Most Middle East CFOs still in cost cutting and mitigation mode

CFOs across the Middle East don’t expect things to normalise any time before the latter half of next year, according to a new Deloitte survey. Most are still in the process of responding to the crisis, with recovery still some way in the distance. 

This was Deloitte’s 16th CFO survey in the Middle East, featuring responses from experienced financial leaders centred mostly in the UAE, KSA and Qatar. The majority are in charge of companies with $100 million plus in revenue, spanning the financial services, consumer business, energy & resources, manufacturing, family business, and technology, media & telecom sectors, among others.

Survey responses were gathered recently – with most businesses taking stock of the sizeable pandemic impact, and many were well into their response plans. The outlook was far from sunny, with more than half of all CFOs indicating an adverse or severely adverse impact across all financial pillars since the start of this year.

The biggest impact was on revenues, as spending across the board came to a grinding halt amid economic uncertainty. Closely related, severe effects were felt on receivable collection periods. A vicious cycle emerged, where squeezed cash flow caused delays in payments, which put a further squeeze on cash reserves and operating margins for the companies due to receive payments. 

Supply chain disruptions were also in among the top challenges, as varying government-enforced restrictions from one border to the next caused a logistical nightmare. No doubt, as all financials looked fragile, few were in a position to focus on investments or discretionary spending – both of which also suffered.

It comes as no surprise that CFOs were pessimistic. In June, fellow Big Four accounting and advisory firm PwC conducted its own CFO survey in the Middle East, reporting a steady slide in sentiment across the region. For many, this period has been about damage control, or what Deloitte describes as “mitigating measures.”

“Company-wide cost cutting programs were the most implemented measure taken to cushion the effects of Covid-19, with this also being ranked as the most effective. CFOs are planning to ensure that the effective measures implemented in response to Covid-19 are retained,” explained Declan Hayes, Middle East CFO Programme Leader.

Indeed, the pandemic was an eye-opener for many businesses, as they were forced to take a close look at inefficiencies and redundancies within their organisation. Many are using the pandemic response as an opportunity to implement far-reaching optimisation measures, which will become permanent fixtures in operating models going forth.

While the majority are looking to the cost column for optimisation, efforts are also being directed at revenue strategies and growth initiatives. Others are looking to optimise working capital, while a significant chunk have accelerated their digital transformation efforts to prepare for the post-pandemic world.

A notable feature of the global pandemic response has also been job cuts, which were also a reality in the Middle East. That being said, the researchers point out that CFOs were highly polarised on the issue of staff and salary cuts – some put it at the centre of their response strategy while others didn’t consider it at all.

All in all, far-reaching steps are being taken to ensure business continuity amid the pandemic. For business leaders, the goal is to wait out the thick of economic shockwaves before turning to life in the new normal, although many expect this wait to be lengthy. Nearly half of Deloitte’s CFO respondents expect at least a year to pass before they can return to pre-crisis levels of operation.

Mixed in with this realistic assessment is an acceptance that certain things might have changed for good. “CFOs mostly agree or are neutral in their assessment of the continuation of remote working, indicating that certain Business Units may return to the office, whilst others are likely to have more flexible arrangements,” explained Hayes.

Preparations are already underway for this post-pandemic reality. Given that remote working might well be here to stay, nearly 40% plan to up their investment in virtual operating capabilities over the next year or so. Tech investments will be a key feature here, something that has been highlighted by several experts as the world prepares for the ‘new normal'.

In related news, Deloitte's latest European CFO study found that while sentiment is rebounding, a clear divide is emerging across countries and industries.