South Africa Information Technology Report Q4 2011

Business Monitor International's 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

BMI expects South African IT spending to increase from US$11.9bn in 2011 to about US$18.9bn in 2015, faster than real GDP growth. Despite a drop-off in infrastructure investment associated with the 2010 FIFA World Cup, other sectors such as government, utilities and mining will continue to provide a framework for growth during BMI's five-year forecast period.

In 2011, a brighter outlook is forecast for the household PC segment, in a context of low interest rates, ongoing wage increases and rising asset prices. South African businesses are expected to maintain a cautious attitude to IT investments, due to continued global economic uncertainty.

The 2011-2015 South Africa IT market compound annual growth rate (CAGR) is projected to be in the region of 12%, 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

The South African Department of Education has announced a target of rolling out laptops to all school children in the country by 2014. The government is looking at various ways to achieve this, including the use of portable mobile computer labs for schools where there is no infrastructure. This followed the launch, also in 2010, of the Teacher Laptop Initiative, which should encourage PC procurements by schools across the country.

In November 2010, the South African government announced incentives to attract business process outsourcing (BPO) firms to challenge India's long-term dominance of the sector. The government has offered tax rebate of 12,000 rand for every job created in the sector. The government is keen to win a larger share of the global outsourcing spending for the country.

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 its fiscal year ending June 2011, South African IT giant Gijima reported earings of 2,566mn rand, down 12.8% from 2,943mn rand in its previous fiscal year. The company's performance was impaired by a settlement with the Department of Home Affairs. However Gijima's Managed Services division achieved 8% growth in revenues.

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.

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 last year 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.

Computer Sales

South Africa's computer hardware market is forecast to grow at a CAGR of 11% over BMI's five-year forecast period from an estimated US$5.3bn in 2011 to US$7.9bn in 2015. Computer sales were one of the drivers of rising retail sales in mid-2010, according to local data.

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 around US$2.2mn in 2011 and, despite current economic headwinds, is projected to have a CAGR of around 14% over the 2011-2015 period. South Africa's software market is developing, despite the problem of software piracy, which still accounts for about 35% 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.

Enterprise resource planning remains the most popular enterprise software application with South African businesses, with a growing number of them now using this tool. Despite their difficulties accessing credit, South African SMEs, facing change and seeking efficiencies, are likely to represent an opportunity.

IT Services

The South African IT services market is projected at around US$4.4bn in 2011 and is expected to grow to around US$7.3bn in 2015. During 2010, IT services vendors reported increased client spending in key segments. Major infrastructure and transport projects should provide a framework for faster spending growth during the forecast period.

Spending on IT services still depends heavily on government programmes and the government will remain the largest spending IT services vertical, followed by financial services and telecoms. Cloud computing is becoming viable in South Africa due to improved and lower-cost bandwidth availability.

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, which 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. SHOW LESS READ MORE >

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
Regional IT Business Environment Ratings
Middle East Markets Overview
Market Growth And Drivers
South Africa Market Overview
Government Authority
History And Market Structure
Hardware
Software
Services
End-Users

Industry Developments
Industry Forecast
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
Industry Forecast Internet
Telecoms Sector – Internet – Historical Data & Forecasts

Macroeconomic Forecast
Table: South Africa – Economic Activity
Competitive Landscape
Hardware
Software
IT Services
Internet Competitive Landscape

Company Profile
IBM SA
Sahara Computers

Country Snapshot: South Africa Demographic Data
Section 1: Population
Table: Demographic Indicators, 2005-2030
Section 2: Education And Healthcare
Table: Education, 2002-2005
Table: Vital Statistics, 2005-2030
Section 3: Labour Market And Spending Power
Table: Employment Indicators, 2001-2006
Table: Average Annual Wages, 2000-2012

BMI Methodology
How We Generate Our Industry Forecasts
Transport Industry
Sources 60"