To close the Finance Indaba Africa in style, CFOs and FDs are invited to an exclusive CFO South Africa cocktail function, in collaboration with global credit insurance company Euler Hermes. One of Europe's most revered analysts, chief economist Ludovic Subran, will give a insightful talk about the biggest risks that (South) African CFOs are facing and the best ways to deal with it. To warm up for the main event, we asked Ludovic a few questions.
- Are you an finance executive, but you haven't registered for the exclusive cocktail event with Euler Hermes' chief economist Ludovic Subran yet? Please send an email to Graham Fehrsen, MD CFO South Africa.
- Not registered for the Finance Indaba on 13 & 14 October 2016 yet? All finance professionals can register for free with code FB2016. Click here to register.
Ludovic leads the Economic Research Team at Euler Hermes. This unique department bridges top-notch research on countries and sectors to provide our clients with best-in-class knowledge. Before joining Euler Hermes, Ludovic worked for prestigious institutions such as the French Ministry of Finance, the United Nations and the World Bank. Ludovic also teaches economics at HEC Business School. Ludovic is ranked in the top 100 French leaders of tomorrow; he often shares Euler Hermes' analyses with clients and the media.
"The Finance Indaba program is extensive, with many thought-provoking sessions lined up. The span of the topics encourages the professionals within the CFO's team to interact with other professionals from other sectors on common trends, challenges and importantly also futuristic and digitalization topics." - Ludovic Subran, chief economist Euler Hermes
Which new risks are CFOs underestimating?
"The risks that CFOs could underestimate involve various aspects of which the main ones are:
- the changes in the regulations, for instance in South Africa, where in 2017 a triggering consolidation movement in the insurance sector is foreseen;
- sustainability of country rating;
- currency devaluation and inflation;
- credit risk is still complex to manage: patchwork of regulation, weak currencies, lack of information - securing export business to Africa is still a challenge."
How can finance executives prepare for the future?
"Sponsoring discussions on digitalisation and investing in digitalisation that will improve cost effectiveness of businesses."
What are the most important risks in SA and the rest of Africa?
"The business environment in South Africa is clouded by ongoing structural rigidities, including uneasy labour relations and periodic disruptions to power supplies, and is compounded by at least four other factors:
- weak international commodity prices, with commodities accounting for 14% of total GDP;
- slowdown in China, the country's largest trade partner;
- drought conditions, with weakened agricultural output and import of maize and other foodstuffs;
- and uncertainties relating to U.S. monetary policy tightening.
Structural impediments have limited GDP growth to below that rate. These constraints include a lack of skilled labor, limited job creation (capital intensive industry), high unemployment and underemployment, infrastructure bottlenecks, weak public sector delivery and disruptions to power supplies. Euler Hermes expects annual GDP growth is likely to be below the lower limit of this range in 2016 and 2017 (respectively 0.5% and 1.5%). Against this background, business failures are more likely and insolvencies in South Africa will increase by +5% y/y in 2016, which will be the first outright deterioration since 2009 and the global financial crisis."
What will 2017 look like for SA?
"A protracted period of low growth is expected in the country. South Africa avoided recession, as GDP rose by an annualised +3.3% q/q in Q2, up from an annualised -1.2% q/q contraction in Q1. This growth was particularly driven by the mining sector which rebounded with +11.8%, up from - 18.1% in Q1, and manufacturing, which increased by +8.1% in Q2. Household and government consumption increased by +1% q/q and +1.3% q/q respectively, while investment dropped -4.6%. Despite positive signals, South Africa's twin deficits (current account deficit at -4.1% of GDP, fiscal deficit at -3.5% of GDP), rand volatility caused by political uncertainty, and the associated risk of a rating downgrade, could pose serious future challenges. South Africa's current account financing heavily relies on investment from abroad. Despite resilient FDI inflows - Beijing Automotive International just announced an $819 million automobiles investment. South Africa's external financing relies more on short-term portfolio inflows. These are sensitive to political risk, credit rating changes, and rand volatility."