CFO optimism has rebounded from historic lows in many countries as several political and economic uncertainties have been resolved or eased, according to findings of Deloitte’s Q4 Global CFO Signals survey.
However, many chief financial officers (CFOs) worldwide remain cautious in resuming aggressive capital spending and are adopting a wait-and-see approach that will likely yield a slow global recovery process.
“It’s no surprise that CFOs are still reacting to global economic volatility with caution and continued cost cutting,” James Babb, Deloitte Middle East CFO Program Leader, said.
“However, it is also interesting to see the shift in confidence levels amongst CFOs, from 2008 till today. In general, 2012 was a year of dampened outlooks and uncertainty. However, this year, optimism levels amongst CFOs in the Middle East are expected to pick up as the global economic outlook is shifting,” he added.
Based on the Deloitte survey, Middle East CFOs stand out for the strength of their outlook. A net 54% of CFOs are more optimistic about their companies’ prospects than six months ago — despite political instability and regional tensions. And for 2013, CFOs predict that optimism will translate into increased operating cash flows driven by higher revenues, stricter credit controls, and continued cost reductions. The latter is a priority shared with their global CFO peers — many of whom are waiting to also share their optimism.
In addition, survey findings show that many CFOs are focusing their recovery on efforts close to home. In the Middle East, the 30 percent of CFOs who are planning mergers & acquisitions (M&A) are aiming for targets aligned to existing businesses and within the MENA region. Other findings in the survey indicate that steady oil prices and large public expenditures are bolstering CFO optimism across the Middle East.
The survey also reveals a mixed recovery approach by region, CFOs across the board had three major considerations they are factoring in their outlooks: growth, talent capabilities, and implications of local policies and regulations.
Economic conditions, investment, and solid execution are essential elements for growth. Around the globe, however, CFOs’ approaches vary as 47 percent of Middle East CFOs are planning for strategic alliances as a risk adverse approach to inorganic growth.
In North America, for example, capital investment expectations, research and development, and marketing/advertising investment expectations hit survey lows; risk taking varies throughout Europe, with only 12 percent of CFOs in the Netherlands saying now is time to take risk onto their balance sheets; in other countries, such as Belgium, however, risk appetite has increased and Australia is prioritizing organic expansion and investment in new products and services.
Implications of governmental policy are consistently among CFOs’ top sources of financial and economic uncertainty.
In North America, health care reform, the outcome of US elections, and the “fiscal cliff” weighed on CFOs; eighty-eight percent of CFOs in Spain believed new government tax burdens would negatively impact their business; In India, more than 54 percent consider inflation and its subsequent pressure on commodity prices as key economic concerns; In the United Kingdom, CFOs believe the Bank of England’s monetary policy, including interest rates, inflation, and the availability of credit, is on track and even in an unclear economy with threats of staffing reductions still lingering.
CFOs are thinking strategically about talent capabilities and upcoming employment challenges: In South Africa, CFOs listed skills shortage as their biggest business risk factor; In India, specialized workforce and its development remain a key issue; Some CFOs in Central European countries view quality and cost of talent as crucial to future growth and in Australia, three quarters of CFOs plan to invest in workforce training and development to improve productivity.
There was no clear indication as to when CFOs expect conditions to improve. In Spain, 98 percent of CFOs surveyed believe there will not be an improvement in economic indicators before the second half of 2013, and, of these, 29 percent do not expect it before the first half of 2015. In Belgium and Ireland, CFOs are looking more toward 2014 for economic recovery. And in several of the Central European countries, CFOs believe things will get worse before they get better.