Hot on the heels of the bushfire crisis, fears of a global coronavirus pandemic are having serious effects on businesses. Prime Minister Scott Morrison announced a travel ban for anyone who has been in China in the past 14 days. This has effectively put a halt to all Chinese tourism to the country, as well as shutting out over 100,000 Chinese students who were to return to study in Australia.
At the same time, other sectors are being impacted by China’s reaction to the virus. Many Chinese manufacturers have halted their operations to prevent it from spreading, sending copper and oil prices into a dive. Additionally, the country has halted all live animal imports, throwing the Australian seafood industry into chaos.
These economic conditions will mostly only persist for the duration of the crisis, however will, in the meantime, present businesses with major challenges. To manage the financial impacts of the situation, and to be able to return to growth afterward, they’ll need excellent cash flow management, and innovative financing solutions.
The tourism industry is facing a major contraction
Chinese students and tourists contribute over $16 billion to the economy every year, making up approximately a third of Australia’s tourism revenues. The bushfire crisis in December and January already discouraged tourists from visiting the affected areas, leading to significant strain on the businesses that rely on them. Now, the country as a whole is faced with an extended disruption as Chinese tourists are forced to stay home.
Impacts on Australian heavy industry are diverse
Australia is the world’s 4th largest exporter of copper, and the third largest exporter of fossil fuels. Since Chinese manufacturers have gone into lockdown, the price of oil has dropped by 20 per cent to just $54 USD/barrel. Australia’s crude oil exports make up a relatively small portion of its fossil fuel sector, however are still valued at $11 billion per year. This represents a serious challenge to oil producers, who are currently working together to reduce global production. Unfortunately, this will likely result in temporary job losses for Australian oil and gas workers.
A halt to Chinese manufacturing has also driven the price of copper down by 12 per cent over the course of the past 2 weeks. That will cut into the mining industry’s profits, though some of the damage will be offset by reduced energy prices. In the short term, the heavy industries that have buoyed the Australian economy in recent years will be unbalanced.
Retailers face production shortages
The retail sector has been under strain for years, with numerous high-profile businesses going into administration due to low consumer confidence and weak spending growth. For these businesses, the coronavirus represents just the latest of a long list of financial challenges.
As more and more factories are shut down to keep workers at home, the supply of products to retailers all over the world dwindles. More and more retailers who rely on Chinese imports expect to run out of stock, leaving them with empty shelves and lost customers. Many large retailers are already projecting revenue losses in the millions.
Businesses need time to recover —and time is money
Fortunately, these economic impacts are inherently temporary. Provided that businesses can find the funds to wait it out, things will return to normal as the virus is brought under control. Reaching that point will, for many businesses, be about keeping costs down, and getting access to sufficient financing. Getting access to traditional financing, however, may be difficult as banks and investors alike begin to embrace more conservative lending practices to protect themselves. Fortunately, businesses have other options.
Talk to a representative from Fifo Capital
Alternative financing solutions like Fifo Capital’s invoice financing, and supply chain finance allow businesses to finance their operations even without taking on debt. These can help businesses to finance daily operations, to import products from new suppliers, or to make up for unexpected cash flow problems. Trade finance, for its part, can help them to better manage international supply chains in difficult financial conditions. Most importantly, these types of financing can be accessed very quickly, providing cash when it’s needed most, so businesses can shrug off setbacks and get back to work as soon as possible
At Fifo Capital, we work to build a personal, one-to-one relationship with all of our clients to help them find custom solutions to their financial needs. We work to develop a thorough understanding of the businesses they work with, and can provide guidance and financing options to accommodate your business’ individual circumstances.