In Deloitte’s latest report based on a survey, 349 CFOs from South Africa, Southern Africa, East Africa and West Africa have given their views on the cost of funding, risk factors, cash flow
priorities, expansion plans and strategic intent.
According to the report, this year’s survey reveals a drop in optimism in their business outlook amongst CFOs surveyed in Southern Africa while CFOs in West Africa and East Africa have a somewhat more positive outlook for their companies in 2016. South African CFOs are somewhat less optimistic about the performance of their companies in 2016, with 57% expecting a slight or significant improvement in performance compared to 61% in 2015.
Looking to 2017 and 2018, CFOs in South Africa are more optimistic about performance with 76% expecting a slight or significant improvement in 2017 and 83% anticipating a rosier outlook in 2018.
While South Africans are most worried about the political landscape in their country, currency volatility tops the list of primary risks for Southern African CFOs.
South African CFOs expect the interest rate to increase over the next six months, while only half of Southern African CFOs expect an increase.
“Interestingly, the impact of electricity price increases, which was amongst the top four concerns for South African CFOs in 2015, has now dropped down the list and currency volatility (75%), country credit ratings (63%) and margin deterioration due to input cost pressures and lack of pricing flexibility (54%) are cited as the most significant risks.”
A significant number of CFOs in South Africa (91%) and West Africa (78%) expect short-term interest rate increases of 100 basis points or more in 2016. For Southern and East Africa regions, interest rate increases are expected to be more muted. Only 49% of Southern African CFOs expect an interest rate increase in 2016 and 36% expect it to remain the same.
Capital is viewed as costly by most CFOs and not easy to get.
The tough economic landscape is compelling CFOs to be more circumspect in prioritising cash flow. This year’s survey results show the focus for the majority of CFOs is once again on improving operations, a recurrence of their top priority for 2015.
Higher risk endeavours such as investing in new markets, new innovations or new products are somewhat lower on the list of priorities with more cash being retained for liquidity, used to invest in new capacity or channeled into repaying debt.
While CFOs in South Africa, Southern Africa and West Africa have identified improving current operations as a top priority, this trend differs slightly in East Africa where the primary focus is on investing in new capacity as well as improving current operations, followed by retaining cash for liquidity and repaying debt.
Investing in Africa and other new markets is fourth on the list of priorities for South African CFOs, along with repaying debt and investing in new businesses. It is not a major priority for respondents surveyed in East and West Africa where they seem to be more focused on growth in their domestic markets.
CFOs in South Africa and the rest of Southern Africa indicated that they will respond to these challenges by adopting defensive strategies with the majority focusing on improving operational efficiency and process optimisation this year.
CFOs intend to be more circumspect in prioritising cash flow and the focus will be on improving current operations this year.
The strong possibility of interest rate increases means CFOs will be more circumspect when making decisions around the incurring of debt, interest repayments and placing stress on free cash flow.
Read the full report here.