Status of South African electronics, ICT sector

The electronics and ICT sector (referred to as the electrotechnical sector) is one of the sectors that the South African government, through the Department of Trade and Industry (the DTI), is targeting for development. As part of this, the DTI and the private sector have established the SAVANT programme, to market and showcase South Africa's capacity and capabilities in the sector.

With its key subsectors of electronics, electrical engineering, information technology and telecommunications, it is an important global sector. The sector has an important role to play in the South African economy, because of its direct contribution to advanced manufacturing, high value production and the knowledge contained within the economy with highly skilled employment.

This sector contributes to increasing the competitiveness and added value of related sectors such as automotive, defence, power generation, distribution and aerospace. When adding up the total revenue of some of the largest firms in the electrotechnical sector, the total exceeds 12.5% of the South African GDP.

The attention that the large firms in the sector attract often overshadows the important role of small and medium-sized firms. Especially in electronics, information technology and communications, South Africa has a wide range of highly specialised firms that are globally competitive - some of which are small. It is very difficult to get an accurate picture of the size and extent of this sector. In the electronics and ICT sectors there is no relationship between the size of a firm and its ability to compete. Even small firms with fewer than 15 employees are acknowledged as international thought leaders in several technical fields.

The sector's strengths lie primarily in niche product development that adapts to changing market requirements, technology development and, most importantly, system integration. The South African electrotechnical industry is relatively mature and diversified, providing a broad platform for future growth. There are frequent reports of new investments, mergers and acquisitions in the sector, and many major equipment providers are supplying equipment to domestically-based manufacturers.

The origin of much of the engineering in the sector is defence, aerospace and mining, and this has resulted in stringent quality standards and accommodation of tough environmental conditions, requiring strong systems engineering and project management. As a result, there are a high proportion of globally competitive firms, particularly within the electronics subsector.

There are opportunities in the telecommunications market both in South Africa and other African countries. In South Africa, these opportunities are related to the roll-out of wireless networks and technologies. In other African (particularly sub-Saharan) countries, the opportunities revolve more around meeting the demand for communications services.

South African vendor companies are well placed to venture further into the African markets. These companies have the skills, the knowledge and the ability to achieve results on the continent. South Africa is a driving force in generation, transmission and distribution and generates over 50% of Africa's electricity. Global technology trends are towards smaller-capacity, geographically distributed generation stations that are faster to construct and easier to move. The current focus is on renewable energy sources, and although there are significant lobbies against nuclear power generation, much research is going into this technology.

An opportunity exists in green-energy technologies for electronic components and subassemblies that could be locally produced. This was demonstrated in a study done by the DTI in 2010. The South African power sector is small in international terms; however, it has excellent experience and expertise in the area of maintenance and refurbishment of generating equipment, and Eskom has the largest repair and maintenance centre in the southern hemisphere.

These skills are complemented by the ability to design, project manage, operate and maintain power stations, specifically coal, gas and hydro stations.

Transformers form a significant percentage of distribution costs, especially in developing countries where distribution networks need to be rolled out to communities without electricity.

In Africa alone, the requirement for investment in distribution and transmission is $390 billion over the next 30 years. The South African power transformer manufacturers have a combined turnover of about R600 million a year.

Prepayment meters are becoming more and more popular worldwide and South African companies have an estimated 70% to 80% share of the global market. As a world market leader and developer of prepayment solutions, South Africa has developed the STS (standards transfer specification), which has been adopted by the IEC.

The sector has been successful in attracting foreign investors, both in the form of international subsidiaries being established in South Africa, and local firms being acquired as part of global firms. Many important international firms are active in South Africa, recognising the domestic economy and the rest of the continent as important markets.

The majority of firms in the power engineering sector already cite significant amounts earned from revenue in Africa. Interviews conducted in the electronics and power engineering sectors showed that multinationals based in South Africa were more likely to have an aggressive market expansion strategy for Africa.

A relatively high percentage of electronics firms, especially those providing electronic subcontracting services, tend to focus on the domestic - and to a lesser degree - the foreign markets. Several electronic firms have developed products for the South African market that are suitable for other markets, with utility management and monitoring, security solutions and communications technology being examples.

Many of these firms do not have plans in place to expand into new markets. Skill is the second most important cost element, and this determines the competitiveness and long-term sustainability of the electronic sector (second to components costs). It appears that the greatest skills shortages are among technicians, followed by R&D engineers. While in the power engineering sector shortages are of senior and experienced engineers, the electronics sector has a lack of technicians, research technicians and suitably qualified field engineers.

One of the struggles the sector is facing is that the public sector has not been able to adequately direct its support to strategic areas, and as a result, the available public sector support is not as effective as it should be, as it is generic in nature. The major issue is that industry is not well organised enough to represent itself on domestic issues such as articulating its support requirements, or mobilising itself to shape government strategy for the sector.