The top ten South African risks

The Institute of Risk Management South Africa (IRMSA) released its first 2015 South African Risks Report highlighting the country’s top risks that organisations need to consider. THATO TINTE shares the results of this “must-read” report.

Business risks are unavoidable. For that reason, businesses need to have a robust risk-management framework to identify potential risks and minimise the impact.

External factors, such as a country’s political, economic and social situation, must also be observed – particularly in a volatile and dynamic country such as ours.

Earlier this year, a country-specific report of risks that could affect businesses, was published by the IRMSA ? a professional body for risk management that represents groups (within the private and public sectors) who are committed to enhancing the discipline of risk management in the country.

Christopher Palm, chairman of the IRMSA Risk Intelligence Committee, recommends this report as a “must-read” for business leaders and risk practitioners.

“Our report was formulated in the context of the World Economic Forum (WEF) Global Risks Report and presents the most significant risks that South African organisations must consider,” he states.

He explains that the objective of the report is to improve the culture of risk management in organisations, to help businesses better manage their risk context and risk-governance processes, as well as to enable a more effective risk response.

Evaluations of the report took place between 2013 and 2014, through a series of workshops, conferences and a survey of 620 risk-management experts in the country.

The respondents were professionals from various industries, who proactively manage risks regularly. These industries included: financial services; communication and technology; petrochemicals; transport and logistics; manufacturing; mining; engineering and construction; government and public services; and the healthcare sector.

The highlighted risks were evaluated on “perceived likelihood” and “potential consequence”. The country’s top ten risks over the next two years were in the following order:

Increased corruption; high unemployment; shortfall of critical infrastructure; political and social instability; major escalation in organised crime and illicit trade; escalation in large-scale cyber-attacks; failure of a major financial institution (African Bank); severe income disparity; mismanaged urbanisation and massive incidents of data fraud/theft.

Seven other risks identified, but not explicitly surveyed, were: skills shortage, increasing strike action, Ebola virus outbreak, insufficient electricity supply, lack of innovation, economic slowdown and banking reputational risk.

The increase of corruption and the escalation of organised crime and illicit trade topped the list of risks. Based on the findings of the Special Investigations Unit (SIU), the report states that, as a result of corruption, there is an estimated annual loss of 20 to 25 percent of state procurement – representing a cost of approximately R180 billion.

Terrance Booysen, executive director at Corporate Governance Framework (CGF) Research Institute says that, among other things, the corruption risk factor distorts market competition and further increases the cost of doing business.

Nico Snyman, founder and owner of Global Leaders Academy, Africa, warns that the country is already feeling the brunt of corruption as South Africa’s reputation in the international community decreases.

“We are losing our credit rating as confidence decreases. We are also losing corporates that are selling up to move their risk overseas. The increase in the repo rate and inflation are also having knock-on effects in other areas such as education and electricity,” he says.

In the report, the 2014 Global Economic Crime Survey states that in the last 24 months, 70 percent of business executives in the private and public sectors have experienced some form of economic crime.

The leading economic crimes noted include: asset misappropriation, illegal insider trading and fraud in procurement, tax and financial statements.

Referenced from the 2012/13 Norton Security Report, cybercrimes were also reported and South Africa ranked third on the list of cyber-crime victims internationally ? following China and Russia.

To counter data fraud and theft, Andrew Allison, the group chief operating officer at Quirk Agency Group, advices organisations that process large volumes of personal information and financial transactions to take these risks seriously.

He notes that an increase in threat of attacks is possible as a result of the global perception that South Africa is a weak player in the information-security space.

“If they can afford it, organisations should employ a data-security specialist. This needs to be supported by extensive programmes of educating staff and stakeholders on the need for increased security, compliance and vigilance,” he adds.

He also strongly advises businesses to source appropriate insurance and to comply with third-party security governance standards such as ISO 27001 and Sarbanes Oxley requirements.

IRMSA states that, through this report, it aims to help businesses become more proactive in identifying the risks impacting the country and, in turn, their operations. It hopes the report will be extensively used and shared by business leaders and risk managers across the board.

The full report, which will be expanded on in 2016, is available for download on the IRMSA website.