Product Market Study of ICT Industry in South Africa


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Product Market Study of ICT Industry in South Africa

  2. 2. Table of ContentsOverview of the South African ICT industry Page 3Defining the ICT sector Page 3Competitive advantages Page 6Technology incubation, research and training Page 7ICT in education Page 8Infrastructure Page 9ICT in government Page 9ICT in logistics Page 11ICT in finance Page 13ICT policies Page 13National government strategy Page 14Mapping ICT access in South Africa Page 17Key trends Page 19Market segmentation Page 20Mobile devices Page 21Regulations for importing Page 21SABS certification Page 222
  3. 3. Overview of the South African ICT industryThe leader of information and communication technology (ICT) development inAfrica, South Africa is the 20th largest consumer of IT products and services inthe world.As an increasingly important contributor to South Africas gross domestic product(GDP), the countrys ICT and electronics sector is both sophisticated anddeveloping.South Africas IT industry is characterised by technology leadership, particularlyin the field of electronic banking services. South African companies are worldleaders in pre-payment, revenue management and fraud prevention systems andin the manufacture of set-top boxes, all exported successfully to the rest of theworld.Companies in the financial, business and other services sectors are seen asforward-looking technology players and not surprisingly these industries makesup 35.2% of the total ICT expenditure in South Africa. This is followed by thetrade sector which makes up 19.1% and the overall government sector whichmakes up 16.7% of the total ICT expenditure. The combined ICT spend for thesesectors (financial, business and other services) was R37.6 billion in 2008 and itis estimated that by 2013 the ICT spend will increase to R54.7 billion.Defining the ICT SectorThe convergence of information technologies and communications, particularlyas exemplified in the explosive development of the Internet, leads to thenecessity to broaden the perspective to the ICT sector. The pace of technologyinnovation continues to challenge those who want to capture the concept of anICT Sector within one finite, all-inclusive description.3
  4. 4. The ICT Sector evolved and matured during the latter stages of the IndustrialAge. It was only been recognised as a sector in its own right once theconvergence of the Computing and Communications industries was generallyacknowledged. The major industries comprising the ICT Sector are generallyacknowledged as including:Manufacturing  Computer Hardware; and  Telecom Telecommunications Equipment.Services  IT Professional Services (including custom software application development and maintenance);  Computer Software (packaged software products – cross industry and vertical market applications); and  Telecom Telecommunications Service.During the early stages of the development of the sector, the focus was typicallyon measuring and increasing the production of the individual industries in thesector. In the Information Age, ICT as an enabler of overall socio-economicdevelopment and is taking on becoming greater than the development of ICTalong strictly sectoral lines. This transformation in the role of ICT in the economyis depicted in Figure 2.1.Figure 2.1: Evolution of the ICT Sector4
  5. 5. The Global ICT environmentThere are several key trends which capture the essence of the transformationICT has made and is making around the world. The increased use of technologyby businesses and individuals has driven many of these trends, forcingdevelopers to provide innovative applications and technology solutions to meetconsumers increasing demands. Listed below are some of the key ICT trends.Several international corporates, recognised as leaders in the IT sector, operatesubsidiaries from South Africa, including IBM, Unisys, Microsoft, Intel, SystemsApplication Protocol (SAP), Dell, Novell and Compaq.Electronics industry revenues in South Africa are growing at levels well above theoverall GDP growth rate. Key players in industrial, power, defence and telecomselectronics include Siemens, Alcatel, Ericsson, Altech, Grintek, Spescom,Tellumat and Marconi.A highly competitive consumer electronics market producing high value-addedelectronic products also plays an important role.5
  6. 6. The South African Government approved the National Industrial PolicyFramework (NIPF) two years ago. The framework describes a broad approach toindustrialisation as it relates to the Accelerated and Shared Growth Initiative forSouth Africa and its target of halving unemployment and poverty by 2014.The NIPF lists Innovation and Technology as one of its strategic programmes. Itstates that as a middle income developing country, South Africa needs toincreasingly invest in its innovation and technology capabilities. South Africa haspockets of technologies and capabilities that can be leveraged in order to narrowthe gap with a range of technologically sophisticated developed and developingcountries.Competitive advantagesSouth Africas ICT and electronics sectors are expected to continue showingstrong growth in the future, due to key competitive advantages specific to thecountry and the continent.Testing and piloting systems and applications are growing businesses in SouthAfrica, with the diversity of the local market, first world know-how in business anda developing country environment making it an ideal test lab for new innovations.South Africas ICT products and services industry is also penetrating the fast-growing African market. South African companies and locally based subsidiariesof international companies have supplied most of the new fixed and wirelesstelecoms networks that have been established across the continent in recentyears.A significant retarding factor has been the high cost of bandwidth in Africa.However, the government has committed to addressing this, and major projectsare under way to lay submarine fibre-optic cables along both the east and westcoasts of Africa to boost the continents connection with the rest of the world.6
  7. 7. Technology incubation, research, trainingInnovation HubSouth Africas Innovation Hub, established in Pretoria in 2002, is Africas firstinternationally accredited science and technology park.A project of Blue IQ, Gauteng provinces hi-tech industrial promotion agency, thecomplex brings together high-tech industry, academia and entrepreneurs toimprove South African technology and productivity.Taking its benchmark from the best such developments in the world, thecreativity-driven centre houses technology-related businesses across a range ofdisciplines, including ICT, electronics, bio-science, and advanced manufacturingsectors such as defence spin-off and automotive manufacturing.It also runs a business incubator programme that has given life to projectsranging from password management solutions and electronic voucher vendingsystems to micro-processor prosthetic knees.The Hub is the site of Sappis Technology Centre, Bigens future head office, theDepartment of Trade and Industrys Aerospace Industry Support Initiative, andLejara Enterprise Solutions, an SAP implementation partner and businessintelligence specialist.Meraka InstituteSouth Africas ICT industry is also supported by the African Advanced Institute forInformation and Communication Technology, also known as the Meraka Institute.Set up as a strategic government initiative, the institute promotes ICT skillsdevelopment, research and innovation, as well as the adoption of free/libre andopen source software (FLOSS).Johannesburg Centre for Software EngineeringAnother partnership between industry, academia and the government is theJohannesburg Centre for Software Engineering. The centre aims to grow South7
  8. 8. Africas capacity to deliver world-class software, strengthen the local softwaredevelopment industry, and promote best practice in software development withinan African context.Universal Service and Access AgencyAnd the statutory Universal Service and Access Agency of South Africa,launched in 1997, has been working together with service providers and non-governmental organisations to set up centres across the country wheredisadvantaged communities can access ICT services and skills training.ICT in educationIn all the different facets of the ICTs for education prism, South Africa boastsmore than a decade of accumulated experience from its wide range of projectsand programmes pioneered by noteworthy champions across the stakeholderspectrum of communities, the private sector, civil society, donor, development,and government agencies.A variety of tested models on ICT access, digital content development, teachertraining and professional development, optimal usage, partnerships, andresource mobilisation have encouraged significant learning among innovators,practitioners, and policymakers. The scale of all these interventions to date hasled to at least 22% computer penetration in all public schools. As well, all tertiaryinstitutions have some form of ICT access, ICT research and/or ICT teachingprogrammes, although limited strides have been made in the informal, ABET,and TVET sectors. While South Africa has a policy on e-education only for theschools and Further Education and Training (FET) college sectors, herein too layanimated debate on the optimal ways to implement the policy.8
  9. 9. InfrastructureAccording to the World Economic Forum (WEF) Global Information TechnologyReport, South Africa has the most modern and best developed telephone systemin Africa and a vibrant ICT sector with an annual investment of USD$9.6 billion.The Report uses the Networked Readiness Index (NRI), covering a total of 115economies in 2005-2006, to measure the degree of preparation of a nation orcommunity to participate in and benefit from ICT developments.ICT in governmentConcept of e-governance• E-Government seeks to render services utilising technology as an enablerthrough partnerships with stakeholders• Understanding and anticipating citizen’s needs and aligning services to citizen’sneeds /wants• Citizens’ terms and experience of interacting with the state driven by time,convenience and choice.ProvincesAll provinces have websites that provide provincial information.• Two provinces are ahead of the rest, namely:– Western Cape and– Gauteng• The advantage of these provinces is their developed communicationinfrastructure due to their being the economic hubsWestern Cape and Gauteng• Government to Citizen– Information KIOSK – access to information about the provincial government9
  10. 10. – KHANYA – provided each school with a computer for students to accessinternet and have e-mail addresses– Gauteng Online – Provide internet access to all schools within the province– GIS – information about the geography of the province– PALS – Provincial automated library services• Government to Government– Document Warehousing – 102 systems were housed together to enableinformation sharing for ministersChallenges of e-governanceIntroducing e-governance can pose huge challenges to many governments.Difficulties can arise in the development, implementation and updating of e-government sites. The issue of e-government in South Africa is part of thecountry historical and social context and e-government initiatives in the countrytherefore have to deal with a number of challenges.More serious challenges that can emanate from e-governance are indicated asfollows:Privacy:Many e-government systems collect, store and use the personal details of thosewho use their services or visits websites. That can pose a threat to individualprivacy.SecurityGovernments will need to protect their information and systems from breaches ofcomputer security that threaten not only the integrity and availability of servicesbut also the confidence of users and the general public in the system.Economic disparities10
  11. 11. According to the Organisation for Economic Co-operation and Development theeconomically disadvantaged have the lowest level of access to e-governance.EducationEducated people are the most users of the Internet. As the standard of educationrises, so does the use of the Internet.AccessibilityEnsuring accessibility to all members of society is essential. This must includeindividuals with disabilities to be able to use e-government websites.Citizen awareness and confidenceCreating awareness of the advantages of e-governance and persuading peopleto become users of the system are bigger challenges.ICT in LogisticsChanges in ICT affect transport just as much as any other sector such as theubiquity of wireless data communication which is impacting all forms of transport.For freight transport and distribution the use of RFID tags for freight items andAVL technologies for vehicles, along with geographic information systems totrack and trace goods and to assist passenger travel, is giving rise tofundamental changes in how things are done and the level of service that isrequired.This technology evolution takes many forms - contact-less smart card tickets forurban travellers, distress calls for stranded vehicles, delivery fleet dispatching,time critical responses by emergency services or text message for airline check-in for flights.ICT in the transport sector is driven by a combination of very big government andparastatal intelligent transport systems in the air, road and rail segments and11
  12. 12. interoperable systems allowing for more efficient coordinated streamlinedprocesses. These projects need highly specialised ICT systems and often nicheinternational companies have to be involved in them. Companies like Transnet,ACSA and SANRAL are a few who are spending large amounts of money onthese integrated systems.The communication and media sectors’ ICT spend is also driven by some verylarge projects that are a result of convergence in these sectors, the emergence ofnext generation IP networks, the need for more bandwidth and installing ofsystems and platforms for integrated billing, content management and provisionas well as more customer-driven applications. With the convergence,liberalisation and consolidation of the ICT sector, the market is becoming highlycompetitive and companies need to adapt to remain in the game.All these sectors have high technology needs, with the communications andmedia companies having a higher percentage of knowledge workers than thetransport sector, but all these companies still need basic hardware, software, ITservices and telecommunication infrastructure to run their companies internally.ICT spend in the transport, communications and media sectorsThe South African transport, communications and media vertical industry sectorsmake up a relatively small percentage of all companies (3.9%); about 8.6% ofthem can be classified as top 350 companies, however these companies makeup about 7.3% of the enterprise ICT spend.As can be seen in the figure below, the ICT spend by the transport,communications and media sector was estimated at about Rand 8.1 billion in2008, with transport making up 62% and communications and media 38%.ICT revenue split between the transport storage and logistics and the mediaand communications sectors.12
  13. 13. ICT in FinanceInformation and Communications Technology play an important role in thedevelopment of the banking industry. ICT has made the banking sector morecompetitive due to advancements of information and communicationstechnologies. ICT allows the banks to effectively cater to the needs of theconsumers by strengthening internal control systems which are backed by theeffective communications mechanisms.The wide spread use of smart cards, ATMs, mobile banking, electronic banking,telephone banking, twenty four hours service, the overall quality of services,expanded portfolio of products and services, better customer relationshipmanagement with the use of advanced tools and variety of products has enabledbanks to better serve their customers with the advent of ICT.ICT PoliciesThe current ICT in education policy framework has been evolving since 1996 andis embedded within a broader national government economic, social, anddevelopment strategy which includes:• Attention at the highest level in government to the role of ICTs in the promotionof economic growth, job creation, social development, and globalcompetitiveness.• Linkages of South Africa’s strategy to a broader pan-African mandate asexpressed in the commitment to the New Partnership for Africa’s Development(NEPAD) programme and its dedicated project promoting e-schooling.• Overhaul in the education and skills development system at all levels.• A dedicated policy on the transformation of learning and teaching through theuse of ICTs, particularly in the formal schools and FET college sectors.13
  14. 14. National Government StrategyThe role of ICTs in the South African government strategy for national economicgrowth, social development, and job creation has received increasingprominence over time. In 1996, Mr Thabo Mbeki, then the deputy president of thecountry, played a prominent role in the historic Information Society andDevelopment (ISAD) conference which gave rise to the African InformationSociety Initiative (AISI) spearheaded later by the United Nations EconomicCommission for Africa (UNECA). Since then, a host of programs and strategieshave been introduced that demonstrate central government commitment to thepromotion of South Africa as an ‘information society’. These include the following:PNC on ISADIn 2001, as President Mbeki established the Presidential National Commissionon the Information Society and Development (PNC on ISAD) which consists ofrepresentatives from the public and private sectors. This commission advisesgovernment on the optimal use of ICTs to address South Africa’s developmentchallenges and enhance the country’s global economic competitiveness.PIAC on ISADA Presidential International Advisory Council on Information Society andDevelopment (PIAC on ISAD) was established to advise government onaddressing the digital divide with education as a key focus area. This councilconsists of CEOs of major international corporations and experts active in theICT sector.NEPADThe South African government has been prominent in its support as host countryto the Secretariat of the New Partnership for Africa’s Development (NEPAD)programme of the African Union, particularly its e-Schools programme and ashome to its first pan- African Parliament.14
  15. 15. ASGISAIn 2005, the government launched its Accelerated and Shared Growth Initiativefor South Africa (ASGISA), which represents a concerted national effort toaccelerate skills development and economic growth. Two priority components ofASGISA are electronic communications as a cornerstone to commercial andsocial infrastructure development and education and skills development. Theformer includes, among other things:• Implementation of a strategy to rapidly grow South Africa’s broadband network• Implementation of a plan to reduce telephony costs more rapidly• Completion of a submarine cable project that will provide competitive andreliable international access, especially to Africa and AsiaIn 1999, the South African government established the State InformationTechnology Agency (SITA), which serves as a public sector ICT companyfocused on the effective and efficient provision of ICT services with governmentat national, provincial, and local levels. Its range of services includes the settingof technology standards for the use of refurbished PCs in public educationinstitutions.The critical issues which limit access to ICT in most developing countries andrural areas are:• Illiteracy: In most developing countries there are still a high percentage ofuneducated people. South Africa is no exception as illiteracy rates are very highand people, especially the young have to go to school and attend institutions ofhigher learning to get good education. Illiteracy will be drastically reduced iftechnical or computer skills are imparted to most members of society. Peopleshould not just gain access to computers, but should also learn various computerapplications so that they can be employable which will reduce the highunemployment rate in South Africa.15
  16. 16. • Cultural Barriers: In some developing countries, there are still some people whoare barred from using telecommunications technology due to cultural beliefs.• Lack of computer skills and technological know-how: This is another problem inmost developing areas, especially rural areas of Africa. Computer skills arelacking in some people and this problem can be remedied oncetelecommunication infrastructures have been established in their areas ofresidence and in addition to that they get access to computers and computerskills imparted to them by those who have this technical know-how.• Lack of access to computers and computers networks as a result of the digitaldivide: The digital divide has created a bridge between rural and urban areas inmost parts of the developing world.• No Internet access: The Internet is a good educational tool but can beexpensive for poor members of society to afford in terms of paying for all themonthly connections to the Internet Service Providers (ISPs). World Bank (2005)has already stated that most less developed countries in Africa do not haveaccess to the Internet, which will add to their slow development and this isexacerbated by poor telecommunications infrastructures and low tele-densities.Should people have access to the Internet, they can access a wealth ofinformation from this global service and develop many aspects of their lives.• Lack of significant usage opportunities: The fact that rural people, who form alarge part of the inhabitants of developing countries, have no access totelecommunication technologies and other ICTs deny them the opportunities tointeract and familiarise themselves with such devices. This is because suchdevices are not readily available to them where they are located. On the otherhand, it is easier for someone residing in a township to get access to a telephoneand a fax machine. South African rural areas with telecentres, can have easy16
  17. 17. access to ICTs located in the telecentres, if these telecentres are fully functionaland without access problems and network cut-offs.Mapping ICT access in South AfricaThe current and future capacity of South Africa to generate and sustain access toinformation and communication technologies for its citizens is an importantdevelopment priority.The shape of the South African economy is changing, with the relative emphasisgradually moving away from the primary and manufacturing sectors towardservices (the tertiary sector). They have impacted on the occupational structureand skills needed in the following ways:  Evolution of new kinds of work (call centre industry)  Evolution of work outside of the workplace (tele-work)  Creation of virtual environments for global teamwork and interaction (internet / email)  Job shedding at the occupational, enterprise and industry levels.Significant parts of the population in Gauteng are early adopters of newtechnologies. South African information technology professionals are highlyregarded internationally, both in terms of their skills and their breadth ofknowledge.ICT is a complex sector containing manufacturing and service components. In aninternational survey in 2000, Gauteng was identified as one of 46 global hubs oftechnological innovation. Gauteng continues to improve in specific ICT areas andthe private-public partnership of SAVANT, the SA Vanguard of Technology, waslaunched in 2003 to market South African ICT expertise abroad. This is likely toencourage further progress in the areas of IT training and certification, niche17
  18. 18. software and niche application enrichment, the establishment of infrastructureinto Africa and application hosting for Africa, call centres and the like.The Gauteng government has created an Innovation Hub near Pretoria to attractnew IT industries. This is a Blue IQ project. The Johannesburg InternationalAirport Industrial Development Zone is also looking to attract investment in the ITfield.Two-thirds of the IT industry is in Gauteng, with Microsoft, Hewlett-Packard, IBM,ICL and Unisys all having a strong presence in the country. South Africansthemselves are among the world’s top 10 internet users.Most of the listed IT and telecoms and electronics companies operate fromGauteng. There is considerable expertise and training capacity at the Universitiesof Pretoria, UNISA, Wits and RAU.Companies such as MTN, Standard Bank, ABSA and Telkom have createdinnovative solutions to problems uniquely African. Wireless technology beingused in prepaid systems and in cellphone banking are examples of this ability.The industry is growing rapidly and includes hardware, software, networking andrelated professional products and services. The market is estimated in SA atUSD 3, 8 billion, 0,6% of the world market and the biggest IT market in Africa,with the vast majority of the continent’s internet connections.The South African telecommunications sector is one of the most sophisticatedand advanced telecommunications systems in the world. In recent yearstelecommunications in South Africa has been characterised by the phasedderegulation of the industry and the controlled entry of new players to the market.A second fixed line operator is due to be licensed before 2005.18
  19. 19. About 85% of telecommunications activities are based in Gauteng, with thesector contributing approximately 7% of the province’s gross geographic product,and employing some 70 000 people.Key areas of expertiseThe South African IT industry has developed specific expertise concentrated in anumber of areas including:• Managed (outsourced) services• E-Security• Biometrics and software development and• The ICT product and services value chain.Key trends in ICT sectorSouth African market analysts BMI-T have examined key trends in the SouthAfrican ICT sector and suggest that:• Offshore providers will continue to market their services locally in South Africa;• The skills shortage will continue to impact the industry;• Corporate strategy will increasingly dictate ICT spending; and• There will be increasing competition from other emerging economy players e.g.:India.South Africa: Three main ICT clustersSouth Africa has nine provinces, three of which have thriving ICT industryclusters:• Gauteng (Johannesburg and Pretoria), which accounts for 57% of all SouthAfrican ICT firms• Western Cape (Cape Town), which accounts for 17%; and• Kwa-Zulu Natal (Durban and Pinetown), which accounts for 8%.19
  20. 20. All three are well served by developed infrastructure, with the Gauteng clusterreadily accessible from South Africa’s gateway international airport inJohannesburg.The South African market is dynamic, showing a propensity for consuming newtechnologies and finding creative ways to apply them to the challenges of adeveloping economy.There are an estimated 228,000 skilled ICT employees in South Africa, of which130,360 were in the ICT producing sector (excluding manufacturing), and 97,435in ICT using industries. The ICT sector as a whole boasts a world class, skilledworkforce of engineers and technicians, although skills shortages do exist incertain areas.Market SegmentationSouth Africa’s ICT market was expected to grow by 6.6% a year between 2005and 2010, with all segments contributing as follows:• The IT market is expected to grow by 5.8% a year;• Telecommunications by 7.0% per year; and• Internet revenues by 14.5% a year, driven by strong growth in broadbandadoption.While South Africa is making huge strides in strengthening its information andcommunication technology (ICT) industry, the African continent as a whole stillneeds to do more to develop and deploy ICT technologies to improvegovernance, service delivery, build capacity and ensure citizen empowerment.20
  21. 21. Mobile communication serviceThe strong growth of mobile services is expected to continue in South Africa, withgross subscriber numbers expecting to exceed 40 million.Mobile devices and handsetsAccelerating adoption of 3G and HSDPA technology will continue in South Africa,thus driving a growing segment of 2.5G subscribers to 3G equipment.However South Africa will have fewer converged devices, due to a largeproportion of the population being unable to afford the costs associated with the3G/HSDPA data offerings provided by the network operators.Regulations for importing into South AfricaImport permits are required only for specific categories of goods and areobtainable from the Director of Import and Export. Importers must possess animport permit prior to the date of shipment. Failure to produce a required permitcould result in the imposition of penalties. A summary of main import regulationsare:  Certain goods imported into South Africa require an import permit, which may be obtained from the Director of Imports and Exports Control.  The list of goods requiring import permits is specified each year in the annual Import Control Program.  Permits are valid for imports from any country.  Foreign Trade Zones: No Foreign Trade Zones or Free Ports are established in South Africa.  South Africa uses the Harmonised System of Classification.  Samples are dutiable unless they are cut samples of cloth, leather, linoleum and wallpaper in book form and not for distribution as advertising21
  22. 22. matter. Samples that have no commercial value because of mutilation in some way are also allowed duty-free access.  The South African Government has viewed countertrade as a second-best alternative to be engaged in only when normal trade cannot be conducted.  Bonded warehouses are available at various points of entry.  South African banks can accommodate all international transactions and are situated throughout the country.  General rebates of duty are available for specific situations, and duties may be rebated on goods on re-export.  The Reserve Bank plays a pivotal role in the economic and financial sectors.  Some imports may require permission from the Department of Agriculture, Health or Environment Affairs.  Specific excise taxes are levied on alcoholic and non-alcoholic beverages, tobacco and tobacco products, mineral waters, some petroleum products and motor vehicles. South Africa is an adherent to the Customs Valuation Agreement negotiated under GATT/WTO. The dutiable value of goods imported into South Africa is calculated on the F.O.B. price in the country of export. In conformance with its WTO commitments, South Africa has lifted import surcharges.South African Bureau of StandardsThe Services Cluster provides accredited conformity assessment services to theservices industries such as government departments, FET colleges, financialservices, medical aid administration, car rental, cleaning services, IT, engineeringconsulting and warehouses.22
  23. 23. The services consist of:System CertificationISO 9001 – Quality Management Systems CertificationISO 14001 – Environmental Management Systems CertificationISO 20000 – Information Technology Management System CertificationISO 27001 – Information Security Management System CertificationCertificationThe SABS Services Cluster provides third party, independent certificationservices to: the Service sector of the economy that includes amongst others, theFinancial, Medical Administration, Car Rental, Security, Cleaning, Warehousingand Logistics, Education, Government, IT, Business Consulting to enable them tomeet customer requirements and achieve business objectives by implementingQMS such as ISO 9001; ISO 20000; ISO 2700123
  24. 24.