Risk Management and the Business Environment in South Africa

Abstract

Risk management involves tracking market and non-market long-range risks, understanding their adverse impact on the business environment, and managerial responses to reduce risk exposure. As an emerging market, South Africa poses a challenging array of long-term political, economic, financial and operational risks to investors. Risks such as concerns about increased costs, lack of transparency, limited capacity to enforce the rule of law, government intervention, a volatile currency, regional contagion and the HIV/Aids pandemic heighten uncertainty about the business environment. Managerial responses to anticipate and mitigate risks include matching mode of entry with risk tolerance, superior intelligence and lobbying, maintaining low tolerance for corruption, selecting appropriate financial instruments and balancing shareholder and stakeholder interests. The risk management framework presented, consisting of three elements: type of risk, impact of risks and managerial response to counter adverse risk impacts, may be refined and expanded for potential application to other emerging markets.