As the business process outsourcing (BPO) sector battles to keep its costs low, price and legislative challenges are set to limit SA's ability to compete as a key global call centre destination.
The BPO industry is faced with rising electricity hikes, no reductions of high telecoms prices and possible legislative challenges.
While government says it is introducing new measures and improving its incentive scheme, it admits this might not be enough to help the industry absorb these challenges.
Eskom previously requested the National Energy Regulator of SA to phase in price increases, adding to the 35% price hike seen earlier this year.
“If Eskom is given the all clear for three proposed 45% electricity hikes, the BPO industry in SA may very well suffer irreparable damage,” says CEO of BPeSA Western Cape Sipho Zungu.
The industry is also yet to benefit from reduced telecoms costs. While the Department of Trade and Industry (DTI) says Telkom has offered reduced tariffs, the industry has yet to apply to take advantage of the competitive tariffs.
The Department of Labour also plans to introduce legislation that would increasingly regulate temporary employment services. The proposed changes to the Labour Relations Act and other labour legislation would effectively decrease worker flexibility, change wage structures and increase ministerial powers.
Falling short
Despite existing government initiatives, the sector is still concerned that not enough is being done to help the industry manage costs.
Eskom's proposed hikes, either by spiking tariffs by 45% a year for three years, or introducing a 146% increase next year, have drawn the most criticism from the industry. The state-owned entity also proposes a second option, which would be followed by two consecutive years, in which tariffs will be increased by 12%.
Government, through the 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.
Despite this government support, BPeSA says if the regulator accepts Eskom's proposed electricity rate hikes, SA will soon be priced out of the BPO market.
Rising incentives
Trade and industry minister Rob Davies previously stated government would look to improve its incentive packages for the BPO industry, to further boost involvement in the sector and prevent further challenges to the sector.
The department's BPO&O Investment Incentive comprises an investment grant ranging between R37 000 and R60 000 per seat, and a training support grant up to a maximum of R12 000 per agent.
The department concedes its growth target of achieving 50% growth in the industry annually, until 2011, needs to be revised. As it stands, “changes in the economic landscape” could decrease growth and see government miss its targets, but “good growth” is still expected, says the department.
“The department has been working on this sector for some time with regards to putting in place the required instruments that will enable government to promote, support and market this sector. It still provides the opportunity SA needs to achieve its Accelerated and Shared Growth Initiative targets,” says the DTI.
Rising costs
Zungu previously stated that call centres require a large amount of electrical output to operate. Costs include running computers and other call centre equipment, lighting, cooling systems, 24-hour security protection, multiple backup systems, standby generator and an uninterruptible power supply.
While the DTI says it is aware of the impact higher electricity prices would have on the industry, it adds that the savings potential of the country as an attractive destination would not be lost.
Zungu, however, adds that the entire industry is already feeling the effects of the credit crunch and even a 10% rise in costs would have a major impact on the success of the entire sector. While SA offers investors high savings potential, the sector says Eskom's anticipated hikes would reduce this.
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