”We’re moving closer to the day when it is China’s increasingly hefty economy, not America’s, that’s mostly to blame for a global recession.” – Ian Bremmer

With over 24,000 reported cases and over 2,120 fatalities recorded as of Feb. 20 according to the World Health Organization, the global impacts of the novel Coronavirus are going to be quite menacing. A black swan whose effects will reverberate in many sectors of world economies.

The Black Swan terminology was first coined by the Lebanese-American essayist and statistician, Nassim Nicholas Taleb. It is a rare and unpredictable phenomenon or event with the capability to deeply disrupt the global financial and economic spaces. The economic impacts of the virus become dire considering that its origin is from the factory of the world, China. 

It is imperative to brush through the most recent cases which would be the 2003 SARS epidemic. It is estimated that the Chinese economy lost about two percentage points of its real GDP growth in the second quarter of 2003 while the global economic growth lost 0.1 of GDP to SARS. But thanks to the increase in the export account and the economic stimulus packages by the Chinese government, China’s economy bounced back to record an impressive 35% in exportation in 2003.

Fast forward to 2020, the Chinese economy is the second-largest in the world today, 5 times bigger than it was in 2003, the impact of the Wuhan virus is threateningly more inauspicious. The number of tourists China sent abroad has increased by 6 folds compared to 2003 which means we might see a deeper hit to global businesses and economies than it was 17 years ago. The International Air Transport Association has warned that the virus outbreak could reduce global airline revenue by $29 billion this year. Airlines in the Asia-Pacific region are expected to bear the major brunt of the loss with a 13 percent decline in passenger predicted by the association. 

More than 19 international airlines have suspended routes that stop in major Chinese cities, especially Wuhan, the center of the disease outbreak. Asian countries will witness a sharp reduction in the number of Chinese tourists, quite important for economic growth. 

Japan, Australia, Italy, Singapore, and the U.S. have all imposed travel restrictions. This movement embargoes will take a massive toll on the global supply chain, particularly in the automobile verticals. Chinese Passenger Car Association confirmed that the sales at dealerships had plummeted 92 percent in the first half of February compared with the same time last year. The New York Times reported that nose-dive in sales in the Chinese car market will hurt the global industry. The German luxury car giant, Daimler, warned that the virus “may not only affect the development of unit sales but may cause significant adverse effects on production, the procurement market, and the supply chain.”

Furthermore, much of China is still in lockdown, getting workers back to work and getting factories working again is arduous as much as it is hazardous. It is important to note that some things are only made in China these days. A huge tranche of electronics and their supply chain verticals come out of China’s factories, a further delay in production could hit overall supply. Foxconn, a key player Apple’s supply chain and world’s largest manufacturer of electronics forecasted that its revenue will be severely affected as a result of the spread of the coronavirus. 

Analyzing the effects on countries, Hong Kong will be most affected by the virus because of its deep economic ties to mainland China in the area of merchandise, finance, and logistics. South Korea is expected to record a 0.4 percentage in the first quarter of 2020, less than the initial forecast. Main product exporters like Brazil and Australia will be affected owing to the slowing down of China. 

The coronavirus epidemic has revealed a weakness among French manufacturers which is their overdependence on China for raw materials. The French automakers are having trouble getting parts like brake pedals while the pharmaceutical industry gets 80 percent of raw materials for some drugs from China. Wuhan, the center of the outbreak is home to more than one-third of all French investment in China. The government estimated the economy may shrink by 0.1 percent in 2020. 

China is one of the biggest buyers for Africa’s resource-dependent economies. The Wuhan virus has prompted the IMF downgrade growth prediction for Nigeria. The oil price has fallen by 13 percent this year because of the reduction in Chinese demand owing to the coronavirus. Nigeria, a country that depends on crude oil to funds its foreign exchange does not export much oil to China but every $10 drop in oil prices costs Nigeria about $500m per month in lost export revenue according to John Ashbourne, an economist at Capital Economics. 

Africa’s resource-dependent economies are preparing for a hit as the virus slows down their biggest buyers, China. This has prompted the International Monetary Fund to lower the growth forecast for the Nigerian economy due to the fall in oil prices. The IMF has urged Nigeria to diversify its crude-oil dependent economy. Also, Angola which has deep ties to the Chinese market had its state-owned petroleum company, Sonangol, resell at a discount a shipment that was already on the way to China due to low demand. In Ethiopia, a UK leather and apparel producer laments how the coronavirus had affected the company’s supply chain. It imports threads and packing materials from a plant in Tianjin, China, but the factory there had not resumed operations since the Lunar year holiday.

While the Wuhan virus is known to lose its potency in warm climates which might halt the contagion, bleak expectations in the global supply chain are expected to negatively impact the US. And some EU countries, especially the German economy which is expected to majorly hit by the virus.

China’s top-down authoritarian government are to be blamed for their failure to accept how acute the virus was at the inception of the outbreaks, even to the extent of Chinese authority hiding information about the reality of the virus from other global state actors. It’s the second-biggest economy in the world and a key cog in the global supply chain. Its failure to quickly identify the public-health risks and move swiftly to mitigate will not only result in lives loss but also, China’s reliability as a trade partner will be questioned and the consequence might be the rest of the world reducing its dependence for production and growth.

Like what happened a few months ago in Sudan when the former leader, Omar al-Bashir, was taken down because of bread. Yes, the good Sudanese people could not withstand messing up with their bread. This was a man IMF, World Bank, AU, U.S., EU and indeed the world could not normalize; BREAD did the job.

Sudan’s fallen ruler, Omar al-Bashir, won many fights for three decades. He mastered the politics of UN. He overcame America and South Sudan. He triumphed over IMF and World Bank. He fought rebels, friends and enemies – and won. But at the end, he fell because of BREAD. Yes, bread – so simple and harmless- brought down one of the last surviving yoyo men of Africa.

Take that to the big tech where nothing has seemed to slow down Microsoft, Amazon, Apple, Alphabet and Facebook as they break records over records. Writing the lecture notes for the ongoing Tekedia Mini-MBA over the weekend, I referred to Microsoft and its then-$1.36 trillion market cap. I was making a case that a new business model, under a new CEO, turned largely the same products into something that delivered 4X of market cap in 6 years! Yes, your business model is very important!

In 2018 a new word entered Silicon Valley’s lexicon: the “techlash”, or the risk of a consumer and regulatory revolt against big tech. Today that threat seems empty. Even as regulators discuss new rules and activists fret about the right to privacy, the shares of the five biggest American tech firms have been on a jaw-dropping bull run over the past 12 months, rising by 52%. The increase in the firms’ combined value, of almost $2trn, is hard to get your head round: it is roughly equivalent to Germany’s entire stockmarket. Four of the five—Alphabet, Amazon, Apple and Microsoft—are each now worth over $1trn. (Facebook is worth a mere $620bn.) For all the talk of a techlash, fund managers in Boston, London and Singapore have shrugged and moved on. Their calculus is that nothing can stop these firms, which are destined to earn untold riches.

This surge in tech giants’ share prices raises two worries. One is whether investors have stoked a speculative bubble. The five firms, worth $5.6trn, make up almost a fifth of the value of the s&p 500 index of American shares. The last time the market was so concentrated was 20 years ago, before a crash that triggered a widespread downturn. The other, opposite concern is that investors may be right. The big tech firms’ supersized valuations suggest their profits will double or so in the next decade, causing far greater economic tremors in rich countries and an alarming concentration of economic and political power

The public outcry did not stop the big tech. U.S.-China trade war had no meaningful impact. Regulation from Europe was nothing. Big fines were largely seen as the cost of doing business. But then came a virus – the coronavirus – and big tech lost balance. Yesterday, most lost at least 4% of their market values.

If you do not believe that coronavirus could be a back swan on this year’s economic output, now is the time to recalibrate. This a different type of virus, unique in many ways from the virus, made of 1s and 0s, big tech has mastered and figured out. This one has biological cells and  solutions are expected not from McAfee but likes of Pfizer, and Johnson & Johnson.

The world needs solutions on this virus – urgently.