Plan to succeed and not to fail
South Africa is going through some significantly challenging times. From political risk to the worst drought that the country has experienced in over a century, we are living in times of high risk; risks that many people and organisations do not know how to manage.
I suppose the key question to ask is whether risks can be managed. Obviously we would like to avoid them; but as we have seen with the current political climate, some risks are forced upon us.
Key to managing risks is knowing the risks that are present in society. FAnews recently attended the release of the second edition of the Institute of Risk Management South Africa (IRMSA) Risk Report, and their assessment of the market turned out to be on the money.
Setting the scene
The IRMSA Report points out that the consequences of elements of South Africa’s risk landscape materialising were experienced throughout 2015, with several resulting in public relations disasters. One of the most important of these was the xenophobic violence in April that killed at least five people and displaced more than 2 000 people in Durban.
South Africa’s Fees Must Fall protests, demanding the right to quality and accessible education, produced an unprecedented movement of student activism that rapidly swept across the country’s university campuses and cities, culminating in a march on the historic Union Buildings on 23 October.
Nene Gate and the drought
In December, the country and the markets were sent into shock by the sudden replacement of respected finance minister Nhlanhla Nene with the relatively unknown David van Rooyen, who was himself replaced a few days later by former finance minister Pravin Gordhan.
South Africa experienced three credit rating downgrades in the same month by Fitch, Standard & Poor’s and Moody’s and in nominal terms witnessed its worst exchange rate levels against the pound and the dollar ever.
December also saw the worst effects of the current drought hitting the market. Farms were not producing expected yields and South Africa had to turn to importing maze and grain on an unprecedented scale for the first time in almost a century. Coupled with the economic downgrade and unfavourable exchange rates, the South African consumer has never been under as much pressure as they are at the moment.
Counting the risks
One aspect that was made very clear by the IRMSA report is that the risks in the market do not exist in isolation, they are interconnected.
There are risks that affect the financial services industry directly. IRMSA reports that the first key risk is regulatory and legislative changes. We all know that we are in a year where the key changes tabled by the Financial Services Board are due to be implemented. If all goes according to plan, Twin Peaks will be implemented this year and legislative pieces such as Treating Customers Fairly and the Retail Distribution Review will no longer be issues of debate.
The second key risk identified by IRMSA is insufficient electricity supply. This has a significant impact when it comes to corporate insurance as load shedding causes business interruption and has supply chain implications.
Massive incidents of data fraud and theft is the third key risk pointed out by the IRMSA report, and we do not have to go into too much detail about the impacts of this risk. Cyber-crime is becoming a major global issue, and very few companies have the capacity to protect themselves against this growing risk.
Risk growth
In terms of risk management, it is always easier to manage a risk that is static. However, when a risk evolves and has a growing impact on an industry, it becomes hard to put effective measures in place to contain its effects.
IRMSA pointed out that the risk of inefficient electricity supply will remain static going forward and is testament to Eskom’s recent efforts to keep the lights on. However, the risk of regulatory/legislative changes is going to increase exponentially going forward as will the incidents of data fraud /theft.
Editor’s Thoughts:
Risk management is going to be a key concern in 2016. Those who fail to plan must plan to fail. You need to know your clients environment and the key risks that affect their lives. How prepared are you to effectively manage these risks? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
