For an industry that contributes five percent of GDP, IT isn’t given much more support than lip service from government. Carel Alberts reports.

Global context
Let’s not fool ourselves – in global terms, the South African IT industry is little more than a pixel on a billboard. Take it away, and it’s still the same picture.
 
In 2006 the global industry (not counting telecoms) was worth $1.2 trillion. By unflattering comparison, SA spent a mere R52.2 billion on computer hardware, software, networking and related services in the same year (BMI-TechKnowledge) – or around 0.66% of the global outlay. IT analyst Paul Booth disputes this figure, saying it is closer to R60 billion, which would increase our share of the world IT market to all of 0.8%.

All the same, the local industry grew almost 11% on 2005, easily outstripping the world average. And while it may not be any great shakes globally, IT is worth a fair deal to the SA economy, as the following industry figures show.

GDP GROWTH CONTRIBUTIONS BY INDUSTRY
Finance, real estate and business services	19.8
Manufacturing	16.4
Transport and communication	9.9
Mining and quarrying	5.6
IT**	4.9
Construction	3.3
Agriculture, forestry and fishing	2.0

Sources: Stats SA, BMI-T
* Percentage contributions to seasonally adjusted annualised changes in real GDP
** Not included as an industry measured by Stats SA. With telecoms, the combined sector is worth more than 10% of GDP


Serious?
So how serious is the country about ICT? For one, it recognises that things could be much healthier. In May 2007, not for the first time, the government made admirable noise about the need to ‘develop SA into an advanced information society in which ... technology ... [will be] a key driver of economic and societal development’. In addition, the Presidential National Commission on Information Society and Development (ISAD) has been set up, with different departments expected to initiate their own programmes. In a similar vein, the Department of Communications (DOC) has sought to bring such initiatives under one banner – ICT for All (ICT4All).

It is difficult to feel optimistic about the government’s ability to ace initiatives of this magnitude, or to agree that it should run them without the proper partnerships. Many smaller, just as well-intentioned, programmes have been severely criticised for their short-sightedness or tardiness. One example of the government’s myopia is their support for call centres in rural areas only, when clearly it should give equal breaks to all regions and providers. And while we struggle to ‘get with the programme’, Morocco, Botswana and other unlikely candidates are moving in on the opportunity to win significant offshore call centre business.
 
On an equally worrying scale, the communications regulator, ICASA, has been plagued by a never-ending ‘crises of skills’ and a lack of true sanctioning power and independence. It continues to fail in its main duties of creating a competitive landscape and broadening access to ICT – instances of which are well documented.

Under ideal circumstances, neither governments nor regulators ought to have this kind of effect. Governments ought to have less and less vested interest in industry over time, not more. And, ministerial involvement ought to be restricted to setting sensible policies. Moreover, the regulator ought to perform its rule-making swiftly and decisively with meaningful public input and the private sector ought to be allowed to freely compete on a level playing field. Meanwhile, whatever successes the local IT and communications sectors have enjoyed so far, have come about despite the dysfunctional interrelationships between these parties.

No innovation, please
More so than many other industries, much of IT’s investment potential comes from the fruits of intellectual endeavour rather than sound business decision-making. But South Africa is not known for its IT-centric intellectual property. From one angle, we’re way too unimportant a market to warrant globally-channelled spend on research in nanotechnology, or even humdrum areas like chips or storage. The kind of innovation seen locally often has narrow military or social significance, or else focuses on making robust technology that will withstand the topography and climate of the continent.

Even then, political involvement too often stops perfectly good local ideas from being fully realised (such as when a TB drug administering monitor failed to get provincial government attention). Or else the non-existent local venture capital scene puts paid to it, or local mistrust of South African products closes funding avenues. And sometimes, the ‘inventor’ sells off his company for billions and moves to a more amenable setting (Mark Shuttleworth).

Lone torch bearers
Operating in these circumstances, the local industry has gone in three directions. The first and most representative is ‘reselling’. In many cases, local firms are agents to overseas masters.

Called ‘the channel’, around 5 000 to 8 000 IT companies in SA are either distributors, resellers (buying and on-selling) or retailers of Microsoft, IBM, HP, SAP and such. Booth says perhaps 90% of computer hardware is sold via the channel (R20 billion).
 
Packaged software, wherein some splendid local intellectual property resides, is sold 50% via the channel and 50% directly (for a channel share of R5 billion). The highest honour for a channel company is to be skilled enough to render services on top of the goods they push into the market on behalf of others, including pre-sales (consulting), implementation-related and support services, or hosting-related managed services.

The second main local direction is software development (as opposed to software sales via the channel). The Cape is often vaunted as a software development hub for its lifestyle and low cost. Admittedly, the Cape’s developers have exploited profitable and innovative niche areas (vertical industry applications, internet-enabled applications, mobile applications and so on).
 
The third ‘big’ SA IT direction is call centre provision. But the debate over whether we can hold our own against world call centre destinations like India has raged endlessly, and by now it is beginning to feel like a bit of a damp squib. No hard figures appear to be available, but according to some predictions, the number of local call centres will have doubled between 2005 and 2008, reaching a total of 940.
 
In 2003, one survey estimates, our share of the $60 billion global industry was R523 million, or 0.1%. Beyond that one cannot say, but encouragingly, SA call centres employ more ‘high-discretion’ agents than low-discretion roles, whereas power-houses like India focus on lowly, less lucrative roles for their agents.

Big ten
It remains only to highlight the big guns.

1. Telkom – With revenue of some R60 billion, Telkom is SA’s biggest converged ICT company. Its fixed-line business is under threat, and with Vodafone seeking to increase its stake in Vodacom, Telkom’s mobile phone interest, it may instead partner with MTN. Telkom also lost its chance of taking over Business Connexion.
2. MTN’s revenue of R50 billion-plus is generated across Africa, making it the biggest mobile operator on the continent.
3. Vodacom makes its R40 billion-plus revenue in South Africa.
4. Dimension Data makes less than 15% of its revenue in SA.
5. Datatec produces similar revenues but makes less than 6% of its money locally.
6. The Altron Group makes R17.5 billion.
7. Business Connexion makes R3.5 billion.
8. Mustek, an IT distributor and maker of the Mecer PC brand, generates revenue of R3.5 billion.
9. GijimaAst makes R2 billion-plus.
10. IBM and Hewlett-Packard are both estimated to make in the region of R2 billion in SA.

Source: Paul Booth

• It operates in 40 countries, but makes most of its profits in home markets.
• It offers ICT solutions and services – its ‘plan, build and manage’ services are offered across the continent.
• Financial year-end results for the period ending in September 2007 show total revenue growth of 23%, to $3.8 billion, and operating profit growth of 55%, to $131 million.
• The company has a dual listing on the JSE and LSE.
• Areas of significant growth for the Middle East and Africa region include telecoms, public sector, and services.
• A consortium led by the former Department of Communication DG Andile Ngcaba, owns 25.01% of Dimension Data SA. 75% of Dimension Data Africa and Middle East is owned by Dimension Data PLC. Within MEA, the company has three additional brands: Internet Solutions, a shared services and converged communications service provider; Plessey, a provider of turnkey telecoms infrastructure solutions; and Merchants, a provider of outsource contact centre solutions.
• All three brands have a presence in Nigeria and Kenya.
• Dimension Data’s main global technology partnerships are with Cisco and Microsoft.
• Dimension Data opened its first office in Italy in Milan in March 2007.