Labour-related concerns are SA’s biggest risk

Unemployment, skills shortages and inequality dominate SA’s risk profile

According to The Institute of Risk Management South Africa’s (IRMSA) 2018 risk report, the most significant risk facing both South Africa and South African industry is “structurally high unemployment/underemployment”.

In a top-10 list dominated by “[p]olitical, economic and societal risks”, the report (IRMSA’s fourth) ranks “structurally high unemployment” as the top risk facing South Africa and the third-highest risk facing South African Industry. As a shared item on both lists, no item poses as great a risk.

Another labour-related concern is the significant risk of a “[s]kills shortage, including the ability to attract and retain top talent”. This is tenth on the list of risks facing South Africa and sixth on the industry list. 

The two, taken together, paint a picture of a country structurally unable to employ a significant proportion of its own populace; unable to develop the requisite skills in the areas it needs; and unable to attract or keep its top talent. Furthermore, the risk of a “[g]rowing income disparity”, listed sixth on the list of risks facing South Africa, is one that can only be resolved by addressing the risks above. 

In short, in terms of significant risks facing South Africa and its industry, currently and in the future, labour-related concerns are the most pressing.

The consequences of both success and failure
The report includes two scenarios, developed by the Institute for Futures Research, for South Africa and South African industry, which offer a view of South Africa in 2028 (pp. 25-28). The two scenarios spelt out in detail are titled “Tall trees” and “#Alljustfall” and are based on how well South Africa and South African industry responds to the current risks.

“Tall trees” paints a positive picture for South Africa in 10 years, predicting 2028 as “a year of hope and optimism … There is a sustained increase in economic growth and members of society have access to exciting economic opportunities … [resulting] in a significant drop in the poverty and income inequality levels”. 

To achieve this, civil society, labour and government need to work together knowing that they can trust one another. In this scenario, South Africa is characterised by low levels of corruption, competent leadership, and “selfless visionaries … [all of whom] actively seek to collaborate for the greater good …”. 

“#Allmustfall”, as the hashtag suggests, paints a grim picture, predicting negative economic growth, failing industries, escalating national debt and “one of the highest unemployment rates in the world”. This scenario, the report suggests, is likely if South Africa and South African industry fail to address the existing risks facing both country and industry.

Corruption, instability, mismanagement and a lack of leadership
As the scenarios above suggest, in addition to unemployment and skills risks are other shared risks to both country and industry familiar to most South Africans: “[u]nmanageable fraud and corruption” is second on the country list and ninth on the industry list; while a “[f]ailure of governance (public and private)” is fourth on the country list and tenth on the industry list. 

Other political risks that feature on both lists include: “[g]overnment policy, legislative and regulatory changes and uncertainty”, third on the country list and second on the industry list; and “[p]rofound political instability” is eight on the country list and fifth on the industry list.

Appearing on one list, but not the other, a “[l]ack of leadership” is the fifth-biggest risk facing the country, while “[m]icro economic developments: inflation, deflation, austerity measures, national economic slowdown” and “[c]apital availability /credit risk” are seventh and eighth respectively as risks facing South African industry.

International concerns
Internationally, South Africa and its industry are at risk from “[m]acro-economic developments – exchange rate volatility, credit rating fluctuations, global economic slowdown, commodity price volatility, [and] BREXIT”. This is seventh on the country list and fourth on the industry list.

There is increased concern around cyber-crime. “Cyber-attacks and cyber-attack non-disclosures”, is industry’s biggest risk for 2018 and appears ninth on the list of risks facing the country. 

Energy risks
Finally, the report contains a “first energy industry specific risk report developed through collaboration between IRMSA and [the South African National Energy Association] SANEA”. 

This report highlights a “water crisis”; “[b]usiness models for decentralisation of the energy market”; “[s]low responses to changing demand in the country energy mix; and a “[l]ack of investment in liquid fuels infrastructure” as the four things both country and industry need to monitor.

The report goes beyond reporting and raising awareness of the risks. It describes itself as “a powerful tool for decision makers”, asking both the public, private sectors and civil society to work together to address the risks. 

As the report argues: “Considering the number of risks that have materialised over the past 18 months and considering how many of those risks were highlighted since 2016, it is indicative that knowledge of the risks is not enough”.

For both country and industry to cope with the risks, the report contents that there needs to be a “change in corporate culture”, a “focused shift around governance and ensuring accountability”, as well as a “new approach towards skills” that involves all sectors working together to address these concerns.

The report provides information and analysis on, among others, how South Africa is viewed in the context of global economics (p. 20); global trends that affect South Africa’s risk profile (pp. 21-23); how our risk profile differs from the World Economic Forum (WEF) (p. 24); a detailed breakdown on “risk, risk causes and proposal on how to treat the risks” (Section 2, pp. 30-44); and, finally, section 3 provides the insight of a number of subject-matter experts (pp. 45-292).

The sourced information in the report comes from what IRMSA takes to be reliable and trustworthy sources. And while the findings of the report have not been independently verified, the report argues that a “better take than these insights into what the risks are that need addressing will be hard to find. For this reason, leadership at all levels should consult the report as we embark on a new year and a new trajectory for South Africa”.

Contributed by: Nikolai Viedge, an academic and writer for Bespoke Bulletin

Article first appeared in: BESPOKE.png