Corporates have their work cut out for them if they want to stay ahead of South Africa’s top 10 business risks as outlined in the Allianz Risk Barometer.
Released last month, the annual survey identifies the key challenges facing businesses. This year, cyber incidents emerged as the top global risk.
Read: Critical infrastructure blackouts are SA corporates’ biggest worry
Here in South Africa, the risk landscape looks slightly different. Geoff Tanton, the head of the property and mid-corporate division at Allianz Commercial, recently discussed the top 10 business risks specific to South Africa in a webinar. During the session, he offered practical advice on steps companies can take to prevent or minimise the effects of these risks.
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Critical infrastructure blackouts or failures
Critical infrastructure blackouts and failure top South Africa’s list in 2024.
Tanton said this was not a surprise because the country suffered an unprecedented 332 days of loadshedding in 2023.
“The ongoing loadshedding is foremost in the minds of most business owners in South Africa and the public as a whole. And the reaction to President Cyril Ramaphosa’s recent Sona speech is evidence of the frustration of the South African public in the inability of Eskom to deal with our aging energy infrastructure,” he said.
Tanton pointed out that loadshedding has introduced new risks, such as the increased possibility of fires and explosions because of the prolonged use of generators and backup power sources. These machines are operating for longer than they were designed for and might not be properly maintained.
Loadshedding also has an impact on water infrastructure, according to Tanton. He is concerned that water-shedding could become the next infrastructure challenge.
He added that, from an insurance risk perspective, the lack of electricity also heightened the risk to fire protection systems not operating, increasing the exposure to losses.
“Companies are encouraged to build their resilience by investing in off-the-grid electricity systems and back-up water supplies in the form of water tanks and booster pumps to be less reliant on municipalities in dealing with these exposures,” he advised.
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Cyber incidents
While ranked second in South Africa, cyber incidents are perceived as being the number-one threat worldwide, and across a wide range of industries including consumer goods, financial services, government, public services, health care, and leisure and tourism.
Tanton said cyber threats are constantly evolving as hackers and criminals gain access to new technologies, finding new ways to exploit vulnerabilities.
Just last month, an international company’s branch in Hong Kong fell victim to a sophisticated scam, losing a staggering HK$200 million (R483m) in a case involving AI-generated “colleagues” in fake video calls.
Read: Corporate loses R483 million in ‘deepfake’ conference call scam
“Hackers are beginning to use artificial intelligence-powered language models to increase the speed and the scope of ransomware attacks, as well as create new malware and produce highly convincing phishing emails and deep fakes. Such attacks are likely to proliferate further and deeper into 2024,” he said.
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Business interruption
With almost all companies reliant on supply chains for critical products and services, business interruption caused by supply chain disruption remained at the forefront of business risk, Tanton said.
“Some sectors of industry operate with supply chains that have extensive geographic footprints, and losses abroad can have major impacts on local businesses due to stock shortages, or the inability to supply key plant and machinery for business operations,” he said.
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Natural catastrophes
Natural catastrophes climbed five spots since last year’s risk survey, now ranking fourth.
Over the past three years, severe weather-related reinsurance claims in South Africa have exceeded R80 billion. The trend began with the devastating floods in Durban in 2022, resulting in significant loss of life and assets.
Read: Insurers and their clients count the cost of extreme weather
This continued into 2023 with severe floods and windstorms in the Western Cape, followed by more local flooding in Durban and along the KwaZulu-Natal coastline towards the end of 2023.
Read: Insurers still quantifying losses from Western Cape storm
“This is just evidence of how the changing weather patterns that we are seeing happen more and more due to the changing weather patterns and climate change,” said Tanton.
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Energy crisis
South Africa’s energy crisis is connected to many other risks in various ways, Tanton said.
“The reality is continuing price increases for electricity and the inefficiency of supply just exacerbates this issue,” he said.
Interestingly, on a global scale, the energy crisis is the biggest faller in this year’s risk survey – down to 11 from 4.
Addressing the topic in the risk survey, Daniel Muller, emerging risks and trends manager at Allianz Commercial, said the energy crisis was now seen as less of a looming threat, with steps taken over the past 12 months to reduce reliance on Russian gas and reduce energy consumption.
“However, longer term, energy security is strongly linked to geopolitical risks, climate change, and critical infrastructure failure. The transition from fossil fuels to green energy will be difficult for carbon-intensive industries and a major challenge for the mobility sector and associated infrastructure,” said Muller.
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Political risks and violence
The defining moment of 2023 was the Hamas attack on Israel and the subsequent war in Gaza, Tanton said. “And this has led not only to thousands of innocent deaths in Gaza, but also to pro-Palestinian and pro-Israeli protests globally,” he said.
Amid all this conflict, more than 50% of the world’s population, including South Africans, will go to the polls this year.
The many elections raise concerns about populism and polarisation, which may manifest in increasing civil unrest.
“The riots and civil unrest in July 2021 (in KZN) are a solemn reminder of one of the most costly and devastating incidents in recent memory for South Africa.”
Read: 97% of claims settled: Sasria pays out over R32bn in wake of 2021 riots
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Climate change
The increase in the frequency and severity of extreme weather events have ensured climate change remains a top fixture on corporate risk engineers’ minds.
Tanton said the risk is threefold:
- Physical, including the loss of damage to assets and business interruption.
- Transition-related from the move towards a more sustainable economy and regulatory and stakeholder pressures.
- Financial liability-related to climate litigation that could lead to reputational and financial damage.
“We see companies shifting to low-carbon business models, improving planning and response to climate events, and implementing physical measures to boost resilience,” he said.
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Fire and explosion
Tanton said although fires were well understood and, typically, well managed, fire remains a significant cause of business interruption and supply chain disruption, particularly when critical components are concentrated geographically and among a small number of key suppliers.
It generally also takes longer to recover from a fire than from any other peril, and this includes the additional risk of losing clients through business interruption.
“In South Africa, we have the added risk of the ageing infrastructure, which means that municipal resources in the form of water supply and fire services are ineffective and exacerbate the exposure and the severity of potential fire and explosion damage.”
And the wide-spread adoption of solar energy comes with its own risks.
“With the introduction of solar energy to the masses, there’s an elevated risk now for the use and storage of lithium-ion batteries, which has been the result of a number of fire risks both on land and on sea in the recent years.”
Tanton said regular assessment and updating of fire mitigating practices, including preventative measures, fire-extinguishing methods, water and booster pumps, internally trained fire teams, and off-the-grid water and electricity solutions were becoming more and more important to South African businesses.
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Theft, fraud, corruption
Having crept up to number nine for 2024, theft, fraud, and corruption now rank among the country’s top risks for the first time.
Tanton said this was probably to be expected considering fraud and corruption, opportunism relating to failing infrastructure, and desperation because of the socio-economic climate.
“Cash-in-transit heists have increased exponentially as well organised syndicates target specific businesses and industries to maximise their impact.”
Read: South Africa’s corruption crisis: lowest score yet on global perceptions index
Read: Global crime index reveals ‘significant expansion’ of financial crimes
He emphasised the importance for businesses to prioritise good corporate governance and maintain zero tolerance for fraud and corruption.
“Investing in good security protocols and equipment can mitigate such extreme exposures,” he said.
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Changes in legislation and regulation
Tanton noted that South African companies are familiar with the high costs and administrative challenges of frequent legislative changes, particularly in the financial sector.
There is now added pressure from increasing environmental, social, and governance standards. He said companies are implementing strategies to address environmental impact, reduce emissions, and aim for zero net effect in the future.
“This will impact the cost and availability of insurance, especially in those companies in countries that are either unable or unwilling to change to renewable energy sources,” he said.
