Home Articles ANALYSIS: Contradictory data from CFOs may be a hopeful sign

ANALYSIS: Contradictory data from CFOs may be a hopeful sign

It will be some time before any detailed analysis emerges from the CFO Global Business Outlook survey undertaken by North Carolina’s Duke University in 2013, but what appears to be a contradiction is obvious at first glance. The survey sample included 35 South African CFOs and while optimism about their country’s prospects was low (averaging 53 out of 100), optimism about their own company’s prospects was relatively high at 63 – although this too had dropped from a second-quarter measure of 70.

It seems counter-intuitive, but it’s just possible this apparent anomaly may reflect a change that’s taking place in South African businesses. If one looks at the data on the macro concerns of these South African CFOs – the external factors they worry about – the top four are consumer demand, price pressure from competitors, currency risk, and input costs. Those are all issues that are to a certain degree beyond their control. They are macro-economic or exogenous factors. Clearly if these CFOs are more positive about the prospects of their own companies than those of the economy in general, they in all likelihood have a well-developed plan to manage their futures.

Their most important internal concerns are concentrated around, on the one hand, margins and working capital management, and on the other attracting and retaining qualified staff, morale and productivity. In South Africa, the second group of concerns relate directly to our skills shortage and to systemic problems in our education system. In spite of these macro and internal concerns, our CFOs are, on balance, confident. There have been signs that the private sector is increasingly able to work around what will be a skills shortage for some time to come as the government seeks to turn the primary education system around. The fact that our motor vehicle assembly industry wins awards for quality year after year with a labour-intensive methodology means that they have come to terms with the level of education of the local labour force. They have built local training methodologies and production standards that are the envy of the world. They are taking action to ‘fix’ the problem in their own microcosms. Likewise the chartered accounting profession can be rightly proud of the Thuthuka programme which seeks to assist the school system to improve standards, but at the same time, gives opportunities to those talented but underprivileged students who would otherwise not be able to become CAs(SA) to enter the profession.

It’s a little of  ‘’n boer maak ’n plan’ combined with the dogged determination that our country is well known for. CFOs in the private sector are reflecting this inventiveness and an attitude that has seen business flourish under a set of very changeable world and domestic circumstances over the last 20 years.

And efforts by the private sector have not gone un-noticed by a government that has publicly declared that it is seeking partnerships with the private sector to improve the country’s prospects. SAICA’s Thuthuka Bursary Fund (TBF), financed by the profession and by the private sector and now matched rand for rand by government, is making great strides in increasing the number of African and Coloured CAs(SA) in the profession.

Minister of Higher Education and Training Blade Nzimande has recruited SAICA to make sure all FET colleges have qualified CFOs in place so that these colleges, which are challenged to augment universities in the post-school training arena, can deliver better service to their communities. Big business, the educational unions and the Department of Basic Education have recently announced the National Education Collaboration Trust (NECT) with massive private sector funding matched rand for rand by government to work with government and NGOs to improve the standard of basic education as its sole objective. And only last year, the KwaZulu-Natal treasury partnered with the Thuthuka Bursary Fund to put 100 students selected from municipalities across the province through CA(SA) training and qualification – so that when they qualify, they can return to ensure sound financial governance in their home towns.

These are significant signs that business and government – at least in the educational arena, which makes up half of CFOs’ major concerns – are being addressed at scale. In the meantime individual companies seem to be creative enough to outperform their global peers in these tough times.

Reasons behind South African CFOs’ relatively strong confidence levels in their own firms are evident when we unpack the data further:

  • They expect their ROAs to increase to 16,5 per cent in the 2013/14 year against expectations from other regions that range between 10 per cent and 11 per cent.
  • Earnings growth for the next 12 months are expected to be 15,5 per cent  against global peer estimates of between 5 per cent and 10 per cent.
  • Capacity utilisation was also ahead of all other regions.

This apparent anomaly between the CFOs’ view of South Africa’s economic prospects and those of their firms can to a certain  extent be explained by the fact that they feel that they have more control of their firms’ strategies and immediate prospects. But they are probably also positively affected by the emergence of significant projects designed to alleviate the skills and educational crises.