+27 71 448 3496
leon@whyafrica.co.za

Macroeconomics and energy crisis now top business risks

Share Article
Natural catastrophes came in as a new entrant in South Africa at #7 and be linked with the April 2022 floods that had a devasting impact on KwaZulu-Natal. In Africa and the Middle East, climate change is one of the biggest risers from #10 to #4 highlighting the risks it poses to the region. It also ranks as a top three risk in Kenya, Mauritius, Namibia and Tanzania. Climate change rises from sixth to fourth in South Africa. Image credit: Unsplash

Macroeconomics and energy crisis now top business risks    

Pandemic outbreak, natural catastrophes and climate change have dropped down the ranking of the Allianz Risk Barometer 2023, an annual survey of key business risks around the world, according to more than 2700 respondents.  

It is both stability and change the Allianz Risk Barometer 2023. Cyber incidents and Business interruption still rank as the biggest company concerns for the second year in succession (both with 34% of all responses).

However, it is Macroeconomic developments such as inflation, financial market volatility and a looming recession (up from #10 to #3 year-on-year), as well as the impact of the Energy crisis (a new entry at #4) which are the top risers in this year’s list of global business risks, as the economic and political consequences of the world in the aftermath of Covid-19 and the Ukraine war take hold.

Such pressing concerns call for immediate action from companies, explaining why both Natural catastrophes (from #3 to #6) and Climate change (#6 to #7) drop in the annual rankings, as does Pandemic outbreak (from #4 to #13) as vaccines have brought an end to lockdowns and restrictions.

Political risks and violence is another new entry in the top 10 global risks at #10, while Shortage of skilled workforce rises to #8. Changes in legislation and regulation remains a key risk at #5, while Fire/explosion drops two positions to #9. View the full global and country risk rankings and watch a short video here.

Top three risks in South Africa (Macroeconomics and energy crisis now top business risks)     

Critical infrastructure blackouts such as power disruption or failures of aging dams, bridges and rail tracks are top risks in South Africa from #3 in 2022. Cyber incidents are second from #1. Examples of cyber incidents include cybercrime, malware/ransomware causing system downtime, data breaches, fines and penalties. Business interruption, which includes supply chain is third from #2 in 2023.

Cyber risk remains major concern (Macroeconomics and energy crisis now top business risks)     

According to Allianz Global Corporate & Speciality (AGCS) CEO Joachim Mueller the Allianz Risk Barometer shows that companies are most concerned about mounting cyber risks and business interruption.

“At the same time, they see inflation, an impending recession and the energy crisis as immediate threats to their business. Companies – in Europe and the US in particular – worry about the current ‘permacrisis’ resulting from the consequences of the pandemic and the economic and political impact of the ongoing war in Ukraine. It’s a stress test for every company’s resilience,” says Mueller.

“The positive news is that as an insurer we see continuous improvement in this area among many of our clients, particularly around making supply chains more failure-proof, improving business continuity planning and strengthening cyber controls. Taking action to build resilience and de-risk is now front and center for companies, given the events of recent years,” Mueller adds.

In 2023, the top four risks in the Allianz Risk Barometer are broadly consistent across all company sizes globally – large, medium and small – as well as across core European economies and the US (energy crisis excepted). Risk concerns for businesses in Asia Pacific and African countries show some deviation, reflecting the different impact of the ongoing war in Ukraine and its economic and political repercussions.

Digital and disruption dangers (Macroeconomics and energy crisis now top business risks)     

Cyber incidents, such as IT outages, ransomware attacks or data breaches, ranks as the most important risk globally for the second year in succession – the first time this has occurred. It also ranks as the top peril in 19 different countries, among them Madagascar, Mauritius, Morocco, France, and the UK. It also ranks as a top three risk in South Africa, Kenya, Nigeria, and Tanzania. It is the risk that small companies (less than USD250-million annual revenue) are most worried about.

“For many companies the threat in cyber space is still higher than ever and cyber insurance claims remain at a high level. Large companies are now used to being targeted and able to repel most attacks. Increasingly, we see more small- and mid-size businesses impacted who often tend to underestimate their exposure. They all need to continuously invest in strengthening their cyber controls,” says Shanil Williams, AGCS Board Member and Chief Underwriting Officer Corporate, responsible for cyber underwriting.

According to the Allianz Cyber Center of Competence, the frequency of ransomware attacks remains elevated in 2023, while the average cost of a data breach is at an all-time high at USD4.35-million and expected to surpass USD5-million in 2023. The conflict in Ukraine and wider geopolitical tensions are heightening the risk of a large-scale cyber-attack by state-sponsored actors. In addition, there is also a growing shortage of cyber security professionals, which brings challenges when it comes to improving security.

For businesses in many countries, 2023 is likely to be another year of heightened risks for Business interruption (BI) because many business models are vulnerable to sudden shocks and change, which in turn impact profits and revenues. Ranking #2 globally and in Africa and the Middle East, BI is the number one risk in countries such as Cameroon, Brazil, Germany, Mexico, Netherlands, Singapore, South Korea, Sweden and the US.

The scope of disruptive sources is wide. Cyber is the cause of BI companies fear most (45% of responses); the second most important cause is the energy crisis (35%), followed by natural catastrophes (31%).

The skyrocketing cost of energy has forced some energy-intensive industries to use energy more efficiently, move production to alternative locations or even consider temporary shutdowns. The resulting shortages threaten to cause supply disruption across a number of critical industries, including food, agriculture, chemicals, pharmaceuticals, construction and manufacturing.

A possible global recession is another likely source of disruption in 2023, with potential for supplier failure and insolvency, which is a particular concern for companies with single or limited critical suppliers. According to Allianz Trade, global business insolvencies are likely to rise significantly in 2023: +19%.

Macroeconomic malaise (Macroeconomics and energy crisis now top business risks)     

Macroeconomic developments such as inflation or economic and financial market volatility rank as the third top risk for companies globally in 2023 (25%), up from #10 in 2022 – the first time this risk has appeared in the top three for a decade.

It’s also a new entrant in South Africa at #10 and features in the top three risks in Burundi, Ghana, Ivory Coast, Madagascar, Mauritius, Morocco, Namibia, Nigeria and Tanzania. All three major economic areas – the United States (US), China and Europe – are in a crisis mode at the same time, albeit for different reasons, according to Allianz Research, which forecasts recession in Europe and the US in 2023.

Inflation is a particular concern as it is ‘eating’ into the price structure and profitability margins of many companies. Like the real economy, the financial markets are facing a difficult year, as central banks drain excess system-wide liquidity and trading volumes even in historically liquid markets decline.

“2023 will be a challenging year; in purely economic terms, it is likely to be a year to forget for many households and companies. Nevertheless, there is no reason to despair,” says Ludovic Subran, Chief Economist at Allianz. “For one thing, the turnaround in interest rates is helping, not least for millions of savers. The medium-term outlook is also much brighter, despite – or rather because of – the energy crisis. The consequences, beyond the expected recession in 2023, are already becoming clear: a forced transformation of the economy in the direction of decarbonisation as well as increased risk awareness in all parts of society, strengthening social and economic resilience.”

Risk risers and fallers (Macroeconomics and energy crisis now top business risks)     

The Energy crisis is the biggest risk riser in the Allianz Risk Barometer appearing for the first time at #4 (22%). It ranks in the top three risks in Burundi and came in as a new entrant in South Africa, and Nigeria.

Some industries, such as chemicals, fertilizers, glass, and aluminum manufacturing, can be reliant on a single source of energy – Russian gas in the case of many European countries – and are therefore vulnerable to disruption to energy supply or price increases.

If such base industries struggle, repercussions can be felt further down the value chain in other sectors. According to Allianz Trade, the energy crisis will remain the largest profitability shock for European countries in particular. At current levels, energy prices would wipe out the profits of most non-financial corporates as pricing power is diminishing amid slowing demand.

Driven by 2022 being another year of turmoil with conflict and civil unrest dominating the news, Political risks and violence is a new entry at #10 (13%).

Aside from war, companies are also concerned about increasing disruption from strikes, riots and civil commotion activity as the cost-of-living crisis bites in many countries.

It remains fourth in South Africa at 27% of responses. In Africa and the Middle East, political risks and violence fell two places to sixth but it is still in the top three risks in Burundi, Madagascar, and Nigeria. Recent years have shown the huge impact a coordinated violent SRCC event can have on an economy and politics, such as the Black Lives Matter protests in the US or the July 2021 riots and looting in South Africa, while in 2023 the rising cost of living could also bring an increased risk of disruption from such events.

Despite dropping in the ranking year-on-year, Natural catastrophes (19%) and Climate change (17%) remain major concerns for businesses. In a year that included Hurricane Ian, one of the most powerful storms recorded in the US, record-breaking heatwaves, droughts and winter storms around the world, and USD$100-billion+ of insured losses, they still rank in the top seven global risks.

Natural catastrophes came in as a new entrant in South Africa at #7 and be linked with the April 2022 floods that had a devasting impact on KwaZulu-Natal. In Africa and the Middle East, climate change is one of the biggest risers from #10 to #4 highlighting the risks it poses to the region. It also ranks as a top three risk in Kenya, Mauritius, Namibia and Tanzania. Climate change rises from sixth to fourth in South Africa.

The Allianz Risk Barometer is an annual business risk ranking compiled by Allianz Group’s corporate insurer Allianz Global Corporate & Specialty (AGCS), together with other Allianz entities, which incorporates the view of 2,712 risk management experts in 94 countries and territories including CEOs, risk managers, brokers and insurance experts. Respondents were questioned during October and November 2022. The survey focused on large- and small- to mid-size companies. Respondents were asked to select the industry about which they were particularly knowledgeable and to name up to three risks they believed to be most important. It is being published for the 12th time.

Download the full report from here: Allianz Risk Barometer | AGCS

Get your free copies of WhyAfrica’s bi-weekly newsletter and exclusive magazines here: https://www.whyafrica.co.za/subscribe/

WhyAfrica specialises in the sustainable utilisation of natural resources in Africa. We publish bi-weekly newsletters (24 per year), four magazines per year, and paid for research reports in the mining, agriculture, energy, infrastructure, water management, tourism, and environmental management sectors with a special focus on Environmental and Social Governance (ESG), biodiversity risk, conservation, the African Continental Free Trade Agreement, the political economy of Africa, Pan African institutions, climate change and how geopolitics affect the people of Africa. 

WhyAfrica readers and followers can now become members of WhyAfrica. Having membership for one year allows you access to valuable business intelligence and insight about projects, investments, the sustainable utilisation of natural resources and the political economy of Africa.

WhyAfrica members will be able to publish their own story on the WhyAfrica website and on all its social media platforms (corporate members pay more but can publish four articles per year).

WhyAfrica members will also receive four updated reports per year about developments across Africa in the mining, agriculture, energy, infrastructure, water management, ESG, environmental management and tourism sectors, as well as the “WhyAfrica Hawks Eye” Africa outlook report for 2023.

In addition, WhyAfrica members will receive an exclusive report with video clips and images about the projects and countries we visit during our annual WhyAfrica Road Trip (in 2023 we will visit the Limpopo Province of South Africa, Zimbabwe or Botswana, Zambia, DRC, Malawi, Tanzania and Kenya).

Members will also have an opportunity to join us on certain parts of the road trip and will be eligible for a huge discount to attend the WhyAfrica networking events before the road trip departs in Johannesburg, South Africa in July, and about halfway through the trip in Dar Es Salaam, Tanzania in August. 

One of WhyAfrica’s goals is to identify the opportunities and challenges in Africa, and at the same time, to stay informed about how geopolitics and the changing political economies in Africa affect your business. As a member you will have access to all this business intelligence. You can now register and pay to become a member by simply clicking on the following link: https://www.whyafrica.co.za/product/membership/

https://www.whyafrica.co.za/product/membership/

WhyAfrica promotes Africa as an investment and travel destination, analyses the continent’s business environment and investment opportunities, and reports on how the politics of African countries affect their development.

WhyAfrica provides you with business intelligence that matters. Africa is our business, and we want it to be yours too. Subscribe here to WhyAfrica’s free newsletter and digital magazine. When it comes to natural resources in Africa, we cover all angles.

To subscribe to WhyAfrica’s free newsletters and digital magazines, click on the link https://www.whyafrica.co.za/subscribe/

For more news about Africa, visit our website at www.whyafrica.co.za 

 

Share Article

Sectors

AgricultureEnvironmental Management & Climate ChangeEnergyESGInfrastructureMiningPolitical EconomyTourism and ConservationWater Management