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73% of global CEOs reckon the global economy has cracked

18 January 2023 Gareth Stokes

If you entered the New Year feeling slightly pessimistic about opportunities for business growth and client retention, then you are in good company. In fact, a staggering 73% of CEOs surveyed in the PwC Global CEO Survey felt that global economic growth would decline over the next 12 months. The professional services firm reported that this was the most pessimistic outlook recorded in over a decade of conducting the survey. No surprises there … businesses faced a range of challenges as 2023 got underway, including supply chain disruptions and a central bank ‘shift’ away from protecting growth towards fighting inflation.

“A volatile economy, decades-high inflation and geopolitical conflict have contributed to a level of CEO pessimism not seen in over a decade,” commented Bob Moritz, PwC Global Chairman, in a media release accompanying the survey. “CEOs globally are consequently re-evaluating their operating models and cutting costs, yet despite these pressures, they are continuing to put their people front and centre as they look to retain talent in the wake of the Great Resignation”. 

According to Moritz, the world continues to change at a relentless pace [while] the risks facing organisations, people and the planet continue to rise. Under these fraught conditions, he reflected, firms will have to “carefully balance the dual imperative of mitigating short-term risks and operational demands with long-term outcomes” to survive and thrive. 

How Eskom killed the chicken dinner…

South Africa based executives will additionally have to balance global issues with the domestic craziness of Stage 4 or higher loadshedding. South Africa Inc is finally showing the strain of the 200+ days of electricity outages during 2022… One example is that leading fast-food brand KFC has just announced radical operational changes aimed at weathering the ‘storm’. In a Tweet, KFC said: “due to the ongoing loadshedding, some of our restaurants will be temporarily closed, while others may have limited availability on some of your favourite menu items”. The country’s chicken producers are struggling to meet slaughter quotas due to electricity shortages, illustrating how quickly one risk, electricity supply, morphs into another, food shortages. 

Aside from the personal frustration that loadshedding causes, South Africa’s financial and risk advisers are largely insulated from the worst of its effects. Combinations of UPS, battery-and-inverter backups and solar installations allow most financial services providers (FSPs) to continue providing business as usual. That said, we remain sure that the sole proprietors, partners and owners of domestic advice and risk practices share many of the concerns that 26th annual PwC survey flagged. PwC presented its survey results in three sections, each containing three questions. Sections include the race for the future; today’s tensions; and a balanced agenda. Today’s newsletter will highlight the writer’s favourite question from each section. 

How many years does your practice have left?

To begin, we reflect on CEOs’ thoughts on the half-life of their businesses. This is a critical question for financial and risk advice practices that are often valued based on the future revenue streams their client ‘books’ are likely to generate. According to PwC, 40% of the 4 410 participating CEOs felt that their organisations “would no longer be economically viable 10-years from today” unless significant changes were made. 

These CEOs singled out changing customer preferences; regulatory change; skills shortages; and technological disruption as the ‘forces’ most likely to erode profitability in their respective industries over that period. These ‘forces’ will resonate with local financial services firms who are continually reinventing business and operating models in the face of higher compliance costs and new technologies. Other risks included “the transition to new energy sources; supply chain disruption; and the potential for new entrants from adjacent industries”. 

Question four, which falls under the ‘today’s tensions’ section of the survey feedback, will resonate with local CEOs, and give them much needed ‘food for thought’ as they endure 10-hours per day of generator noise and / or solar energy constraints. How much is your mood today affecting your view of tomorrow? asked PwC. “Not surprisingly, nearly three-quarters of CEOs responding to this year’s survey project that global economic growth will decline over the next 12 months; those expectations, which held across all major economies, represented a stark reversal from last year, when a similar proportion (77%) anticipated improvement in global growth,” they wrote. The audit firm observed that pessimism about global GDP growth filtered into expectations for business profitability. After all, if you are all ‘doom and gloom’ about the domestic economic outlook, you might struggle to motivate the troops to improve revenue in your practice. 

Playing ‘devil’s advocate’ in critical business discussions

There was a 25% drop-off in global CEO confidence levels when asked about their company’s growth prospects versus that of the overall economy, although “CEOs in Africa, Brazil, China, Japan and the Middle East [were] about as confident in their growth prospects as they were last year”. Has inordinate optimism a year ago been replaced by excessive pessimism? wondered PwC, before exploring ways to ensure that individuals’ beliefs did not have an excessive impact on business outcomes. They challenged business leaders to sidestep the cognitive biases that affected them individually by, for example, soliciting views through independent consultation or questionnaires; structuring discussions to consider overlooked possibilities; and assigning a ‘devil’s advocate’ role for critical business discussions. 

Under their seventh question, PwC asked CEOs how they split their time between a range of priorities including driving current operating performance; adapting the business for the future; spending time with customers; engaging with employees; and interacting with investors, the board and other external stakeholders. The good news is that ‘driving current operating performance’ consumed the biggest share of time. And this writer reckons that the smaller the firm, the more time this activity will demand from the CEO. A more interesting response came from asking CEOs what they would do if they could redesign their schedules. “CEOs told us, they would spend more time evolving the business and its strategy to meet future demands,” noted PwC. 

Big spend on process automation, skills and technology

It was fascinating to learn where CEOs were spending money to make their businesses future-fit, with 76% of those surveyed investing in automating processes and systems; 72% in upskilling the company’s workforce in priority areas (our emphasis); and 69% on deploying new technology such as cloud, artificial intelligence (AI) and other advanced tech. In each of these categories, CEOs were spending proportionally more on reinventing the future of the business versus preserving the current business. 

Although the survey considered opinions from business leaders based in 105 countries, it offered some insight into goings on in Africa. “In Sub-Saharan Africa, CEO survey respondents expressed many similar sentiments to their counterparts globally; additionally, local and regional factors impact their businesses and their outlook for the future, such as load-shedding in certain Southern African countries, currency depreciations and inflation, and specific skills requirements and growth opportunities,” noted PwC. They promise that PwC Africa would publish a series of territory specific perspectives in coming weeks, to analyse local and regional factors in more depth. 

Writer’s thoughts:
The PwC Global CEO Survey collates leadership views from more than 100 countries with the result its findings may not resonate in all countries, let alone for niche sectors in those countries. Even so, I felt that many of the survey findings were extremely relevant to leadership teams at South Africa’s financial services providers (FSPs). Agree or disagree – and why? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.

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