South African technology companies are shying away from further investments in Europe, as worries over Greece's economy continue to weigh on growth prospects.
In addition, as SA's economic growth is slowing, because of the spill-over effect, spending locally will again come under pressure and less investment will be made in technology.
Reserve Bank governor Gill Marcus recently said the unfolding developments in Europe are likely to have a significant impact on the global outlook, emerging markets and the domestic economy.
Marcus said the “global environment has become increasingly uncertain in the past few weeks”. She added that it has recently become increasingly clear that the crisis in Europe is having an impact on other regions as well, citing aspects such as currency volatility and lower commodity prices.
The last global meltdown, which fastened its icy fingers around the world, in about 2008, resulted in at least 50 casualties in the ICT sector during 2009, double the amount of companies that folded in 2008. Last year, 27 companies filed for voluntary liquidation, one was “dissolved” and two were in the final stages of closing their doors.
Wait and see
Altron has operations in Spain and Portugal, through Powertech, and the two countries account for about 3% of the group's revenue. Venter says its operations in Spain and Portugal are facing challenging times and the company has rationalised its units in these countries.
Andrew Coulsen, CEO of Dimension Data Europe, says the company is not likely to expand its European operations as it has established businesses that cover clients' demand. Based on demand and whether expansion made financial sense, the group would review the situation, he says. “Right now, this is not the case.”
Dimension Data has a physical presence in 10 countries across Europe, with about 2 200 employees and a turnover of $1.2 billion. “The Eurozone meltdown is causing a softening in our order number in the main countries impacted by this economic situation,” says Coulsen.
Coulsen says the slowdown is, in many cases, due to a delay in committing to projects, as companies wait to see what further effects may impact them due to the economic uncertainty in the region. He adds the group is still seeing growth in the region and IT investment.
Altech's corporate finance director, Peter Curle, says the group will continue to monitor events in the region, and its businesses there are “going well” overall. He adds that orders have not slowed.
The listed company owns Germany-based Altech SetOne and Altech ISIS France. Curle says Altech considers all opportunities that complement its current offerings and is growing its footprint.
Forecasting trouble
Chris Gilmour, Absa investments analyst, explains SA's economy is susceptible to the global economy, especially countries in Europe, which is the country's largest trading block. “What happens in Europe impacts on us.”
Gilmour says the problems in Europe will lead to fewer exports, which will weaken exports and trim business confidence to spend and invest. Gilmour notes that the worries have already led to a lower economic growth forecast, now at 2.7% after having averaged 3% a year since 2009.
The slowdown in growth will lead to a spending slump, says Gilmour. In addition, as SA may be downgraded, this will make borrowing to invest more difficult.
Mogen Naidoo, senior research analyst in IDC's sub-Saharan African software, security and enterprise solutions unit, cautions that as long as the debt crisis in Europe looms over the global economy, the public sector and enterprises will remain cautious about IT spending.
Naidoo points out that SA's economic growth lost 3.6 percentage points in the third quarter of last year, because of the crisis in Europe. The stagnation continued in the fourth quarter, which inhibited consumer spending and diminished business investments, he adds.
“A recovery in the Eurozone can lead to an upward revision in the forecast growth for SA's software market as direct and indirect ties with large countries in the Eurozone will have an impact, not only in SA, but globally as well,” says Naidoo.
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