97% of MENA CEOs say sustainability is important as a driver of value

• 20% of MENA CEOs say the pandemic has fundamentally reshaped their industry for the better
• 64% of MENA CEOs plan to pursue M&A in the next 12 months
• 88% of MENA executives say they have adjusted or are planning to adjust their global operations and supply chains

The EY CEO Survey 2022, part of the CEO Imperative Series, reports that sustainability is a key priority for almost all MENA executives, with 97% naming environmental, social and governance (ESG) principles ‘extremely or more important’ as a driver of value over the coming years, more than other parts of the world.

Of the respondents, 29% see sustainability as an opportunity to gain a competitive advantage. As such, a number of companies are 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. 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.

The survey also shows that 40% of MENA CEOs have seen short-term disruption to their industries as a result of the pandemic, with one in five respondents (20%) saying that it fundamentally reshaped their industry for the better.

Brad Watson, EY MENA Strategy and Transactions Leader, said:

“Executives showing an increased interest in fast-tracking ESG principles can be attributed not only to the pandemic, but to shifting consumption behaviors within the business community. Both government entities and private companies are looking at the sustainability habits of who they conduct business with and the long-term impact of such strategic collaborations.”

Mergers and acquisitions

The EY CEO Survey 2022 highlights that 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.

As MENA businesses work to achieve long-term resilience, 64% of MENA CEOs plan to pursue M&A within the next 12 months.

Brad added:

“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. In 2021, the majority of the acquisition capital was deployed within the region. However, according to our survey, MENA respondents also identify Italy and the UK as sources of deal activity over the next twelve months. It is also clear that MENA companies feel a particular need for diversification, with 57% of MENA respondents saying that they are accelerating cross-border investments – significantly more than the 45% global average.”

Supply chain disruptions

The survey also shows that there are also disparities between the impact of supply chain disruptions in MENA compared to the rest of the world. The well-documented global supply chain disruptions have significantly impacted MENA economies and businesses operating within them. Of those surveyed, 87% of 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.

The EY report also shows that 88% of MENA executives say they have adjusted or are planning to adjust their global operations and supply chains to ensure undisrupted and accelerated fulfillment of products. This compares to a worldwide average of only 79%, indicating that MENA has been more exposed to supply chain shocks. In the Kingdom of Saudi Arabia and the United Arab Emirates, the percentage exceeds 90%.

Brad continued:

“The pandemic forced MENA CEOs to take difficult steps that have already proven to have made MENA companies more resilient on the prosperity that lies ahead. There is an overwhelming drive amongst MENA businesses to balance localization with diversification as they make operational adjustments to blunt the sizable impact of supply chain disruptions. To address food insecurities and critical supply chain challenges, MENA governments have been focusing on localization, particularly in areas like agritech, which continues to gain momentum as an emerging solution to the issue of food security.”

Next-generation digital attitudes

One of the most important and widely acknowledged post-pandemic operational adjustments is digital transformation. More than one-quarter (27%) of MENA respondents say that they are investing in digital transformation solutions - recognizing that by accelerating digital transformation, they can increase profit margins. They also see technology, automation and digital platforms as a means to improve scalability and increase customer interactions through digital touchpoints, and ultimately improve profit margins. Digital transformation is critically important in the region, particularly at a time when the next generation within family businesses are looking for sustainability and resilience through digitization as they transition into leadership roles.

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Notes to editors

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