Local IT spend will continue to be buoyed by government`s economic policies and the uptake of technology solutions by small and medium enterprises (SMEs), analysts at research firm BMI-TechKnowledge (BMI-T) say.
"Firstly, government wants to use technology, which includes IT, to help the country reach an annual growth in gross domestic product of 6% by 2014. Secondly, government is putting its money where its mouth is by releasing money from the national budget to do so," says BMI-T analyst Roy Blume.
Blume says confidence in the SA economy remains high, despite the recent hiccup of an increased interest rate and weakness in the rand exchange rate.
"Even with the rand weakening to above the R7 per dollar level, the fall in technology prices has off set that and SMEs are still benefiting. Vendors have also specifically targeted this market," he says.
Growth forecast
The South African IT market grew 4.4%, from R43.9 billion in 2004, to reach R45.8 billion in 2005. The IT services market grew 4.8%, the packaged software market grew by 3.7% and the total hardware market grew by 8.5% in 2005.
Locally, the market is expected to see a compound annual growth rate (CAGR) of 5.8%, to reach R60.8 billion in 2010, according to BMI-T analyst Natalie Bryden. This rate is close to the firm`s global CAGR estimate of 6%, to reach $1.46 trillion in four years` time.
In her analysis of the local market, Bryden says mid-single-digit growth is not a fun place to be as an industry.
"This moderate growth will continue to put pressure on IT suppliers to take some chances to drive higher long-term growth for themselves and the industry overall. In 2006, it will be important - particularly for industry leaders - to think creatively about new product and service offerings, new business models, and new types of industry relationships and communities. The vendors that stay too close to their comfort zone are most likely to get swamped by the industry`s changing dynamics," she says.
Bryden says consolidation will continue through all levels of the market (watch Telkom/BCX) and last year`s growth above market average was almost exclusively a result of acquisitions.
"The total market growth is not large enough for the high number of service providers to be profitable and BMI-T foresees the continuation of the vendor consolidation over the last few years," she says.
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