A rip-roaring 2018 beckons as optimism of global CEOs surges to a record

DAVOS — The world’s economy looks set for a rosy year. On the day that the IMF once again upgraded its forecast for GDP growth, professional services giant PwC released the results of research which shows record optimism among global CEOs. The firm’s annual survey, its 21st, polled over 1,300 CEOs. The upbeat conclusions were released in Davos ahead of the WEF’s annual meeting, suggesting that 2018 will be one of the most exciting years in recent memory. Shortly after PwC chairman Bob Moritz took the wraps off the most buoyant results ever, he sat down for a chat about the highlights. – Alec Hogg

This podcast was made possible by BrightRock, the company that introduced the first-ever needs-matched life insurance. I’m with Bob Moritz, chairman of PWC. Bob, you had some quite provocative things to say towards the end of the conversation today, ahead of Donald Trump coming to Davos. The conversation needs to be perhaps a bit more lively.

Yeah, absolutely. I think when you come to Davos one of the concerns that everybody has when they look inside Davos is, all these people are here. What are we getting as an end result and are we actually getting a different result. The only way you do that is actually bringing a provocative point of view and really challenging one another respectfully, by trying to push the agenda much more forward and it’s an agenda that actually has to serve more, massive people in a much more inclusive way. So, I do think there’s a need and to not only be provocative in the thoughts, but more importantly, come out of this with execution and actions that can lead to better results.

Global Chairman of PwC Bob Moritz

Do you think Donald Trump is going to do that?

I think Donald Trump is going to come with a US point of view, as he rightfully should, no different than the other leaders that are here. He’s going to be provocative. I’m not seeing a significant amount of change going forward, but I do think then the other leaders and business community have to say, okay, as a result of that – what do we do about that; when it comes to the issues around immigration, when it comes to the issues around refugees, when it comes to the issues around inclusive environment to actually be more inclusive so we don’t have this divide, which we saw in our CEO Survey, about people who believe growth is a benefit about the many versus the few, and we’re almost split – one half and one half right now so it is a very polarising world. The challenge is how do we at least come together to say, ‘how can we make it less polarised going forward?’

The CEO Survey talks to 1,300 CEOs around the world. The Americans seem to have a very different view this time round to pretty much everyone else. What is it that is making Americans think differently?

I think you’ve got two things that really are driving it. One is you’ve got the underlying elements that have driven the US in the past – resilient workforce, innovation, a consumer that’s willing to innovate and buy for innovation, and a rule of law that I think everybody understands how to operate. I think that’s been there for quite some time, and that continues. I think the second thing now to the positive has been, okay, now there’s less regulation, and over regulation has been our top issue in the past, for the US CEOs. No longer the top issue because of some of the things the administration has done, and tax reform that I think has freed up some capital and investment opportunities so I do think you’ll see a lot more upside there, going forward.

Sorry, so regulations no longer the top issue in the US but the rest of the world it is?

Correct, and that continues. Now, regulation is still a big issue in the US. It only dropped down to number 2, whereas it used to be number one. I think the US has a complicated system between what happens at a state, local, and federal level, but what they’re seeing is some change at a federal level right now that I think that is giving it some benefit. So the momentum continues to build and on that point of regulation you see a lot more, what I call balanced regulation for the benefit. Versus a lot of overlay of extra regulation, and you use a good example of that where there’s concern coming out of Brussels with the UN in terms of how much is coming in there versus what’s happening in a country. So you do see regions of the world going in opposite directions and that’s a ‘one size fits all,’ doesn’t work anymore. We have to actually think about things from regional and countries perspectives to really have context, and that includes and comes across in the confidence in the CEOs, once you dive deeper in the results that we’ve got today.

Now, in your presentation you touched very briefly on SA, Southern Africa, (and we know geopolitics are very important), Southern Africa seems to be changing and that we’ve had two massive changes to the political dispensation in Zimbabwe and SA. Obviously it came too late for this survey but from what you know and your sense of how CEOs react. How do you think this will be interpreted, in let’s say, the next years time?

Yeah, I think the CEOs, first and foremost, need to understand was the change for the better or not, or is it neutral. I think it’s going to be important to say, okay, as you look at the concerns around corruption, the concerns around infrastructure, and the current concerns around the ability to leapfrog to the next generation of how to get things done. Leveraging technology remain to be seen in the eyes of the CEOs. The second thing is that CEOs have many choices of where to deploy capital and the question is, ‘where is Africa relatively on that next generation list in the top-10?’ I think right now, they don’t see it yet, at that level, until some of these other things come to fruition. I think they see it over the next two or three decades when you look at the demographics, the amount of people that are there, and some of the opportunities so I think there’s a lot more willingness to wait and say, ‘prove it to me first before I go big and heavy in investment’ that’s going to get it to the level of an India or China for example, as we sit here today.

The Brazilian story is interesting, specifically again for SA. Brazil has ‘Operation Car Wash.’ They’re addressing corruption. SA is almost two years behind where Brazil is, but moving in the same direction. Just tell us what’s happened in Brazil as with regards to the CEO’s confidence levels.

So the CEO confidence level on the economy has gone through the roof in Brazil. They’re at 80% confidence level that the economy will grow over the next year. Their confidence level and their ability to deliver results locally are a little bit more muted, in terms of can they actually deliver it? They still have some issues to deal with in terms of laws, regulations, and fixing the problems in the past, be it politics, economics, or otherwise. The thing that Brazil had in a very positive way was the willingness for other countries to invest was to look at the natural resources, and I think that’s important. I think that’s where the connection to Africa is important too because Africa been seen as a region that has those opportunities. They’re going to probably do more self-promotion. I think China took advantage of that over the last couple of years with the amount of investment it made in Africa, more broadly. That clearly was demonstrated in China as well, as they pivoted from Brazil to Africa. I’m going to argue when you look at the number of flights that used to go to Brazil that are now going to Africa. So there’s an opportunity there for it as well but again it comes back to these basics of, ‘are you demonstrating it in a multiple year period this trend of improvement?’ Brazil has had that for the last two or three years. I think everybody is waiting to see if that trend will happen in Africa, knowing we had a moment in time this last six months, will we see two to three years of the trend line going in the right direction. Or will we have starts and stops along the way.

Artificial intelligence, an area that you said you’re investing heavily at PwC. How and/or where specifically?

So in the case of PwC we’re investing in joint-ventures, acquisitions of talent, acquisitions outright of new talent, new capabilities, new intellectual property, and new technologies that have an implication on our business. We are disrupting our businesses in much different ways to provide more value, more digital skillsets, more knowledge, and insight, leveraging technology to do that more effectively and efficiently. That cuts across every one of our businesses. Second is what are we doing to actually think about how systems should change, taxation is a great example. Today taxation systems are based upon organisations, self-reporting their income, self-reporting taxation, and then the government has to then debate whether they’ve paid enough taxes. Going forward, data should be able to tell countries what tax should be paid, and that may actually no longer require self-reporting and compliance. In fact, it will put the onus on the companies to defend what they’re doing rather than the countries, governments, and the administrations to do that. We have to think differently about our value proposition in that regard so that’s going to be a change as you look at compliance in repeatable tasks in terms of what the world wants, needs, and what remains relevant to society in building trust right now and trust is going to be gained in different ways. Trust will be gained through a digital platform versus a self-reported manual platform and I think everybody has got to be prepared, PwC included.

You raised the issue of disruption. In this survey the numbers and results that came back were record highs. Now, is this because the CEOs are not seeing disruption or do they think it’s not going to affect them, or are they dinosaurs who are chewing, seeing the meteor coming and say, ‘well, there’s not much we can do about it anyway – let’s just enjoy the grass while it’s here?’

I think you’ve got a couple of different things. You’ve got organisations that have not yet seen the disruptive threat that’s coming their way, and I think there are going to be lessons learnt around that. I think you see other organisations where the disruption is happening but it’s not scalable yet, but it’s yet to come. There’s a debate in terms of how quickly it will come. Some organisations think it’s in the next two to three years, others say it’s in the next five to 10 so, the question is, what do you do now, in order to be better prepared for that?’ There’s others that would say, ‘on a relative basis to me and my industry – I’m further ahead than my competitors and as long as I stay ahead of my competition I’m well off.’ So my challenge is actually to stay a leg or two ahead so each one is a little different, depending on who you talk to. All of that still drives to there’s a thread out there of disruption that’s coming, and I think the reckoning will happen over the next few years that CEOs are starting to wake up to, starting to pay attention to, and starting to put their skills and resources to work to be better prepared for it.

Just to close off with, another American question and another divergence of the USA with the rest of the world is Climate Change.

Climate Change came across as a very increasing threat that all the CEOs are focussed on. It did not emanate out of the US changing its mind. The CEOs in the US did not significantly increase that threat. It was the rest of the world, I think in reaction to the US and particular administrations’ point of view around the Paris accord that caused other CEOs to be very concerned now if the US is in fact, pulling out. I do think this is a great example where we need to understand what the US is looking for and why. Many CEOs also already believe, we are doing a lot there in compliance with the Paris accords, regardless of whether we’re in it or not. As a result, I think the question is going to be, how much more form versus substance is there in climate change and the actions that are being done, but it’s clear that the CEOs outside of the US are very concerned because if the US is out, in a substantive way and not a form way, then there’s a negative implication that comes. As a result, that’s the top threat that I think people are paying particular attention to, and over the next year I think we’ll watch carefully what the administration wants to do here in the US.

But why are the American CEOs not taking this as seriously as they are elsewhere in the world?

I think the US CEOs are starting to pay more attention to it but in the series of other threats that are out there, like cyber, it’s still at a relatively low-level. I think you had a long history where European countries and other countries around the world have obviously, put that foremost in the front, and I think it’s going to rise in importance as you look at the consumer base, the employer base where they’re going to pay a lot more attention to this and whilst we’re seeing that, with all the threats that are going on around the world and all the natural disasters that have happened as well.

How long have you been coming to Davos?

Eleven years.

How long have you been with PwC?

I’ve been with PwC for almost 30 years now.

But this survey is always the opener for Davos. When you look at it this year, are you happy that you’re the guy giving the good news than some of your predecessors, who haven’t had as happy a picture to sell?

So from my perspective, I’m happy to bring the good news but also to make sure that people are not complacent in that good news. Our challenge right now is to make sure you’re taking advantage of the opportunities but you had better be preparing for anything that might come your way. As we saw in the last 12 months, you can predict the future with a level of certainty so we’ve got to be prepared for agility, resiliency, and the opportunity to take advantage of the opportunities one you have them in front of you.

FILE: The Congress Center, venue for the World Economic Forum (WEF), center, stands on the Promenade at dusk in Davos, Switzerland. Photographer: Michele Limina/Bloomberg

We had Christine Lagarde from the IMF today telling us that things are also looking good from their economic forecast. However, it’s a cyclical upswing and it can run out of steam and if you don’t reform you’re in trouble. It’s a similar conclusion you come to?

Yes absolutely and you’ve got a lot of upside, a lot of momentum building but it can turn pretty instantly. All you need is a few things to happen in this economy, and of course society is somewhat fragile. If we have one or two of those threats hitting all at the same time – you’re in a much different world, and I think we have to be prepared for that. That’s why it’s important to make sure that people are not complacent and we’re learning from the lessons of the past, going forward.

Bob Moritz is the Chairman of PwC. This podcast was made possible by BrightRock, the company that introduced the first-ever needs-matched life insurance.

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