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South Africa Information Technology Report Q4 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: October 2009 Product Code: R302-8436 Description Market OverviewDespite currently challenging trading conditions, there should be opportunities for vendors across severalsectors of a steadily growing South African IT market during BMI's five-year forecast period. The totalsize of the IT market is expected by BMI to increase from US$8.7bn in 2009 to around US$12.6bn in2013, faster than real GDP growth, which is now projected to be negative this year. In 2009 the global economic slowdown had a negative impact on IT spending in key ITverticals. Meanwhile, a combination of rising unemployment and global economic uncertainty has led toa sharp slump in consumption growth, with wholesale and retail trade contracting by 2.6% in Q109. In2009, IT market spending has decelerated sharply as a result, with negative growth forecast, and thissluggish market is expected to persist until at least 2010. However, a number of factors should serve to immunise South Africa to some extent against negativegrowth in IT spending. In particular, a wave of public infrastructure projects with IT dimensions, manyassociated with the 2010 World Cup, will not be delayed by the global slowdown. Much spending in keyIT verticals such as telecoms, banking and mining will continue to be driven by factors internal to thosesectors. Industry Developments The Department of Home Affairs (DHA) has announced that it will spend more than SAR500mn on ITprojects in the current financial year. The objectives include improving service delivery and immigrationservices, and fighting corruption. IT projects will receive ZAR514mn in 2009, with this allocationgrowing to ZAR652mn in 2010/11. The 2010 World Cup has had an impact not only in terms of investments in IT systems directly linked tothe event, but those driven by associated investments in areas such as infrastructure. Meanwhile, in therun-up to 2010, the licensing of a second national telecoms operator will provide opportunities foroperators. In Gauteng, new technology is being used to improve policing and education, put moreservices such as driver's licence booking online and automate healthcare records. In the current bad economy, lack of access to credit may be a significant barrier to IT investments bysmaller firms. However, the Industrial Development Corporation (IDC) recently launched a fundingmechanism designed to empower South African small and medium-sized enterprises (SMEs) through anemphasis on transfer of skills. Competitive Landscape Despite the tough economic conditions, PC vendors have strengthened their presence in the market withnew distribution agreements and partnerships. In 2009 Korean giant Samsung appointed localinformation and communication technology (ICT) distributor Rectron as distributor for its entire line ofIT products. HP appointed local company LetMeRepair as a new authorised Home Product ServicePartner for in and out of warranty repairs of its PC range. Meanwhile, Lenovo entered the South Africanserver market with its ThinServer line targeted at small and medium-sized enterprises (SMEs). Vendors of enterprise applications, including Microsoft as well as the likes of SAP and Oracle, seeopportunities such as regional expansion and recent IT infrastructure investments have led to a greaterawareness, among smaller companies, of the advantages of enterprise software. SAP recently rolled out anew referral programme in South Africa aimed at both SAP partners and non-partners. The programmepays around 5% of the value of a software licence deal after the deal is closed. 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 hopedwould act as a driver to grow its customer and business partner network in South Africa. The US gianthas expanded its local partner community by 200% since early 2008. Computer Sales South Africa's computer hardware market is forecast to grow to at a compound annual growth rate(CAGR) of 10% over the next few years from an estimated US$3.8bn in 2009 to around US$5.5bn in2013. In 2009, sales have been hit by sluggish retail demand, with the wholesale and retail trade sectorcontracting by 2.6% in Q109, indicating that the slump had not yet found a bottom. Despite a sharp deceleration in 2009, however, a number of fundamentals should mean that spendingremains on an upwards trajectory during BMI's five-year forecast period, with the main drivers includinglow computer penetration, falling prices and vendor and retailer promotions, and the popularity ofnotebook computers and ultra-light products. Software The software market is projected at around US$1.7mn in 2009 and, despite a slowdown in 2009,is forecast to grow at a CAGR of around 10% over the 2009-2013 period. South Africa's software marketis 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 spendingon 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 focusmore on the bottom line. This situation is likely to lead to further consideration of open source solutionsin some sectors. Meanwhile, the progress of the software-as-a-service (SaaS) model in South Africashould receive a boost from projected improvements in South Africa's broadband infrastructure. IT Services The IT services market is projected at around US$3.2bn in 2009 and is expected to grow to aroundUS$4.7bn in 2013. The 2010 World Cup and other major infrastructure and transport projects provide aframework 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. The economic situation, and credit tightening, is likely to have an effect on demand in some key verticals,which have been driving IT spending, particularly manufacturing and construction. In 2009 there werereports of IT managers in various sectors looking to cut costs. Vendors will have to adapt to anenvironment where more spending is centred around solutions to immediate needs and a preference for'good enough' solutions. E-Readiness Internet penetration in South Africa is by far the highest on the continent, although broadband penetrationremains 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 costsand uneven infrastructure development. The government has launched a series of initiatives to tackle thisissue, but there are doubts as to whether the government has the will to tackle the key question oftermination rates and pricing implications. The South African broadband market will become increasingly dynamic over the next five years. Onedevelopment that is expected to have a major shake-up effect on the market is the inauguration of variousundersea 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 includelocal loop unbundling - scheduled for completion in 2011 - and the deployment of new networkinfrastructures to rival Telkom's national network. Table of Contents
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