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
June 2017
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: 41
 Of which, 13 from Nigeria, 26 from South Africa, and 2 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
June 2017
2
African Business Optimism Compared to the Rest of the World
African CFOs have been and continue to be the least optimistic in the world about their countries’ economic outlook. Optimism
about their companies’ outlook has also declined in the last quarter.
Global Trends
June 2017 Response
Country Business Optimism Index
Country / Region
75
70
60
65
50
55
40
30
45
20
35
Jun 2016
Sept 2016
Dec 2016
Mar 2017
Latin America
United States
Asia
Africa
Jun 2017
10
0
Europe
South Africa
Nigeria
Own-Firm Business Optimism Index
Own Company
75
70
60
65
50
40
55
30
45
20
10
35
Jun 2016
Sept 2016
Dec 2016
Mar 2017
Latin America
United States
Asia
Africa
Jun 2017
0
South Africa
Europe
Nigeria
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
June 2017
3
Changes in the African Business Optimism Index
Optimism about the domestic economy in South Africa remains low, lower than the rest of Africa. Even so, the South African
Optimism Index improved to 42.3. Nigerian CFOs are more optimistic about their domestic economy relative to the rest of Africa.
Q2 '17
Nigeria
Q1 '17
No Change
Less Optimistic
South Africa
More Optimistic
Q4 '16
Africa
Q3 '16
0%
10%
20%
30%
40%
50%
60%
70%
0%
South Africa Optimism Trend
CFOs remain less optimistic about the domestic economy
 60% of South African CFOs have become “less optimistic” this quarter, versus 50%
last quarter
 There was a marginal increase in the number of CFOs who have become “more
optimistic” this quarter as compared to last quarter
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
June 2017
15%
30%
45%
60%
75%
90%
Nigerian Optimism
Nigerian optimism increases
 Over 80% of CFOs from Nigeria have become “more
optimistic”, and none of them is “less optimistic”
4
Changes in Own Company Sentiment
South African CFOs optimism about their own companies increased this quarter
Q2 '17
Nigeria
Q1 '17
No Change
Less Optimistic
Q4 '16
South Africa
More Optimistic
Africa
Q3 '16
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0%
South African Own-Company Optimism
CFOs are more optimistic about their own companies than the general economy
 South African CFOs optimism about their own companies has appreciated
compared to last quarter, from 39% to 44%.
 South African CFOs are more optimistic about their own companies (44%)
than about the general South African economy (28%).
 More South African CFOs are growing pessimistic (32%) about their
companies than CFOs from Nigeria about their own companies (7.7%).
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
June 2017
15%
30%
45%
60%
75%
90%
Nigerian Own-Company Optimism
Compared to last quarter, Nigerian CFOs have become more
optimistic
 84.6% of Nigerian CFOs have grown more optimistic about their
own companies’ prospects this quarter, compared to 7.7% that
have grown less optimistic.
 Last quarter, 65% of CFOs had grown more optimistic about their
own companies’ prospects.
5
What Keeps CFOs Awake at Night? (Most Pressing Concerns of CFOs)
CFOs in South Africa and Nigeria feel that Government policies, Economic Uncertainty, and Currency Risk are pressing
concerns. Nigerian CFOs remain concerned with Inflation.
South Africa
Nigeria
Economic uncertainty
Currency risk
Volatility of political situation
Inflation
Government policies
Government policies
Regulatory requirements
Weak demand for your products/services
Currency risk
Cost of borrowing
Weak demand for your products/services
Economic uncertainty
Unrest in the general population
Volatility of political situation
Corruption and white collar crime
Regulatory requirements
Inflation
Unrest in the general population
Cost of borrowing
Corruption and white collar crime
Ranking – from most pressing to least pressing
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
June 2017
6
Most pressing concerns for African companies
Nigerian CFOs rank currency risk and inflation as the top 2 most pressing concerns for their team, while South African CFOs rank
economic uncertainty, volatility of political situation and government policies as their top 3 most pressing concerns.
Cost of borrowing
Inflation
Corruption and white collar crime
Unrest in the general population
Weak demand for your products/services
Currency risk
Regulatory requirements
Government policies
Volatility of political situation
Economic uncertainty
0%
10%
20%
30%
Nigeria
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
40%
50%
60%
70%
80%
South Africa
June 2017
7
Expected Product Price Inflation
Africa inflationary expectations decline in this quarter, with Latin America showing the highest expectation globally.
Global Trends
June 2017 Outlook
9
10%
8
Product Prices
7
6
5%
5
4
3
0%
Jun 2016
Sept 2016
Dec 2016
Mar 2017
Jun 2017
2
1
-5%
Latin America
United States
Asia
Africa
Europe
0
South Africa
Inflation expectations highest in Nigeria
Inflationary expectations highest in Latin America


Nigeria
Africa CFO’s expectation of inflation declined
significantly in this quarter
Expectations of inflation increases in Europe, while in
Asia inflation is expected to be very low
 Of responding countries, Nigeria has the highest
inflationary expectations (over 8%) compared to
South Africa and the rest of Africa.
Notes: Presented data are the mean or median values for each region or country.
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
June 2017
8
Expected Growth in Sales Revenue
Overall, CFOs Africa expect a slight decline in revenue, beyond the expectation of other region.
June 2017 Outlook
Global Trends
15%
25
20
Revenue
10%
15
5%
10
0%
Jun 2016
Sept 2016
Dec 2016
Mar 2017
Jun 2017
5
-5%
Latin America
United States
Europe
Asia
Africa
0
Africa outlook changes as CFOs expect softer sales
revenue this quarter


Around the globe, revenue expectations decreases
from last quarter across, except in Asia
Latin American revenue growth expectations trail
Asia and Europe
South Africa
Nigeria
Expectations of revenue growth varies in Africa
 Overall African revenue growth dampened by
South Africa’s outlook.
 Nigeria CFOs expect a significant increases in
revenue, with part of the increase being driven by
higher inflation.
Notes: Presented data are the mean or median values for each region or country.
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
June 2017
9
Capital Spending Plans
African capital spending expectation continues to rise
June 2017 Outlook
Global Trends
7
15%
Capital Spending
6
10%
5
4
5%
3
2
0%
Jun 2016
Sept 2016
Dec 2016
Mar 2017
Jun 2017
1
-5%
Latin America
United States
Europe
Asia
Africa
Modest capital spending plans


0
South Africa
Nigeria
Business spending varies within Africa
Latin American CFOs expect flat business spending
Business spending is ramping up in Africa, Europe and Asia
compared to last quarter
 Nigeria anticipates a 2.3% growth in capital
expenditures
 Expectations of increased spending in South Africa
continue to bolster the expectations in the
continent
Notes: Presented data are the mean or median values for each region or country.
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
June 2017
10
Expected Change in Earnings
Earnings are expected to increase in Africa, building on last quarter’s increase.
June 2017 Outlook
Global Trends
15%
12
10
10%
Earnings
8
5%
6
4
0%
Jun 2016
Sept 2016
Dec 2016
Mar 2017
Jun 2017
2
-5%
Latin America
United States
Europe
Asia
Africa
0
South Africa
Negative earnings trends expected across most
Regions
 Latin American earnings are expected to decrease
this quarter
 Upward earnings trends expected in Africa and Asia
Nigeria
Earnings growth expected in Africa
 South Africa expects an increase of over 10% in
earnings this quarter.
 Outlook of Nigeria CFOs is less optimistic, with
earnings expected to grow by less than 5% this
quarter.
Notes: Presented data are the mean public company value for each region or country.
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
June 2017
11
Fulltime Employment Outlook
African CFOs expect flatlined fulltime domestic employment over the next year.
June 2017 Outlook
Global Trends
10%
0.5
# FT Employees
0.4
5%
0.3
0.2
0%
Jun 2016
Sept 2016
Dec 2016
Mar 2017
Jun 2017
0.1
0
-5%
Latin America
United States
Europe
Asia
Africa
Weak employment outlook in Latin America


South Africa
Nigeria
Employment growth is expected to flatline across Africa
 South Africa CFOs expect no change in the number of
fulltime employees.
 Expected increase in fulltime employees in Nigeria is
minimal
Latin America and Africa CFOs expect no
employment growth in 2017.
Employment growth stays strong in US
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
June 2017
12
Expected Wage and Salary Increases
Africa wages and salaries are projected to increase by 3.6% over the next year, a decline from 7% expectation last quarter.
June 2017 Outlook
Global Trends
10%
4
Wages & Salaries
3.5
3
5%
2.5
2
1.5
0%
Jun 2016
Sept 2016
Dec 2016
Mar 2017
Jun 2017
1
0.5
0
-5%
Latin America
United States
Europe
Asia
South Africa
Africa
Similar wage growth expectations cross all regions


Nigeria
Wage growth in Africa is positive
 All participating African countries expect
substantial wage growth, with South Africa leading
the trend
US expects wages to grow 4.1% in 2017, which is the
highest among all regions
Asia expects the lowest wage growth
Notes: Presented data are the mean value for each region or country
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
June 2017
13
How Uncertain is the Current Business Climate?
Compared to the typical amount of uncertainty that your company faces, how would
you rank the current level of uncertainty facing your firm?
Above average
Average
Below average
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
US
Europe
Global Business Outlook
Asia
Duke University
Latin America
June 2017
Africa
14
How Uncertain is the Current Business Climate?
Compared to the typical amount of uncertainty that your company faces, how would you rank the current level
of uncertainty facing your firm?
100%
90%
80%
70%
60%
Above average
50%
Average
Below average
40%
30%
20%
10%
0%
South Africa
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
Nigeria
June 2017
15
As Sales Revenue increases, African CFOs face higher uncertainty than usual
Compared to the typical amount of uncertainty that your company faces, how would you rank the current level of
uncertainty facing your firm?
120%
100%
80%
60%
40%
20%
0%
Less than 25 million
$25-99 million
$100-499 million
below average
African Business Outlook
average
Duke University / SAICA / AIA / CFO Magazine
$500-999 million
$1-4.9 billion
$5-9.9 billion
above average
June 2017
16
~58% of African CEOs are delaying or slowing down expansion due to uncertainty about
government policies and/or economic conditions
Compared to an average or normal amount of uncertainty, has the current amount of uncertainty about governmental
policies and/or economic conditions led your firm to?
70%
60%
50%
40%
30%
20%
10%
0%
proceed more aggressively
proceed at a normal pace
proceed at a slower pace
South Africa
African Business Outlook
delay expansion / new
projects
cancel expansion / new
projects
Nigeria
Duke University / SAICA / AIA / CFO Magazine
June 2017
17
Mining/Construction and Services/Consulting industries are the most optimistic of government or
economic uncertainties, with some CFOs proceeding more aggressively with projects.
Compared to an average or normal amount of uncertainty, has the current amount of uncertainty about governmental
policies and/or economic conditions led your firm to?
120%
100%
80%
60%
40%
20%
African Business Outlook
proceed at a normal pace
Duke University / SAICA / AIA / CFO Magazine
delay expansion / new projects
June 2017
Other Industry
Public Administration
Agriculture, Forestry, &
Fishing
Services, Consulting
Energy
proceed at a slower pace
Communicati- on/Media
proceed more aggressively
Mining/ Construction
Banking/ Finance/
Insurance/Real Estate
Retail/ Wholesale
0%
cancel expansion / new projects
18
Economic Growth, Interest Rates and Regulatory Policy are the main areas of uncertainty holding
up new Projects
About which if any of the following items is uncertainty (about policy details or timing, etc.) holding back your company's
plans for expansion and new projects?
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Economic growth
Interest rates
Regulatory policy
South Africa
African Business Outlook
Tax policy
Trade policy
Nigeria
Duke University / SAICA / AIA / CFO Magazine
June 2017
19
Interest Rate Risk is only a concern of African CFOs with revenues less $100 million
About which if any of the following items is uncertainty (about policy details or timing, etc.) holding back your company's
plans for expansion and new projects?
120%
100%
80%
60%
40%
20%
0%
Less than 25 million
$25-99 million
Economic growth
African Business Outlook
$100-499 million
Regulatory policy
$500-999 million
Interest rates
Duke University / SAICA / AIA / CFO Magazine
Tax policy
June 2017
$1-4.9 billion
$5-9.9 billion
Trade policy
20
15% is the median hurdle rate used by African CFOs to evaluate investment projects and only
32.5% of companies pursue all projects returning above the hurdle rate.
What is the hurdle rate that your company uses to
evaluate investment projects?
20%
Does your company pursue all projects that are
expected to earn a return higher than the hurdle rate?
70%
18%
16%
60%
14%
50%
12%
40%
10%
30%
8%
6%
20%
4%
10%
2%
0%
0%
Mean
South Africa
African Business Outlook
Median
Yes
Nigeria
Duke University / SAICA / AIA / CFO Magazine
No
South Africa
June 2017
Nigeria
21
Shortage of resources and high uncertainty are the main drivers of unpursued
projects
What prevents you from pursuing all projects that are expected to earn a return higher than the hurdle rate?
70%
60%
50%
40%
30%
20%
10%
0%
Shortage of
funding
Project is not Shortage of
consistent with management
company's core
time and
strategy
expertise
There is too
much
uncertainty
about some
projects
The risk of the
project is too
high
Overly
optimistic
projections
South Africa
African Business Outlook
Shortage of
production
capacity
Shortage of
employees
Pressure to cut Project might Better projects
expenses
reduce
might come
earnings per
along in the
share
future
Nigeria
Duke University / SAICA / AIA / CFO Magazine
June 2017
22
80% of African CFO respondents use a hurdle rate greater than their cost of
capital
Industry
Why is your hurdle rate (to evaluate investment projects) greater than your cost of capital?
Agr, Forestry, Fishing
To make a return on investment - this is not our main business.
Bank/Fin/Insur/Real Est
Provide a positive return in excess of expectations
Bank/Fin/Insur/Real Est
We want returns that exceed our cost of capital. Especially during high risk times such as these.
Energy
To take care of potential and unfactored uncertainties
Mining/Construction
A starting point. Need strong incentive to move from existing business
Retail/Wholesale
Risk Averse
Services, Consulting
Always a risk to take into account
Services, Consulting
investment decisions driven by valuation
Unspecified Industry
Marginally higher re greenfield start of projects.
Unspecified Industry
To allow for overestimates of returns on new projects
Unspecified Industry
To compensate for extra risk
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
June 2017
23
African CFO actual and expected ROA
Expected ROA for 2017 is higher than 2016 ROA – indicates an optimistic view of 2017
30%
What is your firm’s ROA?
25%
20%
15%
10%
5%
African Business Outlook
Other Industry
Manufacturing
Technology [Software/
Hardware/ Biotech]
Public Administration
Agriculture, Forestry, &
Fishing
Energy
% Approximate ROA in 2016
Communicati- on/Media
-20%
Services, Consulting
-15%
Mining/ Construction
-10%
Banking/ Finance/
Insurance/Real Estate
-5%
Retail/ Wholesale
0%
% Expected ROA in 2017
Duke University / SAICA / AIA / CFO Magazine
Dec 2016
24
Best Practices When Uncertainty is High
What are the best practices for running a company when uncertainty is high about governmental policies and/or
economic conditions?
• Stay the course Continue to pursue core strategies built on the companies’ strengths. For the most part, don’t expand into
new projects that stretch the firm in new directions. Focus on what you can control
• Be cautious Many firms pull back and operate very cautiously, making changes slowly. Some cut existing projects or cancel
new projects but this is the exception rather than the rule
• Focus on the short-term Focus on getting through the short-term, remain flexible, but don’t lose sight of long-run
objectives
• Reduce costs
• Carefully study analyses and scenarios Have a plan and contingencies for how to react if various scenarios occur.
Hire consultants or other experts
• Engage in risk management Be more active in risk management and hedging. Understand the economic outlook of
various scenarios very well
• Accumulate liquid assets Reduce financial risk by accumulating liquid assets, especially cash. Don’t increase debt loads
• Take care of the customer Communicate more with, and take extra care of, key customers
African Business Outlook
Duke University / SAICA / AIA / CFO Magazine
June 2017
25