Risk management arrives in Kenyan boardrooms

CEOs in Africa, it says, are primarily concerned about economic and policy risks like uncertain or volatile economic growth, exchange rate volatility, inflation, bribery and corruption and over-regulation. Other threats such as the availability of key skills, energy costs and an increasing tax burden are also worrisome from an operational standpoint. While most CEOs are responsible for managing risk, the PwC survey found 54% of them ‘wish that they had more time to spend on it’.hideReflecting the changing nature of the business environment, 81% of CEOs anticipate changes to their approach to managing risk this year, perhaps because business risks have a complex and expensive impact on operations. For example, according to the survey, 60% of CEOs in Kenya say inadequate infrastructure is a threat to growth, but exchange rates and energy costs have affected the Ministry of Roads’ ability to buy bitumen or diesel to build new roads, according to Eng. Michael SM Kamau, Permanent Secretary of the Ministry of Roads in Kenya. Economic uncertainty is also cited as a risk for 79% of CEOs in Africa and this is driving strategy change for 62% of them. Anne Eriksson, a partner with PwC Kenya and a risk assurance expert, told CRA: “Public and private organisations are investing more than ever in different lines of defence to manage Africa’s complex risk environment. In our view, the first line of defence is management’s processes and controls.” She added that the second line of defence should be various business oversight functions, principally risk management and compliance. “Closely linked to the first two is the third line of defence: internal audit, where we’re seeing rising boardroom expectations around skills and impact.” Ms Eriksson believes that business leaders and regulators have recognised that, for internal audit to be effective in supporting organisational risk management efforts, the minimum standard of performance has to rise. “In the ever-shifting African risk landscape, internal audit cannot simply react to events; but must adopt a strategic mindset that is responsive to risks and helps to ready organisations for new threats and opportunities,” she said. Ms Eriksson added that some are ‘raising the bar’ by expanding the footprint of risks they cover. However, just 34% of CEOs in Africa say that a change in risk tolerance is driving strategy change, even though 81% say that risk features among their top three agenda items. Ms Eriksson warned: “To effectively manage risk, organisations must create a culture whereby stakeholders and internal audit teams hold robust dialogue around enterprise risks, share their objective perspectives and reach a common viewpoint on their roles around the most critical risks. These must then be communicated to management and non-executive directors on a timely basis.” George Akello, Chief Risk Officer at Standard Chartered Bank Africa based in Nairobi, echoed the need for good risk management to start internally and for the need to bring staff on board with the concept. “Staff must be trained,” he said, “to appreciate and be able to identify, manage and control the risks around the areas they operate. They should own the risks and act as the first line of defence for the risks in their respective areas.” Mr Akello said that Kenya faces plenty of emerging risks, many of which echo those risks faced across the world. “Some of the emerging risks include the co-relation risks that come with globalisation—the risk of something happening in isolation somewhere in the world or in a different industry that is not related to you directly but ends up significantly impacting your business.” An example of this, he said, was the volcanic ash in Europe that affected the flower business in Naivasha, Kenya. As for so much of the world, Mr Akello said another risk facing Kenyan businesses is one of regulatory intrusion. Across the world most regulators are imposing more and more regulations. “While well intended in a number of instances the extent to which these are being made prescriptive becomes an impediment to doing business,” he warned. A Kenyan example of this is the proposed Finance Bill amendment. Another set of emerging risks are those associated with technology, particularly in areas where firms may hand over control of delivery channels or data to third parties. As elsewhere, Kenyan businesses are exposed to growing fraud issues as the use of technology grows.

Risk management arrives in Kenyan boardrooms

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