Invaluable insight on South Africa provided from IRMSA’s risk report

Corruption has topped the list of top 10 risks by likelihood and by consequence, according to a survey of 620 leading South African risk managers. Risk managers said corruption has shot up the list of risks in the country in the past couple of years and they are extremely concerned about the impact this may have on the perception of the risk of doing business in the country, particularly for foreign investors. Nico Snyman, CEO of Crest Advisory Africa, summed up those fears: “The problem starts at the top. Looking at the former national police commissioner who was convicted and has now died; that is setting the standard for the whole country.” Mr Snyman said corruption was destroying trust as well as adding costs to doing business in the country. His greatest fear is that corruption becomes endemic in every level of society and of business life. Governance failure ranked number two on the list of risks by consequence, linked to the corruption fears and the risk of failing trust in the system and proper oversight of the system.hideTerry Booysen, Executive Director, CGF Research Institute warns: “The Special Investigating Unit estimates that 20%-25% of state procurement, representing approximately R180bn, is lost each year due to corruption. Corruption of this magnitude undermines state legitimacy and service delivery; it furthermore distorts market competition, increases the cost of doing business and decreases the ease of conducting business. Understandably, this scourge is a massive and debilitating burden on South Africa’s development.” Unemployment ranked second in terms of likely risks. Again, Mr Snyman was bleak about the future, saying the official figure stands at around 26% but that masks a huge number of unemployed young people who are underqualified and struggling to get onto the employment ladder at all. Dr Mark Bussin, Chairperson, 21st Century Pay Solutions Group, added: “Economists are now emphasising another problem, which includes the mismatch between the skills young people offer and the ones that employers need. Employers are awash with applications, but complain that they cannot find candidates with the right abilities.” Infrastructure was the third highest risk in terms of likelihood and fourth in terms of consequence. Michael Lalor, Director, Ernst & Young Africa Business Centre, warned: “There is a real danger that, if we fail to properly implement the infrastructure programme, the economy will continue to stagnate and even lose ground globally. The likely knock-on effect is ongoing high levels of unemployment, frequent service delivery protests, with a steady descent into widespread social unrest.” Setting the new report in context, Gillian le Cordeur, CEO of IRMSA, said: “Every year we reflect on the World Economic Forum Global Risks Report to prepare and inform the programme for our annual Risk Lab to address risks facing businesses in South Africa. To complement and enhance this process, the IRMSA Risk Intelligence Committee saw the need for a similar but more specific report focused on South Africa. “It is our intent that this document be used widely by risk practitioners and business leaders. We also encourage you to share it within your organisation and to use it as input for your decision-making processes in 2015.” Christopher Palm, Chairman of the IRMSA Risk Intelligence Committee, hoped: “Using this report to better manage your organisation’s risk context will result in better informed business leadership and will support your risk governance processes, enabling a more effective risk response, an improved risk culture and entities that will be taking the right risks and exploiting opportunities in pursuit of their objectives.” Ms Le Cordeur said one of the key messages from the new report was the way it demonstrated that the country is not isolated from the increasingly interdependent and rapidly evolving global risks landscape. The report stated: “Effective risk management is regarded as essential for the achievement of South Africa’s developmental objectives. Only once we fully understand and proactively manage the country’s risks will we be able to provide greater certainty and security for all three sectors that comprise South African society, namely government, business and civil society.” The Risk Intelligence Committee hoped that by producing the report, risk managers across South Africa “will be better informed, more decisive and will move with increased confidence to achieve our vision of creating a foundation for South Africa’s competitive position, which is sustainable from an economic, environmental and social perspective”. Looking ahead, IRMSA said the aim of the Risks Report is to remain at the cutting edge of collective understanding of the country’s risks. It planned that the 2016 report will “continue to engage with the South African risk management fraternity to gain a holistic and current view of the country’s evolving risk landscape.” Among the report enhancements already envisaged for 2016 are: An assessment of risk interconnections, and the creation of a risk interconnections map, by evaluating the average strength of these interconnections. In future, this report will increasingly emphasise the importance of interconnectivity and the systemic nature of South Africa’s risks, considering that they could lead to multiple concurrent or consecutive shocks. The 2016 report will contain risk ratings instead of solely prioritising the top risks by likelihood and consequence following the risk identification sessions. The next report will link the identified risks to the country’s objectives. This will provide an understanding of the national objectives that are the most vulnerable, and for which of them that further risk-taking will enhance the likelihood of success. As a living system, South Africa’s risk profile is continually shifting. A causal loop diagram will be created to explain the behaviour of this system by showing a collection of connected nodes and the feedback loops created by the connections.

Invaluable insight on South Africa provided from IRMSA’s risk report

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