One of SA's key economic growth areas - business process outsourcing (BPO) - faces several constraints in its bid to become a globally-competitive destination of choice.
BPO was highlighted as a key growth area for jobs and the economy when SA launched the Accelerated and Shared Growth Initiative for SA, which was aimed at halving unemployment and poverty by 2014.
However, the sector faces increasing competition from other countries. SA has a $960 million annual BPO industry, which is forecast to grow to $1.9 billion by 2015, according to recent figures from Frost & Sullivan.
Other countries will soon outpace SA's growth rates. Kenya's BPO market is worth $23 million, and is expected to grow to $89 million in the same period, and Nigeria is at $8.3 million, which is anticipated to shoot up to $114 million.
Business Process Enabling SA (BPeSA), the national industry association representing the BPO sector, has been driving investment into the arena. The organisation recently accompanied president Jacob Zuma on his London trip to strengthen trade between the UK and SA.
Interim CEO of BPeSA Western Cape Fagri Semaar says the trip to the UK was successful, and several companies will visit the province to determine its viability to establish business ventures.
software development and legal process outsourcing, which has been earmarked as a core focus area for 2010 and beyond.
Semaar says investment hurdles, such as high broadband and labour costs, were discussed with potential investors. “These two areas need to be closely monitored to ensure upcoming BPO destinations like Kenya and Egypt, where competitive telecoms tariffs are imminent, don't take business away from us,” adds Semaar.
Hurdles
However, SA faces additional challenges in trying to secure investment in the BPO sector.
Ian Marriott, VP for research at Gartner, says the country is not doing enough to move up the value chain and become more competitive in higher margin areas.
SA is one of Gartner's top 30 destinations, according to a recent report by the research company. However, this is based mostly on the country's good language skills.
Marriott explains SA has been focused on offering call centre services, but not enough has been done to move into other areas, such as loan processing and payroll management.
There is increasing competition from other markets, such as Morocco and Mauritius, which are entering the call centre market. As a result, SA needs to “inject additional life” into its BPO sector, notes Marriott.
The country does have the opportunity to move up the ladder as local people generally have good language skills, which limits the chance of misunderstanding instructions down the phone.
However, Marriott says government support is a “mixed bag” as the country could do more to support offshoring, and should put measures in place to make SA an attractive investment destination.
He adds there is generally good infrastructure in the main cities, which is to SA's favour. However, outside major metropolitans, infrastructure such as roads and electricity is lacking, which is a stumbling block to offering lower-cost solutions in more rural areas.
In addition, says Marriott, more needs to be done at university-level to bolster language skills, which would open up further opportunities to do business with non-English-speaking countries.
Skill concerns
Chris Gilmour, Absa Investment analyst, says other constraints include the high cost of telecommunications, and a lack of broadband penetration. Both of these areas are issues Zuma touched on in his state of the nation address earlier this year, but government has yet to provide a concrete roadmap for achieving these goals.
Gilmour adds that SA also has a skills shortage, which could limit the country's move up the value chain. “The call centre industry worldwide is often seen as a stopgap industry that is useful instead of having a 'real' job. It needs to be brought to the fore as a respectable profession where people can have a sense of pride.”
Irnest Kaplan, MD of Kaplan Equity Analysts, points out that SA's broadband cost and connectivity are becoming less of a concern as more undersea cables land in the country.
However, he says the main issue is the difficulty in setting up a BPO business, as SA's labour laws are strict and companies “cannot just pay what they want”. He points out that as the country tries to move up the value chain, it will require more skills to do so.
“We fall down a bit on people, whereas before we were falling down on broadband.”
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