Chief financial officers in southern African states can see light at the end of tunnel after a somewhat wobbly economic environment, but are still taking a more cautious view of the future, according to a new survey.
CFOs in Botswana, Malawi, Namibia, South Africa, and Zambia are expecting growth of around 3%-3.7% in their countries, with an impressive 85% of CFOs surveyed expecting a better 2014 for their companies.
"In an environment of uncertainty with confidence levels declining, CFOs and business are taking their feet off the accelerator. While not stopping entirely, CFOs and companies are certainly behaving more cautiously," said management consultancy Deloitte in a survey of CFOS across the five countries.
"The optimism that we had seen in 2012 is still present, but companies are no longer reacting positively to it in the way that we saw last year. CFOs are clearly concerned and they have shifted their strategies toward more defensive plays. This is surprising, given some of their underlying views which may be indicating the opposite."
South African CFOs are most worried about a depreciation of the rand in the next three years which could upset their growth plans. Africa's largest economy has stumbled over the past few years as growth slipped to 2.5% in 2012. The country is expected to grow 3.3% next year and 4% in 2014, according to the International Monetary Fund.
But labor disputes and strikes in the country's mining sector could see actual growth fall below those forecasts, especially as the South African authorities do not appear to have a handle on the situation. This was evident when the economy grew by less than one percent in the first quarter of the year.
"These factors have evidently played a key role in influencing the mindsets and behavior of CFOs, and it is clear to us that a large portion of the CFOs who responded to our survey have switched away from growth toward conservative business strategies as a result."
FLICKER OF OPTIMISM
South Africa is an outlier among its neighboring southern neighbors, with its oversized G20 economy that is far more mature and sophisticated compared to its peers.
The CFOs resident in the other four countries are painting a more optimistic growth about growth and the opportunities ahead.
While only 48% of South African CFOs saw improved performance over the past financial year, 63% CFOs from the other four southern African countries witnessed good growth.
"Looking to 2014 and 2015, CFOs are certainly optimistic. 85% believe that 2014 will bring about an improvement in their company's performance," Deloitte noted. "A similar proportion sees a continuation of the good performance into 2015."
UNCERTAINTY AHEAD
Despite the optimistic outlook, CFOs are cautious in an uncertain global economic environment. Growth in Western economies is either subdued or volatile, while emerging markets growth is also doubtful.
The US Federal Reserve's decision on monetary easing is expected to have a wide-ranging impact on emerging markets, including commodity prices, currencies and equity markets.
In addition, Europe has not regained its economic strength, while the important economies of China, India and Brazil are also lurching between poor growth or downright slowdown.
As such, the CFOs of southern African states remain circumspect and cautious, especially as some of them are heavily dependent on commodity prices.
The defensive approach is impacting their growth plans, as investing in new products remains near the bottom of the list of priorities, Deloitte notes.
"Given that innovation and research and development are crucial for companies (and countries) to remain globally competitive, it is concerning that this is so low on the priority list of companies."
Improving operational efficiency is foremost on the minds of 60% of CFOs, while increasing revenues from neighboring markets was last - which suggest a more defensive strategy rather than a growth-driven approach to business.
There is also the issue of political risk closer to home. South African CFOs are the most cautious as labor strikes rocked sentiment in the business community, with 51% calling it the biggest risk they face in their companies.
The other four states are more concerned about global economic recovery as their primary concern. Other key concerns include revenue deterioration due to lack of price flexibility, currency volatility and a surge in electricity prices.
One bright spot for South African companies is their success in building their regional business.
Around 55.1% of the South African companies surveyed told Deloitte that they are planning to expand into Africa soon. For the rest of the companies included in the survey, almost 30% intend expanding into Africa in the near term.
While South African companies prefer to invest in countries closest to home, lately there have been efforts to push the boundaries and tip their toes in East Africa.
Tanzania and Kenya have emerged as the two favored destinations for South African companies, the survey shows.
© alifarabia.com 2013
