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IRMSA Insight Risk Chat Financial Turmoil & MTN Lesson in Nigeria - 18 January 2016

Posted By IRMSAInsight, 12 January 2016

18 January 2016 


Financial Turmoil: Credit Downgrades, Falling Rand, Finance Minister Debacle, Global Economic Decline


Fitch, Standard & Poor’s and Moody’s all lowered their outlook on South Africa’s debt to essentially one notch above junk status in December 2015. The credit ratings of FirstRand, Nedbank, Standard Bank and Absa were cut as a result of the downgrades. During the same month, the country and the markets were sent into shock by the sudden replacement of respected finance minister Nhlanhla Nene with the relatively unknown David van Rooyen, who was himself replaced a few days later by former finance minister Pravin Gordhan. In nominal terms South Africa also witnessed its worst exchange rate levels against the pound and the dollar ever.   


Meanwhile on the international front, the World Bank cut its global economic growth forecast for 2016 predominantly due to the simultaneous slowdown underway in all of the so-called BRICS countries, barring India. It is likely that this will have significant spillovers to the rest of the world. Global growth should reach 2.9 percent this year, significantly lower than the Bank’s June forecast for 2016 of 3.3 percent growth.


As a Risk Manager:


  • Have you assessed whether the falling rand is likely to have a positive or negative effect on your organisation?

  • Has your risk management process taken note of the growing impact of both internally and externally derived reputational risk?

  • Have you considered the interconnectedness of South Africa’s risks? How will the credit rating downgrades and market uncertainty, for example, interact with the ongoing drought experienced in several provinces and the persistent low commodity prices? How does the simultaneous manifestation of these risks affect your organisation’s external risk profile?
  • Which risk treatments are more effective when attempting to manage external risks?



MTN Lesson in Nigeria: Should Risk and Compliance Come Closer Together?


Proving that companies do not operate in isolation, the presidents of Africa’s two largest economies, Nigeria and South Africa, met in December 2015 to deliberate over the $5.2 billion fine hanging over the continent’s largest mobile operator, MTN Group. The South African Group, which is the biggest mobile operator in Nigeria with over 63 million subscribers, was slapped with the largest penalty any African company has ever faced after the Nigerian Communication Commission (NCC) fined it about $1,000 for each of the 5.1 million subscribers it allowed to operate with an unregistered SIM card beyond a September deactivation deadline. MTN is taking the NCC to court even though the fine was reduced to $3.9-billion. In the meantime investigations continue into what may have led to the failure to comply with the regulations.


As a risk manager:


  • Do you understand the risk of non-compliance within your organisation?

  • Is it time for the two disciplines to come closer together, if not merge completely, or should the disciplines remain as distinct specialist areas?

  • Are there areas of overlap between risk and compliance in your own organisation?




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Christelle Marais says...
Posted 18 January 2016
In my mind, the argument as to whether compliance is a specialised sub-set of risk management, has been settled. Having practiced actively in both disciplines for large corporates, I definitely support the synergies that can be derived from the two disciplines being closely integrated. Apart from the strict compliance risks (addressed by compliance departments), close collaboration allows for exploitation of synergies and optimisation of controls for risks resulting from compliance to certain legislative requirements (i.e. increased cost, loss of income previously earned, etc.). In terms of management time and contribution, I have experienced more benefit from close integration than from separate functions operating on their own.
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