Government and the 19th Annual Global CEO Survey / 2016 Redefining success in a changing world A more connected, yet divided, world? www.pwc.com/ceosurvey
Contents A more connected, yet divided, world? 03 How confident are CEOs? 04 Where is growth coming from? 05 Where are the clouds on the horizon for CEOs? 06 A new world order? 2 Government and the 19th Annual Global CEO Survey / 2016: A more connected, yet divided, world?
A more connected, yet divided, world? CEOs who responded to the 19th Annual Global CEO Survey have become less optimistic about global economic growth prospects. Nearly half of CEOs surveyed believe that global growth will plateau over the next 12 months. Overregulation remains the top concern for business while geopolitical uncertainty, exchange rate volatility, skills availability, fiscal deficits/debt and an increasing tax burden are also clouds on the horizon. 74% of CEOs are concerned about geopolitical uncertainty How confident are CEOs? Over the past year, business sentiment seems to have become further becalmed with 49% of CEOs who responded to this year s Survey believing that global economic growth will stay the same over the next 12 months, while those thinking it will improve has fallen to 27% (see Figure 1). It also seems that, unlike last year, lacklustre economic growth expectations and rising concerns about potential threats (discussed later) are having an impact on CEOs confidence in their own short term growth prospects. Figure 1 CEO confidence in revenue growth Q: How confident are you about your company s prospects for revenue growth over the next 12 months and next three years? Do you believe global economic growth will improve, stay the same, or decline over the next 12 months? 31% 41% 52% 44% 50% 42% 34% 50% 51% 48% 47% 40% 46% 46% 44% 39% 36% 49% 39% 37% 49% 35% 31% 27% 21% 15% 18% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Global economic growth (improve) Confidence in next 12 months (very confident) Confidence in next three years (very confident) Note: From 2012 2014 respondents were asked do you believe the global economy will improve, stay the same or decline over the next 12 months Base: All respondents (2016= 1,409; 2015= 1,322; 2014=1,344; 2013=1,330; 2012=1,258; 2011=1,201; 2010=1,198; 2009=1,124; 2008=1,150; 2007=1,084) PwC 3
Figure 2 Top ten attractive markets for growth Q: Which three countries, excluding the one in which you are based, do you consider most important for your overall growth prospects over the next 12 months? 2016 2015 There are, however, some regional differences in sentiment. Short-term confidence has fallen most dramatically in North America, Latin America and the Middle East. However, in the long term (next three years) confidence is highest in North America and the Middle East. US China Germany UK 39% 34% 19% 11% 38% 34% 19% 11% Where is growth coming from? CEOs see growth opportunities emanating from diverse places. Mature markets are generally in favour, notably the US, which has remained ahead of China as the most important country for the overall growth prospects in the next 12 months for the CEOs surveyed. Meanwhile, Mexico and UAE make the top ten this year (see Figure 2). CEOs view Mexico as the most important emerging market (excluding the BRICs) for overall growth, closely followed by UAE. But the marketplace remains uncertain and volatile with about two thirds of the CEOs surveyed identifying that there are more threats to growth while a similar (slightly lower) proportion see more opportunities compared to the 18th Annual Global CEO Survey (see Figure 3). India 9% 10% Figure 3 Uncertain times? Q: To what extent do you agree or disagree with the following statements about threats and opportunities facing your business? Brazil Japan Russia Mexico UAE Up from last year 8% 5% 5% 5% 5% Same rank as last year Base: All respondents (2016= 1,409; 2015=1,322) Indonesia Australia 9% 8% 6% 6% 6% Down from last year 2015 31% 30% 29% 2016 26% see only more opportunities 34% see both more opportunities and more threats 32% see only more threats 60% see more opportunities 66% see more threats Base: All respondents (2016= 1,409; 2015=1,322) 4 Government and the 19th Annual Global CEO Survey / 2016: A more connected, yet divided, world?
A more connected, yet divided, world? Figure 4 Threats to business Q: How concerned are you about the following potential economic, policy, social and business threats to your organisation s growth prospects? Top-three threats Over-regulation Geopolitical uncertainty 79% 74% Key threats Over-regulation Geopolitical uncertainty Exchange rate volatility Availability of key skills Government response to fiscal deficit and debt burden Increasing tax burden Social instability Cyber threats Shift in consumer spending and behaviours Lack of trust in business Climate change and environmental damage Top risers since 2015 Bribery and corruption 51 55 79% 74% 73% 72% 71% 69% 65% 61% 60% 55% 50% Social instability Exchange rate volatility 73% 2015 2016 2015 2016 Base: All respondents (2016= 1,409) 60 65 Where are the clouds on the horizon for CEOs? CEOs level of concern has again increased across a number of potential threats this year. But CEOs still see the enduring issue of overregulation as the top threat to their growth prospects this year, with 79% of CEOs concerned. (see Figure 4). Over-regulation is a particular problem for CEOs surveyed in companies with over $10 billion turnover (88% of CEOs surveyed) and for CEOs in Latin and North America as well as Western Europe (all with eight in ten or more of CEOs surveyed). In addition, 42% of CEOs surveyed believe unclear or inconsistent standards or regulations are a barrier to responding to stakeholder expectations. The call therefore grows ever louder for a smarter approach to regulation (see 'Smarter regulation' box). Added last year as a new threat, in this year s Survey geopolitical uncertainty has also quickly risen to prominence and is now seen as a top-3 threat. This is particularly the case in the Middle East (94% of CEOs surveyed) and Central and Eastern Europe (86%) where it is the top threat in both of these regions, perhaps reflecting the levels of tension inherent in regions where there is conflict. Social instability has also seen the biggest surge in concern over the past year (by five percentage points globally) and is also the second biggest concern for CEOs surveyed in the Middle East (91%). Geopolitical uncertainty, in turn, impacts on business investment and locational decisions. Indeed, 84% of the CEOs surveyed in companies with over $10 billion revenues in the last year, and those therefore most likely to have the greatest international exposure, appear to be extremely or somewhat concerned by this threat. In general, CEOs appear to be increasingly concerned across the majority of potential threats (compared to previous years). With geopolitical uncertainty on the rise, and social instability seeing the biggest increase, the conclusion might be drawn that business is increasingly troubled. PwC 5
Smarter regulation 1 For regulation to be smarter it needs to be proportionate, accountable, consistent, transparent and targeted. In particular, a smarter approach to regulation needs a focus on: Outcomes and impacts, not purely process and box-ticking. Clarity and stability, with rules for regulation that are clear and not subject to constant tinkering. Even-handed implementation, with not only a transparent set of rules, but implementation that is done in a fair way. A new world order? This does seem to be borne out by the emerging view of the CEOs we surveyed who believe that the world is becoming more divergent (see Figure 5). The majority of CEOs surveyed (three quarters or more) believe there is a move towards multiple belief and value systems, laws and liberties together with the rise of regional trading blocs and investment banks. And yet there is a high level of agreement that the world is more connected than ever before through free and open access to the internet. We are living in a day and age where technology gets us connected so easily, but also is drawing us somehow apart. His Excellency Marwan el Sarkal CEO, Sharjah Investment and Development Authority Figure 5 What s the world coming to? Q: For each alternative, please select the one that you believe the world is moving more towards. Political unions 39% 53% Nationalism and devolved nations Economic unions and unified economic models 35% 59% Multiple economic models Single global marketplace 22% 75% Regional trading blocs Single global rule of law and liberties 15% 81% Multiple rules of law and liberties Common global beliefs and value systems 14% 83% Multiple beliefs and value systems Free and open access to the internet 72% 25% Fragmented access to the internet A global world bank 15% 79% Regional investment banks Base: All respondents (2016= 1,409) 6 Government and the 19th Annual Global CEO Survey / 2016: A more connected, yet divided, world?
A more connected, yet divided, world? Border management facilitating prosperity, maintaining security 2 Globalisation brings real opportunities and effective border management is an integral element of what needs to be put in place to both facilitate prosperity and maintain security. Although events in Paris have changed many perceptions, governments that wish to share in the benefits of globalisation have to be able to facilitate the movement of people and trade. This presents challenges for border management arrangements, particularly when under additional pressure from the large numbers of refugees and displaced people from conflict areas. Governments have to reconcile the demands of commerce and travellers for high standards of service, particularly timeliness, nd the requirement to examine the goods and people wanting to enter to ensure their true identity and safety. Security and service to travellers are not conflicting, but dependent. Any national economy that wants to compete globally has to provide those visiting or trading levels of security. Effective border management needs innovative technology and infrastructure, effective international cooperation, coherent processes and an agile organisation. Figure 6 Megatrends in action Q: Please rank the top three global trends, which you believe will be most likely to transform wider stakeholder expectations of businesses within your sector over the next five years? Technological advances Demographic shifts Shift in global economic power Resource scarcity and climate change Urbanisation This divergence of views is being driven primarily by technology, demographics and economic shifts (see Figure 6) and the collisions between them. Even as globalisation and digital connectivity brings the world closer together, people appear to be becoming more polarised, localised and divided. Together these factors are changing wider stakeholders expectations of business and of government. 36% 43% 58% 61% Note: Percentage of respondents ranking first, second or third Base: All respondents (2016= 1,409) 77% In this context, it is not surprising to see that governments are being challenged on many fronts, not least how best to cope with some of the more far-reaching consequences, such as how to manage their borders to maintain prosperity while being agile to deploy military resources to address new challenges (see Border management facilitating prosperity, maintaining security and A new global defense map boxes). How nations address these challenges will also profoundly impact global stability. In the rest of this report, we look at how government and public sector organisations can enable prosperity, with a focus on doing better with less, enabling growth and working with businesses with a new societal purpose to co-produce outcomes. PwC 7
A new global defense map 3 Nations around the globe are facing a myriad of threats that vary greatly in both scope and scale and are transforming the global defence landscape. As a consequence, governments are considering how to prioritise their defence spending and position or 'posture' their countries in the new global security environment, where threats are as great from 'lone wolves' and terrorist groups as they are from neighbouring nations (see Figure 7). The resulting security challenges leave defence leaders with some tough choices: What institutional reform initiatives are needed to posture their ministries for the future? What procurement priorities are needed for the coming years? How do they build the necessary organisational agility in order to address a wider range of threats? How should they cooperate with allies and partners around the world? What should be the priorities for their domestic industrial base? In order to address this complex and dynamic threat environment, defence ministries around the world must adapt their operating concepts, acquire advanced capabilities, and transform their business processes to create more agile and effective organisations. Figure 7 A New Global Defense Map Security Posture Domestic Regional Global Coalition Partners Germany The Netherlands Sweden Spain Canada Italy Australia Constrained Force Projectors China UK France Switzerland Denmark Finland Turkey Lithuania Belgium Latvia Norway Poland South Africa Croatia Austria New Zealand Brazil Estonia Japan Portugal Greece Argentina Egypt Indonesia Philippines Chile Qatar Malaysia Vietnam Mexico Venezuela Thailand Taiwan Iran India South Korea Pakistan Colombia USA Ukraine Singapore Kuwait Global Power Projectors Morocco Bahrain Iraq Notes: Country bubble size = 2014 total defense spend 2010 14 Growth <0 2010 14 Growth 0 1% 2010 14 Growth >1% Russia Israel 5.2% UAE Saudi Arabia 10.4% Oman 5.1% Algeria 11.6% Angola Syria 5.2% 5.9% 5.4% 0% Territorial Security Seekers Threat-Focused Self-Defenders Robust Self-Defenders Defense Prioritization (2014 Defense Spend % GDP) // 0.5% 1% 1.5% 2% 2.5% 3% 3.5% 4% 4.5% 5% Security Posture Does the country have a global, regional or domestic security orientation? Defense Prioritization How much does the country spend: total and % GDP? Recent trends and expected future vector: upward, flat or down? Source: SIPRI, Teal Group International Defense Briefing, The Military Balance, IHS Defense Budgets, PwC Analysis 8 Government and the 19th Annual Global CEO Survey / 2016: A more connected, yet divided, world?
Notes and sources 1. www.pwc.com/gx/en/industries/governmentpublic-services/public-sector-research-centre/ publications/government-global-ceo.html 2. www.pwc.com/gx/en/industries/governmentpublic-services/public-sector-research-centre/ publications/future-border-management.html 3. www.pwc.com/gx/en/industries/governmentpublic-services/public-sector-research-centre/ publications/global-defense-perspectives.html PwC 9
Contacts Rollie Quinn United States rollie.quinn@us.pwc.com +1 703 625 3760 Nick C Jones United Kingdom nick.c.jones@uk.pwc.com +44 0 20 7213 1593 Join the debate. www.psrc.pwc.com The Public Sector Research Centre is PwC s online community for insight and research into the most pressing issues and challenges facing government and public sector organisations, today and in the future. The PSRC enables the collaborative exchange of ideas between policy makers, opinion formers, market experts, academics and practitioners internationally. To access this free resource, and register for publications, please visit www.psrc.pwc.com www.psrc.pwc.com At PwC, our purpose is to build trust in society and solve important problems. We re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2016 PwC. All rights reserved. 'PwC' refers to the PwC network and/or one of more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. The Design Group PwC UK 30247 (01/16)