Macroeconomic developments (36% of responses) ranks as the most important business risk in Nigeria in the ninth Allianz Risk Barometer 2020, relegating Changes in legislation and regulation to fifth place. The two risks have been in the top 10 since the launch of the Allianz Risk Barometer in Nigeria in 2017 with Macroeconomic developments topping the inaugural report until slipping down to 9th in 2019. Globally, Macroeconomic developments is a new entry in the top 10 risks for 2020 (11%), driven by corporate fears over a global recession and debt accumulation, particularly in the US and China, notably with regards to the private sector. 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.
Economic growth showed no sign of an acceleration in Q3, reaching +2.3% year on year which results in approximately zero growth per capita, which is well below the
+6% growth rates registered since 2014. “In Q3, as during the last two years, growth was achieved in only about three sectors: Agriculture (non-processed agrifood which accounts for only 4% of the Nigerian GDP), crude oil (non-refined oil which represents just 0.1% of GDP) and telecoms. Informality can be one reason, but this is obviously not the only one since manufacturing and construction output are stagnating. For the time being, the relaxation of credit constraints implemented during last summer has failed to translate into more credit demand,” says Stéphane Colliac Senior Economist for France and Africa at Euler Hermes.
Theft, fraud and corruption (at #2 with 34% of responses) has always featured in the top 10 rankings since the launch of the Allianz Risk Barometer in Nigeria. The risk moved up one spot to second place in 2020. Nigeria along with other Sub-Saharan Africa countries scored the lowest on the Corruption Perception Index 2018, and has not yet succeeded in translating its anti-corruption commitments into any real progress. However the index noted that despite stagnation across the region, there are some promising political developments, particularly in Nigeria, Angola, Kenya, and South Africa.
Business interruption – an undiminished threat with new causes
After seven years at the top, BI drops to the second position globally in the Allianz Risk Barometer. In Nigeria, BI leaped from seventh to third this year and is #1 in Africa and Tanzania; #2 in Cameroon and South Africa and #4 in Ghana. The trend for larger and more complex BI losses continues unabated. Causes are becoming ever more diverse, ranging from fire, explosion or natural catastrophes to digital supply chains and 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 and which cannot switch back to manual processes,” says Raymond Hogendoorn, Global Head of Property and Engineering Claims at AGCS.
Businesses are also increasingly exposed to the direct or indirect impact of riots, civil unrest or terrorism attacks. The past year has seen civil unrest in Nigeria, Ethiopia, Mali, Cameroon, Niger, Sudan, Guinea, South Sudan and Somalia to name but a few with some resulting in property damage, BI and general loss of income for both local and multinational companies.
Changes in legislation and regulation (#3 with 27%) and Climate change (#7 with 17%) are the biggest climbers globally underlining the US-China trade war, Brexit and global warming as increasing concerns for companies and nations. In Nigeria, Changes in legislation and regulation (24%) moved down to joint fifth with Critical infrastructure blackouts. Critical infrastructure blackouts features prominently in the region at #7, in Cameroon at #2, in Ghana at #4, in South Africa at #5 and in Tanzania #5. According to Africa Energy Outlook 2019, a typical Nigerian firm experienced more than 32 electrical outages in 2018. These outages can vary in duration from less than one hour to more than a day, and in some countries they cost firms as much as a quarter of potential annual turnover and up to 2% of annual GDP.
Fire, explosion returns the top 10 rankings in Nigeria at #7 with 23% (sixth globally and fifth in the region) of responses while Political risks and violence moves down to ninth with 16% of responses. Fire, explosion is the number one cause of financial losses based on the results of insurance claims analysis by AGCS. Such events have caused in excess of €14bn ($15.7bn) worth of losses over a five-year period through 2018 – accounting for almost a quarter (24%) of the value of more than 470,000 claims examined by AGCS. This is significantly ahead of the second top cause of loss, aviation collision/crash incidents (14%). Even the average insurance claim from a fire totals almost €1.5mn ($1.65mn). Despite the decrease in a number of responses for Political risks and violence, it continues to be an ever-rising threat of political violence and terrorism particularly in Nigeria, in the region (#9) and around the world sparking higher interest in the specialty insurance market among companies that are worried about its impact on their supply chains and the threat of business interruption. However take up is low exposing companies’ supply chain business interruption risk.
Cyber risks continue to evolve
In addition to being the top risk globally, Cyber incidents is the number one risk in South Africa, second in the region and third in Tanzania. However the risk moved from fourth to eighth spot in Nigeria. It ranks fourth in Ghana and ninth in Cameroon. 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 $42mn , 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.