Adjusting to the new normal

Inside the minds of Middle East CEOs

PwC's 21st CEO Survey

Introduction

This is the 21st time we have collated the views of business leaders across the world in our Annual Global CEO survey.

From the results of over 1,200 international CEOs, including over 50 in the Middle East, it’s clear that the past year has demanded an immense balancing act from regional CEOs. This group of business leaders has contended with lacklustre oil prices, looming local and regional geopolitical threats, and the urgent need for regional corporate reform.

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The region is also rapidly evolving in the wake of shifting global trends, including the march towards clean energy and the rise of competitively priced US shale oil. In particular, it has been a landmark year of change for the Arabian Gulf’s largest economy, Saudi Arabia. Also, businesses operating across the region have had to face the challenges created from the Qatar political crisis and economic situation. What’s more, the ongoing international mega trends of globalisation and technological advances are transforming lives and businesses in the region, there is a marked rise in terrorism and cyber crime, and the entire world is facing the mega challenge of carefully priming its corporates for tech and automation developments that are evolving at breakneck speed.

Given this mixed bag, it comes as no surprise that our survey responses are often paradoxical. Our regional CEOs are positive about global and regional growth, yet they are often hesitant about their own corporate growth;

they welcome technology but at the same time fear cyber crime; they are rapidly working towards transparent workplaces, yet they are still weaning themselves off inflexible and strict work patterns.

Most of all, this survey proves that the region is at a critical juncture as it surveys the enormous opportunities and risks inherent in globalisation and technology. The plunging oil price – while now improved at around $60 per barrel – placed considerable strain on public purses and company profits in recent times. This brought into sharp relief the potential future of the region when demand for fossil fuels eventually dwindles. And it is this fact, among others, that has caused CEOs and governments to get philosophical about their own growth. How to prepare for a future where companies are fully accountable? How to run a cost-effective and efficient business that can stand on its own two feet come what may?

While it is an unsettling period, it could also, if managed effectively, be the prelude to a new and more sustainable golden age for the Middle East.

Middle Eastern companies have weathered many a storm, including the 2009 crash, the Arab Spring and ongoing regional conflict, now CEOs say it’s time to take this proven resilience and determination and fast-track the region to the future.

In this report we focus specifically on the results from the Middle East, to explore the issues that concern its business leaders, and canvass their views about what comes next.

Our story

It’s the world, but not as we know it

We saw an overwhelming positivity from our Middle East CEOs with regards to global economic growth. 52% of respondents in the region said the global economy is set to ‘improve’, compared to just 26% last year. Whilst this is a steep increase, and shows optimism from our CEOs, this places the region on par with the global average.

Trust and tenure in tense times

Against a backdrop of high hopes for globalisation, CEO optimism is more tempered when it comes to home soils, specifically, the reform agenda in the Middle East. From this, stems a pressure to follow procedure and put in place corporate governance systems. Concurrently, lower oil prices have placed a strain on governments and businesses, resulting in the need to diversify income and drive cost efficiency. Given above, it’s not surprising that 71% of regional CEOs said there is ‘increasing pressure for your organisation to deliver business results under shorter timelines’, compared to 60% of CEOs globally. And 67% of regional CEOS said there is ‘increasing pressure to hold individual leaders accountable for any organisational misconduct’, compared to 59% per cent globally.

The race for digital innovation and talent

With respect to the next 12 months, our CEOs are fairly pessimistic on the issue of recruitment. A third of regional CEOs said that they expect headcount to ‘decrease’ in the next 12 months, which is the highest figure globally. This number is likely driven by CEOs cutting back staff in a cost efficiency drive. Corroborating this point, only 76% of Middle East CEOs said that headcount would decrease due to ‘automation’, compared 80% globally.

The future of the workforce looms large on the minds of regional CEOs. 92% of regional CEOs said they needed to strengthen their firm’s soft skills, alongside digital communication skills, compared to 91% globally. 63% of Middle East CEOs said they have a responsibility to ‘retrain employees whose tasks and jobs are automated by technology’, compared to 67% globally.

Embracing the new normal

The region’s social and economic reform agenda is moving at an unprecedented pace. There has been more change afoot in the last year than in the entire previous decade. Sweeping reforms across the board have potential to make the Middle East a better place to do business and attract foreign investment. The boom days are over and it’s now time to adjust to the new normal, where oil prices are balanced and managers are accountable for company performance and managing cost pressures.

While the survey results suggest CEO confidence is down in the short term, it’s a logical reaction to seismic change and a new pressure on accountability.

The region is now pushing hard to cement its organisational values and there remains an unrelenting focus on ethics and corporate governance. It is this growing appetite for forming accountable and transparent structures from the ground up that will prime the region for global success as it embarks on a new post-oil era.