A black swan event, seen in the COVID-19 outbreak, will remain key in defining outlook for businesses in Nigeria and around the world, says KPMG Nigeria, which has pinpointed 10 top business risks for businesses in the country 2020/2021.
The Risk Consulting practise of KPMG in Nigeria in a recent biennial report published the result of a risk survey involving 108 top Nigerian Business executives ranking the biggest threats firms face in the economy.
Business executives across industries say for 2020/2021 Regulatory Risk will be the biggest risk in the country, moving this concern up from third place in 2018 and ahead of last year’s biggest worry: Foreign exchange volatility risk.
Regulatory risk reflects the significant anxieties Executives have continued to have over regulatory uncertainty as a result of increased regulatory scrutiny and sanctions within the country as at 2019, said KPMG.
Directives that limited participation in certain segments of the financial market were some of the policies that significantly impacted business performance in the year and instruction for banks to boost lending would likely deteriorate bank asset quality.
KPMG also noted that the vote for Regulatory risk is also informed by uncertainty about the actions to be taken by regulators to cushion the impact of the coronavirus pandemic on the economy.
In terms of legislation, The Finance Act, The Minimum Wage Amendment Act, Deep Offshore (and Inland Basin Protection Sharing Act) and Police Trust Fund Act are seen as main laws to have a significant impact of businesses 2020 and beyond.
To mitigate this risk, businesses should ensure adequate oversight processes have been established, and develop a framework for engaging and managing their regulatory stakeholders.
KPMG advised that businesses assign internal and external resources to monitor new and proposed regulatory changes and impact on business, as well as dedicate audit resources to evaluating the organization’s processes for monitoring and complying with all applicable laws and regulations.
The second biggest risk is seen in Fiscal & monetary policy risk, which underscores concerns by businesses on the effect of fiscal and monetary policies on their strategic planning and the management of their core operations – especially in the aftermath of the COVID-19 outbreak.
To reduce risk, businesses are to review their credit exposure to the public sector to reduce concentration and implement sales incentives to boost consumer spending, among other things.
Foreign exchange volatility and its impact of profitability worry Nigerian businesses. A risk that has lingered since 2018.
KPMG said Nigerian businesses are still worried there would be a further devaluation after the CBN adjusted official rate to 360/$ in response to pressures emanating from a sharp drop in crude oil price and the ravaging impact of the coronavirus pandemic.
Buffers are seen in businesses building foreign currency-based income stream, utilization of hedge instruments, reducing foreign-currency outflow through local sourcing, among other things.
The fourth-biggest risk is cyber-security which has intensified with the exponential growth of digital touchpoints.
However, establishing accountability for cyber-security risk should be a board room agenda, said KPMG.
It proposed the adoption of a risk-based approach and the assessment and management of third party risk as some measures to reduce risk.
The Fifth biggest risk named by Nigerian business executives is Political risk, which outside of the election cycle would materialize in policymaking.
The best response to political risk is in identifying political moves consequential for business on time.
Other top 10 risks from a list of 31 are Technology infrastructure risk, Customer attrition risk, Talent Shortage/attrition risk, Business continuity risk and Governance risk.