South Africa’s biggest threats revealed

The latest City Risk Index compiled by Lloyd’s shows which South African cities face the biggest risk to their economic output – and what threats are looming in the future.

Lloyd’s City Risk Index 2015-2025 is based on original research produced for Lloyd’s by the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School.

The study covers 301 major cities and assesses their exposure to 18 man-made and natural threats over a 10-year period, using projected GDP data from 2015 to 2025.

The Index found that a total of $4.6 trillion (R62.7 trillion) of 301 cities’ projected GDP is at risk from all threats – out of a total projected GDP between 2015 and 2025 of $373 trillion (R5.08 quadrillion).

Cities with high asset values are the most financially exposed in absolute terms, Lloyd’s said – something which is reflected in the assessment of South African cities.

Across the globe, a market crash is seen as the biggest global risk, threatening to wipe $1.05 trillion (R14.3 trillion) off the global map.

Biggest risks
Biggest risks for all cities

Unsurprisingly, as the country’s biggest city, Johannesburg stands to lose the most GDP in monetary terms (R93.5 billion) – however, when expressed as a percentage of the city’s anticipated average annual GDP output, it’s actually the least at risk – 6.6%.

That dubious ‘honour’ belongs to the East Rand of Gauteng, where it faces the risk of losing R44.7 billion – or 7.84% of its average annual GDP – to the identified risk factors.

The annual economic output of a selected location is calculated by averaging Lloyd’s GDP projections from 2015 to 2025.

South African city risk

# City Average Annual GDP (ZAR bn) GDP at Risk (ZAR bn) % at Risk
1 Johannesburg 1 413.57 93.47 6.61%
2 Cape Town 1 056.29 78.35 7.42%
3 Pretoria 1 061.20 75.90 7.15%
4 Durban 885.97 66.63 7.52%
5 East Rand 569.98 44.69 7.84%
6 Soweto 56.68 4.09 7.22%

Lloyd’s noted that South Africa, Africa’s most developed economy, has a number of structural problems that are holding back the country’s economy, including its exposure to global demand for commodities – though this has fallen back over 2015.

The report added that there are also a number of domestic constraints – such as the need to improve education and training, high unemployment (one of the highest rates in the G20), labour unrest, transport bottlenecks and disruptions to electricity supplies.

“These challenges make (South Africa) more vulnerable to the risk of Sovereign default. The three big ratings agencies have downgraded SA’s sovereign ratings over the past three years as government debt has risen,” the group said.

Looking specifically at the country’s economic hub – Johannesburg – the city’s exposure to threats has a knock-on effect to other cities in the country.

“Johannesburg’s profile is dominated by two threats – one man-made, the other natural. Between them, they account for almost two-thirds of the city’s economic exposure,” Lloyd’s said.

Market crash is the largest, responsible for at least 35% of GDP risk in South Africa’s financial centre, and the other big risk is human pandemic. Joburg has one of the highest rates of HIV infection globally, with an estimated 6.1 million people living with the disease in 2012.

“Although none of Johannesburg’s exposures to individual threats is globally significant, its share of economic risk from Emerging threats (R38.3 billion, 40.96%) places it 18th in the world. Most of this derives from cyber attack and human pandemic.”

Here is a breakdown of the risk profiles of each of the six South African cities covered by Lloyd’s, where they rank globally, and including which incidents are most threatening to productivity in each location.

Johannesburg – 163rd

# Threat GDP Risk
1 Market Crash R33.38 billion
2 Human Pandemic R27.93 billion
3 Cyber Attack R6.54 billion
4 Drought R5.59 billion
5 Sovereign Default R4.47 billion

Cape Town – 187th

# Threat GDP Risk
1 Market Crash R24.94 billion
2 Human Pandemic R20.85 billion
3 Flood R11.85 billion
4 Cyber Attack R4.91 billion
5 Drought R4.09 billion

Pretoria – 188th

# Threat GDP Risk
1 Market Crash R25.07 billion
2 Human Pandemic R21.12 billion
3 Drought R9.81 billion
4 Cyber Attack R4.91 billion
5 Sovereign Default R3.54 billion

Durban – 203rd

# Threat GDP Risk
1 Market Crash R20.98 billion
2 Human Pandemic R17.58 billion
3 Flood R9.95 billion
4 Cyber Attack R4.09 billion
5 Drought R3.41 billion

East Rand – 227th

# Threat GDP Risk
1 Market Crash R13.49 billion
2 Human Pandemic R11.31 billion
3 Flood R8.45 billion
4 Cyber Attack R2.59 billion
5 Drought R2.18 billion

Soweto – 298th

# Threat GDP Risk
1 Market Crash R1.36 billion
2 Human Pandemic R1.09 billion
3 Drought R550 million
4 Cyber Attack R270 million
5 Sovereign Default R140 million

All conversions done at USD 1 – ZAR 13.63, 4 September 2015

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