Projected leap in SA IT spending

SA can expect a huge leap in IT spending in future, from $9.5 billion in 2010 to close to $14.4 billion by 2014 - faster than the country's real GDP growth.

This is according to the SA Information Technology Report Q3 2010, from Companies and Markets, an online market information collector.

Though IT investments are projected to take a dip after enjoying a surge during the 2010 Fifa World Cup, the report says opportunities beckon for vendors across several sectors of the steadily growing IT market during the five-year forecast period.

The report adds that the successful hosting of the global soccer event could provide a shot in the arm to foreign investments in the IT sector. It says confidence was also boosted by the continued improvement of SA's ICT infrastructure, as well as bandwidth availability.

According to the report, the compound annual growth rate of SA's IT market between 2010 and 2014 is projected to be in the region of 11%. This comes as a number of IT infrastructure projects generate spending at federal and provincial levels.

Much spending in key IT verticals such as telecoms, banking and mining will be driven by factors internal to those sectors. “The IT market fundamentals of sub-10% PC penetration, rising incomes and falling prices also underpin our growth forecast,” the study says.

According to the third-quarter report, the Department of Home Affairs will be one of the biggest IT spenders. In a bid to improve service delivery, immigration services and fight corruption, the department has revealed it will spend more than R500 million on IT projects in the 2009/10 financial year.

The report also predicts a surge in the country's computer hardware sales. It says that between 2010 and 2014, sales will leap from an estimated $4.1 billion to $6.3 billion in 2014.

“The main growth drivers during the five-year forecast period include rising computer penetration, falling prices and vendor and retailer promotions, and the popularity of notebook computers and ultra-light products,” it states.

“In the past few years, falling prices have helped boost PC unit shipments, along with aggressive retail promotions.”

Although the economy went through a turbulent period during the previous financial year, software sales are expected to defy the odds and post huge increases from 2010 to 2014, the report adds.

The report forecasts software sales to jump by 11%, regardless of the problem of software piracy, which still accounts for around 36% of software in SA.

However, the report outlines that the downturn the country experienced will cause difficulties. “The economic slowdown represents a challenge to software vendors, as enterprises are tempted to focus more on the bottom line. This situation is likely to lead to further consideration of open source solutions in some sectors.”

Still on the software front, the report also predicts the software-as-a-service model in SA to receive a boost from projected improvements in SA's broadband infrastructure.

With the IT services market at $1.8 billion in 2010, the report says the value is going to increase to $5.3 billion in 2014.

The report notes that spending on IT services still depends heavily on government programmes and in the current economic environment, the government will remain the largest spending IT services vertical, followed by financial services and telecoms.

It also states that in terms of Internet usage, SA ranks tops in the continent. “Internet penetration in SA is by far the highest on the continent, although broadband penetration remains low.

“In the small business sector, some progress is being made: according to a 2008 survey, 63% of smaller companies that use computers to connect to the Internet now have a DSL Internet connection, exactly the proportion using dial-up five years ago.”

The report predicts the country's broadband market will become increasingly dynamic over the next five years. “One development that is expected to have a major shake-up effect on the market is the inauguration of various undersea cables,” it states.

“Some of these are due to go live by 2010 and will help to reduce the cost of bandwidth. Other developments expected to provide the broadband market with a major stimulus include local loop unbundling - scheduled for completion in 2011 - and the deployment of new network infrastructures to rival Telkom's national network.”

Pieter Kok, senior research analyst, software and IT services at IDC, concurs with the report, saying IT spending will certainly grow over the next five years as SA emerges from the recession.

He adds that the successful hosting of the 2010 World Cup provided the impetus for increased IT spending. However, he warns businesses to invest wisely in their IT spending.

“Business should assume a cautious approach on IT services spending. They should not just spend for the sake of spending, but should be watchful of their productivity as well if they are to remain in profit,” he says.