6 minute read 21 Mar 2022
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The CEO Imperative: MENA execs use disruption to reshape their future

By Brad Watson

EY MENA Strategy and Transactions Leader

Senior advisor to government and private sectors for 25 years. Passionate about infrastructure. Married to his high school sweetheart. Proud father of two kids and four dogs. Golfer and scuba diver.

6 minute read 21 Mar 2022

Believing the worst of the pandemic is behind them, MENA CEOs are using M&A to optimize portfolios and invest in the future.

In brief

  • MENA CEOs balance localization with diversification as they make operational adjustments to blunt the sizable impact of supply chain disruptions.
  • Above-average M&A in 2021 should continue into 2022 as MENA CEOs look to optimize portfolios for future growth.
  • Sustainability is a key priority for almost all MENA executives, with a healthy minority seeing it as an opportunity to gain a competitive advantage.

Executives in Middle East and North Africa (MENA) are largely convinced that the COVID-19 pandemic, which they perceived to be the single largest risk to their business — an apocalypse of sorts — has turned into a renaissance event. It is catalyzing MENA CEOs to undertake much-needed reorganization and digitization of organizations.

In this edition of the CEO Imperative Series, which provides critical answers and actions to help CEOs reframe the future of their organizations, we explore how MENA CEOs are responding to the pandemic and the recovery in the EY CEO Survey 2022. we find that 40% of MENA respondents say that the pandemic caused short-term disruption to their industry. Positively, one in five respondents say that it has fundamentally reshaped their industry for the better.

COVID-19 pandemic impact

20%

of MENA CEOs say the pandemic has fundamentally reshaped their industry for the better.

With oil prices ascending, businesses are further bullish about government spending and the related trickle-down effect of regional economies.

Supply chain disruptions have a bigger impact on an importing region

Gulf Cooperation Council (GCC) countries are heavily dependent on imports for essential goods. Supply chain disruptions during COVID have had an outsized impact on select MENA companies during the pandemic. Furthermore, 87% of MENA respondents indicate that they have seen a significant rise in input prices, particularly in transport and logistics, with shipping freight rates alone increasing significantly over the last 12 months.

To address food insecurities and supply chain challenges, MENA governments have been focusing on localization, particularly in agritech. Vertical farming, for example, continues to gain momentum in the region.

Many more MENA executives than global executives (88% versus 79%) say they have adjusted or are planning to adjust their global operations and supply chains to ensure undisrupted and accelerated fulfillment of products. In KSA and UAE, the percentage exceeds 90%. However, not all of these adjustments are related to the pandemic. Fully half of MENA respondents have made modifications to manage geopolitical risks.

Global risks spur operational adjustments

88%

of MENA CEOs are making adjustments to their global operations and supply chains.

Pandemic provides an opportunity for portfolio optimization

In addition to modifying global operations and supply chains, MENA executives are looking to optimize portfolios through deal-making. In a typical pre-COVID year, MENA companies engage in between 400 and 500 transactions across the region. In 2021, that number rose to approximately 650 as the pandemic accelerated portfolio optimization. We expect above-average M&A activity to continue in 2022 as MENA companies and government-related entities acquire bolt-on operations to strengthen core areas of their portfolio while divesting of non-core assets. Nearly two-thirds (64%) of MENA respondents indicate that their companies will be pursuing M&A in the year ahead.

M&A outlook

64%

of MENA CEOs plan to pursue M&A in the next 12 months.

In 2021, the majority of the acquisition capital was deployed within the region. However, according to our survey, while the top three destinations (UAE, Saudi Arabia and Israel) are within the region, MENA respondents also identify Italy and the UK as sources of deal activity. MENA companies also feel the need for diversification, with 57% of MENA respondents (versus 45% of global respondents) saying that they are accelerating cross-border investments.

Next generation of MENA executives see digital transformation as a vital investment

Although MENA executives are clearly focusing on building business resilience today, they are also investing for the future. More than one quarter (27%) of MENA respondents say that they are investing in digital and transformation. These executives recognize that by accelerating digital transformation they can accelerate profit margins. They also see technology, automation and digital platforms as a means to improve scalability and increase customer interactions through digital touch points, and ultimately improve profit margins. Digital transformation is critically important in the region as the next generation in family businesses are transitioning into leadership roles.

Sustainability is a key priority for virtually every MENA company

More than other parts of the world, sustainability is top-of-mind for MENA executives, with 97% saying it is extremely or more important as a driver of value over the next few years. As such, every company of merit is looking to embed sustainability into their business strategies as they plan for the future.

One-third (33%) of MENA respondents say that pressure from governments, regulators and society are the primary drivers of their sustainability strategy. However, 29% believe that becoming a leader in sustainability will give them a competitive advantage. And while MENA companies may be encountering resistance from some investors regarding their sustainability transition strategy, they also recognize that it is an important factor in attracting sustainability-minded investors and talent.

With the worst behind them, MENA companies focus on the future

As MENA companies build resilience for today and prepare for the future, many believe the worst of the pandemic is behind them. MENA CEOs are proud of how the MENA governments responded to COVID, despite a lack of experience or a playbook to deal with epidemics. The pandemic forced MENA CEOs to take difficult steps and make tough decisions that they may have been putting off for years. These actions have made MENA companies stronger and more focused on the prosperity that lies ahead.

Summary

The EY CEO Survey 2022 is a part of the CEO Imperative Series, which provides critical answers and actions to help CEOs reframe the future of their organizations.

In MENA, CEOs see disruption as an opportunity to reshape their organizations, building resilience for today and investing for future growth — with M&A continuing to be a key driver to achieve their ambitions.

About this article

By Brad Watson

EY MENA Strategy and Transactions Leader

Senior advisor to government and private sectors for 25 years. Passionate about infrastructure. Married to his high school sweetheart. Proud father of two kids and four dogs. Golfer and scuba diver.