2014 africa and the middle east …...candidates’ skills in person, gauged their behavioural...

2014 AFRICA AND THE MIDDLE EASTCOMPENSATION AND BENEFITSCONFERENCE “SUCCEEDING IN GROWTH MARKETS THROUGH AN INTEGRATED HR APPROACH”

1.v

TABLE OF CONTENTS

RECRUITMENT IN THE OIL AND GAS INDUSTRIES: FINDING RESERVES, FINDING TALENT. Tola Ogunbiyi, Halliburton Talent Acquisition Manager, Europe and Sub-Saharan Africa.................

CHINA, AFRICA, AND MYRIAD UNDERSTANDINGS Professor Stephen Chan, School of African and Oriental Studies, London.........................................

THE MIDDLE EAST: ECONOMIC TRENDS AND KEY CHALLENGES IN THE LEVANT AND THE GULF COOPERATION COUNCIL Razan Simaan, CEO Leader for Industry Forums Middle East & Africa and Nuno Gomes, Information Solutions Leader Middle East, Mercer.............................................................................

LOCAL TRENDS IN CONSUMER GOODS ACROSS AFRICA AND THE MIDDLE EAST Nuno Gomes, Information Solutions Leader Middle East, Nicol Mullins, Senior Consultant and Monika Todor, European Consumer Goods Industry Leader, Mercer..................................................

HEINEKEN: LEADING THE WAY FOR SUPPLEMENTAL RETIREMENT SAVINGS Sandra Winstanley, Global Benefits Manager and David Wightman, Regional HR Director Africa and the Middle East, HEINEKEN.........................................................................................................

ENERGY AND MINING BREAKOUT SESSION: AFRICA AND THE MIDDLE EAST Milan Taylor, Global Industries Leader and Carl van Heerden, Information Solutions Talent Leader Sub-Saharan Africa, Mercer.................................................................................................................

TRENDS AND HOT TOPICS ACROSS SUB-SARAHAN AFRICA Nicolaas Janse van Rensberg, Senior Consultant, Imane Lalami, Industry Consultant, Nicol Mullins, Senior Consultant and Dirk Joubert, Consultant, Mercer.......................................................

TABLE OF CONTENTS

1

INTRODUCTION Talent is the lifeblood of all businesses, but too many companies miss opportunities to find people with the right skills, ability, and values because they are reluctant to step out of their recruitment “comfort zone”.

This article discusses how adjusting the conventional hiring mindset can help organisations tap into the talent available in the world’s biggest emerging market: Africa.

DRILLING FOR TALENT Many people wrongly assume that Africa lacks resources. In fact, resources are there in plentiful number, but they need to be actively searched for. Halliburton is one of the multinational corporations (MNCs) now operating in many countries across the continent and, like other international businesses, we need to recruit and retain the workforce that will help us reach current and future commercial goals.

Halliburton is one of the world’s largest providers of products and services in the energy industry — and there is an interesting analogy to be drawn between our main areas of expertise and our ongoing attempts to find outstanding employees. Before crude oil was exploited on a large scale, it often lay very close to the earth’s surface, even seeping through at points. As a result, it was easy to access and little specialist knowledge was required to do so. Now that those reserves have been easily produced with today’s technology, finding the remaining oil is much more complicated — let alone extracting it — and thus much more time and effort needs to be invested in creating a successful strategy.

Just as there are two ways to access oil reserves — conventional and unconventional — there are two principal paths used in the hunt for exceptional staff. Most organisations are keen to follow the conventional path: they have a clear idea of what they want; firmly engrained in the corporate culture is the idea that certain jobs require certain skill sets and finding people who can meet those requirements is not too difficult.

In unconventional recruitment scenarios, organisations need to push the boundaries. In these situations, companies are often not sure what type of person they really want for a given role, or what the outcome might be. It may be hard to find someone who can meet a given job specification fully, and so rather than zeroing in quickly on a shortlist of candidates, more time needs to be spent on studying the wider talent pool. Such searches can be difficult.

WORKING SMARTER Technical advancements have had a massive impact on the energy industry in recent years: in short, oil companies can now dig deeper and smarter. In recruitment, however, there have been no comparable leaps forward, as graduate assessment centres demonstrate: many organisations still use them, but most are still deploying the same battery of tests they relied upon 20 years ago. Given the mismatch between available talent and businesses’ needs, something has to change. In many regions of the world, an oversupply of lower-skilled resources is leading to unemployment,

RECRUITMENT IN THE OIL AND GAS INDUSTRIES: FINDING RESERVES, FINDING TALENT

Tola Ogunbiyi, Halliburton Talent Acquisition Manager, Europe and Sub-Saharan Africa

2


while a dearth of skilled workers means that corporations are competing ever more fiercely for a small group of what they perceive to be the best and brightest.

ACCESSING TALENT RESERVES Companies tend to segment talent reserves during the recruitment process. In my experience, potential workers fall into one of five profiles. Names for these can vary, but I refer to them as follows:

• Shouting talent: these people tend to fit job descriptions and corporate specifications in most aspects (such as education, training, and experience). They are high on most organisations’ wishlists: not only is it assumed that they will hit the ground running once appointed, but the recruitment process is thought to be quicker and easier.

• Silent talent: these people do not tick every single box — their degree class may be slightly below that stated in the job specification, for example — and thus they often do not proceed beyond the initial sifting process.

• Undervalued talent: found everywhere in the graduate pool, these bright people tend to have underperformed at university. Despite being extremely capable, they too do not look like ideal candidates on paper.

• Misplaced talent: this group of people is all too common in Africa. As local educational institutions often offer only a limited range of courses, students commonly do not have the skill sets required by MNCs. When given a chance, however — perhaps by someone within the recruiter organisation vouching for them — these applicants often wow at interview.

• Raw talent: every country has a great deal of “raw” talent in the form of people with little formal education but a strong natural aptitude for a particular type of work. Although very far removed from many recruiters’ idea of ideal candidates, they could well become so in the long term and are worth investing in.

Bias regularly plays a decisive (if silent) role in recruitment. Many companies’ hiring structures focus on only one or two of the profiles listed above (often referred to as the “established pool”), and they are reluctant to take a risk on someone slightly different. The “similarity bias effect” — a tendency among recruiters to want to hire someone similar to them — reinforces that predisposition. As a result, those candidates deemed the “best fit” are usually selected, but in fact research has found that only a tiny proportion of these (just 8%) really are the right people for the job.1 That’s simply not good enough; the bar must be raised and talent searches rebooted to make them fit for purpose.

1 Manpower Group. 2013 Talent Shortage Survey Research Results, available at http://www.manpowergroup.com/ wps/wcm/connect/587d2b45-c47a-4647-a7c1-e7a74f68fb85/2013_Talent_Shortage_Survey_Results_US_high+res. pdf?MOD=AJPERES, accessed on 16 May 2014.


3

PUSHING THE RECRUITMENT BOUNDARIES: A PRACTICAL APPROACH Some of the world’s most successful and forward-thinking companies have begun to move the parameters of traditional recruitment processes. By using a practical approach that screens candidates for both technical and behavioural skills — and developing innovative and cost-effective ways of attracting interested candidates to demonstrate their expertise — they are finding the right people to take their businesses forward.

Facebook is one such innovator, as outlined by George Anders in his book The Rare Find (2011). The company needed to boost its number of programmers after its rapid expansion but had neither the time nor the resources to scour universities for their top tech students. In the end, the company’s own site did the hard work for them. A number of puzzles were posted online and anyone who was able to solve them, regardless of education or location, was invited to interview. Facebook then verified the candidates’ skills in person, gauged their behavioural skills in a number of practical scenarios, and were ultimately able to hire with confidence.

Although this approach is still in its infancy, it appears to be yielding positive results, as Halliburton has also found to be the case when hiring entry-level engineering graduates in Nigeria. The recruiting process is structured in a way that it attracts a diverse pool of candidates to apply for open positions. An integral part of the recruitment process involves exposing each candidate to a series of practical, hands-on sessions that give the candidate an opportunity to apply his or her technical knowledge — a critical requirement for the role. Candidates that display an understanding of the task and successfully complete it are moved to the next phase of interview.

In some cases, however, the impetus for change comes from outside the organisation. A process called “nationalisation” is being rolled out across Africa, whereby governments require MNCs to hire workers native to that country rather than expats. Paradigms will need to be broken to meet that requirement: job descriptions and specifications may no longer be the deciding factor in recruitment decisions.

Although I would encourage all companies to experiment with talent searches, there is one important caveat: do not simply import initiatives that have proved successful elsewhere and expect them to be as effective in Africa and the Middle East. Africa in particular is still overcoming a variety of challenges in terms of education and welfare systems, so Western models — and indeed expectations — will need to be adjusted, in some cases on a country-by-country basis. For example, a 2013 Halliburton recruitment campaign across Cameroon, Congo, and Gabon resulted in an average of 200 applications per country to a job advertisement. When the same format was repeated in Nigeria, over 15,000 applicants responded, a staggering 10,000 of whom met the minimum requirements. Remaining fair and consistent in such situations is a huge challenge.


4


CONCLUSION

Africa is bursting with talent — but many of its people have not been able to access the opportunities taken for granted in more advanced economies. If your organisation plans to operate in the region for the medium to long term, it must be ready to adjust its traditional recruitment mindset and adapt: unconventional approaches may be able to unearth the workforce of the future. In some locations, nationalisation will provide an external catalyst to change.

There is no one-size-fits-all solution to be recommended here; each organisation will have to carve out its own approach (and even individual approaches within discrete operating territories). Encouraging the whole team to pull in the same direction is vital to success; however, risk and experimentation does not come easily to everyone and some recruitment managers may be uncomfortable. Educating them about the positive aspects of new strategies, and providing appropriate training, will ensure you take the long-term journey to expanding the talent pool together.

CONTACT

If you have any questions for the author or require more information, please contact us at [email protected] or +48 22 436 68 68.


5

INTRODUCTION

Africa is simply too large and diverse to be fully

understood or known: the vast sweep of the continent encompasses an enormous array of cultures, resources, and tensions — as well as enormous potential. The economic juggernaut that is China has been active in Africa in a variety of iterations for over 100 years now, from the initial immigrants in the early 1900s, to the liberation struggles of the 1960s and ‘70s, and the current capitalist model.

This article looks at some of the most pressing challenges for multinational corporations (MNCs) operating in Africa, drawing lessons from Sino-African commercial relations in recent times.

THE LAST FRONTIER? Africa is jaw-dropping in scale: the continent comprises 55 countries at present, the most recent of which, South Sudan, is roughly the size of Germany. Although MNCs have long been eager to tap into the biggest global growth market, challenges abound. Even ostensibly simple things, such as transport and communications, become extremely difficult on that sort of scale; more complex issues — such as delivering aid, brokering peace, and encouraging sustainable development — are virtually impossible.

The tension between opportunity and challenge manifests in several forms in Africa. For example, in some countries, there is enough of a “sector history” for foreign businesses to find models of administration and modes of management that correspond roughly to best practice in more established economies. There are significant differences in the smaller countries, however, and the disparity between major and minor players is considerable, as sub-Saharan Africa demonstrates: if Nigeria and South Africa were discounted, the combined GDP of the remaining countries would be less than Belgium’s (around $507 million in 2013).

It is clear that Africa’s future potential could be enormous, but how can that potential best be realised? And how can businesses (both local and international) find the right talent to facilitate that economic journey, train them, reward them, and retain them? China has had some success in this regard, but its experiences also serve as salutary lessons for Western corporations.

CHINA, AFRICA, AND MYRIAD UNDERSTANDINGS

Professor Stephen Chan, School of African and Oriental Studies, London

6


As noted above, Sino-African relations have been strong for some time. The first immigrants arrived in South Africa in the early 20th century and integrated successfully, and the Chinese community in other African countries has also had a number of powerful members, most notably Jean Ping, the Francophone son of a Gabonese mother and a Chinese father, who became president of the African Union and thus at one time the continent’s most influential civil servant.

During the 1960s and ‘70s, China played a major role in the liberation struggles, funding and training the rebel armies that were attempting to free themselves of colonial (Western) governments in countries such as Zimbabwe. Since that time, the Chinese government has invested heavily in Africa, often in the form of concessional loans. These loans are emblematic of a very “Confucian” approach: China is the older sibling in the relationship as part of its responsibility towards the junior partner, China front-loads transactions to benefit the host government, usually by investing in infrastructure, such as roads and/or railways, and in community provisions in the form of universities, schools, and medical facilities. (Angola has been a notable beneficiary in recent years and has received over $400 million of investment for official development projects since 2000, according to the Center for Global Development.) In effect, China offers a “total package” that Western governments simply can’t match, but naturally it benefits too: ultimately China gains access to upstream resources, including petroleum and minerals.

The most recent wave of Chinese influence in Africa has proved to be problematic, however. Poorly briefed and intolerant of others’ working practices, incoming managers are causing headaches for the existing Chinese community and generating huge resentment among their hosts. So much so that in 2006, as a result of several serious health and safety breaches at Chinese-owned mines in Zambia, expelling the foreign lieutenants became part of the election manifesto of Michael Sata, a candidate in the presidential election. When Sata eventually gained power in 2011, he needed to defuse the ongoing diplomatic furore or risk turning off the spigot of much-needed investment. To that end, his vice president, Guy Scott, is adding fuel to the fire by engaging Chinese HR experts — young people educated at Western universities or Chinese universities with Western curricula — in a long-term programme to act as intermediaries with their countrymen. The programme aims to bring the HR experts up to speed with the


7


appropriate HR laws, strategies, and standards and pertinent national issues (assistance with funeral expenses for employees and their extended families has been a particular bone of contention).

CORRUPTION AND ‘PATRONAGE’ Most MNCs begin operating in Africa with every intention of sustaining clean business models, but all are likely to come under heavy pressure to engage in the bribes or incentives that could be recommended in some quarters as a way of smoothing their path.

There is a strong culture of patronage in Africa, particularly in the informal sector, and it works in a very particular way. For example, if you have profited financially from questionable business activities, you have an obligation to share that wealth with your friends and extended family; in doing so, you shore up support from those people in more troubled times. If you have good political connections to boot, you become part of an oligarchy and that has a host of associated economic consequences. As money commonly makes its way to the “right people” via side channels, a parallel economy develops and employees want to benefit from that as well as the formal sector in which they work.

International businesses find themselves perching uncomfortably at this intersection of competing demands. How they deal with that, in terms of corporate models and practice (particularly HR practice), when they embark on joint ventures with local firms will be decisive in how each country develops in the future. The temptation to take shortcuts will always be there, especially when challenging targets have been set. Unfortunately, there is no “clean” model to parachute in; all businesses will need to feel their way through the labyrinth, negotiating as appropriate.

The might of the oligarchy was writ large in both Zimbabwe — where Robert Mugabe’s regime has been underpinned by a military elite he has made extremely rich — and more recently Nigeria, when the central bank governor, Lamido Sanusi, was suspended by President Goodluck Jonathan apparently for exposing that $20 billion was missing from oil revenues. If even the most senior political operatives can be dismissed on a whim, however, what does that say to the wider international community and the MNCs that may have been viewing Nigeria as a prospective market? How much intervention will they be forced to deal with?

BUILDING FOR THE FUTURE To succeed in Africa, foreign businesses face three key challenges. First, as in all other global markets, finding top talent is vital. Across the continent, Chinese firms are trapped in between upward pressure from employees and their union representatives, who want improved benefits and working conditions, and downward pressure from some of the higher echelons, who are itching for a corrupt share of their companies’ profit margins. Western businesses will not be spared these problems and all will need to recruit and train a new cadre of young managers who can resolve these issues in the future.

Second, overhauling existing infrastructure is also essential, but needs to be done sustainably. For example, the new country of South Sudan has only 23 kilometres of paved road. Dirt roads are washed away in the rainy season and during the 2010 elections, international peacekeepers responded by patching up the problem by digging out material on either side of the road and putting fresh earth on top of the existing road. However well meant, the principle outcome of this action was the creation of huge craters that will negatively impact the environment for some time. A long-term strategy, and

8


CONTACT


appropriate funding, are desperately needed.

Finally, there is also a corporate challenge: in attempting to improve compensation and benefits for employees — the “lucky few” in some countries, where less than 20% of the adult population has formal employment — MNCs also need to think about their community involvement: if your business is going to operate in Africa and repatriate profits, what do you leave behind for employees and others in the host country? What will be your legacy?


9

INTRODUCTION Despite being an area of high growth in recent years, the Middle East remains a challenging destination for many expatriate workers — ongoing regional instability is a

major cause for concern, and political upheavals have resulted in a reduced standard of living in some countries. That said, the region still offers a wealth of opportunities for multinational corporations (MNCs) and their employees. This article discusses a range of trends in the general economy as well as in compensation and benefits practices in both the Levant and the countries of the Gulf Cooperation Council (GCC).

GEOPOLITICAL CONTEXT The ongoing civil conflict in Syria continues to cast a long shadow over the Middle East. It has had a particular impact across the Levant and on Lebanon in particular. Lebanon’s population has been increased by at least one million refugees in recent years, putting enormous strain on the country’s resources, increasing instability and contributing to rocketing unemployment rates1. Security issues remain a concern in Iraq, where the oil sector still dominates the economy, while Iran has maintained its chilly relations with international powers and continues with its efforts to reduce rampant inflation.

Volatility is also an issue across the GCC (especially in Yemen, where terrorist threats are growing), but there have been some positive developments. Qatar won the bid to hold the 2012 FIFA World Cup and has begun to position itself as a regional mediator; the United Arab Emirates (UAE) has also boosted its international profile as host of World Expo 2020. Saudi Arabia, the GCC’s economic leviathan, has been pursuing wide-ranging labour reforms that have resulted in more than a million illegal workers leaving the country, freeing up opportunities for Saudi nationals.

ECONOMIC AND BUSINESS TRENDS Both the Levant and the GCC are uneven in macroeconomic terms and there are wide variations in both population size and GDP growth between countries. The biggest player in each region (Saudi Arabia and Iran, respectively) has a population 20 times as big as the smallest country in its bracket (Bahrain and Lebanon, respectively), and there are consequent huge disparities in national revenues.

Each country has its own specific challenges, however: Iran’s isolationist stance — coupled with international economic sanctions — means that it is difficult nut for foreign businesses to crack. Although inflation has dropped somewhat, unemployment is a major cause for concern and the International Monetary Fund (IMF) estimates that it will exceed 18% by 2017. The IMF also states that Iraq has outstripped the other Levant countries in terms of actual GDP growth but forecasts that the surge will tail off from 2015 onwards. GDP growth is expected to remain stable for Jordan and Lebanon, as it will for the countries of the GCC. The economy is still strong in the Gulf overall, but governments are much more cautious and keen to encourage steady growth rather risk the boom/bust scenario suffered by Western countries over the past five years. Inflation is reasonably low across the GCC overall — especially in Bahrain, where it is less than 2% — but remains an issue in Egypt.2

1. Mercer. Global Compensation Planning Report, July 2013.


THE MIDDLE EAST: ECONOMIC TRENDS AND KEY CHALLENGES IN THE LEVANT AND THE GULF COOPERATION COUNCIL

Razan Simaan, CEO Leader for Industry Forums Middle East & Africa and Nuno Gomes, Information Solutions Leader Middle East, Mercer

10


SALARY INCREASES The hunt for talent is a hot topic in the Levant, as so many employees look to the Gulf for what are thought to be better-paid opportunities. The grass is not always as green as expected, however: once the cost of living is taken into account in locations such as Dubai, workers may not actually feel much of a benefit on pay day.

Salary increases have been stable but relatively modest in recent years (at around the 5% mark) apart from in Iran, where the government has mandated salary increases of roughly 20% since 2010 and increases of between 25%–30% are forecast for 2014.3 An almost identical scenario exists in the GCC countries, where actual salary increases have been very much in line with forecasts at roughly 4%–6%4, and little change is expected in 2014. Across the entire Middle East, salary increases are aligned across industries (excluding Iran).

REMUNERATION PRACTICES Base pay is a significant element (at least 80% 5) of the total compensation mix in the Levant but some guaranteed allowances are also paid (covering items such as transport and mobile phone usage), as are variable bonuses and commissions. In some locations, companies must also pay a number of mandatory allowances.

The need to attract and retain talent in this area is mirrored in the typical pay structure: salaries are very small in some Levant countries at lower levels (paraprofessional) but then increase markedly as companies try to hold on to their executives, many of whom may be eyeing a move to the GCC.6 Despite these efforts, voluntary staff turnover in 2013 is high in both Jordan (13%) and Lebanon (10%).7

In the GCC too, base salary is the key component of the total remuneration mix and is on average around 60% (from 50% among nonexecutives in Qatar and to a top end of 65% among Saudi nonexecutives). Guaranteed allowances, such as housing and transport, play a much bigger role here, though, and make up between 20%–30% of the overall package. This is a striking difference from the Levant, and factoring in these extras means that it costs roughly $50,000 more to employ an executive in the UAE than it would in Jordan8. Long-term benefits are almost unheard of the Gulf, and benefits comprise a relatively small proportion of the overall pay mix too; when they do exist, they usually cover items such as school

fees or medical/life insurance.

EXPATRIATE POPULATIONS A significant level of NGO employees contributes to the Levant’s expat population. MNCs are trying to move away from offering full (and costly) expat packages and are instead attempting to encourage nationals living abroad to return home on a local or local plus package, with a view to localising them in due course. This option is more popular in some countries than others, however: people are typically keen to return to Lebanon but the idea of returning to Egypt from a sojourn in the Gulf tends to be less appealing.

3. Mercer. Salary Movement Snapshot survey, September and December 2013. 4. Mercer. Salary Movement Snapshot survey, December 2013.5. Mercer. Total Remuneration Survey and Life Sciences Survey, 2013. 6. Mercer, Total Remuneration Survey, 2013.

7 Mercer. Total Remuneration Survey and Life Sciences Survey, 2013. 8 Mercer. Total Remuneration Survey, 2013 (average values in USD).


THE MIDDLE EAST: ECONOMIC TRENDS AND KEY CHALLENGES IN THE LEVANT

AND THE GULF COOPERATION COUNCIL

11

The GCC has long been viewed as “expat dominant”, but the picture is changing. Although some countries do have a high proportion of foreign workers — in Qatar, for example, expats make up 85% of the workforce and have a significant impact on national spending and consumption patterns — in others, such as Oman (and now even Saudi Arabia, as noted above), nationals now make up over 70% of the workforce.

TRENDS IN HOUSING AND SCHOOLING FEES Rents are rising across the Middle East. In the Levant, Beirut has become particularly expensive, especially given how low salaries are in comparison to the other countries in the region and the Gulf — managers in Lebanon earn just half of the total cash equivalent taken home by their counterparts in the UAE (roughly $50,000 versus $100,000 per annum)9. Accommodation costs have grown by between 10%–15% in the UAE over the past two years10, hitting expats hard as so many of them are renting. Understandably, there has been some pushback from employees, but as a Mercer UAE Housing and Schooling Spot Poll held in January 2014 showed, it seems that companies are at last beginning to offer extra assistance in order to keep their staff motivated and happy: almost a quarter of UAE organisations intend to increase their housing allowances in 2014 (compared to only 15% in 2013).

The vast majority of MNCs operating across the Middle East make a contribution to school fees for workers with younger children, and international schools are common in the region. Such schools are also increasingly expensive, however: in the Levant, this upward movement is steepest in Lebanon, where fees in international schools in Beirut increased by more than $1,000 per annum between 2012 and 201311 ; in the GCC, fees are rising at between 5%–10% per annum. Amman and Riyadh are the most expensive cities for schooling in both regions, with fees in the region of $11,000 to $12,000 per year per child. 12/13 On top of this, school places are becoming ever more limited in some GCC countries and this could well become a retention issue in the medium term.

MEDICAL COSTS AND BENEFITS Medical cover is clearly an important part of the overall remuneration package for expat workers and, as such, is offered by the majority of foreign companies in the Middle East. Fees in the Levant are generally lower than their equivalents in the GCC with the notable exception of Iraq, where premiums are in excess of $1,500 per annum for all position classes; Jordan and Lebanon are fairly well aligned at just over $1,000 for most classes other than executives. 14 Iran has a robust social security system to which all employers must contribute and hence the annual premium paid by the few international organisations operating there is small.

Spiralling prices have certainly caused headaches for MNCs in the Gulf’s. Treatment costs and incidence are rising (leading to higher medical premiums) but employees are simply not valuing the benefits they receive. Employers therefore have to walk a tightrope between enhancing benefits and cutting costs.

9. Mercer. Total Remuneration Survey, 2013 (average values in USD). 10. Mercer. Cost of Living Reports, March, 2013. (Excellent Level Accommodation: two-bedroom furnished apartment, monthly rent inUSD.) 11. Mercer. Cost of Living Reports, September (primary education, international schools).12. Mercer. Cost of Living Reports, September (primary education, international schools). 13. Mercer. Cost of Living Reports, March, 2013 (primary education, international schools). 14. Mercer. Total Remuneration Survey, 2013.


12

THE MIDDLE EAST: ECONOMIC TRENDS AND KEY CHALLENGES IN THE LEVANT

AND THE GULF COOPERATION COUNCIL

Some companies have begun to grasp the nettle and are ensuring that benefit design is appropriate and premium increases are fair while looking for methods to reduce claims costs (such as removing more expensive options or withdrawing cover for spouses). They are also incorporating core-level benefits with flexibility and employee choice while taking pains to communicate the value of medical benefits within the total rewards context.

Solutions are already beginning to emerge. For example, detailed audits and analysis of medical plans will help organisations understand cost drivers and keep ahead of future trends. Initiating wellness programmes can help control long-term costs, and regional plans can offer economies of scale and more consistency. Alerting employees to the real value of their benefits by means of targeted communications is crucial and by maintaining their benefits strategy and administration platforms, companies will be able to offer their employees more choice for their benefits spend, all of which could be important for both recruitment and retention.

CHALLENGES AHEAD The cost of living across the Middle East is rising inexorably — Amman is now on a par with New York, with Beirut and Dubai only fractionally behind15 and keeping pace with this increase will force many organisations to think carefully about their future attraction, retention, and remuneration strategies for this region. Although companies want their employees to enjoy a high standard of living during overseas postings, correspondingly high costs of living will need to be factored into costings and many businesses are already casting a cold eye over the “menu” of allowances offered to expat workers.

The increasing prevalence of nationalisation across the region will no doubt give MNCs pause for thought, too. Youth unemployment is already a serious issue in many countries and governments are stepping in to find ways for young people to contribute to society. As outlined above, Saudi Arabia has begun to create opportunities for its young people in the private sector. Should this continue, it is likely that international businesses will have extra constraints placed on their hiring plans across the region, but it could be that a new, local talent pipeline — and attendant opportunities — will open.

15. Mercer. Cost of Living Survey, September 2013.


CONTACT

If you have any questions for the authors or require more information, please contact [email protected] or [email protected].

13

LOCAL TRENDS IN CONSUMER GOODS ACROSS AFRICA AND THE

MIDDLE EAST

Nuno Gomes, Information Solutions Leader Middle East, Nicol Mullins, Senior Consultant and Monika Todor, European Consumer Goods Industry Leader, Mercer

INTRODUCTION

Spanning everything from soft drinks to processed food and toiletries, consumer goods (CG) underpin

daily life in most countries around the world. This article examines trends and practices in the CG industry in Africa and the Middle East, and looks at some of the sector’s most pressing challenges.

BUSINESS CONTEXT Although many developed markets have been buffeted by the global economic downturn in recent years, the Middle East and Africa have been relatively unaffected — in fact, the region has seen continuous growth. The picture is not entirely rosy, however: consumption trends have been changing regularly, for example, and organisations are having to balance rising commodity prices with cost-cutting measures. Those businesses willing to innovate and try alternative approaches have reaped the rewards.

ECONOMIC CONTEXT Taking a cross-regional view, unemployment is highest in the countries that have borne the brunt of the economic crisis: although many European countries are now seeing encouraging signs of growth, both Greece and Spain have jobless rates north of 25%. Across the Middle East and Africa, salary increases, GDP, inflation, and unemployment figures are generally aligned, apart from in Egypt (where both salary rises and inflation are high at around 10% 1), Jordan (whose soaring unemployment rate of around 12% is exacerbated by the continuing influx of Syrian refugees), and South Africa (where jobseekers now account for more than quarter of the population).

Mercer’s Total Remuneration Surveys for this region have drawn on information submitted by a range of key players in industries such as CG, hi-tech, pharmaceuticals, energy, and finance and banking, and results have revealed a number of important trends.

THE MIDDLE EAST Instability is a defining characteristic of the Middle East. This is particularly true in the Levant, where the effects of the ongoing Syrian civil war and increased terrorist activity in Yemen have rippled out across both near neighbours, such as Lebanon, and the


LOCAL TRENDS IN CONSUMER GOODS ACROSSAFRICA AND THE MIDDLE EAST

14


MIDDLE EAST


MIDDLE EAST

wider international community. Iran continues its frosty relations with many other countries, while Saudi Arabia has recently initiated a major shake-up in the composition of its workforce. More than one million foreign workers were asked to leave the country, ostensibly due to invalid work permits, but in reality more likely as an attempt to free up jobs for Saudi nationals — particularly young people. The Gulf states have remained stable and have been investing heavily in construction, education, culture, and hospitality as they prepare for high-profile global events such as the 2022 World Cup in Qatar and the World Expo 2020 in Dubai.

Overall, the region has remained buoyant despite economic gloom elsewhere: GDP growth has been very respectable at 4%–5% since 2009. Salary increases (including base salary) are in step with those figures generally and are at 5%–6% in most locations apart from Iran, where the government enforces mandatory pay rises of around 17%. That status quo is not forecast to change in 2014.2

COMPENSATION MIX Base salary is a major component of the typical local compensation mix, ranging from 50%–65%.3 Across industries, CG firms pay the highest annual base salaries for almost all employee categories, especially at the most senior levels.4 Variable compensation is very low (long-term incentives are almost non-existent locally, in fact) and benefits are also relatively limited, but guaranteed allowances, such as housing and transport, play a very significant role in the region; among nonexecutives in Qatar, for example, they account for over 30% of remuneration. Popular as they may be with employees, many companies are attempting to slim down the complicated (and time-consuming) ”menu” of extras that have been in place since the first wave of Western expat workers in the 1960s. The aim is to replace this menu with one simpler “cost-of-living allowance” in order to streamline administration procedures. Only 10%–15% of multinational corporations (MNCs) have taken up this option to date, but those that have made the switch report encouraging results.

KEY CHALLENGES Nationalisation is perhaps the most important issue facing

2. Mercer. Mercer Salary Movement Snapshot Survey, December 2013 (Iran data colected September 2013.)3. Mercer. Total Remuneration Surveys, 2013.4. Mercer. UAE Total Remuneration Survey, 2013.

14

LOCAL TRENDS IN CONSUMER GOODS ACROSS AFRICA AND THE MIDDLE EAST

15


businesses operating in the region in the short to medium term. Over the next decade, it is estimated that for every retiree, four local nationals will be entering the workforce5 — that is, by reaching employable age and/or completing their education. This logjam is will only worsen and governments are taking active steps to create private-sector roles for their young people in order to stave off youth unemployment and attendant social unrest. As discussed, Saudi Arabia has been particularly active in this regard and other countries are introducing quotas, which will have an impact on MNCs’ future attraction and retention policies.

Managing costs — particularly those related to housing and health care — across the region is another major headache for international companies. In the UAE alone, rents have rocketed by 30%–40% over the past 18 months, yet last year companies showed little inclination to provide extra help with accommodation costs6 : in Abu Dhabi, 87% of CG goods companies said they had no plans to raise their level of assistance. There has been some pushback, however: in Dubai, for example, 38% of companies active in the CG sector planned to augment this allowance for 2014.

Medical costs across the region have been hurtling upwards at roughly 20% per annum as the variety of treatments available has increased. Abuse of existing systems has exacerbated this issue too, and MNCs are scrutinising medical plans more closely to cut down on unnecessary testing, over-prescription of medication, and the most expensive providers.

A number of companies are making their budgets work harder by adopting a more flexible approach to benefits and tailoring them more closely to employees’ specific needs. For example, younger workers without family commitments are now able to swap some aspects of medical cover for a larger holiday entitlement, which suits their lifestyle better. This trend is in its infancy, but by helping employers save money and giving staff more choice, it is likely to become more prevalent.

SUB-SAHARAN AFRICA In sub-Saharan Africa (SSA), CG companies rank alongside the hi-tech, energy, life sciences, and financial services industries as one of the region’s “Super Sectors”. COMPENSATION MIX Cash is king in SSA and base salary constitutes the largest item in the typical compensation mix. Unlike in the Middle East, however, CG companies in this region offer the lowest local base salary (51%, compared with a staggering 61% in the hi-tech industry) and thus need to come up with attractive — and yet affordable — packages in order to compete for top talent. These companies certainly punch above their weight when it comes to benefits, which comprise almost one third of overall remuneration (27% versus 17% in hi-tech).7 Even when benefits are added into the overall picture and we compare total cash, however, it is clear that CG is lagging behind its competitors: employees within the sector in position class PC 53–56 roles earn just over US$50,000 rather than the US$70,000+ available in energy and hi-tech firms.8

5. Central Intelligence Agency. The World Factbook, available at https://www.cia.gov/library/publications/the-world-fact-book/ wfbExt/region_mde.html, accessed 13 June 2014.

6. Mercer. Mercer UAE Housing and Schooling Spot Poll, January 2014. 7. Mercer. TCoE Compensation Mix for Super Sectors in Sub-Saharan Africa, S1–S8 (PC40–64), 2013. 8 .Mercer. Super Sector Summary, Total Cash, January 2014, S6 (PC 53–56).

16

Nevertheless, brand loyalty is very strong among employees in the CG industry, which has the longest average service of all the Super Sectors. Although workers often move within the industry, they rarely leave it — and of those that do, many return.

MEDICAL AND RETIREMENT PROVISION Medical cover is extended to their employees and their extended families by 94% of CG companies in SSA9 — unlike their rivals. Retirement provision10 (mainly defined contribution schemes) is slightly less common, but almost three-quarters of CG organisations offer it, compared with just 36% in the mining and metals industry; life sciences tops the chart with 84%. Both employers and employees contribute to pension plans, helping to create a sense of loyalty and dual responsibility. Employer contributions to retirement plans in the Super Sectors range from 5.6% (life sciences) to 12.1% (mining and minerals), with CG occupying the middle ground at 8.6%. Most businesses calculate their contributions on base salary only, but CG firms often boost their contributions by taking housing and transport allowances into account as well.

CONCLUSION

The consumer goods sector has shown its resilience as an industry despite the

drubbing undergone by many major markets since 2008. Companies

operating in the sector can face the future with positivity even though there

are some important issues to address. In the Middle East, there are concerns

that the region’s economic growth may ultimately lead to undesirable salary inflation as

organisations compete for the best and brightest employees. In Africa, businesses will need to

be ever more creative as they seek to retain the best young talent when they cannot match the

salaries typical among their Super Sector competitors. With that goal in mind, it is likely that

the concept of total rewards — which brings together rewards, benefits, career development,

and work/life balance — will continue to gain traction in many corporations.

9. Mercer. Sub-Saharan Africa Total Remuneration Survey, 2013.

10. Excluding end-of-service benefit.


16

CONTACT

If you have any questions for the authors or require more information, please contact [email protected] [email protected] or [email protected].

17

INTRODUCTION Africa is an exciting region that represents a highly valuable market for many multinational corporations (MNCs). The continent has a positive macroeconomic

outlook that, together with a growing population, an emerging middle class, and rising urbanisation, offers MNCs an exciting opportunity to participate in long-term growth.

However, to build a sustainable business in the region, MNCs must learn to navigate the complexities of Africa’s operating environment. For example, the diversity of the continent’s cultural, legal, and business framework presents challenges in the introduction of HR and remuneration policies, such as employee benefits.

This article explains how HEINEKEN, which has been operating on the continent since 1923, is leading the way by rolling out supplemental retirement savings plans to thousands of its employees across Africa over the coming years.

CONTEXT HEINEKEN is a long-standing presence in Africa and today we operate 42 fully or majority-owned breweries and an extensive distribution network that spans the continent from north to south. Beer is becoming Africa’s drink of choice and the sustained economic growth of the continent will continue to underpin increased consumption. We have invested heavily in Africa in recent years (€2.5 billion since 2007) to ensure that we are well placed to capture the fundamental growth opportunities available, as well making sure that we are acting as a partner for growth with the region.

We now employ close to 15,000 people directly and as part of joint ventures in the region. As part of our commitment to being a responsible employer and to acting as a partner for African growth, we are dedicated to safeguarding our employees’ welfare. On a day-to-day basis, that means maintaining high safety standards, facilitating and directly providing health care for employees and families, and leading and participating in initiatives to support local communities.

However, our commitment to supporting prosperity in the region means that we must look for ways to have a positive impact beyond active employment. In many of the countries in which we operate, there is little or no social security available to provide income in old age. This means that although long-serving employees will often qualify for a lump-sum payment (often called a gratuity) on leaving the company, if that money runs out, former employees can experience financial hardship, having to rely on charity or even to seek work again.

As a true partner for growth in Africa, HEINEKEN believes that it is our responsibility to drive forward with solutions to business challenges that have a profound impact on our employees and their communities.

HEINEKEN: LEADING THE WAY FOR SUPPLEMENTAL RETIREMENT SAVINGS

Sandra Winstanley, Global Benefits Manager and David Wightman, Regional HR Director Africa and the Middle East, HEINEKEN

18

OBJECTIVES As a first step in this project, we undertook a high-level investigation of the present situation across a large number of our African operating companies (opcos) and collected feedback from HR managers about local challenges, opportunities, and needs. This input helped to define a set of clear objectives:

We determined that HEINEKEN needed to target reward to meet long-term employee needs in emerging markets where there was otherwise no reliable provision from the state or employer in old age. We saw that in helping improve financial security in later life, we had an opportunity to establish HEINEKEN as a “magnet” employer in the region, as well as reinforce commitment and loyalty among our workforce.

By providing better support for former employees in old age, we would be enabling them to live more fulfilling lives and to support themselves and their families better in retirement.

In short, we saw that we could initiate a step-change in some local markets that would have a long-term positive impact on the social conditions of the workforce while simultaneously providing a long-term benefit to our business.

ANALYSIS OF EXISTING PROVISION AND KEY FINDINGS Following sign-off of the objectives at local, regional, and global levels, we continued scrutinising pension provision across our African opcos in detail, engaging with local HR managers. We prioritised eight opcos — including in Egypt, Kenya, and Ethiopia — and with the help of our colleagues on the ground, reviewed the most common sources of retirement income, including social security (which existed only in theory in some places), the prevalence and type of supplemental plans (if any), and the market for secure providers country by country.

Our research yielded a diverse set of results, but we identified three broad groups: In some countries (such as Egypt and Kenya), other MNCs had already launched supplemental plans and we needed to create our own attractive plans to establish ourselves as a magnet employer. In several countries, unreliable and/or low-level state benefits were contributing to extreme poverty in old age, and despite a corporate supplemental gratuity plan, the level of coverage still fell short of ideal.

In other countries, such as Ethiopia, with more robust social security, we found no immediate need to introduce supplemental retirement savings but will review that situation regularly.

2

3


19

THE HEINEKEN MODEL We identified the need to create a practical guide for our colleagues across the continent that also aligned with our global principles. Some of the elements of the guide would be mandatory, such as a minimum vesting schedule, whereas other elements, such as a required employee contribution for lower earners, would be left to opco discretion.

The guide is designed to be simple but effective, with a defined contribution (DC) pension at the core. Its four building blocks are:

Design. Key areas to consider are eligibility to participate in the plan and to receive benefits, the form of payment (annuity preferred over lump sum), and vesting.

Funding contributions. The DC percentage depends on market practice and the extent of social security provisions. We established a minimum employer contribution in case nothing is provided by the state; opcos may contribute more if they wish, but that floor should deliver an adequate level of replacement income after a 30-year career with HEINEKEN. Opcos may decide on the level of any employee contributions.

Governance. Getting this aspect right was absolutely crucial and contributed significantly to getting major stakeholders on board. We require that each opco have a committee or trustee board to administer the plan, process and record payments, and circulate information to staff. The board usually comprises local finance and HR managers as well as the managing director and employee delegates. There are clear roles, responsibilities, and accountability.

Investments. This was the most challenging aspect of implementing our framework. Secure investment vehicles — with a high credit rating — are preferred. In case no secure vehicle is available, we would consider a funded vehicle offshore or as a last resort, a commercial loan back to the opco (“self-investment”).

Underlying the whole framework is high-quality education and communication: our staff need to understand the reasons for saving and how it will benefit them.

1

2

3

4


20

THE PLAN IN ACTION Alongside the framework, we prepared a draft “roadmap” to implementation, seeking buy-in from all levels of the business — this was vital in convincing local management teams to make the plan a budgetary priority.

The first opco to implement a retirement savings plan was HEINEKEN Kenya. The whole process, from development to plan launch, went very smoothly thanks to local expertise, a clear business case, reliable market data, and a strong regulatory framework. The availability of a well-established provider and a good range of investment options also contributed to success.

However, even in less mature economies, we have demonstrated that the successful implementation of our new framework is possible and challenges are surmountable.

For example, our Haitian opco, Brana, has overcome numerous challenges to successfully introduce a pension plan, cementing its position as an employer of choice in the country.

Haiti has been in poor economic repair for some time and the 2010 earthquake destroyed much of its (already fragile) infrastructure. Brana’s 1200-strong workforce was ageing but turnover was low, as employees could not afford to retire due to extremely poor social security provision. Brana had four key challenges to address:

Did it really need a retirement savings plan? HR and Finance teams (global and local) collaborated to develop a business case, including social security and sources of income in old age, a long-term HR strategy, social responsibility, and a cost–benefit analysis.

What was affordable? The opco decided to make a capped flat-rate contribution with mandatory employee contributions for higher-paid workers only.

How would they invest the money? Due to a lack of secure local providers and high inflation nationally, Brana set aside 50% of the fund in a secure investment vehicle (offered by a global bank) in US dollars and loaned 50% to the opco itself with a fair investment return.

How would they convince employees of the value of the plan? Traditionally, employees would prefer immediate access to a lump sum rather than wait for a future income. As a result of investing time in educating its workers about the plan’s benefits, holding group HR presentations, and using simple written materials to back up the main message, all employees signed up.

1

2

3

4


LEARNINGS SO FAR — AND THE ROAD AHEAD We are proud that our months of work to develop our first local framework for employee retirement savings is now resulting in supplemental plans being implemented across a number of opcos. As a partner for growth in the region, it is crucial that we do all we can to prevent former employees from facing financial hardship in retirement.

Over the next five years, many more of HEINEKEN’s African opcos will start or continue on the journey towards implementing their own supplementary retirement savings plans. The single framework is proving to be practical and flexible, but as case studies have shown, technical expertise, close in-house collaboration, a strong commitment to the project, and effective communication with employees will all play a crucial role in the future success of this important strategic initiative.

The change in approach reflects our focus on operating more efficiently as a global organisation while still addressing local priorities. There is a common vision and sponsorship at the highest levels of our business for initiatives that support our priorities and strategy. Further, the introduction of a central, corporate-level Pensions Governance Committee and a global pensions policy has set clear governance guidelines. We also have in-house expertise at global and regional levels to work with local opcos to develop and implement new plans. We now have all of the systems and procedures in place to enable us to leverage global resources and co-ordinate objectives across regions.


21

CONTACT


23

INTRODUCTION Africa and the Middle East are perhaps the most attractive growth markets for international businesses. Replete with natural resources and potential customers, this region is rich in opportunity.

Drawing on data collated in Mercer’s Total Remuneration Surveys (TRS), this article examines remuneration trends across the region’s “super sectors” and in the energy and mining sectors in particular. It also discusses some of the most pressing challenges facing the region and the multinational corporations (MNCs) based there.

REMUNERATION STRUCTURE IN SUB-SAHARAN AFRICA Mercer operates in 35 countries across sub-Saharan Africa (SSA) and in 2013 more than 1,000 participants from eight super sectors — including energy, mining (and minerals), life sciences, and hi-tech — contributed to its TRS polling. Results reveal that in terms of the typical compensation mix, the super sectors are broadly aligned: basic salary continues to be the major component and accounts for over one-half of the overall remuneration package in both the energy and mining sectors (55% and 53%, respectively)1. Hi-tech takes pole position with 61%, reflecting the preferences of a young, cash-hungry workforce.

Guaranteed cash — in the form of allowances (such as housing, education, and transport) — is another key component and ranges from 14% to 21% across the super sectors. Nonguaranteed bonuses are small (between 3% and 8%) but benefits are significant; they typically include employer contributions to social security and retirement funds (where they exist). Again, energy and mining are broadly in step despite some small variances between countries and regions, and in both sectors benefits exceed 20% of the overall pay mix, comparing well with the 28% offered by the consumer goods sector.

In terms of the total cost of employment disparity across SSA — if we focus on local talent working within the energy and mining sectors only and compare relative positions at senior position classes — Mercer’s surveys show that for every $1 earned by a senior manager in energy, second-tier managers receive 40 cents; in mining, the differential is slightly better (55 cents–60 cents). However, this does not necessarily translate into a better overall package.2

TOTAL CASH IN SSA According to the definition employed in the TRS, total cash comprises three components: basic salary, other guaranteed payments, and a bonus.

In the energy sector, total cash levels are generally in step across the more junior position classes, but there is a definite trend for higher pay at PC60–PC64 in East Africa. All told, earnings are in excess of $300,000 in East African countries, only marginally ahead of those in West Africa, but over $100,000

1. Total cost of employment mix for super sectors in SSA: S1–S8 (PC40–PC64) 2. Total cost of employment disparity, all super sectors versus SSA

ENERGY AND MINING BREAKOUT SESSION: AFRICA AND THE MIDDLE EAST

Milan Taylor, Global Industries Leader and Carl van Heerden, Information Solutions Talent Leader Sub-Saharan Africa, Mercer

24

more than those in Central Africa. The recent huge expansion of energy exploration in East Africa could be the cause of this disparity; MNCs have been struggling to find workers with the right skills and therefore have to offer very attractive sums to secure the best employees.

The exact same story is being told in the mining sector, in which East Africa is again streaking ahead: total cash levels are just shy of $250,000 for PC60–PC64, easily outstripping levels in Central Africa and roughly double those in West Africa. A number of factors are at play here but the principle issue again is that as the talent pool is shrinking, opportunity is increasing — the world’s largest coal deposit was recently found in Mozambique, for example, and there is much interest in the oil and gas reserves discovered in East Africa.

When we compare total cash across all super sectors in SSA, there is little differentiation across the lower management tiers.3 At the PC60–PC64 levels,4 however, there is clear blue water at the top of the rankings: life sciences, the best-paying sector, outstrips its nearest competitor (energy) by more than $50,000. A skills gap is again the catalyst for competitive compensation packages: life sciences companies are constantly looking for the qualified scientists they need to staff their high-level medical research programmes.

REMUNERATION INCREASES IN ENERGY AND MINING ACROSS SSA East Africa leads the way in average forecast salary increases for the year ahead: double-digit increases are expected for both the energy and mining sectors (10.57% and 11.93%, respectively) in this competitive employment market, and will be comfortably ahead of the anticipated CPI of 6.11%. West Africa is in roughly the same ballpark (although increases in the mining sector in this sub-region will be lower at 8.58% and CPI is expected to be higher). Employers may struggle to attract or retain employees in Central Africa, however, where the average pay rise of 6% will lag behind the anticipated CPI levels.

REMUNERATION TRENDS IN THE MIDDLE EAST AND AFRICA (ENERGY) The Mercer Salary Movement Snapshot from December 2013 shows a relatively mixed picture across the Middle East and Africa.

By and large, “stability” is the watchword across the Middle East, particularly the Gulf States; forecasts are aligned in countries such as Oman, Qatar, and Saudi Arabia. There is, however, a cloud on the horizon in Jordan, where unemployment rates are forecast to exceed 12% (salary increases are expected to be around 5%).

In North Africa, Libya commands attention with GDP forecast to reach 25% as the country emerges from a long period of instability. Salary increases of 10% are expected across the board, and will not be too far behind in neighbouring Algeria at 7.7%. In Iraq, where figures suggest that salary rises will be at a similar level, anecdotal evidence indicates that increases will exceed that in the oil and gas sectors.

3. PC42–PC44, PC46–PC49, and PC53–PC56, respectively4. Summary, super sector, total cash, January 2014 S2–S8 (PC42–PC64)

24


25

HOT TOPICS ACROSS THE REGION As in Africa, a number of issues are clamouring for compensation and benefits managers’ attentions across North Africa and the Middle East.

Legislative and economic challenges are common in Africa. For example, in Angola, legislation was passed in 2012 that requires all companies to process payments via local banks and in the local currency, the kwanza. As a result of some teething troubles, the government agreed to exempt some foreign nationals employed by international businesses, but long-term expat residents and/or those married to local nationals have all been required to move to the new system.

Zambia has taken a similar route: since May 2012, the quoting and pricing of goods and services must be made in the local currency, the kwacha, as must the local portion of employees’ salaries.

Inflation has also been an issue in Ghana and has been on a steep upward trajectory since autumn 2013. That said, Ghana remains a stable and popular location for expat workers. Botswana has undergone something of an economic transformation in recent years and in 2013 it became one of the fastest-growing economies in the world. 5 A series of effective public–private-sector joint ventures has contributed to this uptick in the country’s financial fortune; one such venture was a long-negotiated move by the Ghanaian government and the diamond company De Beers, which saw the international firm’s centre of operations relocate from London to Gaborone.

In terms of managing expat packages (and expectations), housing costs are soaring in the United Arab Emirates and some employees are actively lobbying for improved assistance with accommodation expenses. Medical costs are also rising and companies are actively trying to manage these escalating premiums; some have experienced initial success in using third-party triage services to prevent unnecessary hospital trips, for example. Rising school fees are another issue, particularly in Qatar, and in the medium term may prove to damage attraction/retention rates among foreign workers with young children.

Companies operating in Saudi Arabia are experiencing different challenges in nationalisation — that is, moves by the Saudi government to ensure employment for local nationals — and this

5. Central Intelligence Agency. The World Factbook, 2013.


CONTACT

If you have any questions for the authors or require more information, please contact us at [email protected] or [email protected].

26

has had a direct impact on MNCs’ hiring practices. Some companies have been grasping the nettle by forming relationships with Saudi universities and then connecting with potential candidates at job fairs. Many of these students have gained international experience by means of studying abroad (typically in the United States) and are usually of a high calibre.

FUTURE CHALLENGES As the TRS results show all too clearly, the hunt for top talent is an imperative for all businesses operating across Africa and the Middle East. Particular skill set issues exist in the oil and gas sectors and Mercer has identified 50 critical engineering roles for these sectors (the “Energy 50”). During 2014, Mercer will be gathering data on these roles in addition to conducting the TRS in both developing and mature markets.

Beyond this, MNCs will need to be smarter in their future talent acquisition strategies in order to tackle skill shortages, fill the experience gap that develops when seasoned staff retire, and gauge the potential skills of young people. To that end, some organisations have recently been investing in “augmented reality” tests through which candidates’ technical and scenario-planning abilities can be assessed. Although there are some doubts about how efficacious such tests will be at measuring vital but less tangible skills — such as leadership — these developments will no doubt have a role to play in the medium to long term.


TRENDS AND HOT TOPICS ACROSS SUB-SARAHAN AFRICA

27

INTRODUCTION Africa has enormous potential. Offering a powerful combination of valuable natural resources, hitherto untapped talent, and a huge customer base, it is a magnet for the world’s biggest businesses.

The continent does, however, create unique challenges. Ongoing political instability, increased terrorist activity, a workforce lacking in key skills ( just as governments push for management roles to be localised), and poor infrastructure all hamper multinationals’ attempts to build sustainable operations and contribute to a testing operating environment. In order to provide multinationals the clearest possible picture of the existing state of play for remuneration as well as emerging trends, Mercer has been conducting a number of surveys that gather valuable information from across sub-Saharan Africa (SSA). Participation numbers have been growing steadily and, as of 2013, data were gathered from more than 1,100 participants across 35 countries and “super sectors”, including energy, life sciences, consumer goods, hi-tech, and mining.

This article presents key findings of the 2013 surveys and highlights a number of country-specific “hot topics”.

REMUNERATION STRUCTURE COMPENSATION MIX Base salary remains the principal component of the total compensation mix across the super sectors — it is highest among hi-tech companies at 61% (reflecting the preferences of their youthful workforce) and lowest among life sciences businesses at 50%. However, benefits continue to play a significant role and, in all super sectors other than hi-tech, benefits account for more than a fifth of packages. Bonuses remain a relatively small component (at between 3% and 8%), but other guaranteed cash is significant (at 14% to 21%).

Some interesting intraregional differences exist, however. East Africa has by far the highest base salary (64%, compared with 52% in both Central and Western Africa) and local companies regularly consolidate the vast “menu” of potential allowances into one payment for ease of administration. Market practice plays an important role, though, and the Anglo-Francophone countries have seen resistance to such changes. In several countries — Cameroon, for example — a certain number of allowances are actually stipulated by law. TOTAL CASH In SSA, total cash typically comprises basic salary along with other guaranteed payments, such as housing and transport allowances, 13th to 16th cheques (in some locations), and nonguaranteed earnings in the form of performance bonuses. In fact, such bonuses are increasingly common — over 80% of survey respondents in Zimbabwe, Tanzania, Kenya, and Nigeria provided them in 2013 — and often act as a useful motivational tool.

The surveys revealed dramatic differences at all PC classes between employees’ earning potential due to


Nicolaas Janse van Rensberg, Senior Consultant, Imane Lalami, Industry Consultant, Nicol Mullins, Senior Consultant and Dirk Joubert, Consultant, Mercer

28

TRENDS AND HOT TOPICS ACROSS SUB-SARAHAN AFRICA TRENDS AND HOT TOPICS ACROSS SUB-SARAHAN AFRICA

labour market conditions and the availability of skilled workers, as well as the cost and quality of living. At the PC45 class in West Africa, for example, the total cash levels range from $25,000+ per annum in Equatorial Guinea to just $4,000 in Sierra Leone; in central Africa, levels range from $35,000+ in Angola to $5,000 in Malawi.

HR teams should also note the significant upward shift in total cash between PC classes. For example, at PC53–PC56, Gabon ranks top in West Africa (total cash of over $90,000); at PC57–PC59, however, Gabonese managers can earn $180,000. The same is true in Central West Africa: in Angola, the total cash at these levels rises from around $130,000 to $250,000 per annum, providing a clear incentive for employees to perform strongly and drive promotions.

Total cash is broadly in alignment across the less senior roles throughout SSA’s super sectors. By PC60–PC64, however, clear blue water is established between the energy sector (total cash of more than $350,000 per annum) and its nearest competitor, life sciences ($200,000).

REMUNERATION INCREASES In many locations, employees will feel the benefit of salary increases this year; forecasts are typically ahead of the CPI levels expected by the International Monetary Fund. In West Africa, 2013’s pay rises were on average ahead of 2012’s (and highest in countries such as Guinea Conakry, Ghana, and Sierra Leone). The same cannot be said for East Africa for the same period, but there are some signs of a return to form for countries such as Botswana and Rwanda.

Double-digit pay rises are expected across the region, but in the Anglo-Lusophone countries these are likely to be behind 2012 levels. Going forward, however, it will be unsustainable for companies to maintain this practice — although it may be easier in some regards to offer increases in excess of 10% “across the board”, if companies are to retain their best performers, they will have to offer their most promising or productive staff bigger rises proportionally.

COST AND QUALITY OF LIVING Broadly speaking, West Africa is much more expensive than East Africa, but has a lower quality of living. Countries such as Angola and Chad illustrate this perfectly: both are more than 30 comparison points ahead of the baseline (New York) in terms of cost, but between 50 and 70 points below, respectively, in terms of quality of life. Tanzania and Botswana, on the other hand, are relatively inexpensive and yet offer a more comfortable base for expat workers.

BENEFITS AND EMPLOYMENT PRACTICES ACROSS SSA MEDICAL PROVISION Medical provision is high across SSA: around 90% of survey respondents offer this benefit to employees. Care is offered either at in-house clinics or outsourced to external providers. In 2013, the average company contribution to medical costs was just under $1,500, but premiums are rising inexorably in the region and multinationals need to find ways to economise without damaging their employees’ perceived level of service.



29

RETIREMENT PROVISION End-of-service benefits are routinely paid to retiring workers in Africa. Whether lost, stolen, or simply spent, these lump-sum payments are typically used up very quickly, and as state provision for later life is poor at best (and notional at worst), many businesses find that former employees need to return to work. In order to address this situation, multinationals are increasingly stepping in to offer supplementary retirement savings funds that will help workers support themselves and their families more effectively. (The popularity of the schemes means they can also be viewed as attraction and/or retention tools.)

Although a lack of local providers can be a handicap in some locations (businesses tend to use offshore providers in these cases), take-up rates are good — over 90% of companies surveyed in Nigeria and Zimbabwe offer them, for example — and demonstrate that educating employees about the importance of saving for later life is beginning to reap rewards.

One key principle of the supplementary savings plans is that both employees and employers contribute, emphasising that retirement provision is a dual responsibility. Company contributions differ widely across SSA, ranging from 30% to 10% in the Anglo-Francophone countries and around 11% to 6% in the Anglo-Lusophone countries; the regional average for employee contributions is 4%. VEHICLE PROVISION Long the outward badge of successful senior executives, company cars remain popular in Africa — indeed, in Zimbabwe and Tanzania, their numbers rose in 2013. However, there is trend towards offering car allowances rather than a company vehicle in order to avoid tax implications, as well as to reduce administrative and transportation costs.

HOT TOPICS ACROSS THE REGION Although SSA does offer a wealth of opportunities for multinationals, HR challenges abound. Here, as indeed across all important global markets, finding and retaining top talent is high on recruitment managers’ to-do lists. Not only is it imperative that existing projects have the best and most skilled staff, but organisations also need to ensure that a senior management pipeline is in place for the future.

Identifying future leaders among graduate trainees has served many companies well and, to that end, some have begun to actively partner with local universities in order to access the cream of the crop. Retaining these future leaders at the end of the training programme is crucial, however — all too often they leave just as they are about to become profitable for their employers.

Legislative changes in several countries in the region have had implications for multinationals. For example, in November 2013, the East African Cross-Border Payment System (EAPS) was rolled out. Under its auspices, the central banks of Tanzania, Uganda, and Kenya opened their banking “borders” to each other, meaning that any financial transactions between those countries now occur in real-time. (Plans to bring Rwanda and Burundi on board are ongoing.) It is hoped that by 2025, the EAPS countries will have a single currency and that there will be free movement of workers between them — much like in the Eurozone — reducing the resources currently spent on administering visas and working permits. There will, however, be some fall-out for both employers and employees as choice widens and attraction and retention rates fluctuate as a result.

Changes to the ways in which the employees of multinationals are paid have been gaining prominence across the region. In Angola, for example, all companies are now legally obliged to process payments to local providers via local banks and in the local currency, the kwanza. Zambia has taken a similar route:


30

TRENDS AND HOT TOPICS ACROSS SUB-SARAHAN AFRICA TRENDS AND HOT TOPICS ACROSS SUB-SARAHAN AFRICA

since May 2012, the quoting and pricing of goods and services must be made in the local currency, the kwacha, as must the local portion of employees’ salaries. The kwacha was rebased in January 2013 following a lengthy period of high inflation, but has since stabilised against the US dollar.

In Kenya, a radical change to social security has had a significant impact on the economic landscape. In late 2013, the existing social security contribution (a fixed annual fee of 2,400 Kenyan shillings) was rejected in favour of a levy (6%) on gross earnings. Both employees and employers have been dismayed; take-home pay has been reduced and costs have rocketed, so much so that other welfare provisions — such as private retirement savings schemes — may be adversely affected. Tax hikes have rubbed salt into the wound too: VAT has increased to 16%, for example, and the number of exempted products has shrunk dramatically. Social security reforms have also been on the agenda in Ghana, but have been met with a warmer response. In 2012, the government introduced a three-tier retirement plan in order to provide employees better benefits at the end of their working lives. Both employers and employees contribute (13% and 5.5%, respectively) towards social security, with employee and employer contributions fully tax exempt — a powerful incentive. In addition to this, an additional 16.5% towards private retirement is also tax-exempted

Massive infrastructure projects may have a transformative effect on the region. For example, the Power Africa initiative — backed by the US government and General Electric — will invest $16 billion in improving electricity supplies in Kenya, Tanzania, Ethiopia, Ghana, Nigeria, and Liberia, and in accessing and managing recent huge oil and gas discoveries in Uganda and Mozambique. The principle aim of the project is to ensure that Africa benefits from its natural resources, but it is hoped that the crossborder energy trade will also be boosted as a result. East Africa will also benefit from a planned regional oil pipeline connecting Rwanda, Burundi, Tanzania, and the Democratic Republic of Congo.

Public–private sector joint ventures are boosting economies across the region. Uganda, for example, will be working with foreign oil companies in order to exploit its oil and gas reserves commercially, while Botswana is now the home base of operations of the diamond company De Beers, following its relocation to Gaborone from London.

CONCLUSION

Sub-Saharan Africa offers employers both unique opportunities and distinct challenges. Companies must develop strategies to deal with the issues and offer

the vast untapped talent pool appropriately attractive benefits and remuneration in order to tap this region’s enormous potential.

CONTACT

If you have any questions for the author or require more information, please contact us at [email protected] [email protected] or [email protected].


For further information, please contact your local Mercer office or visit our website at:www.mercer.com

Argentina

Australia

Austria

Belgium

Brazil

Canada

Chile

China

Colombia

Czech Republic

Denmark

Finland

France

Germany

Hong Kong

India

Indonesia

Ireland

Italy

Japan

Malaysia

Mexico

Netherlands

New Zealand

Norway

Peru

Philippines

Poland

Portugal

Saudi Arabia

Singapore

South Korea

Spain

Sweden

Switzerland

Taiwan

Thailand

Turkey

United Arab Emirates

United Kingdom

United States

Venezuela

Copyright 2014 Mercer LLC. All rights reserved.

2014 africa and the middle east …...candidates’ skills in person, gauged their behavioural...

Documents