Download Dec 2016 Outlook - Duke CFO survey

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
Dec 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: 99
 Of which, 36 from Nigeria, 58 from South Africa, and 5 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
Dec 2016
2
African Business Optimism Compared to the Rest of the World
Country / Region
African CFOs have been and continue to be the least optimistic in the world over the last 3 quarters, both about their
companies prospects and countries’ economic outlooks.
Global Trends
Dec 2016 Response
Country Business Optimism Index
75
60
65
50
40
55
30
45
20
35
Dec 2015
Mar 2016
Jun 2016
Sept 2016
Latin America
United States
Asia
Africa
Dec 2016
Europe
10
0
Nigeria
South Africa
Own-Firm Business Optimism Index
Own Company
75
70
60
65
50
55
40
45
30
20
35
Dec 2015
Mar 2016
Jun 2016
Sept 2016
Latin America
United States
Asia
Africa
Dec 2016
Europe
10
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
Dec 2016
3
Changes in the African Business Optimism Index
Optimism about the domestic economy in South Africa remains low, 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 from last quarter.
Q4 '16
South Africa
Q3 '16
Nigeria
Q2 '16
Africa
Q1 '16
0%
10%
20%
30%
No Change
40%
Less Optimistic
50%
60%
70%
80%
90%
0%
More Optimistic
10%
20%
No change
Trends in South Africa Optimism
CFOs remain less optimistic about the domestic economy
 60% of South African CFOs have become less optimistic this quarter, versus
53% of Nigerian CFOs.
 Compared to Q3’16, optimism of South African CFOs is relatively the
unchanged.
30%
More optimistic
40%
50%
60%
70%
Less optimistic
Nigerian Optimism
Nigerian pessimism grows
 More than half of CFOs from Nigeria have become “less
optimistic”, compared to 36% become “more optimistic”.
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 43.6 in Q3 ‘16 to 45.13 in Q4 ‘16; Nigeria ranks at 48.65
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
4
Changes in Own Company Sentiment
The trend of South African CFOs becoming more optimistic about their own companies is continuing, increasing to 46.6%.
South Africa’s own company optimist – 4 Quarter trend
South Africa
Q4 '16
No Change
Q3 '16
Less Optimistic
Nigeria
More Optimistic
Q2 '16
Africa
Q1 '16
0%
10%
20%
30%
40%
50%
60%
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 42.9% in Q3 ’16 to 46.6% in Q4 ‘16.
 More South African CFOs are becoming more optimistic about their own
companies (46.6%) than about the general South African economy (22.4%).
 Fewer South African CFOs are growing pessimistic (25.9%) about their
companies than CFOs from Nigeria (36.1%).
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Nigerian Own-Company Optimism
Compared to last quarter , fewer Nigerian CFOs have become more
optimistic
 44% of Nigerian CFOs have grown more optimistic about their own
companies’ prospects this quarter, compared to 36% that have
grown less optimistic.
 Last quarter, 52% of CFOs had grown more optimistic about their
own companies’ prospects.
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 59.1 in Q3 ‘16 to 61.9 in Q4 2016. While Nigeria’s optimism index decreased from 58.7 to 57.5.
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
5
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. Nigerian CFOs are becoming increasingly concerned with inflation.
South Africa
Currency risk
Economic uncertainty
Government policies
Volatility of political situation
Weak demand for your products/services
Access to capital
Difficulty attracting /retaining qualified employees
Regulatory requirements
Commodity prices
Corruption and white collar crime
African Business Outlook
Nigeria
Economic uncertainty
Inflation
Government policies
Currency risk
Access to capital
Commodity prices
Weak demand for your products/services
Cost of borrowing
Banking Sector weaknesses
Volatility of political situation
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
6
Most pressing concerns for top Management teams?
Nigerian CFOs rank economic uncertainty, inflation and Government policies as the top 3 most pressing concerns for their team,
while South African CFOs rank currency risk, government policies and economic policies as their top 3 most pressing concerns.
Inflation
Employee morale
Employee productivity
Corruption and white collar crime
Commodity prices
Regulatory requirements
Difficulty attracting /retaining qualified employees
Access to capital
Weak demand for your products/services
Volatility of political situation
Government policies
Economic uncertainty
Currency risk
0%
10%
Nigeria
African Business Outlook
20%
30%
40%
50%
60%
70%
80%
90%
South Africa
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
7
Expected Product Price Inflation
Africa inflationary expectations decrease, continues to trend above the rest of the world.
Global Trends
Dec 2016 Outlook
10%
8%
7%
6%
Product Prices
5%
5%
4%
3%
0%
Dec 2015
Mar 2016
Jun 2016
Sept 2016
Dec 2016
1%
-5%
Latin America
United States
Asia
Africa
Europe
Inflationary expectations high in Africa, low-tomoderate elsewhere



2%
0%
Nigeria
South Africa
Inflation expectations highest in Nigeria
 Of responding countries, Nigeria has the highest
inflationary expectations (over 7%) compared to
South Africa and the rest of Africa.
Africa has the highest expectation of Inflation in the
last 3 quarters and the trend continues to persist.
Latin American CFOs expect moderate price
increases, driven by high inflation in Brazil.
CFOs in Asia and the US expect low inflation, Europe
expects flat prices.
Notes: Presented data are the mean or median values for each region or country.
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
8
Expected Growth in Sales Revenue
Overall, CFOs Africa continue to expect slowing growth in sales revenue.
Dec 2016 Outlook
Global Trends
15%
7%
6%
10%
Revenue
5%
4%
5%
3%
2%
0%
Dec 2015
Mar 2016
Jun 2016
Sept 2016
Dec 2016
1%
-5%
Latin America
United States
Asia
Africa
Europe
0%
Nigeria
Africa continues to expect a decline in sales revenue


Revenue growth expectations decrease from Q3 ‘16
(9.8%) to Q4 ‘16 (5.8%).
Latin America and Asia expectations are trending
upward, United States is expected to stay flat at 4%,
while European expectations are falling.
South Africa
Expectations of revenue growth varies in Africa
 Overall African revenue growth pulled down by
Nigeria.
 South Africa expects higher sales growth.
Notes: Presented data are the mean or median values for each region or country.
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
9
Capital Spending Plans
African capital spending growth is expected to decline sharply in 2017.
Dec 2016 Outlook
Global Trends
15%
5%
5%
4%
Capital Spending
10%
4%
3%
5%
3%
2%
2%
0%
Dec 2015
Mar 2016
Jun 2016
Sept 2016
1%
Dec 2016
1%
-5%
Latin America
United States
Asia
Africa
0%
Europe
Nigeria
Modest capital spending plans


South Africa
Business spending varies within Africa
African CFOs expect a substantial decline in capital
spending.
Business spending is still weak in the US, and expectations
have decreased in Europe, while Latin American CFOs
expect modest business spending growth.
 South Africa anticipates a 5% growth in capital
expenditures.
 Spending in Nigeria is expected to increase by a
modest 3%.
Notes: Presented data are the mean or median values for each region or country.
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
10
Expected Change in Earnings
Earnings are expected to decrease in Africa after increasing the last quarter.
Dec 2016 Outlook
Global Trends
15%
7%
6%
10%
Earnings
5%
4%
5%
3%
2%
0%
Dec 2015
Mar 2016
Jun 2016
Sept 2016
Dec 2016
1%
-5%
Latin America
United States
Asia
Africa
Europe
0%
Nigeria
African earnings growth
 African earnings are expected decrease in 2017.
 Other regions except the United States expect
earnings to decrease.
South Africa
Negative earnings growth in Africa
 Falling earnings expectations in South Africa pull
down the average for all of Africa.
 2017 earnings are expected to grow in Nigeria by
over 6%.
Notes: Presented data are the mean public company value for each region or country.
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
11
Fulltime Employment Outlook
African CFOs expect to reduce fulltime domestic employment over the next year.
Dec 2016 Outlook
Global Trends
10%
1%
# FT Employees
0%
Nigeria
5%
South Africa
-1%
0%
Dec 2015
Mar 2016
Jun 2016
Sept 2016
-1%
Dec 2016
-2%
-5%
Latin America
United States
Asia
Africa
Europe
-2%
Negative employment outlook in Africa
 African CFOs expect negative employment growth
in 2017, as do Latin American CFOs.
 Asia and US expect moderate increases in
employment.
Employment growth varies across Africa
 Expected employment reductions in South Africa
pulls down the average for all of Africa.
 Employment growth in Nigeria is expected to be
minimal (less than 1%).
Notes: Presented data are the mean value for each region or country
#FT=Number of Fulltime Employees
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
12
Expected Wage and Salary Increases
Africa wages and salaries are projected to increase by 7% over the next year.
Dec 2016 Outlook
Global Trends
10%
10%
Wages & Salaries
9%
8%
7%
5%
6%
5%
4%
3%
0%
Dec 2015
Mar 2016
Jun 2016
Sept 2016
Dec 2016
2%
1%
-5%
Latin America
United States
Asia
Africa
Europe
Rapid wage growth in Africa, similar to last Quarter
 Africa and Asia expect wage growth of nearly 7%
in 2017.
 Europe expects the lowest wage growth.
 US wages to grow 3.2%.
0%
Nigeria
South Africa
Wage growth in Africa is positive
 All participating African countries expect
substantial wage growth.
Notes: Presented data are the mean value for each region or country
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
13
Financial Snapshot (Expected % Change in Next 12 Months)
Price of products will increase rapidly in Nigeria as companies try to keep pace with inflation. South African technology
spending will experience significant growth (about 10%).
Chart Title
Technology spending
Prices of your products
Earnings
Revenue
Capital spending
Marketing/advertising spending
Research and development spending
-2%
0%
2%
South Africa
African Business Outlook
4%
6%
8%
10%
12%
Nigeria
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
14
Financial risk increases due to corporate borrowing
African CFOs say that recent increases in corporate borrowing have increased the financial risk of the
corporate sector in their industry.
90%
81.50%
80%
70%
59.50%
60%
50%
37.80%
40%
30%
20%
11.10%
10%
7.40%
2.70%
0%
Less financial risk than normal
About normal financial risk
Nigeria
African Business Outlook
More financial risk than normal
South Africa
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
15
Borrowing-related financial risk increases in most industries
Across industries, except for Technology, financial risk is higher than normal due to increased corporate
borrowing.
120%
100%
80%
60%
40%
20%
0%
Bank/Fin
Mining
Insur Real Construc tion
Estate
Trans
portation
Pub. Util
Energy
Less financial risk than normal
African Business Outlook
Service
Consult ing
Commun
ications
Media
Tech SoftHardware Bio
About normal financial risk
Duke University / SAICA / AIA / CFO Magazine
Manufac
turing
Healthca re
Pharm
Agr, Pub
Admin
Other
Industry
More financial risk than normal
Dec 2016
16
Corporate uses of debt financing
Most of the recent borrowing by African companies has been used for “real activities” that will grow
their businesses.
60%
50%
40%
30%
20%
10%
0%
Issued debt to avoid
For ‘financial’ activities like
For ‘real’ activities like
To build up a cash reserve
repatriating foreign profits paying dividends or share hiring, capital spending, or
repurchases
acquisitions
Nigeria
African Business Outlook
Other
Don't Know
South Africa
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
17
Does current debt level limit future investments?
African CFOs believe future investment opportunities will be limited due to current debt burdens.
60%
50%
40%
30%
20%
10%
0%
No
Moderately
Nigeria
African Business Outlook
Significantly
South Africa
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
18
African CFO actual and expected ROA
Of CFOs surveyed, African CFOs have the highest ROA and are the most optimistic about 2017.
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
US
Europe
Approximate ROA in 2016
African Business Outlook
Asia
Latin America
Africa
Expected ROA in 2017
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
19
Career Paths of CFOs
What is the probability that you will be a CEO in 5 years?
More than 1-in-4 African CFOs expect to be a CEO in 5 years, the highest percentage in the world
30%
25%
20%
15%
10%
5%
0%
US
African Business Outlook
Europe
Asia
Duke University / SAICA / AIA / CFO Magazine
Latin America
Dec 2016
Africa
20
Does being a CFO prepare you to be a CEO?
68% of African CFOs believe that their current job tasks adequately prepare them to be a
CEO someday.
80%
70%
60%
50%
Yes
40%
No
30%
20%
10%
0%
US
African Business Outlook
Europe
Asia
Duke University / SAICA / AIA / CFO Magazine
Latin America
Dec 2016
Africa
21