Corporate failures in Lesotho Robert Likhang FCIS, ACMA, CGMA, CA(L) 1

Purpose of presentation To draw a few failures to assist in establishing the value of proper business continuity planning To provide near (not exact) cases for which continuity interventions could have been used. To illustrate the value of risk management and continuity management We have picked just a few organisations because of time factor 2

Managing volatility Volatility is an ever-present feature of business life and the variety of risk variables gets larger every day. This does not make it any easier to predict the future, but every crisis brings valuable insight into how to stay on track in turbulent world No industry is without risks; in fact, uncertainty creates business opportunities. But you have to keep a strategic focus and ensure that resources don’t get stretched too thin No one is ever ready for worst disasters, but the trick is to react to the events and deal with customers so that you come out of the situation in better or at least similar shape 3

Black swans Nassim Nicholas Taleb in his book came up with the term ‘Black Swan’ in his book ‘The Black Swan: The impact of the highly improbable’. Have three prevailing characteristics: They are surprise to the observer They have a major impact (in some cases regional and global) In hindsight they seem to have been inevitable Companies should try to work out which risks pose the greatest threat and make sure they are in a position to react well when disaster strikes. 4

CAUSES OF CORPORATE FAILURES IN LESOTHO Internal causes Mismanagement Capacity failures Systems failure e.g. presence or absence of risk management External causes Sector/Industry factors e.g. poor regulation etc Black swans 5

Lesotho Bank failure Internal causes Failure to manage loans portfolio (poor asset quality) – KPI= declining loans recovery rate Poor liquidity KPI = mismatch of maturity of deposits versus loans (short term deposits financing long- term development loans External causes Poor regulation e.g. 70% Minimum local assets regulation KPI = increasing investment of deposits in low quality loans, and low market value property investments Any black swan? Removal of apartheid increasing appetite for SA banking instruments decreased deposits and caused massive maturity gap 6

Lesotho Bank failure Predictability? It could not be predicted that Basotho’ s loyalty & could be exchanged for better products in post apartheid government banking system Potential Planning interventions Scenario forecasting - Royal Dutch Shell introduced this to bear the impact of oil rises of OPEC group in the seventies Contingency planning - Reserves pile up e.g. BP used its cash reserves for Gulf of Mexico Oil spill 7

Lesotho Agricultural Bank Internal causes over -expansion with little capital base (most assets were not income generating) Low service charges to recover the cost of doing business Poor repayments of loans Poor or no credit insurance Poor product development and diversification External causes Climatic changes with poor produce from farmers during drought Development bank regulated as a commercial bank Any swans? Climate change leading to poor productivity 8

Lesotho Agricultural Bank Predictability Very difficult as information on the impact of global warming was insufficient Potential planning interventions Contingency planning – however this would be difficult given under- capitalization of the bank 9

Lesotho Airways Corporation Internal causes Poor risk management Route diversification External causes General decline in traffic and increasing costs of in the industry Any black swans? LHDA road infrastructure reduced inland traffic massively, generally around the world road infrastructure affected many modes of transport (it could be said its technology change) Predictability? Very difficult as the road infrastructure in highlands was believed to be too costly Planning interventions? Scenario planning, considering impact of other travel modes if they grow 10

Lesotho Building Finance Corporation Internal causes Poor credit management Poor management of solvency (capital adequacy) External causes Undeveloped property market High interest rates (poor regulation) Any black swans? Economic decline – government in previous 5 years had reduced spending, IMF stringent measures had been introduced in LDCs Predictability? Moderate with change of regime Planning interventions Both scenario planning and contingency planning more the former 11

Conclusion –Resilience – companies must build resilience Resilient organisations have exceptional risk radar, which gives an early warning by helping an organisation identify issues before they develop into major incidents. Resilient organisations have resources and assets that are flexible and diversified. Resilient organisations value and build strong relationships and networks. They proactively manage risk throughout their networks of customers, suppliers, contractors and business partners Resilient organisations review and adapt to changes and adverse events (taken from Roads to Resilience, a 2014 report by Cranfield School of Management on behalf of Airmic) Lesotho organisations are not immune to disasters, and as such need to seriously consider business continuity management to survive disasters 12