2009 CEO Outlook: Positive but precarious

Nairobi, 8 April 2009: As we approached the start of 2009, East African CEOs were more positive about the prospects for growth than their global counterparts. They were more concerned about political risk than the looming economic downturn. These are some of the findings contained in Growth in a Changing Market , a CEO outlook for 2009 launched by PricewaterhouseCoopers today. This outlook draws from a survey of CEOs in East Africa carried out in the last quarter of 2008 with a view to assessing the impact of the global economic downturn on their businesses and on the region’s economies. The publication also draws from a similar survey carried out by the firm around the globe and whose results were released at the World Economic Forum meeting at Davos earlier this year.

Despite their positive outlook for the year, the CEOs are aware of the likely impacts of the economic downturn and adapting their business strategies to help manage through the global downturn. However, they are not doing enough to influence politics in the region and to mitigate political risk.

Growth in a Changing Market shows 51% of East African CEOs were very confident of revenue growth over the next 12 months and 58% over the next three years. This compares to the 21% and 34% of global CEOs who felt the same over 12 months and three years respectively.

Commenting on the findings at the launch, Charles Muchene, the PricewaterhouseCoopers Country Leader for Kenya said, “The Kenya business leaders have had reason to be confident up to the end of last year, even though it was inevitable that we would eventually be affected negatively by the economic downturn. Now the effects are indisputably here and we have a small window in which to act to protect our businesses against the worst of the economic uncertainty.”

East African CEOs are concentrating on maintaining sources of credit, preserving revenue, using working capital more efficiently and managing costs. 34% see maximising returns from existing markets as the main opportunity to grow their business over the next 12 months - in line with the 37% of global CEOs. At the global level, new geographic markets, new product development and mergers and acquisitions (M&A) will all be lower priorities, compared to 2008.

According to 32% of CEOs in other East African markets, businesses are bucking this trend with new geographic markets seen as the main growth opportunity, In contrast, half the number of Kenyan CEOs (16%) plan to focus on new geographies. Meanwhile, almost half the number of Tanzanian businesses (10%) is focused on new product development, as a primary opportunity for growth, compared to Kenya (18%), Uganda (24%) and Rwanda (34%).

Charles Muchene said, “There are undoubtedly still export opportunities for Kenyan companies and an increasingly lucrative domestic rural market is up for grabs too. The challenge will be generating the capital expenditure (CAPEX) to do this, at a time when most businesses are focused on aggressive cash conservation. But companies that can undertake well-planned expansion will be able to seize opportunities while others are in hiding.”

90% of East African CEOs believe that customer service, talent, reputation and agility are important or critical for long term growth and they are the leading sources of competitive advantage in descending order. In addition, CEOs in the survey identify customers and clients as having the strongest change in influence over the last three years, compared to other stakeholders.

As at November 2008 30% of East African CEOs believed that the region’s political risks would have an impact on the long term durability of their business. Whereas only 8% thought that the global economic crisis would have an impact.

Charles Muchene said, “There is no doubt that the first three months of 2009 have brought the global economic crisis to the fore in Kenya. But when it comes to the long term durability of business, political risk still outweighs the global economic downturn in the minds of many CEOs. Concerns don’t just lie in the threat of political violence – like early last year (2008) – but also in the impact of political corruption and regulatory instability.”

Despite these issues, East African CEOs still accept the need to work with government on central issues, particularly where regulation is a socio-economic enabler. After all, there is little incentive for anyone to act alone on regional and global issues, which can appear beyond the control of any single business or nation. There is support for increased government action on the region’s tax framework, with 81% of CEOs supporting government’s role in driving tax and regulatory convergence.

In regards to market strategy, most of the CEO’s attached greatest importance to Brand and Corporate reputation as well as adaptability to change as key to driving their business growth over the next three years and placed it as critical ahead of technological innovation and supply chain management.

“As competition intensifies, Customer service, Brand and Corporate reputation will increasingly be critical to sustain business growth and focus will be on penetrating the existing markets even better. ” Said Charles Muchene.

The survey shows that 71% East African CEOs believe that climate change will threaten people and property. East African CEOs are again looking to governments and regulators for leadership on climate change. 74% of them believed this group was important or critical to addressing the issue – compared to 51% who think the same of NGOs.

Charles Muchene concluded, “East African governments and businesses need to continue working towards an effective collaboration to address risks and opportunities. Globally we are seeing increased support for government interventions in certain areas – particularly bailing out and shaping the financial markets. East African governments need to focus on creating open and consistent policy frameworks to help us navigate through the looming economic uncertainty.”