Chief executives are typically preoccupied with two categories of risk – internal and industry – and often neglect a third – let’s call it country risk.
In an era of tariff politics, fragmented supply chains and renewed great-power competition, the global economy has shifted from a rules-based to a power-based system. The Iran conflict is a case in point. For South Africa, a small open economy with a volatile currency and high exposure to commodity cycles, this global turbulence compounds preexisting domestic vulnerabilities – raising country risk. Executives, no matter how intent on running their business well, cannot simply hedge their way out of systemic fragility – the third risk.
Conventional risk approaches fall short
The first risk we face is internal. How well is the business run? Is it efficient, well structured and appropriately governed? Does it have the right culture and leadership? Is it agile in a world of technological acceleration and regulatory flux? These questions dominate board agendas, and are essential – but often procedural, focused on quarterly performance, on cost discipline and operational refinement.
The second risk is industry risk. Who are the major competitors? How is value distributed across the sector? What are the substitution threats to our products, technological disruptions and regulatory changes? Can the firm carve out a defensible position with pricing power or strategic differentiation? In volatile sectors – energy, banking, telecommunications – these questions are existential.
Risk beyond the industry horizon
Yet there is a third risk. It is less taught in business schools and less rigorously modelled in financial statements. It is macro-political risk: the health of the broader political economy in which the firm is embedded. Without a viable macro environment – one that supports growth, employment, tax generation and institutional stability – even the best-run companies in attractive industries eventually find their room to operate shrinking.
This third risk has rarely been more visible than it is today.
The escalation of tensions between the US-Israel and Iran, instability in the Middle East, and the fragility of global shipping routes – disrupting supply chains in real time – remind us how quickly geopolitical tremors translate into oil price spikes, currency volatility and capital flight from emerging markets.
Lessons from history
Similarly, SA’s history offers perspective at the country level: Johannesburg’s rise in the mid-20th century – fuelled by mining capital and global demand for gold – created Africa’s most sophisticated commercial centre. But that boom rested on a political economy that was unsustainable and unjust. By the 1980s, as internal resistance intensified and international sanctions tightened, the third risk materialised decisively. Capital flight accelerated. Multinationals exited. Human and financial capital drained away.
At the time, business initiatives such as the Urban Foundation sought to mitigate social tensions, but these efforts were largely reactive. They did not fully engage the core political settlement. Predictably, the macro environment deteriorated faster than corporate balance sheets could adapt.
The lesson is stark: when the political economy turns, even profitable firms in dominant industries suffer.
In recent memory, SA experienced a compressed version of this phenomenon. The dismissal of Finance Minister Nhlanhla Nene in 2015 and his replacement by Des van Rooyen triggered an immediate market collapse. Banking shares plunged, the rand depreciated sharply, and bond yields spiked. Within days, billions in value evaporated. The subsequent appointment of Pravin Gordhan restored some stability – but the episode demonstrated how thin the line is between confidence and crisis.
Insight: No operational excellence or competitive strategy can shield a firm from systemic loss of credibility in fiscal governance. Without a stable Treasury, a credible Reserve Bank and a functioning banking system, the national economy cannot intermediate savings into investment.
Today, SA confronts a layered version of the third risk.
- Globally, higher-for-longer interest rates, geopolitical fragmentation and trade realignments increase the cost of capital. Oil price volatility linked to Middle Eastern conflict feeds directly into inflation and transport costs. Supply chain insecurity undermines planning horizons.
- Domestically, structural unemployment, deep inequality and persistent poverty remain unresolved. Energy insecurity, water infrastructure failures and municipal incapacity erode the foundations on which business operations depend.
While elite enclaves can resort to private provision – through private security, water tankers and generators – the majority of citizens cannot. The legitimacy of the system depends on shared functioning, not private workaround solutions.
Third risk is both short and long term
In the short term, executives must navigate turbulence: currency swings, commodity shocks, shifts in trade policy. This requires prudent treasury management, diversified supply chains and markets and scenario planning.
But in the long term, the deeper question is whether the macro environment is moving toward greater institutional coherence and inclusive growth – or toward fragmentation and stagnation – and what business can do to steer the national ship?
Boards face a difficult calculus. How much should they invest in shaping the broader environment in which they operate? Corporate social investment often remains peripheral to core strategy. Yet the cost of macro failure is not peripheral; it can be existential.
Consider infrastructure. Water insecurity in several provinces has become a binding constraint on growth. Without reliable water systems, agriculture, manufacturing and urban life are compromised. Firms can optimise their internal processes endlessly, but if primary inputs are unreliable, competitiveness erodes.
Social risks and breakdown of trust
The same logic applies to social stability. Persistent exclusion generates political volatility. Volatility raises risk premia. Higher risk premia increase borrowing costs. Higher borrowing costs depress investment. The cycle becomes self-reinforcing.
During the Covid-19 lockdowns, SA Inc. demonstrated that it could act collectively and strategically. Initiatives such as Business For South Africa (B4SA) and partnerships supporting Operation Vulindlela have shown that coordinated engagement between business and the government can unlock reform. Energy market liberalisation and improvements in spectrum allocation did not occur spontaneously; they required sustained advocacy and technical collaboration.
This third risk reality check is not a call for business to substitute for the state. It is a call for business to recognise that the third risk is a strategic domain, not a philanthropic afterthought.
- While financial managers and accountants are adept at calculating the cost of capital, depreciation schedules and margin compression, the next frontier is quantifying the cost of macro fragility. What is the implicit tax imposed by failing municipalities? What is the opportunity cost of youth unemployment? How much shareholder value is destroyed by policy uncertainty?
- Conversely, what is the upside of a credible fiscal path, functioning infrastructure and inclusive growth? A lower sovereign risk premia would reduce corporate borrowing costs. Improved education and employment outcomes would expand domestic demand. Stable institutions would attract foreign direct investment.
In a world of geopolitical turbulence – where tensions in the Gulf reverberate through Johannesburg via markets within hours – resilience cannot be firm-specific alone. It must be systemic.
The third risk compels executives to think as stewards of a political economy, not merely managers of enterprises. This risk requires horizon scanning, engagement in policy dialogue and investment in institutional capacity. It requires collaboration across sectors, and sometimes uncomfortable conversations about power, governance and reform.
SA has navigated systemic turning points before. The transition to democracy showed that political settlements can be renegotiated. The present challenge is less dramatic but equally consequential: to build a macro environment in SA that supports sustained growth in an era of global instability.
Operational excellence and competitive positioning remain necessary. But without a healthy macro foundation, they are insufficient.
The third risk is not abstract. It is the environment in which all other strategies unfold. In turbulent times – whether triggered by events in Tehran, Washington or Pretoria – the firms that endure will be those that understand that their long-term prosperity depends on the resilience of the system itself.
The task now is to measure it, engage it and help shape it – before it shapes us. DM
Dr Oosthuizen, a former faculty member at the Gordon Institute of Business Science at the University of Pretoria, is the co-chairperson for scenarios at the World Energy Council. Professor Binedell is the former dean of the Gordon Institute.