The outlook of many South African CEOs improved significantly in the past year, with overall confidence in the growth of the global economy improving from 3% in 2011 to 16% in 2012, according to PwC’s Annual Global CEO Survey.
Globally CEO’s confidence improved from 15% to 18%.
PwC said this was due to positive developments across a broad range of macroeconomic initiatives. Suresh Kana, PwC Territory Senior Partner for Africa, says “This year we find CEOs acknowledging the vast array of challenges and uncertainties they face, yet being refreshingly positive in their belief that their organisations will come out on top.
“In this year’s study we set out to find out how CEOs are changing their organisations to become more agile and adaptable and, ultimately, better able to succeed in the face of adversity.”
Although short-term expectations have improved, CEOs’ confidence about revenue growth over the next three years has declined fractionally. The result is that this year, the study sees short and medium-term confidence converging for the first time at the 90% level. “This suggests that CEOs are now more confident about the likely outcomes of their own current strategies and less sure of what the future may hold in a fast-changing environment.”
The global survey results, based on interviews with 1330 CEOs from more than 68 countries, were released at the World Economic Forum annual meeting in Davos today. In South Africa, in-depth interviews were held with CEOs from 56 leading listed and privately-owned companies.
In the past year, half of South African CEOs (52%) increased their staff complement, while the proportion that has reduced headcount has increased by a fifth to 30%, after seeing a moderate improvement between 2010 and 2011. In the year ahead, 75% of CEOs expect headcount to either increase or stay the same.
Opportunities for growth
Local CEOs believe the greatest opportunities for growth lie outside South Africa. Tom Winterboer, Financial Services Leader for PwC Africa and Southern Africa, says: “Globally, CEOs are taking their businesses to where the growth is and with the vast opportunities that the rest of Africa has to offer, it is inevitable that ours should do the same.”
South Africa’s CEOs are twice as likely to recognise opportunities for organic growth in an existing foreign market as they are in the domestic market, where they also lag their global peers by almost 20% in recognising opportunities for growth.
The emerging markets remain a vital growth opportunity for CEOs. South Africa’s CEOs consider China, Nigeria, India and Brazil as most important for overall growth prospects over the next 12 months. Compared to their global peers, South African CEOs are more likely to invest in filling talent gaps, but they are also 14% less likely to invest in R&D and innovation.
Most CEOs have developed a strategy and will continue to do so, with just over 16% of local CEOs anticipating a major change to their companies’ strategy over the next 12 months, almost a third less than a year ago. Nearly a quarter (23%) do not plan to make any changes to their strategy in the next 12 months. Strategies for managing talent (89%) and increases in technology investments (88%) as well as R&D and innovation (70%) are the areas in which CEOs expect to see the most internal change, even though none of these stood out among the top-three investment priorities.
What worries CEOs the most
As the difficult economic conditions persist, CEOs are more worried about a wider range of issues than they were a year ago. More than two-thirds of South African CEOs (Global: 17%) believe that social unrest in the country is the threat most likely to materialise, and also as the one likely to have the greatest negative effect (86%) on their organisations. Recession in the US and a slowdown in China’s growth were also recognised as likely, but by less than half of the respondents.
Bribery and corruption, and uncertain or volatile growth are the most pressing concerns cited by CEOs. Unease about the rate of exchange has grown from 53% to 70% over the past year and is now significantly more of a concern for South African CEOs than their global peers.
Although two-thirds of CEOs are worried about over-regulation, this is broadly in line with the global average. Concerns about a lack of stability in capital markets and the Government’s response to fiscal deficit and debt burden have grown by more than a quarter in the last year to reach 64% and 63% respectively. Concerns about uncertain or volatile economic growth have improved slightly, with levels of concern having declined from 81% to 75%.
A significant percentage of CEOs (88%) are extremely concerned about the availability of key skills. However, there are also issues that South African CEOs are worrying about less than their global counterparts. These include fears of an increasing tax burden, and shifts in consumer spending and behaviour.
CEOs have a range of expectations of Government in many areas to assist business in South Africa, such as creating and fostering a skilled workforce (71%); improving the country’s infrastructure (71%) and reducing poverty and inequality (68%).
While the skills shortage remains a significant challenge worldwide, CEOs globally and locally continue to seek positive solutions. A significant percentage of South African CEOs (89%) plan to make some or major change to their strategies for managing talent over the next 12 months.
For the first time, respondents taking part in the study were asked about the initiatives being undertaken in their organisations to develop their future leaders. Perhaps because of the strong transformation agenda in South Africa, CEOs are more likely than their global peers to involve managers below board level in strategic decision-making and to undertake active succession planning.
Managing risk and restructuring
No less than 70% of CEOs intend to make either some or major change to their organisational structure in the next 12 months. Looking back over the past year, cost reduction initiatives (84%) have remained the most prominent restructuring activity undertaken. This was followed some way behind by entering new strategic alliances/joint ventures (54%) and outsourcing a business process or function (36%).
Renewed focus on corporate citizenship
Being a good corporate citizen requires an organisation to engage ethically with the broader society and environment in which it operates. “This is not a new concept, but it has become increasingly important in the South African context given the country’s history and more particularly since it is given primacy in the King III Code of Corporate Governance, which also highlights the links between ethical leadership, company strategy and sustainability,” Kana says. The vast majority of CEOs confirmed that they would be maintaining or increasing their organisations’ focus on corporate citizenship initiatives.
Kana concludes: “Notwithstanding a host of challenges and uncertainties, South Africa’s CEOs are well placed as a result of their business strategies to adapt and survive over the medium term.”