IN the African Region, the concept of Risk Management can be described as something that is still relatively novel and a field under development. In most nations, governments and private sectors are concentrating on the development of Risk Management Strategies and Capabilities.
In the year 2012, The African Risk Capacity (ARC) agency was established, which was a significant initiative made. ARC’s mandate is to improve risk management in the continent of Africa, through provision of early warning systems to natural disasters, risk assessments, contingency planning, insurance and capacity building and this has also made great strides in droughts, floods and epidemic risk management.
Additionally, the current state of risk management in Africa differs from country to country, for instances, South Africa and Kenya are the leading countries when it comes to risk management, with well-developed risk management systems implemented.
North Africa, in terms of risk maturity, Egypt has made the most significant progress, where the Egyptian government has developed a very sound National Risk Management Strategy. Morocco on the other hand has made some progress in risk maturity with establishment of Moroccan Agency for Development. In West Africa, the Ghanaian government has developed a National Risk Management Policy and Framework, which is meant for risk identification and management and there is a National Risk Management Committee responsible for its implementation.
However, Somalia and Eritrea still have little capabilities in terms of risk management. Zimbabwean government is currently working on the Risk Management Framework for its country where they have involved the private sector and NGOs to contribute, though the first draft was built using auditor-centric thinking.
Africa like any other continent in the world has exposure to various risks, which ranges from poverty, climate change, corruption, policy inconsistencies, natural disasters to conflict and political instability.
To successfully manage these risk exposures, there is need for adequate data, which most African countries don’t have the same level of data infrastructure as developed countries. Furthermore, there is lack of risk management expertise, as many businesses lack resources to hire pedagogical risk management experts, and even if they do, there’s often a shortage of qualified candidates.
Most risk management professionals in Africa are using outdated risk management methodologies, which do not add more value in terms of validation of management assumptions through improved risk reporting.
To make an impact to the decision making process, risk managers ought to divert from risk reporting to risk-adjusted performance reporting, through integration of risk information into management reports.
This will make life easier for leaders, investors, because leadership need to understand whether there is a likelihood of objective achievement. Currently in Africa, there is over reliance on risk profiles, heat maps, risk registers which are not enough to enable the validation of assumptions. Additionally, risk modelling techniques like Monte-Carlo simulations, stress testing, scenario analysis are not quite common in the African Region.
Many African businesses still have poor risk-aware cultures, as they don’t prioritize risk management and they don’t make risk management part of their organisational culture and values. Additionally, In Africa, there is still lack of incentives for businesses to take risk management seriously, such as tax breaks or other government incentives.
Very few countries in Africa have a supportive regulatory environment for risk management as most countries don’t have strong regulations around risk management, and even when they do, they’re often not enforced.
However, ways to improve the regulatory environment, such as increasing transparency and accountability, or improving enforcement can be implemented to improve supportive regulatory environments.
Moreover, most governments and private sectors still have Risk and Audit Committees in existence for a long time and it’s only recent that the two units are being separated, though the pace is too slow and questionable.
Lack of trust and confidence amongst the business communities and governments still exists, as a result, this can make it challenging for businesses to cooperate with regulators and share information about risks.
In other African nations, there is lack of coordination between different stakeholders involved in risk management, and as a result, there are no established joint risk management committees or developing shared risk management plans, as governments and private sector operate in silos.
In conclusion, there is a lot of potential for improvement in Africa’s risk management capabilities. There a number of initiatives underway to improve the continent’s Risk Management Framework (AIRMF) and the African Risk Capability (ARC). Additionally, there is growing awareness of the importance of Risk Management among African governments and businesses.
As Risk Management becomes more widely adopted, Africa will become a more resilient and prosperous continent.
Lloyd Chirindo is a multi award-winning, certified enterprise risk management leader with extensive (+17 years) experience of strategically helping leadership in making. He can be reached on chirindochamoko@gmail.com
