BarnOwl Info Sharing Insight: South Africa Risk Profile 2023/2024 – Focusing on Converging Crises Reshaping the Business Agenda. A Wake-Up Call for Better Risk Management! By Christopher Palm

BarnOwl Info Sharing Insight: – South Africa Risk Profile 2023/2024 Focusing on Converging Crises Reshaping the Business Agenda. A Wake-up Call for Better Risk Management! By Christopher Palm

Introduction

Thank you very much Chris for your most informative presentation on ‘South Africa Risk Profile 2023/2024 focusing on converging crises reshaping the business agenda’ at the BarnOwl info-sharing event held on 26 October 2023. Thank you too, to all those who attended the session.
A poly-crisis is characterised by the occurrence of numerous crises simultaneously or in rapid succession, resulting in a complex and interconnected web of challenges for governments, organisations, and societies. Over the past eight years, South Africa has faced recurrent risks that have persisted and intensified, paving the way for where we are finding ourselves; Are we getting away with it? Economic challenges, including stagnant growth, high unemployment, and persistent inequality, have consistently ranked among the major risks facing the country. So what? What are we not seeing, and is it a wake-up call for better risk management?

South African Top Risks

The South African risk report, published by IRMSA in June 2023, focused on the six priorities which the president set out in the beginning of this year (2023) in his the budget speech and SONA (State of the Nation Address). The World Economic Forum report was also an important source aligning global and macro risk drivers.
Load shedding, unemployment, poverty, risk cost of living, economic failure, crime and corruption etc. are actually events rather than risks. The definition of an event is something that ‘happens or is happening’. The definition of a risk is the ‘effect of uncertainty on objectives’. There is nothing uncertain about these events… they have been happening for the past 15 years at least and have continued to get worse over the years.  

The following six fundamental drivers were shared in the SONA (State of the Nation Address) 2023 in relation to the NDP (National Development Plan) which has a target date of 2030:

The continued exacerbation and inaction of addressing these events means that we are in bigger trouble than we think.
Christopher highlights in his presentation some of the key risks / events and their inter-connectedness resulting in what we call a poly-crisis. Poly-crisis, means that there are so many things that are going wrong all at the same time or if they are not going wrong at the same time, they at least going wrong in quick succession.
Load shedding has and continues to damage the economy and the country. Whilst, most of us don’t believe we will experience a total blackout (heaven forbid), the impact of worsening load shedding will have huge consequences on every aspect of the NDP.
One can’t live or run a business without water. Water shedding is already affecting large parts of Johannesburg.
The illicit economy is growing at the rate of knots and is impacting tremendously on our health, our safety and our ability to operate on a day-to-day basis.
In addition, politicians making reckless statements around the Russia’s invasion of the Ukraine and the war between Israel and Palestinian extremists, destroys our credibility with our major trading partners and takes the economy and country down with it.
The biggest impact of these events is on both the micro and macro positioning of our economy, where we are seeing an exodus of foreign capital, foreign investment and people leaving our country.
We have floods, we have load shedding, we have downtime in our communications infrastructure and our public infrastructure such as Transnet and Eskom, is not operating as intended. This has a huge impact on the economy and civil society. Public service failures leads to civil unrest and riots. Our people, our communities, are becoming increasingly unsafe, which will impact mortality. We will fail to build better lives, which means that the dependency on grants, the dependency on handouts, will increase.
The risks mentioned above including the causes, consequences and recommendations on ways to address the risks (events) have been covered in the last five or six editions of the IRMSA risk report.

There is a lot of conversation about whether we are a ‘failed state’ or a ‘failing state’; and more recently there was strong conversation around whether we are a ‘mafia state’. If we are not going to be able to do something about these risks (events) and do something about them very quickly, it doesn’t really matter which state you tag us as.

So how did we get here?

The national grid failure is just one example of how we got here!

The slide above illustrates the knock on effects of worsening load shedding and the consequences of behavioural changes from a stage 6 to 8.
Can you imagine if you cannot get your 25 to 30,000 people out of your mines? Together with that, you have Vodacom, MTN, your Internet service providers, your data networks, your telecommunication networks being heavily impacted by load shedding as well as theft and vandalism. Not to mention water reticulation which is failing in the greater Johannesburg metros.
Consider the collapse of the networks and systems that SASA and our grant system is dependent on to process applications for grants and to get payments to people. The collapse of our social security systems is indeed a huge risk. 19 million people rely on social grants, which lends itself to a livelihood crisis.
The economic collapse exacerbated by the collapse of Eskom and Transnet, large scale disruption of digitally enabled services and our inability to afford our national grant commitment or even pay it, all have a huge impact on building better lives and making our community safer. One would expect there to be social unrest and discontent which one can only just surmise how that would turn out.

Added to this, you have the proliferation of an illicit economy exacerbated by the failure of public infrastructure and services. The illicit economy becomes even more entrenched, when for example, you cannot get your licenses renewed, cannot get your ID or passports renewed, cannot get marriage certificates, cannot transfer property without having to pay bribes and the like.
And what about the impact of climate change, which we are keenly aware of and which we’ve been experiencing on a day-to-day basis. If we are going to achieve the targets that we have committed to at the COP meetings, then the quickest way to do that would be to shut down coal-fired power stations, of which we have 18. However our first priority is energy security because without enough energy to supply the market, we cannot keep the economy going, cannot curb unemployment and cannot stop the exodus of foreign capital. So we are stretched to achieve action in our climate change space. The inaction and / or perceived inaction for climate change and not making our targets is a major risk in the South African context.
Another risk to consider includes political instability and geopolitical instability. What do Elections 2024 mean to you? What would that mean for your organisation? What would it mean in as far as potential outcomes?
If you read up on next year’s elections, most political analysts will tell you it will either still be 1. the ANC or 2. Another party which is very unlikely or 3. the next best likelihood is a shared governance. So in other words, a coalition governance structure. Sadly, our experience to date where there is coalition leadership, is that nothing gets done due to infighting.
It is a good idea to perform scenario planning around all three the potential outcomes and include a fourth outcome being social unrest or social discontent. Scenario play these in light of your organisation’s strategies so that one can already start anticipating outcomes, identifying causes and risk response strategies.

Systems thinking

The above side shows a high level systems thinking view or a complexity thinking view, demonstrating the interconnectedness and knock on effects of the risks, their causes and their consequences.
The squares indicate the four risk drivers. The circles are pivots. If we get the drivers resolved, the pivots go away and the outcomes are quite clear.
You can use this model to answer the question: How does the failure of public infrastructure impact on my organisation? It is a worthwhile exercise understanding the risk facing your organisation in relation to the risks that the country faces. Your leadership will appreciate the insights because what you’re going to end up with is a cause at a national level that gives rise to a risk at your organisational level. And ask and answer the question: So what strategies do I put in place to be able to address this?

 

Call to Action

The following slide indicates some ‘calls to action’, most of which are well documented but sadly have not been acted on by government for the past 10 years.

The ‘calls to action’ are really quite specific. For example, why don’t we support entrepreneurs and businesses by reducing onerous red tape. Why continually carve up the same cake (i.e. existing companies) over and over again into smaller and smaller pieces for the sake of BEE? Instead, why not come up with policies which encourage entrepreneurs (no matter who they are) and businesses to grow the cake (i.e. build new businesses) where everyone benefits from economic growth? Why not include preferential procurement for local content / products / services in favour of foreign content / products / services couched in BEE partner shareholding alone? Local companies with local products and services create employment and more importantly all their revenue and taxable income stay onshore rather than flowing offshore to the foreign product owner. Looking after local companies who are committed to South Africa no matter who they are, builds the economy and keeps skilled resources and capital in the country. In many cases, local products and services are a better fit and almost always more cost effective than large-scale multi-national products and services.
Another example is to build renewable energy and in doing so, will create a demand, will create jobs and will deliver a solution to our energy problems whilst meeting climate change goals. We will have skills built in our in our country that will create a sustainable solution into the future.
With enabling policies, we as a country could achieve so much as well as hold onto critical skills and capital. Having said this, with almost every SOE (State Owner Enterprises) being run into the ground now, it seems that policy changes may finally allow the private sector to participate in fixing the problems.

How to be heard as a risk manager

Are you in a position to visualise your risk profile in relation to your oversight committee’s appetite? Because that’s how you get attention. If a committee has said this is my appetite and you can superimpose your risk profile on top of this, then this presents a totally different message to your oversight committee. Because they are accountable for risk appetite and to make sure that the risk profile sits within appetite, this would change not just the optics of your report, but the message itself. And I think people will want to hear what you’ve got to say and not tell you every time that your report has been ‘taken as read’.

Conclusion

Some positives and opportunities:

• Policies which enable the private sector to participate in the rebuilding of the SEOs and the economy as a whole
• Renewable energy is taking off
• The ‘Silicon Cape community’ is taking off which aims to boost tech innovation in Cape Town, by connecting tech entrepreneurs, developers, creatives, angel investors, and VC’s who are passionate about entrepreneurship and the roles we play in the future of South Africa
• Technology enablement in all areas of business such as agriculture, mining, health care, public services making life easier for all
• The possibility of business enabling policies in 2024.
• The possibility of an accountable government in 2024 committed to service delivery and serving its people

Presentation and video links

Please see attached presentation here, and the info sharing recording here.

Related links

https://irmsa-risk-report.co.za/2023/
https://api.barnowl.co.za/integrated-grc-featured/king-iv-now-more-than-ever/
https://api.barnowl.co.za/uncategorized/barnowl-info-sharing-insight-the-state-of-ai-and-ai-in-corporate-governance-with-michael-judin-and-lionel-moyal/
https://barnowl.co.za/knowledge-centre/

Contact us

Cheryl Keller | BarnOwl: cheryl@barnowl.co.za
Christopher Palm| Chief Risk Advisor at the Institute of Risk management South Africa christopherp@irmsa.org.za

Thank you

Once again, thank you Christopher for your time and for your informative presentation and thank you to all those who attended our info sharing session. We look forward to seeing you at our next info sharing session. Please keep a look out for our upcoming events at:
http://www.barnowl.co.za/events/

Kind regards
Jonathan Crisp
Director – BarnOwl GRC and Audit software

About BarnOwl:

BarnOwl is a fully integrated governance, risk management, compliance and audit software solution used by over 150 organisations locally and internationally. BarnOwl is a locally developed software solution and is the preferred risk management solution for the South African public sector supporting the National Treasury risk framework.
Please see www.barnowl.co.za for more information.

About our guest speaker

Biography

Christopher Palm
Christopher Palm is the Chief Risk Advisor at the Institute of Risk Management South Africa (IRMSA).

His passion is to collaborate with risk professionals and other key role players both locally and globally to transform risk management into a key component of excellent decision-making.

Christopher believes that a solid enterprise risk management capability within an entity, supported by a risk-mature leadership, will lead to decisions that will effectively respond to both threats and opportunities facing the business world today and well into the future.

Christopher spent 27 years with a South African Power Utility, of which the last 18 were at senior executive level – from Group Audit Manager and Head of Forensics to Head of Enterprise Risk where he established the Utility’s integrated risk management capability in 2008. His most valuable experience throughout his time was the gaining of world class risk and resilience knowledge, experience and exposure and how it is challenged in practise.

Christopher’s educational background includes a Bachelor Degree – majoring in Accounting, Management Accounting, Commercial Law, Business Economics and Economics. He also obtained an Honours Degree in Business, Economics and Management Accounting. He complimented the above by completing the Executive Leadership Development Programme at Wits Business School.

Currently Christopher focusses on working with risk practitioners, C-Suites and Boards to enhance risk maturity and address the more complex elements of risk management such as integrating strategy, risk and resilience and developing applied risk appetite frameworks. Also, the use of big data resulting in risk intelligence through predictive capabilities, systems thinking and scenario development and analysis.