Middle East findings — 12 May 2020
The third edition in our 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 third CFO Pulse Survey, where 70 finance leaders from across the Middle East provide their views during a survey conducted over 4 - 6 May 2020.
As most countries across the Middle East are considering their reopening strategies, customer and employee safety is of the utmost importance. Confidence levels in abilities to meet customer safety expectations and provide a safe working environment rank first and second for Middle East CFOs.
As key tactical steps needed for a successful reopening, it is likely that more thought will have been given to these immediate requirements, perhaps positively impacting CFO confidence. Regional CFOs seem less confident about their ability to identify new revenue opportunities, so this and balancing the needs of all stakeholders will need further focus and attention as companies respond to the new normal (fig. 1).
Organisations are increasingly focused on what measures they must take to safely implement a phased return to onsite work. With the UAE Government recently announcing their reopening, we see 85% of UAE CFOs placing a greater importance on workplace safety measures such as wearing masks and testing. However, as a region, the Middle East seems less likely than its global counterparts to reconfigure work sites to promote physical distancing but in the UAE this seems more likely.
While the reopening of economies will be welcomed by organisations, there is no doubt that COVID-19 will leave behind some economic scarring. We now see that 33% of Middle East CFOs are more likely to reduce their real-estate footprint through the partial opening of offices or retail locations, 10% higher than the global average (fig. 2). This expected reduction may be linked to the decrease in workforce as seen later in our report.
Working from home has become the new normal. However, whilst the majority of Middle East CFOs (76%) (fig. 3) believe that flexible working will make their company better in the long run, just a third in the Middle East, and a quarter in the UAE, are planning to make remote working a permanent option for roles that allow it in the future (fig. 2). Given that remote working wasn’t as prevalent in the region before the pandemic as it is in other parts of the world, this isn’t surprising. For those who do embrace this approach, further maturity may be needed around flexible working policies and processes.
On a positive note, digital transformation is set to accelerate, with 47% of the respondents saying that technology investments will make their company better (fig. 3) and 39% looking to use automation to improve the speed and accuracy of decision making with regards to their supply chain strategy (fig. 4). Accelerating automation and new ways of working also remain a priority, with 54% Middle East CFOs focused on this compared to 48% globally (fig. 5).
Just 6% of finance executives reported that they are considering deferring or cancelling investments into digital transformation – down from 19% during the previous survey two weeks ago – while no CFOs indicated that they were considering cutting investments into cybersecurity. The latter is likely tied to the increased need for secure remote working (fig. 6).
It’s reassuring to see that almost a half of the executives in the region are very confident in their company’s ability to build skills for the future – those in the UAE are even more confident at 64% – far above the global average of 48% (fig. 7). This aligns with the increased likelihood of companies adopting workplace automation and preparing employees for a digital tomorrow.
Consistent with the global average, 86% of Middle East CFOs are expecting to see a decrease in both revenue and profits. When we look a little closer, we see that 70% of Middle East CFOs are expecting to see a decrease of 10% or more. Interestingly, we see further pessimism in the region with nearly 1 in 5 Middle East CFOs expecting to see a decrease in revenue or profits of over 50% (fig. 8).
As companies begin to accept the new normal they are now operating in, the expected timeline to return to business as usual seems to have grown. All territories are seeing timelines lengthen for when they believe organisations will return to business as usual.
Interestingly, we have seen the greatest increase from the Middle East territory, and over the last four weeks the proportion of CFOs expecting the recovery to take three months or more has grown significantly from 44% to 66%. Whereas across the globe, the increase has been much less severe growing from 45% to 57% (fig. 9).
With the growing acceptance that COVID-19 will have a more long term impact on businesses, CFOs around the world are still acutely aware of the need to manage cashflows carefully. Implementing cost containment measures and deferring or cancelling planned investments remain the two most likely actions for CFOs – with these being even more likely for CFOs in the Middle East than the global average – a reflection of the heightened levels of pessimism around revenue and profit (fig. 10).
For those looking to defer or cancel investments, we can see that facilities and general capital expenditure remain the most likely target – and increasingly so compared to those surveyed two weeks ago (91% compared to 84% in the prior wave). Cuts in operations and workforce investments now tie for second place in the Middle East – with the likelihood of the latter seeming to have reduced since our previous survey (51% vs 70% two weeks ago) (fig. 11). Despite this reduction, the Middle East is the region most likely to see a change in staffing or layoffs (fig. 12).
Despite the severity of the global situation and the need for organisations to protect themselves, community spirit remains strong – with action being taken to support others too. Across the Middle East, 38% of CFOs have increased their company’s community-focused efforts and other social activities in response to COVID-19, such as contributions to nonprofits, pro bono goods and services or programmes to support vulnerable groups. With an additional 37% of Middle East CFOs not changing their community focused activities, three quarters of all CFOs in the region are providing some level of support to those in need (fig. 13).
With us being in the middle of the Holy month of Ramadan, this degree of charity and selflessness is to be expected, but it is reassuring to see that this mentality remains, despite the challenging circumstances we find ourselves in today.
To help identify the business and economic impact of COVID-19, PwC Middle East is conducting a bi-weekly survey of finance leaders in the region. Of the 70 surveyed for the report over 4-6 May, 2020, respondents were from a cross-section of industries and were based in the UAE (33), KSA (11), Oman (10), Egypt (5), Bahrain (4),Qatar (3), Kuwait (2), Jordan (1) and Lebanon (1). Individual country comparisons are provided for sample sizes of over 30 respondents.
Middle East Strategy and Markets Leader, PwC Middle East
Tel: +971 4 304 3100
Entrepreneurial & Private Business Leader, PwC Middle East
Tel: +971 4 304 3590
Partner - FS Finance Function Leader, PwC Middle East
Tel: +971 4304 3100