South Africa Information Technology Report Q1 2011
Business Monitor International, January 2011, Pages: 58
South Africa Information Technology Report provides industry professionals and strategists, corporate analysts, information technology associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Africa's information technology industry.
Market Overview South African IT spending is expected by BMI to increase to about US$19.2bn in 2015, faster than real GDP growth. Despite an expected drop-off 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 BMI’s five-year forecast period.
In 2011 South African businesses are expected to maintain a cautious attitude to IT investments, due to continued global economic uncertainty. There have been some signs of local market recovery and a brighter outlook is forecast for the household PC segment, where computer sales were one of the drivers of rising retail sales in mid-2010.
The 2011-2015 South Africa IT market compound annual growth rate (CAGR) is projected to be in the region of 16%, as a number of major IT infrastructure projects generate spending at provincial levels. A projected improvement in South Africa’s broadband infrastructure and international bandwidth will also be an important market growth driver.
Industry Developments In 2010 the South African government launched a Teacher Laptop Initiative, which should encourage PC procurements by schools across the country. Teachers will be provided with a subsidy of SAR130/month and a choice of packages from accredited suppliers. In July 2010 48,000 laptops were ordered by KwaZulu-Natal’s Department of Education, with ambitions for all teachers in the province to have laptops by 2012.
The Department of Home Affairs (DHA) announced it will spend more than SAR500mn on IT projects in the 2009/10 financial year. The objectives include improving service delivery and immigration services and fighting corruption. IT projects will receive ZAR514mn in 2009/10, with this allocation growing to ZAR652mn in 2010/11.
Meanwhile, the IFMS (Integrated Financial Management Systems) project manages the evolution of government IT systems to support interoperability and e-government service development. The project, supervised by the State Information Technology Agency (SITA) involves the integration and migration of government finance, HR, asset management, logistics and other business solutions into a single distributed system.
Competitive Landscape In 2010, PC vendors Dell, HP, LG, Pinnacle, Sahara, Vodacom, MTN, Lenovo, Fujitsu-Siemens, Cel C, Mecer, and Telkom were among those selected by the South African government as accredited suppliers for its Teacher Laptop Initiative. Under the initiative teaches will have a choice of packages ranging from SAR250 to SAR390, and they will receive a subsidy of SAR130, but have to pay the remaining sum.
In 2011, IT services firms will target the emerging cloud computing opportunity, which has attracted a number of players into the market. In Q410 new telecoms service provider ARC Telecoms launched in South Africa with plans to provide connectivity, managed services and applications delivery through cloud computing. ARC signed agreements with telecoms carriers such as Telkom and Vodacom, and was targeting the small and medium business market.
Leading South African IT Services company Dimension Data reported an 11.1% rise in revenues in the first half of its 2010 financial year. Revenues for the six months to March reached US$2.2bn. The company forecast further recovery in client spending in the second half of the year. However, the gorss revenues of Datacentrix, another leading South African ICT company, contracted from SAR1.5bn to to SAR1.3bn, due mainly to poor results in parts of the infrastructure division.
Computer Sales South Africa’s computer hardware market is forecast to grow at a CAGR of 15% over BMI’s five-year forecast period from an estimated US$4.7bn in 2011 to US$8.3bn in 2015. In 2011 PC sales should bounce back, boosted by a recovering consumer market.
The main growth drivers during BMI’s five-year forecast period include rising computer penetration, falling prices and vendor and retailer promotions, as well as the popularity of notebook computers and ultra-light products. In the past few years, falling prices have boosted PC unit shipments, along with aggressive retail promotions.
Software The software market is forecast at about US$2.0mn in 2011 and, despite current economic challenges, is projected to have a CAGR of about 17% over the 2011-2015 period. South Africa’s software market is developing, despite the problem of software piracy, which still accounts for about 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.
IT Services The South African IT services market is projected at about US$4.0bn in 2011 and is expected to grow to about US$7.2bn in 2015. During 2010, IT services vendors reported increased client spending in key segments. Major infrastructure and transport projects provide a framework for faster spending growth during the forecast period.
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.
E-Readiness 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 using 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 launched a series of initiatives to tackle this issue, but there are doubts about 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 shake up the market is the inauguration of various undersea cables. Some of these are due to go live by 2010 and will reduce the cost of bandwidth. Other developments 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.
Executive Summary
SWOT Analysis
South Africa IT Sector SWOT
South Africa Telecommunications Sector SWOT
South Africa Political SWOT
South Africa Economic SWOT
South Africa Business Environment SWOT
IT Business Environment Ratings
Table: Regional IT Business Environment Ratings
Middle East & Africa IT Market Overview
Market Overview
Government Authorities
History and Market Structure
Hardware
Software
Services
End-Users
Industry Developments
Industry Forecast Scenario
Table: South Africa’s IT Industry – Historical Data And Forecasts (US$mn unless otherwise stated)
Country Context
Table: Consumer Expenditure, 2000-2012f (US$)
Table: Rural/Urban Breakdown, 2005-2030f
Macroeconomic Forecast
South Africa – Economic Activity
Internet
Table: Telecoms Sector – Internet – Historical Data & Forecasts
Competitive Landscape
Hardware
Software
IT Services
Internet Competitive Landscape
Company Profiles
IBM SA
Sahara Computers
BMI Methodology
How We Generate Our Industry Forecasts
IT Industry
IT Ratings – Methodology
Table: IT Business Environment Indicators
Weighting
Table: Weighting Of Components
Sources
- IBM SA
- Sahara Computers
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