As Risk Management Gains Traction

The need to promote transparency, integrity and business ethics have driven many businesses towards embracing a risk management culture, writes NumeEkeghe

Last week, the Risk Managers Association of Nigeria (RIMAN) held its 17th annual international conference and training in Lagos. The theme was: “Risk Management for Economic Development and Revenue Diversification,” and it was a time to rub minds with industry experts in understanding the trajectory of Nigeria’s risk portfolio as it affects economic growth and development.

In his opening speech, RIMAN’s president, Mr. Jude Monye noted that Nigeria’s tackling of the global oil crises and economic recession would depend largely on the role of risk management in the economy, hence the significance of the conference.

Also, the Managing Director of Financial Derivatives Company Limited, Bismarck Rewane defined risk as the probability that something unpleasant may happen, leading to the conclusion that there is risk in everything.

“From the moment you are born, you are dealing with risks,” he said.
“There is nothing with zero probability in economics.”
Drawing from the impact of the global economic crisis in 2008 (triggered by greedy US bankers) and its impact on Nigeria, Rewane noted that there are some risks which risk managers can do nothing about, but warned that “we must learn from the lessons of the past, be more proactive and have a more robust system,” in dealing with shocks from the global macroeconomic environment.

“The capitalist system depends on profit and profit is a reward for risk-taking,” he said.
“But risk that is not managed is very dangerous. There are risks that you can do something about and there are ones that you can’t do anything about. We can only insulate ourselves with buffers.

“Risk Management is financial discipline. It is a mental place where people are not risk averse but risk aware.”
Pointing out that the victims of poor risk management are usually the tax-payers, he questioned the resilience of Nigerian banks and the resilience of the system’s stress-testing.
Then he called on risk managers to understand that they are not just protecting themselves from unpleasant outcomes, but also “protecting the system and future generations from unpleasant outcomes.”

After the goodwill messages from the Oba of Lagos, Oba RilwanAkiolu and the Chartered Institute of Bankers of Nigeria (CIBN) President, Prof. Olusegun Ajibola, the Risk Consulting Partner at KPMG Nigeria, Mr. OlumideOlayinka, spoke on the topic “Macroeconomic Risks and Corporate Survival.”

“Macroeconomic risks have significant impact on people’s lives,” he said.
“In the economic crash of 2008, a lot of people lost their lives and livelihood. Your (Risk Managers) understanding of the macroeconomic environment will be key to securing your jobs in the future, because the risks will always be there, but your understanding will be pivotal to your survival, quicker recovery (faster than your competition), and the minimisation of economic shocks on your institutions.”

He also pointed out that it was important to understand what is happening in big countries like the United States and the United Kingdom, climate change: how more countries are moving away from crude oil and towards electrical power, and the effects of digitisation on their business.
“What is happening in digital disruption will reduce the time for data gathering and processing,” he said.

“As a risk manager, you will have to unlearn most of the things you know today, because a large chunk of your responsibilities today will be left to robots, while you spend time on analysis and strategy.”
Listing some of the things risk managers must ensure they do in the 21st century, he harped on diversification.

“You must diversify,” he said.
“No matter how interesting what you are doing is, you must have alternatives. It is important that a risk manager understands his environment and knows which battles to fight.
“Don’t ever fall in love with a particular area of business or have the hubris of success. Even regulation can change the dynamics of your business overnight. As a risk manager, you must see where the wind is blowing and quickly react.”

He also warned that this is not the time to be “antagonistic of your regulators. You have to be partners with them, understand them and work with them. That, to me, will be the key to your corporate survival.”
On what companies must do reduce their risk exposure, he advocated for strong corporate governance.
“Where there is no corporate governance, failure is beckoning on such an organisation,” he said.

“But companies must be careful not to stick just to the letter of corporate governance, but go beyond that into the spirit – that’s what it means when you say an organisation has a soul.”
Reacting to Olayinka’s speech, Ajibola reinforced the former’s ideas when he said “the job of a risk manager is a calling, because it comes with a lot of name-calling.
“Let people realise that it is not a bed of roses every time. We have the onerous duty to manage people’s risk. We need to help corporate Nigeria manage its risks; you must know what’s happening in every facet.
“We must not replace projections with prophecies; we must be prepared to apply the brakes when others are running.”

Also, the Managing Director of RTC Advisory, Mr. OpeyemiAgbaje, while speaking on the theme: “Imperatives of Revenue Diversification in a Challenging Economic Environment,” noted: “When we talk about diversification, we are thinking about three things: production output/Gross Domestic Product, foreign exchange earnings, and government revenue.
“GDP is already diversified but government revenue is not and praying that oil prices recover and borrowing are not sustainable strategies,” he said.

On what could done to get the country’s economy back on track, he said: “We need to examine what each tier of government does, their productivity, their kill and competence, so as to restructure the civil and public service for maximum effectiveness and efficiency.
“We also need a tax reform and begin to find more ways to use private capital as a source for infrastructure funding. Also, we have to minimise corruption and increase value for government spending.”