Eskom hike could cripple BPO industry

Johannesburg, 04 Jun 2009

The local business process outsourcing (BPO) industry faces another hurdle if Eskom goes ahead with plans to introduce a 35% increase in electricity prices.

While SA is considered a promising call centre destination, the increase in electricity tariffs could add high costs to a sector that is already battling to keep its costs low. With no tariff cuts expected from Telkom during the year and Eskom's anticipated price hike - the sector looks set to struggle.

“The BPO sector in SA is feeling the effects of the credit crunch and, as a result, even the smallest increase in work-related costs could have a major impact on the success of the entire sector,” says Fagri Semaar, chairman of CallingtheCape.

Eskom recently proposed a 34% price hike, citing the worsening economic climate. This proposal has been met with loud criticism and concern from several consumer groups and the BPO industry.

The sector notes that, while SA offers investors high savings potential, Eskom's anticipated hike will spike up costs and affect international sentiment on government's commitment to the growth of the sector.

Government, through the Department of Trade and Industry (DTI), has introduced a five-year development programme for the public and private sectors to work together and develop SA as a key BPO destination.

While initiatives within the programme include incentives for players in the sector, these will not be enough to help the industry manage costs.

“SA is currently viewed as a top call centre destination, because of a number of differentiating factors. If cost is no longer a differentiating factor, overseas investors may look to the likes of India and the Philippines as an alternative solution. By taking away one of the key competitive factors, SA could lose out on a large amount of potential business,” says Semaar.

Good intentions

The BPO industry sector has so far relied heavily on its ability to offer cost-effective call centre solutions to local and international investors. With low attrition rates, qualified workforce, available infrastructure, cultural affinity and relatively low electricity costs, the sector has shown considerable growth and attracted foreign investors.

The industry had seen major growth in investment, and significant increases in the number of jobs created since 2003. However, communications cost still remains a barrier to further growth and, despite government's promises to reduce prices, this is yet to materialise.

In July 2008, former president Thabo Mbeki reported that BPO investments worth R658 million had been made, and that the sector had created approximately 9 132 jobs. In the Western Cape, the sector is estimated to be worth R2.5 billion, and employment in the industry had risen from 6 500 in 2003 to more than 27 000 in 2008.

The DTI remains confident that, despite any concerns, investments in the BPO sector are set to increase.

In 2007, TeleTech established a call centre facility in Cape Town, under the DTI's BPO incentive scheme. In August 2008, Absa invested in a call centre in the BPO cluster of the Coega Industrial Development Zone.

Former trade and industry minister Mandisi Mpahlwa also announced a 600-seater call centre for the Free State, and increased trainees going through its work readiness programme, designed to support the BPO industry. Bloemfontein is also set to host an international BPO hub in the next two months.

However, Semaar cautions that further BPO investments could be curtailed by rising costs, such as electricity tariffs.