Oct 26, 2015
October 25th, 2015, Dubai, UAE — It is a well-accepted fact that when it comes to financial risks and impending economic catastrophes, CFOs are the proverbial canaries in the coalmines. As finance professionals, they have their finger on the pulse of the global economy; and so when the CFOs are calm, everyone else in the corporate world should stay calm. And if the CFOs are worried, everyone should be aware that they, too, have a reason to worry.
The recently published CFO Strategies Index reveals that a whopping 86 per cent of finance professionals in the GCC rate the risk exposure of the current global economic and political outlook as either high or very high.
In other words, this might be a good time to worry. And now more than ever, businesses need to tread cautiously and revisit their risk management strategies.
Although many organisations have transitioned out of the crisis management mode necessitated by the recession, its aftershocks continue to be felt in multiple industries. CFOs are increasingly being called upon to use their analytical abilities in service of the big picture, rather than focusing on the nuts and bolts. And this can be especially challenging when the big picture is – quite frankly – grim.
It is clear from the CFO Strategies Index and other relevant indicators that in a post-recession world, CFOs are now more than ever aware of the risks inherent in assuring the continuity of their business and the development of a healthy bottom line.
The index is the first of its kind to be dedicated entirely to the needs of Middle Eastern CFOs, and the results of its second edition were recently previewed to an international gathering of finance professionals at the 9th Annual CFO Strategies Forum, organised by French business facilitation group Naseba.
The index, prepared in partnership with ShiftIN Partners, gathered in-depth responses from CFOs and Finance Directors from some of the largest organisations in the region, including Danone, SABIC, Al Jaber Group and McDonald’s. One of the index’s most telling revelations is that CFOs are not predicting an improvement in the global economic outlook in the feature: most respondents were either uncertain or indifferent about the development of the global market over the next two years.
Eyad Ramlawi, Vice President and Chief Strategy and Finance Officer at Al Turki Holding, believes that a CFO’s most important role is “keeping the Board and other executives aware of how various future scenarios might impact the business”. CFOs might not be fortune-tellers, but their predictions are the closest thing a business has to a crystal ball – and so their lack of enthusiasm over the future is highly significant.
It is also far from unfounded. According to Matein Khalid, Managing Director at IPC Global, the UAE and Saudi Arabia are facing the deflationary “triple whammy” of “the 20% rise in the US dollar index and the 60% fall in crude oil presents to the GCC”, signalling that there are trying times ahead for not only finance professionals and investors in the region, but potentially for everyone.
Mr. Khalid participated in a panel discussion on the macro-economic outlook at the CFO Strategies Forum earlier today, along with Dr. Peter J. Middlebrook, CEO and Managing Director of Public Sector Modernization and Economic Reform at Geopolicity – who shares Mr. Khalid’s sense of caution regarding the lifting of post-recession blues.
According to Dr. Middlebrook, finance professionals would do well to hold on to a healthy amount of cynicism, pointing out that “as an open economy, the UAE is directly affected by the global market and world affairs” and will therefore be directly influenced by developments like the yuan’s imminent entry into the world reserve currency market. He believes that “the US – like most advanced economies – appears on the edge of another recession” and “the immediate outlook appears subdued”.
It is not all doom and gloom, however. Dr. Middlebrook points out that GCC economies could be kept afloat if the appropriate measures are taken. His advice is to “invest east, invest in land, assume things can get worse even if they look to be flat or getting better, and focus on value investments and value-based companies”.
The idea that prudent risk management can help weather even the darkest of storms is clearly shared by regional CFOs: 64.7 per cent of respondents to the CFO Strategies Index reported that their organisation has a formalized risk management function in place. Many report that one of their main challenges is managing business and compliance risk, and that cross-functional coordination is the first priority of a CFO these days. Additionally, 68.6 per cent of respondents believe that the finance function has a very high level of involvement in the decision-making process.
In other words, CFOs are gearing up to take on increasingly high levels of responsibility in helping their organisations navigate the choppy waters of global economic fluctuations. And they are doing so by finding ways to simultaneously be up in the watchtower, keeping an eye on the horizon, and down on the deck with a hand on the helm.