Know your risks and stay in the game – SRK chair

Exclusive Opinion Piece

Governments and the private sector operating in Africa must rise to the challenge and identify risks that are a threat to economic, socio-economic and business growth, says Roger Dixon, chairperson and corporate consultant of SRK Consulting (SA).

Dixon explains that despite the tough economic environment globally, the African landscape is changing compared to a few years ago with the emergence of new opportunities..

In fact, the recent World Economic Forum on Africa, held in Cape Town, alluded to the increasing opportunities in Africa for private investors to forge partnerships with government and civil society to pursue development projects in various sectors.

Simpiwe Tshabalala, joint CEO of Standard Bank Group of South Africa, said at the conference that Africa has among the lowest investment to GDP ratios among the regions, which suggests that there are huge opportunities to execute projects that are developmental in nature but will remunerate those willing to take risks.

And those prepared to take risks, should be proactive in identifying and being honest about them – which will be vital is determining the success of a business and the economy, points out Dixon.

While there is opportunity to do business in Africa, Dixon also urges companies to be aware of the risks globally and their impact on the continent, as well the internal risks within African countries.

He refers to the World Economic Forum’s Global Risks 2015 report, which identifies the top ten risks in terms of likelihood and impacts. In terms of likelihood, it features interstate conflict; extreme weather events; failure of national governance; state collapse or crisis and unemployment or under employment, amoung others. While in terms of impact, it features a water crises; weapons of mass destruction; an interstate conflict; an energy price shock; failure of climate-change adaptation; a fiscal crises and unemployment or underemployment.

This is why he strongly advocates for the use of a multi-disciplinary consulting team comprising experienced engineers and scientists. “The cost of not knowing your risks can prove very expensive , and there are several examples around the world that can attest to this. This is why you need competent advice from experts at every stage of your project.”

Further, he adds: “The economic climate is resulting in pressure to cut costs particularly  on existing operations, while the funding for new projects is under strain.  In reducing costs, companies must not move to spend less on identifying risks, which if left unattended, can come back to haunt the business in terms of revenue and productivity. It is important to take a qualitative approach in choosing an independent consulting and engineering firm for a project as opposed to choosing the ‘cheaper price alternative’.  Some companies want to take shortcuts, however not preparing for eventualities for the short-, medium- and long-term will have dire consequences.”

This, he adds, is especially true for the mining sector, particularly from the point of identifying a prospective resource to having an actual proven reserve. “From resources to reserves, mining companies must focus on risks associated with mining, metallurgical, economic, marketing, legal, environmental, social and governmental issues.”

For example, he refers to the priority given to return on investment to shareholders. “CEOs should try  not to play the short-term game and focus on this as their only priority. While it remains a core function of the business [in tough times as well] one must also look to other key stakeholders of the business, for example local communities surrounding operations. What are the impacts to communities? Chief executives [if the cap fits] must move towards a behaviour that translates into one of having shared and balanced values.”

Dixon says the impact to communities is particularly relevant to Africa, where there is a significant, and a growing, inequality gap.  This statement is supported by the Global Risks 2015 report, which explains that a major driver of social fragility is rising socio-economic inequality within countries as income inequality is widening quickly in large emerging markets.

The report states: “Rising structural unemployment drives both inequality and social pressures. Lower economic growth and technological change are likely to keep unemployment high in the future, also in developing countries. The spread of connectivity enables protest movements to mount more quickly, increasing the risk of unrest and violence that could easily spill over from individual countries to affect the global economy. While inequality and unemployment contribute to social instability, social instability in turn impacts negatively on equality, employment and wealth creation. The multidirectional cause-and-effect relationship makes it harder to address the related risks.”

Says Dixon: “There is mounting pressure on governments to deliver and bridge the inequality gap, which is why one must decide whether in government or in the private sector to manage risks upfront. For an economy to grow, it’s not just  businesses that need to succeed, but necessary for a government to grow. This growth is relevant not just in terms of expertise but in terms of capacity. Alignment of policy and implementation is needed at all levels of government.”

This too, is where the private sector can play a key role in assisting government.  . A recent example is SRK’s involvement in Cameroon that demonstrated how its wide range of engineering expertise could play a key role in unlocking Africa’s mineral wealth. As a technical advisor to the government of Cameroon, SRK was part of the process to finalise the mining convention with Australian miner Sundance Resources – as well as conventions for a mineral terminal at a deep water port and a 520 Km railway – for the US multi- billion Mbalam iron ore project.