Sri Lanka must brace the storm as CEOs rewrite investment plans to overcome challenges- EY

CEOs are actively looking for ways to get ahead of the triple threat of the aftermath of the COVID-19 pandemic, increasing geopolitical tensions and inflation, according to the EY CEO Outlook Pulse Survey- October 2022.

The survey, which recorded the views of 760 CEOs across the globe on their prospects, challenges and opportunities, found that more than four in 10 (43 percent) CEOs identify a continuation or return of COVID-19 related disruption, including new lockdowns and supply chain pressures, as the greatest risk to their business.

This risk is perceived to be higher in Asia-Pacific (48 percent)) than in the Americas (43 percent)) or Europe (41 percent)).Adding to the perfect storm that CEOs are bracing for, 35 percent)  of respondents point to geopolitical tensions and 43 percent)  to inflation as critical risks to growth, with the majority (69 percent)) predicting inflation will negatively impact their company’s performance and growth. A sizable minority (16 percent)) identified inflation as the single-biggest threat to their company’s revenue and margins.

As a result of increased geopolitical tensions, 95 percent)  of respondents are reshaping their investment plans and operations. According to the EY survey, geopolitical risks mean CEOs are delaying planned investments until the situation improves (43 percent)). Many respondents are reconfiguring their company’s supply chains (40 percent)) and relocating operational assets (39 percent)); while a third are exiting businesses in certain markets (30 percent)) or stopping planned investments altogether (29 percent)).

Arjuna  Herath, Partner and Head of Consulting EY Sri Lanka and Maldives says: “Sri Lanka’s challenges will be compounded unless the country stabilizes and consolidates itself from a macro economic perspective as CEOs around the world are looking at a global economy unlike anything they’ve seen in many years. 

The severity of underlying risks vary by geography or industry, but it is clear that businesses are faced with a perfect economic and geopolitical storm. CEOs will  pull whatever levers they can to mitigate these risks, recognizing that some may be out of their control or are secondary effects from other industries.”

Strategic investments to mitigate risks with more than half of CEOs planning M&A
Building sustainability as a core aspect of all products and services to engage customers (39 percent)) and using technology to boost customer loyalty (34 percent)) are the top two actions responding CEOs are planning to pursue to weather a challenging six months ahead. 

At the same time, a significant majority (64 percent)) intend to increase capital investment versus just 14 percent)  who plan to reduce. 

More than half (52 percent)) plan to make an acquisition in the next year, while almost half (40 percent) of respondents plan to be active on all fronts, looking to acquire, divest and enter new joint ventures  or strategic alliances.

When it comes to their next transaction, 21 percent of respondents said that this will be driven by the need to invest in an early-stage business to enhance their existing portfolio and access new talent and 15 percent)  said that they will look to acquire a business in an adjacent sector to open new growth avenues. 

Herath says: “The landscape has been redrawn in the past 24 months and there are more shifting sands ahead. CEOs are on the lookout for opportunities to unlock growth for the long term and still see M&A as a critical method of boosting those growth strategies by acquiring companies that bolster operational capabilities and innovation. Sri Lanka will lose out on the opportunities that exists under these circumstances unless we are in position to put out a compelling story.”