Transcript Analysis – in English

African Business Outlook
Part of the Global Business Outlook
A joint survey effort between
Duke University,
The South African Institute of
Chartered Accountants
and
CFO magazine
1
CFO Global and African Business Outlook – Overview
Global Business Outlook
Duke University has surveyed CFOs around the world every quarter since 1996, most of those years jointly with CFO
magazine. The survey takes the pulse of the business community and has a strong record of predicting future economic
activity. The results are relied upon by Central Bankers, Analysts, Investors, and are widely reported in the press.
SAICA and the African Business Outlook
SAICA joined the survey in 2013, helping to found the African Business Outlook. South African results are highlighted in the
analysis, enabling SAICA and other survey partners to share key insights about the African economy with members of the
Institute and others focusing on Africa. The analysis in this report will assist companies to make important business decisions
as they can benchmark themselves against their global peers. The long run goal is to develop a large and steady set of
responding African firms.
Key Survey Facts


Survey Respondents: 145
 Of which, 78 from Nigeria, 55 from South Africa, and 13 from other parts of Africa.
 Unless otherwise stated, the analysis represents responses from across Africa.
 Due to the increase in respondents from Nigeria, care should be taken when comparing previous quarterly
results, which comprises primarily of responses from South Africa.
Sample includes CFOs from both public and private companies representing a broad range of industries, including:
 Retail/Wholesale, Mining/Construction, Manufacturing, Transportation/Energy, Communications/Media,
Technology, and Banking/Finance/Insurance.

Certain questions are constant each quarter, to capture trends in corporate optimism, expected hiring and capital
investment plans, inflation, wages, and many other categories.

Other questions change each quarter to examine topical economic issues and newsworthy business or political
events that may affect the corporate finance landscape.
African Business Outlook
Duke University / SAICA / CFO Magazine
Mar 2016
2
Sentiment Regarding Domestic Economy
Optimism in the domestic economy in South Africa deteriorated further, and is significantly lower than
the rest of Africa.
Change in Domestic Optimism, Previous Four Quarters
Q1 '15
South Africa
Q2 '15
South Africa
No Change
Q4 '15
South Africa
Trends in African Optimism
CFOs are less optimistic about the domestic economy
 More CFOs from South Africa (85%) have become
less optimistic versus CFOs from the Rest of Africa
(49%).
 Compared to Q4 ’15 (77%), this quarter more
South African CFOs (85%) report being less
optimistic about the domestic economy.
Less Optimistic
Q1 '16
South Africa
More Optimistic
Q1 '16
Rest of Africa
(incl. Nigeria)
0%
20%
40%
60%
80%
When ranked on a 100 point scale, the South African Optimism Index (for the economic prospects of the
domestic economy over the next year) decreased from 49.3 in Q4 2015 to 38.3 in Q1 2016, and is significantly
lower than the Rest of Africa at 50.
African Business Outlook
Duke University / SAICA / CFO Magazine
Mar 2016
3
Sentiment Regarding Domestic Economy
Nigerian CFOs are more optimistic about the domestic economy relative to the rest of Africa, though
Nigerian optimism is only modest.
Nigerian Optimism
CFOs are optimistic about the domestic economy
 A larger percentage of CFOs from Nigeria (42%)
have become more optimistic, relative to CFOs
from South Africa (6%) and from West Africa (40%)
 About the same number of CFOs from Nigeria
(51%) have become more pessimistic as CFOs from
West Africa (50%).
West
Africa
Nigeria
0%
10%
No change
20%
30%
40%
Less optimistic
African Business Outlook
50%
60%
70%
More optimistic
Duke University / SAICA / CFO Magazine
Mar 2016
4
Own Company Sentiment
There has been a noteworthy increase in CFOs being less optimistic about their own companies.
Change in Company Optimism, Previous Four Quarters
Q1 '15
South Africa
Q2 '15
South Africa
No Change
Q4 '15
South Africa
Less Optimistic
Q1 '16
South Africa
More Optimistic
Trends in African Optimism
CFOs are less optimistic about their own companies
 CFOs from South Africa (54%) have become
significantly less optimistic about their own firms
than CFOs from the Rest of Africa (34%).
 Compared to Q4 ’15 (18%), more South African
CFOs (54%) report becoming less optimistic about
their own companies this quarter.
 In the Rest of Africa, the majority of CFOs have
increasing own-firm optimism (59%) versus only
34% that have decreasing optimism (34%) about
their own companies.
Q1 '16
Rest of Africa
(incl. Nigeria)
0% 10% 20% 30% 40% 50% 60%
When ranked on a 100 point scale, the South African Own-Company Optimism Index (for the economic
prospects over the next year of each CFO’s own company) fell from 63.5 in Q4 2015 to 58.6 in Q1 2016. This is
comparable to the Rest of Africa at 58.7.
African Business Outlook
Duke University / SAICA / CFO Magazine
Mar 2016
5
Own Company Sentiment
Nigerian CFOs are more optimistic about their own companies than the domestic economy.
Trends in African Optimism
CFOs are less optimistic about their own companies
 More than 50% of CFOs from Nigeria have
increased their own-firm optimism, significantly
more so than for CFOs from West Africa (40%).
 In Nigeria, the majority of CFOs are more growing
more optimistic (61%), versus only 34% that have
become less optimistic about their own firms.
West Africa
Nigeria
0%
10%
No change
20%
30%
Less optimistic
African Business Outlook
40%
50%
60%
70%
More optimistic
Duke University / SAICA / CFO Magazine
Mar 2016
6
Top 10 Most Pressing Concerns
CFOs in South Africa and Nigeria feel that economic uncertainty, currency risk, and government
policies are the most pressing concerns.
South Africa
Nigeria
Economic uncertainty
Economic uncertainty
Currency risk
Government policies
Volatility of political situation
Currency risk
Government policies
Access to capital
Weak demand for your products/services
Inflation
Regulatory requirements
Weak demand for your products/services
Difficulty attracting / retaining qualified employees
Cost of borrowing
Rising input orcommodity costs
Reliability and cost of electricity
Unrest in the general population
Regulatory requirements
Employee productivity
Volatility of political situation
African Business Outlook
Duke University / SAICA / CFO Magazine
Mar 2016
7
Most Pressing Concerns
Most CFOs in South Africa and Nigeria agree that economic uncertainty is their most pressing
concern. Most CFOs in South Africa believe that the depreciation of the currency is the next major
cause for concern. However, their Nigerian counterparts are more worried about the impact of the
new government’s polices on their operations. Other CFOs in West Africa are concerned about
difficulty accessing cheap sources of capital.
Corruption and white collar crime
Inflation
Reliability and cost of electricity
Volatility of political situation
Employee productivity
Access to capital
Rising input or commodity costs
Weak demand for products/services
Difficulty attracting /retaining qualified
employees
Government policies
Cost of borrowing
Currency risk
Regulatory requirements
Economic uncertainty
0%
0%
West Africa
10%
20%
30%
South Africa
African Business Outlook
40%
Nigeria
50%
60%
70%
West Africa
Duke University / SAICA / CFO Magazine
5%
10%
South Africa
Mar 2016
15%
20%
25%
30%
Nigeria
8
Most Pressing Concerns (continued)
This chart summarizes additional causes for concern in Africa.
Imbalance between transformation and
service delivery
Geopolitical / health crises
Employee morale
Government policies encouraging crossborder business operations
Deflation
Cost of benefits
Data security
Corporate tax code
Rising wages and salaries
Violent crime
Unrest in the general population
0%
West Africa
2%
4%
6%
South Africa
African Business Outlook
8%
10% 12% 14% 16%
Nigeria
0%
West Africa
Duke University / SAICA / CFO Magazine
2%
4%
6%
South Africa
Mar 2016
8%
10%
12%
14%
Nigeria
9
Top 10 Company Changes (One-year Forecast)
CFOs in South Africa and Nigeria estimate the following changes (in %) will occur in their companies
during the next 12 months.
South Africa
Nigeria
Earnings (+7%)
Revenue (+11.5%)
Health care costs (+6.2%)
Cash on the balance sheet (+11.3%)
Cash on the balance sheet (+6.1%)
Capital spending (+9.7%)
Technology spending (+6%)
Prices of your products (+9.3%)
Revenue (+5.2%)
Earnings (+8.4%)
Dividends (+4.6%)
Technology spending (+8.1%)
Wages/Salaries (+4.5%)
Productivity (output per hour worked) (+7.3%)
Research and development spending (+3.9%)
Research and development spending (+3.7%)
Prices of your products (+2.7%)
Marketing/ advertising spending (+3.6%)
Capital spending (-2.3%)
Wages/Salaries (+3.2%)
African Business Outlook
Duke University / SAICA / CFO Magazine
Mar 2016
10
Probability of recession – Worldwide
What do you think is the probability that your country's economy will be in
recession at the end of 2016?
50%
Estimated probability of recession
40%
30%
20%
10%
0%
United States
Europe
Asia
Latin America
Africa
Averaged across all countries, 44% of African CFOs believe that their own country will be in recession at the
year-end 2016, the highest recession probability in the world.
African Business Outlook
Duke University / SAICA / CFO Magazine
Dec 2014
11
Probability That Country Will be in Recession by year-end 2016
CFOs from the African continent are worried that their countries will be in recession by 2016, with
the risk substantial in South Africa.
Probability of Recession
Probability of Recession by 2016
Probability of Recession by Country
100
91-99
81-90
71-80
61-70
51-60
41-50
31-40
21-30
11-20
1-10
0
Nigeria
South Africa
West Africa
0%
5%
10%
15%
20%
0%
10%
20%
30%
40%
50%
60%
Percentage of Respondents
Respondents believe that the likelihood of recession is substantial, with 40% indicating that recession is more
likely than not. South Africa is the most likely to go into recession based on responses, with a 59% probability.
African Business Outlook
Duke University / SAICA / CFO Magazine
Mar 2016
12
Key Risks That May Lead To Recession
CFOs from South Africa and Nigeria rank the following risks, from highest to lowest, that may lead to
recession in their respective countries.
South Africa
Nigeria
Slowdown in China
Infrastructure
Workforce disruptions
Stock market decline
Slowdown in emerging economies other than China
New regulations
Price of non-oil commodities
Workforce disruptions
Slowdown in Europe
Slowdown in China
Infrastructure
Slowdown in emerging economies other than China
New regulations
Price of non-oil commodities
Stock market decline
Health crises
Health crises
Slowdown in Europe
African Business Outlook
Duke University / SAICA / CFO Magazine
Mar 2016
13
Key Risks That May Lead To Recession
Majority of CFOs from Nigeria and West Africa believe the decrease in price of oil will play a major
role in taking their countries into a recession. This isn’t a major concern outside West Africa as CFOs
from South Africa feel that an “unstable political environment” would have a greater negative effect
on the economy. CFOs from other African countries are more interested in the fortunes of emerging
economies in Africa and Latin America.
Terrorism
Slowdown in Europe
Interest rates
Price of non-oil commodities
High inflation
Slowdown in emerging economies other than
China
Political risk
New regulations
Price of oil
Stock market decline
Budget Deficit
Slowdown in China
Corruption
Workforce disruptions
Currency valuation
Infrastructure
0%
20%
West Africa
40%
South Africa
African Business Outlook
60%
80%
Nigeria
100%
0%
West Africa
Duke University / SAICA / CFO Magazine
10%
20%
South Africa
Mar 2016
30%
40%
50%
60%
Nigeria
14
Impact of increase in borrowing costs
African CFOs say that their firms are fairly interest-rate insensitive. Interest rates would have to
increase by 3 percentage points before the CFOs say that higher interest rates would cause their
firms to reduce hiring, spending, or borrowing.
3.5
3
2.5
2
1.5
1
0.5
0
Nigeria
South Africa
reduce borrowing plans?
African Business Outlook
reduce hiring plans?
West Africa
reduce capital spending plans?
Duke University / SAICA / CFO Magazine
Mar 2016
15
Return on Assets and Capacity Utilization
South African companies expect an increase in ROA over the previous period and an increase in
capacity utilization in the first half of 2016.
South
Africa
Nigeria
Europe
Asia
Latin America
Approximate ROA in 2015
14.5%
11.6%
8.3%
8.7%
7.7%
Expected ROA In 2016
15.8%
15.1%
10.3%
10.15
9.4%
% capacity in H2 2015
66.3%
67.7%
60.4%
80.7%
72.8%
% capacity planned for H1 of 2016
72.8%
78.1%
58.7%
81.2%
73.4%
Return-on-Assets
Capacity Utilization
African Business Outlook
Duke University / SAICA / CFO Magazine
Mar 2016
16