The first in a biweekly series that shows how Middle East CFOs and finance leaders plan to react to COVID-19 - and what impacts they expect to see.
Globally, we understand that every business is different, which is why we are closely tracking the sentiment and priorities of CFOs as they navigate the unprecedented disruption that COVID-19 has on their business.
Here we reveal the findings from our first CFO Pulse Survey, where 139 finance leaders from across the Middle East provide their views during a survey conducted during the week of 5 April.
We will continue to assess regional CFO sentiment and priorities on a biweekly basis.
“Businesses all around the world are adjusting to working remotely, and although they are prioritising financial security in the short term, CFOs still have an eye on the likely acceleration of transformation in areas such as customer experience, digital and cyber security in the post COVID-19 era.”
The majority of Middle East CFOs believe COVID-19 has the potential to significantly impact their business operations and decrease the revenue or profit of their organisation.
With levels of concern varying across the region, UAE CFOs are the most concerned, with almost 9 out of 10 expecting financial implications, and more than half concerned about the potential for a global recession. Highly affected sectors such as tourism, hospitality and retail make up a significant proportion of the country’s economy, so these findings are perhaps unsurprising.
In Saudi Arabia, the level of concern is somewhat muted, with 45% of CFOs considering the situation to be an isolated challenge with little impact, or feeling that the impact is limited to specific areas of their business.
Cybersecurity and privacy concerns are surprisingly low across the board - perhaps indicating that many organisations are still in the initial ‘mobilise’ phase of response - dealing with the immediate concerns around the availability of cash.
Middle East CFOs will have a razor sharp focus on cash flows in the weeks and months ahead and are most likely to consider cost containment measures to protect the future of their business. In the UAE, 92% of CFOs surveyed are looking at such cost reduction strategies compared to 82% in KSA. Other measures, such as the deferral of planned investments, will free up some reserves, giving CFOs some breathing space as the situation continues to develop.
When considering the deferral of strategic investments, 83% of CFOs across the region are doing so by firstly reviewing their capital expenditure, followed closely by business operations and workforce. It’s positive to see that CFOs across the region continue to remain focused on digital investments such as cybersecurity and digital transformation, as the value placed on having robust digital systems and processes in place continues to be considered as business critical.
"Having access to real time quality information is one of the main challenges facing CFOs as they look to make informed decisions in unprecedented business disruption. Having a view on short term liquidity will inform the CFO of what measures to take around cost control and cash conservation, and when to take them."
The immediate impact of COVID-19 has forced CFOs to closely look at their operating costs, especially their workforce fixed costs. In KSA, CFOs are expecting to see staff layoffs, productivity loss and temporary furloughs, as seen in low demand sectors such as retail. In the short term, the need for expat workers providing services to the Kingdom will have significantly reduced as COVID-19 travel restrictions remain in place.
Middle East CFOs are looking at their M&A strategy with caution and feel it may be too early to say what impact COVID-19 will have on their future investment opportunities. With that said, KSA CFOs have a decreasing appetite for M&A in the short term as they look to manage immediate cash pressures.
As one of their top three areas of concern (fig. 3), finance leaders in the Middle East appear to be more likely than their global counterparts to consider changing their supply chains, with this being particularly true in Saudi Arabia. With In Country Value programmes already in place to localise spending across a number of countries in the region, there is already widespread focus on reassessing supply chains, and this looks set to continue in the current circumstances.
Compared with other territories, Middle East CFOs are more likely to avail of the government stimulus packages available in their country. During previous economic downturns, the KSA Government has offered attractive support packages for businesses, and 8 out of 10 CFOs are now considering accessing such programmes in the Kingdom. However, in the UAE, it seems that almost a quarter of CFOs are still assessing the level of relief available and how this support can be accessed.
Despite their concerns, CFOs in the Middle East are expecting to get back to normal sooner rather than later; pausing or delaying investments instead of cancelling them altogether. In fact, the majority expect their business to return to business as usual within three months if COVID-19 were to end today. UAE CFOs are a little less optimistic, however, with a far higher proportion expecting a longer recovery timeline of 6-12 months, when compared to their regional and global counterparts.
In the immediate term, as businesses globally adapt to the new normal of working remotely, it is encouraging that investments in digital transformation, cyber security and data privacy are set to continue (fig. 5). The same can also be said of R&D and customer experience, reinforcing the message that business leaders are not expecting to cut costs comprehensively, or see this as a long term situation.
It’s clear that Middle East CFOs are facing daunting challenges. What’s also clear is that despite these challenges, there is optimism around returning to business as usual, and continuing to invest where it matters.
For views of finance executives around the globe, see the global report covering the same period.
To help identify the business and economic impact of COVID-19, PwC Middle East is conducting a biweekly survey of finance leaders in the region. Of the 139 surveyed for the report during the week of April 5, 2020, respondents were from a cross-section of industries and were based in the UAE (52), Saudi Arabia (33), Egypt (18), Oman (14), Qatar (6), Lebanon (6), Jordan (4), Bahrain (3), Palestine (2) and Kuwait (1). Individual country comparisons are provided for sample sizes of over 30 respondents.
Entrepreneurial & Private Business Leader - Assurance Clients & Markets Leader, PwC Middle East
Tel: +971 56 682 0630