CEOs to be more cautious this year as uncertainty, pessimism prevail – PwC

22nd January 2019 By: Simone Liedtke - Writer

CEOs to be more cautious this year as uncertainty, pessimism prevail – PwC

PwC Africa CEO Dion Shango
Photo by: Dylan Slater

There are consistent trends in the 2018 and 2019 results of PricewaterhouseCoopers’ (PwC’s) annual CEO survey, with global CEOs – including those based in South Africa – plagued by pessimism and uncertainty in the new year.

According to the survey, which was released on Monday, caution among CEOs prevails as uncertainty in global economic growth in almost all countries continues.

During a media briefing, PwC Africa CEO Dion Shango pointed out that, globally, 29% of business leaders believe global economic growth will decline in the next year, by about six times the level of last year.

This is one of the key findings in PwC’s twenty-second annual survey of CEOs and contrasts starkly with last year’s record jump from 29% to 57% in optimism about global economic growth prospects.

In contrast to 2018’s record jump in optimism by both South African and global CEOs, 2019 sees a record jump in pessimism, more so by the global CEOs than their South African counterparts, Shango told Engineering News Online on Tuesday.

While South African CEOs’ views echo that of their global counterparts, with 35% believing that global economic growth will decline over the next 12 months, only 30% of CEOs in South Africa believe global economic growth will improve moderately during the course of the year.

In comparison, 42% of global CEOs believe global economic growth will improve moderately during the period.

Overall, the survey noted that CEOs’ views on global economic growth are more polarised this year but trending downward, with the most pronounced shift among CEOs in North America, where optimism dropped from 63% in 2018 to 37%, likely as a result of fading fiscal stimulus and emerging trade tensions.

The Middle East also saw a big drop from 52% to 28% owing to increased regional economic uncertainty.

Further commenting on the survey findings, Shango said the prevailing sentiment this year is one of caution in the face of increasing uncertainty.

“CEOs all around the world are less optimistic than what they were a year ago about the strength of the global economy and their organisations’ ability to grow revenues in both the short and the medium term”.

In South Africa, economic and policy uncertainty, besides other issues, have cast doubt on business leaders’ prospects for future growth, he added.

This troubled outlook about global economic growth is lowering CEOs’ confidence about their own companies’ outlook in the short term.

Down from 42% last year, 35% of global CEOs said that they are “very confident” in their own organisation’s growth prospects over the next year. In comparison, only 18% of CEOs in South Africa share the sentiment.

Additionally, 30% of local business leaders, compared with the global percentage of 36%, are “very confident” about their business’s prospects for growth over the next three years.

However, despite a significant drop in confidence about growth, the US retains its lead as the top market for growth over the next 12 months.

The survey, meanwhile, warned that many CEOs are also turning to other markets, which is reflected in the drop in the share of votes in favour of the US, from 46% in 2018 to 27% in 2019.

China’s popularity also fell from 33% in 2018, to 24% in 2019.

South African CEOs named the US, followed by China, the UK and Kenya, as the most important countries for their organisation’s overall growth prospects over the next 12 months.

According to Shango, while most CEOs still believe in globalisation, they appear to be less interested in expansion outside their home markets.

“Instead, organisations are narrowing their focus to stay local in the search for revenue growth,” he added.

Initiatives that CEOs and organisations are planning, he explained to Engineering News Online, are mostly inward-looking or internally focused initiatives, and include organic growth or the introduction of operational efficiencies.

While threats to growth are driven by the economy, indicators in the survey predict an imminent global economic slowdown, wherein trade conflicts, policy uncertainty, protectionism, terrorism, climate change and an increasing tax burden all have an impact.

On the topic of business threats, 33% of South African CEOs, compared with 34% globally, said they were “extremely concerned” about the availability of key skills; 38%, compared with 30% globally, cited cyberthreats; and 38%, compared with 28%, stated the speed of technological change as concerns.

“CEOs are having to navigate quite a challenging environment going forward,” Shango told Engineering News Online, adding that some of the key challenges that have been cited include policy and economic uncertainty, as well as sociopolitical stability.

Taking all of this into consideration, Shango echoed the survey’s sentiments that CEOs are going to be more cautious than in 2018.

“CEOs are expecting the global economy to decline over the next 12 months and that means that we may see a slight decrease in investment. Organisations around the world may be tightening their belts until some of the uncertainty that remains on the horizon is reduced somewhat.

“Until we see the threat of nationalism and populism abating, and until we have certainty . . .  we will continue to see CEOs be more cautious than what they have been previously,” he elaborated.

Additionally, this year’s survey also took a deep dive into data and analytics, as well as artificial intelligence (AI) to get CEOs’ insights on the challenges and opportunities.

This year’s survey revisited questions about data adequacy first asked in 2009 and found that CEOs continue to face issues with their own data capabilities, resulting in a significant information gap that remains.

Despite billions of dollars of investments made in information technology infrastructure over the ten years since 2009, CEOs report still not receiving comprehensive data needed to make key decisions about the long-term success and durability of their business.

According to the survey, leaders’ expectations have risen as technology advances, but CEOs are keenly aware that their analysis capabilities have not kept pace with the volume of data, which has expanded exponentially over the past decade.

When asked why they do not receive comprehensive data, CEOs point to the “lack of analytical talent” (global: 54%; South Africa: 50%), followed by “data siloing” (global: 51%; South Africa: 63%), and “poor data reliability” (global: 50%; South Africa: 41%).

When it comes to closing the skills gap in their respective organisations, CEOs agree that there is no quick fix. Forty-six per cent globally, compared with 38% of South African CEOs, see significant retraining and upskilling as the answer, with 17% of global CEOs also citing the establishment of a strong pipeline directly from education as an option.

In terms of AI, 85% of CEOs globally and 90% of South African CEOs, agree that AI will dramatically change their business over the next five years. Nearly two-thirds globally view it as something that will have a larger impact than the Internet revolution.

Despite the bullish view on AI, 23% of CEOs globally (South Africa 28%) have no current plan to pursue AI.

In addition, 33% globally (South Africa 32.5%) have taken a very limited approach.

When it comes to the impact AI will have on jobs, 55% of South Africa’s CEOs believe AI will displace more jobs than it creates. CEOs in Western Europe and North America are less doubtful, with 38% and 41%, respectively, believing AI will displace more jobs than it creates.

“To help unlock internal growth potential in their organisations, CEOs are paying close attention to emerging digital technologies such as AI,” Shango commented, highlighting that almost $15.7-trillion in global gross domestic product gains is expected from AI by 2030, according to PwC estimates.