African Business Outlook
Part of the Global Business Outlook
A joint survey effort between
Duke University,
The South African Institute of
Chartered Accountants
and
CFO magazine
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 and the African Business Outlook
SAICA 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: 65
 Of which, 50 from South Africa, 6 from Nigeria and 9 from the rest 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.
African Business Outlook
Duke University / SAICA / CFO Magazine
June 2014
2
Sentiment Regarding Domestic Economy
South African CFOs are slightly optimistic, Nigerian CFOs more optimistic, compared to last quarter
Country Average, Relative to last Qtr
South Africa, Last Four Quarters
Q3 '13
All Africa Avg
No Change
Q4 '13
Less Optimistic
Q1 '14
Nigeria
More Optimistic
Rest of Africa
Q2 '14
0% 10% 20% 30% 40% 50% 60% 70%
Trends in South African Optimism
CFOs are less optimistic about the domestic
economy, continuing a downward trend
 More than 60% S.A. CFOs reported being less
optimistic about the domestic economy this
quarter despite the recent election
0%
20%
40%
60%
80% 100%
Sentiment towards domestic economy
 Nigerian CFOs report being more optimistic
about their domestic economy this quarter
 Similar to South Africa, CFOs surveyed in
the Rest of Africa are less optimistic about
their domestic economies
When ranked on a 100 point scale, the African Optimism Index (for the economic prospects of the continent
over the next year) decreased from 54.7 in Q1 2014 to 50.2 in Q2 (South Africa: 49, Nigeria: 73, ROA: 42).
Though not shown on this graph, Africa is the least optimistic region of the world.
African Business Outlook
Duke University / SAICA / CFO Magazine
June 2014
3
Own Company Sentiment
On average, African CFOs are more optimistic about their own companies, despite being less
optimistic about the overall economy; optimism is especially high in Nigeria
Company Optimism By Region
South African Own Company Optimism, Last 4 Qtrs
Q3 '13
All Africa Avg
Q4 '13
No Change
Q1 '14
Less Optimistic
More Optimistic
Q2 '14
0% 10% 20% 30% 40% 50% 60% 70%
Own company optimism has decreased over the
past year in South Africa
 Although South African CFOs remain optimistic
for their own companies on average, a pattern of
decreasing optimism has emerged
Nigeria
Rest of Africa
0%
20%
40%
60%
80%
100%
All surveyed Nigerian CFOs have grown more
optimistic about their company this quarter
compared to last
 Throughout the rest of Africa however, CFOs are less
optimistic about their own companies then they were
three months ago
Despite the relative positivity, 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) dropped from 66.2 in Q1 2014 to
61.5 in Q2 (South Africa: 62.2, Nigeria: 66.7, ROA: 55)
African Business Outlook
Duke University / SAICA / CFO Magazine
June 2014
4
African Business Optimism Compared to Rest of World
African Business Optimism fell dramatically this quarter and is the lowest in the world.
Business Optimism Index (by Continent)
75.0
Own-Firm Business Optimism Index
75.00
65.0
65.00
55.0
55.00
45.0
45.00
35.0
35.00
Jun 2013
Sep 2013
Dec 2013
Mar 2014
Latin America
United States
Asia
Africa
Jun 2014
Europe
Over the past few quarters, African CFOs have
become increasingly less optimistic about their
domestic economies
 Economic optimism in the USA and Asia
increased, while optimism in Africa and Latin
America has decreased over the last four
quarters
African Business Outlook
Jun 2013
Sep 2013
Dec 2013
Mar 2014
Latin America
United States
Asia
Africa
Jun 2014
Europe
Although African CFOs are more optimistic about
their own firms than they are about the continent
overall, they are the second least optimistic in the
world
 Relative to end of 2013, own company optimism
decreased in all regions except for the United States
Duke University / SAICA / CFO Magazine
June 2014
5
Top 10 Corporate Concerns for African CFOs
Across the continent, African CFOs are very concerned about Government Policies.
Top 10 Corporate Concerns
South Africa
Nigeria
Rest of Africa
1) Government Policies
1) Currency Risk
1) Employee Morale/ Productivity
2) Economic Uncertainty
2) Government Policies
2) Government Policies
3) Currency Risk
3) Cost of Borrowing
3) Wages and Salaries
4) Regulatory Requirements
4) Attracting and Retaining Employees
4) Economic Uncertainty
5) Input or Commodity Costs
5) Employee Morale/ Productivity
5) Input or Commodity Costs
6) Wages and Salaries
5) Input or Commodity Costs
6) Attracting and Retaining Employees
6) Attracting and Retaining Employees
7) Regulatory Requirements
7) Currency Risk
8) Inflation
7) Underlying Demand for Products
7) Inflation
9) Underlying Demand for Products
9) Access to Borrowing
9) Underlying Demand for Products
10) Cost of Benefits
African Business Outlook
10) Cost of Benefits
10) Cost of Benefits
Duke University / SAICA / CFO Magazine
June 2014
6
Growth in Revenue, Earnings, Spending, Other Budget Items
South African CFOs expect mild growth in earnings and big growth in capital spending, Nigerian
companies expect strong growth, other African CFOs anticipate declining performance this year
% Change Expected in Next
12 Months by Region
% Change Expected in Next 12 Months in
South African Companies
40
35
25
30
15
20
Q1 2014
Rest of Africa
Q2 2014
 Significant growth is expected in Revenues, Tech
and Capital Spending;
 Increases in Earnings are expected to be stronger
compared to last quarter.
All Africa Avg
Marketing
Capital Spend
R&D Spend
Tech Spend
Dividends
-10
Earnings
0
-20
South African CFOs anticipate mild growth in
dividends, R&D spending, and Marketing; down
from last quarter’s predictions
African Business Outlook
Nigeria
10
Revenue
Marketing
Capital Spend
R&D Spend
Tech Spend
Dividends
Earnings
-5
Revenue
5
Significant fluctuations in expectations outside of
South Africa
 Outside of Nigeria and South Africa, Revenue and
Earnings are expected to decrease significantly
 Nigerian CFOs expect dramatic increases in
Revenue, Earnings and Tech spend while reporting
little change in R&D, Capital Spending, Marketing
Duke University / SAICA / CFO Magazine
June 2014
7
Over 50% of African CFOs Anticipate Labor Unrest Over the Next Year
Percent who expect labor unrest to negatively
affect their countries’ economies in next year
•
100.00%
90.00%
•
80.00%
70.00%
Very few Nigerian CFOs expect labor unrest to
affect their countries’ economies over the next
12 months.
In contrast, 90% of South African CFOs expect
problems with labor unrest
60.00%
50.00%
Yes
40.00%
No
30.00%
Primary Causes of Labor Unrest in Africa
20.00%
10.00%
0.00%
South Africa
Nigeria
13%
•
•
Labor unrest in Africa is mainly driven by problems in
the general economy, wage pressure, and income
inequality
Though not shown on this page, 75% of Latin
American firms expect labor unrest to hurt their
economies, which is in the news due to the World
Cup
African Business Outlook
Problems in general
economy
5%
Rest of Africa
24%
Wage pressure
Income inequality
27%
Duke University / SAICA / CFO Magazine
Working conditions
32%
Other
June 2014
8
Does Lack of Public Trust Affect African Firms?
Around the world, the public has shown increasing mistrust of governments and businesses. Here we
assess the effect of these findings on the company and on the business environment
Effect on Business Environment
Negative Effect on Own Company?
80.0%
60.0%
70.0%
50.0%
60.0%
40.0%
50.0%
30.0%
40.0%
20.0%
30.0%
10.0%
20.0%
0.0%
10.0%
Not at all
Very little
South Africa
Nigeria
Moderately
Rest of Africa
A great deal
0.0%
Not at all
Very little
South Africa
•
•
•
Nigeria
Moderately
A great deal
Rest of Africa
In Nigeria and South Africa, CFOs report a larger effect of mistrust on the business environment than on the individual
company. In fact, 50% of CFOs surveyed in Nigeria state that there is no effect of mistrust on the individual company
Most CFOs surveyed in other regions of Africa believe that public mistrust leads to a moderate to great effect on both
their individual company and their business environment
How do African companies react to public mistrust?
• 58.4% of CFOs surveyed say that public mistrust affects their company’s business decisions
• However, only 12.3% agree that this lack of public trust results in lower revenue
• 26.1% believe this negative perception can be countered through marketing and PR
African Business Outlook
Duke University / SAICA / CFO Magazine
June 2014
9
Cash Holdings on the Balance Sheet
South African companies tend to hold cash and marketable securities as a greater percentage of their
total assets then their counterparts in other African countries
Cash and Marketable Securities as a Percentage
of Total Assets
20
On average, African companies hold
about 15% of assets in the form of cash
18
16
 All companies are holding less cash as a
percentage of total assets than they did
one year ago
 Nigerian firms hold the least amount of
cash and marketable securities outside
of their home country, despite
reporting currency risk as their most
pressing concern
14
12
10
8
6
4
2
0
South Africa
Nigeria
Rest of Africa
All Africa Avg
% Today
% One Year Ago
% Held Outside Headquarter Country
African Business Outlook
Duke University / SAICA / CFO Magazine
June 2014
10
Deployment of Cash Reserves over Next Year
More than half of the African companies anticipate deploying cash reserves over the next year.
Percent of Companies Planning to Deploy Cash
Reserves within the next 12 months
70.0%
South African companies anticipate a
high likelihood of deploying cash
reserves compared to Nigeria over the
next 12 months
 More than 50% of South African CFOs
surveyed believe that their firms will
begin to deploy cash reserves over the
next 12 months
 Among Nigerian CFOs, 33% believe the
same
 CFOs from the rest of Africa anticipate
the highest likelihood of deploying
cash.
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
South Africa
Nigeria
Likely to deploy
Rest of Africa
Unlikely to deploy
All Africa Average
Not Sure
Those who believe cash reserves will likely
be deployed cite acquisitions and capital
investments as top uses.
The two most cited reasons for firms that
are unlikely to deploy are:
•
•
African Business Outlook
Duke University / SAICA / CFO Magazine
Lack excess cash to deploy
Need for cash as liquidity buffer
June 2014
11
Do African Firms Set a Target for Their Amount of Cash Reserves?
Survey shows that most African firms do not have a pre-defined / strict target for the amount of cash
and marketable securities to hold
Is There a Target for the Amount of Cash and
Marketable Securities to Hold
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Of all the firms surveyed, only a few,
specifically in Nigeria, have a strict cash
target
Though not shown in the graph,
companies in other emerging markets
(Asia, Latin America) are much more
likely to set a cash target.
South Africa
Nigeria
Rest of Africa
All Africa Average
Yes, strict target
Yes, somewhat tight target
Yes, flexible target
No target
African Business Outlook
For African firms that set some kind of
cash target, most agree that they quickly
alter their cash holdings to meet the
target set if they fall below – but hardly
modify cash holdings when drifting
above the target
Duke University / SAICA / CFO Magazine
June 2014
12
What is the Primary Purpose of Holding Cash?
40% of African companies say that they primarily hold cash as a means to facilitate everyday
transactions and manage expenses, followed by using cash as a source of funding future investments.
2.6% 2.6%
Investments (CapEx, acquisitions)
4.5%
5.3%
24.6%
3.6%
Transactions (everyday expenses)
Precautionary-cash flows
Trapped Cash (must pay material
costs such as taxes)
Precautionary-external funds
16.6%
Regulatory Requirements (held for
regulatory reasons, etc.)
Compensating balances (for PR with
banks)
40.2%
African Business Outlook
Other
Duke University / SAICA / CFO Magazine
June 2014
13
Would More Severe Russian Sanctions Hurt African Businesses?
Percent of Firms that do Business in Russia
80%
•
33% of surveyed African firms do business with
Russia
•
Of those who work with Russia, 60% of CFOs
expect to see a negative impact if the US and
Europe were to impose severe financial
sanctions on Russia
•
While none of the firms have yet reduced
Russian-related business, they do indicate that
they are evaluating a reduction.
70%
60%
50%
40%
30%
20%
10%
0%
South Africa
Nigeria
Do business in Russia
African Business Outlook
Rest of Africa
All Africa Average
Does not do business in Russia
Duke University / SAICA / CFO Magazine
June 2014
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