Global issues like Coronavirus impact Irish CEOs’ confidence

While growth remains on the agenda of Irish CEOs, global trends including the impact the Coronavirus (Covid-19) cannot be ignored.

PwC’s 2020 Irish CEO survey reveals that uncertainty about the future prospects for the Irish economy has increased, with last year’s cautious optimism turning to a more pessimistic tone.

Many CEOs believe, however, that their organisations will remain resilient for whatever the future holds. A majority of CEOs (67pc) are confident about their organisation’s revenue growth and nearly half of respondents (47pc) plan to hire more people in the year ahead.

“It is not surprising, given all that is going on globally that business confidence in Ireland has fallen so dramatically”

The survey, now in its 23rd year, is a global analysis of business leaders’ sentiment, including the views of 125 Irish CEOs in a study conducted in September and October 2019 and prior to Covid-19 having hit the general consciousness.

Confidence behind caution

Man in white shirt, red tie.

“Ireland is bucking some global economic trends – our economy is performing well, unemployment is at almost record lows and foreign direct investment remains strong,” said Feargal O’Rourke, PwC managing partner (pictured).

“But it is not surprising, given all that is going on globally that business confidence in Ireland has fallen so dramatically.

“There is confidence behind this caution, there is resilience and realism in equal measure at a time of global uncertainty. CEOs have lost little of their belief in the potential of their own businesses to succeed.

“Ireland needs to ensure that we remain encouraging to local business, attractive to overseas investors, and continue to prepare for Brexit, good and bad.  Continuing to think beyond the challenges and invest in these important areas to ensure business models are fit for a digitally enabled sustainable future will be critical.”

According to the survey last year’s cautious optimism for the future has been replaced by increasing pessimism. Just 16pc of participating Irish CEOs are favourable about the outlook for Ireland’s economy in the year ahead, down from 57pc at the same time last year, and is the lowest level of confidence in the Irish economy since 2009 when it was just 3pc.

Similarly, the number of Irish CEOs feeling unfavourable about the outlook for Ireland’s economy fell to 61pc in 2020, down from 25pc last year.  This sentiment aligns with that of Global CEOs also interviewed for this survey.

At the same time, growth remains on the agenda with many Irish CEOs believing their organisations remain resilient.  The majority (67pc) remain confident about their organisation’s revenue growth in the year ahead, albeit this has fallen from 84pc last year and is the lowest level we have seen since 2013.  Almost one in two (47pc) plan to expand headcount in the year ahead, down from 63pc last year.  

Threats around uncertain economic growth (84pc), geopolitical uncertainties including Brexit (81pc) and climate change/environmental damage (74pc) have all become much more acute compared to last year – levels of concern are also higher than global counterparts. Other concerns include the shortages of key skills (78pc), cyber threats (78pc) and over-regulation (71pc). 

According to the survey, Ireland’s CEOs continue to invest in and innovate their businesses despite the uncertainties: A key route to growth is making operational efficiencies – 66pc, up from 54pc last year – and a similar proportion plan on launching a new product or service.  Just over a third (34pc) plan a new strategic alliance/joint venture/merger or acquisition. And in spite of Brexit, 95pc of those surveyed said that they intended to increase or maintain their investment in Ireland.

Are dominant tech firms ripe for regulation?

Robert Byrne, Partner, PwC Ireland Advisory Consulting Practice, said that major changes in regulations could impact the powerful tech sector in Ireland.

“The majority of Irish CEOs are of the view that governments will introduce new legislation to regulate content on both the internet and social media (76pc) and to break up dominant tech companies (56pc). Over one in two (57pc) also predict that governments will increasingly compel the private sector to financially compensate individuals for the personal data that they collect.” 

Irish CEOs have been more concerned than their global counterparts about the shortage of key skills for seven years running (since 2013). This year, 57pc of Irish CEOs say upskilling employees is the most important action to close the skills gap in their organisation, up from 30pc last year. 

However, they are not making much headway in tackling the problem with only 12pc saying they have made ‘significant progress’ at establishing an upskilling programme that develops a mix of soft, technical and digital skills. 

 “Our survey also suggests that there is scope to increase the effectiveness of upskilling programmes: for example, less than a quarter  (22pc) of Irish survey respondents reported that their upskilling programmes are ‘very effective’ in reducing the skills gaps and on improving talent acquisition and retention,” explained Doone O’Doherty, Partner for PwC Ireland People & Organisation practice.

“But to retain employees, companies must also do more than go through the motions of upskilling: they need to give their talent the opportunity to do good work.”

Climate change and sustainability

CEOs are significantly more concerned about climate change risks and environmental damage (74pc) than they were last year (56pc), leaping to a top 5 challenge from 12th position last year. 

The survey also highlights significant disparity between attitudes of international business leaders and Irish counterparts: less than one in two Irish CEOs surveyed have assessed the potential physical impacts of future climate events to their organisation (44pc) and transition risks (40pc) to a ‘greener’ economy which is concerning – and significantly behind global CEOs: 56pc and 64pc respectively.    

Kim McClenaghan, Partner, PwC Ireland Energy, Utilities and Sustainability Practice, said: “Compared to a decade ago, when we last asked this question, Irish respondents are now twice as likely to agree that investing in climate change initiatives will lead to significant new product and service opportunities for their organisation (50pc in 2020 compared to 26pc in 2010). However, Global CEOs (63pc) are much more likely to see the benefits – take for example China where this number is as 91pc.” 

According to the survey, just three out of ten participating Irish CEOs agree that collaboration among governments and businesses is more effectively mitigating climate risks (Global: 36pc).  Just 39pc agree that their organisation will benefit from government funds or financial incentives for ‘green’ investments.

McClenaghan continued: “It is critical that companies robustly assess their operating model from a climate risk perspective and test their business strategies against a number of potential future climate scenarios. This is necessary as climate ambition will only be supported when built off a strong financial base. Many large international companies have committed to net zero, and even negative emissions by 2030 which raises the bar for Irish companies and sets expectations locally for customers, employees and investors.”

Written by John Kennedy (john.kennedy3@boi.com)

Published: 6 March, 2020