ECONOMY: SA CEOs Confident Of Revenue Growth in their Companies
Recent Gauteng Business News
The proportion of CEOs who said they are Â“very confidentÂ” about revenue growth for their companies in the next 12 months doubled from 2009 to reach 47% in 2011. Such optimism is seven percentage points above the global average of 40% and in line with expectations expressed in emerging economies.
PwC Southern Africa CEO Suresh Kana says: Â“Despite some gloominess regarding the state of the global economy, confidence among South African CEOs remains positive. In the mid term they are as confident about growth as CEOs in the emerging economies, believing that it will gain momentum in the next three years.Â” The study shows that 97% of South African CEOs are confident about revenue growth prospects in the next three years.
Â“The long cycle of the global economic slowdown has taught CEOs how to lead their businesses with greater efficiencies. CEOs now say they are better prepared to deal with an economy defined by volatility in global markets, weak demand in developed markets and uncertainty in the emerging markets. Â“
Kana says that although South Africa lags behind some of the emerging markets, such as China and India, it is well ahead of some developing countries.
The global survey results, based on interviews with 1258 CEOs from more than 60 countries, were released at the World Economic Forum annual meeting in Davos today. In South Africa, in-depth interviews were held with 32 CEOs from leading listed and privately-owned companies.
Dr Roelof Botha, economic advisor to PwC, says it is encouraging that confidence levels in the area of anticipated revenue growth have improved since the last survey and are also ahead of the global average. Dr Botha points out that this result is strongly correlated to a strong increase in company profits during the latest financial reporting cycle.
The PwC report says that confidence levels have also remained around 80% for the past year. Â“This is encouraging, but not surprising when viewed against the performance of the Reserve BanksÂ’ leading business cycle indicator,Â” says Dr Botha. Since the end of the recession in July 2009, the latter has improved by almost 22%.
Between 2009 and 2011, the proportion of CEOs who said they were not confident about prospects for revenue growth in the short term, also grew twofold, from 10% to 19%. The percentage of those CEOs who say they are not confident is not only almost a third higher than the global average of 15%, but surprisingly also more than that found in developed markets. Â“This could be indicative that some CEOs and perhaps some industries, are finding the going a lot tougher than others,Â” says Kana.
Tom Winterboer, Leader for Financial Services at PwC says that the biggest decline in confidence was in Western Europe. Plagued by the Eurozone debt crisis, just a quarter of European CEOs said they were Â“very confidentÂ” of revenue growth, down sharply from 40% last year. China saw the biggest decline in confidence in the Asia-Pacific region, with 51% of CEOs feeling Â“very confidentÂ”, down from 72% last year.
Where is Revenue GrowthÂ‘
A significant percentage of South African CEOs (88%) anticipated changing their business strategy in the next 12 months, compared with the global average of 70%.
CEOs say the best strategic growth opportunities in the next 12 months will come from beyond South AfricaÂ’s borders (31%) and from an increased share in existing markets (22%). New products or service developments, (19%), mergers and acquisitions (19%), and joint ventures and alliances (9%) followed closely as growth strategies.
The emerging markets remain a vital growth opportunity for CEOs. Overall 57% of CEOs globally agreed that developing markets were more important to their companyÂ’s future than more developed economies. Foreign investors are looking at South Africa and Africa with keen interest for growth opportunities, says Kana, pointing out that a number of mega deals had been successfully concluded in the retail and telecommunication sectors in the past year.
Dr Botha says: Â“The strong rise in importance of new geographic markets as a focus area for growth reflects a global trend to increase trade with emerging markets and developing countries, where significantly higher economic growth has been experienced for the last three decades. It is also correlated to a structural shift in focus of South AfricaÂ’s international trade away from traditional markets in Europe and the US towards Africa and Asia.Â”
Potential Threats to Future Business and Their Revenue Growth
South African CEOs share many of the same concerns as their global counterparts, with the 2011 results showing that there is uncertainty about economic growth, instability in the capital markets, and an increase in debt. South African CEOs show more unease than global CEOs about over-regulation.
However, South AfricaÂ’s CEOs are more optimistic about stability in capital markets and exchange rates than they were in 2010 and in comparison to their global peers in 2011.
For the first time in the PwC study, CEOs were asked how concerned they were about bribery and corruption. A significant percentage of South African CEOs (66%) expressed concern, compared to 34% of global CEOs. A recent study carried out by PwC Â‘s Forensic Services Practice shows that economic crime remains a challenge for business leaders globally, particularly in South Africa where 60% indicated that they had experienced some form of economic crime in the 12 months preceding the report , compared to the global average of 34%.
Factors influencing the need for change in strategy
Last year both the Consumer Protection Act and the new Companies Act were introduced in South Africa. With the Protection of Personal Information Act presently at an advanced stage in the legislative pipeline, it is not surprising that changes in regulation emerged as the leading factor influencing the need to change business strategy among 79% of CEOs, almost double that of the global average.
Regulation was followed closely by customer demand, economic concerns and competitive threats as the leading drivers of change.
The skills challenge
The availability of key skills stands out as a key concern for CEOs in South Africa. Kana says that the responses received from CEOs dealing with labour market issues are to some extent a reflection of the erosion of South AfricaÂ’s international competitiveness caused by labour market inflexibility.
A significant percentage of CEOs (84%) believe that it should be the GovernmentÂ’s top priory to take steps to create and foster a skilled workforce. This contrasts with the global picture, in which CEOs believe that the stability of the financial sector is the most significant issue.
The results of the study also show that more than half of South African and global CEOs increased their headcount in the past 12 months, while about a quarter reduced numbers. The results on employment trends are in line with official labour statistics, with the majority of respondents having expanded their workforces over the past 12 months.
Other concerns that showed a decline in confidence among CEOs included competition from new market entrants, the costs of energy, the inadequacy of basic infrastructure, and fears of an increasing tax burden.
Tactics to address changes in the operating environment
The majority of CEOs intend to make major changes in several areas of their businesses. The biggest changes are likely to come in strategies for managing talent, organisational structure and technology investments. Globally CEOs are more likely to initiate changes in the area of research and development (R and D) and innovation capacity than South African CEOs.
Â“Notwithstanding their confidence, CEOs remain focused in their approach to dealing with a host of challenges and uncertainties,Â” says Kana. Foremost of these is the availability of key skills, changes in regulation and concerns over uncertain or volatile revenue growth, particularly in relation to the Eurozone debt crisis.
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