Immediacy of natural catastrophe demotes climate change on 2024 risk ranking

By Gareth Stokes, Africa Ahead

Cyber incidents, business interruption (BI) and macroeconomic developments are the top three risks facing businesses in Africa and the Middle East entering 2024, with critical infrastructure blackouts and changes in legislation and regulation closing out the top five.

Appendices to the latest report reveal that climate change had dropped from fourth position in the 2023 report to just 10th this year, suggesting a shift in focus among Africa and Middle East risk managers to more immediate risks such as those posed by natural catastrophe, which now appears in sixth place. Perhaps the need to respond to drought, flood and thunderstorm today outweighs the need to address climate change by 2050?

The rankings shared in this piece are supplied courtesy the Allianz Risk Barometer 2024, which is a go-to resource for Africa-based insurers, reinsurers and risk managers who are keen to assess and interrogate their in-house risk management plans, and make sure they have not overlooked any risk ‘curveballs’.

The annual survey, this year based on the insights of 3,069 risk management experts from 92 countries and territories, also provides detail around how individual countries perceive their threat environments. In this brief coverage, Africa Ahead dives deeper into the risk profiles of five of the 10 African markets that were included in appendices to the 2024 Risk Barometer including Ghana; Kenya; Nigeria; South Africa; and Uganda.

Ghana’s top three are slightly different to the aggregate view, with 59% of respondents from that country concerned over the risk arising out of macroeconomic developments. The report mentions austerity measures, deflation and inflation as sub-categories of this risk – and the global inflation and interest rate debates entering 2024 appear to have made it a ‘sure in’ on risk assessments worldwide.

Fire and explosion (41%) and market developments (29%) were in second and third position on Ghana’s list, while the number one risk overall, cyber incidents, ranked only fifth.

Cyber incidents, broadly explained as cybercrime; data breaches; IT network and service disruptions; malware and ransomware; and related fines and penalties, topped the list among Kenya’s risk experts, at 47%. Their second risk concern fell outside the Africa-wide top five, with 41% of respondents worried about theft, fraud and corruption. Change in legislation and regulation, a top five risk for Africa and the Middle East, was the third most ‘picked’ risk in Kenya, at 33%.

This writer found it rather intriguing that crime, fraud and corruption were less prevalent in the top 10 risk rankings for countries like Nigeria (tied in fifth position) and South Africa (in ninth); but upon reflection it bears noting that these rankings draw attention to the impact of risks over the short term rather than the prevalence of a particular risk. So, while a country like South Africa has major issues with crime, fraud and corruption, it has far more pressing risk-related matters to attend to.

Respondents in Nigeria were concerned over two of the top three Africa-wide risks with changes in legislation and regulation; cyber incidents; and macroeconomic developments each mentioned by 36% of respondents. For this economy, business interruption was relegated to 10th position.

Those conducting business in South Africa – and those residing in the country – will nod approvingly when they learn that critical infrastructure blackouts emerged as the top concern among risk management experts there. The country’s state-owned electricity producer delivered (sic) a staggering 6,800 hours of electricity cuts in 2023, more than double the production lost in 2022. And the affliction continues unabated into 2024.

This risk category includes lack of maintenance or outright failure of other critical infrastructure such as dams; water and sanitation; and rail, road and port infrastructure. Africa Ahead subscribers will remember the dam collapse disaster that occurred in Libya on 10-11 September 2023. It is alleged that poorly maintained dam walls contributed to catastrophic flooding following Storm Daniel, leading to around 4,700 fatalities. As for transport and logistics, South Africa’s woes are well documented.

SA-based risk management professionals singled out cyber incidents in second position for 2024, an issue for 39% of respondents, and business interruption due to supply chain disruptions in third, with 35%. Ironically, the country is playing a central role in this issue with major bottlenecks at the Cape Town and Durban ports. More recently, a major accident on one of the country’s main coal transport railways caused further hiccups.

The interconnectedness of global risk was, as always, on naked display, with the latest Risk Barometer reminding readers that business interruption was closely related to climate change; political risks and violence; skills shortages; the energy crisis; and the impact of new technologies, to name a few.

“Some risks lie dormant, but a significant enough change in geopolitics or events such as extreme weather patterns can very quickly change the predominant risks,” wrote Marianna Grammatika, a Head of Risk Consulting at the global insurer. As an example, she noted the impact on global supply chains of recent disruptions to the Red Sea trade route between Europe and Asia, caused by Houthi rebel attacks on vessels on that route. As a consequence, more than 400 container ships were diverted around the tip of Africa during the final quarter of 2023.

Uganda-based risk managers went with cyber incidents in first place (48% of respondents) with market developments and theft, fraud and corruption in joint second, with 35% each. The country also ranked critical infrastructure blackouts in seventh.

Quoted in the latest barometer, Michael Bruch, Global Head of Risk Advisory Services at Allianz Commercial, said that he was not surprised to see cyber as a top concern for businesses globally. “Businesses and the wider economy are now reliant on digital services and infrastructure for both critical and everyday activities; almost everything is now linked to technology,” he said. “Once you are connected it opens the door to hackers to steal data or threaten disruption for extortion.”

The most important global business risks for 2024 closely mirror the Africa and the Middle East experience. Cyber incidents emerged in first position, followed by business interruption and natural catastrophes. And Africa’s third ‘most important’ risk appears in position five on the global rankings.

Our conclusion: Though the global risk environment is in a continual state of flux, the main risk underpins have some relevance wherever in the world you live or conduct your business.

Source: afahpublishing.com