There is less optimism across Africa around the performance of companies, with currency volatility and political uncertainty topping the list of concerns for 2016.
Deloitte’s ninth edition of the CFO Survey shows CFOs across the continent adopting “defensive strategies” with most focused on improving operational efficiency and process optimisation this year as they expect to weather a tough economic environment characterised by low commodity prices, depreciating currencies and diminishing demand from large trading partners.
The 2016 survey shows a decline in optimism in South Africa, with about 57% of local respondents expecting an improvement in performance this year, compared with the 61% reported last year.
“These results reflect the country’s current economic issues, from the depreciation of the rand to the uncertainty around the municipal elections and financial insecurity, spurred by a possible sovereign rating downgrade at the end of the year,” the CFO Survey 2016 highlights.
Some 75% of South Africa’s CFOs view the political landscape as a threat, up from 61% in 2015. Further, 75% considered currency volatility a risk, 63% are cautious about the country’s credit ratings and 54% are concerned about margin deterioration due to input cost pressures and lack of pricing flexibility.
South African companies were trapped in a long-term no-growth, uncertain environment, Imperial CFO Osman Arbee said on Wednesday.
“We are all looking internally to be more competitive in the long-term environment we are operating in,” he commented at a Deloitte discussion, in Sandton.
The bulk of South Africa’s companies are struggling with the “suddenness” of the cyclical decline the country has entered, and with a 23% plunge in currency, recouping losses and planning and forecasting the next cycle remains difficult.
There is only room to undertake short-term half-year planning and evaluate as time progressed, he pointed out.
Economic growth, political certainty and some comfort in the currency will go a long way in restoring the confidence of companies to embark on investment programmes locally.
The survey reveals that, in Southern Africa, only 48% of the CFOs expect an improvement in company performance, with 23% expecting to remain the same and 28% expecting deterioration this year.
While there is a drop in optimism among CFOs in the Southern African region, CFOs in West and East Africa are somewhat more upbeat about prospects for their companies.
In West Africa, 63% of the CFOs surveyed expect an improvement in performance this year, while in East Africa, 69% of the CFOs expect improvements in their companies’ performance this year.
East Africa is seemingly becoming the gem of the emerging market world, Deloitte Emerging Markets and Africa MD Dr Martyn Davies suggested on Wednesday.
With positive growth trends recorded in the eastern region of Africa, East Africa is seen as the most attractive regional market.
Only 54% of the CFOs surveyed in East Africa consider the political landscape a risk, 42% are concerned about currency volatility and 48% worry about margin deterioration due to input cost pressures and lack of pricing flexibility.
In contrast to the tendency of other CFOs in Africa to curb cash at the moment and improve operations, East African CFOs are more concerned with investing in new capacity, in addition to improving current operations.
Further, 71% of the surveyed CFOs are looking to expand within their own region, with minimal interest in other regions.
Meanwhile, overall optimism across Africa is expected to increase over the next two years.
CFOs in South Africa are more optimistic about future performance, with 76% of the respondents expecting improvement in 2017 and 83% expecting a rosier outlook in 2018.
Over the next two years, CFOs in Southern Africa will gain more confidence with 70% and 81% expecting improvements in 2017 and 2018 respectively.
Looking ahead, optimism levels among West African CFOs also significantly increase over the two-year period, with 91% and 88% of respondents predicting performance improvements in 2017 and 2018 respectively.
In East Africa, 81% and 82% of the CFOs surveyed are expecting improvements in 2017 and 2018 respectively.