CEOs see sunnier days ahead
In spite of many uncertainties that are faced by firms on the continent, business leaders are optimistic of growth
CEOs in Africa are optimistic about their company’s prospects for revenue growth over the medium term, according to a report released by PwC’s ‘Africa. Explaining the Business Agenda, 2014 findings, Suresh Kana, Senior Partner for PwC Africa, says: “They are more positive about their ability to generate revenue growth and about prospects for the economy now that they are emerging from the global financial recession.”
“It is interesting to note however that CEOs are slightly more anxious about their prospects for growth over the short-term,” adds Mr Kana. Although 84 per cent remain confident overall, only 40 per cent say they are ‘very confident’. “CEOs acknowledge that a lot more needs to be done in terms of transforming the continent’s potential for exponential growth into tangible business opportunities,” he explains adding, “They are looking on multiple fronts for growth opportunities – not an easy task.”
The report compiles results from 260 CEOs across the continent and includes insights from business and public sector leaders from 18 countries. It also reveals that most of them are confident about their approach to managing risk, despite some volatility and uncertainty.
The pace of change in the world is speeding up with a series of transitions, known as global megatrends that will transform business and society. The CEOs rank technological advances (69 per cent), urbanisation (67 per cent) and demographic shifts (63 per cent) as the top three defining trends that will transform their businesses over the next five years. They say they are aware of the implications of these changes on their businesses, as well as the outlook for Africa. Furthermore, most have recognised the need for change or are making changes to their businesses.
“Every day breakthroughs in frontiers of research and development are opening up new opportunities for businesses. As technologies progress, they will generate more improvements in efficiency and productivity. In turn, these advances are expected to trigger a strong acceleration in economic growth towards the end of the coming decade,” comments Kana.
The growth agenda
Interestingly, the business leaders are more confident about their own company’s growth than their industry’s prospects. While less than half are ‘very confident’ about their company’s growth prospects in the short term, less than a third (26 per cent) are ‘very confident’ about industry growth. They say their desires to ‘create something’ drive their organisation’s strategic planning.
They rank products/service innovation (31 per cent), increased share in exist in markets (27 per cent), followed by new geographic markets at 20 per cent as opportunities for growth but are equally concerned about shifts in consumer spending and behaviours.
Going forward, the CEOs say that they will be more actively looking for partners, while keeping an eye on costs. Almost half of them plan to initiate a new strategic alliance or joint venture in the next 12 months and nearly a third are anticipating an acquisition, mainly in their home country or elsewhere in Africa. China is emerging as key for consideration for growth prospects, followed by the US and South Africa. This, the reports says, is an indica
tion of overall better economic prospects, higher availability of finance, and the growing presence of potential local and international partners attracted by the continent’s potential.
“We are also seeing more use of technological innovation and products, with no less than 91 per cent of African CEOs either recognising the need to change their investments or in the process of doing so. Similarly, 85 per cent said the same about data analytics,” says Mr Kana.
Following a decade of rapid urbanisation, Africa is undergoing a digital revolution. However, there are still many hurdles to overcome for the digital economy on the continent to come of age. Many of these hurdles, according to the CEOs are related to the development of a stable political and legal environment for companies, citizens and investors.
Main risks to doing business in Africa
Infrastructure is important in driving economic growth and employment on the continent. However, 45 per cent of the company leaders believe that their governments have been ineffective in improving their country’s basic infrastructure, such as electricity, water supply, transport and housing. They also identified the creation of a skilled workforce (64 per cent), the reduction of poverty and inequality (62 per cent), and creating more jobs for young people (74 per cent) as areas in which governments should be taking more decisive action and creating a business-friendly environment.
“In our view, one of the biggest challenges is for governments to find new ways to form strategic collaborations and partnerships with people from other sectors, such as business. Tomorrow’s public body will need to act
differently – governments of the future will need to embrace a lot of private-public partnerships.”
The report shows that for CEOs in Africa, government responses to over-regulation (80 per cent), exchange rate volatility (79 per cent) the fiscal deficit and debt burdens (78 per cent) and adequate infrastructure are key areas of concern, and that governments have their work cut out. Other areas of concern are the increasing tax burden, slow or negative growth in developed economies (70 per cent) and the lack of stability in capital markets (65 per cent).
But to the governments’ credit, the CEOs say that governments have effectively achieved the outcome of ensuring financial sector stability and access to affordable capital.
Mr Kana says that CEOs in South Africa share many of the concerns with their peers on the continent, with the survey showing that they have common worries about high or volatile energy costs (South Africa: 82 per cent, Africa 76 per cent);the availability of key skills (South Africa: 87 per cent; Africa 83 per cent); and new market entrants (South Africa: 63 per cent; Africa: 58 per cent).
Most companies in Africa have some degree of risk management in place. The report shows that 31 per cent of respondents have implemented plans to manage risk more effectively and 37 per cent are strengthening their corporate governance structure. To prevent fraud, many CEOs in Africa are focused on supply chain management. For 83 per cent of them, bribery and corruption are significant threats to business growth.
Kana adds: “An effective risk management approach requires organisations to think differently and the main challenge is good communication. By setting the tone from the top, boards and management can prioritise risk management and grow stronger, more resilient organisations.”
As governments make strides worldwide to improve their fiscal systems, more than half of African CEOs say the international tax system hasn’t changed to reflect the way multinationals do business today and is in need
of reform. Just 32 per cent of the respondents said their governments had been effective in creating a more internationally competitive and efficient tax system.
The skills challenge
CEOs globally remain concerned as ever about the availability of key skills. The survey shows that nowhere is the shortage of skills more acute than in fast-growing markets such as Africa, where CEOs are particularly concerned about skills shortages (83 per cent). Most expect to maintain or increase their company’s headcount over the next 12 months.
Furthermore, the competitive market for top talent influences compensation, with many companies under significant pressure to match or exceed pay conditions among peer companies to recruit or retain top talent.
African CEOs also report that they are using a range of leadership development programmes intended to develop and grow more diversity within the talent pool. “To be successful, leadership development programmes must work to grow capacity and agility among top talent,” adds Kana.
Adapting to change
“Africa is a complex and diverse continent. Doing business on the continent can be a daunting experience for any organisation as they are faced with a myriad of uncertainties and challenges in different political, economic and
legal environments. Notwithstanding the difficulties and challenges ahead, many African organisations have learnt to brace themselves and adapt quickly, overcoming many of these challenges, including mitigating the risks – and turning Africa into the next frontier of growth,” concludes Kana