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Top four risks of doing business in South Africa in 2021

Unemployment and underemployment, failure of critical infrastructure, profound social instability and water crises are the top risks stemming from the World Economic Forum (WEF) Global Risk Report (GRR) for doing business in South Africa.

The report was released on 19 January 2021 with support from Marsh, a global insurance broking and risk management company. Here Spiros Fatouros, Africa CEO: Marsh outlines the top four.

Unemployment and underemployment

The impact of the coronavirus of 2019 (COVID-19) has exacerbated existing risks such as unemployment and underemployment, which will have far-reaching consequences in South Africa over the next few years, as the economy struggles to recover through a sluggish economic growth.

Unemployment and underemployment has remained the top risk in South Africa, as compared to the 2020 Global Recovery Rate (GRR), with the rate of unemployment currently sitting at circa 30%. The South African economy shed 2,2 million jobs in the second quarter of 2020, according to the latest Quarterly Labour Force Survey Quarter 2: 2020 results, released by Statistics South Africa on 29 September 2020 – with the national lockdown and COVID-19 cited as the main reasons.

Failure of critical infrastructure

South Africa continues to experience intermittent loadshedding. Deteriorating plant performance, poor performance of the Medupi and the Kusile Power Stations due to design problems, and funding and capacity constraints impacting the ability to undertake plant maintenance all contribute to insufficient electricity and energy demand; making failure of critical infrastructure for energy such as generation, transmission, distribution and telecoms a key risk for South Africa.

Social instability and water crises

Social instability in the form of strikes, demonstrations and other types of civil unrest have far-reaching and often unpredictable consequences for business, and society as a whole. The water crisis features prominently in South Africa and the aged water infrastructure results in intermittent water outages regardless of water levels. As such, this has become a widespread risk across South Africa for the majority of businesses.

Other emerging risks of doing business in South Africa

The impacts from COVID-19, just as seen with the 2008 global financial crisis, will have lasting impacts such as environmental degradation, rising inequality, violence, and social disruption from tech enabled industrial transformation. In order to manage these risks, business leaders need to consider risks in the short-term (0-2 years), medium term (2-5 years) and long term (5-10 years) and develop appropriate strategies to manage these.

58% of the sub-Saharan countries identified Infectious Diseases amongst their top country risks. While some of the commonly occurring risks for the vast majority of Sub-Saharan countries include: unmanageable inflation, energy price shocks due to the volatility of the price of crude oil, cyber-attacks as more people resort to working from home and online shopping and data fraud or theft resulting from the increased dependency on digital infrastructure.

Businesses who have survived the initial waves of COVID-19 are learning to be responsive and more vigilant, in order to avoid another contagion in the future. Surviving and recovering from the pandemic will require businesses to continue to be agile and continually adapt and change, as a response mechanism. Without effective responses, the disruptions will precipitate lasting consequences for businesses and societies.

Marsh uses the Global Risk Report to help business leaders reimagine resilience and understand their changing exposure to global risks, review their risk assessment frameworks, and build resilience to macro changes, volatility, and disruptions as well as respond to these important questions:

• Are we properly assessing the constantly-changing risk environment? What are the emerging threats that might surprise us?
• How do we build resilience against these risks, in today’s business and macro-economic context? How can we sensibly invest to achieve resilience?
• Is there a big opportunity for our firm in this newly-unfolding risk environment (e.g. new markets, new solutions, new investors, etc.)?

Written by Spiros Fatouros, Africa CEO: Marsh and originally published by the Institute of Risk Management South Africa

Nicolette Pombo-van Zyl
As the Editor of ESI Africa, my passion is on sustainability and placing African countries on the international stage. I take a keen interest in the trends shaping the power & water utility market along with the projects and local innovations making headline news. Watch my short weekly video on our YouTube channel ESIAfricaTV and speak with me on what has your attention.