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,
Africa Investment Advisors
and
CFO magazine
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Sept 2016
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, AIA, and the African Business Outlook
SAICA joined the survey in 2013, helping to found the African Business Outlook, with an initial focus on the South African economy. Nigeria was added to the survey
sample in late 2015. African Investment Advisors joined the survey team in Spring 2016, with an objective of solidifying participation by Nigerian CFOs and also expanding
into Kenya.
The analysis in this report will enable participating firms to make important business decisions as they can benchmark themselves against their global peers and also aid
investors interested in Africa.
Key Survey Facts




Survey Respondents: 111
 Of which, 65 from Nigeria, 35 from South Africa, and 7 from other parts of Africa.
 Unless otherwise stated, the analysis represents responses from across 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 / AIA / CFO Magazine
Sept 2016
2
African Business Optimism Compared to the Rest of the World
African CFOs are the least optimistic in the world, about both their companies prospects and countries’ economic outlooks.
Global Trends
Sep 2016 Response
Country Business Optimism Index
Country / Region
50
70
40
60
30
50
20
40
Sep 2015
Dec 2015
Mar 2016
Jun 2016
Latin America
United States
Asia
Africa
Sept 2016
Europe
10
0
Nigeria
South Africa
Own-Firm Business Optimism Index
Own Company
60
70
50
60
40
30
50
20
40
10
Sep 2015
Dec 2015
Mar 2016
Jun 2016
Latin America
United States
Asia
Africa
Sept 2016
Europe
0
Nigeria
South Africa
Notes: Presented data are the mean value for each region or country, Scale from 0-100
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Sept 2016
3
Changes in the African Business Optimism Index
Optimism about domestic economy in South Africa remains low, and is still lower than the rest of Africa. The South African Optimism
Index improved to 43.55. Nigerian CFOs are more optimistic about their domestic economy relative to the rest of Africa, though their
number fell fro, last quarter.
South Africa, Last Four Quarters
Country Average
Q3 '16
South Africa
Q2 '16
No Change
Q1 '16
Less Optimistic
More Optimistic
Q4 '15
0%
20%
40%
60%
80%
Trends in South Africa Optimism
CFOs continue to grow less optimistic about the domestic economy
 60% of South African CFOs have become less optimistic this quarter, versus
52% of Nigerian CFOs (51.6%).
 Compared to Q2’16 (83%), this quarter fewer South African CFOs (60%)
report becoming less optimistic about the domestic economy
Nigeria
All Africa Avg
0%
20%
40%
60%
Nigerian Optimism
CFOs are optimistic about the domestic economy
 Half of CFOs from Nigeria have become “less optimistic”,
compared to 39% become “more optimistic”
 This is still a better outlook than the rest of Africa
When ranked on a 100 point scale, the South African Optimism Index (for the economic prospects of the domestic economy over the next year) increased
from 37.6 in Q2 2016 to 43.6 in Q3 2016; Nigeria is slightly better 46.5.
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Sept 2016
4
Changes in Own Company Sentiment
The trend of South African CFOs becoming more optimistic about their own companies is continuing, increasing to 42.9%. The
reverse is the case for Nigeria, as more CFOs are becoming less optimistic about their companies.
South African Own-Company Optimism, Last 4 Surveys
Q3 '16
Country Average
South Africa
No Change
Q2 '16
Less Optimistic
Nigeria
Q1 '16
More
Optimistic
Q4 '15
0%
10%
20%
30%
40%
50%
60%
70%
Trends in South African Own-Company Optimism
CFOs are more optimistic about their own companies than the general economy
 The trend of South African CFOs becoming more optimistic about their own
companies is continuing, increasing from 36.2% in Q2 ‘16 to 42.9% in Q3 ’16.
 South African CFOs are more optimistic about their own companies (42.9%)
than the general South African economy (22.9%).
 Fewer South African CFOs are less optimistic (31.2%) about their companies
than CFOs from Nigeria (42.2%).
All Africa Avg
0%
20%
40%
60%
Nigerian Own-Company Optimism
More Nigerian CFOs have are becoming more optimistic than are
becoming more pessimistic
 52% of Nigerian CFOs have grown more optimistic about their own
companies’ prospects this quarter, compared to 42% that have
grown less optimistic.
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)
increased slightly from 58.3 in Q2 ‘16 to 59.1 in Q3 2016. This is similar to Nigeria’s 58.7.
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Sept 2016
5
What Affects Value at African Firms?
African CFOs rank Corporate Culture and the CEO as the top value drivers at their firms.
(% that rank item as a Top 5 value driver)
Production Process
Incentive Compensation
Governance/Board
Regulatory Environment
Operating Plan
Nigeria
Marketing
South Africa
Human Resources
Finance Function
Strategic Plan
CEO
Corporate Culture
0%
African Business Outlook
20%
40%
Duke University / SAICA / AIA / CFO Magazine
60%
80%
Sept 2016
100%
6
Corporate Culture – Around the Globe
% of firms that listed Culture as Top 5 value driver
80%
70%
60%
50%
40%
30%
20%
10%
0%
US
Europe
Global Business Outlook
Asia
Duke University
Latin America
Africa
Sept 2016
7
What Keeps CFOs Awake at Night? (Most Pressing Concerns of CFOs)
CFOs in South Africa and Nigeria feel that economic uncertainty, currency risk, and government policies are pressing
concerns. South African CFOs are becoming increasingly concerned with the political situation in the country.
South Africa
Economic uncertainty
Currency risk
Volatility of political situation
Government policies
Difficulty attracting /retaining qualified employees
Weak demand for your products/services
Regulatory requirements
Employee productivity
Corruption and white collar crime
Inflation
African Business Outlook
Nigeria
Inflation
Government policies
Economic uncertainty
Currency risk
Access to capital
Weak demand for your products/services
Regulatory requirements
Cost of borrowing
Employee morale
Employee productivity
Duke University / SAICA / AIA / CFO Magazine
Sept 2016
8
Most Pressing Concerns, Details and Comparisons
Nigerian CFOs express growing concern about the effect of inflation and access to capital. South African CFOs are concerned
about economic and political uncertainty
Access to Capital
Inflation
Difficulty attracting /retaining…
40%
60%
Volatility of political situation
50%
Corruption and white collar crime
40%
20%
30%
Employee productivity
20%
Employee morale
10%
Cost of borrowing
0%
0%
Q1
Q2
Q3
Q1
Q2
Q3
Nigeria
Regulatory requirements
Currency Risk
South Africa
Weak demand for your…
Economic Uncertainty
80%
80%
60%
60%
Economic uncertainty
40%
40%
Government policies
20%
20%
Inflation
0%
Access to capital
Currency risk
0%
African Business Outlook
20%
40%
60%
Duke University / SAICA / AIA / CFO Magazine
0%
Q1
Q2
Sept 2016
Q3
Q1
Q2
Q3
9
Financial Snapshot (Expected % Change in Next 12 Months)
Wages and revenues will increase rapidly in Nigeria – but not keep pace with inflation. South African employment and capital
spending will experience moderate growth (about 3%).
Wages/Salaries
Technology spending
Revenue
Research and development spending
Prices of your products
Nigeria
Number of domestic full-time employees
South Africa
Marketing/advertising spending
Health care costs
Earnings
Capital spending
0%
African Business Outlook
2%
4%
6%
8%
Duke University / SAICA / AIA / CFO Magazine
10%
12%
Sept 2016
14%
16%
10
Would Increased Interest Rates Stifle Capital Spending?
Only one-in-five African CFOs say that a 1% increase in interest rates would cause them to curtail their capital spending plans.
100%
90%
Response by CFOs (Cumulative)
80%
70%
60%
Nigeria
50%
South Africa
40%
30%
20%
10%
0%
0.25%
0.50%
0.75%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
Change in Interest Rates
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Sept 2016
11
Speed of Brexit Schedule’s Effect on Businesses in Africa
Among companies affected by Brexit, the speed of Brexit affects South African companies more than their Nigerian
counterparts. Of the affected South African companies, most favor a slow British exit from the EU.
100%
80%
60%
40%
20%
0%
No Effect
Slow Schedule
Nigeria
African Business Outlook
Fast Schedule
South Africa
Duke University / SAICA / AIA / CFO Magazine
Sept 2016
12
Political Uncertainty Affecting Companies
African CFOs say that political uncertainty causes them to be more cautious when making spending and hiring decisions.
Spending
Hiring
100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
0%
Yes
Nigeria
African Business Outlook
No
South Africa
Duke University / SAICA / AIA / CFO Magazine
Yes
Nigeria
Sept 2016
No
South Africa
13
Political Uncertainty – Around the World
Has political uncertainty or political risk in your country led your company to be more
cautious in...?
Hiring
Spending
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
US
Europe
Global Business Outlook
Asia
Duke University
Latin America
Africa
Sept 2016
14
Political Risk and Uncertainty
How would you rate the degree of political uncertainty or political risk in your country?
Moderate
100%
Large
100
90
80
70
60
50
80%
60%
40%
40
30
20
10
20%
0%
0
US
Europe
Asia
Latin
America
Africa
Small
Nigeria
Moderate
South Africa
Large
West Africa
CFOs believe that Africa has the highest degree of political risk in the world, followed by Latin America
 93% of African CFOs think their country’s political risk is moderate-to-high, compared to 90% for Latin America
 Within Africa, South Africa has the highest political uncertainty, with more than 80% saying it is severe
 Due to the upcoming election and Washington gridlock, the US also faces high political risk
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Sept 2016
15
Primary Sources of Political Risk
CFOs from South Africa and Nigeria rank the following sources of political risk and uncertainty that is causing their firms to be
more cautious in their business plans
South Africa
Nigeria
Government gridlock or dysfunction
Government gridlock or dysfunction
Proposed regulations
Threat of terrorism
Social policies [socioeconomic or racial activism, etc.]
Proposed regulations
Upcoming elections
Protests against current administration
Protests against current administration
The potential for tax reform
The potential for tax reform
Minimum wage
Minimum wage
Environmental / climate policies
Environmental / climate policies
Social policies [socioeconomic or racial activism, etc.]
Other
Upcoming elections
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Sept 2016
16
Primary Sources of Political Risk, Details
African CFOs identify Government gridlock or dysfunction (68%) as the primary source causing business caution, followed by
proposed regulations (50%) and Protests against the current administration (38%).
Government gridlock or dysfunction
Minimum wage
Proposed regulations
Environmental / climate policies
Protests against current administration
Trade alliances [e.g., Trans-Pacific Partnership]
Social policies [socioeconomic or racial
activism, etc.]
U.S. involvement in the Middle East
Upcoming elections
Immigration policy
Threat of terrorism
Nuclear deal with Iran
The potential for tax reform
0%
Nigeria
African Business Outlook
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
South Africa
West Africa
Duke University / SAICA / AIA / CFO Magazine
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Nigeria
Sept 2016
South Africa
West Africa
17
Effects on Business of Political Risk and Uncertainty
About three-fourths of South African and Nigerian CFOs say that political risk is causing their firms to be more cautious in
spending or making acquisitions.
Making Acquisitions
100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
0%
Yes
Spending or Hiring
No
Yes
Hiring
Spending
100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
0%
Yes
Nigeria
African Business Outlook
No
South Africa
No
West Africa
Duke University / SAICA / AIA / CFO Magazine
Yes
Nigeria
No
South Africa
Sept 2016
West Africa
18
Upcoming U.S. Presidential Election’s Effect on Businesses in Africa
Few African companies are not currently altering their business decisions based on the upcoming U.S. presidential election.
100%
80%
60%
40%
20%
0%
No
Don't Know
Nigeria
African Business Outlook
Yes
South Africa
Duke University / SAICA / AIA / CFO Magazine
Sept 2016
19
U.S. Presidential Election Results’ Effect on Investment in Africa
Among African companies that say they are affected by the U.S. presidential election, 29% (South African) to 47% (Nigerian) of
firms say they will delay investment plans after the U.S. election should Donald Trump win.
120%
100%
80%
60%
40%
20%
0%
Accelerate
Nigeria: Clinton
African Business Outlook
Continue
Nigeria: Trump
Delay
South Africa: Clinton
Duke University / SAICA / AIA / CFO Magazine
Sept 2016
South Africa: Trump
20
CFO’s Perception of Government Accountability Influences Outlook
South African CFOs who believe that the country’s constituents are holding government accountable for its actions also
believe that the investment prospects and quality of government are worse today than they were a year ago. For example,
among this group, nearly 80% of South African CFOs believe the quality of government is worse today than one year ago.
Investment Prospects
Quality of Government
80%
100%
80%
60%
60%
40%
40%
20%
20%
0%
0%
Worse
Same
Better
Worse
Outlook for Economy
Better
Banking Sector
100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
0%
Worse
African Business Outlook
Same
Same
Better
Duke University / SAICA / AIA / CFO Magazine
Worse
Sept 2016
Same
Better
21
Nigerian CFO’s Perceptions of Floating Exchange Rate
Most Nigerian CFOs have a negative perception of the impact of changing from a fixed exchange rate to a floating exchange
rate policy. Below are responses to the question, “Will the floating exchange rate …”
Help the Banking Sector
Help Your Company
No
Yes
Don't Know
Increase Economic Growth
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Reduce Inflation
Sept 2016
22
Return on Assets (ROA)
Expected 2017 profit margin in Africa is higher than in the US, Europe, Latin America or Asia
16%
14%
12%
10%
8%
6%
4%
2%
0%
US
Europe
Asia
Approximate ROA in 2016
Latin America
Africa
Expected ROA in 2017
Profit margins are expected to rise in all regions next year, relative to 2016 profits
 Despite substantial risk, CFOs in Africa expect high ROA
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Sept 2016
23