against the spread of the virus. This is a disadvantaged environment for an inter-continental agreement which aims for a common market without borders. Although there hasn’t been any official announcement on the next steps for AfCFTA during the epidemic, we expect a deceleration in the complete implementation of the common market.
While airline and tourism companies suffer, packaged food and healthcare companies might announce higher revenue during the epidemic
It is an undisputable fact that the coronavirus epidemic hit the market and changed the playground. Many airline companies were hit hard amid coronavirus epidemic and closure of borders. European and American airline carriers’ share prices have declined faster than global stockmarkets. The International Air Transport Association (IATA) projected a possible hit to worldwide revenues of up to $113bn.
The shape of the hotel industry is not a different story. Hotel occupancy already fell below 20% in many major cities. The American Hotel and Lodging Association states that 45% of all hotel jobs have been eliminated or will be eliminated in the next few weeks. This situation is reflected in the stock markets: Marriott International (NASDAQ: MAR) stock fell by 20% over the last two weeks.
We identify two industries which can benefit from the coronavirus epidemic. Due to the infection characteristics of the virus, many people could prefer packaged food as an alternative to traditional food. Also, the traditional food supply chain can be hit if the epidemic becomes more severe. In the case of a curfew, many people need to be provided with packaged food and diet. Companies in this sector can increase their sales as the demand rises.
Secondly, the pharmaceutical and healthcare companies can increase their revenues due to the higher need for medical supplies and drugs. Shares of many pharmaceutical companies have increased in the last months. In India, only one company out of ten healthcare companies announced negative share returns. The share price of the other nine companies has been trading higher.
Local industries in Africa can turn this crisis into an opportunity
We expect less trade activity in the coming months amid coronavirus epidemic and border closures. In an unfavorable environment for international trade, the local industries of import-oriented countries can place themselves in a better position. Especially, the economic slowdown of China might make these local companies more competitive and profitable.
However, local companies should watch their supply chain closely. If the raw materials of these companies depend on imports, shortages can cause inefficiency in the production line. In order to prevent this situation, stocks should be kept at an adequate level and alternative suppliers should be identified.
Trade volume is expected to shift from China to less infected regions in the world
This negative landscape is not only limited to China. Italy, one of the countries hard-hit by the coronavirus, is experiencing a downfall in their factories. Fiat Chrysler stated the temporary suspension of operations at some of its Italian factories. In addition, Italian tyremaker Pirelli announced that production cut for several days at its Torino plant in northern Italy.
As these countries that are highly affected by coronavirus have industrial and supply chain problem, the trade is expected to shift to less affected regions in the world. The global situation of the pandemic is not clear yet, however, Turkey stands out as one of the least infected countries with less than 100 confirmed cases as of today. We expect a positive shift in trade volume between African countries and Turkey.
The coronavirus epidemic disrupted the global market. The closure of borders and implementation of more restrictions have negatively affected the industrial production and international trade. According to our observation, as the epidemic becomes more severe, the economy is also more negatively affected. China suffers the most negative outcome in Asia, while Italy suffers in Europe. In addition, some sectors such as airline and hospitality are much more affected by the epidemic.
In this new playground, some industries and countries can manage to be less affected by the coronavirus epidemic. The countries which can stop the spread of epidemic will suffer less in terms of industrial output and domestic sales. The local industries which cater the domestic demand can increase their competitive advantage as international trade is restricted and their Chinese competitors suffer from the negative effects in their country. Finally, some companies in packaged food and healthcare sectors might increase their revenues due to increased demand.