Kathy Gibson is with PwC in Johannesburg – CEOs are less optimistic about global economic growth for 2019. In fact, 29% of world business leaders believe that global economic growth will decline in the next 12 months, approximately six times the level of 5% last year – a record jump in pessimism.
This is one of the key findings of PwC’s 22nd annual global survey of 1 300-plus CEOs launched at the World Economic Forum annual meeting taking place in Davos, and is in vivid contrast to last year’s record jump, 29% to 57%, in optimism about global economic growth prospects.
South African CEO’s views echo that of their global counterparts, with 35% (7% in 2017) believing that global economic growth will decline over the next 12 months. Only 30% of CEOs in South Africa (Global 42%) believe that global economic growth will improve moderately during the course of the year.
Overall, CEOs’ views on global economic growth are more polarised this year but trending downward. The most pronounced shift was among CEOs in North America, where optimism dropped from 63% in 2018 to 37% likely due to fading of fiscal stimulus and emerging trade tensions. The Middle East also saw a big drop from 52% to 28% due to increased regional economic uncertainty.
Dion Shango, CEO of PwC Southern Africa, points out that a number of factors are playing into this sentiment: economic slowdown in China; trade conflict and protectionism; rising nationalism and populism; Eurozone discord; and the fourth industrial revolution.
For South Africa, stagnant GDP growth, high unemployment, rising populism, political and policy uncertainty, and the upcoming general elections are all driving caution.
Lullu Krugel, chief economist at PwC Africa, says that business demonstrated a high level of positivity this time last year – but both the World Bank and the International Monetary Fund (IMF) warned that some risks were attendant on that confidence.
“That is exactly what played out,” she says. “Although there were expectations for the next three years to be really positive, those expectations have been dampened.”
Shango adds: “The prevailing sentiment this year is one of caution in the face of increasing uncertainty. CEOs all around the world are less optimistic than they were a year ago about the strength of the global economy and their organisations’ ability to grow revenues in both the short and medium term.
“In South Africa, economic and policy uncertainty, among other issues, have cast doubt upon business leaders’ prospects for future growth.”
The unease about global economic growth is lowering CEOs’ confidence about their own companies’ outlook in the short term. Thirty-five percent of global CEOs said they are “very confident” in their own organisations’ growth prospects over the next 12 months, down from 42% last year.
In South Africa, only 18% (compared to 22% in 2018) of CEOs are “very confident” about their own company’s prospects for revenue growth over the next 12 months. In addition, 30% of local business leaders (Global 36%) are “very confident” about their business’s prospects for growth over the next three years.
“Why are South African CEOs more optimistic?” Shango asks. “Perhaps the New Dawn is driving optimism; or perhaps there is a feeling that things can’t get much worse.”
However, even those CEOs who are confident about revenue growth prospects are reining in their expectations – and confidence levels are down below levels last seen in 2009 after the global financial crisis.
Growth prospects correlate directly to expected headcount growth, and the survey shows this holding true in 2019 as only 40% of South African CEOs expect to increase their headcount over the next 12 months.
The US retains its lead as the top market for growth over the next 12 months. However, many CEOs are also turning to other markets, reflected in the dramatic drop in the share of votes in favour of the US, from 46% in 2018 to just 27% in 2019. China narrowed the gap, but also saw its popularity fall from 33% in 2018 to 24% in 2019.
As a result of the ongoing trade conflict with the US, China’s CEOs have diversified their markets for growth, with only 17% selecting the US, down from 59% in 2018. The other three countries rounding out the top five for growth include Germany at 13% down from 20%, India at 8% down from 9% and the UK at 8% down from 15%.
South African CEOs named the US (25%) followed by China, the UK and Kenya (20%) as the most important countries for their organisations’ overall growth prospects over the next 12 months.
Shango adds: “As CEOs plan the future of their organisations this year, chief executives clearly feel the impact. While most still believe in globalisation, they appear to be less interested in expansion plans outside their home markets. Instead, organisations are narrowing their focus of staying local in the search for revenue growth.”
As indicators predict an imminent global economic slowdown, CEOs have turned their focus to navigating the surge in populism in the markets where they operate. Trade conflicts, policy uncertainty, and protectionism have replaced terrorism, climate change, and an increasing tax burden in the top ten lists of threats to growth.
South African CEOs’ concerns around a broad range of business, societal and economic threats continue to increase. CEOs are “extremely concerned” about social instability (South Africa 68%; Global 18%), uncertain economic growth (South Africa: 68%; Global: 24%), populism (South Africa: 55%; Global: 28%), exchange rate volatility (South Africa: 49%; Global 26%), and trade conflict between the US and China (South Africa: 100%; Global: 88%).
When it comes to business threats, 33% of South African CEOs (compared to 34% globally) said they were “extremely concerned” about the availability of key skills, 38% (compared to 30% globally) cited cyber threats, and 38% (compared to 28%) stated the speed of technological change as concerns.
Shango points out that, while global CEOs are more concerned about policy uncertainty, cyberthreats and geopolitical uncertainty, South African CEOs worry more about issues like uncertain economic growth, political instability and unemployment.
Activities that CEOs are planning to drive revenue growth show that organisations are becoming more inward looking, Shango points out. Organic growth, operational efficiencies and new products will be the main focus areas, followed by new strategic alliances or joint ventures, new markets, new mergers and Acquisitions, collaboration with entrepreneurs or start-ups and sale of the business.
This year’s survey took a deep dive into data and analytics and artificial intelligence (AI), two key areas on leaders’ radars, to get CEOs’ insights on the challenges and opportunities.
Technological advances and demographic shifts were cited as the main global trends that have transformed business, as have the shift in global economic power, resource scarcity and climate change, and urbanisation. South Africa’s CEOs answered similarly to global respondents.
When it comes to using data, the survey found that CEOs around the world still can’t access the data they need.
This year’s survey revisited questions about data adequacy first asked in 2009. It was found that CEOs continue to face issues with their own data capabilities, resulting in a significant information gap that remains ten years on. Despite billions of dollars of investments made in IT infrastructure over this time period, CEOs report still not receiving comprehensive data needed to make key decisions about the long-term success and durability of their business.
Leaders’ expectations have risen as technology advances, but CEOs are keenly aware that their analysis capabilities have not kept pace with the volume of data which has expanded exponentially over the past decade. When asked why they do not receive comprehensive data, CEOs point to the “lack of analytical talent” (Global 54%; South Africa: 50%), followed by “data siloing” (Global: 51%; South Africa: 63%), and “poor data reliability” (Global: 50%; South Africa: 41%).
The skills gap is still a pain point, impeding innovation and promoting higher people costs. However, CEOs agree that there is no quick fix. Forty-six percent globally, compared to 38% of South African CEOs, see significant retraining and upskilling as the answer, with 17% (South Africa 20%) also citing establishing a strong pipeline directly from education as an option.
AI has become a major technological focus globally, with 85% of CEOs globally (South Africa 90%) agreeing that it will dramatically change their business over the next five years. Nearly two-thirds globally view it as something that will have a larger impact than the Internet revolution, and more believe it will be good for society.
“Clearly, when you can’t find the people to do the work, it may be time to turn to the machines to do the work,” Shango points out.
Despite the bullish view on AI, 23% of CEOs globally (South Africa 28%) have “no current plan” to pursue AI. In addition, 33% globally (South Africa 32.5%) have taken a “very limited approach”, with just 35% planning AI initiatives in the next three years..
When it comes to the impact AI will have on jobs, 55% of South Africa’s CEOs believe that AI will displace more jobs than it creates. It is interesting to note that CEOs in Western Europe and North America are less doubtful, with 38% and 41% respectively believing AI will displace more jobs than it creates.
Shango comments: “To help unlock internal growth potential in their organisations, CEOs are paying close attention to emerging digital technologies such as AI.”
Almost $15,7-trillion in global GDP gains is expected from AI by 2030, according to PwC estimates.
Most CEOs believe governments should play a critical and integral role in developing policies around AI, although Shango doubts that their will come to fruition soon.