CEO Briefing 2014The Business Agenda for South Africa:Competing in a Digital World

CEO Briefing 2014 The Business Agenda for South Africa: Competing in a Digital World 3

Contents

Introduction 02

South African business executives are cautiously optimistic about growth 03

South African businesses growth agenda 06

Enthusiasm Is High for Digital Technologies Among South African Companies 08

Conclusion 12

CEO Briefing 2014 The Business Agenda for South Africa: Competing in a Digital World 5

Introduction

But are these executives overly optimis-tic? Perhaps so. The country faces many challenges that stand in stark contrast to the confidence South African executives exhibited in our research. According to numerous reports and publications, unemployment, widespread crime, a lagging education system, and restrictive regulations are among the pressing issues that make it difficult for companies to do business in the country and, in turn, threaten to impede companies’ efforts to achieve their growth goals (not to men-tion deter badly needed foreign direct investment) 1.

Although the preceding challenges are neither easy to address nor something businesses themselves can solve, South African companies do have some power-ful aides that can help them dramatically improve their performance. Those are digital technologies. Indeed, a large percentage of South African executives in our research said digital technologies are not only important to their business but also will likely significantly change—even transform—their industry. 2 In Accen-ture’s experience, companies around the world are using digital technologies to help them both become more efficient

and productive as well as increase their revenues by extending their reach into a broader customer base and creating new, disruptive business models.

Of course, to benefit from such technolo-gies, companies need embrace them—and that’s where South African businesses, in our research, lag companies in other countries. 3 If they want to achieve their growth goals, South African companies need to more aggressively adopt digital technologies and deploy them across their operations to create new products and services and open new sales channels to new and existing customers. Addi-tionally, these digital technologies can be leveraged to improve the efficiency of operational processes.

In the following report, we explore in more detail what South African exec-utives in our research had to say about their prospects for growth, where they expect growth to come from, and how digital technologies could help them grow more strongly. We believe the insights we share in this report can be useful to other South African companies as they consider their options for competing in a digital world.

Head of Accenture Strategy, South Africa

Joost de Haas

According to recent Accenture research, business executives around the world are brimming with confidence—and that includes those in South Africa. In fact, a large majority of executives in charge of South African businesses are optimistic about their own industry and organisation, and a smaller majority also see their home market and the global economy in a positive light.

The Business Agenda for South Africa: Competing in a Digital World CEO Briefing 20146

When compared with respondents in other emerging economies,

executives in South Africa exhibited some similarities. With

regards to the South African economy, their levels of optimism

are generally on a par with executives in in Brazil and India,

somewhat more optimistic than those in Russia and the Middle

East, and less optimistic than those in Turkey and China. When

asked how they view the prospects of their own organisations,

South African executives’ levels of optimism are similar to those

in other emerging markets, with the exception of China-based

executives who are far more optimistic. South African execu-

tives are generally more optimistic than other emerging markets

about their industry (except China), but were the least likely of

respondents in all the emerging markets to be optimistic about

the global economy.

Consistent with their generally optimistic perspective, about

three-quarters of South African executives also expect increases

in profit and revenues in the next 12 months. From an emerg-

ing-market standpoint, these views are most similar to those in

Brazil, India and Turkey. South African executives are more like-

ly to expect profit and revenue increases than those in Russia,

and less likely than those in China.

Furthermore, just under seven in 10 South African executives

believe major emerging markets will experience strong or stable

growth versus a slowdown. In fact, respondents in South Africa

were more likely to have this opinion than those in the US, EU

and all other emerging markets 5.

However, South African executives’ optimism seems to contrast with the prevailing business and economic indicators. For instance:• The country’s real GDP is expected to grow only 2.5 percent

in 2014 and 2015—up from 1.9 percent in 2013, but behind

other emerging markets as well as the US and EU 6.

• South African unemployment is forecast to decline only

slightly in 2014 from 2013 to 25.3 percent—the highest of

any country in our study except Spain 7.

• Productivity of South African workers is expected to decline

from 0.3 percent in 2013 to -0.9 percent in 2014—the only

country in our survey to be forecast in negative territory 8.

Indeed, challenges such as chronic unemployment, a high

crime rate, a challenging education system, a shortfall in power

capacity, and restrictive labour laws are conspiring to dampen

growth and direct investment in the country—resulting in its

recent loss of status as the African continent’s biggest economy

to Nigeria, despite the recent rebasing of the GDP definition.

South African business executives are cautiously optimistic about growthWe examined the South African data from the new Accenture research study, “CEO Briefing 2014—The Global Agenda: Competing in a Digital World,” 4 and found a majority of South African executives are generally optimistic about the economic prospects for their home country, but even more optimistic about their industry and their own organisation

Optimism

33%51% 60%61% 77%74% 72%81%

Global Economy Local Economy Core Industry Own Business

Republic of South AfricaBrazil, Russia, India, China

CEO Briefing 2014 The Business Agenda for South Africa: Competing in a Digital World 7

For instance, according to the United Nations, foreign direct

investment (FDI) in South Africa fell to $4.6 billion in 2012 from

$6 billion the previous year, 9 while other parts of Africa have

experienced steady or increased FDI.

The preceding challenges notwithstanding, companies based

in South Africa are in an expansive mood. A large majority of

South African companies expect to increase their total capital

investment in the coming year, although increases are less likely

to be seen in physical and intangible assets than in human

capital assets.

South Africa Challenges

GDP Growth

Unemployment

Worker Productivity

2.5%

25.3%

0.9%

While all emerging markets were similar in their percentage of

executives planning either a moderate or significant increase in

total capital expenditure, companies in South Africa, the Middle

East and Turkey were more likely than those in Brazil, Russia

and India—and less likely than those in China— to expect a

significant increase. Furthermore, six in 10 South African

executives are planning to increase their overall workforce—

similar to the percentage of those in Brazil, Russia and India,

and less than that of executives in China.

CEO Briefing 2014 The Business Agenda for South Africa: Competing in a Digital World 9

South African businesses growth agendaFinding and capturing growth can be a major challenge in today’s volatile economy. That’s especially true given the uncertainty surrounding the performance of the world’s major markets. The ability to place the right bets has a dominant effect on how well companies can turn their optimism into reality.

Growth Agenda Prioritising investments outside of South Africa

According to our survey, the majority of South African companies

appear to be betting primarily on markets outside their home

country (Figure 3). Six in 10 said they planned to prioritise

investment outside of their home country—similar to those in

all other emerging markets except China, where executives were

more likely to say they are prioritising investments in their home

market. In addition, South African executives believe “frontier”

emerging economies will be their primary drivers of growth in

the coming years: Sixty-seven percent said they intend to shift

their focus from the BRIC economies to other, more rapidly

growing emerging markets. But just over half also intend to

maintain their investment in the EU, under the assumption that

the economies there will continue to improve. Just the opposite

is the case, though, with the United States: Nearly two-thirds of

South African executives expect to shift investments away from

the US in the belief that the country’s economy will worsen.

Regardless of the countries in which South Africa is operating,

however, the route to growth will generally involve selling new

products or services—to existing customers in South Africa and

to new customers in developed markets outside South Africa, and

in other emerging markets. This focus on new offerings is con-

sistent with the fact that, as mentioned earlier, nearly eight in 10

South African executives said their company planned to increase

its investment in R&D in the next 12 months. In fact, South

Africa’s government has recently set an R&D spending target of

1.5 percent of GDP by 2019, which is nearly double the current

figure identified by the latest national R&D survey conducted by

South Africa’s Department of Science and Technology 10.

67%Shift from BRIC to other emerging

Historical investmentsCurrent investment strategy

51%New products/ existing clients in South Africa

36% New products/ new developed markets 47%

New products/ emerging markets

The Business Agenda for South Africa: Competing in a Digital World CEO Briefing 201410

The other half think they are somewhat to not at all important. These perspectives are generally consistent with most other emerging markets (except China, which places much higher importance on all of the technologies), and tend to fall between the US and EU 11.

Executives’ perspectives reflect the uneven penetration of digital across the South African economy in general. For instance, the 131 mobile subscriptions per 100 people in South Africa projected for 2014, falls roughly in the middle of 20 countries studied by the EIU—with India’s at the low end (80) and Saudi Arabia’s at the high end (186). 12 Furthermore, the EIU projects South Africa’s market demand for telecoms and IT equipment to be 2.5 percent in 2014, which is higher than most developed and some emerging markets, but still trailing that of leaders China (7.0 percent) and India (7.6 percent) 13. And according to EIU estimates, South Africa fares worse than most countries in Internet use, with 25.3 Internet users per 100 people—which

is among the lowest penetration of the 20 countries studied (ahead of only India with 18.6 and far behind leader Switzer-land, with 88.3) 14. However, on the positive side, South Afri-ca’s mobile data traffic is projected to grow eightfold between 2013 and 2018 15 and 60 percent of African continent’s total internet traffic is driven by South Africa 16.

As the use of digital technologies in the country grows, these tools are expected to have a significant impact on South African businesses. According to our survey, 63 percent of South Afri-can executives think digital will drive either significant change or a complete transformation of their industry—more than those in the US and EU, as well as most other emerging markets. Executives in South Africa trailed only China in the percentage of executives who expect digital to render significant industry change 17.

Such a growth-oriented use of digital can provide vital support

Enthusiasm Is High for Digital Technologies Among South African CompaniesAs they pursue growth, South African companies are increasingly looking to digital technologies for help. Yet executives are split in their opinion of them. In general, about half believe all six technologies we covered in the survey—cloud computing, ecommerce, social media, mobility, analytics, and machine-to-machine communications—are moderately to significantly important.

71%90%

Data Analytics

Cloud Computing

71%

Machine-to-MachineMobile

70%

82%

Social Media

E-Commerce

67%53%

Despite enthusiasm

26%

said their processes leverage these technologies.

only

Digital

CEO Briefing 2014 The Business Agenda for South Africa: Competing in a Digital World 11

to South African companies as they seek to shift their attention to capturing a share of fast-growing emerging markets, via new products and services, as stated earlier. Conversely, South African executives were less likely to say their company’s deployment of digital has involved primarily driving process efficiencies and cost reduction, although seven in 10 did acknowledge digital technologies are important to helping improve operational efficiency.

Despite their enthusiasm for digital, however, South African companies still have much work to do to deploy digital technol-ogies across their operations: Only 26 percent of South African executives said at least half of their major business processes

are supported by digital technologies. This figure trails not only the EU and US, but also nearly all other emerging markets. Furthermore, approximately four in 10 South African executives said that when implementing digital technologies, their companies struggle with poor cross-functional collaboration and insufficient funding 18.

Perhaps one of the reasons for these struggles is lack of senior-executive involvement in setting the company’s digital agenda. South African executives were less likely than their counter-parts in the US and EU to say their CEO is responsible for digital

innovation 19.

70% 63% 64% 37% 40% 49% 55%

Improvingoperationalefficiency

Improving thecustomer

experience

Attracting and

retaining thebest talent

Improvingmanagement

control oversight

and governance

Opening newsales

channels

Growing sales

Creating newproducts and

services

Percentage of executives saying digital technologies are extremely important to:

As far as the use of digital is concerned, South African execu-tives were more likely than those in the EU, US and most other emerging markets (except Turkey and the Middle East) to say the primary focus of their investment in digital to date has been

mostly on growth opportunities and new ways of reaching customers. Additionally, a majority of South African companies believe digital technology is important to helping them create new products and services and improving the customer experience.

CEO Briefing 2014 The Business Agenda for South Africa: Competing in a Digital World 13

ConclusionAs South Africa continues to grapple with several challenges that could dampen the country’s growth, the country’s business executives remain optimistic about their company’s economic prospects. That is likely because for most South African executives par-ticipating in our survey, the focus of their investment and attention will be on markets outside of their home country—including the EU and fast-growing emerging markets, where South African companies likely will concentrate on selling new offerings to new customers.

However, in light of their chosen approach to growth, South African companies could support their growth agenda by substantially increasing their attention to and use of digital technologies. With most South African companies focusing on new products and services, they could benefit from a more ambitious approach to using digital to enhance their ability to create new offers that will appeal to whole new pools of prospective customers—as well as open new sales channels to help them reach those promising new customers, wherever in the world they may be.

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For more information about Accenture Strategy visit: www.accenture.com/strategy

References1 CEO Briefing 2014 | The Global Agenda: Competing in a Digital World http://www.accenture.com/ceobriefing. This research was conducted by the Economist Intelligence Unit and sponsored by Accenture. It included 1,041 C-suite executives around the world representing companies from 20 countries.2 CEO Briefing 2014 | The Global Agenda: Competing in a Digital World http://www.accenture.com/ceobriefing.3 CEO Briefing 2014 | The Global Agenda: Competing in a Digital World http://www.accenture.com/ceobriefing.4 CEO Briefing 2014 | The Global Agenda: Competing in a Digital World http://www.accenture.com/ceobriefing. This research was conducted by the Economist Intelligence Unit and sponsored by Accenture. It included 1,041 C-suite executives around the world representing companies from 20 countries.5 CEO Briefing 2014 | The Global Agenda: Competing in a Digital World http://www.accenture.com/ceobriefing.6 According to data from the Economist Intelligence Unit (EIU), and “South Africa needs neighbors’ growth rates” Martin Hutchinson, Reuters, May 2, 2014, http://blogs.reuters.com/breakingviews/2014/05/02/south-africa- needs- neighbors-growth-rates/7 According to data from the Economist Intelligence Unit (EIU)8 According to data from the Economist Intelligence Unit (EIU)9 “Falling from continental perch is a wake-up call for South Africa,” Stella Mapenzauswa, Reuters, May 9, 2014, http://news.yahoo.com/falling- continental-perch-wake-call-south-africa-152723652.html;_ylt=A0LEVzdqH nFTFlAAEEpXNyoA;_ylu=X3oDMTBsa3ZzMnBvBHNlYwNzYwRjb2xvA2Jm MQR2dGlkAw--10 “South Africa ‘Turning the Corner’ on R&D Spending,” April 10, 2014, http://www.southafrica.info/about/science/research-110414.htm11 CEO Briefing 2014 | The Global Agenda: Competing in a Digital World http://www.accenture.com/ceobriefing.12 According to data from the Economist Intelligence Unit (EIU)13 According to data from the Economist Intelligence Unit (EIU)14 According to data from the Economist Intelligence Unit (EIU)15 http://www.itwebafrica.com/mobile/320-south-africa/232453-sa-mobile- data-traffic-to-grow-by-eight-fold16 http://www.mediaclubsouthafrica.com/economy/3516-got-to-get-connected17 CEO Briefing 2014 | The Global Agenda: Competing in a Digital World http://www.accenture.com/ceobriefing.18 CEO Briefing 2014 | The Global Agenda: Competing in a Digital World http://www.accenture.com/ceobriefing.19 CEO Briefing 2014 | The Global Agenda: Competing in a Digital World http://www.accenture.com/ceobriefing.

CEO Briefing 2014 The Business Agenda for South Africa: Competing in a Digital World 15

Authors

Joost is a managing director, and lead for Accenture Management Consulting in South Africa. During his time at Accenture, he has worked on projects in the chemicals, energy, utilities and communications industries. He specialises in strategic visioning and positioning, enterprise transformation, mergers and acquisitions, post-merger integration, strategic delivery programme management, organisation design and change management. De Haas has been with Accenture since 1994 and holds a master’s degree in industrial organisation and management from the Delft University of Technology, Industrial Engineering and Management in the Netherlands.

Head of Accenture Strategy, South Africa

Joost de Haas

Joost de Haas

Jonathan joined Accenture’s Johannesburg office in 2010 from the United States and is a Senior Manager in Accenture Strategy specialising in the Consumer Goods and Retail industries. Jonathan earned a Bachelor’s degree in Finance from Tulane University in New Orleans (2000) and an MBA with a concentration in Supply Chain Management from Texas Christian University (2005).

Senior Manager Consumer Goods & Retail Industries in Accenture Strategy, South Africa

Jonathan McCabe

Jonathan McCabe

About AccentureAccenture is a global management consulting, technology services and outsourcing company, with more than 293,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and govern-ments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013. Its home page is www.accenture.com.

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