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CEOs less optimistic about global economy for 2015

But confidence in growth of their companies remains steady

US has overtaken China as top target for growth for the first time in five years

Fewer CEOs than last year think global economic growth will improve over the next 12 months, though confidence in their ability to achieve revenue growth in their own companies remains stable, according to PwC’s 18th Annual Global CEO Survey. CEOs are less optimistic about global growth prospects than a year ago, with 37% of CEOs thinking global economic growth will improve in 2015. This  is down from 44% last year. Significantly, 17% of CEOs believe global economic growth will decline, more than twice as many as a year ago (7%). The remaining 44% expect economic conditions to remain steady.

Only 29% of South African CEOs, compared to 37% globally, anticipate global economic growth will improve in 2015. While CEOs are less confident overall about the prospects for the global economy, 39% of South African CEOs are ‘very confident’ of growth in their own company over the next 12 months (up from 25% last year).

Suresh Kana, PwC Senior Partner for Africa, says: “CEOs are facing a multitude of challenges and uncertainties in global markets, which is affecting global growth. Government’s response to fiscal deficits, debt burdens and social instability are more concerning than a year ago.”

The global survey results, based on interviews with more than 1,300 CEOs from 77 countries, were released at the World Economic Forum annual meeting in Davos yesterday. In South Africa, interviews were held with 41 CEOs from a broad spectrum of listed and privately-owned companies.

Digital Transformation

The emergence of digital technology has completely changed how companies do business. Mobile technologies are seen by 90% of South African CEOs as most important to their company, followed by data mining and analysis (83%), cybersecurity (80%), battery and power technologies (63%), and cloud computing (61%).

“CEOs know they must be adaptable to disruptive changes in technology and in their markets. They need to put technology at the core of their business to create value for customers. Finding new ways of thinking and working in this new competitive landscape is critical to success,” adds Kana.

Strategies for growth

Global CEOs continue to look this year to the advanced economies for growth opportunities. Global CEOs rank the US as their most important market for growth over the next 12 months, placing it ahead of China for the first time since we started asking this question five years ago. Overall 38% of global CEOs say the US is among the top-three overseas growth markets, compared with 34% for China, 19% for Germany, 11% for the UK, and 10% for Brazil.

South African CEOs see growth opportunities coming from the US (32%), China (27%), Nigeria (17%), and India (17%).

On the other hand, doing business in the BRICS (Brazil, India, China and South Africa) continues to be challenging for CEOs as those countries grapple with a mix of complex structural and political issues. But CEOs recognise the longer-term opportunities, with all of these markets remaining firmly in their sights.

What worries CEOs most?

CEOs worldwide are getting more worried about almost all the threats we asked about.  A significant percentage (80%) of South African CEOs said there were more threats to the growth of their company today than there were three years ago.

In the survey the top three potential economic and policy threats highlighted by South African CEOs are: 93% cited Government response to the fiscal deficit and debt burden (compared to 72% globally); 90% social instability (compared to 60% globally); and 88% cited high unemployment or underemployment (compared to 49% globally).

Of business threats, 93% cited the availability of key skills (compared to 73% globally); 83% high or volatile energy costs (compared to 59% globally); and 76% cited concerns regarding bribery and corruption (compared to 51% globally).

A significant percentage of local CEOs (78%), compared to 60% globally think it is the priority of the Government to create a skilled workforce.

Cost reduction initiatives

This year, 68% of South African CEOs plan to implement a cost-reduction initiative over the next 12 months. Furthermore, 61% of local CEOs, compared to 51% globally, plan to enter into a new strategic alliance or joint venture.

Disruptive trends

Business leaders are increasingly aware that fundamental forces of change will affect their industries over the long term. Megatrends such as a shift in global economic power, technological advances and demographic changes – and the interplay between them – are transforming the macroeconomic landscape. South African business leaders see an increase in the number of significant direct and indirect competitors as the number one disruptor within their industries over the next five years (83%), followed by regulatory change (80%).

The competitive landscape

Over the next three years 71% of local CEOs believe that organisations will increasingly compete in sectors other than their own. More than half of South African CEOs (59%), compared to 47% globally, cited access to new customers as the reason for collaborating in joint ventures, strategic alliances or informal collaborations. Less than half of CEOs (49%) said it was access to new geographic markets. When asked about industries outside their own that could emerge as significant competitors, 39% of CEOs identified the technology industry.

Talent diversity and adaptability

Only 39% of South African CEOs expect to increase their headcount in the next 12 months, compared to 50% globally. In addition, 22% of local CEOs plan to cut their workforce this year. This is down from 32% in 2014. As CEOs seek to meet the challenge of finding the right people, 88% say they are looking for a much broader range of skills when hiring than in the past. And, 83% agreed they always use multiple channels to find talent, including online platforms and social networks.

CEO Capabilities

Strategic thinking and adaptability were cited as capabilities that tomorrow’s CEOs must have – megatrends, and how companies react to them are changing the markets where CEOs seek growth, the range of threats to business and the very fundamentals of entire industries.

The survey identifies six steps that business leaders can take to help build success in 2015: Focus on what you’re good at; re-evaluate the business you’re in; anticipate policy issues; build diverse yet aligned partnerships; transform through digital; and develop a good mix of talent.

Kana concludes:  “We believe that those CEOs who can develop the strategic focus and capabilities considered here will be best placed to win in the highly competitive landscape.”