Businesses worldwide are gearing up for a difficult year, citing a number of crises that include cybercrime, Russia’s war on Ukraine, rising energy and commodity prices, and accelerating wage and price inflation.
Two reports released this week — the Allianz Risk Barometer and the PwC Global CEO survey — highlighted the biggest problems that chief executives and their businesses are facing in 2023.
The Allianz Risk Barometer found that the top three business risks, based on 2 712 respondents from 94 countries and territories, were cyber incidents; macroeconomic developments including inflation, monetary policies and austerity programmes; and interruptions such as supply chain disruptions.
The survey focused on large and small-to-medium-size companies.
“Unsurprisingly, given the current ‘permacrisis’, business interruption and supply chain disruption ranks as the second top risk in this year’s Allianz Risk Barometer (34%),” reads the report.
“It is second only to cyber incidents, whose top position reflects the importance of today’s digital economy, the evolving threat from ransomware and extortion, as well as geopolitical rivalries and conflicts increasingly being played out in cyberspace.”
The results show that several business interruption risks have climbed this year’s rankings. These include the effect of the global energy crisis — a new entry in the 2023 survey at number four — while macroeconomic developments such as inflation and a potential global recession peak at number three, the highest position since the first Allianz Risk Barometer in 2012, the report notes.
“Political risks and violence is another new entry in the top 10 global risks at 10. Shortage of skilled workforce rises to eight, while outside of the top 10, the prospect of critical infrastructure blackouts or failures (12) is also of more concern to respondents than 12 months ago.”
About 50% of South African businesses included cyber incidents as a top risk. This was in line with the previous year’s rankings and global trends.
Forty-four percent of respondents cited business interruption in the supply chain as a core concern, while 35% of respondents said they were concerned about blackouts. This number has increased from 18% in the previous survey.
“As well as ranking as the fourth top risk globally, the energy crisis is the second-most concerning cause of interruption (35%) for companies given its potential to cause further widespread disruption,” reads the report.
“The skyrocketing cost of energy has forced some energy-intensive industries to temporarily cut production, find energy efficiencies, or move production to alternative locations.”
This comes as businesses battle to stay afloat in South Africa because of generation failures at Eskom, which leads to rolling blackouts.
President Cyril Ramaphosa cancelled his trip to the World Economic Forum in Davos this week because of intensified load-shedding from stage four to six.
Geoff Tanton, regional head of MidCorp for Allianz Global Corporate & Specialty, said that with the inflation outlook and low investor confidence because of the energy crisis businesses are in a perfect storm where everything is going wrong.
“The big question becomes how do we encourage growth without having energy supply? And for us to move to a renewable energy source, that is going to take years. Secondly, it’s a huge cost element.”
Several industries have warned of infrastructural damage, crop failures and other problems caused by the power outages.
The minister of agriculture, land reform and rural development, Thoko Didiza, met industry representatives including those of agriculture and food. They outlined their concerns, particularly the threat to food security, if rolling blackouts continue. Didiza committed to establishing a task team to monitor how load-shedding was affecting the sector.
Tanton argues that, globally, companies are diversifying and spreading the risk in terms of energy.
“If you look at the report, what’s interesting is it’s the first time the energy crisis has really risen to these heights. And it’s not because of South Africa. It’s actually because of the Ukraine crisis and the Russian gas that is in short supply.
“[Companies must be] able to either create their own energy. Obviously that means that companies are going to have to fork out so that they can start producing their own electricity and become less dependent on the national energy providers.”
Allianz says the global energy shortages threaten to cause supply disruption in several industries, including food, agriculture, chemicals, pharmaceuticals, construction and manufacturing, forcing companies to seek alternatives or cheaper sources of ingredients and raw materials.
Unlike South Africa, the six other African countries included in the survey — Nigeria, Morocco, Namibia, Madagascar, Kenya and Ghana — do not cite critical infrastructure and blackouts in their top five concerns.
Meanwhile, PwC’s 26th Annual Global CEO Survey shows that about 40% of chief executives think their organisations will no longer be economically viable in 10 years’ time if the companies continue on the current course. “That stark data point underscores a dual imperative facing 4 410 CEOs from 105 countries and territories.”
Notably 73% of chief executives expect the next 12 months to be difficult, citing global inflation concerns.
This is consistent across economic sectors, including technology (41%), telecommunications (46%), healthcare (42%) and manufacturing (43%).
“Underlying these figures, we believe, is consciousness among today’s leaders that we are living through extraordinary times, with five broad megatrends — climate change, technological disruption, demographic shifts, a fracturing world and social instability — reshaping the business environment.”
The report says that although none of these forces is new, their scope, effect and interdependence are growing, with varied magnitude across industries and geographies.
The report notes that chief executives in Japan, buffeted by demographic tailwinds for decades, and those in China, were the most concerned about the long-term viability of their business models, while their counterparts in the United States were the most optimistic.
The PwC report also found that industry captains said they need to focus on increasing revenue and cost cutting without delaying strategic merger and acquisition initiatives.
But even with more than 50% of chief executives saying they had already started cutting costs, only 19% froze posts and 16% said they were reducing their staff components.
“This stands in stark contrast to what we heard from CEOs back in October and November of 2008, when about twice as many told us they anticipated near-term headcount reductions.”
The report also focuses on the projected global economic decline chief executives anticipate as a short-term problem.
About three-quarters of the top executives share this concern. According to PwC, this is a stark reversal from last year, when nearly 80% of respondents anticipated improvement in global growth.
“Last year’s optimism, reflecting hope that economic conditions would continue improving as the global pandemic eased, was dashed in 2022 by shocks such as Europe’s largest land war since World War II, knock-on effects like surging energy and commodity prices, and accelerating general wage and price inflation,” it noted.
