Rethinking Risk Management

In a financial landscape fraught with uncertainties, businesses across South Africa are being confronted with a sobering reality: any reliance on government and municipal emergency services may no longer be a sustainable risk management strategy. Recent data from National Treasury paints a grim picture, urging companies to reassess their approach to resilience in the face of mounting economic challenges.

The Alarming Deficit

National Treasury's figures for July revealed a staggering deficit of R143.8 billion, a record-breaking chasm not witnessed since 2004. This stark shortfall far surpassed the expected deficit of R115.5 billion, sending shockwaves through the economic landscape. The forecasted fiscal deficit for 2023, initially pegged at 4% in the February budget, is now poised to reach 6%-6.5%. Additionally, the debt-to-GDP ratio, originally projected at 73.6% until March 2026, appears perilously close to breaching the 75% mark.

Why the Deficit?

Several factors have contributed to this ominous financial predicament. First and foremost, lower-than-anticipated revenues have plagued the government's coffers, as a stagnant economy hampers tax collection efforts. Furthermore, the mining sector, a traditionally robust contributor to the national income, is dwindling as the commodity cycle decelerates. Infrastructure woes, including electricity, rail, and port inefficiencies, have also hindered export growth.

On the expenditure side, the government's wage bill has ballooned beyond expectations, with civil servants receiving larger-than-budgeted pay raises. In addition, state-owned enterprises (SOEs) mired in inefficiency and mismanagement continue to drain significant financial resources as they require repeated bailouts.

A Timely Wake-Up Call

In response to this dire fiscal outlook, the Treasury is contemplating an extensive set of cost-cutting measures. While these measures may provoke resistance from government entities at various levels, it is crucial to recognize the necessity of the proposed actions.

This economic turmoil is a wake-up call for businesses to reconsider their reliance on government and municipal emergency services. While these services are vital in times of crisis, the current financial climate suggests they may become less dependable in the future.

Businesses Must Act Now

The rising local-currency bond yields and the steepening yield curve, indicative of the government's financial struggle, are stark reminders that businesses cannot afford to remain passive. Here's what companies can do to fortify their risk management strategies:

1. Diversify Emergency Response Plans: Businesses should develop comprehensive emergency response plans that extend beyond government and municipal services. Engaging with private emergency response providers and investing in their own crisis management capabilities can provide much-needed resilience.

2. Invest in Redundancy: Consider redundant systems and resources to ensure operational continuity in the face of disruptions. This could involve backup power sources, alternative supply chains, and data redundancy measures.

3. Enhance Cybersecurity: Given the economic challenges, cyber threats are likely to increase. Strengthening cybersecurity measures is essential to safeguard sensitive data and operations.

4. Review Insurance Policies: Evaluate insurance coverage to ensure it adequately addresses potential risks. Coverage for business interruption, supply chain disruptions, and cyber incidents should be given special attention.

5. Community Engagement: Collaborate with local communities and businesses to enhance collective resilience. Joint emergency response efforts can be more effective than relying solely on government services.

In an extremely challenging economic landscape, businesses must take proactive steps to safeguard their operations and adapt to the evolving risk landscape. By reducing dependence on government emergency services and embracing a more self-reliant approach to risk management, companies can navigate these uncertain times with greater confidence and resilience.

With the effects of 2021 riots still being felt, current dire economic conditions front of mind, and the 2024 elections on the horizon, Excellerate Services is offering clients a complementary evaluation of your risk management strategy. Contact us today to schedule an appointment with one of our qualified Solutions Architects.