West Africa CFOReport 2014 - Deloitte West Africa Advisory Leader Country Managing Partner – Ghana...

CFOReport2014

We’ve climbed mountains. Now we’re ready to do it again.

West Africa

Deloitte conducts CFO surveys globally to provide a better understanding of the current mind-set of CFOs.

West Africa CFO 2014 report 1

ForewordWe are proud to present our first Deloitte CFO Survey for West Africa. While the report focuses on the two biggest

economies in the region, namely Nigeria and Ghana, it also provides comparisons to Southern and East Africa.

Deloitte conducts its CFO surveys each year to provide a better understanding of the current mind-set of financial stewards operating across the world. From this survey, we hope to gain a better understanding into the underlying mood of West African CFOs and to ascertain what the underlying drivers are that are shaping their behaviour and strategic choices. In our survey we also seek to determine whether there is a convergence or divergence of views on a number of topics and whether or not there are common trends among actions proposed by CFOs that may be insightful to their peers and to other readers of this report.

This involves canvassing CFO views on:

• The economy and current business climate

• Their strategic intent

• The cost of funding (interest rates) and the availability of funding

• Short-term and medium-term currency outlook

• Cash flow and investment priorities for 2014 and beyond

• Availability and use of key talent

• Growth opportunities in Africa and other markets

• Topical subjects such as industry challenges, smart technology and social media

• The role of the CFO

This has provided us with rich insights as to what is top of mind for West African CFOs as they navigate through today’s exciting but challenging times. Comparisons to their compatriots in Southern and East Africa also provide a useful benchmarking exercise.

Deloitte recognises the crucial role that CFOs play around the globe as key decision-makers in their respective companies and the daily challenges that CFOs face as they juggle the roles of steward, operator, catalyst and strategist. We have a well-established CFO Programme with the purpose of supporting and partnering with CFOs to better equip them to meet these everyday challenges. We have assisted many CFOs in unlocking great potential for themselves and their companies in the past. We sincerely hope that the insights and information provided in this report will be of great value to our valued clients and readers alike.

Best Regards

Michael J Vincent Nana SackeyDeloitte West Africa Advisory Leader Country Managing Partner – [email protected] [email protected]

Welcome to the 2014 Deloitte West Africa CFO Survey


SummaryAfrica’s emerging economic giantThe 2014 Deloitte CFO Survey for West Africa is the first report focusing on the sentiments of financial decision- makers in one of Africa’s most rapidly expanding economic growth hubs. The report also includes comparisons to CFO feedback in Southern as well as East Africa, which is a useful benchmark with which to gauge the responses from West Africa.

What is clear is the scale of the economy of West Africa. This is largely thanks to the significance of Nigeria, which has emerged as Africa’s biggest economy since the rebasing of the country’s gross domestic product (GDP) in April this year. The rebasing caused Nigeria’s economy to expand by more than three-quarters to an estimated 80 trillion Naira ($510 billion) for 2013, compared to a previous World Bank estimate of $262.6 billion for 2012.

For the purposes of this report, the term West Africa refers only to Nigeria and Ghana, the two biggest economies in the region. To provide a consolidated comparison to the West Africa region, the term Southern Africa in this report includes South Africa as well as Namibia, Botswana, Zimbabwe, Zambia, Mozambique and Malawi. Readers of the CFO report for sub-Saharan Africa will recall that South Africa was stripped out of the Southern African findings for that report, as the country was surveyed as a standalone area due to the fact that its economy dwarfs that of other countries in that region. As with the other reports in the African CFO series, East Africa includes responses from Kenya, Uganda, Tanzania and Ethiopia.


As was the case with their East African peers, CFOs in West Africa appear remarkably optimistic about prospects for their business as well as general economic conditions. This is in stark contrast to respondents in Southern Africa where the mood was decidedly more downbeat. CFOs in South Africa, Namibia, Botswana, Zimbabwe, Mozambique, Malawi and Zambia are more cautious about the outlook for both their companies and their economies.

The average years of experience in their current roles amounted to 6.3 years for West African CFOs compared to 7 years for those from Southern Africa and 7.6 years for East African respondents. The biggest proportion of responses came from the financial services sector, followed by consumer businesses and oil, gas or utilities.

Figure 1. Turnover of companies

Respondent profile summary

Key Finding

39% of West African companies have a turnover of over R100 million US Dollars

0 16 32 48 64 80 0 16 32 48 640 16 32 48 64 80

West Africa East Africa Southern Africa (excluding RSA)

35%

18%

6%

18%

12%

6%

3%

3%

3%

1%

1%

58%

14%

13%

8%

24%

11%

1%

19%

Under 25 million US Dollars

25 million to 50 million US Dollars




500 million to 1 billion US Dollars

1 billion to 2 billion US Dollars

Greater than 2 billion US Dollars

2%

2%

1%

1%

3%

3%

3%

1%


The West African businesses from which respondents hail were generally larger companies. Just 35% of respondents represented companies with annual turnovers of less than $25 million, compared to 58% in East Africa. Respondents from Southern Africa also tended to represent larger companies with a mere 24% of CFO respondents representing companies earning less than $25 million in annual turnover.

Figure 2. Company footprint

Respondent profile summary

0 50

38%

35%

18%

9%

Limited foreign

Global Company

Local Operation

Significant International footprint

Key Finding

82% of West African companies that also have operations outside their home base


There was also a strong global presence among CFO respondents, with 38% representing companies with some international footprint and a further 35% working for fully fledged foreign entities.

The essence of the West African report can easily be summarised by the following key findings:

• Expectations for GDP growth in West Africa over the next three years are estimated at 6.1% in 2014, 6.5% in 2015 and 7.1% in 2016.

• CFOs in West Africa are overwhelmingly positive about the outlook for company performance, with 80% expecting a slight to significant improvement in 2014.

• Just over half of the West African respondents in this survey believe equities in their region are fairly valued.

• Almost half of the CFOs surveyed in West Africa expect no change in interest rates this year while a further 6% expect a minor decrease in borrowing costs.

• Although 29% of West African respondents appear relatively confident in the resilience of their currencies in 2014 and expect no exchange rate volatility, a fairly large proportion fear some downside risk.

• The cost of capital in West Africa is seen as pricey, with 76% of respondents saying the cost of new capital was expensive compared to 71% in East Africa and 55% in Southern Africa.

• West African CFOs seem to favour Southern Africa over East Africa as an expansion destination despite its more benign growth prospects.

• Corruption and its impact on doing business was identified by 77% of West African respondents as being among their top three political concerns.


The economic landscapeBuoyant economic mood

CFOs in West Africa are clearly in a buoyant mood about prospects for economic growth in their region. Growth forecasts for GDP were 6.1% for this year, 6.5% for 2015 and 7.1% for 2016.

While this is somewhat lower than the economic growth forecasts for East Africa (where expansion is pegged at 6.3% for 2014, 7.4% in 2015 and 8.1% in 2016) one has to bear in mind the overall scale of the two economies that constitute the West African region in this report. The combined GDPs of Nigeria and Ghana amount to $556 billion compared to a collective $147.19 billion for Kenya, Uganda, Tanzania and Ethiopia, the four countries that constitute the East Africa region in this survey. The economic mood in Southern Africa is altogether more cautious, as outlined by the 3.2% growth estimate for 2014 and 3.7% for 2015, which precede a slightly more upbeat 4.1% prediction for 2016.

Figure 3. Expectations for GDP growth

Expectations for GDP growth

6,3

6,16,5

7,1

4,14,5

3,2

2014 2015 2016

3,74,1

7,4

8,1

East Africa

2013 Southern Africa countries

Southern AfricaWest Africa

Key Finding

Growth forecasts in West Africa is more positive than in Southern Africa, but slightly less optimistic than in East Africa


0

20

40

60

80

100

2014

18%

3%

79%

24% 15%

79%73%

3% 6%

2015 2016

0 to 3%

3.1 to 5%

5.1 to 9.9%

10% or higher

0

20

40

60

80

100

2014

66%

22%

8%

61%49%

33%

27%

2% 3%2%

14%10%

2015 2016

0 to 3%

Negative growth

3.1 to 5%

5.1 to 9.9%

10% or higher

2%

0

20

40

60

80

100

2014

34%

5% 4% 5%

21%

50%

11%

62%

13%

64%

18%13%

2015 2016

0 to 3%

3.1 to 5%

5.1 to 9.9%

10% or higher

The range of expectations within the West African grouping are also more uniform, with the vast majority of respondents predicting growth of between 5.1% and 9.9% between 2014 and 2016. The far greater spread of estimates for both the Southern and East African regions is most likely due to the greater number of countries that constitute those regions. However, the diversity of estimates may also be illustrative of greater uncertainty about future economic growth prospects in Southern and East Africa.

Key Finding

The range of expectations within the West African grouping are more uniform, with the vast majority of respondents predicting growth of between 5.1% and 9.9% between 2014 and 2016

Key Finding

Expectations have lowered in Southern Africa compared to the 2013 survey growth predictions

Key Finding

Expectations are a lot higher in East Africa for the next three years

Figure 4. Expectations for GDP growth ranges West Africa

Figure 5. Expectations for GDP growth ranges Southern Africa

Figure 6. Expectations for GDP growth ranges East Africa


CFOs in West Africa are also overwhelmingly positive about the outlook for the performance of their companies. No less than 80% expect slight-to-significant improvement in company performance this year, a figure that slips to just 79% next year before spiking up to 94% in 2016.

If one looks at only those CFOs who expect significant improvement in their company performance over the next three years, we see the figure climb from 24% in 2014 to 44% in 2015 and 62% in 2016. While Southern African CFOs are similarly buoyant about company prospects for this year, with 23% expecting significant improvement in 2014, the outlook for the two following years is far less upbeat than in West Africa. Similarly, 26% of East African CFOs expect significant improvement in 2014, compared to 45% for 2015 and 43% for 2016.

0

20

40

60

80

100

20145%

15%

6% 3%3%

15%

56%

24%

35%

32%

62%

44%

2015 2016

Significant deterioration

Slight deterioration

Much the same

Slight improvement

Significant improvement

0

20

40

60

80

100

20147%

9%

1% 4%

15%

5%

39%

22%

23%

59%

16%

51%

29%20%

2015 2016



Much the same

Slight improvement


0

20

40

60

80

100

2014

7%1%

13%

3%

45%

21%

26%

39%

12%

45%

43%45%

2015 2016



Much the same

Slight improvement


Key Finding

80% of West Africa CFOs expect a slight to significant improvement in company performance this year, a figure that slips to just 79% next year before spiking up to 94% in 2016.

Key Finding

Southern Africa respondents foresee an improvement in their company performance over the next couple of years

Key Finding

East Africa respondents believe that their companies will see a lot of improvement over the next three years

Figure 7. Outlook for future company performance in West Africa

Figure 8. Outlook for future company performance in Southern Africa

Figure 9. Outlook for future company performance in East Africa

Company performance outlook in 2014, 2015 and 2016


According to CFOs in West Africa, stock market valuations in the region are mostly fairly valued, with 52% of respondents assigning that assessment to the region’s bourses. Only 29% of respondents believe stock markets in West Africa are overvalued, compared with 46% in Southern Africa and 42% in East Africa. It must be noted that the Southern African figure would no doubt have been skewed by the stellar performance of South Africa’s JSE All Share Index, which has rallied from one record high to the next over the last year.

Figure 10. Equity evaluations

41% 20% 7%

35%26%

3%

37%

9%

34% 51%52%

19% 13%

6%

5%

1%

West Africa Southern Africa East Africa

Significantly overvalued

Somewhat overvalued

Fairly valued

Somewhat undervalued

Significantly undervalued

Key Finding

West African respondents believe their equity valuations are less overvalued than respondents in Southern and East Africa

Stock market valuation

Equity Evaluations


While the majority of Southern African CFOs appear generally hawkish on interest rates in their region, those in West Africa are somewhat more at ease with the outlook for monetary policy. Almost half of CFOs in West Africa expect no change in interest rates this year, while 5% expect a minor decrease in borrowing costs. Of those who expect monetary policy to tighten over the next twelve months, 13% predict a rate hike of no more than 100 basis points, while 22% expect an increase of between one and two percentage points. Just 16% anticipate rate increases in excess of 200 basis points in the next year. While the rate outlook for the next two years is more mixed, a fairly sizeable 32% of respondents predict that no change in borrowing costs will occur in West Africa in both 2015 and 2016.

In Southern Africa, there is an even split of 34% between CFOs who expect rates to remain unchanged and those who expect an increase of no more than 100 basis points over the next twelve months. The outlook for 2015 is tilted towards a minor rate hike of no more than one percentage point, while the bulk (45%) of respondents predict borrowing costs to remain unchanged in 2016.

East African CFOs appear to hold a diversity of opinions, with 40% expecting no change in rates in the next 12 months, while 19% predict a minor rate hike and 14% a cut of no more than 100 basis points. The outlook for 2015 is even more evenly spread, with 21% expecting a minor rate cut of 100 basis points or less, while 24% expect no change. A further 28% feel that rates will climb but by no more than one percentage point. The East African rate outlook for 2016 is similarly diverse.

0

20

40

60

80

100

20145% 4%

16%

16%

6%

13%

44%

16%

22%

32%

12%

20%

20%

32%

8%8%

23%

3%

2015 2016Major rate decreases (total in excess of 200 basis points)

Moderate rate decreases (total between 100 and 200 basis points)

Minor rate decreases (total not in excess of 100 basis points)

Remain unchanged

Minor rate hikes (total not in excess of 100 basis points)

Moderate rate hikes (total between 100 and 200 basis points)

Major rate hikes (total in excess of 200 basis points)

Dec

reas

esH

ikes

0

20

40

60

80

100

20141% 1%

1%

12%

19%34%

3% 3%

22%

6%

34%43%

11%

45%

25%

11%

5%

20%

4%

2015 2016Major rate decreases (total in excess of 200 basis points)

Moderate rate decreases (total between 100 and 200 basis points)

Minor rate decreases (total not in excess of 100 basis points)

Remain unchanged

Minor rate hikes (total not in excess of 100 basis points)

Moderate rate hikes (total between 100 and 200 basis points)

Major rate hikes (total in excess of 200 basis points)

Dec

reas

esH

ikes

0

20

40

60

80

100

20142% 1%

21%

6%

40%

19%

5%

14%

5%

10%

10%

24%

16%

32%

22%

16%

9%

28%

14%

6%

2015 2016

Rate hikes (total in excess of 200 basis points)

Rate hikes (total between 100 and 200 basis points)

Rate hikes (total not in excess of 100 basis points)

Remain unchanged

Rate decreases (total not in excess of 100 basis points)

Rate decreases (total between 100 and 200 basis points)

Rate decreases (total in excess of 200 basis points) Dec

reas

esH

ikes

Key Finding

The outlook for the next two years is more mixed. A fairly sizeable 32% of respondents predict no change in borrowing costs will occur in West Africa in both 2015 and 2016

Key Finding

Southern African CFOs appear generally hawkish on interest rates in their region

Key Finding

Some 40% of CFOs expect no change in monetary policy over the next year

Figure 11. Short term interest rates in West Africa

Figure 12. Short term interest rates in Southern Africa

Figure 13. Short term interest rates in East Africa

Short Term Interest rates

Moderate rate increases in West Africa


While West African CFOs appear relatively confident in the resilience of their currencies in 2014, with 30% expecting no change in their valuations, they do seem to expect some downside risk. A fairly large proportion of 38% expect some depreciation in their currencies, and a further 32% expect significant loss of value. In 2015, the majority of respondents (61%) expect some currency depreciation, but by 2016 the picture becomes altogether less certain. There is a more or less even split between those who anticipate significant depreciation (25%), some depreciation (29%) and unchanged valuations (21%) in their currencies in 2016.

In Southern Africa, the majority of respondents expect a fairly even likelihood of moderate depreciation and little change in their currencies for the next three years. This is most likely due to the influence of the rand in this region, a currency that has slumped more than 21% since the beginning of last year. This suggests that CFOs in this region feel it is unlikely that currencies in this region will suffer further depreciation over the next few years.

East Africa stands out in that there is a larger proportion of CFOs in this region who feel their currencies will appreciate over the next few years, with 22% expecting some strengthening in 2014. That figure climbs to 42% in 2015 and 35% in 2016, when a further 11% expect significant currency appreciation in East Africa.

0

20

40

60

80

100

2014

27%

38%

32%

30%

61%

25%

29%

21%

14%

11%3%9%

2015 2016

Significantly depreciate

Somewhat depreciate

Remain unchanged

Somewhat appreciate

Significantly appreciate

Exchange rate was NGN 161,89 = 1 USD & GHS 3,43 = 1 USD on 31 July 2014

0

20

40

60

80

100

2014

44%

3% 2%

37%

8%

34%

19%

2% 2%

27%

41%

35%

19%

3%

24%

2015 2016


Somewhat depreciate

Remain unchanged

Somewhat appreciate


0

20

40

60

80

100

2014

27%

1%1%

32%

45%

22%

30%

23%

3%

28%

35%

11%

42%

2015 2016


Somewhat depreciate

Remain unchanged

Somewhat appreciate


Key Finding

A fairly large proportion of CFOs (38%) expect some depreciation in their currencies and a further 32% expect significant loss of value

Key Finding

The majority of respondents expect a fairly even likelihood of moderate depreciation and little change in their currencies for the next three years.

Key Finding

A larger proportion of CFOs in this region feel their currencies will appreciate over the next few years, with 22% expecting some strengthening in 2014.

Figure 14. Local currency West Africa vs US dollar

Figure 15. Local currency Southern African countries vs US dollar

Figure 16. Local currency East Africa vs US Dollar

Local currency vs US dollar (12 months)

Moderate currency risk


businessenvironment

The

An interesting aspect to emerge from Deloitte’s 2014 West Africa CFO survey is that respondents echoed their peers in East Africa and Southern Africa in that the performance of their companies had improved over the past financial year. No less than 67% of West African respondents indicated better company performance over the past fiscal year. This sentiment was echoed in Southern (61%) and East Africa (74%). A mere 12% of respondents in both West and East Africa said company performance had worsened while in Southern Africa the figure was 19%, in keeping with the more gloomy economic picture in that region.

Figure 17. Company’s performance over the past financial year

36%

38%29%

38%

35%

26%

20% 14%21%

12% 10%

9%

9%

3%


Significantly improved

Somewhat improved

Remained broadly unchanged

Somewhat deteriorated

Significantly deteriorated

Key Finding

West Africa respondents have seen an improvement in their companies over the last financial year, but they have also seen no significant deterioration in the last year



One area where both West and East Africa performed more poorly than Southern Africa was in the cost of new funding. In West Africa, 76% of respondents rated the cost of new capital as expensive, compared to 71% in East Africa. That compares to just 55% of Southern African CFOs who made the same assessment.

Southern Africa’s comparatively better performance in this aspect is no doubt due to a combination of the fact that South Africa, by far the most dominant economy in that region, enjoys a financial services sector that is virtually on par with the developed world. Benchmark interest rates in South Africa, which set the tone for monetary policy in both Namibia and Botswana, are also markedly lower than in East and West Africa.

On the positive side, however, all three regions indicated that capital was readily available to their organisations. This is likely a reflection of the widespread presence of both domestic and international banking groups on the continent.

Figure 18. Cost of capital

Figure 19. Availability of new funding/capital

0 14 28 42 56 700 14 28 42 56 700 14 28 42 56West Africa Southern Africa East Africa

41% 16%

39%

19%

52%

24%

5%

31%

14%

35%

18%

6%

0% 0% 0%

22%

9%

2%

Very expensive

Fairly expensive

Neutral

Fairly cheap

Very cheap

0 14 28 42 56 700 14 28 42 56 700 14 28 42West Africa Southern Africa East Africa

15% 21%

45%

22%

42%

11%

25%

9%

16%

9%

47%

12%

12%

15%

0%

22%

2%

Easily available

Somewhat available

Neutral

Somewhat hard to get

Very hard to get

Key Finding

West Africa respondents see the cost of new funding or capital as being expensive

Key Finding

West Africa respondents’ views are similar to those of respondents in Southern Africa and East Africa, with new funding or capital mostly being available

The cost of capital


Cash flow priorities

Figure 20. Cash flow priorities – West Africa

Figure 21. Cash flow priorities – Southern Africa

Figure 22. Cash flow priorities – East Africa

0,00,20,40,60,81,010 24 38 52 66

52%

52%

52%

40%

38%

Retain for liquidity

Improving current operations

Invest in new capacity (Capex)

Invest in innovation & new products (R&D)

Invest in new businesses (M&A)

0,00,20,40,60,81,010 24 38 52 66

59%

52%

43%

33%

29%

Improve current operations



Repay debt

Invest in innovation & new products (R&D)

0,00,20,40,60,81,010 24 38 52 66

65%

53%

46%

41%

30%

Improving current operations



Invest in innovation & newproducts (R&D)

Invest in new businesses (M&A)

Key Finding

West African respondents rated the top three priorities as retention for liquidity, improving current operations and investment in new capacity

Key Finding

Current operations are more important for East African respondents

In West Africa, the top three priorities for cash flow are: retention for liquidity, improving currency operations and investment in new capacity. This reflects a somewhat internal focus for companies in the region, suggesting that they intend deploying liquidity within their own markets rather than abroad or elsewhere on the continent. This is supported by the outcome that investing in Africa and new markets was voted among the bottom three priorities for cash flow by almost a quarter of West African respondents.

This inward focus is mirrored in Southern and East Africa, with CFOs from both regions saying that improving existing operations, investing in new capacity and bolstering liquidity are among their top three priorities for cash flow.


Risky business

Figure 23. Top five business risk factors – West Africa

Figure 24. Top five business risk factors – Southern Africa

Figure 25. Top five business risk factors – East Africa

0 100

56%

47%

42%

39%

36% 39% 25%

52% 9%

33% 25%

32% 21%

32% 12%Currency volatility

Political landscape in your country

Fragile state of the global economic recovery(EU deflation, Chinese bubble etc.)

Margin deterioration due to input cost pressures

Impact of continuing electricity price increases

Significant risk Manageable risk Insignificant risk

0 100

44%

43%

41%

35%

34% 36% 30%

42% 23%

40% 19%

46% 11%

45% 11%Margin deterioration due to lack ofpricing flexibility

Margin deterioration due to input cost pressures

Currency volatility

Fragile state of the global economic recovery (EU deflation, Chinese bubble etc.)

Impact of continuing electricity price increases


0 100

47%

43%

43%

39%

37% 41% 22%

46% 15%

41% 16%

39% 18%

31% 22%


Political landscape in your country

Currency volatility

Margin deterioration due to input costpressures

Ability to protect market share

Margin deterioration due to lack of pricingflexibility

Key Finding

West African respondents rated currency volatility among the top five risk factors to their businesses

Somewhat surprisingly, 56% of West African respondents rated currency volatility among the top five risk factors to their businesses. On the surface this would appear to contradict earlier findings in this report, which suggested that West African CFOs are relatively confident that their currencies won’t experience significant depreciation over the next twelve months. However, what this may suggest is that while they are relatively confident in the short-term resilience of their currencies, the prospect of any unexpected depreciation remains a serious risk to doing business in West Africa.

This may be due to the fact that Nigeria and Ghana (although to a lesser extent) are heavily reliant on imports despite their overwhelming abundance of natural resources in both countries. Any sudden currency depreciation could thus have a major impact on inflation, and by extension, customer demand. The planned elections in 2015 in Nigeria may also be playing on the minds of CFOs, especially in Nigeria.

Southern African CFOs highlighted margin deterioration, both due to lack of pricing flexibility and input cost pressures, as the two biggest risk factors to their businesses. This is a direct reflection of the downbeat economic conditions as well as the weakness in consumer spending in that region. The biggest business risks for East African CFOs were the political landscape, currency volatility, margin deterioration due to input cost pressures, their ability to protect market share and the lack of pricing flexibility.

Top five business risk factors


Figure 26. Top five industry concerns – West Africa

Figure 27. Top five industry concerns – Southern Africa

Figure 28. Top five industry concerns – East Africa

0,00,20,40,60,81,010 24 38 52 66

56%

51%

39%

36%

27%

Industry regulation and environment

Financial health of primary customers

Competitiveness of the local market

Currency volatility

Availability and retention of talent

0,00,20,40,60,81,010 24 38 52 66

48%

45%

38%

34%

25%





Sustainability factors relevant to industry

0,00,20,40,60,81,010 24 38 52 66

62%

49%

36%

35%

34%



Sustainability factors relevant to industry



Key Finding

Regulation topped the list of most pressing issues by CFOs in both West and Southern Africa

Key Finding

In East Africa, competitiveness of the local market topped the list of industry concerns

When asked to assess industry concerns, regulation topped the list of most pressing issues by CFOs in both West and Southern Africa, while in East Africa it was ranked second, behind competitiveness in the local market. In fact, the burden of increasing regulatory and bureaucratic pressures was highlighted in all of Deloitte’s CFO surveys conducted on the African continent this year as an increasingly problematic barrier to doing business.

West African respondents appear overwhelmingly confident in their companies’ risk management systems with a massive 94% rating them either very or somewhat effective. This was higher than respondents from Southern and East Africa where 84% and 85% of CFOs respectively ranked their risk management procedures as either very or somewhat effective.

Industry concerns

Risk management


Figure 29. Recent expansions into Africa Figure 30. Expansion into Africa in the near future

05

10152025303540

33%36%

29%

West Africa East AfricaSouthern Africa0

10

20

30

40

50

60

55%60%

57%

West Africa East AfricaSouthern Africa

Key Finding

West Africa respondents have similar expansion patterns to those in Southern and East Africa

Key Finding

West Africa respondents, like those in Southern and East Africa, plan on expanding in the future

Respondents in all three surveyed regions recognise the importance of expanding operations into the rest of the continent to both diversify their footprint and take advantage of burgeoning economic growth. West Africa lags behind the other regions somewhat in this regard, with 55% of CFOs from the region saying they intend expanding in the rest of the continent in the near future. That compares to 60% for Southern African respondents and 57% for those from East Africa. This may be because 33% of West African CFOs say they have already recently expanded into Africa, not far behind those from Southern Africa (36%) and moderately higher than East Africa (29%).

Expansion into Africa

Into Africa


Figure 31. Regions identified for future expansion

West Africa

Southern Africa

East Africa

Other

Undecided

0 5 10 15 20 25 30 0 5 10 15 20 25 0 5 10 15 20 25 30 35


29% 22%

9%

33%

4%

24%

24%

6%

15%

9%

6%

17%

2%

1%3%

Key Finding

West African CFOs seem to favour Southern Africa over East Africa as an expansion destination, despite its more benign growth prospects

In terms of which regions are favoured for expansion in the near future, CFOs from all three constituencies tended to favour their own regions. Interestingly, West African CFOs seem to favour Southern Africa over East Africa as an expansion destination, despite its more benign growth prospects. Southern African respondents have an almost equal interest in all three regions while those in East Africa have a very distinct preference for expanding into their own region. East African CFOs also prefer the higher economic growth prospects in West Africa over Southern Africa.


Figure 32. Operational challenges faced by West African companies operating in African countries other than their home base

Infrastructure

In-country political factors

Shortage of skills

Routes & channels to market

Currency volatility

Access to Capital

Regulation

Credible supplier base

Logistics

Economic stability

Labour unrest

Competitiveness

0 5 10 15 20 25 300 5 10 15 20 25 300 5 10 15 20 25 30


12% 11% 15%

7%

5%

9%

11%

11%

5%

4%

15%

5%

11%

13%

11%

8%

7%

12%

6%

10%

10%

6%

3%

3% 2%

10%

10%

10%

10%

8%

8%

7%

7%

6%

6%

6%

Key Finding

Infrastructure is a challenge for West African companies regardless of the region that they operate in

When asked to rank the key operating challenges faced in African countries other than their home base, infrastructure emerged as the biggest issue for CFOs from both West and East Africa. The shortage of adequate skills, regulation, political factors, logistics and competitiveness were some of the other bugbears mentioned by East and West African respondents. Interestingly, Southern African CFOs appeared to rank infrastructure as less of a concern across all three regions than they did competition, political factors, regulation, currency volatility and labour unrest.

Operational challenges


Figure 33. Operational challenges faced by East African companies operating in African countries other than their home base

Figure 34. Operational challenges faced by Southern African companies operating in African countries other than their home base

0 5 10 15 20 25 300 5 10 15 20 25 300 5 10 15 20 25 30


17% 11% 12%

11%

9%

3%

10%

4%

8%

11%

12%

4%

11%

4%

14%

12%

5%

10%

7%

5%

6%

8%

9%

12%

1%

14%

11%

9%

9%

9%

9%

6%

6%

6%

3%

3%

Infrastructure

Shortage of skills

In-country politicalfactors


Economic stability

Routes & channels tomarket

Access to Capital

Competitiveness

Currency volatility

Logistics

Regulation

Labour unrest

Competitiveness

In-country political factors

Labour unrest

Regulation

Access to Capital

Economic stability

Shortage of skills

Currency volatility

Infrastructure

Routes & channels tomarket


0 5 10 15 20 25 30 0 5 10 15 20 25 30 0 5 10 15 20 25


14% 8% 22%

15%

10%

10%

5%

15%

12%

10%

8%

12%

4%

8%

14%

10%

10%

5%

14%

14%

11%

11%

11%

8%

6%

6%

3%

3% 3%

2%

2%

Key Finding

Southern African CFOs ranked infrastructure as less of a concern across all three regions than they ranked competition, political factors, regulation, currency volatility and labour unrest

Key Finding

Infrastructure, shortage of skills and political factors are the top challenges identified by East African respondents


Figure 35. Political concerns (Top three political concerns, aggregate %) – West Africa

Figure 36. Political concerns (Top three political concerns, aggregate %) – Southern Africa

Figure 37. Political concerns (Top three political concerns, aggregate %) – East Africa

0,00,20,40,60,81,010 28 46 64 82

77%

51%

39%

39%

27%

Corruption and its impact on doing business

Effectiveness of government policy

Government's response to the budget deficit

Effectiveness of government spending priorities on provision of social services, job creation, service delivery

Capacity of government to deliver oninfrastructure projects

0,00,20,40,60,81,010 28 46 64 82

45%

39%

32%

31%

30%


The relationship and policy dialoguebetween government and business

Capacity of government to deliver oninfrastructure projects


Effectiveness of government spending priorities onprovision of social services, job creation, service delivery

0,00,20,40,60,81,010 28 46 64 82

52%

42%

42%

42%

37%



Government's response to the budget deficit

Effectiveness of government spending priorities on provision of social services, job creation, service delivery

Crime and its impact on doing business

Key Finding

Corruption and its impact on doing business was by far the biggest concern with 77% of West African respondents

Key Finding

Respondents from Southern and East Africa also identified corruption as their biggest political concerns

Political concerns remain a thorny issue throughout the continent, and West Africa is no different. Corruption and its impact on doing business was by far the biggest concern, with 77% of West African respondents highlighting it among their top three political concerns. This ranking may have been skewed by Nigeria, which is ranked 144 out of 177 countries in Transparency International’s corruption perception index for 2013. Ghana fared much better at 63 out of 177 nations. After corruption, the next most-pressing political concerns in West Africa were effectiveness of government policy, government’s response to the budget deficit, effectiveness of government spending and capacity to deliver on infrastructure projects.

Respondents from Southern and East Africa also identified corruption as their biggest political concern. Again, the rankings of the biggest economies in these regions according to Transparency International’s corruption perception index appear to shed light on this issue. In East Africa, Kenya is ranked at 136 out of 177 countries for corruption while Tanzania is ranked at 111. In Southern Africa, Zimbabwe is positioned at 157 and South Africa comes in at 72.

Political concerns


Figure 38. Strategic approach – West Africa

Figure 40. Strategic approach – East Africa

Figure 39. Strategic approach – Southern Africa

Strategic approach

Improve operational efficiency and process optimisation

Consolidation of operations

Reduce operating costs/rationalise operations

Increase focus on growing customers/channels/products

Improve investor confidence

Currently following

10 28 46 64 82 100

93%

81%

78%

77%

68% 32%

23%

22%

19%

7%

Likely to adopt in 2014

Currently following

10 28 46 64 82 100

88%

85%

82%

79%

74% 26%

21%

18%

15%

12%




Sell non-core assets


Improve investor confidence

Currently following

10 28 46 64 82 100

80%

79%

73%

72%

72% 28%

28%

27%

21%

20%



Increase focus on revenue growth from developed markets



Consolidation of operations

Key Finding

Improving operational efficiencies and process optimisation appears to be a predominant strategy for businesses operating across all three regions surveyed in this report

Key Finding

CFOs in both East and West Africa demonstrated a desire to improve investor confidence

Improving operational efficiencies and process optimisation appears to be a predominant strategy for businesses operating across all three regions surveyed in this report. However, the reasons for doing so may be starkly different in each region. In West and East Africa, the rapid expansion that typically accompanies strong economic growth may be fostering a desire among CFOs to consolidate operations by focusing on improvements in day-to-day operations. By contrast, the desire to improve operational efficiency in Southern Africa is likely a symptom of the sub-par economic growth and rising competition in that region. Other strategic commonalities across the three regions are reducing operating costs and increased focus on customers, channels and products.


CFOs in both East and West Africa demonstrated a desire to improve investor confidence while in Southern Africa this was not among the top five strategic imperatives for 2014.

In all three regions, there appears to be a strong belief among respondents that investors understand their organisation’s key strategies although certainty on this issue appears strongest in West Africa.

Figure 41. The extent to which the investors understand the organisation’s key strategies

0 10 20 30 40 50 60 0 10 20 30 40 50 0 10 20 30 40 50


53% 35% 39%

46%

11% 33%

4%

42%

15%

7%

24%

32%

12%

3%

3%3%

Significantly understand

Somewhat understand

Neutral

Somewhat misinterpreted/ misunderstood

Significantly misinterpreted/misunderstood

Key Finding

There appears to be a strong belief among respondents that investors understand their organisations’ key strategies although certainty on this issue appears strongest in West Africa


Investing in new technology

Respondents across all three regions identified the desire to foster more efficient internal processes as the most important driver among clients for investing in new technology. In Southern and East Africa, the desire to reduce cost was also a strong incentive while the importance of remaining relevant was named as an additional determinant of technological investment across all three regions. The key areas where enterprise resource planning (ERP) expenditure would be deployed over the next three years were analytics/business intelligence, followed by applications. Mobility and database development were also identified as important focus areas for technological investment.

Figure 42. Smart technology drivers

0 5 10 15 20 25 300 5 10 15 20 25 300 5 10 15 20


22%

20%

16%

15%

13%

12%

1%

1%

20%

23%

16%

19%

9%

11%

0%

0%

20%

20%

17%

15%

13%

12%

2%

3%

Reduce cost

Become more efficient in internal processes

Become more relevant for your clients

Technology offers a strategic advantageover competitors

To enhance relationships with your clients/stakeholders via social media

Become more efficient in externalprocesses

Not applicable

Other

Key Finding

Respondents across all three regions identified the desire to foster more efficient internal processes as the most important driver among clients for investing in new technology


Figure 43. ERP spend focus in the next three years

0 400 400 40West Africa Southern Africa East Africa

1%

1%

1%

1%

37%35%37%

32%

22%

9%

27%

17%

19%

25%

18%

18%

Analytics/Business intelligence

Applications

Mobility

Database

Don't Know

Other

Key Finding

The key areas where enterprise resource planning (ERP) expenditure would be deployed over the next three years were analytics/business intelligence, followed by applications


The role of theCFO

As with CFO surveys across the rest of Africa, and indeed the world, respondents from all three regions cited an excessive workload, pressure from poor company performance, administrative burdens, the changing regulatory environment and the lack of skilled support staff among their main job stresses. However, it was the ranking of these particular stresses that differed between regions.

In both West and Southern Africa, the excessive workload was named as the number-one job stress, but in East Africa this was ranked number three, behind administrative burdens and pressure from poor company performance. The changing regulatory environment was named by 35% of respondents in West Africa and 23% in Southern Africa as being among the top three job stresses, but in East Africa this did not appear to be as much of an issue. Instead, 28% of respondents from East Africa identified strategic ambiguity among the top three job stresses.


Figure 44. Top job stresses (Top three job stresses, aggregate %) – West Africa

Figure 46. Top job stresses (Top three job stresses, aggregate %) – East Africa

Figure 45. Top job stresses (Top three job stresses, aggregate %) – Southern Africa

Top job stresses

0,00,20,40,60,81,010 28 46 64 82

62%

35%

30%

27%

21%

Excessive workload, roles/responsibilities

Changing regulatory requirements

Demands of external stakeholders, analysts etc

Pressures from poor company performance

Too much administrative/low-value work

0,00,20,40,60,81,010 28 46 64 82

36%

36%

29%

29%

21%




Strategic ambiguity

Increased competitor activities

0,00,20,40,60,81,010 28 46 64 82

35%

29%

29%

23%

23%




Changing regulatory requirements

Insufficient support staff (skills or number)

Key Finding

In both West and Southern Africa, the excessive workload was named as the number-one job stress

Key Finding

In East Africa this did not appear to be as much of an issue. Instead, 28% of respondents from East Africa identified strategic ambiguity among the top three job stresses


Figure 47. Work allocation

40

15

1729

28

22

Steward

Operator

Current Preferred

Catalyst

Strategist

21

28

In terms of their available work time currently allocated to each of the different components of the CFO role (steward, operator, catalyst and strategist), respondents from all three regions were united in their desire to want to spend more time on strategy and less time on organisational stewardship. Similarly, CFOs from all three regions indicated a preference for spending more time in the catalyst component of their role and less time as an operator.

Key Finding

Two thirds of CFOs spend less than 20% of their time on strategy, far short than the expressed ideal


CFOAgenda

The predominant issue on the agenda for CFOs in West Africa over the next year is cash flow management while respondents from Southern and East Africa will be focusing on performance optimisation. Growth is a focus area for CFOs from all three regions over the next 12 months; however, there are some areas of divergence. West African CFOs also identified financial reporting as a focus area, something which did not appear among the main issues on the agenda for CFOs from the other two regions. By the same token, Southern African CFOs appear to want to focus on strategy, while in East Africa risk management was named as a key issue for the next year.

The next 12 months


CFO roles (The “Four Faces”)• Steward – time spent overseeing accounting, control, risk management and asset preservation; ensuring

company compliance with financial reporting and control requirements, ensuring information quality and control rationalisation.

• Operator – time spent focused on the finance function’s efficiency and service levels/ effectiveness, balancing cost and service levels in delivering services; defining and evolving finance’s operating model, managing issues of talent and resources.

• Catalyst – time spent working as an agent for organisational change; establishing a business value mindset, aligning groups to evaluate and execute strategies; aiding other decision-makers (business unit heads etc.), establishing accountability for results.

• Strategist – time spent working as a driver of strategy; defining the future of the company (toward better business performance and shareholder value); providing a financial perspective on innovation and profitable growth, improving risk-awareness, strategic decision-making and performance management integration, translating the expectations of the capital markets into internal business imperatives.

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West Africa CFOReport 2014 - Deloitte West Africa Advisory Leader Country Managing Partner – Ghana...

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