Kathy Gibson reports – South African CEOs are confident about the future, but are very cognisant of the many challenges that we need to overcome.

These are among the findings from the PwC Annual Global CEO Survey, 2021, which reflects the fact that we are living in a very different environment than just one year ago, says Dion Shango, CEO of PwC Africa.

“On 11 March 2020, the World Health Organisation (WHO) declared Covid-19 a global pandemic marking the start of a time of profound change, suffering and uncertainty.

“A year later we are still in the grips of pandemic, but the development of a vaccine, at breakneck speed never before seen, has allowed us to develop hope. While the details of recovery are not clear, there is a much more hope.”

One thing that is very clear, Shango says, is that we don’t have the luxury of going back to the way things were before. “The pandemic has laid bare the weaknesses in business models and challenges that will shape the world going forward.

“It has also unleashed creativity as leaders find solutions to challenges; and acted as an accelerator of transformation and amplifier of disruptive forces.”

Three key themes emerging from this year’s survey are improved outlook; dangers lurking online; and the climate change challenge.

“One of the headlines is that most CEOs are optimistic about the future and bullish about a global economic comeback,” Shango says. “This will be enabled by a continuation of pandemic induced digital acceleration and transformation that companies have had to undergo to remain relevant.

“While this promises productivity and other benefits, it also increases threat of cyber-attacks and misinformation.”

Shango says another interesting observation is that, even though local CEOs’ confidence in their own companies growth has rebounded, they are anxious about unemployment and the continued slow decline in basic infrastructure, continuation of the pandemic, and pedestrian economic growth that continues to be a challenge for our country.

In South Africa, 57% of South African CEOs think the global economy will improve (78% global). This is nearly 20% higher than the highest level in 20 years, which was 38% in 2014, and marks a significant rebound from 2020 when just 17% believed the global economy would grow, after 30% in 2019.

“We think the global economy could grow as much as 5% in 2021,” Shango says. “This is in line with separate PwC analysis which says we should return to pre-pandemic levels in either Q4 2021 or Q1 2022.”

South African CEOs are also more optimistic about their own organisations’ growth prospects: 78% are confident about the next 12 months, and 95% are optimistic for three years ahead.

“The optimism reflects momentum in vaccine development, a slight containment of the pandemic in some parts of the world, and better sense of optimism and certainty than we had for most parts of 2020,” says Shango. “It reflects an optimism that things can only get better.”

Globally, CEOs in the tech, healthcare and telco sectors are most confident about short-term growth. In South Africa, 43% of companies are very confident about revenue growth over the next 12 months.

These results reflect the changing ways that people are living, working and shopping now, Shango says.

However, he believes a hybrid model will emerge, with the virtual and physical worlds coming closer together in the future.

“This will be an interesting space to watch as we all adapt to the new world we are living in.”

However, headcount is going down: 51% of South Africa CEOs say they have reduced staffing the last 12 months, and 40% plan to do so in the year ahead.

“Within the South African perspective, this is extremely concerning,” Shango says. “We already sit with an unemployment rate that is the highest in the world, and the pandemic is exacerbating this.

“With a young population, the pandemic has dealt a severe blow to employment prospects in our country. So, despite confidence in the economy, CEOs’ plans for headcount are concerning,” Shango says.

“Given that this is anticipated at the same time that revenue is expected to increase going forward, it does suggest that companies are adopting new ways of working, and are turning to technology and automation in order to be more efficient and also less reliant on human beings and human capital to become more efficient in their operations.”

Just 16% of CEOs expect headcount to increase over the next 12 months, 41% expect a decrease, and 43% expect it to stay the same.

“This is unprecedented in the history of the survey, and representative of the dire situation we are in.”

South African CEOs are prioritising productivity through automation and digital upskilling with a greater focus on workplace culture and behaviour, with 49% of them looking at automation and technology.

In addition, 43% are focusing on skills and adaptability of their people; and 43% looking at workplace culture and behaviours.

Just 32% of CEOs will focus on health and wellbeing of the workforce, and 27% on workforce engagement and communications.

Shango believes that by focusing on upskilling existing employees while reducing their workforces indicates that there will be a greater gap between the employed and unemployed in the country.

When it comes to growth, South African CEOs are looking to operational efficiencies (89%( and organic growth (70%). Just 46% of them will aim to launch a new product or services and 41% may pursue new M&A, with 35% looking to form new strategic alliances or joint venture and 30% may enter a new market and 22% aiming to collaborate with entrepreneurs or start-ups.

There are major threats to the expected growth: Unemployment tops the list for South African CEOs at 73%, following  by inadequate basic infrastructure at 65%, pandemics and other health crises (65%), uncertain economic growth (59%), policy uncertainty (57%), volatile energy costs (57%), availability of key skills (51%), social instability (51%), cyber threats (49%) and economic inequality (49%).

“What strikes you is the sheer magnitude of threats that of concern for CEOs, and in South Africa they are significantly more concerned than their global counterparts.”

Rising digitisation is increasing the risks posed by cyber threats. This, coupled with the significant increase in cybersecurity incidents in 2020, including ransomware attacks, has resulted in cyber threats leaping up the list to become the number two concern, with the level of concern jumping from 33% to 47% globally, and from 22% to 49% in South Africa.

Cyber threats are a concern particularly for CEOs in North America and Western Europe, where they are considered a greater threat than the pandemic.

In 2020, tax policy uncertainty ranked outside the top ten concerns for CEOs, with only 19% of CEOs concerned. This year, it has increased rapidly in importance, leaping up to seventh place (31%), with CEOs undoubtedly watching government debts accumulate and realising that business taxes will likely need to rise.

In South Africa, 32% of business leaders “strongly agree” that tax policy changes to address rising government debt levels will increase their respective organisation’s tax obligations.

Around the world, misinformation also rose rapidly from 16% in 2020 to 28% of CEOs in 2021 being extremely concerned, likely due in part to the impact of misinformation on elections, reputations, and public health. With 27% extremely concerned, this threat doesn’t feature in South Africa’s top 10.

South African CEOs are explicitly factoring these threats into their strategic risk management activities: the availability of key skills (81%), cyber threats (73%), pandemics (70%), uncertain economic growth (62%), changing customer behaviour (59%), speed of technological change (54%), climate change and environmental damage (51%), exchange rate volatility (49%), supply chain disruption (46%) and over-regulation (41%).

Asked about their spending on digital transformation, nearly half of CEOs (49%) project significant increases of 10% or more. Despite the rising level of concern CEOs are voicing about cyberattacks, this has not translated into definitive actions. Fewer than half of the CEOs planning for heightened digital investment are also planning to boost their spending on cybersecurity and data privacy by 10% or more.

More than half of South African CEOs (59%) plan to pursue greater cost efficiencies and increase their rate of digital investment by 10% or more.

While many CEOs are planning to reduce their workforces and focus on technology to drive growth in their businesses, it is heartening that 49% globally are also planning to increase spending on leadership and talent development.

Shango comments: “Looking at the survey findings we see an opportunity emerge – a moment for business leaders to take a step back and ask how we can do things better.

“Although the shape of the recovery remains unknown, we cannot go back to the way things were before.

“To bring about the change that is needed, company leaders will need to think differently and constantly evaluate their decisions and actions against broader societal impacts.