While confidence is returning to the local ICT sector after the dot-com era, an economist has warned of macroeconomic clouds on the horizon.
Speaking this morning at ITWeb's IT Confidence seminar, in Midrand, Brian Rainier, MD of Brainier Capital, said the lack of confidence in the sector, seen four years ago, is reversing. After the dot-com boom, companies saw shrivelling sales pipelines and went through a stage of restructuring and consolidation.
However, 2006 was a year of strong growth, with companies' shares trading higher and three times as much confidence in the market than there was four years ago, he noted. Despite this, Rainier said the sector still has some catching up to do, as it is trading at a discount to its peers in the financial sector, for example.
Macro slowdown
Absa senior economist Ridle Markus said the ICT sector will be affected by macroeconomic and international factors that will lead to a less robust market in the next two years. He pointed to a slowdown in the US economy that will spill over into the South African economy as one cause for concern.
Markus added that China's growth is also slowing and the world is expecting higher oil prices, which will place pressure on the rand, weakening it against the dollar and affecting competitiveness. "We must take note of what is happening overseas."
Locally, consumption-driven economic growth will taper off and, while SA grew strongly last year, economic growth is likely to diminish this year, he added. Inflation will be under pressure thanks to a widening trade gap and oil prices, and high levels of debt will place pressure on spending.
The JSE's all share sector grew at 38% last year, but this is unlikely to be seen again this year, he noted. Markus said the indicators point to a slower 2007, with growth shifting from consumer spend to fixed-investment spend. While the local economic climate is not gloomy, Markus cautioned against being too comfortable.
Competition
Investment in SA will also come under pressure due to regulatory red tape, said Markus. A pending windfall tax and an economy that is not completely liberalised could also impede foreign companies entering the country.
He noted the local ICT market would come under pressure as a result of these factors. In addition, low local productivity levels will have to face off against Chinese competition. He said China is developing know-how and is making an impact in trading ICT products and services.
In addition, there is a new wave of consolidation internationally, and research and development will come under pressure as the economy slows.
BMI-TechKnowledge services research manager Roy Blume said despite red tape, SA is likely to be a target for foreign firms entering the marketplace. He cautioned against looking outwards only, while foreign companies are aggressively looking inwards.
Blume said, overall, the traditional IT market will grow at between 6% and 7% on a compound annual growth rate this year, but more growth will be seen in the consumer segment. However, he added that small and medium enterprises would show high double-digit growth.
Outsourcing is expected to be the star performer in the services sector, at a growth rate of 7.5%. Services in general are expected to grow at 6.5% in 2007. Software, said Blume, will grow at 5.6%. Hardware is stabilising and should grow at 3.8%, with most of this coming from notebooks at 14.8%. Servers will lose 1.5%.
"Moderate growth will continue, but the hunt is on for profitable growth," he said.
These factors, coupled with enterprises' need to spend efficiently on IT, will shift the focus in the industry and companies will work to add bottom line value. Virtualisation will also place pressure on bottom lines, and hybrid open source and proprietary systems will make an entrance, Blume stated.
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