South Africa Information Technology Report Q2 2010 (Business Monitor International)
Companies and Markets | 07 Apr 2010
Market Overview ; South African IT spending is expected to increase from US$9.5bn in 2010 to around US$14.4bn in 2014, faster than real GDP growth. Despite an expected slowdown in investment associated with the 2010 FIFA World Cup, there should be opportunities for vendors across several sectors of a steadily growing South African IT market during our five-year forecast period. The 2010-2014 South African IT market compound annual growth rate (CAGR) is projected to be in the region of 11%, as a number of IT infrastructure projects generate spending at federal and provincial levels. Much spending in key IT verticals such as telecoms, banking and mining will be driven by factors internal to those sectors. The IT market fundamentals of sub-10% PC penetration, rising incomes and falling prices also underpin our growth forecast.
A successful hosting of the 2010 FIFA World Cup could be expected to attract more foreign investment. The IT market will also be driven by a continued improvement in South Africa’s ICT infrastructure and bandwidth availability. 2009 saw steep falls in the cost of ADSL services, which declined by as much as 80% in some areas, bringing broadband internet within reach of a wider proportion of South Africans.
Industry Developments The Department of Home Affairs (DHA) has announced that it will spend more than SAR500mn on IT projects in the current financial year. The objectives include improving service delivery and immigration services and fighting corruption. IT projects will receive ZAR514mn in 2009, with this allocation growing to ZAR652mn in 2010/11.
The 2010 World Cup has had an impact, not only in terms of investments in IT systems directly linked to the event, but those driven by associated investments in areas such as infrastructure. Meanwhile, in the run-up to 2010, the licensing of a second national telecoms operator will provide opportunities for operators. In Gauteng, new technology is being used to improve policing and education, put more services such as driver’s licence booking online and automate healthcare records. Following her appointment in 2009 to the Open Source Software Standing Committee, Nthabiseng Mosupye, the director of information services at the Department of Public Works, called for a renewed drive to implement the government mandate of 2005, which saw all government departments making use of free open source software.
Competitive Landscape Government figures have estimated that Microsoft accounts for around one-third of national spending on software licences. In 2010, the software market leader hopes that sales of its Windows 7 operating system, launched in October 2009, will boost its sales in South Africa. Microsoft announced last year that four Microsoft Innovation Centres will be built in Africa in the next two years, two of them in South Africa.
Most of the major multinational IT services players have African regional headquarters in South Africa. In September 2009, IBM opened an Africa Innovation Centre in Cape Town, which the company hoped would act as a driver to grow its customer and business partner network in South Africa. The US company has expanded its local partner community by 200% since early 2008. Despite the tough economic conditions, PC vendors have strengthened their presence in the market with new distribution agreements and partnerships. In 2009 Korean company Samsung appointed local information and communication technology (ICT) distributor Rectron as distributor for its entire line of IT products. HP appointed local company LetMeRepair as a new authorised Home Product Service Partner for in and out of warranty repairs of its PC range.
South Africa’s computer hardware market is forecast to grow to at a CAGR of 11% over the next few years from an estimated US$4.1bn in 2010 to US$6.3bn in 2014. In 2009, sales were hit by sluggish retail demand, with the wholesale and retail trade sector contracting. The main growth drivers during our five-year forecast period include rising computer penetration, falling prices and vendor and retailer promotions, and the popularity of notebook computers and ultra-light products. In the past few years, falling prices have helped boost PC unit shipments, along with aggressive retail promotions. In 2009, the popularity of low-cost netbooks gave further momentum to this trend. Netbooks are now available from online stores such as kalahari.net and ngrcomputers.co.za for as little as SAR3300, breaking new territory for affordability.
The software market is forecast at around US$1.8mn in 2010 and, despite current economic headwinds, is projected to have a CAGR of around 11% over the 2010-2014 period. South Africa’s software market is developing, despite the problem of software piracy, which still accounts for around 36% of software. The growing regional ambitions of South African companies will be a factor driving corporate spending on software, but vendors will have to meet increasing demand for vertical-specific applications. The economic slowdown represents a challenge to software vendors, as enterprises are tempted to focus more on the bottom line. This situation is likely to lead to further consideration of open source solutions in some sectors. Meanwhile, the progress of the software-as-a-service (SaaS) model in South Africa should receive a boost from projected improvements in South Africa’s broadband infrastructure.
The IT services market is projected at around US$3.5bn in 2010 and is expected to grow to around US$5.3bn in 2014. The 2010 World Cup and other major infrastructure and transport projects provide a framework for faster spending growth during the forecast period.
Despite the current economic crisis, work will continue on most of the major infrastructure and IT projects associated with that event. Spending on IT services still depends heavily on government programmes, and in the current economic environment, the government will remain the largest spending IT services vertical, followed by financial services and telecoms.
Internet penetration in South Africa is by far the highest on the continent, although broadband penetration remains low. In the small business sector, some progress is being made: according to a 2008 survey, 63% of smaller companies that use computers to connect to the internet now have a DSL internet connection, exactly the proportion using dial-up five years ago. Despite the opportunities, prospects for the IT market remain constrained by high communication costs and uneven infrastructure development. The government has launched a series of initiatives to tackle this issue, but there are doubts as to whether the government has the will to tackle the key question of termination rates and pricing implications.
The South African broadband market will become increasingly dynamic over the next five years. One development that is expected to have a major shake-up effect on the market is the inauguration of various undersea cables. Some of these are due to go live by 2010 and will help to reduce the cost of bandwidth. Other developments that are expected to provide the broadband market with a major stimulus include local loop unbundling – scheduled for completion in 2011 – and the deployment of new network infrastructures to rival Telkom’s national network.