In geopolitics, we talk about the ‘known knowns’, the ‘known unknowns’, and the ‘unknown unknowns’. The general rule being that you plan for the risks and scenarios you know might be coming, stress-test your processes and policies against those that you may not foresee, and crisis manage when necessary.
COVID-19 falls somewhere in the latter end of the spectrum – in some respects, the surprise black swan, with a low likelihood but potentially catastrophic consequences. We couldn’t predict when, or where, this type of outbreak would occur, but it is not that unexpected that it did. We couldn’t predict the spread of the disease, nor perhaps the extent of measures that governments have adopted to contain the virus, but we can calmly assess the situation as it develops and adapt as necessary.
We aren’t epidemiologists, and there are others far better placed to take a call on the spread of the disease. But for the purposes of context, at the time of writing, it is present in around 58 countries, most notably China, South Korea, Japan, Iran and Italy. (Uncertain) global estimates suggest that two thirds of the world’s population could contract the disease; preliminary numbers suggest that COVID-19 is less infectious than measles but deadlier than seasonal flu (which, incidentally, is responsible for around 290,000 to 650 000 deaths annually). The goal now arguably is not containment, but rather to slow the spread – to minimize load on health systems, allow for the stockpiling of treatments and development of a vaccine, and make the most of seasonal changes (noting though, it will not necessarily stop in warmer weather, given the outbreaks we have seen in tropical regions).
Governments have adopted a wide range of containment measures, which has resulted in the shutdown of manufacturing, as well as labor disruption through enforced isolation, travel bans and border controls across the world. There is potential for a significant dent to global consumption as well as economic prospects. The containment measures adopted, as well as the disease itself, will result in work lost, and given the way markets work, there is potential to for an impact disproportionate to the cause. So far it has resulted in a slow-to-respond, but now significant market disruption: all major indices fell double digits in the past few days.
Our Alliance partner Eurasia Group, a geopolitical risk consultancy, initially outlined two potential scenarios and the potential impact on the business environment: the first follows the trajectory of SARS, in which case the crisis stabilizes by April. The less optimistic case – ‘the virus digs in’ – involves large-scale outbreaks outside of China, and a containment effort that continues over at least two quarters.
Like a lot of macro non-financial shocks, COVID-19 has the ability to hit every component of your business. But when the uncertainty of the situation can feel overwhelming, make sure you have covered the basics:
We will be providing more information on ways client communities can respond to potential developments.