Most companies around the world were impacted by the pandemic – but they’re rebounding rapidly.
According to the EY CEO Survey 2022, which polled 2,000 global CEOs, businesses are embracing the changes the pandemic brought to the table, and are actively positioning themselves to capture the upside of the economic rebound.
Quintin Hobbs, Strategy and Transactions Leader at EY Africa, said a key theme to emerge from the survey was a steady return of confidence to the markets, with most South African CEOs eyeing acquisitions this year.
“It’s been a rough couple of years for CEOs, with supply-chain bottlenecks, geopolitical turmoil and technological disruption providing string headwinds. But as we approach the two-year mark of the pandemic, businesses are learning to function within a COVID-19 reality. Digital has gone from pandemic necessity to business priority, and a growing emphasis on ESG is compelling companies to consider their sustainability plans,” said Hobbs.
Hobbs highlighted five imperatives that will drive CEO decision-making in the coming year.
CEOs must understand the new post-pandemic world
Most CEOs (86%) saw their businesses impacted by COVID-19, but out of the disruption came significant growth opportunities for first mover companies that make the right choices now. But first, CEOs will have to understand the emerging ‘new world’ and market dynamics as the competitive landscape gets redrawn across all sectors.
“A major area of focus for CEOs is using capital allocation and M&A to swiftly respond to these dynamics, while one in four CEOs sees digital transformation as the single most critical concern on their capital strategy agendas,” said Hobbs.
Geopolitical tensions and supply chain disruption are shifting investment decisions
Most CEOs (88%) are proactively reshaping their global operations and supply chains, and investing in capacity closer to the end market and end users – marking the end of a sustained period of globalisation of supply chains. All but one local CEO noted rising costs in transport, logistics, labour, commodities and raw materials.
“In addition, geopolitical challenges are forcing many executives to adjust strategic investment decisions and capital allocation in certain jurisdictions. We expect to see this play out in Africa in 2022, with CEOs either having delayed or halted projects in countries like China, Chile and Kenya,” said Hobbs.
Capital allocation is a critical aspect of the CEO’s role
CEOs are recognising that many of the strategic decisions they make are, in fact, capital allocation decisions. Investments in new supply chain capacity, new ERP systems, M&A, greenfield businesses or R&D: these are all capital allocation decisions, as are dividend policy and divestment decisions. Recognising that their broader strategy is a capital allocation strategy helps CEOs use better decision-making processes, resulting in enhanced capital allocation results.
Confidence in growth is returning, spurring investment
CEOs clearly recognise the need to invest now to ensure future opportunities. Practically all South Africa’s CEOs expect to pursue acquisitions in 2022, with three in four (74%) planning to accelerate their cross-border investments. The increase in corporate venture capital, capex and corporate investment all point to companies positioning for growth options.
Sustainability is here to stay
ESG has become a permanent feature of capital allocation decisions. But while most CEOs see sustainability as a source of competitive advantage that is fundamental to their long term growth plans, there’s not much of an appetite to use M&A to accelerate their sustainability ranking or footprint, despite 16% of respondents recognising it as the third biggest risk to future growth.
“In addition, CEOs still need to get investor buy-in: a third (30%) face investor resistance to the cost of implementing a sustainability strategy, and more than half (56%) want more visibility of competitors’ strategies before going ahead,” said Hobbs.