Here is the biggest business risk in East Africa

Business Interruption (BI), 67% of responses, ranks as the most important business risk in Tanzania as larger and more complex BI losses continues unabated. Causes are becoming ever more diverse, ranging from critical infrastructure blackouts, fire, explosion or natural catastrophes to digital supply chains or even political violence.  

Changes in legislation and regulation (at number two with 61% of responses) and Climate change (at position 6 with 17%) underline the US-China trade war, Brexit and global warming as increasing concerns for companies and nations including Tanzania. 

Cyber incidents is second in this year’s Allianz Risk Barometer (39% of responses). Awareness of the cyber threat has grown rapidly in recent years, driven by companies’ increasing reliance on data and IT systems and a number of high-profile incidents.

IT systems 

The annual survey on global business risks from Allianz Global Corporate & Specialty (AGCS) incorporates the views of a record 2,718 experts in over 100 countries including CEOs, risk managers, brokers and insurance experts. Each year Allianz asks CEOs, risk managers, brokers and insurance experts around the world to name their top three risk concerns for the year ahead. This is the inaugural Allianz Risk Barometer report for Tanzania.

“Businesses in Tanzania are concerned about business interruption as it is the country’s top risk in 2020. It also ranks in the top three risks in Africa and the Middle East at position one Nigeria at three, South Africa at two and Cameroon at two as well. Companies are worried about Changes in legislation and regulation, which is second in the country. Cyber incidents is third in Tanzania, the top risk in South Africa and second in Africa and the Middle East – while companies are also more worried about it. The top risks in Tanzania are in line with the top three global risks, which show that businesses in that country have similar concerns as other companies around the world,” says AGCS Africa CEO Thusang Mahlangu.

Business interruption (BI) at the top

BI’s top ranking in Tanzania is a strong indication of the trend for larger and more complex BI. Causes are becoming ever more diverse, ranging from fire, explosion or natural catastrophes to digital supply chains or even political violence. 

“Digital supply chains and platforms today allow for full transparency and traceability of goods but a fire at a data center, a technical glitch or a hack could bring large BI losses for multiple companies that all rely and share the same system, which cannot switch back to manual processes,” says Raymond Hogendoorn, global head of property and engineering claims at AGCS.

Changes in legislation and regulation and Climate change are big risks to companies underlining the US-China trade war, Brexit, the African Continental Free Trade Area (AfCFTA) and global warming as increasing concerns for companies in Tanzania and the region. Around 1,300 new trade barriers were implemented in 2019 alone. The US-China trade dispute has brought the US average tariff close to levels last seen in the 1970s. 

Trade policy is becoming just another political tool for many different policy ends, such as economic diplomacy, geopolitical influence or environmental policy,” explains Ludovic Subran, chief economist of Allianz. “This activism is not restricted to the US: it has spread to Japan and South Korea, India and the EU.”

New regulatory challenges in the next decade will focus on environmental impact, de-carbonization and climate change. 

“EU sustainability regulation is nothing less than a game changer. The impact on corporates will be as wide-ranging as that of the new rules on accounting and data protection were in the past,” says Subran.

Cyber risks continue to evolve

Cyber’s third ranking in Tanzania is in line with its move to the top risk globally. It is a dominant risk in South Africa and has been a top risk since 2016 except only in 2019 where it ranked second to BI.  It ranks fourth in Ghana, eighth in Nigeria and ninth in Cameroon this year. 

Businesses face the challenge of larger and more expensive data breaches, an increase in ransomware and spoofing incidents, as well as the prospect of privacy-driven fines or litigation after an event. A mega data breach — involving more than one million compromised records — now costs on average $42m, up 8% year-on-year. 

“Incidents are becoming more damaging, increasingly targeting large companies with sophisticated attacks and hefty extortion demands. Five years ago, a typical ransomware demand would have been in the tens of thousands of dollars. Now they can be in the millions,” says Marek Stanislawski, deputy global head of Cyber, AGCS.

Extortion demands are just one part of the picture: Companies can suffer major BI losses due to the unavailability of critical data, systems or technology, either through a technical glitch or cyber-attack. “Many incidents are the results of human error and can be mitigated by staff awareness trainings which are not yet a routine practice across companies,” says Stanislawski.

Climate change brings added risk complexity

Climate change’s ranking in the top 10 risks in Tanzania and the region is driven by risk management experts’ concerns about global warming. An increase in physical losses is the exposure businesses fear most (49% of responses) as rising seas, drier droughts, fiercer storms and massive flooding pose threats to factories and other corporate assets, as well as transport and energy links that tie supply chains together. Further, businesses are concerned about operational impacts (37%), such as relocation of facilities, and potential market and regulatory impacts (35% and 33%). Companies may have to prepare for more litigation in future – climate change cases targeting ‘carbon majors’ have already been brought in 30 countries around the world, with most cases filed in the US.

“There is a growing awareness among companies that the negative effects of global warming above two degrees Celsius will have a dramatic impact,” says Chris Bonnet, head of ESG business services at AGCS. “Failure to take action will trigger regulatory action and influence decisions from customers, shareholders and business partners. Ignoring climate risk is more costly than grappling with it. Therefore, every company has to define its role, stance and pace for its climate change transition – and risk managers need to play a key role in this process alongside other functions.” 

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