South Africa Country and IT
Market Report (Summary)
Global Market Expansion Advisory

For more details and
complete copy o...
Table of Contents
Summary

Macroeconomic Environment
Infrastructure Overview
Vertical Insights
IT Market Landscape
Zinnov ...
Table of Contents

More than

Summary

~ 18 Mn strong Labour force
~ 5.5 Mn Youth
~ 536K SMEs

62 million mobile subscribe...
Summary - Macroeconomic Environment

$

GDP 2012-16
5.4% CAGR

41% Debt/GDP
ratio

Driven by Domestic Demand and
Governmen...
Summary - Vertical Insights

(1/2)

623K car sales; 9.2%
YoY growth

production expected to increase

$ 72 Bn sales; 4.8%
...
Summary - Vertical Insights

(2/2)

$ 3.6 billion budget
allocated for healthcare
Healthcare

9% YoY growth
expected 2012-...
Summary – IT Market Landscape
Total Domestic
IT Market

PC Installed
Base

Internet Users

Mobile
Subscribers

Smartphone
...
Basic Facts & Figures
Johannesburg:
Largest and the most
populated city in the country
and is a source of a large
scale go...
Table of Contents
Summary

Macroeconomic Environment
GDP Forecasts
Financial Performance
Governance scores

Demographics d...
Table of Contents
Summary

Macroeconomic Environment
Infrastructure Overview
Sector Overview
IT Market Landscape
Zinnov Po...
Automotive Sector-Overview
Automobile Sales

6.8% GDP contribution by
Automotive Sector in 2011

6,23,914

5,71,415
9.2%
G...
Automotive Sector- Growth Drivers
• 20% of import tariffs on
components made duty
free for manufacturers
with production c...
Automotive Sector- Inhibitors
• 59,097 cars were stolen in 2011
accounting to 10.3% of total new
• Average time of deliver...
Automotive Sector- Emerging Trends

Rising demand for car leasing
services

~100,000 cars were leased in
2012 with a growt...
Retail Sector- Overview
13.2% GDP contribution by
sector in 2011
Retail trade dominated by Apparel & textile ~22% &

FDI i...
Retail Industry- Growth Drivers

1.

Rising Middle
Classconsequent
demand for retail
products

• Average household income
...
Retail Industry - Inhibitors
Weak
currency
exchange
rate &
Inflation

• Wage rates of labor
is ~$ 200- 600p.m.
• Labor con...
Retail Industry- Emerging Trends

International Brands
opening commercial stores

•

International Brands GAP
& Zara openi...
Banking Industry-Overview
Banking System Rated 2nd by
World Economic Forum for
“Soundness of Banks” in 2012

Loans & Advan...
Banking Industry- Drivers
~120,000 students availed
education loans in 2012

• Adopting global banking
norms giving a posi...
Banking Industry- Inhibitors

Inhibitors

High poverty &
unemployment rates

• Poverty rate was 24% in 2011.
• High povert...
Education Sector-Overview
7% of GDP expenditure
on Education

Schools
25,850

25,851

25,826

2010

2011

2012

Adult Lite...
Education Sector- Growth Drivers
• 500 Maths, Science & Computer
labs equipped with ICT till 2012
• Government distributin...
Education Sector - Inhibitors
Weak
Lack of
currency
Educational
exchange
Infrastructure
in rate &
Schools
Inflation
• 40% ...
Real Estate - Market Overview
South Africa Property market
delivered 15.2% Return on
Investment in 2012

21.4

23.1

Build...
Real Estate - Growth Drivers

• People are moving to the
urban areas due to better job
opportunities

People moving
to urb...
Real Estate - Inhibitors
Weak
Scams in Real
currency
estate market
exchange
rate &
Inflation

•Bank transactions are being...
Energy Market - Overview
3% contribution to GDP# in 2011

Expenditure on New Energy
Infrastructure Projects (USD Million)
...
Energy Market - Growth Drivers

Use of
Renewable
Source of
Energy

Government
initiative to
increase PPP
projects

Electri...
Energy Market - Trends
• ABSA Capital South Africa in association
with Africa Development Bank & World
Bank will finance $...
Healthcare/Pharmaceutical Industry - Overview
~11% of Total Government Budget
allocated for Public Health Services

Health...
Healthcare/Pharmaceutical Industry - Drivers

Growth
Drivers

Antiretroviral drugs reducing
death rate due to HIV/AIDS

In...
Healthcare/Pharmaceutical Industry - Inhibitors
•
•
•

Low Medical
Insurance
Penetration

Lack of ambulances &
intensive c...
Healthcare/Pharmaceutical Industry - Trends
Pharmaceutical Companies making applications

1

ICT
integration in
Healthcare...
IT/ITeS Industry - Overview
8.2% contribution by ICT sector
to the GDP

Broadband Users
Fixed Broadband Subscribers
100000...
IT/ITeS Industry - Growth Drivers

E-health & mobile health
services being implemented to
improve clinical practices &
hea...
IT/ITeS Industry - Trends
• WNS acquired Fusion Outsourcing
Services for $15 million in 2012
• Capita Inc plans to invest ...
IT/ITeS Industry - Inhibitors

1

Low IT
competitiveness
rank

Low competitiveness rank of 72
due to less IT infrastructur...
Telecom Industry – Market Overview
64.3 million mobile subscribers
with a penetration of 127%

2,635 new Telecom licenses ...
Telecom Industry - Growth Drivers/Initiatives
• Non-profit, community based
broadband schemes with low
tariff for weak sec...
Telecom Industry – Emerging Trends

Trends

High Mobile Termination
Rate(MTR) leading to
cheaper international calls
CellC...
Aviation Sector contributes
2.1% to the GDP ~6.07
billion 2011
3 International Airports & 7 Domestic Airports
cater to the...
Aviation Sector - Growth Drivers
Government initiative to develop &
promote air freight logistics for aviation
sector
$781...
Aviation Sector - Inhibitors
Weak
currency
Small Aviation
exchange
Network
rate &
Inflation

• Only 10 airports compared t...
Table of Contents
Summary

Macroeconomic Environment
Infrastructure Overview
Vertical Insights
IT Market Landscape
Connect...
South Africa
Positive

Positive

Strong growth oriented market and high rated in
governance indicators

Manufacturing is o...
Zinnov Management Consulting

For more details and complete copy of the
report, write to us at info@zinnov.com

Thank
Than...
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South Africa - Country and IT Market Study (Summary)

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South Africa as a Emerging destination for IT & Technology adoption has an IT spending of $ 10.8 Bn and the YoY growth expected in 2012-13 stands at 9%.

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South Africa - Country and IT Market Study (Summary)

  1. 1. South Africa Country and IT Market Report (Summary) Global Market Expansion Advisory For more details and complete copy of the report, write to us at info@zinnov.com This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part of it may be quoted, circulated or reproduced for distribution outside the client organization without prior written approval from Zinnov Zinnov Management Consulting
  2. 2. Table of Contents Summary Macroeconomic Environment Infrastructure Overview Vertical Insights IT Market Landscape Zinnov Point Of View 2
  3. 3. Table of Contents More than Summary ~ 18 Mn strong Labour force ~ 5.5 Mn Youth ~ 536K SMEs 62 million mobile subscribers Lead in Natural Gas & Palm Oil exports Increasing Consumption & Disposable incomes 3
  4. 4. Summary - Macroeconomic Environment $ GDP 2012-16 5.4% CAGR 41% Debt/GDP ratio Driven by Domestic Demand and Government spending; high income Neutral inequality High level of subsidies; govt. leveraging debt for infrastructure, wage increases, Negative etc. 25.3 Median 18 million labour force; Low labor Age participation rates 25% High unemployment rates; faces labour Unemployment problems owing to weak public education Neutral Negative and restrictive labour laws 4
  5. 5. Summary - Vertical Insights (1/2) 623K car sales; 9.2% YoY growth production expected to increase $ 72 Bn sales; 4.8% Foreign investment allowed in 2011; Walmart YoY growth entered South Africa by acquiring a local player Contributes 3% to the Largest Coal reserves in Africa is ~3.5% of global country’s GDP Automotive Exports small and medium car to rest of Africa; coal reserves; high rates of electrification Positive Positive Retail Neutral Energy/ Power 34.7 Mn passenger travel in 2011; 3% YoY Aviation growth 3 International Airports & 7 Domestic Airports cater to the aviation sector; low levels of investments $ 470 Bn assets; 10.7% Low interest driving Loans growth; High Non- YoY growth Performing Assets – 5.7% Positive Neutral Banking Figures for 2012 unless quoted separately; YoY growth for 2011-12 5
  6. 6. Summary - Vertical Insights (2/2) $ 3.6 billion budget allocated for healthcare Healthcare 9% YoY growth expected 2012-13 Government related projects driving PC sales; Low growth of economy affecting PC adoption (62%) High level of cost housing plans by the government driving real estate industry the growth Mobile penetration ratio ~62 Million mobile subscribers; 33rd largest ~ 127% Facebook users in the world ~170K graduates; ~48K $16.7 billion to be invested in 4 years. Low Teacher-Pupil ratio of 1:30 in 2011. Positive Retail industry, Commercial complexes & low urbanization to drive Real-Estate Neutral services $ 10.8 Bn IT spending; IT/ITeS Low Doctor-Population ratio Positive Positive Telecom engineers annually Positive Education Figures for 2012 unless quoted separately; YoY growth for 2011-12 6
  7. 7. Summary – IT Market Landscape Total Domestic IT Market PC Installed Base Internet Users Mobile Subscribers Smartphone Users Over ZAR 96.8 Billion Over 13 Million Over 8.5 Million Hardware (45%), IT Services (36%), Software (19%) Over 2.5 Million units shipped in 2012 ~3.5 Million broadband connections Over 62 Million Over 10 Million Figures for 2012 unless quoted separately; YoY growth for 2011-12 Mobile penetration rate of ~127% Accounts for 20% of total mobile subscribers 7
  8. 8. Basic Facts & Figures Johannesburg: Largest and the most populated city in the country and is a source of a large scale gold and diamond trade Constitutional democracy with an executive president elected by parliament Fiscal Year - March 1 to February 28 Zulu, Xhosa, Afrikaans and English South African rand (sign: R; code: ZAR) Christian (74%), Traditional (15%), Rest Other (11%) Source: Philippines Government Cape Town: 2nd most populated city in the country and also the most popular tourist destination Durban: 3rd largest city in the country and has the busiest port in all of South Africa 8
  9. 9. Table of Contents Summary Macroeconomic Environment GDP Forecasts Financial Performance Governance scores Demographics details Infrastructure Overview Sector Overview IT Market Landscape Zinnov Point Of View 9
  10. 10. Table of Contents Summary Macroeconomic Environment Infrastructure Overview Sector Overview IT Market Landscape Zinnov Point Of View 10
  11. 11. Automotive Sector-Overview Automobile Sales 6.8% GDP contribution by Automotive Sector in 2011 6,23,914 5,71,415 9.2% Growth Automobile Industry valued at $19.6 billion in 2012; employing ~ 300K 26th Largest producer of cars in 2012; ~540,000 cars were manufactured 2011 2012 Automobile Sales by Segments, 2012 Over 51% of cars are exported - 277,844 vehicles exported in 2012 valued at USD 5.6 billion Small & medium cars form over 3/4th of the 4,39,997 1,56,170 exports (77%, 214,261 cars) CAGR of 10.8% Passenger Cars 2020 2012 0.53 million Units 1.2 million Units 17,931 9,816 LCV Heavy Vehicles MCV Market Share of Major Players in South Africa, 2012 Toyota Volkswagen AMH (local General Motors player) 19.2% 18.1% 13% 11.9% Projected Production of Vehicles Source: NAAMSA National Association of Automobile Manufacturers, Department of statistics, South Africa, Ministry of Transport, South Africa, OICA 11
  12. 12. Automotive Sector- Growth Drivers • 20% of import tariffs on components made duty free for manufacturers with production capacity >50,000 units • Reduction in import tariff Local up to 25% for built up vehicles for Assembly manufacturing Allowance for Domestic Manufacturers • Sub- Saharan Region accounted for 19% of the total exports in 2012 • Emerging market such as Botswana, Lesotho, Namibia & Swaziland are new export markets Rising Demand of cars in SubSaharan Region • 262,156 cars domestically sold in 2012 • Domestic car sales increased by 9% from Strong demand from Domestic Market Rising demand for car rental services 2011 • Rising demand from international tourists for car rental services • International tourist arrivals increased to 12.5 million in 2011 from 11.6 million in 2010 • Car rental fleet was ~65,000, generating a revenue of USD 40.8 million in 2012 Source: NAAMSA National Association of Automobile Manufacturers, Department of statistics, South Africa, Ministry of Transport, South Africa 12
  13. 13. Automotive Sector- Inhibitors • 59,097 cars were stolen in 2011 accounting to 10.3% of total new • Average time of delivery takes 26 days through sea High Car Theft rate car sales • Major ports in Europe are located at ~5,200 -5,600 Nautical miles Geographical distance from Major ports • Steady growth in the used car market • 5.9 million used cars sold in 2011 increasing at 6.6% from 5.5 million unit sales in 2010 Inhibitors New car sales may be impacted by Pre-owned car sales Lack of skilled labor • Lack of skilled labor in R&D for automobile industry Source: NAAMSA National Association of Automobile Manufacturers, Department of statistics, South Africa, Ministry of Transport, South Africa, BRIC summit report 13
  14. 14. Automotive Sector- Emerging Trends Rising demand for car leasing services ~100,000 cars were leased in 2012 with a growth of 2.1% in 2011 Emerging trends in Automotive industry Increase in Franchise Distribution Rising Personal Disposable Models Income Mahindra & Kia Motors establishing sales outlets through franchisees Average monthly income estimated to increase from $ 2,400 in 2011 to $3,300 by 2015 14
  15. 15. Retail Sector- Overview 13.2% GDP contribution by sector in 2011 Retail trade dominated by Apparel & textile ~22% & FDI in Retail implemented in 2011 Wal-Mart acquires 51% in Massmart for $1 Billion Retail Industry Size- USD Billion 72.2 Food & Beverages ~11% in 2012 Retail sector concentrated in Johannesburg, 68.9 Pretoria, Cape Town & tourism oriented cities Mass grocery retail to contribute $13.9 Billon sales in 2013 2011 4.8% Growth 2012 2016 2012 $ 72.2 Billion FDI participation limited to 51% stake in the local retail chains by international retailers $ 97.5 Billion 58% of internet users prefer online shopping in 2012 compared to 53% in 2010 7.8% Growth Mass grocery retail sales growth forecast Dominant Players: Shoprite Holdings, Pick n Pay,Wal-Mart, Spar group & Metcash Trading 15
  16. 16. Retail Industry- Growth Drivers 1. Rising Middle Classconsequent demand for retail products • Average household income was $2,400 in 2011. • ~27% of household expenditure spent on food & beverages 2. • Government investing $ 352 Increase in Investment in Infrastructure 3. FDI in Retail Sector billion from 2012-2020 on • 11 million households are estimated to have annual income of $10,000 by 2016 • • infrastructure projects • Wal-Mart entered domestic retail in 2011 • Wart-Mart acquired 51% stake in Massmart for USD 1.8 billion • • Improvement in Logistics sector to reduce losses Warehouses with an area ~ 80,000m2 to 145,000m2 built in Pretoria, Cape Town, Centurion & Durban Retail sector is expected to consolidate in 2-3 years Tesco & Carrefour entering the market through mergers & acquisitions 16
  17. 17. Retail Industry - Inhibitors Weak currency exchange rate & Inflation • Wage rates of labor is ~$ 200- 600p.m. • Labor consistently engaged in strikes Low Labor Wage Rates • Apparel & footwear manufacturing companies shifting to Lesotho & Swaziland due to labor issues Source: PwC •Currency volatility leading to high cost of import & export of retail goods •Rising Petrol & electricity resulting in high inflation of 5.3% & operational cost Inhibitors Paucity in retail infrastructure • Lack of logistics leading to high operational costs • Domestic retailers have started operations in Ghana, Congo, Nigeria & others 17
  18. 18. Retail Industry- Emerging Trends International Brands opening commercial stores • International Brands GAP & Zara opening stores in Sandton in 2012 Trends Expansion of Retail Network • • Domestic retailers opening stores in sub-urban areas Woolworth is opening a store of 3,200m2 near Johannesburg Emerging Ecommerce market • Low fixed broadband penetration of 1.9% • 8.5 million internet users in 2011 18
  19. 19. Banking Industry-Overview Banking System Rated 2nd by World Economic Forum for “Soundness of Banks” in 2012 Loans & Advances (USD Billion) 264 227 16.3 % Growth Repo rate of South Africa Reserve Bank was 5% in 2012 2010 2011 Non Performing Assets % of loan Absa, FNB, Standard Bank, Nedbank & Capitec are the major banks Total Banks Deposits increased by 6.5% in 2012 Non Performing Assets Non Performing Assets as % of Loans 20 15 13 10 5.7% 5.8% 0 2010 Total Assets (USD Billion) 424.7 2010 Source: South Africa Reserve Bank 470.1 2011 External Debt (USD Billion) 42.1 45.2 2009 2010 50.9 10.7% Growth 2011 2011 19
  20. 20. Banking Industry- Drivers ~120,000 students availed education loans in 2012 • Adopting global banking norms giving a positive outlook to foreign investors Education loans distributed were valued at $400 million in 2012 5 major banks are expanding to rural areas. Absa Bank plans 300 rural branches by 2014 Demand for loans from Education sector Implementation of BASEL 3 norms Huge SmallExpansion of Medium Banking Shortage of enterprise Services & teaching staff businesses Network • The implementation of BASEL norms shall be followed till 2018 ~1 Million SMB’s in the country indicates good market growth potential Micro-insurance bill passed to promote low cost insurance products for low income group people Source: South Africa Reserve Bank 20
  21. 21. Banking Industry- Inhibitors Inhibitors High poverty & unemployment rates • Poverty rate was 24% in 2011. • High poverty rate leading to untimely repayment of loans • High unemployment rate resulting in low credit borrowings from banks • Lack of skilled workforce due to low literacy rate of 67% Source: South Africa Reserve Bank Weak Currency • Volatile fluctuation in currency exchange rate having impact on FDI & FII Operational Challenge •High electricity rate & infrastructure constraint for starting new branches •Decline in mining commodities of South Africa due to slow global economic growth •Bad debt expenses increased to 36% in 2012 21
  22. 22. Education Sector-Overview 7% of GDP expenditure on Education Schools 25,850 25,851 25,826 2010 2011 2012 Adult Literacy rate ~77% Universities Classification 11 General Universities 6 Technical Universities 6 Comprehensive Institutions Government Schools outnumber private schools with a share of ~94% in 2012 Teachers School Enrolments in Million 12.26 12.28 12.43 2010 2011 2012 4,18,109 4,20,608 4,25,167 2010 2011 2012 ~15.8 million i.e. 3.2% of population is under 15 years Low Teacher-Student ratio of 1:30 compared to global average of 1:24 in 2011 Source: Education Ministry, Department of Basic Education, Council of Higher Education 22
  23. 23. Education Sector- Growth Drivers • 500 Maths, Science & Computer labs equipped with ICT till 2012 • Government distributing Tablets to promote ICT in education • 600 more labs to be equipped with ICT infrastructure • International Accreditation for courses at school level • • • Government promoting education through low interest loans Interest rate for repayment is 5.2% Education loan is provided without guarantee or surety Implementation of ICT in Education Increase Lack of College educational Enrollments institutions Construction Government Shortage of of New support for teaching Colleges financing staff education Source: Education Ministry, Department of Basic Education, Council of Higher Education • Government initiating steps to enroll 1 million students by 2014 • Construction of 2 new universities will begin in 2014 • 15,000 students enrollment capacity being planned for Mpumalanga • University with a capacity of 5,000 students at Kimberly 23
  24. 24. Education Sector - Inhibitors Weak Lack of currency Educational exchange Infrastructure in rate & Schools Inflation • 40% of the students dropped out in 1st year of enrollment in universities • High cost of education leading to improper payments •92%of the schools don’t have libraries & laboratories in their premises •Lack of skilled teachers to impart education •11 official languages leads to challenge in translation of subjects Inhibitors High Dropout rates • Low penetration of education loans • 120,000 students out of 735,000 availed education loans Source: Education Ministry, Department of Basic Education, Council of Higher Education Low Participation of Private institutions • Only 114 private institutions provided higher education in 2011 • 6.1% of the schools were privately owned 24
  25. 25. Real Estate - Market Overview South Africa Property market delivered 15.2% Return on Investment in 2012 21.4 23.1 Buildings Constructed in Million Sq. Ft. 2011 2012 0.8 1.1 $89.5 billion was the outstanding residential mortgage balance in 2012 Office Market: Rise in enterprises resulting in demand for office space in major business hubs Residential buildings 0.6 0.5 Office & Banking Space Retail Space Real Estate Value, 2011 % Share 15.9 55.9% Office 7.4 26.0% Industrial Industrial Property: Moderate growth due to slow growth in international economic growth. Growth observed in major ports & cities Value ($ Billion) Retail Retail: Foreign retailers establishing themselves in new infrastructure in 2013 Nature of Property 3.6 12.6% Other 1.6 5.5% Total 28.5 100% 25
  26. 26. Real Estate - Growth Drivers • People are moving to the urban areas due to better job opportunities People moving to urban areas • Foreign nationals can purchase immovable property without restrictions • The property purchased needs to be endorsed as nonresident property Nominal interest rates leading to property purchase • Low interest rates to support purchase of property • Outstanding mortgage balance increased to $89.5 billion in 2012 Ease in property purchase by foreigners 26
  27. 27. Real Estate - Inhibitors Weak Scams in Real currency estate market exchange rate & Inflation •Bank transactions are being hacked to transfer profits earned by the seller •32 cases were registered till March 2013 • ~25% of unemployed people makes the repayment of loans a tough task High unemployment rate leading to less repayment Inhibitors High commission rates for real estate agents • Commissions earned by real estate agents is in the range of 7%-20% which increases the price of property 27
  28. 28. Energy Market - Overview 3% contribution to GDP# in 2011 Expenditure on New Energy Infrastructure Projects (USD Million) 327.4 Largest Coal reserves in Africa 30,156 million tons accounting for 3.5% of global coal reserves in 2011 Nuclear consumption was 12.7 Tw (Tera Watt 313.3 294.5 hours) & Hydroelectricity consumption was 2 Tw in 2011 2009 19 projects given to private players for clean 2010 2011 energy generation in 2012 Electricity Consumption & Import (Giga Watt Hours) Electrification Rate (%) 13.5 Houselholds 13.0 Electrification rate 76.5% 75.8% 74.9% 11.5 13.2 75% 74% 2011 2,22,710 76% 75% 11.0 2010 2,22,674 76% 12.9 13.0 2,13,881 77% 12.5 12.0 77% 2012 Source: Energy Department, South Africa, Statistics South Africa 14,304 2009 14,203 2010 13,901 2011 Note: # GDP at Constant 2005 prices 28
  29. 29. Energy Market - Growth Drivers Use of Renewable Source of Energy Government initiative to increase PPP projects Electrification network expansion Government installing Solar water heaters to reduce dependence on conventional sources of power Government plans to install 1 million solar water heaters by 2014 $11 million being invested through public private partnership for renewable energy projects Association with Netherlands for starting renewable energy projects through Public-Private investments Integrated National Electrification Program (INEP) to connect the underserved rural areas $352 million allotted for electrification in rural areas 107,000 new grid connections completed till March,2012 Source: Energy Department, South Africa, Statistics South Africa 29
  30. 30. Energy Market - Trends • ABSA Capital South Africa in association with Africa Development Bank & World Bank will finance $400 million for generating 2,000 MW • Construction of wind farms to generate 10 Gigawatts energy by 2020 Local firms investing overseas Developing wind energy Trends Expansion in the electrification of households • Government plans to attain 85% electrification rate in households by 2016 Source: Energy Department, South Africa, Statistics South Africa Increase in Private sector participation in Clean Energy Program • Eskom, Nersa, NESCA, CEF Group & other energy producers are actively involved in clean energy management to provide green energy • Technology from 23 countries being used for the program implementation 30
  31. 31. Healthcare/Pharmaceutical Industry - Overview ~11% of Total Government Budget allocated for Public Health Services Healthcare Expenditure (ZAR Billion) Pharmaceutical Expenditure (ZAR Billion) 295.3 Low Doctor-Population ratio of ~0.77 per 1,000 , 2012 271.4 34.0 30.5 165,371 registered healthcare personnel employed $33.07 billion $32.86 billion 2012 2013 $3.84 billion $3.78 billion by private & public sectors Low Hospital beds per 1,000 people ratio of 28 compared to global average of 30 in 2011 2012 2013 Healthcare expenditure to increase by 11.7% & 452 public & private hospitals operate in provinces Pharmaceutical expenditure by 8.8% in local currency 31
  32. 32. Healthcare/Pharmaceutical Industry - Drivers Growth Drivers Antiretroviral drugs reducing death rate due to HIV/AIDS International Tie-ups for increasing healthcare personnel Government Expenditure to improve healthcare services • Public distribution of ARV drugs reduced AIDS related deaths from 257,000 in 2005 to 133,000 in 2010 • International association with Cuba, Iran & Tunisia for training doctors • Doctors from Cuba being recruited for healthcare services • ~1.9 million patients are using ARV drugs for treatment • HIV infected babies due to infected mothers declined to 2.7% in 2011 compared to 8.5% in 2008 • $ 11 million for the construction of 5 hospitals under public private partnership • ~$75.8 million for HIV & AIDS prevention programs • Government inviting foreign doctors to register for healthcare services • 3,773 healthcare professionals registered in 2012 • $18 million for upgrading nursing colleges • $1.2 billion allocated for development of provincial healthcare services 32
  33. 33. Healthcare/Pharmaceutical Industry - Inhibitors • • • Low Medical Insurance Penetration Lack of ambulances & intensive care units in rural areas Shortage in essential life saving drugs in rural areas Underserved Rural areas Only 8 million people are covered by health insurance/medial schemes of the government High rate of Sexual Crimes Inhibitors • • Low doctor-population ratio of 0.77 per 1000 people ~Only 1,200 medical students graduate annually Source: Department of Health South Africa Lack of Healthcare Personnel Low use of Contraceptive measures • • High rate of sexually offensive crimes • ~2.2 million rape cases were recorded in 2011 ~65% of the people avoided the use of protective measures such as contraceptive devices 33
  34. 34. Healthcare/Pharmaceutical Industry - Trends Pharmaceutical Companies making applications 1 ICT integration in Healthcare that offer information about drugs to doctors, nurses & patients Project Masiluleke provides information on HIV/AIDS through mobile communication 2 Legislation on pharmaceutical emphasizing on inexpensive drugs compared to branded Increase in Generic Drug Market medicines Healthcare insurers cover expenditure on generic drugs Source: IDC , Frost & Sullivan, The Center for Health Market Innovations 34
  35. 35. IT/ITeS Industry - Overview 8.2% contribution by ICT sector to the GDP Broadband Users Fixed Broadband Subscribers 1000000 Internet penetration was ~17% in 2011 compared to 29% in Nigeria in 2011 1.48% 800000 Only ~9% of the SME used Cloud Computing in 2011 & ~63% of SMEs had websites 400000 MTN to start Cloud Computing services to SMEs in 2013 Personal Computers vs. Laptop Sales (Million) 5.4 5.3 2.1 5.2 2.6 2009 2010 Personal Computers 7,43,000 9,07,000 1.0% 0.5% 4,81,000 200000 0 0.0% 2009 2010 2011 In Local Currency IT sales have inc by QQ% IT Products/Services Sales figures ZAR Billion 38.9 43.9 2012 2013 33.134.4 3.3 $5.4 billion 2011 Laptops 1.5% 0.96% 600000 Ranked 72 for IT network readiness index Penetration Rate 1.79% 2.0% $5.3 billion Hardware Sales 16.9 18.6 $2.3 $2.25 billion billion Software Sales $4.2 billion $4.6 billion IT Services 35
  36. 36. IT/ITeS Industry - Growth Drivers E-health & mobile health services being implemented to improve clinical practices & healthcare connectivity ICT in Healthcare sector Increase in Data consumption in phones Browsing on phone increased from 33% to 41% of mobile phone users in 2012 Mobile downloads increased from 13% to 24 % mobile users in 2012 Growth Drivers Increase in IT expenditure by Government departments The IT expenditure to increase at CAGR of 13.2% from $523 million in 2012 to $ 860 million in 2015 Investment in Under Sea Cables 17,200 km West African Cable System (WACS) linking 14 countries constructed at $ 650 million WACS increased South Africa’s international bandwidth capacity by 5.12 Tbps 36
  37. 37. IT/ITeS Industry - Trends • WNS acquired Fusion Outsourcing Services for $15 million in 2012 • Capita Inc plans to invest $55 million till 2015 • 76% of corporations & 38% of SMEs spend ~2% of IT budget on digital mapping • Digital mapping increasing data security by ~61% & productivity by ~48% Emerging BPO Market Rise in Digital Mapping Emerging Trends Trends Increase in ECommerce industry • 8.5 million internet users generated $1.6 billion in 2011 increasing by 30% from 2010 • B2B E-commerce valued at $4.2 billion in 2011 Shift in Internet Access points • Broadband penetration is ~17% due to multiple access through tablets & smartphones • Wimax Launched by Neotel in Pretoria, Cape Town, Johannesburg & Durban 37
  38. 38. IT/ITeS Industry - Inhibitors 1 Low IT competitiveness rank Low competitiveness rank of 72 due to less IT infrastructure 2 ~30% of the software are being pirated having an impact on the reseller market Software Piracy 3 Low Broadband penetration Broadband penetration ~17% only. Broadband infrastructure confined to urban areas 4 Unskilled Labor Despite 77% adult literacy, lack of technical skills leading to low employment 38
  39. 39. Telecom Industry – Market Overview 64.3 million mobile subscribers with a penetration of 127% 2,635 new Telecom licenses issued in FY’12 4G LTE rolled out in 2012 by Vodacom & MTN in Johannesburg, Durban, Pretoria & Hatfield Mobile Subscribers base Projections 2016 2011 5% CAGR Growth 83 Million 65 Million Implementation of fiber-optic broadband network across the 9 provinces Fixed Telephone Lines (Million) Major Players- Telecom Sector 4.32 Vodacom 4.23 MTN Cell c 33.7% 13.2% 8ta 4.13 50.9% 2009 2010 1.8% 2011 39
  40. 40. Telecom Industry - Growth Drivers/Initiatives • Non-profit, community based broadband schemes with low tariff for weak sections of society • Enable ICT services to physically challenged people Community driven schemes for broadband • 12,000 km national- access fiber optic broadband network is being built by FibreCo Telecommunications • Western Cape province to connect 4,000 government establishments & schools with broadband network 4G/LTE Implementation for mobile & non-mobile users National Broadband Policy to improve connectivity • Vodacom Launches 4G implementation in 70 small areas of Johannesburg • Vodacom invested $840 million to implement 4G • MTN launches 4G/LTE at 500 sites in Durban, Johannesburg, Pretoria & Hatfield • MTN plans to launch LTE dongles for wireless device users • National Broadband policy aimed to provide optic fiber connectivity • National Broadband network to be implemented by 2020 • 5,000 km of fiber-optic network cable being constructed by Vodacom, Neotel & MTN 40
  41. 41. Telecom Industry – Emerging Trends Trends High Mobile Termination Rate(MTR) leading to cheaper international calls CellC introduced 99cents plan & added 1 million customers in 7 weeks Joint ventures in telecom industry to develop next generation broadband services. Vodacom, Neotel constructing fiber broadband network WiMAX launched by Neotel in 4 major cities. WiMAX enabling improved access to remote areas 41
  42. 42. Aviation Sector contributes 2.1% to the GDP ~6.07 billion 2011 3 International Airports & 7 Domestic Airports cater to the aviation sector Millions Aviation Sector – Market Overview 40 Passenger Movements 30 9.4 20 24.4 3% Growth 0 Domestic Players dominate the industry with a market share of ~62% Aircraft Movements 84,292 2009 85,399 2010 Source: Airports Company South Africa, South Africa Times 25.1 2.9 % Growth 10 FY'10 South African Airways was voted as the best airlines in 2012 in Africa by Skytrax 9.7 Domestic FY'11 International Major Players- Aviation Sector South African Brirish Airways Airways Com Air Mango 11.6% 7.3% 89,473 43.3% 2011 12.7% Low Cost carriers gaining importance with new players entering the market. Fastjet entered in 2012 42
  43. 43. Aviation Sector - Growth Drivers Government initiative to develop & promote air freight logistics for aviation sector $781,000 allocated for managing logistics activities • 8.3 million international tourists arrived in 2011 increasing by 3.3% over 2010 Rise in International Tourist Arrivals Aviation Infrastructure Development Drivers Government initiatives to promote Jobs • Aerospace cluster being planned at Pretoria in association with the US • 1,500 jobs have been created for support services to Aerospace groups as Denel & Aerosud Source: Airports Company South Africa, South Africa Times Low Cost Carrier Airlines Expanding routes • Fastjet- subsidiary of Lonrho & Skywise entering the Aviation sector • Mango, Kulula airlines expanding routes in intra-Africa Market` 43
  44. 44. Aviation Sector - Inhibitors Weak currency Small Aviation exchange Network rate & Inflation • Only 10 airports compared to 22 airports in Nigeria • Remote & rural areas connected through rail & road services only • 1Time Airlines & Velvet Sky filed liquidation in 2012 • South African Airlines got a $748 million bail out in 2012 Rising operational cost leading to liquidation of airlines Inhibitors Low investment in Aviation sector leading to slow growth • Only $7.4 million expenditure in aviation incurred by the government in 2012 44
  45. 45. Table of Contents Summary Macroeconomic Environment Infrastructure Overview Vertical Insights IT Market Landscape Connectivity - PC, Broadband and Mobile Penetration Social Media Penetration IT Spending estimates and SMB status Government ICT Plans Zinnov Point Of View 45
  46. 46. South Africa Positive Positive Strong growth oriented market and high rated in governance indicators Manufacturing is one of the key areas in the economy South Africa to become the 20th largest economy in the world by 2030 Growth of economy with 6% increase in GDP for Negative 2012; However government spending accounts for majority of growth Negative Ethnic tensions may impact political and business enviornment 46
  47. 47. Zinnov Management Consulting For more details and complete copy of the report, write to us at info@zinnov.com Thank ThankYou You 69 "Prathiba Complex", 4th 'A' Cross, Koramangala Ind. Layout 5th Block, Koramangala Bangalore – 560095 Phone: +91-80-41127925/6 First Floor, Plot # 131, Sector - 44, Gurgaon – 122002 Phone: +91-124- 4420100 3701 Patrick Henry Dr. Building 7 Santa Clara CA – 95054 Phone: +1-408-716-8432 21, Waterway Ave, Suite 300 The Woodlands TX – 77380 Phone: +1-281-362-2773 info@zinnov.com www.zinnov.com @Zinnov This report is solely for the use of Zinnov client and Zinnov personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from Zinnov

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