CEO Survey: African executives confident of growth in middle term

16 November 2017 Authored by Consultancy.co.za

Despite the slump that most economies in Sub-Saharan Africa (SSA) have been navigating over the last few years, nearly 100% of African CEOs surveyed by PwC in their annual Global CEO survey expressed optimism about the near future. A report published by the firm based on survey results analyses the positives and potential challenges for the future.

Using the Africa-specific results from their 20th annual Global CEO Survey, Big Four accounting and advisory firm PwC have published their Africa Business Agenda, which sheds light on the path forward and possible obstacles. Over the last few years, falling gold and oil prices have caused a major slowdown in economies across the SSA region.
 
Despite this trend, 97% percent of the African CEOs interviewed in the survey said that they were “confident about their own companies’ growth prospects in the medium term.” This represents the highest percentage since the survey began in 2012, when the figure stood at 95%. The number then dropped progessively till 2015, before rising to 94% last year.

How confident are you?
According to the report, this optimism can partly be attributed to the opportunities that accompany such periods of stagnation. For example, one reaction to stagnant business is to look for expansion opportunities, which can pave the way for lucrative returns. This is exactly what CEOs in Africa are hoping for. Alongside the intuitive cost-cutting measures in periods of slow growth, the report states that these executives are on the look out for strategic alliances and investments that would allow them to expand beyond their domestic markets and expand their base.
 
What is even more promising is that the areas that these companies are interested in span all regions on the continent. Kenya is the most popular foreign market for expansion purposes, with 14% of the CEOs listing it as their top priority for the next year outside of their home country. South Africa came in second place with 13%, while Nigeria and Ghana came in third and fourth with 11% and 10% respectively. Uganda, Zambia, the Democratic Republic of Congo, Tanzania, Mozambique and Rwanda all featured on the list, demonstrating the geographical extent of opportunities. The optimism will be boosted by the fact that the SSA retail market just saw a turnaround of fortunes after an extended period of slowdown.

CEOs looking to other African countries for growth
The expansion and investment strategies are not only limited to the geographical domain. In keeping with the international environment of technological innovation, 19% of African CEOs said that they would invest to strengthen their innovation capabilities, and 15% said that they would strengthen their digital technology capabilities. These numbers align approximately with global trends, as 23% of CEOs around the world would strengthen innovation and an identical 15% would strengthen digital technology capabilities. Meanwhile, 13% of African CEOs would invest in human capital compared with 15% globally.
 
A number of trends at a macro level are set to expand the opportunities across the African continent. Perhaps the biggest is the demographic change. Africa is set to contribute 50% of the world’s population growth between now and 2050, which will make it the largest labour force in the world, attracting investment from all over. In fact, private education is about to become a major area of investment and growth on the continent, as the demand exists to prepare this monumental labour force for the future.

Focusing on innovation

As a result of this growth in labour force, rapid urbanisation and an expanding middle class will follow. Currently, the middle class stands at 350 million people, and is en route to becoming the largest in the world, which brings with it large-scale economic growth. Interestingly, the report notes that climate change will benefit Africa’s economic prospects. Riddled with agrarian economies, the region will benefit from the increased agricultural productivity that results from high temperatures. These factors, coupled with the rapid technological advancements across the globe, all contribute to the optimism expressed by CEOs in the region.

However, the optimism amongst CEOs is not without its hindrances. Uncertainty appears to be the theme of concerns across the board for CEOs in Africa and around the world. For example, ‘Uncertain Economic Growth’ and ‘Exchange Rate Volatility’ were the two most cited causes for concern in Africa, at 90% of the respondents each. ‘Social instability’ was the second biggest concern at 85%, while ‘Unemployment’ and ‘Geopolitical Uncertainty’ both came in third at 79%. The report notes that most of the causes for concern are at a very macro level. For example, other worries cited by CEOs included an ‘Increasing Tax Burden,’ at 76%, the rapid ‘Speed of Technological Change’ at 68%, and ‘Climate Change and Environmental Damage at 64%.

Uncertain Economic Growth and Exchange Rate Volatility

Hein Bogman, the Territory Senior Partner for PwC’s East, West and South Market regions in Africa said, "In the past year we have seen global megatrends such as demographic change, urbanisation, shifts in global economic power and technological innovation continue to affect business dynamics. While their impact is, in many cases more nuanced, successful organisations are also showing greater adaptability and resilience.”

According to a study by McKinsey, South Africa could accelerate its economic growth by around 1% if it were to invest more five major pillars, including advanced manufacturing and exports.

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