BMI's Executive Summary

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Market Overview

The total size of the South Africa IT market is expected by BMI to increase from US$8bn in 2007 to around US$11.6bn in 2012. This is faster than real GDP growth which is forecast by BMI in the 4-5% range. IT spending CAGR is expected to be in the higher region of 8%. With a number of major central and provincial government IT infrastructure initiatives currently generating spending, there should be opportunities for vendors in most sectors within a steadily growing market.

The State Information Technology Agency (SITA) is currently overseeing tenders in areas ranging from financial systems to healthcare, although opportunities for multinational vendors are complicated by Black Economic Empowerment (BEE) issues. Meanwhile, provincial governments, particularly Gauteng, are increasingly following an agenda of using IT to tackle fundamental challenges such as healthcare reform. While government remains the single largest spender, there will also be major opportunities in other verticals such as healthcare, banking, where South Africa financial institutions face pressure to comply with government regulations on money laundering, and telecoms, where liberalisation measures are still expected.

Hardware will still dominate, but IT services is a growing segment of the market and an increasingly important element of vendor offerings with increasing investment in this area from companies like IBM and HP. Demand for business process outsourcing will grow through the forecast period, driven by cost factors, and by large enterprises' desire for flexibility as they expand. The government also recently stated its determination to improve South Africa's capabilities in the BPO area.

Industry Developments

In 2007 national and provincial government budgets positioned ICT as an important part of South Africa's strategy to drive economic growth across all sectors. President Mbeki set the tone in his State of the Union address when he said that concrete steps would be taken to reduce the country's high telecommunications costs. The president also said that the government would enact measures to make South Africa more competitive in the global business process outsourcing (BPO) area, and was planning to invest in measures to raise awareness concerning the important initiative of digital migration.

Meanwhile, SITA said in a recent report to South Africa's Parliament that it expects the Department of Defence to be its one of its biggest customers over the next few years. According to SITA's report the Department of Defence has spending of around ZAR546mn budgeted for a recently approved defence enterprise information system master plan. The defence establishment is not monolithic but consists of anumber of services and supporting entities with propriety legacy IT and telecoms systems that will need replacing. Altogether the department operates around 500 separate information systems.

Competitive Landscape

The BEE protocol is continuing to have an important influence on the IT competitive landscape in South Africa as in other sectors. This was evidenced recently with news that Smart Works, a small, blackempowered ICT consultancy, has been named preferred bidder for the procurement section of the government's Integrated Financial Management System (IFMS). The contract is speculated to be worth around ZAR700mn but the entire project, being run by SITA on behalf of the National Treasury, could run to as much as ZAR4bn.

Meanwhile, the growth of the domestic managed services market, and growing popularity of South Africa as a global outsourcing destination, is attracting new investments from IT vendors. Recently it was revealed that IBM is planning to establish a second Integrated Delivery Centre (IDC) in Cape Town, following the success of the centre it established in Johannesburg at an estimated cost of around ZAR300mn. South Africa is one of just six global locations where the centres are based.

Computer Sales

South Africa's computer market, valued by BMI at US$2.9bn in 2007, is set for steady growth over the forecast period. The main drivers will be falling prices and more ready credit availability, combined with more distribution channels and government initiatives. The market is expected to grow at a CAGR of 7% between 2007 and 2012. The market remains extremely price sensitive and dependent on government spending, with the purchase of a computer beyond the majority of the population, despite the introduction of a number of cheap PC programmes. While growth is modest, the desktop market is benefiting from increasing business spending and attractive bundles promoting home digital entertainment, which has fuelled overall desktop growth. Sales of both desktops and notebooks should benefit from initiatives to drive broadband and internet penetration, including the Johannesburg public broadband network programme.

Software

South Africa's software market is maturing, with growth of around 8% in 2007 to a total market value of more than US$1.4bn, despite the issue of software piracy, which still accounts for around 36% of software. The higher end of the market is maturing to the point where a new concern for integrated platforms is emerging and likely to be a driver of spending over the next few years. Larger companies have also begun to demonstrate an interest in business intelligence systems to support decision making.

The market is expected to grow to around US$1.6bn this year, and to have a CAGR of around 9% over the 2007-2012 period. A number of government departments, including the State Information Technology Agency and the Presidential National Commission on Information Society for Africa's Development, are encouraging open-source software in tenders. Proprietary software vendors, particularly Microsoft, are responding by introducing lower-priced 'streamlined' software to drive lower-cost computing. The financial vertical should be a strong source of opportunity, with banks moving to integrate their IT systems and look to enhance their ability to launch new products and services rapidly, as well as ensuring good recovery plans and security.

IT Services

The IT services market was worth an estimated slightly more than US$2.9bn in 2007, and is expected to grow to more than US$3bn in 2008. CAGR for the 2007-2012 period is estimated at 8%. The growing popularity of South Africa as a global outsourcing destination is creating opportunities for IT vendors and attracting new investments. The government is keen to win a larger share of the global outsourcing spend for the country and it has been estimated that the call centre industry in South Africa may create over 100,000 jobs by 2010. Traditionally the barrier to faster development of this sector has been South Africa's relatively high telecommunications costs, but the situation is generally considered to have improved. Underlined by the government's recent stated intention to develop South Africa's capabilities in the business process outsourcing (BPO) area, outsourcing will continue as one of the most significant revenue generators over the next few years. However, traditional services such as desktop support remain the mainstay of the market, while applications services support is less developed.

E-Readiness

Despite the opportunities, prospects for the IT market remain constrained by high communication costs and uneven infrastructure development. The government launched a new series of initiatives in 2007 to tackle this issue, including a new policy on broadband spectrum licensing that may positively influence growth. However, there are doubts as to whether the government has the will to tackle the key question of termination rates and pricing implications.

Internet penetration in South Africa is by far the highest on the continent with around 7mn users, representing around 16% of the population. The proportion of households with internet access is estimated to grow to 20% in 2007. However, broadband penetration is currently little more than 3% with only around 1.5mn users.

Contents

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Chapter 1 - Executive Summary

SWOT Analysis

South Africa IT Sector SWOT

South Africa Business Environment SWOT

Chapter 2 - Market Overview

Government Authority

History And Market Structure

Hardware

Software

Services

End-User Analysis

Industry Developments

Chapter 3 - Industry Forecast Scenario

Table: South Africa

Chapter 4 - Macroeconomic Forecast

Table: Economic Indicators

Chapter 5 - Country Snapshot: South Africa Demographic Data

Section 1: Population:

Table: Demographic Indicators (2005)

Table: Rural/Urban Breakdown

Section 2: Education And Healthcare

Table: Education

Table: Healthcare: Vital Statistics

Table: Healthcare: Expenditure

Section 3: Labour Market And Spending Power

Table: Employment Indicators

Table: Consumption And Stratification

Table: Wages per year

Chapter 6 - Competitive Landscape

Company Profiles

Sahara Computers

IBM SA

Chapter 7 - BMI Forecast Modelling

How We Generate Our Industry Forecasts

IT Industry

Chapter 8 - Appendix: Regional Demographic Data

The Long View: Data Over The Economic Cycle (2000-2007)

Population

Household Spending Per Capita, US$

Private Consumption Per Capita, US$ PPP

Market Size, GDP, US$bn

Competitive Landscape for Middle East & Africa Information Technology: Sample of  
Companies Ranked

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Company profiles, including SWOT (strengths, weaknesses, opportunities and threats) analyses, business activity, leading products and services. BMI forecasts for all headline macroeconomic indicators, including real GDP growth, inflation, fiscal balance, trade balance, current account and external debt. Company profiles and SWOT analyses covering competitive positioning; leading products, services and brands; annual sales and share of domestic hardware, software and components markets; headline financials and M&A; pan-regional expansion strategies and strategic partners. Companies covered include:

Network of Information Technology Sources

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BMI's Middle Eastern and African IT Reports are based on an extensive network of multilateral organisations, government departments, IT industry associations, chambers of commerce and company reports. Information sources include: