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Top five global business risks in 2021 to impact Africa - Control Risks

12 Jan 2021, 07:14 pm
Financial Nigeria
Top five global business risks in 2021 to impact Africa - Control Risks

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The Risk Map 2021 report says companies must either go green or go bust, as it sees an inflection point in the relationship between businesses and climate change from this year.

South African President Cyril Ramaphosa

Control Risks, the specialist global risk consultancy, has published its Risk Map 2021 report, which identifies top five risks to business in the current year. The top five risks include the COVID-19 pandemic, emerging digital threats, and climate change. The others are US-China face-off and a multi-speed global recovery that could leave some economies and businesses behind.

All the top five global risks are present in Africa and will play out in different ways, Control Risks said in a statement sent to Financial Nigeria on Tuesday. But the report notes that, by embracing trade cooperation, Africa is a sharp contrast to the global competition headlined by the US-China trade dispute. The African Continental Free Trade Area (AfCFTA), which created the largest trading bloc in the world by the number of the participating countries, operationally took off on January 1, 2021.

Despite the anticipated positive impacts of AfCFTA, Control Risks said 2021 will be a tough year for Africa. The continent is expected to struggle to recover from COVID-19 as fast, and as much, as the rest of the world. And despite many significant opportunities for investors in the African region, the markets will be characterised by significant operational and political uncertainty.

According to the statement, which advises global and local investment professionals, the investors that will achieve success in 2021 are those that understand that Africa’s post-pandemic landscape will be tangibly changed from what came before, presenting different challenges and new opportunities.

“There’s no doubt that businesses will continue to face considerable disruption from the COVID-19 pandemic, but we believe that the opportunities are real and exciting for many companies in 2021,” said Control Risks CEO, Nick Allan.

On the risk of long COVID-19 impacts, the report says 2021 will be a year of uneven recovery as vaccine rollouts create a world of haves and have-nots. Much of Africa is expected to be in the have-not category. Companies operating in the region are expected to face prolonged operational uncertainty as localised restrictions are sporadically imposed in response to virus spikes.

Africa’s economic recovery will also be more gradual, as governments with limited fiscal headroom cannot engage in sustained stimulus spending and must instead rely on under-developed private sectors to drive their recoveries.

The report forecasts that US-China relations will stabilize but not normalize. The straining of the international rules-based system seen over the past few years will not go into full reverse. Competition rather than cooperation will remain the norm in international relations.

The Risk Map 2021 report says companies must either go green or go bust, as it sees an inflection point in the relationship between businesses and climate change from this year. “No organisation can now afford not to take a stance,” Control Risks posited in its statement. “The environment is a critical aspect in a broader area of the ESG agenda.”

No African country, bar South Africa, has made a pledge for net-zero carbon emission to date. The other governments have seemingly not prioritised carbon neutrality, as the world pushes to limit global warming. Control Risk warns that without government backing, private investors may ignore the huge opportunities for investment in renewable energy on the continent.

On the emerging digital threat, the report notes the acceleration in digitization in Africa. Increase in mobile phone and internet penetration, social media use, and data traffic flows has opened up a vast array of new opportunities. This is evidenced by the rapid growth in the African tech sector over the past few years. But this connectivity also brings risks.

According to the report, cybercrime has grown across Africa, from simple scams to sophisticated attacks on critical infrastructure. Criminal and state actors have also engaged in influence operations, spreading misinformation and inflammatory content that poses reputational risks to companies as well as political players. Companies in Africa, just like the rest of the world, will have to balance the drive for technological innovation with security, integrity and resilience challenges.

Overall, the report has a positive outlook of the world’s economies roiled by the COVID-19 pandemic in 2020. It projects positive GDP growth in multiple markets this year. This is supported by the roll-out of vaccines and a world wary of lockdowns.

“While progress will be faltering, an uplift is coming,” Control Risk said. “If 2020 was about survival for many companies, 2021 is the time to focus on opportunity. Under the duress of COVID-19 many companies have flexed, not broken. Through innovation, rapid technology adoption and streamlining, they have emerged stronger, while weaker competitors have fallen. Those companies that turn the efficiency gains of 2020 into productivity gains, continue to accurately assess trends and show flexibility in adapting their operations, will benefit from the coming surge in demand.”

But, according to Tom Griffin, Partner for Africa and Middle East at Control Risks, governance, policy consistency and rule of law are critical for investors in Africa and deep-rooted challenges remain across the continent in these areas, despite some signs of progress on the issues across the region. He said the imminent recovery will be an opportunity for governments to address structural constraints and promote new approaches and technologies, as the region remains front and centre for many of the clients of the firm.

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