2024:Macroeconomics, legislation, cyber incidents, Nigeria’s biggest business risks  

• Cyber incidents top of global business risk 

PHILLIP ISAKPA IN LONDON, UK

In a Nigerian economic landscape where 2024 poses major challenges for businesses, a survey conducted by multinational insurance and risk management giant, Allianz, and published in its 13th Allianz Risk Barometer, Nigerian business leaders participating in the global survey have identified changes in legislation, cyber and microeconomic developments as the joint top risks that companies will face in Nigeria this year.

Globally, the report notes that “the top risks in this year’s Allianz Risk Barometer reflect the big issues facing companies right now – digitalization, climate change and an uncertain geopolitical environment. Many of these risks are already hitting home, with extreme weather, ransomware attacks and regional conflicts testing the resilience of supply chains and business models. The fast pace of change, and the growing interconnected nature of risk, likely necessitates a shift up in gear for many companies when it comes to risk management.”

Specifically, it noted that cyber incidents is the top global risk in the Allianz Risk Barometer – for the first time by a clear margin (36% of responses, 5 percentage points ahead). 

According to the the report cyber incidents is the risk of most concern in the Americas, Africa and Middle East, Asia Pacific, and Europe regions, and across all company sizes, large (>US$500mn annual revenue), mid-size ($100mn+ to $500mn), and smaller (<$100mn), for the first time as well. 

It noted that cyber is the cause of business interruption that companies fear most, while cyber security resilience is their most concerning environmental, social, and governance (ESG) risk issue. It is also the top company concern across a wide range of industries including consumer goods, financial services, government, public services, healthcare, leisure and tourism, media, professional services, technology, and telecommunications.

In Nigeria, each of the three joint top risks gnawing at company executives who participated in the survey scored 36 percent, but it is macroeconomic risk, which topped the list in 2023 when it polled 46 percent, that continues to be in their top concerns for two years in a row.

Their concerns around macroeconomic developments centre on inflation, a scourge of many economies in the last couple of years, deflation, monetary policies where in Nigeria the Monetary Policy Committee is yet to meet since the new government came into office on 29 May 2023, and austerity programmes, with President Bola Tinubu only last week ordering cost cutting in travels by government officials, and a palliative programme that has been much tainted with corruption.

This year’s Allianz Risk Barometer report for Nigeria saw a remarkable rise in position for legislation and regulation risk as a concern for companies to joint top position with 36 percent. In 2023 changes to legislation and regulation as a risk was fourth on the table with just 18 percent of the responses received. 

The concerns of the companies around legislation and regulation risk are in tariffs, economic sanctions, protectionism, among others.

For cyber incidents risk, the broad concerns are around cyber crime, IT network and service disruptions, malware and ransomware, data breaches, fines, and penalties. Last year, Nigerian companies rated this risk third on the table with 22 percent. It has jumped this year to joint first with  36 percent.

The long list of the risks of concerns for companies in Nigeria include two new ones that made their way into the top ten this year. These are market developments which received 20 percent affirmation as a major risk by the executives surveyed to place fourth; and new technologies, which received 13 percent in ninth position.

These new entries cover concerns, for instance, in the case of market developments, about intensified competition and new entrants, mergers and acquisitions (M&A), market stagnation, market fluctuation among others; while for new technologies, it relates to risk impact of artificial intelligence, connected/autonomous vehicles, lithium-ion batteries, electric vehicles, Metaverse, among others.

Others in Nigeria’s top ten risks of concern for companies are climate change in joint fifth position with 18 percent, which involves physical, operational, and financial risks as a result of global warming. Last year, this risk was in the ninth position with 11 percent;  theft, fraud, and corruption polled 18 percent, up from 17 percent last year when it was also the fifth top risk concern for companies. 

Also in the top 10 list of risks for Nigeria companies are political risks and violence with 16 percent in seventh position, down from its second position last year when it got 30 percent. The concerns are around political instability, war, terrorism, coup d’état, civil commotion, strikes, riots, looting, among others. 

In the eight position this year is energy crisis with 15 percent, down from seventh position last year when it had 14 percent of the votes. Its concerns for executives are around supply shortage and outages, a nightmare in Nigeria, as well as price fluctuations.

The tenth most important business risk in Nigeria in 2024, according to the companies and executives surveyed, is business interruption, which includes supply chain disruption. It scored nine percent this year as against 11 percent last year when it was ninth on the table.

Globally, with regard to macroeconomic developments, the Allianz Risk Barometer noted that 2024 could see the wild ups and downs of growth, inflation and interest rates that followed the Covid-19 shock settle down, but that elections bring the potential for further upheavals.

It observed that in economic terms, 2023 had a few surprises in store, both positive and negative, adding that in the US, the predicted recession never arrived as the economy proved to be surprisingly resilient in the face of rapidly rising interest rates. “Consumers remained keen to spend, thanks to a robust labour market and pandemic-era savings (now used up). Fixed-rate mortgages shielded many households from rising rates (for now).

It stated that in China, on the contrary, the expected recovery following the reopening of the economy turned out to be surprisingly short-lived; structural weaknesses – above all the precarious situation of the real estate market – quickly regained the upper hand and dampened sentiment. 

“The other major economy that disappointed in 2023 was Germany – although this did not really come as a surprise. It was foreseeable that the industry-heavy German economy would not recover so quickly from the energy price shock. The rest of Europe, on the other hand, fared much better thanks to stronger service sectors,” the report stated.

In a deep dive into the risk associated with changes in legislation and regulation, the Allianz Risk Barometer stated that companies face new rules and regulations in 2024 that will not only require a high administrative burden but could also impose real restrictions on their business activities.

“Since the pandemic, the balance between the market and the state has shifted in favour of the latter, initially out of sheer necessity, to cushion the economic standstill during the lockdowns. But since then, policymakers have increasingly taken an active stance in steering economic outcomes in the direction they want. Reasons for this can always be found: the energy crisis or green transformation, national security, economic self-sufficiency, or systemic competition with China,” the report explained.

Ludovic Subran, chief economist at Allianz, said: “This development is a double-edged sword for companies. On the one hand, they benefit from the subsidy race between states to attract ‘strategic’ industries. On the other hand, this activism is accompanied by a large number of new restrictions on investment – protectionism has reached a new level.” 

The report stated that the decisive ‘regulatory battle’ is not due until 2024, noting, “what is policymakers’ attitude towards artificial intelligence (AI)? As a ‘general purpose technology’, AI is the best chance of escaping the looming low-growth regime through a sustained productivity boost. At the same time, the risks are enormous, including in geopolitical terms. There is therefore a lot at stake when it comes to regulating AI. Striking the right balance becomes a very delicate act of regulation.” 

It pointed out that despite all the vows to reduce bureaucracy, companies will still be faced with new rules and regulations in 2024 that will not only require a high administrative burden but could also impose real restrictions on their business activities. 

“Companies need a strategic response to this that goes beyond monitoring the legislative process. A high level of uncertainty calls for scenario planning, strengthening resilience and open communication with internal and external stakeholders,” Subran concludes.