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Critical infrastructure failure fingered as biggest business risk in South Africa for second year running

2nd February 2024

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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Critical infrastructure blackouts have emerged as the number one risk for businesses in South Africa for the second consecutive year, highlighting the severe impact of power outages and the failure of essential infrastructure such as ports, railways, roads and more on the economy and businesses, insurance and risk multinational Allianz says.

“The closely interlinked peril of the energy crisis has climbed to the fifth position, up from sixth place in 2023. Cyber incidents continue to be the second most significant risk and business interruption continues to be the third most significant risk.

“South Africa’s business community must remain vigilant in the face of critical infrastructure blackouts. The persistent threat of power outages and infrastructure failures poses significant challenges to businesses, disrupting supply chains and impacting the overall economy,” says Allianz Commercial South Africa CEO Thusang Mahlangu.

“The report underscores the urgent need for investment in infrastructure resilience and the development of contingency plans to mitigate the potential consequences of blackouts. By proactively addressing these risks, businesses can enhance their ability to withstand disruptions and ensure continuity of operations,” he emphasises.

Additionally, large corporates, and medium- sized and smaller businesses have the same risk concerns, and are mostly worried about cyberthreats, business interruption and natural catastrophes, the ‘Allianz Risk Barometer 2024’ shows.

However, the resilience gap between large and smaller companies is widening, as risk awareness among larger organisations has grown since the Covid-19 pandemic, with a notable drive to upgrade resilience.

Conversely, smaller businesses often lack the time and resources to identify and effectively prepare for a wider range of risk scenarios and, as a result, take longer to get the business back up and running after an unexpected incident, the report notes.

“The top risks and major risers in this year’s Allianz Risk Barometer reflect the big issues facing companies around the world currently, namely digitalisation, climate change and an uncertain geopolitical environment.

“Many of these risks are already hitting home, with extreme weather, ransomware attacks and regional conflicts expected to test the resilience of supply chains and business models further in 2024,” Allianz Commercial CEO Petros Papanikolaou points out.

Further, cybersecurity incidents, highlighted by 36% of overall responses, rank as the most important risk globally for the third year in a row and for the first time by a clear margin of five percentage points.

Cyber incidents retain the number two risk position in South Africa, but are the top peril in 17 countries, including Germany, India, Japan, Kenya, Mauritius, Nigeria, Uganda, the UK and the US, as well as in the Africa and the Middle East regions.

A data breach is seen as the most concerning cyberthreat for 59% of Allianz Risk Barometer respondents, followed by attacks on critical infrastructure and physical assets, at 53%.

The recent increase in ransomware attacks, with a resurgence in activity in 2023 and with insurance claims activity up by more than 50% compared with 2022, ranks as the third most concerning cyberthreat, for 53% of respondents, the report says.

Meanwhile, despite an easing of post- pandemic supply chain disruption in 2023, business interruption, at 31% of overall responses, retains its position as the second biggest threat in the 2024 survey.

Business interruption retains the third position in South Africa, and ranks in the top five risks in Ghana, Kenya, Senegal and Uganda, and the Africa and the Middle East regions.

“This reflects the interconnectedness in an increasingly volatile global business environment, as well as a strong reliance on supply chains for critical products or services.

“Improving business continuity management, identifying supply chain bottlenecks and developing alternative suppliers continue to be key risk management priorities for companies in 2024,” the report states.

Natural catastrophes, at 26% of overall responses, is one of the biggest movers at the third most significant risk, up three positions. 2023 was a record-breaking year on several fronts. It was the hottest year since records began, and insured losses exceeded $100- billion for the fourth consecutive year, driven by the highest ever damage bill of $60-billion from severe thunderstorms.

In South Africa, the impact of natural catastrophes was particularly severe, propelling it to fourth place from seventh. The country experienced devastating floods that resulted in casualties and extensive damage to homes, businesses and critical infrastructure, Allianz notes.

Climate change, highlighted by 18% of respondents, may be a non-mover year-on-year as the seventh most prominent perceived risk, but is among the top three business risks in countries such as Brazil, Greece, Italy, Mexico and Turkey.

The Risk Barometer report reveals that South Africa experienced a slight shift in risk perception, with climate change dropping from the fourth to the seventh spot in 2023.

“Physical damage to corporate assets from more frequent and severe extreme weather events is a key threat. The utility, energy and industrial sectors are among the most exposed.

“Additionally, net-zero transition risks and liability risks are expected to increase in future as companies invest in new, largely untested low-carbon technologies to transform their business models,” the insurer notes.

Meanwhile, given ongoing conflicts in the Middle East and Ukraine, and tensions between China and the US, political risks and violence, at 14% of responses, is up to the eighth position from the tenth. The risk moved down one place to number six in South Africa.

Further, 2024 is also a super-election year, where as much as 50% of the world’s population could go to the polls, including in Ghana, India, Mauritius, Russia, Senegal, South Africa, the UK and the US.

Dissatisfaction with the potential outcomes, coupled with general economic uncertainty, the high cost of living and growing disinformation fuelled by social media, means societal polarisation is expected to increase, and could trigger more social unrest in many countries.

However, respondents said this year could see the wild economic ups and down experienced since the Covid-19 shock settle down, resulting in macroeconomic developments, at 19% of responses, falling to fifth place globally from third.

“The economic growth outlook remains subdued at just over 2% globally in 2024, but this lacklustre growth is a necessary evil, as high inflation rates will finally be a thing of the past,” says Allianz chief economist Ludovic Subran.

“This will give central banks some room to manoeuvre, and lower interest rates are likely in the second half of the year. This is not a second too late, as stimulus cannot be expected from fiscal policy. Further caveat is the considerable number of elections in 2024 and the risk of further upheavals depending on certain outcomes,” he adds.

The shortage of skilled workforce, at 12% of responses, is seen as a lower risk than in 2023 in a global context, dropping to tenth position from eighth.

“However, businesses in Central and Eastern Europe, the UK and Australia identify it as a top five business risk. Given that there is still record low unemployment in many countries around the globe, companies are looking to fill more jobs than there are people available to fill them.

“Information technology or data experts are seen as the most challenging to find, making this issue a critical aspect in the fight against cyber-crime,” the report highlights.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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