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African Business OutlookPart of the Global Business Outlook
A joint survey effort between
Duke University,The South African Institute of
Chartered Accountantsand
CFO magazine
1
2
CFO Global and African Business Outlook – Overview
African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
Global Business OutlookDuke 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 and the African Business OutlookSAICA joined the survey in 2013, helping to found the African Business Outlook. South African results are highlighted in the analysis, as are results from Nigeria and the rest of Africa, enabling SAICA and other survey partners to share key insights about the African economy with members of the Institute and others focusing on Africa. The analysis in this report will assist companies to make important business decisions as they can benchmark themselves against their global peers. The long run goal is to develop a large and steady set of responding African firms.
Key Survey Facts Survey Respondents: 48
Of which, 43 from South Africa, 2 from Nigeria, and 3 from other parts of Africa The small number of respondents may skew some results outside of South Africa
Sample includes CFOs from both public and private companies representing a broad range of industries 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 landscape of corporate finance.
Sentiment Regarding Domestic Economy
3African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
Q1 '15
Q4 '14
Q3 '14
Q2 '14
0% 10% 20% 30% 40% 50% 60% 70% 80%
South Africa, Last Four Quarters
No Change
Less Optimistic
More Optimistic
Rest of Africa
Nigeria
All Africa Avg
0% 20% 40% 60% 80% 100%
Country Average, Relative to last Qtr
When ranked on a 100 point scale, the African Optimism Index (for the economic prospects of the continent over the next year) decreased from 53.9 in Q4 2014 to 47.8 in Q1 2015 (South Africa: 45.9; ROA: 60).
African optimism about the next 12 months remains low
Trends in South African OptimismCFOs are less optimistic about the domestic economy Compared to last quarter, more South African
CFOs (73%) report being less optimistic about the domestic economy this quarter
Sentiment towards domestic economy Similar to last quarter, Nigerian CFOs are
less optimistic about the economy Unlike South Africa and Nigeria, CFOs
surveyed in the Rest of Africa are more optimistic about their domestic economies
Overall average suggests CFOs are less optimistic
4African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
Most African CFOs are optimistic about their own companies, despite being less optimistic about the overall economy. However, there is a reduction in own-firm optimism in Nigeria.
Own-company optimism is still high in South Africa
South African CFOs are less optimistic for their own companies compared to last quarter. However, own-company optimism still remains above average.
Own Company Sentiment
When ranked on a 100 point scale, the Own-Company African Optimism Index (for the economic prospects over the next year of each CFO’s own company) reduced from 69.5 in Q4 2014 to 67.6 in Q5 2015 (South Africa: 67.9, Nigeria: 80, ROA: 55)
Q1 '15
Q4 '14
Q3 '14
Q2 '14
0% 10% 20% 30% 40% 50% 60% 70%
South African Own-Company Optimism, Last 4 Qtrs
No ChangeLess OptimisticMore Optimistic
Rest of Africa
Nigeria
All Africa Avg
0% 20% 40% 60% 80% 100%
Company Optimism By Region
All surveyed CFOs in the rest of Africa have grown less optimistic about their company this quarter compared to last Specifically, 50% of CFOs in Nigeria are less optimistic
about their own companies this quarter
6
Top 10 Corporate Concerns for African CFOs
African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
Concerns of African CFOs vary by country. Economic uncertainty is a top concern in South Africa while cost of borrowing is a top concern in Nigeria.
South Africa Nigeria Rest of Africa1)Economic uncertainty 1)Cost of borrowing 1)Currency risk
2)Reliability and cost of Electricity 2)Reliability and cost of Electricity 1)Difficulty attracting/retaining qualified employees
3) Regulatory requirements 2)Regulatory requirements 1)Government policies4)Currency risk 2)Currency risk 1)Rising wages and salaries
5)Difficulty attracting/retaining qualified employees 2)Volatility of political situation 1)Employee morale
6)Government policies 2)Rising input or commodity costs 1)Corruption and white collar crime7)Employee productivity 2)Violent crime 1)Corporate tax code [domestic]8)Access to capital 8)Economic uncertainty 8)Economic uncertainty
8)Rising wages and salaries 8)Difficulty attracting/retaining qualified employees 8)Access to capital
10)Volatility of political situation 10)Government policies 10)Property rights
Top 10 Corporate Concerns
South African CFOs have identified competition from Chinese and Indian imports as a new concern
7
Top 10 Company Changes (One-year Forecast)
African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
African CFOs estimate the following changes (in %) will occur in their companies during the next 12 months.
Top 10 Company Changes
South Africa Nigeria Rest of AfricaDividends (+) Capital spending (+) Earnings (-)
Earnings (+) Revenue (+) Healthcare costs (+)
Capital spending (+) Prices of company products (+) Wages/Salaries (+)
Technology spending (+) Wages/Salaries (+) Research and development spending (+)
Revenue (+) Technology spending (+) Capital spending (+)
Wages/salaries (+) Marketing/advertising spending (+) Number of domestic fulltime employees (+)
Marketing/advertising spending (+) Cash on the balance sheet (+) Revenue (+)
Healthcare costs (+) Dividends (no change) Prices of company products (+)Number of domestic full-time employees (+) Earnings (no change) Productivity (+)
Research and development spending (+) Healthcare costs (no change) Number of offshore outsourced
employees (+)
8
Impending Acquisitions, Divestitures, and Exits
African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
The acquisition and divestiture strategy of African companies varies by country. Compared to the rest of Africa, South African firms plan to be somewhat active in acquisitions and sales. A portion of these activities is expected to be cross-border transactions.
Acquisitions Divestitures and Exits
71%
14%
14%AfricaEuropeUS/Canada
Location of Cross-border Acquisition Targets
South Africa Nigeria RoA0.00%
20.00%40.00%60.00%80.00%
100.00%120.00%
Sell your company Sell part of your companyNeitherSouth Africa Nigeria Rest of Africa
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Acquire other firm(s) Acquire part of other firm(s)Both Neither
10% of CFOs in South Africa indicated that their companies will be sold in 2015.
More than companies in other parts of Africa, South African companies plan to be somewhat active in the acquisition space, with some acquisitions expected to be conducted outside Africa. 40% of firms with cross-border plans indicated that all their acquisition spending will occur outside the country.
9
Effects of Changes in Interest Rates
African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
African CFOs indicate that current and expected changes in Interest rates have a direct and significantly negative impact on their business.
Effect of Changes in Interest Rates Impact of Changes in Interest Rates on Business
South Africa Nigeria Rest of Africa0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Direct Indirect Both No effect
South Africa Nigeria Rest of Africa0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
+2=Very positive +1=Positive 0=No impact-1=Negative -2=Very negative
African businesses experienced direct impact from changes in exchange rates.
The impact of exchange rates has a negative effect on businesses in South Africa and Nigeria, while there is no impact in the rest of Africa.
10
Projections of Changes in Interest Rates (South Africa)
African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
Projected Impact of Changes in Interest Rates on Capital Spending Plans and Hiring Plans (South Africa)
Expectations of Changes in Long Term Interest Rates (South Africa)
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
Series1Capital Spending Plan Hiring Plan
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
Series1
Changes in interest rates has minimal impact on the capital spending and hiring plans of South African businesses.
49% of South African business leaders expect a +50 bps increase in Long Term Interest Rates.
11
Effects of Changes in Oil Prices
African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
African CFOs indicate that current and expected changes in Oil Prices have a direct and significantly negative impact on their business.
Effect of Changes in Oil Prices Impact of Changes in Oil Prices on Business
South Africa Nigeria Rest of Africa0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Direct Indirect Both No effect
South Africa Nigeria Rest of Africa0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
+2=Very positive +1=Positive 0=No impact-1=Negative -2=Very negative
The changes in price of crude oil has affected African businesses directly and indirectly with almost equal measure.
The changes in price of Crude Oil has had a positive impact on 62% of South African businesses while it has had negative impact on business in Nigeria.
12
Projections of Changes in Oil Prices (South Africa)
African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
Projected Impact of Changes in Oil Prices on Capital Spending Plans and Hiring Plans (South Africa)
Expectations of Changes in Oil Prices (South Africa)
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
Series1
Capital Spending Plans Hiring Plans
$20 $30 $40 $50 $60 $70 $80 $90 $100 $1100.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
0.00%
19.00%
The changes in oil prices has not affected the capital spending and hiring plans for most businesses in South Africa.
78% of South African business leaders believe that the price of oil will rise above $60 per barrel from its current price of $50. Specifically, 19% posit that the price will rise as high as $80 per barrel.
13
Effects of Changes in Currency Values
African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
African CFOs indicate that current and expected changes in Currency Values have a direct and varying impact on their business.
Effect of Changes in Currency Values Impact of Changes in Currency Values on Business
South Africa Nigeria Rest of Africa0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Direct Indirect Both No effect
South Africa Nigeria Rest of Africa0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
+2=Very positive +1=Positive 0=No impact-1=Negative -2=Very negative
Most African CFOs believe that changes in the value of the US Dollar has had a direct impact on their companies’ business.
The impact of changes in the value of the US dollar varies amongst African business. While some report positive impact, a marginally larger group reports negative impact.
14
Projections of Changes in price of USD to Euro (South Africa)
African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
Projected Impact of Changes in $/Euro on Capital Spending Plans and Hiring Plans (South Africa)
Expectations of Changes in $/Euro (South Africa)
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
Series1
Capital Spending Plans Hiring Plans
-60% -40% -20% 0% 20% 40% 60%
27.90%
9.30%
More than 70% of CFOs in South Africa indicate that the changes in the price of the US $ has no impact on their company’s capital spending and hiring plans.
27.90% of South African CFOs expect that the value of the US Dollar will decline by 10% while 9.30% of CFOs believe that the value of the currency will increase by 5%.
15
Return on Assets and Capacity Utilization
African Business Outlook Duke University / SAICA / CFO Magazine Mar 2015
Responding Nigerian CFOs predict the smallest ROA in 2015 while holding capacity utilization relatively constant in the coming year. South African companies expect an increase in ROA and capacity utilization.
South Africa Nigeria Rest of Africa US Europe Asia Latin America
Return-on-Assets
Approximate ROA in 2014 20.6% 4.0% 10.0% 9.2% 9.2% 9.7% 8.4%
Expected ROA In 2015 21.1% 6.5% 9.0% 11.4% 11.4% 11.3% 10.0%
Capacity Utilization
% capacity in 2H 2014 75.0% 76.0% - 76.7% 85.8% 89.7% 58.1%
% capacity planned for 1H of 2015 74.3% 77.5% - 78.5% 85.8% 88.5% 71.5%