Public sector risk management in Sub-Saharan Africa, and Nigeria: Challenges and Solutions

By Osinowo Temitope Ibrahim ((Risk management and investment Expert, IRMcert)

Evaluating public sector risk management challenges and solutions in the Sub-Sahara African region. The study followed the desk research methodology where a structured review of relevant literature was conducted.

The research was based on the New Institutional Theory. The research found that the major challenges affecting risk management in the public sector of most countries in SSA include weak regulatory frameworks, fraud and corruption, lack of effective PPP arrangements, lack of financial resources as well as lack of risk management expertise.

The study concluded that countries in SSA face several challenges in public sector risk management. In light of the challenges, the study recommends establishing independent risk management offices, implementation for sound regulatory frameworks or policies, putting in place PPP arrangements towards effective public sector risk management as well as implementing effective human resource management systems.

Globally, both developed and developing countries continue to face challenges towards effective public sector risk management. Although ineffective public sector risk management is of concern to developing countries like Nigeria, developed countries such as the United States and the United Kingdom also face challenges in risks management particularly in the public sector.

However, the challenges are more peculiar in developing countries. This is because developing countries are more exposed to risks as compared to developed countries as they rely on public debt to finance development projects.

The increase in the accumulation of public debt and the need for increased infrastructural development has exposed many countries particularly developing countries to many risks such as market risks, operational risks, liquidity risks and settlement risks.

This has attracted attention of many scholars in the field of public sector risk management. In particular, the rate of accumulation of public debt and failure of large projects in Africa continues to attract regional and international attention. Based on the experience of the debt crises in the 1980s and 1990s as well as experiences of project failure in most African countries, public sector risk management have received attention among policy makers and researchers in the past few decades.

However, most countries in the region continue to face several challenges in public sector risk management. Since the late 1990s, public sector risk management practices, processes and techniques have become increasingly fragmented in most African developing countries particularly in the SubSahara African region. Most countries in the Africa countries continue to face risks associated with public debt and infrastructural development. The rising public debt and project failure in Nigeria remains a worrying issue. According to the International Monetary Fund, as of the end of 2017, the median public debt level of the Africa countries exceeded 50% of the gross domestic product (GDP), such that about 40% of low-income countries in the region have gone into public debt distress or became at high risk of debt distress.

Consequently, by the end of 2019, the average level of debt was approximately 7% of GDP IMF. In 2012, the median public debt as a percentage of GDP in fell to about 31% which is far lower than the level before the Heavily Indebted Poor Countries Initiative initiated by the IMF and the World Bank. Hence, the debt distress is believed to have posed a lot of risks in the public sectors of the countries in the region.

In addition, after a decade and a half of large-scale debt cancellation, Africa and Nigeria debt has once again become global news. Since 2013, the region’s debt has been rising, with the median debt as a percentage of GDP rising from 31% in 2012 to 53% in 2014 (IMF, 2017).

This growing public debt is not only driven by domestic debt, but also by external debt. Due to the rapid increase in debt burdens in recent years, about 30% of countries in Africa are at or at high risk of debt distress, including most countries that benefited from debt relief in the 1990s (IMF, 2020).

The total debt and foreign debt of these countries are estimated at US$160 billion and US$90 billion respectively (IMF, 2020). This is compounded by the fact that borrowing has significantly increased as most countries seek to boost infrastructure investment to support the countries’ objectives under the United Nations’ Sustainable Development Goals SDGs. This has posed significant risks to economies resulting in the need for public sector risk management. Besides, concerns for the possibility of new sovereign debt crisis and increased project failure among Sub- Saharan African countries continues to rise.

For instance, researchers such as Calderón and Zeufack (2020) warn that Africa debt is likely to reach the “highest level in history” because most countries in the region are at the risk of slipping into major debt crises. In addition, 2016 believes that there are high chances of failure of major development projects in the region as there is a decrease in donor funding due to many risks.

Hence, there have been calls for governments in the region to act towards effective risk management. As a result, most Africa countries such as Nigeria, Kenya, Ghana and Togo have responded to the calls from various stakeholders by implementing Public Sector Risk Management Frameworks. However, the countries seem to face challenges towards effective risk management in the public sector.

Effective risk management in the public sector is of great importance as it attracts investment within country borders. Despite this, there seems to be lack of systematization of this body of knowledge as there is dearth of literature on the challenges and solutions for effective public sector risk management. Risk management in the public sector has not been widely studied particularly in the context of developing countries in this region.

Although, several studies have been conducted at country level, there is need for comprehensive research for the region as a whole. Hence, this paper contributes to the existing body of knowledge. Therefore against this background, the purpose of this article is to analyze the challenges and solutions for public sector risk management in the context of Africa and Nigeria to guide policymaking and future research agendas.

Osinowo Temitope BSc, IRMcertied, Risk management Expert.

Bio: Osinowo Temitope, awarding winning Risk and investment management banker, formal special adviser to ogun state Governor and British Risk management certified.