Software prices shoot up as rand falters

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 20 Jan 2016
The rand has fallen more than 8% against the dollar this year.
The rand has fallen more than 8% against the dollar this year.

The weakening rand has resulted in a sharp increase in software prices in SA, especially products from overseas-based vendors.

SA's currency lost about 26% of its value in the six months after turmoil hit Chinese markets in the middle of 2015. The rand also plummeted when president Jacob Zuma abruptly sacked finance minister Nhlanhla Nene at the end of last year.

Reuters reports the local currency has fallen more than 8% against the dollar this year, weighed down by concerns over the outlook for the sickly local economy as well as slowing growth in China, a key importer of South African commodities.

Many observers have predicted the rand will remain under pressure this year.

Stephen Corrigan, MD of local software solutions provider Palladium Business Solutions, says international software vendors will soon feel the effect of the plummeting rand as local businesses consider cheaper options.

Software prices have already increased by 40% in comparison with last year and will continue to rise as the rand weakens, Corrigan points out.

Lise Hagen, IDC's research manager for software and IT services in Africa, says any organisation working towards US dollar-based targets will be struggling to achieve targets.

"The ZAR/USD exchange rate volatility, although severe and unpleasant, is not unprecedented," says Hagen. "Many CIOs have also been planning for exchange rate fluctuations, so would have built in contingency budget for larger projects."

According to Hagen, although many software vendors try to mitigate the high software prices by hedging against exchange rate risks, price increases from international vendors will be inevitable.

"We expect cloud services and its pay-per-use model to gain even more momentum in this fiscal environment," she points out.

Daryl Blundell, MD of Sage SSB Accounting South and Southern Africa, says the US dollar has depreciated by +/-35% over the past 12 months, and this is causing price increases in SA.

"However, increased software prices due to the US dollar are just one of the increases in costs impacting businesses. All imports are now costing more and this, is in general, is having a hugely negative impact on businesses or consumers, and will result in many companies holding off on new projects or software acquisitions," Blundell says.

Nonetheless, the industry players believe that with the weakening rand, this is the time for locally-owned software companies to shine.

"We are experiencing a huge interest from companies that previously looked at dollar-based products. They all just went up 40% in price; no wonder they are calling us," says Corrigan.

"The weakening of the rand will be the cause of price increases across the board. At Palladium, we reduced our international pricing accordingly and have seen an upsurge in demand. We need to take advantage of the weakening rand," he explains.

Corrigan says this is also a good time for companies to retire their aging, costly enterprise software. "To have a rand-hedged product in today's environment is critical. The modern way of thinking is a 'pay as you go' or subscription model with no upfront balloon payments."

Hagen is of the view that although South African software developers and vendors do not have the same labour arbitrage advantage that India, for instance has, the depth of skills and ability to innovate are advantages that cannot be highlighted enough.

"This presents multiple opportunities in a flat, digital world, and many start-ups flourish in this environment. However, concerns about IP [intellectual property] law in South Africa can dampen global buyout appetite," she points out.

Blundell says local software vendors should start looking to export their products in order to get foreign currency.

"Local vendors need to look at exporting their software, providing implementation skills as well as call centre support based out of SA," he concludes.