Middle East CFO sentiment continues its slide as Covid-19 bites

17 June 2020 Consultancy-me.com

The sentiment of Chief Financial Officers (CFOs) in the Middle East continue to slide, according to PwC’s latest CFO Pulse Survey, which sheds light on how financial leaders in the region are absorbing and responding to the Covid-19-induced downturn.

Expectations on recovery timelines have declined, with the proportion of CFOs expecting recovery to take three months or more increasing to 72% – compared to 66% five weeks ago. The development is in line with the slide in global sentiment.

If COVID-19 were to end today, how long would you estimate it would take for your company to get back to “business as usual”?

Aligned with the increasing recovery timelines, a slightly higher proportion of regional finance leaders expect their company’s revenue and/or profits to decrease – 89% compared to 86% five weeks ago. This is also higher than the global average of 81%, illustrating how the Middle East currently is one of largest impacted regions economically.

Reassuringly for the region, however, the expected severity of this decrease seems to have improved, with only 11% of Middle East CFOs expecting a decrease of over 50%, compared to 19% during the prior survey period.

When asked about concerns around returning to the workplace and operating in a changed business environment, global and regional finance leaders all identified the same top three factors – although with different rankings. Both globally and in the Middle East, concern around the impacts of a global economic downturn came out highest, with 60% of CFOs listing it in their top three.

What impact do you expect on your company’s revenue and/or profits this year as a result of COVID-19?

In the Middle East, the second highest area of concern was the financial impact of Covid-19, including its effects on results of operations, future periods, and liquidity and capital resources, with 55% of CFOs citing it – compared to 47% globally. This concern was the third highest across all territories.

Fears around a new wave of Covid-19 infections completes the top three, although Middle East concerns around this are marginally lower than the global average, with 53% citing it in the region and 49% in the UAE, compared to 58% globally.

In the UAE, concern around a decrease in consumer confidence reducing consumption is significantly higher than elsewhere in the region or globally – with 54% of CFOs citing this, compared to just 35% in the Middle East and 31% globally. The UAE places equal weight on this factor, the impacts of a global downturn and the financial impact of the pandemic – all at 54%.

What are your top-three concerns with respect to returning to the workplace and operating in a changed business environment?

Cost cutting

Not surprisingly, companies across the globe including the Middle East are taking a range of measures to curb costs. In the Middle East, 96% of CFOs are now considering implementing cost containment measures compared to 87% in the previous survey. Deferring or cancelling payments is considered by two thirds of finance leaders, notably this percentage is higher than the global average.

Just under half of regional leaders are in the process of changing their financial plans, while 12% are working on revised M&A plans, compared to 17% during the previous survey conducted in May.

Which of the following financial actions is your company considering as a result of COVID-19?

Slashing human resource costs is a major cost cutting measure on the table in the Middle East. While globally layoffs and furloughs now less likely than five weeks ago, in the region, Middle East CFOs are still more likely to expect layoffs, at 39%. This number is even more pronounced in the UAE where 51% of CFOs expect to see layoffs in the next month, compared to 39% during the last survey.

An increasing number of regional finance executives are also expecting changes in staffing due to temporary furloughs. 52% of executives in the region and 59% in the UAE expect this to occur in the next month, the latter has increased from 39% in the previous survey.

As a result of COVID-19, which of the following does your company expect to occur in the next month?

Rebuilding revenues

Looking ahead at the recovery phase, leaders are gradually shifting their attention from business continuity to rebuilding revenue streams. In the Middle East, 61% of executives are focused on their pricing strategies, such as offering different payment terms or increasing/decreasing the price of their offering, and 53% are making changes to their product or service by offering new, enhanced, or paired-down solutions.

CFOs in the UAE are also looking to make changes to their geographic footprint to rebuild or enhance revenue – 51% are considering entering new markets or leaving markets they currently operate in to do so.

Changes in which of the following will be most important to rebuilding or enhancing your revenue streams?

Notably, making talent related changes to enhance revenue, such as hiring new talent or upskilling existing employees, is according to PwC’s survey not a priority in the Middle East. Only 10% of finance executives in the region would make this type of change compared to 27% of executives globally.

“As the region transitions to the new normal, organisations must not forget how they have been able to adapt under extreme economic pressure and harness the lessons learnt as they look towards the future. It is interesting to note that our survey results consistently show that regional CFOs are increasingly more likely to adopt automation and new ways of working, compared to their global peers,” said Stephen Anderson, Markets and Strategy Leader at PwC Middle East.