The CFO Report 2016 – Botswana Resilience in any …...prices, water shortages and a downward revision of Botswana’s domestic growth forecast for 2015, which prompted government

The CFO Report 2016 – BotswanaResilience in any climate

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Brochure / report title goes here | Section title goes here

ForewordWe are proud to present the fourth Deloitte CFO Survey for Botswana, which offers a snapshot of the observations and expectations of the country’s financial stewards as they negotiate particularly tough global and local economic challenges.

The survey was conducted against a backdrop of depressed commodity prices, water shortages and a downward revision of Botswana’s domestic growth forecast for 2015, which prompted government to launch an Economic Stimulus Programme (ESP) this year with a view to boosting growth, encouraging economic diversification and creating jobs.

This year, 42 CFOs participated in Botswana’s survey, with the majority of respondents from the financial services (9), insurance (5), mining (5) and construction (4) sectors. They were asked to give their views on a range of topics, from the current business climate and operations, to funding and cash flow, business strategies and the role of the CFO.

Their feedback provides insight into how they view themselves and their companies in the current economic milieu and the strategies they have put into place to deal with market fluctuations and grow their businesses.

This report forms part of a larger CFO survey for sub-Saharan Africa, which included countries in Southern Africa, East Africa and West Africa. This is the first year Angola has taken part in the survey, with 37 CFOs giving their input. The majority of Angolan respondents are in the financial, construction and FMCG sectors.

The Southern African sample incorporates input from CFOs in Angola, Botswana, Malawi, Mozambique, Zambia and Zimbabwe. CFO responses in South Africa are not included in the Southern African sample as they number 146 compared to 141 respectively and we felt that to include them would skew results significantly. East African respondents hail from Kenya, Uganda, Tanzania and Ethiopia and those in West Africa from Ghana and Nigeria.

Deloitte is committed to providing the continent’s financial stewards with the support and tools they need to make informed decisions and address difficult issues in their daily work lives. Given the role of the CFO is one of the most challenging in the business environment today, we trust the feedback provided in this report is informative and helpful.

Freddie ElsPartner – Botswana

The CFO Report 2016 – Botswana | Foreword

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Key responses What did Botswana's CFOs tell us?

• The availability and retention of talent is the greatest risk to conducting business in Botswana

• Other key risks include the fragile state of global economic recovery, the financial health of key suppliers or primary customers and commodity prices

• CFOs are most stressed about excessive workloads, roles and responsibilities

What are they doing about it?

• Botswana CFOs intend to retain cash for liquidity and channel it into improving current operations

• Many are also considering investing in Africa and other new markets

• Botswana’s CFOs intend to increase their focus on customer experience

• They will also adopt measures to improve operational efficiency and optimise processes; reduce operating costs; improve investor confidence and grow channels.

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The CFO Report 2016 – Botswana | Key responses

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The CFO Report 2016 – Botswana | Business outlook

Business outlookThe drop in commodity prices and slow pace of economic recovery in advanced countries continue to have a dampening effect on Botswana's economic outlook, largely due to the country's reliance on diamond exports. Cognisant of the challenges being experienced by the beleaguered mining industry, government has launched an Economic Stimulus Programme (ESP) aimed at giving sectors such as transport, finance and business services a significant boost.

Interest rate OutlookWhen interviewed in June and July 2016, 69% of Botswana’s CFOs expected the interest rate to remain unchanged for the latter half of 2016. Only 2% expected it to decrease and 24% to increase. In August 2016, however, the Central Bank of Botswana cut the interest rate by 50 basis points to a record low of 5.5%. While the low interest rate is aimed at stimulating the economy, it puts banks under pressure to lend in a challenging low-growth environment.

0 10 20 30 40 50 60 70 80 90 100

Botswana

Don't know

Rate decreases

Remains unchanged

Rate Hikes

2016

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Figure 1Short-term interest rate prospects

Key finding: The majority of CFOs in Botswana expected the interest rate to remain unchanged in 2016.


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The CFO Report 2016 | Business outlook

CFOs optimistic about future company performanceWhile 60% of CFOs surveyed expect an improvement in company performance in 2016, 31% expect their companies’ performance to remain unchanged.

Looking to 2017 and 2018, CFOs in Botswana are highly optimistic about the performance of their companies with 77% expecting a slight or significant improvement in 2017 and an even greater 81% anticipating a rosier outlook for 2018.

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Figure 2Future company performance

Key finding: Overall, Botswana’s CFOs are optimistic about their companies’ future performance.


0 10 20 30 40 50 60 70 80 90 100

Botswana

Don't know

Much the same

Deterioration

Improvement

0 10 20 30 40 50 60 70 80 90 100

Botswana

Don't know

Much the same

Deterioration

Improvement

0 10 20 30 40 50 60 70 80 90 100

Botswana

Much the same

Deterioration

Improvement

201

6 2

017

2018

Scarcity of talent is a top risk factor

The availability and retention of talent has replaced the fragile state of global economic recovery as the greatest risk to conducting business in Botswana since 2015. This is not surprising, given the significant skills shortage in the country and the premium businesses have to pay to employ talented individuals.

In addition to the fragile state of global economic recovery, which has dropped to second place this year, other top risks for Botswana’s CFOs include the financial health of key suppliers or primary customers, commodity prices, global unrest and currency volatility.

In South Africa the political landscape tops the list of risk factors, followed by currency volatility and the country’s credit ratings. South Africa is a key market for Botswana’s manufactured goods and the country’s political uncertainty combined with sluggish growth is likely an ongoing concern for Botswana’s CFOs.

Unlike Botswana, the majority of West African CFOs view currency volatility as the most significant risk. They have also singled out the political landscape; disruptive power supplies; margin deterioration due to input cost pressures; and the fragile state of the global economy as top risk factors.

In East Africa, the political landscape is viewed as the greatest risk to business, followed by margin deterioration due to input cost pressures and lack of pricing flexibility; currency volatility; and the ability to protect market share.

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The CFO Report 2016 –Botswana | Business outlook

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Figure 3Top risk factors

0 10 20 30 40 50 60 70 80 90 100

Don't Know

Insignificant Risk

Manageable Risk

Significant Risk

Currency volatilityGlobal unrest

Commodity pricesFinancial health of key suppliers or primary customers

Fragile state of the global economic recoveryAvailabiliy and retention of talent

0 10 20 30 40 50 60 70 80 90 100

Don't know

Insignificant risk

Managable risk

Significant risk

Fragile state of the global economic recovery

Margin deterioration due to input cost pressures and lack of pricing flexibility

Credit ratings in your country

Currency volatility

Political landscape in your country

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Credit ratings in your countryMargin deterioration due to input cost pressures and lack of pricing flexibility

Financial health of key suppliers or primary customersFragile state of the global economic recovery

Currency volatility

Southern Africa

Key finding: The availability and retention of talent is viewed as a key risk for CFOs in Botswana.

0 10 20 30 40 50 60 70 80 90 100

Don't know

Insignificant risk

Managable risk

Significant risk

Fragile state of the global economic recovery

Margin deterioration due to input cost pressures and lack of pricing flexibility

Credit ratings in your country

Currency volatility

Political landscape in your country

South Africa

Botswana

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Fragile state of the global economic recoveryMargin deterioration due to input cost pressures and lack of pricing flexibility

Disruptive power suppliesPolitical landscape in your country

Currency volatility

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Ability to protect market shareCurrency volatility

Margin deterioration due to input cost pressures and lack of pricing flexibilityPolitical landscape in your country

West Africa

0 10 20 30 40 50 60 70 80 90 100

Fragile state of the global economic recoveryMargin deterioration due to input cost pressures and lack of pricing flexibility

Disruptive power suppliesPolitical landscape in your country

Currency volatility

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Ability to protect market shareCurrency volatility

Margin deterioration due to input cost pressures and lack of pricing flexibilityPolitical landscape in your country

East Africa

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The CFO Report 2016 – Botswana | Cash flow and funding

Cash flow and funding

CFOs are cautious about cash flow

Caution is the watchword for CFOs in Botswana when prioritising cash flow. They indicated they will either retain cash for liquidity, channel it into improving current operations or invest it in Africa and other new markets.

While channelling cash into improving operations aligns with the top priority of their Southern African counterparts, Botswana’s CFOs intention to invest cash in Africa and other new markets is higher up on their list of priorities and is supportive of Government’s ESP initiative to boost economic growth and diversify the economy.

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Figure 4Cash flow priorities


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Invest in new business

Invest in innovation and new products

Repay debt

Retain for liquidity

Invest in new capacity

Improve current operations

Botswana

0 10 20 30 40 50 60 70 80 90 100

Invest in new business

Repay debt

Invest in Africa and new markets




0 10 20 30 40 50 60 70 80 90 100

Invest in Africa and new markets


Repay debt



Southern Africa

Key finding: CFOs in Botswana want to retain cash for liquidity and use it to improve current operations.

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While 55% of Botswana’s CFOs view the cost of new funding as expensive, 12% regard it as cheap and 31% have adopted a neutral view. Given Botswana’s low interest rate, borrowing is not particularly

expensive, but rather capital is not as readily accessible as banks are more cautious about lending in a low global growth environment and are most likely imposing sterner requirements on potential borrowers.

Figure 5Cost of new funding – Botswana

Key finding: The majority of CFOs in Botswana view the cost of capital as high.

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Don't know

Cheap

Neutral

Expensive

Figure 6Availability of new funding – Botswana

Key finding: The majority of CFOs in Botswana believe funding is easy to obtain.

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Neutral

Hard to get

Available

The high cost of capital

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The CFO Report 2016 – Botswana | Future operations

Future expansion a low priority

Some 85% of Botswana CFOs say their companies recently expanded into Southern Africa, most notably into Mozambique, South Africa, Zambia and Zimbabwe. Many CFOs are, however, cautious about future expansion on the continent, with 47% indicating they are undecided about where they intend to expand to.

While 33% are looking to expand into Southern Africa and 20% to East Africa, no respondents are considering expansion into West Africa. They are probably content to adopt a look-see approach to the region in wake of the low commodity prices.

When asked about their principal reasons for expanding to new markets, 85% of Botswana’s CFOs cited growth opportunities as their primary reason, while 8% were directed to do so by their parent company and another 8% had the financial capital available to do so.

Future operations

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Figure 7Areas of recent expansion – Botswana

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East Africa

Southern Africa

West Africa

Key finding: Recent expansion by companies in Botswana has mostly occurred in Southern Africa.

Figure 8Areas for future expansion – Botswana

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East Africa

Southern Africa

Undecided

Key finding: Botswana’s CFOs are cautious about future expansion into new markets.

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CFOs focused on customers

The strategic thrust for 81% of Botswana’s CFOs is to increase their focus on the customer experience. This is probably seen as the best way to grow market share in a highly competitive and low growth economy where businesses are vying for the same customer base.

Botswana CFOs will also be introducing measures to improve operational efficiency and optimise processes; reduce operating costs; improve investor confidence and grow channels.

By comparison, in Southern Africa CFOs are most concerned about improving operational efficiency; optimising processes and reducing operational costs. Similarly, South African CFOs are focusing their attention on improving operational efficiency and process optimisation although enhancing the customer experience is second on their list of strategic priorities.

West African CFOs are also tightening their belts and have shifted focus from customer acquisition and retention in 2015 to improving operational efficiency and optimising processes as their primary strategic thrust as their primary strategic thrust.

In East Africa, the strategic focus is once again on improving operational efficiency and process optimisation as well as trying to reduce operating costs. CFOs will also focus on customer acquisition and retention, growing brand equity and channels and pursuing revenue growth from developed markets.

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Key finding: The strategic focus for Botswana CFOs is to increase their focus on the customer experience.

0 10 20 30 40 50 60 70 80 90 100

Improve operational efficiency and process optimisation Increase focus on customer experience

Reduce operating costs/rationalise operationsIncreased focus on revenue growth from developed markets

Improve investor confidence

0 10 20 30 40 50 60 70 80 90 100

Focus on growing brand equityIncrease focus on customer experience

Improve investor confidenceReduce operating costs/rationalise operations

Improve operational efficiency and process optimisation

0 10 20 30 40 50 60 70 80 90 100

Not a focus at all

Potential future focus

Still likely to adopt in 2016

Currently following

Improve investor confidenceIncrease focus on growing channels

Reduce operating costs/rationalise operationsIncrease focus on customer experience


East Africa

West Africa

Figure 9Strategic approach

0 10 20 30 40 50 60 70 80 90 100

Increase focus on growing channelsIncrease focus on customer experience

Improve investor confidenceReduce operating costs/rationalise operations


Botswana

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Improve investor confidenceFocus on growing brand equity

Increase focus on growing channelsReduce operating costs/rationalise operations


Southern Africa

0 10 20 30 40 50 60 70 80 90 100

Not a focus at all

Potential future focus

Still likely to adopt in 2016

Currently following

Improve investor confidenceIncrease focus on growing channels

Reduce operating costs/rationalise operationsIncrease focus on customer experience


South Africa

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CFOs need better support

The past two years of market uncertainty have seen African CFOs compelled to deal with a ‘new normal’ where growth on the continent has been revised downwards and investors are twitchy.

Concerns for CFOs in Africa cut across regions and top job stresses include pressure from poor company performance; excessive workloads; too much administrative work; changing regulatory requirements; strategic ambiguity; demands of the board and CEO; and insufficient skills of support staff.

Botswana CFOs are most concerned about excessive workloads, roles and responsibilities. This stress most likely relates to not having the support of sufficiently skilled staff members, which is number four on their list to top job stresses. It reinforces their concerns about finding and retaining talent, which they identified as their primary business risk.

Trying to balance their roles as team leaders, providers of strategic insight and meeting the various regulatory, risk management and compliance expectations of the board means CFOs need the support of strong team members to back them up.

Other top job stresses for Botswana’s financial stewards include the demands of the board and CEO; finding and retaining talent and pressures from poor company performance.

Not surprisingly, when CFOs throughout sub-Saharan Africa were questioned about what they would like to ask other CFOs, many were interested in finding out how their counterparts retain talent and motivate staff. In addition, many also wanted to know how they deal with pressure and creating a work-life balance.

It is clear that Botswana’s CFOs, along with their counterparts in other countries, need fortitude to get through the tough economic times and deal with ongoing workplace demands. They also need ingenuity to negotiate the ‘new normal’ and find novel ways of growing their businesses and attracting investors.

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Figure 10Top job stresses

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Demands of Board and CEOInsufficient political influence

Strategic ambiguityInsufficient skills of support staff

Pressures from poor company performance

Southern Africa

Key finding: CFOs in Botswana are most concerned about the demands of the CEO and board.

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Fifth moststressful aspect

Fourth most stressful aspect

Third most stressful aspect

Second most stressful aspect

Most stressful aspect

Strategic ambiguityDemands of Board and CEO

Changing regulatory requirementsExcessive workload, roles/responsibilities


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Excessive workload, rolesPressures form poor company performance

Insufficient skills of support staffChanging regulatory requirements

Demands of Board and CEO

East Africa

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Strategic ambiguityToo much administrative/low value work

Pressures from poor company performanceExcessive workload, roles

Changing regulatory requirements

West Africa

0 10 20 30 40 50 60

Fifth moststressful aspect

Fourth most stressful aspect

Third most stressful aspect

Second most stressful aspect

Most stressful aspect

Strategic ambiguityDemands of Board and CEO

Changing regulatory requirementsExcessive workload, roles/responsibilities


South Africa

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Strategic ambiguityFinding and retaining talent

Pressures from poor company performanceExcessive workload, roles and responsibilities

Demands of the board and CEO

Botswana


Respondent profile

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The CFO Report 2016 – Botswana | Respondent profile

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Number of respondents in each

region

Average years of experience as a CFO

Technology, media and telecommunicationsTransport and logistics

Real estateNational government

LegalIndustrial products and services

EducationAutomotive

Accounting and secretarial servicesUtilities

Tourism, hospitality and leisureRetail, wholesale and distribution

Public entityInvestment management

ConstructionMining

InsuranceBanking and securities 21%

12%

12%

10%

5%

5%

5%

5%

5%

2%

2%

2%

2%

2%

2%

2%

2%

2%

East Africa

33

West Africa

32

East Africa

8.3

West Africa

7.2

Southern Africa

141Southern Africa

8.3

Botswana

42Botswana

8

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Approximate turnover

24%West Africa

over $250 million

36%East Africa

over $250 million

22%Southern Africaover $250 million

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© 2016. For information, contact Deloitte Touche Tohmatsu Limited

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Roy CampbellAfrica CFO Programme LeaderMobile: +27 (0)82 567 6227Email: [email protected]

Delise MullerAfrica Client Programme LeaderMobile: +27 (0)83 777 0027Email: [email protected]

Freddie Els Partner – BotswanaMobile: +26 (0)77 130 2350Email: [email protected]

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The CFO Report 2016 – Botswana Resilience in any …...prices, water shortages and a downward revision of Botswana’s domestic growth forecast for 2015, which prompted government