Global professional services firm, Deloitte, has released its ninth annual CFO Survey for Sub-Saharan Africa (SSA), which highlights the defensive strategies most CFOs are adopting in response to the particularly tough economic conditions they are negotiating.
Drawing on feedback from 349 financial stewards in Southern Africa, East Africa and West Africa – polled over an eight-week period in May and June 2016 – the survey affords CFOs the opportunity to benchmark their interpretation of the current business environment in relation to their peers.
Southern African respondents hailed from Angola, Botswana, Malawi, Mozambique, Zambia and Zimbabwe while East Africa was represented by Kenya, Uganda, Tanzania and Ethiopia and West Africa by Nigeria and Ghana. South Africa was excluded from the Southern African sample and polled separately due to its regional economic scale and respondent group outnumbering those in the rest of the Southern African countries surveyed.
“A tough economic environment characterised by low commodity prices, volatile currencies and diminishing demand from large trading partners, makes the role of the CFO operating in Sub Saharan Africa tougher than ever,” says Roy Campbell, CFO Program Leader.
“This year’s report shows how many of the financial stewards surveyed are being cautious in their response to current economic challenges.”
CFOs have adopted defensive strategies in all regions and the majority of respondents indicated they intend to focus on improving operational efficiency and process optimisation in 2016.
Understandably, this year’s report reveals a more circumspect approach to prioritising cash flow and the focus for many CFOs is on improving operations, a recurrence of their top cash flow priority in 2015.
Higher risk endeavours such as investing in new markets, new innovations or new products are once again lower on the list of priorities, while retaining cash for liquidity, investing in new capacity and repaying debt are what most CFOs will be spending their cash on this year.
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.
In identifying top risk factors, CFOs in South Africa point to the political landscape as the top risk factor, with 75% viewing it as a significant risk. This is up from 61% in 2015 and not surprising, given CFOs are probably concerned about policy consistency following local elections.
Notably, the impact of electricity price increases, which was the second highest concern for South African CFOs in 2015, is no longer listed amongst the top five risks 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.
In the rest of Southern Africa 65% of CFOs view currency volatility as the primary risk factor, as do 78% of West African CFOs. The picture is somewhat different in East Africa where 54% of CFOs regard the political landscape as the greatest risk, followed by margin deterioration due to input cost pressures and lack of pricing flexibility (48%).
When asked about their political concerns in 2016, CFOs in South Africa say they are most concerned about corruption and its impact on doing business. Unemployment and government’s response to the budget deficit are also sources of anxiety for South African CFOs.
In the rest of Southern Africa, government’s response to the budget deficit emerges as a top political concern followed by the effectiveness of government policy and the impact of corruption on doing business.
In East Africa corruption and its impact on doing business tops the list of political concerns by far, while in West Africa, the effectiveness of government policy and corruption are the two top political concerns.
Campbell says CFOs are tightening their belts significantly this year and watching the markets closely before making strategic decisions.
“Whatever they do, it is clear that Africa’s CFOs will need a high degree of fortitude and ingenuity to deal with the current challenges as well as to find ways to boost company performance and shareholder value.”