At the dawning of the post-pandemic era, South African companies are facing unprecedented technological disruptions, rapidly outdating business models and the exposure of socio-economic fault lines. C-Suites are confronted with a concoction of risks that are exacerbated by the rising of unemployment, ongoing corruption, financial criminality, cybersecurity threats and concerns around the new vaccine-resistant COVID-19 variants. How companies emerge into the light of day will depend on their resilience and ability to successfully mitigate the risks and threats through informed insights and solid preparation.

KEY THEMES REINFORCED BY COVID-19 IN SOUTH AFRICA INCLUDE:

COVID-19 and the consequent economic effects have meant significant job losses for the people of South Africa. Many families have been affected, and our future generation (the youth) are affected immediately and in the long run. The impact of COVID-19 on access to education has been significant and disproportionately affected learners in poorer households. This immediate effect will have long-term consequences, which, coupled with the direct employment effects of COVID-19, are concerning.

Of particular concern is the unemployment rate among South Africa’s youth.

15 to 24-year-olds, unemployment was 64.4%

25 to 34-year-olds, the unemployment rate was 42.9%

15 to 34 years were classified as “not in employment, education nor training.”

For South Africa, rising unemployment was the most common concern (62% cited this), ahead of increasing corruption (55%) and unsustainable government debt (46%). The emergence of new Covid variants was the fourth most common concern they cited (45%).

86%

of South African respondents say they are most concerned with the rising levels of unemployment. The highest out of the G20 countries.

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Corruption remains a significant challenge for South African businesses, with 55% believing that corruption will increase from its already unacceptably high levels.

This is not surprising given that the pandemic requires changes to business models, increased digitisation and digitalisation, and hybrid or remote working environments, among other disruptions. These situations of rapid and dramatic change are known to facilitate abuse by fraudsters.

The COVID-19 pandemic has exposed governance failures worldwide and led to increased calls for fundamental changes to our global political, economic and social systems. Against the backdrop of a looming global recession, addressing corruption and the misappropriation of state resources remains as important as ever.

South Africa needs to take firm action to protect limited state resources and ensure good governance of public finances if it is to deliver to its people the basic rights enshrined in its constitution and attract the necessary investment needed to fuel future economic growth.

The COVID-19 outbreak brought about unexpected risks that companies were unprepared to deal with despite already having crisis response plans in place.

85.14% of South African respondents indicated that an increase in corruption for 2021 is likely compared to 79.48% for the G20.

55%

believe that corruption will increase from its already unacceptably high levels. Corruption remains a significant challenge for South African businesses.

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Considering the number of fraud events and the frequency of scandals reported in the last few years, it is not surprising that most South African businesses sentiment is that a growing number of criminals are exploiting the financial system. Notably, 78% of South African businesses agreed that it is increasing, of which 51% of those businesses “strongly agreed” with this sentiment. This number is aligned to the broader G20 participants where 81% of participants agreed with the statement.

In comparison to the broader G20 countries, the South African financial industry appears to have a lower risk appetite when accepting clients from jurisdictions with a high financial crime risk. Only four out of ten (45%) South African respondents in the financial industry indicated that they would accept clients from a higher risk jurisdiction versus seven out of ten (71.91%) in the broader G20 financial sector.

Despite most South African businesses feeling there is an increase in financial crime, they indicated they would allocate only 17% of legal spending to ‘internal investigations’ – compared to 19% allocation by the broader G20, where there is far less of a perceived increase in financial crime.

78%

of South African businesses agree that the number of criminals exploiting the financial system is growing

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South African companies report that over the next 12 months, their priority will be to invest in dedicated technology to conduct due diligence, monitoring and investigations concerning virtual assets (57%).

With 34% of respondents reporting a leak of sensitive data due to remote working and related risks over the past 12 months, companies are resigned to the fact that they are vulnerable to a cyber-attack (33%). In addition, 25% of respondents have lost intellectual property in the last 12 months due to a cyber incident. Again, this is in line with the global responses.

In addition, 41% of respondents expressed concerns about new and enhanced phishing and social engineering techniques and employee use of unauthorised devices and software.

35%

of South African respondents are aware of their company experiencing a cyber-attack or threat in the last 12 months

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South African participants in the financial industry noted that specific to their company, the top three areas which might be the focus of media scrutiny over the next 12 months are data privacy (43%), fraud or financial crime (39%) and cyber-attacks or vulnerabilities (36%).

 

TOP THREE AREAS WHICH MIGHT BE THE FOCUS OF MEDIA SCRUTINY OVER THE NEXT 12 MONTHS

DATA PRIVACY

FRAUD/FINANCIAL CRIME

CYBERATTACKS/VULNERABILITIES

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Over the last 12 months, nearly a third of companies have increased their commitments to environmental impacts and climate change (32% and 31%, respectively).

There is now recognition that to create a more sustainable and resilient future, companies should be run for the interest of all stakeholders, not just shareholders, with 58% of companies strongly agreeing with this statement – 89% if you merge the “strongly agree” and “slightly agree” responses.

Companies, for instance, are showing a disconnect between the importance of an issue such as ESG versus the resources they are willing to invest in tackling those issues (61% saying they are aligning business strategy to social purpose while only 33% are spending more money on it).

85%

The approach to ESG and sustainability has undergone a radical 85% shift of attention from managing risk to identifying new business.

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Among South African respondents, M&A is a vehicle to enter new markets (46%), acquire data assets (43%) and increase share in current markets (37%).  This reflects the companies’ drive for diversification into adjacent markets in pursuit of horizontal growth.

Interestingly, South African companies and their G20 counterparts are almost equally looking to acquire technological platforms and systems (34% vs 33%).

48%

of South African respondents reported that they were struggling to service their debts

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Many respondents recognised that their decisions during the pandemic could “present a reputational risk” (76%). However, in general, 54% believed their organisation did not “adequately plan for an increasing number of crisis scenarios”.

When asked what actions or investments they had made to prepare for future crises, 59% cited “updating their business continuity plan as a top priority (59%).

Of less importance was making sure the leadership team was prepared to “manage unexpected crises” (47%) or the need to “ assess cybersecurity programs, including policies, procedures and technology” (45%).

59%

of South African respondents said that updating their business continuity plan was top priority

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Resilience Barometer® October 2021 South Africa

FTI Consulting’s Resilience Barometer® data reveals how, for too many organisations in South Africa, the pandemic has exposed a lack of resilience across critical areas: from business models, to supply chains, and from crisis management to regulatory changes in an increasingly fragmented world. Imperatives for preparedness and risk management is at the forefront of the actions companies should take to remain resilient in a post-pandemic world.

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INSIGHTS

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Combating Corruption to Create a Sustainable Path of Future Growth for South Africa

The FTI Consulting South Africa Resilience Barometer report published in October 2021 set out to chart the areas making the top of the board meeting agenda for South African executives – the C-Suite – and provide fact-based and timely insights to enable clear-headed decisions in a volatile and changing environment. However, despite the widespread negative economic impacts of the COVID-19 pandemic, the current political climate provides a unique opportunity to reinvigorate the country’s fight against corruption.

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The Mainstreaming of ESG Investing Through Policymaking

November 22, 2021 - ESG, Sustainable Finance, Green Investments — some of the biggest buzzwords in finance the last years. What used to be a niche topic has now taken centre stage. Investors’ almost insatiable appetite and legislative innovation will keep it there for quite some time to come. Staying on top of local developments is not enough, reading the international trend tea leaves will be the only way for investors to answer; what next?

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Beneficial Ownership Information in South Africa

October 11, 2021 - South Africa’s protracted fight against corruption and financial crime necessitates the deployment of new and effective countermeasures to combat criminality. Open access to timely and accurate identifying information on the Ultimate Beneficial Ownership (“UBO”) of corporate entities would be a force multiplier in this fight and would go a long way to building trust in the country’s financial system.

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Looking to the Horizon – The Pitfalls on the Path to Net Zero

August 9, 2021—A ‘perfect storm’ is developing, bringing a wave of climate change-related disputes, super-charged by the £2Bn of cash held by the UK’s litigation funders.

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Mitigating the Risk of Trade-Based Money Laundering - Africa Service Sheet

July 7, 2021—The use of international trade to move and disguise the proceeds of crime i.e. Trade Based Money Laundering (“TBML”) activity is growing in both volume and global reach and poses a significant threat to the security and prosperity of developing economies.

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Deferred Prosecution Agreements: a Solution to Prosecuting Backlog?

June 3, 2021—FTI Consulting South Africa and Corruption Watch recently co-authored an article titled ‘Addressing Corruption in South Africa’ in which we argued, inter alia, that consideration should be given to allowing criminal offenders to self-disclose and subject themselves to an administrative penalty to avoid criminal prosecution through the mechanism of deferred prosecution agreements (“DPAs”).

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Mobile Money Is Driving Financial Inclusion, but Beware the Risks

June 3, 2021—Mobile money products and services have taken off in many parts of the world, to the extent that in some regions they have become more widely used than traditional banking. In the Middle East, fintech is growing by 30% annually and projected to generate $2 billion in investment capital funding by 2022.

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Strengthening Cyber Resilience in the Wake of the Pandemic in South Africa

April 17, 2021—Cybersecurity remains a significant concern for businesses in South Africa. Early on in the pandemic, cybersecurity experts reported dramatic increases in attacks on businesses in the region, with hundreds of thousands of devices and accounts being exploited each week. Unfortunately, though cyber risks have continued to increase, the pressures of the last year have prevented most businesses from taking the proactive steps needed to mitigate their risk.

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ESG & Energy Transition in the Mining Sector

January 27, 2021—With the election of a more climate-focused administration in the United States and the European Union (EU) honing in on the mining industry to reduce their carbon emissions, the South African government and mining industry must work together to effect the transition to a lower-carbon future.

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