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Double negative

Is the outlook for IT spending bleak or rosy?

Read time 5min 30sec

You know how it is with CEOs. One day they're all cuddly and loveable, bedding down on the streets in a display of bonhomie and unity as part of a radio station charity drive; next, they're delivering a damning vote of no confidence on the local economy and casting around for somewhere else to spend their cash.

Talent is hard to find and can become expensive over time, especially for smaller businesses.

Melissa Gangen, Digital Planet

At least, that's how it might look from the trenches. No sooner had the pavement cooled on the Big CEO Sleepout - a controversial awareness-raising evening in which business leaders sleep on the streets - than market analyists from Mercantec released news that its quarterly CEO Confidence Index had hit an all-time low.

The index, which was started in 2009 and is based on a survey of 1 000 CEOs, peaked in Q1 2012 and has been in more or less steady decline since then: there was massive labour unrest in the mining sector culminating in the Marikana Massacre. A neutral score is considered to be 50 points - it currently stands at 42.2 points, meaning most CEOs are pessimistic on growth and trading conditions in the near future.

According to Mduduzi Godlo, who authored the report, the biggest drop in confidence comes from the mining industry, which is struggling with low commodity prices, unresolved labour issues and problems with power generation.

Eskom's woes and the plummeting rand are also affecting consumer services, Godlo says, but bosses in the IT industry are feeling bleak, too. Here, he says, confidence levels have fallen 12 percent, 'because of general economic decline, and the fact that IT firms are not anticipating big upgrades and spending in the future'.

No big upgrades anticipated? Imagine those words spoken just weeks after a major new release of Microsoft's Windows operating system at any time in the past. How times have changed.

Head, nail?

Godlo's assessment has the ring of truth. In April 2015, Intel cut capital spending ahead of an anticipated downturn in sales, and in September, IDC reported that shipments of new PCs to African countries declined by a massive 26.7 percent year-on-year in the second quarter, after an already dramatic slump of 11.8 percent in Q1. Kenya was hit hardest, with fewer than half as many PCs shipped in Q2 2015 as Q1 2015, but even South Africa couldn't escape a heavy hit, with a 12.8-percent decline.

What do CEOs know anyway?

It always pays to take what CEOs say with a grain of salt whenever their thoughts are recorded as part of the herd - and South African executives are notoriously fast to declare that the sky is falling. Hence the widely used, but completely discredited figures from the annual World Economic Forum report on Global Competitiveness, which consistently ranks South Africa as having the worst maths and science education in the world. The latest report was published in September 2015.
This report wasn't based on anything like real research, rather on the opinions of 'business leaders'. What it told us is that some South African businesses are pessimistic about educational standards, but little else. That hasn't stopped the report from being regularly quoted in news articles and by opposition politicians every time it is updated, of course.
That report, however, uses the same methodology to suggest that South Africa is climbing up the ranks for overall global competiveness, largely due to improvements in broadband infrastructure.

Those falls can't be explained away by the post-PC era either. Tablet sales were flat in the region too, according to another IDC report.

So is South African IT spending in the doldrums, and if so, is it held back by localised issues that threaten our international competitiveness? Possibly not.

Speaking at the recent Gartner Symposium/ITExpo in Cape Town, business and technology analyst Mark Raskino told an audience that according to his firm's latest figures, CEOs internationally are bullish about digital growth.

"It doesn't matter what business you're in, digital will be included in your business in the future," Raskino said. "Companies should request CEO involvement - especially in digital. Business leaders now understand that the future of companies is dependent on tech progress and they need the whole group to get used to the change."

The Internet of Things, wearables, automation: all these are opportunities that the smart CEO is encouraging their CIO to investigate and invest in overseas, to the extent that CEOs in Europe and the US expect digital revenues to double by 2019 and most expect to increase their investment in the area this year.

Opportunities

There are signs that South Africa is on trend despite the overall outlook. Because while device sales are down, there is a focus on digital spend in other areas.

A separate IDC report published recently revealed that the South African server market expanded by a massive 24 percent year-on-year in revenue terms, thanks to big investments from banks and telcos in datacentre tech (notably non-Intel, though), with falling prices of x86 servers encouraging investment.

Illovo Sugar, which hit a six-year share price low in May following a drop in sugar prices and a tough harvest due to lack of rain, has just invested an undisclosed amount in new networking infrastructure from Alcatel-Lucent.

There are opportunities too. Nicholas Wallander, co-founder of online retailer SA Florist, says South Africa's combination of low operational costs - thanks to the cheap rand - and a small, but relatively mature online audience make local companies very attractive to international investors looking to trial new IT ideas.

"SA Florist received R3.6 million from a Silicon-Valley-led VC consortium, all of which is being spent in South Africa," Wallander says. "We're creating MarketPlace technology that is laser-focused on the mature IOT shopper. It's a great market if you're looking for proof of concept with limited exposure, should things not go exactly according to plan. I believe that SA is a great incubator for businesses that have plans to scale and export technology."

One concern that many e-commerce companies are highlighting, however successful they are, is the lack of skilled developers. At Digital Planet, which provides the shopping platform, fulfi lment and customer service for retailers like FNB and The Gadget Shop, one of the largest investments is not in new technology, but in training and development. It's a strategy that helped to fill a recruitment gap and improve internal focus and innovation.

"We encourage all businesses to invest as much as they can in both internal and external training programmes," says Digital Planet's HR director Melissa Gangen. "Talent is hard to find and can become expensive over time, especially for smaller businesses, but the benefits of the right natural talent, coupled with a constant learning culture will outweigh the initial investment. A highly skilled workforce will always increase productivity of the business as a whole."

This article was first published in Brainstorm magazine. Click here to read the complete article at the Brainstorm website.

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