Coronavirus – don’t wait and see
By Garry Booth
In the face of the fast moving health emergency in China, government agencies and businesses around the world are waking up to the potential impacts that can stem from a human pandemic. In addition to the tragic loss of life, the effect of a disease outbreak on economic activity can be devastating.
Just days after the ongoing coronavirus outbreak was first confirmed by the Chinese authorities in January, as the death toll rose to 361, Reuters reported that worried investors wiped more than $400bn off the value of China’s stocks in the first trading after the extended Lunar New Year break.
Since then, the ‘flu-like virus has been declared a global emergency by the World Health Organisation and has spread to more than two dozen other countries and regions.
The so-called novel virus – 2019-nCov – is thought to have emerged at the end of 2019 in the city of Wuhan, in the central province of Hubei, probably from a market where wildlife is illegally traded.
Coronavirus can cause pneumonia and spreads between people in droplets from coughs and sneezes. Although 2019-nCov is thought to be less deadly than Severe Acute Respiratory Syndrome (SARS), another coronavirus that emerged from China in 2002-3, the latest outbreak has killed more people in the region.
Wuhan, which itself has a population of nearly 12m, is a prominent tourist destination, a port city and transportation hub, as well as a regional centre for education and manufacturing, meaning the virus was certain to travel near and far before the authorities could enforce a lockdown.
Cities at risk
A report by Southampton University’s WorldPop team found Bangkok (Thailand) as the city most at risk from a global spread of the virus – based on the number of air travellers predicted to arrive there from the worst affected cities in mainland China. Hong Kong (China) is second on the list, followed by Taipei (Taiwan, the Republic of China).
Sydney (12), New York (16) and London (19) are among 30 other major international cities ranked in the WorldPop research.
The population density of many of Asia’s cities makes them particularly susceptible to emerging infectious disease outbreaks, often at huge economic cost. According to Lloyd’s City Risk Index, the GDP at risk from a pandemic in the region is $22.58bn.
The Chinese cities of Shanghai ($1.21bn), Beijing ($989m), Guangzhou ($782m) and Shenzhen ($732m) all feature in the Top Five Asian cities ranking, along with Tokyo (£1.17bn).
While modern healthcare systems mitigate the human cost, the disruption to commerce can be significant in even the most highly developed economies. For example, Lloyd’s City Risk Index puts GDP at risk in London at $885m. Human pandemic is expected to cost North American cities an average of $9.79bn a year– the fourth greatest risk to their GDP. New York ($1482m) and Los Angeles ($912m) top the list.
Pandemic disease can hit businesses hard in different ways, depending on the sector they serve and the location of their customers, employees and suppliers. As 2019-nCov spread beyond Wuhan, Asia’s largest refiner, China’s Sinopec Corp, was reported to be cutting refinery output in February by about 600,000 barrels a day, roughly 12% of the average daily output last year, due to lower fuel demand caused by health worries.
Reports also said that Taiwan’s Foxconn, which makes smartphones for Apple, halted much of its production in China after companies were told to shut until at least February 10. Many companies, such as Google, kept their offices closed in mainland China, Hong Kong and Taiwan after the lunar year holidays as a precaution.
Travel companies have proved especially sensitive to disruption over health fears and the share prices of cruise operating companies, for example, came under pressure as cancellations looked imminent.
In addition to business interruption and contingent business interruption, many companies are likely to be directly affected by event cancellation. In China, the World Indoor Athletics Championships due to take place in Nanjing in March has already been postponed; the Shanghai Grand Prix, scheduled for April, is now also at risk.
Each business will experience a unique impact to a given outbreak, says Narges Dorratoltaj, senior scientist at AIR Worldwide. “Some firms which are more reliant on travel or face to face interaction will likely have a major impact from an outbreak. For firms which can operate with remote workers and their business isn’t as tied to the local markets, then they will likely see lower impacts from the event.
“That said, as an outbreak gets big enough, generally speaking, people often are pulled away from their day to day lives. This will likely result in a slow-down in commerce, production, and trade,” Dorratoltaj says.
Ill-prepared for pandemics
A recent report from the World Economic Forum (Outbreak Readiness and Business Impact) pointed out that many businesses do little to prepare for the rising threat of disruptions caused by infectious diseases. “In fact, many companies have no mitigation plans or rely on a wait-and see strategy when responding to outbreaks,” the report said.
Julia Graham, deputy CEO and technical director at the UK risk manager association Airmic, stresses that it’s important for businesses to understand the implications of pandemic disease even if they are not trading in the part of the world that’s worst affected by the ongoing outbreak. “There can be a big supply chain risk directly related to Chinese suppliers. There’s also the effect of travel bans on your footfall and customers,” she says.
“Pandemic is an enterprise risk for businesses and should encompass people, finance, procurement, legal and operations. I’m urging Airmic members to take a holistic approach to managing all the risks arising from outbreaks like the coronavirus and to horizon scan as an around-the table collaborative process,” Graham says.
Time to act
James Crask, Head of Resilience in the Client Advisory Services unit of Marsh, agrees that people -employees and customers – should be a priority for any business responding to the recent outbreak. But neither should companies adopt a wait and see attitude to business continuity, even if they feel removed from the crisis.
“The potential impact of this emerging event is not visible to everyone yet beyond what they are seeing in China. Now is the time for businesses to really think about how their critical suppliers will be impacted,” Crask says. “Surprisingly, businesses often don’t know where their suppliers are located, let alone their suppliers’ suppliers.
Crask believes that there are interconnected issues deep within supply chains of businesses that are not yet apparent. “Spending time now to understand who your suppliers are and what impact they expect will buy you some time to put a recovery plan in place if the worst does happen,” he advises.