Where is the IT Spend?

Lesley-Anne Dos Santos

The hot topic that people have been talking about since the beginning of 2009 is how the economic recession is not only impacting South African markets but also how the corporate market IT expenditure is being affected due to the downturn in the economy.

Many South African companies have been hit hard due to the current global financial meltdown. Due to economic pressures and uncertainty companies are looking for ways to reduce and contain costs. The downturn has had a mixed effect on corporate IT expenditure, as corporates need to spend on technology to improve operational efficiency but they are definitely sweating their IT assets. Hardware spend is currently declining while IT services spend remains resilient and is set to increase over the next few years.

BMI-TechKnowledge recently completed its SA ICT Converged End User Programme which provides an analysis of the South African enterprise IT and telecommunications customer trends, spending behaviour, ICT usage, size of the markets and growth forecasts to 2013. A major focus of the programme is to provide insightful information relating to the effect the economy is having on ICT spending including detailed breakdowns of hardware, software, services and telecommunications expenditure.

 2009 has seen South Africa’s economic growth move into a formal recession. Real gross domestic product (GDP) contracted at an annualised 6.4% quarter-on-quarter (q/q) in the first quarter of 2009, much worse than the previous quarter's -1.8% GDP growth, which was the country’s first contraction in ten years.

There are many factors influencing the IT spend in South Africa including the global recession, the 2010 FIFA World Cup, power outages and skills shortages. In the near term, spending on the South African infrastructure programme, as well as the 2010 FIFA World Cup and all its attendant benefits are drivers of growth which are unlikely to falter. Sporting events in 2009 are predicted to add R2 billion to the economy and boost South Africa’s tourism image.

The enterprise market consists of about 638,000 companies/organisations that are tax registered, about 22,860 contributing to the corporate sector of organisations that have more than 200 employees and the remaining 615,078 in the formal SME and midmarket sector which have from 2 to 200 employees. BMI-T estimates the total IT spend to be worth approximately R60.4 billion in 2008 with the majority of the spend coming from the corporate sector.

The enterprise IT market is forecasted to R81.2 billion in 2013, which amounts to a CAGR of 6.1%. BMI-T estimates the total Top 350 and corporate IT market (includes service, software and hardware spend) to be worth approximately R42.8 billion in 2008. The overall IT spend by customer segment and IT service category for 2008 is shown in the figure below. 

The following is an overview of what BMI-T expects to happen within the corporate IT market:

Many companies have already significantly cut IT spending, most likely as a response to the current economic climate and this trend is expected to continue in the short term.

• The outsourcing activity area is expected to continue to account for the largest portion of the total IT services market and also reflect the fastest growth rate over the five-year forecast period.

• IT expenditure will move increasingly towards a services-based model as software and hardware products become more commoditised and services provide the only means of differentiation for many vendors.
• Due to the declining cost of hardware, software expenditure, which is more stable in terms of pricing, will account for a greater portion of the IT spend.
• Consolidation in the South African IT market remains a factor and more consolidation can be expected in future.

The SA ICT Converged End User Programme not only covers an overview of the SME, midmarket and corporate telecommunications markets in South Africa but also focuses on the spending behaviour, usage and perceptions of customers in the IT and telecommunications environment. The suite consists of the following reports:

• SA Telecoms Corporate End User Customer Survey
• SA IT Corporate End User Customer Survey
• SA ICT SME and Midmarket End User Customer Survey
• SA Corporate Telecoms Market Sizing and Forecast
• SA Corporate IT Market Sizing and Forecast
• SA SME and Midmarket ICT Market Sizing and Forecast