South African companies warn of infrastructure collapse

The biggest risk facing South African companies in 2024 is infrastructure collapse and the subsequent disruptions to business. 

This is according to Allianz’s annual Risk Barometer, which compiles the views of over 3,000 risk management experts across the world.

Globally, cyber incidents such as ransomware attacks, data breaches, and IT disruptions are the biggest worry for companies in 2024. 

Business interruption ranks second, followed by natural catastrophes and changes in legislation and regulation. 

Fire and explosions, political risks and violence are the biggest risers in the compilation of the top global business risks.

South Africa is unique in facing the threat of infrastructure collapse, which is the number one risk for the second year running. 

According to Allianz, this highlights the severe impact of power outages and the failure of essential infrastructure, such as ports, railways, and roads, and on the economy and businesses. 

The closely related risk of the energy crisis has climbed to the fifth position, up from sixth place in 2023, indicating that little progress has been made in tackling the issue. 

Cyber incidents and business interruption continue to hold the second and third spots, respectively.

“The persistent threat of power outages and infrastructure failures poses significant challenges to businesses, disrupting supply chains and impacting the overall economy,” said CEO of Allianz Commercial South Africa Thusang Mahlangu. 

“The report underscores the urgent need for investment in infrastructure resilience and the development of contingency plans to mitigate the potential consequences of blackouts,” he added. 

The impact of natural catastrophes was particularly severe, propelling it from seventh to fourth place in the global ranking.

South Africa experienced devastating floods that resulted in casualties and extensive damage to homes, businesses, and critical infrastructure.

The risk of infrastructure collapse has pushed big businesses in South Africa to assist the government through public-private partnerships. 

Standard Bank South Africa CEO Lungisa Fuzile, who also chairs the Banking Association of South Africa (BASA), recently made the case for businesses to step in and support the government. 

In the association’s latest annual report, Fuzile said that, besides volatility in the global economy and financial system, South African banks have to contend with a stagnant domestic economy. 

In particular, the deterioration of vital infrastructure through corruption, theft, and vandalism has resulted in massive losses across the economy and a sharp reduction in tax revenue. 

At the root of all this is the country’s collapsing state-owned enterprises, which are increasingly passing on their debt to the national government. 

The Reserve Bank said this has resulted in the domestic financial sector being highly exposed to government debt. 

“This is but one example of why banks cannot sit on the sidelines but must contribute whatever they can to reviving the South African economy and increasing the efficiency of the state,” Fuzile wrote. 

Addressing these issues is in the interest of South African banks and the country as a whole. 

“No business can thrive – create jobs and profits for its investors – in a country where vital economic infrastructure is deteriorating, and policy instability and incoherence deter long-term investment.”