Coronavirus: Not just a China problem
This week Apple warned of a global iPhone shortage due to the coronavirus outbreak in China – where its smartphones are manufactured.
In an investor update, the US tech giant said it is unlikely to meet its revenue expectations as travel restrictions are beginning to take a toll on China’s manufacturing industries. Many companies in China, especially those with large workforces, have not yet reopened for fear of new outbreaks emerging. The Spring Festival holiday has been extended for more than two weeks, and most economic activities have stopped.
It is not just Apple that is feeling the effects of the deadly virus, GSMA, the organisers of one of the world’s largest tech gatherings, the Mobile World Congress 2020 (MWC), cancelled the event “because the global concern regarding the coronavirus outbreak, travel concern and other circumstances, make it impossible for the GSMA to hold the event”, according to a statement from the company.
Facebook has also cancelled its upcoming global marketing conference set to take place in March. “Out of an abundance of caution, we cancelled our Global Marketing Summit due to evolving public health risks related to coronavirus,” a Facebook statement said.
While large industry events like Arab Health and Gulfood which attract more than 100,000 attendees have proceeded without glitch in Dubai, areas dedicated to exhibitors from China at these exhibitions have experienced a decline in footfall. The Middle East and North Africa (Mena) region has yet to feel a dramatic impact besides a few isolated cases of the virus, but the trickle effects will soon be felt.
The price of crude has dropped to $55 per barrel and according to a Bloomberg and Saxo Bank report, the oil and gas sector has registered a negative 10.3 per cent return compared to the average. Oil and gas services, travel, especially cruise lines and airlines are among other industries that have been negatively affected with tourism and supply chain bearing most of the damage.The negative sentiment from Asia is also expected to spread to global markets and rising fears around the virus spreading farther is pushing investors to distance themselves from riskier decisions, which will consequently have an impact on startups.
Impact on Mena
Concerns are already being raised for the upcoming Expo 2020, on whether the pavilions will be completed on time given the slow down in manufacturing and visitor numbers, particularly from China.
Governments and major airlines across the region have suspended their China flights in an aim to contain the outbreak, with some countries also barring visitors who have recently been to the country. Oman and Saudi Arabia were the first countries in the Middle East to suspend flights to China, followed shortly by Qatar and Iraq, while the UAE is relying on rigorous high-tech automated screening to detect cases.
The increasing efforts to isolate China are generating negative ripple effects on businesses in the region.
“China’s gross domestic product accounted for around 16 per cent of the global total last year, so this sudden braking has affected many countries, especially neighbouring Japan, South Korea, Singapore and other countries with more economic exchanges with China,” says Yating Zhao, public relations manager at UAE-based iMile, a last-mile logistics startup that specialises in delivering goods from Chinese e-commerce sites to customers in Mena.
According to Zhao, demand for oil has fallen due to the diminishing Chinese economic activity, leading to a drop in global oil prices.
“It should have been the peak tourist season after the Spring Festival, but China does not allow tour groups to leave the country. It was a big blow to the tourism industry in Dubai. From January to June 2019, there were more than 510,000 Chinese tourists in Dubai. The number of tourists will definitely drop significantly this year,” Zhao adds. This will reflect heavily on startups in the fields of hospitality, e-commerce and technology.
Nonetheless, cargo flights and sea freight have not stopped and Chinese goods can still be shipped out. Yet most factories in China are still closed and so production has ground to a halt.
“If a store's supply is in China, it will be affected," says Zhao.
But some are taking a more cautious view of the scale of the impact.
Walid Faza, partner and chief operating officer at MSA Capital, a China-based venture capital firm with an office in Bahrain, thinks that it is hard to tell where the impact is going to be and believes the outbreak is unlikely to have an impact on startups in the Middle East.
“It is not like there is a lot of Chinese labour here similar to other South East Asian countries that would pause construction or trade as a result. However, it is restricting travel for businessmen and causing events like MWC to cancel. So there is a trickledown effect, but I don’t see it as a huge impact yet,” he says. “It is affecting China in a huge way, but it is a little bit early to know how this translates to our side of the world, unless we start guessing."
Over the past few years the Middle East has strengthened its economic ties with China, which is now the third biggest foreign direct investor in the region and in an increasingly globalised world, the decline of one of the world's biggest economies will undoubtedly have repercussions around the world. The 20 per cent drop in oil prices since January will directly affect the GCC's government budgets which will in turn impact the wider economy.