ICT INDUSTRY IN JOHANNESBURG Direct link: http://edms.matrade.gov.my/domdoc/PMS.nsf/lsvArticles/F0BC4065D7B86E33482579270044EB3E?OpenDocument

1. PRODUCT MARKET STUDY
ICT INDUSTRY IN SOUTH AFRICA
Prepared by: MATRADE Johannesburg

2. Table of Contents
Overview of the South African ICT industry Page 3
Defining the ICT sector Page 3
Competitive advantages Page 6
Technology incubation, research and training Page 7
ICT in education Page 8
Infrastructure Page 9
ICT in government Page 9
ICT in logistics Page 11
ICT in finance Page 13
ICT policies Page 13
National government strategy Page 14
Mapping ICT access in South Africa Page 17
Key trends Page 19
Market segmentation Page 20
Mobile devices Page 21
Regulations for importing Page 21
SABS certification Page 22
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3. Overview of the South African ICT industry
The leader of information and communication technology (ICT) development in
Africa, South Africa is the 20th largest consumer of IT products and services in
the world.
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.
South Africa's IT industry is characterised by technology leadership, particularly
in the field of electronic banking services. South African companies are world
leaders in pre-payment, revenue management and fraud prevention systems and
in the manufacture of set-top boxes, all exported successfully to the rest of the
world.
Companies in the financial, business and other services sectors are seen as
forward-looking technology players and not surprisingly these industries makes
up 35.2% of the total ICT expenditure in South Africa. This is followed by the
trade sector which makes up 19.1% and the overall government sector which
makes up 16.7% of the total ICT expenditure. The combined ICT spend for these
sectors' (financial, business and other services) was R37.6 billion in 2008 and it
is estimated that by 2013 the ICT spend will increase to R54.7 billion.
Defining the ICT Sector
The convergence of information technologies and communications, particularly
as exemplified in the explosive development of the Internet, leads to the
necessity to broaden the perspective to the ICT sector. The pace of technology
innovation continues to challenge those who want to capture the concept of an
ICT Sector within one finite, all-inclusive description.
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4. The ICT Sector evolved and matured during the latter stages of the Industrial
Age. It was only been recognised as a sector in its own right once the
convergence of the Computing and Communications industries was generally
acknowledged. The major industries comprising the ICT Sector are generally
acknowledged 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 typically
on measuring and increasing the production of the individual industries in the
sector. In the Information Age, ICT as an enabler of overall socio-economic
development and is taking on becoming greater than the development of ICT
along strictly sectoral lines. This transformation in the role of ICT in the economy
is depicted in Figure 2.1.
Figure 2.1: Evolution of the ICT Sector
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5. The Global ICT environment
There are several key trends which capture the essence of the transformation
ICT has made and is making around the world. The increased use of technology
by businesses and individuals has driven many of these trends, forcing
developers to provide innovative applications and technology solutions to meet
consumers increasing demands. Listed below are some of the key ICT trends.
Several international corporates, recognised as leaders in the IT sector, operate
subsidiaries from South Africa, including IBM, Unisys, Microsoft, Intel, Systems
Application Protocol (SAP), Dell, Novell and Compaq.
Electronics industry revenues in South Africa are growing at levels well above the
overall GDP growth rate. Key players in industrial, power, defence and telecoms
electronics include Siemens, Alcatel, Ericsson, Altech, Grintek, Spescom,
Tellumat and Marconi.
A highly competitive consumer electronics market producing high value-added
electronic products also plays an important role.
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6. The South African Government approved the National Industrial Policy
Framework (NIPF) two years ago. The framework describes a broad approach to
industrialisation as it relates to the Accelerated and Shared Growth Initiative for
South Africa and its target of halving unemployment and poverty by 2014.
The NIPF lists Innovation and Technology as one of its strategic programmes. It
states that as a middle income developing country, South Africa needs to
increasingly invest in its innovation and technology capabilities. South Africa has
pockets of technologies and capabilities that can be leveraged in order to narrow
the gap with a range of technologically sophisticated developed and developing
countries.
Competitive advantages
South Africa's ICT and electronics sectors are expected to continue showing
strong growth in the future, due to key competitive advantages specific to the
country and the continent.
Testing and piloting systems and applications are growing businesses in South
Africa, with the diversity of the local market, first world know-how in business and
a developing country environment making it an ideal test lab for new innovations.
South Africa's ICT products and services industry is also 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 that have been established across the continent in recent
years.
A significant retarding factor has been the high cost of bandwidth in Africa.
However, the government has committed to addressing this, and major projects
are under way to lay submarine fibre-optic cables along both the east and west
coasts of Africa to boost the continent's connection with the rest of the world.
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7. Technology incubation, research, training
Innovation Hub
South Africa's Innovation Hub, established in Pretoria in 2002, is Africa's first
internationally accredited science and technology park.
A project of Blue IQ, Gauteng province's hi-tech industrial promotion agency, the
complex brings together high-tech industry, academia and entrepreneurs to
improve South African technology and productivity.
Taking its benchmark from the best such developments in the world, the
creativity-driven centre houses technology-related businesses across a range of
disciplines, including ICT, electronics, bio-science, and advanced manufacturing
sectors such as defence spin-off and automotive manufacturing.
It also runs a business incubator programme that has given life to projects
ranging from password management solutions and electronic voucher vending
systems to micro-processor prosthetic knees.
The Hub is the site of Sappi's Technology Centre, Bigen's future head office, the
Department of Trade and Industry's Aerospace Industry Support Initiative, and
Lejara Enterprise Solutions, an SAP implementation partner and business
intelligence specialist.
Meraka Institute
South Africa's ICT industry is also supported by the African Advanced Institute for
Information and Communication Technology, also known as the Meraka Institute.
Set up as a strategic government initiative, the institute promotes ICT skills
development, research and innovation, as well as the adoption of free/libre and
open source software (FLOSS).
Johannesburg Centre for Software Engineering
Another partnership between industry, academia and the government is the
Johannesburg Centre for Software Engineering. The centre aims to grow South
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8. Africa's capacity to deliver world-class software, strengthen the local software
development industry, and promote best practice in software development within
an African context.
Universal Service and Access Agency
And 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 where
disadvantaged communities can access ICT services and skills training.
ICT in education
In all the different facets of the ICTs for education prism, South Africa boasts
more than a decade of accumulated experience from its wide range of projects
and programmes pioneered by noteworthy champions across the stakeholder
spectrum of communities, the private sector, civil society, donor, development,
and government agencies.
A variety of tested models on ICT access, digital content development, teacher
training and professional development, optimal usage, partnerships, and
resource mobilisation have encouraged significant learning among innovators,
practitioners, and policymakers. The scale of all these interventions to date has
led to at least 22% computer penetration in all public schools. As well, all tertiary
institutions have some form of ICT access, ICT research and/or ICT teaching
programmes, although limited strides have been made in the informal, ABET,
and TVET sectors. While South Africa has a policy on e-education only for the
schools and Further Education and Training (FET) college sectors, herein too lay
animated debate on the optimal ways to implement the policy.
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9. Infrastructure
According to the World Economic Forum (WEF) Global Information Technology
Report, South Africa has the most modern and best developed telephone system
in 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 115
economies in 2005-2006, to measure the degree of preparation of a nation or
community to participate in and benefit from ICT developments.
ICT in government
Concept of e-governance
• E-Government seeks to render services utilising technology as an enabler
through partnerships with stakeholders
• Understanding and anticipating citizen’s needs and aligning services to citizen’s
needs /wants
• Citizens’ terms and experience of interacting with the state driven by time,
convenience and choice.
Provinces
All 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 communication
infrastructure due to their being the economic hubs
Western Cape and Gauteng
• Government to Citizen
– Information KIOSK – access to information about the provincial government
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10. – KHANYA – provided each school with a computer for students to access
internet 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 enable
information sharing for ministers
Challenges of e-governance
Introducing 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 the
country historical and social context and e-government initiatives in the country
therefore have to deal with a number of challenges.
More serious challenges that can emanate from e-governance are indicated as
follows:
Privacy:
Many e-government systems collect, store and use the personal details of those
who use their services or visits websites. That can pose a threat to individual
privacy.
Security
Governments will need to protect their information and systems from breaches of
computer security that threaten not only the integrity and availability of services
but also the confidence of users and the general public in the system.
Economic disparities
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11. According to the Organisation for Economic Co-operation and Development the
economically disadvantaged have the lowest level of access to e-governance.
Education
Educated people are the most users of the Internet. As the standard of education
rises, so does the use of the Internet.
Accessibility
Ensuring accessibility to all members of society is essential. This must include
individuals with disabilities to be able to use e-government websites.
Citizen awareness and confidence
Creating awareness of the advantages of e-governance and persuading people
to become users of the system are bigger challenges.
ICT in Logistics
Changes in ICT affect transport just as much as any other sector such as the
ubiquity of wireless data communication which is impacting all forms of transport.
For freight transport and distribution the use of RFID tags for freight items and
AVL technologies for vehicles, along with geographic information systems to
track and trace goods and to assist passenger travel, is giving rise to
fundamental changes in how things are done and the level of service that is
required.
This technology evolution takes many forms - contact-less smart card tickets for
urban 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 and
parastatal intelligent transport systems in the air, road and rail segments and
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12. interoperable systems allowing for more efficient coordinated streamlined
processes. These projects need highly specialised ICT systems and often niche
international companies have to be involved in them. Companies like Transnet,
ACSA and SANRAL are a few who are spending large amounts of money on
these integrated systems.
The communication and media sectors’ ICT spend is also driven by some very
large projects that are a result of convergence in these sectors, the emergence of
next generation IP networks, the need for more bandwidth and installing of
systems and platforms for integrated billing, content management and provision
as well as more customer-driven applications. With the convergence,
liberalisation and consolidation of the ICT sector, the market is becoming highly
competitive and companies need to adapt to remain in the game.
All these sectors have high technology needs, with the communications and
media companies having a higher percentage of knowledge workers than the
transport sector, but all these companies still need basic hardware, software, IT
services and telecommunication infrastructure to run their companies internally.
ICT spend in the transport, communications and media sectors
The South African transport, communications and media vertical industry sectors
make up a relatively small percentage of all companies (3.9%); about 8.6% of
them can be classified as top 350 companies, however these companies make
up 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 in
2008, with transport making up 62% and communications and media 38%.
ICT revenue split between the 'transport storage and logistics' and the 'media
and communications' sectors.
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13. ICT in Finance
Information and Communications Technology play an important role in the
development of the banking industry. ICT has made the banking sector more
competitive due to advancements of information and communications
technologies. ICT allows the banks to effectively cater to the needs of the
consumers by strengthening internal control systems which are backed by the
effective 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 relationship
management with the use of advanced tools and variety of products has enabled
banks to better serve their customers with the advent of ICT.
ICT Policies
The current ICT in education policy framework has been evolving since 1996 and
is embedded within a broader national government economic, social, and
development strategy which includes:
• Attention at the highest level in government to the role of ICTs in the promotion
of economic growth, job creation, social development, and global
competitiveness.
• Linkages of South Africa’s strategy to a broader pan-African mandate as
expressed 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 the
use of ICTs, particularly in the formal schools and FET college sectors.
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14. National Government Strategy
The role of ICTs in the South African government strategy for national economic
growth, social development, and job creation has received increasing
prominence over time. In 1996, Mr Thabo Mbeki, then the deputy president of the
country, played a prominent role in the historic Information Society and
Development (ISAD) conference which gave rise to the African Information
Society Initiative (AISI) spearheaded later by the United Nations Economic
Commission for Africa (UNECA). Since then, a host of programs and strategies
have been introduced that demonstrate central government commitment to the
promotion of South Africa as an ‘information society’. These include the following:
PNC on ISAD
In 2001, as President Mbeki established the Presidential National Commission
on the Information Society and Development (PNC on ISAD) which consists of
representatives from the public and private sectors. This commission advises
government on the optimal use of ICTs to address South Africa’s development
challenges and enhance the country’s global economic competitiveness.
PIAC on ISAD
A Presidential International Advisory Council on Information Society and
Development (PIAC on ISAD) was established to advise government on
addressing the digital divide with education as a key focus area. This council
consists of CEOs of major international corporations and experts active in the
ICT sector.
NEPAD
The South African government has been prominent in its support as host country
to the Secretariat of the New Partnership for Africa’s Development (NEPAD)
programme of the African Union, particularly its e-Schools programme and as
home to its first pan- African Parliament.
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15. ASGISA
In 2005, the government launched its Accelerated and Shared Growth Initiative
for South Africa (ASGISA), which represents a concerted national effort to
accelerate skills development and economic growth. Two priority components of
ASGISA are electronic communications as a cornerstone to commercial and
social infrastructure development and education and skills development. The
former 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 and
reliable international access, especially to Africa and Asia
In 1999, the South African government established the State Information
Technology Agency (SITA), which serves as a public sector ICT company
focused on the effective and efficient provision of ICT services with government
at national, provincial, and local levels. Its range of services includes the setting
of technology standards for the use of refurbished PCs in public education
institutions.
The critical issues which limit access to ICT in most developing countries and
rural areas are:
• Illiteracy: In most developing countries there are still a high percentage of
uneducated people. South Africa is no exception as illiteracy rates are very high
and people, especially the young have to go to school and attend institutions of
higher learning to get good education. Illiteracy will be drastically reduced if
technical or computer skills are imparted to most members of society. People
should not just gain access to computers, but should also learn various computer
applications so that they can be employable which will reduce the high
unemployment rate in South Africa.
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16. • Cultural Barriers: In some developing countries, there are still some people who
are barred from using telecommunications technology due to cultural beliefs.
• Lack of computer skills and technological know-how: This is another problem in
most developing areas, especially rural areas of Africa. Computer skills are
lacking in some people and this problem can be remedied once
telecommunication infrastructures have been established in their areas of
residence and in addition to that they get access to computers and computer
skills imparted to them by those who have this technical know-how.
• Lack of access to computers and computers networks as a result of the digital
divide: The digital divide has created a bridge between rural and urban areas in
most parts of the developing world.
• No Internet access: The Internet is a good educational tool but can be
expensive for poor members of society to afford in terms of paying for all the
monthly connections to the Internet Service Providers (ISPs). World Bank (2005)
has already stated that most less developed countries in Africa do not have
access to the Internet, which will add to their slow development and this is
exacerbated by poor telecommunications infrastructures and low tele-densities.
Should people have access to the Internet, they can access a wealth of
information from this global service and develop many aspects of their lives.
• Lack of significant usage opportunities: The fact that rural people, who form a
large part of the inhabitants of developing countries, have no access to
telecommunication technologies and other ICTs deny them the opportunities to
interact and familiarise themselves with such devices. This is because such
devices are not readily available to them where they are located. On the other
hand, it is easier for someone residing in a township to get access to a telephone
and a fax machine. South African rural areas with telecentres, can have easy
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17. access to ICTs located in the telecentres, if these telecentres are fully functional
and without access problems and network cut-offs.
Mapping ICT access in South Africa
The current and future capacity of South Africa to generate and sustain access to
information and communication technologies for its citizens is an important
development priority.
The shape of the South African economy is changing, with the relative emphasis
gradually moving away from the primary and manufacturing sectors toward
services (the tertiary sector). They have impacted on the occupational structure
and 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 new
technologies. South African information technology professionals are highly
regarded internationally, both in terms of their skills and their breadth of
knowledge.
ICT is a complex sector containing manufacturing and service components. In an
international survey in 2000, Gauteng was identified as one of 46 global hubs of
technological innovation. Gauteng continues to improve in specific ICT areas and
the private-public partnership of SAVANT, the SA Vanguard of Technology, was
launched in 2003 to market South African ICT expertise abroad. This is likely to
encourage further progress in the areas of IT training and certification, niche
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18. software and niche application enrichment, the establishment of infrastructure
into Africa and application hosting for Africa, call centres and the like.
The Gauteng government has created an Innovation Hub near Pretoria to attract
new IT industries. This is a Blue IQ project. The Johannesburg International
Airport Industrial Development Zone is also looking to attract investment in the IT
field.
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 Africans
themselves are among the world’s top 10 internet users.
Most of the listed IT and telecoms and electronics companies operate from
Gauteng. There is considerable expertise and training capacity at the Universities
of Pretoria, UNISA, Wits and RAU.
Companies such as MTN, Standard Bank, ABSA and Telkom have created
innovative solutions to problems uniquely African. Wireless technology being
used in prepaid systems and in cellphone banking are examples of this ability.
The industry is growing rapidly and includes hardware, software, networking and
related professional products and services. The market is estimated in SA at
USD 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 sophisticated
and advanced telecommunications systems in the world. In recent years
telecommunications in South Africa has been characterised by the phased
deregulation 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.
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19. About 85% of telecommunications activities are based in Gauteng, with the
sector contributing approximately 7% of the province’s gross geographic product,
and employing some 70 000 people.
Key areas of expertise
The South African IT industry has developed specific expertise concentrated in a
number of areas including:
• Managed (outsourced) services
• E-Security
• Biometrics and software development and
• The ICT product and services value chain.
Key trends in ICT sector
South African market analysts BMI-T have examined key trends in the South
African 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 clusters
South Africa has nine provinces, three of which have thriving ICT industry
clusters:
• Gauteng (Johannesburg and Pretoria), which accounts for 57% of all South
African ICT firms
• Western Cape (Cape Town), which accounts for 17%; and
• Kwa-Zulu Natal (Durban and Pinetown), which accounts for 8%.
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20. All three are well served by developed infrastructure, with the Gauteng cluster
readily accessible from South Africa’s gateway international airport in
Johannesburg.
The South African market is dynamic, showing a propensity for consuming new
technologies and finding creative ways to apply them to the challenges of a
developing economy.
There are an estimated 228,000 skilled ICT employees in South Africa, of which
130,360 were in the ICT producing sector (excluding manufacturing), and 97,435
in ICT using industries. The ICT sector as a whole boasts a world class, skilled
workforce of engineers and technicians, although skills shortages do exist in
certain areas.
Market Segmentation
South Africa’s ICT market was expected to grow by 6.6% a year between 2005
and 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 broadband
adoption.
While South Africa is making huge strides in strengthening its information and
communication technology (ICT) industry, the African continent as a whole still
needs to do more to develop and deploy ICT technologies to improve
governance, service delivery, build capacity and ensure citizen empowerment.
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21. Mobile communication service
The strong growth of mobile services is expected to continue in South Africa, with
gross subscriber numbers expecting to exceed 40 million.
Mobile devices and handsets
Accelerating 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 large
proportion of the population being unable to afford the costs associated with the
3G/HSDPA data offerings provided by the network operators.
Regulations for importing into South Africa
Import permits are required only for specific categories of goods and are
obtainable from the Director of Import and Export. Importers must possess an
import permit prior to the date of shipment. Failure to produce a required permit
could result in the imposition of penalties. A summary of main import regulations
are:
 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 advertising
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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 Standards
The Services Cluster provides accredited conformity assessment services to the
services industries such as government departments, FET colleges, financial
services, medical aid administration, car rental, cleaning services, IT, engineering
consulting and warehouses.
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23. The services consist of:
System Certification
ISO 9001 – Quality Management Systems Certification
ISO 14001 – Environmental Management Systems Certification
ISO 20000 – Information Technology Management System Certification
ISO 27001 – Information Security Management System Certification
Certification
The SABS Services Cluster provides third party, independent certification
services to: the Service sector of the economy that includes amongst others, the
Financial, Medical Administration, Car Rental, Security, Cleaning, Warehousing
and Logistics, Education, Government, IT, Business Consulting to enable them to
meet customer requirements and achieve business objectives by implementing
QMS such as ISO 9001; ISO 20000; ISO 27001
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24. Bibliography
www.pnc.gov.za
www.nepad.org
www.sita.co.za
www.csir.co.za
www.statssa.gov.za
www.southafrica.info
www.sabs.co.za
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