South Africa – Information Technology

Unit: ZAR billions

*BMI Industry Report 2017 Q1 Sales
Data Sources:  Above figures are unofficial estimates obtained from industry sources.

South Africa has one of the largest information technology markets in Africa by value. It shows technological leadership in the mobile software field, security software as well as electronic banking services. As an increasingly important contributor to South Africa’s gross domestic product (GDP), the country’s ICT and electronics sector is both sophisticated and developing. Several international corporates operate subsidiaries from South Africa, including IBM, Unisys, Microsoft, Intel, Systems Application Protocol (SAP), Dell, Novell and Compaq. It is seen as a regional hub and a supply base for neighboring countries.

South Africa’s ICT products and services industry is penetrating the fast-growing African market. South African companies and locally based subsidiaries of international companies have supplied most of the new fixed and wireless telecoms networks established across the continent in recent years.

The South African Government and the Financial sector continue to be the largest player when it comes to IT spending. Private consumption will rise, but the strong growth of smartphones is likely to offset PC and laptop usage. The depreciated rand could also be responsible for tablets outselling notebooks, a less expensive piece of hardware. It is a strongly regionalized market, due to a lack of inter-city connectivity and infrastructure in parts of the country (rural areas) and it is very price sensitive. However, improvements to network infrastructure and adoption of cloud services and smart infrastructure will see this changing. There is a trend towards greater innovation in applications used for HR and payroll to increase operational efficiencies.

Leading U.S. companies such as Microsoft are elevating South Africa into the lead group of countries for new product releases reflecting the growing importance of the market and the region. Intel launched its Software and Services Group in South Africa in 2015. In March 2016, IBM announced that they were opening a new IBM Cloud Data Centre in Johannesburg. IBM will provide clients with a complete portfolio of cloud services. This is the result of close collaboration with South African, 100% black owned firm Gijima and Vodacom and is designed to support cloud adoption and customer demand across the continent.
This again demonstrates the willingness of foreign companies to invest in this market and use the local skills force to penetrate the market and the region.

The major worldwide trend of moving toward cloud based systems is one that has gained momentum in South Africa. The strong entrepreneurial drive within the local IT sector is creating larger demand for cloud based services.

Machine-to-machine (M2M) communication and the Internet of Things otherwise known as the smart market is forecast to grow and is a fairly new development globally and not just in South Africa.

In South Africa, the focus of projects relating to the IoT mainly concentrates on connecting all South African citizens to the internet. Many metropolitans are creating free Wi-Fi hubs enabling access to the internet, especially in the townships, enabling those citizens that cannot afford the high data costs to improve their connectivity via free Wi-Fi hotspots. The demand for wireless connectivity has grown by roughly 19% within a year as there are now about 10,000 Wi-Fi hotspots around the country. Research released by iPass, a global WiFi company indicated that there was one Wi-Fi hotspot for every 6160 South Africans, far below the global average of one per 150 people. As this smart technology market is fairly new, it is forecast to grow bringing with it opportunities to connect via the requisite hardware, software and security systems.

Software
Business software spending may be driven by customer-centric industries such as retail, financial and telecoms, where businesses are recognizing that solutions can be a competitive differentiator. Cloud-based software products are expected to drive growth. This sub-sector is still hampered by piracy and it is estimated by the Business Software Alliance (BSA) that around 35% of installed software in SA is illegal. The need for security products is growing with company spends increasing to about 8% of the total IT budget. The higher end of South Africa’s software market has matured and companies are price sensitive and cautious about investing in new technologies.

E-commerce and related software is showing growth with South African online stores showing the number of online shoppers increased significantly year-on-year.

Broadband access continues to improve due to investments in submarine and terrestrial fiber-optic networks which have increased capacity and coverage. This will continue to be an important factor for spending in this sector.

Smart Cities
South Africa is the leader when it comes to smart city technology in Africa. South African cities recognize that the benefits of smart cities are wide ranging, affecting a broad spectrum of industries and making life easier for residents in a multitude of ways. South African cities: Johannesburg, Cape Town and Durban are taking the lead with various smart city initiatives and have put into operation some variants of smart city solutions. These cities are open to explore innovative technologies and best practices that are currently been implemented in first world countries.

South Africa understands the need for smart cities and the benefits of thereof relating to country-wide improvements. Quality of life expectations and implementation of best practices across different industries is a fervent goal that pushes for private and public sector cooperation. The South African Local Government Association (SALGA) promotes Innovation in Local Government and encourages a mindset of innovation in municipalities nationwide. SALGA’s role is to collect and disseminate knowledge on innovation, to encourage learning, and facilitate the replication of successful practices in different municipalities. Innovation creates connections among communities, government, the private sector and civil society seeking innovative ways to meet social needs. The SALGA captures the essence of South Africa’s country-wide effort.

A number of challenges still stand in the way of smart cities becoming a reality in South Africa. Along with underdeveloped infrastructure, an even more troubling obstacle is the skills deficit. This is a particularly vexing hindrance to the advancement of smart cities nationally, requiring well-trained, tech-savvy individuals who understand and can use IT systemsThe City of Cape Town has made some notable progress with a digital integrated Transport system, implementing a SAP-ERP system which was globally recognized for a visionary use of IT by Computer World Honors 21 Century Achievement Award. Another critical component of making the City of Cape Town Smart City ready, was the decision to build a fibre optic network to connect City buildings and the citizens of the City. The ongoing roll out has connected 300 buildings with over 800km of fibre and a target of 600 buildings and 1300km of fibre to be reached by 2021. This enables the City to share information across departments and capture data to prioritize services.

The City Johannesburg enables residents to digitally report any infrastructure faults and encourages use of smart metering to eliminate non-collection electricity bills.

Cybersecurity
As the Internet of Things (IoT) or connected devices grows in popularity so the threat of cyber hacks/attacks increases and with this comes opportunity for cybersecurity related to these products. According to PWC, March 2016, 32% of respondent organizations in South Africa were victims of cybercrime with 16% not knowing if they were victims or not. Only 35% had a cyber incidence response plan. If only 35% had cyber incidence response plans there may be opportunity to consult for the other 65%.

There are opportunities within organizations looking for assistance in utilizing efficiencies from cloud computing such as Software as a Service (SaaS) and Infrastructure-as-a-Service. Cloud computing is becoming more important due to improved bandwidth availability, security and lowered cost of broadband, as well as additional internet providers competing in the market. According to Business Monitor International, areas of opportunity for cloud computing include banking and retailing. Cloud computing growth has also resulted in increased investments in data centers and related infrastructure.

For More Information, the U.S. Commercial Service, South Africa can be contacted via email:

Kirsten.Bell@trade.gov;
Phone: +27 (0)21 702 7345;
Or visit our Website.