Overview     

Unit:  $million

Data from Fitch Solution Industry Report South African IT Q3 2022

Data Sources:  Above figures are unofficial estimates obtained from industry sources.

 
South African IT sector.  South Africa has one of the largest information and communications technology (ICT) markets in Africa. It has established itself as a technological and innovation hub on the continent. South Africa’s IT sector includes software development, hardware manufacturing, telecommunications, cybersecurity, digital services, Fintech, and digital payment. As an increasingly important contributor to South Africa’s GDP, the country’s ICT and electronics sector is both sophisticated and developing. Several international corporations operate subsidiaries from South Africa, including IBM, Google, Microsoft, Intel, Systems Application Protocol (SAP), Dell, Amazon Web Services, Novell, Meta, and HP.  It is seen as a regional hub and a supply base for neighboring countries. South Africa is home to vibrant start-up communities in both Cape Town and Johannesburg.

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.

Public Sector. Although the public sector is normally the largest player when it comes to IT spending, the short term sees the expenditure reducing to counteract the increasing debt from the economic downturn and the COVID 19 pandemic.  The South African Government’s budget in this sector focuses on key interventions to increase the usage of ICT to facilitate socio-economic justice and inclusion, improve competitiveness and prepare for the 4th / Digital Industrial Revolution. The State Information Technology Agency (SITA) manages the public sector tenders; all IT-related procurement should go through this agency.

South African Skills Development Program. The Government, via its programs and agencies will embark on an extensive skills development program aimed at training one million young people by 2030 in Robotics, Artificial Intelligence, Coding, Cloud computing and Networking. South Africa has a data protection law called the Protection of Personal Information (POPI) Act that prohibits the transfer of personal information to a third party who is in a foreign country unless such transfer complies with specific guidance outlined in the Act.  POPI legislation provided for an Information Regulator (IR), established in 2018, which will investigate and adjudicate complaints of privacy violations on an ad hoc, case-by-case basis. The IR is charged with regulating the protection of digital personal information.   The POPI Act came into full effect on July 1, 2021.

Private Sector.  Banking and financial institutions are a significant market for the IT sector. As more people join the formal markets this industry is expected to grow in the next ten years. The retail banks are increasing their spending to grow their digital platforms and concurrently increasing their online security measures. This will drive innovation in internet banking and more specifically mobile access and mobile money solutions.

Private consumption will rise, but the strong growth of smartphones is likely to offset PC and laptop usage. In the short term, the decreasing household purchasing power and the depreciated Rand could also be responsible for tablets outselling notebooks, a less expensive piece of hardware and both outselling PCs. Households affected by the economic downturn will look for cheaper options. 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 change. In the short to medium term, there is a trend towards greater innovation in applications used for HR, payroll, and teleworking software to increase operational efficiencies and flexibility as more people work from home. his might encourage more firms to look at how to decrease capital expenditure and include remote and teleworking strategies to be included in their digital policies. 

U.S. Companies. 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. With IBM’s Cloud Data Centre, they can provide clients with a complete portfolio of cloud services. This is the result of close collaboration with South African, 100 percent 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. Amazon Web Services (AWS) has also opened a data center in Cape Town.  CISCO and Dell both have training academies within South Africa to assist with the development of skilled labor within this sector.

Sub-Sector Best Prospects                     

The major worldwide trend of moving toward cloud-based systems is one that has gained momentum in South Africa especially with increased improvements in connectivity, decreasing cost and data center infrastructure. The strong entrepreneurial drive within the local IT sector is creating a larger demand for cloud-based services. Cloud based services and solutions are seen to offer cheaper, safer alternatives and efficiency gains in operations. Using the cloud is also seen to decrease susceptibility to piracy and cyber threats.

Machine-to-machine (M2M) communication and the Internet of Things (IoT) is forecast to grow and is a new development globally and not just in South Africa.   With the rollout of fiber and cheaper data costs, opportunities will arise in this sector for connected living.

South Africa has a thriving start up and tech market. The South African government via the ICT small, medium, and micro-enterprises (SMME) Development Strategy seeks to accelerate the growth and development in the SMME sector. Government support is given to partnerships for incubation, networking, and capacity building. 

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 percent of installed software in SA is illegal. The need for security products is growing with company spending increasing to about 8 percent 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. This may bring opportunities for software that integrates platforms.

E-commerce and related software are showing growth with South African online stores showing the number of online shoppers significantly increased year-on-year. Retail sales increased by 66 percent in 2020, this can be attributed to the Covid-19 pandemic and lockdown rules but has introduced online shopping to many first-time shoppers. South Africa is still nowhere near the global estimates of online retailers who make up 10-12 percent of total retail, South Africa is around 1 percent of total market for consumer goods. Cybersecurity remains a prevalent concern for South African consumers who rather opt for physical retail purchases. Another concern is the security of the products out for delivery. It is currently estimated that only 41 percent of households have at least one member with access to the internet at home or elsewhere. However, only 10 percent of households have internet access at home. Here mobile internet adoption has been widespread and provides significant opportunity for e-commerce websites on mobile devices.

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. The cost of data in South Africa is still relatively high. Some dominant operators charge eight times more per data bundle than in other African countries. After public demand, the Competition Commission released a report on its market inquiry, mandating the telecommunication companies to lower their cost for data.  The telecommunication companies blamed the small amount of available spectrum but they subsequently lowered data costs making access for all South Africans a little cheaper but still relatively higher. According to the most recent survey by Research ICT Africa (a regional think tank), data prices in South Africa remain relatively high. South Africa was ranked 27th out of 42 countries regarding the average cost of 1 GB of data in the third quarter of 2022. South Africa’s data costs were around four times those of Ghana and Kenya. Even though broadband access continues to improve in terms of capacity and coverage, with operators’ increased investments into their 4G and fiber and for some, such as the largest operators, investments into their 5G networks in the country, there is still a wide digital divide. In comparison to rural and underserved areas, urban areas have stronger broadband infrastructure and higher internet penetration rates. The extensive usage of mobile phones is contributing to increased internet access, particularly in rural areas. 

The telecoms regulator, the Independent Communications Authority of South Africa (ICASA), held a spectrum auction in March 2022. ICASA has announced plans for another high-demand spectrum auction in early 2024 to support the continuous expansion of 4G and 5G services.

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. However, most South Africans lack the basic services that should be supplied by their municipalities. Lack of infrastructure, maintenance and years of corruption have left residents wanting. As such, the needs for each city and community will be different. The three major 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 implemented in first world countries. After facing the challenges of supplying electricity, housing, water, internet connectivity and tackling congestion as well as crime the cities can then focus on the luxuries of digital innovations for their communities.

South Africa understands the need for smart cities and the benefits of 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. In his June 2019 State of the Nation Address (SONA), President of South Africa Cyril Ramaphosa expressed his ambition to build a smart city in South Africa. In the February 2020 SONA, the President announced more concrete plans to develop a smart city in the country with the intended development of three smart cities; Nkosi City, bordering the Kruger National Park, the African Coastal Smart City in the Eastern Cape, and the Lanseria Smart City in Gauteng.

South Africa’s Department of Cooperative Governance (DCoG) leads the development of towns and cities. The department drafted the Smart Cities Framework (SCF) to provide objective, factual information about smart cities in South Africa to all those involved in designing and implementing smart city programs 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.

Several challenges still stand in the way of smart cities becoming a reality in South Africa - an underdeveloped infrastructure, skills deficit, and need for local and international investment.  This is a  hindrance to the advancement of smart cities nationally, requiring well-trained, tech-savvy individuals who understand and can use IT systems.  The major metropolitan areas such as Cape Town, Johannesburg and Durban have started researching smart technologies geared to smart mobility to address traffic challenges due to an increase in urbanization. 

Opportunities  

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.  The improvements in data center infrastructure have resulted in a boost to cloud computing. It is estimated that around 77 percent of large South African companies have implemented some form of cloud computing. With the increase of cloud computing local firms including telecommunication, and BCX. Huawei, AWS, Microsoft, and Oracle all have data centers and re positioning themselves to be a regional hub.

Cybersecurity. There have been high-profile cyber-attacks and hacks on financial, utility, transportation infrastructure and even political parties.  Due to the increase in internet traffic, there will be increased demand for IT security products and software within most sectors. As the Internet of Things (IoT) or connected devices grows in popularity so does the threat of cyber hacks/attacks.   South Africa has some of the most developed infrastructure amongst its African neighbors, which has led to an increase in cybercrimes in South Africa. Experts assessed that private companies generally had better cybersecurity procedures in place than government entities and state-owned firms, as well as greater investment in cybersecurity insurance. 

Major Shows 

Africa Tech Festival, Cape Town 

November 13 – 16, 2023 

https://tmt.knect365.com/africa-tech-festival/ 

AI Expo, Johannesburg 

November 2 – 3, 2023 

https://aiexpoafrica.com/ 

Resources                                                                                            
 
The Department of Communications and Digital Technologies (DCDT)

The State Information Technology Agency

Institute of Information Technology Professionals South Africa (IITPSA)

National Electronic Media Institution of South Africa (NEMISA)

Tech Central

Fitch Connect

Internet Service Providers Association (ISPA)

Information Technology Association (ITA)

MyBroadband

The South African Communications Forum (SACF)

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

Lonje.Mwendera@trade.gov, Phone: +27 (0)72 352 3821(, or visit our website at https://www.trade.gov/south-africa.