South Africa’s information and communications technology (ICT) sector is becoming more competitive in some areas, but core telecommunications infrastructure remains dominated by a handful of large firms.
This is according to the Competition Commission’s Measuring Concentration and Participation in the South African Economy: Levels and Trends (2017-2021) report, released yesterday.
The report draws on data from 450 000 tax-registered firms across 228 sub-sectors of the economy.
While concentration remained high across the economy, the report found a reduction in high concentration levels within the ICT industry. “Considering the industry as a whole, the distribution of concentration levels shows that, while there are moderately and highly concentrated sub-sectors, less concentrated levels make up the majority of sub-sectors within ICT,” it notes.
Trade, industry and competition minister Parks Tau points to challenger firms, such as Rain, disrupting the wireless and mobile telecommunications sector. He says fintech firms, alongside digital-first banks like TymeBank and Discovery Bank, have “intensified competition, challenging and reducing market dominance by the traditional banks”.
Software publishing shifted from a highly concentrated market in 2017, to a less concentrated one by 2021, with the largest three firms’ share declining from 73% to 29%. “This clearly indicates a substantial structural change,” the report states.
Computer programming remained fragmented throughout, with the top three firms accounting for less than 20% of market share.
However, satellite and wireless telecommunications continued to rank among the country’s most concentrated ICT sub-sectors, with the top three firms consistently controlling more than 55% of market share between 2017 and 2021.
Small businesses grow
The data points to growing participation by micro, small and medium enterprises (MSMEs) across the ICT ecosystem, particularly in software publishing. The number of MSMEs operating in software publishing rose sharply from 43 in 2017 to 233 by 2021.
Other areas recording more than 50% MSME growth includes wireless telecommunications activities.
MSMEs also played a major role in ICT sector turnover. In 2021, they contributed nearly all turnover in the software publishing sector, while holding significant shares in wired telecommunications, wireless telecommunications, satellite telecommunications and other telecommunications areas.
Employment patterns reflected the divide between infrastructure-heavy telecoms businesses and more decentralised digital industries. MSMEs accounted for about 58% of ICT employment in 2017, rising to 63% by 2021.
FinScope’s MSME South Africa 2024 report notes that “with an estimated turnover of over R5 trillion, the MSME sector accounts for 80% of the workforce, yet 15% of MSME owners remain financially excluded, underscoring the necessity for targeted interventions”.
Smaller firms dominated employment in software publishing and data processing, while large firms retained stronger employment shares in telecommunications.
The bigger picture
Writing about the high levels of high concentration during the four-year period covered by the report, which included the tail-end of COVID-19, commissioner Doris Tshepe says this “undermines growth and job creation”.
Tshepe adds that concentrated markets make it harder for new players to enter industries and expand, limiting broader economic participation.
Yet, Tau notes that, since 2017, “we are on the right track to deconcentrating our economy”. He points to the number of highly concentrated sub-sectors having reduced by five percentage points, with 10 sub-sectors becoming moderately concentrated.
“De-concentration is pro-growth. It is pro-investment. And it is non-negotiable,” says Tau.
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