Top CFO concerns in Middle East: Talent, liquidity management and government policy
Extended macroeconomic ups and downs in global markets are worrying CFOs in the Middle East
CFOs await more positive economic climate before adding full-time employees
The pressures on CFOs are great – and mounting, finds the latest Deloitte CFO Insights survey. The core concern of CFOs across the Middle East and in global markets is primarily global financial volatility, in addition to extended macroeconomic ups and downs arising in recent years.
“The role of the CFO has become more demanding as a result of increasing pressures from economic stagnation, employment hindrances and growing debts,” says James Babb, Partner and CFO Program Leader, Deloitte Middle East. “The impact of globalization has never been more prevalent, with even the remotest events affecting a country’s national economy in the Middle East,” he added.
CFO Insights is a periodical publication by Deloitte, dedicated to addressing the issues that (CFOs) and finance executives face today. In addition to global volatility, the latest Deloitte CFO Insights issue identifies 9 other main concerns facing CFOs today. They include:
Identifying the right growth strategies
Cost-cutting initiatives are yielding less and less returns. This shift is shining a brighter spotlight on finding growth. One in five CFOs, in fact, say they are actively pursuing major transformational deals, and more than half are looking to make smaller deals. At the same time, organic growth remains in favor, with the focus overwhelmingly on generating synergies and scale efficiencies. When CFOs do look at emerging markets, China remains a prime target. A recent series of CFO Forums (organized by Deloitte) focused on doing business in China. One of the outcomes revealed that regardless of what industry you are in, China will have an impact on your business. That impact may extend to incremental markets for products, additional customer base, alternative financing sources, and even pricing of raw materials.
Given external uncertainty, CFOs are focused on helping their organizations assess the broader environment, determining which decisions should be made now, and getting their organizations focused on the necessary strategies. But CFOs reveal they are worried about their organizations’ ability to implement those strategies. In the Q3 2011 CFO Signals survey, CFOs were asked strategic risks they are most worried about, almost 70% indicated that their strategies were not well-enough (re)defined, and 28% indicated strong concerns.
Employment or lack thereof is proving to be a double-edged sword for CFOs. While they are worried about the major consequences unemployment has on consumer spending, CFOs are not planning to increase hiring any time soon. In fact, the hiring projections have hovered around 1% and 2% since the launch of the CFO Signals survey. Instead of adding full-time hires, CFOs are continuing to clean up their balance sheets and execute capital projects often through outsourcing techniques. Many indications are that they are waiting for a more positive direction from the economy before adding full-time employees. And that shift has to be pronounced: it would take a 20% sale gains year over year for 50% of CFOs to hire substantially.
Cash deployment and liquidity management
Many large companies ran into this recessionary period with more cash on hand than ever before and then responded rapidly to control costs and restore earnings. As a consequence, many companies have been able to grow their cash positions and lower their debt numbers. In addition, many large companies have recapitalized at very low interest rates and that also lowered their cost of capital. It also allowed them to outrun their competitors thanks to a market divergence that forces companies with poor balance sheets to raise new capital at higher rates. As for their growing cash coffers, CFOs may feel pressured to return cash to shareholders in the forms of dividends and buybacks, but when asked about their cash deployment plans, they remain committed to allocating almost a quarter to liquidity.
The impact of a black or grey swan event is something CFOs continue to worry about — and should prepare for. Companies with operations in Europe, for example, should plan for additional surprises and residual effects stemming from the euro situation. In addition, a potential conflagration in the Middle East could affect oil supplies and create global instability and demand reductions for an extended period. CFOs may want to consider hedges against increases in oil prices and contingency plans for reducing output efficiently in the event worldwide demand falls.
Government policy and regulation handicaps
There are two policy areas that make it to the top of many CFOs’ lists of core concerns: corporate taxes and health care. In fact, CFOs named tax complexity as their number one burdensome government regulation, and 60% expect a major tax overhaul in the next few years. Health care reform is giving them additional concerns; with some 90% expect a higher cost per employee.
Identifying and developing talent
Finding and developing the right talent is consistently number one or two on many transitioning CFOs’ agendas. Given the increased demands on finance and correspondingly on the skill sets that are valued, many CFOs are finding their current staffs lacking. In fact, in the Q4 2011 CFO Insights survey, 75% of CFOs said their staffs needed stronger analytical skills, 60% needed better political acumen, and almost half required facilitation skills and macroeconomic knowledge.
To meet the demands of their role, many CFOs say they are putting in 12- to 15-hour days at work. A major contributor to this time creep is the massive amount of emails CFOs receive, and they need to put better processes in place, including better delegation, to deal with the decision making inherent in that communication. Responding to 250 to 300 messages a day is simply not effective. Instead, CFOs need to focus on what is most important to their companies at the time — and that means picking your battles and being extremely frugal with your time.
“Whilst global volatility tops CFOs core concerns, there has been a strong shift away from U.S.-centered ways of thinking about finance’s most worrisome risks to a wider global outlook. The impacts of the European sovereign debt crisis and the overall global economic climate are the main drivers behind this shift,” said Babb.