Bangladesh’s supply chain amongst the most susceptible to coronavirus

Bangladesh is one of the 35 countries most vulnerable to the production recess in China brought about by the lethal coronavirus, according to a United Nations report. 

The trade impact of the coronavirus for Bangladesh is estimated to be about $16 million if China's exports of intermediate inputs drop off 2 per cent, estimates published by the United Nations Conference on Trade and Development (Unctad) showed on Wednesday.

The trade of leather goods will see an impact of $15 million, while it will be $1 million for textiles and apparels, said Unctad's technical note styled 'Global trade impact of the coronavirus epidemic'.

Bangladesh's automotive, communication equipment, electrical machinery, metals and metal products, office machinery, paper products and publishing, chemicals and precision instruments would not be affected.

The methods used in the analysis are meant to identify the economic sectors and countries that are most exposed to a disruption of China's exports of intermediate inputs.

China is the biggest trading partner of Bangladesh and the biggest source for raw materials. The world's second largest economy accounted for more than a fifth of the country's imports of $56 billion in fiscal 2018-19, Bangladesh Bank data showed.

The analysis is based on United Nations Statistics Division trade data covering about 200 countries and 13 manufacturing sectors.

The slowdown of manufacturing in China due to the coronavirus outbreak is disrupting world trade and could result in a $50 billion decrease in exports across global value chains, the UN agency said in a statement.

In February, China's manufacturing Purchasing Manager's Index, a critical production index, fell by about 22 points to 37.5, the lowest reading since 2004. Such a drop in output implies a 2 per cent reduction in exports on an annual basis.

Because China has become the central manufacturing hub of many global business operations, a slowdown in Chinese production has repercussions for any given country depending on how reliant its industries are on Chinese suppliers.

"In addition to grave threats to human life, the coronavirus outbreak carries serious risks for the global economy," Unctad Secretary-General Mukhisa Kituyi said in the statement.

Any slowdown in manufacturing in one part of the world will have a ripple effect in economic activity across the globe because of regional and global value chains.

The analysis assumes that supply disruptions are limited to China. Disruptions that the coronavirus may directly cause in the output of other countries are not considered at this stage.

The results of the analysis are to be interpreted as short-term effects as they assume the supply capacity in the rest of the world would remain constant.

The Unctad says while there is still uncertainty about the impact of the coronavirus on China's productive capacity, the most recent statistics point to a significant downturn.

The full effect of the virus on global value chains will become clearer in the coming months.

However, one question of importance is how a disruption in Chinese supply of intermediate inputs will affect the rest of the world.

Based on the analysis of this note, two key points can be made, the note said.

First, even if the outbreak of the virus is contained mostly within China the fact that Chinese suppliers  are  critical  for  many  companies  around  the  world  implies  that  any disruption  in  China will be also felt outside China's borders.

European, American and East Asian regional value chains will be disrupted.

The estimated global effects are subject to change depending on the containment of the virus and/or changes in the sources of supply. 

Second, it is expected that the spill over effects of a disruption in Chinese supply will be diverse across economic sectors and dependent on the geographic localisation of the coronavirus outbreak and of the containment measures within China.

For example, automotive industry's intermediate exports may fall relatively more as the industry is geographically localised in the region where the outbreak of coronavirus occurred.

Importantly, because of lack of information this note does not consider this second aspect.

Once sectoral data on Chinese output is available the likely effect on the various global value chains will become clearer.

Among the most affected economies are the EU ($15.6 billion), the US ($5.8 billion), Japan ($5.2 billion), South Korea ($3.8 billion), Taiwan ($2.6 billion) and Vietnam ($2.3 billion).

The trade impact of the coronavirus epidemic for India is estimated to be about $348 million.

For Pakistan, it is $44 million and for Indonesia it is $312 million. 

"There is no doubt that there will be at least short-term impact. And if the outbreak persists for a long time, this will have far-reaching impact not only on Bangladesh but also on the global economy," said Bangladesh's finance ministry recently in a report on the possible impact of the coronavirus.

"Of course, if the virus continues to spread and gets out of control, and we see closures not only in China but also in India and the United States and everywhere else in the world, then it would be a big problem," said Alessandro Nicita, from Unctad's Division on International Trade and Commodities, in another news article on the UN's news website.