African Business Outlook Part of the Global Business Outlook

African Business OutlookPart of the Global Business Outlook

A joint survey effort between

Duke University,The South African Institute of

Chartered Accountantsand

CFO magazine

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2

CFO Global and African Business Outlook – Overview

African Business Outlook Duke University / SAICA / CFO Magazine March 2014

Global Business OutlookDuke University has surveyed CFOs around the world every quarter since 1996, most of those years jointly with CFO magazine. The survey takes the pulse of the business community and has a strong record of predicting future economic activity. The results are relied upon by Central Bankers, Analysts, Investors, and are widely reported in the press.

SAICA and the African Business OutlookSAICA joined the survey in 2013, helping to found the African Business Outlook. South African results are highlighted in the analysis, as are results from Nigeria and the rest of Africa, enabling SAICA and other survey partners to share key insights about the African economy with members of the Institute and others focusing on Africa. The analysis in this report will assist companies to make important business decisions as they can benchmark themselves against their global peers. The long run goal is to develop a large and steady set of responding African firms.

Key Survey Facts Survey Respondents: 41

Of which, 28 from South Africa, 9 from Nigeria and 4 from the rest of Africa The number of respondents may skew some reported results

Sample includes CFOs from both public and private companies representing a broad range of industries Retail/Wholesale, Mining/Construction, Manufacturing, Transportation/Energy, Communications/Media,

Technology, and Banking/Finance/Insurance

Certain questions are constant each quarter, to capture trends in corporate optimism, expected hiring and capital investment plans, inflation, wages, and many other categories.

Other questions change each quarter to examine topical economic issues and newsworthy business or political events that may affect the landscape of corporate finance.

Sentiment Regarding Domestic Economy

3African Business Outlook Duke University / SAICA / CFO Magazine March 2014

Q1 '14

Q4 '13

Q3 '13

Q2 '13

0% 10% 20% 30% 40% 50% 60%

South Africa, Last Four Quarters

No ChangeLess OptimisticMore Optimistic

Rest of Africa

Nigeria

All Africa Avg

0% 20% 40% 60% 80% 100%

Country Average, Relative to last Qtr

When ranked on a 100 point scale, All Africa Average optimism about domestic economic prospects increased from 53 in 2013 to 54.7 in Q1 2014 (South Africa: 52.5, Nigeria: 57, ROA: 66.7)

South African CFOs are less optimistic, other African CFOs more optimistic, compared to last quarter

Trends in South African OptimismCFOs have become less optimistic this quarter, continuing a downward trend The average African CFO, across all of Africa, is

also less optimistic than in Q4 2013

Sentiment towards domestic economy South African CFOs are dramatically less

optimistic than at the end of 2013 Nigerian CFOs and the rest of Africa are

more optimistic than at the end of 2013


Even though African CFOs are less optimistic about the overall economy, they have grown more optimistic about their own companies, compared to the previous quarter

Own company optimism remains consistently high in South Africa

South African CFOs maintain their optimism for their own companies, though this trend was tempered somewhat in Q1 2014

Own Company Sentiment

When ranked on a 100 point scale, All Africa Average own company optimism dropped from 72.3 in 2013 to 66.2 in Q1 2014 (South Africa: 67, Nigeria: 57, ROA: 78)

Q1 '14

Q4 '13

Q3 '13

Q2 '13

0% 10% 20% 30% 40% 50% 60% 70%

South African Own Company Optimism, Last 4 Qtrs

No ChangeLess OptimisticMore Optimistic

Rest of Africa

Nigeria

All Africa Avg

0% 20% 40% 60% 80% 100%

Company Optimism By Region

Compared to Nigeria and other parts of Africa, CFOs in South Africa are less optimistic about their own company’s future prospects 100% the surveyed non-South African CFOs are more

optimistic this quarter, relative to their views at the end of 2013

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African CFO Optimism Relative to Rest of World


African CFOs are less optimistic about the prospects for their domestic economies. Own company African optimism is volatile and in general on par with own company optimism around the world.

Q2 '13 Q3 '13 Q4 '13 Q1 '1452

54

56

58

60

62

64

66

Comparative Domestic Economy Optimism Across Regions (Out of 100)

USAEuropeAsiaLat AmAfrica

Q2 '13 Q3 '13 Q4 '13 Q1 '1460

62

64

66

68

70

72

74

Comparative Own Company Optimism Across Regions (Out of 100)

Although significant swings exist quarter on quarter, African CFOs are generally equally optimistic about their own companies prospects as their counterparts in other regions Relative to end of 2013, own company optimism

decreased in all regions except for Asia

Over the past year, African CFOs were less optimistic about their domestic economies relative to their counterparts in other regions

Economic optimism in the USA, Europe and Asia increased while optimism in Africa and Latin America decreased over the last four quarters

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Top 5 Macro and Internal Concerns for African CFOs


Currency Risk, Political Risk, Working Capital Management, and Attracting Qualified Employees are concerns throughout Africa. Other concerns vary by region.

South Africa Nigeria Rest of Africa1) Consumer Demand 1) Electricity Supply 1) Policy Uncertainty2) Labor Instability 2) Consumer Demand 2) Labor Instability3) Currency Risk 3) Currency Risk 3) Currency Risk4) Price Pressure from Competitors 3) Policy Uncertainty 4) Electricity Supply5) Policy Uncertainty 5) Inflation 4) Input Costs

5) Foreign Competition 4) Financial Market Regulation

South Africa Nigeria Rest of Africa1) Ability to Maintain Margins 1) Working Capital Management 1) Working Capital Management2) Attracting & Retaining Qualified Employees 2) Attracting & Retaining Qualified Employees 2) Supply Chain Risk3) Maintaining Morale/ Productivity 3) Supply Chain Risk 3) Ability to Forecast Results4) Working Capital Management 4) Maintaining Morale/ Productivity 3) Balance Sheet Weakness5) Ability to Forecast Results 4) Ability to Forecast Results 5) Attracting & Retaining Qualified Employees

4) Ability to Maintain Margins 5) IT Governance

Top 5 Macro Concerns

Top 5 Internal Concerns

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Earnings and Cash Flow Utilization


South African CFOs expect an increase in all categories over the next 12 months though Revenue and Earnings increases have slipped from last quarter

Reve

nue

Earn

ings

Divi

dend

s

Tech

nolo

gy

R&D

Capi

tal

Mar

ketin

g0

10

20

30

40

% Change Expected in Next 12 Months in South African Companies

Q4 2013Q1 2014

Reve

nue

Earn

ings

Divi

dend

s

Tech

nolo

gy

R&D

Capi

tal

Mar

ketin

g0

10

20

30

40

% Change Expected in Next 12 Months by Region

NigeriaRest of AfricaAll Africa Avg

South African CFOs anticipate large increases in R&D and Marketing spending while barely increasing spend on Technology

Expectations about Revenue, Earnings, and Capital Spending have softened since last quarter’s survey but are still projected to increase by nearly 10%

Expectations higher outside of South Africa Revenue and earnings expected to increase by 10

- 15% on average Nigerian companies expect dramatic increases in

Tech spending with minimal increases in R&D, Capital and Marketing spending

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Mergers and Acquisitions Compared to World Regions


Fewer African companies anticipate making an acquisition, compared to other regions

United States

Europe Asia Latin America

South Africa

Nigeria0

5

10

15

20

25

30

35

Percent of Companies Planning to Acquire at Least Part of Another Company in the Next 12 Months

Plan to Acquire International Acquisition

African companies anticipate lower acquisition rates compared to other regions over the next 12 months

South Africa anticipates 23.1% of companies to acquire another company• Only 7.1% of African firms will make an

international acquisition Among Nigerian companies making an

acquisition (12.5% of surveyed Nigerian firms), all anticipate making an international acquisition

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Expected Borrowing Costs and Effects on Spending


60% of surveyed South African companies borrow externally and anticipate borrowing costs to increase by 1.2% by the end of 2014. However, planned spending would not decrease substantially unless rates increase by more than 4%*

12%

6%

25%

31%

6%

12%

6%

Anticipated Change in Borrowing Costs Over Coming 12 Months

-300 bps-200 bps+100 bps+200 bps+300 bps+400 bps+600 bps

No companies surveyed anticipate a decrease of more than 300bps

No CFOs expect borrowing costs to remain flat or to change by -100bps, +500bps

On average, borrowing rates would have to increase by over 4% before CFOs would reduce hiring, capital spending or borrowing plans

Companies plan to maintain hiring levels unless rates increase by >5%

*Note: Only uses data from South African respondents. Data from other regions incomplete.

Reduce Hirin

g

Reduce Capita

l Spending

Reduce Borro

wing -

2

4

6

% Increase in Borrowing Costs Before South African Companies Will:

Does Uncertainty Affect Plans of African Businesses?


Uncertainty about the economy and government causes African businesses to reduce/delay capital spending more than it affects other aspects of planning. Graphs below report uncertainty about …

Reduce/D

elay Captial S

pending

Reduce/D

elay Hirin

g

Increase Cash Holding

No Real Effect

0204060

General Conditions

South Africa Nigeria/Rest of AfricaAll Africa Avg

Reduce/D

elay Captial S

pending

Reduce/D

elay Hirin

g

Increase Cash Holding

No Real Effect

03060

Government Economic Policy

South Africa Nigeria/Rest of AfricaAll Africa Avg

020406080

Domestic Political Situation

0204060

Regulatory Implementation

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Corporate Culture


All regions list “Customer Orientation” and “Integrity” as the two most important aspects of their company’s culture and “Customer Orientation” as their top priority for improvement

South Africa Nigeria Rest of Africa1) Customer Orientation 1) Customer Orientation 1) Integrity2) Integrity 1) Integrity 2) Customer-Orientation3) Adaptability 3) Adaptability 3) Near-Term Results Orientation4) Strategic Results Orientation 4) Near-Term Results Orientation 4) Internal Transparency

Top 4 Most Important Attributes of Company’s Culture

South Africa Nigeria Rest of Africa1) Customer Orientation 1) Customer Orientation 1) Customer Orientation2) Adaptability 1) Integrity 2) Internal Transparency3) Strategic Results Orientation 1) Adaptability 2) Detial Orientation

Top 3 Corporate Culture Priorities for Improvement

All Africa Avg

Rest of Africa

Nigeria

South Africa

0 10 20 30 40 50 60 70 80 90

Importance of Having a Strong/Well-Defined Corporate Culture

Very Important Medium Importance Small Importance

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Do Real Estate Bubbles or American Monetary Tightening Affect Africa?


Only 9% of South African CFOs believe there is currently a real estate bubble in their country. A slight minority anticipate that US Federal Reserves monetary tigthening will affect their firms

Anticipated Change in Borrowing Costs Over Coming 12 Months

4%

41%

52%

4%

Anticipated Effect of US Federal Re-serve’s Quantitative Easing Taper on Own

Company Performance

Very negativeSomewhat neg-ativeNoneSomewhat positive

The vast majority of South African CFOs say there is not a Real Estate Bubble in South Africa Though not shown in the graph, 90% of Chinese

CFOs and half of Latin American CFOs believe that there is a real estate bubble in their home countries.

No companies surveyed anticipate the QE Taper to have a “very positive” effect on their organization

A slight majority of South African companies do not anticipate any effect attributed to the Taper

Though not in graph, Asian and LatAm CFOs say US Tapering will hurt their home country economies

* Note: Only uses data from South African respondents.

9%

91%

Is There A Real Estate Bubble in South Africa?

YesNo

Documents

African Business Outlook Part of the Global Business Outlook