East African CEOs bullish about business prospects

Most East African chief executives are cautiously optimistic about the growth prospects of their companies over the next three years.

More than half of firms operating in the region projects to realise increased earnings by up to 2.5 per cent per annum in the next three years as they signal optimism supported by the modest economic recovery.

The optimism comes despite a challenging economic landscape marked by factors like local currency depreciations, climate change impact, and geopolitical pressures that continue to hit households and businesses in countries such as Kenya.

According to the 2023 CEO outlook survey by audit firm KPMG, 52 per cent of the surveyed executives have projected annual growth of 2.5 per cent in earnings, while some 42 per cent have given a 2.5 - 5 per cent annual growth outlook.

“Based on views from CEOs across the world, the uncertainty is having a ripple effect on businesses. In this year’s KPMG Global CEO survey, both global and East Africa CEOs remain confident in the growth prospects of the global economy and that of their countries,” says Benson Ndungu, Senior Partner and CEO of KPMG East Africa. The 2023 study interviewed 50 CEOs in East Africa and 1,325 globally. Although the economic growth prospects still remain high, the region’s CEO confidence has experienced a marginal decline of 4 per cent compared to last year when KPMG conducted a similar survey.

Unlike 77 per cent of the global executives, 76 per cent of the EA CEOs agree that rising interest rates and tightening monetary policies could prolong any potential recession. “They (CEOs) are, however, alive to the evolving risks and trends that pose a threat to their businesses,” adds Ndung’u.

Countries like Kenya, EA’s biggest economy, have been tightening the Central Bank Rate (CBR) in an attempt to match the US federal reserve position and tame inflation in the domestic markets.

In the last monetary policy decision released early last month, the Central Bank of Kenya (CBK) retained a seven-year high CBR of 10.5 per cent for the second time in a row despite core inflation falling within the government’s preferred range of between 2.5 and 7.5 per cent.

The elevated CBR, which dictates the pricing of loans by commercial banks, means individuals and businesses are facing higher interest rates, a move that has often seen credit to the private sector grow modestly as banks are wary of defaults – now standing at over Sh590 billion.

In East Africa, executives believe trade regulation and political polarisation are the top concerns that can negatively impact the firms’ growth prosperity in the next three years, according to the KPMG report.
“The truth of the matter is that geopolitics is a hostile concern at the moment. For EA, there are things to do with local politics and dynamics that triumph the global politics. Politics needs to stem down,” Jaswinder Bedi, chair of Kenya Private Sector Alliance (Kepsa).

Twenty-four per cent identified regulatory risk as a substantial threat to the growth of their organisations, a higher rate than the global level, where only 9 percent share similar concerns.

This is in addition to political uncertainty, which 18 per cent of both East African and global executives have expressed shared apprehensions.

“In a period of deep economic and geopolitical uncertainty, globally, CEOs are tackling this demanding and rapidly evolving environment with a purpose-led and proactive approach as they face a web of challenges to deliver growth,” says David Leahy, Partner and Head of Clients and Markets, KPMG East Africa.