Entrepreneurs losing sleep over competition, cyber incidents

Fierce competition and cyber incidents are among top business risks which worry entrepreneurs in the New Year, the 2016 Allianz Risk Barometer has said.

The study is the fifth annual survey on corporate risks published by Allianz Global Corporate & Specialty (AGCS), which surveyed over 800 risk managers and insurance experts from more than 40 countries.

While businesses are less concerned about the impact of traditional industrial risks such as natural catastrophes or fire, they are increasingly troubled by the impact of other disruptive events, fierce competition in their markets and cyber incidents.

According to the Allianz Risk Barometer, the top three leading risks for businesses in Africa and Middle East are macroeconomic developments (44 percent), market developments (44 percent)and changes in legislation and regulation (32 percent).Political risks (war, terrorism and upheaval) rank higher than any other region.

The area is the only one to rank power blackouts (10th) in the top 10. These risks are appearing for the first time for Africa and Middle East, the survey shows.

“The biggest contraction in global trade since the financial crisis, BRICS and other emerging markets hitting a wall and a subdued knock-on-effect from the drop in commodity prices help ensure market and macro developments rank highly in this year’s Risk Barometer,” says Ludovic Subran, chief economist at trade credit insurer Euler Hermes, a sister company of AGCS.

The survey further shows that Nigeria,  South Africa, Brazil, Russia, and Malaysia are among countries which have been negatively affected by cheaper commodity prices. “However, it is fascinating to see that, in many cases, the decline in oil and gas, iron ore and steel prices has stressed the supply chain more than it has benefitted it,” adds Subran. “Sectors such as construction, for example, have not done as well as anticipated because of structural difficulties. Further, some sectors, such as machinery and equipment, have seen the collateral damage of plummeting investment in the oil and gas industry.”

Two of the major risers in this year’s Allianz Risk Barometer feature in the top three corporate risks for the first time with market developments ranking second and cyber incidents third. Cyber incidents are also cited as the most important long-term risk for companies in the next 10years. In contrast, natural catastrophes(third in Africa and Middle East) drops two positions to fourth year-on-year, reflecting the fact that in 2015 losses from natural disasters reached their lowest level since 2009.

“The corporate risk landscape is changing as many industrial sectors are undergoing a fundamental transformation,” explained Chris Fisher Hirs, AGCS CEO. “New technologies, increasing digitalisation and the ‘Internet of Things’ are changing customer behaviour, industrial operations and business models, bringing a wealth of opportunities, but also raising awareness of the need for an enterprise-wide response to new challenges,” Hirs says.

Many businesses in Africa are facing a growing number of challenges which threaten their profitability and possibly also their business models, according to the report.

“Businesses constantly have to be on their toes, turning out new products, services or solutions in order to stay relevant to the customer and to thrive in this rapidly changing and globally competitive environment,” says Delphine Maïdou, AGCS Africa CEO.

“Innovation cycles are becoming rapidly shorter; market entry barriers are coming down; increasing digitalisation and new ‘disruptive’ technologies have to be quickly adopted while potentially more agile start-ups are entering the game,” Maïdou says.

At the same time businesses are also having to comply with changing or enforced regulation, increasing safety requirements or import/export restrictions, the report said.

Another area of increasing concern for businesses globally are cyber incidents which includes cyber-crime or data breaches, but also technical IT failures. Cyber incidents gained 11 percentage points year-on-year to move from fifth position (fifth in Africa and Middle East)into the top three risks for the first time (28 percent of responses).Five years ago, cyber incidents were identified as a risk by just 1 percent of responses in the first Allianz Risk Barometer. Loss of reputation (69 percent) is the main cause of economic loss for businesses after a cyber-incident, according to responses, followed by business interruption (60 percent) and liability claims after a data breach (52 percent).

ODINAKA ANUDU